What does Better (Global PMI + US payroll data) equates to?

(Posted Monday 250am)

The equation,

Better (Global PMI + US paroll data) = RISK ON!

As you probably know, PMI data coming from US, China, UK, etc has been better than expected. Global equity markets extended their weekly climb with the exception for Mexico, Australia, KL and Japan, just to name a few.

Some of you may not have realised that the US market had been stronger than expected. With the latest US data, the Non Farm Payroll and Unemployment data lowering to 8.3%, the Fed Chairman’s monetary policy of holding the Fed fund rates to end of 2014 is a question mark!

This is interesting. Did you know that the Dow Jones IA closed last week at a 3 ½ year high breaching the Q3 2008 high before the Global Financial Crisis (GFC). It broke my resistance level of 12,800! And the S&P Golden cross is evident! Do we need QE3?

VIX and the dollar Index. The US dollar index met resistance at the 81.5 resistance and reversed course following lower global growth worries. Couple with better France, Spain, Italy bond auctions after S&P downgrades France, the volatility index, VIX plunge to levels below 20.

I don’t need any stinking QE3. With the above, the probability of QE3 may be lowered. As Gold is the primary beneficiary for monetary easing or QE3 prospect, spot Gold plunged!

On Friday, the Europe crisis prolongs with high yield Portugal bond auctions and extended Greek talk with the Trioka. As a result the Euro plunged after climbing against the US dollar after the payroll data. On the other hand, commodity currencies like the Aussie rose to the highest level as carry trades is attractive in a low VIX environment.


Updated 6th Feb 0630 am. Greece PM and the Trioka agrees on Deal Framework. Details of framework to commence later Monday Greek time vs China’s Lowest Lunar Sales Since 2009. What I wonder which side would Asian investors mindset be focus on?

 

If you were to realize the above, it is EVIDENT that global equity markets are temporary disconnected with the prolong debt situation in Europe. I think global investors are NUMB (by now) but I speculate there will be one more possible dip before end of month. This would be another possible buy-on-dip.

The after effects of a better than expected US payroll data had not been reflected by Asia. There is a possibility that the US might pass the rally baton to Asia or would Asia markets fade towards the European markets opening because of a prolong Greek-Trioka meeting?

I have a personal interest in Indonesia and am eagerly awaiting their GDP data, due Monday with a better than expected GDP data!

If you’re a global investor, you may probably know that inflation had receded in most countries and most Central Banks has lowered interest rates to support growth rather than battle inflation. Particularly of interest are in Emerging markets as well as BRIC. The yield curve is leaning towards being normal. As such, it is a no-brainer that BRIC economies like Brazil, Russia, India and China resulted in a better performance than developed economies YTD.

WARNING. Do not be too greedy. Expected the unexpected if you are not following closely on the Baltic Dry Index and its possible consequences!

For new audience joining my blog, we welcome you. You may also be interested to know that this is probably the ONLY blog to speculate that markets

·         Would fall three months before the DOW plunge a 2011 low prior Oct 4^th 2011 and

·         Would rise three months before the DOW breached a 3 ½ year’s high of current!

Please feel free to read Market Trends, Investing commencing May June 2011 and Oct Nov 2011 for my speculative posting.

If you find the blog beneficial to your investments or risk management planning, you may ‘like’ me or subscribe to my emails (FOC). If you feel the post may benefit your friends, feel free to forward the articles.

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?

Sea of red. What's next?

At point of writing, 20110616, Singapore time 0230 thereabouts, the US dollar index is at 75.64, a rise of 1.76%. The US major indices are down 1.54% – 1.7%. Hence oil is lower by 4% (demand concern). And unless there are any strings of ‘good’ news, the markets will continue to fall.

With no news of QE3, and QE2 coming to an end, the markets had certainly showed no mercy. Since my article dated 11 May 2011, Without new on QE2.5…unwinding of carry trades I had tried to explain what unwinding of carry trades mean? In layman terms, investments in high yield assets like stocks, commodities will move to safe haven assets like the Treasuries, JPY, CHF or the USD, etc.

To what degree the high yield assets will fall, I began by relating the beginning of the Global Financial Crisis…. What’s next? Part 1  Since QE1 and QE2 were launched, high yield assets had mostly been the primary beneficiaries. Should QE3 surface, the market would go further north. But will there be QE3? is there a need for QE3?

I believe this would not happen as discussed in QE3 – it depends. (Three days later, Roubini’s interview with CNBC highlights a QE3 probability by year end. I still can’t confirm this. When I know if QE3 is coming he would also know!) While speculators have ‘more’ hope and expectation, the ‘more’ cruel the market reacts (when the hope and expectation does not realize).

The few ‘daily’ occasions when the market rose were opportunities for you to cut loss and not buy or average your longs. This was discussed in Sell I May and go away.

If you had been following my blog closely on market trends, I hope you had moved to low yield assets. I also hope you did not try to average your buys as I mentioned my generals are sidelined!

What would happen next?

While most people may not believe in BB that the second half of 2011 would be better but I agree with him. The US economy will be better. But it would not be better for certain economies or countries that had been raising interest rates (several times) to curb inflation.

With inflation popping around like bunnies in emerging markets and in Asia, (Asian) Central Banks had been raising interest rates. Particularly in Brazil, India and China, there will come a time when the yield curves are either flat or inverted. (Recessions are preceded by inverted Yield curves. Inflation is NOT present in the US yet. This was discussed in Global Financial Crisis…Part 2).

