Step Away From the Fiat

H/T TD.

In Three Months:

Corn is up 49.6%
Copper is up 18.2%
Lumber is up 22.9%
Cotton is up 53%

Oh, but producer prices was only up 0.4% in September…Okay. I believe that you believe.

…sooner or later, you run out of other people’s money…it’s, fiscal child abuse.

With oil now joining the party, markets of every spectrum, have priced in more quantitative easing. So much so, that, to the naked eye, it looks like a recovery is being sparked by beliefs that the FED can actually manufacture a recovery. Everywhere you look, prices are recovering.

This could be in part due to foreign decoupling. Even if you count volatility as an asset, it’s saying, “Recovery straight ahead”.

There is one asset class, that is really confused. Government Paper.

So now that the FED has convinced markets they are going to buy a recovery, what happends when
A) They actually do
B) They don’t actually do enough
C) A Real Recovery takes hold.

?

All I know, is the markets are being played, by a FED and his fiddle. The music will stop, eventually. Hope you can find a chair.

“This could be the last gasp of the 27-year bull trend in bonds that began with Paul Volcker squashing inflation expectations”

- William O’donnell, Head of U.S. government bond strategy at Royal Bank of Scotland Group, Stamford, Connecticut.

Data will be out early next week on the GTA real-estate market for September.

Depending on the average price, we’ll have a better picture of whether the price movement in commodities this month was inflationary (up) or hyper-inflationary (flat-to-down).

This month, we will start to see the impact of slightly higher variable rates, while simultaneously much lower fixed rates.

Two years ago, stocks were crashing almost as fast as the dollar is today.

The crash we saw in September 2010, could be the start of a crash worse than 2008.

It’s a mad scramble, to get out of paper ex-fixed income. It all makes sense. From where I sit, it’s very easy to see that this trend will continue – over 3 years – but I think the volatility during the trend, could make many investors sicker than 2008.

Almost everything except fixed-income, and wages, were up 5% to 20% in September. Comical wrap-up by Schiff today.

I broke my rule of not going long plain vanilla, again.  I paid 30.89% IV for a Dec 2011 $87 oil straddle. The CBOE Oil Volatility Index closed at 30.46% today. I covered the 2010 puts I wrote, then wrote some more $3 higher. 

Oil Volatility:

Oil was left behind in the September Rally, but played major catch up in the last 3 days.  It still has some catching up to do, on the year.

I hope I’m wrong.  Either way, I think volatility will be the name of the game for the last quarter of the calendar year.

The two things stopping this mild inflation from turning hyper, is 1. the money not (yet) flowing from fixed-income, and 2. consumers lack of pricing power with employers.

Interesting years ahead, indeed.

The Future of Economics

Two days ago I postulated that basically, EITHER the move in gold wasn’t for real, or the move in stocks wasn’t for real.  The move in Gold is very real, and will likely sustain well into the third phase of the bubble.

To prove it, we really needed oil to start discounting the inflation coming and potential growth – like stocks are doing.

Two days later, front month oil is up 4.5%, confirming, stocks are indeed being bid up on inflation, demand for risk is climbing, and world growth is really going to start to chug.

I think oil, could really get some legs over the next 9 months.  I wrote some Oct 15th $75 puts today.

If i’m right, not even the FED will be able to stop the crash coming in the long end of the yield curve, the second the market thinks the FED is done buying.

There isn’t a Treasury Holder living between the Pacific and Atlantic, that didn’t notice the dip a 9:15 this AM.  Bonds start discounting more inflation, by the end of Q1 2011.

Lots of anecdotal evidence out there, suggesting we’re in the beginning of phase 3 of the gold bubble. 

Turk saying shorts are just now going to start to cover, getting squeezed out of gold, as cash on hand moves into gold on dips.

Hendry saying gold and bonds melt up together, while Japanese corporates will suffer on capital chasing negative marginal returns on wealth destroying GDP growth in Asia.  That man is a gifted analyst.

Stocks are being bid up, by people who don’t want to invest in paper, paper, or paper taking the other side of the POMO but don’t know what else to do. 

I think I’ve been reading too much ZH. 

Nobody’s talking about oil.  It’s the last piece in the dissolving dollar puzzle.  Oil’s not moving higher.  This means one of two things.

The move in gold is not for real.  The move in stocks is not for real / manipulated.  The move in bonds is manipulated.

Or.

(Longer dated) Oil is about to move higher.  The move in stocks is for real.  The move in bonds is not for real / manipulated

…a central bank push rates to zero then successfully turn it around?

I’m actually asking.

UPDATE: Added Zero Hedge Links, the first one, is a must read – for any investor, trader, and breathing human on the planet.

It’s been a steady 6 month ramp up, of chatter, on the short JGB trade.

People are looking for options.  They are finding the TSE data, easily accessible via Interactive Brokers, and apparently Options Express.

Mad Hedge Fund Trader, Dr Volatility, Kyle Bass, and Jay over at Marketfolly, and of course Zero Hedge are all covering the trade…new commentor Loris and I chatted, and I mentioned some of my qualitative observations as well as introduced the notion of simply buying N225 volatility.

GL Trade, owned by Sunguard, is the name you need if your broker isn’t Interactive Brokers.

Apparently, Eris Exchange is getting into Swaps, and it might include some exchange traded products on the JGBs.

…any North American Trader, might find this amusing, however my figures on Japanese Housing Prices per sq meter, were incorrect.  Check out the latest data on Japan Real Estate.

1. Interest rates creep higher, then sky-rocket

2. Interest rates stay here, for what will feel like forever.

In both cases, where does the inflation go?  I can make arguments for homes crashing and energy costs doubling.  I can make arguments for homes taking off in price, with energy costs hitting all-time lows.  The one thing I can not make a case for, is stocks crashing, energy crashing, and homes crashing.  Similarly, energy, stocks and homes all can’t take off in price.

There is no recovery ahead.  Only money flow.

Straddle oil.  Straddle stocks.  Straddle the long-end of the curve. (?)

Information.

I am more and more of the opinion, that forecasts are worthless.  Markets are more efficient than they were yesterday.

That means, anybody with a forecast on the direction of any asset class, who doesn’t accept the fact that they are likely only 50% right, including the author of this post, is simply a juvenile when it comes to markets.

That leaves me with stating the corollary  is that the only arbitrage left, is information.  Those with more information, used to be able to forecast better.  As more and more market participants have more and more access to more and more information, the arbitrage opportunity is declining.

That means my view on Toronto real-estate, is actually “It could go either way.”  That means my view on stocks, is actually “It could go either way”.  That means my view on volatility, gold, oil, bonds, the dollar – “It could go either way”.

…of course, I’ll keep on trading, and ignoring the aforementioned thesis.