Just found a nice angle on debt and creation of money. Lets hope the bankers find a way to scale out of their practices rather than the inevitable Armageddon that would ensue if more people understood this.
http://www.telegraph.co.uk/news/features/7280559/Our-world-balances-on-a-sea-of-debt.html
Yeah, I’m selling a lot of my equities right now. The markets was amazing last year, we all know that. I was very skeptical in the beginning months, thinking that it was too early for recovery. But I went along for the ride, and I am glad that I did. Now I’m beginning to worry again, primarily because of the extreme recovery made, is it really sustainable? I’m thinking that it probably isn’t, so I have begun to sell holdings, starting with the ones in emerging markets. Brazil, Russia, India and China was truly amazing last year, but a lot of it (at least in the case of B and R) was fueled by increasing commodity prices, something that China in large part have been the driving force behind by buying and stockpiling a lot of resources. Now there’s rumors that China has enough and will stop buying, immediately leading to lower prices.
In the end my idea is to reduce my equities to about 25% of what I was holding yesterday. I will buy some gold, but I’m not a real gold bug, it’s more of a hedge.
So, what will I do with the money? I will switch it over the long term forex trading. I’ve been running RoboMiner for 6 months now, and made about 80% over that time (really depends how you calculate since I’ve been adding funds now and then, but MyFXBook has gotten it to 80% gain and 50% absolute gain). That is amazing I think. But I think that EA could have done better still with some changes (the Pro version adds a few things like ability to trade all currencies and the shift-function). So I’ve been working on my own grid trader again, that actually is getting quite nice I think. I’m about to start demo trading it seriously at different brokers right now, but in a month I hope I’m confident enough to put it live on a rather big account. I’m really pleased with the backtest performance, which in the case of a long term grid trader is quite precise.
I will start the live test on my existing Alpari UK account and look into opening others. I’m thinking about starting a $10000 account at Forex.com/UK (but perhaps in euros, since I already have a USD account, again to hedge a bit) to get the Pro spreads and five decimal pricing. I’m also looking at FXCM UK. I really would like at least 1:200 and favorable swaps. Well see. It is fun to code EAs again at least 
As of today I am almost completely out of equities. Even sold 75% of my convertibles in PA Resources, hoping to be able to buy them back in a few weeks at a lower price (I still believe in the company). I’ve also sold EWM, EWZ and FXI since I think the emerging markets are going to crash along with the financial sector in the US and Europe.
I also switched investing vehicle for gold (I am still long) from futures to the SPDR Gold Shares ETF (GLD). Much easier management of investment and low costs.
So what have I bought? Well more inverse ETF’s actually, took (large) positions in Direxion Finacial Bear 3X (FAZ) and ProShares UltraShort S&P 500 2X(SDS). So far this looks to be the right move, but even if the market stops falling this week I very strongly feel that the bear market rally now is dead and that we are going to see a real drop all over the board. I expect the S&P 500 to drop at minimum 30%, but more likely more that 40%. The Financial sector is going to lead the way.
Last fall, when the markets crashed, the USD and EUR strengthen against the smaller currencies (I care mostly about the SEK and NOK) and I expect this this time also. Since the Fed started pressing new dollars I’ve been short in the USD, but I will now step out of this position. I will not intentionally long the USD, but most of my investments now are in ETF’s at the American exchanges so I will ride the USD upwards in those positions. The Fed will continue issuing more and more dollars to cover the programs it has started to recover the markets (TARP, PPIP and so on), but the mighty greenback will still be able to hold it’s position since basically all other currencies are in for the same deal (ECD are just starting).
So, basically I’m now a complete bear, and I’ve took the most bearish of positions possible, and I’m just shy of All-in. If I’m wrong I will lose alot of money. Let’s keep our thumbs.
The risks I see that could stop the crash is the US governments tampering with the markets. But I really don’t think they can do much. People are starting to realize that the crowd is moving towards the door, and some of them are already running. Soon the stamped is a fact.
