Saturday, November 19, 2011

Kyle Bass is even more foolish than I thought..

This weekend, the EU and the IMF effectively went all?in with a bad hand in the highest stakes game of financial poker ever played with the world. We believe the agreement released was nothing more than a Potemkin agreement in order to placate bond investors. In the end (and there will be a reckoning for many countries) nations, including the United States, need to dramatically cut spending and get their fiscal balances in order. Unfortunately, our elected officials are on the hamster wheel of electoral cycles and are not able to make tough decisions like this as they would likely not be re?elected without a “sea change” in public opinion towards government spending and deficits. We are therefore on the path to significant currency devaluation around the world that will likely result in significant inflation. We increased our holdings of gold on Monday morning as well as taking other steps to position ourselves for the most likely outcome over the next few years. Interestingly enough, based upon the market reaction in the last 36 hours, it seems the law of diminishing returns applies to bailouts as well. - Kyle Bass 
"Buying gold is just buying a put on the idiocy of the political cycle. ... Capitalism without failure is like Christianity without Hell. You have to have atonement for ridiculous levels of spending both the US and Europe have gone through. The spending idiocy of the world is going to catch up to itself. And that's where we are today.” - Kyle Bass
Yes, VERY smart people can be quite foolish...

When someone misunderstands so fundamentally the rules of the game that they think they are able to rationally and intentionally position themselves precisely 100% in the wrong orientation with regard to a trade - it is truly spectacular. The ability for smart peopel to position themselves in this manner is usually attributable to a fundemental misunderstanding or incorrect premise. This does not mean all their trades will be wrong…hoever, if the fundemental understanding can be so signifcant - as is the case with Eric Sprott for example, the whole outcome and their process is likely to be effected. The situation has not materially changed over recent history…Silver is down not far from 50% from its highs while gold is up a little bit over the same timeframe and both are about to get toasted…fundemental misunderstandings have led to pyramiding and what will likely turn into catastophic bets on Silver and a just plain very bad ones (not to mention extremely popular) on gold. The reality right now is that people see hedges everywhere, but NONE of those hedges should be trusted…the safest trade is the risk trade…shorting Japan while being long tons of silver and gold is not my idea of a great hedge...

Kyle Bass has topped the impression that I had…while he clearly has some knowledge and facts behind his thesis, he seems definately seems to be in an egoist trade and more importantly misunderstands the results of the outcome. He obviously is in control of the world and has made his billions (many of which he is likely to lose by the way) and, it seems to me, has lost his passion for truth and integrity. Passion, truth and integrity might have actually had something to do with the reasons he was able to pull off his first success. Look, I see the same thing in my own activity, I am most likely to suffer volatility or losses after a very strong performance. In August and September, I made higher returns that most managers make in a few years or even a career…and that kind of success sets you up for complacency and in many cases failure. This is something, that as a manager, you have to be highly scared of. Money is powerful, it is a mirror and it can compel you do the exact wrong thing at the exact wrong time - simply because you think you have it to do it with and complacency to back it up. Kyle is coming off a massive and long-term trade in which the complacency high takes very long to dissipate. Paulson was too. As a manager, I am always the most scared after huge successes because that’s exactly when you can not and should not trust yourself…its at those times you need to be prepared for exactly the opposite of what your superficial emotions and ego tell you should and will happen. I can tell you now - these guys are immature, fickle and unprepared. Their trading books and reputations will be the victims of their ego and complacency.

Kyle may not have the commitment to hold his trade for the length of time required to make it profitable - which very well may be never but more than likely 5 to 6 years of devastating violence against it. During this time, his investors will abandon him, his followers will go from praising him to hating him and his AUM will follow a similar fate. The good news for Kyle is that some of his money will likely be held in some accounts somewhere that he will be able to squirrel away. I suspect, however, that Kyle will be one of those rags to riches to rags story's we see in the movies. He has married this trade and will hold it until its too late to liquidate…then he will hold until he is forced to let go - probably losing most of his fortune as he scrambled to double down. What is funny is that Tyler Durden of Zerohedge is so impressed with Kyles ridiculous and merit less anlaysis…Kyle is flat out wrong. If he is right about a few of the ideas that he speaks about,  should then be obvious that the result of less bailouts and more debt will be more and more aggressive asset sales. I am sorry to point out to all the Eric Sprott’s and Kyle Bass that Gold and Silver are a primarily holding of large banks and sovereign’s - they are assets and will be sold with abandon to cover margin calls…My long-term target for Silver remains in the single digits and when this comes to pass, as it most certainly will - the results of superficial and egoistic analysis will become apparent in many forms - sadly in the purchasing power of the investors that Mr. Bass trades and in the reputations of those who bet the farm on a stupid concept that everyone believes so publicly must go the way that it seems superficially it should go. We saw this recently with our Wall Street Journal Triangles and we continue to see it in huge malinvestments and misunderstandings like Kyle’s, Sprott’s, Paulson’s and many others.

