A Special Message From Merlin

Poof. All equity sellers are done.

-Merlin

…you’re all losers anyway.

It’s funny how many of you were just drinking some cappuccino at the Taliban Cafe, readying to self detonate. Now, as a point in fact, the world has changed and your sentiments are extraordinarily optimistic.

Most of you shall be discounted as mere novice investors, unable to see more than 15 minutes in advance. A handful of you, in my estimation, are excellent investors. You know who you are.

Here’s the situation:

The underlying fundamentals are positively dreadful. However, stocks are going up anyway.

Why?

Well, for one, there are many people out there who believe a zero rate environment gives the green light for risking capital in equities, searching for return. Then there are the people who believe Barack the Builder’s insane trillion dollar money making plans will buoy the prices of basic materials. Hence, with that in mind, getting short dollars, short t-bills and long equities is the way to go, particularly commodity stocks.

In my estimation, everything mentioned above is a sideshow to what I deem to be of utmost importance, which is emerging markets.

I think it’s fair to say, emerging markets is where it’s at, if you are looking for growth. However, looking at their fudged data, one could make the assumption that they are fucked for an indefinite period of time. Moreover, one could also argue that once their surpluses shrink dramatically, via U.S. consumer being dead in the water, they will stop buying treasuries.

If that happens, well then, forget about a late year rally, to say the least. TBT will soar.

The real question is: can the U.S. keep the ponzi scheme going? Will the Fed succeed in reflating the economy and re-saddling a shit load of new debt on the backs of Joe the Plumber?

Most importantly, where will the earnings growth originate from, with banks in the penalty box and industrials under pressure from drastic slowdowns abroad?

In the interim, stocks are free to run higher. Hell, based upon opaque optimism, the Dow can stomp up to 10,000 and the S&P up to 1050.

The point: don’t get sold on the notion that the worst is behind us. Make your trades and enjoy the renewed faith in American stocks. But remember, stocks are most attractive when no one wants them. And, when everyone wants them, you are better off shooting yourself in the face with a howitzer, than getting long.

At the present, I am 20% long, 40% short and 40% in cash.

UPDATE: I sold short 5,000 XOM @ $80.66 and I bought 5,000 SMN at $35.64.

I am putting cash to work, which is burning a hole in my hand.

I bought the following:

VCLK, sub $7.10

ITW, sub $36.25

PFE, sub $18.05

C, sub $7

NOTE: This allocation is very small, less than 5% of assets. I will not rush into any trades, long or short.

NOTE II: My premise for buying VCLK is for personal reasons. Recently, iBankcoin started utilizing their services and I am impressed.

UPDATE: I allocated another 5% of my cash into the following:

BAC, sub $14.10

C, sub $7.05

NOV, sub $26.5

Also, to fully hedge my FAZ position, I bought FAS.

I bought a little VCLK this morning, which is essentially besides the main point. We are in the midst of a most dishonorable commodity rally.

See, here on iBankcoin, “The Fly” conducts himself in a certain ordained manner. He is a man of ethics and principal, unlike most bloggers. The very notion of investing, without conviction, is rather unsettling to me.

Take XOM for example: I am short from $82, yet find no concrete reason to cover my shorts. That’s conviction dear friends/enemies. Regrettably, being short RIG does not offer “The Fly” the same comforts, which in turn has forced me to cover my shorts in that particular name.

At the moment, I find it odd that the market is rallying, without the luxury and support of bank/commerical real estate stocks driving the limousine. What oil stocks are doing now is rather astounding, essentially pricing in $70 crude.

What’s important to me is the activity in t-bills. My position in TBT is finally starting to gain some traction. Amazingly enough, the telegraphed trade of shorting t-bills/long equities is ham and egging it, to use a rather loose term, all the way to the local bank teller.

With my vast sums of liquidity, I have placed minor bets in a variety of names, none of which should be of any importance to the likes of you. For you, I have purchased a small quantity of VCLK, at an undisclosed price, at an undisclosed time.

The first trading day of 2009 shall be remembered as a day that let basic resource stocks out of their respective cages, and into the showers of bearshitters, in order to bite their heads off. However, all other sectors, thus far, are sort of mailing in the trading day.

Until I see the frantic action spread, like a cancerous tumor, I shall not change my opinions of banks/commercial re, which incidentally is rather grim.

NOTE: Preferred bank shares caught a bid this morning, evidenced by strength in PGF and PGX. They are both worth a look.

The markets are on the verge of breaking out. As always, I am skeptical of any breakout, especially when they are espoused by coked out of their brains CNBC talking heads. And I do not mean the employees of CNBC, like Maria and Matt ” fat fuck” Nesto. I am talking about the assholes who are interviewed on the exchange floor, every fucking day, telling the audience how “cheap” equities are.

Nonetheless, even broken clocks are right twice per day. So, with the 50%+ cash that I have set aside, I am prepared to get long a select group of stocks, which I outlined here and here.

However, since everyone is all amp’d up, waiting for some sort of ’09 run, “The Fly” is prepared, if needed, to sell to you, twice mind you.

Again, as of now the trend is up. But, should the laws of reason creep back into the markets, effectively knee-capping the likes of Matt Nesto and cannon fodder like “Jim Goldman,” here is a list of potential short sales:

Basic Materials

LIHR, AU, SMG

Consumer Goods

NAV, PBI and SFD

Financial

DEI, FHN, MCO

Healthcare

THRX, HLS, ISIS

Industrials

CTX, PHM, RYL

Services

UAUA, CVC, RGC

Technology

RMBS, CCI, WBSN

Utilities

none worth considering. Maybe NI.

UPDATE: Video request, as per Holly Woodshedder

I’m drunker than you, no doubt.

No drinking and driving. And,no diving into empty swimming pools.

I know what you’re doing. I see you over there, in your little, little chair. It looks like a fucking tripod for an old bullshit camera. You are all smug with confidence, thinking you are on the verge of creating electricity.

You have your little charts and your nice little marble paper weights, placed orderly on your mahogany desk; everything is so honkey dorey. Oh yes, you are very proud of your desk. It is made from a rare wood and it was passed down from a dead relative, which makes it even cooler/more expensive. Every night you polish it up real nice, then lay your fucking asshole charts on top of them, in preparation for the trading day ahead.

You are of the persuasion that the Federal Government is in the business of sucking the foreskin off investors, through low rates and free money. You believe everything is priced in and that the banks will not take King Kong cock sized writedowns next quarter. You think it is safe to swim in the waters, for your little fucking ruler points to a geometric pattern that indicates a “breakout.”

Your world is blissfully wonderful, and also jubilant, until (of course) Dr. Death steps into your office and urinates gasoline all over your dead relatives desk, then tosses a lit cigar onto your pile of neatly stacked queer charts.

Dr. Death brings bad news of unemployment and “fuck you, you’re dead” bankruptcies, to a variety of industries. He has the banks by the short hairs, forcing them to cut deals with delinquent borrowers, who are only 8 months late on their mortgage. These deadbeat fellows demand their banks drop the loan value by one third. Dr. Death makes it so.

He does not believe low rates do anything, since they are artificial. After all, without the communist bastards inside the U.S. government setting prices, LIBOR would be 10% by now.

Finally, he will set you free—if you would only let him into your house, so that he may “take a look” or piss at/on your finely polished mahogany desk.

Knock, knock

UPDATE: EE Times offers 20 predictions, for the semi industry, for 2009 (bulls, do not click).

[youtube:http://www.youtube.com/watch?v=w8inztO0Xx8 450 300]

In an amazing display of bravery, coupled with idiocy, bulls are squeezing the lemons out of bears, into the final few days of ’08. Much to my chagrin, I find myself just watching this shit, in amazement, saddled with egregious inverse etf’s and loads of cash.

Typically the market sells off in the final days of any year. However, being that 2008 is the stupidest year ever recorded, naturally, the market is ripping higher. The fucking news is Armageddon like and every company in America will be a bank, inside of 6 months, in order to scalp some TARP cash.

Despite oil living in the $30 price range, big oil stocks are bucking the trend, going up in my face. Howsoever, short oil is a bet that I am more than willing to average into, for many of those levered up oil losers will be going out!

Select bank stocks, like GS and WFC, led the market higher, by the nose, sending my FAZ swan diving. Let me tell you, it’s easy to be short when the world appears to be ending. However, during times of jubilation, being short is equal to having your stomach roasted on the devil’s grill—always a bad experience.

I wanted to buy stocks this morning; but I didn’t. Instead of blindly chasing stocks here, I will opt to wait this rally out, then make my move in early ’09.