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Who's Laughing Now?
Submitted by Nic Lenoir of ICAP
We will start our market update with Greece's 5Y CDS market. The chart does not look like anything that could have a happy ending. Greece has come up with a plan to reduce the deficit which experts believe a) may not be enough b) will hard to achieve. The market obviously did not buy it either, and we have not really seen a wave of approval around Europe. If Greece wants to further they will have to start cutting entitlements and will face strikes which won't help the problem, so it leaves us most likely with some form of loan or bailout. We stick to our original thought that the EU won't let the IMF step in on their turf as it would be too humiliating, especialyl since this is the first harsh economic test for the union. The problem is that left holding the bag would probably be Germany (there are not that many candidates around the EU that can step in and help Greece, especially with Portugal and Spain waiting in line!). No wonder that today the German CDS was trading 8bps wider. As mr. Almunia said: in the EU there are no defaults! That does not bode well, because bail out or not, the problems of the EU are only beginning.
My first major target for EURUSD if we break through 1.3740 (which we are bound to do even if we managed to bounce here for a short while) is 1.14. We see that on the 180-minute chart we have bullish divergence here, but it appears the channel support is not until 1.3667. We are also very close to a cross of the 50- and 200-dma which would confirm the bigger picture bearish trend. Any bounce to the 50- or 200-dma should be sold here.
The other major funding currency with the USD is the JPY, and it's no wonder that in this risk averse environment the JPY shows a lot of strength. As can be seen on the EURJPY chart the market broke support at 127, we are testing the C=A at 122.79. AUDJPY is coming very close to breaking support around 76.30 (tested it earlier in the session). A close below would confirm more selling to come. There is a risk that at the open in Asia Japanese retailers will rush to cover more carry positions fueling the move further. We did point out the madness of Austria, Nigeria, or Venezuela, issuing bonds in USD to benefit from the greenback's weakness. Well hopefully they covered the FX position by now! I wonder how Hugo Chavez feels about devaluation right now... funny hu?
Equity markets are obviously under pressure. A client pointed out we must be close to the lows for the near term, because spain was down 6% at that point. Another way to look at it is that the IBEX was up at the highs almost 100% since last March in a country with 19% unemployment. We had recommended selling the Dax 2 days ago at 5,725, and we see 5,389 as the downside potential for this move. The 100-dma should remain resistance even if we bounce after reaching our downside target. The S&P future has a downside target of 1,051 for the near term. We see on the hourly chart that there is no bullish divergence here, and even if we bounce to test the resistance at 1,077 there is a good chance we see the downside target before we can see a proper bounce to our medium term sell zone 1,111/1,117. I stick to my view that the weekly charts indicate a possible major top in place in January and our next big support after 1051 will be 950.
Commodities are selling off with risk. Gold has broken its uptrend channel here and even though we could get a bounce here as the hourly RSI-21 is down at 16, we think the market will go test 1,008/991 which is the major support. If that doesn't hold we won't consider longs until 750... Copper broke its channel since March 2009 last week and has moved lower aggressively. We are still $20 of the first major support at $267. The only commodity really escaping the blood bath is Lumber, and we keep favoring this market ever since we broke out of the multi-year wedge at $200. Having missed the entire commodity rally since 2000, it is not really surprising to see Lumber outperforming when the entire sector is under pressure!
The big question coming out of this whole thing could be resurgence of the deflationary argument. Demographics will have a very deflationary impact in the the years to come, and combined with the burst of a 30Y credit bubble, downward price pressure should be massive. A very mainstream view among investors has been that inflation out of Asia and commodity price increases could actually trigger an inflation spike across the globe (with Asia starting to export inflation rather than deflation) which would send bonds tumbling and the USD collapsing. But at this point, we think the question is still out there whether a value-destroying inflation or deflation will win the fight. We have been leaning towards deflation to be quite honnest. Central banks in the US and Europe haven't even started withdrawing liquidity, and risk is already tumbling. China's bubble might be ready to burst as they started increasing bank reseves and curb lending only modestly, and Australia is already pausing. The path between the two evils is very thin and we won't walk it for long, that is the only certitude. Trading volumes will keep shrinking and volatility will keep rising until we decide which way we are headed or we are forced in either direction. I don't think in this context that NFP tomorrow morning will have much impact as long as we don't hear anything meaningful out of Europe. Combination of both a positive surprise on unemployment and some sort of European resolution is what can make us bounce to our sell target at 1,111/1,117 for S&P futures.
