Tuesday, August 2, 2011

Negative Yield, Selling in the Dollar and Equities...continues playing out as expected

I have not been posting much. I have not had much reason. Most of my managed accounts are up well over 150% or better at this point for the last year and there have not been a lot of new issues to discuss. In addition, I am in Europe for a funeral which took place this week for a family member and have spent a lot of time traveling recently for work, including the current trip.

Lets review, however, where we stand. Today was a very important day and has confirmed, nearly to the letter, my assumptions regarding the global markets.

I expected an overall move towards weakness in both the dollar and equities. That has occurred. I expected an overall move towards negative yield in US Treasuries and we have made that huge leap, one which should not be taken lightly, to ultimately enable the US to fund deficits and borrowing with negative yielding Treasury bonds in a much more significant way that most may be expecting. As I have indicated before, as people begin looking for return of their money as opposed to return on their money we will likely get a huge boost to the reserve status of the US Dollar...much to the chagrin of people who do not understand that Gold is not money, Silver is not better than gold and Real Assets are of little value whem people don't have the purchasing power to obtain them.

Ultimately, the real question is, "Who can be trusted to give you your money back?". Can the US be trusted to return your capital? Can China be trusted to give you your money back? Can the European Union? Russia? South America? Well, there you have it, the only country willing able and practically capable of returning your money of that group is the US. Additionally, like most investment decisions - the objective is to choose the least worst option. There is NEVER a perfect choice. China may seem credible enough, but in a credit contraction, they are seriously over extended, have unreliable numbers and reporting (just look at the level of china fraud listings for stocks - fraud is rampant there when dealing with the rest of th world) and in addition to all that, they have been secretly continued buying tons of US Treasuries while promoting the exact opposite. Now all they need to do is downgrade the US to cover their track even more. This, however, is common practice among the halls of leadership and is not unlike the 180 degree misdirection that has been going on in the US regarding the debt ceiling, deficits and non-existent budget/spending cuts. China does not want its own money in its own currency or even its country for that matter...and neither would I want my money in China if I thought I might be concerned with the very basic issue of a transactional return of said money. I am rather sure that Mr. Putin, for all his recent remarks, has a substantial amount of his money - atleast - in US Treasuries too.

I think that we are on track to see the dollar index move lower to the lower 70's or 69's and I think that we will see general predisopostion towards continued weakness in risk assets. I think the EURO will likely make it toward the upper 1.40's...1.47 to 1.49ish. Its my impression that these instruments will setup massive trades when they do reach these blow-off points. In addition, the Silver and Gold markets will likely setup catastrophic reversals when the dollar and euro complete their blow-offs - which I will likely once again short as I did with Silver near $50. My target for Silver is still below $4.39.

There certainly is the possibility that the dollar could continue straight up from here...but I think that its overall action and the EURO's states to the contrary today - so I am not really focused on that. The EURO has made a symmetrical zig-zag retracement that held firm today. Additionally, it is important to understand the macro flows here. Many large institutions and significant market participants do not understand the macro events that are going on...they are using the EURODOLLAR interest rate contract to trade yields, however, those trades are failing miserably, in some cases catastrophically, and causing a significant liquidity issue. This issue will likely continue into the near future and exacerbate conditions that are underpinning the futile and ridiculous blow off moves - up in the EURO and down in the Dollar.

Meanwhile, back at the ranch, can anyone get more out of touch than our leaders in Washington DC? Obama and Boehner clearly do not understand economics...
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