Fundamentals, Technical (support levels), Earning ratios are important tools, but the sum of all coupled with investors mindset is equally important. As I mentioned in my earlier blogs, the GFC spared NO support levels, earning ratios, etc. Herd’s mentality or mindset can be cruel as well as prosperous! My basis of speculating market trends is the speculators mindset, knowing and understanding what makes the market go up or down, vice versa. For Insights to Financial Markets, read S&P downgrade Greece and my latest weekly summariy. For investing principles, read Sun Tzu's Art of War.

I enjoy writing blogs and I hope you find it useful. I think I had speculated well on how financial markets behaved. I hope to see you more often in my blog. If you find my articles helpful, I sincerely hope you could twitter or share this on your facebook, etc. This chain reaction will help an even larger audience! Please feel free to share any ideas you might have. Have a great time investing!

Global Financial Crisis, QE1, QE2, What’s next? Part 2

This is a continuation to my earlier post, Global Financial Crisis, QE1, QE2, Inflation, Higher interest rates. What’s next? And I mentioned on a rare indicator ‘Inverted Yield curve’ in Market trends – which direction, North or South?

As you’ll probably know, interest rates had started to rise in G3, much higher in Brazil, India and China (in Emerging markets) and more prominent in Asia. As a result, the tendency for Inverted Yield curve could surface.

Most yield curves are predominantly ‘normal yield curve’. As interest rate rise, the spread between short-term and long term narrows, the yield begins to flatten. And as interest rate rises much higher, the yield curve will become inverted – known as the inverted yield curve.

As for the definition of inverted yield curves, you may Google or visit The Impact of an Inverted Yield Curve.

I like to sign off here but I’ll be right back once I’ve identified the countries with Inverted Yield curves. You may then decide if you need to reposition your investment portfolio.

I would strongly advise that you check and discuss with your financial consultant what his strategy will be in respond to this financial climate on your investments!

I do not have a crystal ball. Neither has anyone. Speculating the future (or giving tips) at this point is rubbish. We just have to take one step at a time monitoring the technicals, fundamentals and the cattle’s mentality in reaction to events.

Bookmark this site - For timely and constant update of the financial markets. After which, pro-active (or reactive) management in a timely and efficient manner should assist you to limit your losses and ride the waves when the market reverses Northwards!

In relation (my earlier article) to the Art of War teachings, the climate is not conducive for War. My strategy as the General will be to pullback and delay the attack as long as possible until the climate is more favorable to my advantage for the next Attack.

I’ll be right back. Watch this blog closely! The continuation Inverted Yield curves – a rare but noteworthy indicator is ready, click to continue.

Global Financial Crisis, QE1, QE2, What's next? Part 1

From an economic point of view, the GFC was unavoidable. This helped to balance/check the whole financial system. In order to avoid a Great Depression after Y2K, the world’s largest economy, the US started QE1 buying toxic wastes and expanded QE1 in March 2009.

Let’s have a look at the effects. With QE1 (large amount of liquidity) and LOW interest rate environment (less than 1%) in the US, UK, Europe and Japan, the obvious had to happened. In a situation where there’s a lot of liquidity and interest rates being pathetically low, global investors will tend to seek higher yield assets. Carry trade begins! (The higher yield assets being commodities like Agriculture, Metals, Precious metals, Oil, commodity currencies like the Aussie, Kiwi (NZ) and the Loonie (Canada)).

However, QE1 does not prove to be efficient as the Unemployment figures nor the housing in the world’s largest economy recovered. With the speculation and eventual announcement of QE2 during the second half of 2010, there’s a tsunami of liquidity globally. Money and inflation are exported (felt most in China and India) to most parts of the world. Carry trade intensifies.

By now, everyone knows that the exit of QE2 will end in June 2011 and a negligible percentage of QE3 showing up, carry trades had started to unwind. This is evident in the precious metal, Silver and Energy, Crude Oil – no thanks to the increase in Margin for Silver and Energy. (This just exponentiated it’s decline.)

The following is the main point of this sharing. What I fear most is the end of the QEs’, the degree of the unwinding of the carry trades, meaning, how the higher yield assets like the Aussie, Kiwi, Loonie, commodities like Gold and Silver were to unfold.


Since the beginning of May, higher yield assets like equity related indexes, neither commodities nor precious metals were attractive at all. On the other hand disaster.

What I would do now is to monitor and analyze, how and what the degree of the pullback of liquidity will affect the unwinding of carry trades. In layman terms, if no caution (strategy) is implemented and rolled out smoothly; be very very careful where you put your investments from now on. However, if all the liquidity is pullback in a timely an efficient manner, this would cushion the fall.

I would strongly advise that you check and discuss with your financial consultant what his strategy will be in respond to this financial climate on your investments!

I do not have a crystal ball. Neither has anyone. Speculating the future (or giving tips) at this point is rubbish. We just have to take one step at a time monitoring the technicals, fundamentals and the cattle’s mentality in reaction to events.

Bookmark this site - For timely and constant update of the financial markets. After which, pro-active (or reactive) management in a timely and efficient manner should assist you to limit your losses and ride the waves when the market reverses Northwards!
The continuation of this article, Part 2, is posted  June 9^th 2011

In relation (my earlier article) to the Art of War teachings, the climate is not conducive for War. My strategy as the General will be to pullback and delay the attack as long as possible until the climate is more favorable to my advantage for the next Attack.

(As I am new to this site, I would like to hear your queries or your concerns on any financial matter, for e.g. risk management, investment planning, etc. This would help me to plan and roll out articles to the majority)