Go Ahead Hedge Punks, Make My Day!

Another crazy, irrational day in a stock market dominated by algorithmic, high frequency trading. You will hear a bunch of nonsense like "the market is pricing in a double dip recession," but here is the truth about what is going on. So listen up, do your own due diligence, and whatever you do, don't waste your time panicking. Panic about important things in life, not the rigged stock market.



Here is exactly what's going on in the markets:

• Forget the clowns in Washington. There is a massive RISK OFF trade going on where elite hedge funds and large bank prop desks are liquidating pretty much every risky asset, heading into gold, silver, US Treasuries, and going long volatility, profiting off market fear.
• At the close, the VIX, a gauge of market fear, surged 46% on Monday. Hedge funds and bank prop desks are making a killing on the VXX and TVIX.
• I am now short volatility, long the XIV, believing that things are getting out of whack again. I got long XIV this morning around 10:30 but should have waited until Obama addressed the nation. It's foolproof, every time he addresses the nation, the stock market tanks right after. I also noticed the volume on the FAS surged today as traders are betting that the correction in financials is overdone.
  
  
• One Montreal hedge fund manager shared these thoughts with me: "Just to let you know XIV does not perform best in times of backward VIX term structure. Buying XIV now, is like selling the one month forward VIX at 30, while the cash VIX is above 38 (as I write), giving you strong headwinds. We have modeled inside out these relationships. At this moment you would be better off to buy VXX and buy the S&P, allowing you to profit from the favourable term structure."
• But the amount of forced liquidation in small and mid cap stocks going on right now is unprecedented. Hedge funds facing redemptions are shoring up their cash levels and selling every long position indiscriminately.
  
  

Here is a sample of what I am looking at today (click on image to enlarge):



These stocks are way, WAY OVERSOLD, getting more oversold by the second, and it's all hedge funds liquidating. That's it, that's all, has nothing to do with fundamentals.



And for all you wusses who don't believe in buying sub $5 stocks when fear reigns, let me show you one of my favorite charts (click on image to enlarge):



Las Vegas Sands (LVS) hit a low of $2.27 on March 9, 2009 and its 52-week high was $55. It has recently sold off, but my point is that some stocks swing wildly because hedge funds are playing them on the long and short side. That's the reality of Casino Capitalism and this Wolf Market dominated by algorithmic multi-million computers engaging in high frequency trading.



That is what is going on folks, nothing else but hedge fund punks making a killing, trying to score the "Big One" so they can retire early while the rest of the hard working population is watching their 401 K plans shrink at a frightening rate. They'll never be able to retire in security or with dignity.



I repeat what I stated: this market is way oversold but could get even more oversold. Pension funds with deep pockets better be buying risk assets now. Retail investors should sit tight and let the silliness play out.



Let the hedge fund punks trade away. I think the selling is way overdone. Everyone needs to take a deep breath. Who knows? Perhaps August 9th 2011 will be another major market low, similar to March 9th 2009. At the very least, we are due for a major short-covering rally.

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G7 Conference Call on US Downgrade?

Tom Cohen of CNN reports, G7 finance ministers to hold conference call on U.S. credit downgrade:

Treasury Secretary Tim Geithner will take part in a conference call Sunday evening with representatives of the other G7 nations to discuss the downgraded U.S. credit rating, a G7 official told CNN.

The talks expected to occur before Asian markets open for Monday trading follow Friday's downgrade by Standard and Poor's of the U.S. credit rating to AA+ from the top rank of AAA. It was the first time in history the nation was rated below AAA.

The G7 nations are the United Kingdom, France, Germany, Italy, Japan, Canada and the United States.

Middle Eastern markets, the first to open since the downgrade, were sharply lower on Sunday. Israel's market temporarily halted trading at one point and finished down more than 6%, while the Dubai Financial Market General Index fell 3.7%.

The General Index on the Abu Dhabi Securities Exchange was down more than 2.5%, while in Saudi Arabia, the Tadawul All-Share Index dropped nearly 5.5% in trading Saturday.

U.S. officials are talking to a "wide range of investors" about the downgrade by the credit agency to try to "mitigate" any short-term negative impact from Friday's announcement, a Treasury official told CNN.

Top Standard & Poor's officials said Sunday that the downgraded credit rating for the United States was both a call for political consensus on significant deficit reduction and a warning of possible further credit problems down the road.

"We have a negative outlook on the rating and that means that we think the risks currently on the rating are to the downside," said David Beers, the S&P global head of sovereign ratings, on "Fox News Sunday."

However, Beers said markets were reacting to the debt crises in some European countries and fears of global economic slump, rather than the U.S. credit downgrade alone.

John Chambers, the S&P head of sovereign ratings, told ABC's "This Week" program Saturday that it could take years for the United States to return to AAA status.

"Well, if history is a guide, it could take a while," Chambers said. "We've had five governments that lost their AAA that got it back. The amount of time that it took for those five range from nine years to 18 years, so it takes a while."

The agency's concerns "are centered on the political side and on the fiscal side," Chambers said.

"So it would take a stabilization of the debt as a share of the economy and eventual decline," he said. "And it would take, I think, more ability to reach consensus in Washington than what we're observing now."

