What Exactly is Going on Here?

I thought it was time to sit down and give a more comprehensive analysis of what this market is showing us.

Is this correction merely letting air out of the bag before another run or is this decline a foreshadowing of something more materially wrong with the economy? See these aren’t just stocks with morons trading them, but real companies with employees and when they plunge in value, efficient market theory states there is something to it and it will be revealed in the future. The obvious questions are: is the soft lockdowns and restrictions around the world causing growth to slow? I don’t see how any friction doesn’t cause growth to slow, although we have yet to see evidence of this.

My other question is: the exacerbated losses in smaller capped names, -15% the past month vs -1.3% for mega-tera caps, suggests widespread carnage in the retail sector. If this is so, are we now seeing the last leg down accompanied by forced liquidations (margin calls) or, again, is the market trying to tell us, aside from monopolies, the economy is about to tailspin lower?

Another thing that has raised an eyebrow for me was a Mizhuo report essentially shitting on SQ, PYPL and AFRM for their buy now pay later schemes. We all traded through the credit crisis. I cannot think of a more credit UNTRUSTWORTHY person than the impulse online shopper. Mizhuo says more than half of the poors (people making less than $75k) missed at least 1 payment. This is how Countrywide Financial imploded, slowly, and then all at once.

53% of the poors have missed 1 BNPL payment $AFRM
pic.twitter.com/lJVllsTNkc

— The_Real_Fly (@The_Real_Fly) December 14, 2021

Some out loud thoughts.

If credit is becoming impaired and if the economy is about to tumble lower, shouldn’t we be concerned with auto-loans, notorious SHIT LOANS, and some of these fucking housing loans that have fueled this retardo housing boom?

Just last quarter the imbeciles at Zillow wrote down $304 million thanks to their “AI” auto-buy racket that caused them to bleed the fuck out in housing and cause the CEO to fire 25% of the workforce. Perhaps a company like CVNA could be a similar comparison, using their “AI” to buy cars.

In many respects, the rapid inflation we’ve been seeing has masked some of the problems in the economy, because with higher prices companies are enjoying higher profits and much of these costs are just now being passed down to Joe Public at the grocery store and we can only raise the minimum wage so high.

Out of all the sectors in the market, the one I am fixed on most is Application Software aka SAAS. They have been the darlings of Wall Street, being able to accurately predict sales and FCF growth down to a science, hammering into Fortune 500 companies with sophisticated sales tactics to annihilate their internal IT budgets in exchange for increasing the outsourcing of it. They have been extraordinary successful and a testament to this success can be seen in SHIT SOFTWARE company Salesforce.com being added to the Dow 30, truly an astonishing success considering how dreadful the product is.

Two things to consider when looking at SAAS valuations.

1. Never been higher.
2. Stocks are leading to the downside.

We are deflating valuations.

App Software stocks are trading 7x price to sales on a median scale. If we consider 2022 estimates, that number shrinks to 5.6x. From 2017 to 2020, App software valuations ranged from 4 to 5.3x, suggesting the sector needs to correct another 25-30% from already depressed levels.  Out of all the SAAS names out there I consider HUBS to be the best large cap company, vital to the industry, but also small enough to represent opportunity for tangible growth. Sporting 35-40% predictable and genteel sales growth and positive FCF, you cannot say Hubspot is a bad company without being branded a fucking liar. The stock is down 15% the past week, yet still trading at 27x sales.

See the problem?

Hubs p/s valuation

If HUBS stock did nothing for 12 months, by next year after all of their sales were tallied, the PS ratio would be 20x, still substantially higher than traditional levels.

Application software stocks, as a whole, are lower by 17% over the past month.

I used to justify the higher valuations with platitudes, such as “well the market is paying up for quality.” Truth is, we are in a bubble. We are not only in a bubble, we are in a terrible bubble, supported wholly by central bank rigging. I say “rigging” because that’s exactly what it is.

Chicken little the sky is falling.

Since 2009, barring the 2020 Coronavirus interlude, betting on decline has been a losers bet. The 2020 drop was forecasted early with the drop in leveraged loans. These declines in the shit-tier loan portfolios helped me short stocks with ease during the 2020 drop.

Charts for HYG (high yield debt) and SRLN. Weak, but not notable.

People like to malign debt because, on occasion, it caused crisis. Truthfully, without financing to the moon, the world would never have advanced so fast technologically and we’d still be using CDs to hear our music. With $18t in corporate debt publicly traded, we have $7 trillion in cash. Back in 1993, we had $255b in debt and just $24b in cash, or 10% of debt. We are at 40% debt coverage in corporate America, not due to chance, but by innovation and massive value creation, funded using debt.

Pardon for that sidebar. On the issue of what the fuck is happening in stocks, I have no choice but to conclude, without seeing signs of credit weariness in banks and/or credit, this decline should be treated as a plebeian liquidation that will pass. I am open to suggestion and can change my mind with new information.

It was. a race to CRASH THE FUCKING CLOSE again and this time I was tricked into believing the great Big Titted Santa Claus rally was going to happen. I was lulled into the warmth of a hot mug of hot chocolate, happy and content to apply wanton amounts of risk. I stepped in fully long while +18bps and my gains quickly increased to +90bps. I was feeling quite successful and accomplished.

And then this shit happened.

I had to swallow my pride and change my plan, ditching many of my great stocks and in their stead 20% weight in TZA-UVXY to hedge. I closed exactly where I was before I started buying, up on the day and happy about that, but pissed the fuck off by all of these Greek curses and abhorrent tapes that causes me to feel violated when trading.

It didn’t have to be like this. But you fucking bastards had to vote for Hunter Biden’s dad.