So, do other bloggers agree with me? Some do:
http://seekingalpha.com/article/137355-stock-markets-reversal-time
http://seekingalpha.com/article/137401-how-low-can-global-economies-go
http://seekingalpha.com/article/137234-credit-card-receivables-even-moody-s-thinks-the-fed-s-adverse-case-is-a-joke (Tyler Durden is very productive and always offer great insights)
Also there’s a interesting graph at dshort.com. Nothing new perhaps, just a new presentation:
http://dshort.com/charts/total-return-bear-comparisons.html?total-bear-comps-2007-1929
So, I finally got around yesterday to do as I say (and have written about) and started shortening the US financial sector. My vehicle of choice is ProShares Ultrashort Financials (SKF), a 2X inverse ETF. I was pondering the Direxion 3X inverse (FAZ), and in retrospect it would have been better, because the banks started gliding yesterday and continued today (so I would have made approx. 50% more with FAZ). I wanted a ETF that I’m comfortable holding for the week thou, and a 3X is terrible if the markets whipsaw a bit (2X isn’t good either thou). I might switch if the trend is sustained during the week.
Results so far is 10.4% up on Monday and 8.0% Tuesday as of this writing (thou the day isn’t over yet).
Just found a blog from J.S Kim (very sound opinions in the past) that makes my move feel even better, although I did it some 30 hours before reading this. Lets hope we’re both right: http://seekingalpha.com/article/137132-u-s-bank-shares-pump-almost-over-get-ready-for-the-dump
I’ve also sold of all Swedish equities short of PA Resources convertibles and a small post in Malka Oil (quite the lottery). Still holding Avanza Zero (OMXS30) but if the trend continues another day it is gone (OMX closed down 1.79% today). I want to have cash when the serious blowback starts.
Okay, I know that I’ve made posts before about the imminent crash, but this blogpost is just so excellent in showing how the banks made the Q1 “profits”.
http://seekingalpha.com/article/136769-a-summary-of-q1-bank-earnings-world-you-just-got-hustled
Again, if I were an american taxpayer I would be enraged at the current government. Luckily I’m not. But the ramifications will of course be severe wherever you live, since the greenback is basically every nations second currency (and many even the first).
So, what am I doing now? In short, I’m starting to sell equites on all markets. I have some ETF:s left in emerging markets (FXI, EWZ and EWM), but I think even those will have to go this week, and a long position in OMXS30 that I will reduce. I’ve also today taken up short positions in the S&P500 and EuroStoxx 50. Since before I’m short the USD and EUR and long gold, silver, platinum and palladium, that will not change.
So how about gold? I think it will be considered the “safe heaven” it historically often have been when there’s storms abruin. So I’m staying long in gold. Some bloggers agree with me: http://seekingalpha.com/article/136849-how-will-gold-perform-in-the-coming-equity-crash
Silver then? Not so sure anymore. One of the arguments for a bullish outlook on silver is gone if there is another wave of crisis and that’s the increase in industrial use. But for now I am staying long in silver too, just not as much as gold.
Platinum and palladium is even more dependant on the industrial use buyers, so I will keep them on a short leach for now. Signs of declining prices and I’m gone.
Oil then? I think we will se a stagnant oil price now around $55 for Brent. The summer usually means higher oil price, but not this one I think. Despite this I will keep my convertibles in PA Resources (on the OMX), because I think they will announce news about the finds in GITA soon (Noreco has given some estimates in their Q1 report). But I might short the Oil just in case, we’ll see.
So, is everyone on board the bear market rally soon? That’s when it turns. I’ve been believing the same for a month, so it’s perhaps not news anymore. I was hesitant to ride the rally at first but I couldn’t resist it. Now I think it’s time to put real tight stop losses on thou. I’ve taken long positions in gold and silver the last weeks and shortening the USD and EUR this week (against the SEK) as precautions, but still the equity rally is so tempting.
I’ve found a few people who agree with me about the likelihood of a turnaround, but of course only price pays in the end…
http://seekingalpha.com/article/136495-12-notes-on-the-current-market-situation
http://seekingalpha.com/article/134482-why-this-rally-is-unsustainable
http://bnwnewswire.com/editorial-Imminent-Market-Meltdown-Spells-Misery-for-Most.html
http://seekingalpha.com/article/135284-market-direction-top-strategists-weigh-in
So the coming week(s) I think we will have a really touch and go situation with lots of people thinking exactly like myself and putting tight stop loss orders in place. The whole situation could escalate quickly on some bad news (of any kind).
This is a very good sum-up of the current crisis in american banks. Since they won’t allow them to fall (BoA and Citi in particular I think) these banks have to be forced to split into smaller units. “The Big 6″ perhaps should become “the Not so big 18″.
Link: http://seekingalpha.com/article/136196-stress-tests-and-the-nationalization-we-got