Friday, December 7, 2007

Entry for Dec 7, 2007 (Non-farm Payroll report)

*skip to bottom for estimate.

Consensus seems to point to weaker job growth to come, although due to the ADP report, many forecasters who expected low NFP numbers now have revised their numbers up higher. Currently non-farm payroll is only at 80k which means it will not take much to surprise on the upside. Of 81 economists surveyed by Bloomberg, the most optimistic forecast came from Janney Montgomery Scott LLC, whose estimate was right on for the previous month, with a very optimistic forecast which was closest to the real NFP number. The forecast of Janney Montgomery is currently an addition of 195k jobs added for November, while the average forecast of many banks and various forecasters in headlines are around 100-125k. Looking to a chart of monthly releases of ADP with private sector payrolls and total non-farm payrolls there is a general correlation. Although, ADP tends to be an overly bullish indicator as NFP private sector tends to lag the ADP for the majority the chart from 2002 - 2007. Janney Montgomery's 195k and ADP's 189k additions are not wholly accurate but certainly point to a more bullish NFP report. Adding to increase of jobs can be found from the Christmas hiring season. I can agree with that argument since November would be an appropriate time to get temporary employees for the upcoming Christmas break. It is also possible that the thanksgiving break will add to increase of jobs since many people took a few days off. This possibly created demand for the retail side, demand in regards to preparing for the December holidays (soft, hard, big box, restaurants would all benefit). Though, I would exclude any benefits for jobs from travel considering a weak dollar, and one can confirm this with the performance on airline equities of the past month. Also, NFP report is a lagging indicator of GDP, and for the two quarters showed strong GDP growth. Overall I am more bullish on the expected report.

I expected any negative affects for the job market coming from housing, mortagage markets, or the financial sector to reflect in later reports after the holidays (as the holidays will skew numbers to the upside).

If NFP are reported above 125k there will be a possible significant rally with the dollar. If NFP rolls come out around 110k, there will only be a slight rally in the dollar. In regards to the EUR/USD I feel that the NFD would have to beat the ADP report of 189k in order for the pair to make new highs.

*potential risk can come from revisions in the October number since it can affect this months number.

In terms of Fed's decision. It was never in my opinion that the Feds were going to cut 50 basis points. Firstly, another 50 basis cut would not happen since we are in a more inflationary environment as the dollar has still not fully recovered. Such a large cut would only bring about more inflationary pressures. Adding to inflationary pressures, oil is back up trading in the 90's. In times of crisis such as "sub-prime" and the "credit crisis" the best measure is a series of small cuts, as done in the past with other crisis's. As it is necessary to do small cuts to provide much needed liquidity, as opposed to doing large cuts to try and solve the problem all at once inefficiently (as the previous 50 basis point cut by the feds hasn't changed the economy much).

Considering that i feel ADP has over stated reports, NFD would have to be reported below 189k.

Considering that I am bullish, and that I expect a surprise, I believe the report would have to be above the average consensus of 125k.

I think the NFP report will be more towards the higher end considering Janney Montgomery's performance, stronger holiday hiring, and thanksgiving break.

I expect an addition of 175,000 jobs.

-Alexander Lê

Wednesday, November 28, 2007

I have a theory, only in extremes for higher oil/energy prices will a correlation between oil and gold will matter. In the creation of a new range, as many people are now saying oil is in a new range, in the extremes of new prices or the new beginning, there will be a correlation between oil and gold, the excuse being people are using gold as a hedge to inflation as oil defines its new range and makes higher highs. This may or may not be true, but the fact is, when there is an extreme or a new development of range, the media portrays bullish moves in gold as inflationary hedges in relation to oil. What really matters is that a correlation does exist. As we saw in the summer and a little before gold and oil were loosing its correlation. Gold had already made its highs in the 800's even further back, and any correlation between gold and oil was beginning to be less significant. But now, with oil entering new ranges, a relationship between oil and gold seems to have been revived.
To support this theory, economic conditions would also have to warrant a legitimate correlation. For example, currently the United States as an economic power is experiencing weakness. A weak dollar with a persistent need for Federal Funds rate cuts brings about perceived or apparent inflation. Apparent inflation being inflation that is actually occurring. Either way, if is not apparent or not, it will bring about sentimental fears which would cause a correlation between oil and gold or is what will be driving the prices of these commodities. The relationship being people buying gold as a hedge to whatever kind of inflation is there.
So in summation, in new ranges of oil or energy, you will find a correlation between oil and gold, if supported by economic fundamentals, where price in part, is ultimately driven by sentiment.

Fed Remarks:

Everything the Fed has said is pretty inline with my expectations. As usual the same slightly modified statement was made allowing Feds to remain on the fence to go either on hold or cut, as a protective measure for their reputations. Its kind of ironic how so many managers are always looking for accountability, and ultimately the Feds who are often perceived to be responsible for the performance of the economy, are never clear enough for full consensus on wall street of what the next decision of the Feds. Most interestingly, I believe there to be divergence in the equity index futures markets and the domestic equity markets. Yesterday and today the futures opened with negative fair values, and yesterday saw significant gains, and todays bullish sentiment seems to be showing the same upward price movement. I believe this to indicate that prices will not be able to sustain a break in resistance for a significant time period. Based off past federal funds trends and during times of crisis, more rate cuts will be seen. To support this idea is that the core cpi and ppi are relativity tame. And as i had naturally expected, they mentioned headline inflation stemming from commodity and energy prices during the speech, just to say it did pose "short term" problems, although commodities and energy may be stabilizing, which to me indicates further possible cuts.

"Should the elevated turbulence persist, it would increase the possibility of further tightening in financial conditions for households and businesses," Kohn said in remarks to the Council on Foreign Relations in New York.

From what Kohn said,I feel there is room for further rate cuts, in fact I would not expect 75 basis point cuts (as some people are speculating) as the inflationary problems that would cause lots of volatility, which in part, the Feds job is to keep prices stable.

Looking back to times of crisis, 50 basis points were used as pre-emptive measures when the crisis first began, and then followed by a series of 25 basis point cuts as provided when necessary. As poor financial conditions still linger today, a series of smaller 25 basis points "should" follow as to maintain stability. Though not wholly unexpected to see pre-emptive measures since that is what Bernanke has done in the past, but as the effects of a larger cuts back in sept did not prove entirely useful as markets rallied and pullback to similar conditions previous to the cut.

This further supports my idea that the s&p 500 will remain within a range from now until the end of the year, as further cuts are due.

