LILA RAJIVA: The Mind-Body Politic
Individuals Not Ideologies
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Archive of "Trading" Category
What David Einhorn’s Holding
From Market Folly comes a break down of controversial hedge-fund manager David Einhorn’s portfolio:
Top 15 holdings by percentage of assets reported on his 13F filing
Pfizer (PFE): 7.64%
CareFusion (CFN): 7.32%
Cardinal Health (CAH): 6.86%
Teradata (TDC): 6.56%
URS (URS): 5.78%
Gold Miners ETF (GDX): 5.58%
Wyeth (WYE): 5.35%
Einstein Noah Restaurant (BAGL): 4.97%
EMC (EMC): 4.75%
Aspen Insurance (AHL): 4.22%
Travelers (TRV): 4.04%
Microsoft (MSFT): 3.39%
Everest Re (RE): 3.22%
McDermott (MDR): 3.17%
MI Developments (MIM): 2.93%
Note:This doesn’t include:
1. Cash
2. Short postitions
3. Non-US equitiesOther things to note:
1. Health care holdings, CAH and HNT, both got larger allocations (friend and colleague, Dan Loeb also added HNT to Third Point’s portfolio) and a new position was opened in CFN (CareFusion). Taken together with the fact that the largest holding for both Einhorn and Loeb is PFE (Pfizer), this makes medicine/health their biggest play.
2. Einhorn sold out of energy and upped his stake in MSFT (microsoft) a lot.
3. Besides GDX, Einhorn is also in physical gold, which is one of his largest holdings. It’s invisible in the list above, because it’s not disclosed in 13F filings.
4. Short the rating agencies, credit-sensitive financial institutions and REIT’s with cap rates of 6% and dividend yields of under 5%.
5. Greenlight, like Steve Cohen’s SAC and Soros, is also jumping into the anti-Euro trade, reports silobreaker, citing the Wall Street Journal.
As for Greenlight’s past performance, here’s a chart in percentage terms of Greenlights performance, from Gurufocus:
YR GL(%) S&P Excess Gain
2009 32.1 26.5. 5.6
2008 -17.6 -37 19.4
2007 5.9 5.61 0.3
2006 24.4 15.79 8.6
2005 14.2 4.91 9.3
2004 5.2 12 -6.8
What’s interesting in this chart is Einhorn’s bad showing in 2004 and 2007, years in which most people did well, or at least, stayed out of trouble, since the market was still receiving the benefit of Federal “juicing.” Also notable is 2008, when, had it not been for the controversial and possibly criminal Lehman raid, Einhorn would’ve been even worse off. He would probably have been as much down as the S&P.
Finally, without the johnny-come-lately piling onto gold, last year, 2009, wouldn’t have been a good year for Einhorn, either.
Soros: Gold In Bubble; But Keep Stimulus Going…..
Always nice to see people talk out of both sides of their mouth.
Here is currency speculator George Soros (ex of legendary hedge-fund Quantum) at the World Economic Forum at Davos:
“When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment. The ultimate asset bubble is gold.”
So far so good. Mis-price money (cheap interest rates) and people don’t want to keep their savings in it. They want it in something that isn’t subject to mis-pricing (so they hope) - hence gold.
But then Soros shows how disingenuous he’s being by adding this:
“I think that since the adjustment process to the recession is incomplete, there is a need for additional stimulus. Some countries, like the US and European countries, have plenty of room to increase their deficits. The political resistance to doing so increases the chances of a double dip in the economy in 2011 and after that.”
That is, he’s suggesting running more deficits and keeping the money spigot going, just the thing that’s caused the gold price to rise.
So how do we understand this?
Gold is due for a technical correction, but it’s also probably responding to deflation in the general economy. It’s not going down that fast, because a lot of people are also buying it speculatively.
That’s the tug of war.
Meanwhile, who know what Soros’ holdings are and who knows what his motivations are in making such contradictory statements.
But anyone who takes these sorts of pronouncements as any kind of lead for their own investments/speculations, should be prepared to part fairly soon from their money.
Maverick Managers Say Short the S&P, Bonds, and Goldman
A Barron´s interview with Bearing Asset Management´s Kevin Duffy and Bill Laggner, via Lew Rockwell:
“Do you see the S&P 500 retesting its lows of this year?
Duffy: It’s difficult to know. It depends on how much money gets printed. In real terms, can we get cut in half from here? We think so. S&P earnings are distorted because of accounting changes for banks and brokers; if banks were marked to market, S&P earnings next year could fall to $45 a share. Bullish sentiment is rivaling the 2007 top, and volatility has fallen dramatically. We like the VXX, an exchange-traded note that’s based on S&P 500 short-term volatility as measured by the VIX index. It’s down 67% this year, and fits into the whole idea that complacency is very high.
SEC To Look At High-Frequency Trading and Naked Access
From Reuters, a report shows sharp rise in “naked access” to markets after 2005:
“NEW YORK (Reuters) - A report says that 38 percent of all U.S. stock trading is now done by firms that have “naked sponsored access” to markets, the controversial trading practice said to imperil the marketplace, and which faces a regulatory crackdown.
Naked access gives trading firms, using brokers’ licenses, unfetted access to stock markets. The firms, usually high-frequency traders, are then able to shave microseconds from the time it takes to trade.
Aite Group, a Boston consultancy, found that naked access accounted for just 9 percent in 2005.
The U.S. Securities and Exchange Commission is set to make changes to naked access and less risky forms of so-called sponsored access, when it releases a document expected next month.
The document is also expected to look more generally at high-frequency trading — where proprietary trading firms, brokers, and others use algorithms to make markets and profit from narrow market inefficiency.”
Gold Sinks Further, Dollar Surges..
We will need to see a few more days of supporting action, but as of now, it looks like gold might be beginning the long-awaited correction.
How deep that will go is anyone´s guess, though the recent central bank buying is supposed to lay a floor for it above $1000. Now, normally I wouldn´t bet the house on that, but I´ve come to see that pronouncements from insider analysts (at GS) are no longer just market analysis to be weighed. They are announcements about the course of action the banking cartel is going to be supporting.
The trigger for this? I think it´s that upbeat jobs number, which is probably taking some speculative money out of gold …especially as gold is technically very overbought and institutional buyers want to lock in profits before the year end.
Dubai is more important than most commentators think, even Marc Faber. They say the numbers involved are too small.
But, as I blogged earlier, they´re not seeing the contagion possible.
Here´s what they´re discounting:
1 We don´t know what the numbers from Dubai really are. We can´t be absolutely sure. They keep changing them. $125 billion (the highest figure I´v heard) may not be enormous in a global context, but we don´t know how its tied up with investments and where. A firesale of Dubai Worlds real estate could have unsettling effects all over the world.
2. Dubai has an impact on the property market, not just in Dubai, but in London and New York where Dubai Worlds has holdings, and also in India, where real estate and employment could take a hit.
3. Banks have leveraged exposure through derivatives, beyond what they are admitting in public.
4. These are banks that are already broke, for all purposes.
5. When the banks involved are not themselves broke, they are backed by governments that are broke, or near-broke.
6. The government with likely the most exposure is Britain. Britain is on the verge of sovereign default.
7. This happens just as the second down-leg in real estate is unfolding, and along with it the just-as- leveraged commercial real estate market (see the recent zero hedge post on an ongoing CRE failure in Chicago), where there´s little pressure for the Feds to step in.
8. This happens after a 10-month run up in the stock market in what is essentially a bear rally, according to many experts.
9. This happens when the government has escalated an unpopular war in Afghanistan, calling for more troop commitments and more money
10. This happens after massive further government commitments in health care and other social spending.
Would the dollar move up just on the back of an employment number that was widely acknowledged to be misleading? I don´t know.
