Thursday, January 24, 2008

Counter-Trend Rally

Counter-Trend RallySocialTwist Tell-a-Friend
Frank Barbera

Primary Wave (A) to the downside of a developing cyclical bear market that is likely bottomed over the last two days. From here, we expect a sizable counter-trend rally in stocks moving the S&P back up into the 1400 zone, with the daily news flow improving over the next few weeks taking away some of the negative gloom overhanging the credit crisis. For a time in the weeks ahead, it may well appear as though the skies have cleared and the sun is out shining once again in the land of financial markets.

This is the job of Wave B, to move the herd back to the center of the boat. That said, stocks have been, and are very likely to remain in bear market mode for some time, even if one or two market averages were to record a matching or token new all time high, unlikely, but not impossible. Commodities look toppy and are expected to weaken as the US and the world deals with the deflationary trend now emerging in the global economy...

Margin Data Suggest Prolonged Bear Market to Come

Margin Data Suggest Prolonged Bear Market to ComeSocialTwist Tell-a-Friend
Ashraf Laidi

One essential indicator for the future performance of US equity indices is the aggregate margin debt used by member firms of the NYSE. After attaining a record high of $381 billion in July, member firms’ margin use continued to tumble for the following 4 months, reaching a low of $322 billion. Such declines in debt result from the execution of margin calls as client losses escalate to unsustainable levels, which is the case during mounting market volatility.

The chart below clearly shows that the rapid declines in margin debt from their record highs correctly predicted the prolonged bear market in equities in fall 1987, fall 1998 and spring 2000. The continued declines in margin debt in December to $322 billion from the July high of $381 billion suggests that continued losses are due in the market, which is consistent with our expectations for a prolonged bear market in equities. The 12-15% declines in stocks we predicted back in December are already underway. We expect another 15-25% of declines to come by end of H1 as the macroeconomic deterioration coupled with prolonged losses in US banks and profit warnings (no currency translation effect this time as the dollar stabilized in Q4-Q1) will overwhelm the easing measures of the Fed.

The importance of determining where the general equity indices are heading is highlighted by the 70-20-10 rule, which states that 70% of a stock’s movements are influenced by the broad indices, 20% are driven by stock’s sector and 10% by the fundamentals of the individual stock. As history has shown without fail, individual stocks have consistently followed the broad averages during prolonged bear markets regardless of their individual fundamentals.

Incorporating this outlook to currencies, continued risk reduction should maintain the yen as the key beneficiary of falling risk appetite and unwinding of carry trades. Further declines in USDJPY, GBPJPY and CADJPY are in store as we anticipate 103, 202 and 100 respectively before the end of the quarter.











Editor's Note: Do not miss Mr. Laidi's Q&A session with the Financial Times last week regarding currencies located at
http://www.ft.com/cms/s/2/34139f9c-c50b-11dc-811a-0000779fd2ac.html

Wednesday, January 23, 2008

Timer Digest Market Commentary

Timer Digest Market CommentarySocialTwist Tell-a-Friend
Fari Hamzei

While the Equity and Debt Markets were having a wild ride on Tuesday, Uncle Ben joined the White House to pressure Nancy Pelosi, Harry Reid & Co. to move faster on a gigantic Stimulus Package. The real facts are a) Washington is too slow to move effectively in this Internet Age and b) the damage done by the Subprime Go-Go Days is simply huge.

The collective brain of the market is smarter than all of the above. While we may have seen a short-term-bottom-in-progress yesterday, this is no more that a dead cat bounce. Tuesday action reminds me of April 4, 2000. There is a lot of pain ahead for the longs.

Here are some charts. We will get into more details in our Webinar this afternoon.


I wanted us to see a -300 or lower reading on NYSE Advance-Decline McClellan Oscillator as we did last March.



Dow Jones Industrial Average closed below 12K but NYSE Volume did not get over 3 Bils. Notice we did not reach -3 sigma as we did last Aug 16th.



