Oh What a Tangled Web we Weave...
I saw a movie the other evening – The Jones’s – about all of our desires to ‘keep up with the Jones’s – buying stuff we don’t need and only want because someone else has it. This thinking causes a trend in buying, and when the ‘herd mentality’ hits on a national level, the movement can be overwhelming. This is the groundwork for forming "bubbles". The issue with ‘bubbles’ is that they give hope – and when the hope is taken away, the ability to ‘like’ often goes with it. Fast-forward to last week, and even though I have been preaching to get out of the market – go to cash or gold – for months – many still had ‘hope’ that the market would keep rising. Well – reality hit this week. Germany's 'Mrs. Merkel’ declared that the $1 Trillion bail out simply "buys time" – and unless all of the European member countries cut their deficits and spending there are going to be problems – because there is NO money. The US has pledged $23.4 Trillion in stimulus, not a penny of which do we have. The US and now Europe are going to start ‘printing’ their way to glory. This is really going to get interesting, because the printing of money has now lost all manner of credibility – it’s entered the ‘bubble zone’, and before it pops, I suspect we are going to see and hear some incredible things.
But the one thing that is NOT a bubble is gold. And yes gold fell last week by $80 – which beats the DOW falling by $1,200 by a long shot. The reason gold pulled back has little to do with demand. Dealers all across Europe are "out" of gold coins as people try and get out of the Euro before it goes to zero. Gold pulled down, because there was a ton of ‘shorts’ that needed to get gold under $1,200 or face extinction. Now those contracts will expire Tuesday, and the pressure will be off and I suspect gold will come back.
- 4 more banks were closed last Friday – bringing the total to 74 – virtually one for every business day of the year.
- Tax collections in states are below last year’s numbers, increasing pressure on budgets – California in particular – tax receipts are 26.4% ($3.6B) less than last year.
- Mortgage applications dropped last week by 27% (week over week) to levels not seen since 1997
- Goldman Sachs: Remember the report that showed Goldman Sachs trading desks not having a losing day in the first quarter of 2010. Well, if you were a client of Goldman – and followed their trading advice – you have been losing money! 7 of the Goldman’s 9 "Recommended Top Trades for 2010" have been losing money for investors who adopted Goldman’s advice, according to data compiled by Bloomberg from a Goldman Sachs research note sent on Tuesday. Clients who used the tips lost 14% buying the Polish zloty versus the Japanese yen, 9.4% buying Chinese stocks in Hong Kong and 9.8% trading the British pound against the New Zealand dollar.
- Finally - be fearful of a war in Iran – more next week.
On Friday we sold our position in the VXX and covered our short sale on the DIA’s – so that was a good week! And after falling for 1,200 points we put in a bounce on Friday – slightly larger than I was expecting. The "German Agreement" was used as an excuse for the bounce – and if we don’t get any more bad news out of Europe this weekend, I suspect we should add to our gains early this week.
Now – if you listen to CNBC – the market just served you the perfect buying opportunity and you should buy-buy-buy your way to glory. Remember the heard mentality – is there money to be made on the long side – sure – for a trade – but it’s my guess it's my guess we are on a stair case ride to a lower market – thinking around DOW 9,000 sometime this summer.
If we do get a couple more “up” days in the market – I would suggest people sell into it – and I personally will be looking at some tech and materials to play with for the bounce, but I won't marry them. This is short-term hold stuff, looking to pick up a few quick dollars. And then I think we'll be able to load up some new shorts, and look for the next leg down. If you're a long only player – please be careful as the world is slowly falling apart, and it won't be graceful.
Let’s assess where we are - we dove back into some more metals, after selling some, and selling the DIA Short and the VXX as well:
- Sold some GG, IAG, SLW, SSRI, GDWJ, and VXX (up over $16 per share) and Sold the DIA short (up over $10 per share)
- Still have: GG at $43
- IAG at $17
- SLW at $18
- SSRI at $20
- GDXJ at $27
- GLD at $115.86
- NG at $6.64
- PHYS at $11.65
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Until next week – be safe.