(FXE) Archives - Page 16 of 19 - Mad Hedge Fund Trader

Mad Hedge Fund Trader Tops 30% Gain in 2014

It looks we are going to have to start watching the appalling Zombie shows on TV and in the movies. That is so we can gain tips on how to survive the coming Apocalypse that will unfold when the Ebola virus escapes Texas and spreads nationally.

I?m not worried. I?m actually pretty good with a bow and arrow.

Thank you United Airlines!

I happy to report that the total return for my followers so far in 2014 has topped 35%, compared to a pitiful 1% gain for the Dow Average during the same period.

In September, my paid Trade Alert followers have posted a blockbuster 5.01% in gains. This is on the heels of a red-hot August, when readers took in a blistering 5.86% profit.

The nearly four year return is now at an amazing 157.8%, compared to a far more modest increase for the Dow Average during the same period of only 37%.

That brings my averaged annualized return up to 39.7%. Not bad in this zero interest rate world. It appears better to reach for capital gains than the paltry yields out there.

This has been the profit since my groundbreaking trade mentoring service was first launched in 2010. Thousands of followers now earn a full time living solely from my Trade Alerts, a development of which I am immensely proud.

It has been pedal to the metal on the short side for me since the Alibaba IPO debuted on September 19. I have seen this time and again over four decades of trading.

Wall Street gets so greedy, and takes out so much money for itself, there is nothing left for the rest of us poor traders and investors. They literally kill the goose that lays the golden egg. Share prices have nowhere left to go but downward.

Add to that Apple?s iPhone 6 launch on September 8 and the market had nothing left to look for. The end result has been the worst trading conditions in two years. However, my double short positions in the S&P 500 (SPY) and the Russell 2000 (IWM) provided the lifeboat I needed.

The one long stock position I did have, in Tesla (TSLA), is profitable, thanks to a constant drip, drip of leaks about the imminent release of the Model X SUV. The Internet is also burgeoning with rumors concerning details about the $40,000 next generation Tesla 3, which will enable the company to take over the world, at least the automotive part.

Finally, after spending two months touring dreary economic prospects on the Continent, I doubled up my short positions in the Euro (FXE), (EUO).

Those positions came home big time when the European Central Bank adopted my view and implanted an aggressive program of quantitative easing and interest rate cuts. Hint: we are now only one week into five more years of Euro QE!

The only position I have currently bedeviling me is a premature short in the Treasury bond market in the form of the ProShares Ultra Short 20+ Treasury ETF (TBT). Still, I only have a 40 basis point hickey there.

Against seven remaining profitable positions, I?ll take that all day long. And I plan to double up on the (TBT) when the timing is ripe.

Quite a few followers were able to move fast enough to cash in on the move. To read the plaudits yourself, please go to my testimonials page by clicking here. They are all real, and new ones come in almost every day.

Watch this space, because the crack team at Mad Hedge Fund Trader has more new products and services cooking in the oven. You?ll hear about them as soon as they are out of beta testing.

The coming year promises to deliver a harvest of new trading opportunities. The big driver will be a global synchronized recovery that promises to drive markets into the stratosphere by the end of 2014.

Global Trading Dispatch, my highly innovative and successful trade-mentoring program, earned a net return for readers of 40.17% in 2011, 14.87% in 2012, and 67.45% in 2013.

Our flagship product,?Mad Hedge Fund Trader PRO, costs $4,500 a year. ?It includes?Global Trading Dispatch?(my trade alert service and daily newsletter). You get a real-time trading portfolio, an enormous research database, and live biweekly strategy webinars. You also get Jim Parker?s?Mad Day Trader?service and?The Opening Bell with Jim Parker.

To subscribe, please go to my website at?www.madhedgefundtrader.com, click on ?Memberships? located on the second tier of tabs.

Waiting for a High Level Contact

Why I?m Doubling Up My Shorts

Diary, Newsletter, Research

I don?t double up short positions very often. I am too old to lose all my money and go back to work as an entry-level analyst at Morgan Stanley. Besides, they probably wouldn?t have me back anyway. It is a different company than it was 30 years ago, a lot different.

