Kryptonite
Posted on Sunday, December 11th, 2022
That was a very long week full of unexpected twists and turns and I’m not just talking about the market. We had multiple emergency situations, and I didn’t sleep much this week but it was all worth it. The market had some unexpected twists and turns as well. We surmised that the week was probably going to be a grind higher if the options market held its sway, but we were wrong. For the first time in a long time we saw a wave of selling swamp the positioning of the options market. Rumors were out on the Street that someone was liquidating positions and it caused a wave of selling that overwhelmed the options market. We noted last week that there are some liquidity problems, especially when it comes to private real estate funds and that could be exacerbating liquidity issues along with the end of the calendar year.
Blackstone had another fund hit its limit of redemptions and they are putting up the gates there too. This one is a privately traded corporate credit fund. Blackstone says that it is up 7% this year. Its publicly traded comparables are down 30%. Never just one cockroach.
Interestingly, I am getting inundated with sales pitches for funds that are private equity or privately traded funds. This always tells me exactly what is kryptonite on Wall Street. It tells us exactly what NOT to buy. Privately traded REITS and private equity funds in general are in for a heap of trouble. They haven’t marked their books down in line with publicly traded vehicles. They hoped that this bear market was not going to last this long. When those funds cave we are closer to the end of the bear.
Goldman called the selling on Mon and Tuesday a buyers strike. They may be right as the market has backed off very sharply from our target of 4050-4150. The 3mo/10-year Treasury curve is the most inverted since 1981 and bank CEOs are starting to sound very pessimistic regarding the consumer and a recession for 2023. The 3/10 inversion indicates a looming recession. Bear markets with recession fall an average of 34%. We could fall 21% from here just to get to the average.
We are back to negative gamma in the options market with a full news slate this week and a very large expiration on Friday. Everything is on the table. Last week we sold a portion of our oil stocks to cut risk. A recession would hit oil stocks, but we still think they are the play for the next decade. The fight against inflation will not be a one and done and being tactical is going to become more important. Buy and hold will not work as well as the past 40 years. In recent weeks you may have noticed us taking pains to be as tax efficient as possible so as not to pay any unnecessary taxes and redeploy cash.
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.