Both Beers and Bill Miller, chairman and chief investment officer at Legg Mason Capital Management, told the Fox program that they don't expect the U.S. downgrade to cause a spike in interest rates, one of the possible results of the higher risk now attached to U.S. debt.

"I don't think we'll pay more in interest," Miller said, calling the downgrade more of a symbolic event than an economic event. However, he warned of continuing market volatility in coming days driven by uncertainty.

Rating agencies such as S&P, Moody's and Fitch analyze risk and give debt a grade that is supposed to reflect the borrower's ability to repay its loans. The safest bets are stamped AAA. That's where the U.S. debt has stood for years.

Moody's first assigned the United States an AAA rating in 1917. Fitch and Moody's, the other two main credit ratings agencies, maintained the AAA rating for the United States after last week's debt deal, though Moody's lowered its outlook on U.S. debt to "negative."

A negative outlook indicates the possibility that Moody's could downgrade the country's sovereign credit rating within a year or two.

Beers told CNN on Saturday there were two reasons for the downgrade. The first centered "around the uncertainty we think the political process, as it's playing out in fiscal policy, is creating in the U.S.," Beers said. He cited the difficulty in creating consensus across the political spectrum when it comes to fiscal policy choices.

Second, the recent plan reached by Congress that raised the debt ceiling and provided some reductions in spending was not enough in the agency's eyes, he said.

Stock market values fell Friday across Europe and Asia, where reaction to news of the U.S. credit downgrade was mixed.

A scathing editorial in the Chinese state-run Xinhua News Agency criticized the United States for living outside its means.

"China, the largest creditor of the world's sole superpower, has every right now to demand the United States to address its structural debt problems and ensure the safety of China's dollar assets," the editorial said. "To cure its addiction to debts, the United States has to re-establish the common sense principle that one should live within its means."

Beers of S&P repeated calls for Democrats and Republicans to find consensus on further significant deficit reduction steps. The debt ceiling deal passed last week by Congress and signed by President Barack Obama represents a potential first step by implementing initial spending cuts and calling for further deficit reduction steps by the end of the year, he said.

Under the debt ceiling agreement, a special bipartisan congressional committee will recommend a series of deficit reduction steps to Congress by November, with a vote required by each chamber by the end of the year. The committee plan cannot be amended and would require a simple majority to pass.

If the committee's plan fails to pass Congress or get signed into law by Obama, across-the-board spending cuts of discretionary spending, including the military budget, would be automatic. The so-called trigger mechanism for the automatic cuts is intended to apply pressure on legislators to work out an acceptable deal through the committee.

The 12-member panel will comprise an equal number of Democrats and Republicans from the House and Senate. It is expected to come up with a package of reforms to entitlement programs such as Medicare and Social Security, as well as changes to the tax code that would lower rates and eliminate loopholes and subsidies to increase revenue.

Republicans have opposed any tax increases or increased tax revenue, while Democrats oppose substantive changes to entitlement programs.

A possible committee member, House Budget Chairman Paul Ryan, R-Wisconsin, told "Fox News Sunday" he had doubts about whether the panel can achieve what needs to get done.

Ryan, a fiscal conservative favored by the tea party movement, said he would serve on the panel if asked but added: "I'm not putting my stock in this committee."

"I think people are overemphasizing what this committee is going to achieve," Ryan said. Democrats are unwilling to make the kinds of reforms needed in entitlement programs such as Medicare and Social Security to effectively rein in rising long-term costs, he said.

"We have yet to see any commitment to bring the spending line down," Ryan added.

However, Obama's chief political strategist, David Axelrod, blamed the conservative tea party movement for the S&P downgrade, saying the linking of a necessary debt ceiling increase to political debate on spending cuts caused the gridlock cited by the ratings agency.

"There's no doubt the brinkmanship that we saw was atrocious, and that contributed to their analysis," Axelrod said on the CBS program "Face the Nation."

Obama pushed for a so-called "grand bargain" that would balance deficit reduction among spending cuts, entitlement reforms and tax reform, while House Republicans, spurred by the tea party support that helped them gain a majority in last November's vote, rejected that approach, Axelrod said.

House Speaker John Boehner, who at one point was considering a larger deal pushed by Obama, "had to yield to the most strident voice in his party ... and this is the result," Axelrod said, adding: "The fact of the matter is that this is essentially a tea party downgrade."

On the same program, Republican Sen. Lindsey Graham of South Carolina disputed Axelrod's contention, arguing that "the tea party's not the problem" and "Washington was broken before they got here."

He blamed Obama for a failure of leadership, calling the president "a casual observer at a time when he needs to be fully engaged."

"This has been a lousy presidency, only getting worse," Graham said.

On Saturday, Chambers noted on CNN that few governments separate the budget process from the debt-authorization process as the United States does.

Asked who was to blame, Chambers said, "This is a problem that's been a long time in the making -- well over this administration, the prior administration."

Congress should shoulder some of the blame, he said, adding: "The first thing it could have done is to have raised the debt ceiling in a timely manner so that much of this debate had been avoided to begin with, as it had done 60 or 70 times since 1960 without that much debate."

U.S. Treasury officials received S&P's analysis Friday afternoon and alerted the agency to an error that inflated U.S. deficits by $2 trillion, said an administration official, who was not authorized to speak for attribution. The agency acknowledged the mistake, but said it was sticking with its decision.

The administration official called it "a facts-be-damned decision ... Their analysis was way off, but they wouldn't budge."

Saturday, Gene Sperling, director of Obama's National Economic Council, criticized S&P's call.

"The magnitude of their error and the amateurism it displayed, combined with their willingness to simply change on the spot their lead rationale in their press release once the error was pointed out, was breathtaking. It smacked of an institution starting with a conclusion and shaping any arguments to fit it," he said.

But Beers defended his agency's move on Sunday, telling the Fox program: "The underlying debt burden of the U.S. government is rising and will continue to rise over the next decade."

Let me state flat out that S&P's decision to downgrade US debt was stupid, irresponsible and definitely "amateurish" as they openly admitted to making a $2 trillion mistake. Moreover, who cares what S&P or any of the ratings agencies say? Their track record is horrible. For example, they downgraded Japanese debt nearly a decade ago and Japanese bonds (JGBs) have outperformed all other asset classes ever since. The only thing the S&P downgrade does is land a blow to America's national ego.

That's it, that's all. Stock markets might get hit (or might rally on the news) but interest rates will not rise because of this. Foreign investors, especially the Chinese, won't stop buying US Treasuries. I think the bigger concern now should be the ongoing mess in Europe and how they're going to deal with it decisively. I happen to agree with the ECB's governing council member, Luc Coene, who said on Friday that Europe should move towards euro bonds. There simply isn't any choice; the more time European leaders waste "discussing options," the worst the debt crisis will become. I think that should be the main focus of this G7 conference call, not the stupid S&P downgrade of US debt.

And what about the stock market? I have had many people email me asking me "should I buy the dips?" or "should I buy solars?". Some are asking me "do you really have 90% of your money parked in one company, Level Three (LVLT)?" and "should I buy Juniper Networks (JNPR) like you recommended a few days ago on one flew over the cuckoo's nest?"

I have to be very careful when I dispense advice, so please read the following comments below very carefully:

• First, I am a trader and risk taker, and have openly stated I take very concentrated bets on a few stocks and can move in and out of a position several times a week. I do, however, see long-term potential in many stocks and believe the best time to buy them is when fear reigns in financial markets.
• Second, while I wrote "FUCK RISK MANAGEMENT," in that comment, it was not a wise thing to write because it could have been interpreted the wrong way. That comment was my frustration that institutions always start talking up risk management after the market has corrected by over 10%! So many pensions funds I know sold global equities at the bottom of the market in March 2009, at very depressed levels, and that really blows my mind. That's not risk management, that's risk mismanagement!
• Third, most investors should still adhere to old old 60/40 stock/bond allocation and invest in blue chip companies that pay dividends. You can take some calculated risks, but don't mimic me because you will get slaughtered.
• Fourth, I like small and mid cap stocks because hedge funds play them. I know when they're being liquidated and way oversold, and move in for the kill to make my profits. This isn't a science, it's more of an art, and you only learn by losing money. But when you get the hand of it, you know exactly how to trade them and when to trade them, you can make a lot of money.
• Fifth, and more importantly, I am not the god of trading, nor do I pretend to be. I played the market lousy this past week. I should have known they were going to sell the news hard and focused on trading ultra short proshares during the post debt agreement crash (only good to trade; never buy and hold these ultra proshares).
• Finally, these are very difficult markets to trade so please be careful and do not mimic me blindly. I will also temper my comments and raise some caution. I still feel markets are way oversold but they might continue to get even more oversold, so it's best to wait for a weekly gain on the S&P 500 before you jump back in. Of course this means you might miss a huge rally on any given day.
  
  

I leave you with an alert I received from Bloomberg: Tonight at 8pm/ET, Bloomberg Television will present a special two-hour live report, "Downgrade: A Special Report," hosted by anchors Tom Keene (@tomkeene) and Adam Johnson (@AJInsight). You can click here to watch it live. Below, watch Bill Gross discuss his thoughts.

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Hungry For Jobs?

It was another crazy day in the stock market. US payrolls rose by a a larger-than-expected 117,000 workers after a 46,000 increase in June, but fears of a lingering European debt crisis kept the selling pressure on stocks. Add to that fears of a double-dip recession and the fact that S&P just announced it is downgrading US debt, and you have the ingredients for more selling pressure on stocks next week.

The Canadian economy added jobs for the fourth straight month in July as gains in construction and transportation offset losses in government employment and education, while the unemployment rate fell to the lowest since 2008 on a shrinking labor force. Nonetheless, the Canadian stock market took another beating as the S&P/ TSX fell another 218 points on Friday. Energy and resource stocks have been clobbered on fears of another synchronized global downturn.

I am not going to get into the stock market in this comment (circle back on Sunday). Suffice it to say that hedge funds and bank prop desks are making a killing, feeding off the volatility. Today was a perfect trading day, the jobs report came in better than expected, the market rallied, traders sold the news, rumors abounded on Europe and S&P downgrades and the US market rallied in the afternoon as news that the ECB was buying Spanish and Italian bonds hit the wires.

But regardless of what is happening in the stock market, the US labor market remains weak. There simply are not enough jobs being created to meet the demand. As the ranks of the permanently unemployed swell, policymakers are not doing enough to address the jobs crisis. Worse still, the debt ceiling drama showed the world how the world's most powerful nation has a leadership vacuum.

On Thursday, I spoke with Chris Lawless, Chief Economist at bcIMC, about the structural gap that exists between revenue growth and spending in the US. We were discussing how the US needs to raise taxes (introduce a value added tax), revamp the tax code, get rid of tax credits on ethanol, and cut spending. But cutting spending at a time when the economy remains weak simply doesn't bode well for the labor market. That's why people were not too excited about today's jobs report. The fear is that it's too little, too late, and with confidence plummeting along with the stock market, it could very well be a very long time before we see sustained hiring in the US labor market. The S&P credit downgrade will only make matters worse (even though they are wrong again!).

More troubling is the fact that the share of the eligible population holding a job declined to 58%, the lowest since July 1983. This means more and more people are giving up on finding a job. And what happens to these millions of people? Well, they face the scourge of poverty. The USDA reported that the number of Americans using the government's Supplemental Nutrition Assistance Program (SNAP) -- more commonly referred to as food stamps -- shot to an all-time high of 45.8 million in May. That's up 12% from a year ago, and 34% higher than two years.

I leave you with a video of a man collecting food stamps struggling to get back on his feet. While analysts will focus on the S&P downgrade of US debt and the stock market, there are millions of people like Frederic struggling to get by. This is the reality of today's pitiful labor market and unless this is addressed, the American dream will just become the permanent American nightmare.

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One Flew Over the Cuckoo's Nest?

Jill Treanor and Nick Fletcher of the Guardian report, World stock markets in turmoil:

Almost £50bn was wiped off the value of Britain's 100 biggest companies on a day of global stock market mayhem triggered by a deepening of the eurozone crisis and fears for the US economy.

After a day of massive stock market falls in Europe and the US of a kind not seen since the depths of the last economic downturn, traders said the atmosphere was reminiscent of the banking crisis of October 2008. Wall Street endured one of its worst days since the height of that crisis, with the Dow Jones Industrial Index closing more than 500 points or 4.3% lower at 11,383 in heavy volume, as it resumed a two-week streak interrupted only briefly on Wednesday. It was the biggest single-day loss since 2008.

"For many traders this week has felt like the start of the banking crisis in 2008, which would go some way to explaining the panic selling we have seen today," said Will Hedden, sales trader at IG Index.

The fall on Wall Street is expected to cause further falls in the FTSE 100 index of leading shares today, after the index fell to its lowest close, 5393.14, since September 2010 yesterday. The futures market was predicting a further 100 point fall.

Rumours were swirling around the City that hedge funds were being forced to sell assets such as gold in order to cover deepening losses on other investments. This led to a surprise 1% drop in gold, which in recent weeks had hit record highs of more than £1,000 an ounce as a safe haven bet in the eurozone and US debt crisis. Brent crude fell 5% to $107 a barrel amid signs of slowdown in the west's economies.

Anxiety over the debt crisis in the eurozone, and increasingly in Italy, set the tone for nervous trading during the London morning, but the pace of the decline accelerated as Wall Street opened sharply lower. By early afternoon in New York the Dow Jones had declined by 400 points, resuming the two-week losing streak only briefly interrupted on Wednesday. Despite this week's 11th-hour agreement to raise the US debt ceiling, Wall Street is increasingly anxious over the health of the world's biggest economy. A major test comes today with the release of US employment data giving the latest health check of an economy which barely grew in the first half of the year.

The 191.27 point drop in FTSE 100 index represented a 3.43% slump — the index's biggest daily fall in percentage terms, and the biggest points fall, since March 2009.

Banks were particularly hard hit, with falls in the bailed-out Lloyds Banking Group and Royal Bank of Scotland leaving taxpayers nursing £28bn of losses. There were big falls by other FTSE 100 firms.

The index of leading shares has now shed 422 points this week, wiping £110bn off its value. It is down 11% since April's peak. The continued weakness in the UK economy ensured the Bank of England kept interest rates at their record low of 0.5% for the 29th successive month.

The president of the European commission, José Manuel Barroso, fuelled anxiety about the eurozone debt crisis by berating European leaders about the speed at which they were responding to the debt crisis, barely a fortnight after congratulating them about their latest deal to rescue Greece.

"We are no longer managing a crisis just in the euro area periphery," he said. "Euro area financial stability must be safeguarded." He urged European leaders to review "all elements" of the €440bn (£382bn) European financial stability facility and its €500bn replacement, the European stability mechanism.

The European Central Bank gave signals it was ready to resume buying bonds of troubled eurozone countries. Dealers said the central bank had been buying Portuguese and Irish bonds – but not those of Italy and Spain, where borrowing costs have shot to euro era highs and are now the new focus of the markets.

Jamie Dannhauser, economist at Lombard Street Research, said the ECB was "still in cloud cuckoo land".

"The overriding impression one gets of the ECB is of an organisation unwilling to accept the reality that faces the eurozone. In contrast to other major central banks, the ECB has recently been making hawkish noises – at least, that is, until now."

Despite the ECB intervention, continental European markets suffered heavy losses.Germany's Dax closed 3.5% lower and the French CAC dropped 4%, while the euro fell sharply against other currencies, losing nearly 1.5 cents against the US dollar to $1.4170. The Bank of Japan had sparked frenzied action on the foreign exchanges after intervening to drive down the yen against the dollar.

