Gold Spikes Yet Again, Silver Breaks Through $21, Italian Banks in Freefall

Our model portfolio (just a game for legal reasons) is flying high. We will exit leveraged positions some time tomorrow on what looks to be something like an 80% gain in 3 weeks. I plan to convert it to unleveraged metals positions to catch any additional move but I expect the metals to go down for a few days next week. If they don’t we’ll still have regular positions in this fictional game.

There may be a big spike tomorrow morning at the bell since US traders are out of the picture today and had to watch from the sidelines. Futures traders can trade metals wherever they want 24 hours a day, but US equities traders who focus on gold stocks and ETF’s will have their first say tomorrow morning. Judging by comments I’ve read and the fact that gold is now the Yahoo Finance front feature article, it looks like retail dumb-money traders will pile in on Tuesday morning.

We will be selling right to them (in our fictional game for legal reasons), and hopefully pick our (game) leveraged positions back up when the retailers get too scared of the temporary draw down.

This is what I’ll be doing personally. Anyone who wants to follow, I do not recommend it and you do it at your own risk.

Italian banks are crashing today. The rickety financial fiat superstructure of the planet is shaking under the weight of its own printed paper.

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Four for Five on Short Calls

On March 23, I said the following:

NEW YORK (TheStreet) — Japan’s stock market may be about to put in a long-term top and there are two ETFs you can short to take advantage…

In order to take advantage of a turn south, there are two main options in terms of ETFs one can short, either directly or through options. The first is the iShares MSCI Japan ETF(EWJ) , which has greatly underperformed the Nikkei by 17% over the last year. This could mean it will also lose value faster than the Nikkei itself if and when the BOJ announces a less accommodative monetary policy. The second is the WisdomTree Japan Hedged Equity ETF(DXJ) , which has the added benefit of underperforming when the Yen rises relative to the dollar.

If the BOJ confirms no more QE, which it has already hinted at, then the Yen is likely to rise relative to the dollar, pushing DXJ down even faster than EWJ, which is not hedged against the Yen.

I went short DXJ when the Nikkei was at 19,750. The top was at 20,952. I was 6% off. DXJ was at $56, and covered at $46. It really tanked today because the Yen skyrocketed, and the DXJ holds short positions in the Yen, which brought it down even further.

On June 1, I said the following:

But, as Austrian Business Cycle Theory suggests, there need not be any actual shrinking in the money supply to bring on the bust after the boom. All that needs to happen is that the rate of increase slows. And if the policy of the People’s Bank of China is indeed to maintain the status quo in the money supply, then we may have seen our top in the Chinese stock market, and its corresponding ETF, the iShares FTSE/Xinhua China 25 Index (FXI), just from last month.

I went short FXI at $48, and covered at $39. It’s now at $34.

The Greek shorts I already wrote about.

On August 13, I wrote the following:

If the S&P (NYSEARCA:SPY) breaks through the 2040 support zone, tested twice since February, then a serious crash is both possible from both a fundamental and technical perspective. The S&P has not gone anywhere since February, and has not stagnated for so long since the 2009 bear market bottom.

Personally, I am going long the VIX here out to November. The closest ETF is the VIX Midterm Futures (NYSEARCA:VIXM), though rollover of contracts and decay makes holding the VIX options directly more attractive for less capital.

And covered this morning.

The only short that has not worked out yet is Italy. I shorted EWI earlier this year, and my position expires in September. EWI has to go to 12 for it to work, and it may not make it. Three weeks to go. We’ll see if I go 5 for 5.

And yes, I’m still waiting for gold to rise. Luckily, there’s no time limit on that one.

 

 

Mussolini’s Children Are Trying to Boss Around the 4th Reich

Or is it the Fifth one? I lose count. Some Italian zhlub Prime Minister is set to tell Merkel, apparently, that “enough is enough” and Germany cannot “humiliate” Greece any longer. From The Guardian:

“Now common sense must prevail and an agreement must be reached. Italy does not want Greece to exit the euro and to Germany I say: enough is enough.

Now that Tsipras has made proposals in line with the European demands, we must absolutely sign a deal. Humiliating a European partner after Greece has given up on just about everything is unthinkable.”

HA! You know why Italy with a 132% debt to GDP ratio is trying to bully Merkel around, when German citizens are the ones paying for this crap? Because Italy knows very, very well that it is next in line. If Greece goes, Italy is next.

Greece doesn’t have to be “humiliated”. The Greek government has to be humiliated. Humiliate it. Bring it down. Crush it and starve it so they cannot restrict the Greek people any longer. If I were Merkel, I would say to Greece, simply, “Do whatever you want. Print drachmas, don’t print drachmas, we don’t care. Just, you’re not getting any more money from my taxpayers. And whatever happens happens. Have a nice day.”

Italian Government Exposure to Greece: €61.85 billion; Spain at €44.42B

I came across this table at ZeroHedge. This article is very worth reading.

Exposure to Grexit table

Italy’s taxpayers are exposed to the tune 3.8% of the country’s GDP. Spain is at an even higher 4.1%. The jist is that a hard default by Greece on a No vote will mean all those assets turn to zero, which jacks up the debt ratios of these already extremely indebted governments, and pushes interest rates extremely higher overnight.

My feeling is that the central banks have a week or two at most to contain the bond markets by printing money faster than they ever have before, after the Greeks vote No, if they do indeed vote No. We’ll find that out in a few hours.

Money supply growth in the US is already fading fast.

עת לעשות ל-ה

 

Bond Attack on Italy and Spain Begins

Spanish bond yields jump
Spanish bond yields jump

Yields are falling in the stronger economies and surging in the weaker ones. Bloomberg:

Spain’s 10-year bond yield jumped 14 basis points to 2.25 percent, set for the biggest increase since June 15. The yield on Italian 10-year bonds climbed 14 basis points to 2.29 percent, having earlier surged as much as 57 basis points.

“The market is seeking haven assets as some investors perceive Grexit risk as being higher now,” said Vincent Chaigneau, London-based global head of rates and foreign-exchange strategy at Societe Generale SA. “That said, we expect to see some stabilization soon. If the Greeks vote to accept the creditors’ deal, then talks can resume and I think most of them still want to remain in the euro zone.”

The Greeks will vote next week to stay in the Eurozone. If that quells bond markets, it may avert a collapse for a while. If it doesn’t, then this is the end game. Unless China keeps crashing and bringing down other markets with it anyway. China is down another 3.5% today.