Stocks Mentioned: Archer-Daniels Midland (ADM), Corteva (CTVA), FMC Corp (FMC), Adecoagro (AGRO), ARM Holdings (ARM), Softbank, Semiconductor ETF (SMH), Gold Miners ETF (GDX), Junior Gold Miners ETF (GDXJ), Berkshire Hathaway (BRK.A), Super Micro Computer (SMCI), Global Ship Lease (GSL), MPC Container Ships (MPCC.OL), Hapag-Lloyd (HLAG.IBIS), Amplify Energy (AMPY), SoundHound AI (SOUN), Anglo American (AAL.L), First Quantum (FM.TO), MicroStrategy (MSTR), iShares China Large-Cap ETF (FXI), Invesco China Technology ETF (CQQQ), Solana (SOL), Bitcoin (BTC), Ethereum (ETH), Nvidia (NVDA), Corn, Snowflake (SNOW), Gasoline (UGA), Bitcoin ETF (IBIT), Super Micro Computer (SMCI), Great Lakes Dredge & Dock (GLDD), Endeavour Mining (EDV.TO, EDV.L), Conifex Timber's (CFF.TO), Consol Energy (CEIX), Avalanche (AVAX)
Highlights
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March 01, 2024
Oil futures ready to blast past $80. Second wave of inflation incoming. Are you ready?
This is an old graph from Kraken Intelligence, as of October 2022. Note how March tends to be negative for bitcoin. This may have something to do with tax payments being due in April, or is just unexplained seasonality. I don't know, but the odds favor staying on the sidelines and being cautious, especially if I'm right about $64.5k being the parabolic blow-off top on high leverage.
Sell Archer-Daniels Midland (ADM)
On Jan 21, ADM announced that it has fired its CFO and was the subject of an SEC investigation into its accounting practices. Shares fell 24% on the news. It has now been over a month since the event, and the company hasn't put out any positive news. There has been no press release since the dividend declaration on Jan 25th.
The stock is cheap with a PE of 7.4x. However, the lack of positive PR is concerning - the problems may run deeper, and result in more significant restatements of financials, than is reflecting in the current price.
I don't like their radio silence. It's time to pull the plug. If you're looking to replace ADM in your agriculture allocation, here are 2 stocks to consider: Wilmar International (SGX:F34) and Bunge Limited (BG). Bunge is a past pick of mine, but I don't like their lack of transparency. I'm not looking to add either stock to my own portfolio.
Other stocks to consider:
Corteva (CTVA)
FMC Corp (FMC)
Adecoagro (AGRO)
ADM Update
The company issued a press release today stating they would file their annual report by March 15. Shares are up 2.5% on the news. I exited my position. A belated press release after a long bout of silence is better than no news at all, but I don't want to wait another two weeks to find out exactly what went wrong.
Watch for WTI crude oil to clear $80. Buyers are going to come back en masse once we cross that technically important level.
ARM and Softbank
SoftBank's ARM Holdings (ARM) typically trades under 10M shares per day. The UK domiciled company is ineligible for inclusion in the FTSE Index since it is not listed on the LSE. It is also ineligible for inclusion in the S&P 500 and the semiconductor ETF (SMH). The stock does not benefit from passive flows.
So what's driving the rally?
The lockup period for insiders expires on March 12, at which point insiders will be able to dump their shares in the market. The lockup applies to 95.5M shares, which is about 10 days worth of volume.
In September 2020, SoftBank reportedly spent about $4B buying call options on tech stocks, which ignited a gamma squeeze and made them a fat profit.
I believe they are replicating that feat, this time with call options on specific semiconductor stocks and the SMH ETF.
The semiconductor short positions have been seriously underwater for a while now, but if I'm right about this, then the Arm unlock will be the catalyst that pops the bubble. Most of the value in SoftBank equity is its position in Arm. They will be selling hard in order to free up cash and shore up their illiquid book. They will also be concurrently selling their call options, which means dealers will sell the underlying stocks, which will paint the tape red and invite more selling... you get the point.
It has been a long and frustrating wait, but we should start to see this bubble pop in just two more weeks. Things might get crazy until then, so layer shorts carefully or wait until we get closer to March 12th before making this a bigger bet.
