The financial markets exploded to the upside overnight with news of Europe’s triple resolution of their sovereign debt crisis. As I predicted in my letter only yesterday, the move has caught traders by surprise, enabling markets to break out to the upside from the recent ranges, and give this fall rally longer legs than most expect.
As I write this piece, the (SPX) futures have popped to 1275, a new high for this move. Ten year Treasury yields have ratcheted back up to 2.26%, and the dollar is in full flight against a basket of currencies. Here are the details in summary:
My family has a very long history with Boeing (BA). During WWII, my dad got down on his knees and kissed the runway when the B-17 bomber in which he served as tail gunner (two probables) made it back, despite the many holes in the fuselage.
Oracle of Omaha, Warren Buffett, is nothing if not clever. By offering to buy back his holding company’s stock, Berkshire Hathaway (BRKA), for the first time in history, he is in effect offering investors a free put. And the way he is going about this, it will not cost him a penny.
When Dr. Copper (CU), the only commodity with a PhD in economics, suddenly collapses from a heart attack, risk takers everywhere have to sit up and take notice. Since the July top, the red metal has collapsed a shocking 31%.
If we are now in recession, this is the most bizarre one in history. It is a recession where the first thing people do is rush out and buy a new car. That is what the sales figures for General Motors showed this morning, up an impressive 19.8% in September. The results were even better for Volkswagen (+36%) and Chrysler (+27%).
It has been quite a hectic and frenetic day, so I am just getting around to writing out the logic behind today’s short cover of my November (VIX) $35 puts. Basically, I was betting that once the S&P 500 hit the first technical downside target at 1,065, a long overdue and furious short covering rally would ensue. This was when the (VIX) was trading just shy of $46.
Report From the Molycorp Mountain Pass Mine. When I heard that Molycorp (MCP) had just cratered by $22 from $53 to $31 in two days, I did what I usually do when a mining company I follow gets in trouble. I jumped into an airplane and flew over the pit, making sure that it was still there. I also go into the local bar and talk to the workers with my antennae out to detect any unreported problems.
One of the most amazing things that has happened in the global capital markets in the past month is that gold and silver have turned into equities. You know, those precious metals that are supposed to be a store of value and a safe haven during troubled times?
They have morphed overnight from hard assets into paper ones, with the barbarous relic nose diving $392 from $1,922, or 20%, in less than four weeks, while the white metal is off nearly $24, or 48% from its April $49.90 top.
Do you feel the urge to flaunt your success in life? Do you want to please the little wifey with a palatial 18,000 square foot, nine bedroom estate with a mahogany home theater, wine cave, library, and multiple swimming pools? For good measure, I’ll throw in the 21 car heated garage, billiard room, “panic” room, and a spectacular ocean view from every room. I’ll even have an Elvis Presley robot greet you at the ticket booth for the theater. Then have I got a deal for you!
My Take on the 2012 Presidential Election. As I write this, I am sitting at the San Francisco consulate of the People’s Republic of China, awaiting the issuance of my business visa. Since I will soon be in the neighborhood, I plan to interview some companies that I want to buy on the next upswing in the global financial markets. The Defense Department has asked me to call on my senior contacts in the People’s Liberation Army to try and get a read on the Middle Kingdom’s next likely president, Xi Jinping. Also, it has been ages since I had a decent Peking Duck.
US Vice President, Joe Biden, currently has the toughest job in the world. He has gone to China, hat in hand, to convince the country’s leaders to buy even more US Treasury bonds than they already have. This he must do with ten year yields approaching 2.0%, delivering some of the largest negative yields in history. He is in effect saying, “give me a dollar, and I promise to give you 90 cents in ten years.” Such a deal!
Come join me for lunch for the Mad Hedge Fund Trader’s Global Strategy Update, which I will be conducting in Seattle on Friday, September 16, 2011. A three course lunch will be followed by a 30 minute PowerPoint presentation and a one hour question and answer period.
Down, then up, then down again. How about that? I believe that the global risk markets will bottom sooner than people think, and that the time has come to compile a shopping list of investments to pick up on distressed days in the market.
I have to tell you that I was just not feeling the love from my gold short when I came into the office Wednesday morning. You would have thought that, with a double top on the charts in place, there would be a move of the same ferocity we saw two weeks ago, when the barbarous relic cratered $220 in days. But this time, when gold down $132 in 24 hours, the momentum suddenly vaporized.
When the Dow crashed 514 points on August 8, the market lost a staggering $850 billion in market capitalization. High frequency traders were possibly responsible for half of this move, but generated a mere $65 million in profits, some 7/1,000’s of a percent of the total loss. Are market authorities and regulators being penny wise, but pound foolish?