Saturday, January 30, 2016

The Big Long 2016: Betting It All On Central Banks

"It was history's biggest bull shit market"

To summarize the past week/month:
Everything risk rolled over, except Facebook, Skynet, McDonald's and Philip Morris. Even gun stocks and brewers fell for the month. Consumer staples outperformed. Treasuries were well bid into the end of the month. Shorts covered on news that the economy is deteriorating at an accelerating pace...

We've seen this movie before:

The biggest near term risks are China continuing to meltdown and the implosion of the Energy sector which is not priced for $33 oil. "No one" saw oil at this level for any length of time, and now profit expectations are WAY out of alignment with reality.

As a sector, Energy has negative earnings so it has an infinite valuation. 

Oil stocks as a ratio of oil:

All of which is to say that Energy stocks are about to get liquidated in size, because they are no longer accretive to portfolios...

Energy stocks with Emerging Markets:

The past week/month (Continued):

Corporate profits and revenue continued to deteriorate for the 4th quarter and forward outlooks

The U.S. economy slowed in the 4th quarter

The Fed admitted the economy slowed and paused rates at .25%

Global Central banks coordinated a massive short squeeze

Oil had a dead cat bounce on colossal volume

Chinese stocks continued to fall, hitting a new 52 week low

Apple got shellacked on weak revenue outlook

Amazon and Netflix rolled over hard. Facebook went parabolic

Biotech got obliterated, now down -44% from the highs

Financials were also extremely weak sector due to contagion concerns and yield curve flattening

Brokers sold off hard as Days Average Trades fell. 

Stocks posted the worst January since 2009

Stocks and oil traded at a 95% correlation, highest in 26 years

U.S. oil inventories reached an all time high

New highs-lows hit the lowest level since Lehman (last week)