The Big Question Then: How To Play EU QE?

1,260 views

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.

My Hedges Are Failing Me

142 views

Per the course, some dipshit(s) is loading up on oil going into the teeth of the summer slowdown, keeping steady pressure on the contracts. Who exactly it is that thinks buying crude oil while inventories are undergoing surprise builds and PMI is missing expectations, I cannot say. All I know is that this is cliché.

The market is rolling over and some genius is trying to strip down my shield and use it for a wake board on a lake somewhere.

The euro is also hitting pressure around that 1.3 area. Look, Europe is inevitably at the heart of this slowdown. Their unemployment and economy issues are what is derailing China. Japan is front and center, but Europe is always lurking in the background.

If we slow down, there is zero chance that the euro can hold this strength.

On the positive side, CLP shook off analyst downgrades and lawyer harassment and rallied more today; mostly because it’s a good deal.

I don’t know what it is about the bar exam that turns people into sociopaths – I don’t want to know. The truth is, I actually hope these law firms piling on fiduciary inquiries succeed in getting MAA to pump up the offer, just to seal the deal. But when it’s all said and done, the lawyers pushing this harassment of CLP’s management should seek professional help.

What A Lovely Monday Slaughter

1,667 views

I apologize for not piping in on the sell off. I was driving down from northern Michigan and only had the intense joy of watching “Revenge of Silvio Berlusconi” on Twitter, as opposed to the full blown Blue Ray.

My cash position only stands just north of 10%. Not even a few days ago it was almost 30%. Thus I have egg all over my face.

But I have hope. Hope for higher prices. This winter was so excellent, it’s difficult for me to believe I could possibly walk away down from the amount I’ve made. So I have some breathing room. Also, I have EUO as a hedge; and that is just running here.

Thus I will be watching closely what happens.

Deafening Silence

271 views

Alright, so the instant I switched over from “merely rapaciously expectant” to “full blown, mind numbingly jubilant”, the market turned on a dime and started punching participants in the face. That should have been clear before I did it. It always happens like that.

So on behalf of everyone whose kids can’t attend college now, I’d like to say, “I’m sorry.”

In times like this, it can always be difficult to answer that most important of questions. No not, “am I properly managing risk.” I’m talking about the even more important inquiry…”Whose fault is this?”

Now, there are several ways you could play this. Personally, I’ve decided to blame it on people using trailing stops. Dicks…littering their homes with half eaten burgers strewn around in McDonald’s bags all over the floor…all while smoking and ashing right on top of them…just begging to burn their house down…

There, you see how I did that? Make sure you ramble a little and trial off at intervals, to really get the “I’m-slightly-unhinged-talking-almost-to-myself” effect.

At any rate, the markets are getting lit up, and all is despair. If you’ve been living the Pisani lifestyle, I’m afraid you’ll be made to eat your hat by a short seller, who will watch you doing it while flinging small handfuls of sand in your eyes. It hurts, I understand. You have my sympathy.

Thankfully, I had the foresight to sell into the strength as opposed to throwing weight on the downdraft and cutting myself down by 5%+ all in one go.

My anticipation, for the moment, is that we will finish this selloff quickly and then surge higher.

I made a (now obviously) misguided purchase of AGQ a few days ago, but other than that I’ve been very good about holding that cash and keeping my hands off it. EUO, my hedge, is running, as this selloff seems to be driven as much by dollar strength as anything else.

The REITs are holding up decently well; AEC and CLP having nothing but cash and sterling operations.

BAS is not so fortunate.

If you owned BAS and didn’t know this quarter was going to be hard: please dispatch yourself in a grueling fashion. That was the most obvious loss in the history of loss-taking. Still BAS is way up from last year and I will consider adding on dips.

CCJ got hit yesterday as well, and RGR seems to be collapsing predominantly on profit taking. Both are buys; both will see much higher prices.

Finally, silver. Silver is the butt of jokes being told on Twitter; that place where everybody sees everything coming and makes 500% annually. Well, the jokes going to be on all of you. Silver is going to explode higher when you least expect it. I remember the circus at $15 /ounce. How it was going single digits. Then it lit you up.

I remember when it went from $50 to $25, and the same people were guffawing how it was going back to $15. Then it lit you up again.

Now it’s off to below $30 (meanwhile the Fed is dropping money like it’s worthless), and the same folks are howling that it’s all done for.

