Goodbye 2011 - A Wild & Crazy Year

Oh, and a nicely profitable year as well !

Here is what I will remember about 2011

S$P 500 closes at 1257.60 --- 0.0% flat (actually down by 0.04 points, or 0.0032%, while trading in a wild & wide range of 1074 - 1370)

My trading accounts did substantially better ... if I posted the number, you probably would not believe me (hint: think John Paulson in reverse ...).

Despite my good fortune in the markets, I still made too many mistakes, some very costly.

This needs to improve.

Important events of 2011 included:

- Osama bin Laden killed by US Special Forces ... putting in a market top.

- QE 2 ending, taking away the crack cocaine that drove the market relentlessly higher since Sept. 2010 thru the bin Laden top & until it ended in June 2011.

- The ongoing Democrat/Republican/Obama skirmishes regarding out of control government spending & debt, culminating in the debt ceiling summer drama, which led to ...

- S&P downgrading the United States Credit rating in August, which precipitated ...

- A massive stock market correction in August & September and market volatility through year end, which was exacerbated by ...

- Europe ... which, as hard as it is to believe, is actually worse off than we are, with all sorts of sovereign and bank problems, a troubled currency union, a recession, austerity, etc. etc.

Which takes us to 2012, a presidential election year (and also the year that the Mayan calendar apparently ends, along with the world according to some).

What will be in 2012 ? Nobody knows, but it is likely that the European drama will continue to play out, there will be more sovereign debt rating excitement and market volatility.

In the U.S., the political gridlock will only intensify as the election cycle kicks in to high gear.

We should also keep an eye on the BRIC countries, as India is slowing, China is probably slowing, Brazil too. And Russia is a mess. Finally, will the US stabilize and grow, or will we slip back into recession.

My goal is to remain extremely flexible regarding my overall approach to markets and market conditions, and continue to try to be well hedged, while focusing on short and medium term profit opportunities.

If you care to learn more about my 2011 trading performance and the strategies that helped achieve them, feel free to get in touch.

Finally, here is what I will remember most about 2011:

My Green Bay Packers winning Super Bowl XLV !

Followed by a 14-1 start heading into 2012, the final week and the playoffs, and hopefully back-to-back titles !

Happy New Year & Good Luck in 2012.

The Bernanke Song: Don't Stop Me Now

(apologies to Freddie Mercury & Queen)

The Helicopter Ben Song

Tonight I'm gonna have myself a real good time

I feel alive and the world it's blowing up Yeah!

I'm floating around in ecstasy

So don't stop me now don't stop me

'Cause I'm having a good time having a good time

I'm a shooting star leaping through the skies

With Timmy Geithner, defying the laws of gravity

I'm a racing car telling lies to the Congress

I'm gonna print print print

There's no stopping me

I'm burning through the skies Yeah!

Two hundred degrees

That's why they call me Helicopter Ben

I'm trav'ling at the speed of light

I wanna make a Euro man of Sarkozy

Don't stop me now I'm having such a good time

I'm having a ball. Don't stop me now

If you wanna get a Bail Out just give me a call

Don't stop me now (I'm wrecking the Economy, its a good time)

Don't stop me now (I'm debasing the Dollar)

I don't want to stop at all

I'm a rocket ship on my way to Mars

On a collision course

I am a maniac I'm out of control

I run the printing press, ready to reload

Before all the Banks

Oh oh oh oh oh explode

I'm burning through the skies Yeah!

Two hundred degrees

That's why they call me Helicopter Ben

I'm trav'ling at the speed of light

I wanna make a supersonic woman out of Merkel

Don't stop me don't stop me don't stop me

Hey hey hey!

Don't stop me don't stop me

Ooh ooh ooh (I like it)

Don't stop me print more dollars, what a good time good time

Don't stop me don't stop me

Ooh ooh Alright

I'm burning through the skies Yeah!

Two hundred degrees

That's why they call me Helicopter Ben

I'm trav'ling at the speed of light

I wanna make a supersonic woman of Merkel

Don't stop me now I'm having such a good time

I'm having a ball don't stop me now

If you wanna get a Bail Out

Just give me a call

Don't stop me now ('Cause I'm killing the Dollar)

Don't stop me now (Yes I'm causing Inflation)

I don't wanna stop at all

La la la la laaaa

La la la la

La la laa laa laa laaa

La la laa la la la la la laaa hey!!....

Europe - Political Union ? or Killing Democracy to limit Bank Losses ?

Below are some important & interesting reads assessing the situation:

Lowry: European Union Killing Democracy http://www.nypost.com/p/news/opinion/opedcolumnists/adieu_democracy_VD4kzHpnzUC0JWNQwkrAJL

The Euro - What Next ? http://www.nationalreview.com/corner/284850/eurowhat-next-andrew-stuttaford

Contagion Catastrophe: http://nationaljournal.com/magazine/the-eurozone-s-contagion-catastrophe-20111201

Jacques Delors - father of the Euro ...

http://www.telegraph.co.uk/finance/financialcrisis/8932647/Euro-doomed-from-start-says-Jacques-Delors.html

Lowry Excerpt

There is a European Parliament, but not one with the powers or role of a proper democratic parliament. It can’t initiate legislation. It has no governing or opposition party. It can’t topple the government with a vote of no confidence. It is the unelected European Commission that initiates legislation and issues regulations. By some estimates, about half the new laws in EU states are drafted in Brussels.

This diminution in national sovereignty has been accomplished without worrying over-much what the peoples of EU countries want. Referenda on big further steps toward integration have generally been avoided. As Teddy Roosevelt shot back when an aide recommended he inform the Senate of a secret agreement with Japan, “Why invite the expression of views with which we may not agree?” Although there are elections to the European Parliament, no one pays attention to them, and their results reflect the standing of national political parties that fight on the basis of national, not EU, issues.

The recent cashiering of the prime ministers of Greece and Italy, who were replaced by a former vice president of the European Central Bank and a former EU commissioner, respectively, captured the undemocratic thrust of the European project. It was a technocratic coup forecasting how the laggards of the EU will come to be governed by Brussels — and essentially Germany and France — in a new fiscal union.

If Germany is paying the bills, shouldn’t it call the shots? But it shouldn’t be paying the bills for the follies of foreign countries or calling the shots. Greeks should be governed by Athens, no matter how dreary and dysfunctional this time-tested arrangement might strike Berlin.

The European elite claims that a reinvigoration of the nation-state will again risk war. Nonsense. Democratic nation-states didn’t precipitate World War II, the totalitarian ideology of Nazi Germany did. Are we supposed to believe that without the glue of the euro, Angela Merkel’s Germany would again roll Panzers across Nicolas Sarkozy’s France? Even without the EU, Europe would still be bound by trade, NATO and a mutual commitment to international norms.

DeLors excerpt:

Mr Delors claims that the current crisis stems from “a fault in execution” by the political leaders who oversaw the euro in its early days. Leaders chose to turn a blind eye to the fundamental weaknesses and imbalances of member states’ economies, he says.

“The finance ministers did not want to see anything disagreeable which they would be forced to deal with,” he says.

The euro came into existence without strong central powers to stop members running up unsustainable debts, an omission that led to the current crisis. Now that the excessive borrowing of countries such as Greece and Italy has brought the eurozone to the brink of disaster, Mr Delors insists that all European countries must share the blame for the crisis. “Everyone must examine their consciences,” he says.

However, he singles out Germany for its strict insistence that the European Central Bank must not support debt-stricken members for fear of fuelling inflation. The euro’s troubles spring from “a combination of the stubbornness of the Germanic idea of monetary control and the absence of a clear vision from all the other countries”.

Famous in Britain for his public clashes with Baroness Thatcher in the 1980s over closer European integration, Mr Delors says that he shares some of the concerns that were expressed by British politicians and economists about the euro before its creation.