Notice we almost hit 5 sigma on VIX. This is rare.

Wednesday, January 9, 2008

Equity Index Update

Equity Index UpdateSocialTwist Tell-a-Friend
Brad Sullivan

The index markets suffered through a massive liquidation in the final 90 minutes of trading. At 1:30cst yesterday the SPH contract was trading at a recent high of 1432.50, that bid was quickly erased as heavy selling hit the market below 1425 and 1415…eventually leading to the ultimate puke that pushed the contract as low as 1393 after the cash close. Clearly the market is in a state of turmoil and during these times prices get out of line due to “need” based selling. The question, of course, is whether or not we are at that juncture…lets take a look at the past down moves in 2007:




As one can discern, the market has been awfully difficult for those that are purely long over this period. However, given the extremes in price movement one should be prepared for buying opportunities, even in the shortest of durations (from a time frame perspective). We have entered a spot that markets do not see that often and one thing that I have learned throughout these moves is that the market tends to go further than one thinks possible. In other words, yesterday may not have been the washout.

From the intraday perspective…the obvious target for the SP is the cash closing low from the spring of ’06 (1377.95). That level is certainly not to be construed as a line in the sand. Rather, just a benchmark about where the current market is trading. Keep a close eye on bounces, particularly in the morning that lose steam in the afternoon. Resistance lies between 1407.50 and 1414 in the SPH. Any settlement above 1423 is a positive and should lead to a position long.

Friday, January 4, 2008

Gold and Silver Index (XAU)

Gold and Silver Index (XAU)SocialTwist Tell-a-Friend
Tim Ord





Above is the weekly chart of the XAU dating back to 1984. Significant lows form in the XAU when Price Relative to Gold ratio reaches below .20. We have market those instances with blue arrows in the Price Relative to Gold window. In all cases that condition marked a low in the XAU and went on to rally and in some cases the rally last over a year and produce over a 100% gain. On December 17 the Price Relative to Gold ratio reached below .20 but closed above .20 on the close of that week. We still consider this a bullish sign as the ratio is picking out a lower degree bullish turn in the market. The last time this ratio on the weekly timeframe closed below .20 was at the August 2007 low which marked the start of the major turn up. Another short term bullish sign is the weekly Stochastic RSI. Since we are dealing with the weekly Stochastic RSI, we are dealing with an intermediate term timeframe. The week of December 17, the Stochastic RSI, closed below .20 and has turned up which implies the XAU was making a low. The weekly bullish Stochastic RSI reading is coming on the heels of major support at 160 on the XAU along with Price Relative to Gold ratio hitting intra week below .20. A major trading range developed in the XAU dating back to 1984 that had support near 60 and resistance near 160. The XAU broke above 160 which should now act as support. One way to get a target price for the next resistance area on the XAU is take the distance between the high and low the trading range and add that number to the breakout area. The distance between the high and low of the trading range is 100 points and add that to the breakout area of 160, a target of 260 is achieved. A major rally up has started on the XAU from the August 2007 low. A minor wave down from the November 2007 highs to December 2007 low end a corrective wave. The next significant high may reach to 260 on the XAU.



Editor's Note: Look for Tim's new book due in February 2008 titled “The Secret Science of Price and Volume” to be published by John Wiley & Sons.

Thursday, January 3, 2008

2008 Global FOREX Outlook

2008 Global FOREX OutlookSocialTwist Tell-a-Friend
Ashraf Laidi

The currency developments of 2007 were undisputably dominated by two main themes; risk appetites trades benefiting AUD, CAD, NZD, GBP and AUD at the expense of USD, CHF and JPY, and; USD-specific selling against all major currencies including JPY. JPY amassed broad gains during periodic episodes of risk appetite reduction as global stocks sold off aggressively in the midst of subprime-related losses in the US finance/banking sector.

