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

French_Bank_Run_Forensic_Thoughts_-_pubic_preview_for_Blog_Page_04

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

bank-run-1931The bank run in Europe appears to be underway again, exactly as I have anticipated. Remember, historically, bank runs were mainly instituted by retail investors pulling deposits. Modern day institutions and mechanisms have successfully been implemented to mitigate and stem the tide of such occurrences to an extent that many potentially devastating bank runs have been avoided. The caveat is, a new instigator of the bank run has emerged. Make no mistake about it, the institutional counterparty is the new purveyor of the modern day bank run. For those who have not been following my European bank run rants, see my many warnings to date regarding the highly contagious European bank run below. For those who have been following, skip past the link list to the news excerpts directly below to see what is going on today and coincidentally what we have been working on for the last week - which is just starting to come out into the mainstream media and the sell side analysts water cooler chatter...

It all started as:

  • a keynote speech in Amsterdam,

First CNBC reports US Markets Indicating Sharp Selloff at Open on European Bank Concerns, This is shortly after reporting, by way of the Wall Street Journal reports: European Central Bank Dollar Loan Signals Euro Stress

The European Central Bank has lent dollars to a eurozone bank for the first time since February in the latest sign of escalating tensions in the region’s financial system.

A single bidder borrowed $500 million for a week, the ECB disclosed on Wednesday, after taking advantage of a facility that has largely lain dormant over the past year.

No details were given but the news suggested that at least one bank was having difficulties obtaining the dollar funds it required.

On its own, the use of the facility did not point to dramatic stress levels in funding markets, analysts said.

But it added to other evidence that European banks were struggling to access some forms of financing for the first time in a couple of years.

The so-called Euribor-OIS swap, a gauge of fear in the banking sector, is at its highest since 2009, while short-term euro basis swaps, which show a strong premium for buying dollars over the single currency, are at the most negative since the collapse of Lehman Brothers.

Meanwhile, the ECB continues to see high levels of funds being parked overnight in its “deposit facility”, rather than being lent to other banks.

...

“All the indicators are pointing in the same way: banks are becoming more keen to use official sources of liquidity than one month ago. Is it the crisis levels of 2008? No,” said Laurence Mutkin, rates strategist at Morgan Stanley.

Nick Matthews, European economist at Royal Bank of Scotland, said: “It is probably symptomatic of the kind of stresses and strains there are in the system.”

Acting with the US Federal Reserve, the ECB first offered US dollars to euro zone banks at the end of 2007. The program was reactivated after the collapse of Lehman Brothers in late-2008 – and again in May last year, when the euro zone debt crisis was at its most intense.

Any casual reader of BoomBustBlog has been thoroughly forewarned, and all BoomBustBlog subscribers should have their positions firmly in place, ready to monetize this situation after buying volatility on the cheap and short positions at favorable levels - reference the following documents, all produced while volatility was cheap and the subject banks were trading much higher:

  1. SPY option strategies in violent down moves
  2. This is the introductory post to a series of trade setups for European Bank at Risk
  3. and The Inevitability of Another Bank Crisis!

The Federal Reserve Bank of New York is intensifying its scrutiny of the U.S. units of Europe's biggest banks amid concerns that Europe's debt crisis could spill into the U.S. banking system, the Wall Street Journal reported citing sources familiar with the matter.

This is quite interesting and timely, for several weeks ago we started our own forensic investigation and many would be surprised at what we have found. All BoomBustBlog subscribers are strongly urged to download today's latest actionable note regarding the big American bank (see File Icon Actionable Note on US Bank/ French Bank Run Contagion) closely related to the big bank identified in The French Government Creates A Bank Run? Here I Prove A Run On A French Bank Is Justified And Likely, as excerpted:

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

French_Bank_Run_Forensic_Thoughts_-_pubic_preview_for_Blog_Page_03

French_Bank_Run_Forensic_Thoughts_-_pubic_preview_for_Blog_Page_04

Published in BoomBustBlog

Tuesday trading update from Eurocalypse...

The SP500 daily chart has the same pattern than CAC.a squeeze could lead us to 1240 but I don't see it really pushing any further out and I see the market being more heavy than Europe because we didn't sell off as hard.

sp500

Contrary to the CAC points (see Eurocalypse Trading Update 8/16/2011 - French Markets and The Inevitable Pan-European Real Estate Collapse), we didnt visit 2010 lows which are my target, so lets not talk about July 2009 lows just yet. The option set up and trading illustration given to subscribers last week still stands as the preferred method for those who trade optionable ETFs to best position themselves. All paying subscribers should download SPY option strategies in violent down moves for retail investors. We will review larger contract futures strategies for professional and institutional investors in the near future.

