Caught Off Guard, Breaking Back Down

The voracity of this sell off is catching me by surprise, even though I am somewhat championing it. That yesterday’s rally could have been shattered so easily is astonishing. I fully expected an extra day or two of relief.

Thus, the 9th floor had no opportunity to restructure, as I had planned. I did not add any cash, and am still exactly as I was at the start of the week.

And in concurrence with this sell off, financial journalist dogs are attempting to paint the cause all over the shredded wallpaper that is the major news outlets. Popular themes seem to be slowing growth, a correcting trade imbalance, and a strengthening dollar.

I am of the opinion that each of these things is actually an effect. I do not have a negative outlook on U.S. production, or global production for that matter. I don’t feel that the strengthening dollar is actually driving the market (although in time it could).

Rather, the reason markets are dropping is because too many people were crowded in, looking for receptacles to store dollars. Too many people were betting against the currency, so now with the prospects of QEIII dimming, they all need to get out.

The short dollar bets were weakening the currency, which likely helped the trade imbalance as our exports got cheaper. The subsequent inflation (in accordance with other concerns businesses have at this hour) put hiring in check. And obviously, now that people are being forced out, the dollar is rallying.

This market correction will last until the funds of the world have adequate cash reserves, the commodity trade becomes less crowded, or some combination of deleveraging. This being that leverage was, in my estimation, the safest way to bet against the dollar.

The market will most probably find a floor in the next few months. Considering that cash levels are lofty on the balance sheets of corporations, this sell off is a boon to them. If the selling should saturate the broad range of commodities, then business is going to take off fed by cheaper resources.

Depending on the exact course of developments, we could be back in full recovery by the second half of the year.

The correct trade is to avoid over exposure to the dollar and treasuries, but refrain from betting against them, while purchasing underperforming but fairly priced assets.

Looks like an end of day profit taking hitting equities.

Not surprising given how far we’ve come.

I wouldn’t freak out, this bounce can last longer yet.

Since I am presently 90% long, this hardly makes the argument that I’m betting on the end of civilization or any similar nonsense. I’ve been calling for the dollar rally since the beginning of April, and it arrived in a timely fashion. It brought along a friend, however; renewed fear of a double dip.

I just can’t see the more important things, like factory utilization, dropping to where they were during the run in 2009. So I’m not really bearish on the economy; I am however looking for a continued drawdown in stocks, which is why I fled my positions, taking up defensive stances in a water utility company, an agricultural company, and the trodden real estate market.

I was looking for something like this, so I’m fairly composed on the issue.

But I think I could use a little bigger buffer. The last few weeks, my portfolio has bled, and I’d really like it to be neutral until I see the currency issues resolved. Plus, my position sizing is out of wack, with the various impacts any one position has on my portfolio varying wildly (BG is twice the weight of any other position, and it is also psychotic, interestingly enough).

Compare that with my purchase of CCJ yesterday, and I could use a little more cash coming from the re-balancing of the old stock portfolio.

I aim to complete this task on the next available bounce, which is feeling like it could happen today.

I employed some cash, adding to CCJ for $26.44 a share, making it a full position.

To hell with Angela Merkel, do any of you think she or her supporting politicians will be around by 2022? More importantly, where are they going to find the replacement power sources required to keep capacity running through their lines?

Cut the “green energy” bullshit, it’s not ready and maybe never will be. Hooking up non-uniform energy sources to the grid is a recipe for disaster and requires making the lines absurdly complicated. As a rule, overly complicated technology is harder to fix and easier to break.

For instance, you all remember that massive power outage in the U.S. that struck last decade?

It was caused by a tree and a failed set of sensors.

The power was never reallocated so a tree on a line that was left running succeeded in blowing out the transformers in the entire east coast.

That was with uniform energy sources in controlled environmental settings. And you all want to hook up near random energy sources to the grid and think it’ll work out fine?

We’re nowhere near being able to supplement real energy, like coal or oil or nuclear, with fake energy, like sunbeams and rainbows.

Which means Germany’s options are increasing gas burning plants, or eating their own words.

Merkel is playing to the crowd because she won’t be the one to tell the German people, in a decade or so, that nuclear isn’t going anywhere. She gets to score some quick points, and nothing is changing.

Long CCJ, to the promised land, as environmentalist movements are regularly squashed by people pissed that their iPads keep browning out.

Did crude begin this down move because some stupid bastards in the middle east were going to raise quotas?

No, it didn’t.

In fact, crude prices got this high in part because OPEC was losing production (although they cheat so much on their own quotas, who knows for sure?).

So don’t get suckered into going long oil because after holding a meeting where they push the press to report that the organization will be raising quotas, they suddenly announce that everything is unchanged. They’re just playing the crowd, trying to get the attention on them and off of the looming strength in the U.S. Dollar and relaxing global economies.

I don’t know if they’re attempting a ploy to support prices of crude, or if they’re just stupid. But really, that meeting was a huge waste of time and since I wasn’t a fan of crude oil before it happened, I’m not about to start cheerleading it now.

This is the best kind of relief rally there is; one that in no way changes my outlook on the market.

ERX is up over 2% as the equities it tracks push higher. However, the price per barrel of crude oil is down nearing 1%.

So I am both enjoying my core long positions as they receive the blessing of the bounce, while refusing to make changes of any material kind.

I want to see crude push below $95 by the end of the week.