Friday, April 30, 2010

Update 4/30

The EU/IMF bailout of Greece seems to be gaining steam; apparently the heads of the European Central Bank and the IMF gave speeches to the German parlaiment detailing exactly what would happen if Greece were to default (Lehman 2.0). This apparently frightened enough of them to increase the Greek aid package to some $160 billion, which now looks like it's sure to pass the Bundestag. In theory, this should be enough to get Greece thru for the next few years. In exchange, Greece has promised some painful cuts to public servant salaries and higher taxes (rumored 25% hike in the VAT). I'm mildly hopeful this will be enough to contain the crisis, which this has now become, at least in the short term. On a longer term, however, one cannot solve a problem of too much debt with more of it; given enough time, this Greek tragedy only has one ending: default and crisis. Others are not so optimistic even in the short term, especially given that there are still several hurdles which must be passed by May 19th. Here's is an article which sums up the mess, only this is with a distinctly pessimistic flavor. It's written by Greg Weldon for John Mauldin, both of whom are very sharp gentleman, which is why it's rather disturbing:

"There are no good solutions here, only very difficult ones. In order to get financing, Greece must willingly put itself into a multi-year depression. And borrowing more money when it cannot afford to pay back what it already owes will not solve the problem. 61% of Greeks now favor leaving the euro"

Tuesday, April 27, 2010

Update 4/27

Just when I began to feel bullish and confident, the bottom falls out. I went from smugly confident five days ago to nervous fear today. I'm going to exit all of my ETF positions today at close. I'm going to "sell" one Euro contract at today's close with a two cent stop loss.

The problem was that speculators are (again) attacking Greece, not that it matters; Greece has for a week at least been effectively unable to borrow money. But ominously, the speculators hit Portugal hard today, sending the rate on their ten year bonds from 4.19% at the beginning of April to today's 5.67%.. a brutal curve. Portugal today is where Greece was 2-3 weeks ago. “We have gone past the point of no return,” said Jacques Cailloux, chief Europe economist at the Royal Bank of Scotland.“There is a complete loss of confidence. The bond markets are in disintegration and it is getting worse every day". Mr.Cailloux today called for the ECB to do what Bernanke did during the Lehman crisis, namely print money out of thin air and use it to purchase EU government bonds, Greek & Portugese in particular. The Germans won't like this one bit, nor should they as this (should) result in a weaker Euro and higher prices in all of Europe as a result. After seeing how the Europeans (mis)handled the Greek fiasco, I have absolutely no confidence that the Portugese fiasco will be handled with anything but clumsiness and incompetence. Portugal's government today began the circus at market's close in Europe: The Portuguese government angrily denounced an "attack from the markets" on Tuesday after its credit rating was downgraded and rejected any comparison to the debt crisis in Greece.
"It is a decisive moment. The country must respond to this attack from the markets," Finance Minister Fernando Teixeira dos Santos said in a statement.

Perhaps it's just me, but if this is not handled forcefully and quickly, the European bond markets could face a meltdown, with very serious consequences for Europe's banking system and currencies (yes the sterling). Today's market actions left me with a very uneasy feeling.

Update 6pm:

"Sold" one Euro contract at $1.3316

Bought 100x YCS @ 21.64... sold @ 21.22.. loss of $42.
Bought 100x IDX @ 71.75.... sold @ 72.48.. gain of $73.
Bought 100x GXG @ 32.40.. sold @ 32.50.. gain of $10.
Bought 100x EPU @ 34.75... sold @ 34.25.. loss of $50.
Bought 100x VNM @ 25.75.. sold @ 26.11.. gain of $36.
Net Gain: $27

I bought a box of bad chicken last week, so we'll call it even.

Friday, April 23, 2010

Update 4/23

Unless things change, 12,000 on the DOW is a near certainty. Copper has rallied with the stock markets and so I'm going to cancel any and all orders I still had on copper. There just seems no end in sight to the stock market rally. How is this all translating back to us serfs in the Hooverville ?? It's not.. unemployment is stubbornly high, foreclosures are still setting records and small signs of inflation are creeping in. The Japanese Yen is taking a beating, and so I will again buy one hundred of the ETF YCS, which goes up in value when the Yen goes down. It closed today at $21.64. To do this, I'm going to have to sell one hundred of the two hundred ETF EPU; it settled at twenty cents over what I bought it at and so I'll call it a wash. Here is a summary of my market positions:

ETF YCS (100) Bought at $21.64
ETF IDX (100) Bought at $71.75 (today $74.84)
ETF GXG (100) Bought at $32.40 (today $33.10)
ETF EPU (100) Bought at $34.75 (today $34.96)
ETF VNM (100) Bought at $25.75 (today $26.94)

Greece finally cried "uncle" today and called in the IMF. The EU parlaiments will now take up the measure, which will pass despite loud grumbles and court challenges. Angela Merkel's party will suffer in the elections as a result. In Greece, the IMF will impose more wage and benefit cuts; Greek unions will react with strikes and possibly riots. But in the end, Greece will make it thru year's end. They'll have higher unemployment and it'll be painful for the common Greek serf, who really does'nt deserve whats about to come his way. Portugal's CDS spreads are growing, and we might see victim #2 soon enough. But for today, it looks like a crisis has been averted. In the short term, I honestly see no real imminent danger to the world economy, and the party on world stock markets will continue unabated thru summer at least.

Wednesday, April 21, 2010

Update 4/21

The ETF's are doing good for the most part, though the VNM seems a tad more sickly than do the other three; IDX really seems ready to roar. Again all of these have four cent stop losses. I'm still keeping an eye on the copper market.. still stuck in the $3.50ish range; though slowly but surely coming down. I'll be a seller in the $3.35 range.

Greece is (again) nearing the end; they are in effect unable to borrow money. Greece's government is between a rock and a hard place; on one hand the demands of the IMF austerity plan; on the other is the response of the common Greek citizen. My honest guess is that at some point, as unemployment skyrockets and tax hikes begin to bite, the Greek government's popularity will plummet and their Prime Minister will begin to understand that his best option lies in default. After all, the thinking goes, how much worse could it really get ? At some point, perhaps later this year or next year, a "negotiated default" is likely the end game.

Goldman Sachs (finally) was sued by the SEC.. given the timing of it, this is a political move by the Obama Administration; it's their way to kick off their drive for financial reform on the Dodd Bill. Whadda pile of sh!t that bill is.. 1300 pages of backroom deals written by lawyers and banksters. Sen. Blanche Lincoln, a member of the Agriculture Committee, has written the only piece of legislation with any meaning.. a bill to essentially end all Credit Default Swaps. Rest assured that the lawyers and banksters robbing us blind will never let this one see the light of day. Slowly but surely, the people are returning to serfdom; politicians and banksters, arm in arm, swearing loudly and blaming each other, are the only beneficiaries. Such are the seeds of revolution.

Monday, April 12, 2010

Update 4/12

Going with my emerging markets theme, I'm going to buy one hundred of Vietnam's ETF (ETF VNM) and one hundred of Colombia's ETF (ETF GXG) and two hundred of Peru's ETF (ETF EPU); the GXG I'll buy at $32.40, the EPU at $34.75 and the VNM at $25.75.. all of these nations: Indonesia, Peru, Colombia and Vietnam.. have young, large & increasingly educated populations, abundant natural resources, and pro-business governments. They all also have "issues".. political instability, corruption, etc.. but in these case I'm thinking the potential benefits outweigh the potholes.

Update 5pm:

Got one hundred IDX at $71.75
Got one hundred GXG at $32.40
Got one hundred VNM at $25.75
Got two hundred EPU at $34.75

Sunday, April 11, 2010

Update 4/11

Today the EU, in combination with the IMF, have decided on a plan to bail out Greece; the IMF will cough up $15 billion; the EU another $40 billion this year {there are more loans to come as it's a three year plan}; the EU loans are at roughly 5%. My own thinking here is that this is enough to get Greece thru, so long as the "austerity package" that comes along with this does'nt result in riots & strikes that bring down the government. Ambrose just came out with his analysis, which says it does'nt go nearly far enough; he quotes Simon Johnson (former IMF Cheif) as saying that Greece needs north of $140 billion, and even that might not do it. Ambrose suggests that Greece should default on 2/3rds of their debt and leave the EU. If Greece turns out to need anywhere near the extra $50 billion this year as Simon suggests, I would have a hard time believing that Germany would agree. We shall see; at the very least it buys Greece a few months to make some drastic cuts in spending to prove it's worthiness. It can be done; Ireland was in worse shape than Greece was, yet today is on the rebound after some drastic budget cuts. But Greeks are not the type to take belt tightening lightly.

As for trades, not too sure where to go from here; equities are still going north and at this rate 12,000 this year is a distinct possibility. Strong earnings (not sales, mind you, but employee cuts) and low Fed rates are fueling this rally. Copper is holding it's ground thanks to the rally in equities. Jim Chanos, a hedge fund manager who called the Enron and Lehman blowouts and is someone who's opinion matters, came out this week and called for a bubble bursting in China, saying that 60% of their GDP is domestic construction, much of it financed by Chinese banks, and that property prices are in the stratosphere; a "treadmill to hell" was his term. Harvard Economics Professor Ken Rogoff, another one who warned of the US meltdown, is also calling for a China housing market blowout. Ultimately China has more than $2 trillion cash sitting around in banks & US Bonds and so this is not a systemically dangerous event. But this would be a serious blow to copper; I'm still looking at $2.50, but it's going to have to wait until China's economy blows a tire.

From here, I'm going to go with MedhedgeFund's suggestion of ETF:IDX, Indonesia's ETF. Indonesia is a large country with vast quantities of untapped natural resources and a young and increasingly well educated population. Stability has been a problem in the past.. it's at $72.04 today; I'm going to set my "buy" at $71.75 since it looks like it might open a tad lower. I'm going to buy one hundred of them; I'll put a trailing $4.00 stop on it.

