First of all, congratulations to Intel for managing to surpass its 2000 dot-com all-time-high after 26 years…

…proving once again that semi-conductors are “safe as chips” and definitely not cyclical…

…which is why the Semiconductors Index (SOX) enjoyed a +50% rally in a month and is now the most overbought it’s ever been (source: BofA)!

“DOW 50,000” Meme Top?

The performance of various asset classes this week is very interesting:

• Brent +13%, SOX +11%, Nasdaq +2.4%, S&P +0.7%, DOW -0.4%, DAX -1.3%, Brazil -3.4%, KWEB -4.3%

Hang on… the best performing asset class was … CRUDE?!!! More on that later…

Excluding Crude, we could summarize the asset class performances as such:

• Everything except AI sucked…because AI sucked the liquidity.

Yep, we are back to that Liquidity Vortex, and I don’t like it…

It gets worse…

…because while everyone was cheering the Nasdaq rally, the Dow topped on Tuesday when Trump mentioned that “the DOW is at 50,000”…

… i.e. the “Boomer Index” once again failed at the “Dow 50,000 Meme Top” level that Pat Bondi jinxed back in February.

Crude Awakenings

Back to Crude.

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Good luck out there!

🌳🙏

Disclaimer:

This isn’t financial advice. This is Parody. This is the equivalent of Monty Python for finance, but worse: This is the trading blog of …

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There is a simple explanation as to why:

• A visible risk will keep “worried” market participants out of the Market…

• …and these “Panicans” will be forced to buy as the skies become clearer…

• …which gets the Market to grind higher into this “Wall of Worry”.

• It is why we often get a “Sell the News” event once there are no more bad news left, which is when the last “Panican” has bought back in.

Well, we should rename the current setup as the “War of Worry”.

Every announcement of a ceasefire adds +5% to the Market, whereas every resumption of War takes away -0.5% at best…

An actual Peace deal could be a “Sell the News” event (after all, this is the funniest outcome)…

…but we don’t have to “worry” about that, since Iran didn’t even show up to negotiate with us…

…which means there is only one “true tail risk hedge” to protect against the “War of Worry” dragging on:

• Crude itself.

We detailed the trade in “8x-Bagger Tail Risk Hedge”, but it’s quite simple:

• Unlike the classic case of the “Wall of Worry” where we are dealing with “paper” assets, the longer this “War of Worry” drags on the more the physical shortages will build up in the real world.

• The Equity markets may not care, but the Oil price may eventually adjust, making it the only real tail risk hedge…

• …now If we could also figure out how to power my car using “paper oil” …

Good luck out there!

🌳🙏

Disclaimer:

This isn’t financial advice. This is Parody. This is the equivalent of Monty Python for finance, but worse: This is the trading blog of a shrub. For all you know, I could be a 15-year old paper-trading out of my parents’ basement. Don’t be Stupid. Seriously. How many times do I have to repeat this …

The trade was long Amazon (ticker: AMZN) and short Walmart (ticker: WMT).

The thesis was quite simple:

• Amazon traded down to below 30x P/E while Walmart traded at … 50x P/E!

• At the same time, AMZN’s revenue growth is +12% per year, compared to WMT’s +5% revenue growth.

• i.e. AMZN trades at a substantial 40% discount to WMT while growing faster, and that’s without even mentioning the “sprinkle” of AI & Anthropic.

• At the same time, Walmart hit a “Meme Top” moment as THREE of the members of the Walton family entered the Top 10 Rich List.

The pair trade has since returned close to +20%…

…which isn’t bad for a market-neutral, trillion dollar trade!

In fact, these are the trades that pod monkeys salivate for, since they can put them in size while keeping their risk managers happy!

Here’s the funny part:

• The performance of the trade was entirely thanks to the +23% rally in AMZN!

• Walmart at 50x P/E?! No sweat! Deep value territory!

…which proves the point for the gazillionth time that the Market is as unpredictable as my 4-year-old and will do whatever she wants, whether you like it or not!

In any case, I’m out of this trade and gave thanks.

I’m thinking more about these relative value trades, as we discussed in “Easter Bunny Special”, though I should’ve renamed the piece to “Pod Monkey Special” and charged 2/20 for it 🤭

Earnings Season Clean-Up

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“Barclays Downgrades Avis Budget to Underweight, Raises Price Target to $150”.

