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Mercenary Trader

 
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  • Gold And The Dollar Show Coinciding Strength (Though The USD Is Less Than Halfway Done)
    Thu, Jan. 22 FEZ, GDX, GDXJ 2 Comments

    Summary

    • The “big news” for this week – regarding the tentative size of the ECB’s quantitative easing program – was leaked a day early.
    • The EURUSD, already in a waterfall decline, half-heartedly flailed around a bit. European equities remain in a stairstep down-trend.
    • Could the upside move in gold continue? It’s not out of the question. The extraordinary thing would be strength in gold and strength in the USD at the same time.
  • Germany Is Delusional To The Point Of Insanity (And We're Getting More Shorts On)
    Wed, Jan. 21 FEZ, FXE, IEV 31 Comments

    Summary

    • Most of the eurozone is experiencing deflation. This is dangerous because deflationary conditions can tip into recession… and depression… and political extremism born of civil unrest.
    • Germany is paranoid of inflation on a pathological level. Germany is also pathologically allergic to debt.
    • Worse still, Germany is delusional about its own economy and dangers. Germany’s present economic strength could easily evaporate… for strong reasons that make logical sense.
  • Yes, The Dollar Is A 'Crowded Trade' - But Not In The Manner Most Think
    Thu, Jan. 15 UUP, UDN, UUPT 20 Comments

    Summary

    • The US dollar (aka USD, aka greenback) is a "crowded trade" - and everybody knows it.
    • Over and over we have heard the questions: Don't you think the dollar is crowded? And then you've got those crazy charts showing the dollar has gone vertical for months.
    • The answer is yes, the dollar really IS a crowded trade - but not in the way most people think...
  • Never Trust A Central Banker...
    Thu, Jan. 15 FXF, FXE 4 Comments

    Summary

    • The latest move in the euro/Swiss franc (EURCHF) is absolutely gigantic. For a major currency pair to move 25% in a single session is mind-blowing.
    • Many traders thought EURCHF was an absolute lock. That assumption in turn convinced these traders they could load the boat with EURCHF.
    • Risk is a no-fooling around game; it does not allow for mistakes. If you do not manage the risk, eventually they will carry you out.
  • Rosenberg's Fatally Flawed Rationale -- Dollar Strength Is Already Kicking Off A Profit-Killing Tightening Cycle
    Tue, Jan. 13 TIF, UUP, SPY 9 Comments

    Summary

    • David Rosenberg is telling people not to worry about the health of the bull market.
    • When the dollar gets too strong, too fast, all kinds of unpleasant things happen. Multinational corporate profit outlooks are damaged as nearly half of S&P 500 revenues come from overseas.
    • In the prior earnings season, it was too early for USD pain to start showing up. But not this time.
  • Dip Buyers Have Another Chance To Be Reckless And The Fed Gives A Not-So-Subtle Warning To Europe
    Thu, Jan. 8 SPY, DIA, QQQ 23 Comments

    Summary

    • The automatic dip buyers have bought, like Pavlov’s Dog, every single time the indices have threatened to fail these past two years.
    • The laws of gravity have not been repealed. At some point the cycle breaks… and the result may be vicious.
    • The Federal Reserve is worried by Europe… as well they should be. The minutes were unique in that the Fed expressed worries over Europe and Japan.
  • Buy And Hold Complacency Has Peaked, The Saudis Still Aren't Kidding And Europe Is A Disaster Zone
    Tue, Jan. 6 SPY, DIA, GREK 9 Comments

    Summary

    • The deep structure of markets is mean reverting and cyclical. Given the passage of time, the pendulum always swings.
    • For the next few years at least, odds suggest the lightning crashes and the thunder rolls.
    • In a fitting “end to the innocence,” the S&P just broke an 87 year record... 264 days without a four-day decline period was the longest since 1928.
  • German Delusion Could Lead To Acropolis Now Redux
    Tue, Jan. 6 FXE 5 Comments

