Stocks Resting, PCLN Tops, GS Still Trekking

Stocks rest yesterday after 3.3% jump from Friday's lower open

The S&P 500 closed a mild 48 basis points lower after gaining 2.2% on Monday. Tokyo and London showed weakness overnight with 2.1% losses in Japan and the UK trading down 78 basis points currently. US futures are trading 30 bps higher pre-market after the ADP jobs data showed a greater than expected gain in jobs. As the week moves on and after the ISM non-manufacturing index is released today at 10:00 AM, all eyes will be on the US government jobs report released on Friday morning.

The Negotiator did quite well in the second quarter! A notable earnings report from Priceline (PCLN) was released last night crushing estimates with EPS of $3.09 versus the $2.65 expected and a strong top line coming in at $767 million versus $733 million expected. Guidance impressed the Street at $4.78-4.98 for Q3 trouncing the $4.18 analyst estimation. PCLN expects revenues to grow 29-34%. PCLN is the new economy, a low-cost, online product that greatly increases efficiencies in the booking and pricing of travel. Shares of PCLN are trading up 17.8% pre-market and bumping up against all-time highs at just under $274. Prior to the announcement PCLN traded 22 times trailing earnings and now sees revenue growth in the 30% range, now there's a good story!

Gold finding footing once again as commodities bounce

The recent spat of weakness in gold throughout July surprised many traders. The most logical conclusion I have read is that the sequential deceleration in inflation and inflation expectations has tempered the need for a hedge, one of the core investment arguments among gold bugs. Yet, the rallies in crude and copper, not to mention many agriculture commodities, may be showing a significant change in sentiment. While the short end of the Treasury curve points to very low inflationary and even deflationary expectations, the recent moves in commodity markets point to the opposite. Either way, it's looking as if I should have covered my gold short when my gut told me to around $114 in GLD. My position is very small so I more or less ignored it but that was probably a bit foolish.

Goldman Sachs (GS) still trying to push higher

Shares of GS have been stair-stepping higher since Thursday's large move to the upside that finally got me committed to the long after a few days of back and forth. The stock has yet to find convincing momentum and it is nearly impossible to be active in shares throughout the day. The open today will be around yesterday's high and maybe today is the day we see some extension. My average price is $149.73 and I will be moving my stops up to the bottom of the last couple days of consolidation around $151 to not turn this winner into a loser. My target remains $160.


Disclosure: Long SPY, GS. Short GLD.

Payrolls Ugly, Gold Ugly, Equities Ugly, Cash Beautiful

Payroll data in line with estimates, still dour

Payroll data showed a loss of 125,000 jobs in June and a downtick in the unemployment rate to 9.5%. The private sector only hired 83,000 people last month and May was revised from the already dismal 41,000 private sector hires to just 33,000. This data is far from encouraging, there is just not much more to say than that.

Gold falls aggressively as risk aversion trade only works in Treasuries

Gold cracked hard yesterday falling $44 and closing below $1,200 an ounce. I was stopped out very early in the day around breakeven on my position. I started suspecting trouble when the equity markets crumbled and gold failed to lift. I was using gold as a risk aversion hedge but the correlation changed and I am out of the way to let the situation play out how it may for now.

The risk aversion trade I expected in gold was only seen in long-dated Treasuries with 30-year futures up 3.2% in just two weeks. The short end of the curve is stagnant as we see a flattening of the yield curve, interpreted by many as an indication of an impending so-called double dip. PIMCO believes "the shrinking difference between short- and long-term Treasury yields has been 'the worst kind' because it is driven by a pessimistic economic outlook" (Businessweek)

As equity markets can't find buyers values are emerging

Crossing Wall Street had some excellent analysis out yesterday highlighting book values of Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS). Goldman is trading at $130.71 currently with book value at $128.33 while Morgan trades 15% below book value. Also interesting: "Thanks to an ugly day in the markets, the yield on the 10-year Treasury stands at 2.899%. The indicated yield for the Dow is 2.97%." Great stuff, Eddy!

Yet with the contracting piggy banker spread, banks will find it tougher to print money as they have done for months with one of the steepest yield curves in history. The rate of change in earnings will slow and that justifies at least some of the selling we have seen lately along with the regulatory overhang.

Let me be clear though, I'm not jumping on the bearish bandwagon right now. At some point very soon I think we will see a very steep short-covering rally to reclaim the $1,050 level. But, I just haven't stepped in yet. With algorithms dominating the tape and seemingly exacerbating all directional trends, I think it will be okay to chase it a bit once it gets started. For now, I am with Barry Ritholtz, sitting on the sidelines until the 3C's emerge.


Disclosure: No relevant positions.

Equity Investors Hit the Panic Button, Gold Remains Inactive

Equity market looks ugly, S&P loses 5.4% for June

Following the 8.2% decline in May, the S&P 500 ended the month of June registering a 5.4% loss closing at new lows for the current correction. The S&P is now 15.5% off the April highs with seemingly no buyers to be found. Dumping my remaining longs at yesterday's open proved to be a wise move and allowed me the clarity of thought to short the NYSE:SPY into today's close as sellers came in with a vengeance to break the $1,040 level. Rather than the typical window-dressing at quarter end we saw what Brian Shannon of Alpha Trends dubbed "end of quarter window-smashing". After trying to hold on all day in the green, volume picked up into the close as investors threw in the towel.

We closed today well below the much talked about $1,040 level that every technician is eying as the neckline of a broad head and shoulders pattern, considered to be the most reliable reversal pattern in technical analysis. Now that everyone sees it, the debate in the blogosphere is whether everyone seeing it (even Goldman Sachs and CNBC pundits) will make it not happen. Yikes, I'll sit that one out!

Just by watching the price action the market seems easily headed for more downside with some nerve-testing bounces along the way for the shorts. We are getting deeper into the summer which are historically poor months for market performance. After the 80%+ rally off lows, a 20-25% correction would be neither disastrous nor unexpected.

Gold still hanging onto the trendline but surprisingly inactive

All right gold, I've had enough of this, just go! Anyone else thinking this? Gold has apparently lost its risk-aversion trade characteristics failing to budge even as equity markets disintegrate. I continue to be long NYSE:GLD but payment has not visited me yet. Two Mondays in a row provided vicious stop-triggering moves to the downside but both were met with buying in front of previous pivot lows.