Bond yields – interest rates – in Italy remained stuck above the critical level of 6% while Italian shares plunged amid confusion about the moves in the main stock market index which was experiencing pricing difficulties.

Amid the rout, it emerged that police acting on orders from the prosecutors of Trani, a port on Italy's Adriatic coast, had raided the Milan offices of the rating agencies, Moody's and Standard & Poor's, as part of continuing investigations into their role in recent financial turmoil. The chief prosecutor in Trani told Reuters his office was checking to see whether the ratings agencies "respect regulations".

So what is going on? Is Italy about to cave and Europe about to collapse? Will the US jobs report be another disaster on Friday morning and stocks will tank yet again? Is the world coming to an end and more importantly, are we about to experience the Great Crash of 2011?

Listen, if all you see is doom & gloom all over the world and are seriously contemplating on slicing your wrists because you've been reading the bullshit over at Zero Hedge, then stop reading my comment right away. I parted ways with Zero Hedge and Tyler Durden today after I gave it to him for censoring me and allowing the clowns over there to constantly ridicule and insult me. That blog is becoming a total joke and I am not surprised he banned me because he is the same as all the rest of the zealots who silence any dissenting voices. If you don't toe the line at Zero Hedge and paint everything dark, they will ban you.

I am tired of arrogant, narcissistic fools and wish Tyler Durden and the clowns at Zero Hedge all the best. I have no agenda, nothing to peddle, and will speak the truth. If Tyler Durden wants to silence me, then that speaks volumes about his credibility. So let me share with you what I really think is going on in this latest panic selling:

• First, I do not believe Italy or Spain are on the verge of default or that their economies are just as bad as the Greek economy. This is pure nonsense. There are serious structural issues but to say that Italy or Spain are the next Greece and that the eurozone will collapse is just irresponsible fear mongering.
• Second, while hedge funds are liquidating, adding to the forced selling we're witnessing around the world, it's pure speculation to conclude that there are mass redemptions going on right now. Sure, some hedge funds will fold, maybe even a large, well known one, but who cares? This market is much bigger than any large hedge fund.
• Third, and more importantly, what I really think is going on is the financial oligarchs are looking for more goodies from the Fed. Bring on QE3 which is what they want to trade away in risk assets and buy more time as they try to shore up their balance sheets. If the employment figures come in way below expectations on Friday morning, get ready for QE3 and another liquidity rally on Wall Street (albeit, a more muted one).
  
• Fourth, this isn't 2008 all over again, not even close. Corporations are flush with cash, earning record profits. Also, I lived 2008, traded in 2008, it was one of the scariest things I ever seen, far more scary than the tech crash. Only October 1987 was scarier but I doubt we'll ever see that again in our lifetime.
  
• Finally, the most important point I want you all to keep in mind is that the financial oligarchs do not want to starve the beast that feeds them. They will stop at nothing to extend and pretend that all is well. If you buy this nonsense that the world is coming to an end and sell everything because you are following the herd in global panic mode, you will regret it. Remember, this wolf market is not for the feint of heart. The Big Boys (more like certified sociopaths) want to screw you over every chance they get, scaring you into selling your shares at the bottom so they can scoop them up for a song.

That's why today I closed my computer after lunch and headed to my pool to swim, tan and enjoy the beautiful weather. My personal portfolio is 90% in one stock right now -- Level 3 Communications (LVLT) which fell 1.8% today, hardly anything to get anxious about for me. I am betting alongside some of the best funds in the world that this stock will keep grinding much higher from these levels. Apart from Level 3, I have small positions in Satcon Technologies (SATC), EMCORE Corporation (EMKR) and D'Arianne Resources (DAN.V). EMCORE took a 31% haircut today but I didn't panic and sell. Here are some of the stocks I was tracking today (click on image to enlarge):

There are many, many, many good deals out there. If I was the CIO of a major pension fund, I would take note of what Neil Petroff, the CIO at Ontario Teachers', told me on active management, and go into selective buy mode. What about risk management and cutting your losses? FUCK RISK MANAGEMENT, NOW IS THE TIME TO GET GREEDY AND SNAP UP RISK ASSETS!!!

What are some of the stocks I'd be picking up right now if I were the Senior VP Global Equities at a large pension fund? I am going to go over a few of them this Sunday during my Sunday Stock Scoop, but I would be looking at stocks like Juniper Networks (JNPR) which is extremely oversold as hedge funds liquidated positions (click on image to enlarge):


Sure, it can fall further, the stock market could crash next week, but I honestly think investors are panicking and losing their minds in this wolf market dominated by computer-driven algorithmic trading. It might seem rational to sell everything now and forget the stock market but this really is the time to ignore the noise, buy the dips selectively, and focus on stocks with excellent long-term potential price appreciation.

I leave you with a Daily Ticker interview with Lance Roberts, CEO and chief strategist of Streettalk Advisors, who says there is nothing more certain than QE3 and the potential for another recession. "The trend of the data is all negative, so barring any quantitative easing program from the Fed, we will probably be in a recession by the end of the year." I agree, get ready for a weaker economy, more quantitative easing, and more volatility in the stock market.

