Thursday, November 3, 2011

Will the Greeks Agree to Austerity? Sure, When PIIGS Fly!!!

Sometimes I just have to chuckle when I read about our financial markets.  Somehow/Someway the markets  always find a way to get even more ridiculous than I thought they ever could.

Stocks soared today as word got out that the Greeks were cancelling their referendum on the bailout/austerity package that they had accepted from the Eurozone.

Germany and France happily breathed a HUGE sigh of relief on the news.   I am impressed with the worlds central bankers on this one.  They somehow frantically pressured Greece into cancelling their planned referendum vote.  I'm not buying that it came down to Greek politics.  My guess is the Greeks had a gun pointed at their head by the European bankers.

You might ask:  Why would France, Germany, and the rest of the EU absolutely freak when they heard this plan was going to be voted on by the people?

Ummmm.....Maybe because the plan completely pillages the people of Greece??

As I like to say, the devil is in the details and here are the details of the austerity plan. 

Let me ask all of you a question before you read the summarization of the plan:   If you lived in Greece would you vote for this???:

"Income tax threshold would be lowered from €12,000 (£10,300) to €5,000 (£4,300)

Retirement age would be raised from 61 to 65

VAT would rise from 19 to 23 per cent

Higher property taxes

Monthly pensions above €1,000 (£860) would be cut by 20 per cent

Excise on fuel, cigarettes and alcohol would rise by a third

To qualify for a full pension people would be required to complete 40 years work

Retirees aged under 55 would lose 40 per cent of their pensions over €1,000 (£860)

Public sector wages would be cut by 20 per cent

Employees of state-owned enterprises would have their wages cut by 30 per cent

A cap would be introduced on wages and bonuses

30,000 civil servants would be suspended on partial pay

All temporary contracts for public sector workers would be terminated.

Just one in 10 civil servants retiring this year would be replaced

New levies on household incomes of between one and five per cent."

My Take:

I highlighted some of the details that were the most harsh.  Folks, let's just cut to the chase, this just isn't gonna happen.  I spoke to "The Credit Trader" about this today and he explained it best: 

"Jeff, Greece will fail because the WILL to implement such evil/harsh measures on the people in Greece simply isn't there".

I asked him how he thinks this plays out and this was his answer:

"I see it going one of two ways.  Greece will reject the austerity plan and head back to the Drachma.


Greece will "play the game" and agree to the terms of the the austerity plan and then just never implement them."

He finished with this:

"Either scenario will end up with Greece collapsing.  The politicians are either going to take their medicine now and head to the Drachma or they will try and play "kick the can" until the EU stops funding them when they refuse to comply to the terms of the bailout.

I couldn't agree with his assesment more.

Of course the stock market loved the news.  The bulltards took stocks to the moon the last two days on the hopes that Greece is now "fixed".  What they don't realize is Greece can't be fixed.  Greece is broken!  Greece has about as good a chance of being fixed as Kim Kardashian's Marriage.

Just think about it for a minute.  Who in the hell would agree to the terms above without revolting in the streets.  Citizens in third world nations are treated better than this!!!

The idea that the market is buying this Greece BS is simply amazing to me.  I'll say it now and I'll say it again:

Greece is Toast with a capital T.

The Bottom Line

Stocks look very extended to me here.  Keep in mind we had about a 20% rally in October before getting pounded early this week.  This last move reminds me a lot of the Bear Stearns rally in 2008 right before stocks collapsed.

Remmber all:  HOPIUM only can last for so long before the effect of the drug begins to wear off.  Reality and the fundamentals ALWAYS matter in the end folks, and it's no different this time.

So what happens next? 

The bond markets already understand that Greece is toast so they will immediately begin focusing on Italy and the rest of the PIIGS.  In fact, it's already happening when you look at the Italian 10 year bond:

As you can see above, we are once again nearing the recent all time highs when it comes to 10 year yields.  Italy cannot afford to finance itself with 10 year yields sitting over 6%. 

Watch European bonds like a hawk in the coming days.  The market knows that the EU/ECB cannot afford to bailout Italy because the size of the bond market is close to $2 trillion Euros.  As a result, the bond traders went right to Italy from Greece because the markets love to go for the jugular.  I mean why screw with some irrelevant country like Portugal when you can go right for the throat in Italy?

That being said, I do expect to see the yields in the other PIIGS to follow suit as the fears of contagion settle in. 

Let me repeat again what I said up above:  As this crisis intensifies focus your intentions on the credit markets instead the stock markets.  Bond traders are a much more sophisticated crew of investors. They almost always get it right whereas the stock market often gets it wrong...2008 ring a bell?
So what am I doing to prepare?

Buying gold and miners again because I expect a printfest by the ECB as they try and stave off a massive bond contagion.  I also remain in some high divvy energy/tech stocks.  EXC, D, and Microsoft are my largest holdings but let me stress that they pale in comparison to my cash holdings.

The volatility in stocks has made them difficult to short so I am mainly on the sidelines except for a few short hedges.  Recently, I have increased the size of my short holdings after the October run up via some longer term option plays on the SPY that I scaled into that expire in March. 

I also currently hold some SDS, QID, and TWM because I am expecting a sharp pullback thanks to Europe.  I will sell these 3 positions on any large move down.  I am willing to take some pain on these if I'm wrong because it's impossible to time the markets.  If I eat some decay on these short ETF's due to the volatility then so be it.   Like my gold holdings, these short positions are very small in relation to my cash holdings.

All in all be careful out there folks.  These trading robots are wicked fast and they trade the news faster than the speed of light.   Trying to compete with them via day trading is a losing battle unless you own a quant yourself.

If the jobs number beats tomorrow we could see another meltup if Greece behaves. 

In the longer run buyer beware and own some hard assets.

Disclosure:  No new positions were taken in any of the names above at the time of publication.

Sunday, October 16, 2011

Hey OWS!...Need Help Understanding the Issues?

Are you frustrated and feeling helpless but don't understand why?

Award winning economist John Hussman has just given you the answers this weekend.  Pass this along to people heading down to Wall St who don't really understand the issues.  Please also use this as your bible as you continue to working on crafting your message.

If you can only read one thing this week then click on the link below and read this.  When you are finished wait 5 minutes and then read it again.  It's that important.

You have gotten the world's attention.  Moving forward it's going to be IMPERITIVE that you send the correct message while the world listens.  I have highlighted the areas that I think are important.

I hope this helps:

I'll link this here and again down below:

"Talking Points for the "Occupy Wall Street" Protesters
We're all for a good peaceful protest. As long-time readers know, I've been an adamant critic of the bailouts of mismanaged financial institutions, as well as various illegal policy actions that have been pursued by the Fed since the financial crisis began in 2008. Undoubtedly, there is good and bad on Wall Street, and we know a lot of smart, well-meaning financial advisors who go to work every day with the goal of improving the financial security of their clients, who do careful research, avoid speculation, and provide a service to others through their profession. A functioning economy needs to allocate capital effectively, and there Wall Street can be essential.
Unfortunately, over the past 15 years or so, the basic function of the financial markets has been corrupted into what I've grown to view as a self-serving carnival of speculation, where many participants are interested in nothing except getting the next rally going at public expense, regardless of how badly market signals are distorted, how recklessly capital is misallocated, or even whether what they do has any positive effect on the economy or the country (some of the sleazier ones even have their own shows on basic cable).

