It was written on the walls that success is a process
No matter how hard I fall I know it is some progress
Notches of the ladder I climb, holdin a bottle of wine
So many paths to take, I’m followin mine
-Common

Yesterday, I wrote about Goldman Sachs lowering their expectations for Q3 GDP to 2.7%. This morning, the Advance GDP number was announced at 3.5%–higher than expectations and far higher than Goldman’s lowered target of 2.7%. This is the first of three GDP announcements. We’ll see preliminary GDP on November 22 and final GDP on December 22. I find it tough to think that an advance number of 3.5% can be lowered all the way down to 2.7%. Then again, don’t count Goldman out. Goldman is Goldman.

No matter where the final Q3 GDP number comes in, the announcement today is significant in that the economy grew in the 3rd quarter for the first time in just over a year. It was widely expected that there would be growth, and now the actual growth numbers will be analyzed and argued about on television.

There will be a myriad of economic releases in the next few weeks that will provide insight into what Q4 GDP will come in at. If Q4 GDP expectations need to be revised downward, there will be large gains by being short the right sectors.

Gross Domestic Product

Risk On, Risk Off

The higher than expected GDP announcement this morning spiked S&P futures and induced a selloff in the US Dollar. I have been referring to the “risk aversion trade.” The risk aversion trade is a risk off trade–when traders and investors run for cover. In the current market, I’d describe the risk off trade as being short the S&P, long the US dollar and long treasuries. Today’s market was the opposite of the risk aversion (risk off) trade. Traders scrambled to the risk on trade–long the S&P, oil, short treasuries, short US Dollar. When the risk on trade is on, the Volatility Index (VIX) trades lower. When the risk off trade is on, the VIX trades higher. From the intraday charts below, you can see that what the S&P lost yesterday, it gained back today. Conversely, what the Volatility Index (VIX) gained yesterday, it gave back today. Yesterday was risk off, today was risk on. You follow?

Volatility Index - 15 Minute

S&P 500 Index - 15 Minute

Phone Calls

Can a phone call change your view of the market? This one quite possibly could. I have long opined in these pages that there is more risk to this market than what it is priced for. Of late, I have written of a sudden spike in the dollar that no one is prepared for. After a phone call with a broker in Japan last night, I think it is best to be short select names in the weakest sectors rather than be short broader indices or sectors. Here is why. My broker in Japan alerted me to something very important: Japanese default swap spreads are at their widest in 6 months. Other sovereign default swaps have seen a significant widening as well. This is a sign of potential dollar weakness to come. If the dollar weakens, it will be tougher for the S&P index to sell off dramatically. It is for this reason that I am once again long some silver options (calls). If this widening of swap spreads is a sign–a tell in poker parlance–of dollar weakness to come, the best way to take advantage is to be long precious metals.

The Wall Street Beat

And there you have it, straight from the gut of Vinnie Vega of the Wall Street Beat, a subsidiary of Volatility News.

And the beat goes on.

Meanwhile, back at the office, I am convinced the internet is here to stay and is not going out of style anytime soon. As this profound thought struck me earlier today, I decided to have a call with my collaborators. They all agreed with my assessment. Then we shared some news of interest. I walked away with the following:

Some good info out of Fast Money today:

–Tim Seymour sees diversification away from US dollar to continue. He thinks the Dollar sees 75 before it sees 78. I agree that 75 is an important support level. If it breaks down further from here, It should find support at 75.

– Re: Google (GOOG) earnings this week. Upgrades around the table into the number after the bell Thursday. Analyst Christa Quarles from Weisel gave Google a $620 target. Joe T. mentions pay per click stabilization an important metric.

–Analyst Berger-former analyst at INTC, then Wedbush Morgan–thinks Intel goes higher after the number tomorrow afternoon because of “double reverse psychology.” My opinion: INTC is a tough call into earnings. My indicators say it peaked as it hit a high of $28.65 both today and August 28th. Demand leading up to today’s high has been much weaker than demand was leading up to the August 28th high, according to my calculations. That said, I appreciate the concept of “double reverse psychology,” and it’s potential ramifications.