March 02, 2024
Gold Miners Remain Strong
Third straight week of strength in the gold miners, with the Gold Miners ETF (GDX) up 2.51% and the Junior Gold Miners ETF (GDXJ) up 2.85%. Costco selling out on Gold bars is gold having its Coinbase moment. To use an analogy, where biotechs were in November 2023 - that's where the miners are today.
March 03, 2024
March 04, 2024
Berkshire Hathaway
Berkshire's 2023 letter mentions their Apple (AAPL) position just once, that too in an off-handed way while talking up smaller positions. When you have 50% of your equity portfolio in one stock and don't even want to mention it, that's a serious red flag. Perhaps this explains the recent high volume selling in Berkshire Hathaway (BRK.A) shares.
A year later, I have revised my thinking around this. I think the Fed bailing out LTCM caused the dot com bubble to accelerate, just as the Fed bailing out Silly-con Valley Bank accelerated the Mag 7/AI bubble.
That said, there were no gamma squeezes back then and passive investors didn't move markets by "allocating" at the beginning of every month.
If it's possible to gamma squeeze a two-bit company Super Micro Computer (SMCI) with a 100 RSI into the SPX, we may see more insanity before this bubble pops. Especially since it seems like the next bank bailout New York Community Bank (NYCB) is already in the works.
Party like it's 1999
March 05, 2024
Everyone is interested in gold today. Looking at individual miners, you could have seen this coming 3 weeks ago. Pockets of strength are building in gold, copper and oil refineries/E&Ps. Almost like the market has sniffed the return of inflation.
Can't hold oil below $80 much longer. Why $80? That'll be a clear move out of this range we're in, which will trigger a wave of buying.
(I use next month contract for oil because the negative price in April 2020 messes up the weekly log chart).
Here's a zero-emotion bitcoin exit strategy: 3-ATR stop at $61k or a parabolic stop and reverse [stop] at $55.5k. Closing price reversal (unconfirmed) on a massive outside day is bearish no matter how you slice it. The seasonality doesn't help either.
It doesn't matter whether or not you believe in TA - it matters that others do, and they are part of the market.
Global Ship Lease Update
GSL (MCap: $666.9M) reported Q4 results yesterday and the shares took a dive on high volume. The numbers look fine - revenue and net income up YoY. The CEO, who has been with the firm since 2007 is retiring. His replacement has also been with the firm since 2007 and is now getting promoted to the CEO role. This appears to be a smooth transition, not a shake up.
What shook investors? Maybe it was the algos reacting to the headlines, which showed a softer Q4, even though the company delivered an earnings beat. I saw this kind of selling in competitor MPC Container Ships (MPCC.OL) when it reported earnings last month. Other containership leasing companies didn't react to the move in GSL yesterday, so it wasn't something industry-specific that I missed.
This is a value stock trading at 2.26 times earnings and 0.56 times book value, with a dividend yield of 8%. Contracted revenue has decreased slightly from $800-$860M at the end of Q3 to $757-$819M at the end of 2023, which reflects the weakness in the overall sector.
The technical picture looks bad and my stop loss was hit, but my read is that the market overreacted and should reverse course over the next few weeks. Value stocks haven't been doing great during this great AI and now bitcoin bubble, but that should change.
Incidentally, March 10, 2000 marked the top for the Nasdaq.
March 06, 2024
Sell Hapag-Lloyd (HLAG.IBIS)
The stock is stuck in a range, while Maersk and Zim have resumed their downtrend. Containership leasing stocks aren't looking so great either, chart-wise.
This was a technical trade, and the stock has come back all the way to the breakout point. Volumes have also fallen back to pre-breakout levels, indicating investors have lost interest. I don't have high conviction on the stock either way, so let's close out this trade.
March 07, 2024
ARM IPO Unlock
The ARM Holding (ARM) IPO lock-up period expires on March 12th. The current float is 102.5M shares, with SoftBank owning the remaining ~930M shares.
The company has a market cap of $143B, book value of $5B, and forward revenue of $3.2B.
This isn't a game of valuation but a good old fashioned Mexican standoff.
Everyone knows it is a short but they are waiting for others to start the cascade so they don't get caught in a short squeeze. But, when it is "safe" to get short, there are less than a million shares available for borrowing and the borrow rate will go through the roof.
SoftBank knows its selling will embolden the entire market to take the other side of their trade. But they have no choice but to sell, and everyone knows they know it.
Meanwhile, there is a mysterious third party who has bought a load of call options on Arm and other semiconductor stocks, hoping to keep the market favorable to semiconductor bulls... so they will put in a bid for Arm when SoftBank sells.
The dealers are the bullet. Doesn't matter who fires first, they will delta hedge and take down the target.
Get your popcorn ready. This is the biggest show in financial markets since GameStop.
March 09, 2024
Opportunity in crisis: Amplify Energy (AMPY)
Amplify Energy (AMPY), a boring $200M market cap oil E&P trading at 0.5x book, 7x OCF fell as much as 43% intra-day on rumors that an oil sheen had been spotted off the coast of Huntington Beach, California. AMPY's offshore oil field - Beta - accounts for 15% of its production and the company recently settled claims against shipowners who had damaged its pipeline, to the tune of $84.9M.
The crazy move on 17x the average volume was algos going crazy in reacting to the scary looking headline.
Only after the company put out a press release saying "At this time, we have no indication that this sheen is related to our operations." did the sellers calm down and allow a slight recovery.
Oil industry executives (smart engineers) consider it unlikely that AMPY's operations were the cause.
I was stopped out at $5.29 on the first takedown and have no position. But this is one falling knife I'll be happy to catch on Monday. Even if the shorts are right, oil companies have insurance to protect against such losses.
As a fundamentals-based investor, long stock and calls both seem low risk here.
March 11, 2024
SoftBank is down over 6% even as New York and London are asleep. Has Mr. Market started to price in the ARM unlock?
On shorting blow-off tops
In May 2022, I exited the tanker trades that were working - the price had gone parabolic and started to correct. Then I made a mistake - I reversed the trade and went short refiners and tankers.
The stocks peaked around a month later.
I had never seen stocks go parabolic before. Commodities, yes, but not stocks. I had seen blow-off tops but never a parabolic acceleration that kept going. That experience taught me not to fade a move too early. Capitulation bottoms are different. You usually see a final flush on high volume, a wick at the bottom, and a low volatility sideways drift on low volume that may/ may not make a new low.
Capitulation bottoms attract value investors who pick their spots and buy carefully. Parabolic up moves attract momentum traders, retail FOMO investors, gamblers, and the like.
"I can calculate the motion of heavenly bodies, but not the madness of people."
Isaac Newton said this after he got burnt by the South Sea bubble. Although he knew it was a bubble, he couldn't resist the FOMO and ultimately ended up selling at a loss. Beats going down with the ship, which is what happened to most investors.
“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, one by one.” ― Charles MacKay
Despite strong signs indicating that the crypto bubble should have ended by now (see last month's rollup and my post on seasonality), we're witnessing yet another parabolic acceleration. The difference this time is the liquidity is only in bitcoin and ethereum. Most alts are correcting as liquidity flows out of the alts and into the top 2. That's not a sign of a healthy bull market, but the opposite. The Nasdaq and Nvidia are correcting, as is SoftBank. This move in BTC and ETH isn't driven by overall liquidity increasing; it is specific. That makes it weak and prone to a sharp reversal.
If you're buying 50% OTM puts, now is the time. If you're looking for a short entry, I'd suggest waiting. Bubbles don't reinflate after they burst, so there will be plenty of time to short, even if it is at lower prices. But there really is no need to short these things when there are so many easier trades.
As I wrote in December, I'm not recommending short trades anymore. I'm just reflecting on lessons learnt from my previous attempts at fading a bubble. Rather than calling a top and fading it, I just got out and am happy to be earning 18% APY interest on USDT (down from 25% last month but still decent).
If you're still long, I hope you have an exit strategy.
March 12, 2024
Tech Mania - It's Not Over Until the Passive Buyers Squeal
Passive inflows turning into massive passive outflows. Short sellers nowhere to be found. This is the environment where you can see air pockets on the way down, as there are no logical buyers who can step in to arrest the fall. Think 2022 on steroids.
