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Weekly CFTC Report - Kill (Dollar) Bill
This week's CFTC Commitment of Traders reports validates what everyone knows: that the "short dollar" is now the biggest groupthink trade in the world. Or let us paraphrase - the "Ben Bernanke QE2 Is Imminent" trade is now the biggest groupthink trade in the world. One glimpse at the move in the COT data confirms what we speculated earlier when we discussed Goldman's virtual certainty that QE2 is coming in 31 days: that if there is no QE2 announcement, the shock that would reverberate from this as all the Kill (Dollar) Bill trades are unwound, may just blow up world markets and make the flash crash seems like a dress rehearsal for midgets (of the SEC intellectual variety). Of course, what this means for contrarian traders is more than obvious.
First, here is the commodity net spec position summary. Someone missed to tell all these guys that deflation is in the cards. And yes, as the ISM confirmed today, input costs are surging, margins are collapsing, and sooner or later, companies will be forced to raise prices.
Next up: treasuries, which for the second week in a row are up to 2010 cumulative net spec positions between the 2, 5 and 10 year. Here, contrary to above, the bet is that prices will continue to rise ever higher. However, this is not due to deflation expectations, as seen above, but due to expectations that the Fed may soon be forced to purchase up to $3 trillion in USTs over the next year, thus becoming the marginal buyer across the curve.
Last, and certainly not least, is the FX chart, which speaks for itself: the red arrow highlights what the funding currency of choice is nowaday (and where it is headed).
In summarizing the above data: to say that QE is priced in is an understatement. There are currently trillions of dollars on the line that the Fed will launch QE on November 3. The impact of that announcement will be one of a flash of asset price euphoria followed by the realization that monetary intervention will be just as failed that time as it was before, and that even as rates drop to zero, it will do nothing to reduce the excess slack in the economy. As for housing, zero rates will merely keep prices artificially high, and coupled with the recent M3 scandal, it will make transactions even rarer, as few if any will be willing to buy at inflated prices when their economic outlook is not only uncertain but deteriorating. More importantly once the Fed has engorged its balance sheet with $3-5 trillion in assets, all naive hopes that a normal unwind of these economic supports can proceed in a normal manner without triggering full dollar collapse, will be extinguished. One thing is certain: the midterm elections will be a very memorable date. Look for forced leaks of the Fed decision ahead of November, and not just to Bill Gross. Indicatively, we still believe the best tell on what the Fed will do will come in Mid-October when the TRS will disclose its latest holdings, which we will present immediately when available.
The traditional CFTC COT reports courtesy of Libanman Futures can be found here: standard and financial.
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So, I should dump my TZA?
Own your TZA....they are all lined up like bowling pins. They will scatter for a bit and then reload. Short-long-short-long-short-long....
They will keep an underlying bid on everything to insure it doesn't get too out of hand...
Robo has it down hard
if there is no QE2 announcement, the shock that would reverberate from this as all the Kill (Dollar) Bill trades are unwound, may just blow up world markets and make the flash crash seems like a dress rehearsal for midgets
Speaking of crowded trades, it is curious how most see the destruction of commodities and equities without conceiving the dollar may rally to its 115 target with margin calls and the scramble for scarce liquidity
http://stockcharts.com/charts/gallery.html?s=%24usd
http://stockcharts.com/charts/gallery.html?s=faz
Most save Big4 and TopTen that is:
http://www.jubileeprosperity.com/
Nice.
Show me a home where the buffalo roam....
SOLD OUT! SORRY.
Show me a home where the buffalo roam....
And the beer and the canteloupe stay
Velvet Weekend, bizatch.
Mayhap, although Fall Equinox more usual time.
Close enough for Shalom and Franz bosses?
As I stated earlier today:
"Sentiment is reaching extremes on many fronts now...Euro optimism, equity optimism, junk bond optimism, etc. which should make anyone begin to question the current state of affairs from a trade perspective."
Everyone currently seems to be content drinking the Fed kool-aid of nothing ever goes down in price until they realize there is a giant turd floating in the punch bowl.
MANY charts are also at very important technical inflection points. I agree w/ you, it's going to have to be one way or the other on many different asset classes. I've slowly (and painfully I might add) been building a dollar long position and I'm hoping it makes my year!
Everybody knows this. They short with leverage accordingly. The fed throws a little gasoline on it and it melts up.
Wash, rinse, repeat. Who is left to sell?
When bears capitulate for the last time, the market falls
What about the ones that own? The ones that bought..
I get what you're sayin.. I'm just sayin..
Prechter was saying the same thing a week ago..... sentiment indicators are one of the main tools used by elliot wavers.
Right on Bill
Oh I dig that line! Kill (Dollar) Bill! Why didn't I think of that? ;)
Does that mean QE2 should be: "Kill (Dollar) Bill II"
+1
Imagine...a market crash and an unwind of the dollar carry trade
Soon many Dead Presidents will flow into the shorts coffers.
Tyler, lol, LOVE the red arrow!