However, the dead cat, short covering bounce we got off this morning?s Hong Kong dump does allow me to get back into the short side of the (SPY) one more time.

We managed to gain 20 (SPX) points, or 2 entire (SPY) handles from the Monday morning capitulation, puke on your shoes low. Except this time, we are a weekend closer to expiration, only 14 trading days until October 15.

And waiting all the way until Friday for the September nonfarm payroll buys us a free week.

Does anyone really care what?s going on in Hong Kong, China, or anywhere else in the world, for that matter? Not really. It appears only day traders do, and those of us who have family members there, like me.

The beginning of October is usually the scariest two weeks of the year. So a bet that the (SPY) doesn?t blast up to new all time highs during this period looks like a pretty good idea.

Buying the S&P 500 (SPY) October, 2014 $202-$205 vertical in-the-money bear put spread with the volatility index (VIX) just short of the $17 handle, the highest print in six months, is also getting us the best short term spread prices this year. It?s almost like the good old days.

If the prospect of executing this trade causes the hair on the back of your neck to stand up, take a look at the charts below.

The Russell 2000 (IWM) broke through to a new low this morning, proving that a solid, three-month downtrend in the small caps is still alive and well.

The chart looks even worse for the iShares iBoxx High Yield Corporate Bond ETF (HYG), which has become a very important lead security for traders to keep a laser like focus on.

NASDAQ (QQQ) and the Dow Jones Average ($INDU) are sitting bang on crucial support lines. Alibaba is still sucking all the oxygen out of the technology sector, with major institutions selling everything else to take instant 5% stakes in the new issue. This is great news for the sector for the long term, but not so great for the short term.

Finally, I asked my ace Mad Day Trader, Jim Parker, his thoughtful take here. He believes that short term, markets are oversold and due for a rallyette. He wouldn?t be shorting stocks here with My money! But is the (SPY) going to a new all time high in 14 trading days? Absolutely no way!

There is another factor to consider here. We have recently clocked substantial profits with our short positions in the Euro (FXE) and the Russell 2000 (IWM).

So we can afford the luxury of getting aggressive here when everyone else is running and hiding. We are essentially now playing with the house?s money. The only question is whether we will next post a larger gain, or a smaller one. That is a position of strength, and a great place to trade from.

So I think the net net of all of this is that best case, the risk markets all keep trending downward, worse case, they flat line sideways, at least for the next 14 trading days. Either way, it is a win-win for me. That makes the S&P 500 (SPY) October, 2014 $202-$205 in-the-money bear put spread a winner in my book.

You can buy this spread anywhere in a $2.60-$2.75 range and have a reasonable expectation of making money on this trade.

This is a rare instance where there is no outright stock or ETF equivalent to this trade. If you sell short the stock market here, such as through purchasing the ProShares Ultra Short S&P 500 ETF (SDS), we could rally all the way up to, but just short of the all time high, and you would get your head handed to you.

If this happens with the S&P 500 (SPY) October, 2014 $202-$205 in-the-money bear put spread, you make your maximum profit of 1.30% of your total portfolio. This is why I play in the options market. So non options players are better to stand aside on this trade and just watch it for educational purposes.

She Speaks!

Diary, Newsletter, Research

Like a deer frozen in a car?s onrushing headlights, markets have been comatose awaiting Federal Reserve governor Janet Yellen?s decision on monetary policy and interest rates.

Interest rates are unchanged. Quantitative easing gets cut by $15 billion next month, and then goes to zero. Most importantly the key ?considerable period? language stayed in the FOMC statements, meaning that interest rates are staying lower for longer.

Personally, I don?t think she?s raising interest rates until 2016. The number of dissenters increased from one to two, but then both of them (Fisher and Plosser) are lame ducks. And, oh yes, the composition of the 2015 Fed will be the most dovish in history.

The latest data points made this a no brainer, what with the August nonfarm payroll coming in at a weak 142,000, and this morning?s CPI plunging to a deflationary -0.20% for the first time since the crash.

