Friday, August 5, 2011

Equities get smoked by leverage - but this is not the "Trade of a Lifetime" that is being promoted

As I have indicated before, the issue of our time is the definition of actual philosophical and practical unit of money and what it symbolizes. We treat our money with the same respect we do our entire civilization, why should we expect positive results. The reality is that the short of equities has been a big trade and as you may have noted, something that I have pretty much accurately projected on this pages with my few recent posts. For those who feel like they missed the trade - for the record, I want to state THIS IS NOT THE TRADE OF A LIFETIME YOU ARE MISSING. No trade is the trade of a lifetime in reality. And additionally, I generate significant positive alpha for me and my clients, not only by generating powerful results when I trade, but by trading sparingly and remaining unemotional regarding economics and the markets - even when I want to strangle amateurs like BURNanke. Yesterday was no exception, I have been lightly short to mostly flat for much of this trade rather than invested...or worse long. I do not have the feeling that I missed anything. My buying power is significantly increased and I am not focused on equities anyway.

The fact is that the dollar has not performed at this moment. The next fact is that economics and government activities did not cause this collapse - over leverage, speculation and greed have. Moreover, the collapse in equities has a long way to go, however, the trade I am focused on is the emerging short of the EURO and long setup in the dollar...The euro has created a highly overlapped and symmetrically constructed bullish falling expanding diagonal. These are termination moves, so a breakout up out of this pattern for the EURO will be an ending construction. It will also, likely portend one of the largest trades in history...the complete collapse of the EURO and the historic rally of the dollar. My primary focus will be the dollar, though initially I do believe the EURO will outperform the dollar on a relative basis as it will likely be weaker than the dollar is strong. However, I still see the dollar falling into the 70ish range and the EURO making an attempt at the 1.47 or above range. Once this blow-off is established, similar to the trade in equities people will have fully leveraged themselves and suffer the consequences of that action. My belief is that the results will be relentless.

Secondarily, I believe that one of the big trades for this market cycle will be in the energy complex which has continued to leverage up and to distort its exponential bell curve - not to mention the GoldmanTax long posture on the sector. The reality is likely that anything energy related will produce similar results to the "anything financial related" approach of 2007 and 2008. I, also would suggest that you read my posts regarding Oil and the middle east. These countries will be nearly totally obliterated in this collapse and the banks and people who lent them vast sums of money to leverage their economies up to the point where it costs over $90 a barrel to get oil to market in Saudi Arabia will be too. The commodities shorts in energy are a big deal and so are the inflationary and real-asset currency plays such as gold and silver. I am not that motivated by gold, but guys like Eric Sprott should be placed right next to BURNanke in my opinion in the lineup of amatures who demonstrate a commitment to a campaign of irresponsible and duplicitous prognostication. Silver is an asset and a consumable, just like the equities, energies and softs that are currently imploding to cover overleveraged market commitments. SILVER IS NOT MONEY - it will never effectively function as such and it's a cornerable market - a key characteristic that real money should not have. These people have lost their minds and understand nothing about monetary reform, systems or economics. As I have consistently said, the key symbol of our time will be the definition of the monetary unit - there will be many charlatans who try to use half baked theories to promote their schemes.

So, there you have it, the biggest trades are yet before us. If you are not in this short of equities, well you generated quite a lot of positive alpha. However, if you are long, my heartfelt condolences - I really don't have much input there other than I do not think the deleveraging is over...and will go on for an extended period. I hate seeing people lose large amounts money and I have done my best present a dynamic non-consensus view on these pages. My philosophy is that "...less is more"...especially with regard to investments and markets. I think that allocation is key - proper allocation means you can survive mistakes. Most people approach risk management with precisely the wrong approach especially for these types of markets. I try to remain clear...which means I don't watch news, look to follow advisors or analysts or read many blogs. Believe it or not, independent thinking, a simple and unconflicted adgenda and clarity are a big part of my allocation and risk approach. This is why I do not charge any management fee for any of my trading products. Think about it, by definition, if you are susceptible to thinking and doing what everyone else is, you are likely going to underperform. Even if you are completely wrong, as long as you are not following the consenus, you stand much higher odds of performing than one would expect. How can you get paid when you are trying to get something free? These are subjects which I will discuss much more in the future. In fact, I would be happy to do an interactive webinar discussion on the subject if there was such interest. Please feel free contract me at if you wish.
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