Do I know if gold will sink below $1000? No.
But CB (central banks of India etc.) buying is said to have set the floor. Me, I think that was a bit of help given by the RBI (CB of India, Sri Lanka, etc.) to the IMF, seat of power of the globalists. Even the IMF admitted it got lucky.
Will that bit of market manipulation to the upside be enough to stave off the deflationary effect of develeraging asset derivatives?
I don´t know, but I suspect it won´t.
I’m anticipating a rush into the dollar like we had in 2008…maybe not as strongly…
maybe gold will sop up some of the rush this time. I think that´s what the CB´s are hoping will happen.But again, one can´t be sure, for the simple reason no one knows how much more bad debt there is and where it is.
Gold Down On Biggest Volume In History..
“The exchange-traded fund, SPDR Gold Shares, that holds gold bullion was down 5% Friday afternoon on record trading volume as the gold price fell. More than 70 million shares have traded hands with an hour of trading to go. It’s the highest volume in its history. The gold ETF was launched in late 2004 and has assets of more than $40 billion”
China Beware: Gold Price Skating on Thin Data (Update)
Update (November 14, 2009)
This isn’t an update so much as an additional note on the Van Eeden excerpt below.
*Van Eeden has a good track record, but he’s also a disbeliever in any CB or Fed conspiracy to intervene in the markets. Since that intervention is not conspiracy but fairly well-documented, I’m less confident of his opinion.
*Faber, on the other hand, seems to have his ear much closer to the ground.
For instance, he called the RBI one of the best banks in the world on November 6 (see my blog post).That was just before the Indian bank’s gold purchase. Now, doesn’t it look as if he knew something was coming up? Either that, or he is doing some clever PR for the IMF.
*Faber’s recently (Nov 11) called $1000 the floor for the gold price and has said that it won’t be breached to the downside again.
[However, just a few days ago, on November 6th, he also said gold could drop to $800. I don't know how to explain this sudden change. It wasn't the IMF gold sale to the RBI, because that was completed in mid-October and went public on November 3, before both of Faber's comments].
*Faber argues for much higher inflation than Van Eeden…who doesn’t believe we have inflation..yet.
Now, Faber’s analysis might be overblown, but his conclusion could still be right. Since he’s based in Asia, he could be privy to information that American money managers might miss.
Conclusion: while Faber’s analysis doesn’t seem as sound to me as Van Eeden’s, Faber might just end up being right because he’s factored in market manipulation.
*In response to a reader comment below:- I know Eric Janszen has also called for very high inflation in the 4th Q, which would indicate a high gold price.
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From Paul van Eeden:
“The Chinese Communist Party apparently learned from America that debt financed consumption was not a sustainable economic model. Their solution, it seems, is even more absurd: debt financed production in the absence of demand…..
Earlier we reached the conclusion that interest rates could potentially start increasing and cause the US dollar exchange rate to strengthen, which, in turn, would cause the gold price to fall. We can now add that the massive inflation of China’s money supply can cause the renminbi to collapse and send another currency crises rippling through financial markets. A collapse of the Chinese renminbi could also result in a stronger dollar and lower gold price…….
What would happen if China were the epicenter of an economic collapse? What happens when the gold and commodity bulls realize China cannot continue to consume at an even greater pace than it had been when the world was buying its goods, but, instead, now has to work down the excess inventory it built up? It would be a good bet that the US dollar would rally and the gold price would fall.
Given that the gold price is trading at a 25% premium to its fair value and that we can imagine several scenarios whereby the US dollar could rally and the gold price could fall, it seems to me that betting on a higher gold price right now is merely a bet on the Greater Fool Theory.”
Goldman Joins Dollar Bashing
From Business Insider:
“The dollar will weaken to $1.55 versus the euro in three and six months, the bank said, revising previous forecasts of $1.45 for both periods. The U.S. currency, which has fallen versus all of the 16 most-traded currencies this year, will recover to $1.35 in 12 months, Goldman Sachs said”
SFO Magazine Picks Mobs as Top Ten Trading Books of 2009
Stocks, Futures, and Options Magazine will be out with an article in December on its top ten trading books for 2009 - the list includes Mobs.
This really tickles me, because at heart, I’m a trader, albeit an amateur. Nothing like watching the charts - the heart-beat of the great capital markets. There’s a real romance to it. Had I been born some place else, I think I’d have run away from school and gone to work in one of the exchanges.
I also just saw that Mobs was on the list of top ten best-selling finance books on Amazon for 2008. That’s great news, but a bit of a surprise, because there were so many books published on the economy that year, I thought it would get edged out. Hopefully, the book will sell well this year too, because it really does have a lot of good information for anyone who trades/invests.
I’d advise you to especially read Chapter 16, which is a mini-manual that’s as insightful a look as you’ll find anywhere about what it takes to make good decisions on trades (It’s my co-author’s work, so you know that’s an honest opinion, unbiased by my problems with the book’s promotion, about which I’ve written at length before).
My contributions - such as they are - to “trading psychology” are Chapters 10 and 11 of Mobs, where I deal with “herd mentality” and how it affects and eludes quantification in economics. It’s more of the macro view. I think parts of that can be found on the web in articles I wrote for Endervidualism..
The rest of Mobs is more historical and less immediately relevant to trading per se. although the history of the housing and credit bubble will help give you the background you need to understand what’s going on now.
Gold Action Vindicates Caution
All the bugs who were rah-rahing and telling people to buy gold over $1000, instead of cautioning them to take profits and watch out must be feeling subdued. Despite the thrust upward to yearly highs, the gold action this year never struck me as spectacular at all. Considering everything that’s gone on, it’s been rather staid.
The most common explanation for that from the gold bug community is manipulation. GATA has recently got confirmation of Federal Reserve gold swap arrangements that would certainly fall under the category of market intervention.
A second reason is that we still haven’t come out of the deflationary movement of the economy. We had the first wave of contraction last year, followed by an artificial bounce provoked by stimulus money and a lot of happy talk from the pundits. Now the second contraction has begun. Gold might do well in a deflation relative to other commodities, but so far it’s tended to sink when the market sells off, and that’s precisely what happened yesterday. No surprise there for me at all.
But it seems to have been a surprise to some traders out there. Rick Ackerman at Rick’s Picks expresses his puzzlement over the rush to dollars - it’s a rush to the Titanic, he argues.
Well - that’s why fundamental analysis is something you need to put on the back-burner when trading. I don’t care how bad fundamentals are. Nothing moves in a straight line down or up. Besides that, Ackerman, like many American commentators, assumes that his view of the dollar is the world’s view. That simply isn’t so. The dollar has terrible problems, but at least for now, there aren’t that many currencies that are free of problems - some of them worse than the dollar’s. And since the dollar is the currency used in a majority of transactions, moving out of them (which would be the case if you felt the economy was contracting) would entail buying dollars. It’s simple logic.
Finally - never pile onto a trade that has too many people on one side. That’s logic too.
Gold rose, but only wishful thinking would call it as powerful an upthrust as the gold experts have claimed it was. If you watch gold prices regularly, you’ll know it’s nothing for gold to move $40-50 in a day. It’s volatile. That’s its nature.
Add to its inherent volatility, the other things going on - the G20 meeting, much talk about altering the SDR’s backing, Bernanke’s comments about the recession ending, international tensions over Iran, the fact that September is usually a strong month for gold, Chinese comments about walking away from derivative contracts, China’s instructions to its population to buy gold — put all of that together and it’s not surprising that gold should have moved up by about $70.
If you bought earlier, you should have taken profits and you should be watching to see how things play out. I didn’t buy earlier, so I’m just watching.