    Summary

    • Europe is staring into a deflationary abyss. Unemployment is above 20 percent in many euro zone countries – with youth unemployment more than twice that.
    • The euro is at nine-year-lows against the dollar. European equities (as tracked by FEZ, the euro stoxx 50 ETF), are also in freefall.
    • The next key inflection point for the euro will likely revolve around Greek elections and “Draghi vs Germany:”.
  • Investors Always Get Killed At Cycle Tops, Small Caps Look Like A Trap, And It's Way Too Early To Buy Energy Stocks
    Dec. 31, 2014 DIA, IWM, SIR 64 Comments

    Summary

    • Investors always lose their shirts at the top of market cycles. This is a combination of greed, impatience, and FOMO, aka “fear of missing out.”.
    • Small caps saw a low volume breakout in the final week of trading. But the breakout may not wind up being meaningful.
    • To ignore risk is to deserve the results one gets. Investors on the whole never learn this lesson, and probably never will.
  • Saudi Arabia's Mental Paradigm Shift Confirms Triple-Digit Gold
    Dec. 23, 2014 GDX, GLD 21 Comments

    Summary

    • Saudi Arabia’s oil minister says that $100 oil may be gone forever. There can be no doubt… none, zero… that Saudi Arabia is trying to kill off high-cost marginal production.
    • Oil’s decline is brutal for commodities… and gold. The world fears deflation. Commodities are at 15-20 year lows. The dollar is strengthening.
    • If the paradigm shift is real then, at some point, the optimists have to throw in the towel.
  • It's Beginning To Look A Lot Like 1998
    Dec. 17, 2014 RSX, OIL, FCA 19 Comments

    Summary

    • If Russia defaults on its debt, foreign lenders could be exposed to $670 BILLION in losses.
    • We are in full-on “1998 mode” now. Various emerging market currencies are also hitting 16-year-lows versus the greenback.
    • Putin has no way out of this. But if Russia defaults, neither do global investors.
  • The Saudi Oil War Means Structural Sea Change; Risk-Off Turmoil Fuels Long Bond Strength
    Dec. 16, 2014 EDC, RIO, TBT 18 Comments

    Summary

    • Saudi Arabia is waging a crude holy war. We have seen this before - in the mid-1980s - and it is happening again.
    • For all the havoc US shale producers will face, others are being hit much, much harder by oil’s collapse.
    • Canada’s oil sands top the casualty list. After the US, Mexico and Brazil are next. Beyond that many non-OPEC producers, and even Norway, are facing a world of pain.
  • The 21st Century Will Belong To America - And Commodities And Emerging Markets Look Awful
    Dec. 9, 2014 EEM, FCA, UUP 53 Comments

    Summary

    • Underestimating the health, strength and resilience of the United States economy is perhaps the most persistent error in the history of global macro.
    • The world is orienting to a new era of American dominance. The implications of such are actually quite favorable.
    • Does American exceptionalism, then, extend to ongoing rampant bullishness for US equity markets? No, not at all.
  • Reflections On Page 16
    Dec. 8, 2014 FCG, OIS, XLE 3 Comments

    Summary

    • When the story shows up on a magazine cover, the biggest profits have generally been made.
    • We started shorting XLE and FCG in late August, based on a combination of price action and general scenario awareness.
    • Now “everybody” knows what is happening (or at least anyone who walks by a magazine stand)….
  • Fill 'Er Up (At Less Than 2 Bucks A Gallon)
    Dec. 4, 2014 AAPL, CLR, IAI 6 Comments

    Summary

    • According to GasBuddy, which tracks the numbers, the US national average for a gallon of gasoline is now $2.74. Meanwhile at a gas station in Oklahoma City it hit $1.99.
    • Brent crude — the global benchmark for oil prices — is currently just below $70. The unofficial Saudi target — is roughly fourteen percent lower.
    • Junk-rated energy producers have issued $90 billion worth of debt in the past three years.
  • The S&P Just Broke A Record Last Seen In 1928, Amid Further Signs December Looks Ominous
    Dec. 2, 2014 SPY, DIA 34 Comments

    Summary

    • After the October V-bottom, the S&P managed to close above its 5 day moving average for 29 straight trading days. That’s an all-time record breaker.
    • When you see a major volume surge — a major spike in buying or selling activity coupled with volatility expansion — the market is telling you something.
    • The Dow Transports are confirming the big “Uh-Oh” of high yield debt collapse.
  • Let Them Eat iPads: Why Wage Suppression Is Key To The Market Puzzle
    Editors' Pick • Nov. 18, 2014 AAPL, IWM, KBE 69 Comments

