Two months back, we were at a family wedding, and ran into some uncles, cousins and other assorted relatives that we haven’t seen in a few years. As the resident ‘financial guru’ they came up to us to seek ‘advice.’ Except, this time, they didn’t ask any questions. Instead, they bragged about the 3x levered products they owned, that were up huuuge. Many of them were up triple digits on the year, and flush. They were out buying cars, boats, and vacation homes. It was surreal as they laughed at our meagre returns (KEDM’s having an OK year sitting in a ton of cash). We were taken aback, because gloating comes before downfall. BTW- it’s never nice to laugh at someone’s performance, the Trading Gods do not take kindly to it…
If we wanted to summarize what we learned at that wedding, the 60/40 portfolio was now 60% AI and 40% Crypto. Except, many of these guys found 3x levered ways to express their views. They were also buying 20 Delta calls out 6 months (on margin). They were in sh*t-coins that we have never heard of, trying to explain the special attributes of these coins, which even they admittedly didn’t really understand—except that they kept going up. Now, you’d think that these were some young kids, prepared to learn some lessons from Mr. Market, but no, these were guys mostly past 60-years old, many of them mostly retired. These guys were gambling their life’s savings in stuff of extreme dubious value.
We’ve done this investing thing a while. We know to dread Thanksgiving where everyone tries to pitch us a random biotech that they swear is a sure thing, 100x upside. We nod and smile. This was different. At thanksgiving, these guys were taking 1% punts on their book, these guys were all-in, and with leverage!!
Readers of this journal know that we’re bears. We’re growling and angry bears. Our bearishness has only grown with each data-point. The world is in a gruelling recession. That recession is getting worse. This is a all a policy decision. Sure, there are consequences to running it hot, just like there are consequences to having a global depression. However, policymakers have chosen a route and unless they change course (which won’t likely happen without a changing of the guard at the top), then we’re going to have a depression, and an inflationary one at that. We’re a bit baffled in terms of how to invest for a world where the global standard of living declines—that’s not an easy investment pitch. We think we’ve positioned ourselves as well as we can, as we want to trade volatility and do more Event-Driven. We want to have less inflection exposure as those names will get murdered if the market does what we expect it to. We tried to explain to our relatives, that they’re taking waaaaaay too much risk, right as the tide was going out. Our thoughts and prayers are with their books. We assume Friday was nasty for them. It’s only going to get worse. Much worse…
Remember this quote. This is the part of the cycle we are in…
This is chart of the last insanity bubble (2000) with retail participation (retail was flipping homes back in 2008). We think this is a chart you should memorize. Persistent rally with no pullbacks, a first break for a week, they BTFD like donkeys, then the big break… Look at the post-Liberation Day move of 2025, it’s been straight up with no volatility. We just had our first big break (if it wasn’t a Trump tweet, it would have been something else). Now we need to test it, then lights out.
Long-time readers of this site know that we hate doing overlays of prior periods. Just think it tricks you into making mistakes. We won’t try to overlay and expect a repeat, but we think that the general pattern is what we expect. Sharp decline, recovery (maybe even a new high by a few ticks), then death. This won’t be a crash like 1929, that was a trendline break that cascaded (there’s too much BTFD in this crowd), this will be a messy, sloggy trend down. Look at all the days with 3-5% intraday ranges as the bulls and bears try to assert control after the big break in March. It’s a traders paradise!!
Sure, it could waterfall like 1929, we got some crash puts just for giggles. It could do damn near anything, it’s a market, but this 2000 analogy is what we’re working with, b/c this is all retail. Pros have higher than normal gross and nets, but they’re not the ones pumping shitcoins and AI. That’s retail.
On Friday night, we took a casual stroll through Twitter. We laughed to see that Fartcoins were down by half, and we couldn’t ignore all the screenshots of guys down 20-50%. Except, they weren’t crying, they were gloating. There is zero pain. Everyone wants to BTFD. This isn’t how bottoms get made, this is how tops get made. We remain convinced that fair value is around 2500 on the S&P (though it could always overshoot below it). We think that we’ll see fair value before too long, but we’ll see it in real terms and not nominal terms. In nominal terms, we’ll be doing “Project Zimbabwe.” However, we expect the journey to 2500 will look a lot like the 1970s with a lot of volatility and multiple compression. That’s literally the worst environment for long-term investors, though, it is the greatest environment for traders. Strap in friends, this is our decade!!
It doesn’t start until NVDA and Bitcoin die, but then it is a glorious time for all!!