EURUSD Shall Send EU Into Cardiac Arrest

91 views

At almost 1.36, purchasers of EURUSD have completely lost grip with reality. Between US monetary policy and Japanese central bank response, carry trades have been caught in a torrential storm. If you were on the wrong side of those moves, your screams were lost to the cheers of equity bulls. However, the move is overextended, largely built on your back.

The problem is that there really is no economy, globally, that can afford to be the leaning post for the rest of the world. The assumption of global macro economics was always that the likelihood of all economies being in the same desperate condition at the same time was negligible. Unfortunately, as the economies became co-dependent, the assumptions of i.i.d. that made those statistical declarations possible withered away.

None of the economists noticed.

So now, here we are, and monetary policy can only be used to grab a quick upper hand. Ultimately, the brunt of utilizing the printing press ends right back on your country’s inhabitants. There’s no “superiorly positioned” exporter that can afford to give up a few points of growth.

So, as you watch the EURUSD climb, remember that each step of the move is unhinging the stability of the largest social wellfare state on the planet. With Germany, the keystone of Europe, flirting with recession, and Spanish and Italian debt barely under control (largely thanks to a renewed Japanese/US carry trade), the wellbeing of EU states is imperative.

But as I said, all countries have become interdependent. The same monetary response that has lowered Spanish/Italian bonds is also making EU exports uncompetitive. Any previously witnessed ECB policy response to this problem simultaneously makes debt yields increase. The only way to avoid the complimentary variance here is for the ECB to purchase EU debt directly.

Throughout the entire debate, this activity has been staunchly opposed by Germany, Finland and Austria. Will those countries cave? Or will they finally succumb to their ethnic roots, and become completely disaffected with EU authority?

Regardless, the euro disaster has not finished rolling yet.

Shorting Euro – Bought EUO For $18.25

195 views

I opened a position in EUO for $18.25. This is a starter position, which I will add to every few weeks/months.

Remember, every time thus far that European authorities have put claim on “the end of the crisis being just in sight”, it has come back to haunt them.

They are playing a confidence game. The realities of the situation are different. Just below the surface, trouble is brewing.

Remember that.

The Big Question Then: How To Play EU QE?

1,260 views

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.

My Hedges Are Failing Me

142 views

Per the course, some dipshit(s) is loading up on oil going into the teeth of the summer slowdown, keeping steady pressure on the contracts. Who exactly it is that thinks buying crude oil while inventories are undergoing surprise builds and PMI is missing expectations, I cannot say. All I know is that this is cliché.

The market is rolling over and some genius is trying to strip down my shield and use it for a wake board on a lake somewhere.

The euro is also hitting pressure around that 1.3 area. Look, Europe is inevitably at the heart of this slowdown. Their unemployment and economy issues are what is derailing China. Japan is front and center, but Europe is always lurking in the background.

If we slow down, there is zero chance that the euro can hold this strength.

On the positive side, CLP shook off analyst downgrades and lawyer harassment and rallied more today; mostly because it’s a good deal.

I don’t know what it is about the bar exam that turns people into sociopaths – I don’t want to know. The truth is, I actually hope these law firms piling on fiduciary inquiries succeed in getting MAA to pump up the offer, just to seal the deal. But when it’s all said and done, the lawyers pushing this harassment of CLP’s management should seek professional help.

What A Lovely Monday Slaughter

1,667 views

I apologize for not piping in on the sell off. I was driving down from northern Michigan and only had the intense joy of watching “Revenge of Silvio Berlusconi” on Twitter, as opposed to the full blown Blue Ray.

My cash position only stands just north of 10%. Not even a few days ago it was almost 30%. Thus I have egg all over my face.

But I have hope. Hope for higher prices. This winter was so excellent, it’s difficult for me to believe I could possibly walk away down from the amount I’ve made. So I have some breathing room. Also, I have EUO as a hedge; and that is just running here.

Thus I will be watching closely what happens.

Deafening Silence

271 views

Alright, so the instant I switched over from “merely rapaciously expectant” to “full blown, mind numbingly jubilant”, the market turned on a dime and started punching participants in the face. That should have been clear before I did it. It always happens like that.

So on behalf of everyone whose kids can’t attend college now, I’d like to say, “I’m sorry.”

