A recall on our Dollar calls...

I've been wanting to make this post for quite sometime.

A post with our track record on the USD calls and how right we, here at myBullmarket, have been regarding the USD. We have spotted all the big moves and turning points in anticipation, sometimes MONTHS ahead.

I am of course proud of these calls, but one shouldn't take himself too seriously on these occasions. Anyhow here's a graph with our calls for the past 1.5 years:

Luckily we have been right for the most part or at all big turning points. Happily for us of course. Now where to?

Well, as I posted back then my belief was once we reached the 1.40 level we would resume our trend to the downside, so now it's anyone's guess where the Euro will go. My belief again is that ultimately we will breach the 1.20 level once again, but first things first... Before that I think in the short term we will visit the 1.25 level and the EURUSD is currently at the 1.34'ish level.

I will later make a follow-through post on this matter about the USD and also other stuff such as our LMP Portfolio (which has been pretty much flat during the past few months due to our hedged position) and some other topics.

Seat tight and enjoy.

House numbers

Today the house numbers were really really bad: -30% which was a number 3 times higher than what it was expected.

This is what I've warned before and before, without the FED intervening the market just collapses. We've seen good numbers for the past 12 months, exclusively due to the programs that the FED implemented throughout the country in order to hold the prices. So, once they ended the programs back in April, we now see these numbers !
Now what will they do? Let the market function properly or intervene once more ? If they do, where will they get the money? Print it? They can't hold the prices forever... either it breaks, or they will have to print themselves out of this mess, and then face freakin' super inflation. No matter what the step is, it leads to a crisis either deflation or superinflation...

Again, the crisis is en route !

P.S - Today was another good day for the portfolio ! Despite of the decline of the markets of -0.5% and in the middle of the day the markets even got to -1.7%, the portfolio ended the day in the green at a variation of +0.53% ...

Let's hope it keeps this way on the down days ;)

A few stats:

+47.16% return since inception (dividends not included)
+24.52% annual return (dividends not included)

Portfolio vs. Market = +60.54% (dividends not included) - our overperformance from yesterday increased from the high 59.xx%'s to 60.54% an increase of almost 1% which is great !!

Market Return since inception of Portfolio: -13.38% (dividends not included)

June Market Return: -6.1%
June LMP Return: +2.02% 

What does this mean? Translating it, it means that yes our stocks as a whole went declined as well, but they declined only -4.08% while the market declined more than 6%, and since we are short the market, thus the difference is our gain.

Greek Crisis for Dummies...

The Greek Crisis Explained, Episode 1 from NOMINT on Vimeo.


The Greek Crisis Explained, Episode 2 from NOMINT on Vimeo.


The Greek Crisis Explained, Episode 3 from NOMINT on Vimeo.

Portugal first on the line?

A very interesting opinion from IEA - Institute of Economic Affairs and that I agree 'till the last word...

Portugal to be first to default

Tuesday, June 1st, 2010

The so-called Keynesian consensus that seemed to emerge following Obama’s stimulus package, was a short-lived one. Governments, mainly in the eurozone shatter belt, are dropping the same public policies they had put forth a year ago. It is not that unemployment has decreased – on the contrary. Nonetheless, “special social measures” and “job creating” public investment is being curtailed.

This should be sufficient evidence that the Keynesian answer to the crisis has failed. The Keynesian stimulus plans ignored the very low saving rates. In particular, Greece and Portugal had the lowest internal liquid savings rates (when public and private savings are added, and replacement investment deducted) of the last decade. Indeed, both countries had negative saving rates in 2008, with Portugal hitting a low of -5.8% of GDP against an EU average of 6%! It is no surprise that such highly indebted countries are now paying heavily for such leveraging.

Added to this, the Portuguese socialist government failed to understand that it should cut spending drastically. Instead, it has decided to increase taxes to respond to market worries about government borrowing. Taking into account the deep level of leveraging, both in the public and the private sector, the tax rise simply added to the risk of a banking failure, as it passed on debt from the government to households and firms, leaving the size of government untouched.

As such default probabilities on credit derivatives based on Portuguese sovereign debt remain very high; interest rates spreads are increasing; and bank refinancing is more expensive, leading to added costs for indebted firms and households, as well as to another increase in the budget deficit.

The question is: how is the government going to avoid default? Raising taxes again will be suicidal, and reducing the public sector wage bubble is anathema. Public sector wages have never been frozen in Portugal, and they are still growing. If the government does not lower them, there is no way Portugal will get out of its debt trap. I would bet on Portugal being the first eurozone country to default.

Open letter to Mrs. Merkel

It appears governments don't learn from their errors... this is why I say markets don't change. They're the same today as they were 80 years ago, as they will be 200 years from now...

Human emotions are the same, fear, greed, desperation and most importantly the effect of herding...