As for KEDM, we’re embarrassed to admit, we are in crash positioning (some crash puts, cash, lots of bonds, lots of JPY). We get nauseous every time we think of how much exposure we have to US bonds. We sorta know they’re worthless (like Fartcoin), but we think they have their reflexive rally first. We’ve posted the chart of TLT a few times now. Over $91 and it gets fun. Besides, we don’t think 4x bottoms really are a thing. Just like we were willing owning Ponzi Schemes, when the Fed was doing QE, we think that Treasuries can work when the global economy detonates at speed. A few more days like Friday, and the Wealth Effect will be feeling wobbly, and that’s what’s driving the economy, outside of AI capex which has negative returns.
…but what about inflation and govt deficits?? How do Treasuries work in that world?? Of course they don’t work in that world. Don’t be a fukwit!! But we expect a Pavlovian response from investors—people don’t realize just how much money was made in Treasuries during 2008/2009. We also think that exposures are quite low (do you see anyone bragging about call options on Treasuries??). Just a re-gross will take this far, or at least until Bessent unloads his bags…
But back to inflation?? We already know they doctor the CPI. We know they want yields down. Do you think they won’t cheat?? Besides, in a global economic crash, what happens to inflation?? If $10 trillion of AI wealth, a few $ trillion of crypto “wealth,” $trillions more in CRE wealth and housing wealth all vaporize, call it $25 trillion just in US assets that go poof, what do you think inflation does…???
Yeah, Treasuries…
We know we haven’t said much on inflections lately. Sometimes there’s a whole lot to do, and sometimes you need to sit with your crash puts and watch them burn. We think we’ve finally seen the first break. If we’re right, it’s gonna get spicy. If we are wrong, we are cashed up and ready. Remember, the first rule of investing is never lose money. The second? Don’t buy Fartcoin on 50x leverage…
Fartcoin Sharted
A low frequency but juicy strategy where the edge is government incompetence.
Let’s dig in…
Two months back, we were at a family wedding, and ran into some uncles, cousins and other assorted relatives that we haven’t seen in a few years. As the resident ‘financial guru’ they came up to us to seek ‘advice.’ Except, this time, they didn’t ask any questions. Instead, they bragged about the 3x levered products they owned, that were up huuuge. Many of them were up triple digits on the year, and flush. They were out buying cars, boats, and vacation homes. It was surreal as they laughed at our meagre returns (KEDM’s having an OK year sitting in a ton of cash). We were taken aback, because gloating comes before downfall. BTW- it’s never nice to laugh at someone’s performance, the Trading Gods do not take kindly to it…
If we wanted to summarize what we learned at that wedding, the 60/40 portfolio was now 60% AI and 40% Crypto. Except, many of these guys found 3x levered ways to express their views. They were also buying 20 Delta calls out 6 months (on margin). They were in sh*t-coins that we have never heard of, trying to explain the special attributes of these coins, which even they admittedly didn’t really understand—except that they kept going up. Now, you’d think that these were some young kids, prepared to learn some lessons from Mr. Market, but no, these were guys mostly past 60-years old, many of them mostly retired. These guys were gambling their life’s savings in stuff of extreme dubious value.
We’ve done this investing thing a while. We know to dread Thanksgiving where everyone tries to pitch us a random biotech that they swear is a sure thing, 100x upside. We nod and smile. This was different. At thanksgiving, these guys were taking 1% punts on their book, these guys were all-in, and with leverage!!
Readers of this journal know that we’re bears. We’re growling and angry bears. Our bearishness has only grown with each data-point. The world is in a gruelling recession. That recession is getting worse. This is a all a policy decision. Sure, there are consequences to running it hot, just like there are consequences to having a global depression. However, policymakers have chosen a route and unless they change course (which won’t likely happen without a changing of the guard at the top), then we’re going to have a depression, and an inflationary one at that. We’re a bit baffled in terms of how to invest for a world where the global standard of living declines—that’s not an easy investment pitch. We think we’ve positioned ourselves as well as we can, as we want to trade volatility and do more Event-Driven. We want to have less inflection exposure as those names will get murdered if the market does what we expect it to. We tried to explain to our relatives, that they’re taking waaaaaay too much risk, right as the tide was going out. Our thoughts and prayers are with their books. We assume Friday was nasty for them. It’s only going to get worse. Much worse…
Remember this quote. This is the part of the cycle we are in…
This is chart of the last insanity bubble (2000) with retail participation (retail was flipping homes back in 2008). We think this is a chart you should memorize. Persistent rally with no pullbacks, a first break for a week, they BTFD like donkeys, then the big break… Look at the post-Liberation Day move of 2025, it’s been straight up with no volatility. We just had our first big break (if it wasn’t a Trump tweet, it would have been something else). Now we need to test it, then lights out.
