10 yr T-Note looks

Soooo beautiful! It seems that many people are trying to sell 10 yr US treasuries hoping they've found the high, but I've taken the liberty of drawing in a line that can be thought of as "support levels" in terms of earnings. As it can be seen this trend is in line with the 50-day moving average. The trend also points to even lower interest rates. This is absolutely bullish data especially with the announcement of QE II. We can expect very well received T-Note auctions in the near future.

Chart courtesy of Yahoo! Finance. Technical analysis by Matthew Louie.

More to come later today...

Omg... So tired...

So this is coming out a little later than expected, but I had quite an eventful day which kept me from getting around to this until now. Enjoy!

October 4, 2010

After a record month in September and a strong opening in October, equities across the board on an international scale are finally responding to poor European data. This could mark the beginning of a consolidation period as well as investors get out of their long positions on based on expectations for low earnings reports for the third quarter and flat to slightly worse off economic data. Key reports to look for in the US this week include Non Farming Payroll with a street consensus of literally zero change and perhaps at best +5000 and a September unemployment rate increase to 9.7% up from 9.6% in August.

This morning forex markets opened relatively quietly with the yen a bit weaker and the euro as well The lack of activity comes ahead of an important IMF meeting later this week during which Brazilian Finance Minister Guido Mantega’s remarks that the world is entering a global “currency war” will most certainly be addressed. However, the climate quickly changed to more exciting terms as the dollar rose countering the European weakness discussed earlier last week. It is interesting to point out how individual events affect the euro as well taking note of the fact that it is a continental currency being pulled by a multitude of macroeconomic events. Today it fell to the blows dealt by the Irish central bank’s statement today that Ireland’s economy would crawl to a virtual halt this year after it had imposed progressive monetary easing policies earlier this summer. Fears that Ireland might follow in Greece’s footsteps towards increasingly high interest rates and therefore a spiral towards sovereign default have come to center stage. From a technical standpoint, this retracement was to be expected as the euro topped out last December at 1.5150 and fell to a low of 1.1900 earlier this year. Since then it has been on a steady incline reaching new highs Friday and entering the 50-62% retracement area (see Fibonacci retracement for more details) of 1.3550 to 1.3950. However a move toward 1.3600 would mean for a definite reversal in the trend.

On the Asian frontier, the yen has eased due to an unexpectedly aggressive announcement of monetary easing policies made by its central bank, the BoJ. Although central banks usually tend to take action in a manner avoiding direct submission to their respective governments in order to maintain the borderline of separation between the two, the BoJ seems to have been pressed into a corner. As a result, ten-year Japanese government bonds reached a seven year high of 143.59. Moreover the Nikkei has an astounding 1.5% on hopes that the currency’s trend maintains its direction. Returning to the subject of the IMF meeting, it will be noted that Chinese Premier Wen Jiabao has openly and with great fervor expressed that the surging economies of Asia should be granted more power in the traditionally Western-dominated global financial institutions and that Asian leaders expect Europe to relinquish some seats at the IMF. First off that's just a badass statement. Secondly, it's most certainly the truth given the stark difference between China, India, Japan, et al and say for instance the PIIGS...

Moving towards commodities, gold fell as the dollar rose and as stated last Wednesday this movement was to be expected. However, this can’t be seen as a reversal but merely a consolidation as gold has been too strong for too long. I would highly recommend being standoffish in gold as the longer and stronger and overvalued commodity is, the harder the comedown will be. Corn on the other hand was expected to fall today due to a surprise discovery of 300 million bushels of corn by the USDA... What a surprise! This news would be seemingly bearish but corn also has a less than 30 days of harvest left when usually at around this time of the year it would have something more in the mid 30’s. This is most certainly bullish news. These reports along with the strengthening of the dollar have led to a nearly flat day for corn. Of course wheat and soybeans have fallen in step. Crude oil seems to be bidding for storage still but not nearly as aggressively as it has been which can be reflected in the Nov ‘10/Nov ’11 contango decreasing from $5.00 to $4.76 earlier this morning. It is important to note that this figure was $5.40 a week ago.

Democrats will eat this up… So for all you leftists, here’s some food for thought:

“The Top 1% of Americans… or more precisely the top 1% of American households… own or hold 34.6% of all the privately held wealth in the US. The next 19%... comprised mainly of “managers,” professionals and small business owners… hold 50.5%. The remaining 80% of households control the remaining 14.9% of private wealth in the country. On the other hand, the bottom 90% of households have 73.4% of the total outstanding consumer debt, while the upper 10% have only 26.6% of that debt” – Dennis Gartman “The Gartman Letter”

Diving into a ridiculously huge pond...

I'm kind of new at this, but hopefully as my understandings grow so will my vision of various markets. To cut to the chase, my goals are the following:

1) Review what I've read today to make sure I was paying attention.
2) Pass that knowledge on to you.
3) Have some fun.