The two performance charts below illustrate that USD was the broadest losing currency in 2007, while the top four performing currencies against the USD were CAD, AUD, EUR and NZD. The commodity currencies of CAD, AUD and NZD were boosted by a favorable price environment for energy, metals and agriculture as well as high interest rate policies. EUR was propped by its role as the anti-US dollar and by the European Central Bank’s persistently hawkish rhetoric. While the three commodity currencies were clearly in command in the ranking of currencies’ performance against gold, no currency registered any gains versus the metal, illustrating the secular rally in gold and other commodities. As we will see below, this suggests significant implications for gold in 2008 as the onset of low global real interest rates -wide is maintained by a rising inflationary environment relative to nominal interest rates.







Current Dollar Rebound to Continue Into Mid Q2 2008

The current 4% rebound in the US dollar index off its November lows is a broad USD play emerging on a combination of end-of year repatriation by US institutions and more pronounced signs of slowdown in the UK and Eurozone. Year-in-Year out, currency markets have shown a noticeable reversal in December of the trends emerging from mid October to mid November. This has worked consistently in favor of the euro against the dollar in December of 1999, 2000, 2001, 2003, and 2005 as the single currency declined markedly during the prior 2 months in each of those years. The opposite of this pattern took place in December 2006 as the euro lost ground, reversing the gains of October-November 2006. Year-end repatriation and unwinding of cash and futures positions are behind such seasonal moves.

Fundamentally, the argument that the Federal Reserve intends to stick to its newly adopted liquidity-injecting policy, rather than reducing the fed funds rate may be less detrimental to the US dollar, while the Eurozone is seen moving towards reducing its inflation hawkishness-an element largely responsible to the euro’s recent resilience relative to AUD, GBP, NZD and CAD. Finally, the interest rate cuts from the Bank of Canada and Bank of England have cemented the cap on CAD while accelerating downside in GBP, solidifying the foundation of the USD rally.


Sources of Prolonged Dollar Rebound

1) Despite market perception that the Fed’s liquidity injection measures are behind the curve in alleviating the credit crisis and that the lack of aggressive rate cuts remains insufficient in bringing the US economy to a soft landing, growing inflationary pressures in the short-term may bolster the central bank’s non-interest rate easing liquidity solutions for the struggling money market, thus, underpinning the dollar from a relative yield perspective. This would be especially USD-positive at the expense of GBP due to more ample downside for UK interest rates. More on BoE and GBP found below.

2) The extent to which the ECB’s intransigence holds rates steady in the midst of further economic slowing is perceived by markets to be exacerbating the existing economic slowdown, business activity and investor sentiment. Markets are also fixated on the next European victim from sub-prime investment such as IKB. Preliminary reports of EUR 5 billion in writedowns from IKB banks have not bee followed by subsequent announcements from other banks.


A Repeat of 2001?

As the dollar strengthened in the last 6 weeks of 2007 despite prospects for further Fed cuts, the unavoidable question becomes whether 2008 will be a repeat of 2001, when markets rewarded currencies of growth-oriented central banks? Two business days into January 2001, the Fed delivered an inter-meeting 50-bp rate cut to start a 475-point rate reduction campaign which took the Fed funds rate to a 45 year low of 1.75% by end of the year. Although the Fed funds rate dropped below the overnight rates of all G7 nations with the exception of Japan, the US dollar outperformed all currencies in 2001.
But one of the many factors distinguishing the current environment from that of 2001 is the purpose of the Fed’s easing. The rate cuts of 2001-02 were driven by conventional dynamics of macroeconomic slowdown (cooling business activity, weak GDP growth, rising unemployment and falling equities). Today, the Fed is forced into uncharted territory highlighted by the following factors:

1. A pronounced shortage of money market liquidity, unwillingness of lending by commercial banks, uncertainty regarding the size of remaining write-downs and the resulting impact on banks’ rating, capital cushion and bottom line. Tightening lending requirements for private households and business are also expected to weigh on overall capital formation and aggregate demand.

