MARKET UPDATE: THESE ARE CRAZY DAYS

Just a quick post today before I put up some detailed analysis soon.

There's so much happening in markets these days - Debt Ceiling, US AAA downgrade, Equity Market crashes, a really manic VIX (Volatility S&P500 ^VIX), UK Riots and all the ongoing discussion of the ''fragile'' global economic recovery!!

Below is a snapshot of todays wildly gyrating markets! For the ''goldbugs'' out there, Gold has been riding high, driven upwards by all the uncertainty & it is overbought in the near term!

The FED has signalled that it wishes to keep rates at record lows well into 2013!----the recovery must be more fragile than they first thought.

Overall, I would refrain from any risk taking at the moment and would look to hedge gold positions. In the medium term, I expect gold to continue to be volatile in a price range of $1550 to $1780(New all time high as of today).

Will come back with some market specific ideas soon.

GOLD : RALLYING IN ALL CURRENCIES

CURRENCY VOLATILITY

Well, after trending downwards for weeks, the USD seems to have stabilized for now, and a counter trend rally in the USD is underway.

Here are some charts that tell the whole story. No one seems to want a strong currency!

• The rally in the EUR, JPY and CHF will hurt exporters in Europe, Japan and Switzerland.

• A weak USD meanwhile, will boost US exports.

• The Chinese have thus far resisted any significant appreciation in the Chinese Yuan.

USD CHF : The CHF broke down below parity in its recent rally vs the USD

USD CAD : It came ever so close to testing parity vs the USD

USD JPY : Despite the efforts of the Bank of Japan to weaken the JPY, the JPY continues its relentless upward march.

EUR USD : A weak EUR helped boost Germany's GDP numbers last quarter. the recent rebound in the EUR will surely make life difficult for the Club Med nations

Conclusion:

The USD appears to be oversold in the near term and a counter trend rally is underway. The market is betting on some mega fire power solution from the US Fed at its meeting in November. If QE2 disappoints and the equity markets sell off, the USD could stage a much stronger rally!

The Equity markets have been getting far too complacent about the weak and worrying news data and unemployment numbers in the US.

Fund flows to emerging markets have boosted stock prices across the board and a correction is well overdue. These markets are ''not decoupled from the actions of the US Fed'' and when the tide starts to turn we can expect large fund outflows to have a drastically negative impact on stock prices in emerging economies

Lastly, the rally in Gold prices also appears ripe for correction and consolidation. Silver prices too, are clearly overstretched in the near term. expect lower prices if the USD stages a comback rally. It's not time to be buying the precious metals sector just yet!

Watch this space!

GOLD - THE LAST 10 YEARS

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.

GOLD : Rallying in all major currencies

Take a closer look at the red line representing USD gold.

As a result of the recent slide in the USD, gold priced in USD has risen to new highs!

Also note that the GBP is one of the weaker major currencies in this non USD currency rally.(which has resulted in the massive rally in gold priced in GBP)

Good Reading:

Time to Hire Bernard Madoff to Run U.S. Treasury: William Pesek ...

THE GURU OUTLOOK

Financial Coup D'Etat and the Reaction of Gold

TRACKING GOLD & THE USD

A hectic day in the markets today.

The US Equity Markets + USD +Treasuries + Crude Oil = were all down.

Gold has rallied steadily upward, just getting over the $950 level as I write this. Is the weak USD causing some forced short covering in gold?

Meanwhile, former Federal Reserve Chairman - Alan Greenspan was in the news again , saying that the financial crisis is not yet over!! Hahaha!

Green shoots not green enough I guess?

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It's getting quite choppy out there.

Are we going to see the USD rebound, if this bear market rally in global equities starts to stumble?

This is going to be critical, as the US Bond market desperately needs some massive inflows, in order to keep rising Treasury yields in check. A USD rebound led by a flight to safety could just help the US Fed's cause.

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Is the unemployment rate of 9.2- 9.6% projected by the US Fed far too optimistic?

Mish seems to think so :Fed's Economic Forecast Worsens; Still Ridiculously Optimistic

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The guys at S&P are getting concerned about the AAA sovereign credit rating of the UK.

Is the US next in line for a AAA rating with a negative outlook?

Well it's about time someone started to get concerned about the "intervention and stimulus" strategies of the leaders of the developed world.

Just imagine if Asian central banks started buying their domestic government debt by printing money. The rating agencies would be slamming them with downgrades and junk ratings!

CURRENCY MOVES : GREEN SHOOTS OF RECOVERY HURTING THE USD

The equity markets have been rallying since early March 2009.

