Monthly Archives: August 2012

3rd August 2012 – Chasing the “Bad is Good Crowd”

Feeling flush with yesterday’s really profitable trade I’ve now gone long the Dow.

Although I expect the Nonfarm Payrolls data to be bad, reflecting the general downturn, I believe the “Bad is Good Crowd” (as Zerohedge amusingly refers to them), will seize on any weakness as further evidence that the Fed is about to blitz us with QE3.

I’m betting the Dow will close about 13,000 for the weak. I already have a risk free position as I bought my weekly option early this morning and the market has risen allowing me to close out half.

2nd August 2012 – A quick thought before the ECB meets

Before the ECB meet today, I had a thought when I woke up about the decision making process in Europe.

How likely is it that the ECB would be able to keep a plan of this size secret?

I’ve not been able to find any commentary, anywhere, which has a clear view of what the ECB will do. It all smacks of guesswork.

I’m not risking much at all, so if I am wrong it doesn’t matter too much, but I am expecting a disappointment today.

Let’s see.

2nd August 2012 – Short the Dow, no action from Fed, all eyes on Europe

It’s late now, but yesterday afternoon I opened a Put on the weekly Dow at 12,900.

Although there was a chance the Fed was going to announce QE3, I am already long various stocks, so thought a hedge would be a good idea. With the ECB due to meet later today and the Nonfarm Payrolls on Friday, there is plenty that could knock the market for six or send it sky high.

The latest instalment from the MoneyWeek Trader helped me into this trade.

Even though I am not certain the next big move will be down (I think it will be up, even if there is a short term correction), this analysis seemed well founded. The price I paid for the option is negligible so my risk /reward ratio feels balanced in my favour.

And then there’s Europe. This Yahoo! Finance Breakout video provides an excellent overview of what the market expects.

I still can’t help shake the feeling that Europe is going to disappoint. Draghi’s comments last week were bland and open to interpretation. They seemed off the cuff and lacked the finesse I would have associated with a genuine plan. The Fed has John Hilsenrath as its friendly journalist through whom they test policy ideas, but the ECB has no-such person to call on.

European governance is chaotic at best. There are too many different interests at work and the idea of a Government of Europe hasn’t settled with the population. Germany and the prosperous North are not prepared to subsidise their profligate southern counterparts, while the stricken PIGS are beyond repair within the existing framework.

The European Financial Stability Facility has already been announced, but this has done little to soothe market fears. The ECB has already provided over €1trillion in the LTRO and has mopped up billions of Euros of questionable bonds. What more can they do?

I will find out soon enough if I am wrong, but I will be surprised if the ECB is actually able to deliver the kind of blockbuster package the Fed has provided since 2008.

If we are to see a serious resumption of the bull market I think it will be up to the Fed to provide the fuel.

QE3 seems a certainty now, but I’ve been saying that for a long time.

If we think back to this time two years ago, when the Fed was about to announce QE2, there is one pattern possibly repeating in their behaviour. Although they didn’t announce a bond purchasing programme today, the Jackson Hole Economic Policy Symposium is around the corner. At the 2010 event Bernanke gave the world QE2.

It may be a reasonably safe bet to expect the same again at the end of the month.