"If there is one common theme to the vast range of the world's financial crises, it is that excessive debt accumulation, whether by the government, banks, corporations, or consumers, often poses greater systemic risks than it seems during a boom."
-- Carmen Reinhart
In my Thursday opener, "Greed Breaks Things" I cautioned about:
-- Peak speculation
-- How we are likely getting close as grotesque speculation often presages a Bear Market.
-- How intelligent and disciplined short-selling, when done properly, can protect wealth (while buying over the long term generates wealth)
-- How I remain negative on the outlook for equities.
I have argued over the last few weeks that the grotesque level of speculation was a signpost of a broader market concern and, as in early 2000, that few will profit from gambling in the gewgaws of the day. It would also likely lead to a degrossing (and de-risking) of portfolios as large investors reduce their portfolio's "VAR" (value at risk).
I Have Been a Seller of the Rips and a Buyer of the Dips
Tactically, I have been a seller on strength and a buyer on weakness since year-end.
On Wednesday's market schmeissing I bought in and covered some of my shorts, and on Thursday I put back out those shorts.
Such is my job (and opportunity) in this new regime of volatility and uncertainty -- catalyzed by Robinhood and its band of merry speculators.
As always, I am trying to be transparent so here were my trades from Wednesday:
Wednesday was my most profitable day in years as many of my short positions plummeted in price ( (CVNA) -$20, (PTON) -$5, (DIS) -$7, (HLT) -$6, (H) -$5 and of course the Indices ( (SPY) and (QQQ) , etc.) I responded to these moves and I was active yesterday - attempting to capitalize on the new regime of volatility by covering a portion of some shorts, adding shorts in existing positions and adding new short positions:
* New shorts: Micron (MU) , Facebook (FB) (changes to Apple's private policies could hurt the company), Plug Power (PLUG) , Caterpillar (CAT) and AMC Entertainment (AMC) (speculation cubed! - this position was covered yesterday).
* Reshorted Twitter (TWTR) (back to previous short price)
* Bought small banks - Bank of America (BAC) Wells Fargo (WFC) , Citigroup (C) and JPMorgan (JPM) (but still medium sized longs) -- I will have a buy scaling lower to move back to large sized if there is further weakness.
On a massive Thursday morning ramp higher I reverted back to a very large net short exposure, mostly in adding to my Index shorts but also in adding to some individual equity shorts.
-- I moved back from medium-sized to large-sized in my Index shorts. I shorted (SPY) at around $381.50 and (QQQ) at $325.75. (That compares, only hours later, to the pre-market levels of $375 and $318.50, respectively).
-- I covered my speculative (AMC) short for a +45% gain in one day.
-- I added to the following old shorts: Facebook (FB) (to large-sized), Apple (AAPL) , Macy's (M) , Caterpillar (CAT) (the company reported a small EPS beat this morning), Carvana (CVNA) , and Peloton (PTON) .
As I wrote in "The Market Waters Grow Murkier":
"To me, we have entered a marvelous environment to trade stocks. I feel relatively confident in writing that a new regime of volatility likely lies ahead. (In the Comments Section I noted that The Smartest Trader in the World is long volatility (VXX)). I have become far more active in shifting my individual stock and market positions around and, in turn, changing my overall net exposures. I expect that I will be trading far more actively over the near term."
I continue to try to demonstrate transparency of my actions and to provide non consensus and (hopefully) thoughtful and hard hitting company analysis and market views.
My trades and investments are not intended to be recommendations -- rather I continue to reveal the what, why and when of my actions so you can make your own evaluation.
I will rarely stray from my approach of fundamental analysis -- seeking a "margin of safety" based on my assessment of reward vs. risk.
I will be skeptical of fads, when appropriate, and explain why I am not delving in speculation at times, though I will remain respectful of others' ability to speculate in the belief that there are many ways to deliver excess trading and investing returns. But, I will not hesitate to give my view of the risks associated with gambling and speculating.
Like others, I will fail at times, but, like some, I will own my losers as well as the winners.
(This commentary originally appeared on Real Money Pro on January 29. Click here to learn about this dynamic market information service for active traders and to receive Doug Kass's Daily Diary and columns from Paul Price, Bret Jensen and others.)