Bi-Weekly rollup | April 10-23 2023
Stocks Mentioned: NVIDIA Corporation (NVDA), Zim Integrated Shipping (ZIM), GSCI Commodity Index ETF (GSG), SPDR Dow Jones Industrial Average ETF (DIA), Saudi Arabia ETF (KSA)
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April 10 2023
Yields popped but bonds didn't sell off in proportion. Mega cap tech had a mild sell-off, totally out of proportion to the news. NVDA continued to defy gravity. Strangely, futures ended higher even as the underlying components (recall the outsized tech weighting) ended lower. Bitcoin stair-stepped higher, in what's becoming a common pattern. The gains in bitcoin continue to outpace the alts, putting paid to the theory that this is a new crypto bull market.
My read on today's (Monday) price action is that the bulls are done. This is the end of the sucker's rally, the final hurrah post the March 31st blow-off top. The beauty of markets is that they take the escalator up and the elevator down. Can we see the Nasdaq down 20% in a week? If it can happen, this is the time when it happens.
If you've stayed bearish and been whipsawed, keep in mind that it's no different for the bulls. March was a very difficult month all around. April is setting up to also be a difficult month. But the fundamentals favor short tech and long oil, and that's my positioning. If Apple goes up 10% on reporting a 40% drop in sales, the algos may chase that but not me. The Emperor has no clothes and no amount of convincing by trend-following CTAs and TA folks can change my mind. Inventory glut is not a reason to be bullish about semiconductors or hardware stocks. Period.
Some analysts are of the opinion that OPEC+ cut oil production because they foresee a drop in demand. The Fed already induced a recession in EM last year. Europe is just emerging from an energy crisis. China just got done with zero covid policy. Drop in demand? Not likely. More like Saudi wanted to send a message to the Biden administration when they refused to refill the SPR under $70. With the US now in a weak inventory position, OPEC+ is circling for the kill. This is bearish the dollar and I'm long yen, euros and kiwi to play that. I'm also long a bunch of oil and gas stocks.
Short tech, semis, casinos and bitcoin, long oil and gas, long currencies is my general recommendation.
April 12 2023
Sell Zim Integrated Shipping (ZIM)
We've collected a $6.4 final dividend. The company is guiding little to no net income for the current year and has no plans of restructuring its above market charters. Listening to the CEO on the Q4 earnings call, it's clear this company has no clue as to what to do in this environment.
News of a strike at Port of Long Beach sent shares higher yesterday. I had planned to hold on to this stock a long time and keep collecting dividends. But now that the dividends have stopped, use the rally to exit your position.
I think the CEO is incompetent and the company is poorly run, which is the only explanation for these massive dividends with no buybacks in good times, followed by 2023 EBIT guidance of $100 million but no restructuring. Yes, shipping is cyclical, but other companies are doing a far better job in handling that cyclicality.
To re-iterate, sell ZIM at the open and be done with it..
April 13 2023
Used car prices are ticking up again.
April 16 2023
Credit conditions are markedly tightening. Banks continue to lose deposits. The Fed balance sheet is marginally lower after the March 8-23 spike. There's deflation in money and credit, inflation in stock and commodity prices. This tug of war should get resolved soon, either with the Fed printing money and ushering in stagflation, or with a deflationary collapse that sends the economy crashing and gives the Fed an excuse to print again - without causing massive inflation.
I think the Fed does not have the stomach to cause a deflationary crash. The collapse of SIVB was the perfect time to induce one, and they blinked. However, until they print and actively kick start stagflation, the economy is going to have to keep dealing with this imbalance. I continue to favor long energy and short tech since that's the best risk/reward no matter the outcome. Fed printing money sent tech up like a rocketship from 2020-21, but Fed printing now will have a more outsized impact on energy than tech, so this positioning will work out in a stagflationary scenario. In a deflationary crash, again tech has more downside since the OPEC has got oil's back. And we own consumer staples because volatility of the kind I'm expecting will send investors fleeing to safety. Utilities and agriculture are also good on the long side, but utilities are not as compelling as staples in my opinion.
