Life’s Easy When You’re In Cash

I must say, that when you’re sitting on a massive cash position and adequate hedging, it’s just not possible to become excited about stuff. The raucous of the 9th floor has shifted its melody from the deep baritone of market concerns to a soft reggae; that is almost nauseatingly soothing.

But though the 9th floor is quixotic in its machinations, the ground below is a bustle of activity and noise demanding my constant energy and more than replacing the displaced frustration and effort. 2014 is separated by a chasm, and in many respects I am an engineer of the bridge needed to span it. You do not realize it yet, but if our team fails in our endeavors, your life is going to be absolute hell when we careen off the edge. Actually, it may be a forgone conclusion at this point anyway.

My current positions are as follows:

I have 20% cash.

10% of my book is short the euro by way of EUO. 10% is shorting oil through SCO.

12% of my book is in physical silver.

20% of my book is in CCJ. The rest of is pretty evenly divided between AEC, CLP, BAS, RGR, AGQ and BXG.

I estimate my position is equivalent to a 55% cash position, since the inverse ETFs are so especially potent.

The most popular (and esoteric) argument for gun stocks being overpriced seems based largely on a riddle that goes something like this:

“You tell me, what happens when gun legislation passes and the buyers realize everything will be okay?”

Which is lovely. I enjoy riddles. And word games. And the works of Nabokov. But this isn’t about playful respite; this is about making money and being right. It becomes my duty, therefore, to thrash you.

I now present three illuminating bullets (I just proofread this and realized I made a pun):

* Stocks like RGR are only trading where they were before sales went crazy
* This legislation will not be hindering gun makers – background checks are perfectly doable because they will most likely have maximum waiting periods attached (1 month or less or else all clear); that’s a minimum to get the measure through the House (if anything even can)
* And, the big shebang…RGR hasn’t raised gun prices and I’m not sure the others have either

Yeah, see that’s the big open secret here. Guns are selling out of stock, but RGR’s CEO was adamant that his company would not be raising prices because, as he phrased it, “gun buyers as a group have long collective memories.” He doesn’t want to prey off his customer base, so RGR hasn’t raised weapons prices at all.

Ergo, once this bill passes and people go “oh, wait, that’s not so bad,” there will be no price incentive for them to cancel their order (“I could sit back and wait for prices to calm down…”). That, right there, isn’t happening. The guns that have been jumping in price are private sales. So, in RGR’s case (and I suspect the other manufacturers as well), there’s no clear financial edge to back out.

There is, however, still the looming possibility that Republicans could lose more seats (remind me, what is the popularity of the GOP at the moment?)…

(I told you I like riddles too)

And so, I am afraid (I’m not actually afraid) that this robust bounty of profitability RGR and the gun market at large are seeing is very much sustainable for a duration of at least a year (possibly two). While eventually and inevitably these orders will slow down, I really couldn’t care less. You see, the stocks are not pricing in this raw influx of cash, and one solid year of the orders they’re experiencing is the equivalent of several years worth of business, all front loaded and with minimum inventory risk attached.

I added a position in SCO for $40.19.

This takes my artificial cash position north of 50%. We are at the “edge of disappointment”, where things are neither good nor bad, but merely “meh”.

“Meh” gets you killed.

Europe will flare up again. Cyprus doesn’t matter particularly. The underlying reason we keep hearing about the EU is because the EU is fundamentally fucked on a spindle. The cost of holding the euro together, not just in terms of money, but in terms of man hours, resources, lost opportunities, bitter resentment, livelihood,…is just immense.

It’s never just about the money. When the economics and numbers don’t work, it should usually be a warning sign that you’re screwing something up largely. Money is a metric for measurement; hence why when obnoxious social justiciers whine about people only caring about the money – refusing to just go along with their latest “great idea” – I have a resounding urge to punch them in the throat.

I really don’t understand why European citizens are subjecting themselves to this. It’s not like they’re avoiding the losses…the pain is coming either way, so it’s a choice of accepting that, making changes to improve their underlying format, and moving on, or…not accepting that, getting the beat down anyway and setting themselves up for more failure later.

