CCC & Eco 101.1 fomo kiss Fomo (fear of missing out) kiss (keep it simple stupid) Further to my previous post that seems to have been well received: here I’ll expand the theme of compressed value. rbo (restating the bleeding obvious) In a down trend, bear market, etc. value is compressed. By that I mean that the value in a company, NTA, is retained theoretically but the market value becomes (negative) NTA: less than the break-up, replacement or depreciated value. And importantly does not recognize any or little EV. This should, but doesn’t, lead to corporate and M&A activity. Corporate activity is not usually undertaken in a compression phase: assets too hard to value: finance difficult to obtain: leading to deeply discounted placements: followed by collapse in SP. Therefore: lack of M&A activity adds to the compression rather than relieving it. The sad reality is that deep and lasting value is found in deeply discounted quality assets at the bottom of the cycle. If instead of shares, the deeply discounted asset was a $1m. house available for $500k. you would not be asking how much cheaper can it get, but, Where’s my cheque book: fomo syndrome: Why; because in a building you’re taking a ten year view as to the return of value, factoring in rent, inflation and negative gearing to help along the way. A value compression can only go so far. It’s like trying to repackage the universe back into the Big-Bang, you can’t compress it to a point whereby you reach the ‘singularity’ not possible, too much energy (value). Even a ‘Black Hole’ can only consume so much before it re-ignites as a star (Bull market). If shorters, Algo-bots, etc, had unlimited power and the compression of value continued: then you would arrive at a finite point, where you would be able to purchase the entire ASX for $1 and money would cease to exist as it no longer represented value. The medium of exchange having reverted to cabbages and goats: stores of value then understood by all. The Paradox being that regulators ASIC, APRA, and Government are presiding over the destruction of an entire asset class. Compression, shorting, would ultimately mean the destruction of all the superfund balances of the population. Is this the agenda of the Government to reduce Australia to an agrarian economy? Clearly complete nonsense: but there is a point between the singularity (owning everything for nothing) and the Bull market ware compression of value becomes inherently unstable. Example of compression: CEU. Sell a freeway at a fraction of the cost to build, with a 30 year license to collect tolls with CPI+ increase year on year. Give me a break! That was utter stupidity. This market is eating its own young: clearly unsustainable. As this market is compressed the Algo-bots start to attack and eat each other in a clear race to extinction as the prize is to own everything for nothing and being the only fund to survive as Master of the Universe. However you would have no way of measuring value or exercising power as, at the ultimate compression point, value had failed to exist! Further If this algo-bot trading was so profitable then the taxes collected on the profits would instantly settle the national deficit. Or the current Compression would have yielded super profits for the fund managers; evidenced by growing super balance of members of industry funds. They haven’t, Algo trading profit, is contracting, as the market is compressing. The negative gross value generated (compression) becomes a self liquidating form of deflation. A race to financial extinction. ‘The Singularity’ The point being that the dark pools these Algo-bots inhabit are evaporating, as the value of the market retract, corrects or as I like to think Compresses. Leaving less value (Market Cap) to manipulate: leading to less Algo margin trading range: which is also compressing to clearly unprofitable levels, as value evaporates. (expressed in that old medium money but not represented in the new values of cabbages and goats) If the market truly corrected then you would see the underlying asset disappear and awake one morning to find your freeway or office building vaporized. Clearly: complete nonsense: they haven’t and wont. To chartist: the chart has told you where a share price has been, could possibly indicate buy points, but, how many times has a buy signal been followed by a bear trap or pump and dump. Charts tell Algo-bots the next likely move of punch drunk mug punters. How many thousand times have we seen this sprung in the last year? Irrational Bear Exuberance: Bears lose sight that they are becoming pigs taking bigger bets on diminishing returns with greater leverage (anyone remember Long Term Capital management?). Bears forgetting that the shares being shorted are now leveraged 3/4/5 times or more. Shorters always maintain that shorting adds liquidity to a market. My view is if companies wanted greater liquidity then they would share split. But what do I know? What shorters do not advise is that when a market turns: the squeeze: the Bulls returns. Then, if the shorted shares have been leveraged then suddenly there is massive expansion pressure and unlimited loss for Bears and a massive spike in the share price. Compression : Expansion. There comes a point where the smart money that exited this market some time ago (remember? sell in May and go away) looks at value and says I got to get me some of that the FOMO point. Fear of missing out (fomo): Fear & Greed. The Fear has gone: Cash is restless: Greed is good: average PE 30 year low, 5% cash on deposit, 10% return owning the bank? Now to the Bulls. The expansion point will probably be tested in a deeply shorted and illiquid company. Enter any of the following: or the perfect storm of all these and other factors. Government intervention: Change of Government: November 1st RBA meeting, Interest rates cut: Corporate activity: large buy orders in illiquid shares: Instos. Call in all shorted shares: Add fomo: Then: Algo-bot defenseless: triggers stop loss: not enough shares available: extreme negative leverage exposed: unlimited loss to bear: broker demands margin: bear unable to pay: broker liable: liquidates bear position: buying/reversing short positions: shares at call: All Institutions call-in all shorted shares: denying liquidity: unlimited loss to bears and brokers: as a tsunami of fomo cash hits the most shorted stocks on the ASX: Value returns: Bulls happy: market overshoots: wise take profits: large margin lending accounts become available again: cheap credit returns: lax regulation: Inflation: bears come out of hibernation. The point I’m trying to make is its time to start laying out some cash in deeply discounted and shorted stocks. Don’t lay it all out yet, the tide is turning. Forget about Greece: that’s a side show. Debt is never repaid its only refinanced! Soon the penny will drop that bulk money is made in an expanding not a compressing economy, and there is little or no nexus between the DOW & ASX200. Further there is an exponential demand for coal and iron ore. Keep the faith in CCC and other juniors, their time is nigh. XanaX Bulls can make money, Bears can make money, Pigs always get slaughtered. Roasted bear & bacon sandwiches anyone?
CCC Price at posting:
18.5¢ Sentiment: Buy Disclosure: Held