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Investing in Argentina's Wineries?

Part of the perks of having a blog that is read by thousands of people is that you get to meet really interesting people, and they're not always in finance. In fact, some of the most interesting people I've met though my blog are not traders or investors, but just regular, hard-working folks or entrepreneurs.

On Wednesday, I had lunch with Nathan, an entrepreneur who with his partners has invested in Argentinian wineries. Nathan contacted me and I was more than happy to meet up with him. We met at a nice Portuguese restaurant near my house that makes the best BBQ chicken (their grilled chicken salad is awesome!).

I found Nathan to be smart, charming, well traveled, and very on top of things. I had met a buddy of his, Brian Ostroff of Winderemere Capital, who along with Jacques Lacroix and Paul Beattie of BT Global Growth told me all about Canada's phosphate reserves.

Nathan is smart and understands private and public markets. He has investment banking experience and reads a lot, including my blog, Zero Hedge and a few others. We talked about Greece, Israel, Turkey, China, Brazil, gold, the stock market, interest rates, the euro, timberland, infrastructure, farmland and of course, wineries in Argentina. It was a fascinating discussion because I got fresh insight from someone who has traveled the world and knows the countries very well. Here are some insights I learned:

• First, Argentina is simply breathtakingly beautiful. He showed me a series of photographs from the winery and I was in awe. They have the best meats and it's generally a safe country, especially if you compare it to other places like Brazil.
• Speaking of Brazil, Nathan thinks they're headed for a major slowdown. It won't happen right away and they have money pouring in to prepare for the World Cup and then the Olympics, but he thinks after that the country is in trouble. He told me despite what government officials say, income inequality is getting worse: "The poor and working poor are making more but it's not enough to keep up with the ultra-rich. Crime is a huge problem. If you go to Brazil, you don't want to venture off to the favelas. Their airports are crappy; they really need to revamp them fast for the Olympics and World Cup."
• Interestingly, I told him Brazil is the "hot spot" for Canadian pension funds investing in emerging markets. They are buying up everything, including shopping malls and public shares. He thinks that might come back to haunt them.
• In terms of the euro, I told him that I don't see it or the eurozone collapsing because there are too many global interests who want to see a unified Europe under one currency. He told me some very wealthy friends of his agree with me (those global macro funds shorting the euro, betting on a collapse, will get slaughtered).
• The stock market made a comeback, making up all its losses, pretty much like I had predicted. Nathan was surprised but I told him there is no choice but to "reflate this sucker." He asked my thoughts on gold and I told him that I never invest in gold but it has been rising steadily (know a bear who keeps telling me the time to buy the Dow Jones is when it falls to 3000, the price of gold!!!)
  
• I told him there are huge opportunities in Greece right now but there is no rush to move in. I even shared with him where he and his investors should be looking and what projects they can develop there. But right now, Greece is a mess and the taxi drivers are pissed off because their licenses are about to become worthless so they're wreaking havoc pretty much everywhere (the Greek government is so stupid! They should have partially compensated the taxi drivers and passed a law to make the strikes illegal).
  
• I asked him if he has been watching the massive strikes in Israel and he said yes. It's quite weird but there seems to be unrest pretty much everywhere now. I told him that Israeli tourists are flocking to Greece for their summer vacations because relations between Turkey and Israel have been strained since the flotilla incident.
  
• As far as Turkey is concerned, I told him the smartest move the National Bank of Greece did was close down their North American operations to focus on the Balkans and Turkey. But I also told him I am concerned about Turkey because it is becoming increasingly less secular (that is why the generals resigned last week) and it too could be hit hard in the coming years after growing like crazy over the last six years.
  
• We then got into an interesting discussion on timberland, infrastructure, farmland and wineries in Argentina. Nathan told me the Dutch pension funds and select US funds are very smart about investing in farmland, but Canadian funds are behind the curve. I told him that Canadian funds are into infrastructure projects in Chile and that PSP and bcIMC recently announced the TimberWest deal. Each investment carries its own set of risks, including investments in timber, farmland, and infrastructure.
• As far as Argentina, they are developing the winery to have tourists come tastes wines and enjoy the scenery. They also have tons of land to sell to prospective investors. Their main product is Private Vineyards. They sell small plots of land to people who would like to own their own small 3-10 acre vineyard. They have about 100 owners now - and the oldest owners (the ones who planted in 2007 and 2008) are now making wine with the grapes grown on their property.
  
• The land is one of the best wine-making regions in Argentina and they have the top wine-maker in Argentina as a consultant, who helps our owners plan their vineyards and create their wines. They are also building a resort and a tourist oriented winery village. It really is spectacular but I did ask him about how the country is doing now. He told me: "Unemployment and inflation are still very high but they're much better off than 2001."
• I told him if he and his investors are worried that the government there will nationalize land like they nationalized pensions and he said "no because property rights are enshrined in their constitution."
  
• Finally, he told me to come visit the winery in Argentina and I think I'll take him up on the offer. Apparently March is the best time to visit, smack in the middle of harvest season.

I thank Nathan for this interesting lunch and will ask pension funds and family offices interested in receiving details about the project in Argentina to contact me by email (LKolivakis@gmail.com). Given the volatile state of public markets, it may make a lot of sense to invest in wineries. And if the stock market crashes, at least you'll be able to drink some good wine to help you forget about it. :-)

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Post Debt Agreement Crash?