"When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing." - Chuck Prince, Citigroup CEO, July 9, 2007.
Will the expiry of the Bank Term Funding Program (BTFP) and complete drain out of the RRP be the catalyst? Will investors get bored of AI stocks and move on to the next get-rich-quick scheme in AI crypto? Hard to tell what pops a bubble until after the fact, but the catalysts are lining up for a hard landing.
Three charts to tell the story of where inflation is headed - copper, lumber and gasoline
March 13, 2024
Blow-off Top in SoundHound AI
SoundHound AI (SOUN) has a market cap of $2.6B, 2023 revenue of $45.87M, net loss of $89M, and book value of $28.17M. The company has been around since 2005.
This stock can collapse 99% and still be overvalued. It amazes me investors can chase stocks like this with no thought to the downside. Can't short it btw - IBKR shows only 11,327 shares ($95k worth) available for borrowing.
Why is copper blasting higher?
Anglo American (AAL.L) and First Quantum (FM.TO) have together taken 3% of copper supply off the world market. Teck's (TECK) QB2 expansion has been delayed and is facing significant cost overruns.
Chinese inventory stockpiles are getting rebuilt.
Mexico wants to put in a ban on open pit mining in their Constitution. Arizona wants to kill copper mining in the state. British Columbia has gone woke and decided to hand over everything to the First Nations. Alaska has chosen sports fishing over Northern Dynasty's (NAK) Pebble mine, vaporizing a billion dollars worth of capital to please a few powerful fishermen.
Tell me why copper shouldn't go to $5/lb.
March 14, 2024
MicroStrategy/Bitcoin Pair Trade
MicroStrategy (MSTR) holds 205k bitcoin worth $15.2B at $74k/coin. Let's be charitable and say the software business is worth 5x revenue, or $2.5B, even though it is a loss making business. The stock trades at a 71% premium.
Why does this premium exist? Because arb traders are too scared of a short squeeze.
David Einhorn says markets are broken. And he is absolutely right. MSTR/IBIT is the new Palm/3Com.
Contrarian idea: Time to buy China?
The news flow about China in Western media is bearish. Their real estate sector is collapsing. Congress wants to ban TikTok. Department of Commerce wants to stymie Chinese efforts in AI. Every fund manager says avoid HK/China. Kyle Bass says short the RMB forever.
After having everything including the kitchen sink thrown at it, Chinese tech stocks have made a stunning one month reversal and blown past the upper Bollinger Band. That's a 2 standard deviation move above the 20 DMA.
The last bubble in Chinese equities was all the way back in 2014. The media fed rumors that Morgan Stanley (MS) was considering adding China A-shares to their MSCI index, which would result in so much passive buying that Chinese stocks would moon on flows alone.
Chinese stocks have been dead money for a decade. There's a long run ahead for iShares China Large-Cap ETF (FXI), Invesco China Technology ETF (CQQQ)
March 17, 2024
Note On Timeframes
High frequency trading (HFT) firms like Virtu pride themselves on having zero losing days in a year. Commodity Trading Advisors (CTA) following short-term trend following strategies can consistently make money nearly every week. Hedge funds and fund of funds attempt to make money consistently every month.
A single trading day, five trading days, or 21 trading days - stock selection is an insignificant factor when it comes to performance in that compressed timeframe. That's not my game.
Daily/ weekly performance is irrelevant to me. Monthly returns matter, but I don't mind having a few down months. I try to make money every quarter, but the goal is to make money every calendar year.
I spent a couple of hours at the pool yesterday trying to understand the why. This is my theory.
Hedge funds have limited partners, not a permanent pool of capital. They have to chase short-term performance in order to retain assets. If a stock does exceedingly well one month but is a drag the next, they have to cut. They can't let the winners ride.
My Solana position lifted up my December performance massively, but ended up costing me in January. Solana was up 71.5% in Dec, down 4.7% in Jan, and up 29.6% again in Feb. Had I been running a crypto hedge fund instead of my own money, I'd have had to cut Solana in late Dec/ early Jan and rotate that capital to BTC/ETH, both of which outperformed Solana in the first two months of the year. Yet, that would have been a mistake as the current month performance of SOL shows.
