The Greek Dramedy: Help me express my predictions?

510 views

The situation in Greece has almost no tragic elements, despite what lazy headline writers would have you think. Rather, the situation in Greece is an existentialist black comedy, and we should act accordingly.

Let’s be clear here: no individuals are “holding the world economy hostage” or are going to plunge us into doom due to their personal character flaws. This is a very stupid and lazy argument akin to the “No WW2 without Hitler” hypothesis, which totally ignores all the structural conditions that made these figures relevant to begin with. The actors now have become personifications of certain policy approaches and even more than that, faux-moral positions. You will never get very far with predictive politics if you insist that a certain faction is willfully evil: the average  person who believes “Obama is a closet pacifist-communist-muslim” would have done pretty poorly if asked to predict his response to the events of the past four years in concrete numbers, not in retarded feelings propaganda terms.

So, no one here is evil, nearly everyone is acting either indirectly or directly in good faith to do what they believe will be best and most workable. Unfortunately, these ideas are at odds with one another and they can’t all be correct.

I’m increasingly getting the feeling that we’re going to see another deadlock in the Greek election, which will lead to another month of mixed bad news, choppy markets, and starry-eyed bullish optimism.  My back of the envelope predictions are some what hampered by 1) not being Greek 2) not being able to read Greek 3) not having any contacts in Greece who aren’t hopeless alcoholics and 4) polling blackout for the last two weeks. Still, here are the numbers as I see them:

SYRIZA: 26-31%

New Democracy: 28-32%

Pasok: 10-12%

Communists: 6-10%

Independent Greeks (right-wing anti-austerity, conspiracy theory, anti-politic s, light fascism):  6-10%

Greens, golden dawn, actual independents, etc etc.:  about 10% for all of them in total.

There’s a sliightly smaller chance of Syriza taking 35% and forming a “government of the left” successfully, but really for anyone to come out with a majority there will be some pretty strange coalitions that are not going to last long or inspire much confidence.

So, now I’m drawing on all of your collective wisdom and foolishness: what would be some of the better equities to long/short/buy or sell options in that would show the greatest gains from a deadlocked election or an unconvincing Syriza victory?  SPY puts, short eurofunds and shorting greek stuff seems too obvious, and I’m not sure what FAZ et. al will do, and I’m not sure if a deadlock will cause a big plunge down or just keep the chop going?

So, irrespective of your own predictions, what are the investment vehicles, equities, and tactics that could be used here to produce a better return than broad brush “Betting entire market goes up” and “Betting entire market goes down”  stuff?

 

Embracing the absurd and the impossible

254 views

Unless today and tomorrow end in deep, blood red, I’m ready to consider this another educational experience. That’s a nice way of saying I went against my better judgement to stay the fuck out and lost some money. This is the second time this year that I’ve been a step behind the market, or else it’s three steps behind me, which in the end amounts to the same thing. Clearly we’re playing poker here, not chess.

The first of these was the fascinatingly disastrous Facebook IPO.  Everyone knew facebook was going to go up a lot for at least the first few days, so everyone was getting in there with the intention of flipping it, totally ignoring all other market conditions, specifically the slow, steady decline of most social media stocks. Their murder was even more dramatic because everyone was holding all these secondary stocks to see if there would be a “facebook pop” that would let them get out or take profits. It was a zero risk move, because when facebook inevitably went up the secondaries would either catch some of the enthusiasm or they wouldn’t, but they definitely wouldn’t lose any money on that day of days, social media’s triumphal day in the sun! Everyone proccupied themselves with secondary questions: Will the secondaries get a bounce, is this bounce already priced in, how long until facebook cracks after the inevitable initial meteoric rise, etc. Fucking nobody that anyone’s ever heard of said what in retrospect seems obvious:  “there will be no facebook bounce, it will enter a choppy, downwardly trending market and it will suffer the fate of all speculative stocks with really high P/E ratios–aggressive compression, and this process will only accelerate the secondary selloff.”

The first order question was considered answered, so everyone moved on to question two, which proved to be a disaster for most. I was net short and closed out all my positions, fearing the mighty facebook bounce–if I’d stuck with fundamentals and ignored the hype I would’ve hauled the loot away.

So now, onto today. In my heart of hearts I didn’t think there would be a QE3 announcement today. In fact, I was sure there wouldn’t be: in the larger world a 7-9% correction of the stock market after it’s gone up more than that from January based on nothing but bad fundamentals is not a disaster that requires central banking. So, the big question was “will there be strong QE3 hints/announcements or not?” The clear implication was that if you thought yes you press on with being a bull, if you thought no you buy some shorts and rub your hands together in anticipation of the slaughter.

So now it’s today, there’s no QE3, no announcement, nothing even resembling a vague hint, and the markets are still fucking up, and they’re still fucking up. This was the absurd position, the paradox I once again failed to grasp, the crazy question I wasn’t smart enough to ask. It seemed very clear to me: if you thought there would be QE3 you were a bull, if you thought there wouldn’t be you were a bear. There now appears to be a third position other than stay the fuck away from large indexes.

This third choice was that a QE3 announcement, (contrary to all banker assurances) wasn’t going to happen but that the markets were going to go up regardless, because traders are a mixture of drugged out zombies and miniature skynets plotting the doom of humanity. This position would’ve offended bull and bear alike, who can denounce it for making no sense, for being myopic, for being intentionally absurd… and yet, it looks like that’s exactly what’s going to happen, at least for awhile. Keep in mind nearly all bull action since monday has been largely based on this magic announcement, so if we don’t finish lower than last Friday, good news that was priced in but isn’t true somehow isn’t going to dent the optimism of investors.

Throw away all investment books, stop looking at technicals, stop saying things are “overbought” and “oversold.” Read Kafka, look at the paintings of Dali, watch El Topo and Chris Morris, try to understand that for now anyone who can’t embrace the absurd and challenge the most basic logical assumptions about market action is going to get burned here. I don’t know if I have the stomach for it, but I’m going to try.

PS: just realized shorting gold today would’ve been the best way to get in on the “no QE, market rally anyway” action. Fuck my life and portfolio.

It’s a trap?

354 views

It is not the beginning of the end but one way or the other this week will mark the end of the beginning. The assumption that either the rally or the bearish fundamentals will continue to act in the same way they have been is obviously a trap. This means both short and long are the wrong move since the market could turn on a dime, or simply keep grinding along sideways all summer as anxiety builds. It’s honestly too choppy to even day trade with confidence, and there are very few stocks I would consider to be at bottom right now since all value is predicated upon speculative future production and there’s simply no way for anyone to accurately calculate what we’re going to be looking at in the next 24 months for natural gas production, copper prices, discretionary spending in asia, the value of the Australian dollar,  the political situation in the middle east, etc.

Really, I’m not bearish or bullish here any more, I’m just deeply, deeply confused.

The swirl of rumors, fundamentals, technicals and general nonsense has become past what any human realistically calculate, even if we had perfect information.  I feel like getting out of nearly everything today at a loss and being 99% cash.

