Bernanke and markets

Today Ben Bernanke spoke before the house financial services committee, and boy did he upset the markets. While the S & P only closed down half a percent, it did so on the highest volume in over a month, and corresponded with gold losing over 5 %, and the dollar skyrocketing higher. (That strange day in the market on Monday, looks to have just been a one day ordeal.)

So what did he say that got the markets so riled up? Well it was more what he didn't say. Namely that he didn't make any, even subtle, mention of QE3. In reality his silence on the matter should not have been so much of a shock, with oil around $110, the economy having just been told it grew at a 3 % clip in Q4, and Republican candidates calling for Bernanke's head (one of whom happened to be questioning him). And yet, it was a shock to the markets and they reacted strongly and negatively. I think this speaks volumes of what's been driving this market higher: loose monetary policies and the perception of their indefinite continuation.

What the markets woke up to today was the potential of a hiatus in money printing (at least in the short term), because as much as Bernanke would like to print, and the government needs him to print, he's in a bind, and cannot do so with asset prices this high.

Well see what happens over the coming weeks, but I wouldn't be at all surprised to see this realization sink in a bit further and lower asset prices along the way.

Strange day in the markets

Something is amiss in the markets. Both safety and risk are catching a bid today, and the markets seem rather confused (and well, if they're not than I certainly am). Generally the USD and Treasuries are inversely correlated to equities, but not today. Today they are all up in tandem. I'm not sure what the significance of this is, and whether its a harbinger of a shift in market relationships. But watch to see how those three close (USD, Treasuries, Equities), and if this relationship holds going forward, I might just need to reevaluate my entire view of the markets.

ECRI Recession Call

Today the ECRI has reafirmed their call for a recession in Q2 of 2012. Their track record is impeccable, and when they speak I listen.
"when you look at the definitive hard data that is used to officially date business cycle recessions, it has been getting worse not better despite what the consensus view of an improving economy has been."
http://video.cnbc.com/gallery/?video=3000075118

Holdings

Below is a list, and weighting, of what I'm holding and shorting. I wouldn't reccomend following me into any one of these positions, without first doing your own research, unless of course your feeling lucky. I'm slow to change the composition of my portfolio but will make some quick trades if I see an oppurtunity.
Long - 70 %
PHYS - 19 %
UUP - 18 %
LINE - 18 %
VEMTF- 9 %
AT - 5 %
NNVC - <1 %
$VIX - 1 short dated out of the money call option
Short - 21 %
SPY - 16 %
XLF - 5 %
Cash - 9 %

Things giving me pause

I am seeing a giant caution flag being waved high above the market, its giving me pause regarding my long positions, reassuring me of my shorts, and just downright worrying me about where we're headed.
But then again, the Dow just reached 13,000, so what could go wrong? Well here are just a couple things that are on my mind:
1. From a technical perspective the market is smack against resistance.
2. The ECB plans to end the LTRO program. This program gave European banks much needed access to capital, and added liquidity to the markets. Now it seems the ECB is intent on closing this spigot.
3. The ECB just announced their Greek bonds' have "super seniority" (thats the technical term). This seems an all too clear sign the ECB is preparing for a greek default, the bond market seems to be pricing this in, but the stock market is NOT.
4. Margin compression in US companies. Margins are at all time highs, and you can only cut so much fat before you start cutting into muscle and bone. It looks like margins will begin to compress.
5. The Obama administration wants to raise taxes, and the republicans want to implement austerity. Both of which will depress US consumer spending.
6. ~50 % of the growth in GDP during the current "recovery" has come from exports. Now Europe is in full fledged crisis and China is slowing, US exports will not be sustainable (especially with a stronger US dollar).
7. Tensions between Iran and Israel are escalating, and oil is already above $100 a barrel. Even if there is no immediate war, if oil stays at this level it will be a serious drag on the global economy.

Ritual reading

The first thing I do everyday upon walking into my office, and having my morning cup of coffee, is go through the littany of financial blogs, forums, and news sites, stored in my favorites (inlcuding but certainly not limited to: valueforum, zerohedge, kimblechartingsolutions., calculatedrisk, ftalphaville.ft., and advisorperspectives.com/dshort/). My reading of these sites is almost ritualistic in nature-I visit them once in the morning, once during lunch, and once before I go to bed. If I can squeeze in more views-I do, but I'm also trying to juggle a full time job after all.

Its a new day

Today is a new day, and I'm still too short the market (until of course the market utterly collapses), and the market is still rising (at least marginally), and I am still losing money on my short positions. BUT it is ok. Because in truth, my shorts are only a hedge. They're a hedge against the ineptitude of political leaders, a hedge against the hubris of global central banks and most of all a hedge against my long positions.
When I consider my short positions from this perspective its much easier to sleep at night, and enjoy my days!

Drinking from the firehose

Reading this blog may be bad for your financial health. It also might be bad for your perception of the world.
Over the past couple of months I have made a host of poor investment decisions, namely going short an upward trending market. Not only that but I have broken the cardinal rule of investments refusing to cut my losses (in fact I am even looking to double down on my short positions). Maybe its my somewhat pessimistic outlook on life, but I just cant bring myself to close those damn short positions-I am short SPY and XLF. So if your looking for astute investment advice or strict trading rules you are on the wrong blog. But, what I am offering on this blog is to distill the torrent of information out there, and hopefully give some outside the box thinking and interpretations. In effect I am offering to drink from the firehose so my readers do not have to.
Since graduating GW with a BA in economics, I have been an avid student of equity markets, macroeconomics and the global geopolitical environment. In fact it was only after I graduated GW that I really learned anything about economics at all. I learned that my suspicions regarding my economics studies at GW were by and large correct, and that most if not almost all of what I had learned in school was wrong. I learned economists almost always fail to do a full equilibrium analysis, and that most importantly 99% of economists are absolutely atrocious at predicting future events.
Let me be clear there are certainly some merits to having a formal education in economics, BUT NOT if you want to be a successful investor. To emphasise this point, let me end this inaugaral post with the testimony of Mr. Benjamin Bernanke, former Princeton economics professor and current chairman of the Federal Reserve, in March of 2007:

"the impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained."