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21Jul

The 500 billion dollar question. Where is it?

Alex Economy, Finance, Forex 3 comments

Every day more light is shed in the dark corners of our banking system.  Today I thought I’d share this tid bit.  While Americans lose their jobs, houses and ability to sustain themselves the Federal Reserve was busy handing out $500B in “currency swaps” to 14 foreign central banks all over the world. Watch the following clip and judge for yourself the kind of message that’s being conveyed:



Everyone is welcome to correct me if I’m wrong here, but I was under the impression that the Federal Reserve had a mandate to maintain stable employment and fight inflation. It seems to me that these kind of actions actually ensure the polar opposite end result. Ben is deliberately printing tons of dollars, shipping them overseas and taking foreign currency in exchange in order to supposedly facilitate a more liquid, lower interest lending facility for US dollar-based loans. This is not part of the Federal Reserve’s mandate nor does it seem as though it could be a constitutionally sound policy.

When Ben was asked about the Federal Reserve’s opposition to an audit of their programs and balance sheet, he responded by alluding that interest rates would rise if there was any attempt to oversee the actions of the Fed. This is a veiled threat and can not be taken as anything less. Our economy is now being held hostage.

28May

Hyperinflation: The coming storm?

Alex Bonds, Commodities, Economy, Forex 0 comment

The flight from US treasuries, equities and the dollar is a category five hurricane against the once safe haven.  Is it fear of hyperinflation or just a ripple of the recession?

Speculation is increasing that the US will not be able to pay off its mounting debt and it is showing in the markets.  Most currencies, especially commodity driven ones like the Australian and Canadian dollar, are rallying.  The US treasury bonds are selling off at an alarming rate.  The stock market is starting to either consolidate or make a larger move down.

If the hyperinflation hits and creates a panic, this type of activity will increase markedly.  If instead this is a ripple from the recession tarnishing the confidence of other markets it is still a negative because it shows that central banks around the world are not supporting US debt to the degree that they did in the past during a time when the US is creating more debt than ever before.

The implications are vast and will have an effect on purchasing power, employment, wages and the types of jobs available moving forward.

27May

Hedging inflation in 2009 and beyond

Alex Commodities, Economy, Finance, Forex, Stocks 0 comment

What do silver, the Australian and Canadian dollars all have in common? They should all be considered good inflation hedges for US dollar-based portfolios.  The Australian and Canadian dollar are commodity-based currencies, because their underlying economies are very much driven by the production of commodities such as gold, silver, oil, industrial metals, etc.  Silver itself is very undervalued against ever increasing real world demand for coinage, jewelry, electrical and chemical applications.  The combination of all three assets, in two different asset classes (foreign currencies and commodities) provide strong upside as the dollar weakens and world growth comes more from emerging economies than industrial economies.

The Australian dollar ETF can be bought through symbol FXA, the Canadian dollar ETF through FXC and silver through SLV.  I currently have holdings in all three assets and advise those concerned about inflation to consider what their long term investment goals are and how these assets may or may not fit in to their strategy.

19May

Feeling frothy?

Alex Business, Finance, Forex, Stocks, Technical Analysis 0 comment

As the rally appears to be running on fumes at this point, I’d like to say that I was a little early saying to sell it before, but one never can trust a bear market rally.  That’s what it still seems like we’re dealing with, too.  The technicals were powerful during the 8 week surge, but we do not yet have a Dow theory buy signal (need a close above 9125) or a break above the 200 day moving average on the S&P 500.  Now the charts are beginning to look more exhausted as the overbought conditions are worked out.  Longer term the trend remains down as we seem to continue with the 10+ year double top formation playing out on the S&P 500.

Banks led the rally up and now they are beginning to give way as fundamentals point to a more pessimistic picture than the prior trading action of their equities might suggest.  While I do feel that the substantive cash injections, ZIRP cheap liquidity and stimulus have filled part of the vacuum left by the implosion of Lehman and the deleveraging process, there is simply too much enthusiasm around when this alleged recovery is due to transpire.

We are quite literally in the midst of a complete reinvention of how the world does business and in that process there likely will be further dislocations and market abberations before settling in to a U or L-shaped recovery — either economic destiny will be determined by the shape of fiscal policy and whether insolvent institutions are infact allowed to fail or continue indefinitely as “zombies”.  Unregulated derivatives markets must be brought in to the light and fully regulated in order to prevent credit default swaps and other leveraged contracts from contributing to widespread system disruptions.

This turning point has been marked by the downfall of the US as the financial capital of the world.  A slow unwinding process that in the decades to come will be much more apparent than it is now.  This is the unfortunate consequence of being the largest debt bearing nation in the world whose currency is quickly losing popularity as reserves for central bankers around the world.  The unraveling is going to degrade the quality of life for Americans and boost domestic inflation considerably.

If nothing can be done to restore confidence by regulating the shadow markets and unraveling the insolvent institutions, then this trying period shall last quite a while.  At this point I don’t feel the actions of the US government or the Federal Reserve have been constructive to that end.  That is why I feel the rally is largely unsustainable and right now we are in a frothy period where short positions in equities and long positions in foreign currencies may be appropriate to consider putting back on the table.

Disclosure: Short US equities, long foreign currencies

12Feb

US dollar index topping?

Alex Economy, Forex, Metals, Technical Analysis 0 comment

We may be seeing an interim top on the US dollar index, which is no doubt expected to see pressure from the stimulus plan and the Obama administration’s bank bailout 2.0 that is expected to be revealed in the weeks to come.  The US dollar index appears to be making a descending series of highs.  If the pattern continues this could signal the next wave down.

