Monday, January 30, 2012

So, You're Tired of Greece?

Had enough of the EFSF, LTRO and the PIIGS? Bored of austerity, and the yields on Greek, Portuguese and Italian bonds? Oh, good. I've got the next big story all ready for you.

Rickards had an article in the USA News about the recent proposed India/Iran gold-for-oil exchange agreements.

Here's some select excerpts:

But a few weeks ago President Obama moved to choke off Iran's oxygen supply by imposing sanctions on the central bank of Iran. International banks were told if they did business with Iran's central bank, they would be barred from doing business in the global dollar payments system controlled by the United States. Of course, the banks complied.

The result was an immediate isolation of Iran from the dollar system and an acute shortage of dollars in Iran. The Iranian currency, the rial, crashed in value 40 percent against the dollar in a few days. Since many goods in Iran are imported, local prices doubled as merchants demanded more rials in order to acquire whatever dollars might be available on the black market to buy imported goods.

There are any number of reports of massive inflation in Iran after the recent round of sanctions cut Iran off from USD, and, effectively, the oil trade. Rickards goes on to mention reports from Israel that suggest an India-Iran Gold-for-Oil agreement, bypassing the USD entirely. A number of news reports follow up and claim that China is working on similar agreements, rapidly removing the USD from center stage. The inevitable result, these articles suggest, is liquidation of the USD and US Treasury bonds, followed by inflation and austerity here at home.

However, none of that is the news that I want to offer. In fact, none of it should be a surprise to folks following the events in the region.

You see, a few months ago, a drone strike killed a number of Pakistani soldiers. As a result, the government of Pakistan cut off major supply routes to Afghanistan, and has threatened to take increased action limiting US activity in the area.

The second Pakistan's government restricted US activity, as soon as anti-American populist sentiment picked up in Pakistan heading into a Pakistani election, intervention in Iran was decided. It was one of the very few alternatives available for maintaining strategic presence in the area, especially from a supply-line point of view. The massive gold reserves in the Balochistan region of Pakistan, as well as the recently-discovered rumors of 6 trillion barrels of oil (rumors don't mess around), further ensure that we will all learn to spot Balochistan on a map soon.Watch that space. However things shape up, this region should offer any number of challenges to the finance markets.

So, to recap: we're facing a major cold-war confrontation with an unstable, nuclear nation at the center, with complex alliances and extremely high stakes, fragile egos and high-strung tempers. Financial weapons of nuclear magnitude are already in use, and surely more physical nuclear weapons can't be far behind.

Frankly, after this news cycle breaks, you're going to miss the Euro debt crisis. Some combination of an alternate to the US dollar, of rapidly falling US treasury prices, of war in Iran, of power plays between China, India, and Pakistan, of proxy-wars and the threat of World War III, are headed your way. In keeping with Mayan expectations, I suspect these headlines will be appropriately epic.

Terrified yet?

Here, let's get some perspective: What I have just done is predicted that there will be unrest in the middle east.

Sand may be involved. Possibly also oil.

What about my portfolio? What am I going to do about these headlines? Pretty simple. I'm going to turn them off.

Over the past year, I have learned to love news of a different format, one that features price and volume. For example, in November, Ron Roll (@gtotoy), one of the greatest technicians I know, offered an extremely compelling chart in his November read for the week:

The picture we saw in November

Yes, Greece was teetering on the brink even then. PIIGS were scaring everyone. We knew, absolutely knew, that the Center Would Not Hold, and Mere Anarchy was Loosed on the World.

Except... man, that was one hell of a candle in October, wasn't it? On the Monthly timeframe? Unsurprisingly, the indicies are now much higher than they were in November. And, because I did not listen to the armchair politicians, suburban financial policy experts and the ubiquitous doomsayers, so are my accounts. I've got a new high-water mark on one, and another has gained a digit.

The current situation

The truth of it is, the price-action in the market, in every timeframe from the monthly to the five-minute, has demonstrated an incredible bid. Until I see this bid disappear in terms of price and volume, I will continue to be biased long. I plan on buying when things hit support levels, and selling them when they demonstrate resistance, to the best of my ability.

I'll let the talking heads and analysts worry about the implications of gold-for-oil agreements and the role of the USD on the world stage, of the possible strategic importance of Balochistan to China, of LTRO and Greek default. My positions are on, alerts entered, and stops in. My risk is defined and managed. No real reason to listen to the headlines, then, so I'm going to listen to Dax Riggs Say Goodnight to the World instead.

It’s all about ROI, and Dax Riggs is a better investment of my investment time.

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