Almost 6 months ago, because of what we saw emanating from central banks, we thought there was a chance of a market melt-up regardless of the pandemic, regardless of the upcoming election, regardless of anything. We just thought that 0% rates, negative rates and the massive printing of money would lead to our exact quote that we wrote to you and uttered several thousand times on our radio show:
“In the late innings, the froth and speculation will make 1999 look like a piker as trillions of conjured up money gets into the system and into the greed and leverage that builds up because of it. We just don’t know yet in what form!”
Of course, as explained, the problem with manias that form in the late innings, is that they end in disaster for markets. Extreme greed goes coast to coast to extreme fear as the recognition that the tide has really turned takes over. The leverage that exploded during the bull phase has to come off first before real dollars get sold off. This turns normal bearish phases into something much worse.
We do not think we are there yet but at the very least, we have hit a good short-term momentum high in the average stock. We started talking about it this past Tuesday when a bunch of names started breaking down while the indices did not budge. The subsequent days saw more and more names and more and more sectors top for now, leading to the indices finally buckling. We are also less than thrilled that some great earnings noise still resulted in sell-offs in important names like APPLE, FACEBOOK, MICROSOFT and a bunch of FINANCIALS. Remember, it’s not the news, it’s how things react to the news. Again, we are not sure yet if this is major or just the start of a darn good correction that was way overdue. We will know as more cards come out of the deck but for now, a little defense is not a bad thing.
And the froth and speculation…SOME OF THE FROTH AND SPECULATION WE ARE SEEING IS NOW INDEED MAKING 1999 INTO A PIKER. We thought it was bad when Wall Street foisted upon an unwary public a bunch of ridiculously over-priced IPOs. Many have NO SALES. We thought it was bad when SPAC after SPAC was coming out merging with companies that were just started up in the previous months with most all selling the same products. We thought it was bad when leverage (margin) had skyrocketed in unprecedented fashion over the past few months. But what we have seen in this recent short squeeze is indeed unprecedented. We have never seen moves like this before. We have never seen moves like this before in such a short period of time. But the reactions? The commentary? The politicians? WHAT A LOAD! WHAT A BIG GIGANTIC LOAD!
THE usual suspects have come out calling markets rigged and that we must tax the hell out of the markets, investors and traders. Warren, Sanders, AOC and the rest of these jokes have never seen a tax cut they did like and have never seen a tax hike they didn’t like. Self-proclaimed capitalist Warren is especially precious as she sounds like every Marxist that has destroyed wealth by trying to crush wealth by trying to convince the masses all wealth is crooked. They got it all wrong. It is not Wall Street that has rigged markets. Who got it right? My good buddy Charles Gasparino from Fox Business who was not afraid to come out and rip the central banks for enabling all this. Yes…this has all been enabled by Powell, Yellen and the original Mr. Bubble himself, Mr. Bernanke. But Powell has made his two predecessors look like Paul Volcker. We cannot fathom what he has been doing, how much has has been doing and what he will continue to do…and that is enable massive debt, massive deficits and for the markets, massive leverage. We watched his presser this past week with mouth agape as he shrugged off any responsibility for his 0% rates, the $7 trillion+ of printed money ($20 trillion+ around the globe) and the $125 billion/month of printing continuing matched by the lemming at the ECB. This leverage feeds on itself creating greed, more greed and even more greed until the leverage finally bites. Price discovery has been destroyed. Junk bond yields are at their lowest ever even though their debt is at their highest ever. Savers are getting the big middle finger. Every asset price, every data point, every statistic is based off of this monumental, gargantuan easy money. Why do you think it keeps going and keeps increasing? He and they have no choice.
Put them all in jail! Yup…heard that quite a few times. With no facts, no evidence, no nothing…a bunch of people with a political agenda, bias and ulterior motive couldn’t shut their mouths. Just throw them in jail. Who gives a crap about whether someone or some entity did nothing wrong? Just throw them in jail.
The short sellers! No one has any sympathy for them. They are portrayed as criminals, crooks, cheaters, liars and every under name in the book. We will just state our 5 rules of shorting again! 1) Never short a stock that already has a massive short in it. 2) Never short a stock that already has a massive short in it. 3) Never short a stock that already has a massive short in it. 4) Never short a stock that already has a massive short in it. 5) Never short a stock that already has a massive short in it. But we have to add something else! Normally, we would ask “where was the risk management?” There couldn’t have been risk management because of how much and how levered the shorts were. You saw the outcome of just a bit of covering.
Robin Hood! A big fat duh! We may find out chicanery was going on but we have news for you. The past 6 days of volume on just Gamestop…197 million, 177, 178, 93, 58, 50. The past 3 days volume lighter because prices were much higher. The swings were all over the map. The risk to capital is enormous. People that went 100% margin long near highs lost all and more intraday. Again, we will find out if there was chicanery but the company had to perform some risk management.Volume on many other names were also gargantuan.
They now think they can’t lose. Yup…didn’t you know? “We are not selling!” We read that one! “Gamestop is going to $10,000…maybe $50,000.” We heard that one. There is actually a move afoot to get all these “up and comers” to just not sell their Gamestop stock that was $20 two weeks ago. Articles are now being written with the title “A Mother’s lesson, a 10-Year-Olds Windfall!” Does anyone even remember “Real Estate Riches” front cover in 2007? We have news for all these people that believe this is going to last for a good long time. IF THEY HOLD TOO LONG, THEY ARE GOING TO LOSE THEIR —. WHEN THE MUSIC STOPS, MOST ALL IF NOT ALL THESE NAMES ARE GOING BACK WHERE THEY CAME FROM! Eventually, valuation will matter. Eventually, this latest bubble, this latest mania will wear off. We do not know when eventually is. We do not know what target they have in their sights next. We do not know how high things go. We just know DO NOT BE THE LAST ONE IN AND IF YOU ARE, YOU HAD BETTER BE A TRADER!
THE AIRPORT! Coming back from the northeast before the storm hits, we had quite a few come up to us at the airport. All wanted to talk about one thing. All had the same thought process. Nothing could go wrong. On the airplane, one man could not shut up as he held court with a few people explaining “the new paradigm” and a whole new world where the people run the markets, not the hedge funds, not the mutual funds but the 100 share buyer! Yeah! Sure!
WE END WITH OUR BIGGEST WORRY AND QUITE A LOGICAL WORRY…
IF LEVERAGED, ONE-SIDED SHORT TRADES CREATED SUCH A MONSTROUS SHORT SQUEEZE TO THE UPSIDE, WHAT HAPPENS IF THE ONE-SIDED TRADE ON THE LONG SIDE, CREATED AND ENABLED BY CENTRAL BANKS THAT HAS BEEN BUILDING UP OVER MANY YEARS AND IS A MILLION TIMES LARGER THAN THE SHORT SIDE GETS IN TROUBLE?