S&P 500 Sector Performance

via novelinvestor.com


Source: novelinvestor.com

Interest Rates: Central Bank Rate Spreads Highest in Over 20 Years

Equally as curious as the new negative interest rate phenomenon is the generous spreads between official Central Bank Policy Rates.

Central Bank Rates:

USD <2.50%
CAD 1.75%
GBP 0.75%
JPY -0.10%
EUR -0.36%

USD-EUR spread = 286bps.

Points of note:

1. The Fed leads the pack (first to act) in terms of interest rate policy, followed by Canada then Britain. Fed policy is a good predictor of global central bank policy.

2. Beginning 2017, The Fed hikes interest rates 8 times, the BOC 5 times and the BOE 2 times; while the BOJ leaves rates unchanged and the ECB actually cuts interest rates further into negative territory.

3. The spread between Central Bank Policy Rates is widest in over 20 years. Post-2008 "central bank policy coordination," is the unofficial policy mantra among policymakers, which implies an eventual conversion of interest rates. This means either The Fed cuts interest rates by about 250bps, or the ECB and BOE hike by a similar amount.

One thing is for sure: interest rate divergences this wide won't last forever.

USD, CAD, GBP, BOJ, & ECB Relative Interest Rate Performance

USD (Blue) vs EUR (Beige) Interest Rate Performance - 275bps Spread

Equity Analyst Translations

Equity Analyst ratings changes in plain English:


"Buy" → I have a friend that needs to unload.

"Hold" → I gotta get paid for doing something, so here it is.

"Sell" → I have a friend that wants to load the boat.

"Sector Perform" → Gotta write something about this, so here.

"Outperform" → I have a friend that needs to unload but he isn't that important.

 "Underweight" → This thing was a POS from the get go.

"Overweight" → Best house in a shitty neighbourhood. "

"Price Target Lowered" → We're dumber than we first thought.

"Price Target Raised" → Everyone else is raising it, so we are. Besides, chart says momentum is building up.

October's Nikkei Short (NKD)

Crash Model Results (after the big bounce)

SPY = S&P 500 Index Fund (investable)

Nikkei (NKD) Care Bear Call ↓

Nikkei down 1,956 points (-8.14%) since 4-Oct-2018:

Tesla Could Be Ripe for a Short

[Note: This does not include Fundamental Analysis of Tesla. Public availability of all fundamental information, common knowledge of liquidity and solvency issues, reduces to zero the value-added of fundamental analysis, in this case]

Tesla [TSLA] (01-Oct-18) +17.35%
Rating N/A
Price (01-Oct-18, US$) 310.70
Target price (US$) 263.00
52-week price range (US$) 244.59 - 387.46
Market cap (US$ m) 52,870
Enterprise value (US$ m) 72,370

On Thursday of last week the SEC announces it has charged Elon Musk with Securities Fraud. By Friday, the stock closes down 15%, and before Saturday, Musk agrees to settle. At this point, the general consensus is Musk plans to fight it and it won't be pretty. The media receives the settlement surprise with such fanfare that they forget to weigh in on some important facts: 1. The settlement changes the image of the company and of the "founder;" 2. It changes the fundamental story behind the stock; 3. Musk is no longer Iron Man; 4. The stock is still under-performing the general market, and looks dead from a technical perspective; and 5. Musk is no longer Chairman.

There appears to be an excellent short term opportunity for shorts at yesterday's closing price of 310.70.

Market Sentiment/Catalysts
The SEC Settlement means Tesla may finally be a viable short. One key point that the market seems to be missing is that Tesla's and Musk's settlement takes away the surprise element or "x factor" of the story. Not only does an SEC charge look bad for the company, but the settlement could be even worse. With no settlement, at least the surprise element is still there. A big unknown. However, with a settlement, there really is no big unknown that exists about the company - at least not that involves any significant upside. The only unknown left is the DOJ's ongoing criminal investigation of Musk.

