Blood In The Streets

The overnight session Sunday was a banger, with the Nikkei selling off 12% and bringing US risk assets down with it. At their floor, NQ futures were off more than 6%.

VIX futures also spiked at over 60.

The blood was even more pronounced in crypto, with BTC selling off 25% and ETH over 30%.

Suffice to say, I think, all of this counts as blood in the streets.

The Sell Off Explained

Today marks the third straight day of violent selling in major indices. From the American perspective, here’s what we are seeing.

1. The market is pricing in recession fears. You can also think of this as the market throwing a temper tantrum over the Fed not cutting rates as the economy shows clear signs of slowing.

2. The yen carry trade is being unwound, violently.

We got some “hot” data today in the form of the ISM services index, which came in firmly in “expansion” territory rather than recession.

But the carry trade unwind has caused some forced selling as investors close out their risk asset positions to return Yen, the Japanese markets themselves have rapidly repriced growth and currency expectations, and the uncertainty/volatility in Japan has spilled over into US markets as well.

Buy The Blood?

I fired some longs on QQQ and BTC this morning, going from ~50% cash (thanks to raising cash Thursday/Friday of last week) down to ~33% cash. I have been tempted to fire more in, but there are so many tail risks right now that I think it would be irresponsible.

It would not surprise me if we get a face ripping rally and close much higher. It would also not surprise me if we sell off to new lows.

There is enough conflicting economic data that with how much the market has sold off in the last month I think we have probably overpriced a recession. But, there’s enough reflexivity/VAR shock opportunity that we could go much lower. And if a recession is coming, well, we could go MUCH lower.

So I still urge caution. I don’t think we will definitively bottom until the Fed starts saying the right things.

When the Fed starts saying the right things I will try to get in on the rip. If we do bounce significantly before that i’ll be looking to trim exposure.

In these volatile times the best thing you can do is size down and be cautious. The money is made not from gambling here, but from surviving to ride the bull markets.

Good luck out there.

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Please also always remember... none of this is financial advice. I’m not a professional. I quite literally don’t know what I’m doing. I’m just a guy, with a keyboard, who scored high enough on some standardized tests to think I can beat the market.