Assuming that a rally here has real strength and is reliable is the height of foolishness, but betting against the feds keeping the balloon inflated is also pretty dangerous.  Even piece of shit stocks are going to get a big, meaningless boost making it dangerous and pointless to short, but on the other hand everyone knows the fundamentals are really weak and this skullduggery isn’t going to end well. The idea that the real economies are going to fully recover before the central bankers run out of tricks is wildly, stupidly optimistic.  It’s also stupidly optimistic from the bear side to assume  that at this present moment they’re already out of tricks.

“Strange, the only winning move is not to play.”

205 views

Trade ideas for today: spend time with your family, practice drinking heavily during the day, stalk an ex on facebook, go to the library, plan a picnic in meticulous detail, learn how to whittle,  go to the mall and buy an ironic “gone fishing” sign to hang on your door, actually go fishing unironically, …and so on.

 

I’m sure there are tens of hundreds of thousands of pennies to be made doing lots of death-defying scalping in this market, but I’m not going to be in there. The trend is down, the fundamentals are down, rumors are flying but nothing short of dumping a couple of trillion dollars into the market in the next month is really going to reverse this. Optimistic news is just a roadmap to a plan to a framework which presumably envisions something good at some point. The markets are still choppy and sick:  a few large items of bad news can trigger another mini-crash or a full on flush, whereas any good news here has to be weighed against a bunch of structural problems no single event can really solve.

Thus, I’ve circled the wagons after a furious day of overtrading and ending up where I started but making my broker’s family rich.

I’m 90% cash,  Only trade today was to buy then  immediately sell  my weekly puts because this clearly became a fuck fest, and also sell a bunch of shit at the first rally just to get more liquid.

I’m holding my S&P  124 puts for January 2013, bought some more gamestop (GME) october 20 puts because they suck, small long position in the undervalued polish index (PLND), a small losing position in natural gas (UNG) and a small position against the Russian index (RSX) because I live out here and  business coverage is reading like something out of 1997: cautious optimism, slight pessimism, cautious optimism again, then an unforseen bloody collapse.

THQI is also doing great, keeping the penny-stock section of the portfolio honest, or if not honest at least not unprofitable.

I don’t care what happens, all of these can sit until Friday.

While I’m writing this we’ve seen totally random 60 cent swings in the S&P, followed by roars of victory from one side or the other followed by an immediate, equally meaningless reversal and further pointless cheerleading. I need some more hobbies, cause this “I day trade five days a week” is gonna harm my portfolio sooner rather than later.

Nobody Move, Nobody Get Hurt

284 views

I’m seeing a lot of chatter on IBC and stocktwits from people who want to make the big call to be “contrarian” bulls and buy heavily on Monday. My friendly advice is, “don’t be a hero.”  I even know some dicks who bought into the close on Friday, which really seems like masochism. And as the other markets worldwide today turn not only red but are also somehow thick seas of gore, my preening and annoying advice from this weekend proves to have been correct.

 I bought (and have the timestamped stocktwits posts to prove it) 132 puts at 3:30 on Thursday when the SPY was at 132.20 because I had an analysis that I completely believe in, and I was noticing that the bulls had been fueled by rumors for weeks and had systematically discounted every single piece of bad news. Each new rally infuriated me because I didn’t keep enough powder dry, but I held on and accumulated whenever I could because something had to give eventually and the job numbers on Friday were actually worse than my most pessimistic estimate.

The amazing thing is that bulls in the ol’ stream were still trying to spin a miss of more than 100,000 jobs on top of weak manufacturing data for Germany and China as somehow not a big deal and already priced in. That’s the attitude of a glassy-eyed cultist, not a sober investor.  If there are enough of them on the market and they’re leveraged enough, their stubbornness can cause a spectacular crash.

Buy when there’s blood on the streets is the oft-quoted advice, but understand that the current downturn is nowhere near enough blood on the streets. I won’t be a buyer until there’s a policy response or we hit around 115. Now that will be blood, and I have a whole watchlist of companies I like that I’d love to scoop up around there.

The question I ask the contrarian bulls  is: why should the stock market be going up when realistically the prospects for future profits have diminished in the near term and there needs to be some serious global restructuring?

Fucking…forget technical analysis, forget being a clever contrarian, take look at the actual, physical building blocks of the world economy. Given their current configuration, why should the S&P be higher now that it was three or six months or even a year ago? Why should we be more optimistic now than we were then, knowing what we know, with the data we have now?

If you can’t answer that question in a detailed and very specific way you shouldn’t buy on Monday.

All I’ve seen from the bulls is a lot of handwaving and shit about how being “contrarian” is the smart play even when they have no underlying basis for their opinion right now. I feel like most of the bulls couldn’t even begin to answer these questions and even worse  have contempt for anyone who seems to find them important. If I had a larger soap-box or any real relevance, I certainly wouldn’t give any advice because in a macro sense this exact shortsightedness is what’s going to give me 300% yearly returns. But because I love you all, I’ll say this again: nobody move, nobody gets hurt, the bears will be in and out in a few months and leave you with a tradable bottom. But if you try to be a hero and  grab the gun from our hands before we’ve emptied the safe we’re going to blow your head off without a shred of remorse. Even worse, we’re gonna laugh about how you screamed when you died as we drive home to our new condos we paid for with your money.

I’m now quite happy to reshort, but reshorting the SPY smacks of laziness, so where might I put my newly found wealth to work for me again? Probably the bulk of it will be going towards Pokemon cards, pogs and beanie babies but I’m a keeping a watchlist just in case people on ebay won’t deliver them to my third world country of choice.

Compound Interests

242 views

As we teeter on the brink of collapse, let’s consider why we might still be right to do what we do. Remember those books about responsible financial planning that tried to show you the power of compound interest and encourage you to start saving up money from an early age? Isn’t it amazing this bankster propaganda is still being spread despite the falsity of every one of its assumptions?

Let’s take one of the classic examples, shall we?

“If Mary started saving $40 a week from the age of 35, at seven percent interest by age 65 she would have $66,768. With compound interest, however, she would have $210,232.

If Abbey began saving when she left home at 18, putting just $20 away each week and earning seven percent on her savings, by the time she was 65, with compound interest, she would have $366,361 in her bank account.

Twenty dollars today can be worth a whole lot more in future. Considering most people have $20 they won’t miss too much, it makes sense to start tucking it away and getting it working for you.”

This is the most sick and retarded thing I’ve ever seen and I watch some pretty weird porn. Assuming an interest rate of 7% in a savings account combined with nominal inflation of zero and effective inflation of zero is pretty dark and twisted.  The current interest rate is gonna be less than 2% for the foreseeable future, and while we may see nominal deflation, I kinda doubt we get into negative numbers for long. What fucking bank has 7% interest? What mutual fund is grinding out 7% a year in this market? What the fuck are you talking about, financial planning website?

