Thoughts on things

In an effort to have a longterm plan in the background of day to day scalping, I am going to layout my thoughts on everything market related.

Banks: The model of the supermarket bank has been smashed. I feel Glass Steigal should be brought back, but this is about what I think will happen, not what should. Ben and Timmy will not let any of the big banks fail, but what will they look like going forward. Rest assured, the banks will have further losses, some staggering. Todays values are ludicrous. The banks have diluted shareholders a great deal, and going forward they will have reduced earning capacity. They can borrow cheaply but they will never see the level of profits they had, because securitization will not get back to pre meltdown levels. Also consumer credit will not in several generations reach the levels of pre crisis. Best case scenario, banks are a short to probably half of there current levels. This may take a few years to play out, but they will be down from here. Worst case scenario, which is still possible, RMBS and CMBS take some of the big guys to the brink of failure and the FDIC, already low on funds, is unable to help causing the treasury to step in yet again. Who knows where we could go from there.

China: I think China will slowly sell its vast store of treasuries and use the dollars to purchase more and more resources. I don't think they want to disrupt the market too much, but they have made it clear they do not like current U.S. policies. Somewhere down the road, China will inevitably overtake the U.S. in terms of economic output.

Commodities: Commodities are enjoying nice rallies now as people feel the reflation trade is for real. Not so fast I say. Although it is my belief that the long term bias of commodities is much higher, I think in the short term we could see very depressed levels. Over the next 3-5 years as the fallout from the financial crisis play out the U.S. should continue to see price deflation. Unless, the banks begin lending all the money we have given them, which they cannot, because the money only serves to plug holes in there balance sheets, deleveraging will continue. At some point however, this trend will reverse, and world demand, and loose U.S. monetary policy will lead to a massive run up in commodity prices denominated in dollars.

Oil: Oil is close if not already past Hubberts peak. Oil production will, for all intents and purposes , decline from here on out. I do not feel politicians and others are taking this seriously enough. There will be wars fought over oil in the next couple of decades. Therefore the price trend will be up. I think we will make one more leg down into the 20s though before we continue up indefinately.

Treasuries: At some point treasury rates will have to increase dramatically. As the deficit spending grows out of control people will demand a much higher rate of return. What will rates look like when the U.S. is downgraded?

California: Boy are these guys in trouble. The only answer I see is much higher taxes. Who will want to stay in that environment. I don't know what the ramifications of there reckless spending will be, but it won't end pretty. I'm sure uncle sam will step into the breach and keep everything afloat, but there will be spending cuts and tax increases.

Europe: As of late I feel people have forgotten that they have it worse than we do. I look for the trend of the euro out performing the dollar to reverse course in the next 6-12 months. The worst case scenario for Europe is pretty bleak. I can still see possibility of the union splitting. In the best case growth will be weak for the forseeable future.

U.S: And that leads me to the outlook for our country. Although I feel the all out armageddon I felt was possible 6 months ago is not very likely, I am scarred for our country. I do not think that our prospects going forward are very good for at least a generation. In aggregate our economy will not experience much growth. Equity prices will see downward pressure for the next several years. The march lows will not hold. This comes with a caveat however. If monetary policy becomes so loose as to really ramp up inflation, nominal values could rise substantially, although they would not keep pace with inflation. On the bright side, I think there will be tremendous opportunity to buy assets at good prices. Entitlement spending will have to be dealt with at some point. The loss of SS and Medicare benefits will hurt many poor Americans. I don't feel this can be avoided. America is not dead, but we have done some messed up things over the last 3 decades that we will pay for. But, we will pull through. Its going to be tough for a while as we learn to live within our means. We need to return to producing things in this country and not relying solely on service. Its gonna be tough, but we will get there.

Trading Funk

I feel that I have been in a little funk lately with my trading. Over the weekend I thought long and hard about what I have done right and wrong this month and how it has impacted my results. At the start of the month, I felt I was trading well, managing risk and hitting doubles and singles. With a good start under my belt, I started speculating in cheap options in great size trying to hit a couple of grandslams.

While I was correct in thinking these crap stocks would rally, I was early. I would have been better served buying equity, as the options expired worthless a week before the moves I was looking for took place.

So it is back to the basics. I will stop all speculative trades in options, and be patient with my equity trading, until my results are more in line with what I expect. I also will cease looking to hold things for more than overnight.

I don't need to be Babe Ruth or one of todays modern steroid using homerun hitters. A guy named Ted Williams did pretty well just hitting the ball.

Finally a selloff

Finally we got the selloff we have been waiting for. Unfortunately you needed to be set up for it on Friday which I was not. I booked a modest gain yesterday, but it was nothing special. I am not really sure about today, as I expected a gap up this morning, following yesterday closing at lows.

Because of this, I will look to rally after the open in what will be a set up for more selling pressure today. Hopefully I can position myself to fade this rally.

What a week

Wow, I really fucked last week up. I tanked my whole month in a few poorly placed options trades. Going forward, I here by pledge that no matter what, when I have my position paid for I will at least cover half of my position. No ifs ands or buts. That is all I will say about last week and Friday in particular. I was pretty mad at myself all weekend, but its in the past and on to the next day.

The market is opening down which is good for my SRS calls spread. Depending on the action today, I look to get into some short positions in names such as ZLC, PIR and other such turds that are up 500% plus.

On the open I will be watching the banks with special attention to STT, STI, and BBT for short opportunities.

Good luck

Its been a while since my last post, and this one will be cut short. I have had some time constraints this week, so I will get back to it on Monday.

Yesterday, I had a very uncharacteristice blowup. I traded extremely well in the morning trade, only to give a lot of my gains back at the end of the day. The move in reits really took it out of me as I was run over repeatedly only to miss the sell off. I was extremely frustrated and did some dumb things with sizing. This will be a focus today and over the weekend. Good luck.

Plan for the day

I look for today to be a busy day, and after Goldmans shennanigans, I expect the market to finally sell off. I have prepared a list of names that I will be working my way into today after the opening sequence. My ideal set up would be for us to go positive right after the bell, but we will see.

DRI- A lot of you chart munchers will look at this stock and say, "It has broken out to new 52 week highs, blah blah blah" That is precisely right. However, they also sell bad food to people who have found themselves recently unemployed. For this stock to be at 52 week highs is absurd.

MGM- this stock has more than tripled this month. Stocks that have made this kind of move can be tricky and even if it is worth $3 it could go to $10 first. Vacancy rates are still poor, and CITY CENTER is not complete. Worst case scenario, Vegas, other than the strip, will completely go away....This will be a day trade, and if it works I may look to keep part of the position and let it ride.

COF- I think this stock is entirely fucked and will burn in hell when the massive wave of credit card defaults starts. I will try to be careful with my entry on this one, as BAC and C are already up sharply this morning as people are still buying crap in full force.

DRL- If I can get a locate on this, I will start building a short position today. Nuff said.
RTH- I am not buying into the consumer pulling us out of this crap, and I like short into retail sales.
Good luck today ladys and gents.

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