Of course, you already knew all of this if you have been reading the Mad Hedge Fund Trader. You knew it three months ago, six months ago, and even a year ago, before Janet Yellen was appointed as America?s chief central banker. Such is the benefit of lunching with her for five years while she was president of the San Francisco Fed.

The markets reacted predictably, with the Euro (FXE), (EUO), and the yen (FXY), (YCS) hitting new multiyear lows, Treasury bonds (TLT), (TBT) breaking down, and precious metals (GLD), (SLV) taking it on the kisser.

What Janet did not do was give us an entry point for an equity Trade Alert (SPY), with the indexes close to unchanged on the day. The high frequency trader?s front ran the entire move yesterday.

Virtually all asset classes are now sitting at the end of extreme moves, up for the dollar (UUP) and stocks, and down for the euro, yen, gold, silver, the ags, bonds and oil. It?s not a good place to dabble.

Putting on a trade here is a coin toss. And when you?re up 30.36% on the year, you don?t do coin tosses. At this time of the year, protecting gains is more important than chasing marginal gains, which people probably won?t believe anyway.

If you want to understand my uncharacteristic cautiousness, take a look at the chart below sent by a hedge fund buddy of mine. It shows that investor credit at all time highs are pushing to nosebleed altitudes. Not good, not good. Oops! Did somebody just say ?Flash Crash??

This is not to say that I?m bearish, I?m just looking for a better entry point, especially as the Q????????? 3 quarter end looms. I?ve gotten spoiled this year. Maybe the Scottish election results, the Alibaba IPO, or the midterm congressional elections will give us one. Buying here at a new all time high doesn?t qualify.

It?s time to maintain your discipline.

Sorry, no more pearls of wisdom today. I?ve come down with the flu.

Apparently, this year?s flu shot doesn?t cover the virulent Portland, Oregon variety. Was it the designer coffee that did it, the vintage clothes, or those giant doughnuts dripping with sugar?

Back to the aspirin, the antibiotics, the vitamin ?C?, and a chant taught to me by a Cherokee medicine man.

A Euro Collapse At Last!

Newsletter, Research

European Central Bank president Mario Draghi pulled the rug out from under the Euro (FXE), (EUO) this morning, announcing a surprise cut in interest rate and substantially adding to its program of quantitative easing.

The action caused the beleaguered currency to immediately gap down two full cents against the dollar, the ETF hitting a 15 month low of $127.40.

Surprise, that is, to everyone except a handful of strategists, including myself. Apparently, I was one of 4 out of 47 economists polled who saw the move coming, beating on my drum out of the coming collapse of the euro for the past six months.

I put my money where my mouth was, slamming out Trade Alerts to sell the Euro short, and sometimes even running a double position.

Of course, it helps that I just spent two months on the continent splurging at 90% off sales, and afterwards feasting on $10 Big Macs and $20 ice cream cones. Europe was practically begging for a weaker currency. Shorting the Euro against the greenback appeared to be a no-brainer.

A number of key economic indicators conspired to force Draghi?s hand this time around. August Eurozone inflation fell to a feeble 0.3%. France cut its 2014 GDP estimate at the knees, from 1.0% to 0.5%. Unemployment hovers at a gut wrenching 11.5%. To the continent?s leaders it all looked like a deflationary lost decade was unfolding, much like we saw in Japan.

Call the move an hour late, and a dollar short. Or more like 43,800 hours late and $4 trillion short. The US Federal Reserve started its own aggressive quantitative easing five years ago. The fruits of Ben Bernanke?s bold move are only just now being felt.

A major reason for the delay is that having a new currency, Europe lacks the breadth and depth of financial instruments in which it can maneuver. The Euro will soon be approaching its 15^th birthday. Uncle Buck has been around since 1782.

The ECB?s move is bold when compared to its recent half hearted efforts to stimulate its economy. Its overnight lending rate has been cut from 0.15% to 0.05%, the lowest in history. Deposit rates have been pushed further into negative territory, from -0.10% to -0.20%. Yes, you have to pay banks to take your money! A QE program will lead to the purchase of 400 billion Euros worth of securities.

