Newsletter - 10/22/2023
Tick tock.
Am I the only one who feels like a countdown timer is tick-tocking away? The difference this time is that there seem to be multiple issues that time is counting down against.
I can honestly say that I have not ever seen so MANY different flashpoints occurring at the same time. As I have been saying for months: it's just a matter of time before something breaks.
The Week in Review
I said last week that the war in the Middle East would not affect the US economy. I stand by that statement. In fact, an expansion of the war in the Middle East, which is becoming more and more likely unfortunately, would probably help the US economy, depending on which countries join the fray. I am thinking specifically of Iraq.
Reports as I write this are that a civil war is starting in Iraq. Well, let's be clear - there has always been a "war" between the two main religious groups and with one backed by Iran and the other, well on its own, its easy to see why Iraq would be a natural additional theater for the world's powers. Not because of the groups involved but because of what Iraq presents: an unstable country sitting on vast amounts of oil. It's what the two previous Iraq wars were about and with Israel in conflict, a war in Iraq won't even make the front page. Make no mistake, if the opportunity presents itself, the US will find a reason to intervene in Iraq. Sad but true.
The Coming Expansion:
Unfortunately, it appears as though there is a high chance that the conflict will spread beyoind Gaza and into neighboring regions.
Depending on the reporting, the US now has 3-4 carrier groups in place and/or enroute to the Middle East. Certainly some of this is to project power and give Iran, Hezbollah, China and Russia a second thought about making matters worse - but the US does not typically deploy more than 2 carrier groups unless it expects to have to deal with multiple "enemies" at the same time. If and when the war expands to Lebanon, Syria, Yemen or one of the
other second tier countries, I don't believe that it would crash the market. If, however, war were to expand to Iran, Egypt, Jordan or Saudi Arabia - that would crash the market. Also, if the US were to put "boots on ground" that would also crash the market.
As I stated previously, I am not going to go into the geopolitical ramifications that an expansion would be based on or bring - that's not my job here. I WILL continue to point out what I think are valid datapoints that could affect the markets and our investments.
Events of note last week:
Where to start since there were so many significant things that occurred last week.
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The VIX: the fact that the VIX closed above 20 was a big deal to the markets. This just shows you how unrealistic the participants are regarding risk. A VIX at 20 is nothing. A VIX at 25 is nothing. A VIX above 30 will get my attention. Market participants have been spoiled by the low risk environment that really has been going on since the GFC. That's what happens when the Fed "backstops" banks - risk evaporates and creates "moral hazard." What's worse is that the majority of retail investors have no idea what it "feels" like to experience a limit down day. They will, shortly.
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Treasury and bond yields: Yields continue to push the upper limits and I continue to monitor the 10 year and the 30 year. When the 10 year pushes above 5%, I believe the markets will immediately experience a violent downturn. But I believe that will only be the beginning. Oddly, if the 10 year moves and stays above 5% then that makes a Fed CUT more likely as the psychological effect on the markets will be severe.
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Dollar Strength: The Dollar's continued strength is crushing other currencies, and that's bad for them. Typically, if a country's currency weakens, it makes their exports cheaper and therefore is a boost to their economy. However, when the depreciation is abrupt, it can cause "capital flight" from that country as investors seek higher returns elsewhere. In order to combat this, the country will either need to strengthen their currency or raise the rate they are paying investors for their sovereign debt. Sounds like a country we have been monitoring, yes?
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Japan: The Yen continues to compress against the 150 level, the line in the rice that the Japanese Central Bank said would be unacceptable. In fact, last week alone the JCB conducted two, maybe even three, interventions in the currency markets in order to prop up the Yen against the dollar.
Remember that if Japan is unable to combat the Yen's decline against the dollar, and they only have a finite amount of capital to do so, then there is the very real possibility that they start dumping US debt.
That would cause US yields to rise even more and we could then enter a currency/yield spiral.
Also, the Japanese have stated that they will NOT allow their 10 year rate to go above 1.0%. It is currently at .85% after the JCB monkeyhammered it down last week.
Remember what I said would start a crash: someone deciding that it's time to look out for themselves. Japan is already doing so and I believe, it will only get worse.
The end result will be upward pressure on US yields which is bad for the stock market.
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Tech Wreck: FinTwit was all atwitter (see what I did there) about the Nasdaq breaking down. News flash - it hasn't yet. However, make note of how investors are freaking out over a 5% move to the downside. They haven't seen anything yet.
