Monthly Archives: December 2011

30th December 2011 – The nonsense of it all; when printing isn’t printing and state bailouts aren’t state bailouts.

Since writing the last entry I have had more time to think about the silliness of the lies European politicians and central bankers have been telling us all for months.

It seems the more they say “don’t worry everything is fine” the more they expect us to believe their rubbish.

I don’t mean to single out the Europeans in this regard, as the same rubbish is peddled in Britain, America, Japan etc. etc.

What is especially frustrating about Europe’s response is that they have had so much time and opportunity to learn from Japanese, American and British mistakes. They have failed utterly.

An amusing pattern has repeated itself this year. As in 2008, Europe raised interest rates at the start of the year only to reduce them much lower by the end. They have no clear plan and seem incapable of standing by decisions they do make. The picture does indeed look bleak for Europe.

If only they could be just a bit more honest with themselves (and hopefully us). This is their only hope for salvation. They have to admit the challenges they face and then they will be able to deal with them. Continue reading

28th December 2011 – Europe’s folly understood, but is the plan already unravelling?

 I’ve had time in the last week to reflect on the apparent stupidity of Europe’s plan to provide the IMF with €150billion to lend back to its stricken states.

As I wrote last time this measure surely cannot truly be seen as the solution to this current crisis. If this is the case, then why on Earth bother do it?

I’ve been helped a great deal by Zerohedge and also by this blog in figuring out the answer. As an aside I also set up a Google News Alert for “ECB overnight deposit”, which has proven to be extremely useful (I set this up when writing about the explosion of overnight money held at the Fed and ECB a month or so ago).

As it turns out the answer is glaringly obvious. The IMF scheme is yet another smoke screen, designed to shield European voters from the truth of what is happening. Continue reading

23rd December 2011 – Trying to understand Europe’s folly

Watching Europe’s “leaders” grapple with the Sovereign Debt Crisis has been something of a tragicomic affair. Just when you thought they couldn’t do much worse, out came the latest baffling press release of hot air and meaningless promises followed closely by some good old Anglo-French xenophobia.

However, even by this farce’s low standards, the latest instalment is incredible.

It’s taken me a few days to write this piece as I have been doing my best to understand the logic behind this decision.

On Monday the following was issued.

In summary the idea, which was first floated just over a month ago, is to provide the IMF with European money to lend back to struggling European countries. This measure is designed to circumvent the need for the ECB to print; such is the domestic opposition in Germany.

The original intention was that this fund (or whatever technical term applies) would be €200billion. That this amount was never going to be enough to do anything other than delay the final resolution of this crisis did not seem to matter. After all European politicians need only worry about their next elections. Continue reading

19th December 2011 – Three stocks indicate the parlous state of markets

I haven’t published much about my research into individual stocks. I am not sure if I plan to or not in the future. I write this blog to help refine my view on the general market conditions and then use this to inform my trading or investing decisions.

Even so there have been three events in London today, which I think are representative of the prevailing mood and highlight certain issues private investors face.

Summit Corporation (SUMM) is listed on the AIM market. I’ve been following this one for a while, since a friend alerted me to their research base. Investing in this stock was always going to be a long shot, but such is the quality of their potential pipeline that the upside rewards for success are huge. Last month Summit announced they had received orphan status for one of their drugs from the FDA in America.

This was superb news, yet the stock continued to fall.

Today they announced they had received $1.5million from three organisations to see this product through Phase 1 trials. The news alert was a little vague about on what terms this money had been received, but my interpretation is that it pretty much amounted to a charitable donation. If I am right about this, surely this is a fantastic result for a company to receive funding on such terms? Continue reading

16th December 2011 – Cut by a falling knife but confirmation received

 I did open my second gold position the other day…. and was stopped out within a few hours!

I bought at $1,600/oz and the price fell to <$1,540/oz extremely quickly (not that I followed it all the way down!).

The speed of declines and size of the tick by tick jumps were indicative of sizeable positions being unloaded. The absence of news driving these sales suggests that the collapse in gold is being caused by the short-term liquidity strains being felt in markets. Although I didn’t really expect this trade to work, I did want to have some money in the market to test its strength. As I wrote the other day, this was what mattered most to me.

I do want to be long gold over 2012. I am thinking very seriously about buying on December 31st, but I will wait and see about this.

In the meantime I have the rest of my portfolio to consider. I am closely looking at AIM at the moment. Continue reading

13th December 2011 – A short lived trade in gold

I’m in a bit of a bind at the moment. I want to invest in stocks, but am not all convinced that the conditions are right.

Although equity markets are holding up a sell-off is occurring in commodity markets. The pace at which this is happening could indicate that the liquidity crisis is spreading and major investors are being forced to close positions.

I had been hoping for a while to open a gold position at the 200MA, which is currently $1,652/oz. Yesterday it reached this point, I bought, but promptly got stopped out this afternoon.

The 200MA surely has to be an extremely significant level for this commodity. It has been in such an entrenched bull market for so long and the outlook is still extremely positive. Continue reading

11th December 2011 – Europe refuses to solve its crisis but the market doesn’t seem to care

My heart sank on reading coverage of the latest “do or die” summit to end the European Sovereign Debt Crisis.

I shouldn’t really be too surprised by this, given the lamentable performance we’ve witnessed so far by Europe’s “leaders”. They seem to think they can solve the world’s ills through press releases. Once in circulation these magical pronouncements will weave their way through the collective consciousness and everything will work out just fine. There is no need for real action and there is certainly no need for difficult decisions to be made. So what that Greece can’t pay, the banking system is possibly on the verge of collapse, Southern Europe (and Ireland) wilfully ignored the rules, the ECB’s balance sheet is increasingly toxic and the continent is on the verge of recession what really matters is what is presented to voters.