I still firmly believe we are due for a correction - and a relatively big one. I’ll buy then (with reluctance - since I think it’s a terrible industry in many ways). But what if we don’t correct, and gold shoots up?
Well, what if? Then I’ll be out. So what? if it goes up, it’s likely to go to $1200 or so. That’s a 20% upside. It could also go down to $800. Equal downside.
That’s not a good ratio of reward to risk. There are any number of stocks which will give you that kind of movement if you like gambling. But if you’re investing - and not gambling - then you should act like an investor and ask if you really want to buy at prices that high at the end of a long upthrust.
It doesn’t make investing sense. So wait and buy on dips.
That said, I’m prepared to eat my words…
PS: Seems like Ackerman is in the deflationist camp (along with Shedlock, Prechter and others) - as opposed to the hyperinflationists like Schiff. [Correction: I accidentally had this in reverse, with Shedlock as inflationist. I've posted on why both Schiff and Shedlock are correct - and why that sort of face-off is misguided. Deflation in some areas and over a certain time frame can certainly take place with inflation over other areas. But if you consider inflation to be only the kind that shows up in CPI and on the grocery shelves then obviously, we haven't see the kind of hyperinflation that gold bugs are waiting for. One thing I fail to see from a lot of people is an awareness that what's anticipated from the Fed might already be priced into the dollar.]
Rick Ackerman’s Response:
RE: gold and the titanic?
From: Rick Ackerman
Sent: Fri 9/25/09 10:00 PMHey, Lila!
I’m using a $1074 target for Comex December Gold and have told my subscribers, many of whom are hard-money guys, that I can’t promise them any higher than that, at least not based on the evidence of GCZ’s daily and weekly charts. My gut feeling is that this is not the rally cycle that will take gold into the Promised Land, assuming it gets there at all. I’m still a hard-core deflationist who believes hyperinflation must ultimately play out, but not in time to save 80 million underwater U.S. homeowners from going through the ringer.
No matter what happens, the Baby Boomers’ retirement plans have already been deflated away to nothing. And concerning the dollar, I’ve moved beyond the idea that the currency is fundamentally worthless, accepting the reality that it trades, simply, as a share in USA, Inc.
With kind regards,
Rick
That’s a pretty good take on things from one of the more astute traders around.The Carbon Credit Scam - Another Public-Private Boondoggle
“Dr Alison Doig, senior climate-change advisor at Christian Aid, says, ‘Live’s investigation highlights exactly what’s wrong with this flawed system, which is focused only on exchanging carbon credit globally, with no accounting for other environmental or social damage. All carbon credits are doing is making some companies rich, while doing nothing to prevent global pollution. It needs either abolition or total reform.’”
That’s a quote from a piece on how the much-touted carbon-credit trading scheme actually works on the ground in combating pollution. The idea of the scheme is to give industries a cap below which they have to operate. To exceed the cap, they have to purchase carbon credits from manufacturers in the developing world, who receive them in exchange for every cut in emissions they make.
The credits trade in private and international exchanges like any security, one ton of CO2 emission being equivalent to one Certified Emission Reduction (CER).
Carbon trading was one of the fastest growing sectors in 2006 and 2007, doubling in value, but like everything else, when the market took a hit, it took one too. With manufacturing output falling, emissions also fell, and with them carbon, making it more profitable for companies to pollute and buy the credits rather than cut back on emissions from fossil fuels.
And how does the scheme work on the ground? As Carbon Trade Watch documents in this revealing account by Nadene Ghouri, a company can actually be receiving tax-payer funded “green reward points” from the UN, and using the money for operations that are highly polluting - which is what GFL (Gujarat Fluorochemicals) was doing.
Gold Spike Related to Chinese Derivative Contracts Busting?
Here’s a zinger that might explain gold’s sudden spike since yesterday:
“Some of the State Owned Enterprises that stated their potential intentions to default were Air China. China Eastern and Cosco. Mainly in part because they took major derivatives losses over the past year but also, concerns are arising that the derivatives that they were sold by these foreign institutions are garbage, underwater and may never see the light of day. So why continue to pay for them? So the concern in the financial world is that holders of these losing products may just walk away, not unlike a home owner with a $600,000 mortgage on a home valued at $475,000 deciding to just hand in their keys. However, read on…this has nothing to do with morgtgage backed products. This time, the concern may be over Oil.
They (Reuters) cited 6 foreign banks. Where the story gets really intriguing is that among the major derivatives providers according to Reuters but also widely known in the industry, are Goldman Sachs, UBS and JP Morgan.
Here is the looming problem. These products are worth billions. One report that a good friend of mine did showed that if Goldman Sachs for example were to take this one up the rear, they could stand to lose 15 billion dollars. (This number is by no means confirmed)……. I would imagine that China, being the biggest purchaser of US debt, could surely collapse the US institutions that were at one point deemed too big to fail if they decide to go ahead with this plan.
This is why I don’t take tonight’s news that China purchased 50 billion dollars of IMF bonds lightly. In fact, I take it very seriously. This is why I take the buzz on the floor over the past two days very seriously as well as I do the incredible spike in Gold today. Most importantly, I do not take lightly the recent 25% correction we have seen in the Chinese Stock Market. Can all these events be interconnected some how? Is the Chinese stock collapse giving us a hint?”
The Muddled Market
The market is talking out of all sides of its many mouths:
- USD/JPY is rallying and most currencies strengthened against the dollar, except the pound, suggesting a return to the risk trade.
- But……the pound sank..suggesting risk aversion
- But…the stock markets are up, suggesting an increase in risk appetite
- But……. the bond market is teetering as long bond yields are soaring, an indication that bond traders are skeptical about the future outlook
- But…..gold and silver prices are hitting resistance and falling back, suggesting either technical exhaustion or some return of risk appetite
- But….gold and silver prices are still high, especially for the season, which suggests widespread uncertainty about the economy
- But….jobless claims are down, which is good news for the economy
What does your earnest blogging-trader do on a day like this? She sits on the sidelines and spends the day printing charts of the indices. She also reviews her most recent trading sins and repents. Here’s her mea culpa.
I repent that I entered a trade with panic rather than reason.
I repent that I entered it on a Friday morning before a long weekend (last week) when the markets were thin and volatility greater than normal. I also didn’t calculate the spread and bought higher than I should have.
I repent that I forgot about position size and just dumped whatever I could into it
I repent that when the trade moved in my favor, I didn’t sell the whole position but left half in
I repent that I didn’t do the fundamental analysis but did a multicultural trade - picking 12 currencies that sounded good to me.
I came out alright, but it was pure fluke.
Your blogging-trader did not lose money. She made a bit. Enough to pay some pressing bills. She should be thankful, but being a trader, she knows that making money on a bad trade, is not the way to go.
Update: Non-farm payrolls came in at negative 345k after an expected negative 525k - signaling that the recession could have bottomed. This should feed the risk trade, which means my multi-currency trade (Koruna, Nordic currencies, and Singapore dollar) should end up alright (I’m a bit in the red now). The time frame is one more week or two)
Currency Conundrum: Where Do You Hide?
The big currency story of last week was the dollar meltdown, taking the dear old greenback (or the wicked insignia of imperialism, take your pick) down from over 83 to under 80 on the USDX (dollar index - an index measuring the dollar’s strength against a basket of currencies). Everything strengthened against the dollar - pound, yen, loonie, aussie, kiwi, rupee, gold, silver..
And only a few weeks ago we were within striking distance of 90. When will I ever learn not to try and pick tops? My perfectionism gets in the way of money-making. I seem to want to be a soothsayer rather than rich.