There is certainly demand for the metal but the trade is also certainly crowded. While it does not mean that the trade will not work just because it is crowded, it means that attention to detail on price is of extreme importance. Very good risk/reward prices are essential in order to hold onto shares when weak holders panic out. Let's hope I'm a strong enough buyer to stay with the move.

Treasuries gather buyers from everywhere

What a flight to safety over the last few days! The yield curve has flattened aggressively, typically not a great sign for economic expectations. The 2-year will get you a whopping 0.61% in yield while the 10-year offers 2.97%. 10-year yields have dropped from April highs of 3.99% to today's levels showing the movement of money into risk-free assets and out of risky equity markets.

What a dirty move copper made yesterday! After breaking the multi-month downtrend and strongly reclaiming the $3 handle on Friday, copper dropped 5.3% back below $3 and now sits at $2.91. Doctor copper is often a leading indicator and the reversal does not bode well for equity markets.

Entering the New Normal

Bill Gross' Alphabet Soup investment outlook for July 2010 is out highlighting that, basically, things haven't changed much. He does note the lack of acceptance of his views: "Our 'New Normal' two-word duality seems to resonate more on the 'normal' than the 'new' to economists whose last names aren’t Roubini, Reinhart, Rogoff, or Rosenberg. It’s as if 'R' has been eliminated from the financial alphabet, and 'new' from investors’ dictionaries worldwide."

My name is Rowley...perhaps that is why I agree with him! Though please do not confuse me with the others, Roubini in particular. I think the PIMCO guys missed the initial reflation trade and now we have reached the time to expect lowered returns due to "deleveraging, reregulation, and deglobalization". Gross' prescription is right on: "If policymakers could act in unison and smoothly transition maxed-out indebted consumer nations into future producers, while simultaneously convincing lightly indebted developing nations to consume more, then our predicament would be manageable." Yet, he follows with the succinct realization that: "They cannot."


Disclosure: Long GLD.

Austerians Winning Deficits Battle, Equities Dropping

Austerity, restoring confidence or killing the patient?

The heightened talk of austerity measures throughout the world is certainly a motivating factor behind the selling in equity markets. The Keynesians are furious that governments are contracting fiscal stimulus too soon arguing that previous measures will be wasted if we pull the plug now. The economy is still on life support they argue and we have not overcome the deflationary forces at work. The worries of financial distress are exaggerated particularly in the United States where interest rates on our debt are at the low end of historical ranges.

The austerians believe government deficits are hurting confidence around the world and reigning in spending will solve these problems. Ultimately, they are more worried about the inflation story and continue to fret that bond vigilantes will attack at some point, drive up interest rates on our debt and we will be unable to fight back. Reducing deficits now they believe will spur investment by the private sector and get ahead of what are inevitably higher interest rates in the future.

While this is a highly complicated issue and I tend not to argue too definitively on either side of the coin, I do lean toward the Keynesian argument. I believe we have an excellent example in the Japanese story as best outlined by Professor Richard Koo. The fears of inflation and higher rates seem overblown as we are still mired in a deflationary storm. Yet, there is a point at which governments must cut spending and 5.9% GDP growth in Q4 2009 followed by 2.7% Q1 2010 growth do not necessarily indicate an economy in desperate need of more Keynesian medicine. Though the 9.3% domestic unemployment rate is not particularly encouraging.

Either way, this debate will be solved by others and I will focus on the effects on financial markets. Lowering deficits will adversely affect equity prices by lowering GDP. The $1.6 trillion budget deficit this year cannot be reduced without negatively affecting GDP at least in the short-term. Contractionary fiscal policy will likely force monetary policy to stay expansionary far longer than otherwise and ultimately this translates to furthered debasement of paper currencies and higher real asset prices.

Gold collapses for 2nd Monday in a row

So much for my post yesterday where I stated I did not see a reason to sell any of my position in NYSE:GLD. Gold rallied early in the day to within $3 of last Monday's all-time highs of $1,266. It based for 30 minutes and then rapidly collapsed $27. Once again, any weak hands in the metal were stopped out in the harsh down move. I have a decent entry price so I continue to hold through the volatility and will only be stopped if prices make a lower low which has yet to happen.

The two moves have definitely shown the perils of chasing new highs in gold. It is also interesting to note the possible impact of NYSE:GLD on the gold futures market. NYSE:GLD made new all-time highs yesterday by a few cents exciting many traders who were only following the ETF and not the futures market. This disconnect could have fueled the early selling as the new high buyers in the ETF dumped their positions at the first sign of weakness.

I expected NYSE:GLD to be a solid risk-aversion holding against equities but it has not yielded much protection in the last week. The long-term looks very promising with gold the only asset class continuing to trade just off all-time highs. If we see a breakdown in the short-term, I will blow out most of my position and return to just a feeler and wait. I expect new highs sooner or later but my timing could be off. For now, I wait.

When you're wrong, stop being wrong

One of the most important aspects of trading is recognizing when you are wrong. The best traders stay very stubborn to a point but then are willing to completely flip their thinking and admit their mistakes. I put together a very nice trade on the long side in early June catching a nice bounce off the $1,040 level.

After making the higher high in the market I began thinking the bottom could be in place. I tried a lot of longs over the last few days and wiped a lot of my gains in short order as the market sliced through buyers like a hot knife through butter. Today, I capitulated off the open and dumped nearly all my remaining long positions to be flat equities. So much for that. The $1,040 level is so closely watched by all technicians, it seems destined to break if only for a short time.


Disclosure: Long GLD.

US Knocked Out, Equities Trying at Higher Low

US World Cup hopes crushed in OT against Ghana

The US lost in overtime to Ghana, a solid squad that moves on to play Uruguay. US players were apparently, once again, not prepared to play when the stepped on the field and gave up another goal just 4 minutes into the game. This follows giving up a goal in the 3rd minute to England and one in the 12th minute against Slovenia. It is tough to win the World Cup when you step on the field flat-footed in 3 of your first 4 games.

The Ghanans dominated the first half after Clark foolishly lost the ball while trying to beat a guy in midfield leading Howard to be beat on a weak shot to the near post. US players, many from the MLS, were not prepared to play at the pace Ghana set for the game. Ghana closed quickly and never allowed the American side more than a touch on the ball before feeling pressure. Though, the second half was won by the US in my book. We created a number of chances and Dempsey smartly drew a tackle in the box yielding a penalty kick which Donovan expertly put away.

