Year-End Review, pt. 1

The first part of my year-end review is an assessment of my performance over the past year.  The actual return for 2011 was about 25%, which isn't horrible, but very low for the amount of risk I have taken.
I've decided to quantify a theme I have written about before to understand the actual impact that stupidity plays on my trading.  My losses fall in to 5 main categories: errors in timing/direction; gambling; drinking; impatience; and hubris.  The following values are percentage losses attributed to each category:

Errors: 45%
Gambling: 46%
Drinking: 25%
Impatience: 49%
Hubris: 21%

Total losses (not all at the same time, of course): 186%
Total losses as a result of stupidity: 141%

I divided the loss on my STD puts evenly between impatience and errors.  I attribute all of the categories except for "errors" to some form of stupidity.  My goal for 2012 is to cut out the stupidity.  If I can do that, I think 2012 can be a great year.

I've come up with four maxims by which to go by in 2012 (that I've posted next to my computer monitor) to help reduce the stupidity factor:

1. Keep yourself humble, or the market will do that for you.
2. If you don't know, you don't trade.
3. We don't trade when we're under pressure.
4. Remain agnostic.

These four maxims, combined with a sincere effort to minimize my trading volume, should help reduce "stupidity" substantially.

The next part of my year-end review is actually a look ahead to 2012.

I wonder where Italian bonds will go tomorrow?

I guess they don't want to spook the market, so Italy just won't tell them how bad their Q3 GDP was.  Not to be chicken-little, but this is a bit worrisome.
No trade just yet, though.

I lied

I'm not staying in for the ride.  My futures account was finally transferred to RJ O'Brien, so I closed my EEV position at breakeven and transferred all my funds back to my futures account.
One thing I've learned since trading futures is that the huge leverage you can take means you should trade sparingly - only when you're near certain of direction and timing.  I hope I can retain that lesson.

Gosh Darnit

Now I'm staying in for the ride, and given the rumor-mill in Europe, the hopium the market is smoking with blinders on from euro-fatigue, I think it will be a ride.  Bought EEV at 32.89.
The only thing that will keep Italy and Europe from imploding is a miracle.  I don't believe in miracles.  The ECB may have been able to save Italy by itself last week, but if they want to now, they will have to do a QE-like program and buy up trillions of bonds.  What about Germany signing off on that?  exactly.  What about Italy reforms/austerity passing?  good luck with that - if it happens, its going to be too little, too late.  Probably.
And I'm not so sure Berlusconi's resignation will be as simple as the media is making it sound.  Don't you think Berlusconi will at least be negotiating for immunity, if not to stay in power?
I'm not 100% comfortable shorting oil, though.  While I think the probability of an Israeli strike is small, the severity of loss that a short-oil position would sustain makes it not worth the risk.

...

I may have to eat my words from yesterday.  I'm not sure what Berlusconi's resignation does, exactly.  It doesn't mean austerity/reforms will pass or that they will be sufficient, and even if they do, who knows when they will pass, and even if they do -- Italy is in a recession -- anything they do now is insufficient.

My only guess is that the ECB's boycott of Italian bonds was enough to push him out.  Maybe I misunderstood his ambitions.

Anyways, I can't hold my position.  Oil at this level is just stupid - plenty of slack in the market, low U.S. economic growth, the Euro is in recession, China is slowing...which probably means its going to fall, but I can't hang on - margin calls.  Maybe I'll get back in if it looks like its coming back to reality.

Taking my lumps: Sold SCO at 41.99.  Loss of 18%.  Should put the PSFI index at 125%.

How can you be so obtuse? Is it deliberate?

One of my favorite lines from "Shawshank Redemption."  Italian 10 year is over 6.5% and rising, the 2 year was up to 6.2%, stands at 5.9%.  "But, if Italy can implement reforms, they can grow and narrow their 4% budget deficit!"  Have you seen the Italian PMI numbers?  Either the PMI surveys, which have been a pretty accurate predictor of GDP, are completely wrong, or Italy is already in recession, and the 4% deficit will rise higher, reforms or not.  Given where yields are, it would take alot for the ECB to rein it in -- which they can do, it just looks like they don't have the will (wanting to get Italy to act right) or ability (German pressure).
And oil...what can I say?  Hints from Israel?  Maybe, but the market is even more desensitized to those than they are to Europe's "all fixed!" declarations.  My sense is that hedge funds, traders, et. al., are in denial, trying to make money before the year is out, hoping things work themselves out, and the market goes higher.  I was watching Bloomberg earlier this morning, they were interviewing traders, and that's the impression I get from their sanguine views on Italian yields.  Rumors of Berlusconi resigning?  That's ridiculous, even for a euro-rumor.  They don't know their man - Berlusconi would be dictator if he could install himself as such.

Italy again

Italian 10 year yields back over 6.4%, and rising.  2 year over 5.5% and rising.  French 10 yr spread over 1.25% and rising.  2 yr euro swap spreads over 104 and rising.
And Italy is still in denial.  Berlusconi this morning said that the pressure on him to act stems from prejudice against Italians.  Good grief.
I would expect the ECB to come to the rescue this morning, and every morning, even if it means printing.  Things could get ugly if they just let them go on.  Italy needs to get its act together quickly, or all bets are off.

Update:
It doesn't appear the ECB came to Italy's rescue today, but their 10 year closed at about 6.35%.  Perhaps the ECB is showing Italian politicians what's going to happen if they don't get rid of Berlusconi and implement real reforms, real fast.  Either way, with Italian yields circling the drain, unless the ECB steps in, next week is going to be an ugly week.
Add to the uncertainty over whether reforms will even happen is the fact that Europe has now entered recession - even if reforms take place, deficits and debt will continue to rise.   These are the [post flash / final] updates to the Eurozone PMI reports for October, with Italy and Spain now included.

Italy

Italian 10 year yields hit 6.4% today before the ECB came in and pushed them back to 6.2%.  The Italian government seems to be in denial (read this article).  If CDS aren't worth anything because a credit-event can be deemed not-a-credit-event at will, its likely that banks will want to reduce their exposure to bigger risks, e.g., Italian bonds.  And with the ECB seeming to signal they are willing buyers, banks might decide to dump.  The risk-on rally today is a bit puzzling, given the deteriorating situation in Europe.  You really have to put on blinders to buy in this market - maybe Euro-fatigue has caused many to do just that...

F it, I'm back in

I feel more comfortable shorting WTI with inventories coming in higher this morning.  My futures account is waiting on Etrade transferring it from MF Global to another broker.  Bought SCO at 45.87 (roughly $92.50).