But weeping aside, we saw this same sort of slide last year, only in spades. The dollar sank almost to 70 in March 2008, a move unequaled since the USDX began. After that, it resurrected itself, near miraculously, and continued treading water for the rest of the year. I’d hoped dollar-holders would see 90 plus. But 89 was as high as we got and then went back into the upper 70s, a 12.17% drop (11/21/08). Right now, we’re roughly at -8.9% (approx 10 points down from 89.6%), with the momentum to the downside still strong.
Last week’s swan-dive has the sweaty, knuckle-whitening smell of 2008 all over it. Chuck Butler of Everbank cautions against chasing the move, but who wouldn’t be tempted to have a go? The momentum is there, the fundamentals are there, the news supports both - so says the ever insightful Kathy Lien at GFT Forex.
The next crisis will be in currencies, points out Jim Rogers, rather redundantly.
But even he confesses to being baffled over where to hide.
The big driver behind all this is a statement by Bill Gross, Pimco’s manager, that the US could see a downgrade in its credit rating.
This struck me as rather odd. Especially, seeing as how dear old Pimpco was the charity child of the Fannie and Freddie group-hug from the government.
I wonder…I cogitate…I roll my eyes….
After all, the credit rating agencies (S&P, Moody’s Fitch’s) were talking about the UK heading for a ratings downgrade, not the US. They didn’t say anything about the US. And the UK’s debt -to-GDP is worse than ours (it’s near 100% GDP). Correction June2, 2009): I should clarify that I’m referring to public debt as a ratio to Gross Domestic Product, and checking the figures, I think I got this wrong. Will repost the figures.
Who the heck is listening to these ratings racketeers anyway? Weren’t they the same folks who put gold stars on some of the stinkiest pieces of manure being sold on the market?
Hmmm. What have we here? Could it be a little PR stunt? A little one-downmanship among friends to make a bit of pocket-change all around? A little game of push-the-buck- over-the 200-day- MA-cliff?
On the other hand, forgetting my cynicism for the moment, there are lots of real reasons for this weakness, besides trial balloon-floating from Mr. Gross, the main ones being the bounce in the stock market and the relatively smaller size of the quantitative easing in the Eurozone.
Add to that a thin trading day, which exaggerates any move, and the anticipation of the long weekend…
Insiders Selling the Rally
Insiders are selling this rally like crazy, so says The Pragmatic Capitalist:
“I recently wrote about reports that insider selling was at record highs and buying was practically non-existent. The selling has become even more alarming in the last week and the buying has slowed to an absolute trickle. Below you’ll find the list of latest insider buys and sells. The sells are staggering with the amounts ranging from $3MM to $63MM (and I was only able to copy one page). The buys, on the other hand, are meager and range from $100K to $635K (the $800K purchase is a few months old and shouldn’t be in the data). You’ll also notice that the screen came up with just 18 total purchases vs 170 total sales (the lowest of sell screen data were sales of over $400K which is not shown here due to the large size of the results…”
My Comment
Wall Street, as well as the administration, both want to boost the market for reasons that partially overlap. The administration wants to be able to justify the bail-outs and retain some of the shine of of the pre-election rhetoric of “change”. But too much optimism will work against legislation/reforms that need a certain amount of panic to be passed.
Wall Street, on the other hand, doesn’t want panic at any price. It wants stability and optimism. And is eager to jump at any positive news it gets.
Mike Martin at MartinKronicle has a long and interesting interview with Victor Sperandeo (of “Trader Vic”), who calls it - as most informed commentators do - a bear market rally. Sperandeo’s voice is a bit hard to follow but Martin’s questions are searching and cover a lot of ground.
Two points:
Sperandeo (like nearly everyone else) thinks currency depreciation is inevitable and massive inflation around the corner.
He’s pessimistic about the Middle East situation and anticipates more friction with Iran.
Dollar Surprise
From Chris Gaffney, Vice-President of Everbank:
“As most would predict, the Mexican peso (MXN) has dropped significantly, moving down almost 3% versus the U.S. dollar overnight. Fears of a global pandemic have driven investors out of the high yielding currencies of New Zealand (NZD), Australia (AUD), and Brazil (BRL). Risk aversion seems to be back in vogue, with investors moving funds back into U.S. Treasuries and the Japanese yen (JPY).
I read a story over the weekend that suggested the U.S. dollar would continue to strengthen no matter what happens in the global economy. The story said that the U.S. dollar would increase if the administration’s efforts to stimulate our economy worked, and that we would lead the rest of the globe into the recovery phase. On the other hand, it said that the U.S. dollar would also strengthen if the global economy continued to weaken, as investors would purchase U.S. Treasuries as a safe haven.”
My Comment:
This insight about the performance of the US dollar has also been mine.
De-leveraging (which is the collapse of asset values as they’re sold to pay off debt) is going on now all over the world in different asset classes. And de-leveraging mostly needs the US dollar.
In spite of a few sharp corrections downward, that’s what has held the dollar index (DX) up for a bit longer than dollar bears had anticipated.
Holding up, of course, is not the same as “bull market”.
The dollar’s fundamentals are still bad.
I don’t have hopes for any currency tied to a government behaving so recklessly. I hesitate to write this, but some of the high-level corruption we’ve seen is actually beyond third-world.
I say this with no schadenfreude. It’s deeply, traumatically, disturbing to find so much rot at the heart of the global financial system. At the very core of the “international community, ” if you will.
The worst criticism of imperialism, or of statism, or of financial corruption didn’t prepare me for this.
And it makes me very afraid.
What example does such behavior set? What message does it send to a world which takes its cue from the West, and from the US in particular. Can we really expect better from other governments?
Jim Rogers Likes Farmland…
An interview with commodities guru, Jim Rogers, in Newsweek, April 11,2009 :
“Does the future growth of China factor into your bullishness?
China is tiny in comparison to the U.S. economy. Anyone who thinks that the commodities story is driven by China needs to do more homework. In the 1970s, everyone was in recession, and you still had declining supply [in oil] and higher prices. Asia wasn’t even in the game then. China was run by Mao. But now, of course, there are those 3 billion people in Asia who are in the game. It’s just another factor.Are we going to see another food-price spike sometime soon?
Definitely. I think you should move back to Indiana and marry a farmer. There are times in history when the money lenders have been in charge, and we just came through one of those periods. But it wasn’t always that way. Wall Street was a backwater in the ’40s, ’50s, ’60s and ’70s, and it will be again. Farmers are going to be the ones driving Lamborghinis, and the traders are going to have to learn to drive tractors.What about technological advances? Another green revolution could easily drive prices down …
Sure, there’s always something that will end a bull market. But if you think we’re anywhere near that point now, think again. Even if everyone in the world decided to put a windmill on their head, it’s going to take decades for that to really change things. In the meantime, you’ve got to put your money somewhere. And as we’re already seeing, even the value of cash can be wiped out.I guess that’s one reason the Chinese are so worried …
Well, if I were running the Chinese central bank, I’d buy oil, wheat and zinc. Which is what folks there are already doing.”Update:
Jim Rogers is involved with two direct farmland investment funds: Agcapita (Canada) and Agrifirma (Brazil), according to a comment.
Comment
I agree with Rogers on this and always have.
Unfortunately, until recently it was hard to invest in commodities without going through a trading platform. Now you can buy and sell commodities as ETF’s, although their risks and performance can and will vary from the underlying commodity, so you can end up being in the right sector and still losing money.
But nonetheless, trading will work for a while. Who knows what happens after.
After that, yes, you might think of getting some nice little fruit or veggie farm, where you can stomp around, pull beets out of the ground and milk your pet goat…
At least, that’s the fantasy.