    Summary

    • Wages may be the key to everything. The Fed has kept rates near zero to bring a return of positive inflation and positive wage growth to the US economy.
    • But rising wages imply a normalization of interest rates. That, in turn, means the forced unwinding of all the gross excesses built up over the years.
    • Those differentials then make the dollar yet stronger, with brutal impact on multinational outlooks. Small caps, meanwhile, still enjoy historically rich valuations and will be hit with wage pressure too.
  • The Dollar Is A Lawnmower, The World Is Grass, And Emerging Markets And U.S. Multinationals Are Next
    Nov. 7, 2014 EEM, SPY, DIA 72 Comments

    Summary

    • The rise of the mighty US dollar is the biggest trend in the entire world...A massive trend that could last for years.
    • A rising dollar is the equivalent of a broad-blanket tightening of global credit conditions.
    • “Stage two” of the massive multi-year dollar bull run will be a slaughtering of US multinational profit outlooks.
  • Hawkish Fed No Friend To Bulls, Energy High-Yield Equals Crisis In Waiting, US Dollar All Systems Go
    Oct. 30, 2014 CAT, IWM, SPY 36 Comments

    Summary

    • "Don’t fight the Fed." This is a mantra for bulls when the Federal Reserve is supportive of easy monetary policy. But when the cycle turns, watch out.
    • The Federal Reserve deliberately targeted higher asset prices as a means of generating a “wealth effect.” They did this by encouraging corporate borrowing at near-zero rates.
    • But as David Lafferty of Natixis Asset Management points out to Bloomberg: “You can’t do a whole lot more cost-cutting and you can’t buy back a whole lot more stock….
  • IBM Is A Poster Child For The Value-Destroying Relationship Between Corporate America And The Federal Reserve
    Oct. 22, 2014 ABBV, FXI, RSX 28 Comments

    Summary

    • IBM has now seen ten consecutive quarters of falling sales. What has their response been? Financial engineering and more financial engineering.
    • With IBM stock at a multi-year low, tens of billions in buyback dollars have been wasted. That capital might as well have been shoveled into a furnace.
    • IBM is not a one-off. More likely a harbinger of dumb excess run amok, corporate America on the whole has gone down the financial engineering path.
  • Inflation Already Happened, U.S. Economy Strength No Reason To Buy, And QE4 Would Make Things Worse
    Oct. 20, 2014 7 Comments

    Summary

    • With deflation the returning boogeyman, it’s amusing to watch the inflation debate.
    • You have a group that essentially predicted, years ago, that disastrous inflation would come from the “money printing” of 2008 bailout efforts.
    • Our somewhat unorthodox view: Inflation already happened. It was just channeled into financial engineering and the rise of paper assets!
  • Bear Market For Energy Stocks Is Here To Stay, S&P's 200-DMA Cross Foreshadows More Selling
    Oct. 15, 2014 BABA, FCG, XLE 4 Comments

    Summary

    • Forget mere correction — crisis is already here for publicly traded energy companies. The energy sector has now declined more than 20%, putting it in a full-fledged bear market.
    • Saudi Arabia has committed to a dumping strategy of sorts, keeping markets flooded with supply in an attempt to hurt higher cost oil producers.
    • The S&P’s breach of the 200-DMA could have accelerated selling impact in the short-term because so many money managers use the 200-DMA as a “do not cross" line.
  • Profitless IPOs, German Slowdown, U.S. Strength Foreshadow 'Brutal' 12 Months For Equities
    Oct. 13, 2014 SPY, DIA, QQQ 10 Comments

    Summary

    • Premium stock valuations put the market in danger of an extended selloff.
    • The Federal Reserve kept interest rates near zero for years, creating all kinds of credit distortions in an effort to jump-start the US economy.
    • All of this activity, coupled with verbal support from global central banks and the psychological impact of QE, thus led to the incredibly extended valuations we now see.
  • Europe Woes, Small Cap Decline, Corporate Buyback Excess Fuels Deep Risk For Equities
    Oct. 8, 2014 IWM 10 Comments