Am I selling more Euros here?

Nope.

I covered the last of my shorts last week, after catching the move in the (FXE) from $136 down to $130. That?s a major reason why my model trading portfolio is up a blistering 30% so far this year.

At $127, we are bang on my intermediate downside target. But get me a nice two or three cent short covering rally, and I?ll be back in there in a heartbeat. My next downside targets are $120, $117, and eventually $100. My European vacations are getting cheaper by the day.

To review my recent posting on the coming collapse of the Euro, please click here ?The Euro Breaks Down, here ?Unloading More Euros? and here for ?The Time to Dump the Euro is Here?.

It?s All a Learning Process

Why I?m Covering Some Euro Shorts

Newsletter, Research

We have snatched 92% of the potential profit in the Currency Shares Euro Trust (FXE) September, 2014 $133-$135 in-the-money bear put spread, riding the Euro (FXE) down on the short side, from $1.33 down to $1.30.

The risk/reward of continuing with such a large position is no longer justified.

So I am going to reduce my overweight position down from 20% back to a more normal 10%. If you are similarly overweight the ProShares Ultra Short Euro ETF (EUO), I would also be lightening up, retuning to a normal weighting there as well.

I have not suddenly fallen in love with the beleaguered continental currency. I think we are headed towards $1.27, $1.20, and eventually $1.00. This is just a short-term tactical move.

That way, if by some miracle, we get a two-cent rally in the Euro, I will have plenty of dry powder to reload with and add more shorts.

The big event of the weekend was European Central Bank President, Mario Draghi, ramping up his war on his own currency.

On Friday evening, after the markets closed and traders were long gone for the Hamptons, Bal Harbor, or Napa Valley (oops), Draghi ramped up his rhetoric, warning that he would use ?all available tools? to spur Europe?s economy. This is central banker talk for throwing down the gauntlet at the feet of the monetary hawks (read Germans).

He then threw the fat on the fire, opining that the recent decline an inflation expectations were a concern, and this was a topic for the coming September 4 ECB meeting. Translation: this is a central banker?s equivalent to giving the hawks the middle finger salute, and then putting the pedal to the metal on the easing front.

The bottom line for all of this is that the ECB is almost certain to cut Euro interest rates next week. As interest rates differentials are the primary driver of foreign exchange markets, this is great news for the greenback and terrible news for the Euro.

After that, we may get a small rally in the Euro, as short sellers, like me, take profits. This has been the pattern with other Euro interest rates reductions in the past. That is the rally I want to resell into.

You can expect this pattern to continue until Europe solves its structural monetary problems, which will take years. The current flawed system dramatically undervalues Germany?s currency, while overvaluing the currencies of Italy, Spain, Portugal, and Greece.

This is why the German economy is healthy, while everyone else?s economies suck. Without the Euro, the old deutschmark would be double or triple what it was, demolishing the country?s massive export business. In the meantime, the other countries would be devaluing their own currencies like crazy.

We caught the entire reaction to Draghi?s verbiage at this morning?s opening, with the Euro gapping down a full half-cent against the dollar. The stop loss selling was severe.

I wish all my trades were this easy. Since I doubled up on the short side, the Euro has been in a complete free fall. European dithering has been one of the lowest risk bets of 2014.

That said, I think I?ll get back to cleaning up my earthquake damage.

The Euro Breaks Down

Newsletter, Research

You usually don?t expect US housing data to cause the collapse of a foreign currency. But that is exactly what happened this morning.

The announcement by the Census Bureau that new home stats for July came in at a breathtaking 1.09 million, up 15.7%, blew away even the optimistic forecasts. Earlier figures for June were revised up substantially.

New building permits for July came in at a robust 1.1 million. Perma bears on the housing market were sent scampering to lick their wounds.

The real shocker was that the Euro promptly dropped 50 basis points, piercing a major support level on the long term charts. The short Euro ETF (EUO), which I have been recommending since the spring for my non-option clients skyrocketed. That clears the way for a run in the (FXE) down to $127.

