BUDGET DAY 2010

The Indian stock market has had a very quiet build up to Budget day 2010.
As the graph below shows: after a massive recovery from the March 2009 lows, Indian equities have been trending sideways since July 2009.



Market watchers will be looking for more sops to the agriculture sector and the infrastructure sector, and a possible gradual roll back of excise duty cuts and the stimulus package. A hike in service tax is also widely expected.

So far we are yet to hear anything on reforms towards market pricing in the Petroleum sector.
With Oil prices trading just under $80, maybe we will hear more on the governments subsidy sharing plan.



Let's see how it goes.

EURO / USD : STRESS TESTING !!

Till only recently, the EURO was being considered a viable alternate World reserve currency, when the USD looked like it was on its last legs ! Now the USD is once again being viewed as the last ''safe'' reserve currency option!

Turmoil in ''Club Med'' has resulted in considerable stress for the single currency.

Bailouts are going to prove costly and stressful for Germany and France, who are barely just ''out'' of recession themselves, if you count quarterly GDP growth rates of under 1% as ''non recessionary''!

A weaking EURO will also stress out the US Fed. US exports will suffer, while European exports to the U.S.A will get a boost. To put it another way EADS (Airbus) looks all set to use the new found currency advantage against Boeing! The weak USD has undoubtedly boosted Boeing's profitability over the last 8 years!

Meanwhile, Gold prices in Euros are at new highs.

THE FED OWNS $1 TRILLION OF HOUSING LOANS

Just another sign that all is well with the global economy.

Bailout the weak nations of Europe, support the US housing market, maybe even support weaker states within the US.......................miles to go before we sleep.


This is a ginormous figure!

Below is David Rosenberg's chart of the Fed's Holding of MBS!!

So are we witnessing a market driven recovery in the US housing market or simply one that has been supported by the US FED buying $1 Trillion worth of MBS ?

Are they AAA rated MBS ? ? ?

Wonder how the finances of Freddie Mac and Fannie Mae are doing ??

GOLD : CONSOLIDATION or FURTHER CORRECTION

I have been reading up a lot on gold recently, from technical charts to fundamental analysis; everyone's got a different take on the sector.

Here's a chart from Chart of the day.


It's clear that gold prices have corrected from the ''red'' resistance line.

Are we headed for a sideways correction like the mid 2006- September 2007 correction ?

OR

Will prices test the lower green support line if Wall Street has another 'mega' correction ?

The fact that stock market earnings estimates for 2010 & 2011 are far too optimistic, not to mention that most of the appreciation is already factored into stock prices makes me more concerned that we could see a correction in stock prices that forces gold prices back to the ''green '' line this summer.

This would mean a pull back to levels around $950. That's only $140 below current prices.
Short term pain in a long term gold market !!

Panic selling affects all markets equally, so I don't think gold will be spared if there is a broad market sell off, although I do expect gold to outperform other commodity markets.

Lastly, I would like to remind readers who are looking to buy 'silver', that it is more volatile than gold, so it will correct more than gold!

CLIVE MAUND on GOLD, SILVER & USD

As usual, Clive Maund provides some of the best chart analysis on precious metals and the USD.

http://www.kitco.com/ind/maund/feb082010.html
http://www.kitco.com/ind/maund/feb082010_silver.html

'A look before you leap' investment policy is best advised for investors looking to buy into precious metals. Stagger your investment over reducing price limits rather than buying everything at one go.

I think Mr Maund is quite right to be cautious on PMs at this stage. The equity markets are looking shaky and more signs of trouble in the Euro zone could trigger a sell off, resulting in a flight into the ''safe'' USD.

A rallying USD, would force a sell off in PMs as speculators and punters start to capitulate.

I'm setting my limits at lower levels, but I'm not buying anything just yet!

DAVID ROSENBERG : WHAT WORKED IN 2009 PROBABLY WON’T WORK IN 2010

David Rosenberg at Gluskin Sheff is spot on once again.

Economists and analysts are busy extrapolating last years trends, without fully understanding the ''fragility'' of the ongoing ''recovery''.

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A firm believer in 'the buy low & sell high' investment philosophy, he is still 'long term bullish on the commodity complex', but believes that 'the positive trend over the past year could experience a near - term pause or even a technical correction that could last for several months.'

PRECIOUS METALS : WAIT FOR IT !!

Precious metals have been slam dunked along with other markets. Bad data and weak earnings triggered quite a sell off today.

A '' -$40 '' pull back in Gold today is sure to panic bullish gold bugs.

As I said in recent posts, a correction was expected.

Equity markets and precious metal markets have had a fabulous run.

The boom in equities was supported on a foundation of stimulus packages, job cuts, cost cutting and ever expanding government debt.

On the other hand, the ten year long bull market in Gold and preciuos metals has a much much stronger foundation.

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I'm watching this space for a buying opportunity. It's choppy out there, and the continuing equity market correction will create more volatility.

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Silver too has corrected quite a bit; down over 7 % today!! As usual, silver is far more volatile than gold.

Silver is down over 14%, over the last 30days vs. a 5.17% pullback in Gold over the same period

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For now, just hang in there!!!

BUYERS OF U.S. GOVERNMENT DEBT - It's not all China!

Hat tip to David Rosenberg for the link to Floyd Norris' article in the NY Times

Off the Charts - The Treasury's Debt Burden Now Rests More on ...

Permalink:http://www.nytimes.com/2010/01/23/business/economy/23charts.html

As the U.S. looks to take on more debt this year and roll over part of it's existing burden, it will be interesting to see how things turn out. Who's going to step up to the plate?