2. The macroeconomic impact of i) falling prices of new and existing homes on construction and consumer spending 2) falling sales of new/existing homes 3) increased layoffs in housing-related industries, banking/finance and manufacturing jobs, will impose a severe test on consumer spending once the post-holiday sales season is behind us.

3. The Fed’s task of shoring up growth will be complicated by persistent inflationary pressures that are unlikely to abate as was the case in past economic contractions. The prevalent inflationary environment originating from high food and fuel prices is unlikely to abate due to weather factors bolstering agricultural supplies and a combination of supply/demand dynamics propping oil prices.

Accordingly we project the Fed to deliver 100-bps more in interest rate cuts, bringing the Fed funds rate down to 3.25% by end of 2008.
Unlike in 2001, 2008 will be accompanied by the economic spillover of broad erosion in the housing sector, dictated by falling prices, sales, construction and layoffs in related industries. Robust growth from Asian economies should also help fill in the slack from the US and Western Europe, which will likely support the Eurozone’s external economy and stabilize the anticipated downdraft from the US.


Fed’s Liquidity Injection is No Substitute for Rate Cuts

Although the Federal Reserve has distinguished its monetary policy maneuverings between liquidity injection operations (aimed at relieving funding shortages in the money market) and interest rate-cutting moves (aimed at shoring up the economy), we do not expect these liquidity measures to stave off the risk of recession. While the Fed is seen extending the expansion of its discount window via the Term Auction Facility “TAF”, we expect it to cut the Fed funds rate by 75-bps in H1 2008, taking the rate down to 3.50%. There is likely scope for 50-bps of easing in H2 that will push the fed funds rate down to 3.00% by year-end. The inflationary repercussions of the Fed’s easing will remain an in issue for the central bank, especially as food and energy prices remain robust. Although the Fed has recently begun stressing the durability of price pressures on the headline inflation front (headline CPI and PCE), an anticipated deterioration on the macro economic front (rising unemployment rate, higher jobless claims, soft post-holiday consumer demand and slowing prices/construction activity on the commercial property front) will maintain the Federal Reserve’s policy bias towards the downside, as per its December FOMC statement and November forecasts for lower term inflation and higher unemployment for 2008 and 2009. This in turn is likely to limit the dollar’s rebound against the euro, especially in the event that the ECB succeeds in maintaining interest rates at 4.00% throughout 2008. More on ECB and euro below.


Gold’s Secular Rally to Continue in 2008

While the increase in gold versus the dollar in 2007 was largely associated with an acceleration of the dollar’s declines, the strengthening of the metal was broad-based throughout the year. Gold rose 27% against the USD, 26% against GBP, 22% against JPY, 21% against JPY, 17% against EUR, 16% against AUD, 10% against CAD and 8% against NZD, totaling 146% in gains for the year against the major currencies. The global growth-backed commodity story as well as emerging inflationary pressures played a significant role in gold’s advances.

One theme expected to continue triggering further advances in gold is that of real interest rates. The modest declines in gold relative to the more protracted and uninterrupted recovery in the dollar since mid November are due to falling bond yields. As the Federal Reserve, Bank of England and Bank of Canada blitzed the money markets with over $600 billion in liquidity injections in the last two weeks of 2007, market interest rates headed lower while inflation continued to push upwards. Persistent liquefying operations of central banks are likely to highlight the luster of the precious metal relative to paper currencies, especially as the real cost of money is dragged down by high inflation and lower interest rates. The inflationary consequences of these expansionist monetary practices coupled with persistent robustness in commodity prices are expected to offset any downward pressures on inflation resulting from cooling economic activity. While the relationship between strong commodities and cooling economic growth may prove untenable, agriculture, energy and metals are likely to remain supported by supply constraints rather than demand factors.

We anticipate real US interest rates to remain pressured by a combination of an expansionist Federal policy and robust energy pressures. This should continue to reward gold versus the US dollar as well as the rest of the major currencies as inflation remains at the upper end of the targets set by most G10- central banks.

But the $900 target isn’t expected to be realized before a temporary decline to as low as $720. Periodic bouts of reduction in risk appetite are likely to trigger episodes of profit-taking in the metal. The expected pall on the metal is also expected to emerge from a modest slowdown in Chinese demand for commodities. The People’s Bank of China’s policy tightening coupled with the yuan’s 10% appreciation as well as the slowdown in the US, Canada, Eurozone and UK is likely to temper China’s appetite for metals and energy.


No Need for Textbook Recession Definition

While there has been much emphasis on whether the US economy has entered (or will enter) the textbook definition of recession --two consecutive quarterly GDP growth declines-- the consequences to the overall economy are sufficiently worrisome in the event of a back-to-back quarterly GDP growth of between 0.1% and 0.3%. The 2000-2001 recession was such an example, when GDP growth declined by 0.5% in Q3 2000, rebounded by 2.1% in Q4 2000 before contracting by 0.5% in Q1 2001. A subsequent rebound of 1.2% in Q2 2001 was then followed by a 1.4% contraction in Q3 2001. This time the impact goes beyond sluggish manufacturing and a shrinking wealth effect from falling equities, and extends to tens of billions of losses in the books of banks, which carries ominous implications for overall credit and capital formation.


EUR: Further Downside Prior to H2 Recovery

The prospects of a durable foundation in the euro lies primarily on the European Central Bank’s focus on upside price risks as inflation exceeds the 3.0% mark, its highest level in 6 years. But with the ECB also recognizing that the balance of risks for economic growth are clearly to the downside, the central bank may be closer to easing interest rates than its inflation vigilance suggests. Although the ECB has been the largest injector of liquidity since August, these operations have been proven more helpful in relieving short-term funding for commercial banks than in assisting an increasingly struggling corporate sector. With the euro retreating 5% off its highs against the dollar, any dovish overture by the ECB may risk furthering externally driven inflationary pressures, especially as energy prices maintain their lofty levels.

But just as markets punish currencies whose central banks are seen behind the curve in containing inflation, they also drag down currencies when central bank policy is perceived to be exacerbating the downside risks to growth. Signs of a possible growth contraction in Spain and Italy in Q1 2008 may prove highly euro negative especially if the ECB shows no signs of shifting away from its hawkish stance. Germany’s IFO and ZEW surveys on business and investment sentiment continue to trend lower over the past 6 months reaching 2-year lows but still do not suggest an accelerating loss of confidence. Eurozone GDP growth is expected to slow to 1.9% in 2008 from 2.5% in 2007, surpassing US growth for the second consecutive year.

We expect the ECB to continue stressing the downside risks to the economy and the upside risks to inflation, while being forced to cut rates once to 3.75% and continuing to maneuver policy via liquidity injections and FX rhetoric. In the event of persistent credit constraints and deteriorating economic dynamics, any signs of a retreat in headline inflation towards the 2.1%-2.2% range, accompanied by a decline in core CPI towards 2.0% from the current 2.3% will pave the way for another ECB rate cut. Further downside ground seen testing $1.42, while the risk of accelerating losses is projected to stabilize at $1.37. Renewed gains seen emerging in early H2, retesting $1.48 before claiming $1.55 in Q4.


JPY: Benefiting from Lower Carry Trades

Chances of further yen gains in 2007 will hinge on the interplay between further unwinding of yen carry trades and the onset of slowing demand from Japan’s major trading partners. Our expectations for further dislocation in US equity markets as well as prolonged uncertainty in global credit markets support the case for renewed yen gains as risk appetite remains under pressure and global liquidity is curtailed. And although futures speculators have boosted yen long contracts to 2-year highs against the dollar in early December, there remains wider scope for yen buying amid fresh revelations of write downs from US banks.