There is no single source of this transformation. Part of it is a remnant of the dot-com and technology bubbles, when market valuations moved to nearly triple the historical norm, and investors began to view perpetual market advances and high returns as a birthright. The subsequent decade of zero overall returns for the stock market largely reflects a reversion to more normal (but still cyclically elevated) valuations.
Another part of this transformation is due to the activist policies of Federal Reserve, which has continually attempted to short-circuit every instance of short-term economic discomfort by distorting the menu of investment returns (e.g. zero interest rate policies) in an effort to provoke investors to accept fresh speculative risk. Ironically, the long-term effect of distorting market signals has been to drive good, potentially productive capital into wholly unproductive uses - the housing bubble being a prime example. As a result, real U.S. gross domestic investment has not grown at all since 1998, and the portion financed by domestic U.S. savings has collapsed, so much of the new capital we've accumulated is owned by foreigners.
Undoubtedly, one of the greatest rhetorical victories of Wall Street has been to successfully plant in the minds of the public the idea that some financial institutions are simply "too big to fail," and that the "failure" of "systemically important" institutions will result in global financial meltdown and Depression. The reality is much different.
So, with the hope of providing the Occupy Wall Street protesters with some talking points, what follows are some perspectives that might be useful in framing the issues that we are facing as an economy.
1) "Failure" only means that corporate bondholders don't get every penny
Background: When Wall Street talks about the "failure" of a bank or other financial institution it means the failure of the company to pay off its own bondholders. It does not mean that depositors, counterparties or other bank customers lose money (See Recession, Recovery, and the Ring-Fence ). A bank is essentially a big portfolio of assets, about 70% which are typically financed by depositors, customers and other liabilities, about 20% by the bank's own bondholders, and about 10% with the capital of the bank's stockholders. In a typical bank "failure," the bank is taken into receivership by regulators, the liabilities to stockholders and bondholders are cut away, the remaining package of assets and liabilities is sold as a single entity to some other firm (or can be reissued to investors as a new company), the old bondholders get the proceeds of that sale, and the stockholders are wiped out. When investors willingly take a risk, and buy the stocks and bonds issued by an institution that goes on to mismanage its business, this is the appropriate outcome. Depositors and customers typically don't lose a penny (See the section on "How to Restructure A Major Bank" in Not Over By A Longshot ).
If public funds are provided during a financial crisis, and it cannot be clearly demonstrated that the institution is solvent, the funds should be provided post-failure, as senior loans to a restructured institution where shareholders and existing bondholders have already been subject to losses. The interest rate should be relatively high, to encourage replacement of public funds with private ones. With few exceptions, when public funds are used to avoid major restructuring and shield private investors from losses, the result is almost inevitably a larger, less transparent, and more recklessly managed institution.

The same is true for government or "sovereign" debt. When Wall Street talks about "failure" of Greece, for example, it means failure of Greece to pay off its own bondholders. In trying to avoid this failure, Greece is instead forced to impose extreme austerity and depression on its citizens. From the standpoint of those citizens, Greece has already failed them painfully. Those are the choices - let bad debt "fail" or force depression on innocent citizens.
Of course, there is a cost to any financial crisis, which is "contagion" where the failure of one institution or government calls others into question. The main way to contain this is to follow the century-old "Bagehot's Rule" - lend freely, at high rates of interest, but only to institutions that are solvent and able to provide collateral for the loans. When policy makers behave as if every institution, solvent or not, is within the ring-fence, or that some institutions are simply "too big to fail," saving these institutions comes at enormous costs, because true economic losses that should properly be taken by private investors are instead forced upon the public.

Keep in mind that money is fungible - not all losses are taken directly by the institution that created them. Many of the losses that should have been borne by banks were instead assumed by Fannie Mae and Freddie Mac. This allowed TARP to seem largely successful even while hundreds of billions of public funds are still being spent to bail out Fannie and Freddie. Recent efforts by government overseers of Fannie Mae to claw back these losses from the banking system are appropriate, but they also demonstrate how easy it is for private institutions to transfer their mistakes onto the public balance sheet.

2) The Federal Reserve's purchases of Fannie Mae's and Freddie Mac's debt obligations were illegal
Background: Beginning in 2009, the Federal Reserve began buying nearly $1.5 trillion in obligations of Fannie Mae and Freddie Mac, both which were insolvent and in government receivership. The Fed justified these purchases by appealing to Section 14.2 of the Federal Reserve Act, which allows the Fed to purchase securities which are a "direct obligation of, or fully guaranteed as to principal and interest by, any agency of the United States." Now, Ginnie Mae, the financing arm of the Federal Housing Administration (FHA) is a bona-fide government agency. So there would have been no legal problem if the Fed had purchased Ginnie Maes. In contrast, however, Fannie Mae and Freddie Mac were not, and are not, U.S. government agencies. Nor are the obligations held by the Fed "fully guaranteed as to principal and interest" by the U.S. government. At best, the obligations of these GSEs have implicit and informal backing, as any member of Congres will tell you, and simply taking a failing institution into conservatorship doesn't confer government backing to its debt. In fact, the stop-gap measure enacted by Congress during the crisis only provides temporary backing for the obligations of Fannie and Freddie maturing by the end of 2012. Very simply, the Fed broke the law by buying Fannie and Freddie's debt.

3) Creating shell companies to buy Wall Street's bad assets is not "discounting," and was therefore also illegal

Background: In 2008, the Federal Reserve created a set of off-balance sheet shell companies called "Maiden Lane" to buy undesirable long-term assets of Bear Stearns and other financial companies, justifying the purchases by appealing to Section 13.3 of the Federal Reserve Act. But if you actually read Section 13, it is clear that under the law, "discounting" means (as it has always meant) providing short-term liquidity by essentially providing a check-cashing service for obligations that are short-dated, well-collateralized, and promptly collectible (See also Outside the Oval / The Case Against the Fed ). The Fed's creation of the Maiden Lane companies to purchase bad assets was, and remains, illegal under the language and intent of the Federal Reserve Act.

Keep in mind that we have only three branches of government: the executive, the legislative, and the judicial. The Federal Reserve is not an independent fourth branch of government, but operates under the legislation of Congress and therefore cannot be "independent" of Congressional control. While nobody wants monetary policy to be "politicized" in the sense of Congress telling the Fed what policy actions should be taken and before which election, it is quite a different matter to require the Fed to operate within the law. Here, Congress could use some encouragement.

4) The skewed distribution of wealth in the U.S. is worsened by policies that misallocate capital and divert public funds to bail out investments that have already gone bad.
Background: If you think about the "standard of living" in a country, you can roughly define it as the amount of goods and services that individuals are able to consume in return for their work. If you think about the "productivity" of a country, you can roughly define it as the amount of goods and services that individuals are able to produce for their work. Clearly, over the long-term, the productivity and the standard-of-living of a country go hand in hand. The best way to create both, over the long-term, is for an economy to build a stock of productive capital (inventions, new technologies, plants, equipment, public infrastructure, etc), and human capital (labor skills, education).
Still, even a generally productive economy can produce a skewed distribution in the standard of living enjoyed by its citizens. In a competitive and undistorted economy, the distribution of wealth is determined by the ability of each individual to a) provide a useful service, b) distribute the services they provide over a large number of "units", and c) maintain the scarcity of what they provide.

So for example, professional football players earn more than teachers not because playing football has more virtue, but because professional football players are among a very small group, and distribute their "services" over millions and millions of spectators, each which implicitly pays a few cents to each player per game. Mark Zuckerberg at Facebook is able to distribute his services across hundreds of millions of users, each which implicitly pays him a tiny amount by viewing advertising. Bill Gates distributed his services over every computer that ran Windows, while the factory workers who built those computers were each able to distribute their skills over a smaller number of units. Teachers represent a large professional group, but are typically able to distribute their services over a limited number of students, each which implicitly pays a portion of their family's income to the teacher. One-on-one aides tend to earn less, despite often being extremely skilled, because in order for them to earn a high income, their earnings would have to capture much of the income of their single student's family.

The distribution of wealth has become increasingly skewed as trade has become more globalized and technology has allowed the innovations of a single person to be spread across millions of consuming "units." At the same time, the economic emergence of China and India has brought forth literally billions of new workers who dilute the scarcity of the existing labor force. An economy where capital is scarce, protectable, and can easily be distributed over numerous units, while labor is plentiful, homogeneous and can only be applied to a smaller number of units, is an economy that is prone to an enormously skewed distrbution of wealth.
This process takes on a grotesque character when it becomes possible for a company to distribute its impact over a very large number of units, and government policy protects that ability even when the impact of the company reflects not skill but ineptitude. This is essentially what has happened with the "too big to fail" institutions. Despite inflicting massive damage on the economy, they are afforded a protected status that allows them to extract "rents" that don't reflect the cost they have imposed. From that standpoint, the Occupy Wall Street protests are a welcome reflection of public frustration over Washington's slavish coddling of reckless financial institutions.
Policy Responses

The proper way to address the present economic imbalances is pursue policies that encourage the restructuring of bad debt, the allocation of public funds and private savings to productive investment and new research, the accumulation of education and labor skills ("human capital") to allow workers to capture a greater share of their own productivity, and the continuation of social safety nets to ease the economic adjustments that are necessary in a deleveraging economy. In my view (which not everyone will like), this requires:
Monetary policies that abandon the constant pursuit of new financial bubbles, which distort investment opportunities and misallocate capital;

Housing policies to coordinate the restructuring of mortgage debt for homeowners capable of servicing a restructured mortgage (we've advocated breaking the mortgage into a lower principal loan plus a right of the lender to a portion of future appreciation), and unfortunately, foreclosure for homeowners unable to service even a restructured mortgage, with associated losses being taken by lenders;

A return to a reasonably smoothed form of mark-to-market accounting (say, 3-year averaging) so that financial institutions cannot let a bad loan book deteriorate while still reporting those loans at amortized cost.