Meanwhile, however, you could do worse than get a rental property near the water. Where is the question. Forbes tells us that Florida is one of the worst places to buy now
But don’t believe everything in Forbes.
When you see block houses for $50-60k near water and when your hear the Obamites are going to be putting money (or rather credit) into infrastructure, and and every effort is being made to reflate the real estate bubble and create jobs programs in select cities, I’m afraid follow the trend makes sense…
Just make sure the numbers work and your horizon is more than 5 -7 years.
Trader Psychology: Freezing from Fear
Today, I’m trying to recall the worst episode of fear I’ve experienced trading.
It was in August, 2004. I blame a certain newsletter for it. The writer had built up a frightening picture of how the US economy entirely depended on the Japanese PM’s good will for it to continue. I forget exactly why. But the short of it was that one day the old man would roll out of bed and decide to pull the plug on us, the writer said. He painted an apocalyptic picture of the day. Unemployment lines, factories shuttered, houses boarded up, foreclosures, stock markets crashing, the dollar worthless, oil prices so high no one could drive any more….
When the market plunged that fall, I thought the moment had come. Everything was down - my pension, some etf’s, long-term positions, short-term plays. I had put a lot into some tech stocks (Juniper, Nvidia, Foundry, Nortel - yes, those - remember? - all of them), because I thought they were due to go back up. And in the beginning of that year they started out promisingly. But then an upswing… that didn’t turned into a downswing… that did.
And kept on swinging down, lower and lower. I stopped looking at my positions. I was sea-sick every morning. Literally.
Which was stupid because there were several times the swings went up and I could have sold out for a smaller loss than I feared.
I didn’t. I was simply unable to face what was happening. The market wasn’t going back up. It was going lower. And I didn’t want to see that. I couldn’t bear feeling that bad. By not looking at the numbers, I didn’t have to feel the loss, so I didn’t. I procrastinated. I wanted to wake up one morning and see the numbers up in black as though they’d never been down. And I wanted to sell at a profit. A plus, however small.
I waited so I could exit without any loss. Wanting the perfect exit, I missed all the good ones. Then even the decent ones. When I exited finally, in August, it was at what turned out to be the very bottom. After that, there was a three-year uptrend.
But I wasn’t on it.
I was in shock for months after seeing the ticker plunge for the last time and jumping out. In shock from having sold everything - the bad, the not-so-bad and the hardly-bad-at-all. I didn’t want any more of it. I didn’t want to have my stomach churning every morning. I didn’t want the the false hopes of paper profits that disappeared before you took them and the constant drain of paper losses that drew blood because you couldn’t hold on any more.
I thought about how hard I’d worked to save the money. It wasn’t ‘easy come’ at all. But it was easy go, alright. I thought about how I’d scrimped on food, weighing things for a difference in a few cents, skipping a meal to save a few dollars. I thought about how I’d done without things I needed so I could pay back my debts. How I’d been hard, not just on myself but on my family.
I’d curl up on my bed, a kind of silent whimpering inside me. I cursed myself and blamed myself for being greedy… for being in the market at all. How could I be so stupid. Trading was for cleverer people than me. It was for people who had money to throw around, not for people who’d always had to be careful. But inside I knew it wasn’t greed at all. I’d never been a greedy person. Fear was my problem. And habit. The habit of not ever thinking about something so tedious as money.
If the bank had paid even 1% more than inflation I’d have left my money in it and forgotten I had it. But it wasn’t. And it hadn’t for a long time.
So it was fear, not greed. Fear that I’d never be able to keep up with things costing more and more. Fear of always struggling and getting less and less. Money in a savings account was like a continuous leak, a bleed you couldn’t staunch. Houses had tripled where I lived. I might just as well not have worked for the past three years. I told myself, I should’ve been a bum. I ought to have gone into flipping them myself, like the people next door. I didn’t. I thought it was wrong to. And now who was the fool? Just trying to make enough to keep up, I’d lost everything I’d made in three years. And all the interest from the ten years before.
A loss that large isn’t something you cry about. It stays somewhere in the background of your mind like the distant shrieking of a gull or the beating of waves in a seaside town. You’re never really far from it. It’s something that’s always going to be there, from now on. Like a scar from an accident. In one moment you become someone else. Some one else who’ll always have this rip across your face, this twisted leg, the odd droop to your mouth. You forget how it used to be before the accident.
That first big loss is like that. The feeling you had before it goes forever.
The feeling of being whole. Of doing well. After that, there’s a kind of a gash. A sense of being on the wrong side of things. Of being a loser. A kind of raggedness.
For a year I couldn’t press a sell or buy order on my screen without second-guessing it dozens of times. It took me two years before I could buy anything without wanting to jump out immediately…..
Only after a long while I began to understand, really understand, that trading isn’t about money. Even money isn’t about money.
It’s about emotions. And success at trading is about understanding your emotions and being able to handle them.
You don’t overcome them but you know what they are. And what they’re making you do.
There’s no place for self-deception if you want to stop losing money trading.
Gold Forming A Base for Future Rise
“If there was ever a doubt that gold’s bull market is forming an eight year low, it’s gone now. The Fed’s action guarantees that gold has much further to rise in the years ahead. So far, gold’s four week intermediate decline we call B has been moderate, but it’ll remain underway if June gold again declines below $953. Gold will stay firm above $880. Keep in mind, gold has been much stronger than most markets over the last several months, which means the other markets are poised to outperform gold for the time being...”
Comment
I still think (and this could be wishful on my part) that gold will go lower than 880 (and under 750). But, as always, the price action dictates my opinion.
Meanwhile, supporting my cautious hopefulness about the stock market, here is Investor’s Business Daily on the often repeated assertion that this is a replay of 1929. IBD suggests that our 1929 has already happened. What we have now is 1938:
The Nasdaq’s price action since the 1990s, like clockwork, closely parallels, tracks, and eerily replicates the Dow Jones Industrials’ wild speculative run-up to its 1929 bubble peak, the ensuing three-year, 88% collapse to the Depression lows in June 1932, followed by the recovery run-up to 1937 and the ensuing sharp correction. Based on historical data, today’s market is likely to be a repeat of 1938 — not 1929.
The only problem with that scenario is 1938 was a year before World War II began. I hope IBD isn’t pushing that parallel too hard.
File IBD’s report as Wall Street boosting the market…
Avinash Persaud - The Currency Expert
34 year old Avinash Persaud, Managing Director and Global Head of Research for the Global Markets Group of State Street Bank and Trust Company. in England, one of the world’s leading financial services for institutional investors ( nearly 12% of the world’s securities under custody), is a top ranked analyst in global surveys of currency research. Persaud has won the major awards in international finance including the Jacques de Larosiere Award from the Institute of International Finance and an Amex Bank Award.
Some career highlights:
During 2000/2001, the first private-sector, Visiting Scholar, of the IMF.
Non-Executive Director of the Overseas Development Institute.
In 1999, Head of Currency Research at JP Morgan.
Mr Persaud and his Morgan team developed an indicator for currency crashes in emerging markets which predicted a Russian devaluation four months before it occurred and a “regime machine,” which gauged which macro-economic factors and behavioral sentiments were most influencing currency movements at a given point in time.
Graduate of the London School of Economics
Former governor of the LSE as well (19988-1989).
Comment:
(Check back later)
Revisiting the Financial Media, March 2007
“The DJIA numbers, which is what most people mean when they talk about the market being up or down, are seriously misleading because they don’t represent the whole market — only a handful of very highly capitalized, very unrepresentative stocks.