In times like this, it can always be difficult to answer that most important of questions. No not, “am I properly managing risk.” I’m talking about the even more important inquiry…”Whose fault is this?”

Now, there are several ways you could play this. Personally, I’ve decided to blame it on people using trailing stops. Dicks…littering their homes with half eaten burgers strewn around in McDonald’s bags all over the floor…all while smoking and ashing right on top of them…just begging to burn their house down…

There, you see how I did that? Make sure you ramble a little and trial off at intervals, to really get the “I’m-slightly-unhinged-talking-almost-to-myself” effect.

At any rate, the markets are getting lit up, and all is despair. If you’ve been living the Pisani lifestyle, I’m afraid you’ll be made to eat your hat by a short seller, who will watch you doing it while flinging small handfuls of sand in your eyes. It hurts, I understand. You have my sympathy.

Thankfully, I had the foresight to sell into the strength as opposed to throwing weight on the downdraft and cutting myself down by 5%+ all in one go.

My anticipation, for the moment, is that we will finish this selloff quickly and then surge higher.

I made a (now obviously) misguided purchase of AGQ a few days ago, but other than that I’ve been very good about holding that cash and keeping my hands off it. EUO, my hedge, is running, as this selloff seems to be driven as much by dollar strength as anything else.

The REITs are holding up decently well; AEC and CLP having nothing but cash and sterling operations.

BAS is not so fortunate.

If you owned BAS and didn’t know this quarter was going to be hard: please dispatch yourself in a grueling fashion. That was the most obvious loss in the history of loss-taking. Still BAS is way up from last year and I will consider adding on dips.

CCJ got hit yesterday as well, and RGR seems to be collapsing predominantly on profit taking. Both are buys; both will see much higher prices.

Finally, silver. Silver is the butt of jokes being told on Twitter; that place where everybody sees everything coming and makes 500% annually. Well, the jokes going to be on all of you. Silver is going to explode higher when you least expect it. I remember the circus at $15 /ounce. How it was going single digits. Then it lit you up.

I remember when it went from $50 to $25, and the same people were guffawing how it was going back to $15. Then it lit you up again.

Now it’s off to below $30 (meanwhile the Fed is dropping money like it’s worthless), and the same folks are howling that it’s all done for.

EURUSD Shall Send EU Into Cardiac Arrest

91 views

At almost 1.36, purchasers of EURUSD have completely lost grip with reality. Between US monetary policy and Japanese central bank response, carry trades have been caught in a torrential storm. If you were on the wrong side of those moves, your screams were lost to the cheers of equity bulls. However, the move is overextended, largely built on your back.

The problem is that there really is no economy, globally, that can afford to be the leaning post for the rest of the world. The assumption of global macro economics was always that the likelihood of all economies being in the same desperate condition at the same time was negligible. Unfortunately, as the economies became co-dependent, the assumptions of i.i.d. that made those statistical declarations possible withered away.

None of the economists noticed.

So now, here we are, and monetary policy can only be used to grab a quick upper hand. Ultimately, the brunt of utilizing the printing press ends right back on your country’s inhabitants. There’s no “superiorly positioned” exporter that can afford to give up a few points of growth.

So, as you watch the EURUSD climb, remember that each step of the move is unhinging the stability of the largest social wellfare state on the planet. With Germany, the keystone of Europe, flirting with recession, and Spanish and Italian debt barely under control (largely thanks to a renewed Japanese/US carry trade), the wellbeing of EU states is imperative.

But as I said, all countries have become interdependent. The same monetary response that has lowered Spanish/Italian bonds is also making EU exports uncompetitive. Any previously witnessed ECB policy response to this problem simultaneously makes debt yields increase. The only way to avoid the complimentary variance here is for the ECB to purchase EU debt directly.

Throughout the entire debate, this activity has been staunchly opposed by Germany, Finland and Austria. Will those countries cave? Or will they finally succumb to their ethnic roots, and become completely disaffected with EU authority?

Regardless, the euro disaster has not finished rolling yet.

Shorting Euro – Bought EUO For $18.25

195 views

I opened a position in EUO for $18.25. This is a starter position, which I will add to every few weeks/months.

Remember, every time thus far that European authorities have put claim on “the end of the crisis being just in sight”, it has come back to haunt them.

They are playing a confidence game. The realities of the situation are different. Just below the surface, trouble is brewing.

Remember that.

Previous Posts by Mr. Cain Thaler