At the same time, the USD has lost considerable ground, as can be seen on the USDX.

The 'flight to safety' buying seemes to have ended, and as market players back away from US Treasuries, seeking better returns from 'risky assets' - emerging market equities and foreign currencies; the USD has witnessed a selloff.

While a strong USD was affecting the profitability of large US MNCs, the current USD weakness has also resulted in a rally in commodities : read - Crude Oil, Precious Metals, Copper, Aluminium etc.

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EUR/USD

Despite worrying economic issues in certain EU nations, the Euro is well off its recent lows. Challenging times lie ahead as countries like Portugal, Ireland, Spain, Italy and Greece face rising unemployment issues and GDP growth problems. With a policy mandate that is quite different from the US Fed, the ECB is going to have to walk a tightrope by helping out weaker EU members, without annoying the larger and relatively 'economically stable' countries.

Unstable + collapsing economies in eastern europe are also a major worry!

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GBP/USD

The Pound Sterling had a horrid 2008, struggling against most currencies. While interest rate cuts may have helped so far, the UK is faced with record consumer debt levels, a weak housing market, and unemployment problems - just like its larger ally the USA. As the slowdown batters the financial centre in London, the Bank of England is going to have to get more creative with its monetary policy, especially if job losses acclerate in the second half of the year.

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USD/CHF

Swiss economy exports to the EU were struggling due to a strong Swiss Franc. The Swiss National Bank intervened in the currency markets, in order to stem the upward rise in the Swiss Franc. While it seems to have worked for a while, the Swiss Franc is rallying again!! Watch out for comments from the SNB if this trend continues.

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Points to note:

• Expect more quantitative easing and competitive currency devaluations if the second half of 2009 turns out to be 'more challenging' than first expected.
• Unemployment could prove to be a major speed bump to any recovery. As I've said before, there are going to be a lot of angry people - whose homes and retirement funds and investments are falling in value. Many have debt to be repaid and a job loss will compound their problems.
• Policy makers may breathe easy for now, as the renewed optimism of a 'quick recovery' seems to have kept 'the mob' at bay for now. Fact is : They haven't found any viable long term fixes just yet and the crowds continue to grow impatient, albeit distracted for now by the rapid rally in the equity markets.

CURRENCY WARS – INTERVENTION & MANIPULATION

As Warren Buffett recently said, the world economy is being administered medicine by the cupful, not the spoonful; so there may be side effects, but no one's worried about them at the moment.

The Swiss National Bank intervened in the currency markets yesterday, in order to weaken the strengthening Swiss Franc that was hurting exports to Europe, (the Swiss Franc has been strengthening vs the EURO.)

The Europeans feel that the weak GBP is subsidizing and supporting the weak UK economy. The Bank of England is manipulating ( sorry make that intervening in ) the UK Bond market to keep GILT yields down, as the financial centre in London has been hard hit by the financial tsunami.

Currencies in Eastern Europe that are stuck with ‘Swiss Franc’ loans and rapidly slowing economies are looking for an EU/ECB led bailout!!!

Central Banks in Asia, are quite content to see their local currencies weaken vs. the USD, as exports to the ‘West’ are collapsing. Asian Multinational companies with USD denominated debt are going to be next in line for a handout or ‘temporary suspension’ of mark to market rules as Forex Loss adjustments threaten to destroy any profitability that’s left.

The Chinese continue to voice concerns about USD T Bonds, even as they continue their shopping spree in the industrial Commodities market. Are the Australians going to be cool with the Chinese holding controlling stakes in their mining companies!!!!

In the US, the big banks are claiming to be profitable for 2009, but given what they did in 2007 and 2008, I’m not taking their word for it! Bernanke is still unwilling to release the names of ‘Leper Banks’, so I guess we have a few more surprises in store.

Some are intervening, some are manipulating but most have no clue what they are doing!!

One thing’s for sure, they are damaging whatever credibility they have left and more and more people are starting to realise that the clowns in the hot seat are perpetually behind the curve and that they have also been consistently wrong.

The average Joe may not understand the complexities of the derivative webs on Wall Street, but he has heard the story of ‘ the boy who cried wolf’ and thus can no longer believe the empty promises. He has been lied to over and over again and can no longer believe that ‘its going to be all right’

GOLD tested levels under $900 this week and has recovered somewhat over the last couple of days. Yesterday was especially curious as Gold, Crude Oil and the Stock Markets all rallied together. In these choppy markets, day traders are as confused as long only investors!