Tuesday, November 27, 2007

November 27, 2007

Today is going to be a key day. One can say this would be a good gauge of how much housing is priced in the markets already. Already you can have a bearish argument of support from aug 07 is broken with the close at 1407, but its very possible that longer term resistance will hold, at march of 1373. If there is a break through support, I would be bearish for the rest of the year. Though a bounce of support is significant in my opinion. Resistence from 2000 of 1498 has already been broken, and bounce would indicate further consolidation to form stronger support before continuing. Which would mean, a bounce of support would lead the s&p 500 to trade in 1390 and 1560. The question remains, are the fundamentals there to support such a price move. I would think not. In the short term, through November and December, there is too much weakness to warrant such a move. There are too many liquidity issues that the fed's need to address meaning further cuts, which means further weakening of the dollar. Overall though this will be bullish long term, by the end of 1st quarter next year, if labor markets can remain tight, the feds may go hawkish on inflation again, as the economy picks up.

The movements of the dollar are quite natural, as the economy like any other living system is in dynamic equilibrium with its environment, whether it is perceived or not. Some see the bottoming of the dollar to have happened already, Although, i would not be too bullish on the dollar yet. Considering further rate cuts, and the dollar becoming more attractive for carry traders which will lead persistent weakness of the dollar may carry through into the first quarter of next year. Overall, as the economy is balancing itself out, this maybe good for the current account/trade deficit. The dollar will recover when the economy has more sound fundamentals, and is not moving of volatile sentiment.

Wednesday, November 14, 2007


If prices close above 30.4-30.5 i see it possible for further momentum upwards. Overall though the RSI is starting to trend sideways, indicating possible exhaustion from the bulls, although some people are just taking a break from the past two days of gains, if the prices manage to close above 30.5 today, CSCO may find renewed strength and continue up. Though, if prices remain within the first and second standard deviation of the bollinger bands, i would expect periods of conslidation more to the downside before a continued move up.

I would hold CSCO to the end of the day before deciding what to do, considering the bulls are struggling to get a footing. On the intraday, there is possible support at 29.9, but there may not be enough momentum to reach the 30.5 mark.

Entry for November 14, 2007

Bernakes interesting proposal.

This move to transparency is one thing that can eliminate considerable amount of volatility in the markets. In terms of stability and goals of the Fed in terms of monetary policy, this is a move that is strategically smart. Though for the investor who live off periods of volatilty may be dreading this descion. If Bernakes plans are indeed to work how he proposes, the there will be a convergence and direct correlation between markets and economy. Though in whole i do not see this possible in reality, though it may be a step closer if things go according to plan. If so weighin in sentiment maybe less important in future analysis, and possibly closing of avenues for behavioral finance specialist and economist.

Again whispers of more Fed cuts being necessary are being heard, as i presented at the Federal Reserve challenge, more cuts will be necessary to maintain growth, primarily on a liquidty basis, and a need for fundamentals in the financial and housing sector to improve over an exteneded period of time (possible a few years for full recovery but about 1 year for some stability).

As i also mentioned, apprent inflation, the ones that we as consumers are feeling now will show refect in short term slowed growth (into the year end, 4th quarter). Though as i always said the consumer is not as weak as appeared, as retail reports have been coming in positive, and with oil prices soon to decline from seasonality, we should see more strength from retail. Though inflation can primarily be stemming from the weak dollar, from higher import prices, despite a decrease in current account and trade deficiet, which as not found a bottom yet.

I believe due to inflation the feds will not be able to cut as much as they would like,

as stated by Bernake:
''Ultimately, households and businesses care about the overall, or headline, rate of inflation,'' Bernanke said.

the focus on overall inflation is an important factor as it does affect sentiment and short term growth, the consumer is one who feels the current effects of high energy and commodity prices. The Feds reportings are based of lagged information and should always be considered more of indicator of past trends, but necessary current trends.

My expectation of a series of Fed Fund rate cuts may appear as bearish, however, the economy is still strong in my opinion. My main arguement being a tight labor market, is what is helping the drive of consumption. As with housing, and now the financials these are problems that need to fix themselves over the long term, one can expect to see dragging affects through 2008.

If the Feds can clear away most of the bearish sentiment in the markets, i would expect a stronger 4th quarter in the markets overall. My only fear is that people will price in cuts now, and not expect further weakness from the financial sector or housing sector which in turn will create more volatilty in the 4th quarter, which is what we have seen in the 3rd quarter.

Based of Fundamentals, I have a bullish stance and expect better growth in the 4th quarter. My bullish stance only holds if people also price in weakness from housing and the financial sector, and maintain their own stance.

Monday, November 12, 2007

Entry for Nov 12, 2007

It appears mainly from a sentimental standpoint that one has to be a bear in this environment. Though on a whole, it is my subjective interpretation, if the bulls today can main support above 1451, or even close above 1451, of the S&P 500, what we are seeing is a period of consolidation. Based of volume with the bollinger bands, it seems today that the price levels will break below support and search for stability around 1411. Overall I would say price support is necessary at 1400. If prices breach these levels within the week or into next week, I can not see bullish arguments holding up, unless we have surprise news of significant underlying strength of the fundamentals of the economy or we have more news of fed cuts, (which again, will only exacerbate the problem in the mid to longer term, although is necessary based on a liquidity standpoint). The mixed to neutral futures sentiment, will probably reflect a stale day of trading. This is most indicative of sudden volatile price swings, and in this environment, one can expect it more towards the downside.
Overall i feel that a stronger than perceived consumer is ever present only hurt by temporary high commodity and energy prices. As seasonality takes hold, and oil prices start to fall, this will alleviate pressures on the consumer. This will spur on holiday spending. Where will they get this money? One can argue the unwinding of a housing wealth affect, but i feel that a tight labor market since the summer offsets this. The mid to upper middle class have been resilient through this housing slump and has been maintain GDP levels. The current weakness in the technology is only perception. The announcment of the possible slow growth in CSCO was more of prediction and pre-emptive measure, and is not fundamental driven as the valuations of CSCO are still positive. But, does not neglect the fact that yes indeed credit problems will affect everyone, and should not have been a huge surprise in whole. In a sense, it is more postive that this happens, so that a bubble in tech does not form.
Possible inflationary pressures from the further weakening of the dollar, plus short term spikes in high energy and demand of an actual need for commodities will have short term slowed affects which we are feeling right now. At this point for the economy, it is vital to be moving inventory to avoid gluts so inflationary pressures do not come from the producer side. For you fundamentalist, being vigilant on cash flows especially in this tight credit environment is more important than ever...

