Still Scurred

Copper is a little unpredictable right now, so I shorted another range-bound product, again using less leverage.

Short EUR/USD @ 133.21, closed at 132.76.  Gain of 5.7%.

Scurred

I wanted to short copper last night, but it kept falling so fast that I thought I had missed the boat...so I missed the boat.  Instead, I shorted something that hadn't fallen yet, and made a small fraction of the gain I would have made by shorting copper.  I still think we're going to see weaker than expected Chinese growth, which means lower copper; its just a matter of when to get in a short.  I still think there will be good opportunities for doing so.

Short QI (silver) at 32.20, closed at 31.85.  Gain of 4.7%

The market has gone full retard

Bernanke's speech today ignited market expectations for more QE, when in reality it appears he was only trying to tell the market that tightening is not on the table (accommodative monetary policy until end of 2014, when the Fed Funds futures were pricing it in before the end of 2013).  I'm always reluctant to move in front of a moving train, and I don't know how long the market is going to be in full-retard mode (where bad is good because it means more QE, and good is better because there won't be any monetary policy tightening anyways).  I'll update this post if I think there's a short opportunity tonight.

Update: Well, I made what would have been a money-making trade, but unfortunately, I put on too tight a stop. I almost perfectly called the top, lol.  Short HG @ 387.70, stopped at 390.25.  Loss of 10.8%.

Trade 5

China HSBC Flash PMI figures, particularly New Orders, came in well below expectations.

Short HG (copper) at 384.55

Update: To protect profits from a quick snap back, I put in a stop order at 382, which triggered.  I'll probably get back in soon, I think this has some room to run.  Gain of 16.2%.

Uh-oh

I wonder if Obama gave Bibi some bunker-busters?  http://www.straitstimes.com/BreakingNews/World/Story/STIStory_775677.html

Sunday at noon Eastern, the aircraft carrier Enterprise, aka CVN-65, left its home port of Naval Station Norfolk one final time for its final voyage with a heading: Arabian Sea, aka Iran. There, in a week, it will join CVN-72 Lincoln and CVN-70 Vinson (both heavy carriers), as well as LHD-8 Makin Island (light carrier and amphibious assault ship), all of which are supporting any potential escalation of "hostilities" in the Persian Gulf region.  Further accompanying the Enterprise is three Norfolk-based guided-missile destroyers  — the USS Porter, USS Nitze and USS James E. Williams.  (h/t Zerohedge)
http://www.wvec.com/my-city/norfolk/Deployment-day-for-USS-Enterprise--142243295.html

In one week, US forces+ in the Persian Gulf surrounding Iran will include:
CENTCOM HQ in Qatar + No. 83 Expeditionary Air Group RAF and the 379th Air Expeditionary Wing of the USAF
Support aircraft and heavy bombers from Diego Garcia
Airbases in Afghanistan
Other support bases in Bahrain and Kuwait
3 heavy aircraft carriers
1 light carrier/amphibious assault ship
3 guided missile destroyers

Amassing forces on an enemy border is almost always a prelude to war.

Trade 4

The initial elation to the news of Chinese inflation, and then Greek PSI going through went a bit far, so I shorted copper.  I didn't want to hold on to the trade too long, though, because I'm unsure of this morning's NFP.

Short HG @ 3.8225, closed at 3.8095.  Gain of 8.5%

Trade 3

The market's Pavlovian response to today's announcement that the Fed was considering sterilized QE is a bit silly.  As such I shorted, but got stopped out.  Bad place to get stopped.

Short ES @ 1349, stopped @ 1354.  Loss of 6.45%.

Reentered short ES at 1352.75.  Entered Short EUR/USD at 1.3148.  Will probably enter a short silver (maybe copper?) position today/tomorrow as a hedge against a strong NFP.

Trade 2

Today's LTRO was slightly higher than expected, and the effects of which are highly exaggerated in my opinion.  These 3 year loans are not QE - while they help the liquidity situation, they have to be repaid.  And banks still have to raise capital - raising debt is not sufficient.
But it wasn't all positive out of Europe.  It looks like ISDA will consider (rightly so) Greece's subordination of  all bonds not held be the ECB as a default, triggering CDS.  Also, Portuguese 10 yields rose sharply today, to 13.75% from 13% yesterday (the ECB stated they were buying bonds on the short end today).  Finally, tomorrow's Euro meeting will almost certainly decline to raise the ESM from 500 to 750 billion Euro.

