I read on blogs, commentary, that the markets are 'broken' or dysfunctional, even the term schizophrenic has been used.
The point is the markets have always been a perilous place to trade in and if anything they (markets) have never been fair, normal or egalitarian so nothing has changed since the inception of markets and trading. If you believe that something has gone wrong and you think the markets should return to a normal trading environment, you probably shouldn't be trading in the markets. If you are a small fry trader trying to hit the big trade of the century, you most likely wasting your time and money (maybe you might find that Coca-Cola stock, I don't know... but Lithium stocks look tasty).
At the end of the day you don't mean shit (to the powers at be), you never did, as soon as you realize this you won't bother throwing your mind into a self imposed psychosis as you realized the reality of the situation hasn't changed - you should just try and survive. The market as it is and as it has been for hundreds of years is not designed for the mug punter, nor is it forgiving to a mug punter (i.e no one will 'bail' you out). The best bet is to scalp a trade here and there, go long on a solid blue chip, gamble a little of FX/Options/Futures and maybe, just maybe you could eke out an existence.
The markets are ruled by conglomerates or a cartel of investments banks, retail banks and hedge funds all on billion dollar taps. Yeah they fuck up, like in 2008 when half of them should have been dismantlement and restructured. But yes we know the story, us the tax payer bailed them out. Which is true, a suicidal policy by governments globally that if you have been watching the news (re: protests, government voting backlash etc) people are saying to the powers at be: fuck you. This 'fuck you' attitude will probably snowball into 2011.
In the meantime the Wall Street/banks/hedge fund overbidding will continue as the risk engines that are the banks, fueled by billion dollar money flows from central banks, will try and hedge mega $ money return bets. There will be undoubtedly some huge long positions getting bought up, like some trader taking out a billion + position on copper please refer to 3billion copper position held by one trader (update 1) or an equally big position on a bank stocks, playing a futures straddle on the Dow going to13000, or a USD play going short against arbitrage play on gold price going upward, a commodity futures play that oil will head down to $80 and some fucking oil trader covers the losses with another loss and so on.
Or a hedge fund sending the market down on a HFT (High Frequency Trading) driven flash crash attributing by ETF (Exchange Trade Fund) liquidity problems, and sending long position/s into short sells (Like May 6th 2010 flash crash). The Copper play unwinding and any derivatives connected to copper, or again ETF's, causing the futures market to sell and sending sell orders back to the copper derivative market; a house of cards also taking out miners (copper or otherwise) equity values in mins.
You get the drift, the movers and shakers of the market are also some of the biggest losers too...as the above are just examples of market plays gone south with million to billion dollar losses. Anything is possible (especially in an overbidded/bubble market) with trades going haywire as I have absolutely no faith in larger institutions and their risk management. We are due for another major trading loss.
So along with the copper risk is the gold risk a feverish buy-up on the gold price via SPDR Gold Trust, Bloomberg ran an article on this please refer to this link.
Same thing (gold bubble) as the copper price, you'll have an overbidding market on a scarce commodity, once the price bubbles becomes unsustainable and a sell price sets in again a flash crash, destroying the wealth of smaller investors that piled into non physical gold contracts, via ETF's.
The more risk in the market as far as the larger money players (say 3-4million a trade, as opposed to 5k) the more likely that someone, or something will fuck it up and it all comes down. If anything this is your equilibrium of market forces or a natural correction of the over excesses (bloated banks/investment banks) which I think most people are kinda waiting for; a payback to greed mixed with the mantra that 'everything comes to an end'.
We get another economic iceberg, and it's coming - it's FUBAR. The great economic reset.
That is reality, deal with it. So relax. Enjoy the show ( and try and not lose money).
See you in 2011 (Happy new year)
Wednesday, December 29, 2010
Tuesday, December 28, 2010
Iran is now a Nuclear State (Xinhue news report) 29th 12 2010
Ok, oil should lunge upward now, there is a arbitrage play against risk currencies. But regardless oil is going to 95 a barrel.
This HFT grinding should panic into a flash sell at somepoint, pending the markets digesting the Iran is 'now' nuclear story
from Xinhua 29th Dec 2010:
"Iran becomes nuclear state: Ahmadinejad English.news.cn 2010-12-29 00:42:31 (Xinhua) -- Iranian President Mahmoud Ahmadinejad said Tuesday that Iran is now a nuclear country implying that Iran has achieved nuclear know-how for energy purposes. The United States and its allies have been exerting political and propaganda pressure and have issued resolutions against Iran over its nuclear program, however, all their efforts have failed and Iran has now become a nuclear country, Ahmadinejad was quoted as saying by the local satellite Press TV. Addressing a crowd in the northern city of Karaj on Tuesday, the Iranian president said that cooperation rather than confrontation is the only way to resolve Iran's nuclear energy program, according to the report. "We are open to cooperation based on our rights," he added.
Ahmadinejad warned Western countries that Iran would give a " regretting" response to anyone who "intends to prevent Iran from achieving its rights," according to Press TV. He dismissed the sanction resolutions passed by the United Nations against Iran as "illegal" and added that sanctions would only "strengthen the Iranian nation and accelerate the pace of our progress." According to earlier reports, the United States and the European Union prepared to impose a new round of sanctions against Iran in the following year over Tehran's refusal to halt its controversial nuclear program. The West has long accused Iran of secretly developing nuclear weapons under civilian disguise, although Tehran has always denied such charges."
This HFT grinding should panic into a flash sell at somepoint, pending the markets digesting the Iran is 'now' nuclear story
from Xinhua 29th Dec 2010:
"Iran becomes nuclear state: Ahmadinejad English.news.cn 2010-12-29 00:42:31 (Xinhua) -- Iranian President Mahmoud Ahmadinejad said Tuesday that Iran is now a nuclear country implying that Iran has achieved nuclear know-how for energy purposes. The United States and its allies have been exerting political and propaganda pressure and have issued resolutions against Iran over its nuclear program, however, all their efforts have failed and Iran has now become a nuclear country, Ahmadinejad was quoted as saying by the local satellite Press TV. Addressing a crowd in the northern city of Karaj on Tuesday, the Iranian president said that cooperation rather than confrontation is the only way to resolve Iran's nuclear energy program, according to the report. "We are open to cooperation based on our rights," he added.
Ahmadinejad warned Western countries that Iran would give a " regretting" response to anyone who "intends to prevent Iran from achieving its rights," according to Press TV. He dismissed the sanction resolutions passed by the United Nations against Iran as "illegal" and added that sanctions would only "strengthen the Iranian nation and accelerate the pace of our progress." According to earlier reports, the United States and the European Union prepared to impose a new round of sanctions against Iran in the following year over Tehran's refusal to halt its controversial nuclear program. The West has long accused Iran of secretly developing nuclear weapons under civilian disguise, although Tehran has always denied such charges."
Almost non-existent volume, failed 5yr UST sale, HFT 'grinding'...
...and a commodity bubble with China doing a 25% cash rate on Christmas day. Add all that up and the VIX shoots upward.
Understandably, the markets are now running on autopilot, with severe snow storms hitting the East Coast (US), Hedge Funds are trading with that HFT 'grind' on almost non-existent liquidity.
Looks like we got some cash hording going on.
...that and a major correction is due for 2011.
VIX :
re: 5yr UST flop:
From WSJ
NEW YORK (Dow Jones)--Treasurys sank broadly on the lukewarm reception for a $35 billion sale in five-year notes.
The benchmark 10-year note's yield, which moves inversely to its price, rose to as high as 3.470%, not far away from the seven-month peak of 3.568% on Dec. 16.
Higher yields failed to lure enough buyers to underwrite the auction, a sharp contrast to a $35 billion auction in two-year notes Monday.
The bond market responded by extending its losses, pushing prices to session lows as the sale raised concerns about the outlook for a sale of $29 billion in seven-year notes set for Wednesday.
"It was a surprisingly weak auction on the heels of a solid two-year note auction Monday," said Jeff Michaels, joint head of fixed income Americas at Nomura Securities International in New York.
"Holiday-period liquidity, combined with the residual effects of the snowstorm [in the northeastern U.S.], means that we can build in a further concession for the seven-year note auction before the market stabilizes," said Michaels, meaning that bond yields are likely to be pushed higher.
As of 1:58 p.m. EST, the benchmark 10-year note was 1 2/32 lower to yield 3.460%. The five-year note was 16/32 lower to yield 2.130%.
The 30-year bond was down 1 31/32 to yield 4.524%.
The Treasury Department sold the five-year notes at a yield of 2.149%, much higher than the 2.103% yield traded just before the auction. Higher yields suggested bidding prices were weaker than many dealers anticipated, as prices and yields move inversely.
That means the U.S. government had to pay up for the auction as the 2.149% yield is sharply higher than the 1.41% offered from the November sale. Still, the U.S. government's borrowing cost remains historically low.
