Archive - Nov 2010

Retail traders are notoriously wrong at picking market direction/tops and bottoms. Most retail traders very naturally seem to adopt a counter-trend stance and this offers very accurate signals for individuals looking to trade against this group. This daily report is designed to help traders focus their efforts on higher probability pairs.

But the real story is that this financial crisis in Europe could potentially cause the break up of the euro and of the European Union.

The Yukon is well endowed with a number of mineral resources, including lead, zinc, silver, gold, tungsten, and copper. As of 2009, it had 84 mineral deposits with established reserves and resources, and 2,700 known mineral occurrences. Much of this natural wealth, however, is spread across areas with little exploration history. Aware of mining’s economic importance, the Yukon government is offering various financial incentives to continue drawing investment capital and exploration effort to the region. These incentives, combined with a stable business climate, were quite successful in making the Yukon one of the world’s best places to explore.

A Canadian policy think tank believes increasing retirement eligibility by two years may fix an impending demographic crunch.

Understanding that credit default swaps are a way to step up the capital structure absorbs them into fixed income trading in a natural way. At the same time they opened up some terrific opening lines. One can basis trade based on the whether a CDS is priced rich (or no) against an underlying bond. One can trade dispersion, by selecting name(s) that outperform an index basket, or by selecting a CDS that outperforms another CDS. There is curve trading of same-name CDS at different maturities. I’m not going to go further, but the cap arb strategies can extend beyond the strictly fixed income space. That “sell VIX- buy CDS” arb is an example.

The market quieted down today as European investors apparently have turned their focus from Ireland's spiraling deficit to wondering if they will be charged international rates for voting in Argentina's Dancing with the Stars while also...

A recap of the day's key action in equities, futures, FX, rates, commodities and credit.

Not this time, boys!

Much has been said about how the PPI and the CPI are stuck in deflation mode (despite what everyone is seeing when buying groceries or filling up empty gas tanks). Much less has been discussed about how Bernanke's blunt policy tool of unlimited liquidity is leading to an inflation-driven bubble in Asia (and all Emerging Markets). Luckily, Macro Man Simon Black provides a first person perspective of how this bubble is developing, and how it will soon pop. In some ways this is empirical evidence of what Knight Research said previously: namely that the days of an EM push-pull mechanism are coming to an end. Here is why Knight's conclusion is spot on, paraphrased half way around the world: "when central banks start ratcheting up interest rates (like the Fed did in 2004 and what China is doing now...), buyers and developers no longer have access to cheap credit. Demand drops, and prices fall. When this finally happens, I think the subsequent fallout will serve as another strong argument to abandon the dollar and reset the financial system, especially in the developing world. All they need is a reasonable alternative. China is already allowing its currency to be used for cross-border settlement and limited reserve status, and as this function grows for the renminbi, you can bet that Asian nations will stop importing American monetary inflation and start exporting those dollars back home." A must read note for all those who base their investment decisions based on theoretical musings and thought experiment speculation.

First Philadelphia, now San Francisco, and all in the same day. Fasten your seatbelts ladies, the muni maul is going mainstream. Per Moody's: "The downgrade primarily reflects the city's very narrow financial position and the minimal prospect of material improvement in the near term. The city ended fiscal 2009 with a balance sheet that was weaker than at any time in the prior ten years and extremely weak by comparison with other similarly rated local governments. Its fiscal 2010 and 2011 budgets both relied heavily on one-time solutions, including draws on reserves, to close sizable projected budget gaps, suggesting that final audited results will show little balance sheet improvement. The lackluster economy cannot be expected to provide substantial relief in the near term. Recent reports from the state confirm that its fiscal challenges continue to loom large, which in turn injects revenue risk into the city's current and next year budgets. The defeat in the election earlier this month of a local pension and health care cost control measure suggests that little near-term fiscal improvement is likely to result from external political pressure."

This is getting boring. The only question is whether we can hit 2011 with no inflows... 2012? 2020? $86 billion in outflows this year, means mutual funds are hanging by a thread on asset values continuing to go up, as they have no dry powder left whasoever.

LIVE from 4:30 - 6:00 est. Well folks, from the calls that were placed and the information we have received it has now come down to the next few hours...

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 17/11/10

Other people's money (most of it via the Fed), goes to fill other people's capitalization holes (most of it the Treasury's). And this IPO better have been bought with other people's money.

From Knight Research: "The simple story is this: We believe the structural and cyclical terms of global trade have finally reached their tipping point. This will catalyze a wholesale change in sentiment and a historic repositioning of risk assets. The emerging market global growth story is over...Although such cataclysmic shocks rarely result in rhythmic, straight line fractures, the chain of price adjustments should be relatively clear. Accordingly, we expect a shockingly powerful rally in the dollar, broadbased weakness across the commodity sector, a dramatic widening of emerging market credit spreads, and what could prove to be a stampede of hot fund flows out of the emerging markets. We appreciate both the gravity and the brevity of this note; but then again, the story is simple.

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