The Equity markets rallied from extremely oversold levels, and short covering probably also contributed to part of the rally. We have not had a decent dead cat bounce thus far as any attempted bear market rallies have been repeatedly stamped out by the unending flow of bad news.

Clearly there’s more manipulating and intervening left to be done!!

CURRENCY VOLATILITY !!-----CHARTS

This is a vertical drop on the USDX chart; which seems to have accelerated after the FED rate cut announcement.

The currency charts below are 3month and 1year charts of the respective currencies, with the 1 year chart commencing mid December 2007

The charts are from the CNBC Currency webpage: http://www.cnbc.com/id/15839178/

The Japanese Yen strengthened consistently through 2008, as carry trade unwinding and the sell off across asset classes intensified.

The EURO and the Swiss Franc (CHF) have rebounded strongly this past fortnight. Is the ECB going to be next in line with aggressive rate cuts? Also now that the Fed is ready to buy anything and everything, (by doing whatever it takes to sort things out) is the ECB too going to get into the act?

The British Pound (GBP) has struggled this year, and as the UK housing market continues to deteriorate; 2009 is going to be particularly difficult for the British economy.

USDX - WHAT'S GOING ON NOW!

In recent posts, I noted that the USD had started to lose ground against a basket of currencies.
Here's the background on the USDX.
http://thebullishbear.blogspot.com/2007/10/understanding-us-dollar-index-usdx.html
Since the USD bottomed out in mid July 2008, it has been in quite a steep uptrend, that is quite visible on the 3 year USDX chart.









According to some technical analysts, the USDX index has formed a head and shoulders trading pattern, and thus the next move will be DOWN ! Is this going to be a decisive move, or just a minor pull back after the recent USD rally? Gold meanwhile has been trading in the mid $830s.









Stockmarkets globally have recovered from recent lows, but are trading nervously ahead of the FED meet later today.
The '''Madoff scandal & ponzi scheme''' is yet another sign of the irrational excesses, lax regulation and manipulation of recent years.
Here's a an interesting take on the Madoff scandal by James West of the 'Midas Letter',
http://www.gold-eagle.com/editorials_08/west121508.html

The PIRATES OF WALL STREET & PANIC + PANDEMONIUM + CRASHES + QUICK FIXES !

WHAT THE HELL IS GOING ON ?
A $700 Billion bailout FAILS and a co-ordinated global rate cut FAILS, so I guess they are working overtime on a new plan.
In the meantime, nothing has really changed -

President Bush says the economy is innovative, industrious and resillient!
The Credit Market is frozen, and the LIBOR just won't come down.
Billions and now possibly trillions of USD, and no liquidity injecting measures are working yet.
The G7 will 'take necessary steps' and has been calling for'urgent and exceptional action'

The declines in stock markets have been incredible! Whats been really surprising and rather worrying, is that there has been no dead cat bounce yet!

CATCHING FALLING KNIVES:
In the coming weeks, if total panic sets in, even conservative and unleveraged firms could fail or at least see their stock values crash if things don't stabilise soon. Be careful while bottom fishing in equities, and although you may have a long term investment horizon; focus on your risk profile and your necessary 'margin of safety' before you buy in.

My call would be for the onset of deflation, and as prices of overvalued and leveraged assets fall, the Central Banks will continue to flood the system with liquidity, and bailouts for all the PIRATES OF WALLSTREET.
As poor quarterly results and upcoming layoffs add to the woes of Wall Street in the coming weeks , the bailouts are going to get larger and larger.
Ultimately this will destroy the currencies of all participating Central Banks, and we could be in for a dose of hyperinflation as a result.

My next post will focus on charts of crashing stock indices, currency graphs, and Gold prices

AMERICAN CAPITALISM & THE EMPEROR'S NEW CLOTHES!

The FED and the US Treasury have done it again. Hooray ! We’ve been saved!

Markets around the world rallied furiously and confidence has been magically restored. The Financial media is talking about how wonderful the whole scheme is!
Restoring confidence and punishing manipulative shortsellers!!

At the end of the day, the markets have rallied and everyone can have a good weekend. Everyone except the FED and the Treasury, who are going to have to come up with a detailed plan soon, (if they haven’t done so already.)

Well here are the Free Market guidelines they are working by -

Privatize Profits, Socialize Risk and losses.

Stop short selling in financial stocks; Blame the short sellers, and not the incompetent and bungling regulators, Fed, Treasury and overpaid Investment Bank CEO’s that got us into this mess in the first place.
Surprising that Crude Oil futures were not suspended on grounds of market manipulation !

Bailout everyone who took on more risk than they could cope with.

