Wednesday, March 31, 2010

Update 3/31

I "bought" a mini-silver yesterday at $17.20 and today it's rocketed up to $17.53; so far, Mauldin's call for deflation has fallen pretty flat. I must say that I'm completely wrong on copper; the march northwards continues unabated, with the close today at $3.55. I don't believe in copper enough to buy, but it looks like my sell order at $3.17 is unlikely to be filled anytime soon. I'm still going to keep the order. With my silver, I'm going to add a trailing ten cent stop.

Today the Fed's MBS purchases ended. We'll see.. if mortgage rates go north of 6% look for Bernanke to act in one fashion or another. There was some talk of transfering a lot of the already purchased MBS contracts to Freddie and Fannie's balance sheets to as to properly allow Bernanke to act.

Across the pond, Ambrose's latest article points out the dangers the UK faces:

"Bill Gross, the fund's chief and emminence grise of bond vigilantes, said the UK was on its list of "must avoid" countries along with Greece and others in eurozone's Club Med.
The flood of British debt is likely to "lead to inflationary conditions and a depreciating currency", lowering the return on bonds. "If that view becomes consensus, then at some point the UK may fail to attain escape velocity from its debt trap," he wrote in his April monthly note. Mr Gross said the UK is not yet in crisis but
gilts are sitting on a "bed of nitroglycerine" and must be handled delicately. Spreads on 10-year gilts have crept up to 14 basis points above those of Spain, itself in some difficulty"

The scary part here is that it's Bill Gross.. Fund Manager of the Decade.. saying this. PIMCO is a gigantic fund, and Gross steers his ship masterfully. In other words, he's someone we all should listen to when he speaks. At some point, the UK (and most of the industrialied world in fact, US included) will have to suffer the same fate as Spain and Ireland.. severe budget cuts, drastic levels of unemployment.

Saturday, March 27, 2010

Update 3/26

I'm now out of both the GBP and Yen trades:
The day's close on the GBP was $1.4886, for a loss of $234.
The day's close on my Yen ETF was 20.99, for a gain of $48.
I've still got the "sell" order on copper @ $3.17

I don't have a real strong sense of where these are going anymore and so I'm glad I'm out of them. There are so many factors that affect these markets. Over the next few months, there are two major events upcoming:

1: In the US, The Fed is ending MBS and Bond purchases this month; there have already been two ugly bond auctions this week, with the interest rate on the 10yr bond going north of 3.9% (up from 3.65% last month), a bad portend for the US Gov't as it needs to borrow money in such staggering amounts. The ten year and thirty year auctions are next week.. could be interesting. Mauldin thinks the 10yr could reach 4.5% by mid May. This is a trajectory that Bernanke simply will not allow. If he does jump in and begin Bond purchases again, look for the USD to tank.

2: Greece is going to need a lot of money to make it thru the end of the year. The new IMF/EU agreement essentially is that Greece (or any other problem child) must first go to the IMF for their bailout, and if any more funds are needed, the EU (if there is a unanimous vote) might provide some funds. This isn't much of a guarantee. Greece will almost certainly have to go to the IMF this spring; the IMF can only provide them $15 billion (and impose stiff budget cuts). What happens after that money is burned thru this autumn is what's key, because Greece will almost certainly need more money to get thru year's end. If the EU stumbles and dithers as they have so far, Greece would be left with little choice other than default. The euro would take a severe hit from such an event.

2a: If Greece were abandoned by their EU brethren, I believe Bernanke would step up and rescue Greece. A severe drop in the Euro would produce deflation here in the US, another scenario Bernanke will simply not allow.

That or.. none of these events come to pass and everything is simply divine..
We shall see. Count me in for #2 and 2a at the very least this year.

Thursday, March 25, 2010

Update 3/25

Copper and the UK Pound are beginning to come down; I'm thinking by week's end I'll get filled on the sterling. My orders were to sell the GBP @ $1.485 and to sell Copper at $3.18. I must say copper has held up surprisingly well, especially yesterday when the brutal new housing numbers came in and the USD soared. Upon advice of one of the best, I'm going to buy the ETF YCS, which is the short yen fund; I'm going to buy at $20.75, and I'm going to buy two hundred of them. An ETF is rather like commodities trading only on the stock markets, though a tad less dangerous. As the Yen goes down, the YCS goes up. This will be a long term trade, with a short term goal of $24.00 and a long term goal of $30.00. The reason is that the Japanese Gov't will do pretty much anything to avoid deflation and watching their exports become uncompetetive.

