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The Big Question Then: How To Play EU QE?

The Swiss bank just announced that the ceiling they have been maintaining against the euro is to be dropped. That would make sense, since the euro is now trading below 1.17, down from almost 1.40 just earlier. In terms of the exchange rate, that had to be getting very expensive.

But the timing here should be viewed as a sign that the ECB is really about to start QE. This should be the stance because if they don’t, the impact would be minimal, but if they do you can’t be on the wrong side of the trade.

In terms of what this QE will look like…well, that is the question. What is the ECB going to buy? Not public debt, surely. How much more financing can these governments stomach with yields already negative in many countries. Even the worst countries, like Greece, are borrowing at rates that an average citizen would envy.

My guess here is two fold: (1) they buy up private financial assets similar to the mortgage program the Fed had in place, but that it will center on short term bonds, while also working with banks to create a long term financing window (EU companies and banks in particular have notoriously short term financing arrangements) and (2) they take the opportunity to absorb whatever mechanisms exactly they have been using, before now, to hide the massive debt loads that should have been coming due over the past three years.

If you forgot, Europe ended up pulling some master BS, using a combination of trade accounts to gobble up the garbage so that the markets wouldn’t have to see it default. I’m hazy on the exact specifics, but I would gamble that those imbalanced accounts are still outstanding; and my guess is they’re about to get totally monetized.

So the big question now is, where do you park money? I think that it would be very stupid to try and be short right now with central banks making big noise and seemingly readying the cannons.

If this is like past central bank action, then any longs will do – equity, commodities, debt, whatever you like. Oil could get a huge boost since it’s been so ravaged. ECB action will give the Fed room to play, especially if deflation keeps up. Yellen is no Bernanke…yet, but she also hasn’t been tried either. If the Fed coordinates, all boats get lifted.

But the safest low key play is probably just to hug U.S. dollars until things are a little more clear.

I am ~78% cash, with positions in CCJ, BAS and VOC, down roughly 3% in the first two weeks of the year.

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The Melt Up Is Upon Us

There is no limit to the benevolence of my portfolio today. HCLP spurred out the gate and is now closing in on $70, +5.4% in the first half of today’s trading.

CCJ and BAS are second runners up. Most everything else is green, with only new half position PSEC and NRP breaking the pattern at the moment.

No one wants to hold short into the Labor Day weekend. Bears have been conditioned over the past five years that long weekends deal death to misers.

My account is up +2.3% today. I’m tempted to take a few sales at lunch, just to prepare for September (the biggest dick of all the months).

The world is my tainted oyster (which is only an odd statement if you knew that I don’t like oysters). Now, as you were.

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Added To HCLP

I added more HCLP for $39.55. Do I need to explain myself?

Cash stands at 13%.

HCLP and BAS have surpassed CCJ as my largest position. Those three now account for just under 60% of my book.

Rebalancing will probably come soon, but not right now. HCLP is going to punch through brick walls first.

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Hitting Icy Water

You can see the breath get beat out of the rally’s lungs; plunged into the freezing currents.

Check out HCLP, which gave back a monster morning rally, now fighting to keep its nose in the air or else risk losing oxygen entirely.

But I find myself not caring. Even if the market starts to correct, I’m unlikely to play the hedging game. The lesson has been learned – when I short stocks, I lose money. I’m taking a different approach here, offering up just a small slice of the pie to buy puts (PGJ, TSLA) in the most fragile part of the party.

If we crack, TSLA and PGJ die horrible deaths. It will be like any selloff just sort of gets replaced with new, free money. Like the prep school teenager who loses his pocket change to his uneducated, local public ruffian peers, he can trust that his wealthy father will give him more…and the opportunity watch hired mob thugs beat the piss out of his tormentors.

Besides, BAS and CCJ are both higher. I have complete confidence in the companies that I’ve acquired. I will not find myself given to flight; that ends with me screaming in furry, watching my hard work reap rewards without me. There is nothing you can possibly do to cause myself to relinquish these positions.

I’m 25% cash and cocky.

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At The End Of Today, I Was Up 10% YTD

Here’s a quick review of where things stand. I took a cash position of around 30% towards the beginning of February. In spite of that, it really hasn’t affected my performance noticeably; actually, it’s down to a 27% cash position just from watching the rest of my asset values take off.

BAS is leading the charge higher, no contest. The natural gas cycle is back underway.

02-25-14 BAS 3 Months

Of course, where would well servicing be without the frac sand that makes it all possible? HCLP continues its uninterrupted run, refusing to touch the short range moving averages for more than a few hours before blessing her stakeholders with further gains.

02-25-14 HCLP 3 Months

The multifamily space has been a source of strong performance for years. You wouldn’t know it if you looked at a long time frame. Analysts love to hate on these companies, because they lack vision. But I love them.

