I’ve Had An Epiphany

As far as debt talks are concerned, Republicans are going to get everything they demand, probably sometime next month but definitely before the treasury runs out of money.

Let me lay out the situation developing in Congress for you.

Republicans control the House and the Supreme Court; only one of which actually (supposedly) develops legislation and creates policy.

Democrats control the Executive Branch and the Senate. As far as crafting legislation is concerned, they oversee half of its creation and the entire implementation process.

You could say then that Democrats hold ¾ of the power in Washington. And that makes any outcome happening on Capitol Hill predominantly their fault.

So for the Democrats to try and paint the debt issue, if they fail to pass a raise in the ceiling, as the fault of the Republicans, makes them look completely ineffectual. It makes them look absolutely retarded, actually.

Meanwhile, Democrats espouse to help the poor, blah blah blah…but if they fail to raise the ceiling, then those exact people will be hurt the most when the checks stop getting cleared.

To use a metaphor, this standoff is like a game of chicken, where the Democratic Party has to keep driving the car at top speed at a wall, and the Republicans never have to take a turn. They just get to chalk down imaginary lines for the Dems to try and beat while they sit there and wait for the crash.

If Democrats are willing to play ball, then Republicans will get their cuts, including to the sacred entitlement cows. If Democrats aren’t willing to go on the record, then Republicans get what they want anyway by letting the Treasury get screwed, and frankly it’s much more likely that the Dems or Obama will get blamed for it. Are the Dems willing to risk creating a financial nightmare under their watch, simply because they refuse to accept net spending cuts without putting it on the backs of the country’s citizens? During a time when most people are suffering, including the most wealthy?

It sounds stupid just saying it.

Entitlement reform is being reluctantly accepted by some of the biggest political groups, including the AARP. If the AARP can swallow the medicine, I think you’d be surprised how reluctant people will be to punish Republicans for pushing the issue. Spending cuts are the mood of the moment, after the binge of the recent years.

Republicans are already on the record being flexible and stating they DO NOT want to shut down government or cause a technical default. This outcome is the Democratic Party’s child, and they will own it. Expect a Republican victory.

In case you missed the memo, let me pass on the word to you. The U.S. Government wants lower commodity prices.

They want them, and they shall have them.

Let’s just recap, shall we?

First, the PM exchanges raise margin requirements, effectively ape raping silver prices and flushing out the space, much to the cheers of the Tech space.

Next, legislators make much racket about defunding ethanol, sending corn prices into a downward spiral.

Then, just today, the IEA opens the doors to the SPR, announcing they’ll release 60M barrels of oil, causing the price of oil to get fucked over a barrel, sideways.

Am I missing anything?

I’m not going to be tactful about this. If you are long commodities right now, spouting shit about the dollar, Bernanke, and the end of the world, you must be some kind of fucking crazy person. That is the only way I can explain such erratic behavior, as hanging out in markets that the government is intentionally trying to burn to the ground.

Complain all you want about how this will have long term ramifications. You’re right, but public officials obviously don’t care.

They want lower prices to take the heat off the poor. Since this task isn’t going to be accomplished through real demand decreasing, then they will artificially lower demand, by blowing up every five and six figure futures account that gets in their way.

This policy can be summed up in kind:

Bureaucrats enjoy picking losers as much as they enjoy picking winners.

As if I didn’t provide enough reasons for getting out of the commodity trade, here’s another. You’re fighting a semi-sentient, loosely organized, and massively funded organization that is trying to make you lose.

Don’t be dumb.

Today is going to be crazy.

Update: It appears that the oil sell off I was witnessing has to do with politicians front running their own decisions, and not some sort of New Dawn Apocalypse.

Thus, today may not be so horrible as I first surmised.

Carry on.

Meetings. I am in them all week.

In the morning I arise, don clothing, and sit down at my first before I’ve even had a cup of coffee or tea.

In the afternoon, I rush a lunch, before scurrying off to my next destination.

I get up to go from my last meeting so I can sit at my desk and push papers for twenty minutes.

I watch steadily as the pile grows in the corner, next to the plant.

I see the plant there.

Away with my saturated workload.

So for now I am reduced to grabbing scraps of news and quotes in the five minutes between the time I’m slumped in a board room not getting anything else accomplished.

As for what I’m seeing; I was tempted to cover ERX last week, and for now it appears I should have. However, as I am still predominantly long, it is best to leave the hedge in place.

