Saturday, August 6, 2011

All risk is bad...the goal is to select the least bad risk

The reality is that the S&P downgrade changes nothing...a downgrade of the US in this situation amounts to a downgrade of all sovereign debt of all other sovereign states and the EU aswell...in that case, US Treasuries are still at the top of the list of least bad risks. The outlook as I have painted it remains the same. The objectives for the dollar and EURO are unchanged for me, however, we now have an idea what the impetus may be for the blow-offs in the currencies are - thy will be short lived.

The irony is that there is no reasonable way that the political leaders in Washington did not know about the coming downgrade from S&P and the failure of their efforts to avert it last week. Obama and Boehmer have a batphone to the ratings agencies CEO's and ratings agencies have a custom of negotiating the compromises that will achieve the will of the political leadership or more appropriately in this case, the financial leadership.

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 m3analytics@gmail.com if you wish.

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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