Thursday, November 17, 2011

My Posting Activity...

I have recently received some feedback complaining that some of my recent posts have a abundance of grammatical and spelling errors…it seems that the deduction of why is that I am just "another guy with a blog”. I do agree there are too many spelling and grammar errors but its not because of said reason. So, out of respect to all of the people who read my blog I wanted to publicly discuss the subject.

I would like to address this for several reasons…Firstly, because I would like to ask for your patience and understanding for my process which is less than optimal as I am not seeking to be a professional blogger like Mish Shedlock for instance. Secondly, because I often am aware that I make a lot of mistakes when building a post or establishing a theme. And finally because of that I want to remind you, as readers of my blog, that if you read a post with a lot of errors - I am often in some state of review…which usually tends to occur after I hit the post button! Like I said my process is not exactly optimal. I will usually correct most of my mistakes and update the post in a timely and subsequent review…and sometimes add clarifying content or charts. So, IF you see a post with a lot of errors it pays to reread it later since I will likely correct most things and may add some addition content or clarity.

I want to clarify, for the record, that I NEVER edit posts for content once I released the post. So, once I am finished with my basic review of it, if I think its final, I will not touch it again. Many bloggers make a habit of editing prior posts post history so that their assertions in those posts look better. I consider that highly disrespectful of the reader. I do not edit my posts for content post history and do not edit comments out either. In fact, I used to have comments live on this blog, but it was a nuisance to manage them - especially when one particular idiot spent all day spamming…so, I simply eliminated comments functionality. But for a journalistic integrity I think articles should not be changed nor should comments be selectively edited.

On another note, i am requesting your understanding, writing a blog is not my main career objective…I am generally focused on writing software for trading or the actual trading itself. Additionally, very often as in last night, I am attempting to put together a fairly complex theme which is a challenge in an of itself, becomes an article of roughly 1000 words and I am doing it late at night when I am prone to be tired but have some spare cycles I can use to write a post. As I recall, I am one of the only bloggers who is sharing the level of clarity of what is going on in our markets and financial system that I am - yesterday’s post as many important ones are was timely, illuminating and I think useful even with its spelling and grammar mistakes…I am also generally doing the posts when I can…which means I may be rushing. This creates a greater opportunity for me to make grammar and spelling mistakes. Additionally, my personal process sometimes means I hit the post button to get the post out faster than sooner…then take a break and come back and review the post for a decent run of grammar, punctuation and spelling. I am doing this work as I can, I am not getting paid and I am trying my best.

To put this in perspective, currently my trading systems are live and long nearly $1 billion notional of Dollar futures contracts not to mention the equity shorts and commodity shorts I am dealing with…no matter how you slice it that is where my focus is and it is a significant pressure…as I am up double digits for my funds so far this month - I think my  efforts need to remain prioritized as they are…which definitely leaves proofreading my blog as a significantly lower priority. As I do enjoy writing for the blog and have the impression that people find some of this work of use, I will endeavor to improve my process and posts. Thanks for your readership and feedback.

Try-Tri-Trianglulations, Rounded Tops and Waterfalls

It is highly unusual for us to get very high negative tick into the close…it usually leads to a nearly immediate reversal, however, there needs to be support and better yet confirmation for that to occur. The reality is that debt, currency markets and many indexes have no indication of any pending bounces and offer no confirmations other than for more weakness. Additionally, as I have said in previous posts…everyone and their brother is watching the bullish pennant continuation pattern - yes that Triangle. It certainly appears rather deformed on the Pit Sessions - to say the least…yes MUCH MORE LIKE A ROUNDED TOP, but WSJ left that option out because its not bullish I guess. Highly publicized patterns and consensus within the society (investors being a subset of society) or a community are VERY suspect. More over the Wall Street Journal has now gotten into the action of identifying the pattern…

So far, there seems little to support their thesis and quite a lot to support that the HEAVY down ticks hitting the close are a sign of the panic and desperation among the investment world to generate cash…I suspect that particular activity will become far to customary going forward. There is a very real potential that the heightened sense of desperation on these market participants will cause a market failure. It will not likely look pretty, to say the least, and I would think its possible to see double digit declines in a very short period of time.

