Planes, drains and OTTO-bum-ills

PLANES
This morning, we were well intent on seeing this market rally but a series of very fortunate events prevented us from being ready at the get go. We heard of planes escorted by fighter jets circling the New York skyline. European currencies rallied...


DRAIN: Trading session in the drain...
Instead we were saddled with a cracked laptop screen and the backup was an ultra slow desktop. This required sourcing a better solution for trading futures and spot currencies. A $4K quad screen setup should arrive UPS sometime next month... Perfect cause the Japanese are going on extended vacations, the French never work in MAY ( July, August, 1/2 December, 1/2 January)... goign to be a falling market... Perfect to trade on trends rather than on merit!

MEANTIME
That took care of the morning, while keeping an errant eye on the market. With flu pandemics, drug stock rallies and by the time lunch came around the markets were down and we hadn't either made nor lost money...

This is one of those days were you realize too many people with too little capital are trying to make the news. This is again an ominous sign that the equity market is ready for a major fall.

TREASURY driving US taxpayer in the drain too
With so much Treasury issues in the bond market coming this week, we find it pathetic to see the FED feeding the markets with just enough bids to lose traders in the forest with very mean wolves hungry for the kill. Mind you, the only ones biding up Treasuries at this point, are probably, the loser banks using TARP money. The shills at CNBC make alot of noise about the banks that want to repay. WE WANT TO KNOW ABOUT THOSE THAT CAN'T REPAY!Always easier to spend money when it's not yours to dish out...

OTTO! Jetzt hergekommen!
Time for BAM, the little red riding hood WITH FIAT money, to visit the Detroit crips and other welfare BUMS. Time to let it all hang out with GM. BAM will not fail (trying)to keep GM a useless shell, but we fear GM's greater contribution to socialism will be to make BAM fail to keep his electoral support intact. The middle class has counted this administration 100 days of grace. Their thumbs look just about ready to change direction. Can the market be far behind?


Caveat Emptor!

GOOD untrading to U


DCW

S&P 803 next target... short GOLD to below $800

We've seen a great rally since March 9th. "No doubt about it" would say Mr. Mark Haines.
If enough people want the market to go up... IT WILL. But once that initial move is done, momentum, above moving averages and RESISTANCE becomes counter forces to exuberance.

The somber reality has to be brought back with anecdotal evidence:
- In March 50,000 houses in California went into default.
- Munis refinancing market is sold to an unsuspecting market (pension liabilities are unfunded). There is no pro-interest in the sector ( they know what is coming)
- Some New York commercial properties are changing hands for debt (or 30 cents on the dollar)
In the U.S. market, commercial real estate is worth about $6.5 trillion, and is financed by an estimated $3.1 trillion in debt.
And that debt is going bad at an escalating rate. In March, the delinquency rate on about $724 billion in securitized debt reached 1.8%. As percentages go, that’s a pretty small number. In fact, it’s less than a quarter of the housing market’s record-breaking mortgage-delinquency rate of 7.88% for the fourth quarter, according to the Mortgage Banker’s Association.
- IF Talbots 'latest quarterly report is any indication that retailers with a marginal offering are about to bite the dust, Mall owners will be breaking into negative cash flow soon enough...

If you think banks can make a living on a spread business, think again. Q1 numbers at GS are showing some profits in business lines that aren't likely to be repeated in following quarters. Their competitors missed a golden opportunity to use the March rally to come clean with portions of their books. Waiting or delaying consolidation reporting of mergers (WFC) is NOT going to work for very long.

With the lack of transparency from the FED's decision NOT to report results of the ongoing stress tests, we fear that investors will shy away from committing new funds to this market until another watershed occurs.

Putting this all together suggests our favorite TURBO number S&P 803 is going to be tested fueling a strong move to the down side after that.

NAZ? NO
While the NAZ had a nice rebound, INTC's numbers don't seem to justify the interest in Semis and the rest of the lot doesn't show margin expansion.

OIL? NO
Oil is bound range $44-$54 and nothing seems to offer any viable scenario to see this change any time soon. Production cuts are meeting demand shortfalls step for step. Intense pressure on margins will constrain Capex on all major players well into 2010.

GOLD? NO
While Mr. Bernanke can be congratulated for offering free money all along the yield curve and avoiding the latest attempt at a market implosion from succeeding, he has won BUT a reprieve. Price deflation abounds as all measures of inflation seem to be subdued: Housing affordability, food and energy costs seem well contained and with a supply of 5MM unsold cars on lots... inflation is not coming back for a while. Holding gold therefore is not a productive asset at this point. People are already getting no return on their CDs and their bonds. HELL if pensioners are just going to sit on physical gold to further reduce their monthly income! Best be short treasuries to gain same effect...