–Doug Kass is the most bearish he has been and he nailed the bottom in March. The hot hand is the hot hand. Life works in streaks. Doug’s voice should be a loud alarm. After all: there were very few bulls in March. I was not. My notes from the march era are right here on these pages. I nailed the short in 2008, but I was not bullish in March. It was tough to nail the market both ways.

–There was a segment on Fast Money called “Double Down.” It’s good to see some coverage of money management as it pertains to trading. Along with position sizing, money management is an extremely misunderstood topic. It is good to see the media covering some aspect(s) of it.

In addition, I also note:

Robert Prechter

Prechter is bearish. He is the other hot hand. Kass called the fundamentals, Prechter called the technicals. Both of them are bearish here.

Whitney Cuts Goldman

As I reported earlier, Meredith Whitney Advisors cut Goldman Sachs (GS) to neutral from buy and removed the price target on the stock–it was $186. Meridith Made a huge call last Q–that Goldman would profoundly beat street numbers. She was right. Another hot hand. Take note.

Goldman on Asian Steel Sector

Analysts at Goldman Sachs (GS) raised the Asian Steel sector to Maximum Bullish. I read an extensive note by the analyst which I agree with. Most importantly, he notes to pay attention to Japanese steel names. As Asia moves to a more steel intensive economy, the position of China as a steel exporter may be reduced, creating demand shortfalls that will be filled by other regional players such as Japan. JFE and POSCO were raised to Conviction Buy. Nippon Steel, Kobe Steel and Hyundia Steel raised to Buy. Also speaks to current investor apathy. I think this will prove a great call.

Citi on Precious Metals

Analysts at Citi made comments on the European Mining sector. They remain positive. They also gave targets for precious metals: Spot gold to $1,025 in three months and at $1,050 in 6 to 12 months. Spot silver to trade at $17/oz in next three months; at $17.80/oz in 6 to 12 months.

UK Inflation Data

The UK September Inflation data is due in a few minutes at 4:30AM EST (8:30 GMT).

And the beat goes on.

A currency trader in London alerted me to the following about 10 minutes ago:

UBS analyst John Reade recommended that nimble investors take profits on any long gold and silver positions.

He would look to re-enter long positions after a correction.

Mr. Reade has a price target over the next month of $950/0z.

Reade is a winner of the London Bullion Market Association’s forecasting prize.

The Volatility Index (VIX) has continued its perilous plunge from the heights of its October summit. Why hasn’t it caught an outcropping yet? Perhaps it is because the Index is not reflecting the underlying stress in the market. The core reasons for this are tri-fold:

First, quant funds are selling index volatility and buying volatility in individual names, which has a masking effect.

• pink panther 2 movie download

Second, the season of quazi-investors reaching for returns by selling huge call positions is upon us.

australia movie download

Third, The FED and it’s media have been so successful in augmenting bank sentiment that they have procured a huge boost in their common equities. This has allowed billions upon billions of dollars to be raised in common stocks of banks. Consequently, the equity offerings that have been raised of late will need to be further diluted. The stress tests were rigged, and the adverse case scenarios were far too optimistic.

Where does this all lead? For my money, I continue to own size in Ten Year calls. I am also finding safe footing in select miners and precious metal names.

The crash of 2009 is mounting, but so too is my strategy. The Ten Year goes far, far higher. In spite of all government efforts and their media machine, I veer not from my position. There is a wild outlier push coming in Treasuries, and rates will go below 2%. The FED has skillfully driven the market higher, but their trade will unwind; and as it does, the (VIX) and Treasuries will soar. Very few will be prepared. Peak earnings require a slow, methodical trek—and patience is one of my gifts.

When the climb of this year is over and my gains reach their crest—multiplying exponentially—my musings will see a larger audience. It’s a little known fact of the market that one’s net worth equals one’s net voice. Do you hear me yet?

Peace

The VIX

They always say time changes things, but you actually have to change them yourself.
-Andy Warhol

I mentioned in my post from April 13th that if you thought the rally in stocks had more legs, then $CENX was a chart to consider. Obviously, with the absolute crushing taking place in the S&P 500 today, there is absolutely no reason to be long the Base Metals. Stop Out. Movin’ on. I also mentioned Hecla Mining $HL. That’s the one to double up on as you stop out from Century Aluminum.

Peace