Edit: I wrote this in pieces the last 2 days. Wouldn’t you know we close up 261 on the dow. Step back from the daily close and whatever narrative the muppets on CNBC tell you to take stock in your life at the moment.
Only a few weeks ago, I was loving the setup in GDX. I got in on my options- and as the tide began to turn out of favor, I got out of them quickly. In fact, this past week I got out of almost everything – quickly. My estimates now in my trading account have me at 60% cash.
As tempting as the U story is right now, this is not GME or AMC. Why? That situation had oppressive short positions against supremely overvalued companies. The shorts were right to short, but the massive short position size led to massive short squeezes. The U companies are at 52 week highs with the SPUT tailwinds at their backs. I don’t think any of these have massive short positions. It is sooooo tempting to hop in to a U play right now. I might take a speculative position on OTM call options on CCJ for 3 weeks out or so, but this is really playing with fire here.
Why? What’s changed? I want to go over some highlights. My risk spidey sense is tingling. U stocks are up BIG pre-market this morning as of 6:30AM.
As much as I love David Hunter analysis, I think he was initially right with his calls which had around the current numbers, but he then made several adjustments to the right and added higher targets. He may prove to still be right. However, this is getting real sketch people.
How I’m positioned now? 60% cash. I also have some junior miners I’m not selling because I’m down on them pretty decent. Did tax loss selling this past week. Where am I hedged?
Essentially, I have a lot of SILJ jan 21 2022 $14 and $17 call options. I’m way down on most of the $17 options, but bought some more cheap recently. IF I’m wrong and everything melts up, including silver – I win. IF I am right and there’s a massive correction, I get to buy all of my favorite stuff at maybe a 50% discount. I win there with 4 months to go on my SILJ options that could recover – but since I already have been clubbed like a baby seal with these SILJ options, there’s little risk of loss here overall compared to the upside of buying tons of stuff at 50% discount.
So what’s going to have me in cash?
As much as I’d love to draw charts to the positive, take a look at these two charts that I am looking at from a chart perspective. Most of my thinking here is macro based, but for me, these charts might show a preview of what is coming.
- The blow off top may have been ongoing the last year, where most indexes doubled?
If you zoom in a little more, you can see this tight channel. Strong down turn on Friday with volume. Pre-market, some things are up. CPI release tomorrow could be over 4 or 5 again. Market will continue to deal with the narrative that interest rates may turn up. If this thing has a hard move down, with more volume, that could be the start of the sell off. We are tracking at the bottom of this wedge channel – depending on how you draw it. Maybe it will buy the dip?
2. GDX taking a turn down. Was expecting this double bottom to continue up. Probability. Maybe it rebounds. I don’t like hoping this. While gold was flat, GDX turned south, in a hurry.
- PM sentiment. Seeing a lot of smart people now calling for potential down turns. I know this isn’t a macro, per se, but these are the experienced insiders I rely on for a lot of research for a lot of the content you read. Sentiment, if you will. David Brady I think is one of the best, and even if there’s a move up in gold, he still sees all paths leading down. Now, I don’t BLINDLY follow analysts to slaughter, but I like to hear them out. To me, they all seemed to present a lot of downside risks with PMs at the moment.
- Political – With Afghanistan just happening, the organization is trying to change the narrative to blame unvaxxed and divert attention from many who may still be trapped there. The optics aren’t great on the world stage. We didn’t really do much about Crimea. Or Hong Kong. And I’m wondering what else might be cooking with things like Taiwan. I hope nothing happens, but there is a feeling of loss of confidence at a high level – and this anxiety could have big money starting to move out.
- Profit taking – with unease, you could see profit taking. Many of these people who may have doubles or triples since the bottom of 2020 may be seeing this as a good time to reduce their positions.
- Evergrande – I don’t pretend to know everything about this, but most reading I see about it discusses this may be a much, much, much larger Lehman. Employees are not getting paid. Creditors are no longer getting paid. There are many, many people who are in the midst of getting a new home built which is stopping.
- Tether – I recently read an article which discussed the large amounts of commercial paper that the $80 billion market cap company has. With it only having 3% USD, this has lots of exposure to bonds. I also read it was Hong Kong based, and now the question is – what type of exposure does tether have to Evergrande?
- Crypto – if there is a great unease with Tether, could some form of run on cryptos happen? All of the above items suggest a run on cash at some point, which potentially spells trouble for gold. Both DXY and gold can move up at the same time, mind you. I am seeing BTC people calling for $100k at the same time the entire global financial system will be trying to undermine them due to El Salvadore. Tether may be the gift that delivers this prize to the global banks. Imagine the crypto guys waking up to 70% overnight losses across the board when China makes an announcement about Tether and Evergrande and the entire East runs to cash as the West sleeps and leaves them as bag holders in worthless crypto.
