Saturday, March 30, 2013

The Next Financial Crisis

This video below is a bit long and they are selling something at the end, but it is very informative and if you want to protect your assets and your future, I suggest you give it a listen. Here is a summary:

 The author suggests that we are on the verge of another financial crisis. This crisis will be caused by a massive devaluation of the US dollar as the reserve currency of the world. This will be devastating to anyone holding US dollars. He suggest moving our cash out of the USA and buying gold and silver. His arguments are sound and we should all take caution. I don't like how he wants to sell his newsletter and the end, but besides that I cant find any flaws in his main arguments.

If you think the government can do something, it cant.  The path has been set and there isn't much Congress can do. They can only continue to borrow money to pay for more spending. As the author said, even if they double tax rates, it still would not be enough to cover our plan spending. So printing money is the only option. 

Keep in mind, the government cant really print money. So they have to borrow money with bonds from the Federal Reserve Bank and the Federal Reserve 'prints the money' for any bonds that cant be sold off. Well, the foreign countries that have been buying our bonds, are scaling back because they see the long term risks. 

Would you want to buy bonds from any country that is running huge debts and devaluing its currency. Of course not, it means that your investment would be worth less in the long run. You only want to invest in bonds where the currency is stable and still has purchasing power in the future. 

The only reason that our currency has not collapsed yet, is because it is still the reserve currency of the world. Once countries decide to not use the US dollar as the reserve currency, then the downward spiral will begin. The government will deny this, but it has already happen in England. Britain's Sterling was the reserve currency of the world until 1970s. Then when England issued to much debt and spent to much on its people, the world went the the US dollar. It was bad times in England during the 70s and its about to happen to the USA.

Monday, March 18, 2013

XIV an easy play?

Scalped some XIV $22.37 to $22.62 in 25 minutes.  Going to try some new plays with just volatility movements.   We have been experiencing very low volatility.  This is typical in bull markets. Volatility is measured with the VIX index.  While you can't buy or sell the VIX,  there are other  ETNs and ETFs that attempt to replicate the changes in the VIX.  

As the VIX is decreasing you can go long the $XIV.  The XIV goes up as volatility goes down.  VXX  goes up, as volatility goes up, at exponential rates.  XIV is probably a good long term play, since as the markets climb higher the XIV will move higher. The XIV can move 10X faster then the overall markets, but in reverse.  So a .5% move in the SPY lower means a 5% move lower in the XIV.

VXX should only be played as the markets hit a high point.  The VXX is said to be in constant contango,  which means that it converges to its mean.  It can be jumpy, but is constantly heading lower.  VXX has many reverse splits, so be careful.  The market only needs to move down .5% and the VXX will move up 5%!

Just trade in and out, but know that the VXX will go lower in time.  Only buy the VXX before the market is crashing, since it will always move back down. UVXY is also similar to VXX but is a 2X ETF.  So when the VXX is up 5%, the UVXM will be up 10%.  Keep in mind that the SPY just needs to move down .5% for these to move up huge!

Check out Term Structure.  When in Contago buy XIV, when in backwardation buy VXX or UVXY.

Tax on Deposits, are they serious?

The proposed tax on deposits in Cyprus is really telling of the the European's refusal to print more Euros.  In America, we are just printing our way out of our debt crisis.  Yet, Europe refuses to print, in fear of inflation.  Anyone betting that the Euro will inflate has been dead wrong, since they continue to resist the easy temptation to print money.  Germany remembers, all to well, the lesson they learn after WWI and they printed way to many Germany Marks to pay for the War.  Now that lesson, means tight controls on the Euro.  Eventually, they will realize that they will have no choice, but to start the Euro printing presses.

Tuesday, March 5, 2013

The DOW is at an All time High!

The DOW Jones industrial average is at an all time high.  It just closed at 14353.  It was last at this level 6 years ago.  So basically the average is back to even after 6 years.  So the question is do we go higher?  I like to look at the SP500 average.  It is represents 500 stocks so a better view of the overall markets.

The SP500 index is also back to 2007 levels.  This is actually the 3rd time it has is this level.  In 2000 and 2007, it has hit the 1540 levels.  In 2007, it proceeded to fall about 50%.  Technically this was called a double top.  Now we are at a triple top level.  Well, triple tops are very rare in the market.  So I fully expect that we break thru this time and continue to march higher.