Tuesday, August 9, 2011

Markets, People and the Fed

Well, that was interesting. The markets are off the lows by quite a lot of handles as intervention makes its rounds and means attempt to revert. However, we have a problem. By the close yesterday, as people were getting liquidated, many others were hanging on by a thread. Many managers careers depend on a bounce here of some proportions and many systematic trading algorithms that attempted to play this long need a rally well into the 1200's to show a remotely credible performance and avert the potential for disaster.

The market is fickle, especially one based on using credit for investing as its foundation. It is so amazing to me that BURNanke and his band of merry credit pushers continue to attempt this exact thing over and over again despite its nearly 100% failure rate. Today, short covering in front of the Fed is making it look like the inevitable bounce can happen and save the credit junkies, over committed investors and the asundry algo systems out there that use trade exceptions and generalized buy the dip concepts to build idealized historical equity curves. The managers who based their assumptions on a credit levitated market and the "buy the dipper" traders and systems that believe "you close your eyes and just BTFD"...are about to be tested...over the next day or two.

There are just too many of market participant that need to sell. If the market ends up taking its leg down to the 1020's it will wash out all that remaining credit in the system that sits in these weak hands. In my opinion this is a high likelihood regardless of the Fed possibly announcing another buying binge. That Fed announcement may well happen, but as we see the buying binge has extremely negative side effects - it has destroyed way more capital than it has created. I am more likely to believe that such an announcement or even hint of it, will likely ultimately endup both tanking the markets and the dollar - reinforcing the recent positive correlation of the classes. In any case, we will see. It has been time to take some profits this morning in Silver and Oil shorts and wait for the high probability trades to come out of hiding...as the great deleveraging continues.

The many victims of the leveraged credit money system are appearing everywhere - in the markets of course and in Syria, Libya, London, Iraq, Greece, Italy, Ireland and Portugal aswell...though we have China and South America waiting in the wings...not to mention a highly leveraged England, France and Germany to contend with. The latter have based their expectations and capital investments on ultra rosy projections of future potential, that like all exponential curves and projections, tend to turnout vastly differently than expected...except by a few, I guess. Merkel, Sarkosy and Cameron are all dazed and confused and they are likely to get tossed out of the ring. America is on a campaign to become a private bank like Pictet and will stop at nothing to further its planned agenda to charge for deposits made to it and custodied by it. How ironic that the plan that the campaign most likely included a debt downgrade as a part of the masquerade.

The Fed is not the answer, the Fed is the problem.
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