The overtime goal was equally disappointing. A wild clearance from the Ghana defense was terribly defended and the Ghana striker was given time after a bump in the back to rip a full volley into the back of the net. I must say I place some blame on the coaching, Bob Bradley must be held accountable. Conceding three very early goals shows that the team was not ready to play. His choices of players and substitutions in the Ghana match were questionable at best.

Overall, a disappointing match but I was happy to see us exit the group stage. The tie against England almost makes it all worth it. Donovan proved to be a world-class player scoring 3 out of our 4 goals. Good luck to the remaining teams and until 2014...

Equities whacked last week, now what to do?

China's weekend announcement to unpeg the renminbi from the dollar and allow a slow appreciation marked the top of the bounce off the 1,040 level in the S&P. The 8.5% bounce from early June lows quickly evaporated last week with a 4.8% pull-in. There seems to be plenty of fervent bulls and bears out there arguing both sides of the coin. Clearly, there was buying at the 1,040 level but another test of that area seems likely to lead to a breakdown. Equities finally found a bid on Friday to close off lows.

I have some longs and I will be looking to the long side early this week while trying to judge the action and gauge the strength of the buying. Frankly, at this point I do not know but I am leaning long after the higher high was made and now possibly a higher low could be formed. The VIX remains high at just under 30% offering continued volatility. Doctor copper is offering us some bullish clues breaking the downtrend since April last week and regaining the $3 handle. Natural gas is also finally seeing increased demand rebounding from sub-$4 prices of May trading up to $4.75 now.

Gold testing all-time highs

Gold futures are sitting just under all-time highs seemingly awaiting any news item to spark buying through the level. I continue to think aggressive buying will eventually pick up in the shiny metal and now is not the time to sell. For now I am holding NYSE:GLD and awaiting an expected move to $130.

Twist in financial reform, Democratic Senator Robert Byrd dies

A wrench has been thrown into passage of the financial reform bill with Robert Byrd passing away this morning at age 92. If Senator Scott Brown decides to vote against closing debate, Democrats may be unable to secure the needed 60 votes to move the bill to final passage. Barry Ritholtz has an excellent analysis of the bill ultimately giving the bill a C- grade with F's given to the bill's addressing of too big to fail, leverage limits, credit ratings agencies and corporate pay. I could not agree more on the leverage front, how can there be no basic limits on leverage?


Disclosure: Long SPY, GLD.

Market Frustrates Bulls, Gold Regaining Mojo

Businessweek article a bit depressing

I just finished up last week's issue of Bloomberg Businessweek that featured the cover article chronicling and interviewing the prominent bears who gained notoriety during the 2008 market crash. For the most part the article is somewhat dismissive of these few people, more or less labeling them as perma-bears. In terms of the likes of Marc Faber and Nouriel Roubini, I couldn't agree more, even Nassim Taleb though Fooled by Randomness was a brilliant work. Yet, they misstate Meredith Whitney's record as I distinctly recall her interview on CNBC in early 2009 advising clients to cover their shorts as she did not see much more downside. Not only that great call she recommended Goldman Sachs (NYSE:GS) just a few months into the 2009 rally and then told clients to sell basically at the top.

The quote below is an excellent appraisal of the constant bull-bear debate:

The bias is inherent in the situation. The problems are known. If you write for a major publication, you are rewarded for analyzing the negativity. If you go on TV, you are expected to parrot the analysis of problems. This makes you seem smart.

By contrast, the solutions are vague and unknown. If you even talk about them, all of the "hot shots" are skeptical.
(A Dash of Insight)

The fact of the matter is there are a lot of clouds on the horizon. But when will there not be? And the solutions are unknown otherwise the problem would already be solved. So in a lot of ways distinctly diagnosing the problem looks smart while offering possible solutions just looks blindly hopeful and optimistic.

A brilliant portfolio manager I recently spoke with argues that US firms have not seen a real recession in a couple decades so they have not looked inward. This recession has forced firms to discover new efficiencies and this is clearly reflected in the massive increases in productivity over the last few quarters. Hiring will turn when small businesses turn around and that will occur as credit lines continue to open up.

Gold makes higher low, bounces strongly

Gold was a winner today after NYSE:GLD tailed through $120 yesterday and then rallied today before fading late. My nerves were tested a bit but I held on and got rewarded today. The brutal stop out fall on Monday and into Wednesday may have cleared out overhead resistance and opened the path of least resistance to the upside. To reiterate, I'm looking for first target at $130 in NYSE:GLD with stops at $118.80.

Equity market frustrates early bulls

It appears that I joined the large swath of eager beavers trying to buy the $1,075 level. My losses were limited as I bought well and simply held my position up and then right back down as the market failed back through lows of the day. I will attempt nearly the same trade tomorrow but it will be a bit trickier since the swing trade will require weekend risk.


Disclosure: Long GLD.

Donovan is Cluth, Gold Testing Nerves, Buying Equities

Donovan comes through for the US

I have to admit I have been a hater of Donovan for years now. I followed him early on in his career and found him to be an over-hyped, choke artist. Yet, times have changed and in the last few years his playing style has greatly matured and his composure on the ball has strongly developed. His brilliant top-shelf shot against Slovenia put us on the road to a tie and his extra time goal yesterday against Algeria was absolutely clutch. The US now takes on Ghana on Saturday at 2:30 PM in a very winnable game. Winning Saturday will put us against the winner of Uraguay and South Korea. We can definitely prevail in the next couple games especially if Donovan continues his star performance.

Gold stops out weak hands

My gold position is hanging on by a thread and my stop will be triggered if gold makes its first lower low since March. While I will have given back a good deal of profit I have no problem taking a small loss should my plan not pan out. Gold has dropped 2.9% off the all-time highs in a fairly harsh fall that has easily wiped out any weak hands. Being a trader with a short-term, momentum-based strategy, I am far from a strong hand yet the action yesterday was encouraging as gold bounced off the 20-day moving average for a strong close. Once again, I have my stop and no other action is required of me until it breaks down or moves out to new highs.

Goldman Sachs issued a report a few days ago stating that "if gold-ETF buying were to continue at its current pace for the remainder of the year, we would expect gold prices to rise to $1,400/toz by the end of 2010." Understanding the impact of NYSE:GLD on the gold market is important. I have noticed many 3:30 PM rallies in NYSE:GLD even while the gold futures market is closes at 1:30 PM. ETF buying has become a dominant feature in gold's movements.