The auction was 2.61 times subscribed, down from the average of 2.82 in the past four auctions. The indirect bid, which is a proxy for demand from such foreign buyers as central banks, was 36%. That is down from the average of 43% in the past four auctions.
"It is a sloppy auction. Liquidity is thin and a lot of investors already checked out of the markets heading into the year end," said Kevin Giddis, president of fixed income capital markets at Morgan Keegan Inc. in Memphis, Tenn. "This does raise concern about the seven-year notes' sale. I think we need to see more selling, or higher yields to get the auction done."
The five-year note's yield has risen from 1.465% at the end of November. Bond prices tumbled this month as demand for safe-haven Treasurys had waned. Many economic releases in recent weeks have been better than economists' forecasts, especially data from the U.S. That pushed many investors to sell Treasurys accumulated earlier in the year.
Many banks, companies and investors also closed their accounts for the year, which added to the selling in the Treasury market in the past couple of weeks.
Treasurys have handed investors a loss of 2.17% this month through Monday, paring their gains for the year to 5.47%, according to data from Barclays.
Overall, trading was thin. Light volume in the past week has fueled choppy trading and exaggerated some price moves, traders said.
5yr UST:
We will see how much risk (stocks) is picking up, especially with rates going upward. The Feds bond buy up has been an utter failure.
The play? Still betting against Europe and the EUR.
Understandably, the markets are now running on autopilot, with severe snow storms hitting the East Coast (US), Hedge Funds are trading with that HFT 'grind' on almost non-existent liquidity.
Looks like we got some cash hording going on.
...that and a major correction is due for 2011.
VIX :
re: 5yr UST flop:
From WSJ
NEW YORK (Dow Jones)--Treasurys sank broadly on the lukewarm reception for a $35 billion sale in five-year notes.
The benchmark 10-year note's yield, which moves inversely to its price, rose to as high as 3.470%, not far away from the seven-month peak of 3.568% on Dec. 16.
Higher yields failed to lure enough buyers to underwrite the auction, a sharp contrast to a $35 billion auction in two-year notes Monday.
The bond market responded by extending its losses, pushing prices to session lows as the sale raised concerns about the outlook for a sale of $29 billion in seven-year notes set for Wednesday.
"It was a surprisingly weak auction on the heels of a solid two-year note auction Monday," said Jeff Michaels, joint head of fixed income Americas at Nomura Securities International in New York.
"Holiday-period liquidity, combined with the residual effects of the snowstorm [in the northeastern U.S.], means that we can build in a further concession for the seven-year note auction before the market stabilizes," said Michaels, meaning that bond yields are likely to be pushed higher.
As of 1:58 p.m. EST, the benchmark 10-year note was 1 2/32 lower to yield 3.460%. The five-year note was 16/32 lower to yield 2.130%.
The 30-year bond was down 1 31/32 to yield 4.524%.
The Treasury Department sold the five-year notes at a yield of 2.149%, much higher than the 2.103% yield traded just before the auction. Higher yields suggested bidding prices were weaker than many dealers anticipated, as prices and yields move inversely.
That means the U.S. government had to pay up for the auction as the 2.149% yield is sharply higher than the 1.41% offered from the November sale. Still, the U.S. government's borrowing cost remains historically low.
The auction was 2.61 times subscribed, down from the average of 2.82 in the past four auctions. The indirect bid, which is a proxy for demand from such foreign buyers as central banks, was 36%. That is down from the average of 43% in the past four auctions.
"It is a sloppy auction. Liquidity is thin and a lot of investors already checked out of the markets heading into the year end," said Kevin Giddis, president of fixed income capital markets at Morgan Keegan Inc. in Memphis, Tenn. "This does raise concern about the seven-year notes' sale. I think we need to see more selling, or higher yields to get the auction done."
The five-year note's yield has risen from 1.465% at the end of November. Bond prices tumbled this month as demand for safe-haven Treasurys had waned. Many economic releases in recent weeks have been better than economists' forecasts, especially data from the U.S. That pushed many investors to sell Treasurys accumulated earlier in the year.
Many banks, companies and investors also closed their accounts for the year, which added to the selling in the Treasury market in the past couple of weeks.
Treasurys have handed investors a loss of 2.17% this month through Monday, paring their gains for the year to 5.47%, according to data from Barclays.
Overall, trading was thin. Light volume in the past week has fueled choppy trading and exaggerated some price moves, traders said.
5yr UST:
We will see how much risk (stocks) is picking up, especially with rates going upward. The Feds bond buy up has been an utter failure.
The play? Still betting against Europe and the EUR.
Wednesday, December 22, 2010
The AUD is becoming extremely overbought. (update 11) - A mega buy prior to South Korea military drills 23/12/2010
A large position bought from an Asia based trader, maybe Japan. Bought up in thin markets.
Opinion: A buy on that Nth Korea won't do squat when South Korea start/started their military drills (land) 23rd Dec 2010
Let's see how the bet will be played out...AUD very overstretched
Could be a suicidal/kamikaze buy
Opinion: A buy on that Nth Korea won't do squat when South Korea start/started their military drills (land) 23rd Dec 2010
Let's see how the bet will be played out...AUD very overstretched
Could be a suicidal/kamikaze buy
The AUD is becoming extremely overbought. (update 10) - pre-xmas overbidding, something up?
Probably setting up to sell on a rally. But hedge funds selling on rallies will only happen when banks/investments banks holding long positions unwind. And since the AUD is one of the most overbought 'risk' currencies of 2010, any AUD unwind should be substantial.
Tuesday, December 21, 2010
3billion copper position held by one trader (update 1)
Even though that $3billion copper position doesn't reveal who the holder is, speculation that it may or may not be JP Morgan Chase. In the meantime a little history lesson from Investpedia on the original Mr Copper (how history repeats it self in the markets as a constant re-loop):
Investopedia
"A sense of mystery still surrounds Yasuo Hamanaka, a.k.a. Mr. Copper, and the magnitude of his losses. From his perch at the head of Sumitomo's metal trading division, Hamanaka controlled 5% of the world's copper supply. This may sound like a small percentage, given that 95% of the world's copper supply remained in other hands. However, copper is an illiquid commodity, which means it cannot easily be transferred around the world to meet shortages. For example, a rise in copper prices due to a shortage in theU.S.
Sumitomo owned large amounts of copper that was warehoused and stored at factories as well as numerous futures contracts. Hamanaka used Sumitomo's size and large cash reserves to both corner and squeeze the market via the London Metal Exchange (LME). As the world's biggest metal exchange, the LME sets the world copper price. Hamanaka kept this price artificially high for nearly the entire decade leading up to 1995 and, as a result, garnished premium profits on the sale of Sumitomo's physical assets.
Beyond the sale of its copper, Sumitomo benefited from commissions on other copper transactions that were handled by the company. Commissions are calculated as a percentage of the value of the commodity being sold and delivered. In this case, Hamanaka's artificial prices inflated values, which allowed Sumitomo to pocket greater sums.
Hamanaka's manipulation did not go unnoticed. Many speculators and hedge funds knew of Hamanaka and the fact that he was long in both copper physical holdings and futures. Whenever anyone attempted to short Hamanaka, however, he would pour more cash into his positions, thereby sustaining the price and outlasting the shorts, simply by having deeper pockets. Hamanaka held long cash positions that forced anyone shorting copper to deliver the goods or close out their position at a premium. Hamanaka was helped greatly by the fact that, unlike theU.S.
Nothing lasts forever, and that includes Hamanaka's corner on the copper market. The market conditions changed in 1995 thanks to the resurgence of mining inChina. W
While Hamanaka struggled to get out with most of the ill-gotten gains intact, the LME and the Commodity Futures Trading Commission (CFTC) began investigating the manipulation of the copper market worldwide. Sumitomo responded by "transferring" Hamanaka out of his trading post. The removal of Mr. Copper was enough to bring the shorts on in earnest. Copper plunged and Sumitomo announced that it had lost over $1.8 billion and that the losses could go as high as $5 billion, as the long positions were settled in a poor market. Sumitomo also claimed that Hamanaka was a rogue trader and that his actions were completely unknown to management. Hamanaka was charged with forging one of his supervisor's signatures on a form and convicted. Sumitomo's reputation was tarnished as many people believed that the company could not have been ignorant of Hamanaka's hold on the copper market, especially because it profited for years from it.
Traders argued that Sumitomo must have known of Hamanaka's wrongdoing because the company threw more money at Hamanaka every time speculators tried to shake his price. Sumitomo responded by implicating JPMorgan Chase and Merrill Lynch as funders of the scheme, revealing that the banks had granted loans structured as futures derivatives. Sumitomo, JPMorgan Chase and Merrill Lynch all were found guilty to some extent. As a result, JPMorgan Chase's case on a similar charge, related to the Enron scandal and Mahonia Energy, was hurt. Meanwhile, Hamanaka served his sentence without comment. Since the copper market manipulation, new protocols have been added to the LME to make a repeat less likely."
