That Was a Bust!

CDE didn't end well(for me). They put out some lousy numbers into a crashing silver price. All my calls will expire worthless there.

Sticking with my Jun USO 36 puts. Started a new position in Dec TBT 40 calls. Decided to up my horizon. Obviously, bond yields could skyrocket if the Fed/government isn't really careful moving forward. Will be looking to add if they continue to head lower.

It's a down year now. However, its still early!

Things Are Getting Interesting

Well, CDE wasn't the place to be right now. I did sell some off early week and re-up when it hit 27 by adding May 30s. However, who knows what is going to happen now? Silver fell off a cliff from the margin raise(five times!!!). Sold off 20% of my physical holdings at different spots when silver was in the mid-40's. Plowed it right back into gold. Currently down nicely on my CDE calls.

Luckily, I was holding those Jun USO 36 puts. Too bad I didn't hold on to all of my USO puts. That would have really made my year. I made a lucky play on UUP and caught the bottom with some May 21s at 17 cents.

We are in May and I am looking for my spot to bow out for the summer. Probably before May expiration. However, I am really trying to force myself to hold this USO position as long as I can stomach it. My target for oil is 85/barrel. IF we get there, I will cash out. That should put USO somewhere in the 34's and I will be able to show a nice profit on the trade.

In other news, the economy still sucks. America is basically like someone who lost their job, blew through their little savings and is living off its credit lines to keep up appearances. People are getting squeezed at every corner. The fantasy economy will have to come down to reality at some point. Which point is it? 2012? 2013? Beyond? Never?

Will there be QE3? Will they tighten? I think the correct answer moving forward is it doesn't matter. If you are going 70 and approaching a brick wall, at some point, it doesn't matter whether you throw on the breaks or not. I am guessing QE2 was that point.

The depression needs to happen. Just like it had to happen back in the 30's. The only difference now is we will live through a hyper-inflationary depression, instead of a deflationary one. The bright spot is a hyper-inflationary one may not lead to a global war.

One thing I am certain of is the Fed, and those that REALLY control it, know exactly what their best options are. I do not expect them to make a mistake from a game theory standpoint moving forward. I think it is safe to say they have played it perfectly, from their own standpoint, since 2008(including letting Lehman fail/seizing WAMU). They can profit immensely from a hyper-inflation scenario, as long as they are able to front-run it.

Something has got to give, and give it shall.

This Sums Up Everything

http://fofoa.blogspot.com/2011/04/deflation-or-hyperinflation.html

It can be a tough read. However, I highly recommend it. One of the most well written articles I have seen to date. On my second read, already.

How long it takes to fully play out is the big question.

I've been adding to my CDE calls every time it dips. Generally CDE rallies early market and gives it all back and then some late morning. That seems to be the best time to move in to more contracts.

I am sitting on a lot of them now. Couldn't help myself. Earnings on May 9th. My guess is $235-240MM revenue with 0.70-0.75 EPS.

Early Stages of the End Game

Every day that goes by now my conviction grows that the Federal Reserve Note will become absolutely worthless in due time. I thought(and bet) that the UST and FRB would make some play to really put faith in the dollar and get their bounce. Instead, they have gone out of their way to trash it. All of them with their head in the sand sticking to the script.

This feels like we are finally moving into the early(very early) stages of total world economic warfare. The panic is starting, for those that pay attention to this sort of thing anyways. Those that are fixated on the royal wedding and American Idol are quietly sleeping right now without a care in the world. They, with their head in the sands also, will not even see it coming and will think it suddenly happened out of nowhere.

Everyone agreed that derivatives were a major cause of the last melt-down. Yet, I am willing to bet derivatives are bigger than ever and specifically bond derivatives are multiples of what they were in 08.

Just look at gold and silver. Silver has gone absolutely parabolic. No question about it. Granted, it could be some sort of squeeze or some large money moving in. Gold hasn't quite moved parabolic, but is steady higher. Gasoline topped out at about $4.11 national average in 08. We are pennies from that amount today. Now, not only are people paying more for gas but also food. The consumer couldn't afford it then and they certainly cannot afford it now.

On the flip-side, people are going back to work. I don't know many people left who are looking for work and cannot find it. People are getting raises, again. People are getting bonuses, again. People are spending, again. Most have forgotten about our former brush with the financial abyss. We basically are passing through the eye of the storm and everything seems just fine.

So I am on quite a rant and this did have an overall purpose. Here is what is dominating my thoughts lately, "What if the Fed 'forgives' their UST debts?". This would be one desperation move only in the most desperate situation. I can't wrap my head around how its possible. But, something tells me it is. If they haircut everyone, its game over. I get that.

What if this has been the point all along? Default on yourself? Let everyone else keep their full face value. This would make China happy. What if they then turn around and wipe out the excess cash reserves side on the primary dealer banks to wipe out any shred of QE? Maybe even nationalize the banks to make it happen. Investors might get rattled but eventually settle down and buy more USTs. The alternative is much, much worse. Rising interest rates is game over for everyone. Should the world not play along, they can always just go all the way and default on everyone.

Maybe its much simpler and the Fed lets the UST roll all of their debt into 30 year coupons. Turn the entire funding need into the largest time frame possible? Although the debt would remain, it would not turn into a funding crisis. I have little doubt the Fed has already ran each possibility through every possible scenario to determine their best path. They won't go down without a fight.

Just wanted to get thoughts on paper. Something has to give. Silver at $48.28 as I type. How far is this thing going to climb?

Hanging Out

Pretty much sitting back. Sold most of my USO options when it was in the 43's. I held on to the June 36's for insurance. Moved into CDE calls at May 36's and June 35's.

Amazing run in silver. I'm not sure where that thing might eventually slow down. I am guessing we see another good report by CDE around May 9th or so. Hoping to see another move in the stock like we had last quarter.

I pretty much want to sit neutral for awhile. There is too much going on and nothing seems to be acting correctly. Somehow the dollar and bonds managed to rally when the S&P went negative watch on UST.