The debt agreement is now history but so far this is shaping up to be another terrible week for the stock market.The Standard & Poor's 500 lost 2.6 percent Tuesday as investors grew increasingly concerned about the economy. The benchmark index is now at its lowest point of the year, erasing all of the year's gains in the stock market.

Before the market opened today, I sent out this message to my distribution list:

The Senate should rubber stamp the debt deal. I think they will sell the news, the stock market will tank, but it will recover tomorrow and rest of week (maybe even this afternoon). Friday's US payrolls will be weak but that dip will be bought too. Importantly, even though economic data will come in weaker-than-expected, keep buying the dips on risk assets.

A Montreal hedge fund manager responded by reminding me that I have nothing to gain by making market calls and can only lose. He's right, it was very ugly on Tuesday as traders took their marching orders and took RISK OFF. By day's end, pretty much the only thing green on my screen were the Ultra Short Proshares (click on image to enlarge):

Actually, Ultra Short Proshares weren't the only thing moving up. I also noticed a few stocks here and there that made big moves up. Stocks like Radian Group Inc. (RDN), the second-largest U.S. mortgage insurer, soared 15% on Tuesday after the company swung to a profit on derivative gains and said there was a drop in delinquencies on home loans (note Fidelity and Wellington are top holders).

But generally speaking the mood is dismal out there. I took the day off, went to meet another excellent physiotherapist who was highly recommended to me. She is incredible and to my surprise, she admitted to me that she too has MS. She is also very open about it just like me. And like me, she takes no medication whatsoever, watches her diet, exercises, and has a positive attitude. Actually, she has a better attitude than me and told me the minute she got diagnosed she said "Ok, MS, next"). We talked about how people have the wrong attitude when they hear you have MS. They generally pity you and say stupid things like "I am sorry to hear that" or "poor you."

Poor us? Why? Because we have MS? Hah! You should see this lady work. Unlike most people in finance, she works her tail off. She took a full hour with me, evaluating every part of my body. She's strong and was telling me "push harder" as she tried to evaluate my strength. This lady is truly amazing, not because she has MS, but because she is really good at what she does. She made a program for me that consisted of balancing on a platform, on one leg, breathing exercises (through the stomach), and lying on my left side in a fetal position and opening up my legs to work a specific right glut muscle which needs work. I was very impressed and can't wait to see her again. She inspires me.

I then went downtown to hook up with one of my favorite strategists at Nespresso on Crescent street. It was a beautiful, sunny day but he was dressed in a suit so we sat in the shade. He was happy that he made the right call on stocks and sees all the leading indicators, including the ISM, rolling over. "All the other strategists called this a soft patch but that's because they still use old econometric models." He added: "This has nothing to do with the debt ceiling crisis. The US economy is slowing and so is the rest of the world. Just look at the Korean and Australian stock indices."

I told him that the US economy is in for a long, tough slug which could last decades and these are perfect trading markets. He agreed. We also spoke about the characters in finance and I shared something with him that my psychologist told me. She told me:"Leo, you'll never be happy working in this industry because you're looking out for the little guy but the industry is full of sociopaths looking to screw the little guy over." And she added: "Remember what I told you, acceptance is freedom from hell. Unless you're willing to accept that this is an industry of sociopaths, and that you won't change them, then you'll always be miserable working in finance."

This is true, which is why I prefer doing my own thing, blogging and trading. But there are plenty of good people in finance too. Case in point, the person I met up with today. He's smart, ethical, extremely successful, made it outside Quebec, and has nothing to prove to anyone but himself. He could have easily become an arrogant, insufferable, narcissistic prick like so many people in finance who achieve "success," but he has his two feet firmly planted on the ground and values the important things in life, namely, his family, friends and health. I just received a copy of his book, which he co-authored with another first-rate person, and I'm already reading it and will review it on my blog (need to review a few books).

Some concluding thoughts. Economic data will continue coming in weaker than expected and the stock market will gyrate wildly (don't get too cute shorting this market). This Friday, we're going to get the latest jobs report and see if the US economy is creating any meaningful job growth (don't hold your breath). The jobs crisis remains the single most important issue that policymakers have yet to adequately address.

Below, I leave you with a couple of must watch interviews. One with Martin Feldstein, an economics professor at Harvard University, who talked with Bloomberg's Tom Keene about the risk of the U.S. economy slipping into a recession. And the other is CNN's Wolf Blitzer interviewing the independent senator from Vermont, Bernie Sanders. Mr. Sanders reminds us that millions are struggling to get by in this economy and couldn't care less about the stock market (unfortunately CNN posted an edited version online; it is worth watching the full interview posted on YouTube).

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The President Surrenders?

Nobel-Prize winning economist Paul Krugman isn't happy with the $2.4 trillion debt deal that just passed the US House. In his NYT's op-ed piece, he opines, The President Surrenders:

A deal to raise the federal debt ceiling is in the works. If it goes through, many commentators will declare that disaster was avoided. But they will be wrong.

