Saturday, August 29, 2015

Perpetual QE

You hear that Mr Anderson? That is the sound of inevitability."
--Agent Smith (The Matrix)

Chatter is increasing that another round of QE is pending. Can there be any doubt that more QE awaits? Central banks have pegged short term rates at zero. This policy is not moving the economic needle. There is nowhere left to go with this policy except negative rates, which of course cannot be ruled out.

Thru past and extant QE programs, central banks have loaded $trillions onto their balance sheets--also with little economic effect.

As we have seen in the past, scant evidence that their programs are working does not deter central bankers. They will certainly reach for more QE to show people that they know what to do--even when what they do has been shown to be ineffective.

Rinse and repeat. Welcome to the world of perpetual QE and financial repression.

Friday, August 28, 2015

Risk Allocation

"There's billions to be made betting against this bubble. I wish a had a million."
--Gordon Gekko (Wall Street: Money Never Sleeps)

Current asset allocation across all accounts as a fraction of total risk (non-cash) securities:

equity 14%
fixed income 3%
precious metals 63%
short 20%

Looking to increase metal and short exposure incrementally as opportunities arise.

Thursday, August 27, 2015

"We Were Wronged"

I hear her heart beating
Loud as thunder
Saw their stars crashing
--David Bowie

China's massive attempts to prop up its failing financial markets comes with an amusing new twist: blaming the Fed's presumed Sept rate hike for Chinese market turmoil.

A Chinese central bank official claims global stock market volatility "was mainly due to the upcoming US Federal Reserve monetary policy move. We were wronged."

Let's assume that China has officially joined the growing list of entities begging the Fed not to raise rates.

Wednesday, August 26, 2015

Buckle Up

"Sometimes in an acute situation such as this, what is 'right' can take on multiple interpretations."
--Jared Cohen (Margin Call)

Today's gap higher drifted lower such that by midday indexes were down to about +0.5% gains. The downside action felt 'pressed' to me, leading me to close my recently opened put position in JPM.


Timing was fortunate as market turned around for 4% gains (Dow up 600). Better lucky than smart.

Volatility is back and likely here to stay for a while. If we are indeed entering a prolonged bear move, then be prepared for vicious counter-trend rallies like today. Such volatility is why, by the time bear markets end, there are few players left standing as both bulls and bears get carted out on stretchers.

Buckle up!

position in SPX

Elections and Markets

There's a place where the light won't find you
Holding hands while the walls come tumbling down
When they do
I'll be right behind you
--Tears for Fears

The last two changes in party control of the presidency coincided with major market declines. 2000. 2008. Electorates are likely to place blame on sitting administrations for big market declines.

And blame is justified. Administrations have enacted or condoned monetary and fiscal policies sure to drive booms followed by inevitable busts. Recently it has taken about the length of a two term presidency for these cycles to play out.

We can be confident that it will be similar this time. The sitting administration will seek to move heaven and earth to prop markets up thru November of 2016 so that it increases the chance that a representative from its party remains in the Big Chair.

Whether it will be successful at doing so is a different issue entirely. History suggests that it will prove difficult.

position in SPX

Tuesday, August 25, 2015

Ominous

"Man looks in the abyss. There's nothing looking back at him. At that moment, man finds his character. And that is what keeps him out of the abyss."
--Lou Mannheim (Wall Street)

Ominous action today as a 400+ pt morning move higher in the Dow didn't stick, and domestic equity markets finished instead in the red, down about 1% and closing on the low tick.


The SPX closed today on yesterday's intraday lows, suggesting that the index is peering into a near term abyss.

Longer term perspective reveals that this selloff has brought us down to the uptrend line formed from the March 2009 lows. As such, a significant break lower from here that sticks would technically 'end' the uptrend.


In early afternoon I did decide to get involved with the banking complex, with JPM as my vehicle of choice.

position in SPX, JPM

Gift of Higher Prices

"You're walking around blind without a cane, pal. A fool and his money are lucky to get together in the first place."
--Gordon Gekko (Wall Street)

Today's hefty bounce driven by China's overnight rate cutting antics seems a gift to longs who regretted their exposure yesterday and to bears who wished for higher prices to get short.


May not be right here right now but I'll be scanning for downside opportunities. The banking complex is one place where I'll look hard.

position in SPX

Monday, August 24, 2015

In the Hole

Strange voices are saying
Ah, what did they say?
Things I can't understand
It's too close for comfort
This heat has got right out of hand
--Bananarama

Dow opens about 1000 pts in the hole after some big down markets overseas last nite (e.g., China -8%). Yes, stochastics are looking near term oversold and a trading aphorism is that bulls want to see them open deep in the red in order to stage a rally.


And it surely could happen. The fact that many are talking about it provides a bit of a nose scrunch. Moreover, talk of QE4 is already getting loud in classic moral hazard fashion.

Personally, I will view any significant lift as a potential shorting opportunity.

position in SH

Sunday, August 23, 2015

Credentialed Fools

"Back where I come from, we have universities, seats of great learning, where men go to become great thinkers. And when they come out, they think deep thoughts, and with no more brains than you have. But they have one thing you haven't got: a diploma."
--Wizard of Oz (The Wizard of Oz)

It is usually best to leave fools, even credentialed fools like Paul Krugman, to their folly. Why waste valuable time on mindless blather?

Every now and then, however, it does seem worthwhile to bookmark the blather, such as Krugman's recent NYT op-ed "Debt is Good," as examples of just how far off the rails viewpoints followed by many can get. Dave Stockman does a nice job hammering it into the ground, but it some ways it seems like overkill on such drivel.

Some fear that people like Krugman are a threat to freedom and prosperity. Only to weak minds wishing to remain weak by outsourcing their brains to fools with credentials.

Saturday, August 22, 2015

Lower

I'm sick and tired of you setting me up
Setting me up to knock, knock-a, knock-a me down
--Bruce Springsteen

We now know that dip buyers didn't materialize yesterday afternoon and markets tanked lower. US equity markets closed on their lows. Dow was down 531 on big volume. The SPX sank 65 pts to 1970. COMP off 171 (-3.5%).


We also got our first significant Dow Theory sell signal with both the industrials and trannies marking significant fresh lows.


Hard not to conjure visions of a serious dislocation ahead if bulls begin to eye the exit door and a stampede ensues.

position in SPX