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Mercenary Trader  

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  • Weird Events In Potential Topping Process Signal Market Cycle Twilight
    Wed, Apr. 8 SPY, DIA, QQQ 9 Comments

    Summary

    • We explore the general weirdness in today's markets.
    • Discuss the frenzy behind the recent run in Chinese equity markets.
    • And look at the absurdity behind valuations out of silicon valley.
  • King Dollar Still Reigns After Fed-Induced Volatility
    Sun, Mar. 22 GDX, USO, XLU 1 Comment

    Summary

    • Why the recent Fed meeting hardly changes the macro picture for the dollar.
    • The big reversal in DXY was due to "five-minute-macro" types who cut risk at the sign of any hiccup.
    • Why short reversals like these offer a nice inflection point for pyramiding to those riding the larger trend.
  • Bulls Lose Their Nerve As The Strong Jobs Report Throws 'Patience' Out The Window
    Tue, Mar. 10 GDX, TBT, XLU 5 Comments

    Summary

    • The markets reaction to the strong jobs report shows how sensitive it is to a possible rate hike.
    • Why the idea of perfect information is nonsense. Markets, like people, are imperfect.
    • We discuss why gold (GDX) stocks got slaughtered, utilities (XLU) have further to fall, and bonds (TBT) may have topped.
  • Germany's Outlook Is Terrible, Gold Could Be Playing Possum, And Multiple False Trends Look Good
    Sun, Mar. 1 EEM, XLU, XLE 21 Comments

    Summary

    • Interest rates near zero or negative around the world would seem to imply a very dark economic outlook, yet markets are in full risk-on mode.
    • The macro picture is bleak but multiple false trends appear to look strong and offer opportunity to the long side.
    • Gold has not gotten the job done, but the recent stall out could just be a pause before a larger move to the upside.
  • Energy Stocks Look 'False Trend' Attractive As Bulls Ignore Janet Yellen
    Thu, Feb. 26 7 Comments

    Summary

    • Janet Yellen hints that a June rate hike is still on the table.
    • The bulls are ignoring warning signs, as markets give a sense of a Soros-style false trend.
    • Emerging markets and energy stocks show some potential for a short-term trade to the long side.
  • Unstoppable Force Of Eurozone Policy Contends With An Immovable Truth: The Euro Cannot Work
    Sat, Feb. 21 VGK, FEZ, IEV 25 Comments

    Summary

    • Eurozone policy makers will do whatever it takes to try and keep the euro together.
    • The euro as a currency is structurally flawed, in the long run it simply will not work.
    • The euro will continue to face escalating levels of crisis, as discontent with the currency regime grows.
  • China's Debt Bomb Remains A Stealth Candidate For Top Gray Swan Of 2015
    Mon, Feb. 16 DIA, SPY, QQQ 57 Comments

    Summary

    • The debt doomers have it backwards, it is China that is likely to collapse under a mountain of debt, not the United States.
    • We explain why both sides of the balance sheet matter when examining national debt.
    • Why the red dragon may turn out to be the gray swan of 2015.
  • Markets Oddly Calm On Greece: Russia, China, Even USA And Saudis Still In Play
    Thu, Feb. 12 GLD, GREK, IEV 14 Comments

    Summary

    • The European markets are eerily calm as the Greece / Germany showdown looms. Markets are notoriously bad at forecasting crisis points, binary events are extremely hard to price.
    • Greece is playing an aggressive hand. Their statement of willingness to receive funding from any source (ie, China, Russia) opens the door to international actors gaming for influence.
    • The potential impact of differing outcomes on global markets is largely unknown. There are simply too many variables in play to be sure what will happen.
  • In Europe's 3-Way Poker Hand, Greek Weakness Is Actually Strength
    Mon, Feb. 9 27 Comments

    Summary

    • Greece, Germany, and the European Central Bank have all locked horns, and the future of the eurozone is at stake.
    • On the surface Greece may appear to be the weakest player, but this is not entirely true.
    • If Germany fails to budge and Greece is forced to go (Grexit), there could be large negative contagion effects for the eurozone as a whole.
    • The hypocrisy of Germany's stance is incredible. One does not need to look too far back in history to see when the tables were turned.
  • Wary Of Gold Bugs, Bullish On Gold
    Fri, Feb. 6 GDX, GLD 40 Comments

    Summary

    • Explain our reasoning for pulling a 180 on gold, from bearish to bullish.
    • Discuss how emotional and ideological driven investing is hazardous to your health-- and your P&L.
    • A long gold position is a bet on central bankers falling from grace.
  • Australia Joins The Currency Wars, As U.S. Equity Bulls Intercept Bears On The One-Yard Line
    Thu, Feb. 5 F, TAN, DIA 1 Comment

    Summary

    • The AUDUSD plummeted overnight on a central bank rate cut.
    • The bulls can’t be counted out until you hit them over the head with a sledgehammer.
    • Big breakout in Ford Motor Company is another potential bellwether.
    • May also flip bullish on TAN, something we don’t do that often.
  • The Dollar Is Starting To Hurt Multinationals, And The Market's Response To The Fed Was Ominous
    Fri, Jan. 30 IAI, UUP, GDX 19 Comments

    Summary

    • We have said repeatedly these past few months that outlier strength in the mighty US dollar could be a bull market killer.
    • In the corporate earnings season prior to this one, the dollar was a non-topic.
    • Now everyone from Microsoft to Dupont to Procter & Gamble to Tiffany’s has cited the strong USD in their weakened profit outlooks.
  • 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.