Fixed Income

While we believed that it's both rational and worthwhile to play the long US notes, Bunds (or Swap rates) as a positive carry trade to leverage the continuing debacle of western economies, these are profit taking levels for those momentum players and flight to quality traders, and perhaps even levels to cautiously try the short side. No, the strategy is not driven by the explosion of the ponzi that US debt or german debt, but simply an over extension of a trend. UST notes monthly charts shows we are in resistance zone.

On bunds, the German debt, there is still this joker that it is suddenly rerated as bad as PIIGS if Merkel gives in to support Italy and Spain (which she has shown she is thus far refusing to do in by refusing Eurobonds)...The short term mo-mo players are not looking at things this way. There is also this matter of the CRE rollovers that will either smash French and German banks, tank pan-European real estate, or the most likely option - both.

Things to watch

I think the stock market can tank in the short term only if the PIIGS crisis resumes abruptly. Is it possible ? Well of course, it is, but I think we'd see serious signs in the debt markets before the stock market reacts, as usual. I read that 22bn of PIIGS debt were bought last week, the fastest pace ever,
and a very significant amount. All the guys who sold, probably bought Bunds instead (they are bond funds, ALMs so if they sell an investment, they should
buy something else with the proceeds...). If ECB activity subsides, Bunds naturally lose some of their bid. and then the bid on PIIGS will be tested as Bunds' yield rise from here. Then the market could well call the ECB bluff and see how big their virtuo-synthetic inkjet powered pockets really are (from a political point of view, of course - they can literally print forever up until inflation scares them back - reference The Bull Argument For Europe Is Credible, Except For The Circular Argument: You Can't Solve Debt Problems With More Debt!!!). If these balls are not as deep as their virtual pockets, then....

Reggie's note:

Of interest, if we're correct in our fixed income outlook, that Pan-European CRE crash may well have ample company stateside. See my rant on over optimism in this space on CNBC: Reggie Middleton ON CNBC’s Fast Money Discussing Hopium in Real Estate.

As excerpted:

Listen up people, HERE ARE THE NASTY FACTS!!!

Real estate is a highly rate sensitive asset class. Capitalization rates (the popular method of pricing real estate) is explained in Wikipedia as:

Capitalization rate (or "cap rate") is the ratio between the net operating income produced by an asset and its capital cost (the original price paid to buy the asset) or alternatively its current market value.[1] The rate is calculated in a simple fashion as follows:

 \mbox{Capitalization Rate} = \frac{\mbox{annual net operating income}}{\mbox{cost (or value)}}

Without going into a CRE class, when interest rates go up, cap rates generally go up as well and the value (or cost to purchase) of the property goes down in sympathy unless the rise in interest rates is offset by a commensurate or greater rise in net operating income. Now, either everybody believes that unemployment is going to drop towards zero  in an era of US austerity (reference Are the Effects of Unemployment About To Shoot Through the Roof? then see Budget AusterityGoldman Sees Danger in US Budget Cuts - CNBC) at the same time that historically low interest rates that actually went negative are going to get lower (see the Pan-European Sovereign Debt Crisis) ---- or cap rates are about to skyrocket. I'll let you decide!

As you can see above, CRE drops in value whenever yields spike more than the + delta in NOI. Looking below, you can see that US CRE actually runs to the inverse of the 30 year Treasury.

That visual relationship is corroborated by running the statistical correlations...

The relationship is obvious and evident! In addition, we have been in a Goldilocks fantasy land for both interest rates and CRE for about 30 years. CRE culminated in the 2007 bubble pop, but was reblown by .gov policies and machinations. The same with rates. Ever hear of NEGATIVE interest rates where YOU have to PAY someone to LEND THEM MONEY!!!

So, BoomBustBloggers, where do YOU think rates are going to go from here? Up of Down??? Let's ask Portugal or any of the other PIIGS group. I have shown, very meticulously, how Portugal can not only afford the path that they are on (record high interest rates) but the losses that will come when they restructure (default) - for all to see. I have done the same with Spain, Ireland and Greece (for subscribers only). See The Truth Behind Portugal’s Inevitable Default – Arithmetic Evidence Available Only Through BoomBustBlog followed by The Anatomy of a Portugal Default: A Graphical Step by Step Guide to the Beginning of the Largest String of Sovereign Defaults in Recent History (December 6th & 7th, 2010). Be sure to carefully and very thoroughly peruse the spreadsheet below to see the many scenarios present that show the NPV of investor losses due to haircuts and restructurings...