A requirement that banks hold a significant amount of their capital in the form of mandatorily convertible debt, so if the assets deteriorate, the debt converts to equity immediately and provides a capital cushion against losses without risking default to senior bondholders. Yes, this will result in a slightly higher cost of capital to the banks, but it is a reasonable alternative to more intrusive forms of regulation.

A major increase in government-sponsored research in basic sciences (as opposed to huge pick-the-winner bureaucratically-awarded grants to companies like Solyndra). Recall that research and innovations coordinated through government initiatives such as the Advanced Research Projects Agency (which largely originated the internet), the National Science Foundation, and the National Institutes of Health have been the basis for much of the industry that has built upon that foundation;

Continuous investment in public infrastructure - although the long lead times simply to obtain permits for major projects largely rules out much near-term stimulative effect from the Administration's proposed Jobs Bill even if it were enacted immediately;

Efforts among workers to increase their own protectable level of scarcity, ideally through increased education and labor skills, but if necessary through collective bargaining in industries that are reliant on locally-sourced employees (understanding, however, that this alternative also has the effect of reducing employment);

Incentives for capital investment and R&D such as tax credits and immediate expensing of new investment;

Tax policies that reduce distortions by applying a sufficient but relatively constant tax rate to every dollar of income regardless of the source (wages, profits, financial gains), with large exclusions at initial income levels - essentially taxing all dollars and all people according to the same rules, broadening the tax base by including all forms of income and avoiding the need for class warfare;

Broadening the tax base but substantially reducing the tax rate on Social Security and Medicaid (which are a larger tax burden than the income tax for 75% of American families) and applying that lower rate to all forms of income - not just wage income. This would stop the regressive treatment of payroll workers, which exists only to perpetuate what economist Alvin Rabushka has called "the fiction that Social Security is a retirement insurance program in which contributions are linked to benefits, rather than what it is — a transfer of income from workers and the self-employed to retired people.”

Monday, October 10, 2011

Occupy Wall St.: Right Idea...Wrong Reasons

Hi all!

It's been awhile.  Things in my world have been crazy busy so I haven't had time to post.

I just wanted to quickly chime in on the Occupy Wall St. protests.  My quick take on the whole thing is they have the right idea but they are doing it for the wrong reasons.

Their agenda is very fragmented and reminds me of some form of socialism. 

That being said, I support the movement.  I hope that OWS will eventually morph into an uprising that focuses on our corrupt political and financial system.

Watch the video below if you need a reminder as to what we should be protesting about.  Dylan pretty much nails it.

Lee Adler also gets it.  This is a must read.   The Fed's Bernankecide as Lee beautifully puts it continues.   The first few paragraphs of this piece pretty much says it all:

"We as a society must stop pretending. Most of us think that we still have money in the bank to protect, so we go along with the game of extend and pretend. For some of us, the game has already ended. The rapacious zero interest rate policy that I call Bernankecide has already robbed millions of savers of their life savings. This is the reality that has yet to hit home for many Americans who are content to wallow in the status quo. Unfortunately, the longer it takes for them to wake up, the worse their, and our, fate will be.

My mother and millions of other senior citizens are among the victims of the game that policy makers and those who empower them are playing. Their life savings are gone because Bernankecide, the financial genocide of the elderly, forced them to spend their principal. Now the government is indirectly confiscating 8% of my income because I must support my mother. That percentage is likely to grow as her health deteriorates.

Millions of other boomers are in the same boat. They are forced to pay this immoral hidden tax because Ben Bernanke decided that the innocent must pay for the sins of the guilty. While Bernanke’s ZIRP goes on allowing the banksters to continue to collect their fat bonuses, it steals the savings of millions of Americans, eliminates their disposable income, and cuts the spending power of millions of others who must now support those rendered destitute. The guilty benefit, and the innocent are punished."

The Bottom Line:

Let me preface this by apologizing for being so quiet recently.  I am hoping to pick up the pace on my posting over the next few months. 

When it comes to the markets I am speechless.  The HFT's continue their games.  I have been playing the short side in the last few months and done well shorting DB, COF, and PHM.

I am now currently pretty flat from a trading perspective.  I am expecting a move back up to around 1200 on the SPX. 

Europe is a disaster, and there is a risk that their banking system could go belly up if the EU doesn't take action within the next few weeks.

The Dexia stick save this weekend has juiced the futes.  This makes no sense of course but what else is new?  I expect an S&P downgrade of Belgium and France within the next month as a result of their failed banking systems.

Greece appears to be toast.  The regulators are now trying to sell the "orderly default" dream to the markets.  History has shown that there is no such thing.  When Greece goes down I expect haircuts in the 70-80% range versus the 50% that has been thrown around.

I am sitting on my hands for now until I can get a better grasp as to what is going on.  Good luck out there and be careful!.

Thursday, August 11, 2011

DOW 5000 Possible by 2013???

United ICap's chief technical analyst Walt Zimmerman sure thinks so.

Gulp.  This is kinda how I see things playing out although I am not sure we get down that far.  Europe is a repeat of our banking collapse here.  There is no reason to think that "it's different this time".

Enjoy Walt and have a drink or two this weekend.  It's been a long stressful week for anyone that has a 401k. 


Futes are rolling over here tonight so I wouldn't be surprised to see a red day tomorrow if the retail sales #'s are bad.

For what it's worth I am flat in my trading account.  I sold my last DB PUTS on Wednesday.  Sitting in cash.  I do not like playing when the tape is this violent.  Options are too expensive, and its easy to get your face ripped off if you are on the wrong side of the tape.

For now I will grab some popcorn and enjoy the fireworks from the sidelines.

Tuesday, August 9, 2011

Dylan: Our Political Syatem is a FAILURE!

I couldn't agree more....

Our political system is a complete and utter catastrophe.  I must admit that I hate both parties at this point.  Dylan's rant is something that I think all of us can relate to.

It's time to get angry folks.  It's time to demand change.  Our system is BROKEN.  I received several panicked messages today asking about what they should do with their investments after the massacre we have seen in the past two weeks.

People are confused and SCARED at what in the hell is going on in the financial markets and they damn well should be!  How did our financial system get so screwed up?

I have friends with families that are petrified.  They ask me:  How do you "invest" when the DOW is up and down 100 points every 2 minutes?  I then proceed to tell them that I have no answers and if they are uncomfortable then they should go to cash or bonds so that they can sleep at night.

You have to ask yourself the following questions:

How can the average Joe grow his investments in a peaceful manner when the market continues to be in total chaos?

How many times is the average investor going to keep investing when he sees his investments drop by 50?  It's already happened twice in the past 10 years and we are likely about to see the same thing happen for a third time.

When are the regulators going to say enough?  How many billions of dollars need to be lost by the average American before the government stops all of this high speed computer BS?
All most Americans want is a safe place to invest money so that they can send their kids to college and then retire.  Is that asking too much???

The way the system is setup right now it's basically impossible for the average American to achieve their goals:

A)  Private colleges are now 40k a year...

B)  Houses are unaffordable and over priced...


Most importantly:

C) Americans no longer have a safe way to invest!!!!!  I can't stress this point enough which is why it's in bold. 

My final question:  How does America get to both A&B when C is a complete disaster/failure????

Let's just face it:  "Children's college funds" are a complete joke now that the sharks on Wall St have turned investing into a casino as they buy and sell stocks every 7 seconds.

When is this all going to stop???  Enough already!!!!

Listen to Dylan and realize you are not alone:

Monday, August 8, 2011

THTB Crash Warning

I wanted to hop on tonight and alert everyone that I am very concerned about the possibility of a crash tomorrow.