The irony is that while Kyle Bass will be insured with his "put option against the idiocy of the political cycle"…he may find himself being unable to maintain/sustain his position over time and will end up being rewarded with significantly constrained purchasing power for his efforts - likely quite a bit more than his highly misinformed trade analysis may indicate. But, this is the pattern, Bass, Paulson and many others like them will reach the desperation phase and sell anything not glued down, even their most prized jewels, to generate cash. Central and Sovereign Banks and Commercial Banks will have to desperately sell anything not glued down because there is no escape from default for them. This means all that Gold in the Spanish, Greek, Belgium, Portugese, Irish and Italian vaults will have to be released on the open market much sooner and more desperately than anyone could imagine…and that gold will not likely protect you when this occurs…So, ultimately even the insurance it gives you may be of great value when you can hold it for the next 20 political cycles, however, like normal mortals there are practical elements to managing positions and assets - it will find a need to be liquefied most likely well before the insurance value has paid the cost of its carry.

Lest anyone think that the Fed and ECB can invent a miraculous plan by tomorrow morning to shock the markets…they need an event first in order to change rules or sell their unpopular transgressions of society’s rights under some cover. They need an EVENT in order to setup and then will proceed to market their reaction and subsequent plan. By the time that event has happened any plans they think they have now will likely need to change dramatically in addition to amounting to typical peashooter exercises. So, there is little likelihood that the Fed can really do anything miraculous in the very near term.

What you see going on around you is a contraction of credit money…the Fed/ECB can try to offset that with printing and monetization but they will simply be replacing a small piece of the credit destroyed by asset devaluation and credit defaults…their actions will fix nothing and very likely continue to make things worse - as their harebrained schemes have done over the last two years. Lastly, the dramatic constraints on available cash will tighten like a noose around the neck of its prisoner.

Anything that the supposed authorities do will most likely result in less available credit…and there is but one result from that in this extreme stress environment…strong demand for existing and available cash and very weak demand for ALL assets. So, whatever the Super Committee, BURNanke and TRICK-IT come up with will likely further intensify the stress we currently have by further constraining the flow of available CASH where they it is really needed and trapping it where it is not. This means DOLLAR/CASH up and ASSETS down in value. Since the EURO is not really proper cash don’t expect it to fare will against the dollar when there are very few choices left.

What people fail to understand is that in our system, the drug addiction is the credit based money amplification schema and the cure is not real assets or gold…but is something more akin to the relationship of heroin and methadone. In this case, the cure for credit based money is non-credit money. Translated that means - simple, pure fiat paper!

Wednesday, November 16, 2011

Kyle Bass: kettle calling the pot black

"The Profligate Idiots in Europe: They Have A German Pope And An Italian Central Banker” - Kyle Bass
The irony is that Kyle is totally off base with his concepts, his portfolio and his rhetoric very likely profligate himself - even though the leaders in Europe to happen to be fools. Kyle, however, is fresh off the success of a lifetime and fails to understand the issues we are facing…just like most of the successful PM’s out there is focused on Gold and Silver and so-called real assets. Kyle has bought 198,416 pounds of nickles, for Christ sake, because they have silver in them! Atleast, I would buy nickles because they have cash in them…but he has failed to study the problem and is simply hoping for a repeat of previous sucesses…The most obvious trade there is right now is buying REAL assets and Gold and Silver or Commodities. The inflation/real asset trade is not going to work.  Thank god I trade with systems…things are NOT as simple as Kyle would need them to be! In my opinion any PM who employ’s this ego driven trading idiom is a disaster waiting to happen.

It seems like Kyle is working on biting the dust just about as hard as Paulson…which given that Paulson is likely to be losing over 75% this year as per my previous forecasts quite a few months ago…is a pretty big dust bite. I think Kyle may fare better because he is actually smarter than Paulson and because it may take longer for him to cry wolf.

Past success is definitely not an indication of future returns - especially with regard to ego driven and highly misinformed trading and portfolio management.

