Featured Trades: (SPX), (SPY), (SSO), (GLD), (CSCO), (DIG), (YCS), (FXE)

3) Ringing the Cash Register for the S&P 500. It's time to ring the cash register on my leveraged long position in the S&P 500 ETF (SSO). I am therefore unloading the position at market here at $49.57, and not bothering to wait for the stop loss that I put out just yesterday. Those who followed me into the (SSO) on December 2 are now up 12.7% in six weeks.

My bet that the big caps would rally into year end, close on their highs, and that New Year reallocations would cause the buying to spill over into January paid off big time. At times I had up to 60% of my portfolio in this one ETF. That's a bet and a half. December turned out to be one of the strongest months for the stock index on record.

We have had such a strong start to the year that my performance, as well as that of other like minded traders, it is ridiculous, if not unbelievable. You can therefore expect many hedge funds to take some chips off the table here, and spend the rest of the year trading against what they banked in the first three weeks of this month.

We are also getting perilously close to the January 25 'sell by' date that technical analysts to the stars, Charles Nenner, warned about in my January 10 interview on Hedge Fund Radio (click here for the link). He is not alone setting off the emergency flares. And no one ever got fired for taking a profit. If the market keeps going up from here, just let your trading buddies pay for the lunch.

With this sale, I am now largely in cash. The few longs I am keeping in Cisco (CSCO) and oil (DIG) are being hedged by shorts in gold (GLD) and the Euro (FXE), which are going gangbusters this morning.

Wake me up when we hit the 5% retracement level.

-

-

-

Time to Ring It for the (SSO)

Featured Trades: (GLD)

2) Look What I'm Seeing in Gold. Call this a 'rolling top' or a 'head and shoulders top', but it is a top nonetheless, which is making my bear put spread of the gold ETF (GLD) look smarter by the day. If our current sell off is truly a binary 'RISK OFF' development rather than a reshuffling of the deck among asset classes, then the barbarous relic should swan dive along with everything else. This then provides my bearish gold position the additional merit that it will tend to hedge my remaining longs in other asset classes during any continuing weakness. Just thought you'd like to know.

-

Is a Short Gold Position a Hedge for everything else?

Featured Trades: (FXE)

2) Time to Short the Garlic Eaters. The garlic eaters don't want to repay their debts, and the beer drinkers don't want to lend them any more money. That pretty much sums up the financial tensions that exist within Europe right now. The PIIGS countries of Portugal, Ireland, Italy, Greece's, and Spain are lurching from one emergency financing to the next. Never mind that much of that money was borrowed to buy Mercedes, BMW's and Volkswagens, which enriched Germany's economy mightily.

This is one of many reasons why I think the Euro will continue to fall against the dollar, possibly to as low as the mid $1.10's some time this year. The US is growing, and Europe is not. American interest rates are rising, while Europe's are not. This always attracts capital to flow out of the low yielding currency and into the high yielding one, which is creating a rising tide of buyers of greenbacks and sellers of Euro's.

The Euro has just enjoyed a five cent rally against Uncle Buck. Last week, the Spanish and Portuguese bond issues came off better than expected. Germany's Chancellor Angela Merkel hinted they might bend a little on terms. The UK's CPI came in hot. Then China and Japan came in and said they would happily take down a chunk of the high yielding debt. With ten year Japanese Government Bonds yielding a paltry 1.23%, can you blame them?

That is the logic behind my recommendation to buy the June, 2011 $132-$129 put spread on the (FXE), the main Euro ETF. This involves buying the June $132 puts and selling short an equal number of June $129 puts for a net cost of $1.18. The recent sigh of relief has taken the Euro up to the top of a two month trading range at $1.34. So I am going to take the gift and put out a small short here. A $100,000 portfolio should put 5% of its capital into this trade, which works out to 42 contracts on each side.

The position reaches its maximum profitability if the Euro closes at or below $1.29 on June 17, 2011. That would pump the value of the spread from $1.18 to $3.00 for a gain of $1.82, or 182%. The June expiration gives this plenty of time to work. Then will bind out if the garlic eaters, and the 'Macro Millionaires' who strapped this baby on, have the last laugh.

-

-

Would You Want to Owe Her Money?

Featured Trades: (GOLD), (GLD), (DGZ), (GLL)

1) All That is Gold Does Not Glitter. In the wake of gold's panic inducing $30, one day sell off on Friday, players across the hedge fund universe are reassessing their relationship with the barbarous relic. What started out as a long term commitment is suddenly morphing into a short term fling, or maybe even a one night stand.

The yellow metal is now down $80 from its $1,450 peak set only two weeks ago. The technical analysts among you will recognize the chart as screaming a 'head and shoulders top', which bodes ill for short term price movements. It has definitively broken the 50 day moving average at $1,383, and you can bet that many traders spent the three day weekend gauging their tolerance for additional pain.

Gold is now facing some daunting challenges. High prices have cause scrapping of old jewelry to quadruple, unleashing fresh new supplies on to the market. Have you received a torrent of 'come ons' from websites offering to buy your old gold? That's what I'm talking about. Rising interest rates are also adding some tarnish, as gold yields nothing, and costs money to store and insure. A panoply of new gold related ETF's have diverted buying away from the physical metal towards paper surrogates.

It is no longer a secret that gold is one of a few places to protect your wealth from the coming surge in inflation that Ben Bernanke's printing presses assure. So by now, everybody and his brother are in on the trade with a big fat long position. I am a firm believer in the 'canoe' theory of investment management. If too many people bunch up on one side of the craft, the whole thing tips over. Finally, gold failed my 'cleaning lady' test. When Cecelia started asking me how to buy Mexican gold pesos, I knew it was time to start entertaining short plays.