- Inflation – is inflation “sticky”? Tomorrow is CPI. Could Friday’s sell off be in anticipation of a high CPI number? These guys get these reports before me and you. I believe the last several were over 5. If this is over 5 again, the metals narrative works, and perhaps we see a bump. But the bigger narrative is with rates potentially going up. We may see short term doom before the market at large digests negative real rates.
- Bonds/treasuries – I can’t see rates going lower, from here. How can they? Starve the market for them to drive up costs? Unlikely as higher inflation will put massive selling pressure on these. If rates are going up, then cheap, and nearly interest free paper that companies may be using to expand with may dry up. Russia is out of US dollars. Imagine when the Chinese start to sell our debt hard as they have issues with our position with Taiwan. Imagine other countries rushing to sell to not be bag holders. If that match is struck, how much will the Fed buy? Probably all of it. I think this causes a lot of panic that triggers selling in stocks as well.
- Operating margins – if the cost of capital goes up, and the cost of labor may go up, and the cost of supplies are going up to make goods (PPI), then these price increases are passed on to the consumer. While costs of products go up, eventually this may lead to sluggish sales. I don’t believe anyone is waiting around for this when you have companies with 50-100PE ratio. Tesla was 1100x the last time I saw it. This is the beginning of stagflation and this to me has people taking some off the top at first.
- Record usage of margin – IF the narratives above are correct, and that’s a BIG IF – then it would stand to reason that a 5-10% healthy correction would be warranted. But, if so many people are 100% in on margin, then you could see margin liquidation and a more rapid sell off. This is where a yearly 10% healthy correction could turn into a 20% panic sell off. If the Dow is 35,000, 10% is only 3500. But on this chart, you do see a higher high, then a pull back to support, buy the dip, then up again. This one looks different. This hit a resistance level several times, punched through, now has broken down through that support twice. Using the chart below, these have not been resistance levels hit many times and then punched through and then had back tests several times before a next leg up. Look at this. This would suggest we might not have any serious support until somewhere in the 29k range – which is about a 20% pull back from here and record usage of margin cannot rule this out.
11. 50% drop? Michael Gentile was talking a 50% drop – which if you then zoom out the above, it looks like a full retracement of the move since March 2020. See – if 29k is breached, I can’t see a ton of support until 18k. And, if we are in full panic mode, we could over-correct to the downside – by a lot.
12. Eviction moratorium – last week, you now greenlit 700k people who can potentially get evicted. I’m a property owner, and my first question from them is who did you used to rent from and give me their number for a reference. Many of these people may have to live on couches or go homeless. And, as a landlord, I might be asking 3 months rent for a deposit because that pays for the first month, then the last 2 months if you need to be evicted. These renters may have a tough time ahead.
13. Mortgage defaults – from what I read, possibly 5m people may be in line to get their houses foreclosed on. Over the last year, many of these people could not afford their houses. My hope was in this great real estate market, many sold out to avoid the pain. However, many did not, banking things might get better – or, they were under water and could not sell. Last week that program ended. This could take a few months for this damage to hit, but downstream it’s not hard to think about a supply glut of houses hitting the market, depressing prices that just rose 24% in a year.
14. Unemployment – 5 million people just lost their unemployment benefits after a year. 9 million open jobs seems to stand to reason many of the open jobs will be filled. However, one must consider those signs you see for $17 per hour McDonald’s jobs will go away quickly. Many of these people will be backfilling these lower paid positions. However, this also might mean a lot less Robinhood trading? Could mean less crypto trading? There were a few hundred k who lost ENHANCED benefits, and this is where a lot of the “printed money” we discuss bled into the real markets that will now disappear. These people were paid $17 per hour to sit at home and day trade and trade crypto. Many now will have to compete for jobs at $10 per hour. I believe a lot of extra fuel for the markets is drying up.
15. Seasonality – I’m not a wall street trader, but what I see from those that are report that if a stock market accident does happen, it’s Sept/Oct usually when corrections happen.
16. Taper – while no one thinks they can raise interest rates, I DO think they can buy less and less garbage monthly with bonds and MBSs. Right now, they are buying $120b per month, and all of this excess liquidity that is not being lent out or used is sitting on banks’ balance sheets and then has to be parked in the overnight reverse repos. This is telling people clearly there is enough liquidity sloshing around. The plan is to add less and less per month rather than reducing the Fed balance sheet. This plan was announced yesterday I saw and will promise spook some into selling, in my opinion.
