Complex as it isn’t, my bankroll is positioned all over the world and the only one who really understands it is me. In reference to the public markets of late, we are approaching an important juncture. A turn is at hand. Given my data points, I need determine the best allocation of my capital to the assets that will gain in value most rapidly–I need appreciation and velocity.

Libertarian

In order to execute my trading model, I must stay true to it. In doing so, It is essential that I have no obligation to other people’s money (OPM). Since I am not paid by anyone to manage their money, my emotions are not tied to the performance of any monies but my own.

With sole trading discretion, I can take whatever risks I choose. As my model is not hindered by diversification, I can allocate all my capital to one thing, and I can go all in whenever I want. Nobody else has a say. With no limited partners, I am able to exercise my beliefs in Objectivism. I am held down by no management. My decision are derived like those of a machine: a robot with a heart.

Tony and I

Don’t ask the question—I already know what it is. It is sitting on the tip of your tongue, and you want it to hang in the sky so you can watch my reaction. But I’m not even going to let you ask. I am going to explain before you can claim your smug satisfaction.

“What about back in September when you wrote about running money for Tony Stark? What’s that all about? In some circles it is rumored that you are a money manager to superheroes and now up above you are claiming that you are not running OPM.”

Indeed, I do communicate with Tony as to how to allocate some of his assets. However, I am not paid a dime to manage anyone’s money—just my own—and I must keep it that way. Because I must stay true to my model.

What Does the Model Say Now?

Keep in mind that the trading model is not one of profit regularity and predictability. My model is one of relatively inconsistent bouts of extreme capital expansion. The dime bets that go to $50—tail events. Yeah, I’m that guy.

It is still my opinion that the largest opportunity in the years ahead will be trading gold. Gold is going to make an extremely rare and large move higher, and when it happens, it is going to happen very quickly. I have seen this movie before. Monetary policy has grown out of control on a global scale and gold is the ultimate risk aversion trade.

In my post the other day, I spoke of some tells that lead me to believe that there is a large move brewing in the markets. The situation remains the same. In fact, Dubai risk has widened even more.

The Currency Market

From my view of the money flows in the currency markets, I am seeing the carry trade moving away from the US Dollar and into the Japanese Yen. The Yen is the new carry trade.

Yes, the dollar has strengthened of late (chart below), but the recent strength in the mighty US Dollar is more related to carry traders re-arranging. Sovereign swaps on the US have widened enough to signal that the dollar will grow weaker as opposed to stronger in the not so distant future.

All Roads Lead to Rome—Again and Again

So here is the triangulation: there is a large move brewing in the market and the move is connected to a sovereign related event. Therefore, we should look to buy the asset that will appreciate most during a time of governmental stress.

During the crash of 2008, the best asset to own was the US Dollar. The dollar was the risk aversion trade. However, during the crash of 2010, the US dollar will not be the risk aversion trade. Let me explain. The stress on the horizon is sovereign related, but the demand we have seen in the US dollar lately is temporary. The asset, therefore, to own is going to be the ultimate safety trade, the one to which we always return: gold. (Silver will tag along.)

There is a large dislocation set up, and it is the opinion of Vincent M. Vega, editor-in-chief of Volatility News dot com, that the asset class to appreciate the most and with the most velocity is gold. Like the the Jackie O. trade of the 1970’s, it is time again. The gold trade is on. Be a part of it. History is in the making. Will I see you there?

And the beat goes on.

The Dollar Strength Will Fade

Meanwhile, as the world turns, so does the Factory and it’s cast of characters. X is monitoring world events; The Consigliere continues to build his law firm specializing in the law of attraction; Pinky Megiston is beautiful; and Anything Anywhere! seeks more avenues through which he can add value.

Apart from all that, sovereign risk spreads are igniting. The dollar is catching a flight to safety bid and stocks are crushing lower–the S&P 500 is off about 2.5% as I write. Gold and silver have been pummeled most severely, off 4% and 5.5% respectively.

Sovereign risk spreads have risen dramatically this week, led by the European majors. Holders of sovereign debt—in particular Portugal, Italy, Ireland, Greece, and Spain—are running for cover. Not surprisingly, politicians will blame these events on speculators. However, a closer look at the money flows reveals true fear: real money is fleeing sovereign debt (selling government bonds) as opposed to speculators driving risk higher by buying credit default swaps (insurance). Nations with the largest deficits and the most in need of short term financing are being sold the hardest.

Dubai has continued to see risk premiums rise, as it scrambles unsuccessfully to sell off some of it’s holdings. Like a skydiver free-falling through the air, Dubai is reaching for it’s reserve chute. The velocity is building to the perilous downside. Hope is not a viable strategy here and now; but other than bluff, it may be all they have.

The crash of 2009 was not foiled—it was postponed.

We are sitting on the precipice of something special. An event where fortunes will be made and lost. Great art will be inspired, and an ageless tale will be re-told.

And the beat goes on.

Stock market futures initially sold off on the payroll and unemployment headlines this morning at 5:30 AM PST. They spent the day recovering, and ended up rallying to the highs of yesterday.

S&P 500 Futures - 15 Minute

The Dollar sold off, squeezed the shorts, then fell to the lows of yesterday.

$USD Futures - 15 Minute

Gold rallied, pulled back to it’s logical limit, then rallied to near yesterday’s highs.

Spot Gold - 15 Minute

And the beat goes on.

Obviously, I am in Dubai.

Despite a significant widening in sovereign default swaps last week, the dollar remains in a downtrend, gold in an uptrend. Therefore, nothing has changed my year end positioning. I remain bullish on gold, silver, and select stocks.

I do not think that anything that is happening in Dubai will be the catalyst for a sudden spike higher in the dollar. If anything, it will cause a move back into the Yen (¥JPY) as the carry currency, as it is least likely we see a systemic devaluation in Japan.

Even better, it will increase demand for the ultimate flight to safety–gold. The move in gold is in it’s infancy. It must go higher. It can’t not.

And the beat goes on.

US Dollar / Gold

Meanwhile, back at the factory, quite a few of you out there–that’s you my readership connection–have made it a point to let me know that many voices of the market are bearish on gold, including Robert Prechter of Elliott Wave Principle fame.

I’ve never met Robert personally, though I do remember when he won the US Trading championship in ‘84. I am unsure if he trades actively now. No matter–the point is that he and I have opposite opinions. He thinks precious metals are going to trade at lower prices and I think they are going to trade at much higher prices. Now that the opinions are out on the table, I am happy to report that my bankroll continues to be where my mouth is.

The precious metals–gold and silver–must go higher. They can’t not.

And the beat goes on.

Silver - Daily

In the modern world, silver bullion has the ISO currency code XAG. The name of the United Kingdom monetary unit “pound” (£) reflects the fact that it originally represented the value of one troy pound of sterling silver. In the 1800s, many nations, such as the United States and Great Britain, switched from silver to a gold standard of monetary value, then in the 20th century to fiat currency. -Wikipedia