Monday, January 3, 2011

Think Christmas, Part 2

Usually a Monday after a long break is a tough day but it actually went by pretty fast. Maybe tomorrow reality will strike! Maybe it was this story that made me smile:
Ex-Treasury chief Paulson loses $1 mln on DC home
poor guy!

Think Christmas, Part 2
I had a long thoughtful post about what I was thinking about looking at 2011 in an economic sense. Kid Dynamite of course beats me to the punch with a post today:
Well, for now, the (S&P) trend is higher. I wrote a post 13 months ago about momentum vs. mean reversion, and I am going to try again, even harder in 2011, to follow my own advice on that front. Don't fight the Fed, don't fight the tape, don't try to call the top. They say that stocks take the stairs up and the elevator down - watch out when that cable breaks. I do believe that the backdrop for a rough correction is still in place, since I don't think we solved the problems that caused our crisis in the first place, but I'm not short at the moment.
Read the whole thing.

I don't feel like I missed out on a "generational" move in the markets from 2009-end of 2010 like Barry Ritholtz likes to say. I have not missed any of the gold and silver bull since 2002 and played those metals quite a few times for plenty of gains well over my target return rate of 10% a year over time. What I have come to accept is that nothing I do or say will ever have any effect on what should happen. Not one iota. A few voices in a whirlwind of noise are impossible to hear, especially when nobody wants to hear what you have to say.

Are markets hot? Sure. Trillions in government spending, endless now implicit removal of all risk via taxpayers, endless transfer payments, and a fixed interest rate environment will have that effect. So what if this is all wrong, solves nothing, and sets things up to fail even more spectacularly later? Who cares! And nobody does.

Of course I will still rail against all the garbage out there, but at this point the level of acceptance for the fixing of "free" markets is structural. This will have an severe impact later, but who cares. Too late now anyway.

With that all said, what kinds of trades will I be looking for? How do I make trading ideas? It's easy, I steal from movies!

In the 1985 film "Santa Claus: The Movie" the core of the story is an elf leaves Santa and goes to a big city to make a splash. He is taken advantage of by a corporate type guy and after the initial success of their venture on Christmas, the corporate guy (played by John Lithgow) has ideas for a follow up, a literal sequel to Christmas, CHRISTMAS TWO!!!! (skip to 1:18 mark):

And there you have it. We even get a date from the film, March 25th for the big move! This is almost too easy.

Ideas for Setups
Homebuilders
This sector is ridiculous and screwed for the next decade. So what? Somewhere around March (March 25th?) after the Case-Shiller data gets much worse we are going to get another monster home buyer credit. You may say that the Republicans controlling the house will stop this and I think you are a very funny person that would be fun at parties. With massive inventory of already made homes at lower prices, surely the homebuilders will not get much of the action, and that is true. That also ignores the fact that as soon as "homebuyer tax credit" flashes across a Bloomberg screen robot traders will push these stocks up big time. Of course even Tim Knight has seen constructive charts on this already. No hurry here, but by mid January I would want to be positioned.

Gold and Silver
As market support becomes a long term structural part of markets, so must liquidity by the wheel barrel full. I see plenty of gabbing about how QE 2.0 will be the last of it, but that's just a silly rumor. Remember, everyone laughed when plenty of folks (myself included) tried to warn about the coming of QE 2.0 and then in the space of like 3 days it became all "QE 2.0 is a done deal". No kidding.

So, free money should add some lift to the metals but I have to say I am dying for a killer scary shake out to jettison a bunch of the momentum guys and weak hands here. One can go paper metals or get nasty with some junior miners for serious leverage to upside. Nobody I read knows more about miners than Dave of The Golden Truth blog. Of course waiting for any pull back in any sector these days smells like vomit in the backseat of the car in 110 degree weather but you never know.

Miscellaneous
Over my vacation I played around with the iBankCoin tool, The PPT. I have to be honest, the thing is a serious tool and will take some time to figure out. I am very interested to see what I can pull up using the screen functions and how this will fit my own way of looking for setups. I have no idea what kinds of things will come up so I cannot say what sectors may be involved. I will try very hard to never, ever buy financials though!

So there you have it. That's what I am up to. Plenty of smart folks stop by here, so drop me an idea so I can rip you off and use it myself, or we can discuss it. As always nothing here is advice and should not be thought of as such. I am going to use a subset of my trading capital to make some moves mostly because I just want to. I don't need to, but I do enjoy thinking about and setting up positions. Let's have some fun this year, that is one of my New Year Resolutions after all!

Have a good night.

2 comments:

Anonymous said...

I thought I just posted, but it disappeared. What gives? Will this show up?

getyourselfconnected said...

Anon,
comments are open so I have no idea why it did not sshow up.