Friday, 23 September 2011 01:00

Trading Tips Update Sep 22nd to 23rd

Below is the latest from Eurocalypse. Before we get to his opinion, let's remember... This time really is different! Einstein has his definition of inssanity, but Middleton says the definition of a cental banker/planner is more and more borrowing & expecting insolvency this time around. Reggie, logging off (for now).

First I (Eurocalypse, the credit trader) must apologize for not updating for a while despite those very volatile markets. I am currently on a business trip in Europe, totally jet lagged, and with a lot of personal stuff to fix.

Well, Reggie has been totally right in his call for the French Bank Run as the French banks have continued to being hit hard, especially BNP, Socgen and Crédit Agricole. Paribas is looking for capital when their stock is at 23 and they denied they needed any

Last updated: September 22, 2011 9:27 am

BNP Paribas in Mideast push for funding

By Patrick Jenkins in Singapore, Alan Beattie in Washington and Sharlene Goff in London

Yesterday,

French banks could push Europe “into a full-blown banking crisis” that “renders certain another economic recession,” Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., wrote in a commentary on the Financial Times’ website.

 “There are all the signs of an institutional run on French banks,” he said. “Europe is on the verge of losing control of orderly solutions to its debt crisis.” Credit markets are pricing the chances of French banks defaulting at levels that indicate a “BB” rating, “which is fundamentally inconsistent with sound banking operations,” El-Erian wrote.
 

El-Erian said governments and the European Central Bank must work together to inject capital into banks and to protect depositors.


I will not go into details about all the debt crisis, Reggie is doing a wonderful job, and there are plenty of very good articles in the usual places (ZH, FTAlphaville, just to name a few).

However what I find interesting, and which is not difficult to judge for non-Europeans, is that clearly the mindset of people, including politicians has changed here. Reading French mainstream newspaper like Le Monde, les Echos, le Figaro... there is clearly the realization that things cant go on like this and the prospect of a deeper and systemic crisis is real.

For example, the day before, there was a long debate on French television showing the ex-French minister of Industry (under Sarkozy), far-right Marine Le Pen who is anti-immigrant and anti-Euro, socialist Cahuzac whos heading the finance commitee in the House of Representatives, and an economist.

Well the 2 mainstream parties were of course pro-Euro, and for helping Greece, but the 2 others against, and clearly the Socialist and the Sarkozist were not at ease during the debate.

The economist said yesterday on the prime time evening news that there was no other choice than for the French govt to enter in size in the capital of the banks (magnitude 10bn each...). There is no more taboo in the media to talk about these scenarios.

Yesterday, Le Monde's headline was "Zone Euro Peut-on encore éviter la catastrophe" which can be translated as EuroZone, can we still avoid disaster???

http://www.lemonde.fr/economie/article/2011/09/19/zone-euro-peut-on-encore-eviter-la-catastrophe_1574160_3234.html#ens_id=1268560

Basically everything which was dismissed as fantasy is now gaining credibility with the events unfolding, and one can feel that even governments dont believe their own words or lies, which are perhaps only destined just to calm markets and people, but in reality they feel helpless.

The average French guy grasps that, and believe me they are not very optimistic about the future.

One thing is becoming clear:
The European banks, and the French banks in particular, will be RBSised, with the state the only entity who has the firepower to put money in it. contrarily to 2008 where in France there were just loans (which have been all repaid in full), this time, probably it will be de facto nationalization as the stock is so low, with the dilution effect, if private participation is not enough, the French govt will end up owning 30%-50% or more of the likes of SG BNP CA...There is now public and political pressure from all sides to do that, and the govts wont be as generous as the Dexia deal when they overpaid at the time... the price will be at the current quote, with a discount more likely than a premium paid. However, the market in those stocks should enjoy a huge short term rally (maybe like 50% to 100%)  on the announcement, even if that proves short lived. Even PIIGS would stabilize somewhat as the fear of massive liquidation from the banks subside.

Then, in time, they will merge up the retail banking activities and investment banking activities and try to sell them separately. Good luck with that, with all the new stringent regulation in place, banks will never be able to have so much leverage as before, will fight to earn a dime with govt bonds. Actually it will be "sound" policy (from the new govt imposed management) to buy more govt bonds, even PIIGS if necessary.

At the same time there is a crackdown on bankers, bonuses, and all kind of taxes are going up, including capital gain taxes. There is a strong shift towards this. In France or Germany, the Left parties (Socialists in France, SPD and Green in Germany), which are pro-European are gaining ground. The anti-Euro parties are gaining ground as well, but Left seems a clear favourite right now to win the next elections in France (personally, I think it will be a tight race between the Socialists and the Far Right). It probably means more state intervention, higher taxes, a Federal Europe, repressing the financial sector. I also think they will try to avoid sovereign defaults by all means, including massive ECB monetization (talking trillions of Euros, 10x times the current ECB program..) and FORCING the recapitalized banks to buy all the govt debt.

In such a scenario, Id like to make a remark, if they succeed in that and BTPs yield -say- 2%, a lot of the current issues we are discussing would disappear, that would be the Japanization of Europe. Some will say it will be worse than allowing defaults, and that may or not be true, but it would have definitely a lot of impact on the markets. Food for thought.

On the markets

As I write, after the FED, the stock markets resumed its selloff led up by financials and Europe crashing again. (CAC 2800 -5%) Click to enlarge...

20110922_-_CAC_Daily

Also the USD is continuing its massive strenghtening against virtually everything EUR, CHF, CAD, AUD, GBP, but also Asian Currencies are hit very hard too (except the JPY for now). There is a rush for USD and deleveraging is in full mode. Our bearish call for EURUSD to keep its downtrend is a hard winner. I still believe low 1.20s is achievable in a short period of time.

I had recommended earlier to get out of our short on BNP when it was still trading 27, more than 15% up than now, but hey, the stock did trade above 30 thereafter. My motivation was not to say that was THE LOW on BNP. I fully agree with Reggie that the stock could go to 20,15,10 or 0 if/when it gets ugly.The thing is about risk/reward. a 10% move today is only a 5% move compared to when we recommended shorting the stock. Implied vols means a 7% daily move in the stock is noise only (1STD).

And my stance is a bit different from Reggie (we cant agree on everything). I spoke to a clever HF manager yday, and he believes the stock could easily be worth 35 if the govt puts a big ticket in BNP. If the govt puts 10bn in all French banks at the same time, I think its not unwise to believe this will happen in a matter of seconds. BUT, I replied to him as well, waiting for this to happen, we could see the stock down to 20,15,10 and still see 35 behind! Remember 2009. Banks are being squeezed by (USD) liquidity and some kind of run starting.

Its becoming a casino now and insiders have a clear advantage on us. Play at your risk. But a way to minimize risk in a bear market, is to sell bounces, not to try to go long to catch the falling knife, but also not to try to sell with the momentum as there are always vicious squeezes. bear markets trade sideways or up most of the time!

On SP, which was resilient to selloff, well I will admit that yday before the FED I was feeling quite nervous with the positions with a fear of a squeeze, as the Daily Chart wasn't overbought yet. However the 1210-20 level (where we recommended to sell calls to buy put spreads in previous comments) was also the Weekly MA10, which was retested and now were heading logically lower again. Luckily (or not Cool) I'd say, our recommended strikes fit well with the price action.

(More to come soon, sorry for the short post).

Opposing opinion

This is Reggie here, forcing my two cents into this post (the rest of these posts regarding trading strategies and tactics will be subsciption only). I have no doubt the French government along with the other EU governments will try to bail out their banks again. The issue is that the bailout is not the question, neither is the success of said bailouts. The fact of the matter at hand is that they simply can't afford to bail them out. I have predicted FIRE sector (including banks) failure at a commendable rate (see Did Reggie Middleton, a Blogger at BoomBustBlog, Best Wall Streets Best of the Best?). It's not rocket science, though. It's simply (and actually quite simple, since my 10 year old can do it) math, coupled with a pliable understanding of human nature couped in grasp of history. Listen, it was the (attempted) bailing out of the banking system that got these countries in this situation to begin with. Bailing out the banks just two years later??? Do you really thing that will help the sovereign debt situation or hurt it? If the bailout goes through, you eat the small losses (relative to the big gains that BoomBustBlog delivered subscribers) and roll your gains directly into bearish positions on the bailing sovereigns. It's really just that simple. Don't belive me, let's look at history...

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 So, as I was saying...

Since the problems have not been cured, they're literally guaranteed to come back and bite ass. Guaranteed! So, as suggested earlier on, download your appropriate BoomBustBlog BNP Paribas "Run On The Bank" Models (they range from free up to institutional), read the balance of this article for perspective, then populate the assumptions and inputs with what you feel is realistic. I'm sure you will come up with conclusions similar to ours. Below is sample outout from the professional level model (BNP Exposures - Professional Subscriber Download Version) that simulates the bank run that the news clippings below appear to be describing in detail...(Click to enlarge to printer quality)

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A detailed and accurate picture of what is happening...

  1. Now That European Bank Run Contagion Has Started Skipping Across That Big Pond... US Bank Risk Stands Woefully Underappreciated!!!
  2. The BoomBustBlog BNP Paribas "Run On The Bank" Model Available for Download
  3. BNP Bust Up: Yet Another Reason Why BNP Paribas Is Still Ripe For Implosion!
  4. Most Headlines Now Show French Bank Run Has Started, And It's Happening Just As Our Research Anticipated
  5. I Will Fly In The Face Of Common Wisdom & Walk Through A Run On BNP On International Television
  6. And The European Bank Run Continues...

A step by step tutorial on exactly how it will happen....

Stacy Summary: We interview Reggie Middleton about a run on French banks. I notice today that Pimco’s El-Erian is also talking about a run on French banks. He must have watched the Keiser Report when it aired from late last night PDT. We know you’re taking our shtick Mr. El-Erian, we’ve got our eye on you!

Go to 13:07 marker in the video, contrast and compare and consider watching the smaller more independent shows for the real scoop every now and then.

For some back ground on the "Kick the Can Triumvirate Three" [BBB Trademark], go to 20:50 in the video and dedicate 5 minutes to it...

My April presentation in Amsterdam as Keynote detailing the inevitable...