Wednesday, November 7, 2007

Entry for Nov 7, 2007


Cisco Systems

Market Capitalization $203B

Close: 33:08

Growth Rates:

Current Quarter Growth Estimate: 16.1%
Next Quarter Growth Estimate: 15.2%
This Year Growth Estimate: 17.2%
Next Year Growth Estimate: 16.6%

Peg Ratio: 1.49

Current Year P/E ‘08: 20.89
Forward P/E ’09: 18.00

Bullish Fundamentals:
- Current and next quarter growth moderate to strong with 16.1% and 15.2% respectively, positive in short term due to stronger current quarter growth compared to its industry current quarter growth (13.5%).
- Positive for the longer term, this year’s overall growth at 17.2% is higher than its industry (8.1%), sector (17.0), and S&P 500 (6.1%) for the year.
- In terms of forward P/E cross comparison of competitors CSCO may appear to be under valued with forward P/E of 20.71, while ALU has a forward P/E of 37.87, NT 32.3 and JNPR 41.62
- Forward P/E of CSCO (18) in relation to Industry (24.88) and Sector (24) is relativity undervalued
- In a basic sense CSCO would be overvalued with a PEG of 1.49, but compared with its competitors it is much lower, ALU has a peg of 3.36, NT 4.02, and JNPR 2.02.
- 15% growth in total revenues from 05 to 06 and 18% increase from 06 to 07.
- 31% increase of net income from 06 to 07.
- Steady cash flow
- Softness from US segments can be offset by demand from emerging markets.
- SMB segment continues to be healthy
- SFA segment has shown strong demand with IPTV setup boxes

Neutral Fundamentals:
- Static EPS the past 60 days, showing hesitancy sentimentally (reflecting in technicals)

Bearish Fundamentals-
- Growth may not sustain
- Sustaining high growth and % of total revenues will be harder to attain as technology sector improves on whole, and bargain hunters will be searching for better buys.
- Estimates are easy to miss, with tight income statement, risk increases with stronger fundamentals
- 18% increase in total liabilities contrasting to a 22% increase in liabilities, watch to see that liabilities does not exceed assets.
- Disparity between high and low earnings estimates, 1.48 to 1.65 (hesitancy).

Fundamental conclusion:
Overall CSCO presents average to fair valuations not significantly under valued or highly overvalued. The income statement remains strong, while there maybe questions for future growth as the technology sector improves, and with bargain hunters looking for better buys with less large companies.

Technical Analysis:

- CSCO presents a nice chart over all from 1990, After peaking out at 77 and bottoming around 10 CSCO has been working its way back up to resistance, with new long term support levels at 20-25 (between 2004 and 2006).
- Current sentiment in technology will allow it to reach support levels
- RSI alone indicators higher prices
- 3 white soldiers with increasing volume
- Price support with prices above the 50, 100, and 200 SMA (useful as a measure of non institutional investor decisions).
- 50 SMA is close the median of the prices, every time there is divergence of the price going above CSCO has rallied, early may 2005 prices went above the 50 SMA and trended into late June with (about 16% gain), February 2006 into early late march when prices went above there was about a 22% gain, Early August 2006 into early January 2007 about a 52% gain. Mid June to Early October 2007, when prices went above the 50 SMA, 19% gain (the low that pierces the 50 SMA in mid August can be accounted for by the significant bearish sentiment as indicated by the 3 black crows that preceded it, thus only account for as a whipsaw as the fundamentals warranted the continued overall uptrend).
- Evening star formation over the past 4 days
- Price channel from June 2007 till now is still legitimate if one considers early the price pierce in early august to be a whipsaw.

- Though with strength in technology declining volume may not be able to push through with the slowing momentum.
- RSI is getting closer to top standard deviation (depending on sentiment, CSCO trends sideways to down as RSI approaches the top limit, it is possible the extreme bullishness may push it above further)
- Price piercing of upper standard deviation in Bollinger band (20, 2), significant indication of prices trading in the bands today.

Technical’s point to stronger growth in the longer term. Significant back testing confirms this though along with above average volume ahead of earnings. Though on the short term the RSI and Bollinger band points to short term downside pressures. Once these pressures are overcome, a continued uptrend will hold, as confirmed by the trading channel from June till present.

Sentiment: one can ignore sentiment on buy rating analysis as, there are many buy ratings when CSCO trended downwards.

- This extreme bullishness sets up extreme fragileness giving no room for slight miss on expectations even if positive regardless on earnings report.
- Market Volatility following media driven fundamentals opposed to underlying fundamentals
- Credit liquidity issues, though on a whole technology sectors has been resilient to this. Though interest rate risk is significant with volatility, though if interest rates are on the downside, this can alleviate some debt with refinancing. Though if economic conditions are significant with inflationary pressures, debt can be more straining.
- Using buy/sell sentiment as an indicator, as the majority of the buy sell ratings are all neutral to strong buy with very few sells. All the buy ratings were still in place despite poor the intermittent poor performances.
- Possible overvaluation, recent buybacks artificially inflations P/E, as reflected in a .71 LT debt to equity ratio. Buyback can be seen to give more power to insiders. Possible candidate for window dressing based off recent sentiments.

Overall Fundamentals and technical’s are in agreement. I do not however like the overly bullish tone coming from analyst on this security. The sound fundamentals should be inline with estimates, though some of the fundamentals maybe inflated as indicated in the risk section. This inflation may be indicated by the price piercing of the Bollinger band indication short term volatility more to the downside. Indicating, one should buy on a pullback. Overall fundamentals and technical’s warrant a long term buy. Short term volume has picked up, but not be enough in the short term to continue the upward trend. A temporary dip to the downside would not be surprising and is expected by my opinion. Though if earnings do come out stronger than expected, there is no doubt the upward trend will continue.

Overall: long term buy, suggested to buy on a pullback.

If one owns securities already, writing a covered call of a Nov 17 at .90 is suggested. A straddle is not suggested as earnings are expected to be inline according to sentiment. If earnings do miss a covered call should absorb some of the losses.

Analyst: Alexander Lê

Sunday, November 4, 2007

Hello and welcome to the Federal Reserve meeting Nov 5th 2007.

As of the previous meeting October 31, we, the Federal Reserve System decided on a 25 BP cut, to allow much needed liquidity in the ailing financial markets. Though on a whole, the fundamentals did not warrant this, but was done as a pre-emptive measure.

