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  • Tag Archives Eurozone crisis

  • Waiting

    Posted on December 9, 2011 by Administrator

    Of course we’re all waiting for the Europeans (i.e. Berlin) to decide what’s going on. We should have some word today. Anything the Germans say sends the market skyrocketing or plummeting, such as we saw on Thursday. I believe the Germans are playing hardball, trying to get the best deal, and that’s business and I respect that, so fine. But the bottom line is the Euro will be saved and so I still anticipate a good Christmas rally.

    I hold calls on S and GE for Feb and Mar respectively and had anticipated liquidating Dec 27-30 where one would anticipate the peak of the seasonal rally. There is also the January bounce. If I don’t see profitability by mid-Jan I might have to think about swallowing some losses because time decay will really start eating away at the value of my options. I do however expect a good rally to ensue soon.

    I bought DZZ shares (double short gold) and liquidated my Goldmoney silver holdings at a small loss before the big dip yesterday. I have been growing increasingly apprehensive about gold and silver. I think we may see a good drop in gold (and silver follows gold) as any hedge fund managers move out of gold into blue chip and value stocks.

    There is also what appears to be a short squeeze in gold if you look at the spot.

    Further, sovereign gold holdings are being demanded as collateral and countries like Venezuela appear to be ready to sell their gold to balance their books. The minute some sovereigns, or any big funds, start to sell, gold will plummet.

    I am still holding fairly sizable physical silver which I will not liquidate, DZZ is there to hedge. Once I get my hands on any physical I will never let it go, but I will hedge it, and then buy more with any hedge profits.

    Dec rallies 80% of the time after a bad Nov. I think we’ve all seen this figure by now. We just need to get past whatever the Europeans come up with today.

    Now, given the sheer incompetence of the Europeans (at least that’s what I see) there is the possibility that today they will make some nonsense agreement, or just throw in the towel. This kind of possibility, well, I can’t really make any predictions about. However I find the actual possibility of a Eurozone breakup extremely remote. People are too focused on fat-tail risk and fail to see the fairly obvious, namely, the Europeans have no choice but to come up with something to rescue their banks and balance sheets. Germany can grumble all it wants but Germany knows this fact also. I’ll say it again, people are too focused on fat-tail risk and fail to see the fairly obvious.

    So anyway I am waiting like everybody else for news though I have stopped reading the Financial Times for the time being. When something is actually decided, I will then start reading again. Right now it’s all rumors causing high market volatility and making us all a little crazy.

    This entry was posted in Christmas rally, GE, gold, S, silver, SPX and tagged , , , , . Bookmark the permalink.

  • 22 Oct 11

    Posted on October 22, 2011 by Administrator

    1. Had to liquidate my RUT iron condor position at a loss as the RUT made its surprising rally. What’s irritating is the institutions jumped in about 3 hours after I made the play. What’s also irritating is that the whole position… well, the blunt fact is it went against my carefully made trade plans (below) and I got greedy and don’t like sitting on my hands and like an idiot violated my own plan. Mathematically when I made the trade, it was a sound trade, but the end result is I lost my Sept profits. Lesson? STICK TO THE FRAKKIN PLAN.

    2. This week saw institutional follow-through after a brief dip. After the first dip (which I watch for on the CCI), mortgage the farm. We should see a good rally now. Yes indeed, I’m very bullish and I think the Company will make some nice profit…

    3. The Company is now long AA, BAC, C, and GE, all with Mar/Apr options OTM.

    4. GE was purchased primarily because it has almost a 100% correlation with the SPX and so is an economical way to invest in the SPX. The earnings report yesterday generated a drop but I think this is temporary, as the company is sound. Generally the market will have a knee-jerk reaction to news and then, a day or two later, begin moving in the opposite direction. This pattern manifests itself almost universally and I believe it will be the case with GE. If this talk of leverage with GE sparks a sell-off then I will be annoyed an cut my losses, but I doubt this will be the case.

    5.GE S&P profit target 1 yr=24. I’m holding Mar or Apr options (I forget) with the expectation of liquidating mid-Dec unless I see some reason not to. My target is 18-19, which will generate a good profit. GE has about 35% of Company assets.

    6. AA has been on my shopping list for a while. We saw a huge surge in buying one day this week, and there is also one case of insider buying. I’m holding Mar or Apr options (I forget) with the expectation of liquidating mid-Dec unless I see some reason not to. My target is 12. AA has about 50% of the company assets.

