Let’s Short The Euro Again

Alright, my last maneuver shorting the euro was profitable, but less so than I hoped. Especially since I road it from the highs above 1.4 to finally covering a few days ago at 1.33-1.34, it yielded much less reward than it should have.

I am very confident that the euro is toast. In one way or another, they must make it weaker or there will be prolonged suffering in Europe. The news that the Fed and all the rest of the world was going to act in concert with one another spooked me, sure. But at best, the Feds actions are a promise to hold the dollar at its present exchange to the euro; same goes for the rest of them.

That’s no reason the euro should get stronger.

After the latest bounce, I’m feeling a little better that euro optimists have worn themselves out, so I started a half sized position in DRR for $42.53. This is a more leveraged product than EUO, which is what I was playing in before.

If the euro continues to strengthen, I’ll look to add some more up to 1.35-1.36. Much after that though and I’m selling for a loss; let’s not repeat my October this January, shall we?

The perfect outcome for me would be a prolonged period of the euro trading sideways here, while oil ramps higher for no reason, then a massive washout in the EURUSD after I’ve sold my UCO.

I’m quite positive that the title of this post doesn’t make any sense to you. You’re definitely reading this, shaking your head, thinking, “Cain’s lost it.” And you’re probably right. But it’s precisely because this doesn’t make any sense that I’m confident it’s where I need to be.

Today we got another report of a multimillion barrel oil inventory build, accompanied by a huge build in gasoline stockpiles, and more evidence of a global slowdown. And we also got another shrug off from the market, which apparently doesn’t care.

I think it’s stupid. You think it’s stupid. Let’s get past that. This market wants more expensive energy. It wants more expensive energy for as many as three nonsensical reasons:

1. Hope
2. Potential money printing
3. Iran

Let’s just skip one and two here because you’re all familiar with them. More than the gain we’ve seen there, I also get the impression that oil could have as much as $10-15 tacked onto it because people are worried about escalating conflict with Iran in the oil hub of the world.

Christ, no wonder the Iranians are so excited about getting a bomb. It’s not like a thermonuclear weapon does shit for them strategically. Their efforts to design a missile that can carry something like that have been pathetic, and even if they succeed, Israel is still packing heat courtesy Uncle Sam.

Right now Iran is under the muddy boot of the West. Getting a nuke lets them get out from under the muddy boot and under the clean one. Whoop-ty doo.

But can you imagine what the markets would do to oil if Iran sets off a nuke? I don’t know how much money Iran has been sinking into their nuclear program, but I’m sure it’s a small price to pay if their hair brained, European-schooled physics graduates can figure out how to get the detonation sequence to work.

Nothing like seeing your oil denominated export revenue double.

If I were Iran, I’d build two nukes, then launch them at each other. What’d that get them, $300 oil? Of course, after they get a bomb and people realize they can’t use it, oil prices would have to settle down. So maybe Iran just keeps trying to get a nuke, forever? You know, build a bunch of ’20’s styled, post-modern steel containers that look “spooky”, and leave them in a dessert with bright orange paint around them. Then the U.S. can spot them with our kickass satellites and piss ourselves from excitement. $100 oil hereafter, regardless of economic demand.

Alright, enough armchair general play. Demand right now should see oil being crushed, but some assholes are working hard to buy every dip. Maybe they have motives to see higher oil; maybe they think higher oil will “instill confidence,” maybe they’re just idiots “trend following.” The point is: I don’t care how weak volume is, so long as I have enough buyers to sell into in about two weeks. If people were dumb enough to buy money printing as an excuse without European results (and a plethora of European failures) then they’ll be dumb enough to keep buying that story for a little longer. Especially while the EU is spending up their emergency funding keeping Italian yields below 6%.

After that point in time, oil is fucked and people bidding it up are going to get dragged off a cliff like a ragdoll. And when that happens, I want to either be short energy again, or sitting on a lot of cash. But for now I’m gambling because my performance sucks and I really want it to suck a little less before January.

One day soon, Jim Rogers is going to get his bowtie stuck in a wood chipper, and we will all be given quite a spectacle to behold.

How any of you can possibly think that the Asians will escape the collapse of the West is beyond me. The West indirectly and directly employs a majority of their labor force. We are now being given glimpses of the coming fall, as even the Chinese cannot keep a straight face and tell us “everything is fine.”

How bad will it really be?

I can’t say. Much of what is going to happen depends on exchange rates of currency that haven’t been set yet. But if the euro collapses, I can tell you unemployment in places like China or Japan is going to skyrocket. The Europeans may be lazy, but at some point their lazy labor is worth the investment.

Jim Rogers is counting on Chinese leadership filling the void after some undetermined point at which Western culture collapses. What in the past one hundred years of human history, pray tell, makes you think they’re up to the challenge?

Let me just say here, without leaving any room to interpret: if you’re banking on hiding out in Asia to avoid the fall of the West, you’re kidding yourself and you’re going to get dragged through a wood chipper just like Jim Rogers’ bowtie.

Or Jim Rogers.

Believe me, I hear your points, and they are good. There is no reason that crude oil should be running higher here. In fact, the markets should be spiraling into a vortex.

