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European Debt Crisis

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Needless to say, I decided to edge long at exactly the wrong time. Ben suckered me in, and my once strong 30% cash position has been whittled away to a mere 10%.

This selloff is going to hurt, delivering its full force directly against the 9th floor, shaking the very walls.

But I find that I am willing to wait it out. The concerns that are driving this selloff are immaterial.

Spanish insolvency, fiscal cliffs, Chinese communists and Ben’s retirement – the four horsemen are dotting the sky and Twitter is like a dumping ground for snarky comments.

Earnings and growth are slowing and Bob Pisani is nowhere to be found.

The funny thing is I was sitting around in exactly the position of the bears this time last year, guffawing in between comments of doom and chugging from a golden chalice.

Let me tell you how this ends for the shorts.

First, they get run over by a stampeding flock of turkey’s. Seasonality adjustments and earnings projections tick up with bad modeling methods. A bottom in housing prices is called for the spring. Employment looks extra rosy with the holiday shopping.

Then Santa comes and mows the surviving shorts down with his sleigh.

This is how the holiday season works.

Let’s review the “impending demise” of civilization. Spanish insolvency can be flooded with EU money. The EU collapse comes from price inflation and manufacturing contraction, not outright defaults. Chinese communists are scary but China can’t exactly afford to have foreign investment flee the country at this precise moment. The fiscal cliff can be voted away.

And after his presidential inauguration, Mitt Romney is going to be ushered into a back room where central bankers will begin the process of extorting him. But even if they fail, Ben has plenty of time to sink so much money into dark pools there’s no chance of reversing his policies.

Why do we need to embrace the end of humanity right now? It’s the holidays. Can’t it wait until next June?

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How, Jimmy?

I just finished perusing over Jim Roger’s most recent comments on the Eurozone; and I find I generally agree with everything he has to say.

Europe is playing a fast game of bluffing when everyone already knows what they have. It’s destined to fail. Only a combination of zealots trying to save their little project, high frequency speculators, and the totally uninformed will be caught exposed to Europe’s bonds.

So why, then, is Jim Roger’s bullish on China???

It’s like he has no idea where China’s economy comes from. I’ll give you as many guesses as you’d like.

When half of China’s GDP comes from ponying shit to Europe and the US, how can you forecast an EU implosion and then make the jump to “oh well, that nation that doesn’t know how to do anything but sell cheap labor to bigger nations will be just dandy.”

It’s like trying to argue that a pilot every pilot on a plane can have a suffer heart attacks midflight but then predict zero casualties amongst the passengers.

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€2 Trillion To Go

Get your rally hats on, boys.

My long standing prediction was that the EU would require €3 trillion in funding in order to get them to 2014. You may refresh yourself on this postulate, here.

We got the first trillion in LTRO’s 1 and 2 as direct funding to Europe’s banks.

Today, the seeds for the next two trillion – minus whatever pittance is sitting in the EFSF\ESM joke-of-a-failure – have been planted by Mario Draghi.

We will run higher on this news, as men and women with intellectual deficiencies run with the false assumption “printing = higher prices”. However, although it is flawed, do not doubt the ability of this false premise to ramp us another 10% higher.

In the real world, this news will crush the euro, sending the EURUSD below 1.2. At the same time, America’s exports will be taken for a short trip down river – never to be seen again.

Meanwhile, this monetary easing will not do anything for Europe’s economy, in a seeming-contradiction that will make the ECB’s amateur statistician’s heads explode.

The reason is because all of this money is slated to be consumed by the entitlement machine that is “European stagnation”. It was already promised to the people, and its effect is passively witnessed on the EU civilizations every single day. Giving someone what they already expect to receive does not change behavior.

Europe will continue to contract, as demand will not be stimulated and prices throughout the EU will ramp higher – strangling the people.

Here in the US, dollar strength is slowly setting the stage for the next bleed out. China is in a similar boat.

These purchases by the ECB will in time be shown to have actually made things worse for Europe. They are giving themselves 3 years’ worth of funding, conveniently getting them to 2015. However, the activity itself undermines confidence in the euro and any reason for long term investors to step in (not that they were going to anyway).

Thus this is a bastardized tradeoff: 3 years of short term funding in exchange for 30 years of long term funding. Imagine it like a wave…a tsunami…rolling through the short term paper, pulling the tide out on the long end, and crashing through anything that comes in its path – all budgets will be swallowed whole by this destructive force.

I will conclude by saying, prepare for a ferocious rally that will last through the holidays…probably. But have lots of spare cash on hand. Because as soon as the first round effects of this pump are exhausted, we will have to face that the state of affairs have been worsened from Draghi’s intervention.

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$EURUSD Breaking Out – Higher We Go

As I’m sitting here, watching my television screen, I find myself overcome with a most serious dilemma – why the hell do I know the name of a Senate candidate from Missouri?

The answer, which comes to me before I can even articulate the question is, “because, this somehow helps Democrats.”

That’s where we’ve come as a country. First, they moved in to pin it on the GOP. Then, the GOP immediately repudiated the comments. Romney led the charge. So now they can’t make it an issue about Romney. So it’s an issue about the people who might be on Romney’s “side”.

“Well! Mister Romney…maybe your problem is the things other people say who aren’t you. You know, those we can’t quite openly identify since you and most of your supporters and GOP party leaders are bucking Akin – but! we know they’re out there…”

Thanks assholes. Hey, you know what? Maybe Rangel is a Democrat so that makes Obama a thieving, corrupt bastard. And maybe Blagojevich makes the whole left guilty of trying to sell a Senate seat.