It’s the DJIA that has been hitting new highs since 2006 — to cheerleading and pom-poms from the press. But a lesser-known index, the Standard & Poor 500 (S&P500) shows what’s going on much better. A 10-year chart of the S&P 500 shows that it’s not hitting any new highs but is actually buckling as it struggles to regain its 2000 heights. In the process, it seems to have formed the two ominous peaks that symbolize what is known as a Double Top to stock traders. A Double Top is a classic signal of a potentially drastic reversal in the offing. And as if to underline where things could be heading in a hurry, Goldman Sachs bank, the fountainhead of financial speculation in the economy (Goldman’s former boss, Hank Paulson was hired as Treasury Secretary), has taken a wallop too. Goldman, note, is heavily invested in China and in the US housing market.
Moral of the Story: Anyone with their pension funds or children’s college money riding on this market shouldn’t bank on living too happily ever after….”
That’s from a piece I wrote in March 2007: “Fairy-tales from Grimm that just got Grimmer”
Two years….and how much has changed.
Trading: Nadeem Walayat On What to Accumulate
“Q. Where to invest during 2009 ?
A. Strategy here rather than stock picks. The strategy is clear, to accumulate stocks with stop losses in the decimated long-term growth sectors, the mega-trend sectors remain as I pointed in the October article are the Energy sector, that’s crude oil and natural gas (hit fresh lows), Water and Agricultural Commodities, add to that Biotech, Health and Tech stocks. Continue to avoid the financials, they are insolvent. It appears the central banks are attempting to fiddle the books with regards proposed ‘changes’ to mark to market valuations so as to give the illusion of solvency. Yes financial stocks WILL soar, BUT like the penny stocks that they have become, they will exhibit much volatility where 50% gains one week could easily turn into a 50% loss the following week.
Again remember to use stop losses on ALL positions. i.e. you place the stop under the most significant low where the market cannot trade if you are right ! For you only get stopped out if you are wrong. The maximum for a stop on a stock is 20%, and you never move a stop against your position. ONLY in the direction of the position. It is such a strategy that turns a portfolio to cash during a bear market without seeing bull market profits turn into bear market losses.
Your Stealth Bull Market Accumulating Analyst.
Comment:
I’ve followed Walayat’s commentary for some time now and I find him to be pretty useful. I agree with his assessment of the current pessimism about the market and the advice to sell into every rally. That might have been right until now, but about now is probably the time to begin to accumulate. Even if in a worst case scenario, we go down to 5000, the upside from there is a lot greater than the downside. If you aren’t prepared to take that pain, the other thing to do would be to nibble at dips and hold through without selling into the rises. Nibble again when it dips. That way if the rally is just another bear market rally, you won’t have too much pain until the bottom. And if it’s the beginning of something better, then you’ll not have lost out.
Today’s action, GLD and dollar index down, seems to bear him out. With stocks up, investment money (which is largely what’s holding up the ETF) flows out of gold into the market. The same for the dollar, which was at the favorable end of the risk averse trade until now, ever since it became clear that Europe and Asia were slowing down just as fast (or faster) than the US.
I still think the dollar uptrend is not broken..yet…
But I’ve nibbled on Aussi and Kiwi (up today) and may add to my positions. Like Walayat, I think you have to ignore fundamentals and just think of price - it simplifies things a great deal.
(BTW I am not a professional trader but I’ve been managing my own savings since 2004 with no worse results than some of the top professionals around - I beat Peter Schiff hands down last year (not hard to do - a Schiff portfolio would have been down more than half last year) and Bill Miller too - and with better predictions of price levels than most of them. My worst point is I’m overly cautious, trade only with a very small part of my savings, and have lost out from holding my money in dollars - mainly because, for logistical reasons, I haven’t been able to put down roots anywhere I think is really safe. In other words, I’ve a good idea where things will go but usually fail to act - the Hamlet syndrome…)
Stocks Up, Dollar Down as Market Expects Investor Friendly Changes (Expanded)
“The stock market has rallied the past three days for any number of reasons, chief among them it was due for at least a technical, “dead-cat” bounce after hitting 12-year lows on Monday. One fundamental factor in the rise is Wall Street’s increased expectation for at least some help from Washington D.C. on two issues: mark to market accounting and the uptick rule.On Thursday, the House Financial Services Committee held a hearing on mark to market, during which Robert Herz, the chairman of the Financial Accounting Standards Board (FASB), agreed provide more detailed guidelines on the controversial accounting practice within three weeks.”
More by Aaron Trask at Yahoo Finance
Comment:
Never make a public pronouncement. You’re sure to eat it. Having affirmed my short-term faith in the dollar (at least until its hits 90 or there abouts on the index), I’ve had to second-guess myself.
The dollar’s taken a hit since yesterday and gold’s popped up a bit, part of that just the usual bounce after a leg down, but also because of several things:
1. The perception that the stock market may be due for a bit of a rebound (or, at least, a dead-cat bounce). That makes cash less attractive.
2. Signs of the revival of the uptick rule, which would require short-sellers to sell only on ticks up of the price and would probably prevent cascading short-selling…at least to an extent…
Signs also that mark-to-market may be in for some reexamination. Mark-to-market is seen by many banks as unfair, since it requires the mark down of perfectly sound assets to current (fire-sale) prices. One alternative that’s been proposed is to go to a 3-month rolling average. Again, that makes equities look more attractive than cash and is dollar-unfriendly.
3. The sale of the Swiss franc by the Swiss National Bank (SNB)to bring it down against the euro. That’s sparked fears of currency wars and simultaneous depreciation of all currencies, which in turns, reduces the dollar’s attractiveness as a safe-haven.
4. Increased flows into the gold ETF (GLD) to a record 1,041.53 tonnes, making it the 6th largest gold holding outfit in the world, overtaking the SNB. (I have to look up the flows and will add a link and a note here later)
5. Unexpected rise in consumer confidence from the preliminary March data.
6. Announcement by Citi (as well as JP Morgan Chase and Wells Fargo) that it’s showing profitability in 2009. (Why don’t they start paying us back then?)
But until gold shows conviction in going through resistance in the 930-940 band, I’ll stick bull-headedly to my belief that the dollar will chug on or at least bounce around 87-89 for a bit more before coming down.
Mind you, I’m not wedded to that opinion, and if I see signs of change I’ll start stock-loading food, buying up gold coins and foraging for wild roots in the backyard…I’ll let you know..
Obama Tanks the Dow
- The Dow has fallen about 11% since Election Day.
- The Dow’s fall on Obama’s Inauguration Day was the worst Inauguration Day decline in history.
- The Dow fell 384 points on Feb. 10, the day Treasury Secretary Geithner unveiled his financial stability plan.
- The Dow fell 298 points on Feb. 17, the day Obama signed the Stimulus Bill.
- The Dow fell to an 11-year low on Monday, following weekend reports about the government’s potential new plan to bail out Citigroup.
- The Dow fell nearly 200 points intraday Wednesday following Obama’s generally well received speech Tuesday evening. (The index did recover some lost ground, even briefly trading positive in the afternoon, before closing down 80 points as Treasury announced yet more bailout options for banks.)
Comment:
Going further, the Deal Journal gives the President some tips on how to make nice to the market and stop being Obummer.
The budget numbers are out, and they aren’t pretty, projecting a $1.75 million deficit for the year and including a provision to auction off permits to exceed carbon emission caps (frankly, this sounds like the sale of indulgences by popes during the Middle Ages - only now, we’re all so much more enlightened...). This might tank the Dow even more,…
Especially if it also takes a look at GM’s horrible numbers (a $9.6 bn Q4 loss and a decline in its cash position from the previous quarter of $2.2 bn ($16.2 bn to $14 bn). And let’s see what London’s FTSE will do now that Royal Bank of Scotland has announced the biggest annual corporate loss in UK history ($34.2bn/24.1 bn BP)
Gold Double Top?
