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As we enter the Dog Days of Summer I wanted to provide traders and investors with my overall strategic mindset for the summer months and what I believe is our 'new normal'. And the new normal is not good. In fact, it's pretty bad. Not to worry - if your sails are rigged to take full advantage of these conditions you're good to go. If not, prepare to abandon ship.

As we remember those that have paid the ultimate sacrifice for our freedoms this past weekend, I am reminded of a quote from one of the most decorated Marines in our nation's history - LGEN Chesty Puller. At the Chosin Reservoir a subordinate reportedly told then Colonel Puller that the Marines were 'hopelessly surrounded by Chinese troops'. The logical response: "Good. We can attack in any direction. That simplifies having to find and kill the sons of bitches." Ohh rah.

At this time we are simply surrounded by domestic and international events that we cannot simply ignore. Our Fed induced market run up, led by head bartender Ben Bernanke, has provided enough liquidity for market drunks to party like it's 2006. And in a rather perverse way, market participants are hoping for more bad news on unemployment, wages, manufacturing, and GDP so our bartender is forced to keep the liquidity bar open, this time for QEIII, or a third round Quantitative Easing. No last call in sight…but the sun is going to rise eventually and the party will end and if the U.S. market had to stand on its own we'd be looking at Dow 6,000 today.

But we're not at Dow 6,000 and you can't fight the tape. That's why we're trading several diagonals on volatility, commodities, and financials. The diagonal tactic allows us to hold 2 views simultaneously - for example long term bullish on volatility but short term bearish.

So let's take a look at our Strategic Mindset for the Top Gun Options Primary Model Portfolio:

Short Term Bearish.

Domestically we're seeing conflicting reports almost daily - housing starts are up, permits are down. Chicago PMI is weak, national ISM strong. Productivity in the manufacturing sector is increasing while wages remain stagnant and are not keeping up with inflation. And anyone with a semblance of a brain knows that unemployment went down to 8.1% not because more jobs were created but because more people left the workforce. The administration tried, albeit briefly, to tout these numbers as a success, until someone 'smart' actually pointed out that this was a bad thing. Add a couple more thousand to the public dole thanks to HP's (NYSE:HPQ) recent belt tightening and we're in for some significant domestic headwinds. Do yourself a favor and check out this site and find out what the 'real unemployment' number is - it's called U6 - and it's hovering around 14.5%. Horrible. Politicians use U3…why? Because it looks better and it doesn't truly show real unemployment in this nation. Shocker…

Add Facebook's (NASDAQ:FB) flop to the list of passengers in our domestic clown car and you can see why we're bearish. There are simply no good events on the horizon to pull us up…including an election that looks like it's going to be about attacking small businesses, Wall Street, and private equity (PE) firms. Since the administration can't run on its record of the past 4 years it'll be easier to attack Mitt Romney's, even though the Obama administration is filled with high ranking former PE executives and continues to accept campaign contributions from PE firms, including Bain, the firm Romney ran. Shocker…

Now let's turn our attention across the pond.

We have 2 areas to discuss - economics and war. Yes Virginia…war.

The sabers are rattling once again between Israel and Iran. Israel says it cannot survive with a nuclear armed Iran and Iran has told the world they can pack sand…they're going to do whatever they're going to do. Which of course should scare the hell out of any normal person. Israel simply cannot tolerate a nuclear armed Iran and has said so many times, giving the world ample warning. The U.S. Secretary of Defense and head of the Russian General Staff agreed publicly (two shocking events on their own) that Israel would strike Iran in the 'Spring or early Summer'.

I personally believe Netanyahu's trip to Washington a couple months ago delayed an attack until after U.S. elections. The president promised support to Israel in the form of 'bunker busting' bombs, the kind that can penetrate deep into the ground and pass through several layers of defenses before exploding. But that's not to say that we won't wake up one day soon to the sight of Israeli jets landing from their missions and smoke rising out of Iran. That's why we have several hedges in our portfolio to capitalize on these unfortunate events should they occur. Although I personally don't see ridding a country who has promised 'death to Israel and the U.S.' of the ability to do so with nuclear weapons. Call me crazy.

