Wallow in fish guts and line your pockets with cash
Blood money—it’s not just a dream, it’s a way of life. Buying calls: is he mad?

by Christian DeHaemer

On Wednesday, July 31, a pod of pilot whales beached themselves on Cape Cod for the third time. Since the previous Monday, 60 had died or been euthanized. Thousands of jumbo flying squid measuring up to two feet in length washed up dead on La Jolla Beach in Southern California the Saturday before that. On July 23, a dead squid weighing 550 pounds washed ashore in Australia. And on July 30, six 3000-pound manatees, or sea cows, beached themselves in Florida.

This shocking Armageddon among ponderous marine life has caused much speculation about the root cause. Could it be global warming, or some new-fangled submarine sonar?

My own suggestion about the absence of new shark attacks and thus the dearth of material for the aquatically minded journalist was scoffed at by the traders still slogging away in the War Room.

The guts of mollusks

Being the detail-obsessed statistical analyst I am, we immediate started eviscerating the bowels for cause and effect. After a great deal of back-testing tuna-packing companies against lunar cycles and known naval movements, we came to the odd conclusion that fish suicides had a low coefficient as a market indicator.

In fact, fish suicides were right up there with consumer confidence in terms of usefulness. After many years of trying to understand the effect of past consumer confidence numbers on any major market, I have come to the conclusion that any causality is inconsequential. Perhaps these numbers give financial journalists something to talk about in the absence of accounting scandals.

But fish suicides/lunar cycles and consumer confidence aren’t the only meaningless statistics at work in the market these days. Look at GDP numbers. The government recently came out and told us that GDP grew a pathetic 1.1% from April to June. They also told us that the U.S. GDP only grew 5% in the first quarter, instead of the 6.1% they had previously told us about.

Consumer spending was also disappointing, coming in at a much slower 1.9% annual rate after increasing at a 3.1% pace during the first quarter.

Other data showed that U.S. manufacturing activity in the Midwest expanded for the sixth straight month in July, but at a slower pace than in June. The National Association of Purchasing Managers Chicago Index fell to 51.5. In the past, when this number falls under 50, it shows that we have entered a contraction.

Thanks to these government numbers, we now know why the stock market sold off over the past six months. Great! But that doesn’t do squat for your current investments. And given the constant revisions, it doesn’t do much for understanding the past, either. In this case, hindsight is 20-80.

The fundamental secret that you won’t hear on CNBC is that the economy cannot predict the stock market. The stock market predicts the economy. Economists just explain the market—and badly at that.

Therefore, the only legitimate question you can ask is what is the market telling us. The answer is that the economy is heading into a double-dip recession. And I knew this even before the latest economic figures came out.

My Red Zone VIP system has been putting out signals that we are heading sharply lower. I have positioned my valued members in such a way that they will profit huge from this move. We have highly leveraged short positions on every major market.

The good news is that by the time you read this we will likely have moved out of our short positions and gone long.

An excellent means of determining the next short-term turnaround is the Chicago Board Options Exchange Market Volitilty Index ($VIX).

As you can tell by this chart, there is an inverse correlation between the VIX chart and the NASDAQ. When volatility is high—or the ratio of puts (people betting the market will fall) against calls (people betting the market will go up) climbs above 40—the NASDAQ goes long.

This happened after September 11. It also happened last month, and it’s starting to happen again. If and when the VIX hits 55, buy some QQQ calls. As I write this, the December QQQ’s with a strike price of 24 (Symbol: QAVLX) look like a good bet at a spread of US$1.55 x US$1.60.

As you can see in the chart above, the height of the preceding three bounces has been 25% to 30%. This would be more than enough to get our options in the money.

But remember, there is a precursor to this trade. The VIX has to hit US$55 in order to gain your best price. It is currently trading at US$46.48.

I will update you on the Taipan Group’s 247profits e-Dispatch when this trade is signaled.