Buy the GSCI Commodity Index ETF (GSG) to play the bounce in inflation.
April 18 2023
I'm still occupied with something in my personal life (in a good way) and I have been dissociated from markets while I take care of it. I had too much going on during the last week of March, and could not update on the expiring puts. Hopefully, you got out at a profit. We were up 100%+ on them at one point.
I should be back at my desk next week, but in the interim I'm providing an update on my current positioning.
Broadly speaking, I'm long energy, short tech, bitcoin and semiconductors. I own LEAPs against the XLK and DIA ETFs. I own fertilizer stocks. My uranium exposure is long UEC/ short CCJ.
Earnings season is underway. JPM stock was up 7% on strong earnings, which gave the bulls hope with a strong start. Netflix reports today. Economic indicators are all over the place. Consumer confidence dropped on inflation fears returning. China re-opening is going better than expected for commodities, oil and industrial output - that's both great news for the world economy and bad news because it brings back inflation fears, which brings back the possibility of more Fed hikes, which implies a recession and emergency rate cut, etc.
The market is unable to parse the news and decide on a direction. I don't know if this is the tightest range the indices have traded in, but the price action is nuts. I checked the Dow sometime yesterday and found that it had moved 1 point only! Trading ranges are hard. The longer this goes on, the bigger the break out of the range will be.
So if you're bullish, now is the time to accumulate. If you're bearish, now is the time to buy puts. I'm firmly in the bear camp. If you've followed my commentary since last year, you know I didn't pick a side on whether the rally post the October bottom was a bear market rally or the beginning of a new bull market. It could have gone either way. I believe that if the Fed had pivoted in March, we would have entered a new bull market. Their stubbornness in continuing with rate hikes, followed by "not-QE" QE and liquidity injection on a global scale via swap lines changed the macro environment. The dollar weakened as it should in response to the Fed's sudden money printing. But deflation took hold as bank credit contracted. In all this, the Biden administration missed their window of opportunity to refill the SPR and Saudi Arabia reacted by sending oil screaming higher.
We've got deflation in money and credit, with possible sporadic money printing by the Fed as it puts out bush fires in the banking system. We've got inflation fears re-emerging due to strong Chinese demand and oil moving higher. We've got a crazy bubble in tech and crypto with established companies like Salesforce dot com selling at a 955 PE (!) and Dogecoin memeing higher as if this were 2021. At the same time, there's massive breadth divergence within the Nasdaq composite indicating that very few stocks are moving up while the rest are heading to 52-week lows. Outside tech, few sectors are rallying. Real estate is still in a slump and private market valuations are contracting. Bank stocks still look like a disaster. Computer sales are way down, chip inventories are too high, cloud companies are in revenue de-growth mode.
The market is forward looking. If the Fed pauses in May and starts printing money again, nobody is going to care about valuation. If they don't, then the bubble economy is in for worse pain. Either way, I see energy being the clear winner here. Now let's talk about the implications of this policy uncertainty. Whatever the Fed does next, capital is going to leave the US. They have made it clear that bank deposits are unsafe and their decisions are not well thought out. That does not inspire investor confidence. The rest of the world may be worse, but money is made in EM when things go from extremely terrible to slightly less so. I own the Saudi Arabia ETF (KSA) and am looking to buy into other EM countries. I also own euros because I no longer want my personal reserve currency to be 100% US dollars. I haven't owned the Indian rupee in any meaningful way for around 5 years now, although I live in India, and I don't see that changing no matter what the dollar does next.
If you have any questions, hit me up via DM and I'll answer them in the group. Also, I'm available for personal consultations and research projects.
April 20 2023
Bought July WTI crude oil futures. Short tech, long energy.
April 22 2023