Crashes are usually not telegraphed so it likely won't happen.  However, the elements for one are there and the price action in the futures is extremely alarming.

We are down an additional 35 handles on the S&P from the close.

Here is a print of the /ES(S&P futures) as of 10PM tonight:

China's inflation numbers that were released tonight are are making matters worse because they came in hotter than expected:
"China CPI 6.5% YoY, higher than expected.

PPI is 7.5% YoY."

This is is hammering the world markets at a time where the world's investors are already completely panicked.

The Bottom Line

I am extremely concerned folks.  The US banks are collapsing. BAC was down 20% on the day.  GS, MS, and Citi were also down big.

The whole banking system has basically been torpedoed for two straight weeks.  The price action is very reminiscent of 2008.  What's scary here is there has been no obvious catalyst for the sell off.

IMO, somebody knows something and the shorts are sniffing blood.  The European banks look just as bad.  Unicredit teeters on the brink of bankruptcy, and I suppose our banks exposure to Europe could be the trigger for the horrific sell off we have seen in the banks over here.

Folks, we are so oversold it's ridiculous, and the fact that there are no buyers tells me something bad could very well be in the mix.

We all learned in 2008 that there were solid reasons why the market dropped down to 6K.   We just didn't know them at the time.  Looking back once we got the facts there were solid reasons as to why we got there. Just watch HBO's TBTF if you want to see how close we came to financial Armageddon.

I am afraid were are now once again at the tipping point.  It's time to stop trading and pray that we somehow find a way to get out of this.

Markets are all about confidence and for the past two weeks confidence has been completely lost.

I am hoping that the Fed can pull a rabbit out of the hat and stabilize things with their statement tomorrow.  I must admit I am not optimistic.

Protect yourself and let's all hope for a bounce. 

Friday, August 5, 2011

USA Downgraded by S&P to AA Credit Rating

Well folks, the chickens are coming home to roost:

"Updated, 8:27 p.m. ET] The credit rating agency Standard & Poor's announced Friday that it has downgraded the U.S. credit rating to AA+ from its top rank of AAA."

Quick Take:

I am kinda sick to my stomach because I closed about 70% of my short positions this morning at the lows.

This is a sad day and this week has been more proof as to why you can't believe anything that Wall St tells you.

The recovery/Green shoots/bull market hoopla was nothing but a complete sham manufactured by government spending.  I have been saying it ever since the lows in 2009 and I took a lot of heat for it. 

It was easy to see if you covered your ears and didn't listen to the BS that was being thrown to you by Wall St on an hourly basis on CNBC.

Get ready for I wild shit show on Monday.  The unintended consequences here are numerous because our debt is no longer AAA which means many will be forced to sell it due to various covenants.

Money markets are a prime example.  They can not own any thing that's not AAA.  The question now becomes where in the hell do they go with these massive amounts of cash if they can't sit in treasuries.  FRN's perhaps?  Does the dollar rally then or does it crash due to the downgrade?

I have no idea how this plays out folks but please be careful.  Don't end up like many of the bulltards who have been drinking the recovery koolaid since 2009. 

Do stocks now rally because treasuries are no longer safe?

I plan on sitting mainly in cash and seeing how this plays out before I make more trades.  The only shorts I kept on were DB based on the Euro mess which I failed to even get to tonight.

Let's hope we don't see total chaos in the markets next week.  Hold your breath and just pray that no one panics.

Tuesday, August 2, 2011

Praying for a QE3? Don't Count on it....Yet

Hmmm......So the Fed ends QE and the market tanks.

Haven't we seen this nightmare before?? 

My Take:

We sure have!
As you can see above, we have basically rocketed straight up from the lows except for a "soft patch" that we saw beginning in June of last year.  Coincidentally this was exactly when QE1 ended.  QE2 was not initiated until the fall.

Without the Fed Playing "Charles Ponzi" in the background the market corrected by about 15% over last summer before QE2 was initiated in September.

As soon as QE2 was cranked up Wall St loved it and stocks rocketed 30% higher by MArch.  However, as soon as the Fed announced this spring that it was leaving the QE party in June, the market has gone nowhere.

Like clockwork, once QE ended, the market is doing an exact repeat of what it did the last time QE ended:  It's TANKING!

The Wall St cheerleaders will soon be trotted out on CNBC to begin their ad campaign for QE3.   I am here to say it's not going to happen.  At least not for now. 


Well, thanks to the European debt crisis we have very strong demand for bonds so we don't need the Fed in the bond market.   Yields on the 10 year are crashing as scared money flocks into US debt from Europe as their crisis continues to spiral downward:

Folks, high interest rates are not a problem for the Fed when the 10 year sits at 2.6%!  The problem is unemployment and consumers that are being strangled by massive debt loads.

I mean think about what the average Joe consumer must be asking himself:

"Why should I put another noose around my neck when I am already in one as a result of being too deep in debt?  I already owe $200,000 on my school loan.  I never should have put $50,000 on my credit cards as I yucked it up and partied like it was 1999.  What in the hell was I thinking???"

This is what what the majority of consumers are asking themselves right now.  Many of them are jobless or have no job security.  Others have taken jobs that pay much less than the one they previously had as a result of this crippling recession.

The bottom line is the majority of Americans no longer have the ability or desire to borrow.

The Bottom Line

The Fed understands that credit/low rates are not the problem.  They also understand that oil rose from $20 at the lows up to $110 this year as a result of their QE printing exercises.

They also watched all other commodities soar as the currency weakened as a result of their printing Ponzi scheme.  Gold now sits at new all time highs once again today.

The also now understand the unintended consequences of taking such reckless actions....Arab Spring anyone?  Starvation in third world countries?  Soaring corporate input costs?

The bottom line here is there are many knowns and very few unkowns for the Fed after pulling this QE stunt twice since the 2009 lows.

Obviously, the stock market would love it but the Fed has to seriously ask themselves if this money printing is worth the price?  You all know my answer.

Making matters more tough this go around are the ratings agencies.  Any initiation of a QE3 would almost immediately trigger a debt downgrade from S&P and Moody's.  Both agencies are already right on the brink of taking away our AAA status without adding any additional stimulus in the form of QE3.

Who knows what unintended consequences this would trigger?

The Fed is running out of options.  If they pull the QE3 button then we will likely lose our AAA status, and run the risk of massive inflation as our currency takes it on the chin.

If they don't pull the trigger then we run the risk of a Japanese style deflation as we see historic debt destruction.

As you can see, the stakes are very high here and the downside risk of a QE3 are clearly understood by the Fed.  As a result, I expect the Fed to take their time figuring out what they should do.

If the market continues continues to completely unwind like it has in the past week then I think the Fed will eventually think about a third dose of QE heroine.  However, I expect them to think long and hard before doing so which means there is likely a lot more pain ahead when it comes to the stock market.

Disclosure:  Sold PUTS in PHM.  No new positions taken at the time of publishing.

Wednesday, July 27, 2011

USA Default? Not Yet Folks..........

Let me start by apologizing for only writing on a monthly basis recently.  My schedule simply hasn't allowed any time for writing.  I love doing this blog but it's something I can only do during my spare time so please bear with me.

I am hoping to get back on here more regularly in the near future but for now I can't make any promises.

So let's talk about this cesspool we like call a stock market.  Things sure are getting crazy aren't they?  Watching the markets the past few months has been a bit like watching paint dry.  We continue to bounce around the 12,000-12,700 are on the DOW.

This has definitely been a traders market.  There is no volume which means the algos can pretty much have their way.  Stocks have basically been moving on the news of the day.  I feel like the traders on Wall St have become Twitter/Facebook addicts as they look for any nugget of info that they can use to create price action.

Unfortunately, for the average Joe this only makes investing more confusing and thus frightening.  As a result, many investors now find themselves staying on the sidelines which is why there is no volume in the markets. 

In a nutshell:  The sharks on Wall St have basically eaten the E-traders alive and they are now starting to feast on each other.  As a result, some of the best investors in the world are now hanging up the gloves.  George Soros decided to walk away this week.  His fund was down around 6% for the year and was only up 2% last year.

They realize that the glory days of 1980-2007 are far behind us now. The smartest guys in the room are have basically come to the  realization that there really is no sound fundamental strategy for making money on Wall St these days.

