Fiscal Cliff Best Summary I Have Found
If you read through this summary from this guy, it is in complete harmony with what I believe, I could have written this myself. The best take away from it is the the incremental gain you may eek out by pressing the long side will not outweigh the hit you will take when this thing rolls over. I completely agree with that.
For those on the opposite side of the political spectrum than who is control, you just have to let it go. BO is going to smack talk for 4 years and do what he has done for the last 4 years. This is going to be great for us as traders so get over it. He is going to create the greatest shorting spot in history for us at some point so be ready. It will be a hold for a huge gain and I can't wait for it to happen. It will be a bad situation for many but they voted for this so it is what it is. In the mean time don't get too negative, this is not going to be anywhere near a straight slope down. This massive stimulus is going to create big up moves at times as well.
Here are a few things going on that I think are interesting. Some of these I have mentioned recently.
First, the markets appear to be on the verge of de-coupling.. If this continues it will be very exciting for us as short term traders. The world is one trade scenario has made money management very challenging, there has been no way to diversify. If each market could return to trading on it's own merits and fundamentals it would sure be welcome.
Second, the layers and layers of stimulus seem to be successively losing their mojo. This is like pushing the roller coaster to the top of it's peak spot in the ride. It gets steeper and steeper and requires more and more effort to get small movement.
Third, the stimulus has seemed to zero in on just the Indexes alone all of the sudden. I think this is probably disturbing to the Fed as their plan is to elevate everything by getting the stock market to rise. This is another out growth of the second item. The effect of the stimulus is wearing off slowly.
Fourth, the payoffs vie entitlements to pensions seems to almost be accelerating. This probably will create some opportunities in the municipal bond markets when these pensions bankrupt the cities where they occur. I think it will be to buy them when these cities file bankruptcy due to the union pensions. This is a bit tricky and I will leave that stuff up to anyone to do individually. I am just pointing out what is going to be a good opportunity. Those bonds are likely to sink as these bankruptcies happen and then ultimately be bailed out by the Federal Government. I don't know if I will do any of these types of trades or not. The reason is that the bailout can always be a union payoff like GM was where the bond holders get wiped out, so this is not as simple as it seems.
There was a local story last night of a Police Captain in a small city who made $500k last year and is getting a pension of $175k per year for the rest of his life. If you are interested in this type of play go read about that. I would assume that city is a prime candidate for bankruptcy based on this type of thing.
Here is another article on the beating the tax payers are taking on GM, the biggest union payoff in history, from Zero Hedge. Look at the staggering amount of money that was lost bailing out this company, zeroing out the bond holders and handing it over to a union. I love the people that talk about what a great success this was and why it proves how great bailouts are. From a trading perspective these bail outs are tricky things to play. You cannot automatically assume a rise or fall with them. Even trying to buy bonds cheap when they get defaulted could result in a 100% loss once politics come into play. I think in general you can play the short side on things like this but is it not as easy as just shorting at the market and waiting for them to fall apart. Do not forget about their still unfunded $100 Billion pension liability they have. I suspect the gift that is GM is going to do plenty more "giving" to the taxpayers before their day is done. If I am not mistaken the majority of their profits are coming from outside the US.... Of course!
This is the EURO and it is setup about as good as a market can be for a decline right now. The commercials are short, we are at a seasonal peak, and we are in a down trend. Time to look for short entries here.
That's it for tonight