F it, I'm out

Sold EEV @ 32.20, gain of 1%! lol
Too bad I didn't stick with my stop order from yesterday.

New Trade

I emptied my futures account on Friday, apparently just in time.  I use Etrade, but they use MF Global for futures (I was told they are switching to another futures broker next week when I transferred my funds back to my brokerage account).
It looks like the market saw through the latest "plan" sooner than they have in the past.  At the risk of overstating things, it looks like its already starting to unravel.
- 50% Greek bond haircut CDS aren't trigger?  Really?  That happens and CDS mean next to nothing.  Watch as bond yields everywhere rise as a result.
- Even if the Germans want to leverage the EFSF through first-loss insurance and CDS (see last bullet point), who is going to invest?  Not the dumb money (China), and the other BRIC's have already ruled it out.  ("Why don't you just say, 'want to pour your money down a rat hole?'").
- The euro-economy looks headed for a recession.
- Italian bond yields are still near all-time highs, and look set to continue rising (risk of ECB/SMP coming to the rescue, if they have the balls).
- 2 yr euro swap-spreads are also still at/near all time highs.  VIX is rising again and EUR/USD is coming back to earth.

All of this has led me to enter a new trade: Bought EEV at 31.98.  I usually like to trade in WTI, but the WTI-Brent spread looks like it may be closing, and I don't have enough information to evaluate it.  Let's see how this goes...

Scusi, badaba boopi?

If Germany is the keystone of the Euro, Italy is now its linchpin.  With 10-yr yields hovering near all-time highs, Germany is demanding more austerity and reforms from Italy before they can be guaranteed by the EFSF, and probably even to continue under the ECB's SMP program.  As noted by Mario Draghi, rising borrowing costs are threatening to eat up a chunk of the €54 billion in austerity measures already approved by parliament.  But things are not looking good out of Italy: Berlusconi, douchebag that he is, is pointing fingers back at Germany, rather than manning up and doing what needs to be done.  Worse, the half-assed plan he plans to submit tomorrow falls short of German demands, as that is all he can muster up without his coalition breaking and new elections being called.  If his government falls, all bets are off - rising yields do not mix well with new debt issuance, and the uncertainty created by the absence of a government for at least several months has a good chance of being Italy's, and Europe's, coup de grace.

Well...

Well, the Euro PMI data came a little mixed, but to the downside, but the Industrial New Orders came higher than expected, so...  Not looking too good for the EMU, but the situation is still not beyond salvage.

There was also positive flash PMI from China, which has helped to boost commodities, notably oil and copper.  Looks like a risk-on scenario, but based on the same Euro plan-for-a-plan-that-we-already-know-won't-work, I'm not sure I will participate in the upswing; I don't like to chase momentum.  Solvency is still and always will be the crux of the crisis, and unless that's solved, the efforts to maintain liquidity are useless, no matter how big the bazooka is.  Italy seems to be flaking out on much-needed reforms, even with the Germans and ECB pressuring them to act; it will likely take their bond yields blowing out again to get them to act right...which doesn't seem too far from happening: 10-yr yields hit 5.95%, slightly below their unsustainable highs of 6.2% in early August.  French-German spreads are also hitting all-time highs.  ECB emergency lending is also near all-time highs, as are 2 year Euro swap spreads.

I'm having trouble reconciling the deteriorating liquidity and solvency picture in Europe with the equity and commodity risk-on trade.  Does someone know something I don't?  Is it Euro fatigue?  Is the market really taking Yellen's call for QE3 seriously?  Is there a serious chance of that happening near-term?  Is this ramp-up just a set-up for a smack-down?  I think its better to sit out until I can figure out what's going on...

Re-Re-Visit euro-FAIL

As I noted in my previous euro-FAIL post, the one and only uncontrollable monkey-wrench that couldn't be prevented from fouling the Euro-machinery, is a declining economy.  If the Euro has a will, they have a way--unless they re-enter a recession.  In that case, they will be unable to meet their deficit targets, no matter what austerity measures they pass.  So let's take a look:

Euro recovery-GDP was even worse than in the U.S., and it doesn't look like its in an uptrend.  We should be getting Q3 figures shortly.

Economic activity (these charts display PMI manufacturing and services, respectively) has been falling sharply in the Euro-zone.  Monday (Sunday night in the U.S.) will have the latest figures, so we'll see if they get a rebound-bounce like in the U.S., or continue their descent.

Time to fess up

I often wonder how much money I would have by now if I didn't make bone-headed decisions.  Not just wrong decisions; those happen.  I mean bone-headed decisions... just cut out those...  Anyway, like driving, or operating heavy machinery, don't trade while drinking, especially if you don't put stop losses on your position and go to bed forgetting that you entered a trade.  Wow, I sound like I need a 12-step program.  But I don't, I just need to not do dumb shit.  Needless to say, I lost a full 25%.  Ya, I know.
I still haven't gotten the new MS Office program, so I can't update the PSFI index chart, but it should now read 150%.

Looking for the next ride down

Unfortunately, I got spooked out of my last trade too soon, but I'd rather keep risk low with the kind of volatility we've had the last few months.  We bounced right off a technical top to the recent trading range today (S&P 1218), and if we don't break through it tomorrow or Friday, we'll probably head lower.  This is always subject to announcements out of Europe promising to promise to fix their mess.  Also, earnings season is upon us, so positive forecasts for the economy in forward looking statements also creates upside risk; I have a feeling its already baked in, though.
Downside risks (other than the technicals) include worse than expected earnings, a Slovak surprise, more evidence that Euro banks will resist recapitalization, no movement on Italy's part, a no-plan (or a b.s. plan) by the Oct. 23 scheduled date for a "plan," etc., etc.
Long story short, I'm still looking and waiting for a good spot to get in, long or short...we'll see how things play out.

Tone Changing Again

The market has moved so fast in the last 2 days, and the ECB left rates unchanged; the market tone seems to have changed...  so I'm going to take profits and take a step back.  We may go a little higher here, but we're likely to see another leg down (unless tomorrow's NFP numbers come better than expected).

Closed long at 1135.  Gain of 20%.  Not bad...

Update to PSFI Index:  I'm not able to use Excel to update the index, but it should read 192%.

And another thing:  To JCT: what good is low inflation if the Euro economies decline and therefore wreck the budget-balancing plans?  Primary mandate or no, I don't get it...why have a human making robotic decisions?  If you want robotic decisions made, have a computer decide.  Ridiculous.

Going Long

After the ISM releases came better than expected, and Europe...at least saying they finally get it..., and the fact that we're at the bottom of a trading range, I thought this was a good place to go long.