S&P now 50% off short-term bounce at $1,075

I am looking at the $1,075 area in the S&P as a great place to be picking up longs for the next wave higher. Wall Street has forgotten about the Eurozone's debt woes as quickly as we started caring about them. It seems to me that the path of least resistance will be higher in the next couple weeks into earnings season beginning on July 11th with Alcoa. I am not as interested in being long market indexes but rather individual companies that have strong fundamentals and momentum behind not only their stock prices but their businesses.


Disclosure: Long GLD.

Gold Sees Selling, China Unpegs Renminbi

Gold

"It was never my thinking that made me money but my sitting tight." ~Jesse Livermore

Yesterday's large drop in gold was somewhat brutal but it did not break down through any of my stop levels. After leaping out to new highs last week, China's revaluation announcement spawned selling in the precious metal. Quite frankly, at this point I'm trying not to think. Gold formed a very bullish formation on all timeframes and broke out to new all-time highs. If history is any guide, the real party has not yet begun. Perhaps this is healthy action as the retracement has filled some downside gaps and stopped out many weak hands that would have created overhead resistance. The technical and fundamental reasons I entered this trade have not changed, only my P&L has. My stop remains in the $118.80 area on NYSE:GLD and we'll see how the market acts this week.

China Revaluation

China's announcement of its plans to gradually revalue the renminbi is a welcome development. Ultimately, this action is in the best interests of China and the rest of the world. While many were hoping for a one-off large appreciation I do not see a more gradual approach as being a poor decision for all parties. Ideally, China would begin spending their capital account surpluses which would greatly help the global economic recovery and reduce trade imbalances. Yet, that is not to be and we'll have to accept what we can get. Now it is all a matter of how much China allows the yuan to appreciate over time. If we only see 3-5% appreciation over this year there will not be significant impacts on global markets but it is a step in the right direction.

Stock Market

While China's announcement fueled a 2.9% jump in the Shanghai Composite and led to pre-market buying in the US, equities in America faded throughout the day and closed in the red yesterday. After an 8% jump off the early June lows, some selling pressure is not unexpected. I would not be surprised by some more downside in the short-term and I will be actively looking for areas to add to my current longs.

Wade Slome over at Investing Caffeine put together a great post comparing equity markets today to 1998.

What many pundits and media mavens fail to recognize is S&P corporate profits have virtually doubled since 1998 (a historically elevated base), despite market prices stuck in quicksand for a dozen years. What does this say about the valuation of the market when prices go nowhere and profits double? Simple math tells us that all stock market inventory is selling for -50% off (the market multiple has been chopped in half). That’s exactly what we have seen – the June 1998 market multiple (valuation) stood around 27x’s earnings and today’s 2010 earnings estimates imply a multiple of about 13.5 x’s projected profits.

This line of thinking is very convincing to me. I cannot believe Apple (NASDAQ:AAPL) can sell for 23 times trailing earnings. Apple is perhaps the most exciting, innovative company in the world boasting $23 billion in cash and no debt. How can the maker of the iPhone and iPad with a 37% 5-year trailing net income growth rate sell for 17 times projected EPS?


Disclosure: Long GLD, FXI.

Gold to Go Parabolic (NYSE:GLD)

Gold is shaping up for a parabolic move into new all-time highs. US gold futures closed just under previous all-time intraday highs of $1,253.90 for the highest all-time closing price. I am locked and loaded long GLD with an average price of $119.38 and a stop at the $118.80 area. I expect this to be an excellent swing trade as momentum will likely increase dramatically when gold clears previous highs. I will be looking for at least $1,300 to start taking profits. When momentum kicks in, gold has a historical tendency to take off with the excitement.

BUT, gold is a widowmaker and makes quick work of those that chase. I learned a tough lesson in December 2009 suffering through a dramatic drop with too much size. I had worked into the position very early and had a great average price around of around $97. But I did not take profits quickly enough and underestimated the level of pain a pull-in would put me through. I sold a quarter of my position at $112 and got lucky to sell another quarter just near the top at $118.50 but I held almost half my position as gold dropped over $150 from highs. I learned to never underestimate how tough it is to watch a lot of P&L evaporate before your eyes. So, this time around, I'll try to be very quick to exit when the bid disappears. Let's hope I recognize when that happens and accept the missed profits of not selling at the top. Let the games begin.

Disclosure: Long GLD.

First Sellers Step Into Equities, Gold to Blast Off?

Stocks rallied early before paring gains to close flat on the day. Today was a great day of consolidation considering the entirety of the move off lows and through the 200-day moving average. The S&P is now 7.1% off lows and a milder 8.6% off highs. I sold the last of my NYSE:SPY feeler position around the close as today felt like the first bit of real selling entering the market. I sold it because I am expecting to be able to buy back stocks in the coming days on a pull-in and I wanted to lock in the gain.

I am currently long a large swing position in gold through NYSE:GLD. Just a hypothesis, I think the equity market may see a minor pull-in in the coming week that would reignite the bearish headlines and help gold overtake new all-time highs. Relative strength is one of the most proven aspects of technical analysis and gold's strength could not be any better. What better relative strength than one of the only assets classes or markets in the entire world trading at all-time highs (besides the Sri Lankan stock market)? While this would likely mean it is not a good time to be investing, I do see it as a great momentum play for the swing trader.

Apple (NASDAQ:AAPL) is a stock I just keep on telling myself to buy but I continue to shy away for some pathetic reason. I put out a note where I argued for a $300 price target last December before the iPad was released. Now we have the iPad and the iPhone 4. I am going to close my eyes and buy this stock on any weakness. The reason it is so difficult to enter this stock with a reasonable stop loss is because everyone else wants the same buy so it never materializes.

Disclosure: Long GLD.

Stocks Roar Higher, North Korea Not So Bad

Not the most exciting day of soccer today as Slovakia tied New Zealand 1-1 in the opening match and Portugal and Ivory Coast drew to a 0-0 tie. I must say I was impressed with North Korea's play in the 2:30 time slot against powerhouse and World Cup favorite, Brazil. North Korea held Brazil scoreless well into the second half until their goalkeeper committed the cardinal sin of being beat to the near post on a no-angle shot off the endline. Great vision and a brilliant through ball took Brazil up 2-0. But, North Korea kept on fighting and grabbed one with just minutes to go for a 2-1 finish. The two selfish shots in the final minutes from Jong Tae-Se's aggravated me; how can somebody living under a communist system be so selfish I ask? I'll admit I almost found myself rooting for North Korea, the massive underdog and global pariah. How can one not feel bad when North Korean players admit to seeing cell phones for the first time in their lives? Kim Jong Il will not even allow games to be televised in the country. Yet he will show highlights of the matches. I imagine the purposeful impression being something along the lines of "NK was the best team out there but was cheated out of victory by the capitalist pigs". But it's great to see them on the world stage and I hope this can help slowly erode the barriers of isolation.

