We are mid august with most of the pros back on holiday following the huge volatility of a few weeks ago subsiding for now.
Asia markets calm over night and barely moving. US indexes seeing more volatility yesterday but retracing the 160 ticks lows (dow) and ending the session flat. Out of hours on the futures hsas also been fairly wild with 60 tick swings but looks to have settled again now. We have moved by nearly 10% off the lows at 10400 or so ym to 11400 now which is around 11% or so off the highs. We are almost exactly at the 50% retracement level of the move from the high. This is a very difficult level to ‘play’ or forecast from. If you didn’t add off the lows now is a tricky time to do so given the speed of the leg up. Equally to go short here is full of danger imo given the HFT lead ambush that occurred.
I would prefer to take a different approach. What issues offer relative value at these levels. Or rather where can i find high earnings, low debt, world wide blue chip exporters. And even better where can i find these companies in an over valued currency area? European exporters offer value here, imo. Short term, technically the euro can rise vs the usd but on the medium and long term the euro is over valued vs the USD. Asia (more less pegged to the USD) has been buying the euro for the twin reasons we understand. But the data is worsening. Ie yesterday’s euro gdp data showing growth of .2% for q2 and Germany’s slowing economy as well as the poor Markit data showing the slowest manufacturing growth in the eurozone for 2 years. Europe’s exporters are being caught between the rocks of slowing growth and an over valued currency. This has halved their value in the last 9 months NOTE! (EUN2 isn’t a bad proxy for them, especially for non UK residents due to the Irish dom issues, although does hold a few too many banks imo).
http://www.reuters.com/article/2011/08/16/us-eurozone-gdp-idUSTRE77F1QL20110816
The point remains, where we can see grade A balance sheet and P&L cos across the euro zone at good discounts in euro terms. As the euro is debased her exporting companies will boom. Eurozone exporters will do well from the euro crisis that is still unfolding. Currency debasement is the only viable solution for the eurozone and it looks a strategy that is inevitable but unlike the US the euro area contains the means of production and this strategy is likely to be far more effective for the euro area than the US.
As we have said from early q1 2011, the data will continue to worsen. No question the data is rolling over due to the lack of fresh money printing by the US and the relatively tightening monetary policies in the East. But remember carefully the paradox that exists. Spikes aside, the worse it gets the more likely cash will be trash. The worse the data gets the more inevitable monetary conditions will be loosened, currency will be debased and asset prices will rise.
PMs continue there path. I like silver very much here. The chart is starting to look very bullish again with significant support being demonstrated firstly around 33 & 34 and then from 38.. She looks to be showing a classic ‘building’ of a base. This base, having been tested so well following the parabolic march to 50 earlier in the year looks meaningful. Ive entered a few speculative mini futures on this basis at 39.9 on the decemeber contract. The core holding remains untouched.
Oil is nearly back to 88 again which is the prior channel uptrend edge and therefore a resistance.I am thinking short than long for oil as a near term trade, only. The medium & long term issues around oil supply remain which greatly potential for an explosion to the upside. Oil shorts should be handled with great caution therefore, imo as geopolitical shocks could smash the unaware or over leveraged.
The dx.. or dollar basket is back to her lows. The dollar is completely unloved although much of this is due to the euro.. vs the cad and aud she is well off her lows.. for now. The pressure continues on domestic Japanese politics and BOJ in great part due to the USD debasement vs the JPY. No matter the minor interventions from the BOJ. A monetary sledge hammer is required by the markets not paper darts from the BOJ. Inflation targeting coming soon and a change of BOJ governo according to my crystal ball. You have to suspect the next move for the DX is lower not higher. We have a large downtrend which has had a period of consolidation and failed moves to the north. The probability is therefore for a sharp move to the south to kick off a new wave of USD weakness. This could be the final wave the cyclical USD bear move, imo, to find the 71 or so historic lows. At this point the BOJ, BOE and ECB will likely provide the fuel for the monetary fire. And in great part this is what Ben desires and is playing to. That other first world states have to pick the batton of monetary easing to allow some investment capital to flow in the other direction. Ie from these non usd debasement ares to the USD area.
Ill add charts to this piece in a moment..
Summary.. equity markets caught in the grey zone and summer heat of likely inactivity. Industrial commodities likely to be in drifting around consolidating to a slight downward edge. Gold consolidation, silver edging upward with a totally mono uncorrelated breakout very possible. Dx edging downward.
Rich
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