IMO, computer trading is pretty much destroying Wall St from a fundamental investment standpoint.  The algos only worry about what is going to happen for 11 seconds. Back in the 1970's the average stock position was held for years not seconds.  Back then you could at least make sense as to why stocks traded in a certain way.  The market historically has always been painful for all involved at some point but these days it's been taken to a whole new level which is why the smart guys no longer wanna play.

The bottom line here folks in when the best in the world can't make money it should be an eye opener for the rest of us. 

I guess the good news is I don't think it's going to last.  Once they start eating each other they will start losing more $$$ which means many of them will be turned off.  They will always be a factor but I believe in the future they will be less of one.

The Bottom Line

So what am I doing with my money these days?  Let me share and please remember this is not investment advice.  Let me also note that my stock/short positions are very small and represent about 10% of my portfolio.

I have gotten into some energy names in the nuclear/oil and gas space via EXC and D.  I am still short the Euro via EUO which has been painful recently as the dollar craters thanks to the morons in DC.

I reamin short the financials and home builders via COF and PHM which has worked out really well.

My main position however remains cash.  I am starting to not like the gold trade.  The recent move seems too parabolic to me.  I hold some but not a lot, and I am completely out of silver.

Moving forward I think we are due for a big dollar rally here shortly.  This may sound crazy given the default risk out there and I could very well be wrong.

However, my view still remains that Europe is in much worse shape than the US.  I think they will fall first which will create a huge race into bonds and other investments in the USA.  The recent price action in US bonds says it all:


Here we are days from a default and as you can see above 10 year yields have barely budged.  Why?  Because there is nowhere else to go unless you want to stuff your mattress with cash.  There is no bond market large enough to replace the USA which means there will always be buyers.

Don't get me wrong, the low yield situation won't last because we are Greece.  Buyers in the future will still be there but the yields will be significantly higher because the risk of us defaulting will rise.  However for now, risk is relative and Europe is a complete disaster versus the US.

The bond market has spelled it out for you folks.  The PIIGS bonds yields are soaring once again after a recent pullback following the 2nd Greek bailout.  Italy, Portugal, Greece, and the rest of the Euro trash increasingly look like they are all toast. 

Let me repeat:  The credit markets are telling you who is going down first and they are the smartest traders in the world.  The vigilantes are having a field day over in the Eurozone.

The way I see it at the end of the day Congress will come up with some ridiculous deficit reduction bill will get through that will allow us to continue this madness.  It may happen after August 2nd but I believe it's going to get done.  Don't be fooled into thinking it won't.

The only way I don't see it happening is because the idiots running the asylum in DC are starting to realize the only way to get something substantial done is to create a crisis like a debt downgrade.  This would then give them the political cover to make the painful cuts that are needed to get the ratings agencies off our backs.

I don't see us going down that road.  I fully expect a giant can kicking piece of crap bill that solves nothing.  I then expect to see the ratings agencies downgrade the US in a matter of months.  I suspect it won't be immediate because they are meeting with the S&P clowns on a daily basis.

The bottom line here folks is stay in cash and play small ball.  I am extremely hedged here because this thing could swing in a variety of ways. 

For the most part I would advise staying out of this mess.  There are sharks everywhere and the government is desperate to keep the game going.  I expect a large stock rally on any substantial debt agreement.  I expect a lesser rally if we pass some BS deficit reduction bill that does nothing(which is what I expect).

If nothing gets done the market is going to flat out free fall.  I still believe we will be lower by the end of the year because we don't fix problems anymore in this world.  We only delay them which only makes them worse.

I fully expect this house of cards to eventually come tumbling down.  However, I remain convinced that we don't see this until the PIIGS of Europe have been butchered and cooked into pieces of ham and bacon.

Good luck out there.

Disclosure:  No new positions at the time of publishment.

Friday, June 24, 2011

QE2 Goes Out With a Whimper....Get Ready for Deflation

I'm baaaaackkk:)

I had to chuckle to myself as I watched CNBS ignore QE2 today.  Any rational objective financial news organization would have designated several hours to discuss the ending of the greatest monetary printing stimulus ever seen. 

In typical bulltard fashion hardly a word was said about it on this ridiculous network.  I finally turned it off after hearing 3 shills call our current slowdown a "soft patch".  HA!  What a joke.  It reminded me of "the green shoots" crap from 2009.

"Soft Patch" my ass is my retort.

You would think that the immenent ending of QE2 would have been discussed on as stocks puked for a 3rd day in a row.   Why anyone still watches the buffoons on this network is beyond me.

Folks, the most concerning thing that I see right now is the bond market.

The 10 year bond soared once again today as the smart money piled into treasuries as they prepare for the shitstorm that is about to strike the Western World:

This chart should keep you up at night.
I mean think about it:  Bond traders are piling into bonds despite the end of QE2 which is supposed to be horribly bearish for bonds.  What this tells you is the big money would rather sit in bonds that yield nothing and may end up being worthless instead of sitting in the stock market.

Ummmm Hellooooo...RED FLAG ANYONE?????  Could there be any larger red frickin flag than this????

Here is some more data on our little soft patch/speed bump:

The Bottom Line

As you can see above folks the unemployment situation is getting worse and more hopeless by the year.  It's flat out dire at this point.

Without a huge influx of jobs our economy is only going to get worse. 

The stock market now realizes that at least for the time being the Fed does not have their back.  This makes them extremely scared and they have every right to be.

They are afraid for many reasons:

Will Greece unravel?
Could they take the rest of the PIIGS down with them? 
Could the US get sucked right down with them?

There are many unanswered questions.  One thing is for sure:  The bailouts in Europe are not working and the situation continues to worsen.  Papering over losses is not the answer because the problems are still there. 

So what should we do as investors?

For now you need to play the market for deflation until the Fed steps back in and blows up the dollar with QE3.

IMO(let me reiterate this) IMO that means shorting stocks and going long the US Dollar.  I have done both and it's been working well.  I actually went short the Euro versus the USD via EUO as my dollar play and its been paying off recently although it's been a very volatile trade.

Holding cash here is also a good idea until we see what the markets look like without the Fed throwing money into the market via POMO injections.

I don't like the metals here because I think the USD is going to rise although I still hold onto some gold as a hedge.  I am compeltely out of silver at this point.

The bottom line here folks is the time to be long stocks has passed us.  At the very least I see no problem sitting in cash and waiting for much cheaper buying opportunities.

Technically we are sitting right on the 200 moving day average so don't be surprised if the bulls defend vigorously here.  If the market closes below 1250 on the S&P the bulls are in deep trouble and they know it.

Hold on tight folks.  Expect lots of volatility as the market digests the huge slowdown in the economy combined without the help of the Fed.

I don't see how this doesn't all end in tears. I wouldn't be surprised to see us back in a recession within the next 4 quarters.

Without QE3 this market is toast and I fully expect that the Fed will come back with it after we suffer for awhile.  Once they do the inflation trade will then again have to be turned back on because it's going to put massive strains on the USD.

For now expect Deflation which means lower stocks, lower bond yields, and a soaring USD.

Be careful out there and enjoy the show.  It's going to be quite a spectacle.

Thursday, June 2, 2011

Is the Bear Back?

I know I know, it's been awhile. 

I like to hop on here during periods of crisis and share my thoughts.  Overall, things are playing out just like I thought they would.  In the early part of this year I was warning that the markets would begin to roll over in April/May as the ending of QE2 arrived. 

Ironically it was the worsening economic data not QE that finally grabbed the market's attention.  Over the last month things have deteriorated significantly when it comes to the economy. 

What cracks me up here is how Wall St is "shocked" at how the economy has come to a screeching halt.  I sit here and ask myself why are they chocked???? How these idiots didn't see it coming????

Once gas hit $4 a gallon it was pretty much over for the consumer.  We've seen this story before.  Back in 2008 it took about 6 months for the economy to roll over when gas hit $4.   I assumed that the economy would stop a lot sooner this time because unemployment is double what it was back then.

Making matters worse this go around is the fact that the consumers balance sheet is also considerably worse in 2011 vs 2008 asAmericans struggle through the worst economic period since the Great Depression.   The ones that own homes are even more distressed as housing prices continue to drop in most parts of the country on a monthly basis.

When you consider these facts I must ask the question again.....Why is Wall St "SHOCKED" that the economy has stopped???