Something has to give here. This could get ugly quick.

Happy Capitulation Day!

I slowly unwound most of my positions over the course of the week. It is clear that momentum is overwhelming on the kill the dollar/buy anything else trade. I was fortunate to at least have a lot of TLT 91 puts to ease a little of the pain(there was still a LOT of pain).

I felt dirty shorting silver and gold and pretty much decided to never do that again. They are my favorite investment(in its physical form) and even though I was shorting paper it still didn't feel right.

I was dead wrong on the bounce in the dollar. I shouldn't have gone against the momentum there. I thought a lot this week about not going against the herd in a momentum trade in the future. The herd has spoken and they decided the dollar is bad.

So I sold every option position I had, except my UUP May 22's. I did start to add USO puts, in both May and June. Strikes range between 38-43. The world cannot function for long with oil this high. It will slowly strangle most advanced economies and there is a chance the central banks conceive a scheme to bring it back down. They don't mind their currency weakening, they don't necessarily mind high PM prices. However, they know keeping oil this high for too long will doom every margin on the board and employers cannot raise wages, yet. I bet they are busy inventing a "crisis" to cause oil longs to head for the exits.

Then again, what do I know. I just gave back about 50% of my trading portfolio in just shy of a month(a new record!). Fourth(or fifth?) time in 3 years I've given back half my porfolio. Like each time before, I will look to get more defensive. I will take things a little slower over the next few weeks and possibly set up a hedge play. Each low has been higher than the low before it.

I feel fortunate to still be up for the year. Granted, it is a very, very small gain now. Basically a rounding error. Is it better to double your portfolio and immediately give back the gain or lose half your portfolio and immediately double that back to even? Either way, you are right back where you started. However, making it and then losing it has a little more sting to it.

Happy trading. I plan on being more of a spectator for a little while. I have a vacation coming up next week. Probably good timing.

The Central Banker Empire Strikes Back

They are really try to sell the fact that they can tighten liquidity and raise rates, aren't they? Both the Fed and their Euro counterpart are really trying to push the fact that they will raise rates and possibly siphon off liquidity. The ECB is supposed to raise rates from 1% to 1.25%(Wow, 1.25, how will the banks survive borrowing at 1.25). The Fed had one of their minions come out and say they will raise by 75 bps on the fed rate.

Our US banks don't even care what you make the fed rate. The Fed gave them well north of $1T free cash to park on their books. They don't ever have to go to the window again. Well, all those variable rate mortgages on the books still care. They care, a lot! The treasury cares what rate they have to pay back interest at. They also care, a lot!

The Fed claims they are even thinking of scaling back treasury buys. The only problem is since the Fed is basically the only buyer of treasuries this year, who is in line to pick up the pieces?

My feeling is everything the Fed says or does has a very specific planned out reason to it. They say they are going to raise rates later on this year to possibly put a lid on commodities and to possibly get suckers to buy up treasuries now, in anticipation of fiscal tightening(and therefore, appreciation on any bond purchases in the meantime). Whether they really planned to, or not, doesn't even matter. Expectations are what they are trying to manipulate.

The Fed absolutely, positively, without a doubt, cannot let interest rates get away from them since they have so much interest rate risk on their books. The US treasury feels the exact same way. Granted, the treasury needs them low so they can continue to borrow.

So moving on to trading. I was quite perplexed to not see the US long bond fall hard this week into a rising market. I don't think I understand why. However, I still plan on holding my puts here since I see a few catalysts coming up. UUP managed to run up almost to 22 on Friday before giving back the entire gain! That one hurt. I have a lot of calls, a lot.

I timed out my GLD 139 puts pretty well on Friday and came out at a 300% gain but lost out on the SLV 36's I was trying to hold out. PM's rebounded nicely on Friday afternoon. With all of this positioning by the central banks, it would appear IF PM's were going to show weakness that it might be now.

Gas is almost back up to $4, again. Yet, the Fed pinky-swears that there is very, very low inflation.

Again, on Friday AM:

-Dollar up

-Equities up

- Long bond up

WTF? How does that keep happening! It faded, of course.

Something has got to give.

I think this will be a relatively slow week in the markets. However, you never know anymore.

Plan A(part 2)

Quick post. I plan on writing more over the weekend.

As planned, I sold out all my PM call options today and flipped over to puts. I added GLD 139's and SLV 36's expiring tomorrow and GLD 135's and SLV 34's expiring in May(all puts). I bought some major volume(for me, anyways), although I know I am definitely playing with fire here.

Added to TLT puts. Added to UUP calls(rolled some over to May).

That should pretty much do it, for now. Wait and see what happens next.

Back to the Drawing Board

I got punished a little this week due to owning VXX calls. I slowly shed them through the week and only own some Apr VXX 36s. Already have a 65% loss on those. I re-upped on GLD when gold tanked under $1430 on Thursday. My target on gold was $1450. Probably shouldn't have waited for those last few dollars. The drop was 100% due to margin requirements and in no way was because of fundamentals. The price has bounced, like it always has, off those manipulated moves. I doubled up my position and will hold it into next week.

Poor VXX, I gave back all my monster gains off of it from the two prior weeks. Still up huge for the year, so on to the future and leave the past behind me.

Plan on just hanging out here. UUP showed a little strength due to pressure on the Euro. My target on this one is the upper $22's(anywhere over $22.70 and I will look to sell off).

Could not believe the long bond(TLT) spiked off the equity market spiking! I should have faded that move but am trying not to increase positions, since my cash position is around 30% right now. At one point today, the USD/TLT/SPY/GLD were all very positive. So basically equities were claiming margins/prices would increase, while inflation would increase, while the dollar strengthened, WHILE bond yield would be lower. That right there shows the lunacy of what the Fed and other CBs have created in today's market.