"After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: it never was my thinking that made the big money for me. It was always my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. I’ve known many traders who were right at exactly the right time, and began buying or selling stocks when prices were at the very level that should show the greatest profit. And their experience invariably matched mine; that is, they made no real money out of it. Traders who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make the big money.” -Jesse Livermore
The monthly performance game does not condone sitting on winners while they consolidate. Given a choice between spending my time spotting trades and managing my numbers over a 21 trading day period (30 days in crypto land - but we seldom get big moves on weekends these days), I'd rather focus on the former. And it works for me, but not for a fund, because I have a permanent pool of capital (my life savings) and a patient limited partner (me).
Besides, I spend most of my time studying financial reports and following earnings calls, and that's a game that's played over quarters. In fact, smoothing out quarterly performance numbers is also a loser's game because it has been taken too far.
The big trends don't fit neatly into a 90-day period.
However, except for family offices and endowments with a very long-term horizon plus the mandate that goes with it, everyone else needs to play the quarterly performance game.
That's going to be my focus. I've tried playing the weekly/monthly numbers game and realized it just doesn't work for me. My thinking and my fundamentals-driven approach don't fit that timeframe at all. Besides, it's irrelevant to me because I have a permanent pool of capital.
Quarterly performance is my sweet spot. I want to let my winners ride. The newsletter is going to reflect this focus.
March 18, 2024
Will T-bill investors prop up the Mag 7?
Chart comparison: March 2024 vs June 2023
Wall Street thinks conservative investors will rotate out of T-bills and into the Mag 7, so any dip in stocks will be shallow and short-lived.
Really?
If coal stocks outperform AI meme stocks for a year, will the AI bulls rotate into Mongolian Mining Corp?
In the ZIRP era, money flowed out of the bond market and into dividend stocks (utilities, staples, healthcare, coal, etc.) in a chase for yield. Bond investors also went further along the risk curve, lending money to Argentina for 100 years or paying Nestle for the privilege of giving it money (negative yields were common in EU and Switzerland).
5% risk-free yield in T-bills is correcting the imbalances caused by 14 years of Zero Interest Rate Policy (ZIRP).
Bond investors aren't going to buy NVDA on the dips.
Nor are they going to buy the SPX or the Qs on the dips.
When you're not getting paid to take risk, 6%+ on commercial paper sounds awesome. This is why capital is moving out of stocks and into bonds.
Record passive inflows have turned into record passive outflows. If we get a small correction, it will turn into a large correction.
Don't buy the dip. The cavalry isn't coming in to save the bulls.
March 20, 2024
Bitcorn? Pass. I'll buy the real thing.
Corn moved from the lower Bollinger Band to the upper Bollinger Band in under 3 weeks.
I have been watching corn for a long time, looking for a buy point. There are 3 catalysts that should send corn much higher:
Lower production in Brazil due to adverse weather conditions. Spend time listening to the earnings calls of any fertilizer company and you'll hear them whine about it.
Surging gasoline prices (plus rising crack spread and refining margins, partly helped by Ukraine drone attacks on Russian refineries) incentivize blending. India, Brazil and US have massive lobbies both for and against the practice. But the economics of blending just got more attractive, handing the corn lobby a win.
Commercials positioning: note that they went from net sellers during the prior inflationary boom to net buyers. Commercial long positioning reached a decade high in Feb 2024, just as the market bottomed. Speculators have the inverse positioning. COT reports are not very relevant to me, but when positioning reaches extremes things get interesting real quick.
I'm long July corn with a stop at 405. I'm not too worried about seasonality because I expect the inflation trade to gather momentum.
My Snowflake Trade
Textbook TA has worked out well on Snowflake (SNOW) both long and short. A bounce off the lower trend line and I cover, a break below and I'd expect more selling. The stock has always been fundamentally overvalued so it has a lot more downside if the bulls capitulate.
Stay long Gasoline (UGA)
Gasoline ripping ahead of today's FOMC announcement, with markets anticipating rate cuts and the end of QT.