    7. BAC has about 15% of the Company assets. I’m holding Mar or Apr options (I forget) with the expectation of liquidating mid-Dec unless I see some reason not to. My target is 8-9. There is all this bad talk about BAC and the tainting touch of Buffett, so is the company’s CEO (me) insane? No, I expect some volatility in the stock and could liquidate at any time with a good profit. But note financials will rise with any rally. If we’re going to see a rally, BAC will rise in sympathy with the SPX. Also note, fair value for the company even in a very bad scenario (which I’m not sure we actually have) is 10-14 depending on how you calculate it. But most importantly, the Fed has demonstrated they will not allow big banks to fail, and has allowed BAC to shift bad Merill derivatives into a shell company. This is a key detail which should not be overlooked. Some idiotic essay on Seeking Alpha said “Is BAC Preparing for Chapter 11?” which I didn’t even bother to read because of the sheer stupidity of the hypothesis. The Fed has shown very clearly that the megga-banks will not be allowed to fail. This is also a key consideration.

    8. Short US$ COT is at a big big high which means the SPX should be having a big big rise.

    9. The Euro… there’s a lot of talk in Europe. It’s what they’re good at. But in the end the euro and European banks will be propped up. That’s just plain obvious. They might jaw about it for a month but there is no other choice but to prop the system up. The question is will there be a dilution of the euro, and would that result in a strengthening of the $, which could blunt an SPX rally.

    10. The Baltic index is up. Bullish, very bullish.

    11. I think the gloom and doom talk is going to evaporate pretty quickly and all the money on the sidelines is going to jump in. Like I said, I have a general plan to liquidate mid-Dec, this is a very high-probability seasonal play.

    12. I’m getting a bit bullish on GLD and SLV primarily because of the drop in the dollar.

    This entry was posted in AA, BAC, dollar, euro, GE, GLD, RUT, SLV, SPX and tagged , , , , , , . Bookmark the permalink.

  • Divergences

    Posted on July 7, 2011 by Administrator



    There are a number of divergences which make this market unpredictable and, well, a little strange.

    First, financials. The financials generally lead a bull market. In this case leading financials such as C, BAC, MS, GS are not participating in the rally. This is a remarkable divergence. The market moves into new cycles and sometimes finds new leaders. For example I remember a year or so ago, the primary leader of the market was oil. But financials still participated in rallies. So this divergence is rather striking and gives me some doubt about whether this is actually a bull run; because of this divergence, I’m inclined to think this is a bounce, albeit a big one. Further, a bit of Wall Street wisdom is that GS leads the market. It is not doing so. The Company is invested long in C and short in BAC.

    Second, metals. Silver and gold in recent days have de-coupled from their inverse relationship with the dollar. Second, precious metals have lately been a speculative instrument which has moved in correlation with the broader market. This correlation in the last few days has been strong but I have my doubts about the broader market’s bull run, my doubts based primarily on volume and the sheer illogic of the rally. Further, platinum and palladium do not have a high correlation with silver and gold, but they do generally participate in the same broad movements. At the moment, platinum is moving sideways and palladium is in a very half-hearted rally. Further, precious metals lately have been reacting to the commodity sector as a whole, and note for example that cotton has crashed. These divergences make me question whether silver and gold actually have wings to fly, indeed I’m rather skeptical. The market appears to be anticipating positive resolutions to the Eurozone crisis, perhaps? This seems unlikely (the positive resolution, that is). Or perhaps the market is starting to price in the risk of US sovereign default (both Federal and state), which in my opinion is actually a non-risk (states are cutting budgets heavily, resolution of the Federal debt ceiling is the most probably outcome, and unlike Europe the US cannot actually run out of money because it holds a monopoly on the printing of the dollar). The Company is short silver (ie long ZSL).

    If we were day traders we would have bought RUT calls and AGQ, but we are not, we are looking for big profits on large macro movements. So the question arises, have macro movements changed? This is entirely possible but, on the other hand, world events have not changed significantly. For example, the downturn in the commodities market seems to have gained even more support by recent revelations of China’s financial state. At the moment I am inclined to regard the market’s recent movements with a skeptical eye. I am, however, paying very close attention because I am growing concerned about our position in silver in particular. So at the moment I am watching and waiting.

    I will add one more thing. If you talked to me 10 days ago, I would have said I was growing concerned about the almost universally negative sentiment on Wall Street. I’m a contrarian. Now we have done an about face in sentiment. CNBC is hyping gold. So from a contrarian perspective, my long term perspective on silver and the broader market has gained a lot of traction. This is, I think, a key point. Wall Street has a curious way of inflicting pain on the most people possible.

