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Mercenary Trader

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  • Gold Looks Terrible Part III: The Mass Capitulation Thesis [View article]
    Are you kidding?

    I have read more than three dozen books on gold, the gold standard, Austrian economics, the history of money and credit, and the folly of today's monetary system. I have even given hour-plus conference speeches on the potential future shape of monetary systems and gold's potential role in such.

    In other words, we know exactly what you think "gold is the ultimate asset" might mean, from the perspective of someone who "believes" in gold, but the problem is it's a hand waving statement full of useless generalizations and emotional appeals.

    The "ultimate asset" could mean any of the following:

    * really handy in the event of fiscal armageddon

    * always reliable, re, trading an ounce of it for a good men's suit

    * useful as a monetary proxy because it is fungible, divisible, acidity neutral, and the general above ground supply barely changes relative to new production each year

    * useful as a paperweight

    What "ultimate asset" can NOT mean is 1) an asset that can not go down in price for months, years or even decades at a time, because we have historically seen gold do so!

    As for "banksters painting beautiful chart patterns" this is just uneducated nonsense. Waving your hand in the general direction of conspiracy theory is a barely concealed excuse for not having actual depth of knowledge as to how the market really works and the many forces that drive it.

    Not only that, but ham-fisted conspiracy theories are self defeating in their simultaneous assumption of 1) total control and 2) imminent collapse. If the "banksters" (your cartoon villain) are so overwhelmingly in control of everything, then why are they expected to lose control and allow gold to rise dramatically in price?

    The truth is more nuanced than you think, and true believer attitudes with conspiracy theory justification more often than not cost money.
    Jul 8 08:42 PM | 17 Likes Like |Link to Comment
  • Did China Just Ring a Bell? [View article]
    Yes, that more or less reflects our thought process as well. It's not the "miracle" part of the story that is hard to swallow, but rather the notion that a country can come to great power status without enduring and resolving a series of meaningful crises, some existential, along the way (just as America did in the 19th and 20th centuries). China may well survive the gauntlet, but it would be completely out of synch with historical patterns to suggest they can bypass it completely.
    Jan 10 08:03 AM | 13 Likes Like |Link to Comment
  • Trading the Muni-Meltdown [View article]
    There's a significant difference between investing in a portfolio of municipal bonds and investing in the financial insurers...

    The insurance companies receive a small premium to insure hundreds of millions in municipal debt. The premiums differ by the assumed risk of each individual issuance.

    The insurers have incredible leverage - the result of actuarial studies that plot the assumed risk based on fundamental data such as cash-flow coverage and historical measures of economic variance.

    With this much leverage in place, the entire municipal market doesn't have to melt down to cause these insurers to implode. The defaults just have to exceed the outer bounds of expected risk as calculated by the company-employed actuarial.

    From a trading perspective, even the actual DEFAULTS don't have to take place. The market could simply EXPECT that these defaults are likely to occur and at this point the stocks of MBI and AGO could drop significantly in short order.

    I'm not a fan of "alarmist," or "world is going to end" hype. But as traders, we do need to pay close attention to the risks at hand - and determine how best to protect our capital and profit from the opportunities the market gives us.

    Thanks for the comment - I hope everything turns out as well as you expect.

    Dec 23 10:58 PM | 11 Likes Like |Link to Comment
  • Gold Looks Terrible Part III: The Mass Capitulation Thesis [View article]
    Amusing... you have zero substance with which to actually rebut the analysis, so you "assume" we are short with no rhyme or reason behind your assumption at all.

    You further assume we are enemies of gold, even though we have been strongly bullish on gold in the past and even cited a direct example of such (the article cited in the post, "Jobs Report is an Inflection Point Game Changer for Gold," which is barely a month old.

    So you bought and held since 1969, and bought the euro in 2001 with the same mentality? Congratulations. Your actions and mindset -- as demonstrated by your own words, rather than assumptions pulled out of thin air -- have all the hallmarks of a religious cult (the anti-dollar cult).
    Jul 8 05:29 PM | 10 Likes Like |Link to Comment
  • Did China Just Ring a Bell? [View article]
    The Burj Khalifa recreation is the icing on the cake, not the cake itself (or maybe even the cherry on top).

    The broader point is that the quality of China's management is being seriously overrated -- and the serious nature of its problems grossly underrated -- because doing both is convenient to the bullish case.
    Jan 10 08:07 AM | 10 Likes Like |Link to Comment
  • Quick Service Restaurants Poised for Even Quicker Decline [View article]
    Two things:

    1) The fact that CMG HAS beaten expectations for 8 straight quarters can become a liability. Investors are conditioned to expect performance above "expectations" (which are really just conservative hurdles designed to be cleared easily).

    The first time that CMG simply MEETS expectations, it will actually be a significant disappointment and likely turn out to be a catalyst for a weak stock. Since CMG shares are priced to perfection, it only takes a small stumble to make a big impact on the stock price.