Investopedia
"A sense of mystery still surrounds Yasuo Hamanaka, a.k.a. Mr. Copper, and the magnitude of his losses. From his perch at the head of Sumitomo's metal trading division, Hamanaka controlled 5% of the world's copper supply. This may sound like a small percentage, given that 95% of the world's copper supply remained in other hands. However, copper is an illiquid commodity, which means it cannot easily be transferred around the world to meet shortages. For example, a rise in copper prices due to a shortage in the
Sumitomo owned large amounts of copper that was warehoused and stored at factories as well as numerous futures contracts. Hamanaka used Sumitomo's size and large cash reserves to both corner and squeeze the market via the London Metal Exchange (LME). As the world's biggest metal exchange, the LME sets the world copper price. Hamanaka kept this price artificially high for nearly the entire decade leading up to 1995 and, as a result, garnished premium profits on the sale of Sumitomo's physical assets.
Beyond the sale of its copper, Sumitomo benefited from commissions on other copper transactions that were handled by the company. Commissions are calculated as a percentage of the value of the commodity being sold and delivered. In this case, Hamanaka's artificial prices inflated values, which allowed Sumitomo to pocket greater sums.
Hamanaka's manipulation did not go unnoticed. Many speculators and hedge funds knew of Hamanaka and the fact that he was long in both copper physical holdings and futures. Whenever anyone attempted to short Hamanaka, however, he would pour more cash into his positions, thereby sustaining the price and outlasting the shorts, simply by having deeper pockets. Hamanaka held long cash positions that forced anyone shorting copper to deliver the goods or close out their position at a premium. Hamanaka was helped greatly by the fact that, unlike the
Nothing lasts forever, and that includes Hamanaka's corner on the copper market. The market conditions changed in 1995 thanks to the resurgence of mining in
While Hamanaka struggled to get out with most of the ill-gotten gains intact, the LME and the Commodity Futures Trading Commission (CFTC) began investigating the manipulation of the copper market worldwide. Sumitomo responded by "transferring" Hamanaka out of his trading post. The removal of Mr. Copper was enough to bring the shorts on in earnest. Copper plunged and Sumitomo announced that it had lost over $1.8 billion and that the losses could go as high as $5 billion, as the long positions were settled in a poor market. Sumitomo also claimed that Hamanaka was a rogue trader and that his actions were completely unknown to management. Hamanaka was charged with forging one of his supervisor's signatures on a form and convicted. Sumitomo's reputation was tarnished as many people believed that the company could not have been ignorant of Hamanaka's hold on the copper market, especially because it profited for years from it.
Traders argued that Sumitomo must have known of Hamanaka's wrongdoing because the company threw more money at Hamanaka every time speculators tried to shake his price. Sumitomo responded by implicating JPMorgan Chase and Merrill Lynch as funders of the scheme, revealing that the banks had granted loans structured as futures derivatives. Sumitomo, JPMorgan Chase and Merrill Lynch all were found guilty to some extent. As a result, JPMorgan Chase's case on a similar charge, related to the Enron scandal and Mahonia Energy, was hurt. Meanwhile, Hamanaka served his sentence without comment. Since the copper market manipulation, new protocols have been added to the LME to make a repeat less likely."
3billion copper position held by one trader.
A massive long position unwind on Copper, can you say Copper flash crash + huge losses = Risk currencies (namely AUD/REAL/PESO/CAD) to sell down like lead balloon? = yes.
No short memory on MEC research (re: Copper flash crash Sept 9th 2010 - Shanghai) refer: Market is overpricing risk (update 6) -Copper Price 'flash crash', Deutsche Bank capital raising (i.e writedown's ahead)
from WSJ 22nd Dec 2010
No short memory on MEC research (re: Copper flash crash Sept 9th 2010 - Shanghai) refer: Market is overpricing risk (update 6) -Copper Price 'flash crash', Deutsche Bank capital raising (i.e writedown's ahead)
from WSJ 22nd Dec 2010
"As commodity prices soar to new records, the ability of a few traders to hold huge swaths of the world's stockpiles is coming under scrutiny.
The latest example is in the copper market, where a single trader has reported it owns 80% to 90% of the copper sitting in London Metal Exchange warehouses, equal to about half of the world's exchange-registered copper stockpile and worth about $3 billion."
EUR slaughter due 1.30 breach (Update 1) - watch stocks for any catch up 'flash crash' selling
Europe is in trouble. If Greece get's another downgrade that would mean the the peripheral and core European countries plus EU/IMF have been unsuccessful in stabilizing European bond markets and the EUR.
That and the 'core' European countries bond markets are looking bad, please refer to Swiss Franc buying in Euro Zone bond end yr panic sell?
*note the widening divergence of the Dow and EUR in relation to correlation trades, particularly the 1.30 breach that occurred on May 6th 2010 (flash crash). When the Dow was 'ping pong' selling off the EUR, as the Dow dropped from 10,879 to 9,896
That and the 'core' European countries bond markets are looking bad, please refer to Swiss Franc buying in Euro Zone bond end yr panic sell?
*note the widening divergence of the Dow and EUR in relation to correlation trades, particularly the 1.30 breach that occurred on May 6th 2010 (flash crash). When the Dow was 'ping pong' selling off the EUR, as the Dow dropped from 10,879 to 9,896
Oil on a 25mth cyclical bull run. Update 11 - 'Ultra' bullish markets push oil to $90.00.
It really doesn't matter what the US Federal Reserve does now, apart from successfully maintaining a trading range for stocks more notably the Dow trading within 11255-11500; a widen range with thin volume (...and you tell me that is stable?). The Feds/POMO operations (daily) has been an attempt, with $600billion printed money to buy short/mid dated US Treasuries (namely from dealers sold via oversubscribing), to lower the yields on UST's. Of course this has been a complete failure, with yields on most UST's fluctuated on a steeping curve. The 10yr heading towards 4.00% and the 2yr heading towards 1.00%.
So we have a bullish sentiment on the 'ultra' side, namely stocks, but most assets classes are now rallying, with bullish commentary accompanying a 'buy' signal into 2011. But as most indices are bubbles and are oversold, namely US stocks that weren't able to correct in October, November and now December 2010; what we are observing is the thin volume on marked up buys e.g 3 shares bought for 1 sold. This is not a dip buying market, but rather a 'stabilized' High Frequency Trading market, that can meltup and meltdown just as quick.
So if we have bubbles forming now in stocks (US) and bullish sentiment has clouded judgment, with the possibility of dumb and smart 'dumb' money buying into tight HFT trading ranges. What could possibly cause the market to shift south rapidly?
China.
And it's all about oil. With a $90 a barrel inflation break point for China (being oil import dependent). China has an over stimulated economy, vast over capacity, property bubble and possible bank liquidity problems. China will need to see oil much lower, any higher after a 90.00 breach will inevitably increase China's chance to go into hyperinflation, since China is now domestically driven by massive credit expansion. It will either need to crash parts of it's economy or head into an inflationary meltdown if oil climbs upward.
China crashes, the global economy crashes.
After a 20mth bull run oil hits 90.00 (Dec 2010):
*Note USD divergence.
So we have a bullish sentiment on the 'ultra' side, namely stocks, but most assets classes are now rallying, with bullish commentary accompanying a 'buy' signal into 2011. But as most indices are bubbles and are oversold, namely US stocks that weren't able to correct in October, November and now December 2010; what we are observing is the thin volume on marked up buys e.g 3 shares bought for 1 sold. This is not a dip buying market, but rather a 'stabilized' High Frequency Trading market, that can meltup and meltdown just as quick.
So if we have bubbles forming now in stocks (US) and bullish sentiment has clouded judgment, with the possibility of dumb and smart 'dumb' money buying into tight HFT trading ranges. What could possibly cause the market to shift south rapidly?
China.
And it's all about oil. With a $90 a barrel inflation break point for China (being oil import dependent). China has an over stimulated economy, vast over capacity, property bubble and possible bank liquidity problems. China will need to see oil much lower, any higher after a 90.00 breach will inevitably increase China's chance to go into hyperinflation, since China is now domestically driven by massive credit expansion. It will either need to crash parts of it's economy or head into an inflationary meltdown if oil climbs upward.
China crashes, the global economy crashes.
After a 20mth bull run oil hits 90.00 (Dec 2010):
*Note USD divergence.
Monday, December 20, 2010
China's soon-to-be headache as an Asian style European debt problem kicks in - Vietnam
Asia got it's own problems with Vietnam looking much like an indebted European country.
