Flopped Rally

I didn’t trade today because I wanted to be patient and not be lured into inverse ETFs, due to my belief this market is shit. Lo and behold, what I feared happened most. This market absolutely shit itself and is now teetering on the verge of collapse. We had a 1.5% gain in the Russell and that’s all gone. The NASDAQ is holding onto minor gains, but well off its higher. The VIX index was hammered this morning and has soared from the open.

This is a very typical bear market tape, trying to trick and fool the proles into stealing their shares or worse bankrupting them. I’d like to warn you that this sort of pin action can lead to precipitous drops; anti climatic wash outs are always the most dispiriting.

However, maybe it’s not all bad and maybe I shouldn’t be so doom and gloom as I am prone to do. After all, markets are still up a little and $SHOP posted great numbers and America is still the gayest nation in the world, rainbow flags everywhere.

All sectors are in fact RED, fucked face, save utilities.

That was terrible pin action towards the end of the session. I traded well all day, successfully milking the market for 1 to 2% scalps throughout an otherwise stable session. And then after 3pm things started to roll over and then there were some Iranian rumors and we folded hard into 4pm.

My sense is that the recent selling didn’t occur in a vacuum. I do not believe the crisis is over and we will see if the NIKKEI confirms my theory tonight.

I took out a massive 17% $TZA position after 3:30 to hedge against potential upheaval, which still leaves me net long but greatly reduces the beta of my portfolio. The best you can do in situations like this is tactical trading to supress losses and hope to not fuck things up too bad.

Based on data inside Stocklabs, the best time to own $SQQQ is on Thursday, going back to April.

Here is the breakdown of its returns.

I see after the close $ABNB shit the bed and I, unfortunately, am long. It’s only a 2.5% position but a move like this, now off by 13%, still provides a dent into my forehead and there is nothing I can do about it but wait. Some of these stocks will undergo bumps during their growth phase. I have seen many an $AMZN call go wrong and the stock collapse on its way to 10,000% returns. For some of the more established companies like $ABNB, if you like it these dips are opportunities to add for long term holds.

Is the crisis over? There was a bit of a scare early on but soon after Harris chose Walz as her VP markets took off. Maybe it’s a coincidence but we did see markets soar following the news of Walz on the VP ticket. Now we have a rally and at the same time waiting for war in the Middle East to bust out. Typically, when you get a panic in the VIX like we just did, the crisis does not resolve a day or two. It usually takes weeks to several months to get through the fear.

Market breadth is at 73%; but in the larger scheme of things this bounce (NASDAQ +360) is small. I will tell you what I mean via my High Beta index returns the past few days:

Even after today’s bounce, we are still down ~13% since 7/29, clearly not out of raw weeds yet. Today’s 4.5% lift in the $SMH is nice, but we are still down 10% for the index this month.

Enjoy the rally but keep vigilant.

Last night the NIKKEI soared by 10%, all but erasing the prior days crash. That’s retarded. The Yen was a little weak but now it’s basically flat. NASDAQ FUTS had been +370, yet the NASDAQ and the Russell are both down now.

European markets are also down and there is a heavy feeling of regret in the air.

Even still, I tepidly believe, maybe, we might rally today. It’s a very weak conviction and my heart and soul is really with the bears; but perhaps we might rally.

I’ll give it a few hours to materialize and if not reapply some hedges.

I hopped onto several wirehouse conference calls today, read a shit load of research reports, listened to Bloomberg and CNBC all day and the overall consensus amongst the financial elite is they haven’t the slightest idea what the fuck is going on. It was something to behold, the highest paid bankers unable to tell you how large the yen carry trade was and if it was going to wreak havoc for an extended period of time. The best answers were the obvious one: markets generally trade up and the economy is good, backward looking. And also the yen is simply normalizing to a more traditional level, suggestive that we might move lower to perhaps the 135 level.

Because of my professionality, I was entirely covered during the trap and only shed 29bps, managed several successful day trades, added to down positions, and took a hedge into tomorrow but slightly smaller than the one I took on Friday. It’s important that you understand that marks to not iShape collapse lower forever and bounces, even in the worst markets, can and will be severe.

