Look – I’m writing this not for you to mimic what I’m doing, but to point out where I think we are, and what might be ahead in the near term. I’m seeing mixed signals right now, and I think all of you are too.

The reality is the charts look like someone drew technical porn for an ascending triangle rise breakout coming.

You can see the flip side to this, Stan Druckenmiller seems to think there’s imminent danger within the next few weeks.

Most people don’t realize that with these technical patterns, there’s a probability associated with it. With this ascending triangle, I think I had read it’s a 60-70% item.

The Nasdaq paints a different picture…

This ascending wedge doesn’t support a bullish ascending triangle with the Dow…

The S&P doesn’t give you much either – if anything, I’d tilt this towards an ascending wedge.

If you are SOLELY looking at technicals – there is ONE theme you can extract. That there is a move coming. There is compression of sorts. You can see that it seems many are trying to front run the reversal in interest rates. However, as I mentioned in my macro forecast this year, I felt they need to take this higher than anyone thought, and have to hold it here for longer. I had banks as a wildcard, but didn’t see THIS level of destruction. Which brings me to fundamentals.

I believe ALL charts now from the government are being juked for a narrative. That narrative is to sustain higher rates to quash demand to drive down inflation to their 2%. They cannot do this if the unemployment is high. I made the argument about commercial real estate dying nearly 3 years ago in the first summer of COVID. I wrote up a big piece talking about how, if everyone is working from home, could businesses afford to have this massive amount of office space. I had predicted this crashing, but 3 years too early. Why? COVID protections hit, and now, as of a few months ago, they are all gone – which led me to then run with this piece and front run every major news outlet.

I feel I’ve been navigating the choppy waters well on the macro side here. Problem is, I’m not a pro trader and I have a bit of a lag with learning the plumbing and tools/techniques they do. For example, if you are doing puts, and the move goes against you, when do you bail? These common questions still plague me as a novice. I do ask for opinions – but ultimately, I am responsible for my portfolio, and I feel I’m getting the cruise liner in the right direction, and now I’m focusing more on sharpening when to get in and out of things.

But now, let’s look at this narrative.

We have credit cards at an all time high…(I stole the chart from someone, I forget who – please correct me with credit)

This would indicate one of a few things…

  1. People are tapped with cash
  2. People are preserving cash, and using credit, with the idea of inflating their way out of credit
  3. People are VERY bullish about the economy and engaging on large projects and using credit to fund them

I am very skeptical with item 3, and this appears to be about credit cards. I had been looking at decks, and they do credit – so it could be things like that through a bank like Synchrony.

At the same time, the Fed would not hike into a rising unemployment rate, would they?

If this is hard to read – sorry. This shows the consecutive upside/downside surprises with unemployment. This chart shows 12 month consecutive upside surprises. Going back to 1996, we see 5 at the top of this. I’m not a professional stats guy, but in 27 years, to have THIS deviation, tells me that the data is incorrect.

As of now, no one is believing the unemployment data. This also tells me they are using their “tools”. The kind word for it is “rhetoric”. There are actually college majors named this. You learn how to influence others with charts, language – think “hearts and minds” pamphlet campaigns. Surely, we would not do this to our own people? Well, that chart tells that….outlook is very good.

We now are seeing banks dropping every week. Essentially, the source for this issue was banks had all of this cash, and they had to do something with it, so they parked it in treasuries of duration. When depositors wanted to take their money out, banks ran out of cash and had to sell these treasuries at a loss to pay the man. This is because the rates went up so far, and so fast, that these notes lost face value.

You can also see, for the first time in my life (I’m 47), that M2 money supply is shrinking. For the sake of this – this is people pulling money out of their banks and perhaps putting it in money markets or something else. In a fractional reserve systems, banks must have these deposits to lend out. What you are seeing is banks giving .1% interest, and people taking that cash to money markets at 5% or treasuries at 4%. This sort of is a run on the banks, in slow motion.

In reality, the only REAL way to stop this, without trillions in bailouts, is for banks to actually pay 3-5% interest rates on deposits. How do you think that is going to go over with their profit/loss?

