With Apologies To Josh and Michael... (Capital Wave - All Momentum Green)I read a chart wrong... but I corrected it but not fast enough... but then my statement spread around the world. Rookie error...
Good morning: Last night, a friend sent me a note. He told me that Josh Brown and Michael Batnick were citing an article I wrote over the weekend. Amazingly, they’re paying attention… I listened… then cursed… loudly… in front of children. They were reading a data set that was off - because of my misinterpretation. I had said that the Russell 2000 had experienced outflows of $80 billion. No. I corrected that in a note about an hour later… but not fast enough… That figure was "annualized” by Bank of America… as I later noted. I didn’t articulate it well enough in these pages… BOA wanted a headline… they got it… and I read the fine print wrong… All said… It’s a jarring chart, but I chose the wording wrong…
That’s on me. Now… let’s get to the bigger point. Because sometimes getting stuff wrong leads to better analysis… Buying the Russell?As Josh noted, that chart is a contrarian view to buy the Russell. Right now… yes. Just focus on the 20-day and the 50-day EMA of the index… Bank of America made the chart.
It showed this insane downward projection… but on the concept of momentum - YESTERDAY - we rocked and rolled. We went Green on our reading yesterday and burned higher. We had more than 400 stocks running on the weekly figures… I was confident because banking stocks (at the regional level) rebounded. I can’t stress enough how difficult the regional and community banking space feels. I think if they do commit to reform that eliminates the bad incentives out of Basel III, Tim Melvin is going to make a fortune… We have to get our banking system fixed… and we have to instill confidence in our regional and community banks. We can’t just rely on shadow banking for capital (more on that today in the Money Printer)… As I said, I didn’t think we’d be in negative territory long given the ongoing expansion in liquidity (more on that below)… Money is coming off the sidelines… and if ConAgra (CAG) is above its 20-day EMA, I’m going to trade it after the insane burn lower that it experienced for months… even if it’s a spread that would take me back up to the $20.25 level for now… But we have to assess the broader issue… When I say that momentum is breaking out, or recovering from negative momentum. It’s based on bell-curve inflows and outflows… We went higher. We got some pump. But is it sustainable? Your mileage may vary… I say… bet small, win big… Or start screaming… around children. It’s what I do. The Insider FeedbackThere’s a second chart. As they noted, there has been very little insider buying. I was looking at the Bloomberg headline that was saying… WOW, INSIDERS ARE NOT BUYING.
Of course… They both noted… that this chart was mildly useless in the endgame.  But I do want to note that this chart… fits the bigger narrative of how I see the markets… Remember… Bloomberg focused on JUST the buying. We focus on the Insider BUYING TO SELLING in dollar amounts. We use this chart from SECForm4.com…
See that spike in the blue line… That’s the five-day moving average of insider buying to selling in aggregate dollars over the last 20 years. The pops? That’s the thing that calls the bottoms.. OVER AND OVER AGAIN… That’s the visual representation of the rich getting richer… We don’t care about insider selling. That’s useless to us… Insider buying in aggregate is what matters…
The most recent spike was on April 9. See the pop above? What happened after that? The S&P went from 4850 to 6400 in a few months… That pop came during the cancellation of Liberation Day, and while that wasn’t a “monetary policy” pivot… it came about a week after the Fed slashed its QT program… and there were, according to a few people that I spoke with who live in the district, three things…
Scott Bessent - and this is important - had scoffed at what he inherited with the rollover of short-term debt… complaining about the work of Janet Yellen… But remember… Yellen inherited that strategy from Scott Mnuchin… in the wake of the 2017 Jobs and Tax Cuts Act. Scott Mnuchin… The man who took this… the dumbest picture in the history of this nation…
Can we talk about the gloves for a second? Please? Why do we need the gloves? Are U.S. dollars the holy water in The Devil’s Advocate?