The Fed is desperately trying to convince one group that there will be deflation while convincing another that there will be inflation. For now, there strategy is working perfectly and you have to hand it to them for that. They walk such a very thin line, like so many CBs/central-planning governments before them. One small mistake could send them to the "history repeats itself" category.

All eyes on the Euro zone into next week, is my guess. The Euro tried to bounce on Friday, but quickly gave back the gains. I think the short Euro trade will be in full effect, next week.

I have a family emergency that may prevent me from posting next week. So if there are no new posts, I haven't abandoned writing, I just will most likely be out of town and not closely following the market.

Market Shrugs Off Everything

The general market is not fazed by the possibility of major problems in Europe. Think of around this time last year. Greece bond yields were screaming through the roof and the market was screaming ever higher. Then, when the SHTF, the market finally reacted hard. Well, I look at Irish and Portugal bond yields and something HAS to give. Yes, Portugal is relatively small, but just wait until a bailout of Portugal damages Spain. EU, at best, will need to tap its credit to bail out more members KNOWING Spain is just around the corner. I just do not see the Euro staying above 1.40 here.

I started a heavy position in UUP calls today, both 21's and 22's. I would have preferred getting FXE, but the spreads are way too big and I tried to set a bid all day with no takers. Plus, the position I was going for was probably large enough that I wouldn't have gotten filled unless I moved over to the ask. The dollar index has around 50% weighting to the Euro, anyways. UUP is extremely liquid and a very tight spread with options. First time I have ever placed a currency bet. We'll see how it works out.

My overall strategy would be working out just fine right now if I wouldn't have overweighted VXX. VXX is just getting punished each and every day and my positions are far underwater. GLD is doing wonderful. TLT is treading water. But, VXX, ouch!

We'll see if the market reacts at all to a government about to descend into a very mild form of political chaos. Looking for some more volatility to end the week. Today was a fairly bland trading day(except first hour).

Staying Put

ACAT is going through, again. Hopefully everything goes smoother this time. Hopefully I am back up and trading by the end of the week. Shorting the Euro looks tempting here. SPY seems to be stalling at 130. Timing on my trade was a little early. I added Apr VXX 36's twice at an average of about $1.56(should have been more patient into a rising market). I also added Apr TLT 91 puts at 0.69(I think there should be pressure on the long bond with oil still rising).

I am really looking for a perfect storm now. Looking for GLD higher, VXX higher, TLT lower.

If SPY gets above 130, I will re-evaluate.

The Week That Was

That was quite the interesting week in the market, for those of us that trade. There were plenty of opportunities to make and lose money on every turn. What started as an almost all-out rout turned into almost a flat week. Amazing to watch unfold. I, myself, got caught into a bad position when Zecco locked up my account for the ACAT...BUT did not transfer out the positions to my new broker because I had positions that expired Friday. So I called Zecco and plead with them to market sell all my option positions. They refused. I told them I would fax/sign whatever they needed to liquidate the positions. They said maybe, but it might take a few days and no promises. They did unlock my account slightly before the market close, but I was unable to trade before they closed. The cost to me ended up being substantial, more than some people make in a year. I'm not worried, I still ended up on the week slightly. Could have been my best week in the market ever. One of my positions was up over 600% intraday.

So the market is giving the green light, again. Should it be trusted? I say, "no". The Libyan conflict and the ever-escalating Bahrain conflict, add in the lack of true disclosures from the Japanese government AND another possible oil spill and you have a possible volatile mix. VXX completely sold off and I did sell off my VXX options for a decent profit and then rolled 1/3rd of the position over to the APR VXX 40's at $1.77. I am basically playing VXX/GLD long contracts and hoping for another perfect storm where gold goes up and the market sells off a little. I don't think GLD will sell off with the market like last week. That fall-out should have shook out the scared hands and any margin calls. I think gold should return to a flight-to-safety moving forward, at least short-term.

Still have to be careful here, though. The central banks are intervening hard to keep the status quo. Which brings me to one of my new thoughts. There is such debate over whether gold is an inflationary hedge or a deflationary hedge or when it should/shouldn't outperform. Notice when the CB's started their major push of intervening last week that gold started moving hard to the upside? I think that gold doesn't care one bit about inflation or deflation. All it cares about is how much government intervention/corruption there is(include CB's in government). If government intervention is moving up, gold should be moving up. If the government lets the market fall and sits on its hands, then gold may move down. However, I am convinced there is no chance of the government not intervening constantly anymore. Therefore, gold should continue to outperform the broad equity indexes year-in and year-out.

One caveat to that thought is if the government/CB should ever intervene to clean up the system that it would be greatly negative on gold. I'm not talking about conjecture, that happens all the time. I am talking about broad reform to clean up the system. Like the one that happened with Volcker. That cannot happen because the Fed has too much interest-rate risk and the government needs way to much debt funding to function.

I feel we are still on a down channel for equities. I am also still willing to be quite the contrarian and say the USD will snap higher. Although, I have no explicit bets for a higher USD except to have a high cash position.

Things I'm currently looking for:

-Gold to stay flat/move higher into a market moving lower

-SPY to move under 125

-Brent crude to move over 125

-USD index moving back over 77

With all this in mind, I am confident that VXX/GLD long options are the best way to catch some upside with some downside protection.

For the record, I am moving to OptionsHouse. There pricing for large contract orders seems like the best out there. Plus, an iPhone app!

Now Things Are Getting Interesting

This reminds me of 2008 all over again. Remember how the market really didn't move hard off of Lehman announcing chapter 11? It took a while for the market to start reacting to it. Yet, once it did it was extraordinary.

I feel like we may be there again. The one thing I don't see yet is panic capitulation selling. We see a gap down, followed by a BTFD crowd, then more selling, then an end of the day BTFD. That said, I have a lot of gains on the books right now on my options(currently long VXX 32&36, short SPY 130, long GLD 136 and long SLV 34). I think it may be time to take profits. All but GLD expire Friday, but I don't plan on rolling over for now.

There's clearly a lot of intervention going on at the moment and I'm not looking to get caught in front of one of those if its a runaway pump.