It would not surprise me to see the BOJ attempt to rig markets and/or markets soar at the open tomorrow, only to barrel lower in fastidious fashion, racking all of the complacent with heavy tax losses.

This has to be the most subtle and subdued market calamity of all time, with most investors unmoored by the calamitous action, totally confident in the idea of an effervescent market to spring back toward and ingratiate them with milk and honey. The landscape is indeed acrid and Iranian missiles are soon to be airborne and all of your retarded friends will be washed for good, so think about that before you overzealously declare this crisis has ended, after only dropping in some areas a mere 30%.

In spite of the record spike in the VIX index, Wall Street analysts are extremely sanguine about this rout, more or less dismissing it as bullshit. I have a problem accepting this given the massive panic in the derivatives markets and Yen carry trade unravel. After doing a lot of reading today, listening to some analyst conference calls, and digesting all US media about the markets, I have concluded they know very little about what is happening in Japan.

The previous times the VIX index rose by 25% in a single day:

2/27/07
2/5/18
10/24/08
8/8/11
3/12/20
2/27/20
3/9/20
10/13/89

What do you notice about all of those occasions?

In 2007, markets responded to a 9% drop in China, due to the “Shanghai Sneeze”, with wanton concern about capital flight. In addition, FOMC Chair Greenspan warned about a recession.

In 2011, and I remember this vividly from a hotel room in Turks and Caicos, markets collapsed due to Greek bank failures and the European sovereign debt crisis. The gist of it was, Germany didn’t want to hand over their money to weaker European banks and it took a long time for Germans to cede their independence to the ECB and absorb the losses of Greece, France, Portugal and Spain.

In 1989, markets underwent a ‘mini crash’ flowing the collapse of. $6.7b leveraged buyout deal for UAL, causing Wall Street to ponder about their retarded foray into junk bonds.

And in 2018, markets dropped over inflation concerns and rate hike fears. Remember this was during the ZIRP era and we always panicked over the idea the party could end.

The other spikes were paired with the either the financial crisis or the COVID lockdown panic.

Here was the $SPY price action during those covid spikes.

3/9/20 and 3/12/20

Each time we bounced and collapsed again.

Are you brave enough to enter Asian trade raw dogged without hedges or will you hedge and potentially miss out on a massive rally tomorrow?

It’s very tempting to cover my hedges and ride the way, just like it’s temping to sell my fucking longs. I am more or less frozen until I can figure out what to do, 20% weighted $SQQQ and the rest long. Even though I am hedged, I am still down 1.2% because things are blowing out way more than normal beta would indicate.

To recap: we have a problem with the Japanese markets, whereby their currency is rising rapidly and this is causing the very popular and successful yen carry trade to conclude. Bear in mind, the BOJ is likely booking extreme profits but those gains are quickly dissipating as American stocks get hit. Early this morning we are hearing a chorus of people beg the Fed to cut rates. Jeremy Siegel wants an emergency 75bps cut; but that would only serve to further strengthen the yen, wouldn’t it?

We also are faced with the specter of the Straits of Hormuz closing, which constitutes 20% of all global oil traffic, if a war with Iran materializes. What that might look like is stagflation, circa 1973 and 74, and it’s going to suck.

Multiple trading platforms are having difficulty remaining online due to traffic and this might cause another leg lower in stocks, once people are able to access their money.

During panics people act irrational. I am sure many of the stocks down today will rise again and the market isn’t going down forever. But this morning bounce feels a little too easy and nothing is easy, especially market crashes.

The VIX hit $60 this morning, which is the COVID era highs. Dare I say this situation we are in now is nothing even remotely as bad as when the global economy was shutting down, yet here were are at panic levels that are on par.

Be careful out there and try not to get tricked and fooled into risky trades.

Ladies and Gents it happens to be over. I’d like to elucidate as to why this is happening but providing you with information is like throwing it away. Information is for closers only.

Find solace in the finality of this crash, promoted by the wanton degeneracy of the American banking cabal. Have a look at the USD/JPY cross and bear witness to the repatriation of Japanese money back to Japan, as the Yen carry un fucking ravels with great alacrity.

