Thursday, December 20, 2007

Currencies, SWFs and our Stock Market

Currencies, SWFs and our Stock MarketSocialTwist Tell-a-Friend
Ashraf Laidi

I pretty much agree with Frank Barbera's outlook but not necessarily as bearish on the US Dollar in 2008. I think the Greenback will continue showing resiliency vs the British Pound, Kiwi and Aussie into mid Q2 before it starts to weaken again. Euro should start recovering after Q2.

As for our Stock Market, when you consider that the main catalysts to the recent gains were 1) Abu Dhabi buying part of Citi 2) rumors/hopes of aggressive Fed cuts 3) Bush rewriting legal contracts on mortgages, all of these factors fall under the "extraordinary items" category on which the ailing market cannot always count on. Unless of course, Arab Gulf SWFs, will alternate with Far Eastern SWFs every other week to announce new buyouts. The 2002 lows in stocks should come around by next summer.


Editors' Note: Ashraf Laidi will publish his 2008 outlook very soon.

Wednesday, December 19, 2007

Housing, US Dollar, Gold, PPI and Inflation

Housing, US Dollar, Gold, PPI and InflationSocialTwist Tell-a-Friend
Frank Barbera

The current downturn in Housing, the worst since the Great Depression has along way to run, with home prices likely to experience downside pressure well into 2009. Overall, a 30% to 40% price decline in high end homes is needed to bring prices back into line with incomes and clear the market. At the same time, the mortgage loan problem, goes far beyond Sub-Prime and will likely end up running into the Trillions of dollars, with the best estimates between2 to 3 Trillion dollars of defaulting bad paper. That's more than enough downside risk in the credit market to bring the US Financial System to the tip of a very deep solvency crisis, where several large institutions will probably fold. As a result, we continue to see the large scale credit contraction now underway deepening throughout 2008 with the Federal Reserve likely forced to continue to lower ratings despite a stagflationary economic condition, one in which yr/yr PPI is now running at the highest levels seen since 1981. The US Dollar is likely heading for a major currency crisis, with a devaluation likely in the year ahead. Gulf State PetroDollar currencies have now moved well off their pegs, as has the Chinese Yuan and HK Dollar. A currency crisis of epic proportions lies ahead, and with it will come soaring long term rates and crashing US Stock Market. For the S&P, a collapse back down toward the 2002-2003 lows near 800 is very likely the next primary direction, with all sectors of the equity market including Gold Stocks vulnerable to this decline. Post a crash type outcome, Gold Stocks are very likely to become the next great capital market mania, as broad scale monetization will be needed to reinflate both the capital markets and the US economy, which is already in a recession. The final outcome, over the next few years,will be more money printing, more currency debasement and in the end, most likely runaway inflation which will help Uncle Sam eliminated his bad debts. Gold and Precious Metals will be one of the few investments able to protect valuable savings and hard earned capital during this time, and we see the price of Gold heading for $10,000 or higher in the next 5 to 7 years, with price of Silver likely to move toward $500 to $1,000 per ounce. The upside explosion in Precious Metals following a serious banking collapse will leave onlookers with a truly once in a lifetime, -- jaw dropping experience, once the metals go higher, they will be going, going gone, right out of the park, as all central banks will also need to print money to keep currency relationships in some degree of balance and protect export advantages. Today, the world is confronted with a camouflaged 'fixed' global currency system masquerading as thematically free floating currency system, held together by currency derivatives and unchecked financial leveraging. The current death of high end Wall Street Finance signals the end of the leveraged speculating era and financial engineering.As the world lurches toward a truly floating exchange rate mechanism, currency volatility will infect consumer prices for basic manufactured goods which in time, will morbidly begin moving around as if tradeable using RSI and MACD....in that climate, the only asset one will want to truly own, will be precious metals. It is very regrettable that the excess of the last decade is likely to create these kinds of extreme economic conditions, and probably at no time in decades, has the average individual been at greater economic risk.The entire universe of paper money is sure to continue debasing against the universe of scarce and depleting commodities in a theme that will likely continue to play out over the next 10 to 15 years, while I hope I am dead wrong,I fear we are heading into very trying times...

Monday, December 17, 2007

Equity Index Update (Special Edition)

Equity Index Update (Special Edition)SocialTwist Tell-a-Friend
Brad Sullivan

Monday December 17, 2007

The index markets were weighed down on Friday with the release of a stronger than anticipated CPI reading. Volume flows were on the lighter side as interest in the trade was pretty muted…however, the SPZ did end the session lower by -1.5% and settled at session lows of 1478.50. This morning, the index is called to open lower at 1473.50 (-5.50) on the session. This marks a new low for the month of December and it is a month that can only be described as schizophrenic thus far.

Consider that this month has a significant historical upside bias and after early selling, the indices responded with a tremendous upside push. That push higher was unwound last Tuesday as the FOMC failed (in the market’s eyes) to respond appropriately to the current credit issues in the global market…throw in a little inflation fear and things are not looking as good as the buy side would have hoped.

Along these lines let us examine the movement post FOMC announcement and the subsequent joint injection of reserves by the chorus of global reserve banks. It is worth noting that in absolute value, it was the greatest move in the history of the SP futures from 1:30cst to the close and close to the 8:30 open on Wednesday…85 total SP POINTS. Since that time the indices have moved lower in a grinding fashion with each bounce failing to attract buyers at higher levels. With the SP now trading at -1.5% for the month and closing about the same distance below its 200 day MA (-1.5%) one has to wonder if the die has been cast and lower prices are ahead.

