Wednesday, October 19, 2011

Market dynamics or dynamic markets?

Well, that was interesting a nearly 5% move in the ES intraday low to high…some key facts of worth, the VIX is in a clear bull flag and bouncing off support. US Treasuries put in bullish cycles a few days ago and did not get near their recent lows when equities got near their highs…the same applies for the dollar, which is sporting a rather nice looking pattern…and a head and shoulders on the 120 minute EURO chart...for all the noise about 2 trillion bailouts the EURO did not seem to energetic…having remained below its 61.8% retrace today…

So, all in all, though the systems have taken some very nice profits…they are still short and the same scenario still seems to be in play - a triple top rectangle….rather bearish indeed and highly probable too.

Many people are expecting a complex set of waves up over the next few weeks…the action in the dollar and the VIX and our pattern say otherwise.

On another note, we continue to have massive accounting fraud in the earnings of all the major banks…Citibank’s clear manipulation of its books is just one example of an outright abomination. The market is saying we do not believe you will pay us back Mr. Citibank and Citibank is saying our clients are so good we can reduce loan reserves…and call both earnings. There is only one option, if the market thinks that Citibank is at increased of default - what its saying is that Citibank clients are likely at even higher risk of defaulting. How Citibank can turn that into 3.8 billion of earnings via loan loss reserve reduction and the decline in their own debt value, is simply unfathomable. In fact, given this situation, Citibank should have increased loan loss reserves not decreased them.

Sunday, October 16, 2011

Kyle Bass - following in John Paulson’s foot steps

“The value of the metal in a nickel is worth six point eight cents,” he said. “Did you know that?” 
“I just bought a million dollars’ worth of them,” he said, and then, perhaps sensing I couldn’t do the math: “twenty million nickels.” 
“Actually, it’s very difficult,” he said, and then explained that he had to call his bank and talk them into ordering him twenty million nickels. The bank had finally done it, but the Federal Reserve had its own questions. “The Fed apparently called my guy at the bank,” he says. 
“They asked him, ‘Why do you want all these nickels?’ So he called me and asked, ‘Why do you want all these nickels?’ And I said, ‘I just like nickels.’” “I’m telling you, in the next two years they’ll change the content of the nickel,” he said. “You really ought to call your bank and buy some now.” - quotes from Kyle Bass
This is the funny thing…Paulson made an historic trade, his psychology of success cost him his values and granted him complacency - so, he forgot the most important rule…when you have a success and confidence you are sure to need self doubt and humility…

Reading Bass’s quotes, it is apparent that he believes in his view so much that he is capable of marrying ridiculous analyses and obtuse risks…this one is ridiculous, however, theoretically its reasonable risk trade. NOT because of the silver content - but because the Nickle happens to be legal tender and due to the potential of its buying power increasing due to the “paper in it” and while the very silver he so desperately wish to have declines precipitously…and this despite Bass’s totally superficial analysis and understanding of the monetary system…The reality is that HE has to store all those coins, that is not cheap and it WILL significantly impair the risk/reward on the trade…Bass will be lucky to break even on it over the next several years…though I am not so optimistic about some of his other risk trades.

It takes people betting the farm on ridiculous trades and popular consensus views (the debasement and real asset hedge is VERY VERY popular) to make market moves that have conviction.

Market Update...

I will be posting some charts later today to add to this post…(as of 10:49 pm I am totally wiped out have not recovered from 10 oscillations from zero to 26,000 feet and back yesterday testing out a King Air B200…will post charts in the morning) But as far as the markets are concerned, I would like to share some observations from friday. It is important for me to point out that as opposed to most blogs and professional services that charge for their opinions and usually give you two opinions and subsequently claim the best one post history. I present my view, it is merely a view but is a focused one. I have never found that I can make money in the markets by flip flopping…I don’t have time to waste doing that…either I am wrong or I am not. In the case that I am wrong, I want to determine it early and manage that condition proactively...the most effective tool for proactively managing risk is proper allocation.

Hence, my view and posture has not changed at all since my last post…the market was SOLD by institutional traders especially into the short squeeze at close on Friday. In fact, it looks to me like the primary activity in the markets has once again been a roller-coaster of leverage becoming de-leverage…longs became shorts after blowing out of their trades and now they are blowing out of their shorts. In addition to that, you have all the asundry liquidations by the various insolvent and liquidating financial institutions around the world. With all their crazy derivative and leveraged risk positions this does not imply that asset prices must go down...and can indeed imply quite the opposite. The most ridiculous thing is that NOW that we are above that trendline…most will likely look at it like a breakout which will likely further their whipsaw. I am quite confident that this breakout will be a retest overshoot and thus a failure.

The dollar has lost downside momentum and looks powerfully positioned (hence we have reentered the dollar in the 77.12ish area. The EURO has lost its upside in a spasm of de-leveraging…while, its counter part, the dollar is sitting above a multitude of major supports and that to me has profound implications for the whacky diatribes and promulgation I am hearing about.

Oil, Silver and Gold are all set and generated partial short triggers on Friday…I think the ride down will likely not be interrupted by a zigzag for the markets- meaning that we put in a pullback here to a higher low and then proceed to a higher high as a part of this move. If that were to happen, however, the targets would be in the 1250 area for the S&P500. While it is inruiging to make that guess on this pattern - I am not in the business of guessing such things for profit. I do believe that the market will likely fall here and that the trip will be a rather powerful unwinding - hence, I do not favor our current wave up being an A wave of an ABC zig zag positioning is looking more for nearer-term reaction...and is highly biased to the action of and in the currency markets which are indicative and at the center of our storm.
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