Headlines and Footsteps

May 6th, 2012| By Shah Gilani
It’s 7:30 a.m., Sunday morning, and I’m watching the Bloomberg TV “tape” as it flashes business and world news headlines.

The volume is off so I can concentrate on writing this.

Which is a good thing, because right now actor Robert Wagner is mouthing the advantages of “reverse mortgages” to older folks who may not be able to make ends meet.

In this commercial, which many of you have probably seen, he’s advocating taking a reverse mortgage out on your houses, because, after all, you’re going to die, you know, and some bank would love to have a lien on your house when you go quietly in the night.

That reminds me, I’ve got to look into the guts of how reverse mortgages really work out for the folks who, somehow, I feel, are being preyed upon, and the lenders who, of course, are the saviors of the world and deserve a little lien before you die on them.

Gee, I wonder if they’re (the banks) arbitraging or hedging their reverse mortgage portfolios with viaticals? You know, viaticals: the selling of life insurance policies where a third party becomes the new owner of the policy, pays the premiums and collects the full benefits of the policy when the insured dies peacefully, or is murdered by the viatical holder… something about not wanting to pay those premiums for very long.

Anyway, there’s a stat-arb play in there somewhere and I’m going to find it, run some regression analysis on it, back-test it, and trade it with the Goldman Sachs guys on their death-to-Muppets trading desk.

But I digress.

I was saying… I’m watching the Bloomberg headlines flash.

The Dow futures are down 186, and the S&P futures are down 23.40. If the markets in the U.S. were to open now, the Dow would open about 1.4% lower and the S&P about 1.7% lower than where they closed on Friday.

But please, enjoy your Sunday and don’t panic yet. We’ve got a long way to go before the open on Monday.

Hopefully, Nicolas Sarkozy won’t have far to go to his Right Bank apartment in Paris when the Left Bank Socialist François Hollande wins today’s run-off and kicks the dapper but dour St. Nick out of the Presidential palace.

At least, that’s the way it’s looking at this juncture.

The fact that Hollande wants to up the tax rate on millionaires to 75%, cap pay on executives where he can exert the “State’s” power, free the serfs, and redistribute all the land and luxury goods owned by LVMH Moët Hennessy Louis Vuitton, obviously has made him the darling of Bastille-bashers tired of eating cake all these years.

Why’s France important?

Here’s what I told my Capital Wave Forecast subscribers on Friday…

“Call me a nervous Nellie, if you like. But I’d rather lose out on a hedge than get killed because I didn’t have one on when the proverbial shot hit its mark.

“What’s got me nervous today:

  1. The pullback in crude oil. We’ve broken through $100 on WTI (West Texas Intermediate), and that’s bearish.
  2. The unemployment rate fell to 8.1%, and that makes me sick. Not because it doesn’t look good, but because it’s going in the right direction for the wrong reasons. Fewer people are looking for work.
  3. Tech is getting killed today, and, worse, the banks are taking it on the chin.
  4. And this one really worries me… Why was Ben Bernanke in China with Tim Geithner and Hillary Clinton? That trio doing a road trip is unprecedented. Something is happening, or about to happen, that the U.S. and Chinese economic powers are very, very worried about.

“What is it that they’re worried about? They’re probably coordinating a plan to prop up the euro, if on Sunday France elects a Socialist who says he wants to lower the retirement age back to 60, revisit all the austerity measures imposed by the Sarkozy regime, and derail St. Nick’s “EuroOne’ stance, dance, and dalliance with German Chancellor Angela Merkel.

“Disrupting the “Merkozy’ relationship that has helped stabilize Europe and the euro might be the first step in the undoing of Europe’s perceived hegemony.

“I don’t like the action today one bit!

“Let’s take on some protection.

Action to Take: Buy VIX June 2012 $45 calls (VIX120620C00035000). Pay up to $0.50. Apply 3% of your capital to this position.

“We already own QQQ June 2012 $58 puts (QQQ120616P00058000). For extra protection, we’re adding more $58 puts another month out.

Action to Take: Buy QQQ July 2012 $58 puts (QQQ120721P00058000). Pay up to $0.65. Apply 3% of your capital to this position.

“When it comes to being protective, I’ll always risk losing some “hedge’ money to rest easy at night knowing that I’ve got some protection against a severe downdraft.

“If what’s going on now keeps on going, we’re going to have to add a lot more protection. We’ll see.

“My hope is that this is a shorter-term panic selloff caused by profit-taking. That’s how it starts, sometimes. But if it escalates, it’s going to be a long, hot, and sweaty summer.”

That’s what I wrote, and those are the positions I recommended. You’re free to laugh at me and bet against us putting on a hedge, or you’re welcome to join us.

Either way, it’s starting… I can hear the footsteps.

Shah

http://www.wallstreetinsightsandindictments.com/2012/05/headlines-and-footsteps/

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