Yesterday Portugal's sovereign debt was downgraded by Moodys and the Euro tanked, sinking to $1.335/dollar. Ben Bernanke hates watching the USD soar; his main fear is deflation, and he's right to fear it. John Mauldin sees deflation making a menacing comeback and the stock markets tanking some 40%. Given that the EUrocrats are notoriously stuck in neutral when it comes to Greece and other countries in trouble, I still see an IMF bailout for Greece.. with an assist from Ben Bernanke. Portugal will very shortly join the ciesta of shame. In addition, look for Bernanke to do something, perhaps US Bond,MBS and/or states bond purchases, to help defeat deflation. Mauldin sees deflation overwhelming the stock market; I believe Bernanke will do whatever's necessary, including negative interest rates, to tame the deflation lion. Step by step, we're having a race to the bottom, and so far the US, China & Japan are in the lead. Beggar thy Neighbor has arrived:

Update 4:30pm:

The sterling closed today at $1.4815, so I'm now "short" one sterling contract. My ETF YCS today closed at 21.06, a nifty gain for me today on day one of this trade.

In other news, the EU and IMF have agreed to an aid package for Greece, something I did'nt expect after Angela Merkel essentially told her country "nein" on Greek aid. Interestingly enough, the Euro went down instead of up after this.

The USD is on a tear of late. Worse, there was a bond auction today on the 7 year US Bond, and it went terrible. If the USD continues to soar and US Bond rates continue rising, Helicopter Ben Bernanke will, without the slightest notice or doubt, act forcefully to stop these trends. What Helicopter fears most is deflation and higher bond rates (In my 2010 outlook this was my opening statement). If Helicopter acts suddenly, my Yen and Sterling trades are going to end very ugly. A few more days like this and Helicopter will act.

Therefore, at the close tomorrow, I'm going to exit both the Yen ETF and GBP trades regardless of where they are. In addition, I'm going to place an order to "buy" a mini-Silver contract at $17.20/oz (today's close was at $16.73).

Friday, March 19, 2010

Update 3/19

Copper continues to be rangebound in the $3.30-$3.45ish area; I'm still going to maintain my "sell" orders. The British Pound actually went up early this week, but it was just crushed today and I fully believe my sell order will get filled early next week.

It looks as though ObamaCare will become reality; for the average working serf it'll mean higher taxes and higher health insurance rates so that 30 million very poor serfs will get free healthcare. It requires that everyone carry medical insurance.. something that will not likely pass Constitutional muster, and more or less provides public funding for abortions. Rep.Grayson of Florida introduced a bill last week {HR 4789} the MediCare Buy-In Bill, which will allow any citizen who so chooses to buy into Medicare. Should this pass, most serfs will simply opt for the cheaper Gov't plan, essentially completing the socialization of medical care. (This bill might not make it thru the Senate; we'll see)

Step by step, day by day, we're heading towards a day when the US Gov't controls better than half of the US economy. It was never intended to be this way. After making these promises {Soc Sec, Medicare, repayment of US debt, military spending, etc}, let's see if they can keep them. (Hint.. not a snowball's chance in hell). Trillion dollar deficits are the norm now; we will likely never again see a sub-trillion dollar deficit, despite Obama's speeches to the contrary.

Many people who read this are doing well enough today and fully believe that while taxes will go up a tad, nothing major will happen in the future; our enlightened leaders have this one figured out; America can't ever really fail {ie.. your fearless blogger is a paranoid quack} But I assure you that we can, and unless we change how things are done, we most certainly will. Think not ?? Here's a delightful video of US Congressman Kanjorski describing just how close we came to the Dark Ages in Sep '08:

But before it happens to us, it's going to happen to small countries the world over; I cover Greece a lot; in fact, the EU has now officially decided to dither, and Greece will in the end likely have to seek an IMF bailout. Just when I was thinking things might be OK for Athens. Latvia's government collapsed yesterday over the economic crisis; their unemployment rate is over 20%. Spain's is also over 20%, and Greece's will rise to those heights as well. As these small countries bite the dust and fall into grinding poverty, there is a great temptation to simply tell the bankers who put them into this mess "Hell no we won't pay" and default on loans. Iceland did just this. I can easily see the Greeks doing this as well. Here's a list of the most likely small nations to fall apart due to economic distress:

So.. who cares if Greece, Venezuela and Latvia collapse ?? You should, and here's why: their governments owe hundreds of billions of dollars to western banks. Greek & Venezuelan banks also owe western banks yet more hundreds of billions. Those western banks also underwrote credit default swaps worth tens of billions. When enough of them go under, countries like England, Spain and Switzerland {who's banks loaned out money to these governments and their banks} begin to totter. Remember I told you this: if you see a medium sized nation like Italy, England, Spain, Switzerland or Japan begin to totter, be scared. Be very scared. Only a global rescue operation involving all the world's major players will solve the situation. The EU and the US, for example, have already admitted that they alone cannot save Spain:

Saturday, March 13, 2010

Update 3/13

Copper continues to be rangebound; on one hand is a rising stock market with the potential for growth in construction; the weakening USD also helps keep the price up. But the fundamentals are simply brutal and will be for some time. The world's largest consumer, China, is sitting on millions of tons of the stuff and is sharply scaling back lending; there is some talk of a housing bubble. Here in the US we have millions of unsold existing homes and the foreclosure rate shows no sign of abating. Worse, the Fed is halting the purchases of MBS, which should result in the rising of interest rates.. and a corresponding drop in existing housing prices. Therefore, I maintain the "sell" orders; I'll simply wait until copper makes a meaningful move.

I will also be giving the order to "sell" a British Pound contract as I expect the GBP to tank this year. I will "sell" at $1.4850 (Friday's close was at 1.5172). These contracts are 62,500 sterling, so a move of one cent means $625. I'll keep a five cent stop loss on this one. Her Majesty's financial situation is brutal; many have opined that the sterling will reach parity with the Euro (currently at $1.37) this year. Overall, the Brits are in pretty much the same shape as the Greeks.

The census this year will provide a large number of jobs up thru October or so; this will help with the unemployment rate and so my prediction of 11% isn't going to happen; it may even dip into the mid 9's.. good news actually. But behind it all is US Gov't spending, printing, and borrowing.. and these are things that cannot continue on the scale that they are now. The printing of money will at some point have an effect; this year I believe we'll see $3.00 at the gas pump; this makes nearly everything more expensive to produce and transport, a body blow to the US economy. A weakening USD should (in theory) have the effect of raising interest rates on mortgages as well.. (and this is in addition to the ending of Fed MBS purchases). The current 5.25% mortgage note will be a thing of the past; by year's end we'll see it at 7.00%, and for those of you who have mortgages know, this makes for a nice hike in the monthly payment.

If there is to be another financial crisis (and I think it's simply a matter of time) there will be two warning signs:

* $4.00/gal gasoline for an extended period of time
* Double digit rates on the 10 year US Gov't bond
(mortgage rates follow the 10yr bond)

When either of these conditions become reality, look out.

Meanwhile my poster child for socialist ineptitude, Greece, is actually doing OK.. the Gov't has announced some budget/wage cuts, and Greek unions on cue organized strikes and protests, which turned violent yesterday. But the Greek Gov't is standing fast, and may make it thru the end of the year with the help of some of their friends. But we need to realize the scale of the problems and just how bad they'll get. DeutcheBank completed an in-depth study this week and the results are ugly: "They feel that the Greek economy could contract by 4% in 2010 and the total downward adjustment to GDP over the austerity programme is likely to be around 7.5%. Now they also feel that unemployment which is currently 10% will rise to around 20% as this adjustment takes place" This is where Spain is today.. 20% unemployment. This is Depression level misery. My fear here is that one day, a politician will take the podium and say "lets just go bankrupt.. how much worse could it get ?" to the cheers of the mob. Here is Notay's full article on this:

Thursday, March 4, 2010

Update 3/4

Another article supporting my theory of a copper meltdown came out again today, reinforcing my belief that we'll see $2.50 in copper this year (as opposed to the $3.37 today). I'm going to move my "sell" order to $3.18, again with a five cent stop loss. The second "sell" order at $2.98 remains, again with the five cent stop.

Nothing worth commenting on this week; Greece held a successful $5bln bond auction today, easing European markets. With some help from a few friends, Greece may yet avoid the bailout or default scenario this year. But as we speak, strikes are being planned in both Greece and Portugal after the latest round of budget/wage slashes announced by their governments.

Here in Hooverville, this about sums it up: "The Labor Department reported Thursday that productivity jumped at an annual rate of 6.9 percent in the fourth quarter, even better than an initial estimate of a 6.2 percent growth rate. Unit labor costs fell at a rate of 5.9 percent, a bigger drop than the 4.4 percent decline initially estimated". Yes folks.. we serfs work harder and faster.. and for less.. than we ever have. Well, those of us who actually have jobs anyways.