Good luck trading,
Nic
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it isnt leo
Helmets on!
A few minutes ago I was explaining to my wife what had happened and why. Part of today's rout was due to Greece and Spain being perceived as at risk of default. I then explained to her that if the PIGS default (or whatever) that it would be the Germans left holding the bag, that Germany would have to pay.
She said: "Good!"
"Who is laughing now?". I am actually, although it is no laughing matter. It is nice to be loaded with OTM puts (and short AGQ) going into a day like this however.
I've said it many times since mid January and I will say it again. SELL ALL EQUITY RIPS.
We have a corrupt system that can have only one result in the end, and that is complete and total collapse.
The "System" goes now!
The path between the two evils is very thin and we won't walk it for long, that is the only certitude.
+1
I'm convinced the currency is going to blow up, but I wouldn't call it a certitude.
At the end of the day, who cares who from EU, IMF or even Benron will bailout the PIGS. Best example is Dubai: nobody speaks anymore about their debt, because the EU and Obama mafia probably guaranteed a few 100 billions. Fact is that the debt spiral is spreading all over. My best guess is they will continue to bailout everything and everywhere, the idea being that others will have to clean this mess one day.
And I am becoming more and more convinced daily that the right course for individuals is to avoid being saddled with the losses that ultimately must be taken. This probably means getting your assets out of the Ponzi paper markets in whatever form they may be: equity markets, debt markets, currencies.
Right, and probably buy physical gold ,silver, platinium, diamonds and put it in a safe place (not in the bank !).
no diamonds for Godsake!
yeah for real, who let this guy in? i kid, i kid ;) for real though, diamonds????
I have about 60K in various jewelry deposited in the Bank of Gaia. One problem is the gem stones and diamonds each piece contains. The gold value is one thing, the diamonds will be another.
Bank of Gaea is my favorite bank, my friend.
Diamonds are just carbon. Unlike gold, platinum, palladium, and silver, they can be counterfeited. Large-scale diamond manufacturing techniques are getting cheaper by the day. Not a very good store of value in the long run IMO.
Deflation is only a valid theory when most of the wealth is owned by people without a printing press or a friend with a printing press. That hasn't been true for 30 years.
TELL THAT TO THE JAPANESE
RE: China...the gloves are off (US vs. the Dragon)
http://gulfnews.com/opinions/columnists/us-has-stepped-up-pressure-on-ch...
RE: Dubai...they suddenly gotta a buch of collateral
http://gulfnews.com/business/general/dubai-strikes-oil-off-its-coast-1.5...
Strikes first, Riots second...
Positive suprise on (un)employment?----
Yeah, RIGHT!
The technical depth of today's blow renders tomorrow's number meaningless, although it was meaningless anyway. Everyone knows the headline uneployment number is a joke.
The markets drive the news, not the other way around.
You have to admit it is funny though to see news sources try and tell us why something went up or down based on events that occurred that day as if one man saying something or a small group of people can influence world markets with light speed exuberance.
Thanks, mang.
It will be. The only constant will be tremendous dollar love that no amount of technical issuance will break.
My favorite "scared shitless" measure, grains, held up OK.
PS -- "Technical issuance" isn't a slap to anybody. I mean it in the sense of bond issuance technicals versus fundamentals.
The PPT idiots were not smart enough to allow any pullbacks in the rally off the March bottom, to even attempt to make it look realistic. Either you drank the Koolaid and got in the car with the rest of the drunks, or those profits were not for you. Having it end badly should not be surprising.
+1,111.
me, Fib, Nic and our fellow austrians / technicians (i.e. those with an actual clue).
hardy, har har ... gold (shorts), bitches.
excellent note, Nic & nice catch on LBH0 !
Which bank/financial institution has the largest exposure to Greece or Portugal/Spain?
indirectly, HSBC ... via net notional of e. european (idiotically) unhedged currency liabilities.
the usual suspects, that are the TBTF banks. I would guess the UK banks are largely implicated, probably also some spanish (Santander,BBV), perhaps also some French and Germans. But it doesnt really matter as the governments will have to pay the losses (!).
Thanks.
dont worry Nic ! GS is still laughing !! I am sure they moved to the short side trade !!
Sad as it is, I guess we can't really call it a surprise. Everyone knew the EUR and GBP were going to fall before the JPY and USD. I haven't been in this currencies scene for long so now I'm wondering is this the endgame for EUR? When the carries - JPY, USD - are the big winners of 'flight to safety'?
