Tuesday, August 31, 2010

Asia is pricing in risk - (update 2) South Korea's PMI down

South Korea's trade surplus: expanding 34.9% to $2.08billion from $1.54billion a year ago, with both export and import growth showing an extreme slowdown.

PMI for August 2010 dropped to 50.9 from 53.3 in July 2010 form the peak of 58.2 in February 2010 lowest since March 2009.

South Korea's contraction is now in place.

Monday, August 30, 2010

Asia is pricing in risk - (update 1) defection of Chinese Bank Chief (PBoC)

please go to this link:

http://blogs.forbes.com/china/2010/08/30/central-bank-chief-rumored-to-have-defected/?boxes=financechannelforbes. Forbes link

Major market sell on the way? (update 2)

So with the Hindenburg Omen and the 'death cross' both indicating, in simplified terms, that volume is dissipating out of the stocks, but stocks are still sitting at relatively higher levels (price). The rug (liquidity...what is left) can get pulled very quickly. Hence crash.

Note: 5.6billion shares trades on Wall Street 30th Aug 2010, slowest for the year.

And to top it,

Japan: "Nomura/JMMA PMI fell to 50.1 in August, from 52.8, lowest since 48.2 in June 2009, just 0.1 point above the "boom/bust" 50 level"

China: (Telegraph): "Moody's rating agency is concerned that China is powering its economic growth by raising the gearing of the banking system, leaving the country exposed if the outlook darkens. The banks are expanding their balance sheets rapidly through higher leverage a policy that relies entirely on the continuance of torrid growth. "Pain lies ahead if China's economic growth slows and the banking business model cannot adjust accordingly in time," said Yvonne Zhang, the agency's senior China analyst"

Commodity producing countries under pressure (political/economic - New Zealand) - (update 3)

The economic darlings (countries) that were to skirt a global recession in 2008, due to the Chinese inflated property market, are now showing stresses, bad ones.

New Zealand which is a heavily reliant on exports, namley farming agriculture/commodity produce has been straining to stay out of a fall blown economic downturn. Their luck could be up.

South Canterbury finance, which is a private non bank lender of a 84 year old history. That in it's last days (probably became a 'Ponzi' lender) have gone bust, with the New Zealand government looking at a tab of $1.7billion NZD deposit guarantee for depositors.

This Asia/pacific bankruptcy of a major lender should effect CDS spreads of the Asian/Pacific, a reverberation of fear on any non-bank lenders, or bank lenders that are lending and feeding into the overinflated Asian/Australian/New Zealand property markets. I'll post some Markit Itraxx data when it comes to hand.

from Reuters:

"One of New Zealand's largest finance companies, privately-owned South Canterbury Finance, has collapsed after a bid to recapitalise failed, the company said on Tuesday. South Canterbury Finance, which has listed debt, had a deadline of the end of August to secure new capital, or face the threat of receivership"

Sunday, August 29, 2010

Time to 'short' Australia's housing bubble (update 1)

Bloomberg Aug 24th 2010

"The real-estate bubble: Things are so frothy that Morgan Stanley is advising investors to buy put options on real estate and bank shares to profit from a likely housing-market bust.

Bubble Troubles

Homes are about 40 percent overvalued and prices are vulnerable to rising unemployment and tighter bank lending, Gerard Minack, Sydney-based head of Morgan Stanley’s global developed market strategy, wrote in an Aug. 16 report. Home prices rose at an annual rate of 18 percent in the second quarter, according to the Australian Bureau of Statistics.

The Reserve Bank of Australia’s six interest-rate increases since October haven’t done the trick. Regulatory steps are needed to keep this bubble from destabilizing a nation that has avoided a recession for 19 years, earning it the well-deserved nickname “the miracle economy.”

As of March 31, the nation’s household-debt-to-disposable- income ratio was 158 percent. Sky-high household debt leaves Australia vulnerable to a double-dip global recession."

Time to 'short' Australia's housing bubble

This will be an ongoing blog post with updates, till then these two charts
AUD:



and the mother of all housing bubbles:

Asia is overpricing risk (update 7) - Fed may disappoint re: QE. Japan may not intervene re: YEN (update 1)

Correct.

Fed will do the same (which is not much).

Will goverments have to increase debt ceilings ?


Nice. Bond markets will choke the fuck up if it's all (goverment/s) fiscal policy now.

Capital raising on everything will be FUBAR if goverments go all debt overload, or we just have a huge de-leverage. What do you think?

Yeah the de-leverage option (by default)...that's what I think too.

Danger ahead and the endgame is in sight.

Asia is pricing in risk - property bubble explosion

The news freaked the markets a little today knocking down most risk crosses after that idiot Bernanke talked up some more monetary illusion.

Still if Asia blows out it's property market, it will devastate western markets

South Korea, Taiwan, HK/China and now Singapore from Bloomberg

"Singapore increased down payments for second mortgages and imposed a stamp duty on property held for less than three years to curb speculation after home prices surged 38 percent in the second quarter.

Buyers who hold more than one mortgage can only borrow up to 70 percent of a property’s value, versus 80 percent previously, and must pay 10 percent in cash, up from 5 percent, the government said in a statement today. A seller’s stamp duty will apply to all residential units and land sold within three years of purchase, from one year. The changes take effect today.

Singapore joins Hong Kong and China in introducing measures this year to cool their property markets amid concerns that asset bubbles are forming as home prices surge. Hong Kong said this month it will tighten mortgage lending rules and increase the supply of land, while China’s restrictions include higher down payments and mortgage rates for multiple-home buyers.

“The government is taking a preemptive approach to make sure prices don’t get out of hand,” said Donald Han, a Singapore-based managing director at real estate adviser Cushman & Wakefield Inc. “Most of the measures are really targeting repeat buyers and speculators who buy and sell over the short term, which is now defined as within three years.”

Ben 'Butnut' Bernanke makes the call

No real surprises here when the Federal Reserve chief says' he will do everything to avoid a recession' or something along those lines. Markets rallied, bonds were sold, USD was sold and risk is on; well tentatively (as far as a relief rally went), in fact rather mildly. The big question can the Federal Reserve print enough money to flow onto the consumer? It didn't work last time it most likely won't work this time. With the Federal Reserve swelling their balance sheet to 2.6 Trillion, I guess you could say those brainiacs will double it; at some-point the Fed will take a hit or a slew of banks will (CMBS are still off retail/commercial balance sheets and we got billion plus losses creeping up - epicenter: Atlanta USA) take a hit. What ever the case with depreciating assets, the Fed can keep printing and the banks can keep absorbing liquidity to cover losses, this can go on forever until the whole system just implodes. In the meantime stock rallies won't be like 2009, instead we will have wide volatility ranges as discussed in Dow and S&P 500 bear signals in a 'graveyard market'. The market will be brutal and unforgiving when liquidity will wash in and out, this will go on maybe for years, please refer to New highs for S/P 500 and Dow Jones 2010?

But I think the markets got ahead of it self, as the Federal Reverse and even the confused 'butnuts' at the Bank of Japan can't do much more; they can keep devaluing their currency's but eventually something will give; in the case of Japan, I personally see China going to war (trade war/protectionism) with Japan. So I don't thin the YEN will weaken, China won't allow it

Congress may pressure the Federal Reserve to not weaken the US Dollar any further on the back of a possible trade war/protectionism with China. As China has attempted to de-pegg the YUAN from the USD (token attempt), rather than artificially be held lower, other wise if the USD is to weakened substantially the Chinese will re-peg their currency and devlue the YUAN. Which will send the US and China into nasty trade war, no problems about that at all. China is paranoid of it's export markets, to have both Japan and the US devalue further is a competitive swipe against that Chinese.

Both the YEN and USD to weaken further most likely will not happen.

Thursday, August 26, 2010

Asia is overpricing risk (update 6) - Fed may disappoint re: QE. Japan may not intervene re: YEN

'Smart' money has poured into risk currencies (although stocks are sell/range trade) and YEN crosses on 2 reasons. 1. Bernanke speech. 2 BoJ/Gov intervention on the rising YEN.

Both reasons may disappoint:
  • The Fed may, yes surprisingly and discreetly, be concerned about inflation spikes. So any further qualitative easing expectations may disappoint.
  • The BoJ/Japanese Gov may not intervene on the YEN due to the Swiss National Bank losses when the SNB intervened on Swiss Franc appreciation v's EUR and took a billion dollar hit. Plus China will buy YEN to keep the YEN higher, think of it as a FX trade war between China and Japan re: export competitiveness
Tasty...

Dow and S&P 500 bear signals in a 'graveyard market'

It's like this, not many buyers want in, and the sellers cannot get out, or don't want to get out = a graveyard market. With both the bulls and bears maintaining a stalemate anticipation of stock market divergence. i.e bulls say that a rally could be imminent, bears anticipate the 'mother of all' sells is coming. At this point the bears are holding the upper hand, so to speak. The Dow (using as an example of market conditions) has been showing significant selling pressure since July 2010 (refer to post: Dow showing selling pressure after two days of range trading), GMT trading on the 26th August 2010 has now confirm that sell pressure is now at a critical point as the Dow has now passed through the 'psychological' indicator (bearish) of 10,000. Volumes are extremely thin, the money flow indicators as calculated against volume such as the MFI and the OBV are now showing that the tank of liquidity that propels stocks is now drying up. This would further indicate (refer to post: US earnings - rallies markets into widening volatility), the Dow is now falling back into it's volatility ranges, that may continue to pressure to the downside. With a sideways (range trade) market, or now a graveyard market, the dead may just rot further as liquidity levels plummet and the Dow sinks to new lows for 2010

The volatility trend lines (ranges) are @ 9997 and 9110, once the Dow then trades within those ranges on thin volume high and volatile markets, a new support should be calculated in the low 9000's. This will be calculated once the Dow passes through the pivot point supports of: 9934, 9883, 9797

There is enough bearish indicators supporting that the Dow will now trade within the above volatility ranges, but the fundamental aspect is how significant the Federal Reserve and US Treasury will be supportive of markets; regardless, if substantial money printing occurs and some liquidity returns to the market, this will further cause, in my opinion, large swings in volatility rather than a sustained and supported rally back above 10,000.

Wednesday, August 25, 2010

Asia is overpricing risk (update 5) - risk buys FX

Japans carry traders or retail traders or Mrs Wantabes are feverishly overbidding (thin volume, marked up distribution) risk buys namely high yield currency's and selling YEN. For love of country, a free market intervention filled with naivety and a gambling hysteria.

You can just smell the bankruptcy's when an institutional sells a 1billion long on the AUD...

"individuals' net buying of the dollar against the yen hit some 1.6 billion dollars, or roughly 130 billion yen -- 100 million dollars more than Monday and 250 million dollars more than Friday.

In addition to the dollar, "buying of the Australian dollar, the British pound and the euro has also been remarkable," comments Hiroshi Sudo of Central Tanshi FX Co.

Tuesday saw the Australian dollar slip to a roughly one-and-a-half month low against the yen. But individuals' net buying of the Aussie currency swelled to around 2 billion Australian dollars, or 150 billion yen. Net buying surged around 140 million Australian dollars from the previous day to the highest level in a month and a half.

Individuals' foreign-currency transactions are said to account for around 30% of the market as a whole. With predictions that the yen will climb higher, all eyes will be on how much impact the contrarian retail traders have in bringing a stop to the yen's ascent."

from Nikkei.com

Commodity producing countries under pressure (political/economic - update 2). Brazil

Bids are now becoming absent as Latin American debt markets fall quite, maybe too quite.

As bond markets from Brazil through to Argentina are starting to show illiquid signs, which may be attributed to the slowing US economy and the slowing Chinese ecomomy, political uncertainty in both Brazil and Argentina continue to weigh on markets.

Brazil debt is considered some of the highest graded in the world, is now being bid at prices below what they were getting in early August 2010. Brazil will be facing Presidential elections soon and market jitters are starting to effect not only bond prices but stocks, with Brazilian banking sector getting hit hard on August 25th 2010 sell off

LatAm Sovereigns (debt):
Brazil's 2040s @ 138.25 bid (unchanged)
Mexico's 2019s closed 50ct weaker @ 116.00 bid.
Argentina underperformed global 2017s down 75ct weaker @ 91.50 bid
Venezuela's 2027s closed 25ct weaker @ 71.75 bid.

Monday, August 23, 2010

Major market sell on the way? (update 1)

You can just sense the panic brewing.

USD V's YEN about to fall through the 15yr lows of 0.8402 (close price) 1st April 1995.

Commodity producing countries under pressure (political/economic - update 1). Argentina

As compared against the Brazilian IBOVESPA index, major commodity producing countries such as Argentina (MERVEL index) and Brazil are showing downside pressure on stocks, these dramatic sell off's could be spill over from the US 'double dip' recession fears or (more likely) China growth stalling and falling into a hard landing.

Politically Argentina is facing some internal issues that effected the Argentinian market on Monday 23rd as the Merval dropped 70.34 points closing at 2368


What will be interesting to follow is the political wrangling that is taking place in the commodity producing countries which also include South Africa and Australia.

If China is slowing down hard, political environments in the South America and Australia/South African may become more tumultuous

Please refer to the article in the Buenos Aires Herald re: Union power now increasing in Argentina, please go to this link

Sunday, August 22, 2010

Commodity producing countries under pressure (political/economic). Markets are overpricing risk re: Australia

Low momentum, thin volumes, declined volatility, range trading and over bidding (retail/s)

Also, Australia after 70 years has a hung parliament meaning that a good dose of uncertainty and craziness will effect the Australian market. Especially when 3 farmers and a hippy (actually think the hippies are ok...) will form a minority government with the major party

Chaos baby...and to think Japan/Singapore traders filled the AUD gap on Mondays 23rd open.

Thursday, August 19, 2010

*corrections and updates*

ref: Japan is F****** with the market (updated) added comment on China/US protectionism re: China YEN/Bond buying and US unlikely to intervene in YEN appreciation.

Major market sell on the way?

We have had topped out markets as discussed Dow and S&P 500 are all topping out, relative to risk barometer currency AUD (updated), 'death crosses' (risk currencies) as discussed in 50/200 MA 'Death Cross' in effect: AUD and now the obscure 'Hindenburg Omen indicator' that measures highs and lows on the NYSE against a 2.2% ratio

Or the human psychology of panic, in which effects technical indicators and forecasts and vis-versa, is setting in as the rot from the 2008 financial crisis reemerges: also watch info on Chinese banks/China syndrome.

A sell tainted with fear.

oh yeah the coming 'flash crash', must not forget that one.

Wednesday, August 18, 2010

Greece is going into a severe depression

This article was one of the main reasons the EUR was sell today (check your charts)...oh and also the possible downgrade of France.

from: Spiegel online 18th Aug 2010

"The austerity measures that were supposed to fix Greece's problems are dragging down the country's economy. Stores are closing, tax revenues are falling and unemployment has hit an unbelievable 70 percent in some places. Frustrated workers are threatening to strike back.

The feast of the Assumption of Mary on Aug. 15 is the high point of summer in the Greek Orthodox world. Here in one of the country's many churches, believers pray to the Virgin for mercy, with many of them falling to their knees.

The newspaper Ta Nea has recommended that the Greek government adopt the very same approach -- the country's leaders have to hope that Mary comes up with a miracle to save Greece from a serious crisis, the paper writes. Without divine intervention, the newspaper suggested, it will be a difficult autumn for the Mediterranean state.

This dire prognosis comes even despite Athens' massive efforts to sort out the country's finances. The government's draconian austerity measures have managed to reduce the country's budget deficit by an almost unbelievable 39.7 percent, after previous governments had squandered tax money and falsified statistics for years. The measures have reduced government spending by a total of 10 percent, 4.5 percent more than the EU and International Monetary Fund (IMF) had required.

The problem is that the austerity measures have in the meantime affected every aspect of the country's economy. Purchasing power is dropping, consumption is taking a nosedive and the number of bankruptcies and unemployed are on the rise. The country's gross domestic product shrank by 1.5 percent in the second quarter of this year. Tax revenue, desperately needed in order to consolidate the national finances, has dropped off. A mixture of fear, hopelessness and anger is brewing in Greek society.

Unemployment Rates of up to 70 Percent

Nikos Meletis is neatly dressed, and his mid-range car is clean and tidy. Meletis used to earn a good living at a shipbuilding company in Perama, a port opposite the island of Salamis. "At the moment, I'm living off my savings," the 54-year-old welder says, standing in front of a silent harbor full of moored ships.

Meletis is a day laborer who used to work up to 300 days a year; this year he has only managed to scrape together 25 days' work so far. That gives him 25 health insurance stamps, when he needs 100 in order to insure himself and his family -- including his wife, who has cancer. "How am I supposed to pay for the hospital?" Meletis asks. Unemployment benefits of at most €460 ($590) per month are available for a maximum of one year -- and only if he can produce at least 150 stamps from the past 15 months.

There's hardly a worker in the shipbuilding district of Perama who could still manage that. Unemployment in the city hovers between 60 and 70 percent, according to a study conducted by the University of Piraeus. While 77 percent of Greek shipping companies indicate they are satisfied with the quality of work done in Perama, nearly 50 percent still send their ships to be repaired in Turkey, Korea or China. Costs are too high in Greece, they say. The country, they argue, has too much bureaucracy and too many strikes, with labor disputes often delaying delivery times.

Perama is certainly an unusually extreme case. But the shipyards' decline provides a telling example of the Greek economy's increasing inability to compete. Barely any of the country's industries can keep up with international competition in terms of productivity, and experts expect the country's gross domestic product to fall by 4 percent over the course of the entire year. Germany, by way of comparison, is hoping for growth of up to 3 percent.

Sales Figures Dropping Everywhere..."

Japan is F****** with the market (updated)

With lot's of 'strange' bids (USD) from suspected BoJ intervention. The Japan Gov and BoJ spooked markets with alleged emergency meeting re: the YEN appreciation. Now this isn't going to happen both China (buying YEN and Japanese bonds) and the US would like to see higher YEN to help with their exports markets (particularly China, the first shots in full scale protectionism).

So there will be no collaborated intervention to slow the rate on the YEN appreciation, all the BoJ has left is verbal intervention (market rumours, threat of money printing etc) and 'mild' secret bids.

from Reuters Aug 19th 2010

"The dollar pared gains against the yen on Thursday after sources familiar with the matter said the Bank of Japan is highly unlikely to hold an emergency meeting later in the day.

Rumours had circulated in the market that the BOJ would hold an emergency policy meeting at 2 p.m. local time (0500 GMT) after a media report that the central bank had started considering additional monetary easing steps.

The most likely option under consideration is expanding the BOJ's fund-supply tool put in place in December, Japan's Sankei newspaper said, without citing sources.

The central bank may either expand the fund supply volume to 30 trillion yen ($352 billion) from 20 trillion yen, or extend the duration of cheap, fixed-rate loans to banks to six months from three months, the paper said. [ID:nTOE67H06U]

The report weighed on the yen somewhat but the overall reaction was limited as investors remained cautious until they see exactly what the authorities might do."

risk buys, high volume (update 2): 5billion worth of long positions (AUD)

*please note correction in the first post: risk buys, high volume

Tuesday, August 17, 2010

Risk buys, High volume (update 1) re: ECB/EU zone bonds

"It is tempting to see Tuesday's successful debt auctions by Ireland, Spain and Hungary as a sign that the recent global market jitters are behind us.

But we shouldn't confuse the favorable price and risk dynamics driving yield-seekers into these sovereign debt sales with a reversal in the low-growth outlook weighing on stocks and other risky assets. That depressing global reality is still with us.

Sure, Ireland's heavily oversubscribed auction of €1.5 billion in four- and 10-year debt was welcome news. Over the past week, fears of a new crisis there had roiled markets.

But think about it. If you can borrow short in euros at close to the European Central Bank's 1.0% reference rate, the 5.39% paid by the 10-year Irish bond and the 3.63% on the four-year are pretty attractive.

Since the T-bills Spain sold on Tuesday fall due in just 12 and 18 months, the same goes for their 1.90% and 2.15% respective yields.

And although the forint-denominated debt of Hungary presents a bigger risk, improved sentiment in the euro zone makes a strong case for betting on that euro-aspiring sovereign too. After all, the juicy 5.28%-yielding T-bills it auctioned on Thursday will be repaid in three months, and even the International Monetary Fund said the country faces no refinancing challenges until 2011.

The fact is, following the bombshell announcements of May 9, medium-term default and price risks in the euro zone have significantly eased. That is when euro-zone governments created a €750 billion guarantee fund to backstop struggling members, and the ECB promised to buy government bonds in the secondary market.

While doubts persist about how the bailout fund will work, for now investors can and should take the pledge at face value. The euro zone will guarantee Ireland's, Spain's, Portugal's and any other stumbling government's debt. So why not buy it?

Meanwhile, the ECB's low-profile bond purchases have provided a steady source of price support to the market.

So in theory, the only risk an investor in Irish or Spanish debt need think about is inflation. And who on earth is worried about that right now? Deflation is the fear du jour, and if the rate of consumer price increases goes to zero or negative, those 3.6% nominal four-year yields look even better.

Yet deflation is precisely why investors should remain worried, certainly about investing in equities or any other growth-linked assets.

Were deflation to bite hard, it would inherently revive default risks in peripheral euro-zone countries or at least that risk that the bailout fund has to be activated. While creditors enjoy higher real yields at such times, borrowers' debt-servicing costs only go higher. If inflation is a friend to debtors, deflation is their enemy"

from WSJ Aug 16 2010

Risk buys, High volume (updated)

Across the board. From risk currencies to the S&P 500 and Dow, FTSE through to the DAX. A feverish buy from 'smart' money. This would not be considered a relief rally either, this is a major buy up on a *'happy sentiment'. The European Central Bank/EU has literally guaranteed ALL bonds sales from the PIIGS, thus Greece and Spain where able to sell their bonds at a high yield (risk), with bond holders added bonus, holding high risk EU bonds, may not necessary have to take a haircut when bond values goes south, the ECB/EU (underwriters) will just buy them all at a marked up amount.

*but 'happy sentiment' will go so far especially on interest on debt that countries have to pay as their finances go to shit, re: Moodys AAA threat down grade of Spain

So high yield assets are now being bought, it could argued as discussed above the high risk/high yield market mow is supported by government central bank/intervention; to what extend that central banks can propel indexes to new high is very disputable, as discussed in New highs for S/P 500 and Dow Jones 2010? when are currently trading in a sideways market 10yrs + long, in other words, no new highs; with or with out CB/government intervention. The main question is when the market begins to sell, this may take place when social/political environment becomes more uncertain, private sector contracting, jobless claims are increasing, GDP growth is stagnate to falling, a trade war with China, another 'Lehman' crash ( decayed CMBS's sitting off the balance sheet/s, to eventually become a balance sheet nightmare - some bank/lender), a major conflict (war).

Our economic custodians believe, like voodoo doctors, that they can control the elements, the weather, the sentiment and manage a bullshit smoke screen, but eventually the whole thing is going to end in tears. The cycles of business/economics, like the cycles of weather are extraordinary unpredictable, but what we do know is there are 'good' seasons and 'bad' seasons; in which one should see the signs and wait it out. The overall fabrication of managing or planning economies have failed in the history of the world. What we will be witnessing here is a momentum failure as the debt laden system will collapse.

In the meantime lets try and make some money

Using the Dow as an example for a put/call trade (either EFT or Warrants)

The ACD, OBV and MFI indicators all show upward momentum with higher volume, *resistance is @10540, the range now is the close @10405. Suspected offers would be at the upper range now @ 10500, with pivot point support @10394

Major war/conflict cycle commencing?

Should be factored in, unfortunately a tough reality of the historic cycles of war and conflict

"BEIJING (Reuters) - The game of military bluff that China and the United States are playing off the Chinese coast could erupt in full-fledged crisis hitting the arteries of global trade if Pentagon worries about missteps ever come true.

China has been investing big slices of its growing wealth in modernizing its military, and turning its once creaky navy into a blue water fleet that can project power far from its shores, with nuclear submarines and, maybe one day, aircraft carriers.

China is sending naval vessels further afield, to the waters off Somalia to fight pirates, and most recently through the southern Japanese islands, to Tokyo's angst.

That also worries Washington, the world's dominant power, which keeps a hefty military presence in the Asia-Pacific.

While war between the two economically intertwined powers remains a remote possibility, the Pentagon warned on Monday of risks of "misunderstanding and miscalculation" getting out of hand in this trade-driven part of the world plied by thousands of ships daily carrying cargo and oil.

"The U.S. military and the Chinese military don't have a common understanding, a rules of the road, for navigation. That's a major cause for concern," said Drew Thompson, a China expert at the Nixon Center in Washington.

The United States for its part has moved advanced attack submarines and warships to bases in Japan and Guam. It has shown no sign of giving up surveillance missions in what it considers international waters and which infuriate Beijing."

from Reuters Aug 17th 2010

Monday, August 16, 2010

Asia is overpricing risk (update 4) - short convering

Short covering on no real news or events just a panic buy on wafer thin volumes. Some 'strange' bids on the USD/YEN (there you go conspiracy theorists!); which is convert Japan Goverment FX intervention (not official)

This may have sent index's higher also with commodity prices coming in firmer. But as usual Asia have overpriced risk trades again on thin volume (please refer to Shanghai Composite inverse market trend to the Dow, S&P 500 ).

If you are running with this all the power, but it's frenetic 'dumb' buying on low liquidity; so it will be gap sell down and hard. Fuck'em

Some dreadful EU bank news should come to the party as the ECB winds back it's Euro zone bond buying and a spectra of a hung Parliament in Australia after the 21st August 2010 election.

...sell signals will light up.

Thursday, August 12, 2010

China is about to crash (update 2): rumored stimulus part 2 (11.8billion for development)

11.8 billion USD to build more zombie malls

Market should see this as a panic (if confirmed) by the Chinese authorities, which will induce risk aversion rather than risk 'on'

European banking system looking screwed again re: Ireland/EU banks (update 1)

The ECB is being drained by PIIGS banks:
  • Greek borrowings up July 2010: 2.5% from June 2010,
  • Portuguese borrowings up a mega 21%
  • Italian banks borrowed an additional 12%.

Wednesday, August 11, 2010

European banking system looking screwed again re: Ireland

CDS spreads should widen now and extend to Spain and Greece from an Irish bank implosion coming soon. Another Eurozone/ECB bailout? With the trillion plus EU bailout that will disappear into banks extreme black holes; balance sheets are in a perpetual asset depreciation. Meaning? A major bank de- leverage of debt will take place 'i'e 'realized' and' unrealized' losses will surface right back to the European Central Bank/s.

Major EUR sell coming. European may have to settle for a debt de-leverage while the US prints, still looks like a downside FUBAR for equities.

From the Telegraph 12 Aug 2010:

"Spreads on Irish 10-year bonds reached 297 basis points over German Bunds on Wednesday amid reports the European Central Bank (ECB) is intervening to shore up Irish debt, a reversal of the bank’s plans to withdraw emergency support. The euro fell almost three cents against the dollar from $1.32 to $1.29.

Patrick Honohan, governor of Ireland’s central bank and a member of the ECB’s council, dismissed the bond jitters as yet another spasm by jumpy and emotional markets.

“The spreads are a setback for our hopes of a narrowing to reflect the fiscal credibility of the country. I don’t look at them every day but at this level they are ridiculous,” he told The Daily Telegraph, speaking at his office in the heart of Dublin."

Tuesday, August 10, 2010

AUD: Our favorite currency...(update 1)



The pyramid of death.

Mind you longs are still hanging in there, the assumption being that the ATR is still relatively flat. Once longs start to cut positions, we will see volatility (sell) increase, momentum decrease. Then a nice sell/buy spread unfolds.

Small chart is the USD/JPY, in which the market holds huge stops at 85.00

AUD: Our favorite currency...

Massive 85.00 option barriers (YEN)

Knock them out then it's to 15yr lows...

gotta be a panic there somewhere

Not much the US Federal Reserve can do anymore.

The Federal Reserve announced that it would reinvest the proceeds of maturing MBS (mortgage banked securities) into the 2-10yr segment of the Treasury curve; so that is about the best of it. The Fed has 0% interest rates, discount window for repo's for banks/wall street; with a balance sheet that is still expanding from US debt buying. The Fed can keep printing, but as discussed in 0% interest rates (US), money printing: but where is all the money going?, it appears that the banks, like European banks via the European Central Bank money printing, banks are sucking up liquidity with very little appearing into the broader economy. The US consumer is caught between inflation and deflation with a deflationary pull becoming stronger.

Obama will hit the trade war button soon after China appalling trade surplus, huge export growth but a massive decline in imports. This would indicate that China export/industries are still going full blast as their (China) consumer consumption is slowing fast; the problem of course is the Chinese inflated property 'time-bomb' bubble especially the local government's funded property developments, that build 'zombie' malls and shopping areas. The 'Grey/Black Money or corrupt money proceeds have also been filtered into the Chinese property market/s.

The anxiety is when a simultaneous sell on Chinese property takes place; this could be very soon.

The US dollar may not find the weakness that the market is looking for (from mild qualitative easing or buying US Treasuries) as the 'trade war between China and US will keep the USD well bidded as the Chinese (paranoid of an export 'crunch') fix the Yuan rate back towards the USD peg

Sunday, August 8, 2010

Another 'flash crash' on the cards? (update 1)

It's still on.

USD could collapse against the YEN and China will make sure it stays that way (China bought 5.3billion in June 2010). China will slam Japans export market down (buying more YEN) and force Japanese firms to either set up in China, or disappear. A form of forced protectionism, mixed with BoJ quantitative easing (money printing) and low rate policies.

All and all if Japan faces a huge problem with it's debt and credit rating we should see a reverse with what happened with the EUR, the YEN will skyrocket, exports will be hammered. Should send Japanese stocks south and company profits even further south.

This might freak markets out as USD v's YEN collapses further.

China is about to crash (update 1): Chinese state-owned companies are "in trouble"

"LOS ANGELES (MarketWatch) -- China's banks could see as much as 20% of their loans from state-controlled firms go bad, a report said Sunday, even as the nation's banking regulator said non-performing loans were on the decline.

Recent stress tests conducted by the China Banking Regulatory Commission (CBRC) showed 20% of all outstanding loans to state-owned companies were "in trouble" as of the end of June, the Japanese business newspaper Nikkei reported, citing an unidentified CBRC official."

Marketwatch August 8th 2010

Thursday, August 5, 2010

Another 'flash crash' on the cards?

Basically we have a very algo (algorithmic) trading environment at the moment, mostly stocks. Everyone has there different views on 'flash trading' but the overall agreement is that the 'algo' trades crashed the Dow on the 6th May 2010, sending it from 10,879 to 9,869 (998 points) within minutes. The reasons? Foggy, not much has come out since Algorithmic trading (computer trades) are very secretive and hard to investigate. So the market rumour? Apparently the algo trades freaked on the decent of the EUR, panicked (can computers panic? obviously they did...much like a human response with trades, cept it was a brutal panic) and cut their longs to short in seconds, thus decimating the value of stocks in the process. A contagion based computer 'freakout' via a collapsing EUR (at the time)

refer to chart EUR open@1.28m low@1.25, DOW high@10879 close@9869 (6th May 2010)


Now, if the theory for the (precursor) flash crash was a run on the EUR as shorters starting hitting the currency hard. Could the same happen when the Japanese Yen (YEN)? If the YEN (v's USD) slams through it's historic low of 85.00 (15yrs) and the Bank of Japan don't intervene and short sellers start selling the USD adding strength to the YEN; If the US sells on a terrible unemployment number (6th Aug 2010) the YEN should shoot through the 85.15 support. Thanks to USD carry trades and short positions

Could this 'freak' out the computers (algo's)? Possible.

JPY:

Wednesday, August 4, 2010

AUD: Our favorite currency...



To sell...

Not yet though. Mega banks bought the AUD at the end of July (30th 31st 2010) refer to longs (volume) on the smaller chart, ever since there has been a sustained and supported rally from Japanese retail traders.

Extremely topped out, but with supported largish volume and a tight buy/sell AUD could hit 0.923.

Sell points thereafter with the capitulation sell point/s at 0.89/0.90

Shanghai Composite inverse market trend to the Dow, S&P 500

Does it say anything? That from the five last days 29th, 30th (July 2010) and 2nd, 3rd (August 2010, there after just sinking) the Shanghai composite has been trading inverse to the Dow and S&P 500, for example the Dow rallies the Shanghai sells, S&P 500 rallies the Shanghai sells, and also the opposite the Shanghai rallies, the Dow and S&P 500 sells.

The patten? Range trading with sell/buy divergences against the Dow and S&P 500. But the Shanghai can't seem to keep this up, which would make once ponder that the amount of inflows into the Shanghai index's, particularly in a risk averse market (China), are minimal and risk isn't on the table.

At this point the Dow and S&P 500 are both trailing sideways and eventually will trail the Shanghai composite downward, so once should watch (yes algo and human) volume dissipation and tightening spreads for a sell (Dow/S&P500) on the downside.

China property market a time bomb attached to a bubble - article by Andy Xie from WSJ

"By Andy Xie

BEIJING (Caixin Online) -- How many flats in China are sitting empty? The media recently floated a story -- denied by power companies -- that 64.5 million urban electricity meters registered zero consumption over a recent, six-month period. That led to a theory that China has enough empty apartments to house 200 million people."

Read the rest of this comprehensive and scary Chinese property bubble analysis, click here

Tuesday, August 3, 2010

Japan and Asia will start to buy USD (updated 1)

...and they will buy a ton of US dollars, just when they bought the EUR back in May 2010 and sold USD

refer to chart, 1st Nov 2009 the USD collapsed against the Yen @84.81 a record. Now pending that record with a new USD collapse (v's YEN) currently @85.47

*Any Japan/Asia central bank buying should cap and sell any USD/crosses, namely hedged commodity currencies.


Please refer to Amazing Central Bank Intervention (update 1) re: FX losses in Asia from central bank intervention, similar to the Swiss National Bank 14billion loss protecting the EUR.

*The flip-side is that the Bank of Japan and Bank of Korea may resist in huge purchases of USD to protect rising YEN/WON on the premise that they may already be nursing losses on the EUR, also refering to SNB lossess that occured (14billion loss).

If this is the case, the short sellers on the USD should move in very quickly (depending on Q.E 2 re: Fed Reserve).

Also buying of the YEN, as a 15yr low is approached (USD).


Godzilla style.

10-yr UST 2.8996%, 2-yr UST (record low) 0.52%

Yields are collapsing. Check out Japan: JGB 10year yield below 1.0% first time in 7 years, 0.995% on the cards.

Asia has priced in risk with markets selling, any high yield/fixed income trading is going to get slaughtered on Europe/US opens.

Watch longs on big bank/institutional sells

Yield chasing with a Federal Reserve Q.E priced in: USD weakness

The US dollar has been hit by the possibility of further quantitative easing (printing money) by the Federal Reserve. So risk averse buys on the USD (short to medium term) won't happen unless Japans deficit blowouts and awakens Godzilla (bond markets) and starts to fuck up the country and get their government to act all crazy.

With possible mid/long term USD risk aversion on a China/US trade war, or war, Europe debt meltdown or de-leverage

Risk Aversion trades on the USD started from the 19th May 2010 at 87.46 and peaked on the 8th June 2010 at 88.51; this was primarily because of the European Debt crisis that has since been papered over. With the US economy looking very much heading towards a double dip recession the USD at this point is now being sold in expectation that the Federal Reserve will re-buy long dated Treasures and attempt to flood the US economy with liquidity, it failed last time and it most probably will fail this time, as the banks will just soak up the liquidity that may then go into trading or filling holes, if the Obama administration cannot somehow force the banks to re-lend; the US consumer will not see any benefit from a money print job via the Federal Reserve, rather the USD will weaken thus effecting purchasing power at this point oil is now gaining strength on USD weakness.

Quantitative easing (Q.E) has a negative effect on the US consumer.

This Q.E part 2 will not drive stocks like they did in 2009 (in hand with a globalized fiscal and monetary print job), in an almost non volatile smooth buy/sell spread. There is too much mess (globally/ economically) and Japan and China should not be dismissed with invertible short/mid term problems; I would say that, and some economist are making the call for a Chinese soft landing in 2010, is very misleading and they should look at history when in in 2007 they said the same about the US economy i.e soft landing and it crashed hard on the back of a over-leveraged property market (now it's Asia/China's turn).

High yields on FX and related derivatives are attractive with institutional buyers now holding long position's on high yield currencies. Good to watch when positions (longs/volume) are cut on risk aversion (high yield) for puts and short positions, as most high yield assets are looking overbought.

USD/crude oil chart: showing USD weakness compared with oil price (note divergence)

Monday, August 2, 2010

Market overview (summary)

  • Bull Market (stocks) 2010/2011

Unlikely. When we talk about a bull 'run' we should be referring to a bull market in stocks that occurred in 2009 where the Dow recovered from July 20 2009 low at 8746 and rallied without any real volatility until January 20th 2010 when the Dow dropped out of it's range at 10603.

It was a classic bull run, that anyone could make money in (low volatility); in fact everyone made money in 2009.

But after the 2009/2010 bull run ended we now have volatility and rangy market trading, which will continue with downside momentum. The risk appetite markets are now challenged with conflicting fundamentals, namely Europe and the US and of course China. The European banking system collapsed in the last quarter in May 2010. The EU PIIGS (Portugal, Ireland, Italy, Greece and Spain), as indebted as they are, sent their banks into a asset depreciating meltdown; the European Central Bank in all it's wisdom is now pumping over 45% of it's total lending into the EU PIIGS banking systems, probably more so to Spain. The ECB also successfully was able to keep the Euro (EUR) speculators (short sellers) at bay when it's drew a support at 1.20 The question is can this be kept up? With a Trillion dollar (US) bailout occurring of the European banking system that needs a continue flow of credit keep the EU banks liquid, probably not. A breaking point is there and should keep the market cautions and uncertain for any bull momentum to take place. The US is somewhat similar; with a banking system that needs continue flow of credit namely from the Federal Reserve, even though monetary induced liquidity seems to be waning, this may lead to a Quantitative Easing part 2 (once the banks start asking for more credit), which again will end up mostly on the balance sheets of banks sucking up borrowed liquidity from the Federal Reserve and the US government (Treasury).

All and all for a sustained bull market the Dow needs to break through the psychological barrier of 11,258 26 April 2010 at a time when volatility was effecting stocks and momentum, for the last three months from April through to July 2010 if you had stock plays within that period you may just break even if the Dow is able to pass through 11,258 resistance.

  • China

China is about as transparent has a lead lined nuclear bunker (makes sense, probably not...anyway). If you can pinpoint one country with a planning economy that is able to manipulate the market, more so currencies, it would be China. Dropping the Yuan (CNY) peg to the US dollar then buying USD to depreciating the Yuan showed how serious the Chinese were at strengthening their currency. Occasional leaks on export output numbers prior to official releases, GDP leaks, funny GDP numbers, CPI leaks and funny CPI numbers etc etc. A lot leaks seemed aimed at the FX markets during trading, although Asia is notorious for leaking info and intervention/manipulation of the FX markets to keep their currency lower ( for exports). China doesn't show any subtly here. The trick is can China maneuver a nice 'Goldilocks' slowdown of it's economy? Probably impossible; an extremely over-leveraged housing market/s, slowing exports from European and US slowdowns. If the trade figures are hard to believe and you believe that China is slowing down faster than what their governments say; the best way to analyze China trade/export/economic strength is on several things. The currencies like the Yuan, if depreciation continues or the Chinese are buying a lot of US dollars they are doing so to deliberately keep the Yuan lower; this would be indicative of slowing export growth. Settlement/spot prices (metals) out of London and Asian markets, to be watched closely, the markets never lie, if a slowing demand for raw materials takes place; then China's demand for raw materials won't be as significant. Therefor spot prices should tumble.

  • The Dry Baltic Index.

Funny how some economists like to dismiss the validity of the freight shipping chart, but if they cared to look at the peak of the index in 2008 it was at 11,310, now it is at 1,997 we had shipping freight booms coming out of China and Asia in 2006/ 2007 at the peak of the global economy which was 2008 (before the crash). The Dry Baltic Index should be be factored in when make a analysis of China/Asia trade slow down.

  • Algo (algorithmic trading) Trading

There is some talk of Algorithmic trading or High Frequency Trading or flash trading. The main arguments against HFT is that it distorts bids in market, the distortion? Well some consider rapid bidding as a distortion, in reality it's just a extreme tightening of the bid offer/spread. Which means that computers that are trading with each other are doing so quicker than a human, therefore the bids become instant (within seconds) into the market, thus a algorithmic patten is created. Is this a threat to fair, free markets? Not at all. Firstly if you believe the markets are some fair, egalitarian place where everyone has a chance at striking it rich, you probably shouldn't be trading in the markets. The markets are a devious, tricky and perilous place, but that is capitalism. Kinda similar to the mafia, except not may people die by unnatural deaths, if they do it's from natural causes like stress, heart attacks and drug overdoses. Seriously, if you trade in the markets (as a self funded trader) to make your millions, yes I'll say it again, you probably shouldn't be trading in the markets. The odds are too great for a major windfall, it is not to say that you can't make money, or scrape a living from it; but generally you are up against major players with major stakes.

Some commentators use the term 'criminal' to describe Algo/HFT trading, which is a vast over exaggeration. When one can witness on a good day, inside trades (humans), governments statisticians leaking to bigger players in the market before the 'official' figures are released. A good example of this was when the Australian CPI was about to be released, the AUD sank before the official releases, traders, and people writing on the news wires commenting on this. This is because a fund had a inside edge, so any poor soul that was hanging in for the CPI watched his/her margin being eaten up prior to the release, would have been distraught and the unfair advantage. So in a sense human to human market dishonestly is more damaging than computers high speed trading to each other. Also, the HFT probably wouldn't have much more of an effect on a high risk self funded trader anyway, in the sense if you are trading with a small margin, or capital cushion; either way large moves in the market (sell) human/computer or otherwise are going to effect you if you have made an over leveraged bet. The HFT are more damaging to the small/medium size brokerage firms, the institutional traders and floor traders, not the self funded trader trading from his/her apartment/house/loft/garage/kitchen/toilet.

The reason is the bids are not competitive for clients, as a HFT program can out bid you very quickly than a human in the market, this effects your clientèle as you cannot get a good price to buy into the market. A self funded trader has no clients, so in that respect that should not matter re: competing for bids. A positive for HFT is that HFT smooths of bid/offers to the point it looks like a straight horizontal line (depending on the stock), I saw this occur on a medium size biotech in early 2009. The volume eased out and the bid/offer spreads narrowed to a line, there was second to second bid and offers as the HFT bots trading with each other; you could follow the patten almost predictably. Other traders complained that the Algos where suppressing the stock price (an apparent conspiracy between the HFT and the company stock holders, yes I know bizarre...), which was an insane/paranoid excuse. Within hrs volume was flowing backing to the stock the Algos/HFT broke out of the upside and the stock jumped significantly. If you were watching the bid/offer spread narrow you knew that a breakout was eminent, it happened yo be on the upside as the volume crept back in, I bought in on a position within the narrow bid/offer spread and rode the Algo/HFT upside trade. I made money on the back of Algo/HFT.

The flipside is when a HFT smooths out a price, say awaiting positive market news and/or buying indication, but none of that happens in support of further buying, the HFT will cut long positions hard sending the stock/currency down rapidly.

Get used to it.

Sunday, August 1, 2010

Asia is overpricing risk (update 3) - extreme open gap buying

With a frenzy buy on all risk commodity currencies/crosses and stocks. Thin volume and ton of retail/dumb buying (large open gaps on all Asian opens). With China slowing down HSBC China (more accurate than Chinese goverment PMI at 51.2) July PMI down to to 49.4 from 50.4 in June , the first time below 50 since March 2009

"Hongbin Qu, HSBC's chief economist for China, said Monday's reading also didn't spell doom for China's economy. The drop below 50 in the HSBC PMI suggests that manufacturing continued to decelerate, reflecting the combined effect of credit tightening, property-cooling measures and other steps by Beijing to cut capacity in energy-intensive sectors. "However, there is no need to panic because this is just a slowdown, not a meltdown," Qu said

Remember what they said about the US pre 2008 (softlanding) re: China is about to crash: GDP q2 at 10.3% and falling?

Not only should Asian traders/investors be cautious of a rapidly slowing China, but also they should be eyes on the US yield at 2.91%

So we have a big sell coming.