Transitory Coolness

Here's a potential windfall for the NYPD and other New Yorkers who get molested by *lost*, ESL tourists all day, everyday:



Pretty cool!

BUT, some of this stuff is mere coolness in search of a practical, in-demand, profitable application. Consider:



When I see hype like this I'm reminded of someone I know who, ten years ago, in the euphoria of the NASDAQ bubble, raised money to make a Palm Pilot *app* that would hook up users with local restaurants (reviews, reservations, etc.).

And here we are a decade hence, long after his venture blew up, and this ingenius idea STILL hasn't fully arrived.

Or I'm reminded of one of my old bosses who went hogwild for *internet telephony* at the same, extremely premature time.

It's a lesson of history that today's *cool*...



...quickly becomes tomorrow's bore:



Though Fonzie was just before my time....his coolness was way beyond my ken.

So you kids are will be really lost on this analogy.

Barely Trading Update

Haven't done anything since my last update except one small trade today.

I shorted the Nasdaq-100 this morning. I sold the QQQQ at 30.43 and then took my kids to the mall for the afternoon.

I just covered it a few minutes ago at 29.38.

If ONLY it were this easy!

Marginalizing Investing

As I type this, just today gold is up $24 to $859 per ounce - near the 1980 record of $873.

Oil is up $3.50 to $99.59 per barrel.

The NASDAQ-100 futures are down 44.5 points - a monster decline.

The euro is up a full 150 basis points against the dollar.

And Treasury Bonds are screaming with the 10-year up a full point and the long bond up 1.5 points.

So I ask, why do so many people want to "invest" today when there are trading opportunities and volatility galore?

This generation's Warren Buffets will be traders. Buy-and-hold has been superseded by in-and-out.

Bought A Little NASDAQ

As my faithful blog reader(s) know, I have been gone for a couple of days. Meanwhile the stock market has been getting hammered. (Click the chart to enlarge).

I did catch about half of the move down in the NASDAQ (6% out of the 11% drop) but unfortunately covered my short NASDAQ-100 futures position, my BIDU puts, my AMZN short, and my Goldman Sachs puts two days too early.

After 12 years of poor market timing, hindsight is a stick I no longer beat myself up with.

So, moving on, I came home last night and decided to get a little long. While most people were watching armor-clad cavemen jostle over a ball on Monday Night Football, I bought some December NASDAQ-100 futures at 1990. I figured I could make a quick 30-50 points.

Now as I type this, they are up 18 pts to 2008.

The dilemma of such a rapid profitable development is that now I am thinking about holding the position for longer (more points) than I originally anticipated. In this world, it's so easy to convince yourself that you're a genius.

And there's when the trouble starts...

UPDATE - I just sold my position at 2015.25. I just don't have any patience.

Many other traders would insist that, in this scenario, one must only sell say half of your position - and let the other half ride. Sometimes I take this approach but overall but it's not really my style. I am trying to juggle a portfolio of positions. My biggest bet is a short position on the long bond. I figure if the market rallies, the bond will dump as the "flight to quality" trade will unravel. I feel like I am "long" the market aplenty.

Marginalizing Technical Analysis

Read this and tell me whether the Option Queen is saying to buy or sell the Nasdaq:

The NASDAQ 100 made a lower high and a lower low in the Friday session which, was a positive session….but not positive enough. There is a gap on the chart from 2006.00 to1995.00. The stochastic indicator is curling over to the downside and will issue a sell-signal within a session or two. Our own indicator is will issue a sell-signal in the next session. The Thomas DeMark Expert indicator is issuing a continued buy-signal at overbought levels. The RSI is simply going sideways. The 5-period exponential moving average is at 2012.33. The top of the Bollinger band is at 2052.48 and the lower edge is seen at 1886.11. The market looks as though it is curling over to the downside with definite signs of exhaustion. The downtrend line for this coming week basis the weekly chart is at 2019.99. The uptrend line is at 1966.22. The indicators on the weekly chart all continue to be positive for the NASDAQ 100 with more room to the upside. The monthly chart is slightly more confusing. The stochastic indicator continues to issue a buy-signal at overbought levels, our own indicator is issuing a fresh sell-signal, the Thomas DeMark Expert indicator is issuing a slight sell-signal at overbought levels and the RSI is simply overbought.