But we must also heed the yen’s downside risks from the downdraft of slowing growth. With 22% of Japanese exports going to Newly Industrialized Asian Economies (Hong Kong, Korea, Singapore and Taiwan) and 21% to the US, cooling economic growth should cast a pall on Japanese exports, especially with the risk of a US contraction weighing directly on Japan and indirectly via Japan’s trading neighbors. China’s absorption of 15% of Japan’s exports does play a significant role in filling the slack. But the downside risks to China’s economy may provide an indirect negative spillover on Japan, thereby exacerbating the already slowing demand from the US. With the combination of lower US demand for Chinese exports, a prolonged correction in Chinese equities, the transmission effect of the People’s Bank of China’s rate hikes and further strengthening in the yuan, the risk of a region-wide slowdown can be significant.

Internally, Japan’s 2008 GDP growth is seen slowing to 1.7% from 2.0% in 2007, still within the nation’s potential growth range of 1.5%-2.0%. We expect the combination of increased market volatility along with the onset for 100-bps of Fed funds rate cuts in 2008 to redefine the playing field for global carry trades. As a result, 110 yen is seen as the new anchor for USDJPY before retesting the 105 figure in late Q3.


GBP: Further Losses Ahead

The British pound’s breach above the $2.00 level may have been the only positive story for the currency in 2007. But even against the dollar, sterling gave up most of its 9% gains to end the year barely in positive territory up 1.0% against the greenback. The currency was the worst performer among G10 currencies after the US dollar. We anticipate continued losses in sterling as the Bank of England is seen cutting rates by 100 bps throughout the year.

Although official and IMF forecasts project 2008 UK GDP growth to slow towards 1.9% from 3.1% in 2007, the risk of a more protracted housing correction may drag growth down to 1.5% for the year, with the risk of recession an increasing possibility. The domestic savings ratio fell below zero, a level not seen since the late 1980s while household debt service soared to 14% of incomes, the highest since 1991. With over 1 million of fixed rate mortgages due for reset next year, the risks to the personal debt market are considerable. UK estimates place the number of homes to be repossessed in 2007 at 30K and 45K in 2008, the highest since the property crisis of the 1990s.
The Bank of England had already been forced into a unanimous decision to cut rates in December, one month earlier than it predicted at the November inflation report. We expect the BoE to cut by 100 bps in 2008, taking down rates to 4.50%, which would deal sharp erosion to real interest rates, currently at 3.40%.

Sterling weakness will be a major theme in currencies for 2008, which should help the US dollar obtain some stability. This also means further divergence in GBPUSD away from EURUSD, which should trigger further strengthening in EURGBP. GBPUSD downside is seen extending through $1.92, with the risk of extending losses towards $1.88. Upside remains capped at $2.06. Further carry trade unwinding is likely to drag GBPJPY towards 210, with downside acting on $235.00.


CAD: Limited Downside from the US

The Canadian dollar was the highest performer in 2007 among all G10 currencies thanks to rising prices of energy and agriculture products as well as robust economic growth resisting the downdraft from the US slowdown. Currency strength and retreating manufacturing activity did force the Bank of Canada to cut interest rates in December, partially due to some help from cooling inflation.

GDP growth is seen edging up to 2.8% in 2008 after an estimated 2.5% in 2007. With 80% of Canada’s exports going to a recession-bound US economy, the negative risks on overall growth can be significant. The 8% share of total exports going to the healthier Europe and Japan may help offset the situation. But the composition of exports is also crucial. Considering agriculture and energy exports make up over 25% of Canada’s exports, or 10% of GDP, the sector make up is expected to help the situation especially considering the expected favorable climate for commodity prices ahead.

While oil prices will continue acting as the wild card, we do not foresee any prolonged declines below the $70 level. Steady prices should be CAD-neutral, leaving the currency equation to be determined by inflation and BoC policy. We see a 100% chance for a 25-bp rate cut in Q1 2008, followed by another similar move in Q2 that will take the overnight rate to 3.75%.

