Futures market speculative positioning data from the CFTC as of the close on Tuesday:

• EUR net short 47K vs short 34K prior
• JPY net short 88K vs short 79K prior
• GBP net short 65K vs short 63K prior
• AUD net short 13K vs long 6K prior
• CAD net short 44K vs short 52K prior
• NZD net long 23K vs long 29K prior
• CHF net short 15K vs short 4K prior
• Dollar Index net long 35K vs 32K prior

The smart money was loading up on EUR and AUD shorts through Tuesday. It’s been a good trade since then. Note the change in CHF positioning as well, showing that I’m not the only one who is starting to see CHF shorts as a good trade.

Premia for gold bars (physical over paper) rallied to their highest since late-2008 according to SocGen, even as ‘professional’ investors look to position the exact other way. The combinedshort positions of futures and options speculators in COMEX gold is now at a record high for the third week (having surged from 4.3 million ounces in late September to a a stunning 13.9 million ounces short now. At the same time, Gold ETFs have only seen one in-flow day in the last 34 days. It seems investors are well-and-truly on one side of this boat – even as price continues to buck the supposed structural weakness.

COMEX Gross Short positions…

ETF Holdings…

but price is now ignoring the flows (despite the protestations of some in the media)…

Via SocGen:

 

Shortage of metal drives premium higher as customers told to wait for delivery >> Read More

China has vowed to crack down on companies that have been secretly channelling cash into the country after a surge in capital inflows.

The clampdown follows severe discrepancies in China’s export data in the first quarter that aroused suspicions about Chinese companies using trade deals to evade capital controls and bring cash onshore.

 China keeps a tight grip on foreign exchange flows in and out of the country, worried that speculators could fuel asset bubbles and inflation. >> Read More

The capacity for rigorous thought; the flexibility and resilience to adapt to changing circumstances; the love of disciplined risk-taking; the hungry intellect: perhaps successful speculators already display those qualities in other life domains and then learn to apply them to markets.

1. The most important single factor in shaping security markets is public psychology.

2. To make money in the stock market you either have to be ahead of the crowd or very sure they are going in the same direction for some time to come.

3. Accepting losses is the most important single investment device to insure safety of capital.

4. The difference between the investor who year in and year out procures for himself a final net profit, and the one who is usually in the red, is not entirely a question of superior selection of stocks or superior timing. Rather, it is also a case of knowing how to capitalize successes and curtail failures.

5. One useful fact to remember is that the most important indications are made in the early stages of a broad market move. Nine times out of ten the leaders of an advance are the stocks that make new highs ahead of the averages. >> Read More

A few weeks ago, billionaire financier George Soros gave Germany a policy ultimatum: he said the country ought to agree to “Eurobonds” – which would mutualize the public debts of euro area member states – or leave the common currency so that the remaining member states could proceed to introduce Eurobonds together, thus effectively ending the euro crisis.

 Soros’s speech is the subject of German economist Hans-Werner Sinn’s latest piece for Project Syndicate: “Should Germany Exit the Euro?“

Sinn argues that Germany should neither accept Eurobonds nor exit the euro. In short, peripheral countries should continue to undergo austerity:

From this perspective, the crisis countries would not be spared painful retrenchment as long as they remained in a monetary union that includes competitive countries. The only way to avoid it would be for them to exit the euro and devalue their new currencies. But, so far, they have not been willing to go this route… >> Read More

At an active volcano, long-period seismicity. . . provides

a glimpse of the internal dynamics of the volcanic edifice. When this activity occurs at shallow depths, it . . . can accordingly be a useful indicator of impending eruption.

Long-period volcano seismicity: its source and use in eruption forecasting, Bernard A. Chouet, US Geological Survey, 1996

 These days, if you tell investors that the only opportunities on offer are to pick up pennies around the edge of a volcano, they’re likely to perk up and ask you directions, and whether it’s possible to securitise the cash flows from the pennies. Yes, they know it’ll erupt, but what else are they going to do? Buy more double-B bonds? There’s a management fee at stake here, after all. >> Read More

Speculation, in all its forms, is what drives human progress. This is the core message behind Michael Bigger’s recent post, “The Desire to Speculate”.

An excerpt from Michael’s essay: 

“It is said that the desire to speculate is very strong in the American people. That is why our country has made greater progress than any other country in the world, because progress is the result of speculation. We are not referring merely to stock speculations, but to the word in its broadest sense. Every new undertaking is a speculation.

An inventor speculates on what he is going to invent. Often such speculations result in losses, because many inventors, or would-be-inventors, never accomplish very much. They spend their money, time, and efforts, and probably live years in poverty, and then if the invention is not profitable, they are heavy losers.

It is the same thing with every new business. It is purely a speculation…”  >> Read More

Futures market speculative positioning data from the CFTC as of the close on Tuesday:

• EUR net short 66K vs short 49K prior
• JPY net short 78K vs short 89K prior
• GBP net short 65K vs short 66K prior
• AUD net long 84K vs long 85K prior
• CAD net short 65K vs short 63K prior
• NZD net long 18K vs long 17K prior
• CHF net short 10K vs short 13K prior
• US Dollar Index longs at 54K vs 54K prior

Looks like the “smart money” was adding to EUR/JPY shorts just as it was about to go on the biggest run in years…ouch.

On trading ranges and price patterns:

…as a trader who has seen a great deal and been in a lot of markets, there is nothing disconcerting to me about a price move out of a trading range that nobody understands.

…Tight congestions in which a breakout occurs for reasons that nobody understands are usually good risk/reward trades.

…The more a price pattern is observed by speculators, the more prone you are to have false signals. The more a market is the product of nonspeculative activity, the greater the significance of technical breakouts.

…The general rule is: the less observed, the better the trade.

On predetermined risk points:

Whenever I enter a position, I have a predetermined stop. That is the only way I can sleep. I know where I’m getting out before I get in. The position size on a trade is determined by the stop, and the stop is determined on a technical basis… I always put my stop behind some technical barrier.”

I never think about [stop vulnerability], because the point about a technical barrier — and I’ve studied the technical aspects of the market for a long time — is that the market shouldn’t go there if you are right. >> Read More