USD

Watch the foreign exchange markets, as the US dollar could be bound for a correction soon.  Possible trades include going long Canadian dollars, Australian dollars, Swiss francs, Gold, Silver and hedging by shorting the GBP Sterling.

10Feb

Canadian dollar may rally

Alex Commodities, Economy, Forex, Technical Analysis 0 comment

With the US poised to announce multiple government endorsed packages  to stimulate the economy and assist banks, it is likely that a dramatic weakening of the US dollar will occur.  The Canadian dollar seems especially well positioned to rally, perhaps even back to par with the US dollar.

Canadian dollar (FXC)

We can see in the above chart a bottoming process in the Canadian dollar beginning to take shape. Now that oil is also potentially bottoming and some commodities are finding strength, the trend serves the commodity-driven Canadian dollar well.  Watch the USDCAD pair and the FXC Canadian dollar ETF.

09Feb

Long term outlook for 2009

Alex Economy, Forex, Metals, Stocks 0 comment

Just when a collective sigh of relief was breathed about 2008 ending and a fresh year beginning, 2009 was ushered in by the worst ever index performance in the S&P 500 and Dow Jones 30 for a January.  This was certainly not encouraging for those that believe in the adage, “So goes January, so goes the year”.

Outlook not so good

2009 promises investors and traders one thing.  Uncertainty.  While the market has declined nearly 50% peak to trough, the deleveraging process has not been completed.  Banks still have far too much common stock equity vs. assets on book.   Usually recoveries in any stock market are led by financials, so this turn around prospect seems bleak until the equity to assets ratio improves.

Inflation prospects seem to be rearing their ugly head again, as precious metals are catching a strong bid.  Oil seems to have bottomed.  Gas prices are on the rise again for consumers.  Treasury bonds are selling off.  The baltic dryships index has been recovering based on Asian demand for raw materials.  Certainly ZIRP (zero interest rate policy) has created the possibility of a new carry trade.

Recovery, what recovery?

Most predict that the US markets will tread through a slow, “L-shaped” recovery because of the serious damage to credit and stock markets, and most importantly, confidence.  Nearly $9 trillion is sitting on the sidelines in virtually zero yield short term treasuries and money markets.  That cash has yet to be deployed, and was originally retracted from equities, because of a flight to safety from confidence being lost.

The smart money is watching China and Taiwan, as the markets there have enjoyed a significant recovery from their lows and forming a bottoming pattern.  With the US dollar nearly free to borrow for currency traders, the possibility of the dollar becoming a carry trade currency is quite real.  Long term prospects for the dollar are weak so traders would not feel as though their principle loan is going to increase from dollar strength.

History in the making or repeating itself?

The possibility is striking because when Japan suffered a similar crisis in the early 90s, their currency suffered this very fate.  The carry trade in Japan caused most financial institutions to move money outside of Japan rather than invest in the country and assist its recovery.  Infact, Japanese equity markets have never recovered and still thrash around making significant lower highs and lower lows in recent months.

In my opinion, this is indicative of a significant risk to recovery in the US markets.  Already gold is more valuable per ounce than the S&P index.  Other stock markets are outperforming the US market on their recoveries.  Will the trend continue?

16Dec

Fed fractionalizes funds rate to market cheer

Alex Bonds, Commodities, Economy, Forex, Stocks 0 comment

The stock market cheered the US central bank’s historic interest rate cut today, surging nearly 5% on the S&P 500 back above 900 to 911.82. The rate cut, combined with continued quantitative easing in Treasury bonds was evident in today’s trading, with a flood out of US dollars in to commodities and other currencies as well as bond yields dropping sharply.

The implications are clear. Inflation will begin in some measure of time, whether it is days, weeks or months. We can see traders already preparing by taking long positions in anything that stands to benefit from the dollar’s fall. Near term we could see the US dollar index fall as low as 72, retesting its prior lows and further confirming the head and shoulders pattern. Commodities and currencies remain attractive buys.

11Dec

US dollar index showing head and shoulders

Alex Commodities, Economy, Forex, Stocks, Technical Analysis 0 comment

The US dollar index is forming an all too familiar pattern.  This is certainly a result of wreckless monetary policy turning deflation in to a potential stagflationary situation. At this point we recommend purchasing commodities (DYY is a good ETF because it is 2x leveraged and well diversified) and other currencies while there are reasonably priced opportunities.  We like the Euro and Yen for this trade.

US dollar index

US dollar index shows head and shoulders pattern

The courageous may consider purchasing commodities stocks as they will likely participate, but the future of the equities market is not necessarily certain as the recession is deepening.  Today’s unemployment claims were higher than the expected 525k at 573k.  That is a very bad sign that the worst is far from over in terms of how many layoffs we can expect.

10Dec

Federal Reserve mulls issuing its own debt

Alex Bonds, Economy, Finance, Forex 0 comment

The US Federal Reserve, a private bank, is mulling issuing its own debt.  There are several problems with this, one of which is that if the debt is backed by nothing, no one will buy it. If it is backed by the full faith and credit of the US Government it needs Congressional approval.  Either way, the fundamental story is clear.  The Federal Reserve has overextended itself and finds its balance sheet loaded with worthless assets that it can not sell.  Karl Denninger has a nice rant about this on his blog that I recommend for your morning reading.