I couldn't decipher it either - and I read it three times. They have indicators and indicators on the indicators. These clowns simply do not know what they are talking about. The fact is, if you draw a bazillion lines on a chart, of course the price graph will bounce off some of them. They never really say anything of value. My favorite is when they say, "if it goes up, we expect higher prices" and the like. No poop, Sherlock!

Technical analysis, or "charting", is a single tool - it ain't the whole tool box.

Believe it or not, the Option Queen is one of the most readable chartists out there.

In my new realm of commodities trading I have to sift through bushels of this crap.

Flight To Insanity

For those of you not paying attention, financial markets have been in turmoil these past four weeks. The Dow has shed over 1,000 points and Nasdaq has had a near 10% correction. All of it (ostensibly) stemming from hiccups in the mortgage market.

Everything is going down, down, down. Commodities and even gold THE hedge (theoretically) against all monetary crises for the past 4,000 years.

One asset that is rising amidst this storm is the US Treasury market - and it makes zero sense.

It's deemed a "flight to quality" by sheepish clowns everywhere - but from where I sit, it's purely insane AND I am shorting heavily into it.

Let's go back to June when the long bond got smacked and its yield touched 5.40% (up from December's low of 4.50%). That idiot Bill Gross was calling it the end of a 25 year bull market in bonds. Thankfully I covered my short at that plateau (of course I re-established it at better, albeit lower than today, prices).

I agree with him in principle that bonds are about to wither and die, but in trading markets, timing always reigns supreme.

I believe this uptick in the 30-year presents the "whacking" opportunity of a lifetime. It's profoundly irrational that petrified credit buyers are fleeing one bubble (mortgages) for another, even bigger, bubble (30-years).

If Gross, and yours truly, are correct that bonds are entering a prolonged bear market, then this insane rally is begging to be shorted into - and that's what I have been doing.

I see the bond like I saw California real estate in '04-'05. Anyone not irretrievably myopic could see that "Fruit and Nut Land" was a fiscal and social disaster on the brink. Screaming real estate prices were a godsend to wise Californians looking to move out - and many did.

On other blogs I have recently made the point that the best way to play a bounce in equities is to short the long bond. I think its ceiling is firmly in place - with socialists ascendant, built-in tax increases coming (AMT, expiring low rates on capital gains and dividends, etc.), protectionism in the air, rising commodity prices, deflating housing (which is inflationary), ticking entitlement bombs,...)

Take a good look at this long term chart.



It sure makes "reversion to the mean" a very scary thought for many - although a pleasant thought for me and my fellow shorts.

Crazy Trading Day - NASDAQ 100

Even though I drove over 100 miles today to drop my kids of at their grandparents' house, made a Walmart run, and happen to be in the middle of moving (all by myself) to a new house, I did manage to make 25 trades today.

Every uptick was a sale and every downtick was a scoop. These are the days traders relish. Click the graphs to enlarge them. I have included a chart of the futures and of the ETF - since I wasn't sure which was more illustrative.

I got back to my PC around 3:15pm and saw that the market was rolling over. For a second I thought about getting long but ruled it out because I will be moving the next two days and will have considerable difficulty trading with 1) no internet connection and 2) my computer in a box. All I had to do was merely think about buying AND REFRAIN and the market levitated in my face. As you can see, the N100 Futures jumped from 1925 to 1960 in the last half hour of trading.

Some old trader I knew philosophized thusly,

The market always moves in the direction that generates the most pain...

That essentially means that a stock will rise until most of the shorts have covered and a stock will fall until many of the diehard longs have had enough and bailed.