When “Anglo-Saxons” said that a single central bank and currency without a single state would be inherently unstable, “they had a point”, he admits.

Because Britain is not in the euro, it is not “sharing the burden”, Mr Delors says. However, he claims that the UK is “just as embarrassed as the Europeans by the financial crisis”, not least because some of the measures put in place to deal with the crisis pose a threat to British interests.

For example, he says, the creation of a common “Eurobond” underwritten by all eurozone governments and traded in Paris and Frankfurt would be a “big worry” for the City of London. “I can see Mr Cameron’s worries,” he says.

Such is the scale of the crisis, he warns, that “even Germany” will struggle to find a solution. “Markets are markets. They are now bedevilled by uncertainty.”

October is Here

August & September were brutal, many are expecting October to be worse.

The following links have good analysis & commentary that are worth pondering as October begins:

http://www.robertsinn.com/2011/10/01/reaching-for-yield/

http://www.alphatrends.net/2011/09/30/stock-market-video-analysis-93011/

http://peterlbrandt.com/lessons-from-seven-weeks-of-stock-market-chop/

http://tradingwithtechnicals.com/deflationary-pressures-mount/

http://dragonflycap.com/2011/10/02/shades-of-pale-sector-review-1022011/

http://www.marketanthropology.com/2011/10/trilogy.html

http://highchartpatterns.net/miscellaneous-thoughts-including-market-talk-strategies-and-a-defense-of-dip-buyers-who-didnt-get-their-heads-bashed-in/

http://www.upsidetrader.com/2011/10/01/the-next-90-days/

There are other good analyses that I could link to, but those above provide more than enough color on the state of the markets, sentiment, and possible outcomes.

Let me simply point out, however, that with so many expecting a big flush, or "the final flush" any day now, it could be that too many bears are currently on board, so its also possible for an unexpected rally, or just more up and down gyrations that will drive everyone nuts.

AIG sells stock at $29, Ouch to Gov't, Fairholme

AIG is now down 31% from where I suggested to Bruce Berkowitz that he at least hedge, if not sell, his huge exposure. That's over 3 1/2 months !

JOE is down 21% in the same period.

MBI is down about 29% in the same period.

That's a huge ouch.

If BB were a hedge fund, as opposed to a mutual fund, his investors would have bailed by now.

I know this sounds like I think BB deserves criticism, or I don't like him, or something. That is just not the case. I only met him briefly that one time and I think he's a smart guy w/ a very good track record.

I am just mystified by the strategy of loading up on these dogs; riding them to huge gains; NOT CASHING OUT, and not hedging them ! His initial strategy, however counter-intuitive worked. But he didn't ring the register and is now paying the price.

Good luck Bruce. I would be interested in your thoughts on what happens next for your holdings in these names.

Bruce Berkowitz & AIG:I told him he should hedge his positions (MBI & JOE also); why didn't he listen ?

Over the weekend, I was thinking about writing a little piece here about a very smart and well regarded fund manager, Bruce Berkowitz, who runs the Fairholme Funds.

During 2010, Mr. Berkowitz had taken concentrated positions in several controversial stocks, notably AIG, JOE (St. Joe Corp), MBI (MBIA) and others. In my view, all of these companies were train wrecks, and I had on occasion played them to the short side.

News of Berkowitz' investments, along with his discussion of them in various media appearances, helped to rocket the stocks higher. In AIG's case, the stock went from around $30 to over $60. JOE went from around $18 to over $30, and Berkowitz faced off with David Einhorn, who had a well publicized short position in the stock.

Coincidentally, with AIG now $29 / share (again, down from $60 3 months ago), I noticed this on Twitter tonight.

Bruce Berkowitz Says He Was Wrong About AIG http://read.bi/lRyCuF

Yes he was wrong. Big time. Many Twitter and StockTwits traders & momentum chasers didn't believe me when I told them that these stocks were train wrecks, basing their views simply on chart patterns and Berkowitz' bullishness.