Anyways…Italian/Spanish/French debt is docile now, but it’s just a matter of time before the next explosion. Europe continues to miss deficit reduction targets by a quarter mile, and they’re all in recessions.

Dangers to the SCO position would include if the ECB and Fed were ever permitted to team up like Batman and Robin; doesn’t seem in the cards at the moment (or ever), but it’s worth stipulating that I really believe Bernanke & Co would view $150 oil as a “successful policy outcome.”

For the meantime, however, I’ve got decreasing industrial production overseas, an oil production bonanza here at home, and a hundred-years demographic movement towards smaller commutes all playing to my hand.

Starting right around October and driven by the Fed QE3 announcement, the dollar went into a lovely spiral that culminated in a EUR/USD exchange rate of 1.35. This brought a boon to US equity markets as business picked up, cheap dollars flooded debt markets and foreign capital found it had easier entrance.

However, the sustainability of the trend was always suspect, as witnessed first by Japanese retaliation and now by the reminder that Europe is built on a cracked foundation. EUO is preparing to correct the entire last five months of movement and the US advantage in trade is about to be eliminated. The Fed has once again been checked, this time by foreign currency markets (the last time was by the commodity markets).

Play close attention to the euro here. If it should follow through on the break down that would mark the top of this rally. I have long said that euro parity is an inevitability and with the latest bout of clowning that is being witnessed, I’m guessing that time is drawing nigh. Recall that I also said months ago this rally would be derailed by the EU crisis resuming.

Much of the uptick of economic data was built on those lower currency swaps. While the housing markets subsist on witnessed improvement, the question arises as to how the currency and housing markets are interlocked? The euro can erode the equity run and if the equity run erodes, will that impact homesteading?

The EURUSD thus threatens to create a major disappointment for investors and I see it leading us to the correction I offhandedly guessed at last Fall. The start of Spring is at hand, and it will be déjà vu.

It’s frightening how easy “investing” has become over the last five months. The yesterdays of 2012 are now far behind us, and mistakes and losses are an alien concept again. Much like early 2012 brought relief from the horrors of 2011. And 2011 in turn brought salvation from 2010. Etcetera.

The only thing more frightening than how easy playing this tape is would then be how many of you think you’re any good at this. IBankCoin traffic stats tell that story all too clearly. You’re an ace, batting 80%+ trades and you make Bill Miller look like a homeless person. You don’t need anyone anymore.

This dual function of mine makes this very frustrating. Nothing is more annoying than penning a detailed piece of a company’s management or laying out the market climate to the applause of perfect plumbing and no one reading the work. In that sense, I guess my call late last year for the most awesome rally ever was something of a nail in my own coffin (*cough* remind me how many of you bulls there were then…?). Irony can be a cruel mistress.

Whatever. You’ll come crawling back in no time.

First sign of trouble, maybe the second, and suddenly you’ll remember that you’re not so much an elite trader as a guy dabbling in a margin account (probably funded with advances from several credit cards) whose been so lucky to be on the right side of the trading over the last few months.

How many of you are locking in gains and thinking about cash? When was the last time you even bothered looking at what it is you actually own? What are the pathways to success or failure for your book?

By this time in September, site traffic will be back. Most of you are high on life right now, having chosen the most favorable conditions to try your hand at sailing. Nice clear skies, calm and steady wind and you’re on a path that never requires tacking.

But I’m watching those conditions turn. The wind is getting a little more erratic. The rain is coming out. It’s getting dark. We’re pressing into shore. And you’re not a sailor, buddy.

I just finished up looking over CLP’s end of year materials and voting my shares. They did a fabulous job – the multifamily theme continues to have powerful undercurrents carrying the REITs to success. Occupancy is so high right now; money is flowing freely and AEC and CLP are both pushing through massive expansions in the pipelines.

I continue to see good things coming from this sector. I will be maintaining my investment in both AEC and CLP.