We can also see some chicanery going on now every quarter with earnings. Assume a company expects $.90 in earnings for the next quarter. Perhaps they come out and project $1.10. This could be bullish, so people jump on this. As the quarter goes on, the analysts walk back their projections, but this might be on page 37 of the WSJ. By the time the quarter comes in, the “street” has $.87 projected. When the earnings come in, they come in at $.90 and “beat” earnings expectations. Shares jump! However, revenues could be down 30% and profit down 50%. Doesn’t matter, they “beat” so the bots and algos do their thing.

With ETFs – we now have all of this passive investing. For example, if I wanted to buy commercial real estate, but don’t know the companies, I can look up ETFs that have different types of properties. Given the American diet of shit, medical REITs seem to be all the rage. However, this is different than office REITs. So many people invest in “real estate” and this pumps up the basket of these unknown stocks. Companies like Vanguard curate these baskets, but often, you may be buying shit with it.

On a bigger scale, these ETFs have now pumped up a LOT of companies that have high PE ratios and a failing business model, and should not continue to be getting love. Those who correctly see the failing business go to short the company, only to then see the price move up. Why? More people bought into the ETF, and shares are getting more scarce, and it bids them up. Add to this, these shorts then get blown out and have to buy back. This is essentially how Tesla got to crazy levels. Tesla was a meme stock before there were meme stocks.

Which takes us to now.

One can make the valid argument that:

  1. Commerical real estate is a problem
  2. Some areas of this country are so crime ridden that any commercial real estate in those areas could be doomed.
  3. Pockets of homes in this country are about to see MASSIVE deflation as AirBnB bookings dropped off of a cliff and people highly leveraged on these destination properties cannot pay their mortgages.
  4. Unemployment will have to have a reckoning, and soon, as layoffs continue without a counter narrative of where jobs are actually adding. Everyone can clearly see layoffs, and there’s a limit to birth/death adjustments.
  5. It’s clear to anyone that the US is planning on unlimited deficit spending to buy votes – no matter who is in power. This is reducing trust in the credibility of the fiat currency
  6. It’s clear that BRICS is gaining steam to unseat the dollar – and countries CBs are net sellers of US debt. This could have a massive inflationary impact with items costing more USD to import, and USD can come back to us.
  7. It’s clear bilateral agreements are happening all over the world to get out of the USD. This doesn’t mean the dollar is dying next year, it just means that it is required less and less as the world’s reserve currency
  8. Its also very clear that zombie companies are at the end of the road, and unable to rollover cheap debt, are about to fold/get taken over. This could lead to MASSIVE unemployment in the next 1-2 quarters.
  9. The S&P is now really only a handful of companies propping up earnings for the entire index.
  10. Regional banking is the most fragile it has been in my lifetime, and estimates that nearly half of them are in trouble. Regional banks deal with most local lending for projects in your cities.
  11. Housing new bookings are slowing down. Lumber is crashing. Mortage rates are the highest since 2007.
  12. We have had more banking issues (nominal dollars) in the first 4 months of 2023 than 2008/2009 combined.
  13. De-dollarization along with de-globalization is real, meaning the fed smashing demand-side with high FFR is not going to solve the inflation issue.
  14. With lack of supply on the market – as AirBnB homes fail and come to market – there will be a deflationary force at work for homes. There is no lack of supply of homes. There are a few entities that, with ZIRP, bought as many properties as they could in specific areas, drove up prices to rent to short term vacationers, and that time is coming to an end. Home inflation IS real, but only in specific areas, and that is about to get baptized over the next 3-12 months.

When you put all of the charts and macro items together, I have painted a picture where it is more likely than not that the stock markets are in store for another leg down. My concern here is that the last time I checked, there’s a lot of short interest floating out there. I am shorting some housing and commercial items, and my main concern right now is not that housing will suddenly heal, it’s that fake information comes out to juke the algos, which then forces shorts to cover and juke the entire system up on a short squeeze from hell.

Take BLDR, for instance. I have $85 and $90 Aug puts on them, and now short 100 shares. It looks like a massive mistake.

On the daily RSI, it’s at like 82. It’s bookings have declined, and we are facing a massive recession coming. Yet, you can see a gap up on earnings last week.

OK – sometimes the daily runs hot…what about the WEEKLY RSI?

78. Are you kidding me? Who the !@%@#$% is buying this stock at these levels? I’m also not seeing a divergence yet with RSI. So I may get my face melted off.