As noted in Purpose and Functions of the Fed Reserve, or job here today will be to use Monetary Policy in pursuit of maximum employment, stable prices, and moderating long term interest rates for the assurance of the US economy’s health.

Our analyst is of a global perspective, which does not focus on either the micro or macro fundamentals as more important but both as dependent on each other. We’ll further strengthen our fundamental analyst with technicals and sentiment.

The over all structure of the presentation and each individual topic presented will include the following structure:
1. Bullish Aspects of the economy and or topic
2. A contrasting Bearish view
- saying why which side is more important
3. Tying and relating the topics to the current state of the economy
4. How we, the fed’s, should implement monetary policy according to our data.
5. Lastly, we factor in the team sentiment and current sentiment of the media, markets, and economist (as they have significant potential influence on monetary policy indirectly).

Stemming from the summer the lag affect is finally being felt from the series of holds on the Feds Funds rate, as reflected in continued poor performs in retail and recently expected slow growth in high end soft good stores. This is significant in that the mid to upper middle class has been driving consumption a GDP numbers through the housing slump. The wealth affect maybe said to be unwinding; this maybe only temporary with the volatility in the energy markets, as the weather has not fully settled, and seasonality not in trend, and weak financial conditions, which will slow consumption. With volatile food and commodity prices as also reflected in the CPI and PPI, short term inflationary pressures are greater as perceived, and will not allow us further cuts for a speedier recovery. On the positive side this will allow for the necessary restructuring of fundamentals in weak sectors of the economy, instead of poor practices being spurred on by more cuts which are better for long term recovery. As current sentiment shows, a weaker high end consumer maybe slowing down, this is only on the soft good side of retail, as if one were to look at big box there has been significant strength. Technology on a whole has been buoying the markets, instead of buying more clothe or hand bags, people won’t be driving as much but will instead spend it on new gadgets such as the iphone, or plasma TVs etc... Another thing I see is that the consumer on a whole will be resilient even with high energy prices, due to a tight labor market. The Labor markets wages as steady to increasing, which indicates people are still getting their paychecks and will still be spending, which will reflect more positively than expected in the upcoming holiday season. Adding to the inflation picture a weaker dollar may seem like a problem. But this is mitigated by the improved trade deficient. If anything a weaker dollar is more bullish for GDP. As fundamentals will point to the stronger side of the economy, the dollar will find support, and foreign bargain hunters will rally to help stabilize the dollar. Also due the weak dollar tourism will significantly increase consumption, which also negates weaker soft goods in retails and reflects positively in GDP. The fundamentals of the economy are overall strong with current weak volatile problems that will need to sort itself out over a few years. We will see slower growth in the 4th quarter as seen from shifts of spending of the consumer and inflationary pressures with high oil prices affecting gas prices taking its toll on consumer. Slow growth in the short term is also shown with less output from the service sector a major component of output. We can count housing as negligent as many people will be pricing in further defaults and a continued drag in the economy, though with current low interest rates refinancing and bottoming of dollar may start to form the first level of support for a bottom in housing, which may reflect in late 2008.

In my opinion, another 25 BP is necessary as financial markets are still facing lots of pressure and further defaults on mortgages. To not act in the face of this problem is to ignore our job as stated in the Federal Reserve Act, which is the job to manage systemic risk that may arise from the financial markets. My only concern is inflationary pressures from a weaker dollar, with high energy prices, and from producers passing on higher cost to the consumers. Under normal circumstances, a hold would be warranted, but as the US economy is still trying to pull itself out more than 1 crisis, another cut is necessary. Though do not expect more cuts as financials will improve…

Before the vote:
Is there enough room to cuts or are inflationary pressures too prevalent currently?

Is the current condition in the financials more of a media driven problem, or do actual fundamentals warrant this cut?

Does anyone see the bottoming of dollar within the next few quarter and why and why not? How will this affect housing?


Tuesday, October 30, 2007

The Fed's comments say a number of different things. A good question to ask wheather or not the bond markets are in agreement with the fed. Recently it would appear, that the Feds have diverged from the current consensus, and from a historical standpoint, from over summer, the Feds would hold as the markets priced in cuts, which is a clear reflection of action stemming from divergence of sentiments. Though that is not to say that sentiment has lost is footing, there is much uncertainty to the actions of a hold, much which I feel Bernake may not wish to risk his reputation on. The Feds have been testing the markets by adding in reserves and watching how financial have improved, only to the possible dismay of mixed signals. It is in my opinion that the US economy is quite resilient, but as i said sentiment has not totally lost its hold as a 25 BP or 50 BP is not surprising, what goes against a 50 BP cut is the fact that inflation is prevalent. Though obviously the fed has not been so bold to give this much transparency. The current inflation data coming in will keep the Feds decision limited to a 25 BP cut to hold, unless CPI and PPI numbers are truly tame. Which in turn would lead to another 50 BP in a preemptive measure.

In terms of currencies, this would be a great buying opportunity as a bottom forms against the Euro. The currency markets is already pricing in a less cut to hold, will the bond markets follow suit today? most likely which will reflect in the shorter term interest rates...

Monday, October 29, 2007

Entry for October 29, 2007

As the markets are expecting a rate cut markets are rising which worries me in a sentimental analytical view point. Such attitudes sets up a fragile foundation for such bullish moves as nothing confirmed yet.

The dollar vs the euro will continue to weaken ahead of the Fed decision. Depending on a 25 or 50 basis cut the dollar will continue its decline more moderately with a 25 basis point cut vs a 50 which would cause more significant downward pressure.

Interestingly the dollar is strengthening vs the yen. Consensus seems to be from Japanese investors willing to take on more risky investments. Further weakening of the yen will definitely be seen with the cutting of interest rates, though one can argue much of this is already priced in the markets as reflected as the current sentiment in us equity markets.

Friday, October 26, 2007

Entry for October 26, 2007 9:07 am

A bullish day?

I wonder if consensus has just formed as of today, or if was built out through the week, but I had already been expecting 25bp and a not surprising 50pt preemptive fed funds cut. Perhaps all this media just finally converged leading to this bullish tone today. Naturally this greater expectation, has lead to the further weakening of the dollar, with gold on its continued trend upward.

I guess one could say, people are fleeing to the traditional inflation hedge despite the weakening correlation over the years between inflation and gold. Though such ideas are not totally dead as strength in the liquid gold swissie is still prominent.