I have went through what is inevitable in the US from a fundamental perspective right here in New Amsterdam, just a tad bit before I brought the message across the pond to old Amsterdam.

{youtube}MukxtjCVc5o{/youtubbe}

Remember, unlike many, I have asserted since 2007: It's a Real Estate Depression!!!

Published in BoomBustBlog

Tuesday trading update from Eurocalypse...

The SP500 daily chart has the same pattern than CAC.a squeeze could lead us to 1240 but I don't see it really pushing any further out and I see the market being more heavy than Europe because we didn't sell off as hard.

sp500

Contrary to the CAC points (see Eurocalypse Trading Update 8/16/2011 - French Markets and The Inevitable Pan-European Real Estate Collapse), we didnt visit 2010 lows which are my target, so lets not talk about July 2009 lows just yet. The option set up and trading illustration given to subscribers last week still stands as the preferred method for those who trade optionable ETFs to best position themselves. All paying subscribers should download SPY option strategies in violent down moves for retail investors. We will review larger contract futures strategies for professional and institutional investors in the near future.

Fixed Income

While we believed that it's both rational and worthwhile to play the long US notes, Bunds (or Swap rates) as a positive carry trade to leverage the continuing debacle of western economies, these are profit taking levels for those momentum players and flight to quality traders, and perhaps even levels to cautiously try the short side. No, the strategy is not driven by the explosion of the ponzi that US debt or german debt, but simply an over extension of a trend. UST notes monthly charts shows we are in resistance zone.

On bunds, the German debt, there is still this joker that it is suddenly rerated as bad as PIIGS if Merkel gives in to support Italy and Spain (which she has shown she is thus far refusing to do in by refusing Eurobonds)...The short term mo-mo players are not looking at things this way. There is also this matter of the CRE rollovers that will either smash French and German banks, tank pan-European real estate, or the most likely option - both.

Things to watch

I think the stock market can tank in the short term only if the PIIGS crisis resumes abruptly. Is it possible ? Well of course, it is, but I think we'd see serious signs in the debt markets before the stock market reacts, as usual. I read that 22bn of PIIGS debt were bought last week, the fastest pace ever,
and a very significant amount. All the guys who sold, probably bought Bunds instead (they are bond funds, ALMs so if they sell an investment, they should
buy something else with the proceeds...). If ECB activity subsides, Bunds naturally lose some of their bid. and then the bid on PIIGS will be tested as Bunds' yield rise from here. Then the market could well call the ECB bluff and see how big their virtuo-synthetic inkjet powered pockets really are (from a political point of view, of course - they can literally print forever up until inflation scares them back - reference The Bull Argument For Europe Is Credible, Except For The Circular Argument: You Can't Solve Debt Problems With More Debt!!!). If these balls are not as deep as their virtual pockets, then....

Reggie's note:

Of interest, if we're correct in our fixed income outlook, that Pan-European CRE crash may well have ample company stateside. See my rant on over optimism in this space on CNBC: Reggie Middleton ON CNBC’s Fast Money Discussing Hopium in Real Estate.

As excerpted:

Listen up people, HERE ARE THE NASTY FACTS!!!

Real estate is a highly rate sensitive asset class. Capitalization rates (the popular method of pricing real estate) is explained in Wikipedia as:

Capitalization rate (or "cap rate") is the ratio between the net operating income produced by an asset and its capital cost (the original price paid to buy the asset) or alternatively its current market value.[1] The rate is calculated in a simple fashion as follows:

 \mbox{Capitalization Rate} = \frac{\mbox{annual net operating income}}{\mbox{cost (or value)}}

Without going into a CRE class, when interest rates go up, cap rates generally go up as well and the value (or cost to purchase) of the property goes down in sympathy unless the rise in interest rates is offset by a commensurate or greater rise in net operating income. Now, either everybody believes that unemployment is going to drop towards zero  in an era of US austerity (reference Are the Effects of Unemployment About To Shoot Through the Roof? then see Budget AusterityGoldman Sees Danger in US Budget Cuts - CNBC) at the same time that historically low interest rates that actually went negative are going to get lower (see the Pan-European Sovereign Debt Crisis) ---- or cap rates are about to skyrocket. I'll let you decide!

As you can see above, CRE drops in value whenever yields spike more than the + delta in NOI. Looking below, you can see that US CRE actually runs to the inverse of the 30 year Treasury.

That visual relationship is corroborated by running the statistical correlations...

The relationship is obvious and evident! In addition, we have been in a Goldilocks fantasy land for both interest rates and CRE for about 30 years. CRE culminated in the 2007 bubble pop, but was reblown by .gov policies and machinations. The same with rates. Ever hear of NEGATIVE interest rates where YOU have to PAY someone to LEND THEM MONEY!!!