I guess you go long when the market goes long and don't ask too many questions. So hey, JPY and USD it is, but buying these currencies feels completely, irrevocably, suicidally insane even as I do so.
Watching the currencies rise and fall I feel like I've been watching a fight in a bar and the first guys are about to get carried out feet-first. Or am I calling the EUR and GBP out too soon?
It's not anymore the question which currency is the strongest but which is the least weak. I think one can also go to casino and chose red or black instead of trading currencies !
When the carries - JPY, USD - are the big winners of 'flight to safety'?
Isn't that interesting....
its the last man standing that is the winner
heh - tell that to Germany.
Last man standing is expected to bail everyone else out, all the way down!
Yes, we've been playing a great global game of last man standing now for a few years; it's the only logical reason behind "extend and pretend."
If you mean "last currency standing", that will be gold.
If the govt. relief was money dilution and not sustainable as well....just who is left to pay is the question....
The overall winning argument is that the pre debacle equity and credit numbers were much higher....and even the temporary govt. injections were not anywhere close to the amount lost....
Thus the argument of deflation still wins.....and this does not mean that interest rates will not go higher.....they will go much higher....even in a deflationary environment....
Those that have money will want a return....not this 0% govt. imposition....and they will get it before it is all over....
the strength of the dollar and the magnitude of its current rally are functions of the sheer number of USD liabilities "out there"...if it weren't for so many dollars owed to so many USD "asset holders" there wouldn't be so much demand for the fiat...
look for the FED to quickly re-introduce unlimited USD currency swaps worldwide...they don't have much else to work with right now
I like this, + one quadrillion.
This is a repeat of Sep/Oct 2008, except this time it is going to be impossible to print another years worth of dollars without a major disruption of some kind.
www.derivativescollapse.com
Nothing is impossible. Suppose we say that the fire from the EZ is spreading, and if we print solar doelarrs than we can avoid a mess. This will also "CREATE JOBS" (hahaha! they so funny). Roll film, and action....BS Bernanke walks up to the printing press and hits the turbo button.....you do think the printing presses each have a turbo button, don't you?
The knob on most printing presses goes to 10.
The knob on Ben's printing press goes to 14,000,000,000,000.
actually the button is:
an 8 on its side
Hugh Hendry just came in his pants. White pants.
If Turkey attacked Italy from the rear...oh never mind !
World News interviewed (randomly) some Greek citizens who were outraged at the prospect of across-the-board wage cuts of @ 10%.
The Global Economy is soon going to resemble Haiti after the 'quake. I doubt that there will be much laughter in the future. They called it a Depression for a reason.
How's that gold bitches guy doing?
Hope, like Leo, he's putting his money where his mouth is and buying the dips.
Or he got slapped with some common sense and sold the useless metal.
"useless"...BAHAHAHA! and what do you recomend to do with solar doelarrs? Huh? Hmmm. Gold is money, so is silver. Always has been, always will be.
There is no strong currency! There is USD which gives you some time to think what to buy before everything colapses, something real, easy to exchange at the time when everybody tries to parashoot out from all those fiat currencies. Dollar is not any better but gives you some time. When dollar's time arrives then we will have real fun!!!!!!!!!
If you want very useful advice what to do in times like that ask Mr. Bates.
Do you mean Norman Bates ?
Kill your mom? whaaat?
Not Norman, Mastur
oops, sorry wanted to say Master
They cheated. I'm confident Ben can find a way to beat them to the bottom.
Greece is the word (is the word that they heard)
It's got groove, it's got meaning
Greece is the time, is the place, is the motion
Greece is the way we are feeling
This is a life of illusion
Wrapped up in trouble
Laced with confusion
What are we doing?
Before we get too far ahead of ourselves, look for S&P futures in the green tomorrow am on the ride in as "bargain hunters swoop in and value hunters take their money off the sidelines and snap up underpriced stocks." A nice print on the employment figures and an engineered snap back from the abyss is executed nicely. Until next time.
I just emailed my application to CNBC for writing the scripts. Might as well join 'em.
+1
Nothing here to see folks, keep moving along.
LOL appplying to CNBS. But, you would have to look at yourself every day in the mirror...
In your sarcasm you have some right stuff though. The jobs report should boost stocks. Cut the fat off the meat, you know? With this currency storm in high gear though, I think the US would need to fire everyone in order to become "effecient".
Also, CNBC would be lucky to have you Ned. I think you and Santelli could start a club titled, "Everyone we work with are a bunch of lying money runners who do not know their ass from a hole in the ground".
