I’m really not a doom and gloomer. However, in my “normal” portion of my trading account, it’s about half gold and silver miners or so where my expectation is, that over time, the PMs will gain a lot of value relative to the USD. I’m aware there can be ebbs and flows. As much as I thought silver would hit $75 during silver squeeze – I completely underestimated the establishment’s ability to “tamp down” items of their choosing, and completely ignore a prospectus that directed you to buy silver – you just simply change the rules in the middle of the game and tell people to pound sand.

Well, the other half of my account I’d use with longer term swing trades. Perhaps nat gas, oil, uranium, etc. I even get into and out of IONQ at times (a quantum computing company). Recently, I joined a short seller’s service because I needed some good tips – as I was seeing a down move coming that could be substantial, and wanted to play some of the most over-valued items in certain sectors.

Incredibly, I’m seeing a good portion of people that are looking at charts and thinking a big move up is coming. The technical side of things I can get behind, at times – IF for me the macro sets up properly. For me, the macro is a disaster right now.

On the back of 12 straight months of hiking, we MAY see a pause come June. I believe, in my heart of hearts, the market right now is anticipating a pivot by September and these people have front run this move. I can not really grasp how someone looks at where we are, and says, “holy shit this is about to explode higher”.

What you CAN see is an ascending triangle on the Dow. Most would look at that and say “bullish”. But that might be a 60-40 thing up. Maybe. In the case here, many aren’t understanding the lag effect of how this tightening may JUST NOW start to negatively affect companies. For example – zombie companies that have existed solely by rolling over cheap debt year after year are, at some point, going to run into a wall.

Let’s just look at one chart, to start the discussion. I stole this from Twitter – so this is not my original work.

When you look at charts like this, ask yourself why the interest rates went back down. The simple answer is – many more notes were bought up which pushed price up, and rates down. At 5.09%, this is a really good rate of return – given stocks right now are seeing declining earnings. In fact, only a handful of stocks are actually making money and propping up the entire markets.

At this rate, we are now over the rate of inflation. As inflation recedes, and the consequences of tighter credit starts to contract the system, this “risk off” bet can be the landing spot for a lot of profits in the markets.

To me, I feel those participating in the markets right now are functioning on “Greed” – meaning, perhaps they have a 5x. They are holding hoping for a 6x. However, I feel there is a psychological point coming, soon, where there is a broad agreement that – “the environment is really bad right now, perhaps we need to go risk off”.

The one real issue with this is that the trillions of dollars that were created during COVID may not have fully worked through the markets. However, it’s my contention that there was a milkshake – of sorts, where the rich got FAR richer during this, and the excess dollars created used a funnel to find it’s end destination with the world’s richest people. For example, during this time – you had Musk hit like $250b. He gained like $200b in wealth. Bezos, Gates, Buffet – all of this excess cash landed in the wallets of these guys. And, I believe, it’s staying there, for now. These guys realize the shit storm we are in, and aren’t exactly going balls to the wall of expansion. Rather – they understand the climate we are in and will be holding on to their money.

Likewise, regional banks who do a lot of the commercial real estate banking are missing a lot of deposits. This cash is then levered and lent out in a fractional reserve banking scheme. But if they are down on deposits because they pay .1% interest and cash is chasing 5% yield on CDs or money markets, this leaves them with less reserves to lend out. This can considerably shrink new business ventures.

Anyone who has taken economics for 5 minutes understands we are at the part of the market of saturation. There’s so many choices, and now, little amounts of dollars to chase all of this. Especially at the jacked up prices. I believe a very, very strong recession is coming. I also believe that those billionaires who made all of the money during COVID, are sitting there waiting to buy up everything else at fire sale prices.

