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How I know this is a bubble

Last night our family was about to sit down to dinner and just as we did I was struck by fear.

An hour before I had read this zerohedge tweet about Tesla:

After I read the tweet I looked at the after hours price of Tesla. It was up about 2%. After being up about 8% during regular trading hours.

I began to panic. Complete, pure, irrational panic.

Here’s the thing. I was short Tesla.

I’m not a TSLAQ guy. I think I shorted it briefly once in the past. But I had put on a short at the beginning of the week.

This was not a large position. It would not even qualify as a small position. It added up to 0.27% of my portfolio. And that’s after losing on it for 3 straight days.

Yet before I sat down for dinner last night, I was panicked enough about this tiny, little Tesla short that I had to run and close it out in after hours before I could sit down to eat.

Its not just Tesla.

I have had hedges on in my portfolio, in one form or another, since about 2016. During that time I’ve never really worried about them. If the market goes up, then my stocks go up. The hedges go down but that is part of the deal.

But right now, I have become actively worried about my hedges. So much so that before the market closed Thursday I went through all my inverse index positions and calculated how much my portfolio would lose from them if the market was up 2%, 3% or 4% on Friday. And then I adjusted their size to make sure each was at a level I could live with.

This is not normal.

It is not normal for me to be so uncertain. It is not normal for me to be thinking that the market could be up multiple-percent for no particular reason.

To be so unsure of what the market might do that a 0.3% short in Tesla feels dangerous? That it makes me start calculating the damage if this is the next Volkswagen and the stock flies up 2x, 4x or 10x in a few hours on some bizarre index inclusion short squeeze (which I have to say doesn’t really make any sense to me, not that such reason mattered at the time).

And this isn’t some fear bred from a string of bad trades. I know that fear. I’ve been wrong about a bunch, I’ve had bad luck streaks, and I know the feeling when you get to a point where you don’t trust your own judgement.

That isn’t what this is.

I’ve done quite well the last couple of months. Yet I can’t shake the feeling…

I have not been as skittish as I felt this week since… well I don’t know when.

I certainly have never felt this skittish at a time that my portfolio was going up.

I was not even this skittish in March. After all, that made some sense. This does not make sense. So anything seems possible.

It could be passive or options or $2,000 checks. Or some combination of all of the above. I look at Twitter and I see all these guys calling out their big returns on portfolios that look like they are all identical with the same SaaS and EV and momentum names (or they are just 100% Tesla or something crazy like that). And these guys don’t look like the guys that usually get rich on stocks.

Meanwhile many of the guys that I know from years on Twitter that are good at stocks are either silent or incredulous.

Apart from taking off my Tesla short (which I replaced with an even tinier option position where at least I know my downside if something bizarre happens), today I did the only thing I could do given my unease. I sold. Both longs, shorts and hedges. I am now very small.

That will mean I don’t fully participate in what could very well be the blow-off top. But I am just not comfortable with what is happening right now.

What the market is doing doesn’t make sense. I doesn’t feel right. So I had to get small enough that it doesn’t matter.

Research: Biorem

These guys are opaque and not very concerned with shareholder relations. They have no presentation and their press releases are dull.

This is also not a business with an impressive history. Annual revenue is unexciting.

Quarterly revenue growth has not been any better.

Exciting stuff so far.

But the quarterly backlog has been growing. Backlog was $21 million at YE 2018.

• Q3 backlog of $34mm and bookings of $8.7mm
• Q2 backlog was $30.9mm and bookings were $7.7mm
• Q1 backlog was $31mm and bookings were $5.5mm

There is $9.3mm of cash on the balance sheet and no debt. Biorem has 38.7mm shares at $.60 for a market cap of $23mm.

Business

Biorem makes systems to remove hazardous pollutants from industrial and commercial emissions. These systems eliminate odors, VOCs, hazardous air pollutants from air streams. They use microbes that eat the pollutants and turn them into harmless byproducts. In their portfolio there are 3 different grades of air filtration systems and a biogas H2S removal system.

BASYS and BiofiltAIR

• smallest biofiltration system
• removes VOCs and contaminants from the air

Here is how it works:

Odiferous compounds or hazardous air pollutants are transferred into the biofilm where they are used by the microbes as a food source and converted to harmless byproducts such as carbon dioxide and water vapor.

MYTILUS Biotrickling Filter

• fixed film biological reactors
• air this is air cleaning system
• circulating air in “biological reactor” where there are microbial cultures that eat the contaminants
• used for the removal of hydrogen sulfide at waste water treatment facilities or ethanol from industrial processes

SYNERGY

• this is the high end filtration system (“where failure is not an option” – the website)
• several stage system
• can include several biological reactors in series and stages with specific chemicals to address specific contaminants
• designed to handle the most difficult air stream applications
• used by municipalities for sustainable wastewater treatment

BIOGAS

• uses sulfur degrading bacteria that eat the H2S
• removes H2S from landfill gas and other methane gas mixtures

Recent Wins/Engagements

• Dec 14 – NYC to examine using their biological processes for mitigating odours and air pollutants from wastewater treatment facilities
• Nov 16: 2 contracts for $2.4mm with Miami, $2.5mm win with Montreal, $2.3mm win with Loudoun County in Virginia, 2 orders from China for $2.2mm
• Jan- announced JV in China
• Dec 19 – order for $6mm air emission abatement project in Montreal, they are modernizing, constructing new organics facility, will produce soil amendments and natgas

I’m of the mind that even though the clean energy names have had a good run, they may have further to go with this Democratic win. Most are too expensive for my tastes. This is one I accumulated over the last week of the year and does not seem expensive.

In addition to Biorem I added a couple of solar installer small cap trades: OEG and PECK, to try to capitalize on the Democratic senate. We’ll see if those pan out and they really are just trades. I’ve also bought a number of small biotecths over the last few days: BNTC, CLBS, ETTX, and NTEC. Of the 4 I think NTEC is most interesting. This is an old Marc Cohodes pick that didn’t pan out, but they have a platform that doesn’t seem like its dead to me and yet the stock trades at a level that suggests it is.

The banks are rocking and gold is not. I like that these two sectors provide a bit of a hedge to one another on a daily basis while both seem to be on an uptrend in the long run.

I have to take some profits

Sometimes I reluctantly reduce my positions, having regret that I will miss out on future gains. But this is not one of those times.

Over the last 3 trading days, I sold across the board except for my community bank and gold stock positions. Everything else I either reduced or removed entirely. I am much reduced on most of my speculative plays. I also added to my index shorts, which I believe will make me roughly hedged (its hard to say). I took a position in PSQ to go along with RWM, HIX, and HIU.

I am also fully unhedged on my US dollars.

I don’t know if this is the top or whether the market keeps going for another month. But its been a very good 30 days and it would just be bad management to not take the gains I think. Pigs get slaughtered right?

Gold is up a lot today and looks to be breaking out, and it hasn’t really participated in this move, so I will hold those positions and have added a couple more (I added back ROXG for one).

The community banks have done well, but other than Silvergate, which has gone stratospheric (I sold the rest this morning), they aren’t particularly expensive. They certainly aren’t in a bubble, which cannot be said for some other sectors. So I have kept the banks as well.

The truth is, I am pretty darn lucky with the timing here. As is my usual tact, I would have been selling all the way up if it hadn’t been December. But because I knew that if I held on just a little bit longer I could defer tax gains for a year, I waited it out. That I made it all the way to the 30th (last day for tax selling was the 29th) is sheer luck.

So it turned out well. No need to overstay my welcome. We’ll see what the market does next.