Trade Alert: Gently Ebbing Against This Nasty Market Flow, Or, Powell’s Negative Credibility

I’ve been back and forth to Dallas this week, helping a little bit with hosting the C.L.A.S.S. Space Symposium where I learned a lot about Space and how it is increasingly a national security issue along with making a few connections to explore and learn from further.

As for the markets — wow, it’s crazy/ugly out there. The day to day volatility, the intraday volatility are wild. People chasing rallies are getting crushed. Frankly, you can’t hardly find a stock in this market that doesn’t at one point go down 20-40%, sometimes in over a week, but more often in one day. There’s an old saying about how stocks go up like an escalator and go down like an elevator and this action in the markets over the last few years has indeed been an example of that.

The problem remains that valuations are still stretched when you look at the broader markets. And then there’s yesterday’s Fed announcement, which I’m not sure could have gone any worse. There was no reason for Powell to issue a press release at 2pm ET that basically said, “We know that there’s going to be a lag effect from the rapid and unprecedented rate hiking that we’ve done in the last few months and we know that we should probably slow down soon and maybe eventually pivot to an easier stance.”

Then he came out for his press conference a few minutes later and spent the next half hour explaining why everything in that press release was wrong and how his base case now is that he plans to slow the economy hard enough to go into a recession and that if that recession gets really bad that we shouldn’t worry because he has the tools to fix the economy at that point.

What could possibly go wrong? He’s done such a great job so far of keeping inflation in check and has been right about everything about inflation, the economy and rates. Oh, wait. No, he’s been wrong every time he’s done anything for the last few years and his credibility, as I’ve been saying for months is shot, is more like a negative credibility at this point. The stock markets would probably rally 3-5% on the day that Biden fires this guy. If he ever does, which I guess he probably won’t or he would have already done it by now.

So look, I’ve always said we have to be aware of and trade around the broader economic and stock market cycles and that’s what we’ve been doing as we’ve been cautious, defensive and sometimes outright bearish for the last year or so. And you know that I’ve been saying that we probably haven’t seen the worst of this economic or stock market cycle. I’m still in that camp. I’m not outright bearish, but I’m still far from bullish and I think we are set up to finally start seeing some buy-forever opportunities in a few of our names and quite a few names in coming weeks.

That actually make me excited because we’ve survived the crash and will be set up to put our cash to work (and to cover hedges aggressively again at some point in the hedge fund) more seriously than we have since we got defensive and cautious last year. But for now, I’ve done a few trades I’ll mention here but am remaining defensive with hedges and/or lots of cash.

I bought a tiny bit of ROKU this morning. I bought a tiny tranche of ‘ENVX’ (CORRECTED) and WOLF yesterday. I’ve nibbled a little AMZN, META, GOOG as they hit or went below my “Where I’d buy more” prices but I used slightly in-the-money call options dated out a few weeks or so. I nibbled a little bit of TWLO, just a small holding position for now. In the hedge fund, I covered most of my index short positions but I still have a bunch of puts that near or in the money at this moment.

Steady as she goes, even as this market and this economy and this environment and this part of the cycle are anything but.