Two words: Joe Biden.

If that doesn’t sound fair, it’s because it isn’t. I mean, at least Obama had dealings with these three – who the fuck is Akin?

Why the fuck are we talking about this guy? And more importantly, how low has this whole process sunk that suddenly Romney’s record is apparently hinged on the words of an individual he has no control over, and who he has openly denounced? I just got to read a bullshit piece by some idiot in the local Freep newspaper – “An American Woman” – lecturing a Romney candidacy for their horrible ignorance towards women…uhm, manifesting in forms they have no power or responsibility for.

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Alright, enough politics for today. As aften as I broach the subject, feel comforted in knowing that I hate it as much as you.

In the markets, I’m struck by the move in the $EURUSD. We are now at $1.25+. This move should give further steam to the relief rally underway. I’m guessing the $EURUSD will top out somewhere around $1.28 (purely a guess), giving us another month of upside or so. If that connects with the holiday, we could run into the new year again. But I’m playing defensive.

I’m ambivolent towards the effect something like an election can have on the stock market. Though people wish to believe otherwise, this election has absolutely nothing major in play in terms of business conditions.

If Obama wins, we continue onward. If Romney wins, he doesn’t have the foundation to move forward with any major changes. You get some relief as Romney starts letting the hatchet fly in these freelance agencies (thank God) but not much else.

However, ultimately the $EURUSD move is going to fail. It’s just a matter of when. There’s speculation of a Greek exit from the EU again – but we’ve been here before. Cans will be kicked to stave off a 2012 collapse. The question is, will the issue resurfacing cause the euro to implode again BEFORE next year?

The $EURUSD is still going to parity.

The necessary allocations are all long, but with a large defensive cash position to take advantage of dollar strength when it resumes. Do not fear things named as gayly as “Fiscal Cliff”‘s. While I am looking for the next downstroke to come around the same time, this is Europe’s part to play. The US gets to destroy the world later.

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The Circus Marches On

RIMINI, Italy (Reuters) – Italian Prime Minister Mario Monti said on Sunday the end of the economic crisis in his country was in sight and that the euro zone must not let the single currency become a source of friction between the north and south in the bloc.

Speaking at a conference in Rimini, he said the euro zone’s third largest economy was in better shape than it was a year ago while people were more aware of the difficulties it faces.

“A year ago we thought less than we do today that we were in a crisis but I believe we were in it more,” Monti said. He said that he saw the end of the crisis “getting closer in some ways”.

How many times, people? How many times are we going to go through this?

First off: why would you even listen to the guy who claims he didn’t realize the country of Italy was in a genuine crisis last year?

Second off: what has this dope seen that suggests to him that things are getting better?

Is Italy’s debt issue getting better? Are German’s warming to the idea of monetary intervention? Have Italian’s discovered some alternate dimension, perhaps, filled with boundless resources?

Because if so, it’d be nice of them to share…

Yields are sinking because they can. There’s no point in saying “this crisis must resolve itself immediately, in fire or in good ends.” It needn’t. But to actually end this crisis, Italy’s obligations need to collapse next to their revenues. This isn’t hard…until that happens, the ECB slamming front month auctions with bids trying to suppress the yields isn’t going to magically fix this – it’ll just buy some more time.

This crisis will be back next year; or maybe even October. I see this playing out multiple ways, which is why I’m 30% cash right now – just hanging out.

It will be back because COMPLETE IDIOTS like Mario Monti sit around convincing themselves that they are great leaders and that all their countries problems originate from issues of confidence.

It’s sort of a game you have to play when you’re a talentless clown thrust into a position far beyond the scope of your abilities.

But by all means, feel free to buy into the promise of the crisis ending; just remember the people who you’re trusting while you do it. I’ll be waiting for you at the end of this winding path, laughing my ass off – just like I have been for the last three years.

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By October – Maybe November – We’ll Be Back At The Highs

This may become a sore point, but I’m willing to risk some of my reputation with freelance gambling.

We will not be collapsing this year.

There’s still too much that the system can do to stave off judgment. Despite rampant destruction of the euro, inflation levels are still relatively subdued in the euro block. Remember, really damning inflation is measured in X, not in %.

Also, most of the problems here in the US are still “vote-able”.

Do you think a real crisis can be tallied away? Hahaha. No no – the fiscal cliff is a bumper sticker. If you can legislate away a problem, it isn’t really a problem. It’s only a real crisis when all the politicians holding hearings in the world can’t save you; just ask Greece how that works.

Real problems don’t give a fuck about consensus.

So we’ll hit the summer doldrums with sky high euro crisis pessimism expecting record low economic activity, just in time for the winter pick- me-up and another holiday spectacle of television personalities declaring “all is fixed” in spite of a total lack of evidence to back it up.

This ongoing crisis has served to introduce volatility, not direction. When every bond auction is a choice between introducing low price inflation, or crippling and immediate deflation, yes you get some wide price ranges. Each participant needs to play every day based on their own book.

My advice to you is the same as it has been for well over one year now. Have lots of cash. And only short into the highest of euphoria.

Despite believing that this winter will be a repeat of the last two, I would not call this sell off a buying opportunity. Not yet.

Wait, be patient, and prepare.

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