Sunday night update:  The dollar is up, bonds are up,  equity futures are down.

Timothy Geitner declared to the press circuit that he cannot say whether more bailout money will be needed.  Well, Mr. Geitner, that’s a vague way of saying that much much more money is needed.  The question is what process are you going to use to secure more funds?  Trying to get EVEN MORE bailout money passed through the mumbo jumbo soundbites that congressional hearings have turned into might not be a real popular way to go about it.  The business journalists that are covering this whole mess might really start to scratch  their heads and wonder.  You at least need to keep the press circuit on your side.

So, though you may not be able to get more bailout funds passed through the circus of congressional hearings and political double entendres, there is another very obvious way to fire up the printing presses and ease credit.  You already announced the plan.  You’ll buy back $300 billion worth of treasuries.  Though the bond market witnessed an initial jolt, no one seems to be taking this treasury buyback plan very serious.

To achieve it’s goal and ease credit more, the Fed has no choice but to drive bond prices higher.  Remember, markets don’t move, they are moved.  The Fed has a rather large set of tools to aid them in moving things where they need them moved.  I would not recommend taking the other side of their trade.  The old saying “don’t fight the Fed” is going to have a whole new meaning when you see the short squeeze they can orchestrate.

With this in mind, it is my opinion that we may be in front of an extreme outlier move higher in the bond market.  And when viewed through the eyes of Mr. Volatility, this is nothing but an opportunity.

I wrote in my March 9th post that at some point this year, the bond is going to be a massive short.  I have not veered from this opinion.  However, it is not a short yet.  It can go way way higher and very quickly.  Right now, it is the best tool that the Fed has to ease monetary policy.  I continue to hold calls in bond futures.  I believe the bond will ultimately be a huge short.  But that is not today’s business.  Today’s business is that the fed announced they are going to systematically buy back treasuries and calls in treasuries remain extremely cheap.

Peace

Now I see this clearly. My whole life is pointed in one direction. There never has been a choice for me.
-Travis Bickle
Taxi Driver

I’d like to make a couple things clear about my plans for this evening.

1) The rumors that are spreading that I am going to be in San Francisco this evening may or may not be true. If I am there, I’ll be talking the markets, of course. It could be likely that I would wear a Tinker Factory T shirt. If you do see me in that shirt, it is the exact shirt I wore in the 1996 reunion tour of my Glam Band, Volaterra.

If you’d like to interact, please make yourself known by wearing one of my familiar logos.

2) If I am in San Francisco, the first thing I’ll do is hitch a ride out to Alcatraz for a swim back. Sometimes I swim Alcatraz. Just because.

Peace

Jack LaLanne Swims from Alcatraz Island to Fisherman's Wharf, handcuffed, shackled and towing a 1,000-pound boat

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

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