Key takeaways from the March FOMC
The Fed is in no hurry to bring inflation down to 2%. They don't even intend to achieve that goal until 2026. Powell's term ends in May 2026. Read into that what you will.
Treasury auctions are failing so the Fed announced QT taper. The alternative scenario outlined by Powell was continuing QT until something breaks and then printing money to paper over the problems.
3 rate cuts this year, starting as soon as May. Powell acknowledges that base effects imply higher inflation readings in the second half of 2024, but they'd rather cut and help Biden get re-elected than care about inflation readings.
The Fed expects the economy to get stronger and the labor market to get tighter, putting upward pressure on inflation, but they will cut rates and withdraw QT anyway.
Powell acknowledged that the RRP drain was adding liquidity to the system, rendering QT irrelevant. Liquidity will only tighten 1:1 with QT once RRPs go to zero. By then, QT will be history.
Like Gideon Gono or William McChesney Martin, Jerome Burns knows the consequences of what he's doing but will do it in order to save his skin.
March 21, 2024
Post-FOMC Trade Idea: Long the Japanese Yen vs USD
The Fed is going to let the dollar slide. Treasury auctions are failing even though there's $500B left in RRPs. The BoJ is committed to defending the currency at this level. Mr. and Mrs. Watanabe are incentivized to bring their capital home. The yen carry trade is over, and gold and yen should resume their positive correlation.
I'm long yen futures. I don't see the dollar recovering from the disaster that is this week's FOMC.
March 23, 2024
Gold and Bitcoin
All these years, bitcoiners considered gold to be a Boomer asset and looked at it with derision. Now boomers are flocking to bitcoin while the youth are flocking to gold.
Costco selling gold bars, the Chinese buying gold beans, Indians buying jewelry, central banks hoovering up bullion... and boomers buying Bitcoin ETF (IBIT) after it is up 2x on ETF hype.
11 mining pools control the entire bitcoin network. Gold mining is truly decentralized.
In 2014, you couldn't send digital gold on-chain. Now with Paxgold and Tether Gold, you can.
Gold has become a lot like bitcoin, and bitcoin has become a lot like gold. They're both monetary assets and are perceived as such across the age spectrum.
Bitcoiners have done a great job orange pilling the entire world, far more effectively than the gold bugs. However, both gold and bitcoin are going to benefit from the world waking up to the dangers of the Fed and unlimited money.
Being 35 years old, I have no problem straddling the middle: I like both gold and bitcoin and understand the value of both.
Bitcoin made a new high this year on ETF hype, while gold made a new high and nobody cares.
Gold is in the stealth phase of its bull market.
My observations tell me it is time to rotate out of bitcoin and into gold. Focusing on daily ETF flows, like many bitcoiners are currently doing, is missing the forest for the trees.
March 25, 2024
The Bre-X Story Offers Lessons for Nvidia Investors
The day the SEC announces an investigation into Nvidia (NVDA) accounting and the stock crashes 80%, this investor will be very glad he got out.
Bre-X made a lot of analysts and mining investors very, very wealthy on paper. They ignored all the red flags and believed the media spiel, even when reputed miner Freeport said there was no gold on the property, much less the 200M ounces the company claimed.
Investors continued to stay duped even after the company said their chief geologist had fallen out of a helicopter and died in the jungle.
They believed the company's assays made in a jungle lab over all independent evidence. Until Strathcona - a respected firm that Bre-X hired - came out and said it was all a lie.
Diane Francis' book on how Bre-X managed to fool everyone makes for fascinating reading. The book also captures the unraveling and the human costs of the scam, of the fortunes lost by those too stubborn to believe the truth.
Why have finance professionals ignored all the red flags on Nvidia's accounting practices, the round tripping of revenue, and sanctions violations?
Why do fund managers and financial advisors continue to insist NVDA is not a bubble but is instead a cheap low PE stock?
Sinclar said:
"It is difficult to get a man to understand something when his salary depends upon his not understanding it."
It is even more difficult to sell a stock which goes up every day, which is why bubbles feed on themselves. Like a Russian novel, the Nvidia story is not going to have a happy ending.
But I'm happy for those who managed to get out ahead of the unraveling.