CDS spreads are blowing out:
China bailout fund coming?
CDS spreads are blowing out:
China bailout fund coming?
Swiss Franc buying in Euro Zone bond end yr panic sell?
The Korean situation was a non event; well actually I wouldn't completely rule out a conflict in the near future. I'll bet they (Korean military) have all read Sun Zhu's The Art War, have you?
Anyway, confusion has hits the wires as China's vice premier Wang indicates that China pledges "concrete action" to stabilize Europe debt markets, later revised to "has taken concrete action".
Meaning? China has "done" something, maybe bought a ton of Greek junk bonds a few months back and now not interested in a second dose of EU debt buying, as Europe's weather woes plus debt crisis will pretty much KO the European bonds markets. With rating agency's going into overtime to downgrade 'core' European countries.
The market indicator is the Swiss Franc buyup and a Euro sell off; Europe now could be in for a major world of hurt as mother nature kicks in reality
Emerging economies bond bubble
Emerging economies: Brazil, Russia, India, China (BRICs). Remember you start throwing whole countries into shorten economic acronyms, such as the PIIGS (Portugal, Ireland, Italy, Greece and Spain) - it then appears to be a recipe for disaster.
Rather than the PIIGS being indebted basket cases, the BRIC's are inflation driven bubbles, that are already suffering from in flow of 'hot money', which has created bubbles, particularly in their currencies.
With the BRIC's all pushing huge amounts of bonds onto the markets, please refer to Asian CDS markets are now oversupplied , the fear is that we get a sudden panic and a bubble bursts, say China's property markets and the emerging economies (BRICs) bond market (bubble) will collapse or burst.
From The Telegraph 20/12/2010
Rather than the PIIGS being indebted basket cases, the BRIC's are inflation driven bubbles, that are already suffering from in flow of 'hot money', which has created bubbles, particularly in their currencies.
With the BRIC's all pushing huge amounts of bonds onto the markets, please refer to Asian CDS markets are now oversupplied , the fear is that we get a sudden panic and a bubble bursts, say China's property markets and the emerging economies (BRICs) bond market (bubble) will collapse or burst.
From The Telegraph 20/12/2010
"Financial advisers fear a crash could come soon as income-seeking investors flood into emerging market bond funds, despite warnings from the Bank of England that this may be a bubble about burst. Unit trusts investing in Brazil, Russia, India and China, sometimes called the BRIC countries, and other high growth economies are attracting record inflows, according to the Investment Management Association.
Emerging market bond funds – investing in IOUs issued by BRIC governments and large companies – offer higher yields than equity or share-based emerging market funds. While Bank of England base rate remain frozen at 0.5 per cent and the yield on the FTSE 100 index of Britain’s biggest companies shares hovers around 3 per cent, some emerging market bond funds yield 6 per cent.
Only four unit trusts have a five year track record in this sector – those run by Threadneedle, M&G, Schroder and Invesco – but they have all delivered total returns of more than 50 per cent over the period, compared to less than 23 per cent from the FTSE 100. But the past is not a guide to the future and these funds do not guarantee investors’ income or capital.
The Bank of England highlighted five keys risks facing the British economy in its latest bi-annual Financial Stability Report. It said these included investors seeking better returns than they can get on deposit by investing in emerging markets. The Bank explained that too much capital flowing into these economies could lead to unsustainable bubbles which could destroy investors’ capital if they burst.
Leading independent financial advisers (IFAs) agree. Mark Dampier of Hargreaves Lansdown said: “The best time to buy emerging market bonds was during the Russian default crisis in 1998 – but did anyone do so? Of course not.
“Fast forward to now and the whole world wants them. The party is in full swing and could be fun for a little longer. Yes, we all know we have the debt and they have the cash; lending money to people who can pay it back is an excellent principle.
“But inflation is rising in most emerging markets and interest rates are going to rise further. This is surely not the best background for fixed interest bonds. In addition the flood of money is causing some governments to bring in currency controls and taxes. So my view is that investors should be very careful, as this party could end with a big hangover.”
Sunday, December 19, 2010
Major war/conflict cycle commencing? (update 11) Nth/Sth Korea - Sth Korea's CDS spreads widen on war fears
Market is trying to figure if it will just 'blow over'.
I think we got a war coming.
HONG KONG, Dec 20 (IFR) – The cost of insuring South Korea’s sovereign debt is higher this morning after reports Seoul is pushing ahead with its military exercise while the broad market was lower amid the regional weakness in stock markets. Liquidity was strained in year-end trade with investors hesitant to take aggressive positions. The benchmark iTraxx investment grade index widened out to 104/107bp from Friday’s close of 104.64bp. South Korea’s 5-year CDS moved out to 96/101bp from Friday’s 90/94bp. It is now close to a two week high. “There was lack dialogue over the weekend, in terms of what is happening in the UN council, so no one wants to touch Korea right now,” said a Hong Kong-based trader at a European bank. “I don’t think people are thinking about war at this point in time, people think it will get resolved in the end,” he said. Standard & Poor’s, which has a A rating on South Korea’s debt rating with a stable outlook, said that war was not the likely scenario at the moment. "The outlook is still stable on our assumption this will not deteriorate into a wide military conflict," said Kim Eng Tan in a telephone interview.
South Korea's stock market was down 0.6%, off the early fall of 1.5% amid signs Seoul is pushing ahead with live firing drills from a disputed island despite threats of attack by Pyongyang and pressure from Russia and China to cancel the exercise. Tan added that although a war was still unlikely, risks of an escalation in conflict were currently "much higher" than they were a month or two ago. "If there is a ramp-up which we believe will almost inevitably lead to war, then we have to take some rating action and this could be quite serious. It may not just be a rating outlook change or even a one-notch downgrade. It could be a several-notch downgrade." Asian stock markets were jittery as tensions heightened on the Korean peninsula with the sharp sell-down in Chinese shares also weighing. The MSCI index of Asia-Pacific stocks outside Japan is down 0.6%.
I think we got a war coming.
HONG KONG, Dec 20 (IFR) – The cost of insuring South Korea’s sovereign debt is higher this morning after reports Seoul is pushing ahead with its military exercise while the broad market was lower amid the regional weakness in stock markets. Liquidity was strained in year-end trade with investors hesitant to take aggressive positions. The benchmark iTraxx investment grade index widened out to 104/107bp from Friday’s close of 104.64bp. South Korea’s 5-year CDS moved out to 96/101bp from Friday’s 90/94bp. It is now close to a two week high. “There was lack dialogue over the weekend, in terms of what is happening in the UN council, so no one wants to touch Korea right now,” said a Hong Kong-based trader at a European bank. “I don’t think people are thinking about war at this point in time, people think it will get resolved in the end,” he said. Standard & Poor’s, which has a A rating on South Korea’s debt rating with a stable outlook, said that war was not the likely scenario at the moment. "The outlook is still stable on our assumption this will not deteriorate into a wide military conflict," said Kim Eng Tan in a telephone interview.
South Korea's stock market was down 0.6%, off the early fall of 1.5% amid signs Seoul is pushing ahead with live firing drills from a disputed island despite threats of attack by Pyongyang and pressure from Russia and China to cancel the exercise. Tan added that although a war was still unlikely, risks of an escalation in conflict were currently "much higher" than they were a month or two ago. "If there is a ramp-up which we believe will almost inevitably lead to war, then we have to take some rating action and this could be quite serious. It may not just be a rating outlook change or even a one-notch downgrade. It could be a several-notch downgrade." Asian stock markets were jittery as tensions heightened on the Korean peninsula with the sharp sell-down in Chinese shares also weighing. The MSCI index of Asia-Pacific stocks outside Japan is down 0.6%.
Major war/conflict cycle commencing? (update 9) Nth/Sth Korea
Should knock down all risk trades and side ways 'wanna be bullish market'.
To be watched very closely on Nth Korea response
From Yonhap 20/12/2010
SEOUL, Dec. 20 (Yonhap) -- South Korea's military plans to hold live-fire exercises later Monday from a border island shelled by North Korea last month, the Joint Chiefs of Staff (JCS) said, sending tensions soaring amid Pyongyang's threats to strike back if the drills go ahead.
The communist nation has warned that it would respond to the South's artillery drills from Yeonpyeong Island with "unpredictable self-defensive blows," sparking fears of a recurrence of last month's deadly clash in which the North bombarded the Yellow Sea island.
The shelling devastated the fishing village, killing four people, including two civilians.
"The military has decided to conduct the firing drill today (Monday)," said a JCS official, adding the exercise will be held south of the inter-Korean maritime border. "The exact time for the firing drill will depend on the weather conditions around the island area."
Sources said the drills are likely to be held between 11 a.m. and noon.