Supporting this inflationary environment energy has soared above 90, and slowly creeps its way to 100. I wonder if at this point if oil is more of a psychological move on the aggressive bulls playing out the supply numbers. Naturally if it is the case, oil won't reach past 100, though with the bullishness in the markets and with current oil supplies i wouldn't be surprised to see a break in 100 at this rate. Though deep down inside, i won't to believe that even middle to upper middle class consumers would not pay for such high oil prices. Though even if oil does reach past a 100 a slow growth in consumers would only reflect in later quarters with lagged reporting affects.

In terms of the S&P 500, i do not think we will be able to see 3 black crows today considering the sentiment currently in the markets, though if some bad news does come in that would be significant for shorters or bears to gain the upper hand. By looking at yesterdays price range the bearish were barely able to push prices downward any more significantly than the bulls were able to push the prices upward. This evening out may be reflected in a more neutral to bullish day today. Interestingly enough volume spiked higher than the previous day, which would lead me to think of further downward pressures. Once the MACD 0 line is pierce i would start looking for signs of strength along with support levels (look to yesterdays entry), as momentum seems to be slowing down as support levels are being reached. I believe there to be enough weakness to continue on through next week.

Thursday, October 25, 2007

Entry for October 25, 2007 9:55 am

Though the markets may seem hesitant today, it is obvious the Feds feel more bearish as they again added more money into temporary reserves, probably based weaker durable goods reports as reflected in decline in military spending (refer to a couple days ago, i talk about government spending and political repercussions and affects on GDP).

As i had previously talked about volatility in the job markets it interesting was revised up, opposed to down as i thought would happen due to weakness to inflation, but again volatility in part can come from the auto industry and all the UAW problems too.

For other sectors in the economy, credit and sup prime is not affecting them as much as again i would to point out technology as you see this being reflected in M&A activity.

As for industries related to Black and Decker, as earnings were positive, perhaps weakness in housing or construction aspects of real estate are not as weak, though as it is quite possible that much of this growth is more indicative of commercial real estate and growth abroad as Black and Decker is a company that operates globally, and has perspective statements focusing on this.

Apparent weakness in the United States economy can lead to inventory problems for China, as it may be hard to diversify and open new trading opportunities in time as if they do the United States would already be on its way to recovery. Chinas fixed exchange rate will only be hurting themselves in the long run.

By the end of today, I would not be surprised to see another doji formation, bullish or bearish, as conditions are not leading significantly in either direction, perhaps this is a slow move to a more bullish tone that will be set for the coming weeks as long as financials can maintain discipline.

Entry for October 25, 2007

Today is going to be a interestingly mixed day again as technicals are more bearish but I am not feeling the bearish overtone today, again it is probably the hesitancy in the markets. more after class...

Wednesday, October 24, 2007

Entry for October 24, 2007 Gravestone day

We got some interesting technical readings today. As i had predicted the weakness of the markets came through today. But what do we have at the end of the day!? A lovely gravestone encompassed in a Harami. What can this gravestone be possibly saying? I believe we can refer to my comments made in the morning. This is a mixed day between good and bad earnings and not surprising economic reports and fundamentals. The long low tail is an indicator of the bears trying to force their way down, but could not win due to the fact that fundamentals are not bad as apparently perceived as more bulls came to return prices to opening levels. Though on a whole, volume is still indicating down, as volume is not at average levels, and the price being above 20 SMA which traditionally shows a formation of a cup pattern. These negative indicators give more weight to the harami in place which would lead me to say there is more room for falling with support around 1460 or 1470.

All this can be reflected within fundamentals, as credit problems and sup prime are still perceivably a systemic threat, sentiment is mixed, and people are on a wait and watch policy. As economic indicators are reported down, or as revisions come in, there will be 1 or 2 surprises to drive down prices before stronger reports cause a bounce of support levels.

Entry for October 24, 2007 (morning)

Perhaps todays early morning decline in futures, will set the bearish tone necessary for today, which would confirm the weakness seen in the S&P 500. Some big missed earnings of Amazon and and Merill, though on a whole i don't see a significant drop, unless we have significant drop in home sales again, but on a whole fundamentals in housing as i hope, will be priced in the markets already. Interestingly, with oil, perhaps early takers of gains set off a chain reaction as higher highs were explored, leading into this drop. Previously i had expected oil to rise slightly more before this drop, though with current news and sentiment on supplies, things seem to have settled. Interestingly, despite this undecided weather, (at least on the east coast), oil is still in downtrend mode.
Though on over all cpi and ppi i would expect some relieved pressure in terms of inflation if oil can continue, probably the slight increase in the core and over all % was due to food tied to commodities and energy.
Another possible significant factor that may contribute to a drop in the S&P 500, is a focus on "weaker" consumer (as reflected on poor earnings reports on big box, soft goods, side of retail). My argument against that is with sliding oil prices, and nice tight labor markets you will still have the middle middle, to upper middle class consumer driving consumption and spending. Look at technology, just because gas prices WERE high and food prices increasing, it didn't stop them from buying nice expensive gadgets like the iphone, or hard good electronics, as reflected in the strength of the technology sector which has been buoying the industrial side.
Though interestingly i see some conflict with Northrop Grumman and United Technologies, which problem only has to relate with one of the 6 segments dragging in down United Technologies, opposed to it reflecting its sector on whole, as a conglomerate status.

With todays mixed news, it seems bears have taken a slight footing, though to the significance is hard to say since overall fundamentals have not changed, though i would argue apparent perception is what will be driving todays markets.

Tuesday, October 23, 2007

Slight updates, Though surprisingly, domestic equities ended up on an upbeat note, a properly hedged written cover call should have absorbed most of the losses to allow enough time to close out any short positions, or allow it to be maintained while avoiding margin calls. The lowest short term support i can find is at 1400, though it is more likely to bounce off just above 1450, as volume lessens and earing reports will come in stronger than expected. On the whole piercing of common SMA and continued volume trends tied with downward momentum will keep the S&P 500, though those who are more bullish can always do another hedge similar to as before. But doing some small back testing shows that after a significant drop, a few weeks or few days of lower lows usually ensues before a bottom is formed. Adding to that there is more room for this downward momentum.

Interesting today, I would like to mention SGP. I personally feel the Fundamentals of SGP are still the same, though this drop primairly feared on slowed growth on its main sales drug. I would like to note SGP is more diversified in more than one drug, as shown in its 10k. In part i feel is that its the missed earnings tied in with a showing of slowed growth and exponential growth in MRK.

BUT! this prsents a great hedging opportunity for all you investors who have a long position in MRK. I see a good pairs trading opportunity in MRK and SGP.

(congrats on all those who followed the slow growth sales in SGP and made the call on earnings)...

