I'm changing up as we face the Fed meeting this week and NVIDIA continues to cause nosebleeds among the common folk.

Image via Garret Baldwin

Dear Fellow Expat:

Happy St. Patrick’s Day.

I just landed at Fort Myers…

I decided not to fly home today at 8 am on Delta.

And then the Southwest flight I bought at 8 am for 1025 was delayed and moved back up…

So, I missed it. That was dumb.

I had to catch a mid-afternoon flight.

This was the most turbulent flight I’ve ever been on, and I don’t think this was weather.

The plane kept pulling to the left, so I wouldn’t be shocked if there was an issue with an engine or rudder that they weren’t telling us about.

Don’t be shocked that it’s a Boeing plane.

I’m surprised that there weren’t many people partaking in the usual Religious Revival on BWI to Florida airports. I think that has to do with the holiday.

I just kissed the ground, though… and I’ve only done that twice.

So, why the email…Well, I’d take off today if I didn’t have something to say.

And that’s this…

I’m bearish for the first time in six months.

Wait… What?

Today, I’ve only read three things.

I read Doomberg’s excellent piece on Michael Saylor, Michael Howell’s update on liquidity, and Ed Yardeni’s Market Call on NVIDIA and the Fed.

I don’t think you could have three voices saying the same thing that could be more different.  

There’s something inherently wrong in this equity environment.

I appreciated Howell’s conclusion that, to paraphrase, “strong economies don’t always mean strong financial markets.”

It’s odd… as the economy – from a macro-perspective is “strong.”

That doesn’t always make the most sense. Last year, we had worrisome economic outlooks, but the financial markets rallied. There’s a reason for this.

The expansion of global liquidity.

Now, I change my tune.

I’ve been saying for about six months that we’re in a “higher for longer” environment on interest rates.

The markets rejected this thesis, but reality is coming hard. Our indicators have been positive since November – just around the last time we were “oversold.”

But now – people are starting to wake up…

The odds of an interest rate cut in Q2 are dropping the same way that an MMA fighter’s odds would drop against Miley Cyrus in a cage match if you gave her a chainsaw. (This is a variation of a Doug Stanhope joke.)

We did “how high.” Now we’re doing “how long” on interest rates, and the markets have grossly overstepped their boundaries on valuations.

Fundamentals don’t matter until they do… and I see a detachment that should give us a sobering reminder that profit-taking is on the horizon… across all asset classes.

 

It’s an Illusion

How are we supposed to feel about the state of the financial markets today?

I no longer believe that our equity markets are real generators of “wealth.”

I perceive them as “hedges” against the non-stop bastardization of our fiat currency.

How should we feel about this?

Angry? Offended? Pissed off?

Can we arrest Steny Hoyer or some Congressman who has been overseeing this nonsense for a few decades? They did this… not us.

I am reminded of the great line in The Matrix when Morpheus asks Neo, “You think that’s the air you’re breathing now?”

 

I feel the same way about our markets.

Do you think that’s “wealth” we’re building?

All we can do is play this market game, distorted as it has become.

And we have it figured out.

We examine global liquidity, momentum, and insider buying. These are three very complicated topics that can be explained in very short sentences.

It’s how we ended up 24-3 this year on insider buying credit spreads with a 584.59% annualized return. And my hope – my sincerest hope – is that it remains a secret and something just between us.

I don’t need Goldman Sachs distorting our advantage.

 

Why Bearish?

The S&P 500 has increased by more than 45% in the last 18 months.

That honestly had little to do with real economic growth.

We printed more money than we thought we could post-COVID, and there is still a massive amount of stimulus that will be spent into 2026. Real inflation should reflect this level of fiscal and monetary insanity.

I’m willing to sell bridges to anyone who thinks real inflation is under 4%. I’m reminded of a Keynesian macroeconomic professor at Purdue University who casually said, “You just inflate away the debt,” as if he were scraping gum off his shoe.

This attitude—toward monetary inflation—is why the S&P 500, gold prices, and Bitcoin are sitting at record highs. It will continue for the foreseeable future because we lack monetary sanity.

Of course, things don’t go straight up. They buckle and curve. And when people are up 239% in 12 months on NVIDIA, they take gains.

This week is a bulldozer, and I’m not sure people are paying attention.

There’s a lot of complacency right now – like where we were last fall.

It’s a mistake not to take gains. Don’t worry about the taxes. Take the gains if you’re up big over the last few months. You’ll hopefully be able to buy back the same assets at a lower price in a few weeks. And if I’m wrong… repurchase them at the same price.

NVIDIA (NVDA) will try to impress investors on Monday and Tuesday, and then the Fed will have to explain that interest rates are not coming down this quarter. All the while, Howell’s predicting that liquidity is hitting a temporary wall while Doomburg is watching guys like Michael Saylor pump the crypto markets into oblivion.

There are a lot of intelligent people heading for the exits right now.

We are approaching a temporary change in market expectations.

Call it a “paradigm shift” if you’d like, but there just doesn’t seem to be much logic in paying 100 times earnings for a semiconductor company (NVIDIA) now worth more than the entire S&P 500 energy sector.

We are in irrational times… and though this irrationality will likely continue for a good 18 months more… I still think the S&P 500 will hit 6,000.

But we’ll likely see a drawdown that spooks the retail frenzy. We can’t expect things to keep flying higher without temporary interruptions.

I’m not shorting yet – but my finger is on the trigger.

I expect a negative momentum event soon – and a downward turn of 5% to 8% before we hit oversold on the Relative Strength Index (RSI) and Money Flow Index (MFI).

It both hit oversold… buy the dip with both hands.

That has led to big rebounds for investors over the last three years.

I think the severe downturn will come in 2026. But we have signals that we follow and haven’t missed in six years.

That said, I’m likely taking some time away from the mania.

Where is there an opportunity to reallocate gains right now?

I think we’ll get some bids in reversion plays and the energy sector. I remain in the midstream energy sector and am happy to bid up the natural gas market for next year as I think Biden’s halt on LNG is going away. Now’s the time to be long in U.S. energy.

 

Archer Daniels Midland (ADM) is a screaming buy at $60.

Give me commodities. Please give me all of the commodities.

I errored in not recommending it on March 1, but I had to ensure they could navigate this financial malfeasance. I wouldn’t be stunned to see a lot of hedge fund managers deep in that stock at $52 during the next round of 13Fs and 13Ds. And… if Russia does start to escalate the conflict in Ukraine again (and I’m hearing this is about to start up again in a very ugly manner)…then there’s a 2022 upside for the stock.

I’ll come back to ADM this week.

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