Date: Fri Jan 20 2006 20:43
trotsky (Erle) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
i missed out on the GOOG puts, but my put boat was heavily loaded going into today otherwise. i've accumulated an overweight short sm/long bond position in the course of the past two weeks or so ( i ALWAYS have index puts as a hedge a la Hussman, but i shift their weighting around according to short term expectations ) . i even have XAU puts, just in case ( i.e. in case all hell breaks loose and takes the pm stocks down as well ) .
i must add though that a one day hard break in the stock market proves nothing as of yet. there are two possibilities - it can be a shake-out before a move higher ( unlikely here for a raft of reasons ) , or the beginning of a bigger breakdown. in the latter case, the initial break lower is almost always followed by a rebound that retraces anywhere from roughly 50 to 80% of the initial decline. the secondary peak is actually the sweet spot to go short.
RIP mentioned something today with which i totally agree: Japan's mini-BK a few days back, studiously ignored and/or ridiculed by most traders, was a huge warning shot. sentiment in the stock markets has become extremely complacent in recent weeks, while global liquidity has been busy evaporating for well over a year now. the ONLY thing holding things up are asset prices THEMSELVES ( when they rise, margin buying power increases ) . Austrian money supply ( money ASM ) has been in its steepest decline since 2000, as the Fed has jaust completed its most vigorous tightening campaign in ages ( 4.25% may not seem much, but we're coming off 1% in the FF rate - it's the RELATIVE change that counts ) . the yield curve is flat as a pancake and partially inverting, mortgage lending, especially refi equity extraction have been in steep decline, and the bond market has been signaling all along that the 'recovery' was/is a fake.
the false spring will end...whether it is now or later, one must always keep in mind that it could happen anytime.
someone recently posted a link to an article about commodity prices and Chinese credit growth. China has experienced a credit bubble of enormous proportions. when this bubble bursts, stocks AND commodities will be taken down with it imo.
global total credit market debt levels have more than doubled over the past 5 years as a consequence of the central bank 'reflation' campaign. imo this incredible debtberg is fated to implode. its main pillar of support are asset prices that are inflated way beyond what fundamentals would dictate. the extent of malinvestment in the global economy can not be guessed at with precision, but it must be unprecedented in scope. the inevitable liquidation will be a sight to see. only triple A rated government bonds and gold are worth holding in this situation imo. UK 50 year gilts have just experienced a 20% price rally over 4 weeks, as their yields fell to fresh record lows. this is the OTHER warning shot. the UK economy is a leading indicator for the US, and the world. the rally in gilts spells recession and deflation.
Date: Fri Jan 20 2006 20:06
trotsky (siempre) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
i posted about this put during the day, when it hit $15.70. the GOOG 410 put went from 10 cents yesterday to $10 today - a 100-fold increase.
Date: Fri Jan 20 2006 16:16
trotsky (today's market decline) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
has probably cost those short various expiring puts a fortune. GOOG alone, if you add up the shift in value looking at its put OI, this has been massive in dollar terms.
and n.b., shorting of index puts and the like is nowadays a whole lot MORE popular than it was in 1987. this is the kind of stuff that can begin feeding on itself. mind you, i'm not saying it WILL - but the possibility exists. this market has long forgotten what volatility is like - it's busy relearning the lesson.
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