Really Good Macro

B is for Buh-Bye

Wait until the anti-ICE protesters figure out AI is the death of the H1-B visa program.

November is Supply Chain Viablity Awareness Month

You go down this rabbit hole. I'll wait here.

Start with China's population of over 50 vs under 50 and their birth rate to come. Mix in the number of pieces of bits and bibbles that go into an iPhone. Sprinkle in the number of widgets and gadgets that are custom to the process of making those parts. Then add in the pain of recreating that supply chain somewhere else as China loses bodies to low birthrate.

We are learning about energy risk and rate risk right now in real time. It's probably time to start positioning for supply chain strain. Long unlocked cell phones. Not a recommendation.

From the Friday Scans

Not yet seeing meaningful sellers exhaustion or price compression within buyable dips. But I do have 45 short setups to dig into for Monday with no buyable longs setups. Feels like more downside has to be explored.

Trump's Burn It All Down Andrew Jackson Moment

The upcoming forced liberation of the global debt conscripts.

To whom will debt overlords push their crack? We'll let that one sit right here for a minute.

Market Thoughts

Been a bit of a battle of Dollars being sold and longer term Treasuries being bought. Brought us a bit of a reprieve from the down pressure. 2 year stayed heavy over the past few days. It seems to be weighing on the markets premarket.

Not sure the indexes moved up much in the last few days, but we've had individual stocks oscillate higher, offering very few new long set ups to look at. So, not looking to take any new longs. Have a handful of stocks in the scans which have been up and are turning over maybe offering some short entries, if someone were inclined.

Feels like we have to try softness and see if that turns into downside pressure or a buyable dip.

Updating the Path Home

Recreating old market research systems, scans, etc. Recreating the timing quants. You see some of the work of that coming through in the above post. Getting closer. Getting my sea legs back. Working on defining the strategy and then will be starting to put real money into building the history.

Conceptually it's shaping up and holding water in this newer environment of riding sewing machine needles. Pretty excited about navigating the path ahead. Thought I'd never come back. But seems like there's a place for me in this new dynamic. Manage my own. Likely take on some capital from a friend or two with in the excess capacity of the strategy.

Inside Thoughts Leaking Out

I'm looking toward running a narrow focused strategy running stocks primarily within the S&P 500. Maybe a 10 position fund 100% when long only, with up to 130% when working in 3 shorts. Reducing to 4 shorts and 4 or fewer longs along with writing covered calls during turbulent times.

1 or two of those slots can be used to allocate 10% each to a special situation when we had the banks all sell off to .15 price to book. Or the car rental shops doing the same trading at 30c per share recovering to $30. Maybe run a 10% slot with ten 1% individual positions of a compelling theme at select points in history.

Like a Stone Pissing Dog

Back testing is bullshit. Need real dollars. Real fills. So for kicks and giggles yesterday, took a few shares of KNDI at 3.706 10.20.2026. Sell off seemed to be exhausted after 1 for 10 reverse split. Lots of cash per share. Long tortured history with short sellers. Seems to be in the past. Always plenty of hair in this company. New CEO seems to be developing a history of moving away from the sins of the previous CEO. If it's a new era, this is the pin point where new era's start. Or, I might have just smoked a few hundred bucks.

Not a recommendation. Just wanted to get the print of the absolute bottom to illustrate the skill set in future review.

Be Afraid; Be Very Afraid. 80% of AI Will Die

MCI, World Com, Global Crossing, 3 Com, U.U.Net and Prodigy all want to tell you about the 80% of AI Companies which are going to go away. You have permanent assets being built. You have shiny handy dandy high flying fund raising companies which gather capital from plebes to build out the permanent infrastructure. If this is a new idea to you …. Spoiler: The groups who end up owning and operating the assets are often mutually exclusive from the people whose money was jingle jangled into being used to build the assets.

Levi Strauss made his fortune selling shovels and work pants to those chasing the gold rush. 150 years later, with 100% certainty every one of you knows the name Levi Strauss; none of you can tell me the name of any gold rush miner.