Monday, October 22, 2007

Entry for October 21, 2007

Investors eye chance of another Black Monday-click here
I agree with Paris in the fact that is indeed “a question of market psychology,” I knew from the start that a .50 cut in the Fed’s Fund does not solve any issues but provides temporary relief and adds to more of a superficial bullish sentiment among institutional and non institutional investors. Previous chatter in Wall Street said that a strong drop in domestic equities would have to occur before people started following fundamentals again. Though to the extent in this media driven age this sell off is indeed superficial. But to the extent of who ever buys into it. In other words, in a traditional sense Monday would be a great buying opportunity, but as we proceed media will wait along with investors to further assess weather or not indicators will be more bullish or bearish to be reported and over played. In deed great parts of this sell off is the focus in news, adding to negative sentiment values, priced in the market. I must note though however, due to these factors and many more, that the chance of recession has increased from 50% to 35-40% back to 50% to around 50-55% over the past 3 weeks or so (by my gauge). This extreme volatility can be attribute to the fact that it is indeed media driven. The past week and half or so, I would say fundamentals only significantly changed. This change spurred on primarily by the falsely bolstered lagged affect of a .50% preemptive fed funds rate cut. From the summer of 2007 similar conditions persisted with slight variation as seen in steady rises in domestic equity markets, as to clarify a steady conditions of mixed financial and economic factors, as one must always separate the two since they never are directly correlated. Similar conditions such as a constant drag in housing, which up until recently could have been negligent due to fact that housing drag will persist for a few years 1 – 3 or more, but non negligent now due the significant drop in housing fundamentals such as drop in home sales and housing starts (housing reports go here), in terms of the beginning boom in 90’s to slight prick, of financial conditions going from a over reaction in extreme bearish conditions on the surface of sub prime mortgage problems, to neutral to moderately improved view on sub prime, to uncertainty in that the crisis was not over tied in with the credit problems, and lastly to falsely improving bullish sentiment with the Feds cut,

Another contribution to this slide are emanated from earnings reports, though from my perspective, not totally surprising on a whole, but on the scale of significance more than I had expected. Key bench market such as conglomerates United Technologies cooperation and leading financials, Citi group, JP Morgan chase, Bank of America, all exposed to credit risk and exposure in sub prime. With current oil prices another aspect of industrial sector in the economy weakened due to oil prices, leaves technology left as support as presented in the article. Though I can’t the significance lies in primarily affecting the financial sector and probably hinges more on lower end higher credit risk consumers. United Technologies speaks more of world wide industrial aspect, but only slow growth in a few of its 6 segments.

From an investor standpoint there is no doubt that technology poised to rebound sooner or later, obviously the million-dollar question is when… Following trends within technology there is much compelling evidence for this. For a long time that I can recall from around 2004, the ^soxx which has been a trading range of 200-250, and many other technology stocks have been trading flat, stale or in a range, comparatively the Nasdaq has been a constant laggard of the other indexes. As any technician will tell you, the longer the sideways trend the greater the break out. I would say it is the resilience of technology, but the truth is that technology can only go down if society decided to stop using everything that makes an industrialized nation exist. Especially with future strong growth abroad in emerging markets, technology will be huge. The fact that technology also does not go do is in the fact that there will always be a constant demand for some form of technology, hence the resilience, or the natural underlying fundamentals of it.

Oil and consumer inflation

I would like to point out that the consumer is not as weak as it may appear, though on a whole retail is down, a large part of the consumer in the past months were driven by teenage consumption, one can say trends this year as we transition to winter will cause slower affects, and as though I cannot speak with 100% confidence, stores have not been mass campaigning for this winter though as soon as weather decides to settle on what it wants to do we will see a pick up in soft good retail side. Now point to hard goods and big box, this side of consumption is indeed something that is strong within the economy, look to Costco earnings, best buy earnings, and all electronic stores, also which ties in to technology who has buoying the markets in a sense form all the lack luster performances in industrials.

Though I must stress the significance of inflation risks. Brought on with the weak dollar, now extremely high oil prices, and volatile commodity prices. The bullish aspect to the dollar being that domestic production occurs, growth spurring on inflation, bearish is that exports are more expensive and thus again brings on inflation. Though this affect has not yet been seen and is to be reported soon as, as all economic reports are lagged, as I have proved this consistently with the prediction of revised cpi and ppi, though on large only brought about by the food and energy side, which is more massively significantly now considering the prices of two. On a whole some may argue the only slight revisions with in core cpi and ppi, but again I say this will change as with current economic conditions which will be reflected in later reports, On the oil aspect with now prices hovering around 90 a barrel, this will certainly have an added drag affect on the economy as consumption will again once rely on the mid to upper and middle class to drive consumption, eventually though, there will be a slow growth in the upper consumer too considering I can’t believe that myself or many consumers will be driving with gas prices increase that much. I would like to say that the bulls in energy are going to pushing for the 100 barrel mark more of a psychological factor, as soon as 100$ is approached gains will be taken and oil will eventually re retreat to the lower 90s to mid to high 80s’. (confirm with technicals). Slowing consumption further, though as again, the consumer is not really that in bad shape over all as seen in growth in technology and peoples willingness to buy racey expensive gadgets iphone, tv systems, etc.. (again reflected in big box hard good sales). The slow growth consumption is a temporary affect which is related to the volatile prices in energy and food. This is not to negate the fact that inflation still exists and may be perceived already by the Feds as they are the ones who receive first hand results from their advisory councils across the 12 regional banks.

Interest rate:

This inflation will definitely have a significant shorting opportunities in the bond market, as recent yield moves, it is only natural to see this significant downward pressure on the yields. As everyone in the bond markets are pricing a rate, cut and matches the tradition relationship between inverse moves of the domestic equities and bond market ( A sell off to an increase in bond prices). This is where my scenario of inflation comes in, with prevailing inflation to come in the upcoming months, short positions would be most advantageous, though properly hedge if the core is within expectations, and I would expect expectations to be slightly higher in the core, though and slight deviation of this expectation in the upward moves in % inflation, will spur on a great selling opportunity. Though again this is to say the necessary fundamentals are in place, so if economic conditions do persist, or further worsen in economic conditions, the bond market will experience a significant rally, as the feds continue rate cuts.