One of the greatest obstacles for shorts up to this point has been the upside risk in "the unexpected." Any day Musk could have come out with a surprise story about a trip to Mars or a new Tesla pick-up and the stock would rally almost systematically. However, much of the stock's reaction has to do with Musk's credibility and him eventually delivering. Now, after the settlement, the invisibility cloak appears to have been removed. There no more mystery to Musk. The fraud charge makes him awkwardly human. This, combined with the law of diminishing margins could be the combination needed to make the stock a viable short, particularly at the 310 level with a stop loss of 322, and a take profit at 263. Other than the risk of the high short interest and concentrated holdings, today's rally could provide the most favourable entry point in a while.

Settlement terms overlooked
Another aspect of the settlement that the market appears to be failing to appreciate is the fact that Musk is no longer Chairman of the Board. This makes one of the few CEOs of a Silicon Valley large cap that isn't both the CEO and Chairman. This also opens him up to termination once the new board members are elected. Depending on the share vote rules, a new Chairman will also prevent Musk from wielding control over the company, which puts his fate as CEO in the hands of someone other than himself. This makes him an employee--a position he likely doesn't plan to hold for a long time. Without Musk in as CEO the intangible value of the company is greatly reduced. Given the choice, Musk will likely choose his freedom over preventing the company from collapsing.

Technical aspects
- Significant resistance at the 320ish level. 
- One-day rally with range > 2.5X 14-Day ATR.
- Large moves in either direction typically prove a successful fade the following day/week, for this stock.
- Since end of Q118, short interest shrank over 5%, from 30.9% to 25.73%, while the stock declined -3.57% during the same period (-5.32% YTD).
- Over 6M of the shares that have been purchased in the open market over the past six months is due to short covering.
- Aside from the price action that followed the going private tweet, bulls have made a number of unsuccessful attempts to push a weekly close above 322. 
- Any support above the 322 level would need to be accompanied by a new narrative, which the company lacks for the foreseeable future.







A 17% move in one day is not healthy. In fact it's unhealthy. If a stock rallies 17% in day, you can be sure it isn't being accumulated by insiders. The guys who accumulate stock do so on the quiet and leave minimal forensic evidence. They also accumulate gradually, over a long period of time, at lower and lower prices. They're not in a race to buy and definitely don't bid their own stock up 17% in a day; they generally see that as an opportunity to sell into strength, if it can be done at a profit.

The stock has been too volatile even for day-traders. It's been a lose/lose for longs and shorts alike. However, the fundamental change in perception as a result of the SEC's charges has tainted the company and makes the narrative less compelling going forward. The out of the money call option that is Elon Musk and Tesla has shifted to an out of the money put option, and for the first time there appears to be more headwinds than tailwinds. The settlement with the SEC does not prevent further actions in the near future, the DOJ probe is a criminal probe which is far from over, and the company has a pile of debt maturing in early 2019 that it will likely default on sans an additional cap raise.

Who will be the new Chairman of the Board? Who will fill the two new board seats? Does the Settlement open Musk and Tesla up to more lawsuits? What will be the effect of the new communications limitations the SEC has placed on Musk? Will he stick around as an employee of Tesla or will his entrepreneurial spirit seek greener pastures? There are a lot of questions at this point, and none of them are bullish.

Weekly Update on the Tilray (TLRY) Pump and Dump

"There is very little altruism in finance. Wars against corporate managements take time, energy and money. It is hardly to be expected that individuals will expend all these merely to see the right thing done." -- Graham & Dodd, Security Analysis 

 

Final Update: down -96% from ATH. What was foreseen has come to pass, and will happen again. The takeaway: There is nothing new under the sun, and least of all in the stock market. History doesn't rhyme in Wall Street - it repeats. 

https://stocktwits.com/rwalton22/message/137982880 https://stocktwits.com/rwalton22/message/137982880

Exhibit #1 (9/12/2018):

 Exhibit #2 (9/21/2018):

Exhibit #3 (9/28/2018):

Macro Charts: SPX (U.S.) vs DAX (Germany) and FXI (China)

General Market Outlook

From retail to "tutes," everyone and their uncle has Lehman Bros and 2008 on their mind. All are still relatively conscious of the Jan - Mar mini-crash and hesitant to buy the dip. Additionally, the media has re-launched anti-Prez news blitz, which has been a bullish signal for stocks since the 2016 election.