When traders talk about risk management we usually mean not blowing up. This is all well and good. When the average “square” investor talks risk management, unless they’re buying ammo and canned goods they have no concept of what constitutes a safe investment. It’s really simple: these days there are no safe investments. You have to jump from one lily-pad to the next and constantly fine tune the balance between stocks, cash, bonds, real estate, end-of-the-world puts, and maybe even something really bizarre like precious metals. I don’t think any of them can be “set and forget” anymore.  The expression “safe as houses” was really ruined for everyone forever in the 2008-2009 crash, precious metals bulls may get their comupence in the strangest way if/when there’s a market flush and valuations become realistic again, bonds obviously suck but people are going bananas for the lowest rates ever because they can at least preserve capital but as soon as the end of the world doesn’t happen people are gonna wake up, and long, out-of-the-money end-of-the-world-puts can see 200-300% ROI in a week, and if they’re weakening (not likely for now) you can get it down to 1% of portfolio or something, so you’re not looking at any serious losses even if they should all expire worthless.

But again, constant tinkering with the ratios is what’s needed to actually be even semi-safe: I plan on sliding around a range of 5-10% in precious metals selling off down to 5% when there’s a profit, same 5-10% with bonds,  being at  10-30% in equities/calls, 10-30% in the meanest puts alive and keeping the rest in cash ready to be deployed for swings and shitty slumlord property my criminally-minded family bought/plans to buy at the local market bottom. Finally, I have 500 bucks in my savings account that I’m too lazy to get out and it’s costing me like 30 dollars a year in administrative fees. But with friendly policies like that and record interest levels, I’m sure they’ll be seeing a reverse bank run as Americans who are fearing uncertainty rush to put their money in  savings accounts.

Now, as for my portfolio proper, this is the less than exclusive list of my current holdings:

SPY October 124 puts (showing 34% profit)

SPY January 124 puts (Showing 18% profit, lots of padding)

RSH January 7.5 puts (Showing 70% profit, gift that keeps on giving)

GME July 21 puts (Showing 60% profit, added more on Thursdays bizarre spike)

ABT (Held for 20 years, no idea what total  profits are: Never touched it, pays strong dividends, global pharma, solid growth)

THQI stock  (<1500 dollar position, and showing 5% loss, but totally unaffected by a market crash since they already crashed)

TTM  stock (Ta-Ta Motors, Indian car manufacturer, <1500 dollar position showing 2% profit, India handles GDP slowdowns better than China because of less infrastructure development, lower lever of industrialization, more headroom)

I’m about 70% cash, now which is a big swing from 2% cash on market close on Thursday as I was shaking and vomiting but throwing all my cash at 132 weekly puts…. but fuck you all, robots can only delay the bad news for so long before capitulating. This is the part where my script cuts off, so I’m obviously bearish but I feel like I’ve already made my crash money and don’t want to push it further.

Weekly Rumor Roundup

185 views

Let’s take a look at the later denied rumors that have held the market up this week and then been disproved almost immediately. Some of them arei eerily similar to last week’s G8/Eurosummit rumors which also proved to be nothing: basically we’ve had a solid three weeks with not a single piece of good news, and bulls have assured us that everything has already been priced in or doesn’t matter:

1) Merkel Will Agree to Eurobonds this Week

No, absolutely not, would require a minimum of 5 years to do and all the major parties in Germany are united in opposition to it at the moment.

2) Huge China Stimulus on the Horizon

The Chinese are going to do some domestic stimulus and maybe even some bargain hunting in Europe, but they’re still assessing the results of the last one and they’re not that pleased with the results. It could be a couple of hundred billion over a couple of years, but nothing to really move world markets or assure anyone.

3) The IMF will bail out Spain!

Rumor spread and rumor denied in a record three hours, no one’s even sure how it would work if they wanted it to.

4) US GDP numbers are great!

This rumor caused a run up on Wednesday, turned out to be totally off.

5) The ECB is getting ready to step in, somehow!

No they’re not–they may cut some rates and float some cash, but they’re in damage control mode, not stimulus mode, and even if they wanted to they wouldn’t be able to quickly enough to really turn this market around.

This brings us to the current rumor that’s trying to hold things together premarket

6) The US payrollt numbers are great!

Even if the US beats massively on the numbers that’ve been revised down like three times in a row, is 165k vs 150,000 estimated really going to counteract the concrete fact of bad manufacturing numbers out of China and Germany and near-crash conditions in Japan plus a bad Indian GDP when arguably these countries plus maybe england are the only relevant industrial economies left? If the robots say yes today I will be 50% in SPY 100 January 2014 puts with a clear conscience and spend the rest on coke and hookers in anticipation of a huge windfall in the next six months.

But actually, I think those numbers are going to be shitty and we’ll see some major tests of support lines today.

Who Bonds the Bondsmen?

265 views

The more I study stock/bond movements since January, the more I feel they were unjustified and that this is going to be a summer of real suffering barring further money-drops. Honestly, further easing doesn’t look politically viable, but any incumbent sitting on top of a bad economy is pretty much asking for automatic defeat so neither choice is good. The bond yields just keep getting lower and nobody seems to give a fuck: once we’re out of the woods shorting stuff like TLT is gonna be genius, but for now it’s not a bad addition to the portfolio.

Most traders are fucking politically illiterate and grab onto whatever crackerjack theory they want to believe, and the one that’s still floating around somewhere in between the Chinese stimulus and QE rumors is that the Europeans are gonna pull it together and the great helmswoman Merkel is going to cave into the French, the Spanish, and the Italians and do some kind of miracle eurobond consolidation assurance maneuver.

This will never fucking happen. Everyone else in Europe (and in the US, really)  is politically trapped and feeling the economic squeeze and a retribution oriented electorate. For instance, if I had to guess I would say Stirzia (however it’s spelled) and New Dawn and friends get approximately equal numbers in the election and that one or the other gets to form a totally unworkable coalition that will make a bunch of unpopular decisions, get propped up by the EU temporarily then have all the minor coalition partners flee the sinking ship and make them rule in agony as a minority-government until they finally have elections and the ruling party gets  their face smashed and return with 5% of the vote. Pretty specific, but that’s what I see as most likely.

The only person not trapped is Merkel, and she can stay in power despite overall economic weakness as the the idea is that she’s going to be tough on the laggard euro economies. The German economy is not doing that badly and they really have no appetite for further stimulus without structural reforms no non-German county (exception: Austria) would be able to carry out or even want to. We’re seeing some WW1 style Volksgemeinschaft Endseig shit, which basically means that all the other German parties are not going to break ranks with her on her foreign economic policies and the next German election may very well bring another SPD/CDU grand alliance.  Look for a quiet alliance of greater Germany made up of the BelNeLux countries,  Germany, Austria, and Denmark to form a counterweight or “Axis” if you will, all designed counter the fiscal suggestions of the Latin countries. Given enough time, that grouping may actually form the basis of a new Euro-lite currency but that’s neither here nor there right now.

The point of all this is:  Eurobonds will never fucking happen.  Merkel even said they were unconstitutional, and in Germany, those are fighting words. I’ll grant you there may be some faux version of Eurobonds that bears the name but there will not be any commonly guaranteed loans coming out of the Eurozone any time soon.