Finally, the yen carry trade collapsing is possibly in play but the BOJ is intervening hard to make sure it doesn't strengthen to its true value. However, it keeps running right through each time. The higher the yen goes, the more larger players are going to be liquidating to cover. I plan on watching the yen closely since the broader markets tend to be moving off that lately.

I'm not 100% sold on selling out tomorrow. However, I certainly am leaning that way.

That Was Fast!

Didn't have to wait long to see some direction in this market. I used Monday to set up some short term option plays before expiration. Decided to go VXX calls/SPY puts/SLV puts up against TLT puts. My rationale here was if the market decided to pump higher on higher inflation expectations off Japan that the long bond would take a hit. On top of that, Japan is going to have to liquidate some of its UST holdings to start rebuilding once things cool off. Figured it was worth taking a shot at yields rising. They were cheap and they are looking to be basically worthless on the open today.

Here's the big problem, as I see it. Japan is imploding. First inclination is, "Yeah, but it won't affect us here. If anything. it'll see increased buying of US goods.". That seems fair enough on the surface. However, what if derivatives get triggered from this event? They would be massive. The yen carry trade has been a huge favorite for years. This would be Lehman on steroids!

This happened last week and it took until basically Tuesday for the market to react. Obviously, the "market" still doesn't understand the liability that is out there right now. Herd mentality may(or may not!) start to take over and everyone will be FINALLY looking for an exit from this two year bull market. I read non-stop BTFD articles all day Monday.

So, for this week, I have TLT 91 puts, VXX 32 calls, SPY 130 puts(ex-dividend will be Friday), and SLV 34 puts. If the market opens like it is looking right now, there are going to be a lot of busy margin departments and a lot of busy investors trying to raise cash by selling their winners fast. Unfortunately, this means selling pressure on gold/silver. I avoided GLD puts since gold is a tried-and-true safety play. SLV is not a definitive safety play and should see some short-term pressure. Maybe not, though? The VXX/SPY options should more than make up for any losses against the other two.

Never count the PPT out, though. Tuesday trading could be one of the most memorable trading days in a long time(at least since May's flash crash). It is truly tragic what is happening over there.

I Want to Believe! Someone Mix Me Up a New Batch of Kool-Aid!

I can't think of any other time I have had such a high percentage of my trading account in cash. I just can't seem to be willing to hold on to really any stock longer than for a swing trade. I do hold TNP. I am happy with the company and management. They pay out about a 6% dividend, currently. They are in a tough industry at the moment, though. That said, they comprised about 7% of my portfolio and I have no desire to increase that. I also still hold small positions in WAMPQ/WAHUQ comprising an additional 7% of my portfolio. That leaves roughly 85% cash.

I badly wanted to hold my GLD options until I hit my target of $1450 or so. I just had to sell. I was compelled to sell. The problem? What if the market does correct? Funds will get margin and redemption calls. Funds will sell off their positions that are outperforming to raise cash. GLD is one of those and I think they will sell in the short-term to increase their cash positions. Cash positions at the major funds are at their lowest in a long time. They have very little buffer. So I love gold long-term. However, I can see a case for a drop short-term and there isn't much upside for the rest of this month for me to hold.

Everyone hates the USD, at the moment. There are many catalysts that could catapult the USD into short-term popularity. If they enact another amnesty repatriation of overseas corporate profits for a small tax rates(5% or less), that would explode the demand for funding in USD temporarily. Anytime the USD index pops, it puts a lot of pressure on the broader indexes. Another one is the EUR falling out of favor, again. Greece is back in major trouble, Portugal is starting to reach the edge and Ireland could still cause an uproar and deny the banker bailout. If Portugal or Spain should become the next Greece/Ireland, watch out for the USD to skyrocket again(like last year). Keep in mind that Portugal/Spain/Italy have vast gold reserves. I've heard zero talk of them using those. However, if they did they could really drop their funding rates by possibly posting them as collateral or selling to raise liquidity. China would gladly purchase every last speck, in a heartbeat.

Obviously, everything is once again starting to focus on the next possible QE debate. My guess is they go for another QE-lite to buy some time(basically, a continuation of QE2 on a month-to-month basis).

I do have a big trade in mind(one that will last longer than one day). However, I am being patient before I set it up. When I do, I plan on explaining my rationale behind the trade and my targets. Still probably a few weeks off.

So in the mean-time I am looking for:

-Direction in the S&P. Will it hit a down channel for longer than a day?

-The USD index. Will it shoot higher from some catalyst, such as a new Euro-zone crisis.

Happy trading. This really feels like the calm before a storm.

Zecco Goes All-In. Everyone Calling Their Bluff. A Tree Falls...(Archive from 3/4/2011)

So obviously the big news this week was Zecco sh!t!ng the bed with their decision to hose their loyal customers. Interesting choice to say the least. I am quite intrigued by it and has taken much more brain-power than it should of.

I came to Zecco and probably only made 5-10 trades a month. Maybe 1 option trade in there, max. I remember Oct 2008, I made 40 trades
(the month they gave us all unlimited free trading) and thought I had gone crazy. Those "10 free trades a month" turned me into a trading machine. It got me used to trading more frequently, being free and all. Then, I branched into options and average probably 30-50 options trades a month now.

Their strategy was brilliant! Give me a few low cost trades and have me branch into higher margin revenue streams. It worked perfectly! Zecco turned me into a $1000+ a month commission customer AND we both benefited from it. I became the trader I am today because of them offering me a few free trades to get my feet wet.

I appreciate they didn't come to this decision lightly. They most likely didn't rush in. They probably even came up with projections of exactly how many customers they would lose.

So why did they do it, then? My best guess is they are ramping up to be bought out by one of the majors. Just like every other start-up that gained a lot of accounts. Well, no one will want them if they are offering all their customers free trades. The buying firms current customers would be quite upset about that. Therefore, they need to convert their customer base into fully paying customers used to no free trades.