The (FXE) wasn?t the only asset that saw a kneejerk reaction. The Treasury bond market (TLT) dove by 1 ? points. It is now 2 ? points off the short squeeze high last Friday, when false rumors of a Russian invasion of the Ukraine caused traders to panic. This sent the ProShares Ultra Short 20+ Year Treasury ETF (TBT) soaring, which I am also long.

You can come up with a nice academic theory as to why there is a connection between American housing data and the beleaguered continental currency. Stronger housing means a better economy and higher dollar interest rates, sooner.

As interest rates differentials are the primary driver of foreign exchange markets, this is great news for the greenback and terrible news for the Euro.

The truth is a little more complicated than that. The outlook for the European economy is now so poor, thanks to the sanctions against Russia, that traders and investors have been desperate to add to their short positions. After the prolonged, one-way move down we saw this summer, the Euro managed barely a one-cent short covering rally in the past week.

There is another factor that no one else is talking about. Scotland is about to hold a referendum on whether it should break away from the United Kingdom. Scottish nationalists are hoping for the best.

If successful, it could spur other independence movements across Europe. Catalonia is having a similar vote to break away from Spain in November, with some separatists avid followers of this letter (yes, that?s you, Joan!). The Basque region is not far behind. If this trend ripples across the continent, it would be hugely Euro negative.

The European Central Bank is almost certain to lower Euro interest rates and expand quantitative easing at a September or October meeting. This will weaken the Euro further, paving the way for a move to $127, and eventually $120.

That?s why I am doubling my shorts in the (FXE) today, even though we are at the low for the year. Non-options players should buy more of the ProShares Ultra Short Euro ETF (EUO).

The Euro is Not Looking So Hot

Is the Turnaround at Hand, and Ten Stocks to Buy at the Bottom?

Newsletter, Research

War threatens in the Ukraine. Iraq is blowing up. Rebels are turning our own, highly advanced weapons against us. Israel invades Gaza. Ebola virus has hit the US. Oh, and two hurricanes are hitting Hawaii for the first time in 22 years.

Should I panic and sell everything I own? Is it time to stockpile canned food, water and ammo? Is the world about to end?

I think not.

In fact the opposite is coming true. The best entry point for risk assets in a year is setting up. If you missed 2014 so far, here is a chance to do it all over again.

It is an old trading nostrum that you should buy when there is blood in the streets. I had a friend who reliably bought every coup d? etat in Thailand during the seventies and eighties, and he made a fortune, retiring to one of the country?s idyllic islands off the coast of Phuket. In fact, I think he bought the whole island.

Now we have blood in multiple streets in multiple places, thankfully, this time, it is not ours.

I had Mad Day Trader, Jim Parker, do some technical work for me. He tracked the S&P 500/30 year Treasury spread for the past 30 years and produced the charts below. This is an indicator of overboughtness of one market compared to another that reliably peaks every decade.

And guess what? It is peaking. This tells you that any mean reversion is about to unleash an onslaught of bond selling and stock buying.

There is a whole raft of other positive things going on. Several good stocks have double bottomed off of ?stupid cheap? levels, like IBM (IBM), Ebay (EBAY), General Motors (GM), Tupperware (TUP), and Yum Brands (YUM). Both the Russian ruble and stock market are bouncing hard today.

There is another fascinating thing happening in the oil markets. This is the first time in history where a new Middle Eastern war caused oil price to collapse instead of skyrocket. This is all a testament to the new American independence in energy.

Hint: this is great news for US stocks.

If you asked me a month ago what would be my dream scenario for the rest of the year, I would have said an 8% correction in August to load the boat for a big yearend rally. Heavens to Betsy and wholly moley, but that appears to be what we are getting.

It puts followers of my Trade Alert service in a particularly strong position. As of today, they are up 24% during 2014 in a market that is down -0.3%. Replay the year again, and that gets followers up 50% or more by the end of December.

