Detox
Posted on Monday, January 16th, 2023
We hope that those of you who received our quarterly letter enjoyed reading it. Those of you who did not just send me an email and I will pass it along. There is a bit too much detail in there from a compliance perspective, so we are not sharing it on the internet. The holiday season was very nice, but the house has suddenly gotten very quiet again. Diane and I are still trying to find our way in this new empty nest world. We have started to plan some trips but, in our hearts, we are homebodies. Wish us luck.
The market has also been a bit too quiet as most got their tax loss harvesting done early this year and stepped aside to enjoy the holidays. 2023 has started as most years do with the losers of the previous year becoming winners and the winner’s becoming losers. It’s just tax issues. Everyone who sold their losers is buying them back and they are now selling their winners as they have delayed the taxes due for another year.
Last week had the feel of a short squeeze. The most shorted stocks in the market were up big. One of the leaders was BBBY. Bed Bath and Beyond announced that they might go bankrupt, and the stock was up 400%!! Huh? Bitcoin made a nice move and Carvana was up big. All junk. When the MEME stocks and most shorted stocks are running higher it has the feel that the bear market is not over, and market investors need further detox from the years of Easy Money and the Fed bailing everyone out. The Fed has said that they are not coming this time and when the stock market runs higher it eases financial conditions. The Fed wants tighter financial conditions. Don’t fight the Fed.
We believe that the Inflation numbers are headed lower as we lined out in our letter. This was peak inflation for the moment. First is the peak in inflation then come the earnings reductions and warnings. The banks reserved far higher amounts for loan losses last week, so they are expecting a recession.
The Retail investor has sold. Fear is fading and greed rising. The 200 DMA is key. We are right on it and in positive gamma. That is supportive for markets. We always ask – What is the pain trade? The pain trade is higher. The banks reported poor numbers but rallied. The corporate buyback is back in full swing on the 27th. The options market resets with a big expiration on Friday. We expect volatility to rise.
“Short term volatility is greatest at turning points and diminishes as a trend becomes established.”– George Soros
I think we aspire less to foresee the future and more to be a great contingency planner… you can respond very fast to what’s happening because you thought through all the possibilities, – Lloyd Blankfein
A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill
To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .
Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor