A Lovely Green Summer’s Day

Sitting here in my office, sipping gently on a gin martini (all martinis are made with gin folks; you should adore the succulent flavor of pine needles and vermouth), I am up 2% so far today. Silver and my UCO hedge hold me back from truly spectacular claims.

Yet, I will not commit to this rally this week. I want to see a pause or a pullback before I’m willing to make up my mind.

Crude oil has impressed, pushing its way just below $90 a barrel. Watching it slice its way into the seventies just last week, I can honestly say I did not anticipate this at all. I may owe Mr. Cramer an apology before all is said and done.

(The man has been absolutely nailing it, regardless. My only point of contention was his thought on crude; and it is looking, for the moment at least, like he was right)

At the top of my list of reasons to be hesitant are:

1. Currency: the euro is being devalued, the dollar should strengthen therefore. Lower equity and commodity prices should ensue. However, Jubak has an interesting point out that the ECB may rush to raise interest rates after securing a bailout, just to mess with people, a la Australia.
2. Manufacturing: there are definite signs of a slowdown in production; the latest NY report left much to be desired. Call me old school, but I tend to believe in the sway and sight of those who actually make things. I want to know where that buck stops rolling.
3. Banks: Why were they blowing up? Was it just euro debt, hence the selloff is over, or is it something more? Time will shortly tell.
4. Employment: The government keeps records like Jeffrey Skilling. Let’s see if they revise anything downward, as the rhythm of the jobs market before now has been pessimistic at least, and horrible at worst. The post office wants to drop 100,000 jobs. Is that just rhetoric, or will they go through with it? I’m not waiting for a jobs recovery to commit myself long, but I’d like to make sure unemployment is about to blow out first.
5. China: The country sucks. Enough said.

I will make my decision soon.

Soon…but we do it my way.

(I will eat my top hat if you tell me what movie that last line is from)

Dear Warren,

You’ve been out and about, loaning your integrity to this ridiculous joke of an administration for some time now.

I’ve had to listen to a community organizer with no real business experience tell me all about your outlook on life, society, taxes, duty, and investment; which is twice as irritating as hearing it coming from one of your little fan club idolizers. It is impossible to miss your silly, conveniently-fit-to-a-bumper-sticker quips.

Do you think the rest of us are this stupid? As if I didn’t know you’ve abandoned every tenant that made you great in exchange for publicity at the hands of the media. You’re an old man so concerned about his image after death that you’ve sold out your principles.

It is disgusting to watch.

And you are doing immense damage to those who would aspire to rise above you (and make no mistake, someone will come along better than you). In your quest to immortalize your legacy, you are busy hardening the path to anyone else.

Billionaires are not the only ones who pay capital gains taxes, you jackass.

But perhaps that’s your ultimate plan? You would rather stroke out this country and everything that makes it great than to see your name lost in a sea of future talent?

And another thing; do you think I don’t remember that you own NetJets, the jet rental company?

Why is it that the Obama administration is running around like idiots spouting about the evils of corporate jet owners, when the amount of money such a tax could possibly raise is dismissible?

There’s no good reason, from the point of government. But, I cannot help but observe that any tax on the private ownership of jets by corporations and individuals, if worded carefully, could resurrect one of the worst investments you’ve ever made.

And why wouldn’t you have bargained with Obama to use your good name in exchange for a terror campaign that would ultimately shore up one of your companies. After all, the real Warren Buffet does nothing for free.

Fuck off, you old codger, before you permanently destroy your credibility. Your legacy was built on making good decisions. But good decisions cannot be built out of your legacy alone. You are chaining yourself to a sinking ship.

Sincerely,

Cain

If you don’t feel like reading much today, I totally, completely understand. Believe me, after this last week, on a lazy Friday afternoon, I have no intention of putting much effort into this.

This week was rather excellent for me, as having taken an (at the time) exception to crude oil and opposition to those who trade it, I was short in size ERX and UCO. I closed the ERX short for 26% profits, and as of right now cling to gains in my UCO short of just under 10%.

In my long portfolio, losses were generally checked by this stance, and at the worst of it all, I found myself down 10% for a few hours to do obscene selling across the market, which even my stable utility AWK could not evade.

After applying ample cash on many smaller, several-percent purchases, my holdings, in terms of raw stock volumes, have never been greater and, thanks to rebounds across my longs, especially noteworthy in CLP, and with nod to AEC, has put me a mere few percent below where I was at all of two weeks ago.

As such, should stocks recover to where they were at only two weeks ago before the end of the year, I will most definitely find myself once again making new, all time highs.

However, as of the moment, my portfolio is red, and oil prices are dicking around with me. This makes me question whether or not we sell off into the close of the day, as my portfolio, consisting of what it is, should not be selling off…well, ever, ha ha.

My UCO short stays on. My cost average is just a little below $37, thanks to adding recently for hedging purposes. I would like to make profits on the trade (I would like to make profits on all trades), but if I have to sell out at break even prices, in exchange for a little extended safety, then so be it.

Now, I am taking an early weekend, to visit loved ones. This week was draining; I doubt any of you would disagree. Take some time off and enjoy the finer things in life, like cigars and family.

Sincerely,

Cain Hammond Thaler

Short sale bans are to politicians what bloodletting was to 11th century barbers.

I have been toying with the idea of covering all my UCO short; which is sad, given that I haven’t even had to face a bounce yet. That 25% gain is tantalizing, like a forbidden piece of fruit.

But two things are holding me back. The first is that I would be very, very long if I wasn’t holding that short. The second is an addendum to the first; now is not a time I want to be very long.

We have three countries in Europe banning short sales, chasing that proverbial monster down the rabbit hole.

Unfortunately, they will likely find, like every other country during every other major correction has before them; that short sellers are not what is driving the selling.

You do not drop almost 20% because people decided to short stocks. There is so much risk involved with the action, the sheer volume required along with the size of the gonads on all the individuals involved would have to be enormous.

Name to me one instance where banning short sales has resulted in improved market action. I dare you, name even one.

This concerns me because the presence of short sellers can act as a dual function for the market. A short seller is not just someone who takes a negative view of a security and tries to force it down.

Short sellers also indirectly act as broker dealers.

Their activity removes a great deal of stress off of institutional brokers, since it’s the short seller’s money that is at risk. Ban short selling and you simultaneously increase the amount of working capital that traditional brokers need to function.

Plus, short sellers offer a venue for people who do not necessarily want to sell their stock to earn additional revenue stream on their assets, during a time of distress. Banning short sales effectively removes the ability of those individuals to loan their assets, making traditional sales the only remaining option, should these people feel like they require income.

Also, more practically, banning short sales is a tell by these countries that they think they are in serious trouble. You do not banish market activity unless you are mortally threatened by it; so this maneuver has managed to both increase the amount of risk to active market participants while letting the whole world know that France, Spain and Italy think themselves royally fucked.

Brilliant confidence building choices there, on display.

So I stay in my short, for the indefinite future. I would like to cover for more than 20% gains, but only if I think I can do so without risking my neck, should Europe fall.

In my experience, markets do not just dive bomb for no reason.

Even in the face of ominous developments, like absurd debt levels for countries or citizens, toxic assets, or terrible prospects, things tend not to react until they have to.

Think about GM. That company was the bottom of the barrel for somewhere between 4 and 8 years before it finally went.

What ultimately stopped GM was not the terrible decisions, high debt load, or wobbling economy.

The day they stopped, it was because they ran out of money to spend.

So why is the market exploding like this? What development is occurring in companies with immense assets, that would bring them to start selling and not stop, even after we’ve come so far that it’s obviously a poor time to be doing so?

I hear something about French banks now. That sounds in line with other developments, like rumors of American financial institutions blackballing their European counterparts.

But that’s merely the who, where and when, not the why or how.

If French banks are failing, what is causing them to do so? Is it so pervasive that they are with their backs against the wall, no other options available?

And is this product, asset, or issue present anywhere else? I can imagine it has a lot to do with debt, but is their leverage also?

These are questions which anyone who has found their way to my office should be sufficiently curious about to ask. They are questions which, as of yet, I don’t have good enough answers for.

This is an open floor, friends; feel free to chime in.

I can appreciate yesterday’s rally; really I was up almost 9% thanks to a tepid oil recovery that sent my UCO shorts higher by a paltry few tenths of a percent, coupled with massive rallies in all my other names, most especially AEC and CLP.

However, the action was mostly a product of how far we’ve come, and not necessarily an indication of happy times resuming.

Consider this: the Federal Reserve announced yesterday that they will retain zero interest rate policy and some aptly pointed out that thanks to mortgage restructuring, the Fed will be capable of relending more money that was previously tied up elsewhere.

However, these actions do not add currency to the system; they simply retain existing currency and slow systems designed to remove dollars. It’s a net neutral maneuver, on the Fed’s part.

Meanwhile, Europe is beginning the first stages of quantitative easing themselves. This will add euro’s to the system.

What do you think that is going to do to the USD/EUR relationship? And what will that do to the markets?

The last time the Euro was depreciating, the DOW collapsed. That was the summer of 2010, remember?

And all that from the EUR/USD losing about 10 cents. What do you think would happen if Europe intentionally began to devalue?

I understand many of you are intent on the point that the USD is weakening. But weakening against what? Who cares if the Swiss Franc or Japanese Yen appreciates? The EMU is so much bigger than all of those, and what I am seeing is the beginning of the decent of the euro.

This will roil our markets before the Fed is forced to intervene. Count on it.