It is entirely plausible that oil and gas, along with underlying stocks, will retrace here, as energy is overpriced. Or, should affairs become grave, then the oil space will get cut down as it did three years ago (Has it been that long?). In either event, I will be glad I held short ERX.

Yet, the position could become dangerous if oil relaxes gently. As ERX is a short of oil companies, then they could go much higher, depending on how product demand adjusts to the more affordable pricing (business could actually improve for oil companies if oil sells lower and time is always opposed to this sort of trade).

In the ag space, corn is getting crushed, likely thanks to that ridiculous bill that will *end subsidies for ethanol.

Guess what? I’m told that provision is attached to a bill which doesn’t stand an ice cube’s chance in Hell.

And besides, with grain prices being so elevated from what they were and agribusinesses already so moderately priced, the corn sell off does not dramatically affect my position on BG. BG is a screaming buy, it is so unbelievably cheap.

What will likely happen, is the stock price of BG will continue to trade at pathetic levels, until realities force big names to gobble up shares. Perhaps, in a year or so, after BG’s track record is established, you’ll see big institutional investors starting to pick the company up on their radar.

What I know is that, baring catastrophe, BG will break through $100; and it should do so soon.

And, finally, CCJ is starting its ascent. It cannot be much longer now, before the uranium miners rain fallout on nuclear bears portfolios.

Now adieu, friends and faithful readers of the 9th floor. My freedom from this unhappy business of listening, talking and waiting is just two days away.

Pray for me.

The Greek issue is again being manipulated to create market direction, as news rooms report on the critical importance of today’s vote.

However, I don’t trust this line of reasoning to be correct or innocent.

This is called picking your battles, and the media, in my suspicion, are hyping the relevance of today to create a victory. Does it really matter if the current Greek president recreates a coalition government? Will the world collapse today if he fails?

I doubt it.

Greeces impact would sting, no doubt, but the principal holders of that debt are mainly elements of the EU and IMF themselves.

News anchors and policy wonks are shrewd enough to get a feel for how votes are going to end. Based on how they’re busy pushing this issue as “THE WORLD SHAKING SINGULARITY” I can only suspect that it is fully expected the Greek government will reform under similar lines as exist today.

More pressing, in my estimation, than some miniscule collection of islands in the Mediterranean, is the impact of global economic temperance and U.S. monetary policy, both of which are somewhere between indecisive to negative.

The worst outcome from Greece is the EU is shown to be fractious and begins to break up, which would of course be highly deflationary and jam a rock in this global economy’s engine. But even when it appears Greece stabilizes to save the day, there are bigger things afoot.

And for that, the 9th floor resoundingly declares, “Fuck Greece.”

My official position on this market is as follows:

It can rally to Saturn, so long as oil keeps going down.

Actually, a decreasing price per barrel of oil I feel is contingent on further market gains, at this point, as foolish gas station owners threaten to derail the global economy by sending prices soaring past any point before which citizens and entrepreneurs could have continued to operate with some level of apathy.

It is fully encouraged that these people take it in the teeth, so that they might learn some restraint when willing to pay Exxon or the like $3.00 per gallon to fill their reserves, so that they might scalp record profits off of the backs of the average customer.

Let’s see them remember why getting stuck with excess supply and downward price action is to be avoided.

Meanwhile, be wary about the Europeans, but not so much that you start doing something crazy like shorting. It would be very, very bad if their economies slow to the point that it starts to drag on global sales.

However, everything before that point will result in a much stronger dollar, so the expectation is lower equity and commodity prices. Combine that with a rigid dollar structure (for the moment), and you want a cash position. Don’t shun it, stronger currencies can be a good thing if they take the pain off savers enough to spur more demand. Quite worrying about the banks all the time, they aren’t the keystone to the market like they were in ’07. We just need them around to do their task, not necessarily to have them do well.

For me, the right cash level is about 10% (I’m a margin addict, in the recent past). If you typically keep cash around, then it likely looks more like 30-50% cash.

The Greeks having certain kinds of austerity forced on them is not a bad thing, unconditionally. Asset divestitures, for instance, will get resources into the hands of those who can better use them, at cheap and competitive pricing. Let the Greek government be left holding no land, for all I care.

However, if the cuts start to crush the populace to the extent that they don’t feel able to engage in consumerism, that’s another story. Public parks are irrelevant. But some pensions may be critical.

For now, I am optimistic that this issue can be navigated, all the while leading market responsibly lower. But there may come a point where everything is so colossally absurd that further easing and like is unavoidable.

That is when I’ll get full-coke-line-long again, if ever.