One thing that appears to be in store is a dialing down of intraday volatility. While the absolute moves have been large, the session range continues to tighten and for day traders that means to tread with caution. It is certainly worth pointing out that in the last 12 years there have only been 7 sessions with a high to low range of more than 45 SP points. The range on Dec. 11 was 56 points and on Dec. 12 46 points. The last time it happened was Jan. 3, 2001 (surprise mid-day rate cut), where a 46 point range was preceded by an 81. Clearly there is some position movement and it appears that the group that has blinked first is the long side.

KEEP IN MIND THAT TODAY AT 9:00 WE WILL HAVE THE FIRST AUCTION OF THE NEW “SYSTEM” ANNOUNCED LAST WEDNESDAY...ALSO TOMORROW BRINGS EARNINGS FROM GS (GOLDMAN SACHS) AND THIS IS QUADRUPLE WITCHING EXPIRATION WEEK.



Editors' Note: Brad Sullivan's comments are posted each day near the Cash Open in our SuperPlatinum Virtual Trading Room.

Tuesday, December 4, 2007

Timer Digest Market Commentary

Timer Digest Market CommentarySocialTwist Tell-a-Friend
Fari Hamzei

We finally had our bounce last week. But the volume was so-so at best. This week, Financials and Big Oil are under pressure with Precious Metals up. Today, we witnessed a large number of high Dollar-weighted Put/Call Ratios for major equity names. It was very broad-based. It reminds us of late last February before the Big Drop.

Longs should be very careful here till we get closer to the FED Meeting on Dec 11th.


Tuesday, November 20, 2007

Timer Digest Market Commentary

Timer Digest Market CommentarySocialTwist Tell-a-Friend
Fari Hamzei


With NYSE Advance-Decline McClellan Oscillator hooked up from deeply oversold levels (-261 on Monday), the short-term bounce is finally here. The Friday after Thanksgiving, seasonality charts remind us that we have a bullish bias. Going further out, what bothers me is that all the market timers are trying to pick the bottom somewhere in here, which tells me we are not close to THE bottom.



I am still looking for huge volume day with indiscriminate selling climax, accompanied with outlandish vol expansion. The good long entry is several days later when we observe the vol retest. Until then, SELL THE RALLIES.




Have a Great Thanksgiving and always remember to take care of the less fortunate ones.....

Wednesday, November 14, 2007

Timer Digest Market Commentary

Timer Digest Market CommentarySocialTwist Tell-a-Friend
Fari Hamzei

Well, we got our one day wonder (a bounce) yesterday and this cat showed a lot of life. The November Puts retail traders bought late last week became absolutely worthless, and now, the November Calls they bought yesterday should become worthless by tomorrow as the new reality will sink in when traders ask why FASB Rule 157 (Fair Value Measurements) got delayed for one year TODAY [two business hours before it went effective].

Stay SHORT.

Tuesday, November 13, 2007

Commodity Currencies Need a Break

Commodity Currencies Need a BreakSocialTwist Tell-a-Friend
Ashraf Laidi

The relationship between stocks and commodity currencies of Australia, Canada and New Zealand is taking an usual turn today, whereby equity indices are rising and these currencies are falling behind relative to the rally in EUR, GBP and CHF. One explanation is the weakening outlook for world growth, which is weighing on oil and gold prices. Talk of a potential supply hike from OPEC is sending oil below $93 per barrel while gold struggles just above the $800 figure.

We have already seen this broad weakness in commodity currencies last week after Fed Chairman Ben Bernanke predicted a “marked slowdown” in US Q4 growth. Another possible explanation is that currency traders are cautious from opening fresh dollar shorts ahead of this week’s G20 meeting of finance ministers in South Africa, where US Treasury Secretary Paulson is expected to receive considerable support for the “strong dollar policy”. Specifically, Canadian politicians have grown increasingly vocal in their complaints about the strong Loonie, which caused Canada the biggest burden of this year’s decline in the dollar. Last week, Canada’s Finance Minister Flaherty said he and Bank of Canada Chief Dodge will be having currency discussions with their G20 counterparts.








Considering the aforementioned risks against commodity currencies and our expectations for further erosion in US and global equities, we expect the unwinding of yen carry trades re-emerge against CAD and NZD and to a lesser extent the AUD (because Australia’s fundamentals are powered by an increasingly hawkish RBA).

November 15: Another August 15?

The next bout of equity selling could emerge on November 15, which marks the last day of the 45-day notice period at which clients should notify hedge funds to withdraw their money. With the broader market down nearly 7% since the beginning of the quarter, clients may take some money off the table as was the case in Q3 when August 15th was marked with massive selling across all equity indices. At the open of August 15, the S&P500 was down 5% since the beginning of Q3. Today, the S&P500 is down 5.7% since the beginning of Q4. In this case, we expect renewed rallies in the yen crosses and for the Aussie, Kiwi and Loonie to come under renewed pressure. The fact that the VIX measure of volatility stands at 2-month highs and the S&P500 is below its medium and long term averages (50, 150 and 200 day) underlines lingering preoccupation in the market. Given the technicals in the US benchmark indices and the ongoing repricing of MBS via credit rating downgrades, we expect the indices to retest their August lows. This means that another 5% decline in the S&P500 is in store.

Wednesday’s release of the October retail sales report is expected to show a 0.2% increase following 0.6% in Sep and a 0.3% rise in the core figure following a 0.4% rise. But given last week’s dismal reports on store sales, we do not rule out a decrease of as much as 0.2% in the headline rate, in which case will be the confirmation for Dr. Bernanke that the erosion in housing has begun to show in consumption. A resulting selloff in equities is likely to boost the yen and affirm the aforementioned forecast against high yielding/commodity currencies.

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