So what does contagion mean again?? It appears that Wall Street's amazingly short attention span has already shifted away from Greece and the meltdown in Europe as headlines of debt fears have moved to the back pages. The Dow closed up 214 points solidly back above the closely watched 200-day moving average. I continue to stay long the SPY and will look at add on a pullback. Overall, I want to be long this market for the snapback trade but ultimately will look to only be long particular companies as I believe the greatest returns versus risks will come from individual security selection over diversified baskets (more on this in an upcoming post).

Gold rallied 1.0% along with equities throughout the day rising to the top end of the range within the recent base as the dollar index dropped 0.7%. I added aggressively at the lower end of this base in GLD against the $1,220 bottom side in gold futures. It looks like today was a particularly bullish sign for the shiny metal and clearing $1,240 should pave the wave to new all-time highs. A long-term weekly chart shows a high level consolidation just above previous highs. I would expect the next wave of buying to generate a very large move to the upside and I am positioning accordingly.

The creditor (China) versus debtor (US) nation debate is heating up as China responded to America's constant complaints about China's currency manipulation. The Foreign Ministry spokesman, Qin Gang, said last night: "We hope that American politicians and others concerned can seriously consider how to resolve the structural problems in their own financial system, instead of blaming others." Those is fightin' words if I ever heard 'em. Frankly, I agree with China though. I believe a slow appreciation of the renminbi is in the best interests of everyone but China is rightly concerned about allowing this happen too quickly and under the wrong circumstances. With the US running a $1.6 trillion budget deficit and China acting as our largest creditor I think we would be wise to keep this relationship diplomatic.

Disclosure: Long SPY, GLD, FXI.

The World at a Glance

Global correlation is the name of the game right now. Besides gold, investors have not been able to find much safety across the world since the beginning of 2010. With cash offering a paltry return, the search for yield is hot yet there is not much to be found so far this year. While portfolio diversification of at least 20 securities is now seen as the basic standard all investors should follow, I am awaiting more academic research into the shift in systemic risk (market-wide risk) versus idiosyncratic risk (risk associated with a particular security) as selling pressure rises in markets. In rising markets, the greatest risk is idiosyncratic in that an investor will carry too much exposure to an individual issue and could suffer should that stock see a black swan event. Yet, in falling markets, the risk seems to shift and systemic risk rises greatly relative to security-specific risks. The benefits of diversification are lost because correlation between stocks, markets and asset classes jumps. Hence, diversification is beneficial as markets rise yet useless when they fall (the time in which you need those benefits most). I have no concrete study to reference on this but would I love to see a finance professor somewhere prove or disprove these observations.

The American equity market is now 13.7% off the April 2010 high dropping as fears of contagion from Europe's debt woes rippled over. This correction should be kept in the context of the overall move though, a relatively minor pull-in considering the non-stop 70% rally off the March 2009 bear market lows. Plenty had been expecting the correction for months yet it is always amazing how quickly stocks fall, they go up on an escalator and down on an elevator.

Greece has fully collapsed along with the euro. I have had some ask me whether I think the crisis in Europe could become really bad. Well, for Greece, with its equity market down nearly 50% (remember our maximum intraday decline from high to low was 57.7%) it is really bad. The other PIGS are solidly in bear markets down over 20% as the European Union attempts to calm markets with its debt aid package planning. While I think the EU plan is a good one, I see no quick resolution to Europe's problems as the continent suffers from a debt overload and seriously lacks the prospect of new growth opportunities to turn the economy around.

China is also over 20% off its highs and has now based for months after making its recent highs in November 2009. The Chinese government has been consistently tightening monetary and fiscal policy in an attempt to cool an overheating real estate market. Some worry that the Chinese government may go too far and induce a recession as unchecked contractionary policy often can. Yet, with foreign exchange reserves valued at $2.4 trillion and annual GDP of $4.3 trillion, any marked slowdown could easily be countered by government spending and it seems to me this recent consolidation action in Chinese equity markets may be a great time to become an investor.

Country	Market	YTD Return	% Off Most Recent Highs*
United States	S&P 500	(5.8%)	(13.7%)
United Kingdom	FTSE 100	(6.4%)	(13.0%)
Germany	DAX 30	(2.2%)	(7.9%)
France	CAC 40	(12.8%)	(15.6%)
Japan	Nikkei-225	(8.9%)	(15.3%)
Hong Kong	Hang Seng	(11.4%)	(15.5%)
China	Shanghai SE	(22.1%)	(26.5%)
PIGS
Portugal	PSI 20	(17.9%)	(21.8%)
Italy	MIB 40	(20.9%)	(24.7%)
Greece	ATHEX	(32.4%)	(48.7%)
Spain	IBEX 35	(22.4%)	(24.2%)
Hungary	BUX	0.3%	(15.9%)
Euro Currency	EUR/USD	(16.4%)	(20.9%)
*Most recent highs within that last year.

Disclosure: Long GLD, FXI.

Global Markets Bounce Back

The Dow closed 269 points off its lows yesterday ending down only 23 points for the day. Global markets followed the US lead rebounding last night with nearly every European market up 2-3%. It looks like yesterday could have been a successful retest of the flash crash lows and higher prices are ahead, at least in the short-term. The euro held the lows of the year on a retest yesterday but the struggling currency has yet to mount a sustained bounce off the $1.21 level. US futures are trading up 0.8% at last check pre-market.

Gold appears to have successfully retested the $1,175 previous breakout level. The precious metal is now trading up to $1,213 an ounce still a ways off the all-time highs made 2 weeks ago at $1,249.80. I'm still holding my position in GLD having added a couple days ago and selling some into this small pop. I smartly sold a good portion of my original position on the flash crash day but the high-level consolidation in the following several days gave me some false sense of security and I took some pain on this breakdown and retest. I continue holding a core and trading around the base, sometimes effectively, sometimes not so much.

