Monday, July 21, 2014


     It is difficult for me to know what to make of the current situation.  The US stock market (like many others) is showing historically high valuations, based on the promise that the radically loose money policy of the Federal Reserve and most other central banks must continue.  The politicians and the media continue to beat the war drums as loudly as they can, perhaps as a distraction or perhaps because they really want a war -- it would help with the population problem and it would give an excuse for a crash.  But the markets are no longer behaving as "free", like everything else these days they exhibit strong central control characteristics.  Prices may not be "fixed" but they sure are biased.  One cannot use crowd psychology methodology for market prognostication anymore because the crowd no longer has control -- its been overruled time and time and time again in the last 6 years.

     The most curious thing about all of this is that the media (which has been unabashedly touting Rosie Scenario like a thunderstorm in a hurricane) is chanting, over and over again, the likelihood of a crash, the pullback of the supposed smart money, and in particular the asides of individual central banker figures such as Lagarde and Bullard, that the market is toppy, investors becoming overconfident, bankers taking excessive risks, and a pullback is warranted.

     I call this "curious" because this sort of behavior has never preceded a proper bubble collapse.  In 2008, in 2000, in 1987, everybody was exuberant about how the markets would never go down again.

     I cannot afford to lose here.  I have backed off of oil and gas for strictly seasonal reasons.  I'm out of gas entirely while in oil, I sold December 38's on Suncor for a very nice premium.  I put the loose cash into some large cap health issues and then sold January deep in the money calls against them.  I am happy to collect the 5% or so delay premiums and the 3% or so dividends for a six month holding period before they get called away, but in a crash I'm fairly well protected and will have plenty of cash to repurchase stuff.

     Then, I've retaken a significant position in silver.  That's always a wild card, because the silver market has always been controlled by unseen hands.  Nevertheless in a panic it could be very, very profitable.

     Finally, I've bought a significant amount of insurance in the form of VIX calls.  What I'm holding at the moment are August expiration ... but as ugly as things look right now, I'm tempted to predict that I replace them with further out instruments if they expire worthless (or also if I make a smart profit off of them)....

     In short, things look as if a major pullback, more than 20%, is really likely, it only requires for the powers that be to want it to happen.  On the other hand, a further rise from here looks to be almost impossible, there's just no fantasy that anyone can spin anymore fantastic enough to convince very many people that real growth is possible.

     Good trades to everybody -- chiz

1 comment:

latent sanity said...

The Tylers are agreeing with me .... well, they are bearish even more often than I am, but they make a very good case right now ....