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  • Kashyap Sriram

Bi-Weekly rollup | Dec 05-18 2022

Stocks Mentioned: Innovative Industrial Properties (IIPR), Newmont (NEM), Argonaut Gold (AR.TO, ARNGF), Graphite India (GRAPHITE), Credit Acceptance Corp (CACC), Anavex Life Sciences (AVXL), Ark Innovation ETF (ARKK)


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December 05 2022


December 06 2022


December 07 2022


270,000 homebuyers who bought in 2022 are underwater on their mortgage


December 10 2022


Trailing stop loss hit on IIPR. Sell on Monday. The trade should just about breakeven.


December 12 2022


Take advantage of today's weakness in gold to add to your gold miner positions. Buy Newmont (NEM) for a lower risk bet on gold and Argonaut Gold (AR.TO, ARNGF) for its moonshot potential in a gold bull market.


December 13 2022


I like low volatility setups because it lets me define my risk. Graphite India (NSE:GRAPHITE) was an overhyped name a few years ago. It was a value stock with a PE of 1. I remember researching it but giving up because I didn't understand the business.

A good technical setup makes up for my ignorance.


The stock is holding above the 100 month moving average


The weekly doesn't look so hot but note the tiny BB width. Volatility has collapsed.


The stock is also above the 100 DMA, after putting in a double bottom in June and Sept, and just completed a MA crossover (20 EMA and 100 DMA - my preferred MAs). To me, this reads as the initial phase of a stealth bull market. Why? No idea. Buy Graphite India at ~Rs. 405 with a stop at Rs. 360.

Note that this trade requires direct access to Indian exchanges. There is no ADR or OTC listing for this name outside India given that it's a <$1 billion market cap stock.


Buy to close the Credit Acceptance Corp (CACC) short position.

With the Fed expected to end its rate hike campaign tomorrow, the consequent loosening of financial conditions should take some pressure off the sub-prime auto market. While our short entry at $611.9 on 1/12/22 was well-timed, I expected a much larger collapse in CACC given that we have seen the worst environment in a decade for the company's business.

I don't mind maintaining a long position for years, but a short position should definitely not be long term. Time to pocket our gains and move on.


December 14 2022


Source: The Boock Report


Column: Investors abandon bullish oil positions as recession nears: Kemp


Time to exit Anavex Life Sciences (AVXL)

We got a lot of volatility and some of the most insane price action I've ever witnessed, but the bulls failed to come through. I'm not a biotech expert. I have no hot take on their Alzheimers' drug. I do know that if the Phase 2b/3 trials had been spectacular, the stock should be well north of $15 given the interest and volume. Maybe the Twitter experts were right and the results weren't worthy of bidding up the stock.

Lesson learnt. Based on $12.4 entry, the loss on this trade is ~30%.


December 15 2022


"I don't think anyone knows if we're going to have a recession or not."

- Powell at the FOMC press conference yesterday.

Well, it doesn't take a genius to figure out that rising unemployment and negative real GDP growth implies a recession. The Fed is deliberately trying to wreck the economy using inflation as a guise. With Fed Funds at 4.5%, they're planning more rate hikes in Feb 2023 and have no intention of stopping.


Overall, markets haven't reacted with as much fear as traders expected. Remember, the market is always forward looking; so maybe it is calling the Fed's bluff.


Still, the environment is not ripe for being long garbage and expecting liquidity to propel it higher. Sell the Ark Innovation ETF (ARKK).

Tech should outperform the interest rate sensitive sectors in a deflationary depression, but I'd rather pick individual sub-sectors within tech (definitely not buying Tesla) or find 100% equity funded growth stocks than hold ARKK.


Buy the Japanese Yen vs the USD


This is a FX trade idea and all about the risk management so I'm merely throwing it out here and not adding it to my track record.

I believe 2023 is going to see a massive resurgence in the yen and Japanese equities.


Why?


Powell has guaranteed a 2023 US recession, making US real assets, most stocks and corporate bonds a losing proposition. The USD strength we've seen over the last decade has been driven by global capital flows into the US. Be it technology (SMAC), biotechnology, solar, 3D printing, shale oil, banking, finance, or crypto, the US has led the world. The innovation enabled by cheap money (and free immigration) has driven down costs and improved our standard of living. Falling commodity prices is part of it too, since the QE-enabled carry trade was responsible for bringing on new mines.


That's all gone now. The fed funds rate, the rate at which banks can borrow from the Fed, is set to go up to 5.1% (median estimate on the dot plot). Think of what that means to Libor. Or what that means for investment grade corporate credit. And how high interest rates will go for non-IG long duration credit. Cost of equity is always higher than cost of debt, which means the cost of the kind of innovation (think Uber and Airbnb) that has led to global deflation is no more.

When US drove down worldwide interest rates, we saw capex booms everywhere. In the last 9 months, Powell has ensured that any long lead time project started prior to 2022 is going to be rendered uneconomic. And he's not planning to stop. New supply of housing, copper mines, coal mines, oil fields... all gone. Capital spending in manufacturing and industry to increase economies of scale... gone.


With cost of capital prohibitively high, credit tightening, and financial conditions expected to get worse, investors are going to flee US real assets. Industries serving domestic US customers are going to be severely impacted by the surprise rate hikes and collapse in credit. US stocks and corporate bonds are going to start pricing this in.


Some say the US dollar is a safe-haven currency, and that's true to an extent. If we're in a global depression, the US is a safe place to park your capital. But we're not in a global depression.


China is opening up. The Bank of Japan has resisted the urge to follow the Fed in committing hara-kiri.


Japan has high debt, but low cost of capital. It's an aging society, but stocks trade at attractive valuations and capital is free to move in and out. It is more industrialized than the US. The BoJ does not care to imitate the Fed - they have a truly independent monetary policy. Outside Russia, they are the only industrialized country to do so. And best of all, their monetary policy is stable. They have dealt with deflation for 30+ years and have never shocked the market with wild rate hikes or openly tried to induce higher unemployment, lower asset prices and a recession.


I think the yen and Japanese equities are going to benefit from the latest Fed move. It's part of the shifting macro landscape which sees the US dollar fading in its role as the world's reserve currency. The Fed has lost investors' trust. We're already seeing bilateral trade agreements bypassing the USD as a settlement layer. With a 2023 US recession inducing capital flows out of the US and lower US imports reducing the US dollar's share of global trade, not to mention the aggressive de-dollarization that has already taken place due to the DXY soaring in 2022, I think the dollar's best days are behind it.


I wouldn't buy the euro or pound on that premise since the EU and UK are committing economic suicide in the name of defeating Putin. That leaves the JPY as the best possible anti-dollar bet. And the Nikkei as the best place to ride out a US recession.


As for growth and innovation, keep in mind that it was Softbank which dared to launch a $100 billion Vision Fund. Not JP Morgan or Goldman Sachs. The Japanese have been leaders in tech and automation. They're now the only place in the world with cheap capital and a willingness to finance growth.


American exceptionalism is dead. Powell killed it. We're all Japanese now.


December 16 2022


Manufactured home sales are skyrocketing—here's why | Stacker


One of Warren Buffet's well known bets is trailer parks. They may be making a comeback as the Fed destroys the housing market and makes "jingle mail" popular again. Mortgages are non-recourse, meaning the bank gets the house and you get to walk away from your loan - an attractive option for all those owning homes with negative equity. It was popular in 2009, and it's going to be popular again in 2023.


Buying homebuilders and a lumber stock expecting the Fed to pause was a terrible trade in hindsight. We'll close this position, but not while the market is having a fit going into quad witching day.



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