17. Daily record highs – With all 15 items you see above, it’s been fueling one daily record high after another. As each passing day goes, it becomes more expensive to fuel that jet and now you are playing a statistical game of when the correction starts.
18. Debt ceiling – while this is usually a non-story where one party pretends to be fiscally conservative for 5 minutes, it’s usually to knock a big number down while getting something for their team. Consider the $3.5T item on the table now. Republicans knock it down to $2T, claim a victory, get some roads in bumblefuck, Iowa, and rubber stamp the limit. Could this COVID vaccine mandate have pushed too many libertarians over the edge and we actually default? Probably not, but something not to ignore, either.
19. Lockdowns – while we may snicker at this possibility, Australia is locked down…hard. Canada has a lot of weird shit going on. Europe is sporadic. I am finding that here, you have a lot of people wanting to break loose from all of this – but the harder they want to break out, the more we get the Buffalo Bill treatment from Silence of the Lambs. Meaning – you cannot have crisis spending without a crisis. You cannot have UBI if people are actually back to work. This is a dark horse, but keep in mind that many other countries than the US exist and our economy is pretty global these days.
20. Supply chains – This whole JIT (Just in Time) experiment works well with functioning global economies. I’m now hearing they want to build chips in Arizona. Backlog until 2023. Car companies are making cars, but parking them in lots without chips. They are making cars, but cannot sell them. How long until this may affect layoffs? How much juice can they squeeze from used cars? Point is, there’s a reason we buy chips from Taiwan. It’s cheaper. Most stuff we buy here is either made out of this country or parts of it are made out of country due to costs. If supply chains start to go domestic, which I see as starting – you will start to see all costs go up across the board. This leads to less consumer spending. Retail numbers are no bueno. While we saw lumber come down, shipping items are vastly expensive, still. If mercy is called somewhere along these supply chains – you might have financing for this stuff to blow up which might affect items in the supply chains more. Consider a Lehman moment due to Evergrande and 5 banks blow up – and some of these banks financed/owned items in a chip supply. If these items get seized or go out of business, you may have global supply chains disrupted much further.
Bonus items, or rather, things I remembered afterwards or people pointed out to me…
- Palantir bought $50m in gold. This isn’t because they thought gold would moonshot next week. It’s because Palantir seemed to wanted to have hedges on their cash and are an AI company that does work for the CIA. So – their algos and macro pictures pointed to a situation they may need gold.
- Fed only one to buy bonds – someone pointed out that IF we get our debt limit increased, that no one buys bonds. It’s not a real correlation in that they can fire up the printing press with these at any time, but the concept is that if and when more debt is issued, that these notes/bills/bonds would have no buyers and the Fed would have to buy. The concept is no one wants our debt and this could signal problems where the market may react negatively. Possible – but there still is foreign interest now, but not what it used to be.
Thoughts on Uranium
Man – so tempted to get in now. Almost pulled the trigger pre-market. I’m waiting. Could I miss this move? Yeah. These 20 items above have me stuck at the moment. I’m waiting for $1865 in gold and $26 in silver, listening to Michael Oliver. I don’t need to time the bottom anymore. I have a STRONG cash position and am holding, for now.
The big deal with U these days is SPUT. Obviously. But prior to getting on my radar again Friday due to GME/AMC talk at WSB, these have been at 52 week highs. Unlike GME and AMC, these companies are not way overstretched with a 44% short position. These companies also evoked emotion. Weekends buying video games with dad, or going to see a movie at AMC with my girlfriend. No one has that about Adnani’s UEC, I’m sorry.
These stocks are primed and pumped for lift off. And I could miss the whole damn thing. I know Sprott added a billion to the limit on what they can buy. But man, this last few weeks has been so electric, I can’t chase it. Sorry guys.
My thoughts with the macros above really have me concerned, but I’m sleeping better with a lot of cash under the pillow. Could this drag on for months or years? Yeah. Could I miss an up move? Yeah. Do I have a plan to re-engage with miners? Yeah – In Michael Oliver I trust. He’s made the most sense recently with his momentum charts, but I can mathematically see quite easily how Michael Gentile sees the upcoming pullback.
Overall, seek out guys smarter than me on how to play any of this with puts, calls, etc. I’m just telling you I got a bad gut feeling and hope this passes. If it doesn’t, I’m positioned well for fire sale day. I was heavily in at the end of March and I’d wake up to see -1500 on the futures. Nothing you can do when these things are getting killed overnight.
So….call me at $1865 gold and $26 silver – and hedge accordingly.