02-25-14 AEC 3 Months

I sold this next one out entirely on February 10, while I raised cash. I’ve missed the last stretch there, but still made out handsomely, especially because my shares were favorably converted from CLP last year in a corporate buyout. I’ll look to get back in down the road.

02-25-14 MAA 3 Months

Today’s windfall profits were brought to us by CCJ; it took the reigns and sprinted higher by 8%. UEC (not depicted) was also up 9%.

In case you missed it, this move was led by a report out of Japan confirming nuclear energy’s importance to the economy and intent of Japan to restart their reactors.

The Kyodo News writes:

The government on Tuesday unveiled a draft energy policy that characterizes atomic power as an important electricity source, although the draft waters down some wording in an earlier version that was seen as strongly pro-nuclear in tone.

In the draft, the government said nuclear energy is an “important base-load power source” that usually supplies electricity continuously through the day, while vowing to push for the restart of reactors that have satisfied new safety requirements introduced after the 2011 Fukushima Daiichi complex disaster.

Economy, Trade and Industry Minister Toshimitsu Motegi, who is responsible for compiling the draft of the so-called Basic Energy Plan, told a press conference that the direction of the policy has “not changed in principle” despite the revisions.

The draft is expected to become official with Cabinet approval in March, after consultations with the ruling Liberal Democratic Party and its coalition ally, the New Komeito party.

The cost to Japan for trying to navigate away from nuclear power is enormous. The UK’s Andrew McKillop, former Chief Policy Analyst of the European Commission, in The Market Oracle is estimating the total cost of decommissioning Japan’s nuclear fleet at $500 billion…before power production replacement.

Outside of Japan, the effects of nuclear fuel shortfalls are beginning to be felt. The end of the Megatons for Megawatts program with Russia is beginning to sink in.

Meanwhile, very much not in accordance with the wishes of anti-nuclear activists, Kazakhstan is busy setting itself up as the global trading desk of nuclear power, by creating a low-enrichment fuel bank in cooperation with the IAEA.

Tengri News reports:

The negotiations on Kazakhstan’s bid to host the international bank of low-enriched uranium are nearing their final stage, Tengrinews reports citing the press-service of the Foreign Affairs Ministry of Kazakhstan.

“Kazakhstan is going to be hosting the International bank of low-enriched uranium of the IAEA (International Atomic Energy Agency) and the negotiations of the Country Agreement on the bank’s placement are nearing their end. We believe that development of a comprehensive approach to nuclear fuel, including creation of guaranteed reserves of nuclear fuel, will contribute to promotion of peaceful use of nuclear energy,” says the Ministry’s message timed to the 20th anniversary of Kazakhstan joining to the Non-Proliferation Treaty (NPT).

Kazakhstan plans to take an active part in the upcoming Nuclear Security Summit (NSS), to be held in Hague on March 24-25, 2014. Kazakhstan supports the idea of starting the negotiation process and soonest development of the Fissile Materials Cutoff Treaty that will become an important step towards nuclear disarmament and non-proliferation.

The goal here, of course, is to disarm the arguments against broad adoption of nuclear power, world wide, over the concerns of rogue nations enriching their own fuel to the point of producing a bomb. It’s also designed to make it possible for countries that lack the sophistication to enrich uranium to gain access to nuclear power.

If the IAEA’s new bank approach is broadly adopted, nuclear reactors will for the first time be a possible solution in many places that would never have had the luxury to consider it before now.

02-25-14 CCJ 3 Months

Silver’s rebound brings up the rear. The metal is back above $20 an ounce, and looks good, following a black year and a 33% price drop.

02-25-14 SLV 3 Months

Here’s my only bad investment so far this year – NRP’s 21% drop has cost me 2%.

02-25-14 NRP 3 Months

I also have small (and increasingly smaller) positions in TSLA puts and PGJ puts. The TSLA puts have had no effect on my YTD performance as they blacked out last year – they expire in January of 2015. The PGJ puts were 1-2% of my account and are currently down 50% of where I bought them.

Their purpose is simply to provide absurd gains in the event of the unpredictable. But with a limited downside, neither is big enough to hurt me.

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Raising Cash

I sold out of my entire MAA stake for $66.74. That was the position I received for my shares of CLP when they were acquired. I feel the need to raise cash and that was a good position to trim.

I also paired back my shares of CCJ. They dropped guidance for expanding the uranium mining. I don’t think it matters – they basically said they’re working to force pricing higher by refusing to mine at these ridiculous prices – however, I think the stock keeps getting beat down. It’s just the way the uranium market has been trading.

CCJ is now 18%, down from more than 20%. Cash stands back at 40%.

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