Dollar-Shit Thursday

We're fucked folks.

Bernanke made a critical mistake dropping FedFunds and now the market is going to make him pay in ways he cannot even imagine.

The Dollar. It went off the cliff again last night, as I expected it would. This is not over by a long shot. DX to 40? Maybe. I would not be surprised to see it hit 70 within six months, which would be catastrophic - a deterioration at four times the rate of the previous two years. It could fall much faster, if Bernanke does more stupid things.

HUI gave confirmation of a breakout in metals last night. This morning, I bought Gold and Silver. Why? Because that along with the continued slide in the dollar means that you simply must hedge in some fashion. I will convert some of this to physical over time, but that can be done any time at parity, so it is what it is.

Commercial paper is still screwed. Told 'ya that Ben wouldn't actually fix that with dropping FedFunds. He can't fix that, because the problem is that the CP market has become infested with CDOs and other derivatives. If yours doesn't have that crap in it you don't have a problem. If it is, you do. End of discussion. FedFunds could be zero and it wouldn't change this.

The Yen is strengthening and soon will skyrocket, because it will not be long now before the Bond Market forces reality down the throats of equities - inflation is coming in a big way, and that means that profits are going to be squeezed. When "E" disappears P/E goes to the moon and equity prices contract. This is inevitable and those fools who put carry trades back on in the wake of the Fed dropping interest rates are going to get murdered. Don't be on the wrong side of this one. Oh, and no, Globalization does not fix it - we import $800b more than we export, and guess what - when we go to shit they will follow. Parity on the Yen? Quite possible. What does that do to all those carry traders?

Speaking of the Bond Market, real interest rates on the long end have gone up a lot. Covered in the technical tonight. Its still happening today after yesterday's moonshot. This will continue so long as the inflation monster continues to step on buildings. There is no longer a "PUT" from foreign buyers in the bond market to stop it, as has been the case for the last ten years - they've all said "fuck that!" to having 10% of their money disappear annually in the form of dollar debasement. Oh wait - that's 12% now isn't it? So I guess stopping the pain would be a good thing if you're a foreign government yes?

Goldman beat estimates based on "smart" trading. Smart? Or tipped off by Hank Paulson? Naw, nobody would ever trade on inside information illegally would they? Why that would be UnAmerican!

Bear Stearns, on the other hand, had problems. Gee, who'd a thunk? Uh huh.

Buy equities here? Only if you're stupid. Could the markets take a run at the all-time highs? Sure. Will it hold? What do you think? We've got a recession coming and we will not avoid it. Those who think we will need to take the needle out of their arm and detox; the next shot you take is likely to be full of Drano. Care to roll those dice?

My view on positioning here? Simple - buying metals here as a trade is a no-lose if you're bearish on the market. If Ben puts rates back to defend the dollar you'll get hit on the metals but will slaughter the market on the bearish positions. If we get a "crack up boom" you take a moderate hit on the bearish bets but metals skyrocket. If the equity markets ditch (as I expect they will) and the dollar continues its debasement (which is the scenario I expect) you win twice.

So the way I see the worst case is you're hedged and in the best case you win twice. That looks pretty good to me.... but what do I know?

Oh, Leading Economic Indicators came in -0.6. That ain't so good.

Here's the technicals. They are what they are - tomorrow is likely to be quite exciting as I suspect from the options activity I see that a LOT of people expected that we'd be the "Roaring Bull" all week. Oops.

That could get ugly...... be careful in the morning!