I get it. That's business. Thinkorswim, Ameritrade, many others cashed out big from selling out to another firm looking to grab their customer base and platform.

They will become just another brokerage with trading cost slightly below the majors. Their iphone app is a major flop(however, with potential). Most other trading platforms have mobile trading. They dropped the ball and probably spent way too much to develop a product that provides very little value to its customers.

I will be moving to another brokerage. I am not saying which, I only wish the best for Zecco moving forward. Maybe offering free trades doesn't work, yet I see many other brokerages offering it(generally, with caveats). I enjoyed my time here and felt their customer service was very good(even though, many have complained about it). The few times I called in I got very knowledgeable reps who were very friendly. Mostly communicated through email and they were prompt and efficient.

I will miss the community, even though I have really only been active for the last year or so. The ironic thing is I don't even use my 10 free trades anymore. This just ended up being a catalyst for me to evaluate my trading costs and alternatives.

Remember to learn from your mistakes. Remember not to let your emotions get the best of you with a trade. Remember the market will not generally do what you expect it to do. Remember to step back and analyze your trades and strategies. Remember that what we do here doesn't really matter, don't take it too seriously. Remember to take a day off every now and then. Remember its a very long race, one bad trade isn't the end of the world, learn from it. Remember you're not as great of a trader as you think you are. Remember how much of this game is based on luck.

Remember to sell in May and GO AWAY.

Remember to read the 10-Q's of the companies you own.

Remember to re-read those 10-Q's.

Remember to read "Fooled by Randomness".

Remember to re-read "Fooled by Randomness".

Remember to reward yourself when things go your way.

Remember not to be too hard on yourself when they don't.

Remember the market is rigged, has always been rigged, and will always be rigged.

Remember to diversify into physical assets.

Remember to smile.

Remember to remember.

Remember to forget.

Remember.

WTF! Now What? (Archive from 2/19/2011)

Another year, and another manipulated market.

It gets more fun by the day. The stakes have definitely gone up. Finally, the poor masses are starting to rise up and realize how badly they have been screwed over the last generation. It only takes one spark to ignite the world into revolution. Almost like the American revolution brought about more revolutions. With the age of instant communication, an unknown place like Tunisia which no one has ever bothered to even consider has become ground zero of what could become the biggest chain reaction since at least the fall of the USSR. How quickly things have escalated.

Yeah, but so what. It doesn't effect us, Bernanke said so, therefore the market keeps going up everyday. This all reminds me of the old college bar nights. It's like an hour before closing time and I am drunk off "liquidity". I know time is short, but I still have plenty of time to keep having fun. There is basically unlimited "liquidity" until last call. Until last call, no one panics.

I kind of summed up my investment strategy today, in conversation. I explained to someone I hold a bulk of my investment in gold and silver. I said I am simply betting that the government/Fed bank keeps printing money. Simple as that. If they keep printing, I win. If they stop printing, its time to re-evaluate. Luckily, I have this trading account to keep me busy until "last call".

I truly consider this my gambling account. I, for the most part, bet recklessly(by most standards). It's almost as if I don't care about retirement anymore. Almost as if my investing mantra is "get rich or die trying"(figuratively, of course).

Now on to something useful(or reckless), my current short-term trading strategy(which will probably change before I even wake up tomorrow). I am watching silver very closely right now. Some of you may have heard of the backwardation in the futures market. I think the reason we see the current trend is because most large traders that normally are rolling out their dates have stood firm on the March contract. Normally, I think many of these would have already rolled out into future months and caused a normal picture where forward months are more expensive that the front month. I think they are most likely playing chicken with the Comex/large shorts. They must be receiving a bonus cash payout to stand for delivery and settle in cash. I think the word is out and more people are jumping on board.

So what happens if more than 100MM ounces stand for March delivery? Well, they would have more standing for delivery than there is even available to deliver. Anyone holding the golden tickets will know they are in a great bargaining position. The second the number hits public, I think there will be a surge in buying interest and short covering.

Lastly, I have noticed a trend where gold and silver will hit short-term peaks on the last trading day of each quarter and have its brief sell-off within the next few weeks of that date.

So how am I playing this? I started with GLD Apr 135's@2.15, SLV Apr 32's@0.45. I balanced this with SPY Apr 125's puts@2.70(ouch!). I added SLV at around 65 cents and SPY twice at average 1.75.

Sold off the SLV at 84 cents and $1.54. I sold the SLV to roll into CDE Mar 29,30@0.80,0.60. CDE wasn't quite tracking the price of silver going up and took a brief correction on Friday, which convinced me to jump tracks. I would have liked to get CDE Aprils instead, but wouldn't be available until next week. CDE earnings are the 28th and I think they will beat and provide great guidance.

My current strategy is to sell off before April. My WAG to silver and gold prices? Silver to $40 and gold to $1450 by the end of March.

Feel free to post your WAG's for whatever random lottery golden ticket you own and well all check back on April 1.

Time to go to the bar.

Everybody on the Long Side of the Boat (Archive from 12/27/2010)

Seems like everything I read from WS is another analyst tripping over themselves to put out a higher target on the S&P than the last suit monkey.

Capitulation and white flags everywhere. VIX has thrown in the towel and all I read is that the USD is due for a short squeeze. All of this while the government prints billions of dollars each day of money they don't have and pretends they aren't doing it.

All of this while the Euro does everything it can to become an insolvent mess.

All of this while China pretends their USD holdings are worth face value(as long as they do not decide to sell it).

All of this while every establishment suit monkey cannot quit asking if gold is in a bubble.

All of this while everyone continues to debate whether there will be inflation or deflation, like it even matters. It's like arguing whether the democrats or republicans are going to turn our country around(hint: they are both the same).

2011:

*The S&P will close higher in nominal terms

*The S&P will close lower in real terms

*QE3 WILL be announced

*QE3 WILL NOT be called QE3

*No US state or Euro-zone country will go BK

*US states and MORE Euro-zone countries will be bailed out

*US deficit will come in over estimates

*US revenues will come in under estimates

*Modified mortgages will be announced for all borrowers by the end of the year.

