“The race is not always to the swift, nor the battle to the strong; but that is the way to bet.” - Hugh Keough
Russell-2000 Small-Caps 20-year chart:
Seen a different way, here’s its 35-year chart:
The yellow lines are the exact same circle simply shifted over. That chart looks like a big smile. When 20-year up trends fail usually only margin clerks are left smiling.
Last week TZA, a levered short on the Russell-2000 Small-Caps index, meaning it moves opposite to the index shown in the charts above - TZA goes up when the index goes down - posted its 2nd-highest weekly close of the past year. It looks to continue much higher.
My stated One And Done hedge is a position in TZA opened 7 months ago at $31.39
It remains open, closing today at $35.42 or up 13% from my entry.
During that 7 months several other shorts and hedges were closed for considerable quick gains, including a 2nd TZA position:
In addition to the original TZA position, there’s a levered short in big tech via FNGD still open. Most of my long positions have been very profitably trimmed, are defensive in nature or hedged.
There’s also a Tesla short via TSLQ, and Tesla’s looking very bearish.
As markets tank I’d be worried if I had no hedges, or only TZA. Luckily I can keep booking winners to free-up capital for buying at the bottom, or for adding shorts in case of the typical seasonal rally into a new year.
I’ll close TZA at the open tomorrow / Friday.
That’s process.
I won’t rush to buy anything wth the proceeds. That’s patience and prudence.
From +3rd URA. Tech Turned Over, Uranium Set To Explode, posted August 13:
WSJ headline a harbinger: Boomers Got Hooked On Stocks, Now They Can’t Let Go. Nearly 2/3 over age 65 have money in stocks.
All manias end the same, and it’s not different this time.
Below is a chart of the Dow / gold ratio, showing large caps peaked vs. gold 5 years ago within the typical range, while the Dow’s all-time high was January 2023, and it’s a very long way down if history is any indication.
The grey areas are periods declared officially as recessions:
When might the next recession occur? Well, we’re already in it. “Officially” however, a major recession typically coincides with yield inversions unwinding.
Recently the 10-2 year treasury yield spread was inverted to an all-time record degree. Though it could become inverted to an even greater historic extreme, it appears that a double-bottom is in evidence and the unwinding has begun:
Excerpt from Tolling Of The Bell, posted September 25:
Here’s an updated version of that chart, showing the double-bottom (in red) held while the established level of support and resistance for 2023 (blue line) has been breached:
Now, a 52-week high in inversion reversion:
Today’s headlines are a harsh reflection of where we are in the cycle:
Tesla CEO Elon Musk sounds pessimistic note about economy on earnings call
Country Garden: China property giant default fears grow
Wall Street Journal: A Financial Crisis in China Is No Longer Unthinkable
What does this mean for the rest of the world? A multiyear financial quagmire that depresses Chinese consumer confidence would sap demand for imports while swelling exports, pressuring foreign producers.
And while contagion is circumscribed by the limited connections between China’s financial system and the rest of the world’s, that system is still, in absolute terms, gigantic. Should it start to flail, the ripple effects are certain to be felt abroad.
China cut holdings of US Treasuries to $805 billion, lowest level since 2009
30-year fixed mortgage rate hits 8% for first time since 2000 as Treasury yields soar
Nokia to cut up to 14,000 jobs after 20% drop in third-quarter sales on weaker demand for 5G equipment, growth uncertain
Home sales drop to the lowest level since the foreclosure crisis
Greenpeace loses legal challenge to UK's new North Sea oil and gas licences
Fury surges across Middle East after Gaza hospital blast
President addresses U.S. in rare Oval Office speech
Argentina Central Bank Hikes Rate to 133% on Inflation Data
With Putin by His Side, Xi Outlines His Vision of a New World Order
Quoting these headlines here should serve an instructive purpose in the future, because the more things change… here’s a hit song and video from 1991:
“Ministry - N.W.O. (New World Order)”
1991 was a very different time than today, of course.
Growing up in the 80s meant living in fear of a nuclear war with Russia.
August 24 in Ukraine is celebrated as Independence Day in recognition of the 1991 vote by the country’s still-Soviet legislature declaring independence from Moscow.
Climate of Concern was a film made at the time. It warned of extreme weather, floods, famines and climate refugees as fossil fuel burning warmed the world. The serious warning was “endorsed by a uniquely broad consensus of scientists in their report to the United Nations at the end of 1990”.
A few years prior, a sudden market crash had occurred which at the time was said to risk a global financial crisis. Then came a decade of rampant speculation - focused on tech fantasies and related frauds - fuelled by legions of novice market players with unprecedented easy access to trading and leverage.
There was even a meme stock frenzy attributed to youth conspiring on message boards to pump and dump stocks and “wage war on short sellers”.
A very different time indeed.
In 2000 the U.S. had its closest and most contested Presidential election (at that time), marked by widespread accusations of cheating and vote-counting irregularities with some recount results having to be settled in court yet still doubts over that election persist.
By 2001 these were the big news items: terrorism, ideology, proxy wars, the tech bubble popping as a global recession began, and yet another war in the Middle East.
Here’s a chart of gold vs. the U.S. dollar:
Here’s oil:
The Economist: This Time Is Different - Eight Centuries of Financial Folly
Getting back to today…
Gold vs. Argentine peso during their latest of many currency collapses:
Nigeria's inflation rate at its highest level in two decades, 26.72%
Don’t worry. It can’t happen here because our politicians are incorruptible, experienced, fiscally responsible persons, with a functional knowledge of historical precedents and successes in the real world beyond a career of vote buying and lying.
It’s not like they’re just making it up as they go, in order to placate whichever greedy or vindictive special-interest group is lobbying them hardest or enabling the easiest cash and power grabs.
Oh, in case you’re wondering the apparent reason for Nigeria’s inflation:
Economic observers say recent government policies are to blame for the inflationary surge and predict the trend might continue.
"The policies were not handled properly,” said the chief executive officer of ThinkBusiness Africa. “What is happening is that they're learning on the job.”
Gold vs. Nigerian naira: