What happened last week?
The U.S. Federal Reserve signalled rate cuts coming soon. Rates have already peaked and reversed, but the pretence of central bank control over rates must be maintained.
“Experts” were somehow surprised and speculators celebrated by rushing to buy at prices far higher than just days prior. Most of them are likely to be facing major losses before too long.
Banks
BNKU was bid up another 14% in the 2 market days since my last update, putting the original BNKU holding up 54% in 9 months.
Though I still like big banks in the long term and will hold-on to dividend paying financials in my personal holdings, my commentary here offers nothing unique or of value if it boils down to “buy and hold banks”.
Banks could go far higher before a top, however the exceptional opportunity identified back in March, while the world was panic-selling financials, has clearly passed and BNKU doesn’t pay a dividend to hold it.
I’m closing out of BNKU entirely at this morning’s open.
The 2nd BNKU position was closed when it was up 31% in 7 weeks.
3rd BNKU position was closed the same day. It was up 23% in just 2 weeks.
The last position closed was up 37% in a mere month.
That’s exceptional, especially in a widely-followed conservative sector, and I expect to do the same or much better in banks when people are again selling in panic.
Until then, or at least until I’m willing to sell financials short, one and done #5 - Financials - will sit empty.
Back to rates for a moment.
Keep in mind that by the time official rates do reverse, stocks will be plunging with a very long way down to go if history is any indication.
Complacency is currently widespread, but for now, and probably into 2024, extreme overvaluations can become utterly insane valuations.
One measure of complacency is the spread between corporate junk bonds and treasury yields. When that complacency is at an extreme, a reversal typically precedes serious market turmoil.
That measure recently equalled the 3rd most extreme reading of the past century, and appears to be reversing. Here’s a look:
Notice the cluster of reversals in 1966, 1973, and 1979.
Here’s a gold chart since then:
As for the yield spread extremes of 1929 and 2007, gold doubled not long after.
In early November the largest amount of equities short positions in 5 years was in evidence among registered trading advisors. Just prior to that I’d been closing most of my shorts, very profitably. Of course stocks rocketed higher since then.
Today, just 6 weeks later, a record long position exists among registered advisors.
Oh-oh!
A similar thing happened early this year when I was virtually a lone bull on tech:
It’s almost impossible to imagine a more bullish headline for tech:
“Hedge Fund Shorting Of Tech Stocks Hits Record High”
Those who were levered long tech - and dead wrong - a year ago [in early 2022] are now [in early 2023] heavily short and will likely be proven dead wrong again.
It’s always comforting, fun, and often very profitable to find myself positioned opposite this cohort. Are they ever not very late to the party?
I’ll probably be re-opening hedge positions soon, again taking the opposite side, but for now closing BNKU is hedge enough.
Beautiful
Kairos’ Hermes Secures First NRC Green Light for Advanced Nuclear Non-LWR Reactor
The approval is a major boost for Alameda, California–headquartered Kairos Power, a privately owned nuclear engineering, design, and manufacturing company that says it is “singularly focused” on the commercialization of its fluoride salt-cooled high-temperature reactor (KP-FHR). “Hermes is the first non-water-cooled reactor to be approved for construction in the U.S. in over 50 years,” noted Peter Hastings, Kairos vice president of Regulatory Affairs & Quality.
Kremlin May Preemptively Bar Uranium Exports To U.S.