Yet – there’s a part of the market that is rationally contemplating a melt up. Let’s consider where we are…

  1. Banks are in trouble, and it’s getting worse. FDIC backstopped a lot of problems, but we’re not out of the woods.
  2. Rates eventually will stop, and recede – but those rates will recede only when there’s a massive risk off move. The chart above shows that the roller coaster ride is at or near the apex.
  3. Zombie companies are everywhere, and with this, these much higher rates are going to be hard or impossible to refinance at. I had seen a chart with all of the debt that needs to rollover in 2023-2024 and it’s in the hundreds of billions.
  4. The debt ceiling default risk is near zero, but is NOT zero. It is possible that the debt ceiling is punted, again, and a trillion dollars of new money needs to be created. This may have rates go much higher, unless the Fed monetizes debt with a version of Yield Curve Control. I don’t see that happening, yet, so we might even see 5.5-6% 10yr coming up.
  5. Earnings are declining for all but a handful of companies. At a near high Schiller PE ratio, contraction is probably much more likely than not.
  6. Warnings from some of the biggest money people out there. Dahlio, Buffet, Druckenmiller – about problems near term.
  7. The nominal amount of dollars of US bank failures in 4 months of 2023 eclipsed ALL of the bank failures in 2008-2009, COMBINED. If you want to add Credit Suisse to this – add another $1.4 T to that. If so, this is making the global financial crisis look very small, in comparison
  8. AirBnB bookings dropped off of a cliff. Might be a future canary in the coal mine for a recession barometer. Many people sucked up available properties during COVID on levered up, cheap money – and now have vacant homes costing them monthly mortgages. The clock is ticking on this supply to eventually drive down home prices, and hard.
  9. We may be seeing 7-8% mortgages as the new norm for some time. The Fed bought up tons of Mortgage Backed Securities and with this, have pledged to sell them or let them expire. Short of the Fed reneging on their promise to lower their balance sheet, this can potentially drive mortgage rates higher.
  10. Unemployment is currently low, but to me this is a temporary item. In my musings, I have hypothesized companies stashed cash, bought back stocks, and are now tightening the belt. As earnings decline, there’s less ability to buy up stock. This was a previous floor for stocks that I believe is going away. As they are now facing real issues – the hypothesis is that they are offloading expensive commercial properties, where possible, to preserve the labor to keep productivity high. I believe we are soon at the point where layoffs will begin – in large, large numbers.
  11. With the above, commercial spaces are about to be vacant everywhere. Think about the downstream effects of big office buildings that are vacant, and the traffic to the local shops and restaurants dry up. Many of these pizza shops, clothing shops, hot dog stands – are about to see a tremendously lower sales volume. This will lead to a lot of the 4m businesses to start laying off. This summer.
  12. Talk of UBI has to be starting, and I believe AI is the smoke screen. They will blame mass layoffs on AI, but we’re nowhere near that even being CLOSE to the case. UBS is a way they can mask the terrible policies, while trying to keep people as whole as they can. Rather than cutting spending, on anything, they will print even more money – debauching the currency even more.

In the above scenario, my biggest short plays are:

  1. Home builders. While the uber rich aren’t particularly affected at the moment, you can see rising inventories, higher mortgage rates, and more uncertainty slowing down sales. A major home builder had 31% declining YoY sales. This move is mostly puts, and I could be early on this and might need to rollover puts to later dates at a loss. But man, the RSI of some of these is like 80. Unreal.
  2. Commercial real estate. I’m still looking for more plays here. I’m finding many of these are privately owned. One of the ones I have been independently researching has been on a recent tear. I’m waiting for the RSI to go much higher before I even attempt to short that.
  3. Car lenders. Sure, with high unemployment and 10% car loans, it’s a really good idea to buy an $80,000 pickup. The biggest issue in that industry right now is lack of repo agents. Please, let that sink in.
  4. Banks. I’m out of this trade for now, as many are bouncing up – I think there may be a rescue net thrown at some point. Many of these are down a LOT, in value, and while many may fall from here, many also are a short squeeze waiting to happen.

While I have massive long term miner plays, I’m also not against shorting gold/silver at times with the futures when RSI is massively hot and we can anticipate a down leg coming.

So there you have it – a shorter piece here to kind of give you a highlight of where we are.

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