This all leads me to an unfortunate article  by Niall Fergeson:

http://www.thedailybeast.com/newsweek/2012/05/13/niall-ferguson-will-europe-act-to-avoid-an-economic-cataclysm.html

He correctly and amusingly outlines the overall situation, then comes up with completely incorrect solutions. The worst thing he  suggests Germans don’t want to back a special Eurozone bond because they’re “complacent.”

I think the better term might be “cautious” or even “not retarded.” With German 0% bonds gaining popularity, it’s not clear why anyone would think that a glass of carefully brewed German beer would be more marketable after being mixed with water from a half-dozen different sewers.

In fact, only someone with an explicitly political motive would suggest these could be anything other than a disaster. Ferguson is such an even-handed imperialist he considers anyone not eagerly trying to assemble or defend any empire anywhere at anytime to be “decadent” and even “irresponsible.” Europeans already want less political integration and less economic integration, and certainly in the ultra-undemocratic financial sector, so anything that smacks of federalism is a total non-starter unless you live in Romania or Cyprus or something.

People already feel helpless and barely able to regulate and control their national banks: making it some terrifying beast out of Brussels would create a crisis of political legitimacy even worse than the one the EU already has now. My idea before (that I was a bit early on and got just reamed on for messing up the timing) was that we’re seeing a perfect storm where each political entity acts in a way that’s rational to them and protects their interests  but causes the overall macroeconomic environment to deteriorate.

I consider the October 124 SPY puts to still be priced very reasonably and for the discerning gentleman, the January 124 puts may also tempt. European indices are absolutely insane right now and the huge amount of volatility has already been priced in to a pretty large degree, but our own markets still heavily underestimate the degree to which we are tied to Europe.  Much as the 1929 crash had nothing to do with Europe but still caused their economies to collapse, major problems in Europe that in principle we have nothing to do with can also rebound back on us. Throw in the fact that China is going to be battening down the hatches to avoid political fallout from an economic slowdowns,  the Middle-East is still a tenderbox and the US has a huge debt load, a post-industrial economy, and unemployment numbers that are probably going to see 10% before they reach 7%, it’s hard to justify current stock prices. Still a lot of great growth stocks out there and my over-bearishness has definitely cost me a lot of money these last few weeks but right now it’s better to trade with the idea that the trend is down and that this company should retain its value even if there’s a full-blown depression.

Predicting the apocalypse is not a portfolio strategy

130 views

The call-put action is still really aggressive on both sides of the S&P and the tea-leaf reading (my own included) is off the fucking charts and then right back on them again because everyone’s grasping at straws. This is where Nassim Taleb’s point that the guy with 50 indicators really doesn’t have better predictions than the guy with 10 but feels more confident is the guy who blows up. Which is me, right now.

I was pretty surprised we didn’t have the “market direction bloodbath” I anticipated on Friday. Ie, I was fucking wrong. Now that we’ve all irresponsibly carried it over to a three day weekend we could see days or weeks of more positioning. Or the whole fucking thing could collapse or break out. Whatever, who fucking knows. I was and still am pretty bearish long term, but the right way to play that (I think) is to have 120-130 January (yes, January, assholes, I like padding!)  2013 SPY puts for 5%-10% of the total portfolio, buying up to 10% on bullish-headfakes and selling off down to 5% based on market moves down. Which is not what I did…what I did was put 50% into MONTHLY PUTS! Jesus Christ, what the fuck was I huffing!

The point is that playing Nostradamus has cost me money in the past, and I fell victim to that messianic impulse last week. Rather than say “slightly adjusting my hedge towards the downside” I got all in on the idea of a double downturn on the market, and kept accumulating. Even if I haul away mad loot off the tears of others this week,  I fucked my portfolio the fuck up and showed the risk management profile of a retarded chimp who thinks he’s Jesus. I am 2% in cash in this market (why, oh god why?) and each “fuck” in this post represents approximately 10% of my portfolio that’s in some seriously fucking stupid and unstable shit.

The smart money is 95% cash right now and at this point anyone not willing to consider a 25% downside on stocks and a 100% downside on puts/calls in like, the next two weeks should be 100%. I’m at 2% cash as of writing and 70% puts. I need a snide teenager who shoots down everything indiscriminately to just act as a tiny speed bump  because left to my own devices I apparently enjoy sticking my entire body as far into the abyss as it will go.

Gotterdammerung

233 views

Anyone who’s not 100% cash has already picked a side in the war, and once you have a side here it’s gonna be hard to switch.

 

Basically, all the economic news is bad with only rumors of a QE being the only possible good news in the next few months. Yet the bulls have fought hard this week by continuing to assert the market is oversold and we’re due for retracement. This is technically correct but the problem with this assertion is that it assumes 1) the last correction was mostly overreaction because 2) the market had already almost correctly priced in all possible future bad news.  Bad news is irrelevant to the  bulls now: there’s not even a rationale for why it matters now, it’s simply all discounted as having already been priced in.

If you read point two out loud there you’ll realize how retarded it sounds.  The market has already priced in all unknown future events correctly.  Of course, they’re not idiots and I’m not trying to knock down a straw man here. What they mean is that they’ve priced in, as best they can, the “worst case scenario” from all risks on the horizon.  The problem is that humans are not very good at predicting rare events and each large market actor has an incentive to minimize them further in order to render greater short-term gains.

The only real bull case was that -6% is too large of a correction and the market’s oversold. That said, the 5% gains of January were equally large and based on nothing but optimistic data and rumors, almost none of which have come through. What’s interesting is that while the Euro crisis gets all the headlines, the US is actually not doing that much better economically, though of course it’s much more stable politically. Take a quick look at the FTSE and the S&P over a 3 year period and you’ll see some  divergences that are not justified by economic data. If you add in the (somewhat unrepresentative) Shanghai index the divergences get even stronger and stranger.  Add in Japan and the picture gets absolutely terrifying.  America is the largest economy but collectively the Eurozone more than matches it. Again, the problem isn’t Greece, it’s that Greece can’t be dealt with since nearly all of the other european economies are in trouble too. Greece just puts a particularly bright spotlight on the fundamental economic problems of europe.

The economy is not a zero sum game in any sense: generally either everyone wins or everyone loses–1929, 1987, and 2008 were all American crashes with American causes yet they took the world down with them. As Greece languishes with unsustainable austerity or unsustainable debt it looks like they may get the worst of both worlds and other countries could follow shortly after, at which point the first country to full-on default will knock 500 points off the DOW that afternoon.

Of course bulls run the market 90% of the time (as it should be) but when they fight the fundamentals and the news too hard they cause crashes.

Today should be the one that sets the tone for the next couple of weeks. The last two days of rallies in the last thirty minutes are pretty unlikely here since it would be a rally into a long position over a three day weekend when basically 90% of possible news is going to be bad so the bulls will need to be in control for most of the day if they want to close up 5 days in a row.  I would be very, very surprised if we put off this day of decision until monday, so I’m expecting a very choppy market (like everyone else) with a serious chance of resistance levels being broken. I’m bearish here as it just seems like there’s way more downside than upside.