    Summary

    • The euro has been facing a "plate glass" scenario - and the glass is now shattering. The euro is now likely to break below par ($1.00 US).
    • Tuesday's support break in small caps could be a very, very big deal.
    • Corporate buybacks have helped to fuel the rally, with S&P 500 companies spending 95% of profits on buybacks and payouts.
    • The buy and hold era is over. Stormclouds and thunder and lightning are rolling in.
  • The Alibaba Debut Bears Uncanny Similarity To A Year 2007 Top Event
    Sep. 23, 2014 BX, CCMP, IWM 2 Comments

    Summary

    • Stephen A. Schwarzman was dubbed the "king" of private equity by Fortune magazine.
    • Similarly, Jack Ma is now considered the "king" of e-commerce.
    • Both companies' IPOs could wind up coinciding with a clear top for equity markets.
  • Not Even Wrong: Why Data-Mined Market Predictions Are Worse Than Useless
    Sep. 12, 2014 JNK, UUP, SPY 30 Comments

    Summary

    • The standard deviation for the S&P the past ten days has been the lowest in 15 years. One writer believes this creates an 89% chance of bullish action.
    • This “89% chance” way of thinking makes no sense to us. In fact, we would consider it “not even wrong.”.
    • The potential trajectory of equity markets is directly impacted by the trajectory of debt and currency markets (which are the opposite of boring now).
  • The Euro's Pain Is Just Beginning, And Passive Indexers Are Asking For A Punch In The Face
    Sep. 11, 2014 FXE, EUO, ERO 6 Comments

    Summary

    • The euro (EURUSD) saw its biggest single-day drop in years this past Thursday. ECB president Mario Draghi surprised investors with the aggressive nature of his actions.
    • The story is nowhere near done. Europe is still asleep at the wheel… things will get much, much worse before they get better.
    • The eurozone is at risk of a deflationary downward spiral. Deflation is very hard to reverse.
  • Market Outlook: Too Much!
    Jul. 23, 2014 FDN, JNK, KBE 14 Comments

    Summary

    • We see too much divergence, too much complacency, too much downside risk in this market.
    • Small caps have broken trend while the Dow, S&P and Transports are near highs. The fed recently called out specific sectors as overvalued.
    • Stocks have gone up by 107% when earnings increased by only 53%. There is too much risk in this market.
  • Large-Cap Breakout Failure Is Ominous For Bulls
    May. 15, 2014 DIA, SPY, IYT 5 Comments

    Summary

    • The divergence between large caps and small caps has been ominous in recent weeks.
    • Today, large caps are breaking down - indicating a failed breakout.
    • As investment managers unload risk, the breakdown in blue chip stocks could continue.
  • How Do We Know The Bull Market Isn't Over?
    May. 12, 2014 DIA, IWM, SPY 16 Comments

    Summary

    • Mark Dow states: The bull market is not over, but it’s not a smart time to press your bets. The longer (for) this limbo, the more attractive the upside will become.
    • We say: How do we know it isn’t over? How does one quantify “over” versus “not over?"
    • What if the upside to be patient here is not in longs, but shorts?
  • Your Favorite Beloved Tech Stock Was Just A Giant Macro Bet
    May. 7, 2014 AMZN, CRM, KING 39 Comments

    Summary

    • The high-beta tech group has been slaughtered, even though the major indices have held up well.
    • Many investors are hoping for a comeback in these names.
    • Beyond a certain valuation level, the growth story itself no longer matters. Only capital flows matter — which are a function of the macro picture.
  • Death Of The Omnipotent Central Bank Narrative
    May. 6, 2014 GLD, IWM, OIL 49 Comments

    Summary

    • The "Omnipotent Central Bank Narrative" has dominated markets for the past five years. It has driven anything and everything before it.
    • The Omnipotent Central Bank Narrative is now drawing to a close. As equity markets cease to levitate, the mighty magicians lose their power.
    • The Fed's power is linked to crisis prevention measures. And now with the U.S. economy on the mend, the morphine drip has been put on last call.