People will still love to talk about the inverted yield curve and its traditional meaning of recession, I just say one can toss it out the window. For two straight summers the yield has been inverted with bears chiming recession recession recession time over time again. Now this shows me two results or explanations, one being the resilience of our economy has fended off a recession and will continue to do so while contrasting as a bear would say, it is only a matter of time before we start pricing in recession or it becoming an actuality, since resiliency can hold for only so long. A more bullish viewpoint is that the vigilance of the Feds will fed off the recession, though I would argue that, buy doing cuts it will not solve any fundamental or structural integral problems. Though with enough cuts, it will take a longer time to work out but eventually would prevail under those assumptions.

Policy and trends on cuts: Closely tied to the last statement can be reflected in chairman policy. As Greenspan would show, Greenspan policy has led through the longest expansion in economics history and brought us through, as the trend of 2001 the consist preemptive cuts spurred from 9/11 and .25 cuts for 3 years shows us policy trend in terms of crisis. The question is how is Bernake going to act, on the magnitude of 9/11 is hard to compare the two completely different crisis though related to the fact that they are crisis’s. Bernake has already showed a preemptive stance as he surprised the bond markets September 18th with a .5 cut opposed the commonly priced in .25 cut. Though the scales of the two crisis are different, it would not be surprising to see another .5 cute when people again are leaning towards a .5 cut, if one were to graphically represent this trend, currently I would say we are on a downtrend, and significant downward momentum persist.

Again confirmation exist within the bond market, on the last Fed decision, the bond market and Feds finally were in accord. Through out the summer and number holds, there was significant divergence, of the sound fundamentals and the bonds wanting to cut rates, now that there is convergence, a confirmation in the bond market is legitimized, and considering the significance in this recently rate with only a few days of using the benchmark 10 year note, you have around 5.05 in mid July 19th, with a move to 4.40 now, the fluctuations are more significantly scene from 4.68 of September 21, to 4.40 now. All these are indication of another price cut with more harmony existing between the feds and bond markets.

Political Paulson: On a political perspective, recently Paulson has been portrayed as weaker and lacking in leadership, due to the recent credit and sup prime problems, and weaker dollar with softer economy, because of this is said to be affecting his power to negotiate on equal terms economic policy. As this is been lead on by media, which has forced Paulson to save face. Which lead to his comment on a problem that has been persistent and blatantly obvious, which he commented on how housing will continue to be a drag. This is not to negate the fact that housing indeed has been weakening, but was an already obvious fact that had been reported in lower home sales and starts, which was reflected in domestic equity markets, which goes to prove this is much of a psychological factor also.
This only relates to the fact that 1. Housing is obviously more of a negative aspect as stated by secretary Paulson, and that this puts significant pressure on Bernake since the health in the economy is tied to his reputation also, with political pressure and the job of the feds to prevent appeared or apparent systemic break down if you will, which leads more towards a cut stance.

Proof in the fact that Paulson is losing negotiation power can been seen in the weakness of the dollar. Slowly one of Japanese oil companies has an agreement with Saudi Arabia OPEC to trade yen on the spot market opposed to the usually vehicle currency the dollar. This move for diversification in assets has been seen through the 2000’s with the rise to the European Union, which obviously will bode more negatively for them.

All this can also be reflected in the trade balance, in terms of the United States the trade deficient has benefited from the weaker dollar, as seen a decrease in deficit spending while may in the future decrease the usual European Union surplus

In terms of currency and interest rates, growth:

1. Benefit of this weaker dollar, this boost consumer demand from abroad, while maintaining strong domestic consumption, which can sales of us cooperation in the midterm or upcoming months, by means of more jobs and more spending. Also tied into increase production and manufacturing.
2. Foreign Investment can benefit in many ways. Foreigner investors have been significant buyers in the real estate market for the past few years. As shown by the NAR, nation Association of Realtors, about 1 and 5 Americans sold a second home to by the end of April 2007 to a foreign buyer. 1/3 from Europe, ¼ from Asia, and 16% from Latin America. As prices of housing and the US dollar converge. And how can this relate, one can argue soundly, that this is the support the housing market will be looking for to bounce off a bottom. Another support can be that foreign investors, primarily equities, are constantly seeking undervalued companies out. Both of these factors, I must highly stress, are dependent on the stabilization of the weak dollar (show technicals here). Though as not yet to occur yet with its continued downtrend. Another factor that is bullish for a weak dollar is that, a weaker us dollar makes more companies more attractive as buyout targets, many countries will excessive wealth (Dubai) looking for a solid investment. (Great buy opportunities with the current weakness).

Bloomberg article-click here
3. This weak dollar also bodes well for employment and adding to the tightness in the labor market. This is possibly by means or tourism as a it is an industry that supports 5.4 million workers, and generates over $550 billion in annual revenue. Canadians by far are the largest group of tourist in the United States, Now the the Canadian dollar is trading at parity with the Dollar, we can expect a greater increase in travelers. There has been a 15% savings increase between cost of hotel cost between Canada and the United States, and Europe will experience a 5%-10% savings in travel cost. Tourism always a plus for economy.

On the other side-

1. The obviously and immediate affect of a weaker dollar is the higher cost of imports. Canada being one of the largest countries the US imports in can be seen as inflationary (this in with politics) and healthcare higher taxes on middle class hurt consumer). Because of this strength in the dollar Canadian drugs may not be as much as a bargain as they used to be. This is also true of high-end European items. Luxury goods, handbags etc…
2. Weaker currency will lead to tighter monetary policy. As oil prices are sky rocketing around 90 a barrel, Feds will only naturally have to aggressively cut the funds rates. Again you can relate these to other crisis such as the Asian and Russian currency crisis of 1997 and 1998. The fact that these weak fundamentals in the economy warrant a cut, inflation may keep the Feds at bay if it rears its ugly head. This inflation may prevent the necessary cuts to buoy the economy.
3. From a consumer level, though the possibility it cutting into business not as much, makes foreign travel more expensive. For example, in foreign countries like Europe and Australia. Since the beginning of the year, the Australian dollar has appreciated over 10% against the us dollar, primarily due to currency fluctuations this increase has occurred. The same case is true with Europe on a smaller percentage basis.

In relation to these last 3 points, there is still some leeway and room for continued Fed cuts, as inflation will be reported as lagged.

Carry trade:
Adding the carry trade aspect to this you get an even more interesting picture. Many Yen traders came to buoy the US dollar around October 8, you can see the 10 year note around 4.63, the dollar was searching for a bottom, but brown below support continuing its downward momentum with the slew of weaker economic data. This will only cause other countries such as Australia, New Zealand, and Japan (though BOJ has key rates on hold of .05) has continued support of higher interest rates. Favorites of Carry trade are probably more focused in Australia and New Zealand as the disparity interest rates are greatest, and probably Europe next as economic growth is looking more safe as we experience this flight to quality.

