Saturday, June 4, 2011

Nigel Farage says it like it is...

Market Dynamics and delveraging

On Friday, we continued the sell-off in risk assets. Commodities, Equities and most High Yield bonds continued their weakness...the fly in the ointment, and in our markets there always seems to be one, are the EURO and the Dollar Index. The usual correlation is that smartly down markets are accompanied by a smartly up Dollar. The trouble is that markets rife with over leverage and malinvestment funded by Fed QE and other programs causes dislocations to normal correlations. It has happened a lot in our markets. So, here we are again., and many market particiapants are getting hosed in their long risk assets (equity and commodity) plays. A recent popular trade has been short Euro due to all the chaos over in the EU of late. Well, wouldn't you know it, people have no buying power left after the drubbing in risk assets, and their participation in highly leveraged Forex and commodities trades. So, they get hosed and are forcibly extracted from those trades, especially the ones with the largest volatility, risk of continued loss and with the greatest current loss. So, there we have it, people are over-leveraged and forced to deleverage.

Ironically, the reality is that the risk-off trade has a long way to go and that will further reduce the amount of dollars available with which to purchase all assets, which in turn will generate a strongly rising dollar and weak "risk-on" trade. The funny thing about this market is that if you trade arb or correlations to lower your risk, you are ironically doing the opposite - you are increasing your risk without the reward being in proper relation to said risk. People are blowing up everywhere and I expect it to continue. I also expect that Euro longs will have a VERY tough time of it once its deleveraging is complete.

Additionally, on the fundamental side, the ECB and the troika has come up with another harebrained plan to kick the can down the road on the same variation as attempting to put out an oil fire with more oil. The Greek public stand little chance of going a long with it and, therefore, any agreements between current government officials, large banks, the EU, ECB and individual euro union members have little chance of performing, letalone being consummated - try as they might. Throw in general market structure for the debt money system and you don't get a pretty picture. The EURO is dead just as the debt currency system is dying.

On a purely technical note, I am about to get a confirmed reversal trigger on the dollar and also one on the EURO. These are usually highly reliable. So, unless the euro rallies very hard from here and the dollar falls hard from here...odds are not good for continuation of the current retracements turning into trends. To understand the reliability of these triggers, I posted about them related to a reversal in risk assets early in the week and they played out perfectly. Now, we are waiting on the dollar and the EURO.

Thursday, June 2, 2011

Highest margin debt in years = greatest risk in years

My systems did a beautiful two entry short into the recent highs and covered yesterday at the close. Longer-term systems are short still and the market is hiding behind a Federal Reserve bubble of margin debt that is just waiting to contract. The early forewarnings can be seen in Silver and in Oil among many other commodities - and of which I have frequently referred. Silver is indeed on its way to below the breakout of the parabola and that is below 5 bucks. It will be destroying quite a lot of currency and margin debt as it does so. Meanwhile, all the dollar bears are grunting and chaffing and apparently unaware of what is about to befall them.
The reality is that we are now very close to the all time highs as far as margin debt is concerned. I wanted to bring this to the attention once again...margin debt is near the 2007 highs, we are near the recent highs for the markets and people are still clamoring to buy the dupe...there are a lot of people in trouble already and likely quite a few about to be in trouble...

Here is a graphic:

I am not one to be taking too much of a stand on the direction of rates, though yesterday looks a bit like an overthrow...but either way rates up or rates down - dollar will likely go up. However, if rates do end up going up here, then that poses another head wind for all the margin debt out there...I think there is a 50/50 shot that rates continue to be under pressure or rally. Either case is not good for equities at this point.

Wednesday, June 1, 2011

Some comments...optimisim all over the map

As I think is fairly apparent, the driver of our markets are currencies. The subject of our times, when history is examined will be our currencies. The dollar has been in a pullback to the target zone in the 74's to 74.6. The dollar is currently setting its turn trigger, which has not happened yet...but is VERY close. I see ton's of crazy elliot wave counts. People are targeting the moon on the indexes. I see charts in the 1,500's and 1,450's. There is only one reason we could get to numbers like that and that reason is the Dollar Index. With all the currency stress in the world at this point our dollar is a vehcle of relative attractiveness and will not likely be taking the trip to the 60's as required to hit these crazy patterns that people are posting all over the place. I just wanted to address this, because the market is sloppy, it is not well behaved and due to that characteristic it is confusing people and getting them to flip flop out of and into trades. I found that comment from Jesse Livermore yesterday on a very good blog MacroStory and I think that it is very important to keep Jesse's view in mind.

The market seldom does what people want and people are wild eyed as far as the trading patterns for many of the indexes with wild scenarios. The reality is that commodities did have not reflect the minor dollar weakness that we have had so far - this is not bullish. Also, dollar weakness is not likely to continue despite the best efforts of the carry traders and media who love to trumpet the declining dollar story to no end. Currently the dollar is significantly higher than it was last time the indexes were at these levels and its losing momentum to the downside in preparation its up cycle trigger. That relative performance is telling and will be hard to ignore for the markets. If dollar weakness is not going to continue, there will be NO new highs for the equity markets, which since everyone is looking for them, seems rather likely. The PIMCO trade was really obvious, and highly publicized but so far that trade has been VERY wrong...the public and popular trades are likely to continue the pattern of being wrong. But there will be quite a lot of selling once the dollar bounce begins...and after the EURO wears itself out...which is very nearly complete by the looks of things. One thing that I find interesting is that the inverted head and shoulder that everyone saw has been very sloppy. However, the current markets are putting very clean looking bearish head and shoulders patterns with all the correct construction for follow through.