Now consider today's late market spike. You just know that thousands of intra-day traders were getting lamped down at 1925 and likely taking their losing medicine. THEN, all of the mutual fund market-on-close buyers got jammed on the spike to 1960.

See how the market managed to sodomize hose everyone?

One day when I was working down on the PHLX the market was getting absolutely clobbered. Like this past week, it was getting smacked every day for quite some time. On that particular day, the market was down a few hundred points and there was real pain everywhere. (We used to refer to it as "getting hurt" for individual traders. "Blowing out" meant going bankrupt for either an individual or a trading firm. And whenever the market moved violently, those expressions dotted the pit scuttlebutt.)

BUT, similar to today, the market made a spectacular rally in the last hour or so and finished up nicely. Some guy in my trading pit started bragging to me,

PitIdiot - I called my broker and dumped a ton of money into my mutuals today.

I waited a few seconds and let him bask in his ignorance; he was sticking his chest out and feeling like a genius....for the moment.

CaptiousNut - You (expletive) MORON, YOU BOUGHT THE CLOSE. It doesn't matter that the market was down 400 when you called your broker.

That was just the type of Captious service that I provided for my fellow traders back then on a daily basis.

Lastly, since I have to get back to packing...

Though I got walloped in July shorting the market - losing 40% of my trading capital - I managed to make back three quarters of that money in the last few days. That's as big, and as rapid, of a bounce-back I've probably every had. Usually when I get "hurt", it takes a long time to get the money back because I naturally scale down my size in those situations. I am pretty flat today outside of a massive, for me, short position in the 30-year bond.

Oh, I almost forgot - I shorted a little Nazzy on the close at 1964. Perhaps I was selling some delta (long exposure) to my old buddy from the floor?

UPDATE - I just covered the short at 1958 (11:30pm). As much I want to trade up a storm tomorrow, I can't risk the distraction from my moving chores - at least that was the directive from my wife.

Ouch!!! Stock Market Pain

I must be getting wiser. Earlier in my career, I would have been killed on a day like today (Tuesday). Instead, I made some good money in this bludgeoning.

My three biggest long positions all got hammered:

GOOG down 16.16 (-3.48%)
CDE down .42 (-8.75%)
NEM down -2.76 (-5.86%)

But I was short a ton of the Nasdaq 100 futures and the QQQQ's (also PCCC down 1.80 or 10.06%)

The End-of-the-World trade did not fare well today. Though briefly positive, both oil and gold finished down and the long bond rallied. Thankfully, I didn't really have it on.

I did short the 30-year Treasury yesterday and significantly added to the position today so maybe I'll ease my way back into that fabled trade of mine.

Also, I covered most of my Nasdaq short today - way too soon of course. Today would have been an ideal day to be off golfing with no bids below the market. In violent panics like this, I have always gotten hurt. All it takes is a few innocent longs to bite you in the ass or in the case of option trading, a missed hedge or two.

Here's one example. Years ago, Dell dropped 2 points for seemingly no reason. So I bought an innocent 1,000 shares at $118. Well, between that purchase and the end of the trading day, the stock market decided to tank - much like it did today. Dell closed that day at $100. I lost 18k on 1,000 shares of Dell. That is probably the most points a trader has ever lost in a day in the history of that stock. Here's the scary part - I was proud of myself for not doubling up at any point.

I have pretty much stopped watching and reading financial news but today I had to hear the scuttlebutt - and was it depressing or what?

The Chinese market dropped 9% last night and is being named the chief market antagonist. But the thing is, it had just rallied 13% in the last week or so.

Also, the Nasdaq really just gave up its January gains. Why is everyone panicking?

I simply hate being the level-headed optimist!!!

UPDATE



If you enlarge that pic, you'll see Cramer insisted that the market would not bounce on Wednesday - at any point for that matter. Why would Cramer say something so stupid? It's stupid in the sense that there's a 50% chance he would be completely wrong.

As it stands, I went long the Nasdaq in my futures account just after the close yesterday. I woke up at 6am, saw all of the markets higher (Dow futures up 100pts) and sold my Nazzy futures twenty points higher and then went back to bed to snooze on my profits.

