Ridiculousity

Zerohedge.com is reporting that 40% of the NYSE volume beginning with the March lows comes from 4 financial stocks. Is this a warning sign?

Investor bullishness vs bearishness is the highest since October 2007, when the Dow was @ $14,500. Warning sign?

Hedge funds now own a greater percentage of bank stocks than they ever have before. Warning sign?

Contradictory Forces

I'm going to watch the Baltic Dry Index to try to get a read on an inflationary pressures out of China. We have deflationary conditions here in the US. Almost every retail company is coming out with lower revenue, even when they've been able to squeak a profit out on cost cutting.

If China is truly cutting back on new credit expansion, then their demand for commodities should push the Baltic Index back down. So that's what I'm looking for. Next, I have to figure out how to play this. It seems that everyone else is going to go short, or just reverse the play. So it might be safer as far as timing and also a little more inventive to buy Treasury bonds. This would benefit from a flight to safety, as well as dollar strengthening. The wild card is how China affects the Treasury market. If they stop buying, then that complicates things further.

Anyway, I will buy a 25% position in bonds if the BDI turns down again below 3,000. Instead of 30-years, this time I will buy 10-years, because the yield on the 30-year is not much higher, it probably won't follow the 10-year down as far.

So how's that BDI doing today? Down 2.7%.

JP Morgan dumping office buildings

Yahoo! Finance is reporting that JP Morgan is trying to sell 23 office buildings. 23!!! Now!?!? At the "bottom" of the market? Either they really, really need the money, or they expect asset prices to plunge.

This makes me nervous about being long.

So do these other facts: the RSI for the S&P 500 is at 2007 peak levels. Volume has dried up. Short interest is the lowest since February. The Vix is around 25, and below the 50-day moving average.

Let's see what I can dump into this 3-digit rally today ahead of the Fed. Well, GLD is the only thing I could take profits on after holding for a while, but I might as well keep it as the chart isn't telling me anything. Just staying put for now.

BDI

I posted the thought below on Russ Winter's Actionables.

I'm focused on the credit expansion coming out of china. I'm also watching the BDI for any sign of commodity buying slowdown. see http://shipping.capitallink.com/ It's back under 3k now, which might be a bearish sign. On the other hand, the Chinese authorities have done their best to intentionally blow a huge bubble in real estate to keep construction jobs, as well as reflating their equity bubble. The latter they seem intent on milking for all it's worth by lining up IPO's at astronomical valuations. I think they do their darndest to overheat their economy until a commodity price rise makes their malinvestments completely unfeasible.

Bubble!

Well, it looks like China's going to intentionally blow their bubble even bigger. The AP reports that Wen Jaibao says China has no plans to tighten credit. In fact, it appears that China is purposely blowing whatever bubbles they can in order to keep economic growth going. As a command economy, when the political leaders say "lend", banks lend. It was a big mistake for me to underestimate the stimulus plan from China.

It looks like I'm going to be sticking with my commodity stocks.

Simplification

On one hand, we have bad fundamentals for the stock market as well as the global economy.

On the other hand, we have enormous credit and money expansion.

This comes mostly from China.

So we need to watch China. We could watch the Chinese equity market. But that's risky, because it's so obvious that everyone else will be watching it as well.

Maybe we should watch the Baltic Dry Index, as a lot of the credit expansion has been used to stockpile raw materials.

What to do? Well, probably just wait out my turn of direction, until I see some clear sign that credit is being tightened. Which means action, not just talk from central bankers.

trades!

Well, if you can't beat 'em, join 'em. Ditching the shorts:

3/23/2009 KBH -$12.93 312 8/3/2009 -$17.17 -32.79% 5/13/2009 COF -$23.89 100 8/3/2009 -31.37 -31.31% 5/18/2009 ANF -$26.01 88 8/3/2009 -$30.01 -15.38% 7/10/2009 SPY -$88.05 27 8/3/2009 -$100.37 -13.99%

and buying some commodity producers:

8/3/2009 CLF $29.57 67 8/3/2009 USO $38.02 53 8/3/2009 FCX $65.15 31

I'm going to go on the assumption that all the money printed is going to continue to inflate in weird ways. But I've seen enough to think it's going to involve the dollar being devalued against commodities.