Super Micro Computer
Super Micro Computer (SMCI) announced a secondary offering of 2M shares at $875/sh last week. Goldman Sachs was chosen as sole underwriter and sole book-running manager for the offering.
Goldman initiated coverage with a neutral rating and $941 price target. JP Morgan (JPM) initiated coverage with an overweight rating and $1150 price target.
What are the odds JPM is chosen as sole underwriter for the next stock offering?
A company that was de-listed for accounting fraud not long ago is now being fawned on by bankers and analysts, gamma squeezed into the S&P 500, and owned by pension funds and 401ks. The AI bubble makes dot com pale in comparison.
I don't want to play the benchmark/ relative performance game. I understand the pressures financial firms are under during runaway bull markets like this, and it is just not for me. Especially since I'm not gathering assets and charging a management fee.
March 26, 2024
Buy Great Lakes Dredge & Dock (GLDD) on pure spec
The stock will pop if they win any work on the Baltimore repairs, and the low Bollinger Band width means we can set a tight stop. I recommend a 3-ATR trailing stop, or $7.58 using Tuesday's close.
This idea may be for naught if the stock pops at the open. I'd not chase it if that happens.
Endeavour Mining (EDV.TO, EDV.L) Update
And we have liftoff! Endeavour Mining (EDV.TO, EDV.L) is reacting positively to earnings and getting out of this sideways pattern. Now is the time to add.
March 27, 2024
The price of low volatility is exiting your winners
It's not that nobody can take the pain, it's that you don't have to. Investors who obsess over a single stock or trade rarely do well over the long-term. For every Amazon that recovers from a drawdown, there's a dozen other stocks that permanently decline.
If you sit on stocks in drawdowns and keep telling your LPs why you are right and the market is wrong, you get redeemed. Nowadays you get redeemed if you don't hold the index weight or overweight in Nvidia
If you let a 1% position go up 100x, you double the value of your entire portfolio even if other positions do nothing. Sounds great as a concept. But nothing goes up in a straight line. A 30% drawdown on a 50-bagger sends the portfolio down 10%. You'll get redeemed if you show that kind of peak-to-trough drawdown.
Besides, which institutional investor will pay 2 and 20 just for you to hold on to a previous winner - where the big gains were made by LPs who got in early, and late investors subsidize the volatility for the early investors.
LPs have a choice -
demand monthly reporting and quarterly redemption, at the cost of forgoing these outliers or
agree to lock-up funds, accept higher vol, but demand an above-market return for giving up the liquidity premium
Can't have it both ways.
This is where family offices and managed accounts excel. Let the hedge funds and fund of funds battle it out for consistent monthly returns; there's a whole world of opportunities if you can forgo those metrics, roll the clock back to quarterly reporting, and just accept higher volatility as the cost of letting winners run.
A fresh look at Bitcoin's market cap
By some estimates, over 30% of Bitcoin in existence has been permanently lost. If you back that out, bitcoin's market cap is under a trillion dollars, BTC dominance is ~40%. There are also a lot of early coins that are unspendable thanks to Chainalysis providing traceability.
Everyone's obsessed over day-to-day news on Saylor, MicroStrategy, bitcoin miners, ETF flows, the halving, and whether or not bitcoin is digital gold - but zoom out and you'll see how fast the crypto space ex. bitcoin is catching up. There's enough room for both bitcoin and other cryptos to thrive, especially with Treasury issuance about to go exponential.
Long JPY vs USD - Update
USDJPY was over 400 before Japan become an economic powerhouse in the '80s. In the long term, Japan will pay the price of excessive money printing. In the short term, the BoJ will throw everything including the kitchen sink to defend the 151 level because failure would be disastrous.
There is no Soros type speculator squeezing the BoJ right now. Japan is a friendly nation and the Fed stands ready to provide unlimited swap lines (even though a stronger dollar will help with inflation and Treasury sales). The yen carry trade is unwinding and Japanese investors are bringing capital home, which is supportive of the yen.
Unless we see the market testing the BoJ's resolve, like the Soros pound bet in 1992, I think the yen strengthens on a tradable timeframe.
