1. My thesis on the market is pretty simple. The market thinks this we are in September 2011 - early recovery stage with inflation concerns. In reality we are in September 2008. The first shoe has dropped but the second will be the knockout punch.
2. Recall that the housing market peaked in 2006, stocks peaked in 2007, and the market crises didn't occur until 2008.
3. The post GFC "conventional wisdom" was that the Fed could have avoided the crises by acting earlier and stronger, including a Lehman bailout. Powell followed this wisdom as COVID began to crater markets by unleashing unprecedented accommodation together with fiscal stimulus
4. This unprecedented policy has created the veneer of economic progress via consumer spending but more importantly, inflated the greatest asset bubble of all time
5. But talk is cheap. Let's look at data. Parabolic commodities - near perfect analog. Commodities peaked in July 2008. We've already seen most commodities peak and begin to crash in June 2021.
6. Interest Rates: Fed rate cycle is match except we hit the lower bound much sooner (and now have no room to go).
7. Yield Curve: 2-10 spread analog is eerie. After rapid steepening, the YC actually began to dramatically flatten from March 2008 - September 2008. Exact same dynamics, now with rapid steepening giving way to unexpected rapid flattening
8. However of course there are key distinctions. Absent a monetary firehose, stocks traded down from 2007 - Sept 2008 about 20% before the GFC kicked in and brought peak to trough drawdowns over 50%. Currently the market is UP 40% since early 2020.
9. Further, the stock market was not even at historically stretched levels in 2007-2008. In nearly every valuation metric either all time highs or only surpassed by the largest stock bubbles in previous history 2000/1929.
10. Additionally, market structure is much weaker. The proliferation of passive ETFs, algo/HFTs and vol control strategies has led to three distinct rally->crashes since volmagedon in 2018 with iteration even more intense
11. To contrarily believe that we are in an early stage of a new economic cycle, you must believe the bear market lasted for ~1 month ended before COVID really started, and was surpassed by new market highs in ~6 months, when that process has always taken many years historically
12. You must believe that the observable economic devastation (7 million lost jobs, 30% of small businesses extinct) is congruent with markets plumbing new highs on the most extraordinary valuations we have ever seen
13. You must also discount all sorts of tailrisks including contracting Chinese credit, and the dire warnings on its financial system, fracturing geopolitical instability, and an ongoing mutating virus that continues to impact economies globally
14. You must believe that the most rampant expressions of speculation (crypto, NFTs, baseball cards, biotech, SPACs etc) both form AND peak at the BEGINNING of market cycles, not in their final breaths.
15. Deductively - the case for September 2008 seems much stronger. So why is that not the conventional wisdom? I posit that greed and jealousy is a much stronger human emotion than logic and deduction.
16. Further, much of the "market narrative" is driven by banks who earn fees for capital markets activity - guess what, they just had their best year ever.
17. When you're winning in basketball, the "SCOREBOARD!" defense is pretty foolproof - this is the same logic the market uses today. The bulls are correct because the market says its so. But these assessments are inherently backwards looking.
18. Can I say with certainty that the market will crash in [X] days/months? No. But that doesn't make it the most logical hypothesis supported by a ton of data and common sense, and the best way position yourself for what is invisible over the horizon.
19. In the meantime recognize that the carry trade has been very profitable and may continue to be for sometime, but that risks have never been higher.

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More from @TheLastBearSta1

15 Jun
1. 🚨🚨Another $MSTR thread because its too amazing not to - this time from the beginning 👇👇:
2. $MSTR is a no-growth software business that generally makes decent cash flow. The company had been totally unlevered as accumulated significant cash balances. Historically, the market implied asset value of the business has been $0.7 - $1.5bn, on average ~15x EBITDA
3. Having built up over $600M cash balance by mid-2020, $MSTR decides to invest $250M in BTC at $11k and offer a $250M tender offer on its common with a cap price of $140/sh. $MSTR runs to $140 in a day, capping the tender offer at ~$60m shares
Read 17 tweets
8 Jun
TLDR: MSTR offering today is a lesson in getting PRIMED. Once the 2025 converts go out of the money (which they will), the notes will drop from 135 now to ~70 as they will be forced to price as a zero coupon with a ~7% rate. This is the easiest short in the world.
Math: Current MSTR share price implies $53k BTC price. The conversion on the 2025s implies a $48k BTC price. If the conversion is not in the money, those notes will price as an (almost) zero coupon bond with a ~5% yield. That is 40% down from its current price.
*Not investment advice* (most of us can't short converts anyway)

For a neutral trade, you could short / buy puts on $MSTR paired with long BTC to squeeze the arbitrage.

For directional exposure deep OTM puts could print on further BTC breakdown
Read 4 tweets
8 Jun
1/ Explaining the MSTR BTC bonds thread 👇👇:
2/ In December MSTR issues $650M 2025 convertible unsecured notes with a $400/sh conversion price. MSTR is unlevered, and makes ~$80M in EBITDA. So the notes are basically a loan for BTC with shared upside, and collateralized by both BTC and the MSTR biz at ~50% LTV. Nice trade!
3/ BTC and MSTR promptly rip higher, putting the conversion deep in the money and the converts which sold for $100 in Dec trade up to $320 by February - everyone looks like genius
Read 9 tweets
1 Jun
1. The biggest tail risk to equities IMO is contagion in the Chinese credit market. Here's a quick summary thread:
2. Since the GFC China has seen massive credit expansion, with the majority at the local government (LGFV) or state owned enterprise (SOE) level. This credit expansion is mostly related to property and infrastructure development and is critical to reaching top-down GDP targets
3. This investment is not necessarily productive, particularly in lower tier cities. This massive debt is often short term and so huge quantum's constantly needs to be refi'd.
Read 20 tweets
6 Apr
The Robotaxi Repo - Part 2: A theory of how Tesla utilizes lease accounting and Robotaxis to turn collateralized borrowings into sales and achieve paper profitability. $TSLA $TSLAQ (1/25)
Disclaimer: I have no claim of actual knowledge, all information is sourced from public information. This is not investment advice and all opinions are my own. (2/25)
The Robotaxi Repo Theory: Tesla overstated S/X sales in 2018 using new lease accounting methods, however this led to large 1Q19 writeoff. To avoid further writeoffs, TSLA declares cars appreciating assets in 2Q19, allowing collateralized borrowing to be considered sales. (3/25)
Read 27 tweets
1 Apr
The Robotaxi Repo: How Lease Accounting and Robotaxis allowed Tesla to turn collateralized borrowings into sales, overstate revenues by billions and achieve paper profitability. $TSLA $TSLAQ (1/13)
Tesla reaches scale production of Model 3 in mid-2018, leading to huge Model 3 sales as it worked through pre-sale backlog (2/13)
But by 2019, production capacity outstripped domestic demand, leaving Tesla with excess Model 3s it needed to sell - so it started exporting Fremont production despite its own overseas factories already under construction. (3/13)
Read 14 tweets

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