“A lie gets halfway around the world before the truth has a chance to get its pants on.” - Winston Churchill
As usual, at an early glance, US markets are up for the year; interest rates are low; commodities are higher; and the economy is mixed (open to interpretation). The dominant themes above are recreating an established trend in which the fundamentals or perceptions are accepted as truth. There is plenty of skepticism among pundits, but capital is buying into risk. In other words, the current stimulus driven market finds a way to go higher, while demand from resource based groups is not declining. This is understandable, since parking money at the bank through traditional means does not yield much. Thus, the appeal of investing in risky assets is an easily sellable point, and by nature, ‘growth’ ideas are favored as long as they’ve been working. Perhaps, this is one explanation to why the Small Cap Index (Russell 2000) made new highs earlier this month. On a similar point, volatility is pointing to a calmer state, while nearing comfortable levels last seen before the 2008 crisis. The final piece to this puzzle looks ahead to the nearing presidential election, which is known to find ways of prolonging an optimistic trend or cleverly highlighting convenient data points. In fact, monetary reform can become a bigger political slogan than previously witnessed in recent elections
At a deeper stare, this positive set up invites contrarians to look in and question the accuracy of the picture reflected. The dollar weakness is well documented, like the debt issues of Western economies. The word “bubble” is commonly used by writers and editorial contributors. Perhaps, the phrase is losing some authenticity from the casual observer. For example, the bubble related issues are discussed relating to commodities, Chinese real estate, and even higher education. For money managers, having a suspicious view is not as important as being on the right side of a self-fulfilling prophecy. After all, most managers are measured by performance, especially in a period of higher investor demands and increased competition for asset management. Thus, staying focused between perception and truth is vital but even harder these days. Near-term breathers should not be confused with cycle downturns—a lesson that was clear last decade as correction can be short-lived. Nonetheless, the message from skeptics is worth tracking and questioning.
A few back up plans may be required for participants. If this “smooth sailing” current trend changes its course, then one should look at not the images that are currently presented but adjusting for what’s ahead. Mainly, most liquid assets remain mostly correlated and vulnerable. Holding cash alone seems less favorable when evaluating risk-return models. Importantly, tax policies, along with regulatory outcome, take a while to seep through the system. Equally, improvements or changes in inflation continue to vary based on interpretation. Given increased government investigations and deliberation, it may be wise to hold on to high conviction bets. That said, a major shift in attitude has yet to take place. Interestingly enough, liquid markets have resorted back to pre-crisis-like behavior, despite all the chatter of reform. Therefore, seeking investments in alternative asset classes and frontier markets appear to make sense. At least, that is one back-up plan.
Article Quotes:
“For a start, many analysts over-estimate Germany’s economic dynamism. Although it has enjoyed strong recent performance in economic growth and exports, its longer-term record is unimpressive. Germany has a strong export sector, but its domestic economy has performed poorly in the two decades since reunification. A related problem is that in effect Germany has subsidised purchases of goods by the weaker countries. Low interest rates made it cheaper for peripheral nations to buy German exports, while the existence of the eurozone helped them to tap the capital markets. In effect, there was a vendor financing relationship between the core of the eurozone and much of its periphery (Ireland was different from the others). …At the root of the problem were the difficulties that the whole region was suffering, to a greater or lesser extent, in generating new rounds of growth. (Fundweb, April 11, 2011)
“Permanent jobs are created by the private sector. Businesses, large and small, publicly or privately held, have a duty to earn a return on investment for their shareholders. In a globalized, cyber-ized world, they need not invest or expand their payrolls in the United States; they are free to go practically anywhere on the planet. This is the result of one of our greatest accomplishments as a nation: We won the Cold War. Before the demise of the Soviet Union and the death of Mao, we lived in a world of mutually assured destruction; today, we live in a world of mutually assured competition. This is what we spent an entire generation of blood and national treasure to achieve. Now, those with the power to levy taxes and direct spending must get with it and adjust to the new world as they seek to incentivize job creation through businesses that, thanks to monetary policy, now have the financial means to put Americans back to work right here at home.” (Federal Reserve of Dallas, April 8, 2011)
Levels:
S&P 500 Index [1319.68] – Hovering around the 50-day moving average. In the short-term, the index is setting up to challenge the 1300 range.
Crude [$109.66] – Recent behavior suggests growing buyers’ interest at $105 as momentum remains intact.
Gold [$1476.00] – After holding at $1420, another explosive run showcasing the herd-like following and lack of sellers, even at escalated levels.
DXY – US Dollar Index [74.61] – Further weakness in recent weeks, highlighted by breaking below 76. This recent downtrend wave is a continuation of a decline that began in the summer of 2010.
US 10 Year Treasury Yields [3.40%] – Showing shades of stabilization, as evidenced by the 50-day moving average of 3.47%.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, April 18, 2011
Monday, April 04, 2011
Market Outlook | April 4, 2011
“Facts do not cease to exist because they are ignored.” - Aldous Huxley (1894 - 1963)
Understanding the Cycle
Following the late winter breather, we’re nearing the same dilemma as witnessed in mid February. Investors were faced with the question of whether to jump on the existing trend or to be wary of trending patterns. Similarly, the interest rate conditions are lingering with moderate suspense. Meanwhile, overall economic improvement is somewhat evident when presented through government reports. Now, the broad indexes are re-drumming to an upbeat tune. As a result, complacency is in full gear after a short-lived hiccup. The Volatility Index (VIX) spiked to 31 on March 16th and now stands at 17.40. That sends a loud message as to how fear vanished at a rapid pace. Basically, the less than 4-week correction period was much needed.
This can hint at scarcity of quality, investable ideas as managers seem to redeploy capital to known themes in liquid asset classes, such as stocks. A reversion to a herd-like mentality is seen as most managers don’t look to fight the trend. In hammering this point home, we can see how “safety” is easily translated to chasing winners, such as Gold and Oil. Simply, this argument is rationalized by a quick glance at charts, a browse of headlines, or even a read through of a long-term strategy from a research house. Once again, doubting the actual substance of the fundamentals and duration are bluntly deemphasized during trending markets. Interestingly, the Russell 2000 Index is near its 2007 all-time highs, which can paint misleading optimism. Of course, let us not forget that the third year of a presidential cycle is generally known to produce favorable returns for buyers. This is mostly due to a biased maneuvering towards political points being in full gear. However, this ‘maneuvering’ may be difficult this year when the market is already operating through a few injections as the existing wounds attempt to heal. For now, the stock market performance can be manipulated as a selling point to drive in more capital info.
Tracking Clues
To differentiate oneself, a participant is forced to find a disconnect between consensus thoughts and actual results from market performance and investor rationalization. In other words, the discrepancy in varying views can create an illusion that can last for a while. Some can suggest that managing one’s timing and conviction levels is a market filled with mixed feelings. These days, pundits are not fully ignoring the glaring concerns of economic sustainability and unclear growth drivers. In a media driven world, the management of public relation plays an even bigger role in directional pattern. For this evidence, we don’t need to go further than the Federal Reserve’s announcement of a press conference on a quarterly basis. This further emphasizes the short-term nature of markets, especially with enhanced technology and abundance of hedging tools currently offered for investors. Finally, skeptics point out that these frequent press conferences are a way to artificially cheerlead gloomy facts. In due time, the truth with unravel.
Article Quotes:
“Whether Beijing succeeds or not in reining in informal fund flows is important, since the fate of these restrictions provides clues to the future direction of China’s economy. If credit growth became too great, China would face more inflation in the short term and possible excess capacity in the longer term. That could lead to a resumption of the profitless growth that China is trying to leave behind. If inflation remained high, social unrest would become increasingly likely. If, conversely, China slammed the monetary brakes on too hard, it would have a big contractionary impact both at home and abroad, given that Chinese imports have become an important source of global growth. Monetary policy matters more in China than it does in most developed markets, because the ability to allocate capital remains largely the preserve of the state. It is where financial power and political power intersect.” (Financial Times, March 31, 2011)
“We then turn to our main investigation of what happens to the portfolio of men and women, respectively, after moving together or apart. We find that women who get married on average choose to hold a higher fraction of financial wealth in stocks after the marriage, compared to those women who do not get married. After divorce, women on average reduce the fraction held in stocks, compared to women who do not get divorced. For men, it is the other way around: single men reduce the fraction of wealth in stocks after they get married, whereas they increase this fraction after divorce. Hence, marriage acts as a financial risk-reducer for men, whereas it acts as financial risk-increaser for women.” (Christiansen, Joensen and Rangvidz, September 1, 2010)
Levels:
S&P 500 Index [1332.41] – Revisiting February highs as 1340 presents a retest of strength and positive momentum.
Crude [$107.94] – Early confirmation of strength above $105, showcasing further traction with buyers.
Gold [$1418.00] – Interestingly, another struggle at 1420 range, which suggests a positive long-term but shaky near-term confidence.
DXY – US Dollar Index [75.83] – Noticeable decline for the quarter. It remains at a fragile range.
US 10 Year Treasury Yields [3.44%] – Closing in line with the 50-day moving average of 3.44%. Currently, trading in line with the four-month pattern.
Please note: There will be no weekly Market Takers next week due to travel schedule.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Understanding the Cycle
Following the late winter breather, we’re nearing the same dilemma as witnessed in mid February. Investors were faced with the question of whether to jump on the existing trend or to be wary of trending patterns. Similarly, the interest rate conditions are lingering with moderate suspense. Meanwhile, overall economic improvement is somewhat evident when presented through government reports. Now, the broad indexes are re-drumming to an upbeat tune. As a result, complacency is in full gear after a short-lived hiccup. The Volatility Index (VIX) spiked to 31 on March 16th and now stands at 17.40. That sends a loud message as to how fear vanished at a rapid pace. Basically, the less than 4-week correction period was much needed.
This can hint at scarcity of quality, investable ideas as managers seem to redeploy capital to known themes in liquid asset classes, such as stocks. A reversion to a herd-like mentality is seen as most managers don’t look to fight the trend. In hammering this point home, we can see how “safety” is easily translated to chasing winners, such as Gold and Oil. Simply, this argument is rationalized by a quick glance at charts, a browse of headlines, or even a read through of a long-term strategy from a research house. Once again, doubting the actual substance of the fundamentals and duration are bluntly deemphasized during trending markets. Interestingly, the Russell 2000 Index is near its 2007 all-time highs, which can paint misleading optimism. Of course, let us not forget that the third year of a presidential cycle is generally known to produce favorable returns for buyers. This is mostly due to a biased maneuvering towards political points being in full gear. However, this ‘maneuvering’ may be difficult this year when the market is already operating through a few injections as the existing wounds attempt to heal. For now, the stock market performance can be manipulated as a selling point to drive in more capital info.
Tracking Clues
To differentiate oneself, a participant is forced to find a disconnect between consensus thoughts and actual results from market performance and investor rationalization. In other words, the discrepancy in varying views can create an illusion that can last for a while. Some can suggest that managing one’s timing and conviction levels is a market filled with mixed feelings. These days, pundits are not fully ignoring the glaring concerns of economic sustainability and unclear growth drivers. In a media driven world, the management of public relation plays an even bigger role in directional pattern. For this evidence, we don’t need to go further than the Federal Reserve’s announcement of a press conference on a quarterly basis. This further emphasizes the short-term nature of markets, especially with enhanced technology and abundance of hedging tools currently offered for investors. Finally, skeptics point out that these frequent press conferences are a way to artificially cheerlead gloomy facts. In due time, the truth with unravel.
Article Quotes:
“Whether Beijing succeeds or not in reining in informal fund flows is important, since the fate of these restrictions provides clues to the future direction of China’s economy. If credit growth became too great, China would face more inflation in the short term and possible excess capacity in the longer term. That could lead to a resumption of the profitless growth that China is trying to leave behind. If inflation remained high, social unrest would become increasingly likely. If, conversely, China slammed the monetary brakes on too hard, it would have a big contractionary impact both at home and abroad, given that Chinese imports have become an important source of global growth. Monetary policy matters more in China than it does in most developed markets, because the ability to allocate capital remains largely the preserve of the state. It is where financial power and political power intersect.” (Financial Times, March 31, 2011)
“We then turn to our main investigation of what happens to the portfolio of men and women, respectively, after moving together or apart. We find that women who get married on average choose to hold a higher fraction of financial wealth in stocks after the marriage, compared to those women who do not get married. After divorce, women on average reduce the fraction held in stocks, compared to women who do not get divorced. For men, it is the other way around: single men reduce the fraction of wealth in stocks after they get married, whereas they increase this fraction after divorce. Hence, marriage acts as a financial risk-reducer for men, whereas it acts as financial risk-increaser for women.” (Christiansen, Joensen and Rangvidz, September 1, 2010)
Levels:
S&P 500 Index [1332.41] – Revisiting February highs as 1340 presents a retest of strength and positive momentum.
Crude [$107.94] – Early confirmation of strength above $105, showcasing further traction with buyers.
Gold [$1418.00] – Interestingly, another struggle at 1420 range, which suggests a positive long-term but shaky near-term confidence.
DXY – US Dollar Index [75.83] – Noticeable decline for the quarter. It remains at a fragile range.
US 10 Year Treasury Yields [3.44%] – Closing in line with the 50-day moving average of 3.44%. Currently, trading in line with the four-month pattern.
Please note: There will be no weekly Market Takers next week due to travel schedule.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, March 28, 2011
Market Outlook | March 28, 2011
“A weak man has doubts before a decision; a strong man has them afterwards.” - Karl Kraus (1874 - 1936)
Barely Surprising
Plenty of topics are floating as headline issues, but that is hardly news these days. Interestingly, Japan was facing de-leveraging matters for several months prior to the tragic events. Similarly, the European Union has struggled to reach a resolution since last summer. Whether US broad indexes go up or down is merely a reflection of select companies and not a barometer for business health. In this context, the stock market rise should not be confused with positive economic feel or job expansion. Importantly, when trying to assess the next 2-3 years, managers are asking where to find quality ideas, given scarcity in innovation, pending regulations in an era of overreliance in policymakers. Investors have focused on finding liquid based investments and sticking with working ideas. Perhaps, both contribute to further upside momentum, mainly when bad news is not necessarily breaking news. Clearly, the much needed breather took place, but buyers were eager to step back in. Is this impulse buying or bargain hunting? This is a question that traders will ponder in seeking timely entry points.
Evaluating Success
For the casual observer, an up day can paint an even more confusing picture while reiterating the disconnect between the market and real economy. That said, the stimulus efforts through low interest rates were designed to serve as a temporary solution. We are approaching a period in which the Federal Reserve efforts can be questioned if economic growth is less evident. In other words, the success of these measures to rekindle the efforts will be judged. In addition, a glaring disagreement among officials on interest rate views can stir additional concern. For others, a third year of a presidential cycle makes a strong buying case based on historical data. This plays into the mindsets of investors, and the net effect can play a bigger role in the second half of 2011.
Near-term Factors
The recent and minor correction symbolizes the first phase of a price adjustment. As usual, down days are followed up by sharp recovery in risky assets while coinciding with a sudden decline in volatility. This sudden shift was felt last week as the S&P 500 Index rose +2.70% while the Volatility Index declined 26.72%. This back and forth is not convincing of stable footing. For some, it might be too premature to declare the end of a natural correction. In the days ahead, the suspense will play out, given job data. Meanwhile, commodity prices are flirting with an inflection point, and this is bound to test conviction levels.
Article Quotes:
“As for finance, China’s objectives must be: first, to create a domestic system capable of supporting its own economic development; second, to help promote a global system that supports a tolerably stable world economy; and, third, to protect the former from the excesses of the latter. In achieving this difficult reconciliation China’s policies should be guided by the understanding that, in the long run, its financial system will be the hub of global finance. Yet the transition to full integration will be not only lengthy but also complex and fraught, with full integration of banking particularly dangerous….One aim should be to ensure that commodity-exporting countries – particularly poor ones, with limited capacity for governance – benefit from foreign investment and exports of natural resources. China will be a central player in securing such agreements.” (Financial Times, March 22, 2011)
“In 2000, the Federal Reserve migrated from the Consumer Price Index (CPI), calculated by the Bureau of Labor Statistics to a re-jiggered PCE index. The BLS, the official American government agency, had already been tinkering - quite candidly - with its methodologies. The move gathered steam in the early 1990s, when politicians determined to reduce the CPI inflation rate, as a gimmick to lower CPI-linked payments to Social Security pensioners. They argued that substitutions in goods, as well as hedonic improvements (benefits derived from new technologies like safety features) justified an overhaul of the index of about 80,000 goods. Switching from an arithmetic to a geometric weighting lowered the year-over-year CPI by about 2.7%, and the effects have compounded ever since.” (Fundweb, March 21, 2011)
Levels:
S&P 500 Index [1313.80] – Recovering from recent correction and facing a near-term hurdle at 1320. The behavior between 1300 and 1320 can signal some directional conviction this week.
Crude [$105.40] – Attempting to revisit March 7th highs of $106.95. The jolting upside run appears to stall for now, but the uptrend is well established at these levels
Gold [$1436] – Broke above key $1420 level. Yet, it’s early to claim that a re-acceleration is taking place.
DXY – US Dollar Index [76.21] – Barely holding on after making new lows around 76. Interestingly, that was a bottoming point in late fall/early winter.
US 10 Year Treasury Yields [3.43%] – Generally, stabilizing around 3.45% especially in the past two months.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Barely Surprising
Plenty of topics are floating as headline issues, but that is hardly news these days. Interestingly, Japan was facing de-leveraging matters for several months prior to the tragic events. Similarly, the European Union has struggled to reach a resolution since last summer. Whether US broad indexes go up or down is merely a reflection of select companies and not a barometer for business health. In this context, the stock market rise should not be confused with positive economic feel or job expansion. Importantly, when trying to assess the next 2-3 years, managers are asking where to find quality ideas, given scarcity in innovation, pending regulations in an era of overreliance in policymakers. Investors have focused on finding liquid based investments and sticking with working ideas. Perhaps, both contribute to further upside momentum, mainly when bad news is not necessarily breaking news. Clearly, the much needed breather took place, but buyers were eager to step back in. Is this impulse buying or bargain hunting? This is a question that traders will ponder in seeking timely entry points.
Evaluating Success
For the casual observer, an up day can paint an even more confusing picture while reiterating the disconnect between the market and real economy. That said, the stimulus efforts through low interest rates were designed to serve as a temporary solution. We are approaching a period in which the Federal Reserve efforts can be questioned if economic growth is less evident. In other words, the success of these measures to rekindle the efforts will be judged. In addition, a glaring disagreement among officials on interest rate views can stir additional concern. For others, a third year of a presidential cycle makes a strong buying case based on historical data. This plays into the mindsets of investors, and the net effect can play a bigger role in the second half of 2011.
Near-term Factors
The recent and minor correction symbolizes the first phase of a price adjustment. As usual, down days are followed up by sharp recovery in risky assets while coinciding with a sudden decline in volatility. This sudden shift was felt last week as the S&P 500 Index rose +2.70% while the Volatility Index declined 26.72%. This back and forth is not convincing of stable footing. For some, it might be too premature to declare the end of a natural correction. In the days ahead, the suspense will play out, given job data. Meanwhile, commodity prices are flirting with an inflection point, and this is bound to test conviction levels.
Article Quotes:
“As for finance, China’s objectives must be: first, to create a domestic system capable of supporting its own economic development; second, to help promote a global system that supports a tolerably stable world economy; and, third, to protect the former from the excesses of the latter. In achieving this difficult reconciliation China’s policies should be guided by the understanding that, in the long run, its financial system will be the hub of global finance. Yet the transition to full integration will be not only lengthy but also complex and fraught, with full integration of banking particularly dangerous….One aim should be to ensure that commodity-exporting countries – particularly poor ones, with limited capacity for governance – benefit from foreign investment and exports of natural resources. China will be a central player in securing such agreements.” (Financial Times, March 22, 2011)
“In 2000, the Federal Reserve migrated from the Consumer Price Index (CPI), calculated by the Bureau of Labor Statistics to a re-jiggered PCE index. The BLS, the official American government agency, had already been tinkering - quite candidly - with its methodologies. The move gathered steam in the early 1990s, when politicians determined to reduce the CPI inflation rate, as a gimmick to lower CPI-linked payments to Social Security pensioners. They argued that substitutions in goods, as well as hedonic improvements (benefits derived from new technologies like safety features) justified an overhaul of the index of about 80,000 goods. Switching from an arithmetic to a geometric weighting lowered the year-over-year CPI by about 2.7%, and the effects have compounded ever since.” (Fundweb, March 21, 2011)
Levels:
S&P 500 Index [1313.80] – Recovering from recent correction and facing a near-term hurdle at 1320. The behavior between 1300 and 1320 can signal some directional conviction this week.
Crude [$105.40] – Attempting to revisit March 7th highs of $106.95. The jolting upside run appears to stall for now, but the uptrend is well established at these levels
Gold [$1436] – Broke above key $1420 level. Yet, it’s early to claim that a re-acceleration is taking place.
DXY – US Dollar Index [76.21] – Barely holding on after making new lows around 76. Interestingly, that was a bottoming point in late fall/early winter.
US 10 Year Treasury Yields [3.43%] – Generally, stabilizing around 3.45% especially in the past two months.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, March 21, 2011
Market Outlook | March 21, 2011
“Unthinking respect for authority is the greatest enemy of truth.” - Albert Einstein
Digesting Thoughts
The natural and inevitable market correction took place at a rapid pace last week. Seasonal changes once again find a way to alter existing trends while shifting the moods of investors. The ability to navigate through this turbulence is what distinguishes a money manager in finding or protecting solid returns. Short-term memory can influence linking earthquakes and global unrest as the major drivers of this downtrend. However, it helps to acknowledge that internal financial issues were brewing even before the external worries. Even after this mild correction, it is not too comforting to place heavy directional bets. Importantly, we are recovering from the panic of 2008 in which several intervention and relief programs were needed for stabilization. Last decade’s bubbles have hardly evaporated and still linger in the fundamentals. That simply explains the low rates desperately needed to fuel the economy and ongoing hesitancy for risk among money managers.
Days Ahead
The intervention by finance ministers can fuel markets for a limited period of time, but the question is in its sustainability. Generally, during inflection points, the biggest down days of a cycle are followed up by significant up days. That’s the nature of market movement. In addition, these fallouts can be short-lived, while attractive, for volatility traders, especially given the spike and share moves in the past few days. Now that the rosy picture has been tested, the economic and corporate health will focus back to some data points. A little skepticism serves as a reality check and resets the playing field.
Unavoidable Trends
The following are prevailing themes that are worth noting for upcoming years:
• Aging population in developed countries
• Shift in some wealth towards emerging economies
• Increased regulatory climates in Western nations
These are well-documented social and political issues. These trends are relatively tangible when compared to other financial market estimates. Demographics and regulation cannot be easily dismissed as it eventually shapes the mindset of investors. For instance, “By 2030, the number of people older than 65 is expected to increase to almost 20%, up from about 12.4% in 2003” (SF Gate, March 19, 2011). Therefore, long-term investors have to stay cognizant of how demographics and regulation impact the balance sheets of companies at a faster or slower pace than previously imagined.
The less tangible issues are centered on interest rates and currencies. After all, both are highly impacted by perception and confidence. However, in upcoming quarters, interest rate behavior will provide a vital clue, while influencing risk and investment patterns. Japan, as the third holder of US treasuries, will be on the radar. Central banks will get a chance to respond under severe pressure. Importantly, let’s not forget that interest rates were on the radar at the start of this year.
Article Quotes:
“Businesses, like any other economic actor, will respond to immediate tax and regulatory incentives. But to make long-term investment decisions that create permanent, remunerative jobs, they must have confidence in the long-term prospects of where they invest. In my judgment, it will be hard to secure that needed comfort until Congress makes clear it will refrain from the errant fiscal ways of the past, changes the way it taxes and spends and regulates, and places the nation demonstrably, and unalterably, on a path of fiscal rectitude…. A large and growing government debt inevitably places pressure on the Federal Reserve to hold interest rates too low for too long, making it more difficult for the Fed to fulfill its dual mandate of price stability and full employment.” (Federal Reserve of Dallas, March 7, 2011)
“Fortunately for the world's poor, the speculative dynamic that has created a massive surge in commodity prices appears very close to running its course, as we see very similar "microdynamics" in agricultural commodities as we saw with oil in 2008. That's not to say that we have a good idea of precisely how high prices will move over the short term. The blowoff phase of a bubble tends to be steep, but so short-lived that it affords little opportunity to exit. As prices advance in an uncorrected parabola, the one-sided nature of the speculation typically gives way to a frantic effort of speculators to exit simultaneously. Crashes are always a reflection of illiquidity in two-sided trading - the inability of sellers to find eager buyers at nearby prices” (John P. Hussman, March 14, 2011)
Levels:
S&P 500 Index [1304.28] – A short-term hurdle closer to 1300 on a pending recovery bounce.
Crude [$101.07] – Pre-global political unrest, crude established a basing level between $85-90. In the past 20 trading sessions, the average is around $100. The near-term spike is unclear if justified by fundamentals; however, the violent swings have yet to subside.
Gold [$1420] – Interestingly, the commodity is reaching a critical level of 1420—a point that has been hard to break above for several months. For now, the all-time highs stand at 1437, which is not too far away. This set up suggests a critical turning point and a chance to read investors’ true feel.
DXY – US Dollar Index [75.71] – Broke below 76 and now entering a fragile point that reiterates further weakness.
US 10 Year Treasury Yields [3.26%] – Since early February, rates have declined significantly. Interestingly, the 200-day average sits at 3%--a key psychological level.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Digesting Thoughts
The natural and inevitable market correction took place at a rapid pace last week. Seasonal changes once again find a way to alter existing trends while shifting the moods of investors. The ability to navigate through this turbulence is what distinguishes a money manager in finding or protecting solid returns. Short-term memory can influence linking earthquakes and global unrest as the major drivers of this downtrend. However, it helps to acknowledge that internal financial issues were brewing even before the external worries. Even after this mild correction, it is not too comforting to place heavy directional bets. Importantly, we are recovering from the panic of 2008 in which several intervention and relief programs were needed for stabilization. Last decade’s bubbles have hardly evaporated and still linger in the fundamentals. That simply explains the low rates desperately needed to fuel the economy and ongoing hesitancy for risk among money managers.
Days Ahead
The intervention by finance ministers can fuel markets for a limited period of time, but the question is in its sustainability. Generally, during inflection points, the biggest down days of a cycle are followed up by significant up days. That’s the nature of market movement. In addition, these fallouts can be short-lived, while attractive, for volatility traders, especially given the spike and share moves in the past few days. Now that the rosy picture has been tested, the economic and corporate health will focus back to some data points. A little skepticism serves as a reality check and resets the playing field.
Unavoidable Trends
The following are prevailing themes that are worth noting for upcoming years:
• Aging population in developed countries
• Shift in some wealth towards emerging economies
• Increased regulatory climates in Western nations
These are well-documented social and political issues. These trends are relatively tangible when compared to other financial market estimates. Demographics and regulation cannot be easily dismissed as it eventually shapes the mindset of investors. For instance, “By 2030, the number of people older than 65 is expected to increase to almost 20%, up from about 12.4% in 2003” (SF Gate, March 19, 2011). Therefore, long-term investors have to stay cognizant of how demographics and regulation impact the balance sheets of companies at a faster or slower pace than previously imagined.
The less tangible issues are centered on interest rates and currencies. After all, both are highly impacted by perception and confidence. However, in upcoming quarters, interest rate behavior will provide a vital clue, while influencing risk and investment patterns. Japan, as the third holder of US treasuries, will be on the radar. Central banks will get a chance to respond under severe pressure. Importantly, let’s not forget that interest rates were on the radar at the start of this year.
Article Quotes:
“Businesses, like any other economic actor, will respond to immediate tax and regulatory incentives. But to make long-term investment decisions that create permanent, remunerative jobs, they must have confidence in the long-term prospects of where they invest. In my judgment, it will be hard to secure that needed comfort until Congress makes clear it will refrain from the errant fiscal ways of the past, changes the way it taxes and spends and regulates, and places the nation demonstrably, and unalterably, on a path of fiscal rectitude…. A large and growing government debt inevitably places pressure on the Federal Reserve to hold interest rates too low for too long, making it more difficult for the Fed to fulfill its dual mandate of price stability and full employment.” (Federal Reserve of Dallas, March 7, 2011)
“Fortunately for the world's poor, the speculative dynamic that has created a massive surge in commodity prices appears very close to running its course, as we see very similar "microdynamics" in agricultural commodities as we saw with oil in 2008. That's not to say that we have a good idea of precisely how high prices will move over the short term. The blowoff phase of a bubble tends to be steep, but so short-lived that it affords little opportunity to exit. As prices advance in an uncorrected parabola, the one-sided nature of the speculation typically gives way to a frantic effort of speculators to exit simultaneously. Crashes are always a reflection of illiquidity in two-sided trading - the inability of sellers to find eager buyers at nearby prices” (John P. Hussman, March 14, 2011)
Levels:
S&P 500 Index [1304.28] – A short-term hurdle closer to 1300 on a pending recovery bounce.
Crude [$101.07] – Pre-global political unrest, crude established a basing level between $85-90. In the past 20 trading sessions, the average is around $100. The near-term spike is unclear if justified by fundamentals; however, the violent swings have yet to subside.
Gold [$1420] – Interestingly, the commodity is reaching a critical level of 1420—a point that has been hard to break above for several months. For now, the all-time highs stand at 1437, which is not too far away. This set up suggests a critical turning point and a chance to read investors’ true feel.
DXY – US Dollar Index [75.71] – Broke below 76 and now entering a fragile point that reiterates further weakness.
US 10 Year Treasury Yields [3.26%] – Since early February, rates have declined significantly. Interestingly, the 200-day average sits at 3%--a key psychological level.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, March 14, 2011
Market Outlook | March 14, 2011
“Acting is illusion, as much illusion as magic is, and not so much a matter of being real.” - Laurence Olivier
Beyond Events
The global markets were poised for minor corrections before external political or natural events. In the shuffle of events, these points are easy to forget. The appetite for risk-aversion changes at a rapid pace, and thus, observers will stay plugged in to the day-to-day news. Yet another reminder, it was only two years ago when key US indexes bottomed and reignited the post crisis recovery. Heading into this spring, the set up has quietly warned of a natural market breather. After all, the S&P 500 is up 95% since the lows of March 2009. Of course, this does not necessarily suggest a major downside move as seen in the late 2008 crisis. However, this leaves us pondering the magnitude of near-term moves and the required next steps for risk adjustment.
Technical indicators are mildly stretched, and there are fewer positive surprises—both create short-term hurdles in continuing this run. Some will argue the uptrend is shaken and not broken. That view is valid for now, since fundamentals are not overleveraged or as deeply overvalued as they were in 2007. In fact, the worry of being reckless is less applied to the private sectors these days. Instead, the attention is centered on new financial regulation and government officials’ abilities to manage policies. The current political climate sets the tone on taxes and attitude towards business. These factors are not as easy to identify, but the details are being examined by longer-term investors.
Looking Ahead
Most analysts would point to interest rate behavior along with the Federal Reserves’ policy as the next major catalysts. It is evident that business models are changing in the current cycle, and revenue expectations are difficult to gauge. Meanwhile, fund managers are searching for innovative ideas for growth, while investors are desperate for higher yielding instruments. From a decision maker’s perspective, the challenge is finding quality ideas, which appear scarce at the moment. This task is challenging especially in isolating the noise from the existing macroeconomic chatter. Clearly, the Bank of Japan’s attempt to stimulate the economy along with euro zone’s solution for debt crisis can spark noticeable trends. Importantly, this will raise questions about the sustainability of a stimulus driven market. This can change the market feel towards fear based responses as we all eagerly await.
Article Quotes:
“Beijing greatly values this stability, even at the expense of capital misallocation, and is in no hurry to give it up by opening up the financial markets and, what’s more, for political reasons, I think local governments will resist ferociously any further corporate governance reform. …The most obvious major countries in the region that can help the process of RMB internationalization—Japan, Russia, India, Korea and to a lesser extent Vietnam and at least one or two others—have a deep mistrust of China and are unlikely to assist the process beyond some minimum level. Remember that one of the reasons sterling never achieved the dominance that the dollar has today is that the French and the Germans, not to mention some other European powers, actively undermined its role in favor of their own currencies. I don’t see why this won’t happen again.” (CreditWritedown.com, March 12, 2011)
“The attractive home price and mortgage rate situation has not resulted in the typical improvement of housing market conditions largely due to a worrisome employment situation. The gains in hiring recorded in February raise expectations of a near term improvement in the housing market. But, other reports from the housing market raise the level of concern. According to CoreLogic, 11.1 million homes or 23.1% of residential mortgages outstanding had negative equity in the fourth quarter of 2010, up slightly from the third quarter. This problematic situation combined with the existence of numerous foreclosed residential properties makes a strong case for the Fed to maintain the current easy monetary policy stance in the months ahead.” (Northern Trust, March 9, 2011)
Levels:
S&P 500 Index [1304.28] – Declined for the week by 1.29%. It’s barely holding its 50-day moving average as near-term investors watch the resilience around 1300.
Crude [$101.16] – After a speculative event driven explosion, a retracement to rational levels is taking place. Betting that this sharp uptrend continues might not be sustainable. The March 7, 2011, intra-day high of $106.95 is the new high. Meanwhile, the 50-day moving average is at $92.
Gold [$1411] – Once again, maintaining a trend above 1400 seems to be a difficult challenge.
DXY – US Dollar Index [76.40] – It stands at a fragile state as a move below 76 signals a deteriorating dollar.
US 10 Year Treasury Yields [3.40%] – Revisiting 3.40% highlights a key inflection point. Interestingly, the 5 and 50-day moving averages are at 3.45%.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Beyond Events
The global markets were poised for minor corrections before external political or natural events. In the shuffle of events, these points are easy to forget. The appetite for risk-aversion changes at a rapid pace, and thus, observers will stay plugged in to the day-to-day news. Yet another reminder, it was only two years ago when key US indexes bottomed and reignited the post crisis recovery. Heading into this spring, the set up has quietly warned of a natural market breather. After all, the S&P 500 is up 95% since the lows of March 2009. Of course, this does not necessarily suggest a major downside move as seen in the late 2008 crisis. However, this leaves us pondering the magnitude of near-term moves and the required next steps for risk adjustment.
Technical indicators are mildly stretched, and there are fewer positive surprises—both create short-term hurdles in continuing this run. Some will argue the uptrend is shaken and not broken. That view is valid for now, since fundamentals are not overleveraged or as deeply overvalued as they were in 2007. In fact, the worry of being reckless is less applied to the private sectors these days. Instead, the attention is centered on new financial regulation and government officials’ abilities to manage policies. The current political climate sets the tone on taxes and attitude towards business. These factors are not as easy to identify, but the details are being examined by longer-term investors.
Looking Ahead
Most analysts would point to interest rate behavior along with the Federal Reserves’ policy as the next major catalysts. It is evident that business models are changing in the current cycle, and revenue expectations are difficult to gauge. Meanwhile, fund managers are searching for innovative ideas for growth, while investors are desperate for higher yielding instruments. From a decision maker’s perspective, the challenge is finding quality ideas, which appear scarce at the moment. This task is challenging especially in isolating the noise from the existing macroeconomic chatter. Clearly, the Bank of Japan’s attempt to stimulate the economy along with euro zone’s solution for debt crisis can spark noticeable trends. Importantly, this will raise questions about the sustainability of a stimulus driven market. This can change the market feel towards fear based responses as we all eagerly await.
Article Quotes:
“Beijing greatly values this stability, even at the expense of capital misallocation, and is in no hurry to give it up by opening up the financial markets and, what’s more, for political reasons, I think local governments will resist ferociously any further corporate governance reform. …The most obvious major countries in the region that can help the process of RMB internationalization—Japan, Russia, India, Korea and to a lesser extent Vietnam and at least one or two others—have a deep mistrust of China and are unlikely to assist the process beyond some minimum level. Remember that one of the reasons sterling never achieved the dominance that the dollar has today is that the French and the Germans, not to mention some other European powers, actively undermined its role in favor of their own currencies. I don’t see why this won’t happen again.” (CreditWritedown.com, March 12, 2011)
“The attractive home price and mortgage rate situation has not resulted in the typical improvement of housing market conditions largely due to a worrisome employment situation. The gains in hiring recorded in February raise expectations of a near term improvement in the housing market. But, other reports from the housing market raise the level of concern. According to CoreLogic, 11.1 million homes or 23.1% of residential mortgages outstanding had negative equity in the fourth quarter of 2010, up slightly from the third quarter. This problematic situation combined with the existence of numerous foreclosed residential properties makes a strong case for the Fed to maintain the current easy monetary policy stance in the months ahead.” (Northern Trust, March 9, 2011)
Levels:
S&P 500 Index [1304.28] – Declined for the week by 1.29%. It’s barely holding its 50-day moving average as near-term investors watch the resilience around 1300.
Crude [$101.16] – After a speculative event driven explosion, a retracement to rational levels is taking place. Betting that this sharp uptrend continues might not be sustainable. The March 7, 2011, intra-day high of $106.95 is the new high. Meanwhile, the 50-day moving average is at $92.
Gold [$1411] – Once again, maintaining a trend above 1400 seems to be a difficult challenge.
DXY – US Dollar Index [76.40] – It stands at a fragile state as a move below 76 signals a deteriorating dollar.
US 10 Year Treasury Yields [3.40%] – Revisiting 3.40% highlights a key inflection point. Interestingly, the 5 and 50-day moving averages are at 3.45%.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, March 07, 2011
Market Outlook | March 7, 2011
“Courage is the discovery that you may not win, and trying when you know you can lose.” - Tom Krause
Not as Good as Advertised
A simple glance at traditional measurements of US economic health and corporate earnings translate to an overall positive message. This message is echoed by performance numbers and headline titles. However, when consensus leans towards comfort, then questions arise as to the legitimacy of this optimism. In fact, seasonal changes can spark inflection points more. Simply, the argument to purchase at current ranges is not too appealing without taking a pause and revaluating the fundamentals. Now, reading sentiment is an art itself, but the low volatility strongly demonstrates the growing complacency. Aside from the global turmoil, the vulnerable condition of European markets and overheating Asian economies should not be easily dismissed.
Early Spring Hints
The last decade showcased market declines in the period between February and March. Generally, a correction in late winter to early spring is not uncommon. For example, in 2007, the S&P 500 declined sharply from 1460 to 1380. In the same way, March triggered a selling point in 2004, 2002 and, of course, 2000 (the well-documented tech bubble). As we enter the new month, navigating through this downside move is worth pondering, especially for speculators and those looking to manage their risk. At the same time, bargain hunters can use this period to pick up value at a discount. In other words, the sell-off window offers fruitful entry point in indentifying specific opportunities. As usual, it is tricky to grasp the current dynamics fully. Timing is the least controllable variable and keeps participants either curious or frustrated. However, some hints invite daring actions more than others. The weeks ahead will test the courage of those aggressively betting on declining prices. Equally, this process can be nerve racking to those owning shares.
When the Dust Settles
Interest rates are a key macro driver that will force a reaction in currencies and risky assets . Central banks’ policies in US and Europe are setting up to strongly influence investor mindset and behavior. Interestingly, internal disagreement within the Federal Reserve is worth monitoring as well. The low interest rate environment has fueled the recent recovery, while reducing the borrowing cost for large corporations. There is plenty of posturing and political factors ahead, but the markets will be sensitive to any clues of rate hikes.
Article Quotes:
“If investors don't understand that this is, how QE2 is "working," they are likely to be as blindsided by the coming decade of weak investment returns as they've been over the past decade. It's notable that the weak returns achieved by the S&P 500 over the past decade were predictable, and our estimates of projected total returns have remained quite accurate in recent years. It bears repeating that our difficulty in 2009 was not that we viewed stocks as overvalued, but that we were forced to contemplate data from periods other than the post-war period, which had generally required much more stringent criteria for accepting market risk. At the 2009 lows, stocks were priced to achieve 10-year total returns in excess of 10% annually by our estimates. The problem is that similar expected returns were not sufficient to end prior declines during much lesser crises even in post-war data.” (John Hussman, February 28, 2011)
“Although Beijing has tightened monetary conditions to dampen inflation, which has been running near a two-year high, the construction projects already launched by local governments will require vast amounts of funding in coming years just to be seen through to completion. This will prevent China from implementing the more aggressive monetary tightening many analysts think is needed to truly stamp out inflation. And the investment does not come for free, even if it sometimes seems like that in China. Local governments have turned to banks to fund their largesse. Banks, owned by the state, have unsurprisingly answered their master's call—just the sort of non-commercial decision that can lead to loan defaults.” (Reuters, March 3, 2011)
Levels
S&P 500 Index [1321.15] – A few points removed from annual highs of 1344.97. It is in a minor consolidation phase while maintaining the uptrend.
Crude [$104.42] – Recent breakout is mostly event driven by emotionally based response. Following the reactionary response, a natural pullback to $100 to $95 is possible as part of a reality.
Gold [$1427] – Reignited strength is developing in Gold prices—a reiteration of the established strength and momentum driven run. It remains closer to the higher end.
DXY – US Dollar Index [76.40] – Over the last three years, the 76 mark has been noteworthy. The weeks ahead, can provide a directional swing, given this familiar territory.
US 10 Year Treasury Yields [3.49%] – In the near-term, holding above 3.40% suggests a sign of stability.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Not as Good as Advertised
A simple glance at traditional measurements of US economic health and corporate earnings translate to an overall positive message. This message is echoed by performance numbers and headline titles. However, when consensus leans towards comfort, then questions arise as to the legitimacy of this optimism. In fact, seasonal changes can spark inflection points more. Simply, the argument to purchase at current ranges is not too appealing without taking a pause and revaluating the fundamentals. Now, reading sentiment is an art itself, but the low volatility strongly demonstrates the growing complacency. Aside from the global turmoil, the vulnerable condition of European markets and overheating Asian economies should not be easily dismissed.
Early Spring Hints
The last decade showcased market declines in the period between February and March. Generally, a correction in late winter to early spring is not uncommon. For example, in 2007, the S&P 500 declined sharply from 1460 to 1380. In the same way, March triggered a selling point in 2004, 2002 and, of course, 2000 (the well-documented tech bubble). As we enter the new month, navigating through this downside move is worth pondering, especially for speculators and those looking to manage their risk. At the same time, bargain hunters can use this period to pick up value at a discount. In other words, the sell-off window offers fruitful entry point in indentifying specific opportunities. As usual, it is tricky to grasp the current dynamics fully. Timing is the least controllable variable and keeps participants either curious or frustrated. However, some hints invite daring actions more than others. The weeks ahead will test the courage of those aggressively betting on declining prices. Equally, this process can be nerve racking to those owning shares.
When the Dust Settles
Interest rates are a key macro driver that will force a reaction in currencies and risky assets . Central banks’ policies in US and Europe are setting up to strongly influence investor mindset and behavior. Interestingly, internal disagreement within the Federal Reserve is worth monitoring as well. The low interest rate environment has fueled the recent recovery, while reducing the borrowing cost for large corporations. There is plenty of posturing and political factors ahead, but the markets will be sensitive to any clues of rate hikes.
Article Quotes:
“If investors don't understand that this is, how QE2 is "working," they are likely to be as blindsided by the coming decade of weak investment returns as they've been over the past decade. It's notable that the weak returns achieved by the S&P 500 over the past decade were predictable, and our estimates of projected total returns have remained quite accurate in recent years. It bears repeating that our difficulty in 2009 was not that we viewed stocks as overvalued, but that we were forced to contemplate data from periods other than the post-war period, which had generally required much more stringent criteria for accepting market risk. At the 2009 lows, stocks were priced to achieve 10-year total returns in excess of 10% annually by our estimates. The problem is that similar expected returns were not sufficient to end prior declines during much lesser crises even in post-war data.” (John Hussman, February 28, 2011)
“Although Beijing has tightened monetary conditions to dampen inflation, which has been running near a two-year high, the construction projects already launched by local governments will require vast amounts of funding in coming years just to be seen through to completion. This will prevent China from implementing the more aggressive monetary tightening many analysts think is needed to truly stamp out inflation. And the investment does not come for free, even if it sometimes seems like that in China. Local governments have turned to banks to fund their largesse. Banks, owned by the state, have unsurprisingly answered their master's call—just the sort of non-commercial decision that can lead to loan defaults.” (Reuters, March 3, 2011)
Levels
S&P 500 Index [1321.15] – A few points removed from annual highs of 1344.97. It is in a minor consolidation phase while maintaining the uptrend.
Crude [$104.42] – Recent breakout is mostly event driven by emotionally based response. Following the reactionary response, a natural pullback to $100 to $95 is possible as part of a reality.
Gold [$1427] – Reignited strength is developing in Gold prices—a reiteration of the established strength and momentum driven run. It remains closer to the higher end.
DXY – US Dollar Index [76.40] – Over the last three years, the 76 mark has been noteworthy. The weeks ahead, can provide a directional swing, given this familiar territory.
US 10 Year Treasury Yields [3.49%] – In the near-term, holding above 3.40% suggests a sign of stability.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, February 28, 2011
Market Outlook | February 28, 2011
“The truth is incontrovertible, malice may attack it, ignorance may deride it, but in the end; there it is.” - Winston Churchill
For longer-term investors, the action last week might not create enough unease to change course in 2011 plans. The consensus view mostly indicates strength in company earnings, favorable presidential cycle data, and increased merger and acquisitions. These highly polished and occasionally motivational points have some merits. In fact, these are key selling points as to why participants bought into this concept, especially towards the end of last summer. In other words, the upside market momentum is driven on the notion of an inevitable cycle recovery. This thought propelled the stock markets to rise at a significant pace in the last few months.
In the short-term, there are plenty of excuses and reasons to lean towards risk aversion. For one thing, European concerns have been in place, and further turbulence is hardly a surprise. Secondly, resurfacing inflation worries plague emerging markets as currently discussed in Asian economies. Meanwhile, US stock market offers a less timely entry point as a mere breather is much needed. Interestingly, some quarterly earnings results may reflect the upbeat rhythm painted by general market feel. However, on a relative basis, US markets are attractive and may lure in foreign capital. That said, managing surprises and expectation is the challenge ahead for investment decision makers.
At this junction, most technical observers are hesitant to declare the last few days as "the top.” As usual, it is well known that it takes few catalysts to shake the smooth sailing markets. Veteran observers are keenly aware that downside moves can be short lived sell-offs occurring at a rapid pace. For the day-to-day trader, it feels like every hour is filled with some highly charged headline material. Topics such as government shutdown, developing unrest, and Wal-Mart’s declining US sales spark enough volatility to create trading opportunities. The skill is in isolating noise from early signs of a sustainable decline for a frontline participant.
Within this fear-driven period, the attention seems too diverted away from the next big issues linked to interest rates and currencies. When the near-term dust settles, mapping out interest rate matters among central bankers can shape a better grasp of risk. Of course, the reactionary pattern in commodity prices should be factored in the Federal Reserves’ evaluation. Beyond the explosive run in Crude, there are other overlooked and existing hints of vulnerability. These cumbersome clues might be difficult to shake off as we all eagerly wait.
Article Quotes:
“The period between the War of 1812 and the Civil War is commonly called the “free banking era.” It is also called the era of “wildcat banks” because many banks were poorly capitalized, poorly if not fraudulently managed, and prone to failure. Conventional wisdom says that this era demonstrates conclusively the need for strict government regulation of money and banking. Like other free-market institutions, free banking rests on the sanctity of property rights, with no government involvement other than prosecution of theft or fraud. But there was substantial government involvement all along, so the “free banking” label is only accurate in relative terms.” (The Freeman Ideas on Liberty, March edition 2011)
“China is seeking to avoid a repeat of its last banking crisis, when the government spent more than $650 billion over a decade to bail out banks after years of state-directed lending. Concerns that a deterioration of lenders’ asset quality could derail the world’s fastest-growing major economy surfaced after credit expansion surged to a record 96 percent in 2009, prompting the banking regulator to tighten capital rules.” (Bloomberg, February 21, 2011)
Levels:
S&P 500 Index [1319.88] – Despite a weekly decline, the index is holding above 1300 and trading near its 15-day moving average of 1323.69.
Crude [$97.88] – A noticeable and well-noted explosive run. The peak of $103.41 on February 24, 2010, marks a multi-month top. Revisiting this range can trigger ongoing debates and speculation.
Gold [$1402.50] – Since November 2010, the commodity has failed at 1400. Yet again, this level is being tested and short-term history would suggest further pause ahead. The week ahead can provide a better clue on buyer’s interest.
DXY – US Dollar Index [77.27] – Relatively quiet and trading slightly below its 50-day moving average of 78.92. Basically, it has been mostly quiet since the peak in late 2010.
US 10 Year Treasury Yields [3.41%] – Establishing a near-term downtrend pattern since February 9, 2011. A dominate theme recently showcases a pattern between 3.30-3.50%. A trading range within these points suggests a normalization process at least in the short-term.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
For longer-term investors, the action last week might not create enough unease to change course in 2011 plans. The consensus view mostly indicates strength in company earnings, favorable presidential cycle data, and increased merger and acquisitions. These highly polished and occasionally motivational points have some merits. In fact, these are key selling points as to why participants bought into this concept, especially towards the end of last summer. In other words, the upside market momentum is driven on the notion of an inevitable cycle recovery. This thought propelled the stock markets to rise at a significant pace in the last few months.
In the short-term, there are plenty of excuses and reasons to lean towards risk aversion. For one thing, European concerns have been in place, and further turbulence is hardly a surprise. Secondly, resurfacing inflation worries plague emerging markets as currently discussed in Asian economies. Meanwhile, US stock market offers a less timely entry point as a mere breather is much needed. Interestingly, some quarterly earnings results may reflect the upbeat rhythm painted by general market feel. However, on a relative basis, US markets are attractive and may lure in foreign capital. That said, managing surprises and expectation is the challenge ahead for investment decision makers.
At this junction, most technical observers are hesitant to declare the last few days as "the top.” As usual, it is well known that it takes few catalysts to shake the smooth sailing markets. Veteran observers are keenly aware that downside moves can be short lived sell-offs occurring at a rapid pace. For the day-to-day trader, it feels like every hour is filled with some highly charged headline material. Topics such as government shutdown, developing unrest, and Wal-Mart’s declining US sales spark enough volatility to create trading opportunities. The skill is in isolating noise from early signs of a sustainable decline for a frontline participant.
Within this fear-driven period, the attention seems too diverted away from the next big issues linked to interest rates and currencies. When the near-term dust settles, mapping out interest rate matters among central bankers can shape a better grasp of risk. Of course, the reactionary pattern in commodity prices should be factored in the Federal Reserves’ evaluation. Beyond the explosive run in Crude, there are other overlooked and existing hints of vulnerability. These cumbersome clues might be difficult to shake off as we all eagerly wait.
Article Quotes:
“The period between the War of 1812 and the Civil War is commonly called the “free banking era.” It is also called the era of “wildcat banks” because many banks were poorly capitalized, poorly if not fraudulently managed, and prone to failure. Conventional wisdom says that this era demonstrates conclusively the need for strict government regulation of money and banking. Like other free-market institutions, free banking rests on the sanctity of property rights, with no government involvement other than prosecution of theft or fraud. But there was substantial government involvement all along, so the “free banking” label is only accurate in relative terms.” (The Freeman Ideas on Liberty, March edition 2011)
“China is seeking to avoid a repeat of its last banking crisis, when the government spent more than $650 billion over a decade to bail out banks after years of state-directed lending. Concerns that a deterioration of lenders’ asset quality could derail the world’s fastest-growing major economy surfaced after credit expansion surged to a record 96 percent in 2009, prompting the banking regulator to tighten capital rules.” (Bloomberg, February 21, 2011)
Levels:
S&P 500 Index [1319.88] – Despite a weekly decline, the index is holding above 1300 and trading near its 15-day moving average of 1323.69.
Crude [$97.88] – A noticeable and well-noted explosive run. The peak of $103.41 on February 24, 2010, marks a multi-month top. Revisiting this range can trigger ongoing debates and speculation.
Gold [$1402.50] – Since November 2010, the commodity has failed at 1400. Yet again, this level is being tested and short-term history would suggest further pause ahead. The week ahead can provide a better clue on buyer’s interest.
DXY – US Dollar Index [77.27] – Relatively quiet and trading slightly below its 50-day moving average of 78.92. Basically, it has been mostly quiet since the peak in late 2010.
US 10 Year Treasury Yields [3.41%] – Establishing a near-term downtrend pattern since February 9, 2011. A dominate theme recently showcases a pattern between 3.30-3.50%. A trading range within these points suggests a normalization process at least in the short-term.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Tuesday, February 22, 2011
Market Outlook | February 22, 2011
“It must be admitted that there is a degree of instability which is inconsistent with civilization. But, on the whole, the great ages have been unstable ones.” - Alfred North Whitehead (1861-1947)
When observing US based indexes, one would notice the recovery in US markets continues as it recoups losses from 2007-08 crisis while restoring some confidence and reinforcing the power of perception. Perhaps, this provides a sense of fragile confidence, based on large company earnings, perceived value, and favorable reactions by key participants. The synchronized rise in the US stock market is helping the S&P 500 Index approach the 1400 level along with a quiet volatility. Rising markets are known to serve a marketing purpose in which sideline observers are enticed to step in or at least explore. A 30% appreciation in the S&P 500, since August 27, 2010, might dampen the voices of outspoken pundits, who highlight longer-term concerns. However, for those not relying on broader indexes as a barometer of well being, the above discussions of comfort might feel like a mere illusion. The growing disconnect between the market picture and the real economy sparks sensitive reaction as hinted at during the last two US elections. Similarly, odd makers would hardly claim today as a timely entry point to purchase stocks, given this extended market.
If you're a casual global news observer, you might be surprised and/or confused at the rapid widespread of global unrest. The escalating demand for power shift is a trend in itself with plenty of details to grasp as foreign policy experts map out future implications. Libya and Morocco are now added to this growing list of countries that look to reexamine their power structure. Then, it is fitting even for a casual observer to wonder the impact on sentiment, natural resources, and political risks. All factors become instantly relevant in a closely connected world. Clearly, this Monday (Presidents Day) witnessed a sharp rise in Crude and Gold, at least, as a short-term response to these events. Of course, the well-documented rise in agricultural commodities is tied to food riots. Perhaps, this provides a logical explanation to global frustration, which eventually will transform into a political matter. Where is the next turbulence going to come from? That is a natural question, but it is too early to ask without having fully grasped events that transpired.
If you've followed the Eurozone activities, you'll most likely wonder about the future result of German elections and the handling of persistent economic concerns facing southern European nations. It was only last spring that sovereign default worries triggered market sell-offs and ongoing bailout debates. Perhaps, a foreign exchange observer is too plugged in to gauge the Euro’s short-term behavior. Investment managers will have to dissect and scramble to figure out the relatively attractive place in Europe to capture economic growth for the next 5-10 years. In the near-term, stability is the question facing policymakers and investors alike for the weeks ahead.
If you're an emerging market investor, then assessing inflation and managing short-term risk is a lingering, but even more, puzzling question. A decade old theme is intriguing, and those familiar with China and Brazil are seeking the next cycle winner and reconsidering adding to winning positions. Interestingly, FXI (China 25 Fund) and EWZ (MSCI Brazil Fund) are not trading at multi-month highs. This is a noticeable contrast to the US indexes, and inquiring minds are pointing out that emerging market themes are becoming fatigued. Perhaps, inflation is one factor not to underestimate, and previous growth projection might have been too optimistic. Meanwhile, the global landscape remains highly tied to the faith of the US Dollar. This is not only a symbolic but also a practical manner in emerging market trends. Series of events can trigger mood swings in attitude of the US Dollar. At this point, the Dollar is accepted as a dominant currency as emerging economies continue to build a stronger financial infrastructure.
Connecting the Dots
Confluence of events can cause powerful reactions at a faster pace in an interlinked world. Sociopolitical matters have been brewing for a long while, but predicting inflection points in human (or market) behavior is too difficult. Interestingly, the fragility of financial systems in developed nations can trigger doubts for a short period. Yet, those doubts can be quickly forgotten until revisited at the next inflection point. Similarly, global markets have a way of exaggerating or underestimating a nations’ well-being, while painting a misleading perception for an extended period. In short, mean-reversion is necessary to get closer to the truth, but it is a painful process along the way.
Article Quotes
“While there are parallels with the US there are also unique features in Brazil. Risk management infrastructure has largely been missing in Brazil’s credit build up, with a “positive” credit bureau still not yet approved owing to consumer protection issues (a positive credit bureau shares credit history of all customers whereas negative bureau shares information for customers only in default, typically this information comes too late). This has enabled borrowers to build multiple lines of credit without the lenders’ knowledge, especially as most loans are “unsecured” and there is no collateral involved. Brazil is in this spot from a financial standpoint due to inefficiencies in the financial system. The operating expense to assets ratio of the Brazilian banking system is a staggering 4.2 per cent compared with 1.1 per cent and 1.6 per cent for Chinese and Indian banks respectively, and this large expense base keeps the cost of credit abnormally high.” (Financial Times, February 21, 2011)
“Although policymakers in the emerging markets clearly face important challenges, such concerns should be put into perspective. First, these capital flows have been driven by many factors, including expectations of more-rapid growth and thus higher investment returns in the emerging market economies than in the advanced economies. … Second, as I noted earlier, emerging market economies have a strong interest in a continued economic recovery in the advanced economies, which accommodative monetary policies in the advanced economies are intended to promote. Third, policymakers in the emerging markets have a range of powerful–although admittedly imperfect–tools that they can use to manage their economies and prevent overheating, including exchange rate adjustment, monetary and fiscal policies, and macroprudential measures. (Chairman Ben S. Bernanke, February 18, 2011)
Levels
S&P 500 Index [1343.01] – Multi-month highs are in place. The next question is in regards to the index’s ability to reach 1400. That is a level last reached and surpassed in 2000 and 2007. Interestingly, in both cases S&P 500 Index stayed above 1400 for short-lived period and eventually topped. However, the current trends point to the index being extended.
Crude [$86.20] – It has held above $84 and is attempting to breakout from a sideways pattern. The current news flow can provide near-term acceleration.
Gold [$1383.50] – For a few weeks, the commodity has remained in a calmer state in a narrow range of 1350-1400. Next discussion will circulate on Gold’s ability to revisit all-time highs of $1421 reached on November 9, 2010.
DXY – US Dollar Index [77.66] – Once again, the index pattern is not convincing of a strengthening dollar at this point.
US 10 Year Treasury Yields [3.57%] – Mildly pulling back after reaching 3.76%. In the weeks ahead, the magnitude of this decline is noteworthy for those tracking key macro shifts.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
When observing US based indexes, one would notice the recovery in US markets continues as it recoups losses from 2007-08 crisis while restoring some confidence and reinforcing the power of perception. Perhaps, this provides a sense of fragile confidence, based on large company earnings, perceived value, and favorable reactions by key participants. The synchronized rise in the US stock market is helping the S&P 500 Index approach the 1400 level along with a quiet volatility. Rising markets are known to serve a marketing purpose in which sideline observers are enticed to step in or at least explore. A 30% appreciation in the S&P 500, since August 27, 2010, might dampen the voices of outspoken pundits, who highlight longer-term concerns. However, for those not relying on broader indexes as a barometer of well being, the above discussions of comfort might feel like a mere illusion. The growing disconnect between the market picture and the real economy sparks sensitive reaction as hinted at during the last two US elections. Similarly, odd makers would hardly claim today as a timely entry point to purchase stocks, given this extended market.
If you're a casual global news observer, you might be surprised and/or confused at the rapid widespread of global unrest. The escalating demand for power shift is a trend in itself with plenty of details to grasp as foreign policy experts map out future implications. Libya and Morocco are now added to this growing list of countries that look to reexamine their power structure. Then, it is fitting even for a casual observer to wonder the impact on sentiment, natural resources, and political risks. All factors become instantly relevant in a closely connected world. Clearly, this Monday (Presidents Day) witnessed a sharp rise in Crude and Gold, at least, as a short-term response to these events. Of course, the well-documented rise in agricultural commodities is tied to food riots. Perhaps, this provides a logical explanation to global frustration, which eventually will transform into a political matter. Where is the next turbulence going to come from? That is a natural question, but it is too early to ask without having fully grasped events that transpired.
If you've followed the Eurozone activities, you'll most likely wonder about the future result of German elections and the handling of persistent economic concerns facing southern European nations. It was only last spring that sovereign default worries triggered market sell-offs and ongoing bailout debates. Perhaps, a foreign exchange observer is too plugged in to gauge the Euro’s short-term behavior. Investment managers will have to dissect and scramble to figure out the relatively attractive place in Europe to capture economic growth for the next 5-10 years. In the near-term, stability is the question facing policymakers and investors alike for the weeks ahead.
If you're an emerging market investor, then assessing inflation and managing short-term risk is a lingering, but even more, puzzling question. A decade old theme is intriguing, and those familiar with China and Brazil are seeking the next cycle winner and reconsidering adding to winning positions. Interestingly, FXI (China 25 Fund) and EWZ (MSCI Brazil Fund) are not trading at multi-month highs. This is a noticeable contrast to the US indexes, and inquiring minds are pointing out that emerging market themes are becoming fatigued. Perhaps, inflation is one factor not to underestimate, and previous growth projection might have been too optimistic. Meanwhile, the global landscape remains highly tied to the faith of the US Dollar. This is not only a symbolic but also a practical manner in emerging market trends. Series of events can trigger mood swings in attitude of the US Dollar. At this point, the Dollar is accepted as a dominant currency as emerging economies continue to build a stronger financial infrastructure.
Connecting the Dots
Confluence of events can cause powerful reactions at a faster pace in an interlinked world. Sociopolitical matters have been brewing for a long while, but predicting inflection points in human (or market) behavior is too difficult. Interestingly, the fragility of financial systems in developed nations can trigger doubts for a short period. Yet, those doubts can be quickly forgotten until revisited at the next inflection point. Similarly, global markets have a way of exaggerating or underestimating a nations’ well-being, while painting a misleading perception for an extended period. In short, mean-reversion is necessary to get closer to the truth, but it is a painful process along the way.
Article Quotes
“While there are parallels with the US there are also unique features in Brazil. Risk management infrastructure has largely been missing in Brazil’s credit build up, with a “positive” credit bureau still not yet approved owing to consumer protection issues (a positive credit bureau shares credit history of all customers whereas negative bureau shares information for customers only in default, typically this information comes too late). This has enabled borrowers to build multiple lines of credit without the lenders’ knowledge, especially as most loans are “unsecured” and there is no collateral involved. Brazil is in this spot from a financial standpoint due to inefficiencies in the financial system. The operating expense to assets ratio of the Brazilian banking system is a staggering 4.2 per cent compared with 1.1 per cent and 1.6 per cent for Chinese and Indian banks respectively, and this large expense base keeps the cost of credit abnormally high.” (Financial Times, February 21, 2011)
“Although policymakers in the emerging markets clearly face important challenges, such concerns should be put into perspective. First, these capital flows have been driven by many factors, including expectations of more-rapid growth and thus higher investment returns in the emerging market economies than in the advanced economies. … Second, as I noted earlier, emerging market economies have a strong interest in a continued economic recovery in the advanced economies, which accommodative monetary policies in the advanced economies are intended to promote. Third, policymakers in the emerging markets have a range of powerful–although admittedly imperfect–tools that they can use to manage their economies and prevent overheating, including exchange rate adjustment, monetary and fiscal policies, and macroprudential measures. (Chairman Ben S. Bernanke, February 18, 2011)
Levels
S&P 500 Index [1343.01] – Multi-month highs are in place. The next question is in regards to the index’s ability to reach 1400. That is a level last reached and surpassed in 2000 and 2007. Interestingly, in both cases S&P 500 Index stayed above 1400 for short-lived period and eventually topped. However, the current trends point to the index being extended.
Crude [$86.20] – It has held above $84 and is attempting to breakout from a sideways pattern. The current news flow can provide near-term acceleration.
Gold [$1383.50] – For a few weeks, the commodity has remained in a calmer state in a narrow range of 1350-1400. Next discussion will circulate on Gold’s ability to revisit all-time highs of $1421 reached on November 9, 2010.
DXY – US Dollar Index [77.66] – Once again, the index pattern is not convincing of a strengthening dollar at this point.
US 10 Year Treasury Yields [3.57%] – Mildly pulling back after reaching 3.76%. In the weeks ahead, the magnitude of this decline is noteworthy for those tracking key macro shifts.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, February 14, 2011
Market Outlook | February 14, 2011
“Technology is similarly just a catalyst at times for fundamental forces already present.” - Scott Cook
Within the current uptrend, volatility has stayed low, as illustrated by various exchange data points. A reduction in turbulence might help long-term investors who occasionally look to make investment adjustments. However, the lower volatility is creating limited day-to-day opportunities for active traders. This impacts exchanges and money managers whose revenue is strongly tied to volatility based trading. Interestingly, policymakers are evaluating the expansion of derivative products, and the competition for exchange based products is heating up as well. These points above illustrate the significant influence of trading mechanics that lead to a changing market dynamic.
These days, one can track the profit’s key exchanges, since they became public a few years ago. Of course, the financial headlines this weekend highlight merger discussions, which can change overall trading behaviors while presenting further regulatory challenges. This recent trend is partially attributed to innovative electronic exchanges, which have reduced overall pricing and in turn increased competition. “Brokers who owned the NYSE 10 years ago earned 6.25 cents or more when buying and selling 100 shares. Now, the spread is a penny for the most heavily traded stocks” (Bloomberg, February 10, 2011). That said, money managers are reevaluating strategies in seeking yields and implementing growth driven models while attempting to establish expertise for the current landscape. In other words, advancement in technological and informational speed is forcing adjustments in traditional financial services. Perhaps, forward-looking managers will look to alternative assets classes or sharpening existing systems to create an edge.
Within the altering technical matters in place, much of the attention, as usual, is centered on the macro climate. Although, extraordinary behaviors are not too visible in Gold or Crude, as both key commodities are pausing. Similarly, long-term yields have somewhat stabilized despite the chatter of sudden spikes. Meanwhile, the Dollar is too quiet for now at this early junction of the year. This relative period of silence makes some nervous in anticipation of a trend shift. Pundits highlight the political instability that is brewing, while others emphasize higher food prices. Yet, the S&P 500 Index (up 5.7% year to date) paints a cheerful picture of corporate profit stability, improving economic growth, and reacceleration from the 2008 crisis. These optimistic arguments are as hard to deny as they are to accept, especially when digging deeper. Perhaps, this sets the stage for a gut check in early spring as various catalysts continue to build.
Article Quotes:
“The booming piracy industry is a neat metaphor for our globalised economy. Just about everything you need to know about how money is made and lost is encapsulated in the daily battles between cargo captains and the pirate skiffs in the Somali basin. For starters, know your customer. One of the keys to understanding the modern multinational is to realise it hates embarrassment. Bear in mind that when faced with any challenge, whether from a lobby group, government or nerdy teenager on Twitter, its instinctive response is to crumple. Then imagine what it will do when confronted with poor people with guns: give in without a fight. Sure enough, most shipping companies don’t even allow their guards to bear weapons. It is not the kind of thing Human Resources wants to get involved in. All the pirates have to do is take a ship, steer it to harbour, and then ask for a few million dollars for its return.” (Financial Times, February 10, 2011)
“The Federal Reserve has held short-term interest rates to nil. We have expanded our balance sheet to unprecedented levels, with the effect of holding down mortgage rates and the rate of interest paid on Treasuries and the myriad financial instruments that are priced off of Treasuries, including corporate debt. After much debate―which included strong concern expressed by one member with a formal vote and others, like me, who did not have voting rights in 2010―the FOMC collectively decided in November to temporarily undertake a program to purchase U.S. Treasuries that, when added to previous policy initiatives, roughly means we will be purchasing the equivalent of all newly issued Treasury debt through June. …The head of the European Central Bank, Jean-Claude Trichet, said it best recently while speaking in Germany: ‘Monetary policy responsibility cannot substitute for government irresponsibility’.” (Speech by Federal Reserve of Dallas, February 8, 2011)
Levels:
S&P 500 Index [1329.15] – Up nearly 28% since bottoming in August 27, 2010. Establishing multi-year highs as the ongoing uptrend is intact.
Crude [$85.58] – Momentum stalled at the $90 range and sparked a near-term decline. Odds for a bounce at current levels would seem favorable. A sharper drop below $85 can signal further selling, given the noteworthy decline this month.
Gold [$1364. 00] – Once again, 1350 is a key base in the recent consolidation. Most optimistic investors are looking at the current range as a reentry, with hopes of revisiting 1400.
DXY – US Dollar Index [78.46] – Not showcasing any significant directional move. Potentially, investors are waiting for further data and adjustment in Federal Reserve plan for the next key movement.
US 10 Year Treasury Yields [3.62%] – In a multi-month uptrend and early signs of pausing. The week ahead will demonstrate the sustainability of the 3.60% after economic and inflation related data.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Within the current uptrend, volatility has stayed low, as illustrated by various exchange data points. A reduction in turbulence might help long-term investors who occasionally look to make investment adjustments. However, the lower volatility is creating limited day-to-day opportunities for active traders. This impacts exchanges and money managers whose revenue is strongly tied to volatility based trading. Interestingly, policymakers are evaluating the expansion of derivative products, and the competition for exchange based products is heating up as well. These points above illustrate the significant influence of trading mechanics that lead to a changing market dynamic.
These days, one can track the profit’s key exchanges, since they became public a few years ago. Of course, the financial headlines this weekend highlight merger discussions, which can change overall trading behaviors while presenting further regulatory challenges. This recent trend is partially attributed to innovative electronic exchanges, which have reduced overall pricing and in turn increased competition. “Brokers who owned the NYSE 10 years ago earned 6.25 cents or more when buying and selling 100 shares. Now, the spread is a penny for the most heavily traded stocks” (Bloomberg, February 10, 2011). That said, money managers are reevaluating strategies in seeking yields and implementing growth driven models while attempting to establish expertise for the current landscape. In other words, advancement in technological and informational speed is forcing adjustments in traditional financial services. Perhaps, forward-looking managers will look to alternative assets classes or sharpening existing systems to create an edge.
Within the altering technical matters in place, much of the attention, as usual, is centered on the macro climate. Although, extraordinary behaviors are not too visible in Gold or Crude, as both key commodities are pausing. Similarly, long-term yields have somewhat stabilized despite the chatter of sudden spikes. Meanwhile, the Dollar is too quiet for now at this early junction of the year. This relative period of silence makes some nervous in anticipation of a trend shift. Pundits highlight the political instability that is brewing, while others emphasize higher food prices. Yet, the S&P 500 Index (up 5.7% year to date) paints a cheerful picture of corporate profit stability, improving economic growth, and reacceleration from the 2008 crisis. These optimistic arguments are as hard to deny as they are to accept, especially when digging deeper. Perhaps, this sets the stage for a gut check in early spring as various catalysts continue to build.
Article Quotes:
“The booming piracy industry is a neat metaphor for our globalised economy. Just about everything you need to know about how money is made and lost is encapsulated in the daily battles between cargo captains and the pirate skiffs in the Somali basin. For starters, know your customer. One of the keys to understanding the modern multinational is to realise it hates embarrassment. Bear in mind that when faced with any challenge, whether from a lobby group, government or nerdy teenager on Twitter, its instinctive response is to crumple. Then imagine what it will do when confronted with poor people with guns: give in without a fight. Sure enough, most shipping companies don’t even allow their guards to bear weapons. It is not the kind of thing Human Resources wants to get involved in. All the pirates have to do is take a ship, steer it to harbour, and then ask for a few million dollars for its return.” (Financial Times, February 10, 2011)
“The Federal Reserve has held short-term interest rates to nil. We have expanded our balance sheet to unprecedented levels, with the effect of holding down mortgage rates and the rate of interest paid on Treasuries and the myriad financial instruments that are priced off of Treasuries, including corporate debt. After much debate―which included strong concern expressed by one member with a formal vote and others, like me, who did not have voting rights in 2010―the FOMC collectively decided in November to temporarily undertake a program to purchase U.S. Treasuries that, when added to previous policy initiatives, roughly means we will be purchasing the equivalent of all newly issued Treasury debt through June. …The head of the European Central Bank, Jean-Claude Trichet, said it best recently while speaking in Germany: ‘Monetary policy responsibility cannot substitute for government irresponsibility’.” (Speech by Federal Reserve of Dallas, February 8, 2011)
Levels:
S&P 500 Index [1329.15] – Up nearly 28% since bottoming in August 27, 2010. Establishing multi-year highs as the ongoing uptrend is intact.
Crude [$85.58] – Momentum stalled at the $90 range and sparked a near-term decline. Odds for a bounce at current levels would seem favorable. A sharper drop below $85 can signal further selling, given the noteworthy decline this month.
Gold [$1364. 00] – Once again, 1350 is a key base in the recent consolidation. Most optimistic investors are looking at the current range as a reentry, with hopes of revisiting 1400.
DXY – US Dollar Index [78.46] – Not showcasing any significant directional move. Potentially, investors are waiting for further data and adjustment in Federal Reserve plan for the next key movement.
US 10 Year Treasury Yields [3.62%] – In a multi-month uptrend and early signs of pausing. The week ahead will demonstrate the sustainability of the 3.60% after economic and inflation related data.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, February 07, 2011
Market Outlook | February 7, 2011
“Safety is something that happens between your ears, not something you hold in your hands.” – Jeff Cooper (1920-2006)
The Beat Goes On
The rising upside move last week serves as another example, where markets drum to their own beat and worries can be ignored or at least postponed. In fact, the broad US indexes have found a way to pay less attention to long or near-term issues related to global unrest. Instead, much of the ongoing appreciation is caused by positive quarterly reports from US large corporations. Major headlines continue to credit and outline the “better than expected” sales forecast that has been met. Veterans will consistently reiterate that markets are an expectation game. This might console participants who are confused between the daily economic truth and the health of electronic driven markets. On the other hand, optimists attribute this current run as an early indication of the attractiveness of US investments compared to overheating emerging markets.
Adjusting Lenses
Meanwhile, few are taking notes and a little caution in anticipation of early spring, where the pressures of slow economic growth and the elevated commodity prices begin to seep through into balance sheets of mid to small cap companies. In other words, the S&P 500 companies might not be an accurate reflection of US businesses, and one should remain cautious in using this index as a barometer of safety. Yet, portfolio managers will remind us that they’re paid to outperform, and success is closely tracked on a monthly basis. That requires staying shrewd and identifying momentum regardless of implications beyond the existing quarter. Rightly or wrongly, that is the mindset of an average money manager.
In the meantime, day-to-day followers struggle to identify the right period to bet on declining markets as it becomes a less compelling story (until it begins to materialize). Clearly, fighting against the Federal Reserve is a daunting task, and professionals acknowledge that it is a powerful force to defeat. Simply, a rising stock market, along with low interest rate policies, partially contributes to further rise in commodities. Perhaps, that’s a summary of the last decade, and remnants of that theme continue to persist at least in the early days of 2011.
Midwinter Mindset
As we have reached the midway point through this winter, there is plenty of macro driven factors to decipher. On that note, the break out in the US 10 Year Treasury Yields is noteworthy. Investors are anxiously waiting to see if 4% will be revisited as witnessed in mid 2009 and early 2010. This trend questions if participants accept the fact that the economic recovery is sustainable in the near-future. “The difference between yields on two- and 10-year yields rose to 2.89 percentage points last week, above median of 1.81 percentage points the past decade” (Bloomberg, February 6, 2011). Usually, this is known to support a rising economy among consensus in which money flows away from treasuries and into risky assets, such as junk bonds and stocks. Perhaps, this makes sense to a casual observer, who continues to glance at a rising market, growing risk appetite, and weaker volatility. That said, the art ahead is to go with the flow until figuring out the potential catalyst that can disrupt this overly comfortable status quo.
Article Quotes:
“On this evidence, austerity appears to only redress the competitive and structural divergences at a snail’s pace. With the possible exception of Ireland, the periphery countries have no choice but to enact structural reforms to stimulate innovation and increase competition in product and labour markets. Absent these changes, the divergences between the periphery and core may not close, or may even widen again (European Commission 2010). So far, each country has taken modest steps. Though not yet reflected in competitiveness indicators, Greece appears to be embarking on far-reaching structural reforms as part of its EU-IMF programme (IMF 2010). But across Europe these measures have been insufficient. This should not be too surprising. Reforms such as liberalising the markets for professional services attack powerful interest groups directly – and nearly always require the application of an external force.” (VoxEU.org, February 6, 2011)
“The Treasury argues that many borrowers it thought were eligible for help turned out not to be because they earned too much, their homes were too expensive or were not their primary residence, or because they couldn’t meet documentation requirements. Many who were eligible, it says, got a private modification instead. Still, the lack of progress means foreclosures are likely to be higher this year than last. That will maintain downward pressure on home prices, which have resumed their fall after the expiry of a tax credit last year. The home-ownership rate fell to 66.5% at the end of 2010, its lowest level since 1998, as many former and would-be home-owners rent. Long after the crisis and the recession, the housing bust that caused them lingers on.” (Economist, February 3rd 2011)
Levels:
S&P 500 Index [1310.87] – Multi-year highs as the index continues its uptrend. The index is 13.16% above its 200-day moving average.
Crude [$89.03] – It appears fatigued in the near-term. The commodity has struggled to stay above $90. However, the trend is mostly sideways.
Gold [$1355.50] – Early signs of recovering from a downtrend. It seems to barely hold above 1350 as a point where new buyers might look to add and existing holders might look to sell.
DXY – US Dollar Index [78.04] – Mostly a nonevent as witnessed for several months. A long step back reminds us that this downtrend has been in place for 25 years.
US 10 Year Treasury Yields [3.63%] – Breaking out of a multi-week trading range. This rise in yields bottomed on October 8, 2010 and is accelerating to 9-month highs.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
The Beat Goes On
The rising upside move last week serves as another example, where markets drum to their own beat and worries can be ignored or at least postponed. In fact, the broad US indexes have found a way to pay less attention to long or near-term issues related to global unrest. Instead, much of the ongoing appreciation is caused by positive quarterly reports from US large corporations. Major headlines continue to credit and outline the “better than expected” sales forecast that has been met. Veterans will consistently reiterate that markets are an expectation game. This might console participants who are confused between the daily economic truth and the health of electronic driven markets. On the other hand, optimists attribute this current run as an early indication of the attractiveness of US investments compared to overheating emerging markets.
Adjusting Lenses
Meanwhile, few are taking notes and a little caution in anticipation of early spring, where the pressures of slow economic growth and the elevated commodity prices begin to seep through into balance sheets of mid to small cap companies. In other words, the S&P 500 companies might not be an accurate reflection of US businesses, and one should remain cautious in using this index as a barometer of safety. Yet, portfolio managers will remind us that they’re paid to outperform, and success is closely tracked on a monthly basis. That requires staying shrewd and identifying momentum regardless of implications beyond the existing quarter. Rightly or wrongly, that is the mindset of an average money manager.
In the meantime, day-to-day followers struggle to identify the right period to bet on declining markets as it becomes a less compelling story (until it begins to materialize). Clearly, fighting against the Federal Reserve is a daunting task, and professionals acknowledge that it is a powerful force to defeat. Simply, a rising stock market, along with low interest rate policies, partially contributes to further rise in commodities. Perhaps, that’s a summary of the last decade, and remnants of that theme continue to persist at least in the early days of 2011.
Midwinter Mindset
As we have reached the midway point through this winter, there is plenty of macro driven factors to decipher. On that note, the break out in the US 10 Year Treasury Yields is noteworthy. Investors are anxiously waiting to see if 4% will be revisited as witnessed in mid 2009 and early 2010. This trend questions if participants accept the fact that the economic recovery is sustainable in the near-future. “The difference between yields on two- and 10-year yields rose to 2.89 percentage points last week, above median of 1.81 percentage points the past decade” (Bloomberg, February 6, 2011). Usually, this is known to support a rising economy among consensus in which money flows away from treasuries and into risky assets, such as junk bonds and stocks. Perhaps, this makes sense to a casual observer, who continues to glance at a rising market, growing risk appetite, and weaker volatility. That said, the art ahead is to go with the flow until figuring out the potential catalyst that can disrupt this overly comfortable status quo.
Article Quotes:
“On this evidence, austerity appears to only redress the competitive and structural divergences at a snail’s pace. With the possible exception of Ireland, the periphery countries have no choice but to enact structural reforms to stimulate innovation and increase competition in product and labour markets. Absent these changes, the divergences between the periphery and core may not close, or may even widen again (European Commission 2010). So far, each country has taken modest steps. Though not yet reflected in competitiveness indicators, Greece appears to be embarking on far-reaching structural reforms as part of its EU-IMF programme (IMF 2010). But across Europe these measures have been insufficient. This should not be too surprising. Reforms such as liberalising the markets for professional services attack powerful interest groups directly – and nearly always require the application of an external force.” (VoxEU.org, February 6, 2011)
“The Treasury argues that many borrowers it thought were eligible for help turned out not to be because they earned too much, their homes were too expensive or were not their primary residence, or because they couldn’t meet documentation requirements. Many who were eligible, it says, got a private modification instead. Still, the lack of progress means foreclosures are likely to be higher this year than last. That will maintain downward pressure on home prices, which have resumed their fall after the expiry of a tax credit last year. The home-ownership rate fell to 66.5% at the end of 2010, its lowest level since 1998, as many former and would-be home-owners rent. Long after the crisis and the recession, the housing bust that caused them lingers on.” (Economist, February 3rd 2011)
Levels:
S&P 500 Index [1310.87] – Multi-year highs as the index continues its uptrend. The index is 13.16% above its 200-day moving average.
Crude [$89.03] – It appears fatigued in the near-term. The commodity has struggled to stay above $90. However, the trend is mostly sideways.
Gold [$1355.50] – Early signs of recovering from a downtrend. It seems to barely hold above 1350 as a point where new buyers might look to add and existing holders might look to sell.
DXY – US Dollar Index [78.04] – Mostly a nonevent as witnessed for several months. A long step back reminds us that this downtrend has been in place for 25 years.
US 10 Year Treasury Yields [3.63%] – Breaking out of a multi-week trading range. This rise in yields bottomed on October 8, 2010 and is accelerating to 9-month highs.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, January 31, 2011
Market Outlook | January 31, 2011
“What you perceive, your observations, feelings, interpretations, are all your truth. Your truth is important. Yet it is not The Truth.” - Linda Ellinor
Bigger Picture
For a long while, geopolitical worries have stayed relatively silent for casual headline followers and slightly-impacted invested participants. Yet, the rising food price is one issue that’s been well addressed and potentially a key catalyst for some turbulence-like conditions. Now, in terms of markets, global tension may serve as an excuse to sell. It should be noted that regardless of political instability, this market was setting up for a consolidation or, at least, a much needed breather. In the past year, inflation in emerging markets and weakness in some European economies presented some minor setbacks to the existing asset appreciation. A downtrend here is not much of a surprise. However, the magnitude of declines provides a better read on market feel.
Previous Clues
Technical observers have pointed out the increasing odds of mean reversion, given the extended broad indexes and commodity markets. Interestingly, Gold prices showcased an early hint of a slowing momentum since early December 2010. On the other hand, Crude strengthened in past few weeks as some expect a further rise in periods of unrest. Obviously, each commodity has its own sensitive response to news. Therefore, identifying few trends in turbulent times remains tricky in the weeks ahead. Meanwhile, the spike in VIX (volatility index) from 16 to 20 last Friday can hardly go unnoticed. Perhaps, a key tipping point and how this plays out is of interest to observers and participants alike. Finally, investment managers may shift focus in the search for hedging tools and attempting not to overreact on the near-term unknowns.
A Wider Perspective
From one angle, the general sentiment has relatively improved from an overly fearful state of March 2009. The existing uptrend has been in place for nearly two years. This run is driven by low rates, increasing complacency/low volatility, and optimism in the decisions of policymakers.
Global investors face few options in the current environment:
- Seek higher-yielding instruments
- Add to trending long-term themes (i.e. commodities and China related)
- Selectively pick quality and monitor some stocks specific ideas
- Stay cautious by managing cash and currency shifts
In addition to these above, legislative response to taxes and business related laws are awaited by those looking to put capital to work. Also, the response of policymakers to interest rates, serve as better guidance to the matters stated above. These issues are at the forefront of financial decision makers and affect general participants as well. Points associated with economic improvement and credit expansion are bound to be scrutinized closely, especially if a sour mood begins to resurface. This is a harsh reminder that navigating in the post 2008 crisis requires increased nimbleness and immediate actions. Veteran pundits are noticing that it takes much work these days to protect capital, while dodging periods of sharp sell-offs.
Article Quotes:
“The catalyst for a resumption of periodic crises came with deregulation in banking and capital markets in the 1970s, together with the emergence of wholesale money markets. With ready access to funds, banks embarked on a dash for growth across the developed world. Property-based financial crises ensued in the mid-1970s in the US and UK; in the mid-1980s in America; in the early 1990s in Japan, the Nordic countries and the UK again; then once again in the English-speaking countries along with Spain from 2007. What lies beneath this increasing tendency for property-induced trouble? ‘The most likely explanation,’ says Lord Desai, emeritus professor at the London School of Economics, ‘is that innovation dried up.’ Property, that is, has acted as a sink for excess liquidity when industry’s demand for funds has been weak.” (Financial Times, January 26, 2011)
“If history is any guide, the price of oil will not rise in a straight line, and the secular uptrend will be punctuated by severe economic recessions. After all, the cure for a high oil price is a high oil price! At some point during the course of this business cycle, as the price of oil continues to rise, it will (once again) cause economic pain for the overstretched citizens of the developed world. When that happens, consumption will slow down and we will experience demand destruction in some parts of the world. In our view, the next economic recession will be caused by yet another spike in the price of oil and during the next business slowdown, crude will get whacked again. This is the reason why we will liquidate all our energy related investments prior to the onset of the next economic recession.” (The Daily Reckoning, January 29, 2011)
Levels:
S&P 500 Index [1276.34] – After a range bound trading pattern, the decline last Friday (Jan 29) was noticeable. Breaking below the 15-day moving average of 1284 serves as the first sign of retracement.
Crude [$89.11] – A downtrend appears to develop after peaking on January 3, 2010—mostly in the $88-90 range and struggling to make new highs. The momentum from last year faces some resistance, but it’s too early to call any top.
Gold [$1334.50] – Noticeable break below $1350. Safe to say, the commodity in entering a consolidation period from escalated levels. However, it remains above its 200-day moving average of 1278.75—a move below that level can create a response.
DXY – US Dollar Index [78.13] – Barely holding above 78. No major significant improvement in the dollar as it awaits policymakers’ decision to stir a catalyst.
US 10 Year Treasury Yields [3.32%] – Finding a steady range between 3.30% and 3.45%. The odds of those levels holding is suspenseful for most.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Bigger Picture
For a long while, geopolitical worries have stayed relatively silent for casual headline followers and slightly-impacted invested participants. Yet, the rising food price is one issue that’s been well addressed and potentially a key catalyst for some turbulence-like conditions. Now, in terms of markets, global tension may serve as an excuse to sell. It should be noted that regardless of political instability, this market was setting up for a consolidation or, at least, a much needed breather. In the past year, inflation in emerging markets and weakness in some European economies presented some minor setbacks to the existing asset appreciation. A downtrend here is not much of a surprise. However, the magnitude of declines provides a better read on market feel.
Previous Clues
Technical observers have pointed out the increasing odds of mean reversion, given the extended broad indexes and commodity markets. Interestingly, Gold prices showcased an early hint of a slowing momentum since early December 2010. On the other hand, Crude strengthened in past few weeks as some expect a further rise in periods of unrest. Obviously, each commodity has its own sensitive response to news. Therefore, identifying few trends in turbulent times remains tricky in the weeks ahead. Meanwhile, the spike in VIX (volatility index) from 16 to 20 last Friday can hardly go unnoticed. Perhaps, a key tipping point and how this plays out is of interest to observers and participants alike. Finally, investment managers may shift focus in the search for hedging tools and attempting not to overreact on the near-term unknowns.
A Wider Perspective
From one angle, the general sentiment has relatively improved from an overly fearful state of March 2009. The existing uptrend has been in place for nearly two years. This run is driven by low rates, increasing complacency/low volatility, and optimism in the decisions of policymakers.
Global investors face few options in the current environment:
- Seek higher-yielding instruments
- Add to trending long-term themes (i.e. commodities and China related)
- Selectively pick quality and monitor some stocks specific ideas
- Stay cautious by managing cash and currency shifts
In addition to these above, legislative response to taxes and business related laws are awaited by those looking to put capital to work. Also, the response of policymakers to interest rates, serve as better guidance to the matters stated above. These issues are at the forefront of financial decision makers and affect general participants as well. Points associated with economic improvement and credit expansion are bound to be scrutinized closely, especially if a sour mood begins to resurface. This is a harsh reminder that navigating in the post 2008 crisis requires increased nimbleness and immediate actions. Veteran pundits are noticing that it takes much work these days to protect capital, while dodging periods of sharp sell-offs.
Article Quotes:
“The catalyst for a resumption of periodic crises came with deregulation in banking and capital markets in the 1970s, together with the emergence of wholesale money markets. With ready access to funds, banks embarked on a dash for growth across the developed world. Property-based financial crises ensued in the mid-1970s in the US and UK; in the mid-1980s in America; in the early 1990s in Japan, the Nordic countries and the UK again; then once again in the English-speaking countries along with Spain from 2007. What lies beneath this increasing tendency for property-induced trouble? ‘The most likely explanation,’ says Lord Desai, emeritus professor at the London School of Economics, ‘is that innovation dried up.’ Property, that is, has acted as a sink for excess liquidity when industry’s demand for funds has been weak.” (Financial Times, January 26, 2011)
“If history is any guide, the price of oil will not rise in a straight line, and the secular uptrend will be punctuated by severe economic recessions. After all, the cure for a high oil price is a high oil price! At some point during the course of this business cycle, as the price of oil continues to rise, it will (once again) cause economic pain for the overstretched citizens of the developed world. When that happens, consumption will slow down and we will experience demand destruction in some parts of the world. In our view, the next economic recession will be caused by yet another spike in the price of oil and during the next business slowdown, crude will get whacked again. This is the reason why we will liquidate all our energy related investments prior to the onset of the next economic recession.” (The Daily Reckoning, January 29, 2011)
Levels:
S&P 500 Index [1276.34] – After a range bound trading pattern, the decline last Friday (Jan 29) was noticeable. Breaking below the 15-day moving average of 1284 serves as the first sign of retracement.
Crude [$89.11] – A downtrend appears to develop after peaking on January 3, 2010—mostly in the $88-90 range and struggling to make new highs. The momentum from last year faces some resistance, but it’s too early to call any top.
Gold [$1334.50] – Noticeable break below $1350. Safe to say, the commodity in entering a consolidation period from escalated levels. However, it remains above its 200-day moving average of 1278.75—a move below that level can create a response.
DXY – US Dollar Index [78.13] – Barely holding above 78. No major significant improvement in the dollar as it awaits policymakers’ decision to stir a catalyst.
US 10 Year Treasury Yields [3.32%] – Finding a steady range between 3.30% and 3.45%. The odds of those levels holding is suspenseful for most.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, January 24, 2011
Market Outlook | January 24, 2011
“Patience and perseverance have a magical effect before which difficulties disappear and obstacles vanish.” - John Quincy Adams
The synchronized upside movement in key asset classes is bound to witness some correction in recent months. As highly documented, for a while, the commodity run seems to need a breather along with broad stock market indexes. Gold and other metals are setting an early tone given recent declines. This pattern has some wondering if food related commodities are the next to see some price adjustments. In other words, the ongoing appreciation in agricultural themes is visible from cotton to corn as demands continue to rise. On a similar point, a few volatility indicators suggest that the period of calmness faces some near-term challenges as one should not discount the odds of minor turbulence. In addition, last week, small cap indexes sharply declined at a faster pace than the S&P 500 Index. For strategists, that signals a lesser tolerance for risk. Finally, earnings season presents investors with various data points to digest. However, the attention is most likely to refocus on macro issues rather than the stock specific factors.
During these periods, money managers will have to consider hedging or selling to take actionable steps on the early hints of a directional shift. As usual, surviving key turbulent cycles is applied by preserving quality and seeking to produce consistent return, especially for those measured by annual returns. Now, the decision making process for a portfolio manager is beyond going with the flow (momentum driven), which has been the case since the summer months. Basically, any fear driven sell-offs can present opportunity to buy innovative ideas at cheaper prices. Similarly, there are fundamental arguments that create a case to sell some overvalued assets linked to basic materials and emerging markets. Of course, longer-term investors are not going to easily bail out on short-term pauses in oil prices and vulnerable trends in the Chinese markets. In some cases, investors with a 5-10 year time frame might be less willing to follow the week to week moving parts while requiring further confirmation of a slowdown. Yet, glancing at pending investor reactions is of interest to all.
In conjunction to price driven adjustments, the interest rate environment can provide valuable clues as to the nature of the next move. Clearly, the interlinked nature of markets is a factor that is felt for active traders. For example, the US 10 Year Treasury Yields have risen from 2.33% to 3.40% since October 2010. In the same period, the BKX (Bank Index) has risen 13%. This is a notable trend that is worth watching to evaluate the correlation of rising rates and appreciation of bank stocks. Simply, the rest of the winter months offer a chance to handpick select financials for those looking for higher risk/reward profiles into the spring and summer months. Once again, the value of closely observing at inflection points helps to accumulate ideas for future entry points. However, a confusing landscape creates further doubts, and this can begin to play out in the days ahead.
Article Quotes:
“Unlike in the mortgage crisis, state debt has not generally been repackaged into opaque, complex securities. Furthermore, and contrary to what many pundits suggest, state governments cannot simply declare bankruptcy. Bondholders are also privileged creditors in almost all states. It is thus difficult for states to default: they would generally have to stop paying employees before they stopped making debt payments. At the local level, however, the situation is different. Many US cities can declare bankruptcy – and given their numbers a severe crisis in at least one major city is both feasible and quite possible...But even if the relevant state government decides not to step in, and a city is forced to default, the direct macroeconomic consequences are unlikely to be substantial – unless that default triggers others to follow.” (Financial Times, January 20, 2011)
“Social Security's nonmarketable bonds are merely markers for actual Treasury bonds, which must be sold, and for which interest must be paid. Thus, Social Security is entirely dependent on the Treasury's sale of new bonds for its future solvency. If interest rates spike or global buyers become wary of buying trillions of dollars in U.S. T-bills, costs for that borrowing will skyrocket, crowding out all other federal spending. As a result, U.S. taxpayers are now paying twice for their Social Security benefits: Once through payroll taxes, and again when the Treasury uses their taxes to pay interest on the bonds it sold to fund Social Security.” (Daily Finance, January 20, 2011)
Levels:
S&P 500 Index [1283.35] – Establishing a new range above 1200 while maintaining an uptrend. Friday’s closing price is 11.24% above the 200-day moving average.
Crude [$89.11] – Near-term pause is forming within a tight range between $88-92 in the past two months.
Gold [$1367] – After holding in above $1350 (key support level), Gold prices have witnessed ongoing declines. A break below $1350 potentially creates further selling pressure.
DXY – US Dollar Index [79.16] – Struggled to break above 81 on two occasions and remains in a fragile territory, given the ongoing downtrend.
US 10 Year Treasury Yields [3.40%] – Holding in near multi-month highs as a rise in rates is becoming an accepted trend in recent weeks. The 50-day moving average stands at 3.16%, which demonstrates an early hint of established strength.
---
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
The synchronized upside movement in key asset classes is bound to witness some correction in recent months. As highly documented, for a while, the commodity run seems to need a breather along with broad stock market indexes. Gold and other metals are setting an early tone given recent declines. This pattern has some wondering if food related commodities are the next to see some price adjustments. In other words, the ongoing appreciation in agricultural themes is visible from cotton to corn as demands continue to rise. On a similar point, a few volatility indicators suggest that the period of calmness faces some near-term challenges as one should not discount the odds of minor turbulence. In addition, last week, small cap indexes sharply declined at a faster pace than the S&P 500 Index. For strategists, that signals a lesser tolerance for risk. Finally, earnings season presents investors with various data points to digest. However, the attention is most likely to refocus on macro issues rather than the stock specific factors.
During these periods, money managers will have to consider hedging or selling to take actionable steps on the early hints of a directional shift. As usual, surviving key turbulent cycles is applied by preserving quality and seeking to produce consistent return, especially for those measured by annual returns. Now, the decision making process for a portfolio manager is beyond going with the flow (momentum driven), which has been the case since the summer months. Basically, any fear driven sell-offs can present opportunity to buy innovative ideas at cheaper prices. Similarly, there are fundamental arguments that create a case to sell some overvalued assets linked to basic materials and emerging markets. Of course, longer-term investors are not going to easily bail out on short-term pauses in oil prices and vulnerable trends in the Chinese markets. In some cases, investors with a 5-10 year time frame might be less willing to follow the week to week moving parts while requiring further confirmation of a slowdown. Yet, glancing at pending investor reactions is of interest to all.
In conjunction to price driven adjustments, the interest rate environment can provide valuable clues as to the nature of the next move. Clearly, the interlinked nature of markets is a factor that is felt for active traders. For example, the US 10 Year Treasury Yields have risen from 2.33% to 3.40% since October 2010. In the same period, the BKX (Bank Index) has risen 13%. This is a notable trend that is worth watching to evaluate the correlation of rising rates and appreciation of bank stocks. Simply, the rest of the winter months offer a chance to handpick select financials for those looking for higher risk/reward profiles into the spring and summer months. Once again, the value of closely observing at inflection points helps to accumulate ideas for future entry points. However, a confusing landscape creates further doubts, and this can begin to play out in the days ahead.
Article Quotes:
“Unlike in the mortgage crisis, state debt has not generally been repackaged into opaque, complex securities. Furthermore, and contrary to what many pundits suggest, state governments cannot simply declare bankruptcy. Bondholders are also privileged creditors in almost all states. It is thus difficult for states to default: they would generally have to stop paying employees before they stopped making debt payments. At the local level, however, the situation is different. Many US cities can declare bankruptcy – and given their numbers a severe crisis in at least one major city is both feasible and quite possible...But even if the relevant state government decides not to step in, and a city is forced to default, the direct macroeconomic consequences are unlikely to be substantial – unless that default triggers others to follow.” (Financial Times, January 20, 2011)
“Social Security's nonmarketable bonds are merely markers for actual Treasury bonds, which must be sold, and for which interest must be paid. Thus, Social Security is entirely dependent on the Treasury's sale of new bonds for its future solvency. If interest rates spike or global buyers become wary of buying trillions of dollars in U.S. T-bills, costs for that borrowing will skyrocket, crowding out all other federal spending. As a result, U.S. taxpayers are now paying twice for their Social Security benefits: Once through payroll taxes, and again when the Treasury uses their taxes to pay interest on the bonds it sold to fund Social Security.” (Daily Finance, January 20, 2011)
Levels:
S&P 500 Index [1283.35] – Establishing a new range above 1200 while maintaining an uptrend. Friday’s closing price is 11.24% above the 200-day moving average.
Crude [$89.11] – Near-term pause is forming within a tight range between $88-92 in the past two months.
Gold [$1367] – After holding in above $1350 (key support level), Gold prices have witnessed ongoing declines. A break below $1350 potentially creates further selling pressure.
DXY – US Dollar Index [79.16] – Struggled to break above 81 on two occasions and remains in a fragile territory, given the ongoing downtrend.
US 10 Year Treasury Yields [3.40%] – Holding in near multi-month highs as a rise in rates is becoming an accepted trend in recent weeks. The 50-day moving average stands at 3.16%, which demonstrates an early hint of established strength.
---
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, January 17, 2011
Market Outlook | January 17, 2011
“If we would guide by the light of reason, we must let our minds be bold.” - Louis D. Brandeis
At first glance, it seems rosy for those invested in domestic stocks and commodities. The returns of the last seven months (S&P 500 + 27.83%) indicate that going with the flow is a feasible option for now. In the minds of some veterans, a smooth-sailing market behavior has its rewards, but it is prudent to think and stay a step ahead. As usual, facts are needed to justify those worrisome thoughts, especially given the high cost of mistiming momentum. Interestingly, perception mostly tends to dominate financial markets, and facts can become the postmortem exercise. A US economic recovery is painted by leaders and some key data points. Perhaps, this recent pickup is felt in some regions and select industries. Yet, for many, there is a noticeable disparity between the general economy and financial markets that is too big to ignore. Perhaps, this is another age-old lesson that suggests not confusing the market recovery with economic well being.
Now, some ‘savvy’ participants are not cheerleading this glitter-like performance and acknowledging socio-economic factors, such as escalating agricultural prices and increasing regulatory pressures. Of course, money managers are simply asked to produce returns regardless of rhetoric or gloom-and-doom discussions. That being said, the current landscape requires balancing general sentiment while attempting to closely time potential hazards. Interestingly, some are waiting for the ideal entry point as a result of short-term panic. For the stock market, that last major point for a bold buyer was around March 6, 2009. Finding this set up in traditional assets is not an easy task, especially with the volatility index near its lows. Therefore, identifying themes where buyers are rushing to sell is not that obvious. From an opportunity standpoint, innovative ideas with a longer-time horizon are poised to present rewards. In other words, a brave approach in lesser known areas is one alternative to those wanting a better idea for a relatively easier method of chasing momentum.
The threat of inflation is on the radar, and it has become a global discussion from Brazil to South Korea. For the past several months, headlines featured Chinese policymakers taking several measures to cool the ongoing real estate boom. Clearly, the explosive run in emerging markets is hardly new material and heavily discussed in the investment circle. In fact, the FXI (China 25 Index Fund) is not trading all-time highs and is far removed from the October 2007 peak. This displays that investors have taken a closer look, and overall enthusiasm is more tempered than commodity markets. Finally, these above points are highly connected to interest rates and currency imbalances. Therefore, the first quarter should provide some answers in conviction levels and pending catalysts for a change in tone.
Article Quotes:
“Recent data make clear that the risks of a double-dip recession and deflation have ebbed and that economic growth and job creation are beginning to flow. Yet the ships of job-creating investment remain, for the most part, tied to the docks—or worse, choose to sail for foreign ports where tax and regulatory conditions are more favorable, very much in the same way that Ohio, Michigan, New York and California businesses and workers have navigated to Texas. I don’t believe this has much to do with the Fed. None of my business contacts, large or small, publicly held or private, are complaining about the cost of borrowing, the lack of liquidity or the availability of capital. All express concern about taxes, regulatory burdens and the lack of understanding in Washington of what incentivizes private-sector job creation.” (Federal Reserve of Dallas, January 12, 2011)
“There have been academics and analysts who have argued about the dangers of China’s economy overheating for some time. But for many, the fact that hedge funds, particularly those with track records on previous crises, are launching specific funds is the sign that the bubble is close to bursting. One academic said: ‘Economists have contrarian views all the time. But these hedge funds have their shirts on the line and do their analysis carefully. The flurry of 'distress China’ funds is a sign to sit up.’…Despite the vast population, the property is generally out of the price range for most. House prices are around 22 times disposable income in Beijing. The IMF has said that house prices in eastern cities have become “increasingly disconnected from the fundamentals” but so far has said there is no nationwide bubble.” (The Telegraph, January 16, 2011)
Levels:
S&P 500 Index [1293.24] – Closing at multi-year highs. Clearly, the index is at the highest point since the 2008 crisis.
Crude [$91.54] – The suspense is around the next target of $100 barrel as the momentum is net positive. A very short-term hurdle is at $92.58 set early this year.
Gold [$1367] – Since early November 2010, the commodity has failed to escalate above $1400 on three occasions. It’s in a consolidation mode, and charts suggest higher odds of buyers at $1350.
DXY – US Dollar Index [79.16] – Hovering between $78-80 the last few weeks. In fact, the 50-day moving average stands at $79.54. This illustrates the stagnant behavior in the currency.
US 10 Year Treasury Yields [3.32%] – Holding above 3.30%, a new short-term trend. The recovery since early October 2010 is still in full effect and worth noting as a turning point.
---
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
At first glance, it seems rosy for those invested in domestic stocks and commodities. The returns of the last seven months (S&P 500 + 27.83%) indicate that going with the flow is a feasible option for now. In the minds of some veterans, a smooth-sailing market behavior has its rewards, but it is prudent to think and stay a step ahead. As usual, facts are needed to justify those worrisome thoughts, especially given the high cost of mistiming momentum. Interestingly, perception mostly tends to dominate financial markets, and facts can become the postmortem exercise. A US economic recovery is painted by leaders and some key data points. Perhaps, this recent pickup is felt in some regions and select industries. Yet, for many, there is a noticeable disparity between the general economy and financial markets that is too big to ignore. Perhaps, this is another age-old lesson that suggests not confusing the market recovery with economic well being.
Now, some ‘savvy’ participants are not cheerleading this glitter-like performance and acknowledging socio-economic factors, such as escalating agricultural prices and increasing regulatory pressures. Of course, money managers are simply asked to produce returns regardless of rhetoric or gloom-and-doom discussions. That being said, the current landscape requires balancing general sentiment while attempting to closely time potential hazards. Interestingly, some are waiting for the ideal entry point as a result of short-term panic. For the stock market, that last major point for a bold buyer was around March 6, 2009. Finding this set up in traditional assets is not an easy task, especially with the volatility index near its lows. Therefore, identifying themes where buyers are rushing to sell is not that obvious. From an opportunity standpoint, innovative ideas with a longer-time horizon are poised to present rewards. In other words, a brave approach in lesser known areas is one alternative to those wanting a better idea for a relatively easier method of chasing momentum.
The threat of inflation is on the radar, and it has become a global discussion from Brazil to South Korea. For the past several months, headlines featured Chinese policymakers taking several measures to cool the ongoing real estate boom. Clearly, the explosive run in emerging markets is hardly new material and heavily discussed in the investment circle. In fact, the FXI (China 25 Index Fund) is not trading all-time highs and is far removed from the October 2007 peak. This displays that investors have taken a closer look, and overall enthusiasm is more tempered than commodity markets. Finally, these above points are highly connected to interest rates and currency imbalances. Therefore, the first quarter should provide some answers in conviction levels and pending catalysts for a change in tone.
Article Quotes:
“Recent data make clear that the risks of a double-dip recession and deflation have ebbed and that economic growth and job creation are beginning to flow. Yet the ships of job-creating investment remain, for the most part, tied to the docks—or worse, choose to sail for foreign ports where tax and regulatory conditions are more favorable, very much in the same way that Ohio, Michigan, New York and California businesses and workers have navigated to Texas. I don’t believe this has much to do with the Fed. None of my business contacts, large or small, publicly held or private, are complaining about the cost of borrowing, the lack of liquidity or the availability of capital. All express concern about taxes, regulatory burdens and the lack of understanding in Washington of what incentivizes private-sector job creation.” (Federal Reserve of Dallas, January 12, 2011)
“There have been academics and analysts who have argued about the dangers of China’s economy overheating for some time. But for many, the fact that hedge funds, particularly those with track records on previous crises, are launching specific funds is the sign that the bubble is close to bursting. One academic said: ‘Economists have contrarian views all the time. But these hedge funds have their shirts on the line and do their analysis carefully. The flurry of 'distress China’ funds is a sign to sit up.’…Despite the vast population, the property is generally out of the price range for most. House prices are around 22 times disposable income in Beijing. The IMF has said that house prices in eastern cities have become “increasingly disconnected from the fundamentals” but so far has said there is no nationwide bubble.” (The Telegraph, January 16, 2011)
Levels:
S&P 500 Index [1293.24] – Closing at multi-year highs. Clearly, the index is at the highest point since the 2008 crisis.
Crude [$91.54] – The suspense is around the next target of $100 barrel as the momentum is net positive. A very short-term hurdle is at $92.58 set early this year.
Gold [$1367] – Since early November 2010, the commodity has failed to escalate above $1400 on three occasions. It’s in a consolidation mode, and charts suggest higher odds of buyers at $1350.
DXY – US Dollar Index [79.16] – Hovering between $78-80 the last few weeks. In fact, the 50-day moving average stands at $79.54. This illustrates the stagnant behavior in the currency.
US 10 Year Treasury Yields [3.32%] – Holding above 3.30%, a new short-term trend. The recovery since early October 2010 is still in full effect and worth noting as a turning point.
---
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, January 10, 2011
Market Outlook | January 10, 2011
“To treat your facts with imagination is one thing, but to imagine your facts is another.” - John Burroughs (1837-1921)
Participants are slowly getting back to examining and reconfirming data that is sensitive to market movement while attempting to gauge overall sentiment. So far, it is the same story, until this uptrend presents some decline. That is the unknown that is driving up curiosity. Once again, momentum is a powerful force as witnessed in the rise of commodities and stock prices. Inversely, a downside momentum in the US dollar and interest rates is a forceful pattern in global trade. Simply, any shift of these established trends increases the suspense and leads to a noticeable reaction, which is dreaded daily in the opinion pages. Now, global risk appetite is healthy, based on upbeat market sentiment, positive performance data, and inflation in emerging markets.
The interlinked global market will require public and private participants to successfully manage rising food prices and adjust to impactful currency trends and other policies related to business operations. At the same time, policymakers will have to balance worries of sovereign defaults while spurring a perceived recovery. There are socioeconomic factors that persist in the current landscape beyond the usual investment circle challenges. In other words, the investor’s dilemma is closely tied to voter demand, and this can intensify. Perhaps, these macro issues seep into the mindset of lawmakers and consequently lead to a political topic outside the control of financial circles. In the near term, the response to the growing emerging market inflation and “currency wars” should set the overall tone.
At this junction, it is vital for participants to isolate a quarterly bet versus long-term trends when picking ideas. Clearly, the speculative game heavily requires accuracy in timing more than a longer-term investment. Now, traditional money managers define their investment horizon, making it a focused approach, and that has its merits. Therefore, at inflection points, it generally pays to observe and to stay patient versus reshuffling portfolios aggressively. Finally, opportunities in Merger & Acquisitions are catching the attention of dealmakers, given the attractive marketplace, as larger firms look to take advantage. Mega deals are bound to create biases in certain groups and, in turn, influence the buying demand of select stocks.
Specific Ideas
Despite being extended in the short-term, the shares of ARUN (Aruba Networks) offer an attractive exposure in the networking and communication group. The company’s sales grew over 85% in the past 5 years. This demonstrates strength, and it is noticed by shareholders. Broad market declines and price weakness can present a buy point on pullbacks.
MIG (Meadowbrook Insurance Group, Inc.) is worth a look, especially for investors looking for conservative ideas in financial services. The company specializes in property and causality and provides risk management products. After trading at historic lows of $1.02 in November 2002, MIG’s stock has slowly recovered in conjunction with its overall fundamentals. Interestingly, unlike the broad markets, the company’s shares peaked in 1998 and not 2008. Therefore, it appears to offer further room for upside growth, especially after a decade of declines and relative attractiveness.
Article Quotes:
“When an individual purchases a home, far from stimulating productivity, the purchaser instead simply transfers wealth to another individual. More to the point, an investment in property cannot help cure cancer, lead to the creation of efficiency-enhancing software or any capital good that makes us more productive, nor will it open foreign markets. A house is just a house, and not a gateway to other investment opportunities. When capital flows in the direction of property, on the margin, the productive parts of the economy suffer a capital deficit. And since the Fed's balance-sheet expansions boost the demand for mortgage-backed securities, the central bank is explicitly subsidizing increased capital flows in the direction of consumption at the expense of wealth-enhancing production.” (Realclearmarkets.com January 6, 2011)
“Currency appreciation, an improved social safety net, democratisation of credit – all these things if applied in China would no doubt help narrow the Chinese surplus by making exports less competitive and encouraging consumption, but they would be most unlikely to demolish the underlying savings glut, and in any case, social security and credit reform will take years, possibly decades, to implement in a meaningful way. A current account surplus, it should be pointed out, is only the mirror image of a capital surplus. If there is an excess of savings, the consequent excess of goods will be exported.” (The Telegraph, January 7, 2011)
Levels:
S&P 500 Index [1271.50] – Positive momentum remains in place as the run since March 2009 showcases ongoing recovery. The index is 10.67% above a 200-day moving average.
Crude [$88.03] – Maintaining its uptrend that was established in the summer. The commodity’s ability to hold above $88 will provide a better clue early in the 1st quarter.
Gold [$1368.90] – Consolidating in the current trading range between $1350 and $1400. This is a decisive point as buyers wait for discounts and sellers feel like early pullbacks. Yet, the force of this long-term run remains too strong.
DXY – US Dollar Index [81.02] – A 7% appreciation since the lows on November 4th and suggesting an early recovery in the US Dollar. However, this index is far removed from its summer highs of 88.70.
US 10 Year Treasury Yields [3.32%] – Near-term consolidation as yields attempt to hold 3.20%. This reflects a new range after a three months trend of rising rates.
---
Dear Readers: The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Participants are slowly getting back to examining and reconfirming data that is sensitive to market movement while attempting to gauge overall sentiment. So far, it is the same story, until this uptrend presents some decline. That is the unknown that is driving up curiosity. Once again, momentum is a powerful force as witnessed in the rise of commodities and stock prices. Inversely, a downside momentum in the US dollar and interest rates is a forceful pattern in global trade. Simply, any shift of these established trends increases the suspense and leads to a noticeable reaction, which is dreaded daily in the opinion pages. Now, global risk appetite is healthy, based on upbeat market sentiment, positive performance data, and inflation in emerging markets.
The interlinked global market will require public and private participants to successfully manage rising food prices and adjust to impactful currency trends and other policies related to business operations. At the same time, policymakers will have to balance worries of sovereign defaults while spurring a perceived recovery. There are socioeconomic factors that persist in the current landscape beyond the usual investment circle challenges. In other words, the investor’s dilemma is closely tied to voter demand, and this can intensify. Perhaps, these macro issues seep into the mindset of lawmakers and consequently lead to a political topic outside the control of financial circles. In the near term, the response to the growing emerging market inflation and “currency wars” should set the overall tone.
At this junction, it is vital for participants to isolate a quarterly bet versus long-term trends when picking ideas. Clearly, the speculative game heavily requires accuracy in timing more than a longer-term investment. Now, traditional money managers define their investment horizon, making it a focused approach, and that has its merits. Therefore, at inflection points, it generally pays to observe and to stay patient versus reshuffling portfolios aggressively. Finally, opportunities in Merger & Acquisitions are catching the attention of dealmakers, given the attractive marketplace, as larger firms look to take advantage. Mega deals are bound to create biases in certain groups and, in turn, influence the buying demand of select stocks.
Specific Ideas
Despite being extended in the short-term, the shares of ARUN (Aruba Networks) offer an attractive exposure in the networking and communication group. The company’s sales grew over 85% in the past 5 years. This demonstrates strength, and it is noticed by shareholders. Broad market declines and price weakness can present a buy point on pullbacks.
MIG (Meadowbrook Insurance Group, Inc.) is worth a look, especially for investors looking for conservative ideas in financial services. The company specializes in property and causality and provides risk management products. After trading at historic lows of $1.02 in November 2002, MIG’s stock has slowly recovered in conjunction with its overall fundamentals. Interestingly, unlike the broad markets, the company’s shares peaked in 1998 and not 2008. Therefore, it appears to offer further room for upside growth, especially after a decade of declines and relative attractiveness.
Article Quotes:
“When an individual purchases a home, far from stimulating productivity, the purchaser instead simply transfers wealth to another individual. More to the point, an investment in property cannot help cure cancer, lead to the creation of efficiency-enhancing software or any capital good that makes us more productive, nor will it open foreign markets. A house is just a house, and not a gateway to other investment opportunities. When capital flows in the direction of property, on the margin, the productive parts of the economy suffer a capital deficit. And since the Fed's balance-sheet expansions boost the demand for mortgage-backed securities, the central bank is explicitly subsidizing increased capital flows in the direction of consumption at the expense of wealth-enhancing production.” (Realclearmarkets.com January 6, 2011)
“Currency appreciation, an improved social safety net, democratisation of credit – all these things if applied in China would no doubt help narrow the Chinese surplus by making exports less competitive and encouraging consumption, but they would be most unlikely to demolish the underlying savings glut, and in any case, social security and credit reform will take years, possibly decades, to implement in a meaningful way. A current account surplus, it should be pointed out, is only the mirror image of a capital surplus. If there is an excess of savings, the consequent excess of goods will be exported.” (The Telegraph, January 7, 2011)
Levels:
S&P 500 Index [1271.50] – Positive momentum remains in place as the run since March 2009 showcases ongoing recovery. The index is 10.67% above a 200-day moving average.
Crude [$88.03] – Maintaining its uptrend that was established in the summer. The commodity’s ability to hold above $88 will provide a better clue early in the 1st quarter.
Gold [$1368.90] – Consolidating in the current trading range between $1350 and $1400. This is a decisive point as buyers wait for discounts and sellers feel like early pullbacks. Yet, the force of this long-term run remains too strong.
DXY – US Dollar Index [81.02] – A 7% appreciation since the lows on November 4th and suggesting an early recovery in the US Dollar. However, this index is far removed from its summer highs of 88.70.
US 10 Year Treasury Yields [3.32%] – Near-term consolidation as yields attempt to hold 3.20%. This reflects a new range after a three months trend of rising rates.
---
Dear Readers: The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, January 03, 2011
Market Outlook| January 3, 2011
“What we call the beginning is often the end. And to make an end is to make a beginning. The end is where we start from.” - T.S. Eliot
General Feel
In 2010, the winning themes included the decade old commodities and Emerging Markets as well as relatively cheaper and riskier assets. For bargain hunters, there were rewarding bets in the US from small cap growth to corporate bonds. The appreciation in value of “risky” assets is mostly caused by a bounce from highly depressed levels as a result of the 2008 crisis. Perhaps, this puts things in perspective as the majority sold while in a panic mode and then potentially created a rebirth of a new cycle. Yet, the few, daring risk-takers profited on accumulating in the spring of 2009, an era of fierce and mostly justified skepticism. These days, being a buyer of a global asset is hardly classified as a daring move, given that consensus view is not as bearish. At least, pessimism appears relatively tame, based on traditional barometers. The volatility index closed the year towards its lows, suggesting a calmer and less turbulent near-term outlook. Needless to say, this comfort is more of a reflection of the past rather than a hint into the future.
One should acknowledge that making judgment on a little over two-year period can be misleading. Therefore, it begs the following key question: Are recent gains a move towards normalization or an extended run poised for pullbacks? The suspense of answering this question is bound to play out in the day-to-day news flow, and these thoughts should float in the minds of asset managers. The heart of this curious question above is centered on interest rates and currency expectations. Importantly, key decision makers and influential participants can set the general tone. Clearly, policymakers’ recent decisions of low rates have driven corporate bond sales and stimulated additional loan issuance. For example, “Corporate bond sales worldwide topped $3 trillion for a second straight year.” (Bloomberg, December 30, 2010).