Tuesday, November 15, 2011

The market problem is too many Fiat IOU’s...

The issue is that the global financial system has allowed great magnification of its money creation mechanisms to be directly translated into credit which is then spent as money. The problem IS NOT fiat money - its the credits that amplify the fiat money. For this reason we have too many assets and at way too high of prices with artificial demand impulses driving them. Therefore, this markets performance will not be based, in the near-term, on financial performance of a company or even a product or commodity - but the ability for people to obtain the currency and purchasing power with which to acquire said instrument.

In short, equity and commodity markets can idealize all that they want, but the trade in them will be governed by the root of our problem - access to currency and purchasing power.

At this time, people are still watching relatively deformed triangle patterns in very crappy looking equity market trading. Those patterns, in addition to being deformed are not correlated to anything remotely inverse in the dollar. The dollar setup is just plain bullish and the EURO is clearly in the midst of a large move down that is not likely to be interrupted by much…other than a Goldman Tax Short recommendation I guess.

I will post some charts, but its my recommendation that people trade with an edge towards the direction of the Dollar, Euro and Aussie Dollar.

Monday, November 14, 2011

from miami…"Give A Wall Street Banker Enough Rope and He Will Hang Himself"

You know things are not going well when you find effigies of bankers hanging from electric lines with nooses around their neck, entire murals painted on the walls of abandoned buildings and tent cities full of discontented people. Well, I figured there may be some interest in seeing what is happening here in Miami - and I am quite sure in many other places.

These are some pictures that I took today…

Tent City Downtown Miami Near the Court House
A mural of social discontent/class warfare triggered by irresponsible central planning and social engineering.
Mural and effigy (I had to rush to take the picture so my car is in it)
Bankers above…

Sunday, November 13, 2011

CME - What and who is putting a gun to their heads...

The reality of life, especially corporate life, is that no one spends money unless there is something in it for them. Corporations either spend big money when its clear that they can make a lot or that they could lose a lot more if they did not spend preemptively. That appears the be the case with the CME which spent $300 million of their reserve fund designed for internal FCM obligation defaults to other FCM’s or risk entities. The CME has an obligation to its members NOT to their end clients. The posturing is that $300 million was offered to the MF Global Bankruptcy Trustee as a gesture of goodwill - a "helping hand" if you will. Nothing could possibly be further from the truth. NO ONE GIVES AWAY $300 MILLION DOLLARS TO BE HELPFUL OR NICE when they have ZERO obligation to do so…they only do it when there is some sort of a gun to their head…in this case, I am left wondering what is going on that could scare the CME so much? Obviously, it has to be something much bigger than $300 million, since that is what they are giving away without so much as getting any reward or upside. So, the R/R does not look good here - unless there is a far bigger problem lurking in the wings. What is it that is on the other side of this very generous and supremely nice/kind offer?

Well, I think we can see some of clues in the currencies. I am posting the Dollar index components chart which I have occasionally produced in the past and watch everyday. With the exception of the parallel upward trend channels drawn on the index itself, none of the labels or patterns have been substantially changed from how I placed them in June…things have played out rather well, indeed. Somewhere in these patterns there lies something that must be related to the issue that is scaring the CME so damned much…and this is likely why the Dollar index has such substantial targets.

See for youself…things do not look good for the inflationist currency debasement and real asset prophets. Sprott and Bass and most of the assorted gold and silver extremists will likely not enjoy what is about to happen. Mind you that in the beginning phases of these currency moves, Gold and Silver will likely be looked at a safe havens and may enjoy a brief throwover…until people are forced to look at them for what they are: assets that are collateral to be sold to service obligations elsewhere.

Party like its 2008...

Earlier in the year, I posted charts showing the major foreign indexes and the Nikkei…those patterns have played out to a tee…the US markets have been MUCH stronger and have had much more effort placed in the by our illustrious banking cartel leadership. That is about to change as their bullets have turnd from lead to rubber and now sand…

The interest that people have in the triangle that I posted about on Friday is very much like the head and shoulders pattern idenfied by CNBC and the general public in 2009…everyone sees this continuation pattern…but its most likely only going to occur in their imagination.

Earlier in the year I posted a buch of charts documenting the state of the European markets…I will be adding some more european charts to this post…but you may be interested in a look back...A rush out of risk leaves almost NO choices

I will be adding some more charts to this post, including one if the non- triangle pattern occuring in the nasdaq.

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