Repeat Occurrence

Similar to last year's subprime arbitrage trade. I continue to see similar trades occurring this summer and into the fall with a major exception.

I see the following pairs trades happening:

SHORT DOLLAR - LONG CRUDE OIL

SHORT BANKS - LONG CDS PAPER

SHORT AGENCY/TREASURY PAPER - LONG CDS - This is the major exception, last year the entire planet plowed into US Treasuries, as it was considered a safe haven, not any more, even with massive government buying, foreigners cant stomach the current US bank policy. The safe haven trade was to be in Treasuries, even at the lowest yields.....

......This was before the US started to print money. Equities have had a strong bid because markets are always dominated by liquidity. But excess liquidity always leads to higher asset prices that are unsustainable. It looks to me that the USA has an unlimited balance sheet and open check book, this spells doom for the US Dollar.

The problem always has been that what ever policy the US has, its always the wrong policy. Foreign Policy is wrong, Terror Policy is wrong, IRAQ Policy is wrong, Energy Policy is wrong, and most catastrophic is the Banking/Financial Policy. Every one of these policies is based on big business/PACS/Special Interests.

Markets are weak today off of weakness in European Markets. I still see 880 on the SPX as support, but if that breaks, the uptrend we have been enjoying is over. I see immediate pressure to 850-86o level. The banks have already corrected some 20% since last week, today they are mixed off of a corrupt bogus Goldman upgrade. If the market cant hold 880, you will see more investors put in the short banks...long cds trade.

Going back to the Banking Sector upgrade at Goldman, I shouldn't be surprised that just one day after BOFA prices over a BILLION shares in a secondary offering, that we magically get an upgrade in BOFA. Hmmmm...somebody doesn't want BOFA to break the secondary offering price.