Keys
Posted on Sunday, October 16th, 2022
This is without a doubt my favorite time of the year in Georgia. The weather here has been nothing short of spectacular and the sports calendar has been too. I really love sharing these times with my family, my kids, and my brothers. College football in the south is more than a religion it’s an obsession but part of that is the chamber of commerce weather. Looks like that is ending next week. Next week is expected to see an artic blast with temps 10-20 degrees below normal. Hopefully, it doesn’t last long. The early cold blast has us thinking that we will see a weak La Nina, which, in the south, usually provides us with a dry cold winter. I hope not. Maybe we should be buying natural gas. Either way we think commodities/energy costs are not done going up. This could be a decade long trade.
That has been some roller-coaster we have been on. Why the violent ups and downs? We are still in negative gamma. The options market is controlling the stock market. It is a bit like the tail wagging the dog. There is a lack of liquidity in the market. The positions in the options market are now very short term. Almost 50% of options are expiring within days. That is not the way that market is supposed to work. That just reinforces volatility. It is just gambling. So, there is still a very speculative element to this market. It has just changed hands from the Gamestops and Best Buys of the world to ETF’s in the options market. We are not out of the woods yet. It’s still a bear market.
A year ago, we told you that we would see higher inflation. One of the clues was saw was hidden the way that they calculate the inflation data. Owners Equivalent Rent (OER) is 44% of the inflation calculation. The government was not including the large raises in rent into their calculations. They were basically spoon feeding it into the data. The worm has turned. They are now calculating too much inflation into their data. For the next 4-6 months we see inflation running higher in the government data than in the real world. In Q1 of 2023 the cool off we are seeing in rent payments will begin to show up in the official data. That will have an impact on the market.
Our mentor Arthur Cashin was always fond of saying – “When you find the keys to the market, they change the locks.” One rule we have for investing is to find the hot hand. The key for us is reading everything we can get our hands on and finding/ following the hot hands logic. Who has found the keys? One is our options research analyst that we have been following for some time. We pay him good money so don’t worry about him, but his research has helped us tremendously. The other two research analysts are Mike Wilson from Morgan Stanley and Mike Hartnett form Bank of America. They have both nailed this market. There are some important dates coming up. Earnings are flooding in from corporations. Will they disappoint? The corporate buybacks are in blackout which will not start back up in earnest until October 28th. Hartnett says short stocks until Halloween. The G-20 conference is November 16th. That should begin the turnaround in bonds and the US dollar. The end of the year brings funding challenges. Short story is we either begin to head higher in the next 3 weeks or the bears continue to push into the end of the year. Quite frankly, the end of the year might be painful, but it is easier. It would be a lot like 2018 when we bought on Christmas Eve. The more difficult journey has us headed higher for the next couple of months into the beginning of 2023. We are nimble but looking to nibble more on stocks.
Be fearful when others are greedy and greedy when others are fearful. – Warren Buffett
“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.