Managing Expectations
The anticipation among pundits of rising rates does not quite serve as a surprise in the financial circles. However, the market consequences and participant response is the unknown that can damage unequipped portfolios. The rate and currency speculation is bound to be highly debated and contested among buyers and sellers. At the same time, the explosive run in natural resources and further growth in Emerging Markets is most likely to correspond with currency behaviors. Simply, the synchronized price appreciation of global assets resembles the pattern of 2007. Interestingly, the last six months resemble that unified and uninterrupted movement. That said, any sudden shifts in macro trends, such as a significant rise in the US Dollar, can lead to a sensitive reaction and eventually labeled as a surprise. Therefore, this time around, unlike fearful periods of spring 2009, the opportunities might be presented for those staying patient while keenly observing. In other words, chasing rewards in this smooth sailing uptrend might prove trickier than advertised by marketplace chatter.
Article Quotes:
“The IIF calculates that in March 2008, there was about $25bn worth of pre-crisis investment grade commercial real estate in distress. By March this year, however, that number had exploded to $375bn (and has probably swelled since). Thus far, the banks have “dealt with potential delinquency problems in part by extending loans until 2011-13”, the IIF notes. Or, in layman’s terms, they have swept it under the carpet. But while this avoided defaults, the IIF reckons that about $1,400bn of CRE loans must be refinanced before 2014. Alarmingly, “nearly half of these are at present ‘underwater’, i.e. have mortgages in excess of the current value of the property” (Financial Times, December 30, 2010)
“The rest of Europe is now talking about imposing penalties on private-sector lenders in future rescues. That will turn each crisis into a game of chicken as bondholders sell before they get penalised. And financing packages do not deal with an underlying lack of competitiveness in many European economies. Without the ability to devalue, the restoration of competitiveness requires painful austerity measures and wage restraint. That leads to another potential flashpoint for 2011: the lack of global co-ordination. Gone is the consensus seen at the G20 meeting in April 2009. Europe will be pursuing austerity, China is trying to rein in bank lending but America has opted for another fiscal stimulus. This is a throwback to pre-crisis 2007, with American deficit-financed consumption set against Chinese surplus-creating exports” (The Economist, December 29, 2010)
Levels:
S&P 500 Index [1257.64] – The index finished 2010, up 12.8%. Above 1200 suggests an established uptrend. Minor pullbacks can confirm the magnitude of buyers’ conviction.
Crude [$91.38] – Since late August, the commodity has risen nearly 30%. Recently, buyers’ interest increased around $88 a barrel. Clearly, a move above a psychological $100 range creates further curiosity and contributes to ongoing herding.
Gold [$1405.50] – Since the crisis of fall 2008, the commodity has nearly doubled. This proves the momentum driven behavior which contributes to some fears for those considering selling.
DXY – US Dollar Index [79.02] – In the past few weeks, several short-lived rallies and minor declines that keep the index around a familiar and stagnant territory. Fair to say range bound, yet again.
US 10 Year Treasury Yields [3.29%] – Since late October 2008, Yields rose by nearly 100 basis points. This is a noticeable and highly watched macro trend.
-----
Dear Readers: The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
General Feel
In 2010, the winning themes included the decade old commodities and Emerging Markets as well as relatively cheaper and riskier assets. For bargain hunters, there were rewarding bets in the US from small cap growth to corporate bonds. The appreciation in value of “risky” assets is mostly caused by a bounce from highly depressed levels as a result of the 2008 crisis. Perhaps, this puts things in perspective as the majority sold while in a panic mode and then potentially created a rebirth of a new cycle. Yet, the few, daring risk-takers profited on accumulating in the spring of 2009, an era of fierce and mostly justified skepticism. These days, being a buyer of a global asset is hardly classified as a daring move, given that consensus view is not as bearish. At least, pessimism appears relatively tame, based on traditional barometers. The volatility index closed the year towards its lows, suggesting a calmer and less turbulent near-term outlook. Needless to say, this comfort is more of a reflection of the past rather than a hint into the future.
One should acknowledge that making judgment on a little over two-year period can be misleading. Therefore, it begs the following key question: Are recent gains a move towards normalization or an extended run poised for pullbacks? The suspense of answering this question is bound to play out in the day-to-day news flow, and these thoughts should float in the minds of asset managers. The heart of this curious question above is centered on interest rates and currency expectations. Importantly, key decision makers and influential participants can set the general tone. Clearly, policymakers’ recent decisions of low rates have driven corporate bond sales and stimulated additional loan issuance. For example, “Corporate bond sales worldwide topped $3 trillion for a second straight year.” (Bloomberg, December 30, 2010).
Managing Expectations
The anticipation among pundits of rising rates does not quite serve as a surprise in the financial circles. However, the market consequences and participant response is the unknown that can damage unequipped portfolios. The rate and currency speculation is bound to be highly debated and contested among buyers and sellers. At the same time, the explosive run in natural resources and further growth in Emerging Markets is most likely to correspond with currency behaviors. Simply, the synchronized price appreciation of global assets resembles the pattern of 2007. Interestingly, the last six months resemble that unified and uninterrupted movement. That said, any sudden shifts in macro trends, such as a significant rise in the US Dollar, can lead to a sensitive reaction and eventually labeled as a surprise. Therefore, this time around, unlike fearful periods of spring 2009, the opportunities might be presented for those staying patient while keenly observing. In other words, chasing rewards in this smooth sailing uptrend might prove trickier than advertised by marketplace chatter.
Article Quotes:
“The IIF calculates that in March 2008, there was about $25bn worth of pre-crisis investment grade commercial real estate in distress. By March this year, however, that number had exploded to $375bn (and has probably swelled since). Thus far, the banks have “dealt with potential delinquency problems in part by extending loans until 2011-13”, the IIF notes. Or, in layman’s terms, they have swept it under the carpet. But while this avoided defaults, the IIF reckons that about $1,400bn of CRE loans must be refinanced before 2014. Alarmingly, “nearly half of these are at present ‘underwater’, i.e. have mortgages in excess of the current value of the property” (Financial Times, December 30, 2010)
“The rest of Europe is now talking about imposing penalties on private-sector lenders in future rescues. That will turn each crisis into a game of chicken as bondholders sell before they get penalised. And financing packages do not deal with an underlying lack of competitiveness in many European economies. Without the ability to devalue, the restoration of competitiveness requires painful austerity measures and wage restraint. That leads to another potential flashpoint for 2011: the lack of global co-ordination. Gone is the consensus seen at the G20 meeting in April 2009. Europe will be pursuing austerity, China is trying to rein in bank lending but America has opted for another fiscal stimulus. This is a throwback to pre-crisis 2007, with American deficit-financed consumption set against Chinese surplus-creating exports” (The Economist, December 29, 2010)
Levels:
S&P 500 Index [1257.64] – The index finished 2010, up 12.8%. Above 1200 suggests an established uptrend. Minor pullbacks can confirm the magnitude of buyers’ conviction.
Crude [$91.38] – Since late August, the commodity has risen nearly 30%. Recently, buyers’ interest increased around $88 a barrel. Clearly, a move above a psychological $100 range creates further curiosity and contributes to ongoing herding.
Gold [$1405.50] – Since the crisis of fall 2008, the commodity has nearly doubled. This proves the momentum driven behavior which contributes to some fears for those considering selling.
DXY – US Dollar Index [79.02] – In the past few weeks, several short-lived rallies and minor declines that keep the index around a familiar and stagnant territory. Fair to say range bound, yet again.
US 10 Year Treasury Yields [3.29%] – Since late October 2008, Yields rose by nearly 100 basis points. This is a noticeable and highly watched macro trend.
-----
Dear Readers: The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, December 20, 2010
Market Outlook | December 20, 2010
“Industry, perseverance, and frugality make fortune yield.” - Benjamin Franklin
The overall optimism is slowly rising among investment circles, given the positive market performance. Clearly, the early divers and risk takers acknowledge the rewards today. Meanwhile, majority pundits are compelled to recommend buying, and that is after the evidence of further appreciation is presented. Now, participants should be wary of hearing and reading calls that are too optimistic. Instead, it might be wiser to acknowledge that future turbulence is part of the equation even in a positive environment. Despite the connivance of making annual predictions, the mood and pattern of the first quarter sets up the psychological outlook. Therefore, surviving the early part of 2011 without a severe damage should be a key goal to consider in managing longer-term portfolios.
The next six weeks present a tricky climate for making investment decisions. Therefore, observing these issues below might be fruitful:
- Lower trading volume around the holiday season creates a difficult gauge of high conviction movements.
- Potential selling or capital preservation in the first quarter is inevitable as managers reexamine ideas and wait to manage headline sensitive issues.
- Macro trend shifts find a way to transpire at the start of new seasons.
- Commodities appear to near a mild inflection point.
- Continuation of rising rates cast some doubts on rate sensitive instruments.
- Volatility is relatively low and can lead to misleading optimism.
- Assuming further decline in US Dollar is not necessarily a safe bet.
To expand on the thoughts above, analysts appear to be in agreement on a positive feel, which should make one take a step back. Interestingly, VIX (Volatility Index) is nearing annual lows, which suggest further complacency and a growing comfort on continuation of this uptrend. Yet, those can be riskier periods as the Volatility Index reached its lowest point on April 16, 2010, eventually leading to sharp sell-offs. Usually, patterns do not repeat themselves in the same form. However, some junction of a cycle calls for caution in timing and selecting specific ideas.
On the other hand, there have been several worrisome issues that received plenty of attention beyond the weakness of labor and economic growth. For example, the various concerns of European economics, such as Greece and Ireland, were debated for the most part of this year. Perhaps, this is a multi-year theme that is not easy to shake off. Thus, this leads to some realignment of capital among investment managers. Interestingly, in looking ahead, we should note that surprises are likely to occur as displayed in various cycles in market history.
The surprise element of a downturn is most likely to come from the least expected area. In other words, the European issues were highly publicized, and the impact dictated sell-offs and polices. Conversely, the potential of growing bubble-like patterns in Emerging Markets is less discussed and potentially an underestimated theme. Thus, the survival mode of the early part of 2011 should take this factor in strong consideration. Generally, outliers are not accounted for risk management tools and in the mindsets of groupthink. However, managing surprises and avoiding major hits on unknown events enhances the longevity of investors. Finally, let’s not forgot that attractive entry points are most likely to present themselves at least once or twice in any calendar year. Once these points are identified, then being aggressive makes relative sense.
Happy Holidays and a healthy New Year!
Article Quotes:
“The authorities are making at least two mistakes. One is that they are determined to avoid defaults or haircuts on currently outstanding sovereign debt for fear of provoking a banking crisis. The bondholders of insolvent banks are being protected at the expense of taxpayers. This is politically unacceptable. A new Irish government to be elected next spring is bound to repudiate the current arrangements. Markets recognise this and that is why the Irish rescue brought no relief. Second, high interest rates on rescue packages make it impossible for the weaker countries to improve their competitiveness vis-Ã -vis the stronger ones. Resentment between creditors and debtors is liable to grow and there is a real danger that the euro may destroy the political and social cohesion of the EU.” (George Soros Financial Times, December 15, 2010)
“In some respects, this historical sketch is reassuring. It suggests that, even when currency tensions appear to have degenerated into competitive devaluations in the past, the main motive for devaluation lay elsewhere, principally in the need to align the exchange rate with domestic policies. But that is also the bad news. It suggests that, unless politically thorny domestic reforms are tackled, currency tensions will continue to fester, and may escalate. Currency tensions could contribute to inappropriate macroeconomic policy responses, deterioration in international relations, and protectionism (though not necessarily in the form of competitive devaluations), especially if the global macroeconomic environment worsens. How can we avoid this? The answer takes two forms: encouraging greater exchange-rate flexibility and, more crucially, enacting domestic reforms in the core countries.” (VOX, December 20, 2010)
Levels:
S&P 500 Index [1243.91] – A climb above 1200, suggests the cycle recovery of the post credit crisis era.
Crude [$88.02] – A move above $85 solidifies stability and resurgence in buyer interest.
Gold [$1368.50] – Few weeks of trading showcase a trading range between 1350 and 1400. Much attention will be paid on the next move outside of these tight ranges. Overall, a breather here seems appropriate, given the uptrend for nearly 11 months.
DXY – US Dollar Index [80.73] – Nearly an 8% rise since November 4, 2010—a near-term recovery, but a longer-term stability. At this stage, a directional bias is not clearly defined.
US 10 Year Treasury Yields [3.31%] – An explosive rise here in the fourth quarter, possibly setting up for a near-term correction. However, recent move is highly noteworthy in terms of grasping the longer-term cycle.
Please note: The next MarketTakers will be published on January 3, 2011.
-----
Dear Readers: The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
The overall optimism is slowly rising among investment circles, given the positive market performance. Clearly, the early divers and risk takers acknowledge the rewards today. Meanwhile, majority pundits are compelled to recommend buying, and that is after the evidence of further appreciation is presented. Now, participants should be wary of hearing and reading calls that are too optimistic. Instead, it might be wiser to acknowledge that future turbulence is part of the equation even in a positive environment. Despite the connivance of making annual predictions, the mood and pattern of the first quarter sets up the psychological outlook. Therefore, surviving the early part of 2011 without a severe damage should be a key goal to consider in managing longer-term portfolios.
The next six weeks present a tricky climate for making investment decisions. Therefore, observing these issues below might be fruitful:
- Lower trading volume around the holiday season creates a difficult gauge of high conviction movements.
- Potential selling or capital preservation in the first quarter is inevitable as managers reexamine ideas and wait to manage headline sensitive issues.
- Macro trend shifts find a way to transpire at the start of new seasons.
- Commodities appear to near a mild inflection point.
- Continuation of rising rates cast some doubts on rate sensitive instruments.
- Volatility is relatively low and can lead to misleading optimism.
- Assuming further decline in US Dollar is not necessarily a safe bet.
To expand on the thoughts above, analysts appear to be in agreement on a positive feel, which should make one take a step back. Interestingly, VIX (Volatility Index) is nearing annual lows, which suggest further complacency and a growing comfort on continuation of this uptrend. Yet, those can be riskier periods as the Volatility Index reached its lowest point on April 16, 2010, eventually leading to sharp sell-offs. Usually, patterns do not repeat themselves in the same form. However, some junction of a cycle calls for caution in timing and selecting specific ideas.
On the other hand, there have been several worrisome issues that received plenty of attention beyond the weakness of labor and economic growth. For example, the various concerns of European economics, such as Greece and Ireland, were debated for the most part of this year. Perhaps, this is a multi-year theme that is not easy to shake off. Thus, this leads to some realignment of capital among investment managers. Interestingly, in looking ahead, we should note that surprises are likely to occur as displayed in various cycles in market history.
The surprise element of a downturn is most likely to come from the least expected area. In other words, the European issues were highly publicized, and the impact dictated sell-offs and polices. Conversely, the potential of growing bubble-like patterns in Emerging Markets is less discussed and potentially an underestimated theme. Thus, the survival mode of the early part of 2011 should take this factor in strong consideration. Generally, outliers are not accounted for risk management tools and in the mindsets of groupthink. However, managing surprises and avoiding major hits on unknown events enhances the longevity of investors. Finally, let’s not forgot that attractive entry points are most likely to present themselves at least once or twice in any calendar year. Once these points are identified, then being aggressive makes relative sense.
Happy Holidays and a healthy New Year!
Article Quotes:
“The authorities are making at least two mistakes. One is that they are determined to avoid defaults or haircuts on currently outstanding sovereign debt for fear of provoking a banking crisis. The bondholders of insolvent banks are being protected at the expense of taxpayers. This is politically unacceptable. A new Irish government to be elected next spring is bound to repudiate the current arrangements. Markets recognise this and that is why the Irish rescue brought no relief. Second, high interest rates on rescue packages make it impossible for the weaker countries to improve their competitiveness vis-Ã -vis the stronger ones. Resentment between creditors and debtors is liable to grow and there is a real danger that the euro may destroy the political and social cohesion of the EU.” (George Soros Financial Times, December 15, 2010)
“In some respects, this historical sketch is reassuring. It suggests that, even when currency tensions appear to have degenerated into competitive devaluations in the past, the main motive for devaluation lay elsewhere, principally in the need to align the exchange rate with domestic policies. But that is also the bad news. It suggests that, unless politically thorny domestic reforms are tackled, currency tensions will continue to fester, and may escalate. Currency tensions could contribute to inappropriate macroeconomic policy responses, deterioration in international relations, and protectionism (though not necessarily in the form of competitive devaluations), especially if the global macroeconomic environment worsens. How can we avoid this? The answer takes two forms: encouraging greater exchange-rate flexibility and, more crucially, enacting domestic reforms in the core countries.” (VOX, December 20, 2010)
Levels:
S&P 500 Index [1243.91] – A climb above 1200, suggests the cycle recovery of the post credit crisis era.
Crude [$88.02] – A move above $85 solidifies stability and resurgence in buyer interest.
Gold [$1368.50] – Few weeks of trading showcase a trading range between 1350 and 1400. Much attention will be paid on the next move outside of these tight ranges. Overall, a breather here seems appropriate, given the uptrend for nearly 11 months.
DXY – US Dollar Index [80.73] – Nearly an 8% rise since November 4, 2010—a near-term recovery, but a longer-term stability. At this stage, a directional bias is not clearly defined.
US 10 Year Treasury Yields [3.31%] – An explosive rise here in the fourth quarter, possibly setting up for a near-term correction. However, recent move is highly noteworthy in terms of grasping the longer-term cycle.
Please note: The next MarketTakers will be published on January 3, 2011.
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Dear Readers: The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
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