 

The Greek Dramedy: Help me express my predictions?

510 views

The situation in Greece has almost no tragic elements, despite what lazy headline writers would have you think. Rather, the situation in Greece is an existentialist black comedy, and we should act accordingly.

Let’s be clear here: no individuals are “holding the world economy hostage” or are going to plunge us into doom due to their personal character flaws. This is a very stupid and lazy argument akin to the “No WW2 without Hitler” hypothesis, which totally ignores all the structural conditions that made these figures relevant to begin with. The actors now have become personifications of certain policy approaches and even more than that, faux-moral positions. You will never get very far with predictive politics if you insist that a certain faction is willfully evil: the average  person who believes “Obama is a closet pacifist-communist-muslim” would have done pretty poorly if asked to predict his response to the events of the past four years in concrete numbers, not in retarded feelings propaganda terms.

So, no one here is evil, nearly everyone is acting either indirectly or directly in good faith to do what they believe will be best and most workable. Unfortunately, these ideas are at odds with one another and they can’t all be correct.

I’m increasingly getting the feeling that we’re going to see another deadlock in the Greek election, which will lead to another month of mixed bad news, choppy markets, and starry-eyed bullish optimism.  My back of the envelope predictions are some what hampered by 1) not being Greek 2) not being able to read Greek 3) not having any contacts in Greece who aren’t hopeless alcoholics and 4) polling blackout for the last two weeks. Still, here are the numbers as I see them:

SYRIZA: 26-31%

New Democracy: 28-32%

Pasok: 10-12%

Communists: 6-10%

Independent Greeks (right-wing anti-austerity, conspiracy theory, anti-politic s, light fascism):  6-10%

Greens, golden dawn, actual independents, etc etc.:  about 10% for all of them in total.

There’s a sliightly smaller chance of Syriza taking 35% and forming a “government of the left” successfully, but really for anyone to come out with a majority there will be some pretty strange coalitions that are not going to last long or inspire much confidence.

So, now I’m drawing on all of your collective wisdom and foolishness: what would be some of the better equities to long/short/buy or sell options in that would show the greatest gains from a deadlocked election or an unconvincing Syriza victory?  SPY puts, short eurofunds and shorting greek stuff seems too obvious, and I’m not sure what FAZ et. al will do, and I’m not sure if a deadlock will cause a big plunge down or just keep the chop going?

So, irrespective of your own predictions, what are the investment vehicles, equities, and tactics that could be used here to produce a better return than broad brush “Betting entire market goes up” and “Betting entire market goes down”  stuff?

 

Embracing the absurd and the impossible

254 views

Unless today and tomorrow end in deep, blood red, I’m ready to consider this another educational experience. That’s a nice way of saying I went against my better judgement to stay the fuck out and lost some money. This is the second time this year that I’ve been a step behind the market, or else it’s three steps behind me, which in the end amounts to the same thing. Clearly we’re playing poker here, not chess.

The first of these was the fascinatingly disastrous Facebook IPO.  Everyone knew facebook was going to go up a lot for at least the first few days, so everyone was getting in there with the intention of flipping it, totally ignoring all other market conditions, specifically the slow, steady decline of most social media stocks. Their murder was even more dramatic because everyone was holding all these secondary stocks to see if there would be a “facebook pop” that would let them get out or take profits. It was a zero risk move, because when facebook inevitably went up the secondaries would either catch some of the enthusiasm or they wouldn’t, but they definitely wouldn’t lose any money on that day of days, social media’s triumphal day in the sun! Everyone proccupied themselves with secondary questions: Will the secondaries get a bounce, is this bounce already priced in, how long until facebook cracks after the inevitable initial meteoric rise, etc. Fucking nobody that anyone’s ever heard of said what in retrospect seems obvious:  “there will be no facebook bounce, it will enter a choppy, downwardly trending market and it will suffer the fate of all speculative stocks with really high P/E ratios–aggressive compression, and this process will only accelerate the secondary selloff.”

The first order question was considered answered, so everyone moved on to question two, which proved to be a disaster for most. I was net short and closed out all my positions, fearing the mighty facebook bounce–if I’d stuck with fundamentals and ignored the hype I would’ve hauled the loot away.

So now, onto today. In my heart of hearts I didn’t think there would be a QE3 announcement today. In fact, I was sure there wouldn’t be: in the larger world a 7-9% correction of the stock market after it’s gone up more than that from January based on nothing but bad fundamentals is not a disaster that requires central banking. So, the big question was “will there be strong QE3 hints/announcements or not?” The clear implication was that if you thought yes you press on with being a bull, if you thought no you buy some shorts and rub your hands together in anticipation of the slaughter.

So now it’s today, there’s no QE3, no announcement, nothing even resembling a vague hint, and the markets are still fucking up, and they’re still fucking up. This was the absurd position, the paradox I once again failed to grasp, the crazy question I wasn’t smart enough to ask. It seemed very clear to me: if you thought there would be QE3 you were a bull, if you thought there wouldn’t be you were a bear. There now appears to be a third position other than stay the fuck away from large indexes.

This third choice was that a QE3 announcement, (contrary to all banker assurances) wasn’t going to happen but that the markets were going to go up regardless, because traders are a mixture of drugged out zombies and miniature skynets plotting the doom of humanity. This position would’ve offended bull and bear alike, who can denounce it for making no sense, for being myopic, for being intentionally absurd… and yet, it looks like that’s exactly what’s going to happen, at least for awhile. Keep in mind nearly all bull action since monday has been largely based on this magic announcement, so if we don’t finish lower than last Friday, good news that was priced in but isn’t true somehow isn’t going to dent the optimism of investors.

Throw away all investment books, stop looking at technicals, stop saying things are “overbought” and “oversold.” Read Kafka, look at the paintings of Dali, watch El Topo and Chris Morris, try to understand that for now anyone who can’t embrace the absurd and challenge the most basic logical assumptions about market action is going to get burned here. I don’t know if I have the stomach for it, but I’m going to try.

PS: just realized shorting gold today would’ve been the best way to get in on the “no QE, market rally anyway” action. Fuck my life and portfolio.

It’s a trap?

354 views

It is not the beginning of the end but one way or the other this week will mark the end of the beginning. The assumption that either the rally or the bearish fundamentals will continue to act in the same way they have been is obviously a trap. This means both short and long are the wrong move since the market could turn on a dime, or simply keep grinding along sideways all summer as anxiety builds. It’s honestly too choppy to even day trade with confidence, and there are very few stocks I would consider to be at bottom right now since all value is predicated upon speculative future production and there’s simply no way for anyone to accurately calculate what we’re going to be looking at in the next 24 months for natural gas production, copper prices, discretionary spending in asia, the value of the Australian dollar,  the political situation in the middle east, etc.

Really, I’m not bearish or bullish here any more, I’m just deeply, deeply confused.

The swirl of rumors, fundamentals, technicals and general nonsense has become past what any human realistically calculate, even if we had perfect information.  I feel like getting out of nearly everything today at a loss and being 99% cash.