Moving on… There was a Financial Times report on March 21 saying that Bessent had relented on short-term debt issuance. The Wall Street Journal reports that Bessent faced a dilemma, which led him to go on TV, saying that he was the world’s biggest debt salesman and he had a story to tell. It was bold (and it’s one of the reasons that I like Bessent.) The issue, though… He would continue with the short-term bill issuance, which only inspired President Trump to suggest that we fund everything in short-term T-bills until we cut rates… The problem is that this would be statistically impossible. I can’t stress this enough…. T-bills mature quickly. The Treasury must constantly roll them over. This forces frequent refinancing at current rates, increasing interest costs, expanding deficits, and pushing more cash into the economy… All three can… and will… stoke inflation. This is where reality hits the road. If we just started refinancing everything in short-term bills… but also tried to slash interest rates at the same time… I think you’d see the greatest leveraged melt-up in the history of finance… And the backside of trying to refinance all that debt… I can’t do the math on the downturn we’d see by unwinding it all… I know I’m not crazy… Someone else HAS to see this right? With More InsidersJust to note… a lack of insider buying doesn’t stop a “bull market.” BUT… a bull market is not what we think it is anymore. A bull market is just a euphemism for a LIQUID market. There are no bull markets or bear markets anymore. There are only LIQUID and ILLIQUID markets… For example, look at 2020 after COVID… and 2022 when rates started rising… And as Michael Howell noted yesterday, this is the most liquid market in financial history (most money sloshing around ever). This chart is all you need to see when it comes to the reality of the post-2008 world. This is Howell’s Global Liquidity measure against the Global MSCI Index (all global equities). And as of now, the U.S. is 72.5% of the entire global equity market…
BRRRRRRRRR…. Here’s more fun from Howell… How is Bitcoin at $115,000? This is so stupidly easy… it hurts. They are PRINTING MONEY… And… we’re enabling a world where there is now easy leverage around the BTC world.
Bitcoin is a pure proxy of global liquidity… Full Stop. And the fact that we’re empowering it as a shadow banking tool is so obviously going to hit people that I don’t feel bad for anyone anymore… The idea that we’re going to allow Bitcoin as a tool for collateral for lending (and to actually buy real assets) is so utterly hilarious to me… it speaks to the fact that Wall Street KNOWS what it did wrong in 2008… and yet, because it’s “easy money” and because our regulators are watching the wrong thing - they are missing what will happen when liquidity dries up… and Bitcoin experiences its next Winter. BTC stalls when there is a race to cash… and when people need capital to refinance existing debt. It happens, according to Howell, every six years. But if it doesn’t happen (and remember, we haven’t been allowed to have a real recession for 17 years), then BTC will just go parabolic, the wealth divide will go bonkers, and we’ll just stop being a civilized society. What is the End Game?I think I started this as a rant about insider buying… Where are we now? I’ve been writing since 6 am… What would be the crazy endgame for insiders to tell me that this insanity will go on even more? How about a bunch of meme stock owners started buying their own stock… Or if… Kohl’s CEO started buying $20 million in shares. That would tell me that we’re about to melt up in a way that defies DEBT issuance. But that’s not going to happen. What matters is the aggregate. The aggregate called the bottom on April 8-9.
Always look at this chart. It costs you $50 a month… Oh YeahSo, a few things to wrap this up. One - I’m accountable. I read that chart wrong - and I won’t blame the third-party source for it because it’s on me to be accountable and see it right. Journalism… Now I owe Josh a free month of this service. That’s the rule. Two - Josh is right… It really is a contrarian thing on the IWM. That is madness. But if you’re a person looking to trade the madness of the Russell actively, focus on the 20-day and the 50-day EMA of the Russell. If it breaks down, buy the TZA for a few days. Or go long the RWM. Finally, insider buying is not a measure of NOT buying. It really doesn’t matter much if they aren’t buying. It’s the fact that they are holding that is important. But - I stress… the insiders have bought the bottom of EVERY CRISIS since 2008.
And it’s incredibly easy to track, and I do it every day. So, in conclusion, sorry to the man who quoted my misquote. Second… look for something to go wrong after Jackson Hole in eight days… I don’t think there is a lot of confidence in the economy… and that catches up… even in a melt-up scenario driven entirely by FAANG stocks. This is what 2021 felt like... Seven stocks take the market up, everything else stagnates… And third - I’m honored to be a part of the bigger conversation. I feel like a rookie hitter, coming up from AAA. I make an error, and it feels like the end of the world. It’s not. It’s flub… We move on. But hey, anyone who wants my research, please use it. In the words of Ray Lewis… “Sundays are free.” Let’s get to the morning outlook…... Continue reading this post for free in the Substack app
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