Trends for idiots.com :)
http://www.youtube.com/watch?v=COPlJwqaQm8
So, as the Dollar goes down in value doesn't that mean that the assets on the FEd balance sheet go down? What about all of the Real Estate in Maden lane?
What am I missing? I know there are a lot of smart people on the board. Please inform me. Thanks
Definitely scary.
Maybe I should sell some of my gold.
correlations are all 1 now Robo... you should sell everything.
AHAHAHA!!!
...and buy what? :)
Hold Bills, cash dollars that is, not T's
Sentiment is a bitch... this is way better than the AAII bullshit
http://www.naaim.org/naaimadsenttrend.aspx
Don't tell anyone. Causations are all 1 as well.
You seem like the kind of contrarian who will ring the cash register into price strength while the herd junks you for making money.....
Dollar is almost Zero....... so much for "cash on the sidelines". :D
No crap 3% cash mutual fund holdings.... lol
Say what mr obvious? AUD and Copper and AAPL are hot?
Sidelines my ass... dumb money is in
http://www.ise.com/WebForm/viewPage.aspx?categoryId=126
Don't bother. I hear Morgan Stanley will sell your gold for you.
Robo, YOU should sell. No doubt in my mind about that. ;)
make the flash crash seems like a dress rehearsal for midgets...or cripples.
http://www.youtube.com/watch?v=jvkhYcTEwRE
hat tip: evilspeculator.com
Franz and Shalom vs the world economy
It also appears to me that the FED has become the Worlds largest Hedge Fund. When you think about it, they own GM, a car manufacturer, FRE, FNM, 50% of all of the Mortgage loans, C, one of the Worlds Largest Banks, they own AIG one of the Worlds largest Insurers. They also own huge portfolio of Commercial Property and Loans in Maiden Lane. They took over a lot of CDS from Bear Stearns and Lehman.
The question should be what don't they Own. Maybe the reason they want to keep the Market up is to protect their Book of Business.
Sad day when the FED uses Tax Payer Money to keep their Book of Business up.
Will BRK do an LBO on the Fed and Treasury like the Mississippi and South Pacific companies did on France and British sovereign consols?
if the biggest groupthink trade is short the dollar, wouldn't you expect a squeeze and big short covering rally? after all, which would you rather own $ or eur or jpy? me? - i don't know, but if everyone's short the dollar versus the other pieces of shit, then shouldn't the dollar at least have a nice bounce before its swan dive. I've never seen any market go straight down especially after everyone is already so bearish...
Yeah I've been thinking the same thing, but it still hasn't happened. I think it's because the majority of people in the FX market who are short the dollar are retail and smaller investors and they just don't know when to cut their loses. But that's just my theory.
If you were short USD then where are the losses to cut away from?.. I don't understand this comment.
I'm simply saying that if you're short the dollar, and so is everyone else, at some point the dollar will become oversold and have a rebound. In which case, the dollar would go up as people cover their short positions (buying back the dollar). BUT, this hasn't happened yet.
I see a spot on the USDX at just above 75 that could be a nice trend line to give support.. If that goes... 72 is all but assured..
So... what about paper gold price? Melt up...? or Melt down (2008)?
Sell some gold, hmmm. Not my physical, but I did lighten up on the miners today and took a spoos hedge. This could get interesting. Might sell more miners, and hope I am not being too cute.
Gonna keep some though,no matter what.
I don't know... the snap-back/buy-back time is getting awfully short for precious metals. If you sell, then make sure you sit by your computer and buy back in a few minutes or less.....How long did the Swiss currency intervention last? The JPY intervention? Or the "smackdown" yesterday of precious metals? Half life is halfing... People know (thanks to sites like this and King World News) that it's OVER! Credibility of Ben Bernanke is GONE.
I'm going to hold my stock of miners this time... we'll see... WHERE WILL PEOPLE'S MONEY GO THIS TIME?!
"The long run is a misleading guide to current affairs. In the long run we are all dead. ~ John Mynard Keynes "
Look how onesided Corn was and then look at Dec corn limit down today.
Crowded trades ...
I hate it when the children of the corn play hide the inflation in the futures market.
I don't know why the Ag & Soft chart is listed as "Commercial Spec". That definitely seems a misnomer. The latest COT report published today indicates that commercials (meaning commercial users of the commodity) are net short corn (even more short than during the 2008 price spike).
So my question is, what is the information that you are presenting?
As commodity prices rise, the COT will show commercials becoming more short as hedging programs kick in. Extreme short positions in the COT are indicators of selling opportunities and extreme bullish positions are indicators of buying opportunities (relatively). Your chart indicates that commericials are long corn, long coffee, long everything.
That's not how I read the latest COT.
If you mean "Spec Net", well that's a different story. Spec is the last to any party, so the fact that they are net long corn while Commercials are net short should tell you something.
Also, COT is definitely not a good use for financials or currencies.
Big4 better than commercials or specs
Hedge with miners that produce the glow in the dark stuff and that which glows in the light.
