Contrarian Valentine's Day Redux

Last Sunday, Valentine's Day, I mused that we knew most readers would no doubt be celebrating the holiday on Monday...or in true contrarian fashion, not at all!

(Ed. note: The "not at all" option was not a politically feasible option for me)

Nonetheless, I strolled into the local Rite-Aid around 6pm on Monday, February 15th, and saw that once again, it indeed pays to be contrary!

Investing 101: Only buy when there's "blood in the streets."

Financial Darwin Awards, Courtesy of The Daily Reckoning

Nice slide show by our friends at The Daily Reckoning - informative, and entertaining!

The Daily Reckoning's Unofficial Unauthorized Financial Darwin Awards

View more presentations from Agora Financial.

And a little while back, we reviewed their latest book, Financial Reckoning Day Fallout.

The Debt Debacle Rolls On: Socialism's Grand Finale

Sovereign debt - all crap

Who could have expected this?

Socialism's toast!

Contrarian Valentine's Day

While I'm tempted to wish you a Happy Valentine's day, dear reader, I have no doubt that you won't be running with the herd tonight for dinner and a dozen roses.

No sir, not here - when my wife insinuated that I'd "better have something planned", I went and booked dinner reservations for tomorrow (Monday) - got last minute reservations at a top restaurant, no problem.

Somewhere, Humphrey B. Neill is smiling - it indeed pays to be contrary!

The Debt Debacle Rolls On

Given that the markets have rallied with record strength over the last 10 months, isn't it amazing at the level of negativity that persists? Kinda confirms my feelings that we're in the eye of the storm here.

While the buoyancy of the markets has brought some good news with it, it's not really been anything to get all that excited about. More relief that the financial world is not ending, than anything else.

I suspect that relief will ultimately prove to be premature.

Like an attractive, but insane, girlfriend, there appear to be some nasty skeletons left in the closet. The credit crisis was cute - like OK, she smokes a pack of cigarettes a day, two on Sundays. Now we're about to find out that this bitch is a full blown heroin addict...

Sovereign Debt: Socialism's Grand Finale

The next "shoe to drop" appears to be sovereign debt. I guess we should have expected this, as the 20th century's infatuation with socialism comes to a head once and for all.

It turns out that Maggie Thatcher was indeed correct when she famously said "the problem with socialism is that you eventually run out of other people's money." But I wonder if Maggie foresaw her United Kingdom, and our United States, continuing along the trend towards greater socialism, and less capitalism.

Yes, the Thatcher/Reagan revolution, whatever effect it had at the time, appears to be as dead as a door nail today. And granted, the size of the US government continued to grow under Reagan, so I'm not sure if we can or should count that time as a countertrend rally.

In any case, government tax receipts are falling around the world, and there is a lot of sovereign debt that is going to go unpaid. This is highly deflationary, because debt that used to exist will simply float away to "money heaven." Creditors will discover that their assets are now completely worthless.

First Dubai, now Greece - the dominoes are starting to topple. Here in the good old U S of A, the bond markets continue to fund record deficits at the federal level, but our two most socialistic states - The People's Republics of California and New York - are toast. Spreads are rising on CA's credit default swaps - the vultures are starting to circle.

The types of budget cuts that each state needs to make are politically infeasible. So, we'll likely see the states get bailed out, but eventually, they'll default on their debt. Poof - off to money heaven.

I work in Sacramento - and yes, I greatly enjoy the irony of being a libertarian/anarchist in this town. A funny thing happened when the Governator started furloughing workers, telling them to stay home 3 days a month - nothing, really. It's dead downtown on Fridays, sure, but if there's any output being missed, I honestly can't tell.

I suspect you could furlough most of the state government permanently, and nothing would really be missed either. Sure you'd have some short term adjustment, but the private sector would step in and perform any services that were seriously needed or missed. I doubt we'd miss much.

Go Long Responsible Governments, Short Socialism

Our friend Brian Hunt pointed out in his always excellent Market Notes that there's money to be made in shorting socialism:

For a picture of this tailwind, let's look at the past year's trading in the iShares Singapore (EWS), a basket of Singaporean stocks. While the high-debt, high-tax, high-regulation economies and stock markets of Europe have suffered major declines in the past month, Singapore's market has declined just a few points. This trend of "Asia up, Europe not-so-much" is going to last the rest of your life.