Long ES Dec '11 @ 1121

Revisiting Euro-FAIL

The short-term direction of the market hinges on two things: 1) whether the U.S. is heading in to a recession; and 2) whether Europe can get its act together.


1) ECRI believes recession is a certainty.  I'm not ready to put the nail in the coffin just yet, though.  Overall numbers are down, but not bad, and yesterday's Chicago PMI surprised to the upside.  Next week has alot of data coming out, notably the ISM and NFP figures (plus EU and Chinese PMI); I'm going to hold off on passing judgement.


2) Strangely, I'm now cautiously optimistic about the Europeans' ability to solve their debt crisis.  Why?  Is it because everyone else is so damn sure its all going to fall apart?  I hope its not because I'm that contrarian...To me, a breakup of the Euro is not possible; maybe an exit by Greece, but even that seems unlikely.  There is too much driving the member states together: in culture, in shared interests, in the belief that the whole is greater than the sum of its parts (i.e., ability to compete internationally, economies of scale. etc).  And history: most of the member-states spent the last several hundred of years killing each other to gain control of Europe; they now realize that peaceful cohesion is cheaper than war.
The problem is one of solvency, which has now given way to a problem of liquidity.  Until this year, most of the efforts were aimed at solving the liquidity problem.  I believe this is changing, and the change will be enough to get them out of this mess.
Efforts addressing solvency
- While its yet to be seen whether constitutional amendments prescribing deficit limitations will push governments to use creative accounting / push items off their balance sheets, they do provide a way to balance the budget...but oversight is needed to make sure what the government says is accurate, which I'm pretty sure the markets will do.  Germany doesn't have a constitutional amendment, but has enacted a law that requires the budget deficit to be < .35% of GDP by 2016 for the national government, and 2020 for the states.  Spain just approved a constitutional amendment to have near-zero deficits by 2020.  Italy proposed one at the same time as Spain, but it appears it is being pursued with less vigour.  France seems to think that it doesn't need one.
- Germany has reduced its deficit to about 3% of GDP (Slide 63) and estimates are that it will be about the same next year.  I don't think Germany will have a problem with fiscal prudence.
- France has proposed new taxes and spending cuts that aim to reduce its deficit from 5.7% of GDP in 2011 to 4.5% in 2012, shooting for 3% by 2013.  These are based on growth rates of 1.75%, though, and are likely to be missed.  Further, the Socialist party won the senate and may be able to delay or derail the proposed measures.  France's Debt/GDP is about 85%, and their deficit/GDP in 2010 was 7%.  I'd like to see more of a sense of urgency in France; S&P doesn't bluff.
- Spain has made great efforts towards balancing their budget, and they have alot more manoeuvring room than other Euro countries do.  Their debt/GDP is only about 70% in 2011 (Slide 58).  The deficit/GDP was over 9% in 2010 and expected to be about 6% in 2011; 4% in 2012 if trends continue (Slide 63).
- Italy passed €54 billion worth of cuts and taxes in August.  Tax and spending reforms are loudly called for by both Italian business and now the Germans.
- Greece will be allowed to default when the new EFSF is up and running, and maybe only after at-risk banks are preemptively recapitalized.
- Finally, the new ESM will require changes to the Treaty of Lisbon, et. al., but once enacted, will have automatic monetary sanctions for countries that don't meet the deficit targets.  It will be run by the EC, not the member-states.  The European Parliament voted on 9/27/11 to enact the new sanctions rules and a budget-surveillance system.
Efforts addressing liquidity
- Europe has at its disposal: A) the new EFSF has a total capacity of €440 billion (once passed by Malta, Netherlands, and Slovakia - by 10/17/11), which can now buy the debt of countries in the secondary markets  as well as recapitalize banks (through loans to the member-state) - all pre-emptively if need be (but is that a good idea?); B) the EFSM, with a capacity of €60 billion; and C) the IMF commitment, amounting to €250 billion.  This totals €750 billion.  Conservative estimates of Euro-banks' capital shortfall look to be around €250 billion.  That's if Spain and Italy don't get caught by rising bond yields.
- Levering the EFSF through the ECB?  Doesn't look like that one's going to work.  Not only has S&P suggested it could result in a downgrade of France, but German CDS has been rising since the idea came up. Further, its not likely Germany would go along with this, either in the Bundestag or the constitutional court.  However, there is discussion of a way to lever through an insurance company arrangement, but I don't know the details and am not sure exactly how that would work.
- Work towards the ESM continues, and there is talk of moving up its implementation, but I'm not too optimistic that Europe's leaders can do something both correctly and quickly.
- SMP program - bond purchases by ECB of member states (Slide 34) - unsterilized. Yes, with a Z.  There is talk this is going to end soon, as dissatisfaction of monetization has resulted in German defections from the ECB.
- Federal Reserve, in conjunction with the ECB, BOJ, BOE, SNB, and Bank of Canada, extended the existing U.S. dollar liquidity swap arrangements through August 1, 2012.
- ECB - 3 and 6 month Long-term Refi Operations (LTRO's) being offered and extended as needed.
Counter-argument
- There is one thing my positive outlook doesn't take in to account: a possible renewed Eurozone recession.  Deficit projections are all based on improving economic growth.  PMI figures on Sunday night (Monday) will shed some light on the path...

Finally did something right

Given the speed of silver's fall, I decided now was a good time to get out.  The puts were worth far more than I thought I was going to be able to recover out of them.  I still think silver has some room to fall further, but the time value of my options is dropping, so I thought this was the best time to exit and re-evaluate.  As my previous post mentioned, my reduced dollar-cost average was $0.175. 
Brother, remember our conversation about doubling down?  Well na-na-na-boo-boo, stick your head in doo-doo.
Sold SLV Oct. '11 @$23 puts at $.043, a gain of about 145%.  I'm up for the year by a good amount now...I hope I don't lose it all, lol.

Finding the courage...

Given my performance this year - which can only be described as horrendous - its been difficult to face reality.  Maybe that's why I'm not posting so much anymore...? 

Perhaps this is a good time for a belated mid-year review:
I managed to lower the dollar-cost-average of my silver short position by buying the same puts at very cheap prices, but I remain in the red. 
I missed out by not sticking to my convictions about the [quantifiable] situation in Europe - my STD puts would be worth > 3x what I paid for them...
I've compounded my predicament by not cutting my losses in my [irrational, unquantifiable] silver position.
I stick to the idea that precious metals are a bubble (or at least one in the making); in an Armageddon scenario, they're useless - I'd rather have bullets and MRE's.  But as a trader, I've done a poor job of timing.  For an asset class with no cash flow or earnings to measure (which is thus entirely emotional), precious metal prices won't come to reality until they're obviously out of sync with reality.  That's where I screwed up on this trade to begin with: up over 3x - even at $32/oz. (a 30% drop in 1 week), I assumed that reality had set in.  Not so.  Investors are still scared shitless from '07-'08, and a magical commodity that just keeps going and is "undervalued" in proportion to another commodity is just too irresistible to an excess of $$$ that has nowhere else to go. 