Anyways, here's a nice letter explaining to our dear German leader, that the markets are not the cause/root of the problem... they are only a symptom of what's wrong... and expectedly the government still has it wrong.

Liebe Angie,

Kudos on your bold move to ban naked short selling in Germany. It takes a woman of real testicular fortitude to replicate the U.S.’s temporary ban on short selling in 2008, a move that worked like a charm. Sure the U.S. ban smelled desperate, backed up demand that was loosed with a fury immediately afterwards, and spooked the markets into a further slide, but it did succeed in stopping short selling during the prohibited period. As your goosing friend, W., might say, “Mission Accomplished.”

Much like a long-dead white male German who shares your initial, you know that markets always work best when the government compels investors to play nice, which, to quote an even-longer dead white male Frenchman, “means nothing less than that [they] will be forced to be free.” And excoriating speculators whose trades expose inefficiencies and re-align prices with values was a masterstroke. If only you’d connect the dots and start blaming the Jews, you could activate the Indonesian playbook that worked so well during the late-90’s Asian financial crisis.
Since at the moment you’re preoccupied with not dealing with this crisis, you may not have considered all the other societal problems that could be solved in similar fashion. Here’s a quick list:

Sanitation: Rather than having to deal with the pesky task of collecting, hauling and disposing of garbage, just attack the source of the problem: the vermin that congregate in and around the garbage. Remove the pests and the garbage takes care of itself.

Public Health: Treating disease is a costly, time-consuming and often complicated process. Instead, ignore the disease and focus on the symptoms, preferably the ones caused by the treatment rather than the disease. For example, cancer patients often lose their hair. Prescribe Rogaine and watch the cancer disappear.

Mortality: People have been trying to conquer this one for millennia, but no one’s tried the obvious: imprison undertakers. These vultures take advantage of the dead by profiting from their demise. Stop the undertakers and, ipso facto, life becomes eternal.

Crime: Confiscate all valuables. With nothing left to steal, thievery withers away.

Evil: Ban the media from reporting about bad things that happen. Once you’ve killed the messenger the message ceases to exist. And without the message, it didn’t happen.

Ugliness: It’s in the eye of the beholder, stupid. Ugly people aren’t really ugly — they’re just perceived as ugly by others. Force society to compliment every snaggle-toothed boohog on his or her appearance. Problem solved.

Erectile Dysfunction: Indict pharmaceutical companies that sell Viagra.

Incompetent Market Regulators: Crucify speculators.

I think you get the picture, Angie. There’s no end to all the problems that can be solved by applying your simple logic.

Mit freundlichen Grüßen unwahr,

Benjamin

Bull's Eye

After the past 10 months I've been commenting about the 1.23 level. We are now under that territory at 1.23 and a few sprinkles.

With the overextended pessimism going on, and the naysayers, I am becoming more confident we'll see a big rebound soon. Looking at the structure, the 5th wave extension keeps ongoing, but it is my view it will soon be over in order to give place for a rebound.

Anyways, since the trade is so overcrowded now, I am starting to build a long position on € against the $. Needless to say that I am going against the trend right now, so it's a bit swimming against the current. But at times, when extremes happen, one has to know when to stop. I think we are under such circumstances right now... I will keep adding new positions on the way down. Note, that I'm not averaging down, I have already established my risk on this trade, but instead of going all in I am scaling in until my total risk position is filled.

Here's a weekly current view of Euro:

Euro and Market Psychology

A little update in the €uro, now that we're almost reaching our target, I think it's appropriate to make an update.

For the past 6 months, the EUR/USD has been declining relentlessly from 1.50 to around 1.28. It was such a nice move. Trendy, with not many retraces, etc.

All in all, a 2200 pip move, which I hope most of you were able to grab. Now what for the EURUSD?

Well, here's a graph updated with EW labels and my expectations to the mid-term future:

As you can see, the structure is beautifully textbook: 5 waves down, with what appears to be an extended 5th.

In terms of psychology, it is behaving just as predicted, and here EW can be of help too. Let me quote Robert Prechter in EWP and wave personalities:

Third Waves - Third waves are wonders to behold. They are strong and broad, and the trend at this point is unmistakable. Increasingly favorable fundamentals enter the picture as confidence returns.[...] Strength. Breadth. Best fundamentals. Increasing real prosperity. By the end, the underlying trend is considered up.

Fifth Waves - Fifth waves are always less dynamic than third waves in terms of breadth. They usually display slower maximum speed of price change as well, although if a fifth wave is an extension, speed of price change in the third of the fifth can exceed that of the third wave. (...) Even if a fifth wave extends, the fifth of the fifth will lack the dynamism that preceded it. During advancing fifth waves, optimism runs extremely high despite narrowing of breadth. Market performance and fundamentals improve, but not to levels of wave 3. Psychology creates overvaluation

The quotes are of course under a bullish view, so you just have to switch the adjectives to the opposite side, so instead of saying "increasingly favorable (....) as confidence returns" we would say "increasingly unfavourable as fear returns". The same for the fifth wave.