Then I checked the share price of Avis Budget (ticker: CAR).

It was at $609. Huh??!

Then I noticed that the stock went up by +$115 in ONE DAY.

i.e. it added in value the share price TARGET of Barclays in ONE day!

I didn’t even bother to check the valuation.

After all, Valuation doesn’t matter anymore … it hasn’t since 2020, or 0 A.C. (“0 Anno Covidi”).

But it’s still weird to see a car rental company rocket up by +500% in a month, during the biggest energy crisis since the last one, outperforming all my space ponzis that actually went to the moon!

The question I have is: “Why this one?!”

To start with, CAR has 35.3m shares outstanding but a “free float” of only 16.7m shares per Bloomberg.

This seems understated because:

• - The largest shareholder, SRS, owns 17.4m shares (49% of the company)

• - the second largest holder, Pentwater, owns 7.8m shares (22% of the company)

This would put the “free float” at only 10.1m shares, assuming that neither SRS and Pentwater are sellers (a BIG assumption).

Per Bloomberg, the short interest is 9m shares or 54% of Bloomberg’s float, but more like 90% of our estimated float.

Et voila. There’s your explanation why the stock rallied by +500% in a month.

(We can also blame options, but those just added “fuel to the fire” or even were the match that “started the fire”).

Lets add another dimension that is very important:

SRS is a multi-billion hedge fund run by Karthik Sarma, a “Tiger cub”. They’ve been invested in CAR for more than a decade and entered a co-operation agreement with the company in 2016. Karthik himself served on the board since 2020.

Since the cooperation agreement between the two parties, CAR proceeded to buy back shares and reduced its shares outstanding from 95m to 35m over a decade!!

At the same time, as can be seen from the chart above of SRS’ ownership in CAR, SRS actually added to its CAR stake since 2017.

Frankly, this is an incredible lesson in activism and investing by SRS. Well done to them.

There is one element missing to complete the home run, and that’s to actually cash out eventually, but I guess none cares about booking profits in this market.

Another Question pops up…

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Good luck out there!

🌳🙏

Disclaimer:

This isn’t financial advice. This is Parody. This is the equivalent of Monty Python for finance, but worse: This is the trading blog of a shrub. For all you know, I could…

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We are now entering a new regime of “Strait On, Strait Off”…

…which guarantees that most investors will end up in a “strait-jacket”…

…meanwhile, whenever I hang out with "normal” people lately (i.e. those who don’t monitor 1-minute candles of the Nasdaq & Brent), I feel like I became the meme of the guy in the corner thinking… “they don’t know inflation is going to rip!”:

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In any case, I’m just about to come out of my cocoon, happily having missed this parody while firing memes from the sidelines:

I should’ve known that this would result in a mega-TACO from the moment I saw that the US side brought in the big guns by adding the Easter Bunny to the negotiating team..

…though if Iran does end up turning the Hormuz Strait into the “Aya-toll”, then we can bid adieu to “American Exceptionalism” as history repeats itself back to when the UK lost control of the Suez Canal in 1956.

But don’t be sad. Unlike the UK, the US is still exceptional in many ways as we detailed in the "Return to the American Exceptionalism?”.

So to be clear, when we say “the End of American Exceptionalism”, it’s our fancy way of saying: “The Dollar will go down the toilet”, which isn’t THAT exceptional since every Fiat currency will inevitably suffer the same fate.

As a result, there are some mega-trades setting up. I quite like the idea of looking at pair trades now, since there is so much pain among “pod monkeys” that there is opportunity for actual “alpha”.

Here’s what I’m looking at:

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If this happens, what does it mean?

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By now everyone has read the stories of “suspicious” trading activity before Trump’s tweets, with some “lucky” traders making GAZILLIONS.

I’m not one to stand in the way of a good narrative, but here are my 2 shrub-cents:

• This is still the Golden Age of Grift ™️- it’s just that we are not invited!

  

• There are “diminishing returns” to these TACO tweets:

  • the first “postponement of strikes” TACO tweet on Monday caused a +4% rally in the Nasdaq and a -15% drop in Brent

  • the second “postponement of strikes” TACO tweet on Thursday caused a measly +1% spike in Nasdaq futures and a very brief -4% drop in Brent. Both reversed since, with the Nasdaq now trading lower and Brent trading higher from “pre-tweet” levels.

Worth noting that the second tweet wasn’t really a TACO, but more of a NACHO:

• Not Actually Changing Hormuz Opening.

Chief Volatility Officer ™️

I’m reminded of the story of the “Boy who Cried Wolf”, which we may have to rename to the “President who Cried Ceasefire”.

But I want to be fair to President Trump, because I get what he’s trying to achieve.

He’s aware that the US Economy is now beholden to the Markets and that a Market Crash would basically force him to TACO.

So, as President, he has adopted a new capacity as Chief Volatility Officer (CVO) ™️ whereby he’s effectively trying to suppress volatility and assist the Market into a sort of “managed decline”.

He’s actually done a very good job at that, given the circumstances, with the S&P barely down 8% from its All-time-highs…

Unfortunately, much like in the “Boy who cried Wolf”, the Wolf might still appear and “spoil” this “artificial volatility suppression”, both in the Markets and in Crude…

It’s a bit like keeping a ball underwater for too long. At any point, the ball can propel out of the water violently …

In “It Takes Two to Taco” ™️(March 10th), we raised the probability of a CRASH to 44.44%.

The Nasdaq is already 7% lower since.

However, I’m still still weary of adding risk or giving the “all clear”, given the distinct possibility of the US putting “Boots on the Ground”.

Worth noting that there is a long weekend coming next week, which would be the ideal timing for it. As shrubscribers know very well, in the Golden Age of Grift™️ etiquette dictates that Wars only take place when the Market is closed.

Therefore, a long weekend would be ideal to put “Boots on the Ground”.

All this keeps me uneasy still from adding much risk.

The one area that I am excited about is “The Next Big Trade” that we have outlined below. That one is worth reading again:

Good luck out there!

🌳🙏

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Disclaimer:

This isn’t financial advice. This is Parody. This is the equivalent of Monty Python for finance, but worse: This is the trading blog of a shrub. For all you know, I could be a 15-year old paper-trading out of my parents’ basement. Don’t be Stupid. Seriously. How many times do I have to repeat this …

(We have warned early on here).

As we sit in Cash and wait, we are preparing for the next Big Trade...

First of all, a quick reminder that what we are trying to achieve here is to find trades that offer asymmetric risk / reward i.e. we want to risk a little to make a lot!

Regarding the Iran War, here are the trades we presented so far that fit this framework:

1. Reduce Risk

This is the most important one, as Preservation of Capital is our foremost priority.

As we wrote in “Asymmetric Warfare”, when the War broke out the Market was FLAT on the day while trading only 2% off its All-Time-High, which made everyone feel nice and cozy that “nothing ever happens”.

Instead, we placed a probability of a crash at 30% because something did happen!

Now at a 44.44% probability of a crash, we remain cashed up and defensive.

This is the most important position right now.

We give thanks for being the occasional scaredy cats.

2. Short Euro

In the “Return of American Exceptionalism?”, we argued that the US is actually in a “less worse-off” position than the Rest of the World, especially Europe.

Europe is “short Energy”, “long Carbon Credits” and “short brain cells”…

…so we presented “Puts on the Euro” as an attractive hedge for any prolonged closure of the Hormuz Strait… just as we had presented “Calls on the Euro” a year before.

The Euro is 2% lower since, but the recent extensive damage to Qatar’s Ras Laffan, the world’s largest LNG facility and a major exporter of natural gas, brings Europe to an even worse position going forward.

The May 8th $1.15 Puts we mentioned, have doubled already (we give danke / merci etc). Now I would be looking for lower strikes because the downside could be significant if this drags much longer.

As a Europoor, this trade is part of my personal “Capital Preservation” strategy.

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We de-risked early on while the rest of the Market is now just getting February 2020 and February 2022 PTSD…

…and we have highlighted the under-appreciated risk that it “takes Two to TACO” …

While everyone is slowly then suddenly turning into a “Panican”, we are cashed up and thinking ahead for possible outcomes.

Bizarrely, there is an important event ahead of us that could change everything, but none is talking about it just yet (no, this isn’t clickbait)…

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The starting point of a 30% probability of a Crash has been laid out in “Asymmetric Warfare”, where we have explained that the risk-reward of the current market setup is terrible.

This risk remains firmly in place because with all the talk of a Trump TACO, people need to realize that “It takes TWO to TACO!” (h/t GK)

There are also other considerations: Is the TACO halal? Is the TACO kosher? Is it all nonsense?

I can confirm the latter, hence why it makes sense.

In any case, I need to raise the alarm because the probability of a Crash is rapidly rising for the following reasons (Yes, this is clickbait):

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We have been reducing exposures since early February after a strong start, we raised cash, we added hedges opportunistically and we even bought WTI Calls leading into the War (we “gave thanks” too early on them, making “only” a 3-4x return but they did help a lot!).

The question now is: “Are we still panicking?”.

To answer this, we should consider the implications of a prolonged war in Iran.

In doing so, we consider asymmetric hedges along the way…

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• “Would you rather take $50 now, or “Spin the Wheel” with a 70% chance of winning $100 and a 30% chance of getting nothing?”

I kid you not, this happened before breakfast.

The kid is really good at getting me to think. Way better than AI.

His question helped me to frame my view of the current market setup:

• “Would I rather play it safe and lock in a good start to the year? Or should I play to make a bit more but with a 30% chance of giving back a decent chunk?”

Lets add to the equation that the S&P is just 2% off its All-Time-High and the decision should be made easier!

Lets be honest. None knows how this will play out, so why bother?

I did find Goldman’s analysis the most amusing:

They expect the crude flows through the Strait of Hormuz to recover fully by mid-April…but they caveat that if they don’t, then Oil will hit $100!

That’s really helpful, thank you for the wonderful insight.

I understand that most people in the markets are now algos and institutions, and it’s not their money so they don’t care about losing it…

…but in my case it’s my money and I trade for a living. Therefore, I can only afford to consider Shrub Jr’s bet from the perspective of “Preservation of Capital”…

…whereas an algo would always take the “Spin the Wheel” option because the “expected value” of “spinning the wheel” is higher than just taking the money that’s on the table (70% x $100 + 30% x $0 > $50).

In case you were wondering why the Market was up on Monday after the Iran War started, think of it like it was all the algos buying because they assume a 70% probability that “Nothing ever Happens” … because they don’t care if “Something Happens”!!!

But if “something happens” and you are caught in it … it’s your problem to deal with.

Crude Analysis

Our scenario analysis on Crude has been summarized by the ShrubGPT-generated map below:

• The equivalent of c.20% of global Oil consumption passes from the Strait of Hormuz.

• Any proper disruption and Oil jumps to $80-100. Brent is already at $85.

• It’s worth noting that Asia is disproportionately impacted, since 40-50% of their crude demand passes through the Hormuz Strait.

• Also, 1/3 of the world’s globally traded urea passes through the Strait. A shortage in fertilizers may cause a spike in food prices, and high food prices are a major cause for revolutions and wars…

But enough of that.

I think it’s time to make an adjustment to our map:

• Khamenei, aka Jabba the Hut, has been eliminated.

• However, as we often found in history (as well the “Mandalorian” series!), when a Boss-level villain gets eliminated, soon thereafter various factions appear and vie for control.

• In this case, just as we had the Houthis in the Red Sea (portrayed by the Tusken Raiders below), we will soon have a lot of Houthi-types around the Hormuz Strait, creating disruptions. They don’t need much: a few drones and explosives will do.

Good luck negotiating with all the different factions. But I’m sure Goldman spoke to all of them and they guaranteed that the Hormuz Strait will be all-clear by mid-April!

Going back to Iran, it’s not like there’s anyone left there to call for negotiations either. Even if Trump wants to TACO, he might not find any takers!

Again. Maybe it all gets resolved soon and we’ll go back to our regular schedule of debasing our currencies and sending risk assets to the moon.

But it’s a silly bet to bet the house on. Once again, we are 2% off the All-Time-Highs.

I’ll be staying cashed up and defensive thank you very much.

If I’m wrong, you can make fun of me for missing out on a 2% rally to a new all-time-high. Congrats in advance. Shrub Jr would argue that it was a stupid bet to take in the first place.

Good luck out there!

