Saturday, August 29, 2009

The Mania Chronicles and Dubai

I remember picture of Dubai being sent to me by a friend, maybe 2 years back. They were bragging about having 25% of all the worlds cranes, making islands in the sea, building the tallest building. Part of it was $140 oil, but part of it was mania, plain and simple, MANIA. Mania is part of the human condition.

Check out this link related to Dubai today

I believe that what we have gone through, and are going through, is one of the biggest manias of the last 500 years or so. Elliot Wave International promotes this view, which at first glance is pretty shocking. But as you study it more, it becomes more believable, even giving a sense of comfort in understanding the mania. However, as much as you can anticipate Armageddon, as much as you can bet and profit from the market effects of entering Armageddon, as much as you can prepare yourself and your family---Armageddon will still be terrible. Don't "look forward to it".

I purchased the EWI "The Mania Chronicles" which is a massive tome. We are in a mania, or perhaps on the tail end of it, but the fallout may last for a decade or more. If you have any doubt of this, I would say it is very important that you assess the situation from a point of education. Don't keep such an opinion based only on "it's what I think". "The Mania Chronicles" is a slam dunk way to get the view from 40,000 feet. You cannot understand what is going on unless you understand the nature of "Mania".

Mania is not new. Even in the 19th century an English Journalist, Charles Mackay wrote "Extraordinary Popular Delusions and the Madness of Crowds" which discussed the 1637 Dutch Tulip Mania in which family fortunes were lost on speculation in which Tulip Traders were "making" the modern day equivalent of $60,000 PER MONTH trading tulips. Of course this eventually blew up.

The "Beggar Thy neighbor" theme became apparent after the blow up.

" At last, however, the more prudent began to see that this folly could not last for ever. Rich people no longer bought the flowers to keep them in their gardens, but to sell them again at cent. per cent. profit. It was seen that somebody must lose fearfully in the end. As this conviction spread, prices fell, and never rose again. Confidence was destroyed, and a universal panic seized upon the dealers. A had agreed to purchase ten Sempers Augustines from B, at four thousand florins each, at six weeks after the signing of the contract. B was ready with the flowers at the appointed time; but the price had fallen to three or four hundred florins, and A refused either to pay the difference or receive the tulips. Defaulters were announced day after day in all the towns of Holland. Hundreds who, a few months previously, had begun to doubt that there was such a thing as poverty in the land, suddenly found themselves the possessors of a few bulbs, which nobody would buy, even though they offered them at one quarter of the sums they had paid for them. The cry of distress resounded everywhere, and each man accused his neighbour. The few who had contrived to enrich themselves hid their wealth from the knowledge of their fellow-citizens, and invested it in the English or other funds. Many who, for a brief season, had emerged from the humbler walks of life, were cast back into their original obscurity. Substantial merchants were reduced almost to beggary, and many a representative of a noble line saw the fortunes of his house ruined beyond redemption."

And here is an article from Feb 1999, poo-pooing people who talk of tulip-mania, and that the market is a "highly effective capital allocation system", and that the "The longer the Internet leaders stay up (by this, I mean relative to the capital invested in them, not relative to the price at which they traded yesterday or last year), the less like a bubble it looks and the more it looks like the result of a rational, complex pricing mechanism."

Note the title "Fool on the Hill"--kind of amusing isn't it? My old English teacher would say this is "Richly Ambiguous"

Finally, check out this book from 1841, it describes how States can't pay their debt, how speculation has led former producers to be consumers, and how the west over speculated on their McMansions (OK I made that up a little). The more things change, the more they remain the same.

Friday, August 28, 2009

Brief Summary of Bank Failures - I see them EVERY Friday

Well the Gov pumped say $10T into the economy, making the future generations pay for the recent 2 decades of avarice. Net result? A minor and temporary reduction in losses in GDP.

Will bank foreclosures decrease or accelerate as the well documented increase in mortgage rate resets, and continued massive increases in unemployment go on? Convince yourself, research the mortgage rate resets that are baked in the cake...this is going to end very badly. I am not convinced it starts next week, but it does have a chance, at least in the stock market. However, after the largest mania of perhaps a millenium, why not a 61% retrace of the prior highs, why not indeed.

It seems obvious with the highest bullish percent sentiment EVER, that the masses have not learned a thing. They seem to believe that somehow this "economy" based on a house of cards and corruption is actually "resilient" thus proving how strong it is. It does pain me to watch my beloved country turn into this mess.

Sound the Alarms, Tsunami Coming!

EWI has issued an unprecedented double monthly report today. The sentiment extremes which we have been pointing out for over a month, the mag covers stating perhaps the worst is over, BB getting re-appointed as the savior, and extreme dollar bearishness all add up to one thing:

Tsunami. Lot's of retail has piled in long. They will scurry away quick with a 5% drop, but their financial advisor will be telling them to buy the dips, and we will be selling the rips after the dips. There might be alot of dip buying.

OK game plan from 5000 feet. Next week is a pre-holiday week, end of the summer for many people. Some of the big boys will be gone, lighter volume, easier to push the tape.