“When gold hit $1000 for the first time ever on Friday March 14th 2008, silver hit a high of $20.88 but now it can only muster about $14.50 when gold breached $1000 again. Why the dismal performance? The answer is because silver is a more recession sensitive metal compared to gold and decrease in industrial demand is acting as a dampener on the silver price. As said before, when the unemployment figures peak then and only then does silver become a multi-year buy. What is going on just now is a trader’s market.”
Gold Up But Dollar Up Too
“THE SPOT PRICE of physical gold bullion touched an 8-session high early in London on Wednesday, turning lower from $927.50 an ounce as world stock markets slipped following Wall Street’s shock 5% slump overnight.
Treasury-bond prices rose despite a record $21 billion auction of new 10-year notes due today, while crude oil slipped below $38 per barrel.
The Bank of England said in its latest quarterly Inflation Report that the
Business confidence across the 16-nation Eurozone worsened for the 18-month running in Dec. according to the Ifo Institute in Munich, falling to the survey’s lowest reading since it began in 1993.
“We have to be cautious on gold short term,” says Phil Smith in his latest technical chart analysis for Reuters India.
“The near term signals are still bullish but are looking like they may turn. Overall still a bullish chart, but with near-term downside risk.”
Comment:
GSax has been saying gold will be up above $1000 in 3 months. Considering that it’s around 900 plus and that over spring it often moves up, they didn’t need Nostradamus to come up with that. Not when they have their guys stashed in every corner of government.
Some people might still think a 15% upside is a good deal. But I think buying on the dips is a better idea. I’m still of the school of thought that the price may have to go way back…maybe even below 700…. before it resumes the next bull leg.
But that’s just my no-account opinion.
Financial Follies: Dollar Uptrend
From a trader whose predictions I’ve liked, Nadeem Walayat:
“U.S. Dollar Forecast 2009
TREND ANALYSIS - The correction following the November peak was more severe than expected this implies a weakness, however the US Dollar did hold above the previous low of 75 before resuming the up trend. Immediate resistance lies at 88, given the violence of the correction this implies choppy volatile trading in the region of between 80 and 90, this is inline with the conclusion of October 2008 with regards trend expectations for 2009.
PRICE TARGETS - The upside price target for USD remains at 90 and then 92. The USD has significant resistance above USD 92 and therefore suggests the USD will find it tough to sustain a breakout above USD 93. This suggests a trading range with an upward bias. The key here is for the USD to continue making higher lows, with the last low being 77.7.
MACD - The MACD was extremely oversold and has helped contribute to the U.S. Dollar turnaround, how-ever the MACD has some way to go before it reaches what could be termed as an overbought state and therefore implies more immediate term U.S. Dollar strength.
SEASONAL TREND - The USD Rally into January is inline with the seasonal tendency, which suggests a corrective February.
ELLIOTT WAVE THEORY - Octobers elliott wave analysis proved accurate, given the power of the corrective wave, this suggests a more complex sideways elliott wave pattern during 2009 rather than a breakout higher.
Madoff With It: Did Bernie Siphon Money Off Through Primex?
FINRA has found no evidence of trades by Bernie Madoff on behalf of his private investment fund through Bernard L. Madoff Investment Securities, a commercial brokerage founded in 1960.
This appears to be a brick in the wall of ‘rogue trader’ status. He could do it himself because he made no trades at all.
However this was not Bernie’s only commercial operation in the securities business, in addition to his now nefarious private fund.
Primex was registered as Primex Holdings, L.L.C. in NYS in October of 1998. Primex is a joint venture involving a digital trading auction which operates out of Bernie’s 18th floor office at 885 Third Ave.
Madoff’s business partners in the Primex Exchange were Citigroup, Morgan Stanley, Goldman Sachs, and Merrill Lynch.
Did Bernie give any business to this joint venture? Did any of the above brokers have any investments or losses with the Madoff Fund? If not why not? It was one of the most successful funds, on paper, on the Street?
More questions than answers. Let’s hope this one does not disappear down a black hole like the enormous put option positions placed on the airline stocks just prior to 9/11.
Comment:
Haha, Jesse. Did I hear 9/11 put options? In DC-think that’s, “I am a certifiable loon, a gun-clinging survivalist-creationist with neo-Nazi leanings. Please ignore my ravings and leave me to dribble here in my corner.”
Trader Psych: Incredible Dollar-Swissie Reversal
“USDCHF – Recent US Dollar/Swiss Franc price action is a testament to the effectiveness of Speculative Sentiment Index-based currency forecasts. Forex trading crowds had remained heavily net-short the USD/CHF since July, and the pair went on to mount an impressive multi-month rally. Most recently, that same crowd capitulated and actually went net-long the USD/CHF near the 1.2000 mark. The US Dollar subsequently went on to post its biggest monthly loss against the Swiss Franc in history—incredible by any standards. Looking to very short-term trading, the crowd is currently net-short the pair, with short positions outnumbering longs by 1.08 to 1. Such a flip gives us reason to look for a reversal, but a sharp drop in open interest gives us little conviction in our forecast. Our forex trading signals previously went short the USD/CHF for sizeable profits, but the strategies now hold a weaker bias….”
Comment:
This was quite a move up for the Franc and it shows why trading currencies in a regular (non-trading) account is hard to do.
I had planned to buy Swissie at the end of last week and then decided that the dip in the dollar from 86 - 83 on the Dollar Index had already priced in a Fed cut. So I held off, waiting to do it on Monday.
Then came Madoff. And on Tuesday, a Fed rate cut that was historic.
And as a result, from Monday to Wednesday, the dollar lost more than half the gains it made this fall. The Swissie shot up. A great trade on Friday looked almost risky by Wednesday. What if the Swissie fell back after that surge? Trader sentiment switched to shorting the dollar.
As if to confuse sentiment again, at Thursday close, the dollar had recovered some of its footing against the majors.
In Forex, trying to look for a bottom (as I was trying to do with the Swissie) takes just a little too much time for action that quick. Crowd sentiment out there is as volatile as it could possibly be.
Now the crucial thing is if GLD (the ETF, as a proxy for the spot price) can hold above 850 and the dollar over 80 by Friday close. If they do, a trend reversal of the pair will be confirmed technically.
Note: I am talking about GLD and the dollar as inversely correlated, once again. They had decoupled for a while but have returned to their inverse relationship recently.I don’t know how long that will last though. Not very long, I suspect. Notice that GLD is moving out of synch with other commodities. Oil, for instance, is down at 41/2 year lows. GLD’s move, in step with the Swissie, typified a rush to safety.
Bank Wars: Market Machinations - Update on Bush
“The US House of Representatives voted in support of the Wall Street bail-out package. As the vote began at 1:00pm, Europe’s equity market gains of +1.5% across the board had been locked in, but the US equity markets started to plunge, down -4.0% in the final three hours of trading.Was this a message from Humungous Bank & Broker that the Paulson Package was not a Wall St bail-out after all? You betcha. Deceitful stuff, this. And when Europe opens well down on Monday, will that be a message from HB&B that they want the same bail-out from the governments there? You betcha.
Interventionists are now in full control of the global equity market. Paulson has won. The banks have won. The people’s representatives caved in and the people can take a hike for all the banks care at this point….”
That’s the excellent Bill Cara who agrees with my take that this crisis was exploited to pave the way for mega-bank consolidation at the expense of the weaker banks.
Comment:
Giving credence to that view, the fight between Citigroup and Wells Fargo heats up. The NY State Supreme Court blocked the incipient merger of Wells with bank-in-distress, Wachovia. Then Wachovia successfully appealed the decision. Now Citi, which has an exclusivity contract with Wachovia, plans to appeal the appeal.
