09/21/2024 NewsLetter

Newsletter - 09/21/2024

Well Powell did not disappoint the market and delivered a 50bps cut causing the market to celebrate the future soft landing, rising employment, low inflation and easily accessible credit economy that we will all be enjoying in 2025 and beyond. What's that you say? The economy is NOT going to be like that in 2025? Well, if that's true then why DID the Fed lower interest rates? Since I adhere to Occam's Razor, which one of the following do you think is their justification:

The economy is strong (like Jay said) and cutting rates insures that just in case the economy is not strong the Fed will have acted proactively.
The economy is strong (like Jay said) and cutting rates helps the economy be stronger and it will not spark inflation.
The market being at all-time highs supports #1 and #2.
Jay decided his best chance of keeping his job is to support Kamala since Trump has already said he will not reappoint him.

If you chose anything but #4 then you need to go back and read every single one of my newsletters. There is little doubt in my mind that Jay was either told to cut or he decided to cut to support Kamala's chances. This is not conspiracy thinking here - think of what the other possible reasonable possibilities there are. There are none.

Since the market is bipolar it immediately switched from doom to everything is awesome AND there will be even MOAR interest rate cuts. THIS YEAR! But wait, there's more! Not only will the market get more cuts this year, they will get more next year also for a total amount of cuts of 200 bps. On top of that, not only did the economy not go into a recession even though one of the most trusted signals, the Sahm Rule, signaled it had, there is now little chance of a recession in the future!

You are been GASLIGHTED. Or is it GASLIT. Anyway, you are being told lies purposely. An amount of lies throughout so many parts of your life that you might start questioning yourself.

DON'T.

DON'T believe the lies that the Fed cut rates because everything is fine. Look around. Trust yourself.

DON'T believe the lies that the Fed has achieved a soft landing. It hasn't. And did it happen in 2 weeks?

DON'T believe the lies that the market is entering a new bull cycle. Trust yourself - blow off top?

First you are being gaslit that economy is "strong and solid."

Second you are being gaslit that the Fed cut because the economy is "strong and solid."

It's a double gaslight!

I am making a point of reminding you not to get caught up in the euphoria of the market and do not misinterpret the market rising for an all clear. It would be incorrect to do so. The market, IF it can get "legs" could start to spiral up where doubters are converted to FOMO'ers. Don't forget that if this happens there is nothing the Fed can do, outside of a preemptive stimulus package, to prevent what is coming. Obviously I am betting my reputation on it.

On the right is a representative example of what is going on in the consumer credit markets. Note the HONESTY as the CFO of Ally Bank listed why "credit challenges have intensified:"

high inflation
high cost of living
weakening employment picture

These are not issues that are going to be magically fixed by a 1/2 point interest rate cut. In fact, the actual effect of interest rate cuts are not even felt in the economy for 6 months (experts say 1 year but they're wrong).

Even more humorous, albeit in a gallows sort of way, is that mortgage rates went UP after Jay performed his magic! That is exactly the opposite of what is supposed to happen.

The amount of consumer credit going 90 days or late is particularly concerning because not only is it at early 2008 levels, it is happening when supposedly the economy is doing great!

SO YOUR BEARISH?

Nope. I mean yes. I am bearish long term. I have given plenty of support as to why. But I am also not blind to see what the Fed might have started; a blow off top. The trick? To TRADE the up move while not "believing" in the up move. You have to be able to trade the upside without getting caught up in the profits and the emotions. You have to be able to trade the upside while ready to switch bearish very quickly, from a portfolio perspective and emotionally. And you have to be able to NOT HAVE TO GET OUT AT THE TOP. The last sentence is the most important: the object is not to get ALL of the move but MUCH of the move.

SO YOUR BULLISH?

Nope. I mean yes. Cautiously. And only if the charts lead me to get long, in conjunction with the rest of my methodology. But I also want to be cognizant of any industries or sectors that could benefit from either an interest rate cut or in a blow off top type market when everything is rising.

I am not focused on interest rate sensitive industries because I think it will take too long. Instead, I am looking at what kind of stocks might do well. The easiest answer would be tech but I am concerned that $SMCI has still not filed their 10Q and not provided a reason as to why. Also, Tech is already near highs and to me, it's too easy of an answer. I believe that algorithms are going to look for "VALUE" gaps. What industries or sectors are "undervalued" relative to the TECH sector?