The current AI play is likely in figuring out who will aggregate the assets in the wash out or who is going to provide needed value into the space.

Re-Shoring i.e. De-Globalization

Persian Gulf is largely shut in and will be for a while at the rate oil infrastructure is getting broken over there. Europe in another act of suicide is putting pressure on Russia's shadow fleet; maybe another 4M barrels a day to shut in. Trump can with a pen shut in all US oil exports. China's oil storage numbers are beginning to be questioned. Japan and China are starting to sell Treasuries. Dollar is rising. Strong demand for Dollars seems to be driving interest rates. They need to raise liquidity. Maybe January 2027 ish, the energy shortages start to shut in Asia manufacturing. Leading to short term and intermediate term supply chaos for US. Stronger Dollar from many catalysts lead to higher rates and lower input prices domestically.

The Horizon's Labarynth

Inflation and high rates are causing consumer stress. Auto sales off. Truck sales off. Navistar closed plant. Seeing small auto supplier layoffs. Home foreclosures creeping up. US Consumer being painfully de-leeched from their credit addiction. Global energy shut in to drive manufacturing reshoring. New industrial construction drives employment. Strong Dollar fosters sticky high interest rates and equity requirements prohibits consumer debt binge recovery. Politicians eventually handcuffed into rethinking spending.

Turd Flushing and New Up Trends:

When taking a list of All Stocks and sorting by greatest percent decline, it's obvious. The junk stocks are getting priced down through abandonment. There's a swath of stocks which wreak of financial engineering or financial engineering adjacent that are getting sold too. Higher rates are starting to give them fits. This includes some finance companies, private equity shops and banks. There are interest rate / energy sensitive stocks that haven't yet broken like airlines. But AI sucking at context might explain the market's lag in discounting for reality. So to some extent, the hype of Armageddon selling yet to come is very real in certain areas.

When you flip that list of All Stocks and sort by greatest percent gains it's as one would expect. Saudi Arabia says it will take 2 years to return to normal when the fighting stops. Well that's good enough to get nearly everything in the domestic energy sector leading. We are also starting to see the companies which you would expect to lead with a reshoring tsunami starting to creep upward.

Where the Indexes Go??

Oddly, they seem disconnected and trading against the strong Dollar and weak bonds. Trading with the Dollar selling off. So, up with liquidity expansion. More currency higher indexes. Less currency in circulation, Indexes price lower.

The Great Cat Video Heist:

If you had to be the guy on the phone trying to raise the capital, would you rather say "We are raising $4 Trillion for a new tech which will rule the world!!" or "We need your money to build a new building to hold your ex-wife's cat videos"?

Nearly every YouTube video uploaded in the last 15 years is still available. We are getting a ton more data centers. You probably won't be able to rule the world with AI. But with AI, you will be able to produce infinitely better archived cat videos for your future ex-wife storing them in your friendly neighborhood data center.

Sheldon Logic in Play:

What was HFT in the 2-teens is now full on AI. The dispassion in asset pricing is causing bewilderment among humans wondering why the market isn't discounting rising rates, the energy crisis, and sluggishness in the auto sector. Proving the adage the market can stay irrational longer than one can stay solvent.

At this point, the logic behind individual stock pricing is seeming very Sheldon-ish. Earnings are unchanged, there's no large selling, therefore we are gently buying. "Ignore the tsunami, the data isn't different yet". Then when a data point actually changes like T mobile Friday, wham down 13%.

2007 was the last SHTF moment. Back then humans using human logic were making the choice that the risk was now different. When the computers all flip, who is going to be on the other side of the trade buying?

Saudi Airport Hit (Again):

Houthi's "Nothing in and nothing out." But Saudi Arabia has promised they will provide Europe their energy this winter.

Iron Ore:

Iron is testing 5 year lows. It closed just under $91 per ton. Five year low was October 2022 at $85 per ton.