Gold has been on a tear for the last seven months, rising by a thrilling 28% in a year, much of it powered hedge fund money of the hottest sort. So a serious bout of profit taking is way overdue. With US equities, particularly financials and tech stocks, the flavor of the day, you can count on many of them to take profits on the yellow metal and reallocate to paper assets. The fact that the world is now solidly in a 'RISK ON' mode also solidly favors some gold liquidation.

The easy target here is the October support level of $1,320, down $40. If we get some good momentum going, traders will start throwing up on their shoes, and we could touch the 200 day moving average at $1,270. My friend, technical analyst to the stars, Charles Nenner, thinks that in a worst case scenario at gold could plunge to as low as $1,000 (click here for my radio interview).

Thanks to the yellow metal's recent popularity, the are a profusion of instruments with which you can play the downside. You can buy the 1X bear gold ETF (DGZ), or the 2x version (GLL). You can short gold futures on the CME.

I am going to go for the easy money here and try to capture a $4 bite of the down move of the main gold ETF (GLD). With $57 billion in assets, it is the world's second largest ETF, right after the (SPY). It is ripe for some profit taking. Last week, it saw 16 tons of sales worth some over $700 million. It will be interesting to see if the ETF can handle liquidations on this scale, whether it might trigger a total melt down in gold, and how many camels you can fit through the eye of a needle.

The set up that best works here is the $132-$128 put spread. This involved buying the March $132 puts for $3.65 and going short an equal amount the $128 puts for $2.15 to cheapen my cost of admission. $128 in the (GLD) equates to the $1,320 October support for the spot physical metal. The position reaches maximum profitability with a print at or below $128 in the (GLD) on March 18. That would bring in a gain of $2.50, or a return of $166% in two months.

If the geopolitical situation suddenly worsens, and it's off to the races for gold again, then you lose your $1.50. The great thing about spreads like this is that your risk is quantifiable and limited, so you can sleep at night. No sudden black swans are going to wipe you out overnight, as outright short positions in the futures or the ETF can.

Mind you, I think gold is still going up long term, and that the old inflation adjusted high of $2,300 is a chip shot in a couple of years (click here for 'The Ultra Bull Case for Gold'). This is just a little counter trend scalp to keep me from falling asleep this afternoon that might be good for a few weeks or months.

-

-

Suddenly, Gold Has Acquired a Bitter Taste

-

-

-

The Gold Peso

(SPECIAL TREASURY BOND ISSUE)

Featured Trades: (THE TREASURY BOND CRASH IN PROGRESS)

1) The Case Against Treasury Bonds. If you want to delve into the case against the future of US Treasury bonds in all its glory, take a look at the November/December issue of Foreign Affairs, the establishment bimonthly journal read by academics, intelligence agencies, and politicians alike, which I am sure you all have sitting on your nightstands. In a well researched and thought out article penned by Roger C. Altman and Richard N. Haass, the road to ruin ahead of us is clearly laid out.

The US has no history of excessive debt, except during WWII, when it briefly exceeded 100% of GDP. That abruptly changed in 2001, when George W. Bush took office, despite his loss of the popular vote. In short order, the new president implemented massive tax cuts, provided expanded Medicare benefits for seniors, and launched two wars, causing budgets deficits to explode at the fastest rate in history. To accomplish this, strict 'pay as you go' rules enforced by the previous Clinton administration were scrapped. The net net was to double the national debt to $10.5 trillion in a mere eight years.

Another $2.5 trillion in Keynesian reflationary deficit spending by president Obama since then has taken matters from bad to worse. The Congressional Budget Office is now forecasting that, with the current spending trajectory and the new tax compromise, total debt will reach $23 trillion by 2020, or some 160% of today's GDP, 1.6 times the WWII peak.

By then, the Treasury will have to pay a staggering $5 trillion a year just to roll over maturing debt. What's more, these figures greatly understate the severity of the problem. They do not include another $9 trillion in debts guaranteed by the federal government, such as bonds issued by home mortgage providers, Fannie Mae and Freddie Mac. State and local governments owe another $3 trillion. Double interest rates, a certainty if the current commodity price inflation continues, and our debt service burden doubles as well.

It is unlikely that the warring parties in Congress will kiss and make up anytime soon. It is therefore likely that the capital markets will emerge as the sole source of any fiscal discipline, with the return of the 'bond vigilantes.' They have already made their predatory presence known in the profligate nations of Europe, and they are expected to arrive here imminently. Such forces have not been at play in Washington since the early 1980's, when bond yields reached 13%, and homeowners paid 18% for mortgages. Since foreign investors hold 50% of our debt, policy responses will not be dictated by the US, but by the Mandarins in Beijing and Tokyo. They could enforce a cut back in defense spending from the current annual $700 billion. They might even demand a retreat from our $150 billion a year commitments in Iraq and Afghanistan.

Personally, I think the US will never recover from the debt explosions engineered by Bush and by 'deficits don't count' vice president Chaney. The outcome has permanently lowered standards of living for middle class Americans and reduced influence on the global stage. But I'm not going to get mad, I'm going to get even. I am going to make a killing profiting from the coming collapse of the US Treasury market through buying the leveraged short Treasury bond ETF, the (TBT). Sure the 40% gain since august has been nice, but it is only the appetizer. My recently joined 'Macro Millionaires' have been able to book a quick 20% profit. The main course has yet to come. I am sticking to my long term forecast for this fund of $200, and that is despite a hefty and rising cost of carry of nearly 1% a month.

Have a nice day.

-

Damn, I Should Have Voted for Gore!