There’s still danger in Europe if

All is well last week and financial markets roared. The ‘fear’ index had resided substantially from the orchestra of Brussels and the US. The month of October is one of the best since time can tell. Do not be carried away.

Wait a second. Let’s leave the US out of the equation. I am talking about Europe.

The speculation (before the G20 Finance Minister’ summit) was that Europe would not deliver a package deal. Now it is delivered (but without the details and specifications). The rally had come to somewhere of a consolidation and global investors are pondering if (and when) the details are to be announced.

·         How soon can the specifications be announced is a question?

·         How fast can all three process be implemented is another question?

·         What if not all three can be agreed amongst the EU leaders is a worry!

·         Would China and Japan support the EFSF without political benefits?

Hence, the EU needs to produce results within the shortest time span otherwise we’ll be on another roller coaster. Hopefully the G20 leaders’ summit may be more favorable.

There’s also the RBA rate decision, China Manufacturing data and the US payroll data on Friday.

JPY intervention curbs rally

While my (our) focus was in Europe and the United States, the Japanese Yen broke a lifetime high against the US dollar at 75.31 which triggered a unilateral (not joined forces of Central Banks) intervention by Japan.

Hence, the US dollar index rose from 75.19 to 76.40 within 2-3 hours. As a result, high yield assets like equities, commodity currencies and commodities fell. Though this event was on my lookout list, it certainly was off my radar. Hence the saying, expect the unexpected.

Now we have to wait the investors’ psychology on which event will weigh heavier. That is, the euphoria of ‘resolved events’ in Europe and better US data or the US dollar strengthening as a result from a weakening Yen which triggers unfolding of carry trades.

Are we out of the bear market?

If you noticed, I stopped posting blogs the day the US and European market turned on Oct 4^th. Prior to this date, global high yield assets slumped for more than two months. The US dollar rose as a safe haven!

Since then, high yield assets rose on hopes and speculation from variety of events. Markets had been volatile (and will continue to be volatile). This means that if you could not stomach the volatility, you would be slapped left and right. However, though the volatility is at its extremes, the trend was and is currently trending upwards.

The US dollar was testing a very strong resistance at 80, broke it on a daily basis. BUT, it did not close above 80 on a weekly basis. Since then, the US dollar reversed and nose dived till this current day. The high yield assets (equities in US and Europe), commodity currencies (Aussie and NZ dollar) and commodities like Gold, rose as a result of a weaker dollar or vice versa.

Uncertainty generates high volatility which we had experience for the past three weeks. However, the certainty of the growing of a better US GDP data, a better US economy, at least has minimized the uncertainty of a double dip recession.

Coupled with the fact that the Greece haircut is 50%, leveraging of the ESFS rescue fund and capitalization of European banks, financial markets rose very strongly globally. Currencies like the Aussie, Euro and other high yield assets experienced the strongest daily gain to my knowledge.

In conclusion, the concerns with a

·         Weak global economy

·         US economy

·         Global growth concerns

·         Europe sovereign debts

had certainly diminished overnight.

Credit rating companies will interfere with the rally by downgrading one or two European countries because of the haircut, austerity and spending cuts. But it is RISK ON.

Based on the Chinese Art of War, the financial climate is attractive, terrain is conducive, and I understand myself as well as the investment risks. We are ready to go and win the war.

Are we out of the bear market? What’s your opinion?

What really moves financial markets?

(Posted Tuesday, Singapore time 730pm)

Do you really know? If you like to share, we love to hear your opinions. Otherwise, hear ours?

Financial markets (currencies, commodities, equities and bonds) have been very boring, moving in one certain ‘down’ direction. With the exception of the US dollar and the US Treasuries, the rest are trending southwards.

What about Gold? Gold is regarded as a safe haven in times of uncertainty. Of current, it trends along the same direction with the US dollar. However, when it reached a certain ‘boiling point’ the monetary characteristics change – it moves inversely to the US dollar. The last time the Gold characteristics change was when the USDX reached 79 thereabouts. The USDX today pierced through 80 this morning!


There's a possibility Gold will head towards US$ 1625 in the next day or two if US$ 1680 is not breached!


Updated 1107 pm. Gold price nose dived to US$ 1629. Delivered!

Hotnews!! Bernanke mentions there is ability to exit QE. As a result Gold tumbles further to US$ 1614. Gold investors risk off. Gold traders warning - do NOT but Gold. The major trend had reversed! You may consider around US$ 1500-1510 therabouts.


Updated 3am. Bernanke's delivery plunges Gold. Currently at US$ 1599. Gold may find support around US$ 1583 thereabouts!

There are many different views and tools used to speculate which direction a particular asset class moves. There are people who follow economic data, technical charts, financial ratios and herd’s mentality.

While there are so many tools, the right time is actually the appropriate time. There is no right or wrong answer as different tools are used for different times or events.

Were the following of any help for the last 3-4 months?

·         Financial ratios, PER, PB, etc

·         Technical support and resistance – supports are constantly broken

·         Economic data – recent ‘favorable’ economic data was not the focus

·         Speculation and hopes – Operation twist, Greek bailout, etc

Do you use your favorite tool most of the times? Was your tool or any of the above tools helpful at this point of time? Otherwise, I suggest you read/learn more or end up paying more school fees. Were you able to use different tool at different global cycles?

As you probably know, I use the following indicators (constantly)

·         US dollar index. The US dollar is the reserve currency and a safe haven. When seeking low yield assets, regardless of the S&P downgrade, investors seek the US dollar. While the US dollar rises, the ‘others’ move down and vice versa.

·         CBOE VIX - a measure of volatility. Confirms my speculation of carry trades

·         Commodity currencies – Seeking high yield assets

·         Commodities – measure of global growth, US dollar

·         Gold – measure of uncertainty, geopolitical events, safe haven, currency uncertainties

·         Energy, Oil – measure of global growth or demand

·         The Euro – measure of Europe debt situation currently.

·         BDI, yield curves, etc

The sum of the above, together with a few other indicators are my inter market analysis ‘tool’ to measure equities, currencies, global demand, uncertainties, cross checks each other, which again, helps me to finally decide what is ‘really’ happening to the market, which direction it would trend before coming an investment decision.

I hope to hear your views and opinions of the tools you currently use to make your investment grow or had avoided this current global crisis!

Where are markets heading? Two words – stay out. If you like to know the reason, please visit my last few 3-4 posts. There is nothing to add/update my blog as the current trend is obvious.