These are the signs of a raging bull market.

Unwise to bear stocks at this point
~70% of stocks move in the same direction as the S&P500 on any given day.

If I was masochist looking to maximize pleasure, I'd short over-valued cult stocks with 10X leverage. This reminds one of a quote from a wise man:

"Win or lose, everyone gets what they want out of the market. Some people seem to like to lose, so they win by losing money."

Simple induction: If we're currently in a bull market (we are), and 70% of stocks move in tandem with the S&P, then it must be true that shorting stocks carries maximum risk in the current environment.

Corollary: longing stocks carries minimum risk in the current environment.

This is, obviously, irrespective of fundamentals (the analysis of which is virtually useless at these multiples).

I can think of 20 stocks off the top of my head that are insanely overvalued. Shorting even one of those is a highly questionable endeavor.

Bull Market sentiment
Forget the recent non-Russia-Collusion Manafort guilty pleas--consider the effect that the round-the-clock Hurricane coverage alone would have on stocks if we were in a genuine bear market.

Spoos closed green Friday.

New paradigm
At the risk of sounding like a complete moron--it's literally 'different this time.' Why? The Fed opened Pandora's Monetary Box with QE in 2008. "Crossed the Rubicon." All the proverbials.

"Now you's can't leave."

The Fed's response to next recession needs to be the Mother of all QEs. They must outdo themselves and have set the bar quite high.

There's a crap tonne of money in the system waiting to be deployed, and if that money front-runs the Fed's next monetary easing cycle (which will be bigger than QE1-3 etc., spoos 5K doesn't sound crazy. We could literally rally hyperbolic into a new global monetary system. (This is not far fetched.)

The last time monetary system was reconfigured was under Nixon in '71. A time of massive opportunity.

Is Tilray (TLRY) The Pump and Dump of the Year?

TLRY - up ~250% in 4 weeks. $28M in sales, no profits, market cap now = $10B. 225X Book. 355X Sales. We shall document le Pump & Dump in real time. SNAP-esque. Exhibit 1:

Shorting this is a moral obligation.

Certain stocks tend to move in 1-2 month symmetry, esp. blatant pump and dumps. What does that tell you about the next two months for TLRY? What's the fortitude of the community of bulls, what's their common denominator and what's their likely Uncle Point?

Majority of longs in TLRY at this point likely have tight stops, zero conviction, and small accounts. Insta-capitulation.

Best part: TLRY is no microcosm of general market. no spoos crash on horizon + more the market gets to thinking about next recession, the more they realize Fed is now obligated to flat out buy stocks and prevent a serious decline. Uber bullish for spoos, not so much for TLRY.

Tech Stocks and the Bigger Picture

"That is about all I have learned—to study general conditions, to take a position and stick to it." -- JL

Stocks:
Though AMZN is the canary, FB's failure to rally back to within .5X weekly ATR of ATH, and its relative weakness to tech and the S&P500 could spell near term trouble for the tech sector and potentially the sp. If the market thinks FB can't increase revenues, no one in tech can increase revenues.

Also, the Cambridge Analytica debacle/Zuckerberg interview set Congress's eyes on personal data in terms of election meddling. Now personal data is back in the forefront in GOOGL/FB/AAPL/SPOT's conservative censorship issue and accusations of bias toward President Trump. At least for FB, the negatives appear to be outweighing the positives in the short term.

Broad view:
The guys who know what is what thought the last mini-crash in Feb was the commencement of the Great Restructuring that would follow the Great Correction. Those who were faked out still lie in wait for the inevitable, but the Time element is mightier than ever in the age of Central Banks.

Standing between here (~2910) and a 50% correction is the precedent set by monetary policy (QE) in 2008. QE = Quantitative Easing = arbitrary money printing used to buy stocks/assets, and in the process prop them up. Therefore, in theory, we should never see spoos < 1400, as the Fed can print & bid stocks back to new highs with more QE.

QE = unlimited $ = unlimited buying power. and as Governor Flower said: "The only way I know of making a stock go up is to buy it."

