What to do…

There’s a excellent article by Tyler Durden at ZeroHedge about the current state of the American economy. It covers basically all the relevant statistics that is used by economists to predict the future. It doesn’t look good, at all.

Read up: http://seekingalpha.com/article/151427-the-end-of-the-end-much-needed-perspective-on-recession-is-over-debate

So what does this mean? Well, I’m suspecting both the American markets and the USD should be hit by this in several stages over the years to come. Sure, last time (this fall) the USD strengthened as the crisis worsened. I’m predicting the opposite now as the majority of investors is starting to doubt the greenbacks long term value. I don’t think USD denominated equities and bonds will be seen as the safe haven it have often been in the past.

Found a very interesting piece by J.S Kim on a leaked trading software developed by Goldman Sachs. It can evidently be used to manipulate markets and make GS millions a year (according to the DA investigating the case). Kim speculates that GS is using it in the crude oil sector. And possibly also in stock markets, remember the low volume bear market rally as of late?

Read up here: http://seekingalpha.com/article/147260-goldman-sachs-thoughts-on-the-developing-stolen-trade-secrets-scandal

So, wouldn’t you like that EA? Unfortunately it probably is useless if you aren’t hooked up to COMEX directly and isn’t in possession of the kind of money GS is. But I bet that there are many financial institutions that are interested in getting the software now…

Update: Tyler Durden also covers the story: http://seekingalpha.com/article/147104-is-a-case-of-quant-trading-sabotage-about-to-destroy-goldman-sachs

Since I’m in short positions all over the board today’s markets is a bit worrisome. The OMXS30 closed up 1.21% after trending around opening price most of the day. The move upwards came when the NYSE/NASDAQ opened and started trading with small movement (now they’re both up at about 1%). I took a large position in XACT Bear early in the morning that I decided to have over night. I’ve put quite tight stop-loss orders in place at 4% down.

The US Financial sector is recovering today, I am sorry to say. My position in SKF is taking some damages, but I will stick with it for the time being. The Short term trend is still down. SDS is doing better for now and I am definitely staying for the week. I’m putting a stop-loss at 10% on both SKF and SDS. Early in the trading today I sold of the FAZ I bought yesterday at a small loss of 1%. The 3X is just to agressive to have when the markets are going the other way (even if it’s just for the day).

Since I’m travelling from Bremen, Germany to my home in Skövde, Sweden tomorrow I am a little bit worried about my positions, but I am trying to convince myself that the stop-loss’es will save me some of it if the upwards movement continues.

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

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).