Finishing the day, I’d like to remind you that sometimes things can get extremely out of hand – by a factor of 6 beyond anything you ever thought possible.

Resting in my office from a busy day, I’m finally sitting down to catch up on some pieces and finding my breath.

$ERY, after all, just smashed through all moving averages, and is now on the high side of the range, inside of a single session. ERY is basically a trade against gasoline and to a lesser extent, oil. Does that feel like “normal” behavior to you.

The plush leather of my chair beneath me radiates heat from the sunlight leaking in. And the cold air of the 9th floor office mingles with differentials of warmer current from the dry, ninety degree heat from outside.

There were an expansive multitude who were counting on more easing. I warned you incessantly that this was not such a straightforward issue. I cannot help you now.

Far below, I see the many talentless hedge fund managers caught long commodities beyond their capacity to handle.

The margin calls are about to begin.

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Okay, there are two main places I’d like to focus your attention.

The first is Europe. The situation got bleak enough that the whole planet had to pony up. When China is giving money away, you know there’s a problem. That government operates by the phrase “look out for number 1.” So we are probably yet again just days or weeks away from a total collapse of the system.

Think LTRO 1 and the implications it had. Thanks to that program, we melted starkly higher, only to see everything given back a mere four-five months later. However, they have raised enough money to keep the game going. The pressure will be off for at least a month or two, and that means we *may* see a melt up, like the last two times people were foolish enough to believe the system was saved.

The second place you need to focus your attention is the Fed (obviously). Everyone is hyped up as hell for the meeting tomorrow. I personally think it’s a non-event. The dollar isn’t as strong as it was the last two times QE was enacted; commodity prices are generally higher than they were the last two times QE was enacted; and our economy has had a few visible hits, but that’s no indication of us spiraling down the drain – at least not yet.

I am predisposed to believe that Bernanke will elect to wait for another month or two of data, like the scientist that he is, and hold emergency policy meetings if things require immediate intervention.

But, you’ll notice, I am only shorting this market through my ERY position, having sold out of SCO, and have added a full sized APC position, plus a partial stake in SLV.

That’s how much I’m willing to gamble on being right a.k.a. not really gambling on being right.

If Bernanke doesn’t enact QE and people freak out tomorrow, I stand to lose a lot of money. ERY will ramp by 50% inside of a month, but the rest of my portfolio will be set on fire. However, I’m okay with that, as I can use the opportunity to lock in gains on ERY, and await the inevitable monetary response – while tap dancing on your grave, as I’ve warned you is a possibility for literally a year now.

Which brings me to the last thing I wanted to talk with you about today.

There’s more than one way to benefit from price action in this world, and I’m not just talking about long/short comparisons. The ability to lose money and count it against your other gains is by far the most underappreciated strategy in investing. That you can take a few thousand against any fixed income you might be making is icing on the cake.

My SLV position is not just hedging – it’s sacrificial bait.

Case in point; tomorrow Bernanke announces “QE3-4-5-…and-6, bitches”. Well then, SLV will rocket, just as ERY collapses. SLV’s a lot smaller than ERY, on my book, but it’ll still help dampen the blow (APC would also go on a tear, offsetting most of my losses by the time I booked ERY). So I realize a loss, but it’s cool. The loss helps me offset my SCO gains from this year. Unrealized gains galore await me – which I can decide when to be taxed on.

But if Bernanke abstains, and every commodity hedge fund within 10,000 miles simultaneously explode, ERY is running higher like it’s on crack, and SLV will be absolutely decimated (along with everything else I own). But here’s the kicker:

Some of you are probably saying, “big whoop Cain, you’re not going anywhere.” And that’s not true. Because I am committed to my longs; and that makes all the difference in the world. I can ignore APC, CLP, AEC, and CCJ losing me money, because I’m invested in them. I will wait for them to come back – and they will come back.