As I have said before, "Cramer Sucks".

The End-of-the-World Trade

Intro to Conspiracy Theory

Anyone who's traded the gold sector as much as I have is fluent in doom-and-gloom, End-of-the-World financial prognostications.

Skepticism towards government abounds in every populace and has in every period. Are the pols lying to us? Surreptiously lining their pockets? Abusing their power to suppress dissent? Are they manipulating the garb of reality through parades, rhetoric, or scapegoats?

Of course they are - ask any random person on the street. Open almost any history book.

Now ratcheting that cynicism up a notch it follows that government must be recklessly manipulating the financials to further its own devious interests.

What are those interests? And how are they doing this? Well the details of a conspiracy theory are inherently unimportant. Conspiracy theories fend off factual probing with a Hydra-headed resilience.

Oil companies manipulate prices up; later they fall. It couldn't be market forces moving the prices, the greedy oil execs decided to soak the little people. Then they got scared of Bill O'Reilly's populist handwringing and used their omnipotence to lower gas prices back down. Every price move or industry development has a knee-jerk cynical explanation. Supposedly we went to war in Iraq just to get oil. Since we have gotten that oil and increased world supply, prices, against all economic logic, have risen. And that brings the nutjobs back to their oil industry greed/manipulation lemma.

I am not kidding. The who, what, when, and how of a conspiracy theory are fluid to the point of irrelevance. The vaguer the accusation, the wider the net to cast.



In 1755 a horrific earthquake ravaged Lisbon, Portugal killing between 60,000 and 100,000 people. The absence of seismologists opened the door for any and all opportunistic speculators. The Church took occasion to blame it on immorality. Jean Jacque Rousseau blamed it on depravity of urban living. (If people didn't live all jammed together on 5 story buildings there'd have been much fewer casualties). Ignorance has always given license to conspiratorial conjecture.

Make no mistake, there will be a financial earthquake in your lifetime. We'll all have personal scapegoats lined up to blame: oil companies, Alan Greenspan, George Bush, Bin Laden, Wall Street, politicians, hedge funds, "greed", the national debt, China, outsourcing, illegal immigrants, the "rich", etc. Amid the crossfire of blame, genuine culpability will be quite beside the point.

So why all this talk of doomsday and conspiracy theories?

The reason I write this post is that my trading positions at the moment look like I am predicting the end of the world.

Long gold and silver.
Long oil.
Short the Nasdaq.
Short the 30 year bond.

Of course, trades are inherently short-term; conceivably I could cover and reverse them all before lunch. But if oil exploded and the dollar collapsed, I'd make a small fortune. Frighteningly, these scenarios are two key ingredients in any viable End-of-the-World prediction.

Now do realize I am not simply trading off a doomsday conspiracy theory; my positions are dictated by empirical price action and economic theory. Any legitimate economic textbook will tell you that cheap money (low interest rates) sows the seeds of inflation, which then erodes the currency. The only question is of timing.

Look at it this way, if the dollar lost value, our way of life would be turned upside down, and perhaps a shudder would be felt globally. Those dim ramifications demand we consider everything that could possibly cause the dollar to devalue.



Inflation of course is suspect numero uno. It can arise from the government simply printing too much currency; it could come from a sudden spike in prices (leaving aside for a moment the relationship between the two). Lastly, dollar weakness could arise from a fear of fiscal solvency, i.e. the national debt.

Oil is arguably the oxygen of the global economy. Jack its price up and Goldilocks won't long be able to breath. Almost every single necessity of life will cost more - at least theoretically. Ergo, rising oil must play a starring role in The End of the World.

The other co-star, previously alluded to, is your Federal Government. So how much money is it really printing? That's a question not exactly dominating your local news now is it? Here we are getting into more esoteric financial stuff that I admittedly don't fully understand such as the velocity of money, M1, M2, etc. What I do know is that the government owes lots of money and unfortunately for its creditors, the Feds are the ones who print it.

Should we just trust the slimeballs on this one?

I just did a google search for "growth of money supply" and found this nugget on the Federal Reserve's website.

In 2000, when the Humphrey-Hawkins legislation requiring the Fed to set target ranges for money supply growth expired, the Fed announced that it was no longer setting such targets, because money supply growth does not provide a useful benchmark for the conduct of monetary policy.

Our government is so compassionate...It doesn't want to confuse us, the fretful public. As is plain to see, tinfoil-hatted conspiracy theorists don't exactly have nothing to point to.

I am sure some people monitor the Fed's printing of greenbacks, but I think it's safe to say that it gets about 1,000,000th of the public scrutiny given to say the quality of cous cous at Guantanamo Bay.

So after the "trust us on money supply" policy piques your cynicism, next take a look at the Federal Reserve's interest rate machinations. At the slightest sign of weakness they drop rates to artificially revive the economy and buffet political incumbents. They arrogantly feel that such fine tuning steadies the ship. I disagree.

In the long run, the economy is going where it's going no matter what the Fed does. Long term interest rates (set by markets) and technological innovation trump the short term borrowing cost of money. The Fed's manipulations create large distortions which preclude the vastly more efficient free market from allocating capital. All the Fed really did in the last few years by lowering rates was encourage debt-laden consumers to borrow and spend more money. Sure Fed defenders can find GDP growth numbers or other convenient metrics that allegedly justify their "ship steadying" mission. But I say, look at havoc of the Nasdaq dropping 70% from its high. Did they really need to lower interest rates in the wake of Long Term Capital or the Asian financial crisis? Or later on after 9/11?

Note also they raised them in 1999 partly to entice people to not make a Y2K run on their banks. The criteria for their manipulations are unbounded.

Devil's Advocate - But wasn't Greenspan trying to deflate the Nasdaq bubble in 1999? Wasn't he doing the right thing?

You mean deflate a bubble that he arguably helped create (by lowering rates in 1998 under the guise of Asian woes)?

That would be like machine-gunning a guy and then wanting credit for calling an ambulance.

Okay, for the sake of argument, say they were correct to raise rates in 1999. Since the Nasdaq doubled anyway, from 2,500 to its 5,000 zenith, clearly they were too late to the rescue. This brings us to our present day analogue.

Right now, the Federal Reserve is literally praying that their recent rake hikes not only slow the economy, they are praying that a cooler economy will then a bite out of inflation. This may be the largest parlay bet in history.

Remember, a tightening Fed couldn't ground the dot-coms in 1999.

What if the economy slows but commodities march onward and upward?

Lowering rates will just aggravate the inflation. So what then, raise rates in the face of a breaking economy? That will never happen.



The Fed simply does not have a tool to crack open the stagflation nut - which is what we could be looking at if the Fed's parlay busts.

Congress could theoretically crack that nut BUT it has a record of making things worse.

Here's what it could do to stem inflation, strengthen the dollar, and invigorate the economy:

1) Lower taxes.
2) Start phasing out Medicare. Push HSAs.
3) Privatize Social Security.
4) Shrink the size of government. Deregulate more industry. Decentralize government schooling.
5) Attack hidden taxes on business like the tort lobby, ethanol mandates, etc.

Here's what they will most likely do:

1) Raise taxes on income, capital, and perhaps oil companies.
2) Expand Medicare (or leave it alone while demographics expand it).
3) Will do nothing positive with Social Security. They will means test "wealthy" people off of it. They will increase the cap beyond the first 90k of salaries. They will make 11 million illegal immigrants retroactively eligible for benefits - even though the "trust fund" is already underfunded and also ravaged by unfavorable demographics.
4) They will expand the size of government. Regulate more industry, e.g. hedge funds are up next. The socialists will keep pushing for nationalized healthcare.
5) They will add more hidden taxes on economic activity.