*2012 will be WAY more interesting than 2011

Gut Shot! (Archive from 11/8/2010)

Nothing like losing around 40% of your portfolio in one day to put a smile on your face. WAMPQ ended badly for me. I was lucky to sell out completely at 15. I will have to chalk that one up to a learning experience.

Due to some massive volatility, I am taking a break from the options market and super-risky plays.

I moved into some of my tried-and-true stocks for now. All three are basically commodity plays. Although, TNP is an oil shipper.

So I am sticking with TNP, UNT, and CDE for the time being until I can get my confidence back up.

Looking back now, I have had three 50%+ negative swings to my stock portfolio now since 2008. In the past, I have been able to bounce back and move to new highs. Well see if history can repeat. Although, past performances cannot dictate for future profits.

We certainly live in interesting times. I am sure blindly printing trillions of dollars to overpay for assets will all end well.

Waiting is the Hardest Part (Archive from 10/28/2010)

Looking back, it seemed so easy to put money into Washington Mutual preferred stock nearly two years ago. I mentally prepared myself for the fact that it could take five years(or longer) for closure.

Here it is two years later and I'm still waiting. It always seems like the answer is right around the corner. Then, Iturn the corner just to see another corner I need to go around. Now, it would seem the moment has arrived with the delivery of the examiner report on or around Nov. 1st.

If the report is in equity's favor, there is no doubt the stock will skyrocket. My guess is 300%+ in 1 day if things completely go the way I want. If the report goes completely against equity, I will not be surprised to see it go down 80-90% in one day.

Considering this is, and has been, my largest positon for quite awhile it is weighing on me very heavily right now. I can still remember back in March when the global settlement bombshell was dropped on equity and the price of preferred shares dropped 90% intraday. I was absolutely just plain lucky to have sold some near the top and bought back in that day almost at the bottom.

I was lucky again to sell off all my holdings when it was in the 60's and buy back in the 20's.

I don't feel as lucky this time. However, I do feel prepared and feel I have put in the time to understanding this case and other cases like it. Although, I lack full confidence, I do have 100's of hours I have spent learning this case. I am prepared for whatever comes on/by Monday. I'm not going to turn around right at the finish line.

If it hits, I celebrate. If it misses, I learn from it. Learn what I did wrong. Learn what I would do differently next time. Figure out what I am going to do next, win or lose(I've already picked out my next stock, regardless).

I've never learned anything by being right. However, I generally have a much bigger smile on my face when I am. The saying, "The house's money" can apply here since I have taken out my principal many times over at this point. Yet, it would still sting to be wrong here. Once its in your account, its yours. When you lose it from your account, its your loss. No one else's.

I honestly hope no one is waiting with me. To the few who may have become wampq/wamkq/wahuq/wamuq gamblers, I wish you all the best of luck come Monday.

Place Your Bets! (Archive from 10/18/2010)

We are getting close to the super bowl of manipulation. I, for one, cannot wait. I look at the first week of November as my super bowl right now. You cannot seriously invest anymore without trying to predict which way Bernanke gets out of bed anymore.

When I first started investing with my own hard-earned money so long ago(2003, yeah I'm young-ish), it was all about fundamentals. I read and re-read a company's quarterly and annual reports over and over again before I put one penny in. I would read their main competitors reports. I would try to predict growth rates and really dive into the insiders of the company to see if they had what it took to run a good business. After all, this was my retirement money and I needed to know it would grow with me. I could rattle off the balance sheets of a hundred companies within a very tight range of accuracy.

What I never considered, ever, was what the Fed was doing. I was never too concerned about the forex rates, the fed funds rate, the price of gold, or whether the economy would even be around the next year. I knew Greenspan supported low interest rates, but never saw it as a systemic risk.

Now, I read quarterlies, but it doesn't really hold much weight with me anymore. Now, I am so focused on exchange rates, the Fed and the price of gold. Now I am so focused with the amount of liquidity coming in or off the board. Now I don't even wondered where the company will be in five years. No company can write its own destiny anymore. Each and every one is dependent on the whims of a madman with control of our entire livelihood.

I don't invest for the long-term anymore. I can only gamble. Yet, I am like everyone else. All I am worried about is turning a profit on a trade so I can buy into physical assets, at some point. I truly think this is where many of us are at. We know its all BS and will end badly, but we must make what we can now and assume we are the smartest guy in the room and will jump ship at the right moment.

Now that I have digressed, I will jump back onto topic. The Fed will make, what is conceded, will be an earth-shattering announcement of a new fresh round of QE. They have hinted and used every media outlet possible to hint and see the reaction. MAKE NO MISTAKE, everything you have read in the media from the Fed was contrived and it's purpose is to manage expectations and anticipate reactions.

So what can be concluded? They have built up such a following of people who swear this QE will be AT A MINIMUM $500B(that's really the lowest credible estimate I have found). They tanked the dollar just with rhetoric. They goosed the market just with the hint.

Here is my guess. They use extremely strong wording that they are willing to float more new cash out there to buy various securities and continue reinvesting any proceeds into treasuries. I do not think they will make a fresh allocation for treasuries. They will however be willing to make fresh allocations for CRE and MBS.

I think that no matter what they say, there will be a "sell the news" moment on long-dated treasuries. That is why I am holding most of my 34 TBT NOV calls(I sold some of them).

I think their goal will be to manage expectations and not give any other country any reason to panic by imminently announcing trillions in new QE, but at the same time broadcasting they will jump right in if the condition call for it. This way they keep the foreigners and bears at bay.

The dollar will jump, the markets will take a fall. Gold and silver will enter a short downward cycle until December(Dec will be very interesting in gold and silver). Bought SLV 22 NOV puts as insurance, in case they take a giant dump.