The obvious trouble with this arrangement is the slippery slope: if you print once, now you must print in every recession. why not?

Prior to 1971, when Nixon removed the dollar from the gold standard, all currencies were tied to, and redeemable in gold, so QE was impossible.

The reason why money was redeemable in/tied to gold was to place a limit on inflation by limiting how much currency governments could create. Printing money for political purposes would simply result in a commensurate increase in the price of gold.

Today, there's no anchor on money.

Since there's no anchor and central banks across the globe have opened Pandora's Money Box with QE, then--provided no change in monetary policy--a serious crash is not only implausible, but next to impossible.

The Gorilla in the room, in terms of questions the market will need answers to before stocks can see a sustained, directional move, is: which will have greater force during the next recession: Bears, or zero interest rate policy and more QE. Every Fed chairman is tested by the markets and Powell has yet to cut his teeth.

Musk, Tesla and the SEC Inquiry

"Among the hazards of speculation the happening of the unexpected—I might even say of the unexpectable—ranks high...there have been times in my career as a speculator when I have both been right and played square and nevertheless I have been cheated out of my earnings.

"Against misdeeds by crooks, cowards and crowds a quick-thinking or far-sighted businessman can protect himself...But against the whining welsher the decent man is powerless. Fair play is fair play." -- Edwin Levefre, Reminiscences of a Stock Operator

Knowing how slick Musk is and how high his government connections are, this whole thing is probably another charade so the Saudis can buy the dip and get a more favourable entry price. The mob of lawyers have already determined whether or not a piece of paper with ink on it exists. 

Whenever a bunch of people (lawyers or otherwise) simultaneously appear on TV interviews saying the exact same thing, coming to identical conclusions, it usually means they're all wrong/sticking to a script. When everyone is on one side of the boat, get to the other side. 

A necessary condition of a market is to cause maximum pain to the maximum amount of participants, and right now those are the shorts. It's not an axiom of markets, but something that happens frequently enough to warrant sufficient guarding against.

Therefore use common sense in investing—it's more valuable than anything you learn in a textbook. How long do you suppose it takes a flock of lawyers to determine if Musk is in possession of a piece of paper with ink on it? That's what current SEC investigation boils down to. It doesn't take long. The FBI cooked up a warrant to wiretap Trump in less time. 

All this does not negate the fact that the equity of the company is worth zero by any valuation metric--traditional or proprietary. However, reality, and economic and criminal laws don't apply to Deep State. The rules are arbitrary so the outcomes are technically infinite. The underlying issue with Tesla is much broader than securities valuation, and involves much more than the stock market.

I'd advise against shorting Tesla stock, as it effectively equates to shorting The Deep State, and they usually don't lose. Ask Hillary. https://www.nationalreview.com/2016/06/hillary-clinton-cattle-futures-windfall/

via dailyspec:

April 2018

So far for the month of April, Bonds had 75% chance of closing green on Mondays and Fridays, 75% chance of closing red on Tuesdays, Wednesdays and Thursdays, while Stocks had 75% chance of closing green on Tuesdays, Wednesdays and Thursdays, and 100% chance of closing red on Fridays.

Via Dailyspeculations:

Red

Anti-Trump, Anti-Bear Market

Note that MSM is now equating bitcoin prices with stock prices, but they neglect to report on bitcoin when stocks close in the red. More agrarian innovation in subtle sweeps at Prez.

the greater the frequency of anti-Prez "stories" on MSM, the higher the spoos. never fails. just pray they keep up the negative coverage.

— Walton McGuinty (@rwalton22) October 5, 2017

Blue Day

Month of Dec begins with blue day. Stocks partially recover from sharp drop, down only 4 at close. pic.twitter.com/CuE1BJm8iQ

— Vic Niederhoffer (@VicNiederhoffer) December 1, 2017

Yellow Day

Last day of November: yellow. Gold (the metal, not the color) down again like yest. pic.twitter.com/MFSFwJvkxI

— Vic Niederhoffer (@VicNiederhoffer) November 30, 2017

Open positions (6-30-2017)