Where to go from here?
I still have my silver puts.  My view is that the next FOMC meeting will further discuss QE measures or Operation Twist-like measure, but will not implement any.  They still have their credibility to think about, and talking tough while not looking like they're panicking is likely the base-case scenario. 
I think the market's base-case is that they will unveil Operation Twist 2 - or at least something - given economic data and Eurozone fears.  Even though this is priced in by the credit markets (see the treasury curve-flattening over the last few weeks - does someone have inside information, like last year with QE2?), I still think the Fed will wait until at least next month to take further measures, if current trends continue.

Therefore:
I'm holding my silver puts looking for a better exit.  Hopefully, I'll be able to recoup enough to recover by the end of the year...

Congressional Incompetence Makes Me ASHAMED to be an American

• Across the board spending cuts with no analysis of what should be cut as wasteful versus what spending is functional.
• Democrat intransigence on meaningful spending cuts and entitlement reforms.
• Republican intransigence on refusing to close tax breaks for private-jet owners, et. al.

Now, I'm not a fan of Oklahoma in general, but Tom Coburn's Senate testimony today was extremely lucid, on-point, and for the first time from a politician - honest.  Even John Kerry seemed to recognize as such, and almost seemed like he was ready to come to terms like a leader, rather than the self-serving politician he is.

This should have been hammered out months ago.  Then as the deadline approached, weeks ago; then days ago.  Now, there's not enough time to cut wasteful spending; the only cuts that can be made are across the board, which is extremely inefficient and ineffective. 

Had I known that my countrymen were so obtuse, I would have bought silver, gold, bullets and a bunker rather than my SLV puts.  Here's a bit from Marco Rubio, since I couldn't find Tom Coburn's.

Stomach-turning Index-level, part 2

Apparently, I should have kept negative my bet on STD.  Wow.  wow. 

Stomach-turning Index-level

The PSFI Index also accounts for the unrealized loss on the SLV puts.I had a chance to exit my STD position at near-breakeven, but in my reticence to accept a loss, I made it much worse.  Greece will default/restructure, but the can has been kicked for now.
Sold STD Sept. '11 Puts, strike @ $10, for .3 - total loss of 58%.
Luckily, I did not have all my eggs in one basket.  But I do now.  As the summer goes on, I think U.S. economic activity will pick back up while the rest of the world slows down a little from all the tightening their CB's are doing.  Oil price levels are going to hurt the economy and Obama's chances of re-election, and he knows it; hence the release of oil from the SPR to attempt to reduce oil prices [failure].  Add that to inflation and core likely to remain elevated/increase, and I think the Fed will change something to signal tightening - if not end the reinvestment program - at the next FOMC meeting. 
Averaging the price paid for my SLV Oct. '11 Puts, strike $23 is at .5

The near-term fate of the EU rests in the hands of the Greek protestors

The only thing that matters over the next 2 weeks is whether the growing discontent pushes G-Pap into a chopper; if not, we'll have a solution for the next month or two (loan disbursement), until the 2nd bailout is debated up to the last minute (on whether there will be a restructuring, or a "voluntary" exchange).  Even though the new austerity measures being pushed through in Greece's Parliament are less than the troika's expectations, I think they will give Greece the money unless the Confidence Vote fails or the austerity measures are rejected.  I see a 50/50 chance the strikes/protests scheduled for this week will have some impact.  The Greek people don't seem as willing to lube themselves up as the Irish or Portuguese. 
Loan delinquencies rose in Spain over Q1.  Also of note is the rising Spanish 10-year and CDS, which have finally broken out above their range held for the last few months.  Whether this continues near-term all depends on - you guessed it - the Greek protestors. 

As for Tuesday's FOMC announcement, I expect the same language as last month, possibly mentioning providing ample liquidity if the Euro situation deteriorates, but recognizing that while economic indicators are currently pointing down, it's transitory, while inflation measures are pointing up.  I.e., I expect them to maintain QE lite and not mention any new QE/Operation Twist program. 

One more thing to note: I haven't fully researched it, but reports (here and here) indicate the Dodd-Frank Act's requirements, which are to be implemented 180 days from enactment (i.e., in the next month or so), have:
1) raised the "accredited investor" requirements;
2) restricted/eliminated who (now only traders registered with CFTC) can trade spot futures contracts (e.g., PMs, forex), or who can trade on margin any commodity futures contract;
3) changed the definition of what constitutes a "retail" fund
My first thought is that this could dry up alot of liquidity in those markets; my second thought is that alot of hedge funds might have to partially unwind their positions to exiting clients that are no longer accredited (unless there's an exemption for already-placed investors).

Let's see where things stand...

If nothing else, I have an unlimited supply of pithy titles...
Silver.  If it was a quick snap-back, I would be unconcerned.  However, I'm worried that: 1) It's rise has been gradual, not impulsive; and 2) correlates highly with gold (greater swings, but pretty closely correlated).  I still think the end of QE2 will see silver lower, but whether I will make alot of money, or any at all, because of the time decay of the options I'm holding.  But, at this point, I'm unwilling to realize a loss at this point.
STD.  Same as silver, its just a question of when.  Did I get in too soon?  In retrospect, yes, but I did it at a time of stress and before key events.  Finland approved money for Portugal today, but its still up to Portugal to pass the austerity measures.  Plus, Greece is again on the verge of default.  We'll see, but again, I'm willing to gamble a little more here.
In the future, I look forward to using the futures market for my bets moreso than I do the equity/options market.

Paper

I'm a law-school student and I wrote a paper this semester on whether recklessness constitutes scienter under § 10(b) of the Exchange Act [securities fraud].  The short answer is that recklessness constitutes scienter because - while it is at best evidence of negligence - it is a strong indication of intent without the evidence to show it.  In other words, we can't prove you subjectively intended to do it; instead, we're going to look at the facts and make an objective determination that there's no other explanation other than you intended to do it (or in plain English: Bull. Shit.).
The implications for the banksters during the last credit bubble and the fraud that accompanied it shows plainly that, while there is a bounty of wrongdoing, evidence and culpable characters, the only explanation for no one being held accountable is that...goddamn it, I sound like a Zerohedge conspiracy-theorist-article-commentor...Wall Street owns Washington, at least to the point that it more resembles Tombstone, Arizona (circa late 19th century) than it does ...I can't think of a good counter-example.  In short, lawlessness is running amok on Wall Street.  Please read Matt Taibbi's most recent article! 

