This Seat is ‘OCCUPY-d’
Remember the 70’s – when "Enough was Enough!" I’m sensing the same energy in the Occupy Wall Street movement. What's it about? Is it really a Socialist movement inspired by the Unions? Is it some radical movement started by an underground network of revolutionists? Or is it as Jim Rickards suggests: “In America, we generally go about our private business and rely on elected officials and appointed bureaucrats to take care of the government. When protest arises, it's a sign that government is not doing its job, or not doing it in a way that serves the people. Elections are fine for gradual change, but sometimes immediate change is called for when government fails the people utterly and repeatedly in important ways. Such is the case with the Occupy Wall Street movement and its "Occupy" variations in cities around the world. Governments have failed to stop the concentration of wealth, the concentration of financial power, the proliferation of derivatives and the metastasizing of systemic risk facilitated by unethical, self-absorbed and shortsighted bankers. So the people respond.”
Now you can laugh at or disparage the demonstrators all you want. You can single out the fringe and think it's un-representative of the whole. But that won't change the fact that this demonstration has touched a nerve. A rag-tag group is standing up where the government, regulators, media and business elites have rolled-over and played dead. Thus far, this has been a peaceful uprising. But history shows us that there is a very good chance of escalation. Armed clashes are NOT out of the realm of possibility. Martial law in various cities is NOT out of the question. But perception is tricky stuff. No one knows where this all goes. My hope is that some of the younger freshmen politicians listen to the gripes, and start to make the changes that we know need to be made. Most “Occupy” protestors would be happy to go home if they could see some true government leadership. We are witness to an uprising that's not bound by territory or border. We're seeing a global spread of voices that are tired of being the ox that shoulders the burden for the elite.
In terms of the market, we are at the biggest moment of the year. From the lows just 9 trading days ago, we've run from 10,404 on Oct 4 to 11,644 on Friday's close. Couple that ‘inflection point’ with Bill Pimco’s apology this week: “The simple fact is that our portfolio at midyear was positioned for what we call a “New Normal” developed world economy – 2% real growth and 2% inflation. We have now revised our internal growth forecast for developed economies to be 0% over the coming several quarters and our new portfolio more accurately reflects this posture.” WOW – 0% growth ahead! A recession is two quarters of negative growth – and negative growth is just one click away from zero – yes?
Followed by Pimco’s CEO Mohamed El-Erian – when ask about the global economy responded: “I’m between concerned and scared. We are watching three distinct, yet inter-related forces: poor economic growth, excessive contractual liabilities, and disappointing policy responses. The result is that western economies are getting trapped by the lethal combination of an unemployment crisis, a debt crisis, and mounting fragilities in the banking sector. The longer this persists, the greater the risk that even the healthiest parts of the global economy will get dragged into a prolonged period of economic and financial stagnation.”
I said last week that we would probably move up to challenge the resistances on the S&P at between 1220 - 1230. Well, Friday we ended the day at 1224. The question is: Do we blast through it, or does the air come out? On October 4 people were in a panic. We had every chance at really witnessing a crash that took us down to DOW 9K. I think that The Ben Bernanke called his Euro buddies and got the rumor started that changed the whole scene. The rumor of course was that the European Leaders had a plan to make a plan. The market reversed course in the last trading hour of that day, going from being down over 100 to being up over 200. From that day onward it simply marched straight up. However, the volume has consistently fallen each day as we've gone up. Mutual funds continue to show Billion dollar outflows – again! The economic news has been mediocre at best. So, I can indeed say that on one hand this has been a manufactured head fake rally, with the goal being to create "headroom" – just in case we received declining earnings and/or got more nasty European news.
And on the other hand, J. Q. Public is still scared. He's been pulling money out of his 401K to survive. The market’s ‘Talking Heads’ have repeatedly told everyone that we're range-bound and that when we get to the top of the range (where we are) you should sell out, as we'll sink back down. So, what happens if we push up and over 1230? Pushing over 1230 will ignite a frenzy of algorithms that will fire off a lot of orders, and will have J. Q. Public screaming to their fund managers to "buy-buy-buy!" So, we could see an enormous move higher that compounds on itself, and runs us up to the 1275 level in no time.
But don’t forget that this is all ‘supposedly’ because Sarkozy and Merkle have devised a plan to make a plan. The Plan is supposed to be released on or before Nov 4th. What if the plan is not good enough? What if it's not big enough? What if they find $4 Trillion? My point is, you can make the case that we roll over, you can make the case that manipulation wins out and we push over and soar for another two weeks. But no matter what happens, we have another big situation coming when they announce the "Plan".
Currently I’m thinking that no one expects the market to make it past this resistance, so it probably will, and we will spurt higher for a bit. If we get past 1230, all the shorts are going to cover in a panic, and we would see a fast pop to the upside. It could then build on itself and continue to roar as more and more figure the train is leaving the station. But be careful because it could be the last "hurrah", and it could roll over violently just after achieving new recent highs, crushing those that covered their shorts.
I’m currently carrying a lot of short term long positions:
- SPY at 108.54 – now at 122.57,
- NTES at 42.43 – now at 45.46,
- RVBD at 22.17 – now 23.41,
- RHT at 46.03 – now at 47.44,
- RMBS at 16.04 – now at 16.61,
- GDXJ at 29.01 – now at 31.04,
- GLD at 157.49 – now at 163.40,
- SLV at 28.00 – now at 31.34.
There's a lot of profit sitting there for the taking, but we could see the market head fake everyone and push even higher, so I'll hold them for a bit longer just to see. If on the other hand things roll over, I'll cash out and play some short side using HDGE.
Please be safe out there!
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