🌳🙏

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Disclaimer:

This isn’t financial advice. This is Parody. This is the equivalent of Monty Python for finance, but worse: This is the trading blog of a shrub. For all you know, I could be a 15-year old paper-trading out of my parents’ basement. Don’t be Stupid. Seriously. How many times do I have to repeat this …

Good luck out there!

🌳🙏

Disclaimer:

This isn’t financial advice. This is Parody. This is the equivalent of Monty Python for finance, but worse: This is the trading blog of a shrub. For all you know, I could be a 15-year old paper-trading out of my p…

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I’m used to receiving messages from readers when they are concerned about the Markets.

But recently, their concern has shifted from the Markets to something more personal: the impact of AI on our humanity and on our children (our friend has written an excellent thought piece here).

I’ve termed this, A(I)nxiety™️.

It’s a legitimate concern, so we need to introduce some basic Axioms to help us navigate through it:

Axiom 1: “They Don't Care About Us”

Michael Jackson said it best: “All I wanna say is that they don't really care about us”.

By that I mean:

• The Tech Oligarchs: They couldn’t care less if you lose your job to AI.

• The Politicians: They don’t care either, as long as the DOW is above 50,000.

Therefore, we must accept that “NONE will save us but ourselves”.

Axiom 2: “You are Alive, AI is not”

This should be self-evident but it needs saying: You are alive. AI is not.

Don’t talk to the AI like it’s your buddy, talk to your family and friends instead.

Don’t trust the AI. It couldn’t care less if it gives the wrong output … because it CANNOT care!!!

You get my point. Don’t be stupid!

Axiom 3: “The Black Coffee Theory”

For those who don’t know the theory, here it goes:

• Imagine walking into a café wanting a latte. Instead of saying, “I want a latte,” you tell the barista, “I don’t want black coffee.”

• The barista becomes confused, and when it’s time to make your drink, the only thing she remembers is “black coffee”.

• You end up getting served black coffee.

The “Black Coffee Theory” illustrates that focusing on the negatives can inadvertently attract the very things you wish to avoid.

So if you worry everyday that the “AI is going to destroy us”, well … you aren’t helping yourself. You might end up getting served … black coffee.

So let’s just “UNO Reverse” that feeling, shall we?

Does that mean we are “safe”?

This doesn’t mean that AI won’t destroy jobs or upend our world as we know it.

This only means each one of us should take a stance and evolve in order to survive. Humans are pretty good at this.

“100% Organic”

For example, this shrub has taken a stance to remain “100% Organic”.

I stopped using Excel for modelling purposes some years ago, and only use a pen and a “back of the envelope” or the “corner of the FT” when available . My performance has dramatically improved since. I’m pretty sure I’ve outperformed 99.999% of all “spreadsheet” monkeys out there.

I don’t use AI to write. I don’t use AI to edit. I don’t even use “grammar check” or whatever else kids use nowadays. The end result is an article that contains pretty average vocabulary with mediocre grammatical skills, attained by growing up in a non-English-speaking country and learning the language mostly by listening to classic rock and watching Star Wars a few too many times.

But “shrub slop” is still better to read than “AI slop”. At least it’s my slop.

This is not to say that I don’t use AI:

• I made a cool video game with AI called “Shrub-Man” that you can play here.

• I use AI inexorably to makes Memes. It gives me great pleasure to produce memes for free that cost Scam Altman $1,000 a pop.

But I have NO INTEREST in using AI to think for me!

I also have no interest in reading AI-generated articles, listening to AI-generated music, watching AI-generated films or dealing with monkeys whose only output is AI-generated …

… because at the end of the day, a monkey using AI is still a monkey. And I have no interest in dealing with monkeys.

This shrub is 100% organic and will remain so.

This is my stance.

🌳🙏

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Disclaimer:

This isn’t financial advice. This is Parody. This is the equivalent of Monty Python for finance, but worse: This is the trading blog of a shrub. For all you know, I could be a 15-year old paper-trading out of my parents’ basement. Don’t be Stupid. Seriously. How many times do I have to repeat this …

In any case, this next trade is big and liquid enough even for Norges, since this is an actual $1 trillion long / short trade … and, for once, this isn’t clickbait!

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Good luck out there!

🌳🙏

Disclaimer:

This isn’t financial advice. This is Parody. This is the equivalent of Monty Python for finance, but worse: This is the trading blog of a shrub. For al…

Read more