Old Auto Money:

An old friend owns one of the larger used car operations in the mid-west. This week he shared they were off 25% year over year last month. Growing up in Metro Detroit, I remember old money auto dealer families who proudly ran just a few locations with all their inventory self-financed.

A new friend owns a semi-truck dealership. Delivering old orders. No new orders hitting the books.

Ever wonder why there are some smaller dealership families who date back to pre World War II, but we seem to have trouble finding Private Equity auto dealership conglomerates dating back to the 90's? Not sure iron is going to be trading up in the near future.

Looking Thru Individuals:

Running a visual scan of the individual stocks in the S&P 500 and the NASDAQ 100. It's a sloppy mess out there. Semis have driven the market and likely from top down allocations supported much of the rest. Refiners are taking the lead. Semis seem to want to breathe a bit for now. Much of the rest of the individuals feel sluggish.

At the end of the day today, there are more stocks offering entries to take a first nibble short going into tomorrow then there are for stating longs.

Fun exercise, pull up charts of the Dow Jones 30 index, Russel 2000, S&P 500 and NASDAQ 100. The ones with large cap chips and tech have printed new all time highs. The others are been chugging lower for the better part of a month.

Putting it Into the Universe:

It's time.

Now that management matters again. I will put together the fund docs.

Going Forward is Simple.

We now live in a world where individuals and companies need to create something of value. Realize that value in the market place. Pay taxes on those gains. Stack up post tax, unlevered, retained earnings.

As debt prices higher than profit margins, the financial engineers wither.

The 50+ years of devaluing the Dollar telling everyday folk it's their fault that their life doesn't reflect the daily reports of the Dow, S&P and NASDAQ are shifting back.

Gen X Retirement Crisis Aftermath

The money system operators' 50 years of printing to cannibalize all wealth trough devaluation and indebtedness has created a problem yet to be recognized. Gen Xers were lied to with the IRA 401k pipe dream. The great depression left a multi decade echo fading out in the 90's where depression survivors refused debt. All bills paid, we owe nobody nothing.

We are moving into an era where people are losing their houses to floating rate mortgages, debt pricing higher than profits, and commercial real estate cash in refinancings which is going to pair well with the emerging mindset of make money, pay taxes, own your money.

After helping the well pensioned Baby Boomers on their paths going back to God, having to help the “off the gold standard” disemboweled Gen Exers navigate their unfunded eldercare, there will be a cultural fiscal rage lingering for decades demanding fiscal propriety, stewardship and forward planning.

We are moving into a very sober era.

Navistar Springfield:

Trucking always goes early. Nothing happy down this path. Pray for the families who have to find their new footing.

Greenshoots:

It's early to appreciate the green shoots. As the fluff from the 50 years of money printing comes out of the markets, new areas of investiblity lurk in onshoring the supply chain.

Remember, our way out of this is to make our own stuff.

In the Mean Time:

It's time to find ways to stay out of the way. Or hedge. Or write calls. Or learn the unlearnable; The Dollar itself is an investible asset. When stuff is going down in price, simply owning Dollars makes one richer.

Waiting for the Other Shoe to Drop:

Gas and diesel are expensive. Seeing price hikes being passed through on food and basics. A truck of rocks last year $1300, this year $2000. Fast food just ripped higher again. Chicken strip meal at Culvers $15.00. Crackers at the Kroger $7.00. Spending is going to stop.

Anthropic disclosed its $42B loss and $500B in future unfunded spending. Feels like everyone is waiting for the indexes to roll.

Iran war started and rates started to move. They aren't asking if trade lines of credit suffering defaults is the cause for the cost of Dollars going up.

Rates are moving for many reasons. But the They are definitely not asking about whether rates are going up because foreign lenders are paying more for Dollars to back stop their defaults.

So, whatever you do, don't ask about the solvency of really big foreign lenders.

As for the depth of our index softness, it seems like it's all going to come down to how much energy and manufacturing are actually re-shoring.

