Trade Alert: Names To Nibble

APOLOGIES. THIS IS THE CORRECTED VERSION FINALLY! NOT MUCH CHANGED except that I fixed a couple typos and added links to the videos. Sorry for the version published earlier that had typos.

Ah, the economy and the markets sure seem like they are in a tough spot right now, eh? And it might be a case of too early to buy but too late to sell (at least the good names — it’s never too late to sell a fraudulent or totally crappy company’s stock).

From the March 2020 Pandemic Bottom through last February, stocks went up all the time when the Fed and Republican Democrat Regime decided to pump trillions of money through the economy with monetary and fiscal spending. The thing was, that the Fed had already been operating on emergency measure status since 2008 and they never stopped.

For the last two decades plus that I’ve been writing about the markets, I’ve always written about how the US has been the cleanest shirt in the fiat currency, debt-driven economies that dominate our planet’s developed countries. That made it so that the Fed and our government could do almost anything, including borrowing trillions while lending itself trillions of dollars, funding trillions of dollars into unwinnable and unending wars, creating halfway socialized healthcare policies written by the healthcare corporations themselves, creating endless loopholes and subsidies and outright welfare programs for giant corporations, bailing out banks with trillions of dollars during the Great Financial Crisis, changing their Federal Reserve system so that it could also lend trillions of dollars of taxpayer money to largest corporations in the world through “emergency” corporate bond buying programs and so on.

When you think about the waste and unfairness of the US system, it’s shocking that it’s been the cleanest shirt in global laundry. Our system, for all its many horrific faults, enables individuals to create and profit from corporations that literally change the change the world and dominate the world’s internet and technological systems. That’s how bad the other countries’ economic, civic, criminal and defense systems are.

But I’ve also always talked about the cycles that are inherent in any economy and how we investors need to have a plan to navigate them. Back the last time the US faced a chance for a real recession, I used to do comedic sketches on my Fox TV show to highlight how crazy it is that our system tries to keep the cleansing of the economy that comes with downturns (click here and here or on the pictures to see the videos).

We need downturns and recessions to wash out the excesses, the zombies, the frauds. And remember that stocks and economies don’t always move in sync — sometimes, you can have huge bull market runs in recessionary times and you can have horrendous bear markets during booming economic times. Earnings do drive the prices of stocks over time though, and it’s just okay that there will be downturns in earnings and the GDP, hopefully for just small periods of time. These cycles, in both the economy and the stock market go faster and should be shorter (if the government would stop stopping downturns) than ever before in the history of the planet as our real-time Kurtzweil-rate-of-change movement of information and money keep the economy moving like it never has in any other time period of history.

But maybe the Republican Democrat Regime, the banking system, the Federal Reserve pushed our Cleanest-Shirt Advantage too far with all those aforementioned wastes, corruptions, violent wars and bombings of men, women and children in far away places and instead of just getting a quick downturn to wash out the excesses, it’s like we’re seeing the government and its tools go all in on a hand when the casino mighty be running out of money anyway. I suppose we’re still by far the cleanest shirt in the economic dirty laundry but we shouldn’t assume that it is still the case and that it always will be.

Regardless, it’s possible that this downturn be quick. On the other hand, there are are so many trillions of dollars in losses that need to be doled out to wash out these crappy, fraudulent cryptos and to wash out the many crappy companies that are out there  and even those good companies that have recently raised money at bubbled up valuations that need to be lowered. The excesses of this recent bubble in technology startups and cryptos are starting to end, and that’s a good thing, but it’s also going to be painful for companies that serve those industries and even for the giant corporations like Apple, Cisco or Avago that have been benefiting from the juiced up spending that is now ending.

If the economy has clearly benefitted from the bubbled up valuations that are now no longer bubbled up, then the economy will hurt from a downturn in valuations. But notice that the economy is probably following the markets and now the other way around. So going back to the Kurtzweil Rate of Change being so quick, if and when these markets do get a chance to reset and we get back onto a growth phase, it will be the markets that turn up first, not vice versa.

Can the Fed raise rates (assuming it does have to) to fight inflation as the economy is just starting to turn into a recession? Yes, it probably has to, and the sooner it does, the quicker the pain (and the recession) will themselves recede as the excesses are washed and the real economy can get back to growing and the wealth of the population can grow.

Clearly, with thousands of stocks down more than 50% and many of those being down 80-95% already, some of this needed Refreshion has started to be priced in to the markets. There’s still a bifurcation between the broader indices and the carnage beneath them in these crushed individual stocks but I worry that most likely way that gets resolved is that the crushed stocks just sort of fade away while the broader indices churn a bit lower for a while. That’d make the environment, especially the trading environment, tough for bulls and bears alike. Lately, it’s been easy for the shorts and the bears but bear markets are famous for their vicious counter cycle bull rallies too and we might be getting closer to one of those here early Monday with the markets down before the open again.

I’m going to start buying some of these dips like this morning’s a bit more aggressively than I have been, but I’m still far from drawing a line in the sand. Long-term investments are what make big money over time and I am going to nibble my favorite longs like INTC and UBER this morning, maybe about 10% as much as I want to own. I’m going to nibble smaller tranches in our other names including FB, KD, U and W, maybe 5% size tranches. But I’m keeping plenty of cash on the sidelines ready to buy more over coming weeks. I could of course be wrong about the markets and they could either rocket right back to new all-time highs (doubtful though) or they could tank 5-10% quickly taking the names we’re nibbling here down with them. I’d nibble some more then,  but still probably not get aggressive.

Long-time subscribers have seen me get wildly bullish in the midst of nasty sell-offs and it’s obviously worked very well as we were indeed what I thought was a Bubble-Blowing Bull Market. We are now post-Bubble-Blowing Bull Market and that kind of 12 year-long scenario is unlikely to be reconstituted given the current constraints the economy and geopolitical and Coronavirus are putting on the Bubble-Blowers here.

The economy, the markets and most all of our stocks will be fine and will probably do quite well from here when you look back in five or ten years. But it’s not going to be clear Bubble-Blowing Bull Market sailing, for a while, I don’t think. We adjusted all last year for this and now we will continue to navigate it as the world controls the pitches, not us. Careful, but NOT scared. Opportunistic but NOT greedy.

This week’s chat will be Wednesday at 11am ET in the TWC Chat Room or just email us your question to support@tradingwithcody.com.. See you there.