Source: DailyWealth

The Onion: US Stages Fake Coup to Wipe Out Debt

This is hysterical...

U.S. Government Stages Fake Coup To Wipe Out National Debt

Shout out to my good friend, and past guest author, Jonathan Lederer for sending this along.

Paging Dr. Copper

Another good tip from Hunt - copper is breaking down. He's got a nice chart at the bottom of the page that clearly shows a break of copper's upward trend.

Yes Dr. Copper, the commodity this is said to have a "PhD in economics", is starting to feel under the weather. An ominous sign?

Well if China was doing OK, you'd expect to see copper humming. So we've got Chinese indices breaking down in tandem with copper - uh oh.

Stratfor's Take on Greece and Europe

For the geopolitical take and implications, you can't beat Stratfor's George Friedman. Here's a video they released earlier in the week, discussing the Greek fiasco:

The Funniest Video of the Week Not From the Onion

It's from CNBC, of course!

Perhaps a contrarian take on the Greece situation, this joker says the solution is an "operational one" - Europe should print money and hand it out!

Hat tip to friend and reader Carson for finding this beauty.

My Trading Activity - Still Short the S&P (Twice)

Still short baby - these positions are keepers! Not a bad time to initiate a short position either, I think. Markets were up last week, a nice little countertrend rally.

Go short, or go home!

The S&P turns down.

Have a great (short) week in the markets! Comments are always welcome and very much appreciated.

Why the "Reflation Trade" is Being Exposed as a Complete Fraud

The "reflation" trade

Just a standard retracement?

The bear may be back!

They Are Still "All the Same Markets"

Like many of our astute readers, I was not impressed by the reflation trade. While the strength of the rally was indeed quite substantial, when you sum it up, it was a mirror image of the rally that occurred in 1930.

We mused on January 3rd of this year that we hadn't yet seen anything to invalidate the "All The Same Markets" hypothesis (which is courtesy of Bob Prechter). And the tailspin that the markets have begun seems to further validate this.

The S&P has dropped nearly 100 points in the last few weeks!

Source: Barchart.com

How about gold, everyone's favorite "safe haven"? Since it's December top (marked by it's celebrated status by the Today Show), it's been a safe trade alright - for gold shorts, that is!

(Source: Barchart.com)

How's oil done? After all, the world's running out of it, and China needs it...

(Source: Barchart.com)

As Mark Twain may say, were he an investment blogger alive today: "These charts may not be exactly the same, but they sure rhyme like hell!"

Their inverse? The dollar, of course! In the January 3rd column, we identified the dollar as the linchpin to this whole equation. Since that time, it's looked quite frisky - proving that these other markets can't do "jack" while the dollar is rallying - just like 2008.

Is that a roll of silver dollars in your pocket...or are you just happy to see me?

(Source: Barchart.com)

In summary, all we've seen in the reflation trade was a typical retracement, in which markets usually retrace 50-62.5% of their previous losses.

Why does this happen? Honestly I don't have a clue - it just seems to be the way of the financial universe (and possibly the universe in general).

So where - and when - will this end? Well, if these were in fact mere retracements we've witnessed, then you'd expect that new lows will be registered by the time this swing down is over. Which would translate to the S&P below 600, Gold below $700, Oil below $30, and so on.

Moral of the story, I think the two best moves right now are to: 1) Get safe, and 2) Get short (with speculative capital).

Near term we could certainly see the bounce that started yesterday afternoon continue up - maybe bringing the S&P around 1100 - who knows.

What would invalidate my cheery outlook? New highs in the S&P and other markets would indicate I'm either early in my downtrend speculation, or wrong. But I do think the most probable direction is now DOWN.

What's "The Man" Robert Prechter Saying Right Now?

Last week, CNBC interviewed Bob Prechter - here's the interview:

As I've mentioned before, some regard Prechter as a bit "out there", which is actually a very desirable quality in an investment guru, I think.

I started following him about a year ago on the recommendation of a fellow colleague/investor, because from what I can tell, Prechter is the only guy who nailed the Crash of 2008 to a tee, when most of the rest of the investment world was blindsided.