What really got my attention were Elon Musk's comments that he felt that Tesla's valuation was not sustainable. I have to say that it is refreshing to see a CEO be brutally honest. Of course, my response to that is "No shit Sherlock!" I find it interesting that after he said that, the market applied that statement to TSLA only - what a freaking bunch of morons. The entire tech sector is overvalued by any traditional metric. It shows me just how unrealistic investors, professional and retail, are currently thinking. Again, the down move will accelerate once the market is woken up from its stimulus induced stupor as expectations are painfully reset.
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The Swamp: The clowns in DC were largely ignored last week but I suspect that they will also return to the spotlight the closer we get to November 17 - when the temporary funding runs out. The failure of the Rep party to elect a speaker (three attempts!!) means that there can be no Continuuing Resolution passed as a stopgap
funding measure.
Normally this would mean ABSOLUTELY NOTHING but because of the curious confluence of events, no budget means no money for WAR. And there is no way the Unitards, I mean the Uniparty is going to let that happen.
Therefore, there is a high probability that the market will get some "good" news and the Republicans will elect a Speaker or empower the current idiot with the powers of the Speaker and delay the circus until January because, well, they can't let a good war or wars go to waste. Expect the market to bounce from this news.
Finally, the fact that I didn't discuss Jay Powell's speech is for two reasons:
1. He honestly doesn't know what he is doing right now. That was apparant by his comment about "perhaps doing too much during Covid."
2. The Fed has lost enough control to "other" issues such as war and Japan - they are more of firemen now than anything else. The market will still react to whatever nonsense comes out of his mouth but it will be short-lived because of the overwhelming amount of issues in play.
SPY Commentary
Last week AND the week before I said this: "The SPY has found support at the 420 level. And it has overhead resistance at 430. Those are the two levels to watch."
Guess what - its the same this week.
So what's changed? The tenor of the market seems to be shifting. All of a sudden I see more worry on FinTwit all the while the MSM was trotting out the usual idiots to say the bottom is in. Even more stupid was the call for 6000 on the SPX. This year.
How bad could it get?:
I was asked this question and my answer stunned the person who posed it. Mr. Mexico followed up asking me if was normally a pessismist, in so many words, to which I replied that no, I am usually very optimistic.
So, how bad could it get? Very bad. Like people losing their houses bad. Massive unemployment bad. Soup lines for the middle class bad.
Why am I so pessimistic? Because the cancer that caused the GFC was bad debt for homes. But that was it.
We didn't have rising inflation.
We didn't have higher interest rates.
We didn't have multiple wars.
We didn't have people with $1000 per month car payments.
We didn't have $1000 per month auto insurance.
We didn't have Japan refocusing on their own house.
We didn't have a President that does not project power and being in control.
We didn't have a Fed that already had paid out multiple stimulus payments.
We didn't have a commercial real estate market that was collapsing.
We didn't have smaller regional banks in trouble.
Will it happen? I don't know but I do not see anyway for the US and the world to save itself from a global massive stimulus. While that will be great for risk assets it won't be so great for inflation - you know the thing that affects the stuff we need like food, electricity, etc.
And what events do I see as possible outlier events? Events that are so terrible that its hard for me to even wrap my mind around them?
A terrorist attack or attacks on US soil.
A country deciding to go "all-in" and using a nuclear weapon.
Confiscation of gold and precious metals.
Martial law.
Look, I pray to God that none of these happen but unfortuantely, they are what I see as possibiities when 6 months ago, they didn't even cross my mind.
We are in a perfect storm of bad times.
So what's the plan, Boss?:
My plan is very simple: to make as much money as possible. I mean, it's being devalued daily but the only way to get through this, absent one's faith, is to have enough money to get through it.
I have never felt the combination of feeling helpless and prepared as I do today.
My goal is to do what I do no matter what all the experts are saying. Because that is what helped my prosper during the past events, and no doubt, today is much much worse thatn I have ever been through:
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Tech collapse
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LTCM collapse
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Asian crisis
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September 11
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Great Financial Collapse
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Covid
Believe it or not, my clients and I did well during these times. Emotionally it was exhausting but the results were so rewarding.
I did not have one client that had to sell their house. Not one closed their business. Not one filed for bankruptcy. Sure, we all had to tighten our belts but no one was brought to a level from which they had to recover from.
Annnnd specifically??:
Ok, so thats all well and good Boss, but what opportunities do you see right now?
While everyone is watching Tech I am watching something else.
Care to guess what it is?
It's not oil - although I do plan on trading that.
It's not the long bond - although I do plan on putting on a TLT trade, eventually.