Ive said it before and I'll say it again:   CNBC and the rest of the pundits fail to understand that we never got out of the recession back in 2009.  The pump monkeys all dove in once the recession was officially "over" according to the BS economic statistics thinking that we will recover like we always have. 

If you timed it right and bought in March of 2009you made a lot of money on this play.  This was a great trade.  Let me emphasize and repeat that: Trade not investment.  The problem is most of the bulls won't treat it as such.  They will overstay there welcome like they always do and give most of it all back as they ignorantly believe that happy days are right around the corner.

What the bulls fail to realize over the longer term is this isn't your typical recession where you stimulate the economy and then recover.  This is a Great depression.....It may be our greatest depression when it's all said and done.  The only way we recovered in any way is because the government SPENT their way out of it. 

They handed out checks like candy to the unemployed and dropped money out of helicopters and into the banks coffers in the form of QE and QE2.

What we witnessed the past 2 years was the largest government financial drug binge the world has ever seen.  In the end they fixed nothing.  Strucurally the economy is a mess.  The losses haven't been taken, and the insolvent banks only remain solvent thanks to fraudelent accounting

The Bottom Line

The recovery is a sham and it's time to be very careful as we near the ending of QE2 on june 30th. 

The drug binge is over folks, at least for awhile.  If you are curious to see what the world might look like without QE2 all you need to do is look at what happened during the summer of 2010 when the first QE ended:

As you can see above stocks dropped 15% after the first QE drug binge ended.  Why anyone would think it would be different this time is beyond me. 

History often doesn't always repeat itself but it often rhymes.  What's absolutely frighting to me this go around is QE2 is ending at a time where the economy is in shambles versus last year where things were relatively stable.

I am sure this keeps Bernanke up at night which is why I think we will see a QE3 in the not too distant future.

Many of the hedge funds are betting that the stimulus will continue beyond June in some form of a QE3 that might not be called QE.  If you look at the bond market that idea makes some sense. 

I say this because the big money wouldn't be diving into treasuries unless they either thought the Fed had their back OR they were scared to death of a deflationary collapse.  I wouldn't be surprised to see the Fed do something like reinvest the money from maturing short term treasuries back into the bond market.

I guess we will know the real reason why we saw a flight to safety into bonds in the next few months. 

So where do we go from here?  Too be honest folks it scares the living daylights out of me.  Without QE the market is going to roll over like a cheap suit which is why I don't think the Fed can stop supporting the economy.

The problem is if the Fed stays in the game it's going to have a very negative effect on our currency which will then create even worse inflation.  $6 gas anyone??

The Fed has a brutala choice to make and I have talked about this for the past couple years:

Option 1

End QE and try to manage a deflationary death spiral.

Option 2

Continue QE'ing and try to manage an inflationary disaster that could potentially collapse the dollar.

Nice choices eh??

Personally, I would go with option 1 and just let it go and get it over with.  As I have said before, lower prices from deflation can be a good thing.  It makes things affordable.  The Fed and the banks are the only ones that want to keep prices propped up because both of their balance sheets are littered with toxic overpriced assets.

I suppose the homeowners would hate deflation as well but I say why do they care?  Most of them are already likely underwater anyway.

As for my investments I remain cautious.  I am hedged short with some high beta names as hedges.  I am also getting a little speculative and shorting the Euro versus the USD via EUO(Warning: VERY risky). 

I remain mainly in cash for the most part even though it may be worthless one day soon.  I continue to choose cash  because I think stocks will get a lot cheaper in the future and you need to have some powder dry in order to take advantage of it.

Bonds look awful here and I would avoid them like the plague.  I own some PIMCO which is out of treasuries which is where I wanna be as this plays out.  Remember folks:  If Bill Gross is running away from treasuries you should too.  He may look wrong now after the recent rally but he will be right in the longer run because this country is bankrupt.

I can't see anything but soaring bond yields in our longer term future.  The Fed may be able to keep the music going a little while longer with more QE in the short term.  However,  longer term time is running out and smartest guys on Wall St know it.  Go read Bill Gross and BlackRock's Larry Fink's latest pieces.  They see the writing on the wall. 

Longer term we are abviously in deep trouble.  Moody's warned theUSA again today that they will look to lower our credit rating if we don't get our fiscal house in order.

The questions to ask now are these:  Is this even possible?  Do we have the political will to pull it off?

I lean towards the answer "no" on both questions.  I hope for the sake of this country I am wrong.

Be safe.

Tuesday, May 10, 2011

$100 Oil Fears Threatens Economic Recovery

This isn't good:

My Take:

So much for that "relief" at the pump that CNBC loved to crow about last week. "Bubblevisions" calls of $3.50 gas by the summer look like a pipedream as the commodity speculators once again turned bullish. Silver and gold also surged as traders shook off last week's historic commodity sell off.

I am continually amazed at the risk taking that we continue to see in the markets. You would think after a 30% sell off that the commodity speculators would want to take a breather in order to lick their wounds after last week's slaughter.

This idea turned out to be a foolish theory. It's becoming icreasingly clear that the market continues to resemble something from "The Wild West". There are no "rules of thumb" anymore when it comes to the price action on Wall St.

The robots that dominate the trading on Wall St decide what the rules are on any given day. Wounds no longer need to be healed because robots have no emotions.

Wall St has become an increasingly dangerous place to play because the trends now change faster than Lady Gaga's costumes during a 3 hour concert. Trends that lasted weeks during the '70's and '80's now potentially last for only a few hours or days. Should we expect anything different when stocks are held for seconds today instead of years like they were in the '70's?

It's becoming more clear that speed rules Wall St at this point. Fundementals and historical trading patterns are increasingly becoming irrelevant. As a result, the markets are basically been morphed into a giant casino at this point.

There is no "fundemental" reason why oil is up 6% today. Demand did not pickup. Inventories remain high because the economy continues to show no signs of life.

The Bottom Line

Keep a close eye on oil prices and understand that gas prices never had a chance to drop because there is a lag time before you see a drop in oil prices show up at the pump. If anything gas has continued to rise in most staes in order to reflect the $113 oil we saw just 2 weeks ago.

This means that the consumer will continue to be restrained as a result of higher energy costs. This will also continue to pressure companies because input costs will remeain high.


Let me refocus here for a second and remind everyone to keep their eyes on Greece and the PIIGS debt crisis. Greece apparently is threatening to leave the Euro. This will be a disaster for the banks if this becomes a reality. All you need to do is look at the chart below to see how catastrophic this would be for the Eurozone and it's banks:

Bottom Line Continued:

The crippled banks of Europe cannot afford to take tens of billions of dollars in losses if Greece decides to bail on the Euro and walk away from it's debt obligations. What's even more concerning here is the rippling effect that a Greece departure could have on the rest of the PIIGS.

Perhaps the rest of the PIIGS might all come to the same conclusion as Greece? I mean when you boil it right down the various "PIIGS" rescue packages bailout the banks instead the country and it's people. If anything, these are bailouts of the banks at the EXPENSE of the people.

I mean let's get real here. Who ends up paying these ECB loans back? Why the taxpayers of course. The politicians of these countries are slwoly starting starting to realize is it's the people(not the bankers) that get them re-elected.

Iceland's politicians came to this conclusion a long time ago, and their economy is starting to rebound after telling the bankers to take a hike.

The European debt crisis is a very unstable situation that needs to be monitored closely.

As for today, stocks finished slightly higher for the day. We have some huge bond auctions coming up here in the US this week so don't forget to keep an eye on treasuries. I took no new positions in the markets.

I continue to believe that sitting in large amounts of cash works for the shorter term because the US dollar is going to rise as the European debt crisis countinues to take it's toll on the Euro.

Tuesday, May 3, 2011

Double Top?

Wanted to take a few minutes and share a chart with you.  As you all know I am not much of a T/A guy.  However, over the longer term,  I do watch them from time to time.
I often watch the Russell 2000 when I am looking for a trend change because it's usually the first sector that rolls over during bear markets. 

After taking a peak at the monthly of the Russell I couldn't help but take notice of an almost perfect double top:

My Take:

The Russell is much more sensitive than the rest of the market because it is comprised of smaller companies with matching smaller balance sheets.  Therefore, they are much more susceptible to a weakening economy versus a huge company like Apple that sits on tens of billion in cash.