Unlike most of its G7 counterparts, Canada’s currency remains characterized by high real interest rates, standing at 2.7%, versus 2.1%, 1.0% and -0.6% for the US, Japan and Eurozone respectively. Although real UK interest rates stand at 3.4%, expectations of 100-bps in BoE rate cuts have already began weighing on the British pound.

We expect a 25-bp rate cut in Q1 to boost USDCAD to as high as $1.070 as the currency sustains losses from a combination of risk reduced risk appetite and falling yield differential. One more rate cut in Q2 to 3.75% may be needed by the Bank of Canada to stave off further slowdown, but as long as the market deems these cuts as precautionary, there is upside ground for a CAD recovery in H2 towards the $US 0.95 level.


AUD: Yields & Commodities to Counter Risk Aversion

The unwinding of high yielding FX carry trades and the broad USD rebound in the last 6 weeks of the year has overshadowed the strengths of the Australian dollar and the currency’s potential to retest parity with the USD. Standing at 23-year highs versus the US dollar in November, the Aussie was 6 cents away from parity as the Reserve Bank of Australia raised rates to an 11-year high of 6.75% and signaled to do more. We expect the RBA to raise rates by 50-bps in 2008 to stem an accelerating inflation rate, already projected to exceed 3.00%, well over the central bank’s preferred target of 2.0%-3.00%.

Baring any negative price shocks in agriculture and minerals, the Australian dollar is set to be amid the highest performing currencies in the G10 in 2008. In addition to a strong yield foundation, the currency stands to gain from a favorable price environment for commodities, as the sector makes up 65% of exports. Specifically, grain prices are widely expected to pursue their upward run in 2008, delivering higher returns for wheat and barley. And with minerals making up 50% of overall exports, steady demand for items such as copper --propped by China’s power generation capacity --the benefits would combine price and volume. The latter is also expected to soften the shock from falling US construction expenditure.

Another likely boost for the Aussie is the exposure of Australia’s exports to a robust regional market. Over 40% of Australia’s exports are destined to Japan (19%), China (14%) and the Republic of Korea (8%), all of which are expected to maintain their robust expansion in 2008. Yet even, a modest cooling in these economies is unlikely to pose any headwinds for the currency.

The downside risks to the Aussie include a prolonged decline in commodities prices resulting from a global growth slowdown and extended bouts of risk appetite hitting global investor confidence as well as high yielding currencies. Accordingly, these dynamics may drag the pair down to as low as 77 cents. But as long as the RBA retains growth and inflation arguments for a tight policy, we expect the Aussie to maintain its potential to rebound from risk aversion declines. Further Fed easing will likely lift AUDUSD past the 90-cent figure and test 95 cents by Q3. Chances of seeing parity in Q4 stand at 70%.

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.


Disclaimer and Terms of Service

© Copyright 1998-2021 , Hamzei Analytics, LLC. Hamzei Financial Network is published by Hamzei Analytics, LLC, Naples, FL 34110, Admin@HamzeiAnalytics.com (310) 306-1200. The information herein was obtained from sources which Hamzei Analytics, LLC believes are reliable, but we can not and do not guarantee its accuracy. None of the information, advertisements, website links, or any opinions expressed constitutes a solicitation of the purchase or sale of any securities or commodities. Please note that Hamzei Analytics, LLC or its principals may already have invested or may from time to time invest in securities or commodities that are recommended or otherwise covered on this website. Neither Hamzei Analytics, LLC nor its principals intend to disclose the extent of any current holdings or future transactions with respect to any particular security or commodity. You should consider this possibility before investing in any security or commodity based upon statements and information contained in any report, post, comment or recommendation you receive from us. The content on this site is provided as general information only and should not be taken as investment or trading advice. Any action that you take as a result of information, analysis, or conclusion on this site is ultimately your responsibility. Always consult your financial adviser(s) before making any investment or trading decisions.