Amsterdam's VPRO Backlight and Reggie Middleton on brutal honesty, destructive derivatives and the "overbanked" status of many European sovereign nations

Amsterdam's VPRO Backlight and Reggie Middleton on brutal honesty, destructive derivatives and the "overbanked" status of many European sovereign nations

Again, I believe the next big thing, for when (not if, but when) European banks blow up, is the reverberation through American banks and how it WILL affect us stateside! Subscribers, be sure to be prepared. Puts are already quite costly, but there are other methods if you haven't taken your positions when the research was first released. For those who wish to subscribe, click here.

Note: This bank has members of its peer group who have been identified as at risk, but no one has pulled the covers off of this one as of yet. I think I may blow the whistle. It will be a doozy, and a potentially very profitable one at that since nearly 3/4 of it tangible equity is embroiled in a region that looks like it is about to blow up. As I type this, some of the puts have already doubled in price. I will be releasing additional analysis on this bank this weekend for paying subscribers.


Published in BoomBustBlog

Eurocalypse is back with his trading recap for tbohe past 24 or so hours...

Trading_Opinion_and_Analysis_9-7-2011_Page_1

Trading_Opinion_and_Analysis_9-7-2011_Page_2

Subscribers can continue reading this 6 page summary opinion and analysis hereFile Icon Trading Opinion and Analysis 9-7-2011. For those of you who have not had the opportunity, register for and download the BoomBustBlog Currency Trend Model, along with the accompanying instructional video.

I have made an FX trend model available for all to download. Its 10 mb, containing a lot of data, but you'll definitely get your money's worth. The model is available here: BoomBustBlog Complimentary FX Index model

Published in BoomBustBlog

A more advanced approach to monetizing volatility in the US equity broad markets (at least comparison to the introductory subscription document SPY option strategies in violent down moves) is to trade the SPX options or futures directly. The spreads in the options are MURDER and the volatility has already jumped. If you would have acted when we first indicated, you would be in profit heaven right now. Reference The 830% One Week Armageddon Trade Commentary: Tuesday, 8-9-2011, Continuing The Easily Seen Market Crash?, as excerpted:

All subscribers are welcome to download this full document This is the introductory post to a series of trade setups for European Bank at Risk, complete with sample trade setups. Since then, my Armageddon put trade has come a long way...
 image044

So, the question for all of new comers, Johnny Come latelys, skittish or those following the all will be well because the Fed/ECB are all powerful... Is it too late to set up new, profitable bearish positions? My answer is an unqualified "No" once it comes to our subject banks/countries (althought the risk/return on the French candidate is now diminishing save an all out rout, which is quite possible referencing the post The French Government Creates A Bank Run). We are working on the US contagion bank (reference File Icon Actionable Note on US Bank/ French Bank Run Contagion) and have yet to provide a valuation band, but if things kick off this will throw off considerable alpha. As for the simpler and more generic broader market, it all really depends on whether you belive the "long-only" asset management and sell side analyst crew are more credible than I am (see Did Reggie Middleton, a Blogger at BoomBustBlog, Best Wall Streets Best of the Best? for more on this topic). If you feel that I have a point in that the European situation will not end favorably without debt destruction, and said debt destrucion will destroy massive amounts of bank TEC, than the decision is easy. See the link list at the bottom for more on this topic. We also have the real estate problem hiding in both the US and European banking markets. These, in addition to insolvent sovereign states add up to an event worse than post-Lehman. If that's truly the case, then this is a no-brainer, even with nosebleed volatility levels. Take a look at the comparison of where we stand now and where we stood at the Lehman blow up...

image003_copy

Now, don't get me wrong. The path back to the bottom is fraught with risk, excessive volatility and markets so choppy as to be able to remove your head. Remember the bear market rally of 2009 that lasted until just a few months ago? Even correct calls this week proved to be considerably less profitable due to the heightened vol levels, at least in comparison to my 850% put trade referenced above. See what I did this week in relation to the broad market.

The SPX Oct. 20 1005 puts that I OVERPAID for on the 16th (as a result of getting stopped out of my previous Armageddon trade at 350% return down from 850% due to my ignoring my own advice and not gamma hedging/taking profits), went for $13.81, as was logged in my inventory. Today, with several significant drops in the broad market, these puts are currently bid at 23.70 and asked at 27.8. That's barely a 100% gain, wherein I posted a 550% gain last time around due to purchasing them when volatility was at a discount. Yes, the returns do sound good, but they are also rapidly diminishing... At this point, I would like to make it clear that this is not the market, and these are not the instruments for novice, meek, first time investors with a typical sell side directed brokerage account.

I will be posting more advanced trade setups over the next few weeks for professional and institutional subscribers and will post trading opinion slightly contrary to this piece later on today or tomorrow to give readers and subscribers a broader purview.

My warnings on the most recent banking crisis started in 2010, but here are the most recent rants starting with...

  • a keynote speech in Amsterdam,

Over the next few days I will offer advanced trading techniques to allow BoomBustBlog subscribers to monetize their view via the market, despite the attempts by those who do not see to manipulate free markets. In the mean time I will excerpt portions of the Pro/Institutional report on the French bank most at risk for a run, available for download right now -File Icon Bank Run Liquidity Candidate Forensic Opinion.