If you don't think econo-illiteracy pervades America from Joe Blow on the street, all the way through the highest political offices, then you haven't read enough of my blog. Any financial earthquake will be met with the crossfire of blame mentioned above but the ignorant finger-pointing will pale compared to the damage wrought by the political "solutions". Be sure to thank your local Congressman.

I am covering a lot of stuff here but this is no disjointed diatribe.

If the dollar is fundamentally in trouble, the only place to hide is in precious metals. Sure you could convert your dollars to euros, yen, or other currencies but then you're opening another can of worms - especially with the euro. The European Union is more concerned with global warming and world government than they are with economic vitality. The Japanese have their own problems as well, e.g. an inflexible banking system.

Devil's Advocate - So how does the dollar weaken if you don't see other currencies strengthening?

Finally DA, you ask a good question. I don't necessarily see the buck weakening versus other currencies - at least not to the extent of other goldbugs. My argument for dollar weakness focuses more on a loss of purchasing power from inflated commodity prices (and debt).



Gold is THE SAFE HAVEN from dollars, euros, and yen. While currencies have come and gone, the yellow metal has held value for 4,000 years.



Sure you could demonstrate how horrible of an investment gold has been over many time periods BUT I can always fire back my 4,000 year argument. How'd the dollar do during the Civil War? How'd the German mark fare with Hitler? Didn't Oscar Schindler use diamonds as a currency while fleeing for safety?

The conspiracy theories will never, ever go away. In fact, I think they will gain steam for the foreseeable future.

Some of these goldbugs are indefatigably nuts. They believe the government has sold all of the gold at Fort Knox. They believe you have to own gold coins instead of gold futures because banks will never be able to deliver your metal in the wake of a financial catastrophe. Others live in cabins with stockpiled food, firearms, and bomb shelters. As nutty as I am, I am not quite there yet.

There's so much more I could say on this topic but I am going to end it here for now.

Tax Shelter asked in advance for a "What if I am wrong?" consideration. I am sure he'll fine tune the question in the comment section but I'll give it a go now.

If I am wrong about these trades, I will lose some of my hard earned money. My positions are not very large but are quite levered in the sense it looks like one big End-of-the-World bet. Should oil drop, not only will I lose on that position, but it's likely that gold and silver dip as well. And of course stocks and bonds may rally some more.

I want to emphasize again that these are "trades" not investments. Aside from the 30 year Treasury, I have been both short and long gold, silver, and the Nasdaq more times than I could count just this year.

I am "wrong" every single day. Today I bought Apple too early. Yesterday I lost 7 points on Gold. I got run over shorting the Nasdaq in November. The game I play is not about being "right" all of the time or even 51% of the time. It's about cleaning up on your winners and having small losers. I don't like the term "diversification" - I much prefer "a basket approach". It really has taken me 10 years to learn how to trade smaller. As a fearless youth I swung a big bat on single positions and had to numb the losses with inebriation. Maybe that's why there are no trading firms in Boston, because bars won't sell you more than three drinks before cutting you off?

I am fully aware that my blog spouts a formidable negative vibe. I have the End-of-the-World trade on and of course I am short the housing market because I rent. When I say I don't believe in long term equity investing remember I am speaking for myself only and about the stock universe as I see it today. I have a hunch that Tax Shelter wants to know the long term bull arguments for stocks and perhaps real estate but I'll wait for him to clarify.

If the economy keeps roaring, interest rates stay low, and real estate starts ascending again, I will get hurt financially - no question about it.

But if I am right and play the right side of coming trends, not only will I earn some good money, but I will vault up the wealth ladder.

It's one thing to get rich when seemingly everybody else is, like in internet stocks or in real estate, but quite another to make bank while others are bleeding. Something like 69% of Americans own a house and at least 50% own stocks directly. I am not really that bearish on the stock market because its valuation is not that high. I am however very strongly bearish on housing and on the long bond because of their stratospheric prices.

Okay that's it. I am ending this post because the concept of me making money on this trade is just too depressing.

Maybe I'll renominate it as the schadenfruede trade...