Which leads me to SLV. If Bernanke pulls the punch bowl, commodities can be expected to get decimated. But some commodities, like silver and oil, are sure to do great over the next few years thanks to the US budget problems. I hate their prospects in the short run, because thanks to leverage, expectations of free bailouts, and stupidity, they are proverbial murder holes – Tom Hanks in Saving Private Ryan style.

But if you can go into the trade understanding that, then you can take advantage of the existence of multiple levels of exposure that ETFs provide.

Case in point; Bernanke sets SLV into a meat grinder tomorrow. Well then, in a few weeks, I will cover SLV for the losses, offsetting any gains I have this year. And then, when the time is right, I intend to roll my money over into a 2X silver ETF – because mark my words, if things get bad enough, central banks will have to support markets again. We all know that, it’s just a matter of when that makes all the difference in the world.

By doing that, assuming I get in somewhere near the bottom, with just the same amount of money as I take out of SLV, I can be back at even with just half a recovery – and a tax offsetting loss to boot.

Is this strategy full proof? No. We could sell off hard, then discover the economy isn’t going into a vortex, and never get that intervention. I could switch over at the wrong time and still lose a ton of money. But it’s important to plan not just for this move, but for the next most likely one too.

Take the time to set up your next plays, and the rewards can be well worth it. And don’t blow all your ammo thinking you understand the mind of a single academic thrust into the midst of the worst crisis of our time. You don’t. Accept it and move on.

The most important thing right now is to avoid margin, like it’s trying to slaughter your family. These kinds of strategies I’ve laid out can be implemented, provided you have the freedom to stand your ground. Once you’re at the whim of the margin lady, all bets are off the table. But with a little ingenuity and the patience of stone, you can get ahead no matter what happens tomorrow…or anytime in the future for that matter.

Investing is after all firstly an act of reason and intelligence, but second a byproduct of will.

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I grabbed some of our favorite position this morning, in the low $8 range.  My position is now .5% of all assets held, and I am treating the notes like covered option positions.  If we experience a major reversal in the next few months, my gains from the position should stand north of 2-3%.  If not, I lose .5% (or less) and move on.

Really, it’s pretty straightforward.  Since the value of TVIX’s assets have undergone “price discovery” there’s little chance of continued bloodshed.  Thank God I didn’t own more before now.  And since I’m looking for that major correction, those assets can appreciate in price quickly and with great multiples.

Also, I’m contemplating selling off some of my AEC holdings.  As I mentioned a few days ago, hearing talk of reform to Fannie Mae and Freddie Mac has me jittery.  Those organizations fling cheap financing through the system, and AEC has admitted to being influenced by it.

I doubt very much that Democrats will permit overt change to come to their favorite pet projects.  However, I don’t doubt for a second that Republicans would try to curtail Fannie and Freddie.  Since I’m predicting a small Democratic Party resurgence in this election, I am calm.  However, if I catch wind that Republicans are going to do better than I first supposed, that could be forbearing of trouble for me.

So maybe I scale back AEC.  Right now, my portfolio is more than 60% comprised of just three positions: AEC, CLP, and CCJ.

That’s not how it always was.  I used to have BG and AWK also, but the sheer magnitude of losses from my former short position in UCO forced my hand.  I have since rolled over my energy and oil shorts into “fixed risk” positions of ERY and SCO and am waiting patiently, hoping that coming months redeem my portfolio of the 20%+ losses I incurred late last year.

However, if that doesn’t happen, I am very exposed to just three positions (plus assumed losses from the continued deterioration of the ETF’s).

In short, I feel comfortable that my portfolio is stable for the moment.

But damn, I really don’t need another blow up.

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And in good fashion, we ramped higher today off an employment report – that will probably be revised downward thirty times between now and summer – and the Fed trying to have their cake and eat it too.

Don’t care…

The market actions are not what I am focused on. Equities, even commodities, and their prices are all good and fine – that’s ultimately where the money is made after all. I respect that. But my focus is and shall remain glued to who’s doing what, where.