Be careful with ETF's

I'm not sure what, but something is causing ZSL not to function as it was intended (e.g., as a leveraged inverse ETF, it should be up when the underlying is down; Thursday and Friday the correlation was off badly).  I exited this position on Thursday.  Sold ZSL @ 22.28 for a 25% gain.  I jumped back in the SLV Oct. Put @ 23 this time, and paid .78 per K.  It is still my view that as tightening takes place globally, and even in the U.S. with the end of QE2 (and QE Lite?), commodities and emerging markets are going to suffer, especially the biggest bubbles like silver.  Threats to this outlook include a lack of CB tightening, improving economic conditions, and a loss of confidence in cash or banks (this last one refers to the Euro crisis; I would expect gold to benefit, but its possible other PM's could as well).
The PSFI index again takes into account the unrealized loss on the STD put I'm holding.

I saw it this morning

Bought ZSL on margin (Double short silver ETF) @ 19.80
I'm so impatient.  I should take some time off of everything to become a Zen master before I start trading again.  But I won't.

Every. Single. Time.

You'd think I would let good judgment prevail over greed at least once.  Just once!  But again, I shortchanged myself.  Up as much as 200%+, I had to settle for a 50% gain.  Not bad, but the loss of that 150% stings.
Sold SLV Oct. '11 Put @ .56
The PSFI index reflects the gains here, but also the unrealized loss on the STD puts.
I thought the unwind would last a little longer, and frankly, I think it will have another downturn after QE2 ends, but we'll see.  Maybe I'll ride the wave down and buy some physical when QE3 rumors start?  Any way you look at it though, this has bubble/potential bubble written all over it.

So what now?  I'm still holding my STD puts because I think that's just a matter of time...I'm willing to gamble a little more.  Leverage in equities is nearing an all-time high, but net longs are at the lowest level in a while...still, things seem a little more fragile than they did a few months ago.  Maybe we have another 5% rise in the S&P, but over the next month or two, I would think we would see a real correction.  We'll see how the economic data turns out.

My "areas of opportunity" remain 1) patience, 2) common sense, or the application of it, and 3) waiting for better spots/stop gambling so much.

We Got 'em!

Silver is ridiculous

Unless there's a collapse in the dollar, of course.  I'm betting against it.
SLV Oct 22 '11 $24 Put @ .32

Is the tide turning?

Bulls are starting to whine like bears have the last couple years (everyone/daytraders/SOMEONE!!! is just looking for a reason to keep buying/selling).  I heard Barton Biggs whining on Bloomberg today about how the S&P negative outlook on the U.S. credit rating is just an arbitrary reason to sell; he couldn't see any other reason for a selloff today.  How about multiple and continuing GDP downgrades?  How about the Finnish elections and the imminent Greek debt restructuring?  Or the Spanish insistence that it's not Portugal (which wasn't Ireland (which wasn't Greece (which didn't need a bailout!))) as its bills are hardly placed today, and its bond yields and CDS are rising fast?  And Italy isn't far behind!
Well, we'll see how it goes. 
Ah, and something else to keep an eye on - Beijing real estate prices are down something like 25%YoY, I think .  Bubble popping?  May be a good time to start looking at ways to ride the wave down...

Bravo, Iceland

Congratulations on refusing a compulsory obligation to pay someone else's debts.  The Icesave deal would have compensated the British and Dutch governments for losses their depositor-citizens sustained while chasing yield in horribly-run banks.  Private losses should be sustained privately, not piled on to someone else when something doesn't go your way.

Why is the market so sanguine about a Portuguese bailout?

I want to see what the market sees; I need to know why "everything's going to be ok."  What am I missing?
Portugal's 10-year stands at 8.58 after surging from 7.3 only a couple weeks ago; 6-month bills are at 6.5% and CDS are still at their highest level, i.e., its locked out of the market; Portugal was said to have about €4 billion cash, plus about €1 billion more from selling 6 and 12 month bills at rates higher than 10 yr. bunds; Portugal has bond redemptions and coupon payments totalling €5.3 billion this month, plus its normal monthly fiscal deficit.  1) Where is the money coming from to get through April? 
Ok, assume April's bonds and deficit are paid for, and Portugal has enough cash on hand to cover its fiscal deficits from here to June.  The only way to get though June's bond redemptions and coupon payments, totalling €7 billion, is with a bailout.  The various "donors" still have to assess the situation, and if Ireland is a guide, the terms that would be given wouldn't be issued until the end of May.  But given to who? 2) The "lame duck" parliament in Portugal does not have the legal authority to accept any bailout terms.
So that leaves everyone waiting until after June 5.  For fun, lets assume that a government is able to be formed within a day of the election.  That leaves 9 days with which to accept an austerity package.  Consider the recent election losses by CDU in Germany and next week's Finnish elections in assessing the contents of a package;  an austerity package already rejected in March is being labeled merely as a starting point in the budget reforms Portugal needs to enact to get bailout funds, with the Finnish Finance Minister stating, “The package must be really strict because otherwise it doesn’t make any sense...The package must be harder and more comprehensive than the one the parliament voted against.”  3) Is it reasonable to expect the new parliament to negotiate, debate and implement a controversial austerity package in less than 9 days, let alone at all?
That leads to my last question: 4) Could there be any funding of Portugal without strings attached through June?  This begs the question, by whom?  ECB?  That may be a way of providing liquidity while raising rates (not sure about the mechanics of that one).  China?  They play realpolitik, so the question is, in exchange for what? 

To recap, in order to justify the market's "they'll take care of it" view:
1) Portugal must have enough to cover this month's bond redemptions and coupon payments, as well as enough to cover fiscal deficits through June.
2) The June 5 elections take place and a government is formed quickly.
3) The new parliament is willing to implement an austerity plan stricter than one already rejected, with little debate or negotiation.

There seems to be a positive correlation between liquidity and stupidity

Besides many losing trades, another reason not to use this blog for investment advice is that I don't update it as soon as I make a trade.  I am happy to make many small losses in search of large gains.  Admittedly, I haven't had a large gain yet...in fact, I need one just to get back to even.  In the future, I am going to divide my trades so all my eggs aren't in one basket at one time.  Starting next month.  Sold SCO at 42.96, loss of 21%.  By the way, can anyone explain the recent rise in oil from $102 to $106?  Nothing changed in Libya or the Saudi peninsula, yet oil surged as if there was a massive increase in demand, or a massive decrease in supply, hence the title of this blog.
As you can see from my next trade, I have no confidence in Europe's ability to manage their solvency crises. 
Bought STD Sep 17 '11 $10 Put Executed @ $0.7.