Long-time readers of this site know that we hate doing overlays of prior periods. Just think it tricks you into making mistakes. We won’t try to overlay and expect a repeat, but we think that the general pattern is what we expect. Sharp decline, recovery (maybe even a new high by a few ticks), then death. This won’t be a crash like 1929, that was a trendline break that cascaded (there’s too much BTFD in this crowd), this will be a messy, sloggy trend down. Look at all the days with 3-5% intraday ranges as the bulls and bears try to assert control after the big break in March. It’s a traders paradise!!
Sure, it could waterfall like 1929, we got some crash puts just for giggles. It could do damn near anything, it’s a market, but this 2000 analogy is what we’re working with, b/c this is all retail. Pros have higher than normal gross and nets, but they’re not the ones pumping shitcoins and AI. That’s retail.
On Friday night, we took a casual stroll through Twitter. We laughed to see that Fartcoins were down by half, and we couldn’t ignore all the screenshots of guys down 20-50%. Except, they weren’t crying, they were gloating. There is zero pain. Everyone wants to BTFD. This isn’t how bottoms get made, this is how tops get made. We remain convinced that fair value is around 2500 on the S&P (though it could always overshoot below it). We think that we’ll see fair value before too long, but we’ll see it in real terms and not nominal terms. In nominal terms, we’ll be doing “Project Zimbabwe.” However, we expect the journey to 2500 will look a lot like the 1970s with a lot of volatility and multiple compression. That’s literally the worst environment for long-term investors, though, it is the greatest environment for traders. Strap in friends, this is our decade!!
It doesn’t start until NVDA and Bitcoin die, but then it is a glorious time for all!!
As for KEDM, we’re embarrassed to admit, we are in crash positioning (some crash puts, cash, lots of bonds, lots of JPY). We get nauseous every time we think of how much exposure we have to US bonds. We sorta know they’re worthless (like Fartcoin), but we think they have their reflexive rally first. We’ve posted the chart of TLT a few times now. Over $91 and it gets fun. Besides, we don’t think 4x bottoms really are a thing. Just like we were willing owning Ponzi Schemes, when the Fed was doing QE, we think that Treasuries can work when the global economy detonates at speed. A few more days like Friday, and the Wealth Effect will be feeling wobbly, and that’s what’s driving the economy, outside of AI capex which has negative returns.
…but what about inflation and govt deficits?? How do Treasuries work in that world?? Of course they don’t work in that world. Don’t be a fukwit!! But we expect a Pavlovian response from investors—people don’t realize just how much money was made in Treasuries during 2008/2009. We also think that exposures are quite low (do you see anyone bragging about call options on Treasuries??). Just a re-gross will take this far, or at least until Bessent unloads his bags…
But back to inflation?? We already know they doctor the CPI. We know they want yields down. Do you think they won’t cheat?? Besides, in a global economic crash, what happens to inflation?? If $10 trillion of AI wealth, a few $ trillion of crypto “wealth,” $trillions more in CRE wealth and housing wealth all vaporize, call it $25 trillion just in US assets that go poof, what do you think inflation does…???
Yeah, Treasuries…
We know we haven’t said much on inflections lately. Sometimes there’s a whole lot to do, and sometimes you need to sit with your crash puts and watch them burn. We think we’ve finally seen the first break. If we’re right, it’s gonna get spicy. If we are wrong, we are cashed up and ready. Remember, the first rule of investing is never lose money. The second? Don’t buy Fartcoin on 50x leverage…
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Kuppy’s Event Driven Monitor (“KEDM”) is not a financial or investment advisor and the information contained in this publication is not intended to constitute legal, accounting, or text advice or individually-tailored investment advice and is not designed to meet your personal financial situation. The investments discussed in this publication may not be suitable for you. You are required to conduct your own due diligence, analyses, draw your own conclusions, and make your own investment decisions. Any areas concerning legal, accounting, or tax advice or individually-tailored investment advice should be referred to your lawyers, accountants, tax advisors, investment advisers, or other professionals registered or otherwise authorized to provide such advice. KEDM makes no recommendations whatsoever regarding buying, selling, or holding a specified security, a class of securities, or the securities of a class of issuers, and all commentary is for educational purposes only. The investment examples noted are intended to provide and example of the events and data KEDM flags each week and is not representative of typical returns generated by each event or any future returns.