The who is industrial; the what is slowing down; and the where is – well, almost everywhere, actually.

The Fed is playing calculator here, mindless drumming in numbers to their little spreadsheets and trying to get that correlation between actual market output and their six thousand variable model – which they were promised would measure input/output readings to within a fraction of a percent.

The numbers that count just keep reaffirming I’m where I should be. If they start coming at me in unexpected ways, I’ll evolve.

But no asinine cheerleader pom pom pump from Bernanke is going to get me long. That’s all he’s after, anyway. He’s not in any position to really do anything, and I think he knows that.

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Although I continue to spite this rally of oil with all my heart and soul (but not US equities, no never those), I’ll be the first to admit that this “pullback” is not very impressive.

If this is the best that sellers can muster, then I will be clinging to these oil and energy shorts, impatiently hoping for redemption, for months longer still.

Just think, I may actually have held this short positions for a year, if I’m not careful!

Interestingly, I’m up for the year. But it just doesn’t please me. The gains are so little compared to what I lost in the final three months of 2011, just looking at their doleful size makes me want to punch my monitor. Once again, I was reminded the hard way; just say no to fall.

I should really close down my entire operation every year at Labor Day, leave my longs where they are, and let it ride. I’d save myself money and hardship.

But as poorly as 2012 is off to a start, I’m not as disheartened as I’m letting on.

Firstly, I like what I’m seeing in the uranium space. I own CCJ is size, and reaffirm my commitment to its glory, in front of every one of you. That miner is going on a run that will undo all my losses from last year, by itself. It’s just a matter of time.

Second, I love the multifamily REIT space still. And I own AEC and CLP; which are both under the guise of management that are taking full advantage of this climate. Their operations are clean and powerful, and best of all, undervalued thanks to sordid property prices. When the prices fall, these two companies, and others, will demonstrate performance that will leave every behind-the-curve fund manager clamoring for them to be on their books.

And finally, I just don’t think I’m off the mark with my shorts. That’s the only thing keeping me to holding them. I’ve lost a ton, but I keep going over the problems in my mind, rolling them over and peering at the different outcomes, and I keep coming up with the same answer: we’ve come too far, and nothing can be done to avoid a demand crash.

So I’ll stay patient. I’ll playfully cheer on those of you who are absolutely minting money right now – I do envy you, on some level. And I’ll sit and suffer those of you kicking sand in my face.

But I’m actually pleased to see some of you out and about, acting cocky. Your presence, rather than demeaning me, gives me a boost of confidence. A few of you invite death upon yourself with every waking moment. If people of your caliber are mocking me, it can be only a matter of time before I get retribution.

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I’ve been in a very interesting meeting all morning concerning a certain reform that passed through the halls of Congress in 2009. It lasted for about an hour, and the implications of it are most intriguing. If they ever do get these exchanges up and running, I am going to have a blast watching people being filed into them getting screwed over.

That’s the thing about trying to slap a single unit of “value” on an array of products that are non-uniform (especially when that definition of value is incredibly, poorly defined). You get…inefficiencies…that can be exploited.

Ha! 2014 is going to be a shit show. There’s going to be so much movement going on, so much confusion, that there’s no way widespread abuse doesn’t come into play. Especially because the people trying to manage these exchanges don’t seem to have a clue about what it is they are doing.

The only comfort you might have is that everyone will be trying to do the same thing – so maybe you don’t notice the difference?

At any rate, I haven’t paid much attention to markets today. But I see oil, after faking you out, turned tail 180 degrees in a vertical nose dive. Ditto for the rest of the markets.

My opinion of equities and commodities has not changed in months. I’m holding short energy and oil because they are very overpriced. You can’t honestly expect to just ignore Europe. It isn’t going away, and it isn’t a small problem.

Bah! It’s no use arguing with you. I’ll just let you find out on your own.

I’m holding AEC, CLP, CCJ, SCO, ERY, physical silver, and a hefty cash position after selling out of BG and, late last year, AWK.

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