SHORT TERM TRADING? be ready for tiny profits
Market pros are playing this market on a day to day basis bagging small profits and with the looming GM bankruptcy, another period of intense angst is about to test supports levels.

SHORT TREASURIES: HOW MUCH?
Bernanke and Geithner riding the Obama wave of popularity. Why fight it? WE are using a measure of $10 of short treasuries ETFs (TBT & PST) for any $1 we commit to short term trading, so when Armageddon hits with the inevitable implosion of the current ludicrous bond yields on treasuries, we will be protected when the market really takes another hit.

INDIA ETF? NO
Unfortunately that country doesn't have the infrastructure or resources to grow its own economy. It still needs foreign investments to fuel job creation> we think it will be a number of years before investments returns in search of what was once a source of English speaking cheap labor.


COPPER? YES
For some odd reason that metal is trading over a five month rally.

BRAZIL? YES
Best bounce back, good currency, great exporter

SELL USD, BUY LOONIE? YES
This has proven a great trade and has another 10 cents in it


Conclusion:

SHORTS:
US MM banks
US Commercial lenders
US Treasuries (7yrs-20yrs)
NAZ
US Oil majors
INDIA ETF

LONGS:
Non-ferrous metal plays
Brazil ETF
Loonie


Good trading to you!

DCW

Beatles remake "Welcome Barak to the USSA"

Plus ça change plus c'est la même chose!

WASHINGTON: SOVIET CAPITAL
Spurned lovers, BANK-rupts speculators and traumatized retirees need to learn to believe again that the future will be brighter. Yeah right! 100 days into the election, Communist Washington now gets to fire CEOs and whole boards on behalf of taxpayers!
Pretty soon Putin types cronies will be parachuted all over industry to "Protect" taxpayer money... Soon enough you will have to show your party pin and pledge allegiance to "ze Republic". Sarko (L'énervé français) gets into the act by firing Peugeot president...
GM chief smart ass gets $20MM to pass the buck and the whole Citi board is to be replaced on orders of the politburo. What will that change, if anything? It didn't work for countless other government interventions. It won't work now!


GOOD LAND GONE BAD
Good banks and good corporations should be compared to fertile land. Farmers (investors) will come in and sow savings in the hope of gaining future rewards. If the stewards of the land (CEOs) use the wrong fertilizers, plant the wrong types of seeds at the wrong time, prefer goosing profits for the short term, the land can and will eventually become barren if not toxic. Bringing in the sheriff (Barak) and say that the "toxic" land could be saved by printing money, is just plain DUMB. It is much cheaper to declare the land toxic NOW, and start anew. WHY isn't the administration doing more to encourage NEW banks with NEW bankers to go into business instead of trying to FUND CORRUPT BANKERS to lend to a CORRUPT SYSTEM?

Sorry to bust your ideological bubble but the system is not going to fix itself when NOBODY gets paid to DECLARE ASSETS TOXIC and it's not with BOG (Bernanke Obama Geithner) DOWN economics that things are going to fix themselves. IF PEOPLE WHO AGREE TO TAKE ON TOXIC ASSETS CANNOT HAVE THEIR RISKS REWARDED AND PROFITS GUARANTEED, this fiasco will continue a la 1990 Japanese for quite some time WITH the added cherry of INFLATION on top.

INFLATION IS A BADLY DESIGNED TURBOCHARGER
Think of all this money printing action as a terribly designed turbo charger which lags a full 4 seconds after you press on the gas pedal. Design to kill, it finally kicks in a 60 degrees curve... Want to venture to guess what happens next? If the brakes are not strong enough to hold the surge in power (money supply) , you are going to go off in the blue yonder... NO FED CHAIRMAN HAS EVER CONTROLLED INFLATION THAT HE GENERATED BY QUANTITATIVE EASING ( money printing for people in search of exotic sounding words)... To be disingenuous, Barak could fire Bernanke right now to prove himself right and me wrong but the current comrade in chief and his predecessor have something in common: they show loyalty...


WHAT TO DO
With Oil heading precipitously below $50 and Gold hovering below $920, my bet stands: Convert your euros NOW, Buy PHYSICAL GOLD and keep shorting US treasuries. WITHIN a year you will be rewarded. While the Europeans will prove to be more inept at keeping their retirees from freezing next winter, Our bets and repeated vote of no confidence in the administration will make sure we spend the winter in Phoenix enjoying the balmy weather.

ON THE RADAR
Now the big issue is corporate bonds... we already alluded to major refinancing required in Germany this year and massive amounts in the US 2012-2013...
Convertible debenture market is going to be interesting but it won't be for amateurs.

With 12% real inflation in our crystal ball, HOW can you price a convertible to have a good bet going?
We will study this in coming weeks.

Good trading to you!

DCW