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.

 

 

Another Domino to be Added to the List of Catastrophic Catalysts

I’ve known this for a while, but never saw it in graphic detail. Bob Wenzel of Economicpolicyjournal, a blog I visit every day, had this infographic up on his site today.

Top Holders of US Debt

I’ve always known China is the largest holder of US treasury debt in the world. I didn’t know that Japan was right behind.

Japan is the only country on the planet that is more into Keynesian economics than the US. As I mentioned in my last post about the bonobo chimpanzee behaving former IMF head Dominique Strauss Kahn who only attended 4 sex parties a year, Japan is somewhere between 240% and 500% in debt to GDP. Whichever number you want to pick, it’s the highest debt to GDP ratio on the planet. And Japan holds $1.24T in face value of US treasury debt.

If this isn’t a highly unstable house of cards, I really don’t know what is. The situation is just beyond any scope of reason, while the media makes you blissfully unaware of any of it or its meaning. The most indebted country in the world is being propped up by the country with the highest debt concentration in the world.

These are aftereffects of a country that destroys another with two nuclear bombs and then proceeds to nurse it back to health. How would you feel if someone beat the living crap out of you to within an inch of death and then put you on life support until you sort of recovered? You’d feel indebted. $1.24T of indebtedness.

Sooner or later some tiny domino is going to fall. If you feel like you have to sneeze, duck and cover.