Saturday, July 30, 2011

90% Wrong

Debt ceiling issues aside for the moment, where the hell did our GDP go? Even more disturbing than our pathetic 1.3% Q2 was the revision of Q1 to .4%. Not 4%, zero point 4%. That means our chief economist, the Bernank, was off by 90% in his estimates of first quarter growth prior to the beginning of the year. Of course, this fares pretty well in comparison to some of his other calls such as housing contagion which he underestimated by infinity. Now economists, or wrongomists as they should now be known, are scrambling to whittle down their growth estimates for the rest of the year. Does this make any sense? So, up until 8:29 yesterday these geniuses thought we would grow between 3%-4%, but at 8:30 they changed their minds based on the new GDP number?

The debt ceiling debacle would be very laughable if it wasn't so disgusting. These clowns have really convinced themselves that they're important, that they're taking a stand on our financial future. Want to take a stand on financial reform? Pass some term-limits so you can fire yourselves after 2012, saving us the trouble of having to vote you out of office en masse.

The only positive from this farce is the increase in volatility which has made trading fun again the last few weeks. Gold and silver have gone nuts, and are tradable on a daily basis. Old tech favorites have regained their mojo, with google and apple calls filling our coffers the last few weeks. STEC dropped 40% in a day, and companies such as VMW and LNKD have gone up and down $10 the same day. However, with increased volatility comes increased pricing. GOOG was a perfect straddle because implied volatility was only around 5%, but placing a straddle on LNKD will cost you 17%, way too much.

I think a better, albeit riskier strategy is to take one side only on 5-10 stocks pre-earnings with high volatility. As always, we don't have to win more often than we lose, but we must win big. This was my thought going into Monday, where a rally, dead-cat, 200 MDA bounce, whatever, seems likely on a debt ceiling agreement. No agreement by Monday morning could mean trouble, but it will be easy to pile into gold or puts on the indices if this happens, close out on the announcement, and then rebuy. Or we can just hope for total carnage across the board, which will make for easy money in gld, slv, and aapl on the way back up.

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