Guy Can’t Stop Shuttin’ Up! (XLK,FAS)

Guy Can’t Stop Shuttin’ Up! (XLK,FAS)

 

Look around you, and you’ll see – it’s clear – the more that people talk, the bigger trouble they get into.

 

Is there any doubt?

 

Consider your own experience.  If you’ve been breathing for more than a few decades on this water-orb, your own life probably provides ample testimony to the fact that you should have just shut up.  You never would have gotten into that mess with your wife/boss/brother/ son/employee/bartender/etc. had you just kept your mouth closed.  Not that there isn’t a time for speaking your mind.  But that’s not the way things usually play out.

 

When we’re hot, and we want to let that good-for-nothing gut-sucker know it – it’s always the wrong time.  The key to avoiding these sorts of life-changing outbursts is to just zip it and wait.  There will always be an opportunity to explain the issue in a clearheaded, cool manner, and in a way that genuinely gets to the heart of the matter and convinces the lazy booger-boy he was wrong.  But without any heat.

 

And that’s the way we should always go about things.

 

It’s certainly the only way to avoid regret.

 

Loose Lips Sink Ships

 

Three thousand years ago, King Solomon, the wisest of men, opined:

How much more so the truly wise man.

 

So…

 

Anyway, the reason for the foregoing is not what you might think.

 

We’re not here to play our part in cracking down on media leaks, or to recommend to the Commander-in-Chief that he refrain from Twittering, though there may be advantages to both those developments.

 

Rather, we’ve a market-oriented issue to present to you, and it’s one that gives us no end of indignation.

Shhhhhh…

 

The problem we have is with billionaire investors informing us (for several years now) that the top is in, things couldn’t get any more dangerous, ‘she’s gonna blow!’ ‘we haven’t got the pow’r’, etc., etc.

 

At times it’s just a single voice, at others, it’s a bleeding chorus.

 

And right now we’re in the midst of the full choir bellow.

 

The PIMCO Glee Cub

 

He no longer works for PIMCO, but Bill Gross decided last week to chime in with his doomsday warning for the quarter.  It doesn’t seem to bother the lad that he’s repeatedly stated that the end is near, only to watch markets run away from him.

 

So, too, Marc Faber, Dr. Doom, who regularly mumbles about ethereal valuation levels.  And PIMCO’s current head, Dan Ivascyn, who thinks a spike in bonds is likely when the panic hits – as he believes it shortly will.  David Stockman is regularly waving red flags and screaming ‘fiscal bloodbath’, while Jim Rogers, Ray Dalio and Mohammed El-Erian (another former PIMCOite) echo the mainstream financial media outlets, including the usually staid Financial Times of London, blaring: “catastophic declines in asset values,” and the like.

 

So what, Huey?

What do you care what these stuffed shirts say?

 

You’re right, I guess.  Even billionaires need to talk about something.  After all, it gets boring discussing how well you timed that Banco Santander short, or relating the exact moment you learned that Australia overplanted wheat back in ’96.

 

These guys need bragging rights – real, verifiable media quotes that inform the world they called the top of 2017.

 

Because that’s where the real money comes from.

 

All it takes is a single, good trade to put a halfway bright Jack-in-the-box into the driver’s seat, pulling in hundreds of millions in new investment funds because of his ‘brilliant timing’.

 

Consider a guy like John Paulson, who called the sub-prime mortgage top back in 2008 –

Oops!

 

ZIP.

 

Dealing With Reality

 

The bottom line is that there will be a top in the market, and then it’ll turn lower, as it always has and as the laws of finance and gravity dictate it always will.  But in the end, we have to plan for and face that market reality by ourselves, without any input from the great or the ill-begotten, the rich or once rich.  We have to make our own decisions and rest at night knowing that we take full responsibility for our trades, regardless of what one day might transpire.

 

A cold, sober look at the actual structure of the market, with all the noise removed, is all we got.

 

And that’s exactly where we’re going now…

 

Still a Bull!

 

Despite the caterwauling of the elites and the VIX plunging to historical lows, we believe we’re still in a bull market – one that will take pauses and dips and dives that take our breath away from time to time, but that will keep on climbing.

 

And it so happens that we’re now in the midst of such a decline, the duration and depth of which no one can predict, but that will serve, in the end, to draw in greater and greater sums of innocent cash once new highs are ultimately registered.

 

Until that time, we shall marshal our resources toward that end.

 

Rotating Thumper Knobs

 

The wicked decline in the biggest tech names looks more to us like sector rotation than anything systemic.  Those names (which we’ve discussed here at length of late) have been bid up egregiously in the last few months and were bound for a cooling.

 

A look at the non-response from junk bonds (HYG), the S&P 500 (SPX) and Treasuries indicates that we are NOT in the midst of a full-blown top out, but something more selective, and we should be sensitive to the direction of fund flows in the coming days and weeks.

One bit of fund flow evidence that popped up Friday was the gap higher on the Russell 1000 Financial Services Index, at the same time that the tech sector was plunging!

 

Take a look –

And it’s here we plan to make our play.

 

We’ll use the Tech Sector SPDR ETF (NYSE:XLK) and the leveraged Direxion Daily Financial Bull 3x ETF (NYSE:FAS) to pull it off.

 

We’re betting on near-term outperformance from the financials over the techs.

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With kind regards,

 

Hugh L. O’Haynew

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