And will those sectors flood us with enough capital to back stop the sluggishness as the last round of high fliers probe for where their value investors absorb all sellers?

Mining:

Not aggregates; tracking value stocks making bottoms. Recently started tracking individual stocks trading down to book value and below. We have long been at the point in the cycle where only the junk stayed low in value. Now we are starting to see some more permanent companies trade down into the deeper value range.

Drillers:

Not oil and gas; seeing former high flying growth stocks that now have to trade down to find their level of value where investors will step in to support the price. If we can get beyond this perma-ramp mindset in equities, it might be time to start feathering out some shorts, or generate some income from writing calls on long term positions.

Petro Dollar Demise Plus:

It seems like the early independent financial media publishers are starting to see the theme. The Iran war is about ending the petro dollar and bringing our troops home. It's also about recapturing the 50-year capital outflows to foreign manufacturing.

Trump is now talking about a export ban on diesel as it pushes $7.50 at the pump in the Midwest. Follow this through to conclusion. We've incited Iran to disrupt middle east oil and distillate production. In doing so emerging manufacturing nations have prohibitively expensive energy inputs. Manufacturers need to shift to producing near their end consumer.

Starting to see more coming out about rotating our troops home. This will mean long time allies such as Saudi Arabia and Israel will have to rethink their own positioning within the region.

A Wendy's franchise holder with 300 stores just declared bankruptcy due to high beef costs. It's going to be impossibly difficult to find front line workers as we rotate factory production to the states.

Time for private equity shops to patent lunch boxes.

SEC Tokenization:

Early questions before I read the new rules.

If we are putting a title abstract behind each legitimately issued share, this is HUGE. It makes the US public markets the world's engine for capital formation again. It kills the age old microcap synthetic share cancer problem no one in the industry wants to talk about.

If we are enabling people to run a high-tech bucket shop derivative game, it will pass through with a yawn.

AI / Index Fear:

There is a lot of fear being pedaled about the collapse of AI causing a depression. Yes AI is milking its fund-ability way better than tech companies did during the internet bubble. Yes there will be a sort out between those hyping to raise and those raising to build and grow.

As for how bad the indexes will fare as this sort out happens? I suspect one will have to look at inflows to refiners and drillers to provide the rotation which supports the overall pricing of the indexes and funds.

And when the AI space sorts itself out, if there is an overbuild, keep in mind, every 15 yr old how to video on YouTube is still stored somewhere in a data center. These building may not provide space for the newfangled software which is going to rule the world, but they will hold a ton of your cat videos.

Oil Shock:

Deliberate. I would suspect this is the primary objective of our war with IRAN. Permanently disable as much middle east production capacity as possible. Maybe even remove our troops letting the area manage itself for the first time since World War 1. Once the US is confident that the middle east production and refining capacity is permanently impaired, then the US would likely declare a ban on shipping crude and distillates out of the US.

Retest 1972:

A lot changed in the early 70's. We came off the gold standard, created the Saudi Petro-Dollar relationship, shifted focus from defined benefit plans to defined contribution plans. As we exported wealth overseas for explosive liquid, we shipped manufacturing creation earnings oversees and apologized to everyday people by devaluing the currency so we could just print and pass out our wealth all over the world. Works good until it doesn't.

This Iran war in my opinion has been and is about reclaiming the exiting wealth to oil producing nations. Our primary goal seems to be getting the middle east nations to blow up each others production capacity permanently if possible. This will echo by making manufacturing nations energy short forcing manufacturers to shift production to be near energy. Thus recapturing US cash outflows for goods. And reclaiming the value add profits of manufacturing here.

In one feel swoop we are going back to a 1970 economic mindset.

Interest rates will rise for various reasons including but not limited to: Foreign borrowers and lenders will have disruptions. As we reclaim our wealth Dollar strength will drive higher pricing. Higher rates will cause defaults from those who subscribed to floating rate debt strategies and those who's loan terms forced them back into 9% markets after having 4% debt.