We have a fucking vacuum here and the margin clerks will be out in force by 3pm. If forced by gunpoint to buy, look at some metals or just fucking wait until after 3:30pm.

I am still 100% cash, waiting in the tall grass.

The IWM is extending its losses for December to almost 2%. However thr damage is far more extensive in sectors like SAAS, off by 11% for December, or how about this?

The gagillion dollar questions are:

Is Fly up today and if so what does he think will happen next?

As a point in fact, I am up. Thanks for asking. I was hedged via TZA and UVXY, even has some NUE to elevate me to an austere +0.23%. While not much, it certainly does beat your horrendous losses.

At any rate, I sense you do the same thing today that I’ve been doing for months. Let’s buy stocks near session highs, maybe 2 really down stocks to add beta, and then hedge it with about 15% of assets in a leveraged ETF because that 15% is really x3 and offers good coverage.

Off to walk the fucking dogs.

Big fucking surprise. I closed +0.69%, 34% cash, hedged my longs with TZA-UVXY. I do the ETFs so I can sell them at 4am if needed. If I did options, I’d be subjected to market hours.

A dreadful tape, but do not expect the bottom to drop out. You should expect chop. We are in a furious circle jerk on the IWM since Feb. During the month of December, nothing happens.

We are down 0.96% on the IWM for December. We might spike tomorrow or perhaps the open is faded and we rally from there. Either way, my bet is for middling action of the very ominous nature. We are likely to heave over and give way in early 2022, so be ready to get net short and burn this fucker down to the ground.

Out of 5,465 stocks tracked inside Stocklabs, the average % from 52 week highs is -34%. If you’re uncomfy with averages due to outliers, even though with a data set as large as 5,465 it should not matter, the median return from 52 week highs is -27%.

So what the fuck is going on?

Total collapse is certainly a possibility, if only the damn bond market would follow suit. The whole market is lulled to sleep by the price action in about 10 stocks, a clever aesthetic thanks to BIG MONOPOLY IN BIG TECH to make it all look all right. But nothing is all right and Jim Biden’s retarded administration is only making things inexorably worse.

We are blessed with low rates and a technological advantage over our manufactured enemies that keeps the dollar as currency reserve and prevents us from full collapse. We can still panic, which would first be viewed in JNK, HYG and SRLN, although I doubt it. When we look the very worst is when we do the very best. Nevertheless, this is a piece of shit tape and you should expect it to get worse next year — followed up with a deterioration of the overall economy.

All booms end sometime. Given all of the backdrops, I don’t see why we should’ve recess next year.

Fuck this shit. I faded the open. Closed out my 15% weighted TZA position and now I’ll wait until late afternoon.

I’m up 77bps and do not feeeeeel like the market wants to be kind. Lots of arrows in the sky now I can barely see the sun.

100% cash.

By the way, I really hate Santa Claus and the modern ideal of Christmas, corralling plebs into stores to consume for fucked for faces. I sometimes wish I were a religious man, just to spite others. The idea of the highest holy day in all of Christendom being reduced to a fat piece of shit busting into your house to leave shit for you kids is infuriating. Is Santa gonna bring pizza for kids next?

On the topic os SANTAN CLAWS rallies, I believe this is the do or die week. We either rally or KRAMPUS presides. The entire lifeblood of risk, if being honest, is in cryptos. That is where the excitement has been, with ETH sporting +430% YTD gains. As you know, I have been a buyer of ETH every month for the past two years. I will begin to liquidate that position in early 2022 and throughout.

On the matter of Bitcoin, +71% for the year, harangued by overhead resistance and really a giant piece of shit for several months. It is my belief BTC has matured to the point that big dicked returns is behind it, succumbing to the law of large numbers because so many people are already long. Nevertheless, this appears to an a nice spot for BTC to extend its dick and really give it to the shorts. It was flagged oversold inside Stocklabs yesterday, for our long dated algorithm. At this point in the development of our crypto tools, I am not entirely sure our market timing algos work with cryptos too. Human psychology is the same, so they should. For 2022, I am committed to extending our services deeper into cryptos and also options.

Thanks to the monopolies in tech that overweight our indices, we have hit record highs — all thanks and praise to Apple computer. In the real world, the market is far more foreboding and losses have been stacked high amidst a body count of former traders mirroring what we saw in March of 2020.

Am I exaggerating?

I think not.

In many ways the market divergences is much like the haves and have nots of America, whereby a certain anointed area of the economy does well and all else fall by the wayside. But this doesn’t evoke an emotional response from me — because as a trader and an organism on earth, it is our duty to adapt and co-opt and control the narrative, otherwise natural selection has rendered you to be a worthless cog in the wheel of mankind.

The separate markets running both simultaneously and parallel to one another, where one endures pain and the other comfort, is typical and poetic. Do not bet on those enjoying comfort to be in pain any time soon — because they have control and all of the money and there is nothing you poor son of a bitches can do about it.

I blasted off in the morning for exactly 15 mins and then collapsed. All of my SAAS stocks went from +3% to down and my TZA position, well, I got lured out of it after the 10am bounce. I wanted to believe. I had ideas of something wonderful but alas now I’m in the dirt trying to claw myself out from a shallow grave, down 150bps.

This loss stings the most and now I find myself in a most retarded position, stuck in between convictions, hoping and praying for something wonderful but all I get is dirt.

We are being crucified for Christmas and the stars are aligned against us. If you’re hoping for a rally, that’s all it is. You’d be wise not to follow me now for I’m destined to twist and turn before I’m finally rewarded.

The best position is a light one and hedged. I’ll try to get there by days end.