Archive - Jan 2011

The markets are already pricing in the near certainty of a quarter-point rise from the Bank of England by May with another increase expected before October. But perhaps not wanting to be left out, the zealous guardians of Europe’s monetary system, who measure inflation rates across the 17-country bloc to the second decimal point, have recently raised their rhetoric to such an extent that investors are openly speculating that in spite of the continent’s tight fiscal policy European rates are now likely to rise before the end of summer. As they say in the land of macro investing, the cycle isn’t over until the Europeans lift rates. Just don’t bet on money staying tight for long. - Hugh Hendry

Abigail Doolittle of Peak Theories shares her latest technical observations on the EURUSD. Coming at a convenient timing, following after the CFTC COT data, her outlook is diametrically opposite from that of Goldman whose LT and tactical targets are 1.55 and 1.37 respecitvely. Specifically, "I think we could see the euro hit about $1.225 between now and the end of the second quarter of this year while the dollar index may crest to between 86 and 88 in the same time period." The charts attached explain her reasoning.

Last Friday, following the disclosure that net commercial EUR short positions has surged to -45,182, nearly a double from the -24,201 the week before, we expected a massive short covering squeeze, which would bring the EURUSD far higher. Today, the CFTC released its weekly update of non-commercial futures exposure. As expected, the covering rally was fierce and intense, and is likely still ongoing: net non-speculative long positions surged by 49,291, in line with the highest one week move in recent years, the biggest of which was recorded in June 2010 when net shorts collapsed by 49,585. The net result pushed net spec positions from -45,182 to 4,109, and resulted in a move in the EURUSD from 1.33 last Friday to 1.3621 at last check. We believe the short covering rally is now over. This is further corroborated by the drop in USD longs in the past week from 10,057 to 5,210. Other currencies were not surprisingly quiet in the past week, with little notable action in either CHF, GBP or JPY net spec exposure.

Thousands upon thousands of hedge fund managers starting the New Year with eyeballs glued to the screen, watching and waiting for a market turn. Most have made New Year's resolutions to "Make Their Year" in 2011 by catching every single turn or wiggle in the tape.

So the key question is: Has the market topped and should many of these guys go ahead and pile on shorts?

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 21/01/11

A few days ago, in "Hands down, the cheapest place in the world to buy gold coins" we presented Simon Black's thoughts on an interesting physical gold arbitrage (buy cheap physical in Hong Kong, sell it where it is expensive) which created quite a stir. Today, the "Sovereign Man" provides some additional information, and answers some of the most frequent questions he received in response to his article, with a particular focus on the question of whether taking gold out of Hong Kong or bringing it into the US is considered smuggling. The answers may surprise you...

Speaking of people who are willing to sell their country out for a Dollar – GE had excellent earnings and I got my daily "WHUCK?!?" moment this morning when Obama named Jeff Immelt the head of his Economic Advisor Panel

Of the roughly 1,200+ (numbers change frequently with additions and closures) ETF and ETNs that can be traded, maybe 75 are truly understood and should be traded.

The rest are an exercise in futility, pandering to the masses desire for an investing elixir.

In an attempt to lock in the last vestige of cheapish 30 Year rates, Goldman is now in the market to raise $2.5 billion in 30 year bonds. Per Bloomberg: "Goldman Sachs Group Inc. is marketing $2.5 billion of 30-year debt in its first sale of the bonds in more than three years, as investors accept the lowest premiums since April for bank bonds with similar credit grades." For those who think that the bonds should come in well inside of the US 30 Year, which last traded at around 4.6%, we have some bad news: "the notes from the fifth-biggest U.S. bank by assets may pay 170 basis points more than similar-maturity Treasuries, according to a person familiar with the offering, who declined to be identified because terms aren’t set." Yes, we don't understand either how the OpCo can issue bonds at richer yields than the HoldCo, but such is life when one is part of a theatrical performance in which the roles of master and puppet are reverse.

We continue to believe we are trading in extremely similar fashion to the Feb-April 2010 rally (strong support at 10-day EMA on S&P, depressed VIX, high levels of complacency, widespread overowned sectors, extreme bullishness, etc) which of course ended in a violent sell-off, and as noted yesterday we believe we are now trading at the equivalent of the April 20, 2010 point where equities are rebounding a bit off their first test of the 20-day EMA following an initial break below the 10-day EMA (see charts below).

Is the biggest fraud in the history of the US housing market about to come unglued? If so, take our prediction of a $100 billion total in future BofA rep and warranty reserves and triple it.

We present Themis Trading's Top Ten Market Structure predictions for 2011. At the way things are going, they may just hit 10 out of 10.

Congratulations to Jeff Immelt - the uberhead of the soon to be former head propaganda financial station has been appointed to chair the White House's job panel. That said, we wonder just whose leg he had to hump to get that particular job: after all any small business job CEO in America is infinitely more qualified than Immelt to create jobs (unless the jobs in question are 1,000 prop trading positions at Goldman Sachs - since we are rubbing it in in Volcker's face why not go all the way). Dow Jones has created a brief compilation of Immelt's simply tragic job creation track record:

[Immelt] runs a big company, but Immelt has shown more skill at cutting jobs, frankly, than creating. GE finished 2009 with 18,000 fewer US workers than it had at the end of 2008, and US headcount is down 31,000 since Immelt's first full year in 2002. During his tenure, GE workers based in the US as a percentage of total employees has fallen to 44% from 52%.

Uh, Crickets???

It was ten short days ago that the Bangaldesh stock exchange was closed for the 2nd time in a month, after it plunged by almost double digits in the span of minutes. Subsequently, it pulled as US-type flash crash, PPT-sponsored HFT recovery.... only to make third time the charm: BBC reports that earlier today the Bangladesh index fell 8.5%, or 587 points, which forced regulators to suspend trading.This is the third suspension in a about month and the second free fall plunge in January. Everyone in Asia is getting spooked by China's lack of liquidity. But not the US. We are all hoooou kay. But that's not all. The chery on top is that the Bangladesh regulator, which more than anything is in dire need of its own plunge protection team, or least GETCO to serve as "DMM" (wink wink) for the entire exchange, has suspended brokers for having the temerity to sell into today's collapse. In other words: next time someone tries to sell into a market plunge, tough luck.

What goes up must come down. And what goes up 3x as fast as the market market, will, eventually go down by a comparable or higher rate of change. With the market having entered its topping formation, China on the verge of a fresh bear market, and liquidity around the world scarce courtesy of a few food-price based revolutions here and there which do more for cash printing resolve than anything else, the HFT algos are starting to be rather concerned just when Chaircreature Ben will announce the QE 2+ expansion (if ever). Below, following up on our new series of fundamentally driven ideas, we present a list of the 41 companies that have a (two year) beta of over 3.0x. Look for the companies to be the biggest casualties on the margin if indeed the Fed is starting to consider its "surging" food price inflation stimulating tentacles from the market.