But I am writing this piece not to crow about being right.

What troubled me about Berkowitz' positions was not that he was long; it was that he did not protect himself through cheap hedging techniques from being wrong.

I don't know Berkowitz personally, although I did get to meet him briefly earlier this year at an investment conference in New York that he spoke at. He has a great track record, he is smart, and he seems like a likeable, honest, no BS kind of guy.

But he doesn't hedge.

How do I know this ? I asked him.

While I was confounded as to why he would take huge positions in stocks like AIG and MBI that were not only train wrecks, but black boxes that are almost impossible to understand, I didn't challenge him about that.

I just wanted to know if he hedged his positions, as I thought that he should protect himself and his fund. AIG for example, was going to be faced with the US government trying to sell its ginormous stake, representing 92% ownership of the company. That's a lot of selling pressure that hadn't even begun, and everyone knew about it.

Berkowitz should have sold down his stake during the run up, or at least hedged.

He told me that his positions were too large to hedge, and that is why he did not.

I thought that was ridiculous, but I didn't say so to him. I mentioned that I could show him how to hedge these stakes effectively and cheaply with options, but he didn't take me up on my offer, and I didn't push it.

I don't get how most long only investors that either can't, don't or won't hedge. Its nonsense and irresponsible in my opinion.

Anyway, I wish Bruce Berkowitz well, I had been meaning to touch on this subject.

Here are some charts of AIG, MBI and JOE ... the conference took place in late January or early February ... see what's transpired.

The Federal Reserve For Dummies - aka Bernanke Glasnost

Omid Malekan is back w/ another searing takedown of Uncle Ben:

"Since He Has A History of Being Wrong About Everything, And Has a Tendency To Lie ..."

Japan - How Bad Is It Really ?

While it is still too early too assess the damage to Japan & the Global Economy from the triple whammy of a 9.0 catastrophic earthquake, the follow-on tsunami, and multiple nuclear plants in full or partial meltdown, consider the following:

http://www.zerohedge.com/article/japan-update-it’s-much-worse-it-looks

Also, I read today that "Reactor # 3 used MOX fuels, that is recycled stuff (often military material). This contains plutonium and is a lot more toxic. that is true. a big problem is that such plants also keep all the spent fuel rods there in water pools in the reactor buildings. These are still very dangerous and can start to burn once they are not surrounded by air. Since this is quite an old plant I read that up to 600.000 spent fuel rods might be on the plant. So you can add these to the risk calculation. I just can’t see any positive thing there. It’s really a disaster and we will have to deal with that for decades or hundreds of years (or more)."

Is the USA Broke ? Can our debt & deficits actually be dealt with ?

Every day I see overwhelming evidence that the USA is in fact broke, the country's debt cannot be repaid, and the politicians and economic policy makers are recklessly exacerbating the situation through their actions.

Today's examples include the following:

Democrats -- no cuts, more taxes, more spending ! http://www.nationalreview.com/corner/261268/ahead-biden-visit-dems-call-higher-taxes-andrew-stiles

Uncle Ben "the Bernank" Bernanke -- full speed ahead over the cliff

http://www.zerohedge.com/article/guest-post-bernanke’s-unstoppable-self-reinforcing-feedback-loop

Uncle Ben dissembles in congressional testimony; distorts Taylor rule (intentionally)

http://www.zerohedge.com/article/when-even-john-taylor-says-bernankes-interpretation-taylor-rule-wrong

Michael Moore (y'know, big fat rich communist film maker)

Michael Moore Thinks Wealthy People's Money Is A 'Natural Resource' And Should Be Shared by @GlynnMacNhttp://read.bi/ehRzgm

Can It Be ? Tom DeMark says big Correction Coming

In these days of Fed Induced POMO ramps, DeMark calls for 11% correction .... we'll see

http://lemoyne-mappingthemarket.blogspot.com/2011/01/tom-demark-predicts-11-correction.html