May 17, 2022
Publisher’s Note: The economy is approaching recession, if we aren’t in one already. Stocks are approaching a bear market. The NASDAQ is in one already. Cryptos are crashing. Inflation is soaring. We discuss how we’re successfully navigating this market in this week’s episode of Bizarro World. Enjoy the excerpt below.
Gerardo Del Real: Let's start with gold. It's closer to $1,800 now than it is $1,900. The dollar index (DXY) is firmly above 104. The 10-year looks like a yo-yo going from 2.85% to 3.10%, and then back. Your thoughts, Nick? You've been spot on preparing people for the selloff, and frankly, you went to cash a whole lot more intelligently than I did because frankly, my plays tend to be higher risk, higher reward. I've always said that I'm willing to take the pain that comes with that. How are you seeing this market right now? What are you doing?
Nick Hodge: Not only is it bad if you were in a 401(k) that just took a 20% or 30% haircut, imagine having been sucked up into the FOMO of the past year in altcoins, or meme stocks, or high short interest stocks, or even just tech stocks. Mega cap ones, like Facebook (NASDAQ: FB) and Tesla (NASDAQ: TSLA), even those are down significantly.
First, I want to talk a little bit about the madness of crowds because we talked about bubbles for so long and everyone was talking about when the punchbowl was going to get taken away. They tell you they're going to take the punchbowl away, and so it was time to sell some stocks. I didn't get it 100%, right? No one does. Like you say, on paper I've taken losses in the past week too. But I did move to a third cash. And you’ve got to separate that out between 401(k) and IRAs and retirement… and speculative money. On the retirement side, firmly in a third cash, and in things like GLD, which as you said, gold has gone back down to the high $1800s, still positive for the year. And so yes, it was very smart to go to cash. I feel good about that.
On the other hand, I have been telling people it was time to get defensive for months now. And you wonder how much they listen because one thing I talk about as a publisher is I can see the things that people open and click and buy. In February and March and April, when the ads said, "Get your portfolio protection plan, crash coming, prepare now, stocks are going to go down," those were not the things that people were clicking on and buying. Yes, I was telling them as much as I could, and you wonder if they listened. Then everyone wishes they sold more sooner.
But we also know that sometimes the biggest wins go down 50%. Now, I'm talking about the speculative side of things and that at times like this, you have to hold through.
You've seen absolute meltdowns. We've talked about Netflix (NASDAQ: NFLX) and the billions and billions that company lost in market cap. Now, we're at collective trillions lost in stocks and in cryptos. You had a crypto the other day, Luna, go from over a billion dollars in market cap to zero. It crashed to $1.00. It was something like $80 a couple of weeks ago. Now it’s crashed to below a dollar.
This is one of the stories I wanted to tell. I was talking to somebody last week who was talking about buying it and I'm telling them, "Dude, it's a fucking falling knife.” This is not the environment to be speculating on things that have just crashed because, first of all, they can crash further. I'm just talking about cryptos. I haven't even gotten to the market yet. Second of all, this is classic dead cat bounce / falling knife stuff. And it's not the time to be speculating on cryptos, and so I made him a bet. I said, "You buy Luna, and I'll short the NASDAQ right now, and we'll see who comes out ahead." I couldn't even get my NASDAQ short filled because the bottom fell out of the market and I put in a limit order. He bought Luna at $1.13. It went to three cents the next day. It went from $1.13 to three cents overnight. So you talk about…
Gerardo Del Real: From $80.
Nick Hodge: Yeah, and so I told him there's going to be more. There's going to be more Lunas. Luna wasn't the only one, right? The same as there's going to be more Rivians (NASDAQ: RIVN) and there's going to be other tech stocks that go to zero. All these SPACS that are de-SPACing that are now well below the $10 SPAC price. The thing you have to think about from there, then I'm going to tell another story, is it's not like these stocks are down trading for cash value yet. They could still go down further.
First of all, earnings are still declining. Second of all, economic growth is still declining. The second quarter is going to come in slower than the first quarter. That's going to be the official beginning of a recession, two consecutive quarters of negative economic growth. And so you've got stocks facing all those headwinds. We said recently that they'd still have to be cut in half to get to their March 2020 lows. Guess what?
Gerardo Del Real: They're working hard.
Nick Hodge: It's less than half now! And you talk about trading on margin. Yeah, of course don't do that. I was reading through the Dinesisms the other day. There's a Dinesism for nearly everything. One of them is don't trade on margin and don't short. That's something else I wanted to talk about. Sorry for hogging the mic.
Gerardo Del Real: No, have at it. It's usually me talking a lot. So have at it.
Nick Hodge: You can make money now. I just talked about having a short NASDAQ filled, but I typically don't do that in the letter. Shorting is not appropriate for most people as options aren’t. So, if you want to go in the options/shorting world, that's one thing, and you could be up. But just with a caveat emptor that it’s dangerous, and you can get caught up doing that on leverage as well. With that, I think I made it through my entire list. I didn't answer anything about the market.
Everything's in the toilet. I mean, even gold stocks broke down recently. We've been talking about the VanEck Junior Gold Miners (NYSE: GDXJ) at like $46 and it's down to $35. When volatility is where it is, there's no safe haven. I guess the last thing I'd say is on the speculative side, we've seen some juniors that have large strategic shareholders, multi-billion dollar funds and companies who are exercising warrants that are nearly 50% above where the stock is trading because the stock was there just a couple of weeks ago.
This is definitely lightning flashing and thunder clapping. And you just have to tread carefully, not try to get long, don't be a hero and catch knives, wait for the VIX to come back down and know that next quarter could potentially be worse. It's a complete change of mindset from buying the dip to selling the rally.
And you can see exactly what I’m buying and selling right here.
Publisher, Resource Stock Digest