I will give oil bulls this; they are passionate.

It seems like with every breather we get, oil is whipped higher by these people, sporting their finest leather lashes as if they were cattle running in Wyoming. They drive the herd back across the open plains, trying desperately to reach the coast, where glory and riches await them.

Unfortunately for these souls, I am L.H. Musgrove, and China and Germany are malaria.

As they drive their livelihood tirelessly back to whence they came, tired and weakened by disease, I am waiting in ambush with a troop of marauders. As they come to the riverbed (all good ambushes occur at riverbeds), my men are carefully positioned in the hills for optimal range.

The oil-cowboys look right at me, seated by the river, cooking sausages (pork not included; I keep kosher while cattle-rustling) and creating the pretense of “just hanging,” so these men waive cheerily to me, still excited by their prospects despite their obvious, malaria ridden state.

And then we gun them down.

But just when I think I have all the men dead, the next wave comes over the hill sporting still more bounty. So we set up for them, and kill them too.

And then comes the next waive…

And the next…

And so I’m sitting here still, running low on sausages and with way more to keep track of than I had counted on.

How many more oil bulls can come to this crossing? I don’t know. But unless something key changes, I can tell you I’m going to keep shooting until I start running out of resources or get bored.

With how far I’m up on this trade, it’s looking like boredom might come first.

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For those of you who have followed my ramblings for a while now, this should give you a big laugh. All the way back in October of 2009, I was buying up MGM with two hands, for almost $9 a share.

It seemed an obvious move to me. They were a beaten down, massive company in an industry which has enormous barriers to entry. They had a huge debt load, but as the credit environment eased, they suddenly had the world at their fingertips.

I anticipated that they would start to massively roll over their debt. And they did, within a month of my purchase.

I watched in elation as my investment skyrocketed to $17 a share.

On the way, I took profits, scaled back, and played the dips and troughs. I made an obscene amount of money playing MGM, always long but with strategic sales. I followed their developments.

I stayed in their fucking hotels.

But I realized I was becoming blinded a few months ago. MGM Detroit is still doing fabulously and Macau is on fire, but the rest of company is not.

I think the final straw for me was when they announced they were going to blow up an entire section of their new resort in Las Vegas.

You’ve got to be fucking kidding me!? This is how the company has been managed; they can’t even get proper surveying before blowing $1 billion??

But that’s all why I sold out of the company, not why I’m shorting them.

The reason I’m shorting MGM is their bond repayment schedule.

They owe somewhere between $500 million and $1 billion a year, every year, for the next decade, and still owe several billion dollars after that. Even though they began to restructure back in 2009-2010, they didn’t fucking do it hard enough.

The stupid bastards played it soft, probably thinking they could just half-ass it into the recover. Well guess what chaps? The recovery never came.

Even factoring in the $1 billion they made off the Macau IPO, it’s not enough. That $1 billion isn’t enough to get the company through 2012, on its own. And now with credit freezing up, the ability of MGM and its idiot management to restructure debt is effectively off the table.

Throw in that some major institutional holders are in trouble themselves (think Paulson) and this company is fucked over a spindle.

The company trades down regardless. If we get a slowdown that affects their earnings even slightly, then they’re in bankruptcy before 2014.

I opened a short today for $9.98 a share. It’s under 10% of my holdings, and I’ll add to it as I see fit.

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There was an article published by Jim Jubak a while ago, which went into the relationships between the European countries. Not to rip his work outright, but the part I’m going to mention was itself borrowed by Jim (openly and admittedly) so I don’t feel bad about writing out the thoughts, without quoting him verbatim or linking to his column on MSN (I don’t have time to track it down).

There was a study Mr. Jubak had quoted, which went into the defaults of sovereign nations such as Argentina in 2002 and Russia in 1998, looking for common conditions that lead to a country to willfully default on their obligations.

What this study found was not, as you would expect, that default is caused by a country which is facing economic catastrophe and huge budget deficits.

During the period which budget deficits persist, the country actually continued to make obligations meet, mostly through further borrowing, austerity, and (if applicable) money printing.

The point at which these countries defaulted was actually when they had a budget surplus.

The suggested reason for this anomaly is that, when confronted with a surplus which is mostly being eaten up in the form of interest payments, and especially when those interest payments are not sufficient to make noticeable impacts on the debt principle, a populous and its elected officials can get a little indignant, forgetting all the money that they borrowed, and begin to become more focused on the amount of time it will take them to pay off all that they owe.

They start thinking that everything would be fine if it weren’t for the debt. After all, they’d have all this money left over, right? It’s the creditor’s fault that they aren’t living prosperously…

Greece will still default. The aid they received is probably not sufficient to thoroughly fix the problem. This is not a true bailout, in the sense that Greece is not any better off.

If the EU had really bailed out Greece the last time, ask yourself, would we be here again inside of 5 months? And since this bailout is itself pretty similar to the last one, do you think the bailout now is going to fix the problem.

Germany has no incentive to destroy their own currency to save Greece. Or Italy. Or Spain. They are not interested in the world blaming them for being hard workers. The national pride has been injured, and if their current officials do not bow to that, then their entire government will be restructured, abruptly and violently, much like what happened here in the U.S. in the 2008 elections, and then again in 2010.

German politicians have to be savvy enough to realize that they’re in hot water, if they don’t stop putting the German citizenry on the line for ingrates.

No, this is most likely simply a delay so that the parties can get their ducks in a row. I wouldn’t have been surprised if they had let Greece default now, since Germany seems to be working behind the scenes to set up this very outcome. However, it would seem they were not ready yet to handle the fallout.

So the ball is punted.

But sometime soon, both Germany and Greece will want a default. Nay, they will insist on it. There’s a reason default is the de facto maneuver in contract law. It is the cleanest, and easiest, and leaves all parties very much aware of where things stand.

