Tuesday 27 November 2012

Today's Watchword: "Patience".

For those of you itching to short, some more patience is needed. Tomorrow the market will tease you with some more selling and you will be tempted to short. You will think, gosh, I am going to miss the opportunity. That “Fear of missing out” will come in play. Only thing I can say is: have patience. The cycles for risk assets are up for few more days. It does not mean that market will go up and up. It just means that although we may see some more selling tomorrow, we better wait for the cycle to top before we short, least we fall for a bear trap.

While I expect one more round of selling starting December, I am not sure of the magnitude of selling. May be it will continue for the whole month of December but if some sort of kicking the can down the road game is played by the politicians, the selling may not be very deep either. So it is a fluid situation after all and while the only trade is a short trade for now, let us be ready to get out of the water very quickly. For, only the direction is certain and not the level of up or down move.

As I keep repeating, the world and USA is not going to end tomorrow. ( It will end little later) While we have some nice opportunities on the short side we are also going to have some great opportunities on the long side as well and those opportunities are coming up much quicker than you can imagine. And if you have not noticed already, for the retail investors, it is easier to make money on the long side than on the short side. 
PM sector, particularly gold is not showing the strength and is nowhere near $1780, its earlier high for this year. That makes me think that may be one more correction is due for gold along with other risk assets. But I do not want to short gold and as of now waiting in the sideline to go long.

The situation in Europe is not all that bad as the MSM and ZH would have us believe. In long run, may be in next 18 months or so, Euro will split up and there will be two Euro. A Northern Euro consisting of the strong economies and a Southern Euro of the PIIGS led by France. And it may sound a bit far-fetched  (Like the Apple $ 500 call) that Northern Euro will become the reserve currency of the world. But that is still some months away. Till that time, USA will be able to print as much as it want and still keep the bond yield at ridiculously low level. They are talking of reducing $ 1 trillion over 10 years, when the deficit is over $ 16 trillion not considering un- funded liabilities. It’s a joke and sooner we realize the joke, better for us.

The other side of the joke is that everyone is MSM and all talking heads are going ga ga over the bounce in housing and now everyone wants to join the gravy train. Particularly all Pundits are talking about home-builders like LEN and TOLL. I think this trade is now overcrowded and better avoided. Sorry guys, you are late in the party and it is better to give it a miss. In any case I do not believe that Housing has bottomed and we will revisit this subject after six months.

Some of the readers may be getting confused as to what are my views of the economy. Is it improving or going to hell in hand basket. I tell you what. From your investment and trading point of view, it does not matter what you believe. All it matters as how your portfolio is performing. While I do not believe that the end is upon us tomorrow, I also do not believe that we are any better off than we were four years ago.  But in the mean time the Fed has flooded the market with crisp notes and we would be fool not to take the advantage. The whole system is rigged and we are mere pawns. But let us not trade with our belief.

That’s all for this evening. Thanks for sharing my thoughts. Please remember the Amazon link.


  1. Thank you for the great advice to have little more patience with the market!

    I know ZH but what's MSM?

    What's your advice to best prepare for the coming scenario when US loses its reserve currency status? Covert our worthless $s into metals? Thx.

    1. MSM = Main Stream Media.
      The shift in reserve currency does not happen overnight. I think such a situation will be accompanies by inflation and hence gold has such tremendous / explosive upward potential. Also rent giving real estate will hold some of its value.Return of capital will be more important than return on capital.

    2. Yeah agree with you on 'Return of capital' vs 'return on capital'.

      The Euro crisis has also brought about the terms 'Risk-free returns' vs 'Return-free risk' with negative real interest rates for German and US bonds, paying govts to take your money...

    3. Very nicely said. Hope you are out of gold by now.

    4. We will have a better opportunity to long gold soon.

    5. Yep, waiting to long gold. Yesterday's sell-off was steep.

  2. Nice call BB. You mentioned before that "the sell set up will kick in around 1425-30 or November 29th, whichever comes 1st", do you still see the positive cycle end by Nov 29?

    1. Thanks.
      Yes around that time. I plan to scale in few short positions, mainly in Crude, little in silver and still very little in equities.
      The important word is "Scale in", because we cannot be 100% correct with the best entry or exit.
      Also must have proper stop loss in place.