 Here are a few screen shots from the free public abridged version (File Icon French Bank Run Forensic Thoughts - pubic preview for Blog), that easily demonstrates the problem with the French banks cannot be solved by banning short selling. The problem is inherent in the banks themselves. Please click to enlarge to printer quality...

 French_Bank_Run_Forensic_Thoughts_-_pubic_preview_for_Blog_Page_02_copy

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Published in BoomBustBlog

bank_collpse_youtube_video_shotBank Run Candidate Option Trading Update (referencing native exchange pricing, ADRs are available for US investors)
As opined in the subscription trading setup available for download (This is the introductory post to a series of trade setups for European Bank at Risk), there was vacuum below the trading range drawn below the graph on page one (and similar levels for the other bank at risk) so it wasnt surprising we had this -20% (intraday on Tuesday) move in French banks when we broke the support convincingly. We already rallied significantly from the previous lows, because of the short selling ban but banks are clearly f*cked and even the short ban will not help much for recovery, and to the contrary will thoroughly assist prices in their collapse on the way down - reference The French Government Creates A Bank Run? Here I Prove A Run On A French Bank Is Justified And Likely.

The conservative struck puts will probably end up making in excess of x3. The 40 gamma trade put already made a killing trading around 6 (x4) still, while having plenty of gamma on the way down. Rmember, volatility literally exploded as I update this slighlly dated report at 3:58 am EST, the European markets opened sharply down - led by the banks, of course.

Remember, after EVERY violent move in your favor, but particularly downward, it is YOUR DUTY to take profits and DELTA HEDGE!!!

Relevant material for capturing maximum alpha duing this European banking meltdown:

File Icon French Bank Run Forensic Thoughts - pubic preview for Blog - A freebie, to illustrate what all of you non-subscribers are missing!

The timeline of European bank run research and opinion...

Published in BoomBustBlog

Attention subscribers! The French Bank run has BEGUN! Below is grab of the CDS chart of just one our subject banks as run candidate featured in the subscriber document, Italy Exposure Producing Bank Risk...

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Those who followed the recommendations in the subscriber documentFile Icon This is the introductory post to a series of trade setups for European Bank at Risk should be doing quite well. I am preparing a pro/institutional document for distribuion today, and may relasee the bank's ID to the public if it gets beat up bad enough today. For those that do not subscribe, re-read the following, for I will be writing the next leg of this saga very soon:

  1. Game Over For The European Ponzi Scheme?…
  2. France, As Most Susceptble To Contagion,…
  3. The Mechanics Behind Setting Up A Potential European Bank Run Trade and European Bank Run Trading Supplement

  4. What Happens When That Juggler Gets Clumsy?

  5. Let's Walk The Path Of A Potential Pan-European Bank Run, Then Construct Trades To Profit From Such

  6. Greece Is Fulfilling Our Predictions Of Default Precisely As Predicted This Time Last Year

  7. The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!

  8. The Fuel Behind Institutional “Runs on the Bank” Burns Through Europe, Lehman-Style!

  9. Multiple Botched and Mismanaged Stress Test Have Created The Makings Of A Pan-European Bank Run

  10. Observations Of French Markets From A Trader's Perspective

  11. On Your Mark, Get Set, (Bank) Run! The D…

 Update: As illustrated in my twitter stream from yesterday...

Yesterday was a rough, tumultuous ride. I went from supreme confidence to getting bloodied up. If you remember, the BoomBustBlog traders recommended a grab for profits or a gamma hedge. I decided to go all in to FIRE sector short risk, with just a wide trailing stop to protect me. I was quite comfortable up to the last 40 minutes of the session, wherein it seems as if Bernanke's floor traders swept in to teach smart asses such as my self a valuable lesson. Fortunately, CBs can only affect the markets, they can't control them. All short biased positions flourishing today as that French bank run that I promised looks to be coming to fruition and that 830% One Week Armageddon Trade moves right along... From my Twitter feed:

ReggieMiddleton: Load Up On Bank Puts? Futile Attempt To Make Insolvent Look Solvent By Interefering With Markets, Short Ban Has Started http://bit.ly/plfrwl


ReggieMiddletonReggieMiddleton:All wide trailing stops are still in place, allowing me (barring a violent gap up) a guaranteed 300% on the SPX, although it was 800%.


ReggieMiddletonReggieMiddleton: Nearly all of them are better traders than I, but instead of selling vol, I'm buying further up the ladder of risk at cheaper prices.

Update, my OTM cheaply bid puts are being hit. I'm getting deeper in the [short risk]  game. I will offer mini-reports on the companies in question soon

I went against the grain of both the consens and even the BoomBustBlog traders and loaded up on shorts in lieu of selling off profit and/or hedging. It was a bloody ride, and I was [mentally/emotionally] wiped after the Fed's intervention during the last 40 minutes of trading. Many of my FIRE sector and French bank positions were actually stopped out by the bell, making it difficult to even maintain a position with a semblance of risk management. I actually felt bad... You know regret, even though I moved wtih both the fundamentals and my gut. The following morning, my bold contrarian move was vindicated and we march on.

