Archive - Jan 28, 2011

As we've been noting over the past several weeks this rally bore a striking resemblance to the Feb-April 2010 rally and as we've been predicting we believed it would top out and end in the exact same fashion.

Yeah, we went there. Time for the SEC to institute a market wide circuit breaker before Waddell And Reed does what they tend to do every time a revolution is televized. In other news, can we get a bid on all the Dow 36,000 hats we took delivery of yesterday?

Goldman FX's latest flip flop comes two days after the firm raised its target on the EURUSD pair. "We raised our target and stop recently in expectations of further potential upside. However, over the last few days a lack of additional catalysts has keept EUR/$ largely range bound and the risk reward more symmetric compared to when we initiated our recommendation. As a result we have decided to lock in the gains and look for better opportunities to express our constructive view on the Eurozone." Translation: we are all Cramer now. If Green, we upgrade it. If Red, GTFO. Now pay us our soft dollars.

Update from Egypt: The Al Jazeera broadcast live from Egypt is about to be shut down as the police are literally knocking on their office door in Cairo.

Watch it go down live here.

Over the past several weeks there had been rumors that the reason for the precipitous drop in gold was primarily driven by a hedge fund liquidating its futures positions. This has now been confirmed: "Yeah, that was just me liquidating my spread position," Mr. Daniel Shak, [of SHK Asset Management] 51 years old, said in an interview. "I had a significant, fully margined position. The dollar amount of the gold liquidation was very small, it was just a lot of contracts." Of course in the extremely jittery gold market, the kind of persistent marginal gross selling of contracts was all that was needed to spook weak hands into a consistent dump of the precious metal, which as we pointed out was beyond overdone. Judging by this morning's jump in the PM complex, SHK's liquidation is now not only over but about to promptly reverse as daytrading momos realize they were duped by one single guy. Look for gold to resume its upward advance as investors realize that the gold dump was nothing more than an ongoing futures position liquidation.

Come meet the Mad Hedge Fund Trader in person over lunch in Orlando, Florida on February 11. This is your chance to debate with me the future of the global financial markets. Please leave the rotten tomatoes at home.

Something odd is going on with the market today: the NASDAQ has, for reasons unknown, halted disseminations and while we are trying to figure out what the reason for this odd market moving event is, confirmed by major sustained negative ticlks, we are looking at the one stock that is more indicative of the Nasdaq (with a 20% weighting) than any other company: Apple. Judging by the chart, there are some very peculiar technicals in process. Just like Greek rioting prompted the flash crash, will today's Egyptian televised attempt at revolution force the Nasdaq to impose a market wide circuit breaker?

Feels nice to be proven right.

With Egypt pretty a done deal, many are wondering who is next. Al Arabiya provides the answer: Syria has just shut down its internet service. And as one glance at the map below suggests, should this indeed be the case, and if Jordan promptly follows suit, Israel will be surrounded by revolutions. Which is surely a reason for WTI to plunge another 20%.

One would think that judging by all the frequency of lies about Europe's latest CDO knight in shining armor, also known as the EFSF, that bond spreads would be rushing headlong to zero as yet another form of perpetual taxpayer backstop is implemented. One would be wrong. Spreads on the Portuguese and Spanish 10 Years are now back to their widest levels in history. It is fairly complicated to reconcile this stickiness with the daily barrage of mendacity from all ECB apparatchiks. Basically, the market, unlike Goldman (see below), is fairly unconvinced that any of the currently planned rescue plans have any chance of being successful.

Further confirming that America deserves each of its elected officials, in this case a Treasury Secretary whose intellect is increasingly put into question with every single utterance out of his mouth, was Tim Geithner's statement from Davos earlier that inflation on a global level is "not high on the list of concerns" although probably while looking at pictures of tear gas being fired at protesters in Tunisia, Algeria, Yemen, Morocco and now Egypt he added "emerging markets across the world are certainly 'feeling some pressure'." If by pressure he means revolutions, then he is certainly spot on. As for Egypt's soon to be deposed leaders, Timmy has four words of advice: please kill the dollar. "Geithner told the World Economic Forum that emerging markets could manage their inflation problems better if they loosened their currencies' links to the dollar, a measure that economists say would lead in most cases to an appreciation against the greenback." And there you have it: America continues keeping the world hostage courtesy of the dollar's reserve status, able to export inflation at will knowing that the US consumer is irreplaceable, and the only recommendation we have to the world is to continue devaluing the dollar (yes, a weaker dollar means stronger opposing non-dilutable currencies), an act for which we are sure the US middle class thanks him.

While everyone's strategic focal point still continues to be planted firmly on the black swan even horizon, in essence making the "unexpected" negative event virtually impossible as while nobody knows what will cause the crash, everyone is certain a crash will arrive in some form or another, today John Taylor takes an inverse approach and instead of chasing Black Swans he looks at the possibility of a "White Crow" - or the opposite: a positive outlier event with outsized implications on risk assets. The two main White Crows evaluated by Taylor are i) a conversion of the stock market melt up into a rout up, and ii) a bullish outlook on the EURUSD. The latter is particularly notable as the FX titan has long been known for his extremely bearish outlook on the European currency. Is he throwing in the towel and joining Goldman in the long EURUSD trade? Overall a surprisingly optimistic short-term outlook on the market: "Although our cycles argue there is a reasonable probability of a risk peak in the first half of March, followed by a sharp decline, the cyclical picture before that time is positive for risk. The future outlook might be dark, but the models are positive now. Being open to risky assets is the only way to go." And with $200 billion in additional liquidity in February and March, he just may be right.

Many of you have asked me repeatedly when I would do this...

Q4 GDP comes below consensus at 3.2%, on expectations of 3.5%. Goldman once again hits in on the nail with their below consensus estimate of 3.0%. Inventories take out 3.7% from Q4 economy (annualized) which is strange considering all diffusion indices in Q4 saw inventory accumulation. Furthermore we are supposed to believe that the government actually subtracted 0.11% from economic "growth." Exports and Imports combined to add another 3.44% gross of the total annualized growth. This is the first time Imports "grew" the economy since Q2 2009. Overall, more or less in line with expectations, with a weaker tone.