For the deal itself, given the available information, is a disaster, and not just for President Obama and his party. It will damage an already depressed economy; it will probably make America’s long-run deficit problem worse, not better; and most important, by demonstrating that raw extortion works and carries no political cost, it will take America a long way down the road to banana-republic status.

Start with the economics. We currently have a deeply depressed economy. We will almost certainly continue to have a depressed economy all through next year. And we will probably have a depressed economy through 2013 as well, if not beyond.

The worst thing you can do in these circumstances is slash government spending, since that will depress the economy even further. Pay no attention to those who invoke the confidence fairy, claiming that tough action on the budget will reassure businesses and consumers, leading them to spend more. It doesn’t work that way, a fact confirmed by many studies of the historical record.

Indeed, slashing spending while the economy is depressed won’t even help the budget situation much, and might well make it worse. On one side, interest rates on federal borrowing are currently very low, so spending cuts now will do little to reduce future interest costs. On the other side, making the economy weaker now will also hurt its long-run prospects, which will in turn reduce future revenue. So those demanding spending cuts now are like medieval doctors who treated the sick by bleeding them, and thereby made them even sicker.

And then there are the reported terms of the deal, which amount to an abject surrender on the part of the president. First, there will be big spending cuts, with no increase in revenue. Then a panel will make recommendations for further deficit reduction — and if these recommendations aren’t accepted, there will be more spending cuts.

Republicans will supposedly have an incentive to make concessions the next time around, because defense spending will be among the areas cut. But the G.O.P. has just demonstrated its willingness to risk financial collapse unless it gets everything its most extreme members want. Why expect it to be more reasonable in the next round?

In fact, Republicans will surely be emboldened by the way Mr. Obama keeps folding in the face of their threats. He surrendered last December, extending all the Bush tax cuts; he surrendered in the spring when they threatened to shut down the government; and he has now surrendered on a grand scale to raw extortion over the debt ceiling. Maybe it’s just me, but I see a pattern here.

Did the president have any alternative this time around? Yes.

First of all, he could and should have demanded an increase in the debt ceiling back in December. When asked why he didn’t, he replied that he was sure that Republicans would act responsibly. Great call.

And even now, the Obama administration could have resorted to legal maneuvering to sidestep the debt ceiling, using any of several options. In ordinary circumstances, this might have been an extreme step. But faced with the reality of what is happening, namely raw extortion on the part of a party that, after all, only controls one house of Congress, it would have been totally justifiable.

At the very least, Mr. Obama could have used the possibility of a legal end run to strengthen his bargaining position. Instead, however, he ruled all such options out from the beginning.

But wouldn’t taking a tough stance have worried markets? Probably not. In fact, if I were an investor I would be reassured, not dismayed, by a demonstration that the president is willing and able to stand up to blackmail on the part of right-wing extremists. Instead, he has chosen to demonstrate the opposite.

Make no mistake about it, what we’re witnessing here is a catastrophe on multiple levels.

It is, of course, a political catastrophe for Democrats, who just a few weeks ago seemed to have Republicans on the run over their plan to dismantle Medicare; now Mr. Obama has thrown all that away. And the damage isn’t over: there will be more choke points where Republicans can threaten to create a crisis unless the president surrenders, and they can now act with the confident expectation that he will.

In the long run, however, Democrats won’t be the only losers. What Republicans have just gotten away with calls our whole system of government into question. After all, how can American democracy work if whichever party is most prepared to be ruthless, to threaten the nation’s economic security, gets to dictate policy? And the answer is, maybe it can’t.

Love him or hate him, Krugman has a point. You can listen to him below speaking with Carol Massar and Matt Miller on Bloomberg Television's "Street Smart." I also think this deal is a huge success for Republicans because there was no compromise: it's all about cuts in spending with no increase in taxes.

And Krugman is right, unemployment will get worse and so will the debt and deficit as more and more people enter the ranks of permanently unemployed. It's a disaster for the real economy but probably good for the stock market. I watched today's action and it played out like a perfect script. They sold the news, hedge funds and bank prop desks had their algorithmic trading computers working overtime, scooping up shares on the cheap, and by the end of the day, the stock market recovered all its losses.

And what about that ISM manufacturing report? Everyone made a huge stink about it dropping to a lower-than-expected 50.9. I say big deal, it's still over the critical threshold of 50, which signals expansion in manufacturing activity. Analysts want to paint doom and gloom everywhere but I think people need to take a step back and analyze economic data more carefully. The ISM report wasn't as bad as the bears made it out to be.

Finally, President Obama caved in to the Republicans, pissing off extreme left-wing and right-wing factions. He probably did not want to take a chance that a US debt default would take place under his watch. I don't blame him but now he and Congress have more pressing issues to deal with, namely, the jobs crisis. Unless that is dealt with forcefully, this deal will come back to haunt them.

***Feedback from Michael Hudson***

The well know economist, Michael Hudson, wrote his thoughts on the debt ceiling and sent me these critical comments:

Obama IS the Tea Party president. He’s not compromising with the Republicans. He’s dragged his party to support their position, appointed Wall Street chiefs of staff to support Blue Dog Democrats against any opponents of his wars in Libya, Afghanistan etc. He’s Joe Lieberman in black face. In other words, his job was to deliver the black vote and block opposition from the Democratic strongholds to his Tea Party policy. No wonder the progressives are turning against him.

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