Time To Load Up On Bank Puts? The Futile…

Time To Load Up On Bank Puts? The Futile Attempt To Make The Insolvent Appear Solvent By Interefering With Market Pricing - Short Ban Has Started

Let's see hear... It didn't work during the last market crash. Actually, I don't think there was ever a time when it DID work. Nevertheless, let's try it anyway. You can't sell insolvent companies short! As anticipated last week in our post Didn't Anyone Notice The Seemingly Irreparable Damage To The Eurozone Last Week? Global Short Ban, Here We Come!...

The 830% One Week Armageddon Trade Comme…

The 830% One Week Armageddon Trade Commentary: Tuesday, 8-9-2011, Continuing The Easily Seen Market Crash?

A timely tidbit from one of contributing BoomBustBlog traders, Eurocalypse, basically an extension of what was expoused last week in Timely Trading Tips For 8/5/2011,which I excerpt: I deeply hope your readers and yourself have benefited from the options strategies, market has been so quick; I dont know if it could be published in time. ...I'd recommend to take partial profits....

Armageddon Put Trade Up Over 500% For Th…

Armageddon Put Trade Up Over 500% For The Week, More Room To Go And More Trades To Set Up!

As those who have been reading me for a while know, I have been crowing about sovereing debt default leading to a European bank collapse, causing global contagion for some time. For those who haven't, reference last years posts in the Pan-Europan Sovereign Debt Crisisseries, or The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run...

Published in BoomBustBlog

We now have the media and well known economists pondering, if not joining the consensus, that we are entering a double dip recession. I believe they are all wrong. From a practical standpoint, the previous recession was never completed, and I have stated this several times over through BoomBustBlog...

As a matter of fact, I parsed the semantics with the esteemed Nouriel Roubini at a party in his home last may, reference The "American Realist" Says: Past as Prologue - Re-blown Bubble to Pop Before the Previous Bubble Finishes Popping!!!!  Wednesday, 18 May 2011

In the Q&A he had with his clients, the topic of double dip recessions came up. In a nutshell, he felt that there was a possibility, but not assurance of a double dip. Let me add that I have an awful lot of respect for Nouriel. Outside of calling the housing crash accurately (as did I), he speaks his mind openly and does not mince his words. Coming from and independent guy such as myself, that trait is worth more than its weight in gold (that means worth more than 1,700 per troiy ounce, and counting). But after that comment, being the brash ass that I am, I interjected with the opinion that what was being labeled as a double dip was already a forgone conclusion, and in reality it wasn't a double dip at all, but really a continuation of the previous recession that was broken up by massive bubble blowing on a global scale. Nouriel countered that the difference between a double dip and what I espoused was a matter of semantics.

I respectfully disagreed with the esteemed doctor, for you see the difference is the economic sustainability of the alleged progress. If this was truly a double dip, then the economy actually grew, then stuttered. That's materially and significantly more positive than an economy which dramatically shrunk and then was literally pushed upwards by stimulus, and only stimulus, just to fall back IMMEDIATELY after said stimulus was ever so slightly slackened. What this means is that the economy was perpetually in free fall, and that fall was simply lessened by said stimulus. A stark difference from an economy that actually started growing on its own then petered out.

It has been my contention the Fed has spent a $1 for every $0.60 cents of recovery. Unsustainable! Unwise!

As detailed in  "Who is Reggie Middleton!!!", my empirical approach allowed me to see the housing crash, CRE crash, collapse of GGP, Bear Stearns, Lehman, WaMu, Countrywide, municipal finances, regional banks, monoline insurers, the pan-European sovereign debt crisis as well as a whole host of other valuation faux pas, considerably ahead of sell side Wall Street, ratings agencies, most independent shops and the financial media.

I fear many may dismiss my viewpoints simply because they may have a bearish tinge to them. Trust me, I am not a pessimist. As a matter of fact, my actions throughout the first half of the first decade of the new millennium would have led many to believe that I was the ultimate real estate bull. Alas, it was not optimism, it was realism, just as what may appear to be pessimism now is nought but realism. To discount realism as pessimism, from a historical perspective, may not be wise. Every since 2006, my views on the asset and credit bubble bursting have been quite contrarian and thought of as pessimistic. All one had to do was fast-forward a year or two and realism easily replaces the term pessimism. Go to the 11:00 mark in this video from the Dutch Station/show VPRO Tegenlicht and listen for at least 45 seconds. It pretty much tells the tale...

Another viewpoint from March 2011: Do Black Swans Really Matter? Not As Much as the Circle of Life, The Circle Purposely Disrupted By Multiple Central Banks Worldwide!!!

I have always been of the contention that the 2008 market crash was cut short by the global machinations of a cadre of central bankers intent on somehow rewriting the rules of economics, investment physics and global finance. They became the buyers of last resort, then consequently the buyers of only resort while at the same time flooding the world with liquidity and guarantees. These central bankers and the countries they allegedly strive to serve took on the debt and nigh worthless assets of the private sector who threw prudence through the window during the "Peak" phase of the circle of economic life, and engaged in rampant speculation. Click to enlarge to print quality...