So let's take this into what happened since the high. We have the wave (3) in red which as we can see was the strongest part of the move in terms of breadth, and where fundamentals started to deteriorate, as also at that time the trend was unmistakable.

Then, it came wave (5), which is the current wave we are, although it's almost finished. Again, during 5th waves PESSIMIS runs extremely high despite narrowing of breadth. This is the time, where the public acknowledges what is going on. Fundamentals are at its' worst, and the euro is on the spotlight on the media, etc.

What has been going on since wave 5 on media? We now see inumerous economists calling for the end of the €uro, fundamentals are at its' worst with Greece pretty much in ruin. Portugal is pretty much going through the same path as well, although not as bad as Greece... yet.

Newspapers, and not only the financial ones, give notoriety to doom and gloomers and other financial talkheads at this point, everyone is now calling for the end of Europe and Greece and €uro currency, riots and manifestations in Greece, talk about ultimate pessimism...

For the past 2-3 weeks all I've been seeing on TV, and other types of media is everyone so bearish on Euro right now. Today, when reading a newspaper, 10 economists were calling for the end of the Euro. Tell me about pessimism...

I only ask: Where were the talking heads calling for the end of € when it was trading at 1.50 ? At that time, of course optimism reigned. We were as well in a fifth wave, but on the opposite side (bullish) so everyone was optimistic on the €. I saw people calling for values of 2.00 for the EUR/USD.

So what to expect now that pessimism took over pretty much everyone? It's time for the market to do the exact opposite thing.

I think, we are still missing one more down wave, as in the graph I posted, to conclude the wave structure. This may take us to the 1.25 level which is a strong support. Nevertheless, my view is the next big move will be to the upside, not the downside.

As for a target on the upside, well since it will be a corrective wave, the structure is a lot more difficult to predict, but the target box is a good figure of the target, especially the mid-line of the box around the 1.390ish area.

At the middle of wave [2] of course, fundamentals will stop deteriorating or at least will have that appearance. The Euro may lose the spotlight for a bit, when people will think the worst is now over...

Again quoting Robert Prechter on waves personalities (again this is under a bullish view so you have to switch the adjectives around... since waves 2 under a bullish view is a down wave, the adjectives are negative in here... so under a bearish view a wave 2 will have positive characteristics in terms of psychology):

 Second waves often retrace so much of wave one that most of the profits gained up to that time are eroded away. This is especially true of call option purchases, as premiums sink drastically in the environment of fear during second waves. At this point, investors are thoroughly convinced that the bear market is back to stay. Fundamental conditions often as bad as or worse than those at the previous bottom. Underlying trend considered down. Does not carry to new low.

 But once this wave [2] is over, wave [3] will begin...and at that time the downtrend will be unmistakable to anyone and the crisis will be already deep ingrained...

Music on loop...

After a short-selling ban from the Greek government last week, we knew what would happen. We know better, and it seems the politicians can't figure it out themselves. I really don't know who teaches economics and other things to them.

So, history doesn't repeat, but it often rhymes. Well, just like any other time, when the government banned shorts, this measures had done nothing to prevent the declines...

I bet the greek politicians are scratching their heads right now:

Ok we can't blame the short sellers now, who should we blame then? Easter bunny perhaps?

Today the Greek stock market fell -7% ... seriously when will these guys learn a thing or two?

But no problem, we rather use the government's decisions as contrarian signals ... :

Πορτογαλία

The title is not a mistake.

It stands for "Portugal" in Greek. Yup that's right. Portuguese debt was today downgraded 2 ratings by S&P, and few minutes after, S&P cut Greece's bonds to JUNK bonds (a ratting lower than BBB-).

I keep saying over and over again, that Portugal is at the brink of collapse. Our ignorant governants of course all they do is blame the evil speculators, instead of doing their job, which is to balance the freaking finances.

PSI-20 today crashed -5.4%, while Greece declined 7/8% if I am not mistaken...

This was last night's graph of the Portuguese index:

I said yesterday, there was no freakin' reason to want to be invested in PSI-20, and I guess it was for a good reason. Today we closed at around 7,000 points, which pretty much is the bottom of the previous graph...

As for Greece, remember the graph I posted last week with a Head and Shoulders pattern... now the index stands like this:

I will say it again, don't try to catch a falling knife...

Είμαστε πατήσαμε (We are fu----)

Up up away...

After last week, when Greece activated financial help, bonds decreased from 8.8% yield to low 8% which is huge move.

It was to be expected of course. The same way it was to be expected that in the bigger picture that would have NO IMPACT at all. After that decline, the trend just resumed and the 10 Year Bonds are now trading at 9.4% while the 2 Year Bonds at 13%...

