A Glimmer of Hope. via The Economist

“The worst is over only in the narrowest sense that the pace of global decline has peaked.”

“Market spreads taking account of credit and liquidity risk had arguably become too compressed pre-August 2007, and are now wider than they should be longer-term. But it is not clear what the appropriate level should be.”

The One Trillion Commercial Real Estate Time Bomb. via Zero Hedge

“The second theme is the much more serious and less easily resolved issue of the negative equity deficiency on a per loan basis, which is not a systemic credit freeze problem, but an underwater investment problem.”

Raising Bill Gates. via The New York Times

“I’m at war with my parents over who is in control,” Bill Gates recalls telling the counselor.

1) US stocks ripped higher today. I can already hear televisions across the nation talking about how great this all is. They are probably saying things like “WOW, look at GE, it went up!….That must mean the economy is strong.”

Tune them out. Tune me in. Allow me to explain, the cycle and the spin.

First, allow me to define, what is known as “The Oldest Trick in the Book“.

The Oldest Trick in the Book is the infamous “Tapping on a person’s left shoulder when you’re standing on their right.” This trick was first chronicled in cuneiform by the Ancient Sumerians, who lived on the windswept steppes of Mesopotamia.

And today in the market, The oldest Trick continues as US stocks rallied immensely (that’s the tap on the left shoulder), while the dollar fell (that’s whats standing to your right). As stated back here in December, it is gold that will ultimately benefit from all this.

2) My collaborators at The Tinker Factory and I were cruising back from Geneva earlier today. While homeward bound on The Errol Flynn, we discussed how to position for the next move lower in the REITs. I am well positioned for now, though I am itching to add a few more puts. I’ll check in with the prices of various strikes tomorrow to see if I should add more.

3) I mentioned my jet, the Errol Flynn. You can spot Errol by looking at the tail. One of my images is usually on the tail. Sometimes, there is no image anywhere. In those instances, I may or may not be trying to pull off a covert mission.

Peace

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

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