Wednesday, December 8, 2010

12/8 Daily Commentary

I bought 2% SDS at 25.05 and just shorted DJ futures at 11,379.  I count 5 down on SP futures and double-zigzap on DJ futures.  The reaction wave 2 retraced 62% of this decline for SP and DJ.
I bought 2% ZSL short silver ETF at 11.70. This is less exposure than silver futures. When gold opens I'll short gold futures because I can get in with less volatility.
So I'm long 2% EUO, 4% SDS, and 2% ZSL.  I'm short DJ futures and soon will be short gold futures.
Basically today chewed up the clock after a 5 down in the stock market.  Prices came right down to the 5-minute, 370-unit M/A and I sold 2% of a 4% position.  The strategy remains to trade a large ascending triangle in the making in DJI and XMI which is Minor wave 4. 
The bond market is falling which indicates that the buyers are demanding more yield for their money.  The tax deal continuing existing tax cuts and shelling out another 73 weeks unemployment benefits occurred in the same week as the budget deficit commission report was laid to rest.  To ratchet up spending, ratchet down taxes, and speak budget deficit reduction in the same breath is Washington at it's best.
The more bonds decline the more locked in the Fed is with it's portfolio.  Sure they are collecting interest at small rates and they will hold over 2T of Treasuries come June but if we get a bond market demanding 8% long rates their capital will be shot to hell if they sell them.  They will be forced to hold them to maturity.


  1. I assume the Fed doesn't do Mark-to-Market accounting anymore either; banksters must love Mark-to-Fantasy.

  2. 8%? That would bankrupt the nation. Ain't happenin'. Even with negative real rates, the prospect of recognized insolvency looms large.

  3. The long-term interest rate cycle is up globally. 8% in today's eyes seems high but if this cycle plays out it will become the new normal.
    The market is selling more than the Fed is buying as evidenced in falling prices. When QE2 ends one of 2 things needs to happen to keep rates down for the U.S.
    1) QE3 begins. The House Monetary Affairs subcommittee will not allow that to happen even if it begins.
    2) Congress balances the budget or comes close. Even the approach balancing in 2035 was unsavory to Congress so don't count on this happening until GOP takes both houses and the white one with it.
    I was going to say a great depression as #3 but we are already in that only it is being dragged out by QE and stim spending.

  4. Regarding #2, I don't believe the Republicans taking both parties and the White House will result in a balanced budget. Didn't the deficit INCREASE by the largest amount ever (up to that point in time) the last time the GOP controlled both Congress and the White House?

    The GOP is no longer a conservative party IMO. Conservative means conserve. Last time they were in power, did they conserve anywhere? Did they conserve the national treasury (federal budget)? How about the nation's military, were they conservative there? How about the nation's natural resources, were they conservative with those? There is no conservative party left in Washington.

  5. pima, I agree that GOP has been soft on fiscal crime. In order to reach consensus and pass bills they compromised their beliefs. The emergence of the Tea Party is libertarianism in drag. America is not ready for a third party so Tea Party is all we can get. They will be voting their beliefs, but no progress can be made until the liberals are swept aside. I agree it will be too late to prevent the Greecing of America.