Today's Greek bond chart.

The Euro on the other hand, pretty much since we at this website advocated for a large move on the dollar, it has gone down from 1.50'ish and is now trading in the low 1.30'ish.

We're on our way for the Euro to trade below 2008 level of 1.23'ish.

If only I could win the lottery...

April 23 (Bloomberg) -- Greece called for activation of a financial lifeline of as much as 45 billion euros ($60 billion) in an unprecedented test of the euro’s stability and European political cohesion.

The appeal for help from the European Union and International Monetary Fund follows a surge in borrowing costs to what Greek Prime Minister George Papandreou called unsustainable levels that undermine efforts to cut a budget deficit of more than four times the EU limit. Greek bonds rebounded and the euro rose.

“It is a matter of national need to ask officially” for the activation of the EU-led aid mechanism, Papandreou said in a televised address from the Greek island of Kastelorizo.

With national debt of almost 300 billion euros and bond yields exceeding junk-rated nations such as the Philippines, Greece faces a fiscal mess that threatened to spread to Spain and Portugal, forcing the EU to set up a standby aid facility. At stake is the future of the euro 11 years after its creators gave the European Central Bank responsibility for interest rates while leaving fiscal policy in national capitals.

The request came one day after the yield on the country’s benchmark two-year note topped 11 percent, nearing that of Pakistan, and Moody’s Investors Service lowered Greece’s creditworthiness by one notch to A3, saying it was considering a further cut to junk.

After Papandreou’s announcement, the 2-year yield, which yesterday rose above 10 percent, declined 82 basis points to 9.481 percent. The euro snapped six days of declines to rise 0.1 percent to $1.3309.

Yup. Like I said a few months ago, it was only a matter of time for Greece to ask for a bailout. Today was it.

Intraday update

And the news keep coming...

The 2 year notes for Greece have hit 10% today. And Moody's cut Greece's debt rating as well.

And the yield curve of the greek bonds are as follow:

So we are now in the presence of an inverted yield curve from the 2YR maturity onward.

In other words, a default is expected in the long term, but not without a bailout first in the short term.

Edit: I had seen this pattern develop a long time ago, but now is even more noticeable the perfect breakout of the neckline followed by a test of the neckline which failed to break, making this H&S pattern a valid one, with target at around 1175 points on the Greek index.

This means a decline of 40'ish % still to follow on the Greek exchange ! To be honest this H&S is super perfect and a beauty to be seen.

Tic Tac Encore !

I hear every so often lately people asking me: "Should I buy Greek bonds?" , "They're cheap..." , "Default is unlikely..." etc etc.

The truth is, more than a year ago I said the next crisis would become evident on sovereign debt. At the time, you couldn't find anything on the media. 4-5 months ago, Greece wasn't even a topic of conversation. Once the debt problems escalated to the public knowledge the greek Prime-Minister came to public staying that Greece didn't have any problems. They had it under control and wouldn't need help from either EU or IMF.

4 months later he is quiet as a mouse. This after a scandal of crooked accounts by the Finances department of the country in order to hide the real numbers from EU.

Now Greece looks to be the hot topic for every John Smith around the world, like suddenly they are top experts. I see a lot of retail public saying they want to buy Greek bonds. This has been on the past 2 weeks where yields at the time were under 7%, and of course we know how the public is wrong most of the times.

Yields don't stop escalating. They are now on the 8.6% area... An intervention will have to take place sometime, probably it will be during the weekend in a concerted effort by the EU and IMF most likely to bailout Greece this weekend.

Portugal, oh well, we're pretty much in the same boat no matter what people in newspaper say, whatever the portuguese Finance Minister says - the guy is either lying or is ignorant - if this keeps going we Portuguese will have to endure some real problems ahead. The PEC is a joke, there were no significant cuts announced, just higher revenue coming from higher taxes (which will strangulate the economy even more) and by the sale of assets, which as most of you know is not recurrent thing, so once the jewels are out, what are they gonna do?

Tic-Tac 2.0

Yesterday the Greek yields were at 7.7%.

Today again, with no surprise, yields breached a new high, making a new record.

Of course, media blames the damn speculators. What speculators? The speculators that are afraid they won't have their money back? If Greece doesn't want to be exposed to the so called "evil speculators" and the high yields they have a pretty good way to do so: stop borrowing money ! Just the same way a family when filled with debt they have only one solution. First, stop borrowing money after money with the only purpose of paying previous debts - this just makes you dig a deeper hole - and cut the expenses to balance the solvency problem that will come after, once you fall back into reality and see that you cannot maintain the old standards, since those standards were reached from money it wasn't theirs in the first place !

Why Greece would be any different than what the market is for any other kind of market agent, just like any company or family?

Yields today at 8.33%. It's a matter of time for IMF or EU to intervene...