Archive - Feb 22, 2010 - Blog entry

A few weeks ago, we noted the potential for an oversold bounce despite what appeared to be a clear shift in the investment landscape. Now that most major equity indices have rallied for two consecutive weeks (with the S&P 500 stalling at a 50 DMA which looks to be rolling over), it is critical to assess the underlying strength of this move. Suffice it to say, that the evidence is mixed at best. Many of our immediate term commodity and commodity currency models have moved back into “buy” territory, but we view Dollar Strength as a BIG RED DEFLATIONARY FLAG.

We’re about to find out who has been swimming without a suit. TALF is expiring, sucking another $1.5 trillion out of the system. One of the steepest yield curves in history is about to become a lot steeper. The face of Half Dome comes to mind. A short in 30 year Treasury bonds will be THE great trade of 2010. Failed Treasury auction here we come.

We ran an interview with our friend Yves Smith of Naked Capitalism today. She has done an excellent job of describing how the intellectual ghetto that was once financial economics has helped to destroy the world of investing and involuntarily turn us all into day traders. The full text follows below. -- Chris

While anal-ytic 'debate' about whether Chinese real estate prices have reached nose-bleed territory continues in merry-go-round circle-jerk fashion, there is only one (very simple) question to ask:

is this the kickoff to a new bull market in Chinese RE or a terminal throw-over (cause there ain't anything in between) ?

In this installment of the Pan-European Sovereign Debt Crisis, I illustrate the potential contagion effects of the portion of Europe that is in a flat out Depression. Yes, Depression! There are quite a few strategic banks that have significant claims on this region, as well as Greece. Just imagine the potential consequences if all of the stars aren't aligned properly...