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

I bought Physical gold today

I keep reading all these articles about governments printing billions of fiat currencies in the hope of preventing a depression. $700BB, Tarp, $600BB China, ECD , France, Britain. The list includes all the usual lemmings. I believe that all this printing will create a horrible inflation spiral in 2009. It's simply because governments are reading terrible accounts of previous economic cycles.
Just as doctors killed many more patients a hundred years ago because of lack of good diagnostic equipment, today's economic advisers are giving the press and government officials, a terrible diagnosis of what is ailing global economies and subsequent terrible economic stimulus.

FIRST of all STOP calling it ALARMING, AILING, DIRE!

We are simply deleveraging investment banks and hedge fund madness. THAT's a good thing!
Printing money and giving it right back to these people. THAT's a bad thing!

DE LEVERAGING CONTINUES
Banks balance sheets have to clean up and because they can't leverage 30:1 , it's pretty normal that their ROE will fall by an order of magnitude. Citicorp loses $100BB YTD in market cap. That's normal. They grew by dumb acquisitions, bad management and bad oversight from a purely incompetent Board of directors. Let the chips fall... Citicorp fires 53,000 employees and the stock still goes down. Poor Pandit, he has one heck of a mess on his hands. Stock going to 5 and hopefully no lower...
Goldman Sachs, now a federally regulated bank cuts 10% STAFF and bonuses to guys who racked in over $500MM a year ago in bonus...

Printing Money is NOT a long term solution
Printing money will not convince baby boomers to either save, invest or spend. So why are governments hell bent on repeating the mistakes of Germany of the late 1920s?
If you read history, the Germans had to pay exorbitant war reparations bills after they lsot WWI and after 10 years of crippling payments they just got fed up doing it for real so they started printing money. By 1933, you needed a barrel full of Deutsche marks to buy a loaf of bread. You know what happened next.


I bought my first ten ounces of a planned 400 ounces buy as a goal today. The local dealer was out of 10oz bars so I had to pay more for 1 ounce coins. For $60, the stuff gets delivered to the house. Don't get any ideas. Stuff is going straight to my bank safety deposit box. ( That gives me an idea... if banks are not to be trusted, should a non deposit business be started to offer vault services?) My local gold Dealer, http://www.kitco.com , says that since gold fell $300 , his business had the best month EVER in 20 years! It seems smart people have been converting their USD into bullion? They are not leasing or buying into pooled funds. Leasing gold from institutions that will never deliver is not wise. Pooled funds can always have a run and default so your are at risk. The only safe way is to hold the metal in YOUR hands. SO THEY ARE TAKING PHYSICAL DELIVERY.
With all the mining companies hard pressed to get their 2009 financing in place, I can safely say the coast is clear to 2010.
The recent pullback in gold is a tremendous buying opportunity. Remember I told you this less than a month ago. Hedge funds redeem their foreign holdings BACK to USD. That explains the drop in the British Pound, the Euro and countless currencies. The USD is a currency of last resort. Not much longer folks!

Even though, I also predicted a bad 2009 for the Euro, my call is for selling that gold at a significant profit in late 2009-2010 which will allow for nice purchase of real estate in EUROPE in 2011.

Stay tuned

DCW









Green tech is dying yet again after a two year sucker's bet.