Because HBB games EWI I expect a drop on Monday AM, decent gap down, 1%...this encourages bears to sell but doesnt scare out the new bulls quite yet. Then market moves down in waves for 2 the bears are piling in...pissed that they missed part of the move. Now on light volume, HBB paint the tape higher, to new highs...shaking out the bears and puffing up the bulls who knew buy and hold and buy the dip would work.

Asia tanks on Sunday, Sep 6th, but US can't do diddly, markets are closed--but everyone can talk about it at the Monday Labor day holiday over a nice BBQ with corn on the cob, anxious that they can't do anything because the market is closed. They enter stop loss order right under their long positions, but the market gaps down pretty big like 3 or 4 percent, and they are forced to sell into an abyss.

I'll have stink puts ready to buy on that final pop later half of next week, but already picked up some nice stink puts today, all 2010 expiry. Get your tickers ready. And review my boatloads. Many of these "weak stocks" that have shown surprising strength are exactly that...a sentiment extreme in which non-pro "investors" get attractive to risky assets, like going to Vegas (like Fujisan...except that she is the opposite of retail, one of the best).

High Ho Silver!

Silver might react like a poor mans gold, as safe haven with inflationary worries and just fiat money worries in general.

But who the hell really knows, there are strong and reasoned opinions in both directions, and the advant of the silver ETF 2 years ago has changed the marketplace, now it's like UNG....a commodity that is actively gamed.

If you think you know it all, thats when you are going to get burned. If you feel a little lost, start counting waves and reviewing patterns, in mulitple timerframes, also review your MACD, and stochs, including slo stochs. Also check out the Gold to silver ratio, its important for many reasons, not just for making a play on silver.

OK, still lost? Well then keep your powder dry.

Thursday, August 27, 2009

View of ES

Small Change in McClennan Oscillator Mean Big Change in Equities

The McClennan Oscillator moved only 3 points, that is definitely considered small. Maybe 20 would be medium, and 60 would be large.

Small changes occur before big moves in equity pricing, but the direction is unknown. The moves are often the next day, less often 2 days later, and sometime 3 days later.

This theory of a big move matches with all the wedges and triangles that are forming out there. A snake coiling for a big move. A big move up would demoralize all but the staunchest of bears, which would be the perfect "play" before a big move down.

The McC is a permanent link on the righthand side of my blog, along with other useful stuff. Check them out.

Wednesday, August 26, 2009

This was a comment on Xtrends--


If oil test $35 in the next 2-5 years, that will confirm everything of course regarding the asset class balance. Oil refineries will halt production, everything will regress. It's hard to imagine this though..

We will be severly destroyed, and the debt will destroyed too !

At that point, we will actually go back 30-50 years in pricing index when homes were still $100k lol and gas was near $1-$2 tops !

That would be a 'real' correction, but a very devastating one that the WORLD GOV'Ts do not want happening.

Steveo response:

Government personnel want to perpetuate their own jobs, and add more people under them to increase their power base. They will pay any price and take any risk in order to perpetuate the status quo. They will not want to take their medicine, if there is even one chance in a 1000 that something else might work. It's like skiing through a mildly forested start to lose your balance and rather than taking a small fall, you try to correct, putting you into a more precarious and off balance position, and instead of taking a medium fall, you try to correct again and are now swinging wildly out of control. Now you are faced with a cornice on one side and the chance of slamming into a tree at 45 MPH. Does that bring it home? But you still think (hope) that with another more risky manuever that you might get out of it OK, or even get out of it smelling like a rose, with people cheering you as a hero.

FDIC is still Bankrupt

As we reported back in June, the FDIC is effectively bankrupt.

Your deposits sitting in bank accounts are insured by a entity that is effectively bankrupt.

And for a study guide to "backwardation" (no this doesn't mean you move to West Virgina), please check out Bill Cara's blog. Wow.

Kayak of Charts 3 Beauties -- added PAAS

Short term short on Dollar and possible Wave 5 Move

As mentioned weeks back, I am bullish on dollar because no one else is. However, after a huge move today, reversing the position and taking a short. Looks like a 5 wave up to me, so I hope to scalp a retrace.

Same line of thinking, but in reverse. I think one more big spiky move up on /ES and SPY to pop short stops, and then sled ride into Armageddon. Ouch.

Sunday, August 23, 2009

ES Perspective --The Brave New World

I am starting to feel bullish, after all, this market is resilient, it can only go up. I am joking BTW. I do feel bullish but I use that as a contraindicator. Check the ES chart, seems like 1050 is a good swat down point. That would be "logical" but the market doesn't always do what is logical. I picked up 50 puts on SPY Friday afternoon, which is alot. I think the top will come very fast when it does show up.

Sector Quick Views

I have chosen a few sectors, and made a candle glance page that will allow people to get a quick look at how sectors are moving and in relation to each other.

These Candleglance groups have a 1 year and 2 month durations

These links are now a permanent part of my Blog. The intent is to quickly be able to click through a bunch of links and get a feel for the market. Let me know if you like this or have different sectors that you think "ought" to be in here.,smh,pbw,bbh,uso,bkx,xlf,xlb,ung,gdx|D|A12,26,9,smh,pbw,bbh,uso,bkx,xlf,xlb,ung,gdx|D|A12,26,9