Meanwhile, back at the office, I am consulting with one of the most important people in my network, X. We are talking about a few different ways that quant traders at Goldman Sachs are making money right now. The number one trade over at the trader’s pit of government workers — Goldman — is gunning the S&P higher by going long the euro yen spread against the dollar. Thanks to the overweight of euros to yen in the dollar index, as you buy EURJPY with dollars, the dollar is pushed lower, and the S&P higher. As soon as this structure is in place, you lever long S&Ps.

These are the trades that are making Goldman’s trading stats so good right here and now — a tremendous record to say the least. I know tons of traders over at Goldie, and we speak on a regular basis. Some of them are my very good friends. Speaking to one of them the other night, I said, “Your track record is really good.” If nothing else, good trader’s know that the tape can be very humbling. He agreed.

Sometimes when trading records are too good — like with Enron — no one asks the right questions until it is too late. Whatever happens, I hope my trader pals at Goldie will be all right.

After that, we recapped today’s scores.

The S&P 500 is up 16.5% YTD and was up 3.29 points or .31% today.

The move higher in gold continued. The only bearish thing I can ask about gold is this: if the price index numbers released today were more inflationary than expected, why was gold not up even more? Other than that, it seems like the move in gold is holding and strengthening. One miner of note — Newmount (NEM) — sold bonds in exchange for $2 billion dollars ($900 million senior notes 5.125% due 2019 and $1.1 billion of 6.250% due 2039). The raise was 8.7% of the companies market cap. The smartest traders of gold are likely the miners themselves. It is notable that more than one of them is raising cash — through one mechanism or another.

If you are watching the scores all day, be sure that the symbols of the big five (Citigroup, AIG, Citi, Fannie and Freddie) are on your screen. Those five are making up 30% of the volume in today’s exchange of cash for shares. It was reported today that the US government may sell it’s 34% stake in Citigroup (C) over the next 6-8 months, starting as early as October. The government would not be announcing selling their stake unless they could show a trading profit. I’d think if the US government is selling, they won’t be selling into a down tape.

As I write, The Financial Times is reporting that some of Lehman Brothers’ creditors are challenging the sale to Barclays. They are claiming that up to $8 billion in cash and securities was transferred without the court’s knowledge!

At the same time, Warren Buffet is on sports television talking about Lehman one year ago. The sensationalism of the crash of 2008 is at all time highs, but momentum markets are tough to fade.

And the beat goes on.

The first of this series was featured in my post from March 2nd.

In Today’s edition, #2 of the ^+* Bond series.

Trader Art 2/^+*

So you thought the overnight fed funds rate was the only rate that the federal reserve has authority over?  Today, the fed announced what is the equivalent of printing dollars.  The Federal Reserve is going to buy US Treasurys.   They increase the amount of dollars in circulation, which dilutes the US dollar.  They then take the diluted dollar and buy US Treasurys.  The dollar sold off hard on this news.  Harder than it has since the year 2000.   US equities rallied.   I wrote recently that if the dollar did not find support, it would add fuel to the equity rally.  The drop in the dollar did just that, added fuel to the recent equity rally.

The Bond was up a massive four points.  There must have been blood all over the the bond pits today.  In my view, this move was scripted.  It shouldn’t have caught anyone off guard.  In fact, if you are reading these pages, you may be long Treasury calls.  The move in Treasurys is just getting started and the calls that I spoke of should expand in value to many many times their cost.  The price of the bond and it’s rate have an inverse relationship.  As the bond trades higher, rates go lower.  So the fed has used another tool in its arsenal to ease monetary policy EVEN MORE.

All of this easing will lead to a massive inflationary cycle, which is why Gold and Silver were so strong today.  The move in the metals could not have been scripted better as they sold off hard early in the day,  stopping many out, only to rise from the basement and zoom to the top floor and close near the highs.

My positions remain, bearish REITs, (RIMM) and Visa (V).  Bullish metals and Treasurys.

No matter how bullish the move becomes in US equities, I will remain bearish on the REITs.  They are special situations for a couple of reasons.  First, some of them are using fraudulent accounting.  Second, FFO is a fallacy.  I will write more on the REITs in a later post, but I am going to own puts in many of these names until they trade below $2.  Why?  Becuase they will trade below $2.  How do I know?  Becuase the math cannot lie.  The mathematics will be forced to face their implications.

Peace

The Ten Year

The Rate on the Ten Year

The US Dollar

Silver

S&P 500 has now pulled back to the Golden Ratio

If you could see inside me
would you want to ride
inside my mind?
-unknown
As Trevor Denman would say “”Aaand awaay they go…”

The market found support on March 6th and it has staged a quite impressive rally in a very short amount of time. I have been very bearish on equities. Keep in mind, I am a trader. To be successful at what I do, I have to be nimble. I am constantly re-assessing market conditions. I am willing and able to switch from bearish to bullish or vice versa. I am not trying to be correct all the time. I am trying to be correct sometimes. When I am correct, I need the correctness to pay for all the times I am not correct.

At this point, I’d say the likelihood that the recent March 6th low was THE low is not very likely at all.

That said, the underlying demand of the market is better now than it was at the November lows. This could be the beginning of a much larger retracement than we saw off the November lows. Below is a weekly chart of the S&P 500. If this rally turns into something more meaningful, we could rally to some of the retracement levels shown in this chart.

$SPX Weekly

There are a few things that I am keeping a close eye on. First, the dollar. As equities have rallied, the dollar has pulled back. If the dollar does not find support here, it could add fuel to the equity rally. If the dollar does find a bid, it will assuage the demand we have been seeing in equities.

USD

Second, US Bonds. Bonds have not sold off too much as equities have rallied. On a longer term weekly timeframe, bonds are still in an uptrend. I am bullish on the Ten Year and have an option position that should pay quite a few times my risk if my thesis of bond prices finds the right timing. If bonds cannot maintain current support levels, this could also add fuel to the equity rally.

10 Year US Treasury Note

Third, If this is the beginning of a new bull market (which I very highly doubt), there will be plenty of time to put money to work.

Those are my thoughts here and now. Stay tuned.

Peace

As the downtrend continues, I continue to be amazed by the amount of people that think the downtrend will not continue. Trends last longer than anyone thinks possible. The current downtrend looks like it has much much further to go. In the short term, I am working with the target mentioned the other day, S&P 622.

I have identified some cheap volatility in a couple of names. These positions will serve to enhance my portfolio of put positions that I will sell when the $VIX spikes higher than it did last year. Other than the REITS, my favorite shorts here are Google (GOOG), Research in Motion (RIMM) and Visa (V).

If you are not interested in the short side, there are plenty of bull markets. Three of note are the Dollar Index (DX H9), US Bonds (TLT) or (ZN H9), and finally Silver (SLV) and Gold (GLD).

The bullish bond trade is for the nimble. At some point this year, the US bond will be the biggest money makin’ vehicle on the street. Which way? Short. The Bond is going to be a massive short at some point this year. I’ll document it here. Stay tuned.

Peace

The trend is your friend