Some more recent guest articles by Prechter:

• Avoid Muni Bonds at all Costs
• Why Fundamental Analysis is for Losers

Colts -5.5

vs. Saints - Who Ya Got?

It will probably come as no surprise that my philosophy in sports speculation is similar to that in the financial markets - part technical, part fundamental. And like the finance world, I claim no particular skill at all. I cannot claim I've won more than I've lost in sports betting.

I do, though, enjoy the study of sports handicapping, and hope that one day I can develop a system that can make money consistently.

As I pen this column on Saturday, the Colts sit as 5.5 point favorites over the Saints. A decent sized spread but still under the first major point of traditional resistance, 7.

The betting masses like the Colts - with 57% of public bets falling on Indy's side. That's not too surprising, as the Super Bowl is far and away the largest public betting game of the year, and we've got Mr. Manning, a golden boy for public betting. What average Joe would bet against Peyton?

While that may pique our interest, my inner contrarian has been disappointed with the relative lack of homage to King Peyton in the media. Meanwhile, the stories about New Orleans and how the Saints "can actually win this one" may be contributing to the line staying south of 7.

Turning to the "fundamentals" - like evaluating individual stocks and companies, this is more art than science.

I'll make the case that the Colts are the better team, based on a few factors:

• They have not lost a game they tried to win this year
• New Orleans barely managed to win the NFC Championship game at home, despite gift wrapped fumble after fumble from the Vikings
• If Favre carved up the NO defense, Manning could have a field day

That said, is the spread large enough to bet on New Orleans "keeping it close?" I don't think so.

First, you should only bet an underdog if you believe they can actually win the game. I think that is possible, but not likely, in this case. Blowouts occur more often than people realize.

So, the five and a half is not enough to scare me away from the pick. Hence, your official 2010 Super Bowl gambling pick is:

Colts -5.5 over Saints

How'd we do in previous years?

• Last year, we picked the Steelers -7 over the Cardinals (oops!)
• But two years ago, we had the Giants over the Pats in a contrarian's delight

My Trading Activity - Short the S&P, Times Two!

After watching the markets bounce on Monday and Tuesday, I thought it'd be an interesting time to "punt" on one more short S&P position on Wednesday.

My thinking was that, if this was a near term bounce, which I thought it was, it looked to be about finished.

Pyramid time! Fortunate timing on the 2nd S&P short, at least for now.

Well that turned out to be pretty good timing, at least thus far, as markets plunged on Thursday. And yet again on Friday, despite a late rally back up above the even mark for the day.

I'd say I'm more confident than before that the trend of the markets has indeed reversed. So, I'll look to carefully add more positions here as the downtrend continues.

Caution remains the order of the day, though, until we breach the 200-day moving average on the downside. My overall strategy is to cautiously get short during the first half of the bear move, and then ride things when the markets completely capitulate, with a final target below last March's lows.

And on that upbeat note - have a great week in the markets! Comments are always welcome and very much appreciated.

Mortgage Lenders Aren't Gonna Take It...Anymore!

Channeling Dee Snyder - Mortgage lenders say they're not gonna take it...anymore.



Here in Northern California, we've been housing outcasts for awhile. We were weirdos for renting throughout the housing boom. Now, we're weirdos for a different reason - we're not walking away from our mortgage.

It's the latest trend, and it's getting hotter. Why make mortgage payments when you're down a cool few hundred grand on your digs?

But now, mortgage lenders are fighting back! From CNNMoney:

As terrible as it is to lose your house to foreclosure, at least it's a relief to put your biggest financial headache behind you, right?

Wrong.

Former homeowners may still be on the hook if there's a difference between what they owed on their mortgage and what the bank could sell it for at auction. And these "deficiency judgments" are ticking time bombs that can explode years after borrowers lose their homes.

It can even happen to people who got their bank to approve them selling their home for less than it is worth.

I read today, I believe in the Daily Reckoning, that two-thirds of homes in Nevada are underwater. Two-thirds!

This is not going to end well. Get yourself some gold, sheep, guns - and of course US dollars - and get ready for the next shoe to drop.

Ed. Note: Why US dollars? Because the dollar's fate is driven by global liquidity flows, which are starting to dry up once again.