A default appeases the German people and gets them off the hook for Greece. A default, after the Greeks get their economy self-contained, gets them relief and a future.

The only question here is: how much time do the main players need to set up the field?

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Oh, not in the markets. I couldn’t give a care less about those. Those are going lower, bonuses be damned.

I’m talking about my blog count. Read this, then move on.

I’ve got to eat too, remember?

By the way, before you go, my renewed short in UCO is running higher. Apparently Bernanke did not kill the commodity-trader-eater after all. That was just what it wanted us to think, to coax us into its mouth. I almost fell for it too.

If things start to get really ugly, after this next round of numbers comes out, I may be pulling the trigger on a short I’ve had in mind for a while. Don’t want to spoil anything at the moment; just keep your eyes peeled.

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Let me excuse myself; I was out of the 9th floor today in an all morning conference and only just now returned.

And here I found the market in full on rally mode, at that! I was curious as to why, so I looked around, and all I could find was an announcement of some insipient solution to the European crisis. Wow, what excellent timing! We were in need of just such a solution too.

So, let’s challenge this, shall we? What’s changed from yesterday?

1. There’s an alleged solution to the Eurozone crisis.

– There have been numerous alleged solutions to the Eurozone crisis before now, from massive bailout funds, to BRIC nation intervention, to outright debt restructuring.

2. It has the backing of Germany.

– No, it has the backing of Angela Merkel, who is increasingly not in control of German affairs, and has supported any number of the prior solutions before now which have failed to gain traction.

3. Europe has a plan to stabilize its banks should Greece default.

– Germany has a plan to stabilize its banks if Greece defaults. The rest of them, as best as I have heard, do not. And Germany is the only one with the budget to pull it off anyway. The rest need aid of the ECB, as no country has the authority to print euros without democratic consent of the others and no country presently has the savings.

All of these rumors are long on speculation about what they will do to the markets, and short on substance that would make them believable or useful. I don’t want to hear how Angela Merkel wants to save the EU. I know she wants to save the EU. She’s been saying that shit for going on 2 years now and has nothing to show for it.

I don’t want to hear that European member countries have a plan to stabilize their banks. I want to hear what their plan is to stabilize their banks. That’s a big difference.

Nothing has changed from yesterday, including my opinion of the market. The talk is originating from the same idiots I always call out, desperate to understand what’s going on. Fuck you, financial news cretin.

This looks and smells like an obvious bear market rally. It has huge volume all inside of one day. If you had looked at the levels of shorted stock, it was getting enormous. We were about due for a big run up. But that doesn’t mean I’m suddenly jumping for joy to own more shares of my favorite companies.

Quite the opposite…

Yesterday, I added to BG for $57. Today, I took 7.5% profits, selling back those shares for $61.35.

And then I doubled my short in UCO for $31.06.

I also added to CLP yesterday, but I’m going to hold on to those. I like the company, and think it does fine. I am waiting with baited breath for them to announce their property swap, catching the talking heads off guard and creating a rush to buy their shares in the process.

They go back above $20 inside this year, or I eat my silver pocket watch.

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I recently (minutes ago) was confronted with a question regarding the interchangeability of long dollar products such as UUP and equivalent short exposure products like EUO with the dollar itself.

I think this is important enough that I will detail a post to it.

Even if I wasn’t bullish on the dollar here (I am), I would still be adamant that you have a cash position right now. To explain properly, let me create an anecdotal situation for you.

Let’s suppose that there are only two people investing in this world; yourself and Mr. Funds. Everyone else is a prospective buyer not vested at the moment.

You and Mr. Funds have just one position in common; you’re both long UUP in size. And in today’s market, you’re doing fabulous.

Fuck yeah.

Unfortunately, what you don’t know is that UUP is actually a hedge for Mr. Funds. Mr. Funds’ real positions include SLV, AGQ, and vast holdings of physical silver, as well as a short in ZSL because “the dollar is going to shit.” In fact, precious metals make up 85% of Mr. Funds’ holdings.

Oh yeah, and one other thing. Mr. Funds’ is a recipient of feeder funds, and is rolling deep in 2X margin, and playing options on top of those positions, to create a 10X exposure built on top of a base that could call for redemption at any moment.

Mr. Funds just lost 40% of his holdings this week, because he’s a jackass. And sadly for Mr. Funds, he really cannot sell to much more of his silver and precious metals related positions, because the rest of the world isn’t investing, as I said at the beginning. It’s just you and him.

Mrs. Margin Lady calls up Mr. Funds, and is quite irate with him, for being a talentless shit. She wants him to come up with some serious capital, and she wants it now or she freezes his trades.

Question: what does Mr. Funds sell next to cover his ass and try to stave off collapse?

Answer: his hedge, UUP.

So good job chaps, you guessed right and are long UUP, as the dollar is exploding in value. No, you didn’t just guess right; you leveraged. You borrowed money to…uh, go long money. And it shows, because now you’re up 50%. You’re all set to do some dip buying maybe, or are just going to hold out.

But hold on buddy. You see, Mr. Funds just liquidated his UUP position. And again, while there’s maybe more interest in the unvested to buy UUP than say, AGQ, there still isn’t much interest. Mr. Funds has just overwhelmed the potential market for UUP.

And UUP just got cut in half.

So, congratulations on your call for the dollar. However, you don’t actually have any dollars, as you were using leverage to get the exposure. After Mrs. Margin Lady gets done mopping up Mr. Funds corpse, she’s going to return to her list, and you’ll be right at the top of it.

Inevitably, UUP will return to its glory, and more. But you won’t care.

You won’t care because you’ll be in bankruptcy in time for Christmas.

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