    Nevertheless I am watching and waiting. Always expect the unexpected, that’s Wall Street. Money is made by discounting the obvious. So the question is, what is obvious here? Big damn question at the moment.

     

    This entry was posted in BAC, C, GLD, gold, GS, silver, SLV, ZSL and tagged , , , , , , . Bookmark the permalink.

  • Greece… and then let’s return to some key macro events

    Posted on June 30, 2011 by Administrator

    I think what most people don’t realize is that Greece wanted (and wants) to default. Then the slate is wiped clean and in a year or two they re-enter the capital markets. Much easier for everybody. Except UK, French, and German banks I suppose. As it stands, Greece is going to let foreigners (banks, ECB) absorb as much of their debt as possible and then default. Another thing which I think people don’t realize is that nothing has been solved. I seriously doubt the Greek resolve to actually implement severe austerity and fiscal responsibility. And let’s take an analogy of your lazy beer-drinking friend. He gets fired. You loan him a grand for May. In June he asks for another grand. You’re pissed but he’s your friend. So you lend him another grand. Now, what’s going to happen in July? Do you see the analogy I’m making with Greece?

    The market tends to make knee-jerk reactions to macro events and then, a day or two later when people have really digested the information, the market almost always starts moving in the opposite direction. This phenomenon is well known.

    Now, Bespoke released a study which suggests there has been institutional buying. I’m going to respect their copyright since I pay for their service and not reproduce their information. But they say, if you think this rally is short-covering, you’re not doing your homework. Perhaps so. However Bespoke does have a fundamentally bullish perspective at the moment which I do not share, despite my respect for their research.

    I have to return to some key macro events. Nothing is actually solved in the Eurozone. The dollar has bottomed and will rise because of the end of QE, which is de facto tightening actually. The 10-year commodities bull market is unwinding and this trend should be ignored at your peril, the reason for which is, once again, the end of QE among other things.

    What I am saying is that once the Greek sugar high wears off in a day or two, the commodities downtrend will resume. Here I am referring most specifically to silver.

    This entry was posted in commodities, dollar, silver and tagged , , , , . Bookmark the permalink.


  • PLEASE NOTE

    We are not day traders. We trade options with a 1-3 month window. Our discussion here reflects this.

  • The Cloud

    /SI AA BAC Bank of America C Citibank Copper COT CRB dollar EUO euro Eurozone crisis EWG EWL F financials FOMC FXF GE GLD gold GoldMoney GS Hang Seng ichimoku iron condor IWM NDX oil PALL palladium platinum QE3 RUT S Shanghai Composite silver SLV SPX Swiss franc TZA UUP XOM ZSL

  • Quotes

    "I'm a great believer in luck, and I find the harder I work the more I have of it." --Thomas Jefferson

    "Markets are constantly in a state of uncertainty and money is made by discounting the obvious and betting on the unexpected." --George Soros

    “The United States debt, foreign and domestic, was the price of liberty.” – Alexander Hamilton, 1790, First Report on the Public Credit

    "There must be a beginning to any great matter, but the continuing unto the end until it be thoroughly finished yields the true glory." --Sir Francis Drake 1587

    "War was where a brave man found his truest sense of life." --Guy G Kay, Lion of Al Rassan

    "No! Try not. Do, or do not. There is no try." ---Yoda

    "Own nothing. Control everything."---John D Rockefeller

    “The game is rigged. But you cannot lose if you don't play.” –The Wire (the reason to play iron condors and butterflies)

    "Capitalism is the legitimate racket of the ruling class." —Al Capone

    "Only those who risk going too far find out how far they can go."---Fringe

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  • Philosophy

    Our basic theory of investing is that markets are chaotic, in that prices are not necessarily an efficient reflection of value; rather, prices of assets depend largely on the emotional reactions of traders who buy and sell them.

    We generally trade options to minimize capital risked. Our primary aim is to preserve our capital. We trade with a 1-3 month window generally; we focus on the macro picture and are not interested in hourly movements or short term trades.

    Opportunities can be found by carefully studying value; by this we mean both undervalued (buy calls) or overvalued (buy puts).

    Psychology is predictable and pattern-based. People are very slow to change. Thus in the markets, history often repeats itself, and the market can be predicted by carefully studying past performance, including correlating the performance of other asset classes or other markets; this is the repetitive geometry of markets. Patterns tend to replicate across or between assets, asset classes, and time frames.

    If everybody on Wall Street is saying something, it's probably wrong. We are contrarians.

    We generally advocate heavily concentrated positions in which we are extremely confident, rather than wide diversification.

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