Assuming that a rally here has real strength and is reliable is the height of foolishness, but betting against the feds keeping the balloon inflated is also pretty dangerous.  Even piece of shit stocks are going to get a big, meaningless boost making it dangerous and pointless to short, but on the other hand everyone knows the fundamentals are really weak and this skullduggery isn’t going to end well. The idea that the real economies are going to fully recover before the central bankers run out of tricks is wildly, stupidly optimistic.  It’s also stupidly optimistic from the bear side to assume  that at this present moment they’re already out of tricks.

“Strange, the only winning move is not to play.”

205 views

Trade ideas for today: spend time with your family, practice drinking heavily during the day, stalk an ex on facebook, go to the library, plan a picnic in meticulous detail, learn how to whittle,  go to the mall and buy an ironic “gone fishing” sign to hang on your door, actually go fishing unironically, …and so on.

 

I’m sure there are tens of hundreds of thousands of pennies to be made doing lots of death-defying scalping in this market, but I’m not going to be in there. The trend is down, the fundamentals are down, rumors are flying but nothing short of dumping a couple of trillion dollars into the market in the next month is really going to reverse this. Optimistic news is just a roadmap to a plan to a framework which presumably envisions something good at some point. The markets are still choppy and sick:  a few large items of bad news can trigger another mini-crash or a full on flush, whereas any good news here has to be weighed against a bunch of structural problems no single event can really solve.

Thus, I’ve circled the wagons after a furious day of overtrading and ending up where I started but making my broker’s family rich.

I’m 90% cash,  Only trade today was to buy then  immediately sell  my weekly puts because this clearly became a fuck fest, and also sell a bunch of shit at the first rally just to get more liquid.

I’m holding my S&P  124 puts for January 2013, bought some more gamestop (GME) october 20 puts because they suck, small long position in the undervalued polish index (PLND), a small losing position in natural gas (UNG) and a small position against the Russian index (RSX) because I live out here and  business coverage is reading like something out of 1997: cautious optimism, slight pessimism, cautious optimism again, then an unforseen bloody collapse.

THQI is also doing great, keeping the penny-stock section of the portfolio honest, or if not honest at least not unprofitable.

I don’t care what happens, all of these can sit until Friday.

While I’m writing this we’ve seen totally random 60 cent swings in the S&P, followed by roars of victory from one side or the other followed by an immediate, equally meaningless reversal and further pointless cheerleading. I need some more hobbies, cause this “I day trade five days a week” is gonna harm my portfolio sooner rather than later.

Nobody Move, Nobody Get Hurt

284 views

I’m seeing a lot of chatter on IBC and stocktwits from people who want to make the big call to be “contrarian” bulls and buy heavily on Monday. My friendly advice is, “don’t be a hero.”  I even know some dicks who bought into the close on Friday, which really seems like masochism. And as the other markets worldwide today turn not only red but are also somehow thick seas of gore, my preening and annoying advice from this weekend proves to have been correct.

 I bought (and have the timestamped stocktwits posts to prove it) 132 puts at 3:30 on Thursday when the SPY was at 132.20 because I had an analysis that I completely believe in, and I was noticing that the bulls had been fueled by rumors for weeks and had systematically discounted every single piece of bad news. Each new rally infuriated me because I didn’t keep enough powder dry, but I held on and accumulated whenever I could because something had to give eventually and the job numbers on Friday were actually worse than my most pessimistic estimate.

The amazing thing is that bulls in the ol’ stream were still trying to spin a miss of more than 100,000 jobs on top of weak manufacturing data for Germany and China as somehow not a big deal and already priced in. That’s the attitude of a glassy-eyed cultist, not a sober investor.  If there are enough of them on the market and they’re leveraged enough, their stubbornness can cause a spectacular crash.

Buy when there’s blood on the streets is the oft-quoted advice, but understand that the current downturn is nowhere near enough blood on the streets. I won’t be a buyer until there’s a policy response or we hit around 115. Now that will be blood, and I have a whole watchlist of companies I like that I’d love to scoop up around there.

The question I ask the contrarian bulls  is: why should the stock market be going up when realistically the prospects for future profits have diminished in the near term and there needs to be some serious global restructuring?

Fucking…forget technical analysis, forget being a clever contrarian, take look at the actual, physical building blocks of the world economy. Given their current configuration, why should the S&P be higher now that it was three or six months or even a year ago? Why should we be more optimistic now than we were then, knowing what we know, with the data we have now?

If you can’t answer that question in a detailed and very specific way you shouldn’t buy on Monday.

All I’ve seen from the bulls is a lot of handwaving and shit about how being “contrarian” is the smart play even when they have no underlying basis for their opinion right now. I feel like most of the bulls couldn’t even begin to answer these questions and even worse  have contempt for anyone who seems to find them important. If I had a larger soap-box or any real relevance, I certainly wouldn’t give any advice because in a macro sense this exact shortsightedness is what’s going to give me 300% yearly returns. But because I love you all, I’ll say this again: nobody move, nobody gets hurt, the bears will be in and out in a few months and leave you with a tradable bottom. But if you try to be a hero and  grab the gun from our hands before we’ve emptied the safe we’re going to blow your head off without a shred of remorse. Even worse, we’re gonna laugh about how you screamed when you died as we drive home to our new condos we paid for with your money.

I’m now quite happy to reshort, but reshorting the SPY smacks of laziness, so where might I put my newly found wealth to work for me again? Probably the bulk of it will be going towards Pokemon cards, pogs and beanie babies but I’m a keeping a watchlist just in case people on ebay won’t deliver them to my third world country of choice.

Compound Interests

242 views

As we teeter on the brink of collapse, let’s consider why we might still be right to do what we do. Remember those books about responsible financial planning that tried to show you the power of compound interest and encourage you to start saving up money from an early age? Isn’t it amazing this bankster propaganda is still being spread despite the falsity of every one of its assumptions?

Let’s take one of the classic examples, shall we?

“If Mary started saving $40 a week from the age of 35, at seven percent interest by age 65 she would have $66,768. With compound interest, however, she would have $210,232.

If Abbey began saving when she left home at 18, putting just $20 away each week and earning seven percent on her savings, by the time she was 65, with compound interest, she would have $366,361 in her bank account.

Twenty dollars today can be worth a whole lot more in future. Considering most people have $20 they won’t miss too much, it makes sense to start tucking it away and getting it working for you.”

This is the most sick and retarded thing I’ve ever seen and I watch some pretty weird porn. Assuming an interest rate of 7% in a savings account combined with nominal inflation of zero and effective inflation of zero is pretty dark and twisted.  The current interest rate is gonna be less than 2% for the foreseeable future, and while we may see nominal deflation, I kinda doubt we get into negative numbers for long. What fucking bank has 7% interest? What mutual fund is grinding out 7% a year in this market? What the fuck are you talking about, financial planning website?