Tuesday, May 31, 2011

Fractured market...herding can overlook anything...

“I believe that the public wants to be led, to be instructed, to be told what to do. They want reassurance. They will always move en masse, a mob, a herd, a group, because people want the safety of human company. They are afraid to stand alone because they want to be safely included within the herd, not to be the lone calf standing on the desolate, dangerous, wolf-patrolled prairie of contrary opinion.” - Jesse Livermore
Today's action while manic and somewhat amusing is characteristic of the need for market participants to herd. Notwithstanding the CME lowering margin requirements...the action was tortured. My signals are still in place and a bullish  turn for defensive assets is about to be triggered and a bearish one a most risk assets is pending as of tomorrow.

Today, silver, gold and many other commodities did not perform. Performance, it appears, was relegated to equity risk assets. A fractured market is not a healthy one. The euro was unable to get follow through and did not confirm the end of day highs in any of the equity markets and nor did the dollar fall to new lows as those highs were made. All in all, not a pretty picture. My systems added short at the close.

Headline: "World Market Cheer Japan and Greece" - what will they say this afternoon

This afternoon or tomorrow when the scenario has failed to play out, what new version will they trumpet? "World Markets Jeer Japan and Greece News". Of course the media don't and won't have a view worth considering since they are often simply a mouth piece for waste information and ideas. They are also quite happy to be trumpeting the dollar collapse scenario via the UN report and Debt Ceiling issue. Funny how when the dollar rallies, they stop talking about the debt ceiling...too bad they don't get it...

Monday, May 30, 2011

Are you ready? don't let the dollar smack you on the way up...

The reality is that the market putting on "happy happy joy joy" again...the charade is continued and the world is doing very well thank you very much. Well, well, well...we have quite a few charts which I posted this weekend which tell quite a different story. My expectation was for additional strength into the open and early trading Tuesday...followed by significant weakness. There are very strong indications for a resumption of the down move...and a rather more stronger version of it...possibly as soon as tomorrow. The Greece announcement has signficant implications and they are not compatible with the market reaction...even if leadership would like them to be. If ever there was a finishing touch for the market - this is it. People are going to make full end run out of EURO's and just about anything in any bank in a country being attacked by the central planners and straight into dollars via US treasuries. Don't be surprised to hear a lot more about bank runs through out the world in the next days and weeks. People who withdraw money from a non US bank will have no choice but to go into Dollars. For the USA, rates will drop as people panic and try to figure out what to do...and ofcourse the dollar will ramp hard, fast and relentlessly. Risk assets stand no chance in this environment.

Now lets look at what is going on. The risk markets are not participating in the overnight party. Clearly, the centrally planned markets are rather ebullient. However, there are quite a lot of issues to contend with. On a fundamental note, giving Greece more money as a pathetic ploy to prevent them from forcing bond holder to take haircuts on debt is a highly ineffective way to accomplish the task. Taking control of their privatization process will not help either...the reality is that debt slavery keeps on ticking and the interest keeps on clicking...Greece will never be able to cover the outstanding interest...not if they sold the last grain of sand in Mykonos. Further, there are very dangerous underpinnings for the sovereign state and for the unrest inside it. There are significant accusations that the prime minister not only arranged, facilitated and likely pressured the sale of CDS purchased by the Hellenic Postbank of Greece (the state bank) protecting it in the case of a Greek default. The CDS contracts qualify as an asset of the state and were sold for 1.3 billion to a group that the prime minister and his family have significant interest in and connection to. Those contracts are now worth $27 billion – a huge 2,000%+ gain. He certainly knew that the value of the CDS would rise substantially and his leadership certainly has the ability to positively affect his, should this guy not be in jail?...and quite a few others? Well how about some of the guys whoe decided that the Central Bank of Greece redfine settlement for government bonds from  the standard T+3 (3 day) to T+10 - yes 10 days! If you happen to be naked short you get to keep your position for 10 days without having to locate the underlying to borrow...nice!

Regardless of this, the reality is the social upheaval and resentment will only be fueled by these developments. As the Greek citizen watch their most precious assets being sold to the CEO's of banks that should have taken losses and watch their government officials become ery wealthy of their countries demise...the result will be rather predictable...and it will happen in short order.

The sniff test is not panning out...and the markets tend to be rather interested in the stench when it becomes unbearable. With all these IMF, EU and ECB guys farting up the place combined with there brethren in the US competing to see who can be the loudest and the smelliest...I do think that it seems that DSK might be scoring good wins for the IMF in those departments...However, the situation is getting rather untenable regardless of the bureaucrat debauchery. The dollar is primed to a large run from here to the upside as people panic about the smell coming from Europe...with suitable effects on risk assets.

Massive fraud and cronyism is not just confined to BURNanke and his cartel...

What centrally planned capitalisim and democracy look like...

Not to be left out, this WILL be coming to america at some point not too far off...

Incidentally, woudl you really want to buy the ECB centrally planned constitution and currency unit scam
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