    2) I disagree with you on the fact that "CMG raises their own beef" The company has contracts in place with different farmers and suppliers, but that's different than "raising their own beef"

    Furthermore, even if they DID raise their own beef, the input costs for raising beef, poultry, pork etc are increasing. So it costs more to procure the wheat, corn, or other feedstock.

    The issue remains - rising commodity prices lead to constrained margins (and disappointed shareholders)
    Dec 31 10:56 AM | 10 Likes Like |Link to Comment
  • Feeling Sanguine About Stocks? Bullish Complacency Has Reached an Extreme [View article]
    The chart is clear and unambiguous on the most important point -- the bull-bear spread is at its highest level, i.e. most extreme point, in more than four years. Couple that with the decline in cash levels and there is no need to squint.

    As for mid-range interpretations... as mentioned, sentiment indicators are mostly noise in the middle range. They are only really worth paying attention to at the margins. Which is exactly where we are now.

    And of course, there is no such thing as a perfect indicator or a fool proof signal. Trading (and investing) is an odds game. But with that said, the flashing WARNING light at this juncture seems fairly hard to miss.
    Nov 3 08:12 AM | 10 Likes Like |Link to Comment
  • Don't Underestimate The U.S. Dollar [View article]
    The "lost 95% of its value" meme is actually a myth based on dubious economics. The dollar has only lost its purchasing power in respect to nominal currency, e.g. if you buried a garbage bag full of dollars in your yard. Dollars kept in three-month treasury bills for the past fifty years would actually have seen a rise in purchasing power, as accounted for by the compounding interest on the t-bills.

    Since only a crazy person would store dollars for half a century without seeking at least minimal interest on them, and since anyone with access to a bank account would have access to liquid government securities, the purchasing power statement is a false comparison. It is like judging the performance of dividend stocks over decades without accounting for dividends.

    What's more, the reason why currency supply needs to increase in nominal terms is obvious when you think about it for 10 seconds. As an economy grows an expands, so too does the nominal amount of currency in circulation in order to maintain a stable flow of transactions. If this did not happen -- if an economy grew while the amount of currency stayed static -- deflation and painful price distortions holding back growth would be the result.

    So basically, the "95% of its value" handwaving is deeply misleading and false.
    Nov 29 08:39 AM | 9 Likes Like |Link to Comment
  • Gold Looks Terrible Part III: The Mass Capitulation Thesis [View article]
    What is a brasher exactly? We were bullish on gold as recently as a month ago, and were ready to buy in size on follow-through. The follow-through never came. That is a bad sign.

    We make trading decisions based on coolheaded analysis and rational empirical inputs -- not emotional appeals to hand-waving statements such as "gold is the ultimate asset" (what does that even mean?).

    If the macro backdrop again becomes constructive for gold and gold stocks, we will find a tactically advantageous place to get long. Meanwhile, we will stay away. Is that the profile of a "gold brasher?"

    Perhaps the trouble here is similar to why religion and science don't mix well at cocktail parties...
    Jul 8 05:33 PM | 9 Likes Like |Link to Comment
  • Did China Just Ring a Bell? [View article]
    And if you assumed it was supposed to you missed the entire point -- which is fine. Takes all kinds to make a market...
    Jan 10 09:43 AM | 9 Likes Like |Link to Comment
  • Gold Looks Terrible Part III: The Mass Capitulation Thesis [View article]
    "Pure, malicious propaganda?" Are you serious?

    Laughing out loud here... once again, we were potentially bullish on gold as recently as a month ago, as the article links prove... and we aren't even short...

    You guys are really amazing. You are so emotionally committed to your view, any presentation of an opposing viewpoint -- no matter how reasonably presented -- has to be discredited as propaganda, lies, the work of someone who is "short," blah blah blah.

    Even as you decry "propaganda," you go straight to ad hominem and baseless accusations from the first sentence... and that for a piece that isn't even anti-gold! Notice we said the pattern could still fit a dramatic rise later on... if the 1970s analogue holds...

    Because of course there is no chance, zero chance, that an alternative point of view, reasoned out from the observation of basic facts and a plausible alternative view of how the key macro scenarios are ever unfolding, could possibly ever have merit...

    The lack of intelligence and rational thought displayed here is frightening. Or pleasing, depending on how one looks at it, given that trading and active investing (generating alpha above and beyond the average benchmark result) are zero sum games.
    Jul 8 08:50 PM | 8 Likes Like |Link to Comment
  • Gold Looks Terrible Part III: The Mass Capitulation Thesis [View article]
    And yet one could have made the exact same argument for a collapse of the Japanese Government Bond market (JGB market) circa 1995, and one would STILL be waiting for said collapse to happen.

    "Eventually" is not much of a peg to hang one's hat on when the potential time frame could yet stretch five years, ten years, or more... we are not gold perma-bears, not perma- anything, but the faith-to-evidence ratio in this comment thread is indicative of something.
    Jul 8 05:42 PM | 8 Likes Like |Link to Comment
  • Gold Looks Terrible Part III: The Mass Capitulation Thesis [View article]
    Why will QE3 necessarily be "rocket fuel" for gold? If QE3 will be "rocket fuel"... and if the likelihood of QE3 is almost certain... then such should already be priced in, and manifesting itself as a resumed uptrend for gold.

    And yet this is not happening... which was a significant point of the article... something is wrong with the QE3 thesis.

    You say "gold is going up due to its fundamentals" and then say "ignore technical analysis" in the same sentence. But doesn't technical analysis speak to the fact that gold is not "going up" as it should be... that something is not firing right?

    The problem with a lot of true believer analysis, as well as straight-up fundamental analysis in the absence of price action, is that various assertions cannot be falsified.

    If there is no way to prove theory X to be untrue -- to falsify the conclusion or determine its validity / invalidity through empirical means -- then theory X is a dangerous thing to invest on, because you have no means of ever knowing if you are wrong. (Which is convenient for permabulls I suppose... but not conducive to long-run financial health or intelligent risk management...)
    Jul 8 05:37 PM | 8 Likes Like |Link to Comment
  • Pension Funds and the Zero Bubble [View article]
    -- The article was an exercise in food for thought. People are entitled to like it / appreciate the insights if they want.

    -- I don't recall any assumption that "all pension funds are Calpers and such public funds." There was not a distinction between state pension funds and corporate funds because such a rabbit trail would dilute the core point -- state pension funds are gigantic enough as it is -- and it appeared obvious to yours truly that other forms of pension fund (i.e. corporate) are not in better shape.

    -- As for corporate pension fund managers, do you really believe they are better off, or are in less trouble? Large corporations have every incentive to play the same games, in respect to underfunding pensions (in respect to liabilities), which can be done via artificially high assumed rates of return, so as to show higher corporate profits via lower contribution costs. And large corporations with heavy retiree obligations are in a similar "under the gun" stance in respect to potential shortfalls on contractual obligations.

    -- Furthermore, with about 10 seconds of googling, here is something from Fortune on the state of CORPORATE pension funds:

    [A Fitch ratings analyst] worries that the response in corporate America will be not to adopt more conservative expectations and pony up cash now, but to join the reach for yield that is characterizing the debt markets now. This could lead to bigger problems later at risk-taking pension funds, should the oft-discussed bond market blowup come to pass.

    "Companies will be challenged to achieve the assumed return targets incorporated into their accounting statements given 2010 year-to-date equity returns and current fixed income yields," the Fitch analyst writes. "This situation could encourage yield chasing and a shift in asset allocation to higher risk asset classes, including leveraged loans, real estate, private equity funds, and equities."

    -- The problem, in other words, is widespread. You are hitting on a distinction that is effectively immaterial.

    -- As for the PBGC... are you kidding me? Need we really go over the potentially disastrous (and again underfunded) state of THAT entity, which is not privy to U.S. tax dollars? Via wikipedia:

    The PBGC is not funded by general tax revenues. Its funds come from four sources:

    * Insurance premiums paid by sponsors of defined benefit pension plans;

    * Assets held by the pension plans it takes over;

    * Recoveries of unfunded pension liabilities from plan sponsors' bankruptcy estates;[4] and

    * Investment income.

    -- All in all, your rebuttal is rather bizarre, in being so weak it almost appears an act of self sabotage.
    Apr 30 05:47 PM | 8 Likes Like |Link to Comment
  • Global Macro Notes: Massive Topping Process at Work [View article]
    Re QE3, four, five etc, there is growing evidence that the Fed is both politically constrained and credibility weakened -- note the regime change in Washington and the response of the bond market.

    Re, Fed creating inflation, there is open question as to whether the Fed can effectively create positive inflation without destroying itself (provoking a political loss of independence). The Fed can clearly create the wrong kind of inflation -- i.e. gold, raw materials costs, etc. -- but the helpfulness of this is in doubt. And if $600B was in doubt, what's next? $2T? $4T?

    Further, re, signs of deflation, modest signs of U.S. recovery (note GDP) may count as further constraint (along with growing internal dissension).

    Re, emerging markets, it is not a given that QE sequels help the E.M. investing case. Active dollar debasement policies which fuel hot money flows can be considered inflationary for E.M. markets receiving those flows, which in turn requires a 'slamming on the brakes' on the part of E.M. countries.

    For example:

    Last but not least -- if "Helicopter Ben" remains the core reason for investors to be bullish (as opposed to faith in a combination of valuations and fundamentals), what exactly does that say?
    Nov 24 07:52 AM | 8 Likes Like |Link to Comment