Nov 30, 2011

Well we got the news event. A coordinated action by every central bank in the world to lower the cost of dollar-funding to big global banks following on yesterday’s ratings downgrade to a couple dozen of those same banks. Another kick of the can pretending that the problem is illiquidity rather than insolvency. It illustrates well how the world works now.

If you are Big M$%F$%# GlobalBank and your credit rating drops, then Big M$%^F$%^ CentralBank will lower your cost to incur additional debt. If you are anyone else and your credit rating drops to junk, you are shut off from all credit and are headed for bankruptcy. Too Big Too Fail means Just The Right Size To Subsidize.

No surprise that equity markets gapped up massively at open. Squeezing the weak shorts of the big financials who don’t realize that the world’s central banks (and most Western governments) are completely and utterly owned by those same banks. Combined with what has been a couple of surprisingly resilient economic indicators in the US, we may be in for a short/sharp rally.

Longer-term, this really is getting near the last call to get out of ALL financial assets denominated in fiat currencies. There is no safe haven fiat currency and there is ZERO safe haven for a minnow anywhere in any financial market rigged by the sharks. They will have no hesitation in stealing everything – if they aren’t already. And they are NOT subjects of the law anymore. They ARE the law. I do like food, physical PM’s, energy – but not the industrial commodities. If you are in debt, you are now screwed (unless you are one of the kleptos/cronies). If you are looking for safety within the system, you will soon be breakfast.

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Nov 26, 2011

Equity markets completed the impulse selling wave on Friday. The next step is the follow-through/redemption wave which concludes in either a high volume dump or short-covering which will mark a tradeable bottom. Time-wise and magnitude-wise, the follow-through wave depends entirely on the specific news event which is driving the fear emotions now.

Europe – and particularly the credit markets there – are the origin of the problem. That is where the news event is going to originate. If, however, nothing breaks in the next week or so; then sellers will simply exhaust themselves. Probably at or near the summer lows. If a news event breaks, then the markets will have to find the value which prices in that event – which could take a bit longer than a week or so.

Selling so far has been orderly. Technically, the equity markets are where they were on August 3 – but on much much lower volume. If volume ramps up from here, which is what really characterizes the follow-through wave, it is very possible that the follow-thru wave could hit an airpocket of no-bids. At any rate, volume is key in the equity markets.

The European credit markets OTOH may become very good buys pretty soon. As too, gold. The US dollar is catching a bid — but is surprisingly weak given the favorable tailwinds IMO. Once the bad news re Europe is truly priced in, the news cycle will likely shift over to the completely dysfunctional US. And you’ll want to get out of the dollar very fast when that happens.

Nov 21, 2011

All equity market indicators went negative in a big way last Thursday. So far, markets are not trading on any specific bad news but, like late Jul/Aug, on fears on something big. Those fears are entirely rational and the equity markets are merely catching up with the fears in the credit markets which didn’t have a bounce over the last six weeks.

Europe is clearly experiencing large-scale capital flight. Her sovereign bonds are falling like rocks. Her leaders make the Keystone Kops look like Sherlock Holmes. The technocrats have, basically, overthrown Greek sovereignty and installed an IMF/ECB technocracy. In Italy, Mr sex crazed bunga-bunga has been replaced by yet another technocrat. China is looking increasingly like it will experience a hard-landing — and perhaps far worse — as its housing bubble pops. Australia’s housing bubble is popping too. Canada’s won’t be far behind. And in the US, the “deficit” committee has, unsurprisingly, failed to agree on anything so attention will likely be paid to the unsustainable fiscal situation and the venal corrupt poisonous political environment here. Gold is sinking fast and it does not seem, for now, like anyone is viewing that as “cash” or a safe haven. Other commodities are complete garbage – as they have been for awhile now. And the dollar – and Treasuries – are catching a bid.

IOW — fear is now firmly in place. If some actual news event – a default, a bankruptcy, ECB monetization, etc – doesn’t occur in the next week or two – then the markets will likely tradeably bounce once they drag into oversold territory. Who knows what level that will be at – but it will occur within two weeks IF a news event does not occur. If there is some news event that manifests, then the downtrend could last longer depending on what that news is.

The best to-do for now is to pull together a core watch list of things to buy and watch them — from the sidelines. Because if/when a rally happens, it will be a rip-your-face-off rally. Europe itself may be getting to the point where it is pricing in some serious Armageddon. The biggest risk of sitting on the sidelines now is that “cash” itself may not be as safe as people assume it is. If the news event is something like a global money market freeze-up, then cash could easily turn into a unrecoverable illiquid asset with no upside and tons of downside. The masters of the universe have really screwed everyone — quite successfully.

Nov 15, 2011

A potential way of trading this market (exc options and such) — with low daily prob of big downside and high prob of small upside — is to fade volume. In this environment, investors are more likely to panic sell on a headline than to panic buy on lack of a headline. So high volume dump days (on news) may remain a good trading opportunity on the long side. This is usual.

More unusual, a better indicator for toppiness may be declining volume rather than more typical indicators like breadth or sentiment or chart action. Chart action is likely to whipsaw in this market. Breadth is too laggy for short-term trades. And sentiment is likely to be “headline-following” lagging/wrong.

If volume is indicative – either daily or some short-moving average of volume, then this current short-term upcycle may be over.

Nov 5, 2011

Equity markets have rebounded sharply since early Oct. But underneath the hood, all markets are showing increasing volatility, lack of equilibrium, and stress. US equity markets aren’t really looking toppy right now but how much upside is there.

Seems to me there are two conflicting forces at work. Headline risk – re Europe, Asia, and financials/credit/currency – is really high with the potential for “crash-like” (read 1987 or the 2010 flash-crash) conditions. Not so much because the news itself will be a disaster but because the market makers themselves are under stress and will pull bids and the markets will cease to function.

Absent those headlines however, the forces have a slight upward bias. Corporate profits are strong. They aren’t particularly leveraged nor exposed to short-term credit issues. The US consumer is spending their future income freely and will apparently shop til they keel over. I don’t see a huge new wave of layoffs and, for better or worse, those who have jobs can keep the economy going at a slow growth rate. Long-term, this can’t work. The gulf between those who are doing OK and those who are completely screwed is widening — and those who are being screwed have less chance of improving their economic conditions than a Third Worlder digging around in a garbage dump. The only thing keeping a lid on violent social upheaval – here or in Europe – are the various social welfare bribes/trinkets. And sovereign debt issues everywhere will force the conflict eventually. But until then, its delusion time.

Overall, a relatively low probability of an extremely big downside — and a relatively high probability of steady slow creep upwards. So — avoid financials and other things that are most vulnerable to headlines – and avoid the heavily cyclical stuff like basic materials. Defensive sectors seem a bit pricy in here.

One stock to watch that got hammered this week is Jefferies – JEF. A financial that avoided the whole bailout mess in 2008 – but NOT a “too-big-to-fail”. Is now the target of shorts questions (probably emanating from the Squid or other TBTF who want to get rid of competition) re its market-making exposure to European sovereign debt. The company is being very transparent about its holdings and their exposures make perfect sense for a market maker. If the end-game here is that market-making in European sovereign debt is deemed “too risky” in this credit environment; then batten the hatches for something far worse than 2008. And by “batten the hatches” I mean guns beans and gold.