Thinking Out-loud

There have been a number of issues we have started or have been building short positions and some long as well, based on the flow of duns (underlying trade not visible in price, but in 3C divergences).

A few that we entered were not at all my style as I prefer higher Beta positions being my belief is, "Whenever your money is in the market (including CDs and Money Markets which almost saw a collapse as well in 2008 as "Safe Haven as they are considered to be) it is at risk." Look at MBS, Mortgage Backed Securities. In 2005 when housing was going through the roof, if I were an old retired couple looking for income and a SAFE place to put money, MBS which are backed by REAL, TANGIBLE assets (property) sounds like a pretty safe bet; that is unless you know about bubbles, but when we are in a bubble such as we are with equities, no one or very few realize it at the time.

So look at what happened to MBS, they collapsed and nearly took down our entire financial system with it including nearly 100 year old Wall St. mainstays such as Lehman and Bear Stearns. A lot of people lost a lot of money on what seemed to be a safe bet, "If they don't pay, we foreclose and the house is worth 50% more than the mortgage". How can you lose?

Equities are in a far worse, far less reasonable bubble, they are higher than they were when the economy was humming along in 2004 and 2005, unemployment was low, consumer spending is what really kept the bull alive, yet we are in FAR WORSE economic shape and the only thing that has sent this market higher (because it sure hasn't been economic revival) has been massive printing of money. However, few have recognized the clear trend the F_E_D has set out to tell us gradually, but clearly, "We are going to be backing out soon".

Think about what I said earlier, the F_O_M_C statement s always had certainty, "ZIRP will be in effect until at least 2014-2015 etc." you NEVER heard anything about even the possibility of scaling back asset purchases. The only thing the F_E_D would add is, "We have many other tools at our disposal should the economy/market need them".

The F_E_D gave the market CERTAINTY which is what it craves, but look how the tone has changed and I have been following this change since the first hint of it. The F_E_D is backing out, they set up the escape route when they switched from a DATE BASED policy objective, to an arbitrary, "Economic" one, which can be easily manipulated. More than that, they've come right out and told us, even if it was through Hilsenrath, even Fisher was talking about it today.

My thesis has been, the market WILL front run the F_E_D as it ALWATS does and will move BEFORE the F_E_D makes the official announcement.

When looking at the failed triangle breakout Thursday and Friday's much less ambitious triangle and every string they had to pull to make it happen, one wonders, "What's the sudden rush?" 

I think the F_O_M_C minutes released this Wednesday at 2 p.m. may have information in them that the market is trying to front run, that would be the rush in setting up a head fake/bull trap move.

As I said above, we entered some "core shorts" that we have held or been building for some time including CAT and DE, the two stocks I'd normally be least likely to look at, but as I always tell you, "Although we can see what smart money is doing, we usually don't know why until after the move".

I have said in the last week that economic data is going to be more and more important moving forward because this market has obviously ignored it completely with the F_E_D backstopping it, however with the F_E_D backing out (at whatever pace), the economic data will take precedence.

Some of you know that I use to have the inside research and recommendations for positions from a LARGE Wall Street firm with a 2 letter ticker, I can't say much more than that.

I thought I had gold, I saw their recommendations and entered trades, but none worked. Could they be so wrong? Then I looked back after 6 months to a year and saw they were exactly right, they just planned ahead 6-12 months, in housing's case, almost 3 years.

So whatever I saw in DE and CAT was from 3C or Institutional money setting up positions.

Then comes this data today about CAT...

Not only have Global Sales collapsed, but North American as well. Smart Money knew what they were doing when accumulating shorts in CAT and DE or selling them, it just took a long time to understand why.

As of now the DE short core equity position is at a profit and should move along with CAT and CAT/DE won't do well once we are back to relying on economics rather than liquidity floods.