Now, Plain Zero

"Killian, here's your Subzero, now plain zero."
Arnold Schwarzenegger's Ben Richards to Richard Dawson's character in The Running Man

Wow, who knew this movie would predict the future given current interest rates and market returns!  Hope that brief market blip didn't convince you it was safe to buy stocks again.  Those who sat out the turmoil this week beat the market by 6.4%.  Those who had the courage to get short ahead of Bernanke killed the market this week.  Those who listened to MSM pundits got crushed.  XLF plunged to the low 11s, BAC threatened to break $6, FSLR lost its $2 billion loan, and Europe remains a frightening burden on world markets.  When you look at the rise in the dollar this week and think how is that possible, it would help to remember that the dollar can't go to zero, but the euro not only can, but should.  Not tomorrow, not by end of year, but the will of Germany to carry all of Europe can't last forever.

We are disadvantaged as individual investors versus large institutions, but not in the way a gambler is versus the house.  Obviously somebody knew that margin hikes were coming for metals, portrayed as a flight to safety until Friday's close when the CME "officially" announced 25% increases.  A $1k purchase of SLV 35 puts on Wednesday afternoon would've led to a $500k gain by mid-afternoon yesterday.  And yet, our MSM heroes such as Cramer have touted a drop in gold as the turn for the market.  Even Hedgeye grossly disappointed this week.  After sticking with global macro scenarios that were mostly correct for much of the year, they increased their longs to shorts to almost 2-1 on Tuesday based on the bull-bear ratio.  What? 

So consider carefully before going long anything right now.  The drumbeat of buy this cheap market is still ringing in my ears from 2008 when the "smart money" lost you 40%.

Seasick

Anybody else getting nauseous watching this volatility?  Actually, anyone who bet on the VIX when it stubbornly remained below 20 most of the year is actually feeling pretty good (we scored with this twice).  Our call for triple indexes has been profitable up and down, more so for some than others as one of our readers has doubled his yearly gains in the last 4 weeks.  But the constant influx of conflicting what ifs has us all cash right now, a strategy that has outperformed the market handily over the last 6 weeks.

European action is at hand, the question is, will it be enough for a rapid bank rebound (STD, BCS, DB), or will it come in trickles and spurts that have short-sellers crushing the DAX and FTSE?  On top of that, OOM options have become very expensive but earnings projections remain absurdly high going forward.  I still think this egg will crack, but as the last 2 years have proven, it may not happen before expiration.