So, BoomBustBloggers, where do YOU think rates are going to go from here? Up of Down??? Let's ask Portugal or any of the other PIIGS group. I have shown, very meticulously, how Portugal can not only afford the path that they are on (record high interest rates) but the losses that will come when they restructure (default) - for all to see. I have done the same with Spain, Ireland and Greece (for subscribers only). See The Truth Behind Portugal’s Inevitable Default – Arithmetic Evidence Available Only Through BoomBustBlog followed by The Anatomy of a Portugal Default: A Graphical Step by Step Guide to the Beginning of the Largest String of Sovereign Defaults in Recent History (December 6th & 7th, 2010). Be sure to carefully and very thoroughly peruse the spreadsheet below to see the many scenarios present that show the NPV of investor losses due to haircuts and restructurings...

I have went through what is inevitable in the US from a fundamental perspective right here in New Amsterdam, just a tad bit before I brought the message across the pond to old Amsterdam.

{youtube}MukxtjCVc5o{/youtubbe}

Remember, unlike many, I have asserted since 2007: It's a Real Estate Depression!!!

Published in BoomBustBlog

Morning trading update from Eurocalypse...

It has been a hectic time laced with a very violent market. It’s been easy to get burnt both by being bullish or bearish. A very unusual situation wherein unless armed with superior research, deft trading skills, innovative strategies and a lot of luck, your basically damned if you do and damned if you don’t. This is why option strategies are so comfortable. You have a natural stop.  The recent BoomBustBlog subscriber content had some predefined targets and the good thingis to stick to them, even when the market is overshooting the target.Regarding the broad equity indexes, the call was to target the 2010 lows…

For the CAC40, it was around 3250-3300. Well, we’ve been quite wrong because we went more than 10% down from that going thru 3000 at one stage. But I wrote as well, that any significant move under that, would be an overshoot, and by taking profits at our target, we'd be the few ones able to take a short term bet on a squeeze. We are now sitting at 3240. Where from here? Well the market bounced where it should after surpassing the 3300. 3000 was the end of June/beginning of July 2009 lows. Given the speed of the move, and that nothing has changed (were all f*cked, but anyone reading BBB or ZH knew that before the move....), I dont see any fresh reasons, apart from momentum (which is enough in itself) to go much lower. The meaning of that, is that although we are in a bear market, selling without trying to time the market now, can be very painful given how far we are from the break and how the short term bottom COULD look after a bounce like a real bottom and prompt everyone for cover...

Click to enlarge...

20110816_-_CAC_Daily

I see no fundamental reason for a big bounce now, but in this volatile market, even an ephemeral 3450 doesnt seem impossible eventhough we already had a good
bounce. There seems to be a divergence on the daily chart ( on stochastics, MACD, RSI) and the short term pain trade could be higher prices. The ADX is very strong, and indicates as well the possibility of a further technical correction to the move. With implied vol high, fresh buying of options will probably not make money. I advise to keep some remaining gamma options and play with the delta hedge and try to take advantage of high vol and skew to position for FLY or broken flies bearish trades. I even advised buying some OTM vega calls at the lows, because they were too cheap even I had no conviction on a real bounce. Well theyve been repriced nicely thanks to the skew effect + the rally from the lows! Anyone who followed that advice should take profits cause im not sure vol will be bid and market upside is limited from here. Tech levels: if for a ST trade, be neutral at this level (3250) and opportunistic. A move towards 3450 should be faded.

20110816_-_CAC_Weekly

On the downside, last week lows COULD hold, even if it looks ugly when we revisit them... or could very well crash... but I wouldnt give more than 50% to that, so the right thing to do is trying to play the long side below 3000 with call or call spreads to limit the downsidethus for short term trading, I advise playing a volatile new range, 3000-3450, selling implied vols, selling the skew, and waiting a bit before setting up earnestly for the probable next move. Keep your mind open, as usual.

Reggie's Comments:

CNBC reports France, Germany Ruling Out Euro Bonds to Fix Debt Crisis and the S&P 500 resumes is slow downward descent. This is simply momentum trader reaction to what is essentially a foregone conclusion. Anyone who truly condones Eurobonds is essentially asking the more responsible states to willingly accept the risks and costs of funding what could potentially become a black hole with very limited upside in return. As I said in my interview with Property EU, the EU suffers from too many chiefs and not enough Indians! In order to justify a unified, common funding vehicle (or common currency for that matter, here's to you Euro) you will need a unified common, budgetary mechanism, common financial authority, and common government. Unitl then, you will simply have too many bosses telling to few capital Euros what to do. For those who are wondering why I included the article below, stay tuned to the subscription documents coming out over the next two weeks. A stagflationary environment, excess supply and a broken bankings system that not only won't lend but has signficant CRE debt rollovers coming up - and concentrated primarily in the banks of two nations (I'll let you guess who, one of whichi will be the subject of a bank run in 3...2...1...) all add up to a virtual Pan-European real estate collapse.