The result of this "Great Global Macro Experiment" is a market crash that never completed. BoomBustBlog subscribers should reference File Icon The Inevitability of Another Bank Crisis while non-subscribers should see Is Another Banking Crisis Inevitable? as well as The True Cause Of The 2008 Market Crash Looks Like Its About To Rear Its Ugly Head Again, With A Vengeance.

All four corners of the globe are currently "hobbling along on one leg", under the pretense of a "global recovery".

Simply sit back and look at the (supposed, none of these should truly be considered surprises) Black Swan Catalysts that we now face:

  1. US Housing, you know, the the thing that kicked this all of to begin with - The True Cause Of The 2008 Market Crash Looks Like Its About To Rear Its Ugly Head Again, With A Vengeance Friday, March 11th, 2011
  2. US and/or European Commercial Real Estate - Reggie Middleton ON CNBC’s Fast Money Discussing Hopium in Real Estate Friday, February 25th, 2011
  3. MENA, the Middle East & North Africa - Egypt’s Social Unrest As A Pan-European Economic and Financial Contagion? It Can Happen!!! Friday, January 28th, 2011  or First Tunisia, Then Egypt, Now Yemen: Will This Reach The Powder Keg That Is The EU & What Will Happen If It Does? Wednesday, February 2nd, 2011
  4. Japan - Can Contagion Be Avoided Considering The Magnitude Of Japan’s Woes? Tuesday, March 15th, 201

The list can go on.

Published in BoomBustBlog

A timely tidbit from one of contributing BoomBustBlog traders, Eurocalypse, basically an extension of what was expoused last week in Timely Trading Tips For 8/5/2011,which I excerpt:

I deeply hope your readers and yourself have benefited from the options strategies, market has been so quick; I dont know if it could be published in time.

...I'd recommend to take partial profits. Premiums have probably doubled or morewith the move and probable increase in vol. at this stage even the move is so violent we should have a very bad day at least until the opening of the US market today,waiting at least 1 hour after the opening seems wise.

I'd recommend to take some profits, after that because theta becomes expensive at this level especially with the weekend coming!

There are several ways to do it:

    1. Take off X% of the initial strategy to make it 0 cost,
    2. Delta hedge, and increase the delta hedge when market continues to sell off (thats the benefit of gamma) for naked options.
  1. If vol jumped already to stupid levels, sell some put spreads below the strong support levels indicated in the previous trade setups to make up for the initial premium with the increase of vol, you sell less options and you end up with a nice structure which can end in the money on both sides.

The probability of a total meltdown is here though so I'd keep some downside but no one ever lost booking some profits.

All subscribers are welcome to download this full document This is the introductory post to a series of trade setups for European Bank at Risk, complete with sample trade setups. Since then, my armageddon put trade has come a long way...
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You see, although I feel we still have a lot to go, and I don't feel I put enough at risk before the market crash - contrary to popular belief, Greed is NOT Good. It's stupid. There's still the European bank run scenario that has yet to play out. On that note, a timely update from Eurocalypse:

Hi readers,

Dont be a pig, if you have profits not taken now, I suggest one takes serious chips off the table. Hedge your gamma; better even resell options
people are bidding vol like crazy now.

That's the truth. Product is expensive as hell now, priced to the point where you can't make money!

There will be [other] opportunities. if the move down continues. Having profited from this downmove, you'll be among the few able to play for a violent bounce. Market is clearly oversold.

The risk/reward in being bearish AT THESE LEVELS and in the short term, is much much worse than when we opened the positions, so....make the rational choice and dont regret even if it continues. Being too greedy is bad.

We may know the end of the story, but even bear markets are not one-way...this has been a big run...

Actually, most of the big money in drastic bears such as 2008/9 came from single day collapses, with the balance being choppy trading, sideways action and rallies. It's difficult, but I believe that the key is to have exposure but to roll profits while continusouly feeding your coffer by removing gains, no less than 50% of the total, regularly and religously. Timing the market is fool's play, I don't care what anyone else says. Those that get it often are lucky, period! Luck runs out, guaranteed. It may seem that I'm prescient, but in reality I'm just objective and know how to count. In the end, it's still hard as hell for me to time this correctly, which is why there is now such a strong trading component in my fundamental and forensic analyses. As I write this, the rally in ES futures is fading from 17 to 7, as I anticipated. Still, curiosity didn't kill the cat. Greed did!

Coming up soon, more on European banks blowing up!!!!

What makes this so interesting from a subscriber perspective is that this bank is sitting under everybody's nose yet no one suspects it. KaBoom!!! Nuclear chain reaction thoughout Europe based on panic, greed, avarice and fear?

For those how haven't followed my bank run series...

  1. The Mechanics Behind Setting Up A Potential European Bank Run Trade and European Bank Run Trading Supplement
  2. What Happens When That Juggler Gets Clumsy?
  3. Let's Walk The Path Of A Potential Pan-European Bank Run, Then Construct Trades To Profit From Such
  4. Greece Is Fulfilling Our Predictions Of Default Precisely As Predicted This Time Last Year
  5. The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!
  6. The Fuel Behind Institutional “Runs on the Bank” Burns Through Europe, Lehman-Style!
  7. Multiple Botched and Mismanaged Stress Test Have Created The Makings Of A Pan-European Bank Run
  8. Observations Of French Markets From A Trader's Perspective
  9. On Your Mark, Get Set, (Bank) Run! The D…

And the progenitor of the fundamentally flawed, but virtually guaranteed attenpt at a contrived equity rally...

