Archive - Sep 14, 2009 - Story

The problem with being perpetually short is the need to be willing to be perpetually chased out of the
market for an untold number of short-covering rallies. This strategy works well for nimble traders that
have a great feel for market behavior. The reason I start this report off with the saying “if you’re not short
already is that you will indeed risk missing the turn. We got a lot of ground to cover, here, so let’s start
with the big picture on the weekly charts, then move right into the daily and intraday charts.

Yet another meandering week in leveraged land, this time however one of convergence after several continuing weeks of secured-unsecured divergence. For the most part the moves were noise, with a nominal widening in loans by 2 bps, accompanied by a 24 bps tightening in bonds. The key movers in loan land were Sungard Data and Ticketmaster, which widened by 60 and 95 bps, respectively. In bond land Neiman Marcus was the only name that stood out, tightening by about 76 bps.

Data Explorers, via Alphaville, is demonstrating a rapid pick up in SPY shares on loan, a proxy for Short Interest. Of course, with periodic short recalls such as the one in IYR by UBS, it is only a matter of time before the banks create an artificial end to any such comparable bearish momentum trend in any of the highly trafficked ETFs. Stay tuned as we find out where the first SPY recall of the day will occur.

Markets seem to start the week fairly confused. Stocks in Europe and in the US are looking to open lower, supposedly on concerns about trade protectionism between the US and China. However stocks in China were up, which is somewhat counterintuitive given that trade protectionism usually hurts the exporters more! Also sovereign bonds in the US and Europe and lower this morning, defying any risk aversion theory, and EURJPY is flat after making new lows overnight and a sharp move lower on Friday which was in full contradiction with how equities behaved to end the week. After more than 50% upside in equities, it makes sense that markets are a bit confused and correlations are breaking down a bit as we consolidate. Let's wait for confirmation before getting excited here!

From a UBS email sent to clients earlier:

"Stock loan recall for IYR (for the firm) but nothing specific for your account as of yet."

Time for the NYSE to follow suit and have some "opening problems"

• Government's trial and error helped stem financial panic (WSJ)
• Is risk dead? Or is this a bear market junk rally? (Macro Trader)
• Government spending is naked without the Fed (Bloomberg)
• A jobless recovery part three (Delta Global Advisors)
• Lending in Europe continues to shrink (FT)
• Goldman's Jim O'Neil sees "Silly September" confused and unaxed in new carry trade (Bloomberg)

Following up from my prior post Saturday morning- China accuses Washington of violating the World Trade Organization rules by imposing steep tire tariffs. Demands talks.

• Asian stocks fall amid valuation concerns; drags MSCI index from a 1-yr high.
• Baucus health care plan raises plenty of concerns despite major concessions to industry.
• Britain's Conservative Party considering bank privatization plans in case of election victory.
• China starts probe of US auto, chicken imports after US imposes tariffs on tire imports.
• China 'strongly opposes' Obama's tire import tariffs, may appeal to WTO.
• China’s electricity usage rose 8.22 percent in August from a year earlier.