Every day I go through roughly 200 stocks/indices/indicators, several times per day, looking for signals, attempting to connect dots and ultimately, hoping to find risk/reward situations that create outperformance.
The title Lies, Damn Lies seems appropriate as when the markets want to reveal any kind of truth, they first do so through blatant lies. Conversely, whenever truth appears apparent, there is likely to be deception involved.
These are simply thoughts (some completely random) as I attempt to connect the dots:
- As detailed in yesterday's note, I have cut all of our exposure to gold/silver names. I continue to believe metals offer some of the best long-term risk/reward setups out there today. However, the current market is so rich with trading opportunities due to the newfound surge in volatility that I need firepower. At a near 80% allocation to metals that I took on in November-early December, that firepower would best be served elsewhere for the time being. I want true "risk on" assets here. I want beta to the general markets. At some point this year I will revisit the metals thesis. With charts like this, you have to take gold seriously given the potential for exponential upside performance in the years ahead.
- You know why you want "risk on" assets here? The chart below sums it up. Global equity outflows are past the point of the 2008 financial crisis. The difference between now and 2008 is we are in a secular bull market that has been greeted with its first cyclical bear raid since it started in 2013. Let me say that again for the purpose of clarity and emphasis: We are in a secular bull market that has been greeted with its first cyclical bear raid since it started in 2013. That's important because when investors panic during secular bull markets (right now), it is a completely different beast than when investors panic during secular bear markets (2008). The market doesn't take its time in coming back as the foundation of the market is rebuilt during secular bulls. Instead, the market rip that comes typically only leaves bear scrotums behind as evidence they existed in the first place. In other words, it happens so fast that most investors who are attempting to intellectually and emotionally digest this monster will be left holding their tails instead of stock. The current market has forced investors into cash, giving it all the sidelined firepower it needs to move to new highs before the middle of 2019, as those investors come to the slow realization they have been played.
- One more demonstration of how badly investors have had their minds completely warped from the prominent display of headline risk everywhere you look over the past few months. Here are total money market asset flows. They have gone parabolic. Think about what the market has accomplished in just a few months: 1) It has made everyone go from "I have no doubt the economy is booming" to "we are on the verge of another financial crisis" 2) It has caused investors to liquidate their stock portfolios 3) It has convinced investors we are in a new prolonged bear market with little upside in 2019. Mission accomplished for the brain wash, next comes the wax and it will be in the opposite direction that everyone is positioned for.
- NFLX (we are currently long) has the looks of a stock possessed. The giveaway was the relative strength it showed when the market was at its worst. The stock had a persistent bid. When the market became a debacle around Christmas, the stock would have moments of weakness but it would be resolved with substantial buying almost immediately. These types of messages, while often subtle in nature, are important pieces of information. The stock should be at new highs sooner than most expect.
- GRUB is a deal down here. Never underestimate millennial's tendency towards behaving like children. They are very emotional, ride around cities on scooters, love pictures and like to be catered to. GRUB is the corporate version of their mom and dad bringing them food whenever they want. The rest of Corporate America realizes this fact, making GRUB a buyout candidate at some point in the future.
- I shorted TLT (20+ year treasury bond fund) on Friday. The move into treasury securities out of pure fear will have to resolved and violently to boot. When fund managers realize that the threat of recession has been vastly overstated, they will also realize how ridiculous they will look accepting a mediocre return in a vibrant equity environment. Have to fade Wall Street as its populated by articulate incompetents who are one less degree away from being tire salesman.
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