Why FTX Matters

The lapdog media covering for SBF

Before we get into markets, which have been insane, I would like to touch on the implosion of FTX and its founder Sam Bankman-Fried (SBF). There are many angles to this story and much has been written already, so I will try to focus on what I feel is important as the dust continues to settle. The first point is this is just another example of fraud and commingling of funds. Basically, SBF took assets from FTX (his crypto exchange), transferred them to his own hedge fund (Alameda research), and lost his ass via speculative bets that went the wrong way. As some info started to filter out (after the mid-terms, hmmm), people became aware of the asset and liability mismatch and a “run” on the crypto exchange ensued. Poof, FTX imploded just like that with 16B evaporated nearly overnight. Second, one might ask “why hasn’t SBF been taken into custody or at least have his personal assets frozen?”. Coincidentally, SBF was the second largest donor to Democrats this election cycle to the tune of 40MM. In other words, this appears to be another classic example of the rule of law only being applied selectively based on political affiliations and connection. Disgusting, and one the main drivers of the ongoing collapse in the US. I’ve seen reports circulating that SBF also donated 1MM to Mitch Mcconnell’s PAC, and this somehow negates the idea that SBF is siding only with Democrats. Well, 1) a 40-1 ratio of Dem to Repubs is heavily slanted to Dems, and 2) Mitch Mcconnell has proven to be a RINO at best who is only interested in preserving his own personal power. Also, let’s not forget the privileged and connected upbringing of both SBF and his ex-girlfriend who ran his crypto exchange, Caroline Ellison. SBF’s parents happen to be both Stanford University law professors (with links to the worst of the worst in the Dem party), while Caroline’s father is a professor of Economics at MIT. Coincidental one might say, but sure doesn’t exude confidence in the system when arrest warrants haven’t been issued (as both SBF and Caroline have fled to non-extradition countries). The last point regarding FTX involves regulation. In his own pitiful rationalization via a series of tweets, SBF makes the points that FTX is an example of why crypto should be regulated and that he did nothing wrong except made a mistake by miscalculating leverage. Various NPC’s (acronym for non-playable characters, ie braindead people who just parrot narratives without critical thinking) then jump and say, “regulate crypto to stop this from happening!”. One, regulation has never stopped fraud. The “give me $1 and I will give you $10 back with no risk” is an old story in this country. The commingling of funds issue is also fraud, but one may say technically legal since Glass Steagall was repealed. Because that is exactly what banks still do today. So, what are we asking to regulate? I submit the real story here about “regulation” is to use FTX as an example as to why we need central bank digital currencies (CBDC’s). CBDC’s, if implemented, will be the death knell for societies across the globe and usher in a new era of complete control by aristocrats over people, with any semblance of freedom and market economies destroyed. Covid and forced immunization was just a warmup and trial run for the real goal, which is CBDC’s (and some kind of social credit system).

SBF and FTX aside, let’s talk markets which have been insane. First, let me say that I will admit when I am wrong. In this case, and in the short term of the past 4-6 weeks, I was wrong which is easy to be when the outcomes are binary (up, or down). While I was anticipating what Elliott Wavers call a “3 of 3”, instead what happened was an extended wave 2 retrace, and a nasty one at that. The real surprise was the Dow which retraced the entire drop from August. Alas, this doesn’t mean that we are in a new bull market. The huge divergence between the Dow and other major indices (SnP, Nasdaq) gives a clue that the move was nothing more than a fierce bear market rally. Therefore, I am doubling down on my call for significantly lower lows, likely by end of year. The market, in typical fashion, rallied right up to trendline resistance from when the bear started, and near the 200-day moving average.

Bombs away after getting near red line

Basically, nothing has changed from a month or so ago. The market just decided to super spike on the slowdown on CPI, and the idea the Fed is slowing its pace of tightening (which has been communicated for months). A big driver of these huge swings is the increased use of super short, dated options (called “0DTE – DTE = days to expiry) where participants use pure leverage to drive the market in a chosen direction on a given day. These options are usually purchased the day of expiration and sold the same day. Pure insanity. I would urge folks to look thru the trees and see the forest, in spite of the trees (waves and moves) being so huge. The inversion in the bond yield curve (e.g 10/2 year) continues to widen, signaling a nasty recession is dead ahead. In other words, when people celebrate, that headline CPI has dropped to “only’ 7.7%, they may want to ask themselves why it is dropping.

Waterfall decline imminent

Things have gone as planned since the all-in short call around ES 4300. Many are wondering, is the decline over? In my estimation, the answer is a resounding “No!” Currently trading at approx. ES 3700 this morning based on a short-lived bounce from the BOE resuming QE to prevent a full-on Gilt implosion. Suffice to say, this is not positive for England, AND it doesn’t mean the Fed will pivot. Oil is up $2.50 a barrel as I type this. Without getting into all the details, I ADDED about 25% to my short positions during September expiry/roll to December contracts. I also have been buying the dip in 10-year treasuries (expect a flight to safety shortly), gold, silver, and oil.

My previous target for a short term (next few weeks) equity was around ES 2900, but I think we could go lower. I expect a nasty decline in the next couple weeks. Much nastier relative to the orderly decline we have had since ES 4300.

ALL IN SHORT

It’s that time again. Last time was around the /ES 4500-4600 level in late March. Approximate current levels: /es 4296, /nq 13651, /ym 33894, /rty 2016. Please note that I am also LOWERING my SnP target for this next wave down to 2900-3000 given the higher degree retracement up. Let’s f’in go!

Big, fast moves never end well

This bear market rally has extended which means we are in a higher degree retracement. Which also means that whatever comes next will be even nastier than even I expect. On a percentage basis the SnP has rallied 13% plus from the 3639 low, exceeding the 12.8% rally back in March. I gave up some of gains from my highest point a month or so ago, however I am still up around 70%. So good luck to the Perma bulls who were down 60% but now only down 45%. lol. To their credit sentiment has clearly shifted in favor of the Bulls, which paradoxically, is required before a nasty plunge can begin anew.

It’s hard to say where this rally ends up. Wave “2” rallies like this can retrace anywhere from about 38.2% to 78.6% of the previous drop using Fibonacci levels. We could easily collapse Monday or can extend a few percent higher over the next week or two. If I knew I wouldn’t be sitting here, lol. My way of managing this is to layer in new shorts as we go higher, just like I take off shorts when we have a big dip. For example, when we dipped to 3639, I took off about 20% of my position. I have since re-added and am currently shorter now than I have ever been, but I didn’t re-add all at once. Some at 3850, 4000, 4100 etc.

You get the point. Let’s see what happens next week. Have a good weekend!

Desperate Bear Market Rally

As is typical, equities like to attempt a final desperate move up before a plunge. Historically, what this usually looks like is a quick 8-10% move from the previous low. I contend we are in the very late stage of such a move from the recent /ES 3639 low, sitting currently at about /es 3970. There is a gap above in the 3980-4020 area, and the market would love to close that in order to maximize pain for bulls and bears. I am so far up in my positions, however, that I am willing to take on more risk and cannot add new short positions fast enough both yesterday and this morning. In other words, we may go a bit higher which would completely unsurprising (like the entirety of this rally), and I don’t care. The risk/reward is still in favor of significant downside. The notion this time around fueling the rally is that the Fed will pivot sooner rather than later due to recession risks outweighing inflation. I disagree with this completely and believe the Fed is boxed in, especially because they have taken a measured approach to rate hikes and its balance sheet unwind.

I think this will be a story I tell my grandkids about, God willing. Until then, happy hunting (trading).