While there have been plenty of fears swirling in the market the last few weeks, nothing has happened yet. Jack McHugh has a great post up at The Big Picture creating a hypothetical conversation between a head trader and a junior trader. The junior trader highlights all the reasons he's bearish on global equities:

jt - Well, ever since the EU rescue package announced two weeks ago started to unravel, it looks like a number of governments might default and the euro currency could soon be history. Asia is also a mess, since North Korea might just start a shooting war with South Korea, and the U.S. might get into a trade war with China if the yuan doesn’t appreciate. Here at home, a slowdown in Europe could cause us to experience a double-dip recession, the appreciating dollar is going to hurt profit margins for our large, export-driven companies, and the Senate’s bank reform legislation looks like it might just crush our financial sector. Furthermore, the tape trades like death and all the momentum indicators are pointing south. Day after day, it seems like stocks are down 2% or more, and every rally keeps failing. Credit spreads are widening and the VIX is above the danger zone between 30 & 40. Being short isn’t just smart — it’s easy!

Yet, the head trader questions him individually on each of these fears. In essence, have any of the fears been realized? The answer is no but the stock market discounts possible future scenarios. As more time passes and the world doesn't unravel, traders need to be cautious on the short side as the head trader says "the momentum that is now your friend could turn on you in a New York minute".

Excuse my digression but my taste in music has drastically deteriorated in recent years. I used to be a Bob Dylan fanatic obsessively learning his songs by heart, pouring over his lyrics to understand the meaning. I owned every single record and dozens of bootlegs; I spread his music to any of my friends that would give him a chance. Now, I'm a complete sell out. I'm a top 40, billboard hits sell out. I find myself singing "everybody in the club evacuate the dance floor!" throwin' my hand in the air and wavin' like all the sweet rappers do to at their concerts. How far I've fallen, I'm a disgrace.


Disclosure: Long GLD.

Great Posts From Around the Blogosphere

The blogosphere featured some great posts today and while I'm not usually a linkfest type of guy, today's an exception as my CFA studying is overtaking my blog time now that I'm in the home stretch (under two weeks now!). Below are the particular pieces I found intriguing with the link for your further reading pleasure.


"The site [YouTube] now boasts over 2 billion views per day or, as YouTube’s blog puts it, '…nearly double the prime-time audience of all three major U.S. television networks combined.'"
Source: YouTube Turns Five: Changing TV and Creating Celebrities


"Recently I saw a headline saying that Microsoft is going to try to relaunch Hotmail to make it cool. Really, why bother?"
Source: Why Does Steve Ballmer Still Have a Job?


"If gold is a bubble, it has been an under-performing one, in relative terms."
Source: Gold Bubble Has More Bubbling to Do


"Using the rule of 16 and the 1/3 trading days time frame, the following translations should be committed to memory:

• VIX of 16 – 1/3 of the time the SPX will have a daily change of at least 1%
• VIX of 32 – 1/3 of the time the SPX will have a daily change of at least 2%
• VIX of 48 – 1/3 of the time the SPX will have a daily change of at least 3%"

Source: Rule of 16 and VIX of 40


"Schematic of BP’s cementing plan."
Source: DeepWater Horizon

China Bounces 3.5%, Goldman Optimistic on Equities

Distinguished financial academic and Nobel Laureate, Robert Merton, ran a poll of his audience at his financial seminars over 25 years ago. He asked his crowd to consider the following strategies: 1) Bond Investor: Invest $1,000 into Treasury Bills on January 1, 1927 and hold for 52 years until December 31, 1978 resulting in investment growth to $3,600. 2) Stock Market Investor: Invest $1,000 into the NYSE Index on January 1, 1927 and hold for 52 years until December 31, 1978 resulting in investment growth to $67,500. 3) Perfect Market Timer: Say you can perfectly time the market on a month-to-month basis. You know at the beginning of each month whether or not the stock market will outperform T-Bills that month and you shift your portfolio back and forth every month accordingly. What is your return? Beginning with $1,000 a perfect market timer would end up with a whopping $5.38 billion representing a 537,999,900% return after 52 years. This level of return highlights the incredible power of compounding...especially when you never lose. Achieving just a sliver of success in market timing can generate substantial returns.

The European debt crisis has been quite the gain for US home buyers. The EU debt troubles quickly came to the surface at a time when worries over rising rates were beginning to fester. The flight to safety has worked to depress rates to almost 50-year lows. Rates are now 4.86% far lower than the 6% many economists had predicted. (WSJ)

Despite the recent sell-off, Goldman Sachs is still bullish: "Developments over the past two weeks have not altered our fundamental view. The market has plunged 12% in four weeks, but remains 60% higher than in March 2009. The pull-back has been consistent with sell-offs that occurred in recoveries following bottoms in 1974, 1982, 1987, 1990 and 2002. The correction has been orderly in that sector returns have been exactly in-line with beta-adjusted expected performance. We expect the S&P 500 to rise to 1300 by mid-year (+21%), before ending 2010 at 1250 (+17%)."

China is up 3.5% overnight as Treasury Secretary Timothy Geithner and Secretary of State Hillary Clinton gather for a two-day Strategic and Economic Dialogue between the two economic powers. US futures have been rallying pre-market from down over 1% and Apple (AAPL) has added almost $5 now up 2%. Gold is trading up nearly a percent as well.

Great Comment on "Meltup" Inflation Film

My previous post entitled "Inflation 'Documentary' Lacks Evidence" received an excellent comment from TJ. His comment has motivated me to flush out more of my thinking and respond to his counter points. Thanks TJ, I appreciate your input!


I agree with about 1/2 of the bullets and disagree with the rest. You are correct that the video should give more evidence. One of several bullets I disagree with is Soc Sec. It is a generational Ponzi scheme where those who got in early had pretty good benefits and today it is not sustainable. The number of workers supporting each retirees has greatly shrunk. Soc Sec today is broke - they have to supplement the SS taxes collected to have sufficient payouts. This will get worse. Medicare is in even worse condition.

The problem with social security is the unforeseen possibility of a drastic reduction in the sheer numbers in successive generations. The baby boomers were our largest generation and successive generations, X, Y & Z, were smaller in number. This clearly creates a major structural challenge to a program based on transfer payments. Adding the disabled, children with deceased parents, raising benefits, etc. have all contributed to the higher necessary input payments. I suppose my argument is one of semantics, it's just not a literal Ponzi scheme but it certainly does have plenty of structural problems that need to be resolved. I see no way around it becoming a needs-based program and I am certainly not counting on it for my retirement.