I don't like day-trading, but that's all I'm comfortable doing right now.  I'm too disconcerted with all the downside risks to go long, and I'm not sure the market is ripe for turning over/correcting just yet, so I don't want to be caught short in a BTFD market.  Silver and Gold look interesting short prospects, though, but lets see what Bernanke says tomorrow...

Short ES @ 1364.75, closed at 1363.50.  Gain of 1.25%.

A note to my father. And Ed Wallace.

This is an email to my father about an article by Ed Wallace:

http://www.star-telegram.com/2012/02/27/3765797/oil-the-never-ending-story.html

First, he cherry-picked data, and second, he ignored the meaning of the data he picked.  Higher supply in Chicago (and the Midwest, in general) means lower gas prices in Chicago - the effect you would expect in a market controlled by supply and demand, and exactly the effect he talked about.  Now why is oil so much more expensive on the coasts?  Because of supply and demand --> the oversupply in the Midwest is unable to (economically) reach either coasts because of hippie resistance to building pipelines.  The reduction in refinery utilization he mentions is only on the east and west coast, and is because of hippie resistance to building/updating refineries in those states.  The older refineries (on the coasts) can only refine light-sweet crude (low viscosity, low sulfur), which means their refineries can't use Canadian tar-sands oil for $65/barrel (heavy-sour).  Instead, they have to buy light-sweet crude on the international market (Brent, currently priced about $122-ish).  Because demand for gasoline has ebbed in the U.S., they can't afford to pay $125/barrel for Brent crude and sell at today's gasoline prices (because of demand).
The figures given by oil executives to Congress look out of context.  The cost to produce a barrel of oil depends on a number of factors.  The marginal cost of production (i.e., the cost of producing the next barrel of oil to satisfy demand) is not linear - e.g., Jed Clampet's oil come bubbling up the ground after he was shooting at some food, so producing from a well on his land would be easy, lets say $10/barrel.  Further in this hypothetical, lets say Jed produces 10 million barrels a day, and demand is 12 million barrels a day.  So hypo-US needs more oil.  Lets say the US goes to the Canadian tar sands to get it, which hypothetically produces 10 million barrels/day.  That oil is, as the name suggests, mixed in sand, rather than sitting in reservoirs; that makes it expensive to extract (roughly $40/barrel).  Its also heavy and sour, meaning refining tar-sands oil is expensive.  So at 12 million barrels/day demanded, the marginal cost to produce the next barrel of oil will be $40/barrel, not the cheaper $10 figure (because its cheap, its production is maxed out first by the producer, who can produce at 10 and sell at least the marginal cost of production).  But why is oil at $125/barrel?  Because China and other emerging markets are expanding their consumption of oil, and quickly.  Which means that more oil is needed.  Well, the easy stuff is all maxed out, and so is the oil mixed in sand.  Are there enough oil reserves elsewhere in the world to go around?  Yes!  Peak oil is nonsense, at least in our lifetime.  Its not that there's no more oil to extract, its that the marginal cost of producing the next barrel of oil to satisfy demand is higher (because its harder to produce, e.g., tar sands, deepwater drilling, oil shale, synthetic fuel).
Yes, normal supply and demand right now probably puts the oil price around $80-90-ish/barrel (WTI; $100 Brent).  So why the difference?  An Israeli attack on Iran has the potential to close off 25% of the world's daily supply of oil.  Yes, there is no doubt the U.S. would succeed militarily against Iran should it try to close the Strait of Hormuz.  The navigable waters of the Strait are only about 29 miles wide.  Sounds like alot, but when you consider Iranian anti-aircraft missiles they just purchased from Russia, anti-ship missiles, mines, and scuttled ships, closure for a short to medium period of time is a real possibility.  Even though we would be able to reopen it, we don't know how long 25% of the world's oil supply will be unavailable.  And things are heating up in Iran.  The only way we might keep the Strait open, I think, is if we do a preemptive strike on Iran's forces there (in cooperation with the Israeli strike on the nuclear facilities).  Given this President, though, I don't think that's the likely scenario.  The markets are a discounting mechanism - the higher the risk (risk = probability x severity), the more prices move in the direction of the risk being realized; this would be the case even if the only purchasers of oil futures contracts were users.  If you see Iran come to the table for talks on its nuclear program, for example, watch the price of oil plummet.

Trade 1 for 2012

Short ES @ 1356, closed at 1353.50.  5% gain.  Gonna keep an eye on things, not too sure where/when things are moving.