Here is my own shopping list of what to buy when we hit the final bottom, which is probably only a few percent away:

Longs

JP Morgan (JPM)
Apple (AAPL)
Google (GOOG)
General Motors (GM)
Freeport McMoRan (FCX)
Corn (CORN)
Russell 2000 (IWM)
S&P 500 (SPY)

Shorts

Euro (FXE), (EUO)
Yen (FXE), (YCS)

No, Not This Time

Unloading More Euros

Diary, Free Research, Newsletter

The entire foreign exchange world has been on hold this week, waiting for ECB president Mario Draghi to announce a well-deserved cut in Euro (FXE), (EUO) interest rates.

The sanctions war with Russia is escalating by the day. Russia banned food imports from the US and Europe, a mere $1 billion trade hickey for us, but a $15 billion punch to the gut for the continentals. Some 350 McDonald franchises in Russia will be left with nothing to serve. Yikes!

Economists are paring expectations for European GDP growth for this year as fast as they can.

Italy announced a shocking dive in Q2 growth, and German data is deteriorating by the day, where some 300,000 jobs are dependent on trade with Russia.

The European bond market has certainly gotten the message. The yield on ten-year German bunds hit another all time low at a gob smacking 1.02%, while the return on two year paper fell below zero!

Throwing more fat on the Euro fire were the latest American weekly jobless claims, plunging by 14,000 to a new seven year low of 289,000. This augers for high US interest rates sooner, which is hugely dollar positive and Euro negative.

So given all this, Draghi?s announcement that there would be no interest rate cut whatsoever went over like a lead balloon. You would have expected the Euro to rocket a few cents on this news, thanks to the further yield support.

It didn?t, not even for a second.

Instead, another round of frustrated short sellers hit the market big time, who had been waiting for better prices at which to sell. I was one of those.

With the rapidly deteriorating fundamentals, selling short the Euro has become this year?s one way, ?free money? trade. It is a classic trading nostrum that if you throw good news on an asset and it fails to rally, you sell the hell out of it.

I will reiterate my long time targets for the beleaguered continental currency of $1.27, then $1.18, and possibly as low at $1.00. How quickly will we get to these low numbers?

Just ask Vladimir Putin.

Meet My New European Head Trader

Russian Sanctions Crush European Yields

Newsletter, Research

When a rogue element of Ukrainian separatists used a heavy antiaircraft battery supplied by the Russians to shoot down Malaysian Airlines flight 17, who knew that it would send the European bond market into turmoil?

Yet, that is exactly what happened.

German and French ten-year bond yields have hit 300 year lows at around 1.12% and 1.50%. They achieved 500-year lows in the Netherlands, only because it has the longest record for publicly trading debt (the Dutch East India Company was a big borrower to colonize Asia).

Spanish government debt is now trading at higher prices than equivalent US debt. Perish the thought! Weren?t they supposed to be bankrupt?

Yet, the ultra low Japanese levels of interest rates now found on the continent are justified by the new pall cast upon the European economy.

The first round of sanctions imposed by the European Community on Russia a few months ago were little more than symbolic gestures. Close friends of Putin saw bank accounts frozen, and invitations to international gatherings rescinded. Putin could easily afford to laugh them off.

Not so with the second round, which officials have dubbed ?Sanctions 2.5?. The Europeans are taking the Malaysian Air incident personally, as the great majority of the 295 victims were theirs, primarily from Holland. Restricting access to the crash site has only made the pain greater and Russian obtuseness more offensive.

Russian banks have been barred from the European capital markets, greatly increasing their cost of funds. There is a new ban on military contracts, although existing deals are grandfathered, such as France?s sale of two ultra modern helicopter carriers for $4 billion.

Sitting in Europe as I write this, I am inundated by news of the adverse effects of the New Cold War on the European economy. Germany, alone, has 300,000 jobs dependent on trade with Russia, which is a major buyer of industrial machinery and automobiles.

Unfortunately, the timing for all of this couldn?t be worse. It is happening just as the economic data was showing glimmers of a nascent, but sustainable recovery. Look no further than the Euro (FXE), (EUO) which has greatly accelerated its collapse against the US dollar.

Europe has also become hugely dependent on Russia for energy, particularly natural gas. Putin has already used his energy weapon on the Europeans over a contract dispute, arbitrarily cutting off supplies during one of the coldest winters on record.