NASDAQ futs are off by another 450 and the $SMH is lower by 4.5% in 24hr trade. Stocks like $HOOD are indicating lower by 9%. It most certainly is scary out there and I suspect we might capitulate LIMIT DOWN at the open, amidst the firings of missiles from Tehran to Tel Aviv and right back to Tehran from Tel Aviv.

The US 10yr is strong again with yields sinking to 3.75%, while oil is unchanged.

Asian markets have met their makers, with the KOSPI shredded by 4.3%. VIX futures are up another 12%.

We have a crisis brewing and the first leg of the crisis has begun in earnest. While it’s true these sort of quick routs often lead to quick bounces, there could be something more deleterious about the plumbing involved in this giant fucking Ponzi scam being operated by the FOMC and the BOJ. I will be hard pressed to cover my NASDAQ shorts at the open for fear we might crash through the fucking floor boards.

At the very minimum, markets are interesting again and these sort of disconnections almost always lead to great buying opps.

After the market closed yesterday there was a tremendous block trade that got many people to believe a big holder in Apple is actively raising cash. It turns out that seller was Warren Buffett, bailing on 50% of his $AAPL position to a paltry $85b. It’s also worth noting Berkshire’s cash position is now $277b.

To be honest I don’t think it’s really a big deal but markets tend to exaggerate these sort of events during times of rout. We are being routed and in a squall and very soon LIMIT DOWNS will happen and apparitions of former bear market participants will appear at your transom to instill fear into you, lest you’ll be eating parsnips for the duration of your lives.

Warren Buffett is 93 years old and even back when I got into the business back in the 90s we thought he was old and somewhat retarded. Sure he rode $KO from its IPO to the moon; but that doesn’t mean he knows the first thing about tech. That slight on olde Warren is a classic trope against old rich people, most likely a cope of some sort. What we should be looking at is the Bank of Japan if they’re going to allow their garbage Yen appreciate like this.

You should remember that your job as long term investors is to ride these routs out and not think about them too often. On a long enough timeline all of these stocks will be back to record highs, in spite of what all of the lunatics who’re predicting catastrophic declines in the dollar and stocks. The dollar is weakening because the economy warrants rate cuts and the market is merely pricing that in. The expectation is for a weak economy, soon to be saved by the Fed. This is largely exaggerated and once people understand the sky isn’t falling, shit will go up again.

If saddled with positions: make sure they are of good quality. Keep a cash reserve and use that to hedge and day trade, carefully taking quick profits to reduce drawdowns. BUT, and this is an important one, try to make sure your hedges DECREASE in size as the sell off deepens, because nothing can be worse than first getting fucked on the way down and then missing the rally back on the way up. DO NOT MISS THE FUCKING RALLY.

Today’s 50% spike in the VIX to 50% is especially curious because these standard deviation blowouts typically occur when paired with news. If you look at the market, and not just $NVDA, and see where the carnage has been focused, it would suggest recession.

OR, an alternative theory: The Bank of Japan is blowing up in their Yen carry trade.

The mechanics of the carry trade is to borrow in yen and then buy US treasuries. This trade is dependent upon the yen remaining weak or at least flat. Should the yen continue to trade up, then we have a scenario where the BOJ will either be forced to sell treasuries or cut rates in order to weaken the yen.

Whether you’re bearish or bullish, the recent price action has been excessive, conducive with previous mean reversion moves higher. You don’t get 30% moves lower in names like $DELL, $ARM, $MU, $AMD and $LRCX without a reason. There is a reason why this is happening and it’s not pricing in a war with Iran, given the weakness in WTI. The only logical conclusion to the spike in the VIX and total collapse of the market is the notion we are heading into recession, supported by the fact we are now pricing in multiple rate cuts.

I’ve seen markets panic like this many times, but very rarely do you see it happen with the mega spike in VIX. That’s all I’ll say about that.

How I am positioned:

I had a portfolio 90% long and was using the cash to trade/hedge. I did not sell anything but did initiate a 17% position in $SQQQ because this sort of action almost demands caution.