A Euro pattern to watch

Oil is power...but power is not Oil

These charts reinforce that the dollar rally is NOT a bounce in a bear market move but potentially the start of a powerful and sustained rally. There are clear reasons that the Saudi chart looks like it does and there are clear reasons that the implications of the implied move in the markets and oil should be expected and understood. Its not going to be pretty...but to me this scenario is going to play out and while I have tremendous respect for Jim Rogers, I believe that the exponential curve is going to take care of commodities and that the expungement of hidden and obfuscated insolvency especially in the derivatives markets and banking system will curtail pricing power and inflation in all asset markets. I do not believe that holding your purchasing power via commodities is the most optimal way to play out what has been occurring in the commodities markets...but please remember Goldman Tax is promoting long oil and other commodities to their clients, which likely means that they are bad trades as we can see by their horrible oil and copper trade so far...and its going to get MUCH worse.

Overview

Initially, when I started watching these charts, I was struck by the clear patterns that also coincided with my systems consistently biasing short for the last 7 months for swing trades. The reality is that during that time the systems have won nearly every trade they have taken and have had an abundance of double digit return months. However, I was left wondering about the curious setups and discordant behavior I have been watch that suggests cataclysmic price movements ahead. Curiously, the charts below support two observations...a very strong and persistent rally in the dollar and that the next version of the 2008 catastrophe will not be banks but centered around energy and sovereign nations. Another irony is that the impending energy market blow up has been christened with the catastrophe at Fukushima.

Bubble Mechanics, tall buildings and ski slopes in the desert

In the late 1990's Saudi Arabia had a break-even of less than $10 per barrel, in 2003 it increased to the low $30 range, by 2009 to 2010, break-even rose to the $50's and the 2011 break-even now is over $90 per barrel. Additionally, the 2011 break-even for Bahrain, Oman, U.A.E, Qatar and Kuwait has more than doubled on average, from 2003 levels.

I think we can all remember the Dotcom phenomenon...a time in which people from all levels kept seeing and forecasting higher and higher prices while at the same time similarly increasing their spending and personal and corporate break-even's. The reality is that in the middle east they have built the tallest buildings, temporary man made islands and temporary indoor ski slopes...not satsified with mania such as that, they have been working very hard to monetize and leverage nearly the entire margin possible from their only real asset "oil" so that they can support on-going and rapidly expanding government spending and malinvestment.

Rising costs for oil producers is widely credited as being the reason that prices will not drop. However, I believe that one could use that same logic in the recent Silver bubble that is currently bursting and the dotcom, technology and housing bubbles.

We are now left with the weary and tired commodity and energy bubble. Quite simply, the argument that large investors can leverage themselves to the teeth and somehow collude to keep prices up, thereby propping up their bubble ad infinitum, is ridiculous. Long-term capital management, Soros and the pound the banks and their CDO's, CDS and structured products all have become targets of scarce liquitity and well funded adversaries who can easily blow apart a widely known trade or financial weakness or incongruity. The financial anomaly in sovereign oil producing nations does not stand much chance either.

Anyone stupid enough to push their break-even to $90 (let alone has the gaul to predict break-even next year at $110) with oil prices currently at $95...deserves what they get...in this case total financial annihilation. Moreover, the sovereign's have another problem, they mistakenly believed that oil passing the peak of the exponential bell curve meant scarcity of supply could drive infinite price appreciation. They are clearly wrong, just as the silver bugs preached a similar peak silver story...it was misguided and is being proved wrong. There are some differences, however, to normal debacles in that oil producing nations will attempt to further curtail supply to prop up prices...this approach will likely fail due to their and everyone else's pending insolvency...the dollar will make it impossible for their scarcity and peak oil argument to work...there surely will be other influences like other producers who can actually get oil out of the ground for less than 90 dollars a barrel...but, regarless of losses, the sovereign's will need to continue to sell oil at those huge losses in order to obfuscate their financial insolvency for as long as conceivably possible. In the end, there will be a competition for who can sell the most oil first as the rush for cash spreads. Their plans will not work terribly well and by the looks of things the indoor desert ski slope.

So, the result of all this is that regardless of a dollar move to the upside, the sovereign oil producing nations are in deep trouble and insolvent. With the dollar rally, prices for the many commodities including oil are in for a very significant decline. These markets will be driven a similar issue - the need to covert a non-cash asset into cash.

Some charts...

I can see no reason to expect a pullback in the dollar. I see every indication that this chart wants to rally hard - much harder and longer than almost anyone expects...if this is to occur, expect a very challanging environment for risk-on and inflationary trades.

Please refer to the chart below for a shorter-term target on the EURO:

A look back and forward with Douglass Lodmell...

Another in the series of interviews with Douglass Lodmell...you can visit his site at http://lodmell.com and his blog at http://www.themindofmoney.com/blog/.

Below is a detailled analysis of the realities associated with sustained exponential growth and natures brutal resolutions of these perversions.

Yes accoring to the NRC...nuclear power generation IS safe

Are we going to believe them? I certainly don't.

Fukushima...is not be news worthy anymore but is stil the biggest news going...

I have never done used profanity on my blog before but here goes - FUCK THE MASS MEDIA!

And the trade is...

...the dollar. The thing is that the dollar is a slippery beast. I have been unwilling to miss the trade so I have a large long position in the dollar again with an average price of 74.25 ish on the $DXY - some a little higher and some a little lower. The reality is that the dollar as with a lot of currencies likes to push traders to the point at which they feel totally humiliated and wrong before they make real men out of them by getting most to flip the other direction only to get smoked. It looks like the pattern for the dollar is setting up to be a double bottom. In any case, the selling is without volume conviction and similarly for the euro the patterns are within hours of being complete. The reversal may be soft meaning that people barely notice the dollar beginning its change in direction or the reversal may be brutal. Given this market, I would lend to the which ever feels like the least likely...I am long dollar and flat most of the shorts that I took on the equity markets near the highs. This year has turned out to yield exceptional trading results and I am grateful for that. Its my view that the biggest trade of the year will be the currencies - long dollar and short euro - both of which I am in size.

The Ascent of Money...leading the descent of humanity

The accellerated path of a super leveraged debt union...

In this video...its clear to see progession through history and that the issues we are dealing with now with most of our currencies were foreseeable and preventable...what it took the US 80 years to accomplish europe has done in 12.

ECB falling apart...a big lie? not according to Barroso

And even though he avoids answering the question at all costs...he certainly will not lie to make the situation more palatable.


in case you are interested in spotting the lies, here is a good starting reference with which to watch the above video...http://liespotting.com

Almost Exactly what I have been saying...

Just without as much of the detail regarding the great money contraction and dollar shortage that has begun in earnest since around the time the Silver Commodity and Oil trades blew up.

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.

Hearing on Federal Reserve Lending...

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.

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.