القذافي

I was unknowingly incorrectly transliterating his name - it's Al-Qathafi (Qa-THA-fee), where the th is a hard th, like in "there".  For those of you who don't التكلم اللغة العربي , Al-Qathafi is Arabic for...the Qathafi.  I miss you, Chris Farley.

Risking victory for appearances...thanks Obama, way to earn that Nobel Peace Prize

Mig-23's are already falling from the sky.  I imagine the French are already working on plans to surrender, lol.  I joke.  Go France!, kick some ass. 
Get this: coalition aircraft, including a French carrier, are just now moving to the Mediterranean.  How is this possible?  This is negligence bordering on incompetence on the part of Obama; this should have been done before the UN vote so we could begin to be effective on a moment's notice.  Now it will be days before we can effectively stop the movement of Qadaffi's military, which has already begun to move in to Beghazi and other rebel-held cities.  Good luck getting them out now without ground troops. 
Obama is risking victory to try and accomplish change.  What change?  To not be seen as an imperial power.  Using the U.N., pretending its the French and Arab League who are leading this, is all a bit disingenuous.  Nothing happens without the inclination, approval, and support of the United States.  Period.  We are what we are, and if we weren't, we would have watched videos of thousands of Libyans slaughtered weeks ago.  President Obama risks victory in an attempt to pretend the United States doesn't have an interest in maintaining world peace.  The U.N. can't do it, the Europeans won't do it, even if they could.  If the U.S. didn't dominate the world, the Russians, Iranians, Chinese and others would quickly take the opportunity to increase their regional dominance; the only thing preventing major superstates from developing (a la WWII Germany, Japan, USSR, etc) is the United States maintaining regional balances of power throughout the world.  They are the real imperialists -- restrained only by a more powerful quasi-imperial United States.  Wake up, world.
Well, we'll see where oil opens on Sunday night.  Will Qaddafi solidify control by then?  Will he be pushed back, and if so, will he sabotage his oil wells?  Will he ask for a cease fire again and prove he wants it by pulling his troops back?  Will the coalition attacks (which don't really seem to be coordinated) just start ramping up?  Realistically, nothing will affect world supply and demand, but it will contribute to the $15-$20/barrel speculative premium.  Let's see if get a margin call on Monday...

Should vs. Will

I want to quickly mention the need to distinguish between what should happen, and what will happen.  On March 4, I laid out a prediction of how the events in Libya would unfold.  I was wrong.  I underestimated the degree to which this administration wants the approval of the rest of the world before acting in the United States' best interest.  Now, even if all goes according to Obama's plan - and it very well might - he took a huge risk in betting 1) he could get China and Russia to abstain at the UN SC, and 2) Qaddafi would not be able to complete his reconquest before the UN resolution and present the world with a fait accompli. 
My eyes were only looking to what I thought should happen, not what I thought they thought should happen.  Lesson learned.
As for oil prices and the cease-fire...I'm not sure if Qaddafi is stupid enough to try and make a move that would break his declared cease-fire.  If it were 30 years ago, where observation of the situation was limited, maybe.  But he has to know we have satellites and spy planes, and likely SF on the ground, or at least contacts with rebels.  If the cease-fire had to be enforced, I think it would devastate Qaddafi's forces, and I think he knows it.  I also think there is too much talking going on by the US, France, etc.  I've heard too many times that we're ready to strike within hours of something being decided; it almost seems like we're afraid to do it.  Get busy reuniting under a new government, or get busy bombing.  Time is on Gaddafi's side, i.e., the longer he stays in power, the more likely it will be that he remains.

Not a bad day

A 20% return in 1 day?  I'll take it.  Sold EWV at 42.83.
And as things in the ME/NA seem to be winding down, shorting oil seems to be a good move, especially with Japan likely to use far less for a while.  Bought SCO at 47.97 (short WTI ~ $98.40/barrel).

Who am I kidding?

I lied.  I can't let this one pass by.  Bought EWV (short Japan) at 39.

Time-Out

I exited my last trade shortly after I entered.  I've figured out why my trading has been so schizophrenic.  Trading requires good chipstack management from a disinterested practitioner; right now I am distracted to the point that I am unable to exercise good judgment.  I'm going to empty my trading account into a risk free investment: paying down debt.  At the same time, I'm going to slowly rebuild a new account and focus on new tools so that when I return, I don't have to worry about ETF decay.  I do enjoy writing, so from time to time I may be back. 
Its interesting to note that the correction I was waiting for finally appears to be materializing...

If you can't beat 'em...

...join 'em.  Sold SCO at 41.97.  Total loss -14%.  Bought UCO at 57.39, which probably means oil is set to drop.  My analysis hasn't been the problem lately, its my instincts.  If this ends up being a loser, I'm going to pause for a while, maybe come back in a month or two after I've found my problem.
Now, there are reasons crude could fall soon and fast, so I may flip-flop again.  1) Stabilization in Libya (discussed below); 2) ETF rebalancing / futures expiration; 3) Other (monetary policy tightening; PIIGS).

Performance does speak for itself: I fucked up.  I thought early today about doing a 180, which would have been a good move.  But the more I think about it, the less I see a reason for oil to continue higher.  First, ME/NA isn't yet as bad as everyone's worst fears.  There are some protests in Algeria and Saudi Arabia, but the situation there is well under control.  Bahrain's protesters, while strong in force and likely to get some of their goals accomplished, have lost momentum.  As for Libya, that should be wrapped up in a week (assuming Obama doesn't lose his nerve).  The U.S. has a light carrier (Kearsarge) and a heavy carrier (Enterprise) already within striking distance, and both will be parked on the shores of Libya by the end of the weekend.  That's in addition to European and S. Korean warships already in the area.  You can guarantee there are already special forces on the ground advising the rebels, at least around Benghazi.  They will be following the game plan the U.S. used to run the Taliban over in Afghanistan in 2001: ground capture done by indigenous forces, while SF advisors guide local forces as well as bombs from above.  Damage done to the oil fields will remain minimal, if anything at all, and foreign workers will be back within a few weeks to get the pumps going again.
Second, the jobs picture is improving, and commodity and precious metal prices are at ridiculous levels; the FOMC meeting has to take that into account.  Then again, I didn't think they'd be stupid enough to do QE2, and, well...actually, maybe I should close my trading account and just load up on silver.  If there is a QE3, I will be buying silver, bullets, MREs, and maybe a cave somewhere, lol.