The PMI numbers out of Spain alone reveal an economy that is steadily disappearing off the face of the Earth. They were in the thirties; that’s approaching “global blight” readings. The rest of Europe can’t be doing much better; this is what austerity does…what higher costs do. And that’s just one half of the Western World. The pinnacle of the Eastern World – China – is getting dragged into a singularity kicking and screaming the whole way.

People seem concerned with the Iranian escalation and the Straight of Hormuz getting blocked off. That’s sort of a moot point if the oil is just sitting in port when it gets to Europe though. I mean, you can only argue that global crude oil supplies are at record lows for so long, when we’re seeing inventory builds of 3-5 million barrels at a time.

Now, altogether, we in the 9th floor are all quite aware that crude oil is just waiting to collapse again. And this time, it will be worse when it does; whereas before the price ran into the high seventies, I have every reason to believe that next time the price will push way below that – into the sixties or even fifties – as the now booming inventory supplies will be liquidated by financial speculators when the demand issues demand predominance.

But know that between then and now, there is no reason why crude oil can’t push above $110 a barrel, along with the rest of the market. The market is scared; they do not want to get caught at the bottom of 2009 again. So they will take the global monetary forces at face value, and put a bid under this market that can last for weeks or even months.

That is why I am so long, and if opportunity presents itself, I may get longer. Just as people discounted the economy and sent stocks and commodities lower this year – before the economic data came out to support it – they are now discounting some sort of recovery taking place in Europe and a controlled descent in China. They will need to see that they are wrong before they reverse course, and mindset might not materialize until the spring, or maybe even next summer.

If you don’t have the stomach for playing both sides of the ball, I fully understand. Keep a healthy cash position and wait it out. But know that betting against the markets here is folly.

I cannot undo the missteps that have happened up until now. It was my lingering hope that by holding onto my shorts in oil, I would be ultimately relieved on a return to the lows. However, now that I have realized those losses, my capacity to borrow has been simultaneously recalculated to a lower amount.

With margin, there is never an equal opportunity. The odds are, sadly, always stacked against your favor.

But I also have no intentions of taking a 30% loss this year.

The market still looks favorable to the upside, and there is little doubt in my mind that the efforts of Congress to stymie the Fed will come up short. Now that the Fed is committed to keeping the dollar weak, higher prices for commodities and equities await ahead.

This also should create a favorable condition where the dollar is, again, grossly undervalued.

The cash position that I retained from the spring has been utterly decimated by my faults. As I am anticipating renewed strife ahead in the new year, my first step must be to build my cash reserves. This will help lower the risk of continuing to hold what I have and also build up for a buying opportunity that I think will begin to present itself sometime after the holidays. However, I do not wish to accomplish this task by selling out of my holdings; I have already realized more than enough losses for one year’s worth of taxes.

So I will be committing to this rally hard. I intend to dip in during this selloff/consolidation and up my margin position to 150% of holdings, on rips, concentrating on energy. If the Fed is resolved to maintain a weak dollar, and Congress proves incapable of interfering, then that is where a disproportionate amount of the money will flow.

These moves will be short term in duration, and will have the goal of getting my cash position up to 10% of assets – at first. I will see how long that takes me and then assess my ability to do more.

Also, I’m moving some money out of my accounts and into the vault where I keep my physical silver. Not too much, just .1% here, .1% there. I want a small reserve out of the financial system and I’d advise each of you have one also. There has been far too much tom-foolery in what is supposed to be our most trustworthy and lawful segment of the economy.

Banking and brokerage has become a black mark, and not only should you refrain from trusting any one of them with all of your money; you should refrain from trusting all of them with all of your money.

I’ll be looking to have 2-3% of my assets in cash and under my direct supervision.

For two years now, and many before that, I’ve spent Decembers hanging out in my office, staring lazily down the nine floors below me, and generally wishing it wasn’t December.

Christmas parties are fun and all, but after the second week of them, I look yearningly for the big drunk party that kicks off the real fast paced moves again.

Ha!

Somehow, I just have this feeling that I won’t have that problem this year.

Nothing about 2011 has been ordinary, dull, or humane. This has been the cruelest year on record; the very spirit of 2011 was a wanton she-bitch, as vindictive as she was malevolent. There was nothing more malicious than letting me think I had played her masterfully, then tearing my fingers out of my hand like she did. Everybody got a taste this year; even the central bankers who just coordinated an enormous gutting of the shorts spent the first ten months shaking in their boots.

Bring on 2012! I’m sure after experiencing this 2011 December I’ll clamor for the regular, banal version soon enough.

Now, don’t be fooled by the news, friends. Last night, listening to the manufacturing reports coming out of China, Chicago, and pretty much everywhere else, I started to feel the bearish mood return to me.

This is an error, though, I know it. People should have been seeing the signs of a slowdown in November, yet they ran the market up anyway. The only reason…the only reason…is because of the prospects for intervention which materialized yesterday.

The Fed gets the benefit of the doubt; especially with bond yields still settling. While you may want to jump right back in and start shorting energy (I was certainly tempted), this is a mistake. Now that we’re in intervention territory, the market has to correct by overheating.

It will happen. But I don’t think it will happen yet. There was a reason that I disclosed, many times before now, that the one thing that could get me long was coordinated action by the Fed and ECB; and we got not only that but additional help from other central banks too.

I’ve thought this through before now. Now is the time to be patient.