On "higher taxes will lead to less tax revenue" - this is true at some level of tax rate. Don't you recall when the income tax was reduced it generated more revenues? Again at some point of reduced taxes it would not bring additional revenue.

Yep, it's true of some level of taxes will not lead to greater revenue and the opposite is true as well. I just hate the use of absolutes in a claim like the one they made. Yes, Reagan's reduction in tax rates resulted in higher revenues, no argument there. But, looking at tax rates, we are at historic lows for top tax rates and it seems inevitable that these rates will need to rise in the foreseeable future.


"Of course this comes with consequences down the line but the intention is that it will not be as bad as allowing a total collapse. These are lessons we learned in the Great Depression........." You sound like a believer in Keynesian economics. Keynesian economics will not work forever and it will surely fall someday - maybe sooner than later.

I'm not a believer in many interpretations of Keynesian economics. I see the government's role as "lender/employer/demand of last resort" as extremely important in times of complete meltdown. I do not believe in the interpretation of Keynesianism that motivated times such as Johnson's Great Society. I do not think the government is the best allocator of capital during good times, I think that role is best left to the free market.

But, I traded equities on Wall Street from the height of the market in 2007 and through the 2008 crash. I witnessed first-hand the complete panic that beset investors. Without government intervention I truly believe the entire financial system would have collapsed. I see no way Merrill Lynch, Morgan Stanley, Goldman Sachs, Citigroup, Bank of America, General Electric and many others would have survived if no actions were taken after Lehman went bankrupt. The expansion of deposit insurance, guarantee of commercial paper, TARP capital injections, etc. were absolutely crucial stabilizing mechanisms for the system. When the entire world wanted to deleverage at the same time, the only entity capable of leveraging up as demand of last resort was the US government.

I agree this level of involvement must decline over time but remember that Keynes was primarily interested in saving the free market system during times of great stress so that its potential could be unleashed again in better times. This recession necessitated the use of Keynes' prescriptions as it has been a massive demand side contraction, much like the Great Depression and Japan's lost decade.


Have you noticed the destruction of the dollar since the depression? Prior to the depression gold was relatively stable - a good monetary medium. Gold's long term trend since it was $30/ounce has skyrocketed.

Well, this is a very complicated issue and I'm not sure it lends itself to simple interpretations like the dollar got killed and gold has skyrocketed implying our mistakes. Since leaving the gold standard, the price of gold has exploded quite rapidly. But, for a commodity in demand with fixed supply, this isn't all that surprising. While the gold standard did enforce monetary discipline to some degree it had become a major hindrance for a massive economy like the US.

The value of currencies are largely relative. The dollar's decline is also largely a result of the creation and strengthening of the monetary union in Europe with the euro representing now over 50% of the DXY index. After WWII the only dominate economy was the United States and we greatly benefited from this as the "last man standing". But, over time Japan has rebounded to become a global economic power and Europe has completely recovered and grown becoming a fully functioning, integrated force in the global picture. Much stronger economies around the world have only worked to improve all our standards of living even while they have developed into very capable competitors to the US.


"there is no need to not have any debt as long as we can service this debt over time. It may be very useful for us to accumulate debt during difficult times and work to pay it off in better times..................As long as a country can produce more than $1 for every $1 it spends to service its debt, it is entirely logical and intelligent to have debt within reason." The problem IS the debt level is unreasonable. When you say to service the debt, it sounds like paying interest on the debt. Of course the GDP is higher than annual interest on the debt. The annual interest per citizen is $2100 and growing rapidly. How can this be sustainable and this is just the interest on the debt - let alone welfare and defense spending.

The national gross debt is 90% of GNP and increasing. With high sustained unemployment the gross debt levels are unsustainable. You seem confident in the current recovery. What recovery? The "perceived" recovery is running out of gas. We probably will see another dose of bailouts - bye bye Keynesianism. Greece is 130% of GNP with blood in the streets.

The borrower is a slave to the lender.

The level of debt is worrisome to be sure. We are walking a fine line but the current circumstances show a still very high level of demand for US Treasuries and interest rates are very low. I don't see interest rates rising substantially until we see a sustained economic recovery which should help us to grow our way out this mess. GDP numbers have been very strong, let's not forget. Yes, we've had massive stimulus and the unemployment situation has not turned the corner yet but it has stabilized.

Ultimately, I am confident in the US economy. I believe we have the greatest economic engine in the world and it releases the incredible innovative human spirit like nothing before it. I see areas in biotechnology, pharmacology and green technology as new waves of the futures. We can still invent and export our ingenuity to the world. Our engine has sputtered but I haven't lost faith yet.

Euro in Freefall, Volatility Picks Up

The euro is still in freefall hitting new lows of $1.2143 so far this evening. German Chancellor Angela Merkel announced today a ban of naked short-selling on the stocks of 10 major financial institutions and a ban of credit default swaps purchases on German government debt by speculators until March 31, 2011. This action is seemingly unneeded as the German DAX is up 0.8% year-to-date and yields on 10-year sovereign bonds are a mild 2.83%. Naked shorting of equities should be illegal to begin with; it's against regulations in the United States and many other markets. The CDS ban is on transactions by traders that do not own the underlying and therefore do not qualify as hedgers. Yet, most of the speculative CDS purchases occur in London and fall outside the jurisdiction of the German government so the ban is largely ineffective. (WSJ) The move seems very misguided and I do not see how it will help the situation in Europe, it may even cause a great deal of harm with many analysts seeing it as a sign of "desperation".

The credit card companies have been crushed in this market downturn so far. The so-called Durbin amendment, proposed by the Democratic Senator of Illinois, Richard Durbin, has investors concerned about the loss of revenue from capped debit card fees. The market's reaction seems vastly overdone with a Goldman Sachs report stating that "the financial impact of interchange legislation would be marginal for MA and V at 1-2% of earnings". Visa (V) closed down over 6% today after comments from CEO, Joe Saunders, were interpreted very negatively by the Street. Saunders believes "there may be some reduction in the volume in the short run" but does not "view the legislation as having much long-term risk for the largest U.S. debit processor" (Reuters). Visa and Mastercard have cascaded off highs 21.7% and 24.7% respectively, colossal under-performances relative to the market only 8.1% off recent highs.