Wednesday, April 7, 2010

Update 4/7

Well the USD continues to strengthen versus everything else, including my Yen ETF, and therefore I'm going to bail out of it at tomorrow's opening. There are a few reasons; one is that one of the Fed govenors, Tom Hoenig, again came out with his call for higher rates. But I think that much more importantly, Greece is near the end. Today after the final bell, it was revealed that the Repo Market had turned against them and was selling Greek Bonds. I simpler terms, the people that Greece's Gov't do banking business with and who take Greek bonds as collateral have voted no confidence (when this happened to Bear Stearns & Lehman, they both went under the next morning) IMHO, we've now passed the point of no return; I believe it is now past the point of the IMF's help. The German central bank today refused to help Greek banks who are pleading for help. The Greek Govt will have little choice but to default if another week goes by with no massive aid package, setting off a huge mess for European banks and the Euro currency itself. I do believe the Euro will make it thru this crisis, but Greece itself will (rightly) slip into a grinding depression. When books are written in a couple years about Greece's collapse, it will be held up as an example of how not to deal with your economic problems. Ireland, as bad if not worse off than Greece a year ago, has made the right moves and is not going to collapse.

Tuesday, April 6, 2010

Update 4/6

Silver took a tumble this morning and my ten cent stop was hit on the opening bell; I was stopped out at $18.08. I bought silver at $17.20, therefore I made $880 on this trade. My Yen ETF also took a dump this morning, and on this one it's below the price I bought at. This is a longer term trade, however, and so I'm holding steady here.

In other news, the Greek Gov't yesterday displayed the ineptitude that made this crisis possible and equally impossible to solve. Early in the morning, their Deputy PM (essentially their Vice President) did a newspaper interview in which he said that the reason the Germans don't want to give them near zero percent interest loans is due to simple racism. Later in the day, after taking a look at the IMF's austerity plan for Greece, their Finance Minister chimed in, saying that the IMF terms were unacceptable. Early this morning, as Greek debt (again) tanked, the Finance Minister "clarified" his comments and said all options are being looked at. D-Day (default day) will likely happen this fall for this sorry ass rabble. Illiterate village elders in outer Kyrghzistan have far greater political and diplomatic skills that this sorry lot.

I've vowed to be a tad more upbeat and balanced, so here goes: There were 161,000 jobs created in the US last month; this is the first month since mid-2008 that such an event has occured. The stock market is soaring to new heights as well, lifting everybody's 401K balances. Home prices seem to have bottomed in several markets as well. (of course most of this is due to the trillions borrowed, guaranteed and printed by the US Govt, but hey..). There ya go.. I tried my best.

Thursday, April 1, 2010

Update 4/1

My silver trade is going smashingly well as the USD weakens; today it was up another 37 cents, which for this mean old bastid means another 370 (increasingly worthless & overtaxed) dollars in my wallet.

It looks like the race to the bottom has begun in the currencies, and while we're trashing our currency quite effectively, apparently the Japanese are even better at this event; the Yen continues to lose value versus the dollar. Therefore, I'm going to once again purchase two hundred of the Short Yen ETF (ETF YCS) at $21.60/share. MadHedgeFund & Mauldin both are deeply pessimistic on the Yen, and this last week's action proves they're right. (The Euro and UK Pound were advancing versus the USD) So for now, Japan is winning the Great Race to Ruination, and I'm hopping aboard their southbound train. If Mauldin's hunch of strong deflation in April pans out, this trade will pan out very nicely, though my silver will be stopped out.

As for copper, I still believe it is in for a major fall thanks to less demand in China and the US, despite the recent upsurge. Today's Ambrose Evans piece lends credence to my theory. I'm going to bump up my "sell" order to $3.41 (today's close was $3.58) with the customary five cent trailing stop. A deflationary environment would help this trade immensely as well.

Update 7:00pm:

The Fed has announced a meeting (unscheduled) to discuss the various rates. This means that somebody sees something they don't like. Speculation is of a rate hike in one form or another to curb inflation. Problem is, I see no inflation; Mauldin makes the point that money supply is in fact drying up rather quickly. Such a move would explain today's strong move up in the USD (Ben's Friends and Family List got word of this a day or two ago and are acting accordingly). Anywho, here's Mauldin's word on money supply and why the upcoming move is perhaps the exact wrong thing to be doing at this time:

In plain English, what this is explaining is that while the Fed continues to print money like no other, it's being stashed in banks at an even faster pace, sucking the system dry of cold hard cash. Banks are not lending unless you have a 775 FICO score and a co-signer who's credit is even better.. or unless there is a Fed guarantee on the deal (mortgages). When was the last time anybody reading this article got a credit card offer in the mail ?? The Fed's rumored move would slow the pace of their printing a little, meaning even less cash in the system.. the last thing they need to do in the short term. The USD will go up; my silver trade will get stopped out, but my Yen trade will do smashingly well. Copper should (uh hum) go down and I may "sell" a copper next week if it hits the $3.41 mark.