Foolishly, I actually thought that a decent agreement might have been reached on Friday. After all, this affair reached crisis point well over 18 months ago and has gotten steadily worse since. It hasn’t even looked like getting any better. Is it really too unreasonable to have expected that the hard work had been done before this week?

But this is not the world we live in. What matters to these “leaders” is the maintenance of their position. This is all. Continue reading

8th December 2011 — Beware 12,200!

Just a quick post, but we have seen something quite rare in markets.

The Dow jumped 1% on news of the ECB cutting rates by 0.25%, only to pull back immediately.

I have been stopped out of my hedge, but this particular move further emphasises the strength of resistance at 12,200.

I am going to watch what happens today closely. I may open another hedge if the Euro summit isn’t concluded by the market close tomorrow.

8th December 2011 – Going short, a strategic error and a revealing debate

I have to go short on the Dow ahead of the meeting of the ECB and the separate Euro summit.

The Dow is clearly at significant resistance and market expectations are extremely elevated. I am also long some stocks in England. Given European politicians’ innate ability to squabble, obfuscate, complicate and generally confuse there has to be a sizeable chance that they will not manage to pull together a substantive plan by the end of the week.

Even though I find this outcome incredulous I can’t ignore where the market is, what it expects and what could happen.

I am able to apply excellent leverage to my position and view it as a hedge to gross incompetence.

Either way I will be nicely positioned whatever happens.

Even so what is happening is troubling.

A common theme has emerged since the summer, whereby the European elite has seized on this crisis as an opportunity for further integration, even fiscal union. The timing of this is wildly unrealistic. In very simple the terms, the same “leaders” who ignored the clear warning signs of the impending Sovereign Debt Crisis and who have failed so spectacularly since to resolve it now expect the people of Europe to trust them to expand the powers of the Union. These people cannot admit failure and this will be their undoing. The sooner this happens the better for all, not least the Euro.

Now is not the time to force through fiscal unification. Continue reading

5th December 2011 – Entry of the Gladiators and that pesky 12,200 level

Merkel and Sarkozy’s comedy double act is fast becoming dull. The next time they appear in front of the cameras I do hope it is to the tune “Entry of the Gladiators”. After watching their latest little performance it is hard not to believe that the European Project really is in serious trouble. Change is needed at the top and these two have to go. Hopefully Sarkozy will be booted out of office in May, leaving Merkel to limp on until autumn 2013.

Broadly speaking I am pro-European (even, dare I say it, pro-Euro), but these two are making it so difficult.

The introduction of the Euro was clearly flawed from the beginning. For Europe to move forward this has to be accepted and, more importantly, dealt with. Greece and other weaker members are going to have leave and a new set of rules introduced. These will then have to be stuck to.

The time to act is now. As the chart below (from Zerohedge) clearly demonstrates the tide of events is now firmly against Europe. The notion that they have until next March is ridiculous. 

Please click for full image

 

The red lines show the weekly ECB bond purchases of stricken European debt, which no one else wants. The scale of the crisis is clear. One need only look from left to right to see how bad it is. What is even worse is the black line, currently soaring off the chart. This represents the cumulative purchases of this extremely poor quality and exceptionally high risk paper. Continue reading

4th December 2011 – A rigged game part II; Identifying “The Modern Corruption”

This has been an excellent week in my quest to understand the conditions, which govern financial markets. I feel I have made a real breakthrough through in the adoption of a new mindset to help guide my future decisions. As with any view I hold I will seek to adapt it as the environment changes, but for now I have recognised “The Modern Corruption”.

The financial system is broken beyond repair and the policy response in the last three and half years has been grotesque. These are the most obvious manifestations of the fatal flaws in a society built on consumption and the ambition of self-interest.

I can see no reason or factor, which is likely to change this for the foreseeable future. I will seek to position myself accordingly.

Any doubts on this matter have surely been dispelled this week by two news items.

In my last post I wrote that Monday’s surprisingly strong rally had to be the product of word seeping out onto the trading desks of the major players about Thursday’s globally coordinated central bank move.

I am now even more convinced that this is what happened. The pre-announcement rally defies any other explanation, especially when taken in the context of this news about Hank Paulson. Hank Paulson is meant to be a committed Christian (and yes I do believe that matters). Even so he felt able to give a select group of hedge fund managers advance warning about his plans for Fannie Mae and Freddie Mac.

Please read the piece. Continue reading

1st December 2011 – Playing a rigged game

I started writing this morning a review of my Market Strength Test tool. Even though I got stopped out of my position and markets plummeted last week, the Market Strength Test Tool still suggested that the bull run wasn’t quite dead.

Looking at the numbers below the 40MA fell into negative territory on Friday. At this stage the market looked in real trouble. If follow through selling had carried on into this week then I would have expected another test of the Dow’s Primary Value Zone (currently 10,598:10,609). This didn’t happen and Monday’s rally was extremely strong and the 40MA leapt back to +2.

Please click for full image

 

This morning the emphasis of this piece was going to be an expression of frustration at this move; frustration at potentially being right in the overall direction but wrong in the execution of my trade. One conclusion I did reach (and am sticking to) is that I should have bought an option, rather than a spread bet. An option would have let me ride out volatility. Given I basically had one shot at making money I took on too much risk. Continue reading