America knows how to party

Worldwide Markets Crash ! For days on days without end ! The decoupling theory is dead ! Everybody panic !

The US markets were closed Jan 21 (MLK day). Last week and the week before I said I would sell off some Asia funds. I was just ... waiting for that bounce. I hate mutual funds. I wonder what the NAV will be today. Not pretty. Forget bounces. You can always find safer conditions to make that 4% or whatever bounce. If the thing is moving down, its likely to keep moving down. Yes, there will be a bounce, but only after you sell it. (they can sense fear).

So, the US will crash today. Futures screaming down. Foregone conclusion. Here we go.

On Jan 5th when the jobs report came out way under expected levels (5% unemployment) I just knew what would happen that day. Its would go down. I bought QID (double short the NASDAQ 100) on the open, sold it at the end of the day peak and made $650. Very pleased with myself.

Today, Jan 22nd I figure I'll do the same thing, but you can never be sure. The market opens screaming red, QID already +8%, SKF (short the financials) is +10%. Damn, its already priced in.

Then, Uncle Ben gave us 75 points so we can all go out and get drunk on cheap credit for a little while longer. I understand, he needed to. The stock market may be overvalued, and it may need to move lower, but it can't move lower that fast. That instability will cause financial institutions to fail, and that cascades into the whole economy. Still, I want to short the financials. Just out of ... shadenfreude.

So the market opens and begins to rally.

SKF went from +10% on the open to -10% at one point ! (MBIA) is up +40% because Barrons said "well, they aren't nearly as fucked as Ambac" ! LDK was -15% pre-market, -4.3% by lunch. I did not make any money on these moves.

But now where ? Its lunchtime. Nobody really knows. The VIX (CBOE volatility) is high which means shit is choppy. Right about now I would prefer a nice soft undulating wave in a quiet industry.

But I get the feeling this is the turning point in the plummeting.

The markets (US and Asia) are oversold. Its certainly not the time to short the market. It would be the time to happily take your shorts off the table.

The smartest thing to do now is to buy, but just a bit. The next few days could go up or down. Things may be cheaper later, but they are cheap now. Either way things will go up at some point, and they may even rage up for the rest of the week. So its time to accumulate.

Ron Paul and the Gold Bugs

I am bemused by Mr. Ron Paul. Let's just say more bemused than I was by Ralph Nader, and for that same reason I'm glad that RP is a Republican and not a 3rd partier.

http://www.thestreet.com/s/ron-paul-get-back-to-gold/markets/marketfeatures/10397859.html?puc=_dm

The problem with going back to the Gold Standard (which is not going to happen) is that the global economy dwarfs the amount of physical gold. I think they used to use a factor of "9 times the amount of physical gold". So what would they do now ? 1000 times ? Inflation would still exist.

In the interview, the congressman also said he thought different currencies backed by precious metals should be legalized and allowed to compete with each other. In particular, he suggested that the exchange-traded funds that hold inventories of bullion, streetTracks Gold Shares (GLD) and iShares Comex Gold Trust (IAU), could issue certificates that could be spent as money.

Competing currencies would also legitimize Liberty Dollar, an Evansville, Ind., company that got in trouble with the FBI and the U.S. Mint for making its own solid silver coins, some stamped with the image of Paul. The firm was raided just before Thanksgiving and all materials were confiscated, including the Paul dollars.

Paul acknowledged that competing currencies could only occur with substantial changes to the criminal law and the tax code. Currently, it's illegal to try to spend precious metals coins as if they were currency, he said. The tax code also means that the changing dollar price of gold creates taxable capital gains. That's something which would need to be repealed, he says.

None of that is going to happen. I think he is only running to publicize ideas, which is a good thing.

Maharishi Mahesh Yogi (International Transcendental Meditation, friend of the Beatles) has issued his own Raam currency for many years. It is tolerated in the Netherlands as a small scale alternative currency, though the gov't occasionally warns against its stability.

Hedge funds suck the alpha out of the mutual funds

The crazy volatility we have been seeing over the last year has, I think, been amplified by hedge funds that react very quickly, by automated trading strategies that don't mind taking any trend (up or down) and running with it hard. The quants and the agile and the traders have been making money, and the effect of this is that volatility is increased and encouraged.

Long only mutual funds, buy and hold strategies and index funds are going to suffer badly. Hedge funds will take all of the alpha out of the system. Owners of antiquated mutual funds (the mom and pop retail investors out there) are going to suffer.

But then the market is going down, so they will expect to suffer. They (average people) may not realize until its too late that this really going down.

Traders (like me) will make money. I hold very few things right now. On friday (Jan 4th, 2008) I bought 350 shares of (QID) (double short the NASDAQ) on the open and sold it at the very end of the day at its peak. +$589 for the day. That paid the rent.

I have two asian mutual funds, and I will be selling some of that off. Personally I expect further pullback in China, though the longer term is obviously still up. I'll be there in an ETF when that restarts.

Relatively safe ETF picks for the start of 2008 :
(SKF) short the financial sector
(SRS) short the real estate sector