Officials said they were broadcasting warnings that those staying on the island take refuge. About 280 people, including residents, reporters and government officials, are staying on the island near the Yellow Sea border between the two sides, officials said.
"This exercise is a routine and legitimate one that we have regularly held from a long time ago to defend the northwestern islands," a JCS official said on condition of anonymity. "Representatives from the Armistice Commission and the United Nations Command plan to watch the drill."
South Korea is watching the North's military moves closely while maintaining full preparedness to respond to possible North Korean provocations, the official said, pledging to give an "immediate and strong" response in case of provocations.
To be watched very closely on Nth Korea response
From Yonhap 20/12/2010
SEOUL, Dec. 20 (Yonhap) -- South Korea's military plans to hold live-fire exercises later Monday from a border island shelled by North Korea last month, the Joint Chiefs of Staff (JCS) said, sending tensions soaring amid Pyongyang's threats to strike back if the drills go ahead.
The communist nation has warned that it would respond to the South's artillery drills from Yeonpyeong Island with "unpredictable self-defensive blows," sparking fears of a recurrence of last month's deadly clash in which the North bombarded the Yellow Sea island.
The shelling devastated the fishing village, killing four people, including two civilians.
"The military has decided to conduct the firing drill today (Monday)," said a JCS official, adding the exercise will be held south of the inter-Korean maritime border. "The exact time for the firing drill will depend on the weather conditions around the island area."
Sources said the drills are likely to be held between 11 a.m. and noon.
Officials said they were broadcasting warnings that those staying on the island take refuge. About 280 people, including residents, reporters and government officials, are staying on the island near the Yellow Sea border between the two sides, officials said.
"This exercise is a routine and legitimate one that we have regularly held from a long time ago to defend the northwestern islands," a JCS official said on condition of anonymity. "Representatives from the Armistice Commission and the United Nations Command plan to watch the drill."
South Korea is watching the North's military moves closely while maintaining full preparedness to respond to possible North Korean provocations, the official said, pledging to give an "immediate and strong" response in case of provocations.
Thursday, December 16, 2010
China inflation blowout 2011 - Global economic collapse scenario
I read blogs that mention the current markets and their trading pattens, with lack off clear dissemination or correlation to fundamentals, technicals and so on. Manly from market distortion/s that resonate out of the US (via the Federal Reserve) and Europe (via the European Central Bank).
Asia of course has China, who are a class act at underplaying figures relating to inflation, and overplaying growth; a communistic throwback in media manipulation, but funny thing is though, you play the capital markets like a fool; you usually get fucked. This happed in the US/EU/UK 2007/2008 and is about to swing back a give the US economy another reality wakeup call. This time an inflation fuck over, with recessionary beat downs as the Federal Reserve assist in the structural decay of the American economy.
But in the meantime China is dancing with the inflation devil (in real-time). If China inflation blows out in 2011 and China goes into a 6-12mth market crash, it will send the global economy into a inflationary depression, but if if oil crashes to $30 a barrel it will be a straight out depression. Which will lead to a total and complete collapse of the US/UK/EU economies.
TODAYonline 16th Dec 2010 (Bloomberg reprint)
"There is a wide belief in China that real CPI inflation is higher than the data has indicated," said Mr Shen Jianguang, chief China economist at Mizuho Securities Asia in Hong Kong. "Low-income people feel strongly about it."
In total, 74 per cent of households considered prices too high, up 15.6 percentage points from the third quarter, the central bank said. Its fourth-quarter survey was of 20,000 households in 50 cities.
Premier Wen Jiabao's government pledged to do more to stabilise prices after an economic planning conference in Beijing that ended this Sunday."
Asia of course has China, who are a class act at underplaying figures relating to inflation, and overplaying growth; a communistic throwback in media manipulation, but funny thing is though, you play the capital markets like a fool; you usually get fucked. This happed in the US/EU/UK 2007/2008 and is about to swing back a give the US economy another reality wakeup call. This time an inflation fuck over, with recessionary beat downs as the Federal Reserve assist in the structural decay of the American economy.
But in the meantime China is dancing with the inflation devil (in real-time). If China inflation blows out in 2011 and China goes into a 6-12mth market crash, it will send the global economy into a inflationary depression, but if if oil crashes to $30 a barrel it will be a straight out depression. Which will lead to a total and complete collapse of the US/UK/EU economies.
TODAYonline 16th Dec 2010 (Bloomberg reprint)
"There is a wide belief in China that real CPI inflation is higher than the data has indicated," said Mr Shen Jianguang, chief China economist at Mizuho Securities Asia in Hong Kong. "Low-income people feel strongly about it."
In total, 74 per cent of households considered prices too high, up 15.6 percentage points from the third quarter, the central bank said. Its fourth-quarter survey was of 20,000 households in 50 cities.
Premier Wen Jiabao's government pledged to do more to stabilise prices after an economic planning conference in Beijing that ended this Sunday."
Tuesday, December 14, 2010
10-yr UST up 3.4550% crushes S&P500 rallies - 'Iceberg' coming (update 2)
As pointed out in The markets are entering a 'Fog of War' - Yields going upwards after the Feds QE2, when most of the market claimed that the the Fed's QE2 was going to flatten yields, especially the short end and propel stocks into hyperspace. This much is true, with some positional adjustments and bulltraps, stocks have resumed upward. With the Dow now breaking the 10400 resistance but as a yield blowout continues and US Treasures were sold, it sent the S&P lower now at 1241. The Feds QE2 experiment has been a flop, as mortgages pegged to the 30yr UST are moving upward and the very important 10yr UST now heading towards 4.00%.
But stocks are rallying (albeit thin liquidity: note S&P500 sell off) with money going mostly into risk buys on short term/rapid trading (HFT's). This extreme bullishness (with dashes of volatility) that has crept into the markets of late will end in tears, as the global economy moves closer to an iceberg.
10yr UST:
S&P500
But stocks are rallying (albeit thin liquidity: note S&P500 sell off) with money going mostly into risk buys on short term/rapid trading (HFT's). This extreme bullishness (with dashes of volatility) that has crept into the markets of late will end in tears, as the global economy moves closer to an iceberg.
10yr UST:
S&P500
Sunday, December 12, 2010
Commodity producing countries under pressure (political/economic - Australia) - Australian taxpayer libilties increase (update 14)
As the Australian Treasury backs a further residential mortgage backed security (RMBS) 'securitization market' that is already at $16billion AUD (which is close to the Australian military budget), it also now wants expand into 'covered bonds' released onto the market via smaller lenders. The catch? The goverment (taxpayer) will underwrite the deposits connected to the covered bonds, in which the taxpayer funded monster Australian Office of Financial Management (AOFM) has been hemorrhaging since 2008.
The problem? The market will eat this (insanity from the Australian goverment) alive, as the whole thing will be interpreted as a goverment fear of a housing bubble/crash. Watch Australian bond yields go into hyper space as Australian borrowing costs blowout.
If China pops the commodity bubble in 2011, Australia's income dependency will dissipate and you might as well connect Australia to the EU debt problem, say similarity being Spain (housing bubble/bust, banks, trillion dollar economy etc)
"SINGAPORE, Dec 13 (IFR) - Australia’s Treasurer Wayne Swan yesterday (December 12) announced a series of bank reforms including introduction of covered bonds and setting aside another AUD4bn (USD3.9bn) to support the RMBS market.
The measures were issued under the the government’s Competitive and Sustainable Banking System reforms. Draft amendments in the Banking Act to allow issuance of covered bonds in Australia will be released when the Parliament first reconvenes next year.
As a three-pronged strategy, the government has allowed all banks, credit unions and building societies to issue covered bonds, a move that will help these borrowers access cheaper and long term stable funding. Covered bonds are backed by assets which can be enforced upon at the occurrence of a default. They therefore are priced at lower interest rates compared to plain vanilla bonds.
Under the proposal, each covered bond issuer may have a limit or cap assigned. For instance, an issuer may be allowed to issue covered bonds up to 5% of its total Australian assets.
The government also plans to deepen the corporate bond market by launching the trading of government bonds on exchanges.
Meanwhile, the government extended by a further AUD4bn the support programme to the RMBS market. The government has already provided AUD16bn to the Australian Office of Financial Management to invest in the Triple A rated RMBS tranches. The fund was created in early 2008 at an initial size of AUD8bn, and a year later, doubled to help the securitization industry, which has suffered a hit by the global financial crisis. So far, about AUD15bn is believed to be fully invested in the market, while the remaining will be invested by early 2011.
Significantly, the government has also emphasised on the development of special “bullet” bonds for smaller lenders to help diversify their funding. Last week, regional lender Bendigo and Adelaide Bank issued an AUD1bn RMBS, which had little over 50% of the deal in bullet notes. This was the second deal in the year which had fixed rate notes."
