April 10, 2020

The Out Of The Cave Monthly Briefing.
GCap #2: What the Hell just happened?
This is the Out Of The Cave monthly briefing, second edition.

“Next five years is not about winning but surviving.”

There’s been no end of articles describing in gory detail exactly how bad the current economic situation is. I found this one and it seemed to do a good job covering most of the bases.

Granted, it’s over a week old so it doesn’t factor in everything. 


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WSJ: A New Bull https://bombthrower.com/wp-content/uploads/2019/03/shutterstock_1030471843-e1551983495127-1.jpget Has Begun

…or not. It seemed less than a week after I jokingly remarked on Twitter, “Do you honestly think the longest bull run in history will be followed by the shortest bear market in history?”, WSJ made the call.

Whew. I’m sure I’m not alone in being glad that’s over.

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In case you’re having a hard time spotting it, I’ve taken the liberty of plotting out that last bull market and the shortest ever bear market above.

If you download the image and then hit Cmd-+ repeatedly, and put your cursor right at the tip of the arrow you’ll clearly see the New Bull https://bombthrower.com/wp-content/uploads/2019/03/shutterstock_1030471843-e1551983495127-1.jpget.

German finance minister commits suicide as coronavirus hits – New York Daily News

German finance minister found dead on railroad tracks amidst coronavirus stress.

If this really was the shortest bear market ever and we’re back into a V-shaped recovery, then wouldn’t this guy feel foolish, having thrown himself in front of a train right before that new Bull https://bombthrower.com/wp-content/uploads/2019/03/shutterstock_1030471843-e1551983495127-1.jpget broke out.

It reminds of an old Dave Allen joke about the last man on earth who is so lonely he decides to commit suicide. He leaps off the top of a tall building and on the way down… he hears a telephone ringing. (It’s possible I just dated myself).


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Surveillance Capitalism: Bigger Brother | by Tim Wu | The New York Review of Books

How we went from B.F. Skinner to China’s social credit system.

If you’re like me, you’ve been wanting to read Shoshanna Zuboff’s “Surveillance Capitalism” for awhile. However times being what they are, I’ve had too much stuff coming at me to read through the 500+ pages. I even have the audiobook and still haven’t made much of a dent in it yet.

A colleague sent me Tim Wu’s (author of The Master Switch, The  Attention Merchants, et al) review with the short note “everything you need to know about the book is in here”.

It’s a detailed deep dive into the book, and I’m thankful for it, I still plan on getting through it someday.

Also this interview with Shoshanna Zuboff on Demetri Kofina’s Hidden Forces is a good listen as well.


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3M pushes back after Trump orders it to stop exporting N95 masks

Making the rounds on Facebook, among my Canuck friends is a contagious meme  along the lines of “Canada helped the US out after 9/11 and now Trump is banning N95 exports to Canada”

I just find those widely shared outrage-du-jours so tiresome. I started looking for which Canadian companies are going to ramp up N95 mask production themselves.

There are a couple, Medicom, who will be ramping up production of N95 masks immediately, there is Woodbridge Group who just got approval for a new N96 mask, and there is a team mobilized at McMaster University tasked with regearing industrial response to N95 mask supply, and even more refreshing was 3M’s response to Trump’s call for the export ban: “I don’t think so”.


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The JackPot Chronicles Scenario 1: Force Majeure

I mention the above issue of N95 masks for a reason. In my latest installment of The Jackpot Chronicles I outline how one post-pandemic scenario involves the breakdown of traditional institutions and authorities.

When the fate of the entire world relies on how one man, such as the president of the United States, responds (or fails to respond) to a situation, that means we’ve reached a point where that system is breaking down.

In engineering systems it’s called a SPOF (Single Point of Failure), and the entire impetus in systems, in economic structures, in political ecosystems, is to eliminate SPOFs.

Here we have authorities acting by edict, and markets simply responding according their own imperatives.

That said, It’s perfectly understandable why a country would under these circumstances ban the exports of N95 masks. China did that back in January.

But note how market participants can step into this and react to the demand. One of the things slowing them down is obtaining the necessary government approvals.  

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To Short or Not to Short?

As I write this section it is Easter Friday, one day after the US Federal Reserve announced it would start buying junk bonds which induced a kind of mini-meltdown in me.

This is not the way free markets are supposed to work. If a company over-leverages it, it gets worked out amongst creditors, not bailed out by an entity that can print currency out of thin air.

The whole thing made me question my plans for one of my TFSAs, where I had placed some capital for the express purpose of hedging on the short side.

So far I’d done ok with PUTs on JNK and even (get this) DUST. My idea there was because 3X ETFs are so toxic, no matter what their orientation was, you could do ok buying long dated, ATM PUTs on any spike in the underlying. (The logic was that the time decay on the option was slower than the ETF decay when the latter was levered 3X and recalculated daily)

It worked for awhile, until DUST got absolutely destroyed last month, even when gold was tanking.

That was that, DUST and NUGT are 3X no more, and were converted to 2X on April 1st. It was good while it lasted.

To my larger point: is it rational to go short the market when the US Fed as well as every Central Bank in the world is hellbent on printing as much money as it takes to make you wrong?

And yet… I was journaling my angst and frustration around all this just to clear my thoughts and I remembered what happened in 2007… when I pretty well picked the top and bought a pile of 2 year LEAPs on the QQQ’s, the SPYs and the DJIA.

Trade of the century, right?


The Fed once again stepped in for what looked like a stick save and ignited a Christmas Rally, in a fit of revulsion and disgust, very similar, albeit not as intense as what I’m feeling now….. I covered my shorts with a minor gain.

“Don’t fight the Fed”… was what I was muttering to myself as I staggered away from the trade…..

We all know what happened next.

So the question I’m asking myself now is “Am I making the same mistake as 2007, and my fatigue in fighting the Fed is a sign they’ll soon lose control?”

I don’t know the answer to that. Maybe. Maybe not.

However, In 2007 I didn’t know about Pascal’s Wager, but today I do….. when I do a Pascal’s Wager type grid about “shorting everything” vs “long precious metals” I get something like this:

It just seems like being long precious metals (which I am already, mind you), covers a wider swath of probability vs trying to short against the might of the world’s central banks.

Besides, if  they really are serious that they’ll do “whatever it takes” to prevent a financial meltdown, even if they do lose control, I think that is more likely to be inflationary, even hyperinflationary. And if that’s the case, stocks will still go up anyway.

I really do harbour a kind of hero worship for short-sellers and daydream about “wouldn’t it be cool to do that”. But the “know thyself” sort of reality check clearly shows that I just don’t have the perseverance and pain tolerance for it.

Yesterday my longtime friend and mentor Sieg Pedde sent me this presentation on silver and when I think about all this, and also realize I’m probably underweight on silver anyway, I may just change plans on that “Short only” account I had setup and just back up the truck on silver. YOLO.

Feel free to forward to your friends and colleagues, and if they want to subscribe to Out Of The Cave, just go here, and I’ll send you a free copy of 1893 novella Pictures of the Socialistic Future with a new foreword by me when you opt-in.

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About the author 

Mark E. Jeftovic

Mark E. Jeftovic is the founder of Bombthrower Media and CEO of easyDNS.com, a company he co-founded in 1998 which has been operating along the lines described within these pages.

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