Hope to see you on the tube.
Bloomberg reports : Armored Wolf's Brynjolfsson Says Dollar May Collapse
http://www.youtube.com/watch?v=5VXUR2dQx-w
How many banks were shutdown in Greece last week or the last 12 months? How many in central europe? Portugal? or Spain?
Bishes! http://www.rallymonkey.com/video/kenindex.swf
+10,000
When the HYPE is in full swing (this summer) I am buying a rally monkey. I will name him "HYPE"!
Anyone short gold or silver?
Anyone long USD?
Anyone long US yield curve?
(lets not pat ourselves on the back ZH dooms-day-ers)
-BBH
Deep out of the money put options on AU, GLD, SLV, GS,
BRK.B,BAC. Long deep out of the money option on ultrashorts
All assets in USD since a year ago.
Closed TBT position 3 week ago at profit
This doomer is padding self on back with 30% day thank you.
I bet Taleb isn't laughing now....
But I AM.
*yawn* How's this line?
TREASURIES BITCHES!!!!!!!!!!!!!
What a great day on ZH! Gold bugs are bashed (rightfully? I think not!), equity hogs feel dejavu, and Jay Z loses his "all black everything". Jay Z, did you not get the picture when they wouldn't sell you the Nets? They would rather it be the Nyets than give you a piece. You are not one of them, even if you know the handshake.
And about this, "Who is Laughing now". Well, I am. Haha. I will use my last ounce of liquidity to buy one more time. I think I will go silver this time (it was gold a little over a month ago). That will be it for me for a month. Maybe this buying opp will stick around until April. I would not bet on it. I am betting on BS working his "magic" one last time. DJ 95 hundo then BAM! They are walking the DOELARR to the cross people. So ask yourself, "Do I feel lucky." Well, do ya?
How about Spain?
The latest public confidence index survey came at a level not seen in Spain from Aug, 2005. Unbelievable! People have no idea of what is going on.
All these intellectual discussions about the future of EU and euro-zone are just intellectual/academic masturbations. The reality is quite simple: a political & economical collapse similar to one that took place in the former Soviet Union 20 years ago is just inevitable. The only good news: it will not be an end of the World. Remember, Russia is still there...
The present world leaders like Obama, Brown, Berlusconi, Merkel, Sarkozy, Putin, etc., are extremely mediocre and incompetent. They are unable to understand the realities and/or do anything constructive about it. They are just captains on a sinking ship.
The great Western civilization, as we know it, is about to go under. It had a very good life for so long. It was built on scientific & technological innovations and colonial conquests & exploitation. Now, both of them are in the history books.
Most important, the political will is not there anymore.
The great Western civilization, as we know it, is about to go under. It had a very good life for so long. It was built on scientific & technological innovations and colonial conquests & exploitation. Now, both of them are in the history books.
Most important, the political will is not there anymore.
Strange to put that in terms of political will.
Scientific and technical innovations are still.
Colonial conquests. Conquest of what? The world has been conquered. There is nothing left to conquer.
Exploitation: still on but the yield rate is peaking. Exploited cant do better than what they do now.
Political will? no. Simply a process impossible to keep on.
So let me get this straight, the US has budget deficits as far as the eye can see, Social Security payouts for the first time are more than Social Security taxes being taken in, we are freezing our spending on only 17% of the federal budget, CA is about to need a bailout, unfunded liabilities such as Social Security and medicare are over 100 trillion, tax revenues are going down dramatically due to unemployment, home values are still declining....ect
But everyone sought the safety of the US dollar today...???
That's like jumping out of the frying pan into the fire. And these are professionals?
Name something safer.
Sad, but true.
DOW/SP500 downtrend on the daily chart continues.
The recent equities counter trend rally has finished and the March 2009 bear market rally is over.
The dollar, crude oil and copper charts have been giving bearish warnings for stocks for months.
The DOW/SP500 downtrend commenced as forecast and the USD rally I forecast several months ago is just getting going.
My indicators can identify trend changes before they occur.
They warned me of an impending market crash back in early *2007*
The uptrend since March 2009 has been a bear market rally contained within a much larger bear cycle that started in 2000.
http://www.zerohedge.com/forum/market-outlook-0
Just a quick thought on market psyche:-
2 years ago we (market participants, commentators etc) had no idea the magnitude of what was to happen, but the system at least had some 'dry' powder.
Now we have a better understanding of what will happen next, having seen it happen already, but there us very little left in the tank to fix any problems.
Not sure which case is more frightening!