On Tilt

Sold EDZ @ 21.83 - Total Loss -4.5%
This trade didn't work out as I thought it might.  I don't like to hold on to a leveraged or inverse ETF for too long because decay can eat away what would otherwise be a profitable trade.  I'm soon going to start looking at opening a futures account so I don't have to worry about this problem.  A futures account would also give me more options to trade with.

I made a rash decision today, one that I'm going to likely be angry at myself tomorrow for.  The long-oil trade is so damn trendy right now, I wanted to speculate against it.  Gambling again, I know, at what looks like poor timing, but its not entirely misconceived.  If an "event" doesn't happen, oil will likely continue higher.  If one does, oil will reverse faster than it ascended.  What "event" might that be?  Arab League imposes a no-fly zone over Libya (with what will certainly be undeclared U.S. assistance); Qaddafi declares a cease-fire to negotiate (he's on his way out - the easy way or the hard way - but a cease-fire would make the transition smooth/er); protests, etc. will likely remain, but as long as a lid is kept on it....Another possible event is a substantially stronger-than-expected jobs report on Friday.  With the FOMC Meeting only 2 weeks away, how sure is everyone that the Fed won't pull QE2 early, or at least hint at the possibility, or mention interest rates, or mention rising commodity prices?  Last, and probably least, a blowout in PIIGS bond yields, etc.  I'll be keeping a tigher leash on this trade than normal.  Bought SCO on margin at $44.79 (roughly equivalent to shorting WTI at a little over $102).

This week

Libya is a mess, but it's priced in to the markets.  Qaddafi is going to be killed or will flee the country, and Libya will require international assistance.  The only question is whether that assistance will begin by covert methods of speeding the removal of Qaddafi, or after the people/protesters/etc. declare victory and formally request it.  The protests in Iran and Algeria don't seem to be amounting to anything, but they do in Yemen and Bahrain (which is geopolitically more important than Libya).  The only other geopolitical disturbance has been N. Korea threatening to attack the South if they don't stop sending balloons filled with leaflets.  Yawn.

Ireland's election results are not likely to materially change the terms of the bailout (unless the ECB flatly refuses any changes, forcing Ireland's new PM to talk about haircuts so as not to look weak; not my base-case scenario, though).  My base-case is that superficial terms will be "renegotiated" / changed, e.g., some bonds will have their interest rates reduced.
Portugal looks ripe for a bailout, having to redeem bills and bonds in excess of €9 billion over the next 2 months.  They are supposed to auction bills on Wednesday to cover a buyback, but we'll see if they're able to pull it off.  Without another large ECB intervention buying up their bonds, they will be forced to accept a bailout (very politically unpopular...will it be accepted?).  The longer Portugal delays, the higher the risk that contagion spreads to Spain, which is a can that can't be kicked down the road.  There's supposed to be a "plan" set in place by euro leaders this month.  A statement will likely be issued that 'all members agree on reducing deficits, etc., etc,' but in reality, Germany's guarantee of further bailouts requires more changes from the peripheral countries than they are willing to accept.  And its still uncertain what the recent elections in Hamburg mean for future German bailouts, despite Merkel's rhetoric. 

Iran

3/3/11 Update:  Those 2 warships just passed the Suez on their way back to Iran...

In pondering Iran's strategy, it occurred to me over the last few days that the 2 Iranian warships heading to Syria are bait; Iran wants Israel to attack them.  Iran could then open a front on land through its proxies in Syria and Hezbollah.  If Israel attacks now, the overall conflict would be smaller, but Iran would galvanize its population against their hated arch-nemesis, at a time when Iran is weak domestically.  If Israel doesn't attack (which I would bet on - their best play to is hope the Iranian regime collapses from within), Iran will gradually increase their naval presence in the eastern Mediterranean; that will mean a conflict is inevitable, where Iran would attack through Syria and Hezbollah with naval support from its ships in Syrian ports (after Israel made a first-strike).
Geo-political events are extremely important in investing and trading, even though they don't always get the attention they deserve.  Even if nothing happens with the PIIGS in the immediate future, I think there are enough possibilities where oil-rich countries fall into chaos to keep the "risk-off" trade going for a while (don't ask me to define "a while").

Updating my Index

As I said in an earlier post, I had miscalculated something.  After going over the numbers, it was my first trade (16.5% loss) and fourth trade (9% loss).

This coming week

This week should be interesting, not just because signs of stress are showing in the Euro banking system, or the Irish elections on the 25th (how serious was FG, etc, about renegotiating?). 
Things are heating up in the Middle East and North Africa.  Libya, Bahrain, Yemen, Iran, even Algeria and Morocco to a lesser extent.  In Tunisia and Egypt, the leadership's response was to abdicate to the people (or at least those who "spoke for" the people).  Libya seems to be heading in the opposite direction.  The situation has a very Emperor Justinian/Nika riots feel to it.  That will be one of the major stories to watch this week.  How hard will the Libyan forces push?  Will that trigger violent opposition, or the slaughter of the opposition leadership and preservation of the status quo?  These same questions apply to Bahrain, Yemen, and perhaps Iran, as well.
This past week, of course, saw increasing equity prices.  My current bet is on a correction, and if one doesn't happen soon, I'm going to exit this position and re-evaluate.  But its been escalator-up, elevator-down, so if there is to be a bet placed right now, its to the down-side.

Exited Trade 5 / Opened Trade 6

WTI (contrasted to other grades, e.g. Brent) still may have some way to fall before X event changes its course.  Today, however, Israel made veiled threats against the two Iranian ships in the Red Sea heading for Syria.  The Strait of Hormuz (which Iran has vowed to close if attacked), unlike the Suez canal, has a significant amount of oil that passes through it each day.  There is only one likely event that could completely wipe out a short oil position, and its Israeli-Iranian conflict.  The magnitude of the severity, even if the probability is low (which I think it is in the immediate term) makes a short oil position a risk not worth taking.  Why not go long another grade of oil, then?  Well, if I were a hedge fund, I might consider it, but given my limited access to leverage, I can only play with the toys I have (i.e., I can only go long/short WTI).  Sold SCO at 11.70.  Total gain, including leverage = 19%.  But since I miscalculated the loss on a previous trade, I'm going to call it 16% for the Jano Index.
I also opened a short emerging market position.  In addition to commodities, they are extremely vulnerable to monetary policy tightening (or hints of), Chinese economic slowdown, PIIGS...well, you know what, pretty much anything at this point.  In a flight to safety or developed market tightening, the money leaves emerging markets quickly.  I may have entered early (imagine that), so I may pull the plug quickly.  Long EDZ @ 22.53.