The equity markets look fairly terrible with the bears solidly in control. The market closed on the lows of the day back at yesterday's lows even after the big late-day rally into positive territory seen yesterday had encouraged the bulls. The S&P futures are down another 10 handles after hours this evening. The VIX closed at 33.55% today, a strongly bearish signal as uncertainty about future prices grows. The markets have changed dramatically in short order and the bid has been removed from the market. I have some small long positions in a few US equities but I have been quickly losing on all positions. Gold has been my only successful trade as of late and I am adding on this pull-in the last couple days.

On tap tomorrow is the CPI report along with FOMC meeting minutes. Tokyo is down 1.6% already this evening looking rather dismal.


Disclosure: Long GLD.

Euro Slides to New Lows, Gold Basing

Traders on hopping on the euro slide! Following the significant weakness in the euro last week the Eurozone's currency hit new lows of $1.2233 last night. There seems to be no end to the pervasive doubts over the European Union's chances of success with its debt package. Overall pessimism about the fate of the monetary union reigns supreme. While I am definitely not considering an attempt at catching this falling knife, I do see a short-covering rally possibility as short positions in the currency reach record highs and sentiment is extremely bearish. Other notable news, the Shanghai Composite tumbled 5.1% last night as the prospect of central bank tightening pressures equity prices. While the PBOC's actions are likely correct for the long-term health of the country, equities will suffer.

Gold looks absolutely fabulous. After hitting new all-time highs last Wednesday of $1,249 gold took the rest of the week off consolidating recent gains. Currently trading at $1,228 gold looks primed for an explosion higher. My thoughts on a possible counter-trend move in the euro would lead to selling in the dollar helping to spur buying in gold. I am playing this move through NYSE:GLD, I have been long and will continue to be long; I see no reason to be a seller here. I also bought $125 June calls on GLD two weeks ago. I am considering adding to my call positions within this high-level base as volatility has calmed in the last few days lowering premiums.

Euro Breaks to New Lows, Equities Trading Lower

London is trading down nearly 1.8%, Spain 3.8% and Italy 3.3% as investors became skittish after Spain's core inflation data turned negative and the euro continued to tumble. The inflation data casts doubt on Spain's ability to grow its way out of its debt obligations while struggling with >20% unemployment. MarketWatch is reporting that "Nicolas Sarkozy threatened to pull France out of the euro zone unless other members promised to help Greece at the crucial meeting of ministers in Brussels last Friday, according to a report in Spain's El Pais." This stunning development is adding pressure to an already weak euro as we see the currency break to new lows on the year cracking the psychological $1.25 level and hitting new lows of $1.2434. The massive debt package while assuaging some of the short-term concerns over individual country debt has done little to calm the fears of currency traders who continue to question the long-term survival of the European monetary union. The US futures are gapping lower about 0.8%. The S&P 500 index will be testing the lows from Monday and Tuesday's trade likely to see volatility around that area.

Individual corporate earnings have been nothing but fantastic as the US economy continues to rebound. Productivity enhancements and cost-cutting have gone a long way to reinvigorate US firms. While bears continue pounding the table about the unemployment rate, which is and always has been a lagging indicator, US firms have progressed each quarter for over a year now. Analysts still have muted expectations with 77% of all companies once again beating their estimates, approximately the same percentage of EPS estimates exceeded in the first quarter. Revenue per share is still unexciting and this piece of the puzzle will only pick up as the overall economy turns and we see the unemployment rate begin ticking down. (The Pragmatic Capitalist) These overall positive developments in the earnings space are now placed in contrast to Europe's debt woes and a stock market that is due for a rest after rallying 70% off the lows. I am beginning to think this pull-in may be a deeper correction. I see no long-term drop though, only a great chance to put some cash to work in strong, growing companies. I will continue putting together a watchlist on great companies that I like over the long-term. Specifically I am currently researching IMAX Corporation (IMAX), Dendreon Corporation (DNDN), A123 Systems (AONE), Visa Inc (V), Mastercard (MA) and Potash Corp (POT). I really like the stories of all these companies, it just seems a matter of timing and price to be paid. I will get some research together on these names later.

After my post about Goldman Sachs not losing money on any trading day in the first quarter, JP Morgan, Bank of America and Citigroup all followed up matching the same astounding feat. I understand that zero on the short-end and the steepest yield curve in decades give banks a license to print money but I am still amazed. I will have to do a bit more research into this to understand what these banks are doing. Adam Warner of Daily Options Report has summed up these results in the best way I have seen: "[say you have] become so skilled at playing the markets that you have a 70 percent probability of making money any given trading day...the odds that you would post a daily net gain 63 times in a row...would be about on in 5.7 billion." He goes on to highlight some issues with this namely "calling this 'trading' to being with. Even Goldman's own definition sounds more like bookmaking." Agreed, Adam! How is it considered "trading" when you're winning everyday? Clearly, the proprietary side should be separated from the client side of the business so investors know what they are investing in.

Gold Makes New All-Time Highs, Euro Falling

Gold roared to new all-time highs today after the US equity market collapse last Thursday stimulated a panicked flight to quality and the European Union's debt aid package has investors feeling heightened worries of fiat currency debasement. The Eurozone's debt package is simply a way to paper over the problem: buy debt and print it away. Debasing the euro may be the best way to smooth out the pain over time by inflating rather than feel a rapid economic contraction if deflation takes hold. While this may or may not be the best course of action, it does have plenty of implications especially in currency and commodity markets. With the US engaged in extremely expansionary policies as well, the only safe haven is the shiny metal itself: gold.

There are some relatively worrisome happenings in the euro currency market for investors. The euro has been taking a beating throughout 2010 so far falling from a late-2009 high of over $1.50 to a current price of $1.2637. The debt aid package announced on Sunday night immediately had the expected and intended effect. The euro leapt and debt yields plummeted, most notably for the PIGS (Portugal, Italy, Greece & Spain). After hitting lows of $1.2518 last Thursday, Sunday night's announcement spurred a surge in the euro back to almost $1.31.

Yet, now after a couple days have passed the enthusiasm has quickly dwindled as demonstrated by the euro now trading back near the lows of the year. The EU specifically wanted the package to "shock and awe" investors but currency market participants are seemingly unimpressed. A lot of questions still remain such as how the special purpose vehicle (SPV) will be run, what will the rules be, how will countries be punished for missing payments, etc. I won't jump to any conclusions based on a couple days of price action but I'm wondering if the currency markets aren't reflecting a persistent doubt about the long-term success of this plan and the euro currency itself. Monetary unions have not had much success in the past and if a €750 billion package cannot soothe fears, I'm not sure anything will.

Disclosure: Long GLD.