ECB As European Lender Of Last Resort = Institutional Purveryor Of A Pan-European Ponzi Scheme

Published in BoomBustBlog

As those who have been reading me for a while know, I have been crowing about sovereing debt default leading to a European bank collapse, causing global contagion for some time. For those who haven't, reference last years posts in the Pan-Europan Sovereign Debt Crisisseries, or The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs! for something a little more recent. Early last week, I put one a trade in the US options markets to capitalize on what I saw as the European tipping point, Game Over For The European Ponzi Scheme? Monetizing Pan-European Sophisticated Ignorance Via US Options, Part 1 For Retail and Professional Realists (8/2/2011). I then updated said post with the results of said option trade, a full 260% return in 48 hours - Timely Trading Tips For 8/5/2011  as well as additional illustrative trades for blog subscribers as well as plenty of educational material for those that don't subscribe. That was last week.

Well, another week, another story. The very same armageddon trade is now up over 500%, and I believe it still has plenty to run. Athough we may be overdue for a snapback rally, the macro outlook AND the fundamentals are downright disgusting, and to be quite frank they have been since 1st quarter of 2009. Incessant bubble blowing by the global central planning cartel (the Fed, ECB, BOJ & Chinese government) have succeeded in convincing many an investor that bubbles blowing = economic growth. My dear friends, it simply does not. All you are doing by blowing bubbles is pulling/borrowing economic growth from future periods, and now its time to pay the full debt service (itnerest plus borrowed economic capital) back in spades! Reference Do Black Swans Really MatterNot As Much as ...,

Click to enlarge!

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We have also just released (this morning before the trading session) additional trade setups designed to take advantage of the recent US debt downgrade, see Trading the US Debt Rating Downgrade the…

 Update: Minutes afte typing this, the same put is Asked just under $48!!! If/once this option goes "in the money", the party will be just getting started!

Published in BoomBustBlog

This is an indepth piece that addresses my subcribers inquiries into trading the fundamental/forensic research I offer. The topic du jour is the US Treasury downgrade.

Attention subscribers: time sensitive, actionable research available at the end of this document.

Illustrative Trade Setups & Opinions For Retail Subscribers of BoomBustBlog

Instrument of choice for retails subscribers: The Proshare ETFs track the total return of an index on a daily basis with a x2 or x3 leverage. Professional and institutional subscribers would most likely trade the treasuries and futures markets directly.

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The Basics

Targeting US Federal Government Fixed Income, there are 2 available indexes, one relating to 7-10yr treasuries (PST - seeks twice (200%) the inverse [opposite] of the daily performance of the Barclays Capital U.S. 7-10 Year Treasury Bond Index), one for 20yr+ treasuries (TBT - ProShares UltraShort 20+ Year Treasury seeks  twice (200%) the inverse [opposite] of the daily performance of the Barclays Capital U.S. 20+ Year Treasury Bond Index). Because 20Y treasuries have (much) more duration than shorter ones, they tend to move more in price terms as yields move about the same.

This is almost always true of fixed income, except in case of Greece’s current situation where the perception of imminent default causes all securities to converge to the same price, and yields simply to don’t follow the convention rules, ex. 8% of nothing is no less than 20% of nothing.

For an outright play (without options) TBT will be more volatile than PST, and has arguably more leverage embedded. However for an option play, the most volatile instrument is not of paramount importance, what’s most important is the return on the premium invested. A distinct, yet oft overlooked nuance.

Fundamentally Speaking…


From a fundamental play, our traders are not confident the market is ripe for THE BIG FIXED INCOME SELLOFF which would make the 10Y UST look like the Greeks. Actually there’s still a plausible case for 10Y UST moving sub-2% and to begin speaking Japanese ! (JGB yields currently 1% and have touched only a very few times and very briefly 2% in the last 10 years, averaging more 1.3%-1.4%...). Why? Because the FED like the BOJ could just monetize the debt and print money to put them on their balance sheet with a QE3, 4 etc....

The Greek scenario is a bank run scenario, which is possible (as we all know from informative postings such as On Your Mark, Get Set, (Bank) Run! The D…) but timing is everything and everything is difficult ot accomplish!!!

Caveat Emptor!

Even a guy(gal) who bought a 20Y JGB in 2003 at the lowest ever, 1% yield, if he held it through today, has made money despite the higher yield today.... The (BTFD -Buy The Fu@&ing Dip) mentality is truly firmly entrenched! To what should be no one’s surprise, the speculative longs are mostly the banks, "hedging" their ALM mismatch by buying bonds, assuming their deposits are stable.

The bank’s risk becomes a MTM risk, but accounting rules allow them to cope with that as long the deposits are there. For more strategically inclined banks (wink, wink), MtM losses would only affect their AFS (available for sale) reserves and capital (so not the net result of the bank).

Note: There is a potentially very profitable equity trade stemming from this habit, see The Mechanics Behind Setting Up A Potent… & European Bank Run Trading Supplement Ava…).