Executives and Investors will have to learn to form capital structures last seen during the high rate markets of the 70's. Where it was most profitable to make goods and retire debt and then buy out equity partners then accrue cash to repeat.

I don't think the Dow will retrace to 300. But our capital formation mind will need to revert to strategies which function in 15% debt markets.

Interest Rates

Fed raised .25 basis points. It's said the Fed simply follows the 2 year Treasury Note. I suspect there is a motivation by this administration to get interest rates higher than the typical profit margin of most businesses. Instead of buying rentals that make 10% using debt costing 6% again and again, it will force people to run businesses that make money creating things.

The previous thesis is still intact.

On AI Militarized Robots

AI termination bots are here already. I think the model for how this rolls out has already been game theorized. In the 2nd quarter 2010 things in the market were just different. Running microcap, I couldn't get my executions. My buys became sloppy. My exits, someone was in front of me. As if they had reverse engineered me from my execution codes. As we came through the 20-teens, automated trading became beyond predatory. Without being on the proverbial inside, it had to get bleak with the assault on humans. It had to be down to a handful of HFT MM shops fighting for bread crumbs of order flow. How do I know?

We now got rid of the $25,000 pattern day trader rules. It's easy to get options approval. And It's blister simple for a human to launch a pooled investment fund. They tried eating out of the throats of all the humans. And then it got down to computers fighting each other. And then they realized, they need the humans.

I think the same path will play out with this stuff. Govts and Corporations will try the cyborg extinction thing. Only to realize the things that need to do destruction will eventually be locked in to destroying each other. And the controllers who tried to rule by destruction, end up with a dead-end game.

Middle East War:

Trump is unwinding all of the negative capital flow processes established over the past 60 years that he can. Get Iran to blow up the rest of the middle east. Americans can no longer send fiat devalued Dollars to buy disposable energy. Capital stays home. This shortage of energy flows over to manufacturing nations with higher cost basis. Manufacturing comes back to America.

Unpopular opinion. I think we are fighting to get us pushed out of the middle east. We will save on defense costs. We will have to produce our own oil and distillates. Other nations will have to source from us.

Trade lines of credit will be stressed leading to higher borrowing costs. Capital inflows to the US will lead to a stronger Dollar meaning higher interest rates. Ultimately, we end up restructuring legacy relationships we have with long term allies we have in the region. Israel, Saudi Arabia, Bahrain, etc will have to figure things out for themselves.

Middle east money which flowed to London, will be reduced. Those banking relationships may need to be restructured.

Interest Rates

All manipulations come to an end. Charles Dow. We have to go back and retest 1972. It's been 54 years of print money, manipulate rates lower at inconvenient times, and buy more cheaply made stuff from across the sea as we bleed off our savings through debt and devaluation.

Boomerang time. Instead of levered return strategies, we are going back to Equity as a supplement for debt. Private market transactions are going to be dominated by Equity with call back provisions. People won't be able to borrow at a rate which pencils. Investors won't be able to place debt at rates which make sense either.

CEO SHIT STORM

The only people who lived and operated a business during 18% mortgages are now 83 years old. Anyone running a company 40 or younger has never seen a down market. They have never even seen a rising rate market. 50- and 60-year-olds have seen some pretty big bear markets which were ultimately reinflated by the Fed. But today's active leaders, actually having to create income to pay dividends and accelerate their stock buyback plans so they can hurry up and open up cash flow? Oh boy…..

• How many shops are levered?
• How many real estate companies are 100% debt free?
• How many people took on variable rate debt at 6.00% because they just knew it would come down again?
• How many CEOs are going to learn about using equity to replace debt?

COMMERCIAL REALESTATE:

Now is a great time to start into commercial, if you are using cash or pooled equity and looking for properties which provide an indestructible user base. Now is a horrible time to have a portfolio you have been building for the last 15 years as you have to come back to market at ever higher rates.