An investor I greatly respect, Michael Burry, uses the “Cassandra” handle on his Twitter account. Michael is featured in the movie “The Big Short” as one of the astute investors who saw the 2008 housing crisis approaching and positioned himself and his investors to make about $600 million in the collapse. Not bad for a few year’s work. The point is – nobody listened to his warnings then, and it still frustrates him. As a side note, he launched the recent GameStop craze when he tweeted about the Company’s short-interest exceeding their outstanding stock float by 30%.
Michael is slightly autistic (in that savant kind of way) and incredibly detail-oriented. That is one of the reasons I respect his work so much. Over the weekend, Michael warned of the coming collapse of this market. One of the resources he cited was an old but excellent book “Dying of Money: Lessons of the Great German and American Inflations” by Jens O. Parsson. You cannot buy the book, but I have a PDF if anyone is interested. I am dusting it off as I write this. Here is just a sampling:
“Inflations may be of every conceivable variety of degree, from the mildly annoying to the volcanic. Inflations may be fast or slow, accelerating or decelerating, chronic or transitory. Merely annoying inflation usually causes no one very much real harm. On the other hand, volcanic inflation is the kind of catastrophe that confiscates wealth, withholds the means of life, breeds revolutions, and precipitates wars. Every volcanic inflation of history began as mildly annoying inflation. The true nature of any inflation is not often visible on its surface. As with volcanoes, annoying inflation about to subside and die looks no different on its surface
than one that is about to erupt. It is the disquieting nature of inflation that no one knows with certainty what it will do next.”
The book is already inducing insomnia – but I am determined to finish it. Michael Burry believes his current warnings about Modern Monetary Theory and the coming collapse will be ignored, just as his warnings about the looming 2008 housing crisis weren’t heeded.
The relevance cannot be understated. The left’s new Modern Monetary Theory states that we can go into as much debt as we want because the US Dollar is the world’s reserve currency. In other words, deficits are irrelevant. Thus, everything on the current administration’s wish list (like $12 trillion in slave reparations and the $30 trillion Green New Deal) is no problem. Just turn on the printing presses.
Of course, accomplishing this feat of nature requires a melding of the US Treasury and the Federal Reserve. Who better to merge the two than Janet Yellen, our new Treasury Secretary and the former Federal Reserve Chair under President Obama. As you can see by her appointment, the plan is already well underway.
Of course, this merger flies in the face of the original intent to separate the Fed from the Federal Government so that the Fed would never become politicized. Oh well – so much for that ancient idea.
It is with Michael Burry’s warning, added to what we have been discussing in these pages, that I would report that commodity prices, particularly oil and copper, continued to surge today along with treasury yields. I won’t harp on the issues, but my antenna is at full alert.
Today, there were no buy signals, save for the XLE and XLF, both of which surged again. I am having a little FOMO (fear of missing out), perhaps making me regret taking profits a bit early. Of course, tomorrow might bring thanks – as pigs get fat and hogs get slaughtered, Technology and the FAANGMAN stocks got absolutely hammered today – down nearly 3% as a group. The NASDAQ 100 handily sliced through its 21-day mean – not an easy slice as this market has raged since last March. But half the stocks in the S&P 100 went up – so the action looks rotational rather than a full-on bailing out of the market.
Built into the Navigator algorithm is the basic principle that the market rules the sectors and individual stocks. Sectors and individual stocks rarely buck the market tide when it rolls into the beach. In that vein, either the XLF and XLE will save the current downturn and bring the markets back up. Or the market will shortly pull the XLF and XLE into the correction. It is a tough call – but in my experience, these two sectors will likely join the correction before it finishes.
Something I can never program into the algorithms are the four most dangerous words in the investment world. Those words are “this time. It’s different.” Modern Monetary Theory, at least in my mind, is just a fancy variation on those four dangerous words.
I would not be successful at this game if I had not studied history, and I never stop. My conclusion is this – it is NEVER different. I am already wondering how history will view this insane period we are experiencing. Of course, it will depend on who survives to write it.
I am still expecting the current and much-needed pullback to be contained. I don’t think the big one is due quite yet. This should be a two or three on the Richter scale. The eight-scale earthquake still lies ahead – perhaps as we approach late spring or summer. Nobody knows for sure – so I always start each day with an open mind to all possibilities – including more melt-up before the shaking really starts.
I will await the judgment of the algorithm for now. Tonight, on a positive note, the S&P Futures bounced at the 21-day line as Asia opened. We will get Europe’s vote later on.
But I hear the clock ticking in the background. It is still faint – but I am never too far from the alarm.
I will publish tomorrow’s plan in the morning.
Oh, what a tangled web we weave…
A.F. Thornton