Punish Creditworthy debtors by rewarding defaulters and leveraged overtraders.

Conduct Bailouts on a case by case basis, randomly deciding who is to big to (let) fail.

Coming to the Story of the Emperor’s new clothes, starring Hank Paulson and Ben Bernanke as 'the illustrious tailors'.
Heres the summary from Wikipedia

“An emperor who cares too much about clothes hires two swindlers who promise him the finest suit of clothes from the most beautiful cloth. This cloth, they tell him, is invisible to anyone who was either stupid or unfit for his position. The Emperor cannot see the (non-existent) cloth, but pretends that he can for fear of appearing stupid; his ministers do the same. When the swindlers report that the suit is finished, they dress him in mime. The Emperor then goes on a procession through the capital showing off his new "clothes". During the course of the procession, a small child cries out, "But he has nothing on!" The crowd realizes the child is telling the truth. The Emperor, however, holds his head high and continues the procession.”
http://en.wikipedia.org/wiki/The_Emperor

The Question is : How long can this go on??
Delaying tactics may postpone the day of judgement for a while, and although the authorities may promise you that they are taking unprecedented measures under extraordinary circumstances,----we may be running out of road!!

Gold has survived a most volatile week, closing around $ 872 today on news of the continuing credit crisis. Increases in money supply and ‘fighting insolvency with liquidity’ are going the be factors that will drive gold prices still higher

The coming week or should I say weekend should be interesting!

Some excellent coverage of the volatile week -
http://globaleconomicanalysis.blogspot.com/2008/09/us-taxpayer-giant-dumpster-for-illiquid.html
http://www.financialarmageddon.com/2008/09/be-careful-what.html
http://economicdisconnect.blogspot.com/2008/09/pandemonium-of-clueless.html
http://www.nakedcapitalism.com/2008/09/ban-on-short-selling-will-hurt-rather.html

CONSOLIDATION IN GOLD

PATIENCE >>>>>>>Gold prices are consolidating.
After hitting new highs in 2008, gold prices appear to be rangebound in the $890-$950 range.
Gold is still a buy on declines!!!!!
The US Dollar continues to remain under pressure and Inflation concerns are growing.

Oil prices meanwhile are at new highs, even as the EURO/DOLLAR nears the 1.60 mark.

Carry trade currencies such as the Swiss Franc and the Japanese Yen, have risen sharply over the same period, for reasons of carry trade unwinding, and also flight to safety.

Emerging markets shrugged off concerns of a slowing US economy through 2007, but rapidly rising inflation appears to have put the brakes on such outperformance.
Rising fuel and food prices are forcing Central Bankers in the region to resort to tightening liquidity, maybe even allowing local currency appreciation or raising interest rates.
As a result, equities of emerging markets have corrected sharply in 2008, despite their outperformace vis a vis developed markets through 2007.

CURRENCY ANALYSIS.

The US Dollar has continued to lose value against major currencies since the credit crunch began last year, and rate cuts by the US Fed continue to hurt the USD

Aug 20, 2007- Jan 14, 2008: The Euro is up 10.46 % against the USD. Economic growth in Europe is slowing even as inflation concerns continue to grow; the ECB may have to cut rates, as the strong Euro is hurting European exports.

CHF/USD: Sept 4, 2007 - Jan 31, 2007: The Swiss Franc is up 11.66% vs the USD. In times of crisis, it is viewed as a safe currency, and it will be a key beneficiary of any carry trade unwinding.

GBP/USD: Aug 2007- Jan 2007, and the GBP has been unable to hold onto its gains vs the USD. After hitting a high of 2.1104 , the GBP has weakened considerably, on concerns of upcoming rate cuts, a slowing economy, and a weakening housing market

Interesting trends:

Meanwhile, the Euro has gained 10.35% vs the GBP (Sept 5, 2007- Jan 31, 2007)

The Euro has been flat against the Swiss Franc(CHF). Since December 2007 the Euro has weakened against the Swiss Franc, only to regain part of its losses on concerns of a rate cut in the CHF

The Key questions now are :

• Are we going to see rate cuts from Central Banks around the world, in an effort to reflate slowing growth in developed economies ?
• How long can the BOE and the ECB hold their rates, if the Fed continues to cut interest rates ?
• How are the USD pegged currencies of the Middle East going to continue to cut rates, when local inflation rates are rising ? eg: Saudi Arabia inflation = 6.5%
• Will the US Bond market see slowing inflows, or even outflows, as the interest rate differential of a low yielding USD, and high yielding Asian Currencies continues to widen ?