Or, since I believe there will be a value chase in the market, I have decided to focus on two of the most basic data points: price and P/E. There just happens to be a grouping of stocks that have both underperformed by price appreciation and by P/E: small cap stocks. Specifically, small cap value stocks. Why? I believe algos and managers are going to look for stocks that have "room" to appreciate as compared to the $SPX.

The chart at the right shows the

drastic underperformance of the

the other 490 stocks in the $SPX in

comparison to the top 10. It's almost

if there the market needs to find a

justification for an up move - since

it knows that there is no other

fundamental reason. Also, there is

still a lot of cash on the sidelines that

still needs to be coaxed into the

market and what better than the

smallest, riskiest stocks: Smallcaps.

Further supporting a valuation thesis

is the gap between the $SPX and

$SP600. Can the gap persist? Yes.

Will the gap close back to the mean

in the next three months? Doubtful.

But that doesn't mean, if a melt up

gets going, that small caps won't try.

How do I plan on trading if this plays

out? I will be using $VBR, the

Vanguard Small-Cap Value ETF and/or $IWN, the iShares Russell 2000 Value ETF. Options for both of them of course and I will be using the daily for an entry,

Additionally, I am looking at the $XBI for a breakout because it has underperformed the market and becuse it is a debt driven and therefore interest rate sensitive sector.

SOFT OR HARD LANDING?

While you know where I stand on the Fed achieving a "Soft Landing" I have been searching for metrics so that I can tell what kind of "landing" the Fed achieves (it's going to be a very hard landing). This is from a BofA strategist:

100% PROBABILITY

While you know where I stand on the Fed achieving a "Soft Landing" I have been searching for metrics so that I can tell what kind of "landing" the Fed achieves (it's going to be a very hard landing).

100%. That's the probability of a recession in the next 12 months. Are you going to take the other side of the that trade? Because if you think that the Fed can achieve a soft landing than that is EXACTLY the trade you are making. So what are you going to do?

THE NEXT $SVB?

After something like the collapse of Silicon Valley Bank happens investors always go looking for the "next one." But that search ends quickly when an easy trade doesn't develop. When a quick trade doesn't develop. Then it happens again with New York Community Bank. And investors do their snipe hunt and move on.

People like me though are constantly reading, taking notes of possible ideas to remind me when I see something that might be tradeable. I am not a banking expert. We have one: @Mr.White is a banking expert and a good guy. in fact, I share some of his insight later in this newsletter. Anyway, I am not a banking expert but as I read, I learn. $SVB failed because it was forced to take a writedown on all of its available-for-sale securities portfolio (#CRE, bad loans, bad equity) from $21b to $1.8b. The stock dropped and then $42b in deposits left.

Why so much so quickly? Because since the FDIC only insures accounts up to $250,000 any amount over that is considered uninsured. Banks that have a high level of uninsured deposits can expereince an almost overnight collapse if any of their customers decides to move their funds. To give you an idea of what type of scale we are talking about: $ROKU had $487m of uninsured deposits at $SVB. Payroll. Operating capital. A/P and A/R. You can see what could happen.

When looking at the above table, remember that $SVB had 93% uninsured deposits. Generally speaking banks that have a ratio above 50% are considered "higher risk." One final note: a high ratio of uninsured deposits is not sufficient to use as a trade signal. One must also remove large custodial banks (any banks with the word "trust" in them). What I have learned is to look for: total loans + Held To Maturity (HTM) securities / total deposits. Again, the higher the ratio the more fragile the bank.

The above table is an example of the type of information I provide to VIP Members.

Week in Review

Model Portfolio - since 5/9/2023

This Week:

Last Week:

I cannot tell you how happy I am to finally have the FOMC and OPEX behind us. Now I get to see wha the market really wants to do. It has to prove it. I am more than happy to add to my long exposure once i see price tell me that higher levels are a high probability.