Hopefully at least the first two objectives will be completed on a regular basis. I've been writing these kinds of entries on my own as reminders of what's been going on. My hopes are to get these posts everyday that the market is open and maybe a weekly expectations report on Sundays. So here are my entries for Sept 29 and 30, 2010. Enjoy!

Sept 29, 2010

In recent news, the USD seems to be under attack by nations all over the world as it has universally declined,  and marginally so, over the course of the past 24 hours. What is most shocking about this is that other currencies, especially the Euro (EUR) seem to be emitting false strength.  Many of the PIIGS (Portugal, Ireland, Italy, Greece, and Spain) have seen credit ratings cut again most notably Ireland, whose rating by Moody fell to Aa2 and AA- by Fitch. Although these ratings are still far from junk, the trend is downwards. Moreover, Germany blatantly and openly stated that it did not trust the other EUR nations the other day, which beckons the question of how a currency requiring the collaboration of so many nations such as the EUR can be built upon mistrust? 

The large contributors to the weakness in the dollar are the Chinese and the Brazilians who have expressed concerns with the devaluing dollar as it takes away competitive advantage, especially for Brazil whose currency is very, very overvalued. As for China, the amount of US debt they hold gives them reason to worry. The thought process: fixed income payments stay the same, but an inflated dollar means less purchasing power or in terms of exchange rates, less rmb to be had. Basically with these supporting details clearly voiced by Brazil’s finance minister and an advisor to the People’s Bank of China, the assault on the USD began.

To make matters worse, consumer confidence is down as it has continually tried to rally only to be met by oppression from the ever increase budget deficit coming out of Washington D.C. At the same time, volume is low as the end of the 3^rd quarter nears. It can only be expected that traders look to wait for the start of the next quarter to determine more solid market movements.

In terms of commodities, precious metals and energy commodities are up in general which can be easily explained by the weakness in the dollar. However, wheat and corn are down as many believe the recent Chinese tariff placed on chicken exports from the US into China will cause a surplus in those commodities and rightly so as much of wheat and corn are used to feed chickens.

Crude oil has increased in price but the contango continues to widen to $5.44 from $4.87 as it fights for storage (It is important to note that contangos indicate an increase in storage prices rather than a prediction on the price of the underlying commodity itself). Natural gas on the other hand has fallen as it continues to be found and mined in shale formations along the Applalachians and the Dakotas.

Gold has reached its resistance levels of $1300, which it has met and surpassed, but will be tried. Investments reflect attempts to hedge against inflation but here in the US it will likely be met with due pressure as November elections approach and hopes look high for Republicans. However, if Republicans fail to claim the House and/or Senate, Obama Administration spending will continue to promote dollar inflation. For the time being, though, technical analysis shows an increase in gold prices into the future and most certainly display that it is a bull market as both highs and lows continue to increase with each move.

Sept 30, 2010

The relentless assault on the USD has settled. Today marks the end of the 3^rd quarter and a very eventful month and so it can be expected that the FX market will settle. As a result, the dollar has made some gains against its recent retracements but continues to fall behind other currencies, most conspicuously the yen which continues to strengthen rapidly. We might expect to see intervention efforts arise again as the yen/dollar exchange rate has reached 83.25, dangerously close to sub 83 levels which would certainly trigger Japanese authorities to intervene. However, as made clear by the Swiss National Bank last month, unilateral intervention is a fruitless labor and the Japanese Ministry of Finance and the Bank of Japan will surely be met with the same fate unless they are able to miraculously gather support from the rest of the world. Unfortunately, we don’t live in a world where fairytales come true.

Economic data coming out of the US bolstered equities after early losses, but not quite enough to cover the earlier retracements. Important government reports showed the economy and personal consumption increased more than expected. The US GDP grew at annualized rate of 1.7% which was more than the forecasted 1.6%. Even more surprisingly, initial jobless claims were expected to stay about the as last week which reported 465,000. However, the market consensus was 460,000 but the figure dropped to 450,000 setting the tone for next week’s monthly Employment Situations Report. It is important to note that although this is bullish data on a week by week basis, it is a continuation of the nearly sideways movement in initial jobless claims that has been seen throughout 2010.

More shocking information coming out of the US is that the House passed legislation calling China a currency manipulator, which China will surely react to by testing out its stature. However, it is likely that the anti-free trade legislation will be squelched once it hits the Senate after elections over. Hopefully this kind of speculation will be made in China as to avoid furthering what looks like a developing trade war.

Energy prices are mixed. Yesterday’s inventories data from the Department of Energy reflected overall bullish news. Crude inventories fell 0.475 million barrels which was relatively bearish as estimates were -1 million barrels. Distillate inventories were -1.27 million barrels which was very bullish compared to the consensus at +0.25 million barrels. Most astonishing, however, were gasoline figures which reported -3.47 million barrels as compared to +0.25 million barrels as well. This is clearly extremely bullish data.