11-11-09

Any trading strategy which becomes dangerously overcrowded eventually becomes a losing strategy, regardless of whether the assets involve currencies, commodities, real estate, equities, or anything else. The currently trendy carry trade has caused a dangerous undervaluation for the U.S. dollar, along with a dangerous overvaluation for crude oil, gold, and emerging-market funds. While we are likely to see a sudden unraveling in the near future, this will probably be followed by even more absurd extremes for all of the above assets during the coming winter and/or spring of 2010. Once the carry trade has become practically the only game in town, it will unravel even more dramatically than had been the case in 2008, and will lead to a far worse global recession. The currently detested U.S. dollar will become the king of worldwide currencies by 2012, while most general equity indices will slump to their lowest levels since the mid-1990s. The stock-market crash of 1929 may have dominated the headlines, but the global economy by July 1932 had become far worse. Last year was merely a preview of what we are going to experience in 2011 and 2012. As long as you are prepared, you will be able to benefit from what will likely be the worst equity and commodity bear market since 1930-1932.

The above is from Steve Jon Kaplan he can be reached at truecontrarian.com


I sure do feel better after reading something like this. Made some modest gains today shorting spy off the open for $.80 then went long LVS for a $.50. Took the opportunity to add to SRS and VXX.

We have jobless claims tommorrow at 8:30. I think we go under 500,000 for the first time. At this news i expect the market to rally. Will add to short positions around 10:00am.

Call options outpaced put options 2 to 1 today. This typically is a bearish indicator.

Russell 2000 had a pretty lousy day

Transports failed to break key resistance.

My undertsanding of this carry trade is this. Big money managers can borrow for nothing right now. This means they borrow the dollar and invest in big name companies where the can get out relatively fast in case it goes against them. Also money managers borrow the dollar, short it, and buy other apreciating currencies. This works fine until it doesn't anymore. All i hear and read about is the dollar. It is nerve racking. When this house of cards comes down i hope i am short enough to take full advantage.