The slaughter over the weekend of innocent women and children in Syria needs to be addressed. Even the world's largest clown car, the United Nations, has condemned the killings and is calling on 'swift action' against the Assad regime. Whatever 'swift action' means. Former Secretary General Kofi Annan, not one known for strong talk, said he was 'personally shocked and horrified" by the killings. Our buddies the Russians seem to be slowly moving in the direction of saving lives and ending bloodshed - usually the right way to go in case you're reading this Mr. Putin. But for an administration that had no problems with regime change in Libya, conducting combat operations without Congressional approval, they seem eerily quiet on the obvious dire situation in Syria.

Egypt also poses unique challenges with the rise of the Muslim Brotherhood versus Mubarak's former Prime Minister during recent elections. 2 polar opposites that point to 2 very different futures for this fledgling country that many hope will become some sort of democracy.

Oh, and by the way, a strike by Israel on Iran is just the excuse that Syria and Egypt need to deflect domestic problems and unify their nations around destroying Israel. History may repeat itself, in a much more horrific way.

This uncertainty obviously has an impact on world markets -from swings in volatility to the impact on commodities, especially oil, this uncertainty may be fearful for the average retail trader/investor, but it doesn't have to be as long as you are trading the right positions and are always hedged - prepared for any of these events.

This lets us turn our attention to the EU and our déjà vu all over again. Greece now has a former Communist youth activist taking center stage who promises that the country can ditch austerity efforts, return to partying, and still borrow money from other EU nations. Insert frown of disgust from German Chancellor Angela Merkel here. The Coalition of the Radical Left (now there's a catchy party slogan) is competing against the conservatives in a bid to run the country, which will determine if Greek voters will buy this version of 'Hope' and 'Change' or if they know that this is too good to be true. Hint - it is.

The head of the IMF, Christine Lagarde, didn't help the austerity party in Greece this past weekend when she showed little concern for the countries austerity difficulties and pointed out the obvious - if the country actually collected taxes owed by its citizens, they might not be in this mess. If you're not aware, it's culturally acceptable to avoid paying taxes in Greece. It's the talk of cocktail parties. Wonder when that mentality is going to hit CA? Probably never sine Governor Brown is successfully chasing any business or person who pays taxes out of the Golden State with his new 'ideas' to raise revenue for our domestic Greece. Illinois is not too far behind in calling on the other 48 of these United States to bail them out. Sorry…we're closed.

Spain had to bailout one of its largest banks on Friday, Bankia SA, to the tune of nearly $24B. Sound familiar? And Spain's borrowing costs are going through the roof, the highest in 2012, along with skyrocketing costs of buying protection on potential default of this debt. Not good news at all.

Does all of this sound bad? Yup.

But it gets worse.

Standby for 'Taxmageddon', or the instant recession the United States will enter on January 1st if Congress doesn't act immediately.

Sold!

Congress will do nothing before November - it's an election year - and they'll have 5 weeks to work through and resolve some of the largest financial issues facing our nation. Full of lame duck representatives and others who have no clue what they're doing, we do not believe this will happen. This is the same government who couldn't pass a budget (still haven't…in case you're wondering Senator Reid, that's over 3 years now…well done) and whose actions, or lack thereof, resulted in our nation losing our AAA credit rating. I mean, who doesn't want their credit rating similar to that of a 3rd world dictatorship?

Bush tax cuts expiring, unemployment benefits, Obamacare costs kicking in and automatic domestic cuts that slash mostly defense spending are going to hit all on the same day. If you think our current flock of elected officials can solve these issues in 5 weeks you need to head back to your village…they miss you.

For all of these reasons, and more - I'm running out of space - we remain bearish and will continue to trade the model portfolio appropriately, looking to capitalize on these events while remaining hedged for the 'unknown unknowns' to borrow a Rumsfeldism. Trading options allows us to potentially capitalize on markets no matter which direction they move - up, down, or sideways. Are you ready for what's ahead?

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Welcome To The New Normal