The problem? The market will eat this (insanity from the Australian goverment) alive, as the whole thing will be interpreted as a goverment fear of a housing bubble/crash. Watch Australian bond yields go into hyper space as Australian borrowing costs blowout.
If China pops the commodity bubble in 2011, Australia's income dependency will dissipate and you might as well connect Australia to the EU debt problem, say similarity being Spain (housing bubble/bust, banks, trillion dollar economy etc)
"SINGAPORE, Dec 13 (IFR) - Australia’s Treasurer Wayne Swan yesterday (December 12) announced a series of bank reforms including introduction of covered bonds and setting aside another AUD4bn (USD3.9bn) to support the RMBS market.
The measures were issued under the the government’s Competitive and Sustainable Banking System reforms. Draft amendments in the Banking Act to allow issuance of covered bonds in Australia will be released when the Parliament first reconvenes next year.
As a three-pronged strategy, the government has allowed all banks, credit unions and building societies to issue covered bonds, a move that will help these borrowers access cheaper and long term stable funding. Covered bonds are backed by assets which can be enforced upon at the occurrence of a default. They therefore are priced at lower interest rates compared to plain vanilla bonds.
Under the proposal, each covered bond issuer may have a limit or cap assigned. For instance, an issuer may be allowed to issue covered bonds up to 5% of its total Australian assets.
The government also plans to deepen the corporate bond market by launching the trading of government bonds on exchanges.
Meanwhile, the government extended by a further AUD4bn the support programme to the RMBS market. The government has already provided AUD16bn to the Australian Office of Financial Management to invest in the Triple A rated RMBS tranches. The fund was created in early 2008 at an initial size of AUD8bn, and a year later, doubled to help the securitization industry, which has suffered a hit by the global financial crisis. So far, about AUD15bn is believed to be fully invested in the market, while the remaining will be invested by early 2011.
Significantly, the government has also emphasised on the development of special “bullet” bonds for smaller lenders to help diversify their funding. Last week, regional lender Bendigo and Adelaide Bank issued an AUD1bn RMBS, which had little over 50% of the deal in bullet notes. This was the second deal in the year which had fixed rate notes."
Thursday, December 9, 2010
China is about to crash (update 7): CPI rumour, rate hikes, market preparing for a China/commodity crash
The China bubble is about to pop, that and the commodity (industrial) bubble = nasty
Risk currencies such as the Canadian Dollar (CAD) and Aussie Dollar (AUD) will be risk gauge on China interest rate hikes. We see some substantial sells (risk crosses/FX) after the coming weekend 11th, 12th Dec 2010 (China rate hikes), stocks will be hit hard.
Reuters Dec 9 2010
"* China slowdown bigger fear than U.S. regulation
Risk currencies such as the Canadian Dollar (CAD) and Aussie Dollar (AUD) will be risk gauge on China interest rate hikes. We see some substantial sells (risk crosses/FX) after the coming weekend 11th, 12th Dec 2010 (China rate hikes), stocks will be hit hard.
Reuters Dec 9 2010
"* China slowdown bigger fear than U.S. regulation
* Possible price bubble in commodities another worry
* Absolute returns top reason for investing in commods
* Copper seen top gainer in 2011, followed by grains, oil
NEW YORK, Dec 9 (Reuters) - Commodity investors now fear a
slowing Chinese economy more than U.S. financial regulations
and many worry of a bubble if markets keep rallying with little
heed to fundamentals, a survey by Barclays Capital found.
Absolute returns, or profits, remained the main reason for
investing in commodities for a second straight year -- compared
with the traditional objective of portfolio diversification.
But while investors saw the potential for further upside in
commodities from continued economic recovery, they expressed
wariness over growing risks in China and the sharp price run-up
in many markets of late, the survey showed.
"China is a bigger concern now than before," Kevin Norrish,
BarCap's director of commodity research, told reporters on
Thursday as the London-based investment bank unveiled the
findings of its sixth annual commodity investors survey.
"This time last year, there was no concern about liquidity
tightening in China. But the inflation in food prices and the
property market bubble has changed that," he said.
"Now there's concern that if something goes wrong, policy
could tighten up too quickly and interest rates would go up
faster than anticipated, hitting demand for almost everything
China consumes."
Investors in last year's poll cited U.S. financial
regulations as their top concern, amid moves to rein in Wall
Street post-crisis. A raft of new laws have surfaced since,
including limits on the amount of proprietary money a bank can
bet on a market.
This year's survey revealed concerns about a possible price
bubble after a number of niche commodities, including cotton
and silver, hit multi-year highs and posted wild price swings
as futures exchanges upped trading margins, or deposits.
"I think markets such as copper and crude oil could
continue doing well but the others, where the fundamentals are
more suspect, could fall back quite a bit," Norrish said.
The survey showed copper as the commodity best poised for
returns in 2011, securing 26 percent of the votes from the more
than 300 respondents, who included pension fund managers, hedge
fund traders and high net worth individuals.
BarCap has a price target of $9,950 for a tonne of copper
on the London Metal Exchange CMCU3 by the third quarter of
2011, compared with Thursday's record high of $9,091.
Norrish said he believed the metal, used largely by the
construction and power industries, "has potential to strike
$10,000". [ID:nN09242729]
Grains took the second-highest number of votes in the
survey on expected price gains, at 23 percent, while crude oil
came in third, with 19 percent."
China property market a time bomb (update 1)
China is probably now at the critical stages on a housing bubble bursting. Rumored rate hikes and bank deposit ratio hikes for the 11th 12th December 2010
China Daily 9/12/2010
"BEIJING - China's top think tank has said that the country's real estate bubble has soared in urban areas, with the biggest gap between market price and actual value in Fuzhou, capital of East China's Fujian province.
The actual value of commercial housing in Fuzhou is only 3,998 yuan ($600) per square meter, while the market price is 13,457 yuan, according to a survey published in a report on the housing market in China (2010-2011) released by the Social Sciences Academic Press on Wednesday.
In Fuzhou and six other cities, the bubble index is more than half of the market price, the survey found.
The bubble index was designed to take into account 11 sub-indexes, including public infrastructure and facilities, and average per capita disposable income.
First-tier cities such as Beijing, Shanghai and Shenzhen are among 11 cities where bubble indexes account for 30 to 50 percent of the market price, it said. Eight cities have a bubble indexes from 10 to 30 percent, and the index in nine cities are below 10 percent."
'Barclays Bank' says EUR will be bid in 2011 and Spain will be A OK
But it gets better as Barclays says Spain will NOT be the next problem for Europe and they have a super long term call (end yr!) on the EUR in 2011
Of course the EUR will be in a selling mode again and Spain is the NEXT major problem for Europe.
Below is a confused ambiguity of veiled panic via Barclays analysts
"NEW YORK (Dow Jones)--The euro will fall to $1.28 over the next three months on sovereign debt concerns, but because Spain will not be the next domino to fall, the currency will then rebound, said Barclays Capital analysts Thursday. According to the bank's 2011 global economic outlook, the currency will rebound to $1.42 in a year's time. Helping support the euro, the zone's EUR750 billion emergency bailout fund is likely adequate and Spain--plagued by a troubled banking sector--will survive its fiscal convulsions without aid, they said. In a month's time, the euro is expected to be at $1.30, the bank said. In a survey published on Nov. 23 by Dow Jones Newswires, Barclays had forecast the euro at $1.37 at the end of December. Spain represents a game-changer to the euro zone and common currency if it should stumble, said Larry Kantor, head of research at Barclays Capital. "Spain would be another problem," altogether, compared with small economies of Ireland and Greece, and represents the biggest threat to the euro, he said. The euro traded at $1.32, down 0.2% Thursday, on reports the Irish opposition party would vote against the country's fiscal lifeline. The dollar will rise to Y89 in one year's time on the backs of rising short-term Treasury yields, the bank said. In a month's time, the dollar is expected to be at Y83, the bank said. In the survey published Nov. 23 by Dow Jones, Barclays had forecast the dollar at Y81 at the end of December. Japanese investors are much more skeptical of the U.S. recovery based on their own experiences with the onset of deflation, said Jeff Young, head of North American foreign exchange research at Barclays. Continued large purchasing of Treasurys by those investors will likely limit a recent rise in U.S. yields and the subsequent rise of the dollar against the yen, he said. The dollar traded at just under Y84, down 0.4% Thursday, on falling U.S. yields after a strong 30-year Treasury auction"
Of course the EUR will be in a selling mode again and Spain is the NEXT major problem for Europe.