All fiat currencies are on a race to the bottom, so if investors decide to focus on the US's problems and ignore Japan for a while, central bank intervention can succeed in turning the tide.
I concur with Dario's tweet on the fundamentals but have a long yen trade on with a +2.5% stop.
March 28, 2024
Technical buy signal on corn
Clear buy signal in corn today. Time to add. Agricultural commodities will not be left behind as inflation skyrockets. Not everything will moon like cocoa but there's a case for a strong bull market across the softs.
Supply/Demand Dynamics Turning Bullish in Lumber
From Conifex Timber's (CFF.TO) Q4 earnings release -
"We believe SPF supplies are contracting at the same time demand is increasing, and lumber prices will move higher.
The BC Ministry of Forests discloses that the log harvest in the interior region of BC, which totalled 47M cubic metres in 2018, plummeted to 27M cubic metres in 2023. The Ministry also discloses in the most recent provincial budget that the interior region of BC log harvest is forecast to come in at 26M cubic metres annually in the current and following three years. This harvest contraction will reduce SPF lumber production from the interior region of BC by 4.8 or 4.9B board feet annually. This supply contraction is huge – it is equivalent to approximately 8% of North American softwood lumber consumption and sufficient to offset the incremental lumber supply from more than 20 new industrial scale sawmills brought on stream in the US South over the past five years. With mounting evidence that US housing starts will increase in 2024 and 2025, these supply/demand dynamics support our expectations for rising prices for SPF lumber".
Lumber futures are correcting a bit over the last two weeks but the long-term potential looks massive.
March 29, 2024
Ignore Rates, Focus on Liquidity
See my December macro outlook which covers this topic in depth.
Powell says the market should focus on rates, not the balance sheet. Yet, the market rally correlates well with balance sheet expansion, while high interest rates have become irrelevant as liquidity floods back into risk assets with every Fed meeting.
2023 would have been very different without the BTFP, the Treasury switching from longer duration debt to T-bills and notes, and the numerous bank bailouts. These were balance sheet actions and imo they were far more significant than the Fed Funds rate.
The first rate cut will be a nothing burger. Watch the balance sheet moves instead. Especially the RRP and swap lines.
Penny Stock Orchestrates Bitcoin Pump and Dump Scheme
Nilam Resources, an obscure penny stock, put out a press release on 25th March stating they had signed an LoI to buy 24,800 bitcoin. Prominent bitcoin accounts on FinTwit added the label "gold miner" and touted the stock, applauding the switch from gold to BTC.
The brazen pump and dump ended in tears for the BTC bulls who chased the stock - and did nothing for the btc price, which has flatlined. The former CEO has spoken out against this market manipulation scheme and is seeking legal action.
Gone are the days when bitcoiners stood against scams. They are now bashing legitimate crypto projects and cheering actual frauds, while praying BlackRock pumps their bags.
March 30, 2024
Consol Energy (CEIX) Update
The volume bars on the right are organized by price rather than date. Note the strong support at the $79-$84 range. RSI holding up okay as well.
March 31, 2024
Avalanche (AVAX) in Buy Zone
Avalanche (AVAX) coiling for a run back up to $80. I like these setups because I can take big positions with tight stops.
Fed QE Is almost here
Banks started buying Treasuries again in Nov 2023, when the Fed made it clear the easing cycle had begun. But they still need the rate cuts in order to take duration risk, which is why the Fed will cut no matter what inflation does.
Incidentally, the last time the US had a tight monetary policy with loose fiscal policy was under the Reagan administration. The outcome was significant dollar strength, which led to the Plaza Accord.
Why isn't the dollar strengthening under similar conditions this time? Because the market expects loose monetary along with loose fiscal policy; the outcome is inevitable given the pressures on the banking system and heavy foreign selling of US treasuries.
It took the Fed less than two weeks to unwind a year's worth of QT in March 2023. The next unwind will be equally rapid.
Biotech
I always laugh at people who say, “I’ve never met a rich technician.” I love that! It’s such an arrogant, nonsensical response. I used fundamentals for nine years and got rich as a technician. - Marty Schwartz
Sometimes, textbook TA works out beautifully.
Good Trading!
Kashyap Sriram