Lock the Door
Posted on Monday, September 7th, 2020
We, like I suppose most couples, spend a lot of coffee talk time wondering about the future and where life will take us. Recently, we looked into downsizing now that the kids are off to college. We just can’t seem to make financial sense of it. Everywhere we look it appears that it will cost us more money to get less house!? We have decided to stay put and fix some things around the house. Diane has never liked the curb appeal of our house but I liked that it was on the golf course. So, it makes sense to brighten up the curb appeal and make Diane happy. We got a new front door this week. It really does improve the look of the house. She was right – again. (Thank you Mayford Doors.) One additional bonus is that we now have a key to the front door! In all of our houses we have lost every key to the front door. This is going to make things easier with all of these kids coming and going on their own schedule. At least now we can lock the door.
This is what we had to say two weeks ago in our blog post titled “Controlled Burn”.
Price is the only thing that matters. Computers can’t get this virus and (only) buy because others are buying. Why do you think Tesla is up so much? People are buying it because other people are buying it. There is no magic here. People have bought into the cult of personality but the reality is that computers are buying it in front of other computers and day traders while traders buy up out of the money options forcing others to buy to cover their short positions.
Price is the only factor at the moment that matters. Forget the virus and vaccines and unemployment numbers the market is all about price. If you have been following along we noted the (ab)use of call option buying that was driving markets higher. The news broke this week of Masayoshi Son of Softbank was the whale in the market buying call options by the billions. It worked for awhile. Let’s see if the Wall Street sharks are going to make him pay. If his traders were smart they are already out but I doubt it. He has made some enemies with this trade technique.
We write our blog over the week in bursts of notes as we see important moments. This is our note from Tuesday of this past week. Too bad we didn’t include it in our blog last week.
Massive feedback loop. Buying of upside near term calls is driving the underlying stock price high as dealers cover shorts. Why buy calls? You risk is limited. If the market collapses you don’t own the stock you just lose the smaller premium that you paid. Your risk is known. There is going to be a massive gap to the downside when this cycle reverts.
The tail has been wagging the dog as it was the options market that was vaulting the stock market higher. It is really just March in reverse. Now that we are at these valuations there could be an air pocket underneath as the call option buying trade needs to be unwound. Traders will want to keep the flow going up and are prepared to fight. They might for a bit but this is a logical place for the market to take a breather. September and October don’t have the gentlest reputation in markets. We have been bringing down risk of late as I didn’t want to be left holding the bag when this all falls apart. We stay long and don’t get out because markets can go further than you believe they can. Suffice to say, we are staying invested but locking the door. Lock the door.
Stay safe.
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.