The French Government Creates A Bank Run? Here I Prove A Run On A French Bank Is Justified And Likely

Reggie Middleton Featured in Property EU, one of Europes leading real estate publicatios

Those who wish to download the full article in PDF format can do so here: Reggie Middleton on Stagflation, Sovereign Debt and the Potential for bank Failure at the ING ACADEMY-v2.

The related European commercial real estate video...

Published in BoomBustBlog

The professional level subscription document detailing the likely causes of a run on our primary bank run candidate is now available for download (Bank Run Liquidity Candidate Forensic Opinion, the retail version containing valuation available here - French Bank Run Forensic Thoughts - Retail Valuation Note). It is presented at a timely fashion for much of the core EU has just implemented short bans on financial companies - exactly as I anticipated several days ago. If history repeats itself (and it usually does), this action will serve as a precursor to the bank run that I have anticipated and warned about over the last few weeks. For those who don't subscribe to the professional BoomBustBlog analysis, yet want an inkling of what is going on in French banking, I have redacted the aforelinked document as a free public preview: French Bank Run Forensic Thoughts - pubic preview for Blog

You know, if it wasn't so damn destructive, it would actually be funny how regulators appear to find it genetically impossible to learn from mistakes - whether it be theirs or somebody elses. In 2008, when the US foolhardedly decided to allow banks to misreport their long term toxic assets bought with excessive, short term leverage, said banks collapsed. It was not as if this was unforeseen. France is anxious to repeat that exercise with its banks and sovereign debt. In 2008, when the US foolhardedly decided to ban shorts on insolvent financial companies, I made a small fortune constructing synthetic short positions with options that skyrocketed in value because regulators dabbled in markets in which they really had no clue. ZeroHedge reminds us that the short ban in the US ended in a 48% drop in financial company share prices.

It should be obvious to anyone who can remember at least 3 years ago that short bans are not good ideas. They spread more panic and uncertainty than they cure - and the banks' business models are based upon faith and full credit. It appears that the French think they can make ths mistake better than the Americans, as CNBC reports SocGen CEO Dismisses Rumors, Says France Is Not US. Of course not, they just act that way when there is an opportunity to efficiently repeat a boneheaded error. Exactly as I warned just TWO days ago in the post "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", I now bring you this afternoon's news - France, Italy, Belgium and Spain Ban Short Sales

France, Italy, Spain and Belgium plan to enact bans on short selling or on short positions, the European Securities and Markets Authority said today.

“Some authorities have decided to impose or extend existing short-selling bans in their respective countries,” ESMA said in a statement on its website. “They have done so either to restrict the benefits that can be achieved from spreading false rumors or to achieve a regulatory level playing field, given the close inter-linkage between some EU markets.”

The most false rumor is what is represented as many of these bank's balance sheets. I warned all BoomBustBloggers last year that this European bank collapse was coming.

It started as:

  • a keynote speach 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

French_Bank_Run_Forensic_Thoughts_-_pubic_preview_for_Blog_Page_03

French_Bank_Run_Forensic_Thoughts_-_pubic_preview_for_Blog_Page_04

Published in BoomBustBlog

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!

image047_copy

If you search the archives of my site, you will find that I made a small fortune off of the spike in the value of my puts as the short ban had several unintended (for those who never bothered to think it through) consequences. Of course, once the ban was lifted, the once protected financial institutions were summarily MASSACRED! Enriching the very same short sellers that were sought to keep at bay. See:

My initial analytical take on what we know so far of the "Man's" Master Plan September 2008

I am now targeting US banks in coordination with the Europeans. My analysts have jumped into the lab as of last night, Asian time. To all of my subscribers, prepare for a wild rolleroaster ride that will make 2008 look tame in comparison. Get ready, get set, ADAPT!!!!

Reference my Twitter stream for this morning as the markets start to tank once again...

ReggieMiddleton: 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.


ReggieMiddletonReggieMiddleton: I'm taking this rally & reduced volatility to allow some of my stingily priced OTM put bids to get hit in contravention to BBB traders

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...
 image044

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!

image042_copy_copy

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