My short idea on Mr. Market was a beauty in Sept, with the S&P 500 down 4.9% and Nasdaq down 5.8%. Even though Street folklore, sentiment U-turn and seasonals argue that the index will mean revert now, I believe we will drop to 4200 level and violate the 200 DMA trendline. If so, all hell will break loose. There are too many matador swords dipping into the bloodied flesh of the crazed, dying bull and the ghost of Papa Hemingway tells me we are about to witness an epic death in the afternoon. Take Apple. Thursday’s snap back was a head fake. Apple is down 14% from its peak but I find it surreal that a company that once delivered 25% EPS growth, traded like a boonie value stock at 14X but now trades at a nosebleed 27X forward earnings even though King Cook cannot even manage to deliver 3% revenue and EPS growth, this will be dead money a la Cisco and IBM’s lost decades. My target to cover 179 AAPL short is no longer 160 but 146 as nothing is better than kicking this $2.7 trillion gorilla when it is on the ropes as AAPL falls 28-30% when it enters the twilight zone, as any chart of the last four decades will attest. I hope my new overheated iPhone 15 does not explode ilike those of Khalistan zealots across Canada. Those who mercilessly slaughtered 329 people on the Air India plane off the Irish Sea are beyond the human bond.
The charts suggest the selling pressure will intensify. Note that leveraged hedge funds have been short 10 year US T-notes, German Bunds and British gilts, whose yield spike all suggest the resurrection of bond vigilantes terrified about inflation risk, fiscal risk and political risk as another Uncle Sam shutdown looms. Washington DC is the capital of the world’s largest EM with a $2 trillion budget deficit, 8% of GDP, a 128% debt to GDP ratio and trillions in entitlements owed to a baby boomer generation it cannot possibly ever repay. So the surge in King Dollar has a sinister dimension for me, pure 2008 déjà vu. Fear is a four letter word but then so is ruin.
My sector analysis tells me that the credit crunch wolf is here and the consumer is tapped out. Consumer discretionary ETF has been savaged by the 30% plunge in Nike and the horror shows in Disney/Starbucks even as Walmart scales new highs. Airlines and banks are in a freefall. Workday’s admission of slower revenue growth and public execution on Nasdaq suggests to short some of the Valley’s enterprise software darlings, who are as vulnerable to a recession as my chip shorts. ARM Holdings and Instacart proved that the IPO window was a Pyrrhic victory for Wall Street.
A synchronised global recession has now begun in China and Europe but its shock waves will spread to Gringolandia $25 trillion economy. Unlike the ECB, it is ominous that Powell makes no mention about China’s woes when he discusses Fed policy. So I short Brent since MBS cannot have his Israel pact without a shock output hike to bring oil down to $80 and help Biden with gasoline prices.
Also published on Medium.
