The 810 Short Squeeze
Financial Ninja (a blog) did a piece yesterday on the importance of 810 on the S&P 500.
It was a critical resistance level and another point at which shorts would have stop losses on their trades. 810 held at the close on Wednesday, but the Futures rallied sharply overnight and opened in at 830. No doubt this causes a pretty nasty short squeeze as their stop loss – buy orders were triggered, adding fuel to today’s early rally.
http://benbittrolff.blogspot.com/2009/04/s-500-trend-is-down.html
That is how the game is played these days. It will be equally violent and merciless when it rolls over and retests the March 6 lows. Buyer beware here… I will be buying the retest.
The IMF agreed to print $750 billion of new money (via donations of newly printed money from G20 Governments). This is pretty brilliant, as it allows countries to all Quantitatively Easing (QE) together, thus avoiding another round of competitive currency devaluation.
At some point, the Money being created by Central Banks would surpass the money leaving the Financial System as investors decreased their leverage. We appear to be at that point. That is very bullish for stocks and commodities.
Gold Is The Enemy
The real brilliance of today’s announcement was that the IMF would sell its $104 billion in Gold to finance this latest bailout of 2nd and 3rd World economies. You see, Gold is the enemy to QE, because it offers an alternative to paper money (Fiat Currencies).
The G20 will try and artificially cap the appreciation of Gold for as long as they can, much as the Fed will artificially cap Interest Rates (The Fed buying US Treasuries). They will do so by continuing to threaten massive sales of Gold by the IMF and Central Banks. This will allow them to temporarily mask the true Inflationary damage their policies will bring to the purchasing power of their citizens.
While other Commodities rallied 7% today, Gold was down -2%. I am long Gold and will stop out if it breaks key support. That would put in a massive, one-year Double Top on Gold and may spell the end of the Gold Bull for several years. Stay focused if you own Gold.
I wrote the following on 1/07/2009 -“We now either face massive inflation, higher taxes or a default on national debt. There are no other options. I'm not being cranky. There are no other options, short of asset confiscation (like when FDR stole everybody's Gold in 1932). My job the next few years is to participate in any market appreciation, while paying attention to protecting capital from inflation and Dollar devaluation.
The powers that be will try and inflate one last Asset Bubble, first in US Treasury Debt and then in Real Assets like Gold and Commodities. But in the end, there will be nobody large enough to bail out the Treasury, when all of those rotten assets they bought turn out to be worth pennies on the dollar of what was paid to buy them (thanks PIMCO, Blackrock, et al).
Do you see why I am so reluctant to buy stocks right now? I just do my homework and then figure out how to position money. When the Big Boys start buying again, then I will hold my nose and start buying again too. But I will be a nervous buyer with one foot out the door for as long as the last great Asset Bubble carries us.”
It is playing out just as I feared. The end of Marked to Market will now allow banks to reprice their worthless assets at ridiculously high prices, allowing them to announce enormous profits in April. They will then sell this worthless junk to the Taxpayer (via TALF and PPIP) at near Par and walk away from their crimes and the consequences of their actions - RICH.
Here is an interesting letter from one of the World’s largest Hedge Fund managers. He is refusing to participate in the TALF/PPIP, because he thinks the whole thing is illegal and he is afraid of ruining his reputation when the public finds out how badly it got screwed –
“ …the plan isn't straightforward. Essentially it is to let private investors (PIMCO and Blackrock) buy these assets cheaply and to simultaneously let the banks sell them at high prices at the expense of the taxpayer.”
“We don't like the political/profile risks. If this plan gets scrutinized, which seems likely, there's a lot about it that could cause controversy. Maybe we are misunderstanding it, but from what we seem to understand, given all of these issues, it looks to us like the sort of thing that the S.E.C. and other regulators wouldn't allow if those of us in the private sector did it.”
http://www.businessinsider.com/henry-blodget-ray-dalio-why-bridgewater-wont-be-playing-tim-geithners-ppip-2009-4
Whalen on AIG
I don’t know if you have ever heard of Chris Whalen, but he is not some random blogger (like me), he is a very important player in the world of financial institution risk analysis.
His piece today is pretty insightful –
“In fact, our investigation suggests that by the time AIG had entered the CDS fray in a serious way more than five years ago, the firm was already doomed. No longer able to prop up its earnings using reinsurance because of growing scrutiny from state insurance regulators and federal law enforcement agencies, AIG's foray into CDS was really the grand finale. AIG was a Ponzi scheme plain and simple, yet the Obama Administration still thinks of AIG as a real company that simply took excessive risks. No, to us what the fraud Bernard Madoff is to individual investors, AIG is to the global financial community.”
http://us1.institutionalriskanalytics.com/pub/IRAstory.asp?tag=351
Oil and Semiconductors
I looked at a lot of charts after yesterday’s close and wanted to buy Semis and Energy if they broke some obvious resistance levels today. Unfortunately, both sectors popped over 4.5% at the open, so there was no way to buy them and still manage risk. These will be key areas of focus as the Bull Market gets cooking later this Spring.
Dry Ships (DRYS)
This stock is the poster child for what the markets have become. Here is the hourly chart of the last few days of trading. It has either gapped up or down (Green Boxes) at least 3.5% each of the last 11 days –
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