Exited Trade #3 / Trade 4 / Opened Trade 5

Sold SCO on 1/27 at 10.73 - Loss, including margin, of 15%

Trade 4  1/28
SCO at 10.6, sold at 10.33 - Loss, including margin, of 6%

Trade 5
SCO at 10.65
I'm buying high and selling low for a reason (its an inverse ETF, so technically, I'm shorting low and covering high).  For trade 3, the buying was relentless, and not knowing where it might stop, I got out, tried to get back in on trade 4, but the lemming herd kept moving in the same direction.  The decision to get back in is, in addition to Mubarak resignation rumors, the U.S. is finanlly hinting that Mubarak should go, which means his departure is all but a done deal (there are scenarios where he might stay, e.g., the protests die down).  Overall, commoditites are surging at the moment, which gives me pause, but there is such a glut of oil, and Saudi Arabia has already made commitments to increase production to get oil back around $70-$80/bbl.  Now, they said the same thing in 2008 - and followed up their words with production increases - but the wave of liquidity chasing assets kept driving up prices.  It will do so again, but I think that's a story for the late spring / summer.  Right now, I still anticipate a correction - Irish elections, bank runs (in whatever form in whatever country), emerging market inflation/tightening/rioting/Pakistan, quickly rising U.S. bond yields, game of chicken with U.S. debt ceiling, U.S. state/municipal defaults (or vigilante action), etc, etc.  Alot of risk juxtaposed on a background of cyclical recovery.

Don't be a greedy pig

Don't be a greedy pig.  Don't be a greedy pig.  Don't be a greedy pig.  Don't be...When I was a kid, one of my punishments for bad behavior was to write something over and over again.  Alot of it has stuck with me.  "Don't be a greedy pig" is something I need to write over and over again.
Take your gains, don't be greedy. 
Now, in my defense, oil surged today for ridiculous and ignorant reasons.  The concern is that the riots in Egypt will close the Suez canal and affect oil transit flows.  This is unlikely to happen because 1) this is not an Al-Qaeda/Muslim Brotherhood insurgency; its a popular uprising against a dictator that the population feels does not represent their best interests and/or cannot provide for a better future, i.e., there is no reason that - even if they toppled the current government - the Suez canal operations would be affected whatsoever; 2) even if the Suez canal was closed completely, only about 1.5% of world oil used per day flows through the Suez, i.e., at most, it would delay some delivery of oil, but with stockpiles at all-time highs, its hard to see how a normal supply/demand price would be affected (i.e., its idiots/HFT that hear "maritime chokepoint" and "Middle East" and are pre-programmed to "buy buy buy").

Trade #3

I think I may have jumped out of the last trade too soon.  I mistook (I hope) a dead-cat-bounce for a reversal.

Short WTI crude oil at ~ $85.90 ---> SCO at $11.60

Exited Trade #2

Closed short WTI crude oil at 87.25 (roughly) ---> SCO @ 11.27
Total gain, including margin - 20%

Selloff was due to a combination of global CB tightening (and fears of) and Saudi Arabia stating they are ready to increase production if prices rise out of control.
I still think there's a real correction coming soon, but with the deluge of liquidity (esp. the end of Fed's Supplementary Financing Program - see Bloomberg or Zerohedge), the path of least resistance is up.  I'm looking to possibly do a short-term long for a small gain, or wait for a tactical short at the next correction.  A real correction, however, is going to take some type of catalyst...take your pick.  Most obvious is the Irish elections now set for February 25, but its not the only danger.  My 401k (LT investments) is in MM.

Trade #2

Maybe I should have held on to my last trade a little longer, lol...anyways, we're looking at at least a correction, possibly a new "story" (e.g., from double-dip, to QE2, to stronger growth, to ?...etc).  I like to use oil as a macro trade because its volatile.

Short WTI crude @ 90.75 using 2x short ETF on margin ---> SCO @ 10.24

Exited Trade #1

Like a frog in a slowly heating pot of water, I got boiled alive.
Sold FAZ @ 8.36.  Including margin, total loss of 15%.  Ouch.  And that probably means that was the top, lol.
I still think the short term will see some volatility, so my eyes are on the lookout.  I just can't see myself going long at this point; there are too many major risk factors.  Right now, my plan is to wait for one of those risk factors to materialize (hopefully not jumping the gun again), then to go short.

What to do?

Portugal managed, thanks to the ECB (China & Japan) to place its 10 yr bonds this morning below  its self-imposed line in the sand, and a few basis points lower than the November auction.  Look at their 3 year placement, however, for the real risk/reward evaluationin Portuguese bonds: 5.4% (vs. 4% in Nov.).  So what to do?  Leverage means that timing is everything.  Spain has a bond auction tomorrow and next week, but earnings season, if its as expected, should see a rise in stocks.  Maybe the ECB has bought itself a little more time here?  Anyways, I think I jumped the gun a little bit here; i.e., I think I got in a bit early.  We'll see.

2011 Trade #1 - Open

This is not investing advice, just a record of my own trades.  Make up your own mind.

Short financial stocks using 3x Inverse ETF, on margin --> FAZ @ 9.24

This trade is based on a few different ideas.  Technicals: the spectacular run-up in stock prices with barely a breather since August, equities are a little overbought, and provided a catalyst, a correction to the 50-day MA seems possible.  The catalyst?  Spain and Portugal have bond auctions this Wednesday the 12th.  Last Wednesday, Portugal placed ?€500? of 6 months at I think over 3.5%...anyways, it was a completely unsustainable number, and it looks like it may spiral.  Euribor is steady/declining (liquidity courtesy of the ECB), but PIGS yields and CDS spreads are widening, as well as 2-year swap spreads (the highest since the Greece crisis last May).  The choice of shorting financial stocks in particular is based on the Massachusetts Supreme Judicial Court ruling yesterday that is likely to cause certain foreclosures (see the Court's opinion - a good read - see below) in title-theory states (about half the states) to be voided.  This is more of a medium-term theme, only because I don't think most people will see the significance of the decision right away.

Key risks:
- Path of least resistance for stocks is up, so without a catalyst, the market will likely grind higher.  For example, if China does buy the large amount of Spanish, etc. bonds that it has suggested it may, that might keep the lid on the crisis for now.  Close attention will be paid, and my eye is on the exit door. 


The case can be found on the Massachusetts Supreme Judicial Court website:

The case: U.S. BANK NATIONAL ASSOCIATION, trustee vs. Antonio IBANEZ (and a consolidated case). For ABFC 2005-OPT 1 Trust, ABFC Asset Backed Certificates, Series 2005-OPT 1. [FN3]).  No. SJC-10694.