Meanwhile, Wachovia has gotten a restraining order from a N. Carolina judge to prevent Citi from enforcing the exclusivity contract, charging that following the Wachovia-Wells merger announcement, Citi had taken steps to force Wachovia’s collapse.
The Citi offer (for $2.2 b) has the backstop of the FDIC and would cannibalize Wachovia, taking over only the banking operations, not Wachovia’s asset management or retail brokerage. Wells Fargo’s deal, on the other hand, would leave the bank intact and would give it $15.1 b.
Over at the postmortem for Lehman, unsecured creditors have filed a claim that JP Morgan prevented Lehman from accessing its assets, causing the bank to collapse.
And at the Congressional probe into AIG’s contribution to this mess, documents seem to show that AIG’s auditor, Pricewaterhouse Cooper gave a confidential warning that internal overseers weren’t allowed proper access to the highly-leveraged desks. (Of course, if you go back to 2005 and earlier, you’ll find Pricewaterhouse itself was being questioned for its behavior).
Secrecy has been the complaint for years over at Goldman Sachs. What beats me is why no one called these firms on any of this.
Crude Oil Decoupling from the US Dollar
“Crude oil has detached itself from movement in the US dollar. Movement in crude oil prices suggest that the options markets has a big role to play and a part of the rise in crude oil is attributed to covering by option sellers. Frankly, very few traders and investors expected crude oil prices to rise near $125 at this time of the year. Long term investors will exit their investments once crude oil breaks $150 as incremental returns will fall over $150. Investors have made over 100% returns when crude oil prices rose from $50 in early 2007 to now. Crude oil over $150, investors will not get 100% returns in twelve months once crude oil breaks $150. If crude oil prices float over $200 for a long time whether in 2009 or 2010, there will be real evidence of a global slowdown. Even emerging markets like
Chintan Karnani, Asian Metal Markets
Part II Riding the Gold Bull at the Daily Reckoning - or How She Missed Conquering the Rock 5/17/2006 (reprinted)
Here’s me in Buenos Ayres rushing around checking out house prices in 2006 while trying to jump on and off the gold bull (scroll down for the note):
From:
The Daily Reckoning
Subject:
Today’s Daily Reckoning
The Conquest of the Rock
The Daily Reckoning
St. Michael’s, Maryland
Wednesday, May 17, 2006
———————
*** Having the courage to grab the bull by the horns…how do you know
when it’s time to get in, and time to jump off?*** GM lays off thousands of Americans - and hires in India…an economic
“Code Red”…*** The perfect ingredients for a plunging dollar…it’s all about
timing…and more!———————
The only thing more frustrating than a long bear market is a long bull
market. Riding a great bull market is like riding a real bull. You are
always in danger of getting thrown off. And once on the ground, it is hard
to get back on.(See colleague Lila Rajiva’s attempts to get into gold, below…)
*** Lila Rajiva, trying to climb onto the bull’s back:“Bill: As a faithful believer in the doomsday scenario for the dollar and
the final revenge of gold, I admit I am not having an easy ride. In fact,
I think I have had a bit of a mauling. With some nervous selling across
the board in the metals, and options expiration at the end of the week,
the ride gets stormier.“Of course, I’m still a dollar bear. What’s not to hate?
“Massive trade deficits, staggering debt at all levels, a tumescent real
estate market hissing into an inevitable slump, saber rattling in the
Middle East, a war of words with China, oil bubbling steadily around $70,
and inflation simmering under the cooked-up numbers the government spews
as it sees fit…it’s all a recipe for a plunging dollar.“And way back in 2004, it seemed the dollar was taking that ride in a
straight line down as it fell nine percent against the Euro. Some of us
opened Everbank accounts and got ourselves a basket of mixed foreign
currencies or other exotic goodies. Buffet was betting against the damn
thing - how could we be wrong?“But in 2005, Buffet and the rest of us sinners, had to dine on crow. The
dollar strengthened, if it did not actually flex its pecs, erasing half
its losses against the backdrop of continuing tight money policy and
higher interest rates in the United States versus the euro area and Japan.
The dumping of the European Union’s Constitutional Treaty in France and
the Netherlands, also stiffened a few rickety vertebrae in the greenback’s
spine. Of course, it was merely a touching coincidence that corporations
got to repatriate earnings in stronger dollars, courtesy of a convenient
window created by Congress.“Even the trusty little GLD ETF, which was supposed to cushion my dive
into the big bad speculative world of metals, stayed down the whole year.“Naturally, as a newbie I’d bought it just when it came out in November
2004. And naturally, after being heralded like the Second Coming, it sank
almost immediately. On sundry Web sites, reports surfaced hinting darkly
at dire manipulations, the lack of verification of its holdings, and all
manner of sinister machinations calculated to strike terror in the heart
of someone’s whose last encounter with the metal was buying an ankle
bracelet at a souk in Dubai. Equity bulls of our acquaintance cast a
derisive eye at us. Gold? Had we forgotten that stash of 850 buck ingots
from the eighties still moldering in our basement? I was ready to cave in
and sell for what I’d bought it.“But then as the year ended, the metals minuet ended and the action on the
floor became hot and fast.“Sleeping Beauty leapt out of her coffin and darted ahead almost 25% in a
matter of weeks. Too much too fast? It seemed that way to me. I wasn’t
going to wait around to see that thing fall back just as fast as it had
shot up. A profit is only paper, until you book it, right? I booked it.“Yeah! Wait for the correction and ride it right back up again like a
Ferris wheel. But market timing is never as easy as it sounds, which is
why some gold bulls, like Doug Casey, of the International Speculator,
will tell you that this isn’t a market you can trade - the moves have been
too fast. You drop out when it drops and you’re liable to be left
standing. You miss the big profits.“And that’s how it’s been. The first correction came in February as
expected, but the next leg up was so fast and furious that by April we
were hitting multi-decade highs with hardly a pause along the way“Too bad I wasn’t on board. I was still figuring out the right moment to
buy… and clearing the dust out of my eyes.” (more…)Trader Psychology: The Dash for Trash…
“The most important thing to do is to stick with the processes that have served you well, but appreciate that the environment we are operating in may be altering. If in doubt, as I wrote last week, inaction and hence holding cash may well be the safest bet.”
Read more by James Montier in Mind Matters.
Comment
Montier is talking about 20%-40% cash.
He also recommends purchasing value stocks with good dividend yields, rather than growth stocks, since he thinks valuations of US stocks - while off from their bubble peaks - are still far too optimistic.
As the piece indicates, Montier is no fan of the “decoupling” thesis - the idea that global growth can continue despite a recession in the US. He asks how it is that the same people who once talked most enthusiastically about globalisation are now endorsing decoupling - just as enthusiastically. He calls it cognitive dissonance.
He has a point.On the other hand, I happen to be a fan of cognitive dissonance. Mainly because our cognitions aren’t as pure and simple as we think they are. They are just points of view.
To assert both globalisation and decoupling at the same time strikes me as quite plausible. Certain aspects of trade are global. Others are not. Some countries depend more heavily on the US consumer - either directly or indirectly. Others do not. It makes perfect sense that US stocks should be overvalued and not likely to go anywhere for years……and that emerging markets stocks, even if relatively overvalued and due for a correction, should do better - even much better - over the long-term.
But the piece is still worth studying for those investors in whom hope for their favorite growth stock springs eternal….
Trader Technique: Bruce Lee on becoming water….
“Empty your mind, be formless, shapeless–like water. Now you put water into a cup, it becomes the cup, You put water into a bottle, it becomes the bottle, You put it in a teapot, it becomes the teapot. Now water can flow or it can crash! Be water my friend.“
- Bruce Lee
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