Remember around this time last year? The USD was on a huge downward cycle and everyone thought it was just gonna get crushed. Then it monkey rallied up a good 15 percent or so. This certainly is shaping up to be an inflection point. However, I don't think they want to kill the USD any more than it has been.

The banks are a giant wildcard now. They could be the straw that really makes things interesting. I am assuming they manage to avoid this fiasco getting too out of hand. However, I am betting they take a beating in the mean time. I am curious to request my original docs from my loan processor, just to see if they can come up with it or not.

I'm picking FAZ call options to ride that possibility. If the banks take a hit, FAZ will run out of control. FAZ is leveraged to begin with, using FAZ options is AIG-risk levered. Just wish I was TBTF.

OT: WAMPQ brought a smile to anyone's face who owned them this week. We saw it hit 50, before settling around 40. I expect the variance to increase in the next couple weeks and will not be selling 1 single share.

What to do, what to do? (Archive from 9/30/2010

For a starter disclaimer: I made a lot of horrible bets over the last few months and I find it amazing that I am still up for the year. I am used to variance, though, and will continue to trust my gut.

After getting my butt handed to me in September, I took some time to re-evaluate some of my calls. I was betting on a general fall in the market, but the Fed had other ideas. I didn't fully appreciate just how far the Fed current bond liquidity program would boost stocks. It was hard for me to wrap my head around the concept that stocks, bonds, and precious metals could all go up at the same time(almost tick-for-tick).

My entire premise for being short has been the fact that I believe(d) that the Fed does want to roll out additional QE. However, there's no way they would be able to do so into a heated market. September generally isn't the best time for stocks and I thought I would set up my puts a little early just in case the fallout happened sooner than later. I was 100% wrong.

Part of my overall strategy was thinking the banks would show lowered earnings across the board. Make no mistake about it, each and every TBTF/PD bank can pick to make whatever they want. If they need a spare billion or two for earnings they can just borrow it from their loss reserve book(this is what they did to show strong Q2 numbers).

If the Feds plan is to truly roll out a giant $1T+ QE in November, it will have to be into a dire mood on Wall Street. The only way to obtain this mood is for the main PD banks to show some mediocre(or worse) numbers in Q3. Most of the banks report mid-October. That would lead to about 2-3 weeks of a sour market, which could lower the indexes but not too much damage being done before the Fed meeting. So goes the banks, so goes the market.

The banks will go along with this because they know they are the direct beneficiaries of any QE program and taking a few dollar hit to their stock price short-term will be more than made up through much larger bonuses for next year. They would also be the ones that would be buying all the put protection for events that they already know are scheduled.

Yet, everyone is screaming that a giant QE2 will be the end of the dollar. That is clearly the expectation. That makes me think Bernanke won't go all-in, yet. If he merely opens up some liquidity programs(most likely to benefit CRE) then the market won't take kindly to that. I would expect something significant with strong wording towards further action, if necessary.

If Bernanke shoots the moon in November with QE anywhere north of $1T, then I will be cashing out much larger chunks of my brokerage account much sooner. Right now, I liquidate a portion every year and invest the proceeds in PM's. I am no longer under the spell that my Roth IRA will still be there when I am 65.

So in case any of you have been away, this is a recap of what is happening. The Fed buys the US bonds/notes from the primary dealer banks and pays for it with the wave of Bernanke's magic wand with fresh USDs. The PD's then take the proceeds and levers it up through their shadow banking off-shore accounts to buy any risk asset they can get their hands on.

So, I have added TBT 34 Nov calls and VXX 20 Nov calls to my list of future failed bets. Something has to give and when it does its going to be ugly. I still have full faith in CDE and will be the only equity in a functioning company that I am willing to own from here on in. I did sell some this week so I can cash some out to buy some more gold.

I am still holding a nice chunk of WAMPQ. The case is moving slowly, but surely, in the right direction. November will be the examiner report and will certainly be worth paying attention to. Some have asked if I like WAMUQ. I did, back when the ratio of WAMPQ/WAMUQ was around 500. Now that it is down to 150ish, I prefer WAMPQ. WAMPQ has a $1000 per share liquidation value and is currently trading for $30. I originally bought at $3 a share.

Feel free to ask some Q's in this thread.

Good Times (Archive from 6/20/2010)

Another crazy week. Absolutely zero good news came out and the market still managed to shoot higher. Every bit of news seemed worse than the previous bit of news. Markets didn't care since the Euro appreciated (most likely a short-covering situation). The market even moved higher than it should have based strictly on forex movement.

It seemed like such an obvious move. The new mantra seems to be if the news is absolutely horrible, stocks stay flat. If there is no news, then stocks are going to move higher. You can actually see the points where someone with deep pockets was gunning the markets higher each day. Also, it would seem all stocks are exclusively moving in the same direction at the same time. Like a bunch of lemmings blindly following the SPY/QQQQ. Apparently, there isn't much need to buy individual stocks anymore, just bet on the indexes.

No one is a loser as long as you aren't net short. So, basically everyone is a winner again. I haven't had a chance to really pay attention to Q2 earnings on the macro level yet. However, I have to assume all of this Euro trashing cannot be good for the export-driven companies. However, I don't think they will show a ton of strain unless this keeps up into Q3. The banks all are projected to show a healthy profit in Q2. So since they report first, I am thinking the market moves higher as long as the Euro doesn't trash again.

This week I got lucky on the move in silver. Even though I had to take a 100% loss on my SLV puts, I still made many times more on my CDE calls. Lucky me, my Jun 16's only got into the money the last day. My Sep 17.50's were absolutely on fire and I took half off the table.

Ironically, the only stock I feel confident in holding more than 1 day is a bankrupt, pink-sheet traded stock. WAMPQ continues to be not just my largest position BUT the only actual stock I own anymore. That is how screwed up the market is now. I would rather own bankrupt, pink sheet stocks than anything in the S&P 500. Washington Mutual equity managed to put WMI debtors on the ropes now and just need to win one more time to put themselves in charge of their own destiny. I have absolutely no issue with holding this stock through the July court case.