As a result, when things start to head south as a result of things like $4 gas the market tends to sell these names first.  The fact that it couldn't hold the trendline after breaking through the 2007 highs is something to take note of.

The Bottom Line:

So are we due for a major correction?  Hard to tell.  The Fed seems obsessed with taking the market higher, and it has decided to destroy our currency in order to due so in the process. 

The reality here is no one wins this game if the dollar loses because stocks that are priced in dollars, and if the currency cracks it's not going to matter where the market is.

The market IMO seems to be struggling with the colossal battle between the powerful forces of debt deflation and deleveraging versus the equally powerful forces of inflation via currency debasing courtesy of the easy money Fed.

This battle has become a personal struggle for myself which is why I haven't had much to say recently.  Part of me believes that debt deflation is inevitable as the world realizes the trillions of digital dollars that people moronically borrowed over the past decade will never be paid back.

However, at the same time, you also have extremely powerful inflationary forces that are being created by the Fed as they continue money printing and keeping rates low at the same time the rest of the world takes rates higher.  India just raised rates by .50 basis points yesterday.

Who will win this battle?  Hard to say.  I am positioning myself for both.

What I can tell you is what I have done with my positions recently: 

I sold out of 50% of my silver at around $45.  Things got a little too bubbly for me here.  I will look for cheaper prices.

I shorted the Russell last week via TWM.  I also continue holding some small short positions in SDS and QID.  On the long side I bought the nuclear stock EXC when it got oversold following the Japanese nuclear disaster and I also added the titanium stock TIE.

I still hold the majority of my money in cash which at any moment could become worthless.  This is a scary proposition to me but the way I see it the dollar should rise before it tanks because I think Europe is going to go down before we do.

Greece will default by the end of the year.  The market has already priced it in.  The rippling effects of this in terms of the rest of the PIIGS are flat out frightening to me but there is nothing I can do to control it.

All I can do here is stick to the fundamentals and the most important one to remember is risk is relative!  As a result, I don't believe the dollar is toast just yet because the bond market continues to tell us that we are the best looking horse in the glue factory of bankrupt countries.

I write this post as a warning that something big could be coming.  Please play defense and be safe.

Thursday, April 21, 2011

THTB Warning: Keep Your Eyes on the US Dollar

I came out of hibernation tonight because I am extremely concerned about the markets right now. 
I know I know, why be worried some may ask?  Many will say Apple just reported record earnings and Intel hit it out of the park yesterday!

My response to this is kudos to these companies for banking so much coin in such a crappy economy.  Steve Jobs is a frickin god IMO after seeing their earnings today.

That being said, let's get real about what's really going on here.  I'll start with a little video from Steve Wynn.  He get's it:

My Take:

Couldn't have said it better myself.  Folks, the dollar is in deep trouble.  Let's take a look at the recent $DXY action from a longer term perspective:

As you can see above we have now broken the 2009 lows on the dollar that haven't been seen since the 2008 inflationary/credit market crash.

This recent price action has been reflected in commodities.  Oil has surged to over $112 per barrell.  Silver's reaction says it all:

Take Continued:

Silver has surged over $46 tonight as investors continue to worry about the US dollar and fiat currencies in general.

The Bottom Line

The market futures are up but I can't see the market ignoring the USD problems for much longer. 

Now that the dollar has broken it's late 2009 lows it could very well hone in on the 2008 levels that blessed us with $140 oil.  The consumer is tapped out and can ill afford to return to these levels so the economy is in serious trouble as a result.

I wanted to write this piece because I see many investors getting complacent with the rising stock market.  The VIX is nearing all time lows and indicating all is well.

I am hear to tell you that all is not well and I would advise people to sell into this rally because the dollar is on the verge of melting down(this is my opinion of course).

It's time to stop looking at prices and start focusing on what's really valuable at this point.  Our interpretation of "wealth" is about to dramatically change in the near future IMO.

Wealth in the future may not be about how many US dollars that you hold.   What will determine wealth in the future?  That's the million dollar question.  Right now the silver market is telling you that it's the place to be for value.

I am sure the gold market will say the same thing at some point.  Holding metals as a hedge to currency is a must in my point of view.

That being said, the metals aren't necessarily the answer as all fiat currencies face collapse.  After all, you can't eat gold and you currently can't trade it for food right now if the world goes "Mad Max".

Farmland might prove to be as valuable as gold or silver at some point. 

The bottom line is there are no answers right now folks which is why the metals are surging to 30 year highs.  The one thing I can tell you is the market is not healthy when the metals are acting like this two days after the S&P downgraded their US debt watch to "negative".

Be careful out there when it comes to buying stocks.  The FOMC will be out a week from now explaining their exit strategy from QE2.  I don't see how this will end well because I am very confident that the Fed will stop buying bonds on June 30th because the dollar is selling off so hard.

The Fed will also want to see how the market reacts after they stop the QE printing presses.  They would LOVE to bail on this printing program if the markets allow it. 

IMO there will be no QE3 until the Fed tests the waters by ending QE2.  This will likely be a gigantic failure if history repeats itself.  When QE1 ended last August the market dropped 16% and didn't reverse itself until QE2 came to fruition.

A surge to 1400 on the S&P would not be out of the question from here as the dollar devalues.  The market likes it...FOR NOW.

Longer term a collapsing dollar is catastrophic for the US economy and stocks will eventually react negatively to it.  We may need $140 oil before the market wakes up.

Alrighty, it's time for me to go back into hibernation.  I will be back as needed. 

Be safe.

Saturday, April 9, 2011

Why we are screwed...

In a nutshell here is where we are folks:

My Take:

Scary times.  The US dollar and bonds are getting hammered.  Oil, silver, and gold are soaring as the Fed remains the only game in town that refuses to fight inflation by raising interest rates.

The ECB assured this last week with their rate hike.   The obvious concern here is how long can the consumer hang in there as oil rises to $113 a barrel?

Things are really unstable at this point.  I currently sit here mainly in cash and metals with a few short hedges.

I continue to believe that the ending (or extension) of QE2 is the next real inflection point for the markets.  The last few weeks of price action have been nothing but a bunch of black box trading among the robots on Wall St. 

There is nothing really to analyze when 70% of stocks are being held for seconds by the HFT guys.  IMO, throw out the old T/A analysis for the most part because things have changed.  The market is now a different animal.

Focus on bonds here.  The 10 year is once again nearing 4%.  If we hop over that level look out.  If this happens than I expect that the Fed will pull liquidity and create a sell off in order to keep the bond market solvent.  As a result, be careful shorting treasuries here.  I will be increasing my short on treasuries on any hard sell off in stocks which artificially raises bond prices. 

Also, if we get over 4% on treasuries and oil rises to $120 a barrel then its time to short the market.  For now I sit on my hands.

Hope all is well with everyone and be careful out there!

Monday, March 21, 2011

Beware of Low Volume

Before I start here I wanted to let you all know that I am taking a break for awhile in order to take care of some things.  I'll try to pop on here and throw up a post now and then but no promises.

As for the market, I just wanted to warn everyone about low volume trading days.  Take a look at the SPY here on the daily:

My Take:

As you can see at the bottom of the chart above, volumes are dropping again as things settle down in Japan.

We tend to drift up during times like these because the robot trading tends to dominate the price action.  If you take a close look at the trading volumes you can see that the market tends to selloff on the heavy volume days and rise when the volumes fall of a cliff.

This happens because the HFT's can basically take the market wherever they want on lighter days because they are supplying the liquidity for the markets.  Throw in the seemingly endlessPOMO Fed injections you have the perfect makings of a bullish tape.

The Bottom Line

As long as these trading robots are free to run wild there really isn't too much analysis that you can do when it comes to stocks.

None of this is investing.  It's speed trading done by a bunch of algos that hold positions for a matter of seconds.  The fundamentals of the market don't matter in this type of market setup because these speed demons are in and out of positions faster then you can say the word "elephant".

The fundamentals of the market have changed folks:  Right now there are NONE!  You need to wait until the volume picks up in order to have any chance at accuratelty analyzing this beast because it makes algo trades a smaller part of the price action.
Let me close with my usual bearish tone:)  None of this is going to end well because the fundamentals SUCK.  The February housing numbers were in the toilet this morning.  Housing inventories are soaring. 


The geopolitical situation is dire and so is the European debt crisis.  These stories haven't gone away folks!  They have been muted by a bunch of black trading boxes that have taken over Wall St.