It's small caps. Companies that can neither afford delays or tight credit or declinging share prices. They are going to get crucified.
First up is Enovix. I don't care if they surprise and announce a large customer. My experience tells me that they are not going to hit their timelines and that they are going to get punished. So that's first on the list to short (VIPs and Traders already have the plan).
Next, it will be by getting short a small cap ETF.
Remember, small caps are synonymous with "story" stocks. They sell on hype. And as long as their share price stays up, capital markets remain open to them. Well, we are in an environment where capital markets are pretty much closed. Can you imagine any bank or investment bank providing additional liquidty to a story stock? Me neither.
And the fact that retail LOVES story stocks only makes their shares go down more. Retail is liquidity and they are the last to sell. That means that share prices will stay up much longer than they should - which gives me time to short the living crap out of them.
While I am confidant with the short positions we already have, I cannot ignore the opportunity that is right before my eyes. I have done this before during the internet collapse of the early 2000s.
You can quote me on this: When the market rises, be in the strongest companies. But when the market falls, short the weakest companies. And there are none weaker than small caps. It's already begun with the entire Alt energy stocks but they are just the appetizer.
I am not going to try to find the shittiest companies - I am just going to short the entire cap sector.
WEEKLY HOW WALLSTREET SCREWS YOU:
This weeks episode is a "Two-fer". I will share with you another example of how you get screwed, but this time, it hasn't happened yet, but its coming.
It's like meth - feel good for a moment and then all your teeth fall out.
The Mother of all Quantitative Easings.
My prediction that it will begin sometime in the summer to late fall of 2024. It will absolutely inflate the stock market as well as other risk assets (hello bitcoin). But it will decimate our country for DECADES.
Simulus in its simplest form is a transfer of wealth - from YOU, to the government - and then finally to corporations. And we are going to get it like you have never seen it before. It will happen no matter who is President or what party is in control.
Above all ways that Wall Street screws you, stimulus is the King. And they get you both ways, sideways and in between.
You get screwed when the banks et al are able to gamble with no regard for consequences - THEY got richer - did you?
Then you get screwed again when YOU have to bail them out.
Then you get screwed again when they get a free pass and everything you own is worth less and everything you buy costs more.
It literally is the greatest, most vile way to make you and I POOR. Remember, WE didn't cause the mortgage crisis. We didn't take money as a bailout that was promised to be used as loans for small businesses (did you forget that?) and instead, gamble it in the markets, thereby making it even worse. And we didn't profit off of the financial and real deaths of humans.
But we will be the ones paying for it, again.
UPCOMING WEEK:
I will be watching the same things I was as last week: 10 year yields, the Japanese Yen. But I will also be watching the regional banks this week as they report earnings.
Also, I will be keeping an eye on the Middle East as it relates to the war morphing into a regional war, or worse.
I will be monitoring the dollar strength vs the Euro also because Europe is in a crapton trouble.
Watch your email for the Live Class Schedule. I will be conducting these weekly, as long as ONE person shows up.
Classes will be one hour long and initial topics will be:
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Options basics
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Basic charting
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Finding candidates to trade
Later this week I will also be doing a blog post detailing the correct way to identify a small cap stock candidate, and how to own them.
Paid Memberships:
Look, do or don't but if you want to LEARN how to do what I do, then a paid membership is the way to do it.
Also, I will be raising prices again at the end of the year, at the latest. Why? Because there are people out there who are paying at least $999 per month to scam artisits and morons - and I am neither.
What I do works. Period. And it can be taught.
Hanging out in chat will only get you so far. Especially since I will no longer be doing any one-on-ones with non-paid members. It's not fair to the paid members.
If you are serious about wanting to learn and profit long term, this is the way. I am not saying you can't make money without it - I am saying it will be quicker and more focused.
Sales pitch done.
From this:
To this:
CLOSING COMMENTS:
Sorry to be such a negative person this newsletter. But I write what I see.
Here's a nice picture to make you feel better:
Still working on the Merch but here's something to tide you over:
If you have any requests for tshirts or other, let me know and I will add it.
Don't forget the Discord live chat is STILL FREE but it will be closing to new members soon. In the meantime, come and join us - its the best community out there: Discord.
Thankyou Family!
theBoss
Nothing above is investment advice nor should it be construed as investment advice. It is offerred for entertainment purposes only. Always consult your advisors before investing any money. Do not "follow" or "mirror" any trade ideas provided. Mr.NotAdvice is not a licensed or registered investment advisor. Do your own research.