Saturday, January 22, 2011

A Smell of Fear in the Air

Sorry I haven't had much time to post.  Last week and this week are very crazy so don't expect much over the next few days.
I wanted to put up two charts tonight that I thought were interesting.  First let's start with the dollar trade over the last few weeks:

Ouch!  Surprisingly, treasuries(which are priced in USD) have been catching a bid despite the violent sell off we have seen in the dollar:

My Take:

What this tells me is that there is a lot of fear out there.  Investors continue to gobble up bonds on the long end of the curve despite huge increases in inflation combined with a weaker dollar.

This makes no logical sense of course. That being said, nothing really has in the few weeks!

As we continue to print money via QE, the hopes and dreams of a strong USD continue to disintegrate. 

The way I see it:  The only reason treasuries are catching a bid is because people basically have no clue what to do in this choppy/crazy market.  This market is tough right now folks.  All you have to do is look at the huge drops in trading revenues on Wall St in Q4 if you want to see how tough it is out there.

The Fed has created total financial chaos with their "funny money" policies.  Investors are taking enormous risk as they speculate on everything from commodities to junk bonds as Ben's "cheap money" continues to slosh around the system.

This is not going to end well folks.  In fact, if the market continues to stall here things could get rather ugly in a hurry.

I see no confidence among investors right now.  The fact that rates are steady tells me people are so scared right now that they are willing to buy 10/30 year treasuries at a 3% yield despite huge inflationary risks.

If inflation rises to just 5% annually this paper will be guaranteed annual losers and let's face it folks:  Inflation is already here.  Just look at food and gasoline prices.

Things are starting to look very grim.  I am expecting a pullback here shortly and I plan on buying some resource stocks after a nice correction.  Everything is still too expensive right now after the recent rally we have seen.

Folks IMO,It's time to start investing against the dollar and placing all of your bets on gold is not a smart way to do it after it's recent run.  Gold looks very sick to me right now and I wouldn't be surprised to see a pullback.  I still plan on holding what I have left.. 

I think you need to spread your risk around in a variety of hard assets via resource stocks and other metals. I am working on a list of ideas.  More on this later.

Have a great weekend.

Let's go Steelers!


getyourselfconnected said...


Steelers are winners from top to bottom, what a show!

Jeff said...


I have newfound respect for the Jets. They showed a ton of heart to come back after that ass whooping in the first half.

Kudow to them and I am happy to be moving on!

#7 and a second dynasty is on the line.

Can't wait!!!

ManHands said...

Jeff said...I am expecting a pullback here shortly and I plan on buying some resource stocks after a nice correction.

Jeff, out of curiosity, when did you start buying equities again? I assumed you were on the sidelines, or going short until very recently.

Perhaps I missed it, but is this your first dip of the toe back into the water?

Jeff said...


Yes. This is a play on the weakening dollar. My plan is to short equities and go long natural resources over the longer term. The entry points suck right now tho on both trades. There is too much quant BS going on right now. Patience is a virtue!.

ManHands said...

OK thats a bit different from what I thought, but I think I gotcha now. I didnt realize "resouce stocks" meant "natural resource stocks".

So basically your thought (in the broad sense) is to go long wheat company X stock, and short business services company y stock, yes?

Anonymous said...

Jeffy -- I see the comment moderation is no longer in place.

Does that mean we can discus Case Shiller results so long as we maintain a civil discourse?

For the record, Case Shiller (DC) came in at 185. Up 3.5% YOY and cited as "the strongest market" by the report.

ManHands said...

"Anon said...For the record, Case Shiller (DC) came in at 185. Up 3.5% YOY and cited as "the strongest market" by the report."

Anon, I cant speak for Jeff, but I got to hand it to you, it looks like you will win that wager on DC.

Full disclosure: while I was only a lurker when you posted your challenge to Jeff, I remember it well and thought there was no way in hell you would be proven right. Well, while I am not officially conceding just yet, I am scouting out areas where crows congregate in case I need to eat one!

I likely disagree with your outlook on where we are headed, but I am sick of trying to be "right" while everyone else who is wading in seems to be doing quite well. Therefore, in the spirit of civil discourse, can I ask, how is it that you were so confident on DC? What was it specifically that you saw that made you realize, it was not going to tank?

Any answers would be appreciated.

Jeff said...


Housing cycles are long....They take a decade to play out during normal times.

This one is going to take much longer because things got so insane at the peak.. THe Fed is doing everything in its power to prop up housing.

The reality is housing prices keep falling despite all of their efforts.

DC is holding up because the clowns keep hiring there in massive waves.

Housing is toast but the Fed would rather dent the problem and create bigger bubbles versus facing the reality.

Homes sales have fallen off a cliff because most people can't afford to sell.

There has been no real price discovery because people are squatting in their underwater mortgages.

This is going tot ake years to play out and I might be early with my 2012 call.

When the Fed stops printing dollars due to inflation we will start facing the realities of housing.

Until then it's party time where everyone sits in denial.