When traders talk about risk management we usually mean not blowing up. This is all well and good. When the average “square” investor talks risk management, unless they’re buying ammo and canned goods they have no concept of what constitutes a safe investment. It’s really simple: these days there are no safe investments. You have to jump from one lily-pad to the next and constantly fine tune the balance between stocks, cash, bonds, real estate, end-of-the-world puts, and maybe even something really bizarre like precious metals. I don’t think any of them can be “set and forget” anymore.  The expression “safe as houses” was really ruined for everyone forever in the 2008-2009 crash, precious metals bulls may get their comupence in the strangest way if/when there’s a market flush and valuations become realistic again, bonds obviously suck but people are going bananas for the lowest rates ever because they can at least preserve capital but as soon as the end of the world doesn’t happen people are gonna wake up, and long, out-of-the-money end-of-the-world-puts can see 200-300% ROI in a week, and if they’re weakening (not likely for now) you can get it down to 1% of portfolio or something, so you’re not looking at any serious losses even if they should all expire worthless.

But again, constant tinkering with the ratios is what’s needed to actually be even semi-safe: I plan on sliding around a range of 5-10% in precious metals selling off down to 5% when there’s a profit, same 5-10% with bonds,  being at  10-30% in equities/calls, 10-30% in the meanest puts alive and keeping the rest in cash ready to be deployed for swings and shitty slumlord property my criminally-minded family bought/plans to buy at the local market bottom. Finally, I have 500 bucks in my savings account that I’m too lazy to get out and it’s costing me like 30 dollars a year in administrative fees. But with friendly policies like that and record interest levels, I’m sure they’ll be seeing a reverse bank run as Americans who are fearing uncertainty rush to put their money in  savings accounts.

Now, as for my portfolio proper, this is the less than exclusive list of my current holdings:

SPY October 124 puts (showing 34% profit)

SPY January 124 puts (Showing 18% profit, lots of padding)

RSH January 7.5 puts (Showing 70% profit, gift that keeps on giving)

GME July 21 puts (Showing 60% profit, added more on Thursdays bizarre spike)

ABT (Held for 20 years, no idea what total  profits are: Never touched it, pays strong dividends, global pharma, solid growth)

THQI stock  (<1500 dollar position, and showing 5% loss, but totally unaffected by a market crash since they already crashed)

TTM  stock (Ta-Ta Motors, Indian car manufacturer, <1500 dollar position showing 2% profit, India handles GDP slowdowns better than China because of less infrastructure development, lower lever of industrialization, more headroom)

I’m about 70% cash, now which is a big swing from 2% cash on market close on Thursday as I was shaking and vomiting but throwing all my cash at 132 weekly puts…. but fuck you all, robots can only delay the bad news for so long before capitulating. This is the part where my script cuts off, so I’m obviously bearish but I feel like I’ve already made my crash money and don’t want to push it further.

Weekly Rumor Roundup

185 views

Let’s take a look at the later denied rumors that have held the market up this week and then been disproved almost immediately. Some of them arei eerily similar to last week’s G8/Eurosummit rumors which also proved to be nothing: basically we’ve had a solid three weeks with not a single piece of good news, and bulls have assured us that everything has already been priced in or doesn’t matter:

1) Merkel Will Agree to Eurobonds this Week

No, absolutely not, would require a minimum of 5 years to do and all the major parties in Germany are united in opposition to it at the moment.

2) Huge China Stimulus on the Horizon

The Chinese are going to do some domestic stimulus and maybe even some bargain hunting in Europe, but they’re still assessing the results of the last one and they’re not that pleased with the results. It could be a couple of hundred billion over a couple of years, but nothing to really move world markets or assure anyone.

3) The IMF will bail out Spain!

Rumor spread and rumor denied in a record three hours, no one’s even sure how it would work if they wanted it to.

4) US GDP numbers are great!

This rumor caused a run up on Wednesday, turned out to be totally off.

5) The ECB is getting ready to step in, somehow!

No they’re not–they may cut some rates and float some cash, but they’re in damage control mode, not stimulus mode, and even if they wanted to they wouldn’t be able to quickly enough to really turn this market around.

This brings us to the current rumor that’s trying to hold things together premarket

6) The US payrollt numbers are great!

Even if the US beats massively on the numbers that’ve been revised down like three times in a row, is 165k vs 150,000 estimated really going to counteract the concrete fact of bad manufacturing numbers out of China and Germany and near-crash conditions in Japan plus a bad Indian GDP when arguably these countries plus maybe england are the only relevant industrial economies left? If the robots say yes today I will be 50% in SPY 100 January 2014 puts with a clear conscience and spend the rest on coke and hookers in anticipation of a huge windfall in the next six months.

But actually, I think those numbers are going to be shitty and we’ll see some major tests of support lines today.

Who Bonds the Bondsmen?

265 views

The more I study stock/bond movements since January, the more I feel they were unjustified and that this is going to be a summer of real suffering barring further money-drops. Honestly, further easing doesn’t look politically viable, but any incumbent sitting on top of a bad economy is pretty much asking for automatic defeat so neither choice is good. The bond yields just keep getting lower and nobody seems to give a fuck: once we’re out of the woods shorting stuff like TLT is gonna be genius, but for now it’s not a bad addition to the portfolio.

Most traders are fucking politically illiterate and grab onto whatever crackerjack theory they want to believe, and the one that’s still floating around somewhere in between the Chinese stimulus and QE rumors is that the Europeans are gonna pull it together and the great helmswoman Merkel is going to cave into the French, the Spanish, and the Italians and do some kind of miracle eurobond consolidation assurance maneuver.

This will never fucking happen. Everyone else in Europe (and in the US, really)  is politically trapped and feeling the economic squeeze and a retribution oriented electorate. For instance, if I had to guess I would say Stirzia (however it’s spelled) and New Dawn and friends get approximately equal numbers in the election and that one or the other gets to form a totally unworkable coalition that will make a bunch of unpopular decisions, get propped up by the EU temporarily then have all the minor coalition partners flee the sinking ship and make them rule in agony as a minority-government until they finally have elections and the ruling party gets  their face smashed and return with 5% of the vote. Pretty specific, but that’s what I see as most likely.

The only person not trapped is Merkel, and she can stay in power despite overall economic weakness as the the idea is that she’s going to be tough on the laggard euro economies. The German economy is not doing that badly and they really have no appetite for further stimulus without structural reforms no non-German county (exception: Austria) would be able to carry out or even want to. We’re seeing some WW1 style Volksgemeinschaft Endseig shit, which basically means that all the other German parties are not going to break ranks with her on her foreign economic policies and the next German election may very well bring another SPD/CDU grand alliance.  Look for a quiet alliance of greater Germany made up of the BelNeLux countries,  Germany, Austria, and Denmark to form a counterweight or “Axis” if you will, all designed counter the fiscal suggestions of the Latin countries. Given enough time, that grouping may actually form the basis of a new Euro-lite currency but that’s neither here nor there right now.

The point of all this is:  Eurobonds will never fucking happen.  Merkel even said they were unconstitutional, and in Germany, those are fighting words. I’ll grant you there may be some faux version of Eurobonds that bears the name but there will not be any commonly guaranteed loans coming out of the Eurozone any time soon.