Of course because everybody is long, there are episodes of panic and risk reduction which are violent because it becomes a one-way market, but when everybody has reduced risk, it snaps back violently and a new cycle begins... so it has been.

The pain trade in FI for banks is lower yields, because high yields is how banks make easy money. Remember my comments on ZIRP killing the banks it was designed to help (reference the YouTube Video and scroll 13 minutes into the video).



On a short term basis, if anything our traders bet for higher FI prices and lower stocks again... and panic to resume.

Note how the 121 strike on the SPY were well chosen (reference subscription document SPY option strategies in violent down moves). We’ve come through, and as the market continues to sell off, you could continue to adjust your delta buying back (and locking actual profits because even if the market doesn’t move anymore your puts are in the money) when the market sells off and when it bounces towards 121 again, you can unload it. We saw 116 at the lows... gamma is how you make a killing with options.

With the aforementioned limitations, caveats and market behaviors in mind, I'm pleased to present to BoomBustBlog subscribers the following detailed, illustrative trade setups...

Published in BoomBustBlog
Friday, 05 August 2011 01:33

Timely Trading Tips For 8/5/2011

Sixty points down on the S&P with most world markets following suit! What a day, what a day. This is what those Armageddon puts discussed Yesterday morning looked like by the end of yesterday's trading session, up 265% in profit!

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The SPX/e-mini options are admittedely a pain in the ass to trade for many retail investors, so I posted a useful illustrative guide on a lower cost (out of pocket) alternative - Game Over For The European Ponzi Scheme? Monetizing Pan-European Sophisticated Ignorance Via US Options, Part 1 For Retail and Professional Realists.

Things were moving so fast that the market was breaking literally as I was posting it. Long story, short - if you believe that the Circle of Economic Life is about to come back to the forefront, you should still be stocking up of volatility. If not, then hedge up and sell of for full profit.

As excerpted from the afore-linked post:

What It Takes To Actually Make Money

ATM (annualized) vol (125) is around 24% on Aug, 23% on Sep, 22% on Oct and 21.5% on Nov. (these are approximations, rule of thumb: the implied daily move (in %) is (annual) volatility / sqrt (250) if we count 250 biz days every year). So 24% is roughly a 1.5% move a day. More adequately speaking, roughly, an options trader who is delta hedged and long options, needs the mkt to move more than 1.5% a day to make money. As implied is, because of risk premia, often 10% or 15% more than (expected) realized vol you see vol is not cheap against recent history, but compared to 2009 early 2010 it is quite cheap. So if you are of the mindset of our last few posts (see list at end of this article), there is upside there.

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Any reversion to bank collapse volatility makes even today's option prices look cheap. You have to be careful, though. The global financial planning cartel has other plans.

Reference Do Black Swans Really Matter? Not As Much as ...

...

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All subscribers are welcome to download this full document file icon This is the introductory post to a series of trade setups for European Bank at Risk, complete with sample trade setups.

The following is a quick note from Eurocalypse on the topic...

Hi Reggie

This is terribly impressive, and I am in admiration with the timing of your call.

He is referring to the timing/macro/fundamantel call - I recommended he put together a vega trade via SPX/SPY opition setups last week, but a day or two delay combined with a rapid plunged gave scant time to take advantage of it

I deeply hope your readers and yourself have benefited from the options strategies, market has been so quick; I dont know if it could be published in time.

...I'd recommend to take partial profits. Premiums have probably doubled or morewith the move and probable increase in vol. at this stage even the move is so violent we should have a very bad day at least until the opening of the US market today,waiting at least 1 hour after the opening seems wise.

I'd recommend to take some profits, after that because theta becomes expensive at this level especially with the weekend coming!

There are several ways to do it:

  1. Take off X% of the initial strategy to make it 0 cost,
  2. Delta hedge, and increase the delta hedge when market continues to sell off (thats the benefit of gamma) for naked options.
  3. If vol jumped already to stupid levels, sell some put spreads below the strong support levels indicated in the previous trade setups to make up for the initial premium with the increase of vol, you sell less options and you end up with a nice structure which can end in the money on both sides.

The probability of a total meltdown is here though so I'd keep some downside but no one ever lost booking some profits.

I'm actually quite confident it's going to happen, the issue is timing is everything, hence OTM longer dated puts.

Longer term down the road im even more pessimistic than you are.USSR 1989, EURO 2012 and put US, UK and Japan with it probably as well.

Beyond that chaos anarchy wars? I hope not but terra incognita!

The decision of BNY Mellon to tax big deposits is a prelude to financial repression, freezing accounts to prevent a bank run.

See BNY Mellon imposes fee on rapidly growing deposits, in short, the bank will punish anyone who does not invest their money in risk assets of some sorts. That's right, a bank that is trying to discourage you from saving in cash. What the hell??? This is probably just the beginning as the TPTB attempt to force capital into the Ponzi pool in order to keep the facade of value on devalued assets...

... having a max of money "voluntiraly" invested into debt instruments which wont be repaid...
What things like this will do is ensure the reverse will happen. The smart money will exit first en masse which will make sure they end up NEEDING to freeze these accounts.

Anyway, its a pleasure contributing to your blog

thanks


Published in BoomBustBlog