But in that Druckenmiller interview, he seems more than convincing that something is going to happen in the next few weeks. And this time, he is positioned in gold and silver, where in prior situations, he would not be.

At this time, I have only a small call position in EXK, for Jan 2024, deep in the money. All my other precious metals mining stocks are straight buys not call options. I am concerned with an accident in the next 4-6 weeks that would destroy my PM call options. That being said, Druckenmiller is holding the METALS, not the STOCKS.

I, like many of you, bought stocks on margin. When things get sketchy, you can sell out of a lot of your positions, or hedge. In my situation, I plan on hedging – looking at downside in the housing/commercial real estate markets. IF there is an accident to the downside, to me, the FIRST items sold are these things that look like people have massive profits on, like BLDR. I believe that is the FIRST round of selling – but with the banking crisis, I do not believe gold and silver are getting the guillotine. Sure, we can have a flash down on silver for a few days, but I don’t see that as a sustainable move, as 2022 had a 250 million oz deficit on silver.

Likewise, right now, as we speak China essentially greenlit 500m of their citizens to start saving in gold. Even if each one of these people bought 1 gram (about $60 USD) of gold a month, that’s 500 tons a month China will now be pulling out of the LBMA and over to Shanghai. The timing of all of these moves appear to be coordinated in a way to take down the USD.

You have the milkshake people of the world that DO make a convincing argument for a 150 DXY, but against what? Euro, Yen, CAD, and GBP? While all of these shit currencies can out print the USD to send the DXY massively up, this has ZERO bearing on the price of gold IF countries with billions of people are suddenly switching on to buy grams of gold to then use that with a digital currency.

It stands to reason, on paper, that gold/silver could retain their value here. And, with trillions in cash on the sidelines, it also stands to reason that moves down get bought up, time, and time again.

However, in the near term – it’s hard to argue with Druckenmiller’s vision. What macros could cause this?

  1. More zombies start to go belly up and dominate headlines – a way to try and FORCE the fed to cut rates.
  2. Markets start to get flooded with real estate and this can reveal some true problems
  3. “accidents” to the upside are finally adjusted correctly and unemployment is shown to be 5%.
  4. More banks, of size, start to fail. This can literally happen any day now.
  5. Too big to fail banks start to have some issues
  6. Fed jacks another 25 basis points because markets are still too hot
  7. Debt ceiling is not extended, which can cause major credit issues and shock the markets
  8. Hunter Biden indictment, which could then cast shadows on Joe Biden’s dealings – threat of impeachment could cause shockwaves
  9. Announcements of gold being used by BRICS actively
  10. Dollar shockwaves – surprise to upside could cause problems with stocks. Most feel dollar is headed to 90, which might be part of the bullishness.
  11. Massive announcements of layoffs

Problem is, no one KNOWS what is coming. But part of me feels that I’m positioned to get hurt by a short squeeze to the upside with more fake news. However, I can live with this, to an extent. Why? Most of my investments are in my properties I rent, so they would have more equity and future rents. My HEDGE here is the PMs, and with this, I’m trying to hedge THIS by doing puts and shorts on CRE and builders.

While lumber is down, new housing starts are also down, a lot. However, inflation is still 4.9%, so margins CONTINUE to be compressed.

Conclusion

There could be an explosion to the upside, or we can wake up one day inside of a month to stock market being down 1200. The macro environment shows clearly that we are in a recession, or heading there – depending on the definition you choose to believe in our 2+2=5 life we now live. I am a bit on the cautious side now, and what’s of interest to me is that metals have had a significant move the last few months, but miners have not joined them. To me, big money is waiting for a rinse. Meaning, if gold shot down $200 from here, and silver $5, it would not materially change the miners stock prices. It would, to a degree, but not like these things moved in July 2020. Part of me sees the market pricing in this risk and this also gives me caution with my miners – and why, rather than sell them, am choosing to hedge them with something I believe would move further down during a market smash.

So for arguments sake, my miners could lose 20% of their value in some contraction here, but my CRE/RE puts/shorts could significantly outperform the downside of the miners to hedge this loss. When I feel the time is right, I exercise/sell the puts, buy back the shorts, and use that cash to buy mining stocks on the cheap.

Be careful everyone. No one has a crystal ball, and with this, I’m just trying to convey how I’m seeing this stuff these days to put it to paper. Not financial advice!

Advertisement