Below is a confused ambiguity of veiled panic via Barclays analysts
"NEW YORK (Dow Jones)--The euro will fall to $1.28 over the next three months on sovereign debt concerns, but because Spain will not be the next domino to fall, the currency will then rebound, said Barclays Capital analysts Thursday. According to the bank's 2011 global economic outlook, the currency will rebound to $1.42 in a year's time. Helping support the euro, the zone's EUR750 billion emergency bailout fund is likely adequate and Spain--plagued by a troubled banking sector--will survive its fiscal convulsions without aid, they said. In a month's time, the euro is expected to be at $1.30, the bank said. In a survey published on Nov. 23 by Dow Jones Newswires, Barclays had forecast the euro at $1.37 at the end of December. Spain represents a game-changer to the euro zone and common currency if it should stumble, said Larry Kantor, head of research at Barclays Capital. "Spain would be another problem," altogether, compared with small economies of Ireland and Greece, and represents the biggest threat to the euro, he said. The euro traded at $1.32, down 0.2% Thursday, on reports the Irish opposition party would vote against the country's fiscal lifeline. The dollar will rise to Y89 in one year's time on the backs of rising short-term Treasury yields, the bank said. In a month's time, the dollar is expected to be at Y83, the bank said. In the survey published Nov. 23 by Dow Jones, Barclays had forecast the dollar at Y81 at the end of December. Japanese investors are much more skeptical of the U.S. recovery based on their own experiences with the onset of deflation, said Jeff Young, head of North American foreign exchange research at Barclays. Continued large purchasing of Treasurys by those investors will likely limit a recent rise in U.S. yields and the subsequent rise of the dollar against the yen, he said. The dollar traded at just under Y84, down 0.4% Thursday, on falling U.S. yields after a strong 30-year Treasury auction"
Tuesday, December 7, 2010
10-yr UST 3.1650% crushes Dow and S&P500 rallies (update 1).
Just when we thought that the excess liquidity pouring into Wall Street via the Federal Reserve could maintain a forever rally in stocks, but it has to be realized that if US Treasuries are getting abandoned (to go into risk trades, like stocks) this in turn forces UST yields upward, which in turn makes the US dollar bid, this sends stocks lower; all on the expectations that interest rates will start to go up, as mortgage/credit interest rates will start to climb.
As discussed in An interest rate wipe-out coming (update 1) the volatility in the stock market is a sharp volatility (daily) which will continue with an interrelationship with UST yields and USD dollar going upward, as the yield on short/mid/long term UST's effects USD trades (buy). So any expectations, say buying into an open (stocks) for a continued rally maybe disappointed as a sell is most likely towards the end of close, this has 'unlimited' time frame as the market is now trading in a high frequency trading environment/s that is all about scalping on tight bid/offer spreads. But one should be aware that the 'unlimited' time frame (buy (stocks) open sell close counter relationship to yields bid, USD bid), is only unlimited once the structural collapse of financial markets begins, which is probably occurring now. As the global economy is completely dysfunctional i.e inflation problems in China, sovereign debt problems in Europe as the US prints money and remains an economic basket-case.
10yr yield
Dow
S&P 500
As discussed in An interest rate wipe-out coming (update 1) the volatility in the stock market is a sharp volatility (daily) which will continue with an interrelationship with UST yields and USD dollar going upward, as the yield on short/mid/long term UST's effects USD trades (buy). So any expectations, say buying into an open (stocks) for a continued rally maybe disappointed as a sell is most likely towards the end of close, this has 'unlimited' time frame as the market is now trading in a high frequency trading environment/s that is all about scalping on tight bid/offer spreads. But one should be aware that the 'unlimited' time frame (buy (stocks) open sell close counter relationship to yields bid, USD bid), is only unlimited once the structural collapse of financial markets begins, which is probably occurring now. As the global economy is completely dysfunctional i.e inflation problems in China, sovereign debt problems in Europe as the US prints money and remains an economic basket-case.
10yr yield
Dow
S&P 500
Sunday, December 5, 2010
Major war/conflict cycle commencing? (update 8) Nth/Sth Korea
The risk is air strikes from South Korea/US supported, if Nth Korea artillery is fired into Sth Korea - whilst military 'war games' continue on
This scenario may occur very soon.
This scenario may occur very soon.
NK warns of escalated tension
By Wang Zhaokun
North Korea warned Sunday that South Korea's plan to hold a naval live-fire drill in waters near the disputed west coast is escalating tensions on the Korean Peninsula.
"The enemy's provocative madness has been driving the situation on the Korean Peninsula to an uncontrollably extreme state. ... No one can expect how the situation will develop in the future," Pyongyang's official Korean Central News Agency said in a statement, according to AFP.
North Korea is now maintaining "maximum self-possession and self-control," the Xinhua News Agency quoted the statement as saying. "If an all-out war breaks out between the two sides, it will seriously affect peace and security not only on the Korean Peninsula, but also in the rest of the region."
South Korea's Joint Chiefs of Staff said last week that the naval drills, starting today, will include live-fire from ships into waters near Dae-cheong Island.
However, Pyongyang said a similar drill November 23, when the South fired artillery shells into its waters, triggered a tense exchange of artillery fire between the two sides in which four South Koreans were killed on Yeonpyeong Island, according to Reuters.
South Korea has staged a series of military exercises, including a massive four-day joint naval drill with the US last week, amid high tension following the November 23 incident.
Pyongyang's warning also came after South Korea's newly named defense chief, Kim Kwan-jin, said Friday at his confirmation hearing that Seoul will respond with air strikes if North Korea attacks again.
from China Global Times'Madman' Ben Bernanke is ensuring that China and US are on a collision course (update 1)
And to add insult to injury, as Bernanke justifies exporting inflation, he says this:
"TOKYO, Dec 6 (IFR) - More comments from the FOMC Chair over the CBS "60 Minutes" website. Mr Bernanke sees the yuan peg as bad for both China and for the US economy and trade. For China, he says it is bad because it mean the country cannot have an independent monetary policy. He says the Chinese should allow its currency to appreciate to something more appropriate in terms of market value. He sees the Chinese economy growing very quickly and risks inflation by importing accommodative US monetary policy"
... as he devalues the USD.
Bizarre.
"TOKYO, Dec 6 (IFR) - More comments from the FOMC Chair over the CBS "60 Minutes" website. Mr Bernanke sees the yuan peg as bad for both China and for the US economy and trade. For China, he says it is bad because it mean the country cannot have an independent monetary policy. He says the Chinese should allow its currency to appreciate to something more appropriate in terms of market value. He sees the Chinese economy growing very quickly and risks inflation by importing accommodative US monetary policy"
... as he devalues the USD.
Bizarre.
'Madman' Ben Bernanke is ensuring that China and US are on a collision course ('Bernanke' sends oil to $89)
Ben Bernanke on CBS/60 mins has stated that he hasn't ruled out further bond purchase beyond the current $600billion of US debt monetization by the Federal Reserve. On the 3rd December 2010 the markets were briefed earlier via the Bernanke/CBS transcript sending stocks and risk/commodity/Asian currencies upward and the USD was sold. The best part? Oil going from $87.14 to $89.49, moving closer to the $90+ (in my opinion): a break point for China.
As China is going into hyper inflation based on food and energy (China being a net importer of oil), it certainly doesn't need oil to go upward in price, whilst a 'mad' Federal Reserve chief (Ben Bernanke) devalues the US dollar, at the same time exporting inflation to China. China will not be happy.
The longer this nut devalues the USD the more tensions will arise between China and the US, the more expensive oil becomes China and the US will edge closer towards their collision course.
Chart: Oil/USD (self explanatory)
As China is going into hyper inflation based on food and energy (China being a net importer of oil), it certainly doesn't need oil to go upward in price, whilst a 'mad' Federal Reserve chief (Ben Bernanke) devalues the US dollar, at the same time exporting inflation to China. China will not be happy.
The longer this nut devalues the USD the more tensions will arise between China and the US, the more expensive oil becomes China and the US will edge closer towards their collision course.
Chart: Oil/USD (self explanatory)
Thursday, December 2, 2010
An interest rate wipeout coming (update 1)
So we have 2nd day rally, on the premise that the Fed will continue printing (already recent figures Federal Reserve money supply M1 rose by $18.3 billion to $1.817 trillion, while M2 rose $10.3 billion to $8.809 trillion) and the European Central bank, that could be argued is now a high risk inducing engine for Europe, as it gobbles up toxic European sovereign debt. The EUR rallied on confidence rather than logical fundamentals, that being that as long as you have USD weakness you'll have exported: inflation oil/commodities, currencies bubbles form against USD weakness. The interesting point there is that Germany, that is now become a weak shell ( politically) is allowing it's country to backstop and guarantee bond transactions/purchases and underwriting, in other words Germany is the insurer of European 'toxic' debt as it is bought up by the ECB. The EUR hasn't responded to this liquidity pump by the ECB by selling, but rather it was bid as the crazies at the US Fed feel vindicated that their $600billion print job is justified. The commons excuse, 'they are doing it, so we can too'. Point being is the new mandate for Quantitative Easing 2 from the Fed was to lower UST yields. But this is the best bit, yields are going UP!.