This all leads me to an unfortunate article  by Niall Fergeson:

http://www.thedailybeast.com/newsweek/2012/05/13/niall-ferguson-will-europe-act-to-avoid-an-economic-cataclysm.html

He correctly and amusingly outlines the overall situation, then comes up with completely incorrect solutions. The worst thing he  suggests Germans don’t want to back a special Eurozone bond because they’re “complacent.”

I think the better term might be “cautious” or even “not retarded.” With German 0% bonds gaining popularity, it’s not clear why anyone would think that a glass of carefully brewed German beer would be more marketable after being mixed with water from a half-dozen different sewers.

In fact, only someone with an explicitly political motive would suggest these could be anything other than a disaster. Ferguson is such an even-handed imperialist he considers anyone not eagerly trying to assemble or defend any empire anywhere at anytime to be “decadent” and even “irresponsible.” Europeans already want less political integration and less economic integration, and certainly in the ultra-undemocratic financial sector, so anything that smacks of federalism is a total non-starter unless you live in Romania or Cyprus or something.

People already feel helpless and barely able to regulate and control their national banks: making it some terrifying beast out of Brussels would create a crisis of political legitimacy even worse than the one the EU already has now. My idea before (that I was a bit early on and got just reamed on for messing up the timing) was that we’re seeing a perfect storm where each political entity acts in a way that’s rational to them and protects their interests  but causes the overall macroeconomic environment to deteriorate.

I consider the October 124 SPY puts to still be priced very reasonably and for the discerning gentleman, the January 124 puts may also tempt. European indices are absolutely insane right now and the huge amount of volatility has already been priced in to a pretty large degree, but our own markets still heavily underestimate the degree to which we are tied to Europe.  Much as the 1929 crash had nothing to do with Europe but still caused their economies to collapse, major problems in Europe that in principle we have nothing to do with can also rebound back on us. Throw in the fact that China is going to be battening down the hatches to avoid political fallout from an economic slowdowns,  the Middle-East is still a tenderbox and the US has a huge debt load, a post-industrial economy, and unemployment numbers that are probably going to see 10% before they reach 7%, it’s hard to justify current stock prices. Still a lot of great growth stocks out there and my over-bearishness has definitely cost me a lot of money these last few weeks but right now it’s better to trade with the idea that the trend is down and that this company should retain its value even if there’s a full-blown depression.

Predicting the apocalypse is not a portfolio strategy

130 views

The call-put action is still really aggressive on both sides of the S&P and the tea-leaf reading (my own included) is off the fucking charts and then right back on them again because everyone’s grasping at straws. This is where Nassim Taleb’s point that the guy with 50 indicators really doesn’t have better predictions than the guy with 10 but feels more confident is the guy who blows up. Which is me, right now.

I was pretty surprised we didn’t have the “market direction bloodbath” I anticipated on Friday. Ie, I was fucking wrong. Now that we’ve all irresponsibly carried it over to a three day weekend we could see days or weeks of more positioning. Or the whole fucking thing could collapse or break out. Whatever, who fucking knows. I was and still am pretty bearish long term, but the right way to play that (I think) is to have 120-130 January (yes, January, assholes, I like padding!)  2013 SPY puts for 5%-10% of the total portfolio, buying up to 10% on bullish-headfakes and selling off down to 5% based on market moves down. Which is not what I did…what I did was put 50% into MONTHLY PUTS! Jesus Christ, what the fuck was I huffing!

The point is that playing Nostradamus has cost me money in the past, and I fell victim to that messianic impulse last week. Rather than say “slightly adjusting my hedge towards the downside” I got all in on the idea of a double downturn on the market, and kept accumulating. Even if I haul away mad loot off the tears of others this week,  I fucked my portfolio the fuck up and showed the risk management profile of a retarded chimp who thinks he’s Jesus. I am 2% in cash in this market (why, oh god why?) and each “fuck” in this post represents approximately 10% of my portfolio that’s in some seriously fucking stupid and unstable shit.

The smart money is 95% cash right now and at this point anyone not willing to consider a 25% downside on stocks and a 100% downside on puts/calls in like, the next two weeks should be 100%. I’m at 2% cash as of writing and 70% puts. I need a snide teenager who shoots down everything indiscriminately to just act as a tiny speed bump  because left to my own devices I apparently enjoy sticking my entire body as far into the abyss as it will go.

Gotterdammerung

233 views

Anyone who’s not 100% cash has already picked a side in the war, and once you have a side here it’s gonna be hard to switch.

 

Basically, all the economic news is bad with only rumors of a QE being the only possible good news in the next few months. Yet the bulls have fought hard this week by continuing to assert the market is oversold and we’re due for retracement. This is technically correct but the problem with this assertion is that it assumes 1) the last correction was mostly overreaction because 2) the market had already almost correctly priced in all possible future bad news.  Bad news is irrelevant to the  bulls now: there’s not even a rationale for why it matters now, it’s simply all discounted as having already been priced in.

If you read point two out loud there you’ll realize how retarded it sounds.  The market has already priced in all unknown future events correctly.  Of course, they’re not idiots and I’m not trying to knock down a straw man here. What they mean is that they’ve priced in, as best they can, the “worst case scenario” from all risks on the horizon.  The problem is that humans are not very good at predicting rare events and each large market actor has an incentive to minimize them further in order to render greater short-term gains.

The only real bull case was that -6% is too large of a correction and the market’s oversold. That said, the 5% gains of January were equally large and based on nothing but optimistic data and rumors, almost none of which have come through. What’s interesting is that while the Euro crisis gets all the headlines, the US is actually not doing that much better economically, though of course it’s much more stable politically. Take a quick look at the FTSE and the S&P over a 3 year period and you’ll see some  divergences that are not justified by economic data. If you add in the (somewhat unrepresentative) Shanghai index the divergences get even stronger and stranger.  Add in Japan and the picture gets absolutely terrifying.  America is the largest economy but collectively the Eurozone more than matches it. Again, the problem isn’t Greece, it’s that Greece can’t be dealt with since nearly all of the other european economies are in trouble too. Greece just puts a particularly bright spotlight on the fundamental economic problems of europe.

The economy is not a zero sum game in any sense: generally either everyone wins or everyone loses–1929, 1987, and 2008 were all American crashes with American causes yet they took the world down with them. As Greece languishes with unsustainable austerity or unsustainable debt it looks like they may get the worst of both worlds and other countries could follow shortly after, at which point the first country to full-on default will knock 500 points off the DOW that afternoon.

Of course bulls run the market 90% of the time (as it should be) but when they fight the fundamentals and the news too hard they cause crashes.

Today should be the one that sets the tone for the next couple of weeks. The last two days of rallies in the last thirty minutes are pretty unlikely here since it would be a rally into a long position over a three day weekend when basically 90% of possible news is going to be bad so the bulls will need to be in control for most of the day if they want to close up 5 days in a row.  I would be very, very surprised if we put off this day of decision until monday, so I’m expecting a very choppy market (like everyone else) with a serious chance of resistance levels being broken. I’m bearish here as it just seems like there’s way more downside than upside.