Naked Hedge Fund

Naked Hedge Fund Weekly report. PDF on post.

A lot of happy people out there… or so it seems. The green shoots have bloomed into amazing profits at banks and a 60%+ rally in the market from the dark lows. I’ll admit I’ve been a happy camper as well closing in on a yearly return of 35%+ with only 14 days that trades were made (long/short S&P) is unheard of… well at least for the last fifty years or so. And then Santa Claus came to town to boot. Imagine being invested/locked into a CD for the past year earning a measly 2-3% for the whole year!! yikes.

But even with all of this euphoria surrounding the market you get a sense that there is a ghostly figure hanging around. Why does it feel like history is repeating itself and we are setting up for failure? Maybe its because:

* TARP (Trouble Asset Relief Program) didn’t get rid of any troubled assets and the money is unaccounted for every time senators ask Ben Bernanke or any his gang.
* The banks that were “Too Big to Fail” are now BIGGER.. this was a problem that was supposed to be eliminated, but it has been enhanced with big banks taking over other big banks. (i.e. JP Morgan taking over WAMU)
* Unemployment is at record levels
* Mortgage Defaults are off the charts
* Liquidity is not happening in the marketplace as banks are hoarding
* The US is incurring astronomical amounts of debt at levels that no one ever thought would/could exist

Just some items that come to mind. So with this thought of history repeating in my head I looked back at a post about the mortgage reset chart that we had and looked at that big double peak of resets. I came up with a crazy idea of overlaying a chart of the S&P 500 that spans over the same time period. And since we are in the “eye of the storm” on the resets I added a copy of the same S&P 500 chart and connected it to where we currently are. Its probably a lot easier for you to look at the chart than for me to explain it, but it was pretty interesting. And as a primer keep in mind that this is just a crazy idea with no basis other than the fact that the mortgage resets are happening in a distinct double peak pattern, which could mean a distinct double dip pattern for the stock market. There are a bunch of caveats that go with this as well… that I will get into later.

Here are the headliners from the chart:

* The low on SPY of $52 (currently $112) would be hit around late 2011 early 2012
* Our current market will peak around July/Aug around $120
* Notice how Option Adjustable loans + Alt A loans blow away the subprime totals from the last few years.

Naked Hedge Fund Weekly report. PDF on post.

Art Cashin, the director of floor operations for UBS, does a nice job in this interview of smoothing out everything that happened this past year and putting it all in perspective.

Naked Hedge Fund Weekly report. PDF on post.

SPY has not been making it very easy to be long for a breakout or Santa rally. Below is a chart showing its support and resistance levels going into the last week of trading next week before Christmas.

Below is a video by Dylan Ratigan on MSNBC, who has been putting together some great work on exposing the financial nonsense going on out there. It seems like the people of the United States would revolt with all these games the big banks are playing.

The stock market is setting up for a possible breakout of a month long consolidation. Below is a chart showing this. We changed our position to long today. (Sold SH at $52.70 and bought SPY at $111.80)

Naked Hedge Fund Weekly report. PDF on post.

Another funny CNBS video where Larry “Goldilocks” Kudlow “Doesn’t want to paint a rosy picture” but absolutely tries… and rejects any intelligent remarks from the real estate expert. You are the man Larry! Don’t let anyone that is an expert in a particular field challenge your all knowing brain.