What this means of course is that stocks, yes you can by on a dip (but watch your margins/leverage on open sells), will correct on a severe downside (only to rally again of course within a hrs/day), and as discussed in The Dow successfully creates another 'bulltrap', on the fact that liquidity will naturally tighten as the markets starts to lock in upward interest payment/s measured against mid/long term bonds. Even short dated bond yields are going up.
The point? Both the European Central Bank and the Federal Reserve bank of America are encouraging an interest rate wipe-out, that will begin if yields go ballistic on UST's (and of course EZ debt). Their crazy idea of liquidity induced stock rallies won't mean squat (although good if you are into scalping/day trading plays), when oil/food and interest rates will all go up in tandem.
Operational costs for companies should suck profits away plus 'real' adjusted interest rates going upward, oil/energy costs etc. All will effect profits, market evaluations and thus stocks. Eventually all this money printing induced stock volatility and dynamic range trading i.e % sells at open /buys at close, a sustained correction of stocks will be due.
So in conclusion we are now going into a interest rate cycle, China will probably crunch hard on a current rate cycle; this is obvious with a 'bubble' property market. Regardless of what Trichet (ECB butnut) and Bernanke (Fed butnut) are capable of doing which is printing money, the further they encourage stock speculation the further yields will increase on bonds; which in turn means they have to keep printing to 'attempt' to offset yield blowouts on debt (EU PIIGS/EZ debt and UST's).
This can go on for awhile longer until oil reaches $90-$100 and China crashes, dragging the US and European into it's free-fall. Setting of widespread political/social turmoil in both Europe and America
What this means of course is that stocks, yes you can by on a dip (but watch your margins/leverage on open sells), will correct on a severe downside (only to rally again of course within a hrs/day), and as discussed in The Dow successfully creates another 'bulltrap', on the fact that liquidity will naturally tighten as the markets starts to lock in upward interest payment/s measured against mid/long term bonds. Even short dated bond yields are going up.
The point? Both the European Central Bank and the Federal Reserve bank of America are encouraging an interest rate wipe-out, that will begin if yields go ballistic on UST's (and of course EZ debt). Their crazy idea of liquidity induced stock rallies won't mean squat (although good if you are into scalping/day trading plays), when oil/food and interest rates will all go up in tandem.
Operational costs for companies should suck profits away plus 'real' adjusted interest rates going upward, oil/energy costs etc. All will effect profits, market evaluations and thus stocks. Eventually all this money printing induced stock volatility and dynamic range trading i.e % sells at open /buys at close, a sustained correction of stocks will be due.
So in conclusion we are now going into a interest rate cycle, China will probably crunch hard on a current rate cycle; this is obvious with a 'bubble' property market. Regardless of what Trichet (ECB butnut) and Bernanke (Fed butnut) are capable of doing which is printing money, the further they encourage stock speculation the further yields will increase on bonds; which in turn means they have to keep printing to 'attempt' to offset yield blowouts on debt (EU PIIGS/EZ debt and UST's).
This can go on for awhile longer until oil reaches $90-$100 and China crashes, dragging the US and European into it's free-fall. Setting of widespread political/social turmoil in both Europe and America
Wednesday, December 1, 2010
EUR slaughter due 1.30 breach. ECB bond buying will go into overdrive
ECB meeting at 0930GMT. Highly likely a resumption and increased buy up of EZ bonds by the European Central Bank
ECB buys more EZ bonds = weakens EUR + Strengthens USD + UST's yields up = Dow and S&P sell
refer to the Dow correlation with a EUR sell and it's time for a catch up (note divergence Dow/EUR) i.e sell off (stocks)
To drive more liquidity into the bond markets would mean weakening another market, so it's a sell, in my opinion. Let's see what these crazy ECB guys do huh?
ECB buys more EZ bonds = weakens EUR + Strengthens USD + UST's yields up = Dow and S&P sell
refer to the Dow correlation with a EUR sell and it's time for a catch up (note divergence Dow/EUR) i.e sell off (stocks)
To drive more liquidity into the bond markets would mean weakening another market, so it's a sell, in my opinion. Let's see what these crazy ECB guys do huh?
FT link: US Fed bailed out 10 Euro banks during 2007/2008
FT link
Now scratch out the IMF via US extra funding to bail out Europe. Not going to happen.
Although increased odds that the Fed chief Ben Bernanke is history at some-point in 2011
Now scratch out the IMF via US extra funding to bail out Europe. Not going to happen.
Although increased odds that the Fed chief Ben Bernanke is history at some-point in 2011
QE3 coming? But just check those yields (10yr going to 3.00%)
Will the Federal Reserve act insane again (re Einstein's definition of insanity) ?
Surely no QE3 is planned?
Look at what they have achieved so far: 10yr UST going to 3.00%
So much for reducing yields...
interest rate blowout coming?
Surely no QE3 is planned?
Look at what they have achieved so far: 10yr UST going to 3.00%
So much for reducing yields...
interest rate blowout coming?
The Dow successfully creates another 'bulltrap' (update 1)
An almost identical rally to the one that took place on the 24th November 2010, refer to post and analysis The Dow successfully creates another 'bull-trap'
Same patten, same HFT grind, same open sell (next day of trading)/buy melt-up pre close. Range 11000 11400
Volatility trading with 50-100 point losses at open (last 5 trading days). Leveraged option put plays.
Same patten, same HFT grind, same open sell (next day of trading)/buy melt-up pre close. Range 11000 11400
Volatility trading with 50-100 point losses at open (last 5 trading days). Leveraged option put plays.
Oil on a 25mth cyclical bull run. Update 11 - Oil 'cruch' at $90? China (update 1)
We had a wonderful rally on the 1st December 2010 influenced solely (equities) by three things 1. China's runaway PMI readings, 2. European Central Bank money printing via buying 'junk' bonds from indebted countries of European 3. The International Monentary Fund (US tax payer supported) will pump more money into the 'stabilization fund' for European countries. Also the Feds Beige book showed 'positive' signs and private employment had apparently risen (I'll let the more analytical commentators of US economic readings analyze all that).
So it's the same old cue, throw money at the problems and hope the problem goes away (which it doesn't) then go into denial when they (central banks) have caused an imbalance somewhere else. But as most central banks have now become a mechanism for insane behavior ( trying the same thing over and over expecting a different outcome) it's the central bankers who don't really know how the markets operate.
Regardless, this cash liquidity pump, caused weakness in the US dollar and sent oil higher. A nice trade off if you devalue the USD via various money print operation, either though the Feds $600billion print job, which has been a flop and will continue to be a flop, add the ECB and IMF money pump effect and you'll see commodities that trade against the USD rise. Such as oil.
The psychological break point or oil 'crunch', in my opinion is $90, this would be more a Chinese problem as they are grappling with the signs of hyper-inflation (e.g go to the shop to buy some pork see a price increase, a week later it increases in price again). A higher oil price will tip the Chinese economy into a 'inflation' crash.
Oil is now sitting at $86 a barrel, looking slightly overstretched, looks like marked up distribution buys against a USD hedge. Corrective sell is there as most moving averages are pointing to a $80 support. However a spike to $90 (near term) is a distinct possibility if the USD is offered over oil.
But it is all China, watching Shanghai composite weakness (stocks) for tightening of the Chinese ecomomy, as China has a supply (overcapacity) problem, inflation, mixed with a soon to be oil 'crunch'.
So it's the same old cue, throw money at the problems and hope the problem goes away (which it doesn't) then go into denial when they (central banks) have caused an imbalance somewhere else. But as most central banks have now become a mechanism for insane behavior ( trying the same thing over and over expecting a different outcome) it's the central bankers who don't really know how the markets operate.
Regardless, this cash liquidity pump, caused weakness in the US dollar and sent oil higher. A nice trade off if you devalue the USD via various money print operation, either though the Feds $600billion print job, which has been a flop and will continue to be a flop, add the ECB and IMF money pump effect and you'll see commodities that trade against the USD rise. Such as oil.
The psychological break point or oil 'crunch', in my opinion is $90, this would be more a Chinese problem as they are grappling with the signs of hyper-inflation (e.g go to the shop to buy some pork see a price increase, a week later it increases in price again). A higher oil price will tip the Chinese economy into a 'inflation' crash.
Oil is now sitting at $86 a barrel, looking slightly overstretched, looks like marked up distribution buys against a USD hedge. Corrective sell is there as most moving averages are pointing to a $80 support. However a spike to $90 (near term) is a distinct possibility if the USD is offered over oil.
But it is all China, watching Shanghai composite weakness (stocks) for tightening of the Chinese ecomomy, as China has a supply (overcapacity) problem, inflation, mixed with a soon to be oil 'crunch'.
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