The "Lurking Dangers" In This Stock Market

Mark on Macro

This was a volatile month, as it started with a mini-crash during which I covered our large QQQ short near the lows (I couldn’t not cover it when the VIX soared into the 60s!) and then actually got long QQQ for a short, profitable trade for the same reason. (I couldn’t not get long when the VIX soared into the 60s!) I then took off the QQQ position entirely, let it run quite a bit higher, and then put on a smaller short position, which we currently hold. Thus…

We continue to run net short, as stock prices remain elevated despite an economy that’s beginning to crumble beneath them while the stock market continues its overconcentration in a small handful of Nasdaq 100 (the aforementioned QQQ) companies:

We also remain short Tesla, which continues to be the biggest bubble-fraud in stock market history, as I discuss in detail later in this letter.

As noted above, this remains a very expensive market (the S&P 500 is at approximately 24x run-rate operating earnings and the Nasdaq 100 is at around 31x trailing earnings) while the U.S. consumer is finally cracking in this consumer-driven economy. Real (inflation-adjusted) retail sales comps are now negative (July sales reported in August were +2.7% year-over-year vs. 2.9% CPI) and scores of retailers have recently warned about a tough business environment. Most recently, Home Depot and Lowes warned in August and McDonald's warned in July about a weakening consumer, and also in August Target, Nordstrom, Dollar General and Foot Locker reported negative real (inflation-adjusted) same-store sales comps and guided to negative real comps going forward, while Macy’s , Kohl’s, Best Buy and Williams-Sonoma comps were negative in both nominal and real terms, and Wal-Mart reported same-store sales that outstripped inflation by a mere 1%, with that small gain likely due to middle-class consumers leaving pricier retailers.

Meanwhile, in August the stock market switched from "bad news is good news" to "bad news is bad news" as it finally began worrying that a recession may be on the way, and yet while the most recent Bank of America survey says 76% of investors anticipate a “soft” landing…(READ THIS FULL LETTER HERE).