And as evidence I am not always right, of course not, last week I predicted: "Powell cuts but he explicitly rules out further cuts (50/50 probability)" which turned out to be absolutely wrong. So, what di I get wrong? I underestimated Powell's lack of a spine and over estimated his integrity. I was discussing with @JustJake earlier today about how energetic Powell was in the press conference. We agreed that to us it almost sounded sometimes that he was pleading for listeners to believe him. Truly sad.

This week's trading felt like I was playing defense all week. Two of three of losing trades were also my largest position size of 4%. My four winning trades I closed were mostly closing runners so they were smaller allocations, 1% to 2%. Not complaining.

Closed trades this past week:

$CLMT Jan2025 30C: Stopped: +10% in 6 days
$FTI Oct 23P: Stopped: -53% in 6 days
$HIMS Oct 14P: Stopped: -6% in 7 days
$OKLO Nov 7.5C: +55% in 8 days
$EOSE Jan2026 2C: +78% in 41 days
$OKLO Nov 7.5C: +131% in 9 days
$DLTR Nov 85C: Stopped: -18% in 1 day

Closed Positions

$CLMT Jan2025 30C: Stopped: +10% in 6 days

$FTI Oct 23P: Stopped: -53% in 6 days

$HIMS Oct 14P: Stopped: -6% in 7 days

$OKLO Nov 7.5C: +55% in 8 days

$EOSE Jan2026 2C: +78% in 41 days

$DLTR Nov 85C: Stopped: -18% in 1 day

USDJPY

Same as last TWO weeks: USDJPY must hold level is 140.

Last week the JCB stopped supporting the $JPY allowing the $USD to strengthen. At some point I think the JCB will lose complete control and the $JPY will eventually go as low as 300, or rather the USDJPY will go to 300.

For now, 150 to 140 is the range.

THIS AND THAT

Once the Blackout window is done on Oct. 25 the market will have the help of the strongest period of corporate buybacks. (Zerohedge)

Year end targets. Remember the top call.

If you continue to buy the malarkey that all is well in Bank land just remember that every single one of them are sitting on WMDs.

Now we know why Gold Bulls are so bullish. If the economy decays furhter, they could be right. (from Zerohedge)

The chart (not the red box) shows how the months of November and December do during election years. (Zerohedge)

Commodities do well after Fed cuts but how well depends on if a recession follows the initial cuts or not.

MY DISCORD MEMBERS ARE SMART!
#CRE IS GOING DOWN

I have very smart Discord members. Members who are successful in their own right who bring decades of experience to add alpha to our community.

Mr. White is one of those members having spent over 20 years in banking.

Some of the best insight when monitoring macro conditions is insight from "boots on the ground" which provides real time data.

Mr. White confirms that the #CRE space is doing a slow implosion, for now. I expect conditions to start accelerating to the downside within the next quarter.

$ENVX and $EOSE

Another podcast. More word salad from Raj. I am frustrated that Raj is tone deaf to calls from the investment community to release more specific details and to tighten up his projections, among other things. The stock is going to continue to weaken as long as there is no additional clarity. Support is at 7.34 and 6.87, the gap close. Sad.

If price is going to reverse it's current price level is it's first chance. Otherwise support is the same place it was 2 weeks ago: "Current support is $2.16 with major support at $2."

I don't think price will move higher until the DOE loan announcement.

$SPY

Ok, the $SPY finally broke to new highs AAAAAAANNND then immediately failed. If the market is going to ramp higher this is the week to do it. I believe that the market "wants" to rally leading up to the election but I am unsure if participants are actually bullish. While breadth is starting to improve, leadership is still unknown.

$QQQ

From last week: "Same as last week: the QQQs have more work to do to even get to the level where a blow off top is possible. When I see it, I will believe it."

Nothing has changed. If the markets want to melt up the Naz will need to confirm and break through that 486.44 area. This is the week to do it.

Doom

Anti Doom

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In the meantime, come and join us - its the best community out there: Discord.
Also, be sure to check out the new page for Daytrading on the website, run by the fine gents @BaconTurkeyClub and @Juggernaut. If you ever wanted to learn or just watch two pros daytrade live, they are at it every day here: DiscordFuturesChannel.
Finally, be sure to check out VampireTrades and his amazing penny stock trades.

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.