Gambled on Jun 113 puts on Friday and came out a winner. I really thought the market would sell off bigger there at the end of the day but someone was keeping a bid on that market. Gambled on SPY puts earlier in the week and was a big loser. Gambled on BIDU puts and made a slight gain.

Overall, a positive week. Very happy with the results. It could have been better, it could have been worse.

I go into next week with just a position in CDE Sep 17.50's and WAMPQ. I have most of my money in cash and don't have an opinion at this point where I think the market heads from here. My gut tells me this rally has legs and will keep slowly moving up into earnings season.

Bouncing Around (Archive from 6/13/2010)

It seems like for every positive day I have, I have a negative day the next and vice versa. It can be hard to find any direction in stocks right now when the forex markets pretty much control the show. Forex can be instantly controlled by the various Central Banks and their own desires. Equity holders are just along for the ride at this point.

It appears the Euro isn't getting beat up lately and can finally tread water. However, a lot of pressure is still showing on Spain and if there is a next shoe to drop in Europe it appears it might be Spain.

WAMPQ pretty much saved my week. Their court case in WA ended undecided on Friday with the judge deferring to a written ruling this coming week. It really was a minor case overall and the real action will be in Delaware this week. That will make or break us shareholders in the short-term. I am holding because I think we have a better than 50/50 shot of coming out ahead in DE.

Moved into a mostly cash/net long position on Friday. I re-upped on CDE, buying shares at 14.23 and Sep 17.50's at 75 cents. It seems certain my Jun 16's will expire worthless, however I am going for broke. I am hedged with SLV 18 puts at 53 cents. If it is anything like the past, JPM will do everything in its power to get silver spot to close lower on expiration week.

I sold off a vast majority of my BIDU puts this week. I just don't think I'll have the stomach to hold out for when BIDU finally is priced to reality. It was a nice gain, though. It could have been a lot larger if I got out on top.

I just don't think the next round of QE by the Fed is going to happen this summer. I think we are going to have to be patient and wait until Fall/Winter for them to finally go for broke. I am guessing/betting gold and silver will outperform moving forward either way.

At this point, if I had to choose where the S&P closed on Dec 31,2010 I would probably guess around 1300. I know it should be trading much, much lower. However, the hedge funds/banks/autobots have shown they are more than happy to continue to lever themselves into oblivion. The banks, for sure, have no other alternative than for the S&P to hit 2000 before it gets back under 800 ever again.

Deflation cannot happen on a wide-scale or its game over for the Fed. They have plenty of time to maneuver, though. The Fed will eventually kill the dollar again, in respects to gold. They just don't have an urgent need to do it at the moment.

The market is rigged. IF there is one thing you ever come close to understanding about the stock market right now is that it is rigged. Learn exactly how it is rigged and you can plan accordingly. Once you can truly accept it as being rigged, you are finally ready to trade this market. If you continue to think it is not, then you are just the sucker sitting at the table.

Buy and hold is officially dead and its not coming back anytime soon. I wish it would, though. Life would be a lot easier right now. Albeit, much less profitable.

Buy with your head, sell with your gut.

Euro Short Bus- Next Stop=Wall(Archive from 5/15/2010)

Obviously, every stock market is trading tick by tick based on what the Euro does against the JPY/USD. No other financial news or any normal economic numbers report has any real bearing at the moment.

However, the S&P is not correlating perfectly to the DXY. It seems to correlate intraday, however (take out the first and last 30 minutes of trading). The EUR short trade appears to be way overcrowded. Obviously, any news by the ECB could really turn that trade quick. They have all the incentive to do so. Also, remember that the ECB has a huge hoard of gold (500+ tons). Also, remember Spain, Portugal, Italy and Greece all have large stockpiles of gold. Italy, alone, has 2700+ tons of gold! I would argue all 4 PIGS (not Ireland) are in better overall financial shape than the US.

Portugal has 400+ tons of gold, which accounts for nearly all of its foreign reserves. Think of how small of an economic producer Portugal is and they only have a population of 10 million! 400 tons of gold is the equivalent of the US having about 16000 tons of gold (which, they do not). If a true monetary crisis were to hit, I think Portugal would be in much better shape than many.

Also, the rest of the EU countries tend to have huge stockpiles. France has 2600+ tons and Germany has 3700+ tons. If I were to bet against an economy/currency, I think I could find much worse off than the EU zone. The "everyone bet against the EU and Euro" trade is just some sort of brain-wash trade because that's all they have talked about on the news for months.

(For reference, The US claims to have about 9000 tons of gold. Some have claimed that this may not be true since the US gold holdings haven't been audited for around 30 years.)

Six months ago all anyone could talk about is how the USD was going to just keep going down. Look how that turned out. Today, everyone is SCREAMING that the EUR is going back to parity and everyone has piled into the EUR short train.

After going buying S&P May 110 puts last week, I sold those on Friday and took a bit of the earnings to buy S&P May 118 calls. Any positive news for the Euro this weekend and we could see another huge gap up on Monday. Just the money being released to Greece could cause some panic buying of the Euro.

You have to raise Euros to pay for that huge loan. That means there is going to be a huge need to fund in Euros. Higher demand equals a higher price.

Euro appreciates against the USD. All the skynet flash trading programs kick into overdrive and will bid up every equity with a ticker symbol as the USD falls. S&P north of 118 next week if the Euro can get back to high 1.20's.

S&P May 118 calls. Cost of 25 cents a share. Upside could easily be $1+. If Euro doesn't appreciate on/by Tuesday, I close out my position and take my loss. Loss would probably be in the 20-60% range. I'm hedged slightly here with SLV May 19 puts at 30 cents.

Six months from now, all the news outlets will be talking about how strong the Euro is compared to the USD. Everyone will then jump on that bandwagon, too.

In the meantime, I am all but happy to keep the bulk of my equity in cash.