This sort of "contrary" stuff only works when an asset is extended in a price-time continuum. In the 2008-9 stock bear market, there were several periods where very extreme negative sentiment on stocks was measured, every one of which was followed by a brief bounce and then new lows, until the March 2009 low-- at which point the SPY was 20% below its 50 day sma and close to 40% below its 200 day sma. Did anyone need sentiment data to figure out sentiment was horrible?
Meanwhile, gold is not extended on either the 10 week or 40 week moving averages. It is however up 30% yoy. All in all, FWIW, I'm sticking with James Turk's and Jesse Livermore's admonition that the hardest thing to do in a major bull market is to sit tight and hold.
How many $Billions could the FED make in a short squeeze?
Crowded? Sure. One must ask, however, who is driving the Euro and Yen? Who is making a tight bid on almost as many yen as the BOJ wants to print? Who has been pushing the yen for the last year?
China.
How much of China's reserves are in dollars? $1.4 trillion? That's a lot of buying power for yen and euros. Do 1000 people represent a crowd? In a phone booth, yes, but at the Rose Bowl, hardly.
What part of the Chinese trade surplus is represented by the US? About 175%. With whom, ironically or not so ironically, does China run a trade deficit? Among others, Germany and Japan. Go figure. Looks like JGB's might continue to catch a bid. Oh, and every carefully crafted German and Japanese product comes with a reverse engineering cheat sheet.
So let me see.....scorch the dollar vs. the yen and euro, then "give in" to Geithner, Congress et al on the yuan. Let's say the yuan rises 20% vs. the dollar? If it falls a similar amount against the yen and euro, no harm done.
Oh, and what does yuan appreciation do for the US? Chinese workers might go from an equivalent $2/hour to $2.40/hour. Are unemployed Americans going to celebrate when they can now compete with those Chinese by accepting $2.35/hour?
All yuan appreciation will do is import inflation into the US and leave less money in the pockets of US consumers to the approximate tune of 40% times the size of Chinese imports.
Just as every asset market in the US is now a finction of Bernanke's foibles, the dollar's future is in the hands of the Chinese. Those are the "fundamentals". China is playing chess while everyone else is playing checkers.
Mercantilism redux highlights the failures of ForEx Alchemy.
Those that manufacture most call the tune
Just a terrific comment.
Wonder how will KRW/JPY fit in here...
Tyler or anyone - "Indicatively, we still believe the best tell on what the Fed will do will come in Mid-October when the TRS will disclose its latest holdings, which we will present immediately when available."
What does "TRS" stand for?
What is last shall be first
What is first shall be last
And never the twain shall meet
quite an interesting game of chicken between the PR campaign for QE2 and the reality that commodity inflation is already heating up in anticipation, squeezing corporate profits and all spending, especially when the marginal benefit of lower interest rates and more stagnant money in the system is about zero, aside from the PR value of artificially supporting equity prices, which also has rapidly diminishing value as commodities increase...
and just to make things even more interesting, the next Fed meeting is awkwardly scheduled a week before the November election with the next one not until late January...
so, when does Bernanke want to fess up that this really isn't the time for more QE and crash the markets, a week or a month before the election...
or, as a middle ground, will he continue to talk up QE in a PR campaign to keep stocks up until the election, then announce only as much of a QE commitment as he thinks is necessary to prop the markets up for the last week before the election, and then let it all crash so the financial oligarchy can take advantage of a lame duck session of Congress with threats of the end of the universe if they don't get their booty?
If economic indicators are so-so until November and the market is basically flat or up a little, they might be able to avoid announcing the QE2 in November. They will still be doing the weekly POMO's.. They might just make big hints at it, while at the same time saying how the economic indicators have been pointing to a 'modest recovery', etc, etc. So they say things are getting better, but just at a slower pace then what they'd like. It's a totally mixed message, just like what they've been doing for the last couple of months. That's what they want, for the sake of the equity markets and the dollar.
At some point, reality might set in.. post-election season. After all, some people do not believe that the elections will wind up creating the 'gridlock' that the markets had been hoping for. Reality sets in due to weaker economic numbers, especially unemployment, and a very weak Christmas season (many people are flat out broke at this point), and the markets start to dump.. profit taking.. tax selling due to the uncertainty of the tax situation. Add to this an unwind of the short-dollar trade.. see what we get. It is at that point that I believe the Fed will feel they have enough cover under which to push the button on a large QE2, albeit not as large or one-time immediate that the markets had hoped for.. After all, they have to exit from all this at some point and they know it.
The market drops in early 2011, and hard.. as, again, reality sets in. The QE2 is viewed as a desperate measure and an experiment with no real prospect of positive benefit. The only purpose it serves is as a pump to the equity markets by devaluing the dollar. The market will need it at that point, unfortunately. It might keep it from 'Flash Crash 2: Return of Waddell & Reed'.
Election is Nov 2. Fed meeting is Nov 2-3.
Updated GOLD monthly chart:
http://stockmarket618.wordpress.com
Alternatively, it can also mean nothing.
Just loaded up on Brown Rice.