The problem is that this is not a challenge that can be dealt with easily. On paper, the US could supply a substantial portion of Europe?s energy needs with its newfound windfall from fracked natural gas (UNG).

However, anyone in the energy industry will tell you that installing the needed infrastructure is at least a 20-year job, and maybe ten years if you put it on a military footing.

The new sanctions were instrumental in the announcement of a major expansion of fracking in Europe, which until now has been held back by environmental concerns. The coal bearing areas of Germany, Poland, and France have the perfect geology for fracking, which will enable the continent to become energy independent.

But again, we are talking about very long timelines. This is another reason why US fracking stocks, like USA Compression Partners (USAS), Nuverra Environmental Solutions (NES), and US Silica Holdings (SLCA), have been on a tear.

The late President Ronald Reagan must be laughing in his grave. When I was a young White House correspondent, his administration fought the energy deals Europe was negotiating with Russia tooth and nail.

In the end, the Europeans ignored the ?Gipper,? wary of his conservative, saber rattling, Cold War rhetoric. The headache is that the EC is now in so deep with Russia, recently describing it as a ?strategic partner,? that it can only extricate itself at great cost.

The US cannot just sit back and laugh this off with a giant ?I told you so.? The collapse in bond yields has been a global affair, dragging our interest rates down to one year lows at 2.45% for ten year Treasury bonds, and 3.24% for the 30 year.

At the very least, it postpones a major switch by American investors out of bonds and into stocks that was imminent. It also hits American companies, that until recently have been cashing in on new trade with Russia. Who is the biggest casualty? Exxon (XOM), which has several ongoing projects to modernize Russian oil production.

Sanctions 3.0 could be worse, if Putin doesn?t get the message. The US Treasury is prepared to ban Russia from global US dollar clearing if it doesn?t back off from the Ukraine. Trying selling 10.5 million barrels a day of oil without using the greenback.

What could they accept in return other than the buck? Gold? North Korean Won? Chinese Renminbi? The collapse of the Russian economy would be total and absolute, not that anyone cares. Its GDP is only $2 trillion, 3% of the world total, and they have an even smaller share of international trade.

Fortunately, I have been able to dance between the raindrops with my Trade Alert service. I have been marginally caught out by premature short positions in the Treasury bond market (TLT), (TBT).

But so far, these losses have been offset by my aggressive shorts in the Euro, which has been cratering, thanks to ECB president Mario Draghi?s new found belief in quantitative easing. Breaking even when a flock of ?black swans? descends upon you is a ?win? in my book.

It?s a classic example of, ?The harder I work, the luckier I get.?

Grandfathered

Taking Profits on my Euro Short

Diary, Newsletter

The market marked our Currency Shares Euro Trust (FXE) August, 2014 $136-$138 in-the-money bear put spread at its maximum value of $2.00 last Wednesday. So I accepted the invitation to take profits and get out.

For purposes of my P&L I?ll assume that it costs you two cents to execute, so I posted a selling price of $1.98. That should add 151 basis points to your 2014 performance.

Since I strapped this trade on three weeks ago, the beleaguered continental currency has plunged a whopping two cents against the greenback. The euro has technically broken down on the charts, so lower levels beckon. My European vacation is getting cheaper by the day.

The economic fundamentals certainly argue for a lower Euro ($10 for a Big Mac!!). This may be a rare case where it pays to chase a trade, so I rolled down the strikes and put this trade back on.

There is no way out for the European economy to escape its current malaise than to devalue its currency, by a lot. With China growing at 7.5% Japan at 4%, the US at 2%, Europe is the slowest growing economic block in the world, struggling to reach 1%.

The only way out is for Europe to lower interest rates. European Central Bank president Mario Draghi has nailed his colors to the mast, convincingly stating that he is doing exactly that.

For good measure, he is throwing in a healthy dose of quantitative easing, as well. As a result $1.28, and then $1.26 to the dollar are now within easy reach.

Nothing breeds success, like success!

Tag Archive for: (FXE)