madhedgefundtrader's blog

We have had a nice run here on (BAC), posting a profit of 20% in just one week. The stock market is now at the top end of a one month range, so I am going to cut back some risk. The big gainers are always the first to go on the chopping block.

We have had a great 130 point rally off of the August 8 capitulation low. The market is getting artificially ramped up to overbought levels by month end window dressing, as portfolio seek to hide the damage caused by the worst month in the equity market in ten years.

I am tearing up my Eurail Pass, returning my espresso machine to Costco, and sending my gelato maker to the recycling center. Next year’s summer vacation is going to be at Coney Island, not the Italian Rivera. Those damn Europeans are spoiling everything!

The US stock markets made a determined effort to put in a bottom last week, with the S&P 500 rallying 106 points off the bottom with blinding speed. But the Europeans had other ideas.

I love Swiss chocolate, but it’s not that good. The Swiss franc has been driven up to absurd levels by a safe haven bid. This is the next “short gold” trade. It is far easier to weaken a currency than to strengthen them

The nonevent of the year. The Fed has put off any serious action to repair the sagging economy until the next (FOMC) meeting on September 20-1. The economy is already humming along well enough to postpone any further stimulative action. In fact, he stated that he expects GDP to be stronger in the second half than in the first. This is in sharp contrast to the market’s opinion that things are going to hell in a hand basket, and that Armageddon is near. Could “surprise” become the most commonly used word in future Fed releases?

The market’s reaction to a rumored settlement on the debt ceiling was a great “tell” on the short term direction of the financial markets. There is a 100% chance that we get an agreement on the debt ceiling by the August 2 deadline. The republicans have unwisely painted themselves into a corner. So deal they must, and very soon.

A new interventionist, activist approach by governments towards the energy space. If the IEA’s strategy works, and prices stay down 10% over time, this would inject $300 billion into the world economy. Howls of leaked information and insider trading. . Traders may bet against the national interest, but now do so at their peril. This is the first real attempt by the consuming nations to eliminate the oil risk premium, estimated at up to $50 a barrel. Cutting Brent prices by a whacking great $30 a barrel. Is this QE3 in black?

The down leg of the “V” is well underway. When does the up leg begin, and when should we start positioning for it? Toyota’s Motor’s stunning year on year decline in domestic sales of -69%. Quantitative easing nearly triple the Federal Reserve’s own recent QE2 efforts on a per capita basis. GDP growth as high as 3% in 2012, taking it to the top of the pack of developed nations. (EW), (FXY), (YCS), (TM), (NSANY), (FANUY), (CAJ), (KMTUY).

Inflation expresses itself in many forms. The price of Brazilian bikini waxes in Rio is going through the roof. The big picture here is that inflation is worsening, not only in Brazil, but other emerging markets, like China, India, and Vietnam. An economic indicator in the hand is worth two in the bush? And I won’t even get into the implications of “Stealth” inflation.

Time for English 101. Spending cuts mean job losses. Reducing the deficit means job losses. Balancing the budget means job losses. Austerity means job losses. And lots of job losses means slower economic growth. The financial markets don’t believe or understand this yet. Stay cautious and stay nimble, and for the time being, stay short.

A conversation with the last surviving silver broker to the Hunt Brothers. An aggregate position was thought to exceed 100 million ounces. Several officials at the CFTC were rumored to be getting killed on their silver shorts. The Hunts’ only crime was to be right about the value of silver as an inflation hedge Commissions worth $14 million go up in smoke. (SLV).

The S&P 500 will go no higher that 1430 by 2020, a mere 90 points higher than it is today. The current multiple normalized over the past ten years is 23, making the market outrageously expensive. The historic average is only 14. We are only 17 months into a second lost decade for the stock market.

Make no mistake. A new variety of quantitative easing has already begun in a big way, and is generating its desired effect. The same $600 billion that stampeded into risky markets is doing a 180 and then stampeding right back out again. We might even see bonds peak and risk assets bottom on June 30, the day QE2 ends. Clever Ben, clever.