The sad reality here folks is no analysis matters in a market like this as long as 70% the stocks are trades are bought and sold for a matter of seconds. 

I continue to ride this storm out in metals, cash, some short hedges, and a short on treasuries that I plan on increasing in the very near future.  Be patient and careful with this market.

A flash crash on some type of horrific developement wouldn't surprise me in the least.  Longer term I still have my eyes focused on the ending of QE2 in June.  April and May are going to get really interesting as all eyes begin to focus on the Fed.  Until later.....

Thursday, March 17, 2011

Tipping Point for the US Dollar?

Watched some great tech tickers today:

Which would you prefer? A 77% tax increase or a 40% reduction in federal spending.  According to BU's Kotlikoff these are the only solutions to our deficit issues:

Dollar Tipping Point?

Jim Rogers thinks so and based on today's price action you have to wonder if it's over:

Quick Take:

Today's price action in the dollar is not good folks.  The dollar should be rallying hard right now based on all of the geopolitical chaos we are seeing in the world.  It's becoming more clear with each trading day that we are no longer viewed as a "safe haven"

The signs of a collapse in the dollar are already being seen when you look real close at what the big boys are doing.

When people like PIMCO's Bill Gross sells all of his treasury holdings that are priced in USD's it's time to get nervous.

The fact that the dollar is free falling right now is a very ominous sign.  Let's hope this isn't the beginning of the end.

Kotlikoff nailed it in the first video.  We are using Enron accounting rules to run this country and we all know how well that worked out.  The harsh reality here is this country is doomed unless we take the Draconian measures that are described up above.

It's time to stop all of the games before it's too late.  Think hyperinflation can't happen here?  Look up above and think again.

That's it for now.  Time to drink lots of green beer and forget about the harsh realities of our economic nightmare.

Wednesday, March 16, 2011

Yen Soars After Hours as the Global Economic/Political Chaos Intensifies

They always say:  Leverage is a bitch when it goes against you.   Just take a look at the Yen after hours if you want to see what it can lead to:

My Take:

Before I get to the leverage point let me point out that the Nikkei futures are down over 1000 points before the open(that is if they decide to trade today).  Rumors have been flying around that the Nikkei might shut down for the rest of the week.


All hell essentially broke loose after the Yen broke 80 against the dollar.  This is the first time the Yen has seen this level since 1995.  When it broke firmly through 79 it almost immediately triggered a violent unwind as seen in the chart above.

After hours the Yen SOARED to a whopping 76.39 before pulling back into the 78 area.  My guess is someone(hedge fund perhaps) likely was liquidated after today's trade.

Currencies can be leveraged 100-1 so it doesn't take much of a move to literally wipe out your capital when you are on the wrong side of a violent move in currencies.  This move after hours was literally breathtaking towatch.  We seem to be rallying back as I type here.

The Bottom Line

My posts are going to be brief and to the point in the near term following this one because things are happening so quickly.  

US futures are down again sharply once again after hours following the move in the Yen.  This is a disaster scenario for the Japanese economy because the soaring Yen makes their exports much more expensive.  Japan is EXTREMELY dependant on their exports...Toyota, Honda, Sony, Hitachi anyone??  The cost of imports soars as their currency rises.

At this rate you will be able to buy two Mercedes for the cost of a Toyota 1 month from now!

Folks, things are bad and getting worse.  I am starting to get concerned that we might see some panic selling in the oncoming days.  The Middle East is spiralling out of control, Japan is an absolute mess, and the economic data coming out of the US looks awful.

The housing starts "y on y" were the worst numbers seen since 1984, and the PPI came in smoking hot at a 1.6% increase versus the .7 that was expected.  Making matters worse is the fact that our government is in danger of shutting down because Congress cannot come up with a budget. 

My advice?  Put yourself mainly in cash and ride out this frightening storm.  The "buy the dip" suckers have gotten their teeth kicked in since this crisis started.

The biggest shame here in my view is Japan will be blamed for creating this economic crisis.  The reality here is the crisis was caused by the same crap that put us in the soup back in 2008.   It's easy money and highly leveraged gambling (not earthquakes) that got us here.

You should blame the bubble blowing Fed and their printing press for creating this mess.  Japan was the trigger not the cause.

Don't get me wrong, there is no doubt that the Japanese crisis would have hurt the global economy in either scenario.  However, risk taking and leverage are what makes these corrections so much more violent and painful than they would be if this extreme speculation was taken out of the system.

The way I see it hings are just getting started folks.  Expect more aftershocks(and no I am not talking about ones that are created by earthquakes).   Why?  Because our speculative quants can't handle these economic shocks.

The trading robots weren't prepared to handle the Black Swan of "subprime" back in 2008, and they aren't prepared to handle the "Japanese" Swan either.  As a result, many quants/hedge funds likely just got caught with their pants down just like they did when thehousing bubble came crashing down.  

The Yen trade after hours is a prelude of things to come IMO.

What keeps me up at night about this crisis is it's going to cause the bursting of a much larger bubble.   The bubble that ends up popping this go around will be much worse than 2008 because it's a broad based credit bubble.  Unlike housing, EVERYONE is involved in this one including governments.

There is only one outcome the way I see it.  The "easy money inflation genie" is about to be released  and it's going to wreak havoc on our society.  It's already stared, and I don't think there is any governmental policy that can stop it.  The proper response here would be to raise rates, but this is not an option for us right now because it would take down the entire banking system.

As a result, the only other option is for the government to print dollars in order to pay our enormous debt load which is about to be further burdened as we spend enourmous amounts of money bailing out Japan.  

This will lead to catastrophic inflation down the road.  I don't see any other way out.  Please be very careful right now.  Things are happening on an unprecedented pace.  Protect your investments the best you can and prepare to ride out this horrific economic storm.  

Tuesday, March 15, 2011

Show me the Money!

It's hard to make sense of the markets following the unprecedented events we are witnessing in the world today.

I can't help but think of the video below as I watch the BoJ respond to their crisis by turning on the printing presses:

"The central bank, for its part, eased its policy on Monday by doubling to 10 trillion yen a fund earmarked for purchases of assets such as government and corporate bonds in hopes that together with money market cash injections will improve sentiment, since it lacks the authority to directly buy shares to prop up prices.

Under the scheme, the central bank can buy exchange-traded funds, or trust funds investing in stocks, but the money set aside for such purchases is far too small to make a sizable impact on Japan's stock market."

Quick Take:

Greattttt...Now we have two drunken central banks dropping money out of helicopters.

I don't blame the Bank of Japan for taking this approach.  They had no choice.  What worries me is Japan's 200% debt versus GDP was already twice as bad as the USA's fiscal situation before the quake.  The cost of cleaning up this disaster is going to make this number considerably worse.. 

My question is how can Japan afford to rebuild??  As Jerry Maguire famously says above..."Show Me The Money!".   We already know the answer to this one...The money simply isn't there but one has to ask does it matter anymore?

It seems as if no country is held accountable for their spending by the bond market .  I guess the PIIGS have to some extent but that's about it.  Everyone else is allowed to spend money that they don't have without any consequences.

The Bottom Line

At some point the bond market will hold these insolvent governments accountable.  If they don't then inflation is going to continue to rear it's ugly head and create more chaos around the world.  We got our first glimpse of it in the Middle East.

Next up is Europe and the USA.  If you've filled up your gas tank in the past week you have already gotten a wiff of it.  Japan will likely get a pass for awhile, but I can't help but think they are about to experience some type of inflationary or hyperinflationary event down the road.

The inflation genie was placed temporarily back in the bottle thanks to the horrifying events in Japan.  Commodity prices have pulled back as the world's 3rd largest economy(and third largest user of oil) experiences a collapse in demand.

Don't expect this to last.  In fact, as Japan starts to rebuild over the next year I expect oil prices to soar as demand for oil sky rockets.  It takes lots of energy to rebuild a country, and we are about to head into the oil peak demand months of summer.

I wouldn't be surprised to see $5 gas as we head into June as a result of the events that have taken place in the past week.  If the Fed decides to continue QE3 during this time then gas prices could get worse if the dollar falls.

Enjoy the break in prices as Japan get it's act in order.  The way I see it we are in the eye of a Category 5 inflationary hurricane, and we are about to head into the back of the storm as we head into summer.