Labor markets:

I would have to argue that the Labor market is a bullish aspect still in the economy and is in part a large driver in consumption. And is a large reason why GDP has not dipped below the 2% level. Unemployment as perceived to lower in the month of July revised up as bullish. Though on a whole, due to weakness in the financial sector and tightness in the energy sector, it is possible to see weaker than expected employment reports. In general the labor markets have been stable due to the prevention of the spread of systemic break down. With the Vigilance of the Feds, I see it to continue as so, with slight revisions more to the downside, though obviously more positive repots will good trading opportunities if one can see a future disparity.

GDP trend: Recent GDP trends are been relatively static with slightly lower revisions down ward for two straight quarters. It is in my opinion that a continued downtrend is possible though barely significant as housing conditions are slightly worsened, and tighter credit still remains a large problem. Over 1 to 2 years I before for significant strength due to fundamentals am seen.

Government spending and war political consequence: Tied in with GDP growth, though I don’t have exact percentage, but Government spending due to the War efforts is very significant (defense stocks). With the continued war efforts may have been another contributing to buoying of the GDP just above 2%. It is very possible now with a more liberal bias existing in politics that Government spending will significantly decrease in that area, and will reflect in a weaker GDP. Though that’s not to say it will be direct correlation considering depending on whatever candidate wins for Presidency can use the money in a way to benefit the economy, which obviously is dependent now on the democratic primaries in my opinion and their platforms.

Liquidity relief: no the Wednesday of reserve requirements: Recently, the Feds has been adding in over night reserves (Open market operations, buying of us treasuries). This is significant in my position as it is the Feds are testing market conditions. As the domestic equities show, despite this all indices still reflected negatively. This can be seen as a measure and test as to much the next Fed Cut will need to be. Despite more liquidity perceived problems or actual problems still exist and need to be addressed.

For buyers in Domestic equities: Tomorrow does not appear to be a buy day, as technicals indicate increased downward momentum over the next 3-4 week weeks as back tested. Though considering the difference in scenarios 2 weeks is more possible. Tomorrow will be on a watch and wait policy for everyone and will be proceeding with caution. Obviously in this market your non-cyclical stocks are always what is commonly expected to be strong. A continued short position is suggested with a hedge on with written calls on S&P 500 futures.

In terms with interest rate derivatives; as 110.5 to 111 is approached, I suggest thinking about setting up short positions as I don’t think the economy will significantly tank further. Again another written call would work as a hedge. Or go long in the short term interest rate derivatives, if holding for short positions in accord with your short positions in longer interest rate derivatives.

Oil: though oil is seems like it is retreating I believe there is still some upside momentum, as volume slows down long positions should be taken earlier as higher marks are made to play it safe.

Currencies the dollar: Traders should be looking for improved fundamentals in US domestic equities, and looking to follow where foreign capital is moving too, carefully watching interest rates of other countries to keep up with carry traders. Significant buying opportunity exists as dollar approaches a bottom. Though I would wait a by the end of this week to reassess, it is possible that it will continue to drag lower through into next week, as indicated by volume.

For the Feds Decision: I can see a .25 cut with no surprise with another preemptive .50% cut with a series of smaller cuts to come, as inflation will not allow all the necessary cuts to fix the internal structural and integral parts of the financials that need to be worked out themselves. I would say it is necessary to let them feel the effects of their mistakes but global capitals markets cannot sustain such extended periods of illiquid markets, as there for necessary for the feds to keep providing relief through adding reserves, and cutting rates to provide more liquidity as the problem sorts itself out over a longer term.

Bullish Aspects to economy: Durable good strong, Consumer is not as dead as appears, growth and demand from abroad, technology, and other strong earnings reports will be solid, and weak dollar.

Bearish Aspects: Housing situated has slightly worsened but not that significant, as the wealth affect may take a slight hit but not significant to kill GDP. GDP growth is in decline, Inflation is prevalent, credit problems, illiquid markets, industrials are weaker along with financials, weak dollar possible, political pressures, job of Fed to maintain system risk.

I say the fundamentals overall have changed to the downside, but the cut will be more of a political pressured and media driven move; though also necessary to help the financials, and housing. Though already with the low interest rates housing may improve from spurred refinancing, as interest rates are significantly lower from the past 2 months.

Monday, October 8, 2007

Entry for Oct 08, 2007

The newly found Japanese Prime Minister, has clearly set the tone as towards his policies. I have recently learned from my business pen pal's in Japan, Former Former Prime Minister Koizumi was one of the most Pro American Factions, which Former President Abe was once under. The relevency lies in that PM Fukuda has reinstated much of Abe's former cabinet, this coupled with his strong stance on the refueling of warships all screams pro american to me.

Obviously the natural consquence of his actions can be traced back in part to economic reasons. The last time i checked approximately 1/4 of Japanese exports are to America, hence why the reason in the past why the Japanese have sold yen in the secondary markets to enable this relationship. Though most interestingly, the yen has been able to float and has strengthend quite considerably. As to the effects can be seen a stronger shift of carry trade to other other currencies away from the yen/us to the AUS dollar or New Zealand Dollar whose interest rates are still quite siginficant. With the BOJ interest rates of .05% vs the AUS or NZ interest rates of 6-7% + any strengthening should not shake carry traders as the interest gained is still quite significant more so over than the US dollars interest gains.

Though as the dollar is poised in better footing perhaps a shift will be seen back to investors bring carry trade to the U.S. if interest rates are on hold, and economic growth can show more strength. This would be most benifical for the Japanese economy since the stronger yen will dampen their own growth since exports will drop, any drop is siginficant considering how much the country relies on exports considering the resources, size and population (increasing growing old) population. Though despite the yen being stronger this will be a lagged affect shown in the economy since as i stated the dollar is strengthening, which most likely will lead to the weakening of the yen, which only reflect in a later quarter...

Fukuda also, is very bold and ambitious in his statements. He plans to some how attain an economic surplus with the current conditions. I find this hard to believe considering prevailing inflation felt among the japanese people which leads to bad news for the Bond Markets, and I don't see how else Fukuda will try to gain capitial if no one wants to take up debt... Further more the stronger currency will certainly not help grow the GDP making Japan a less attractive place for foreign investors, Whatever his solution maybe, will certainly amazing he can achieve what he says.

(Espcially when he loves giving away free resources such as oil/gasoline by the tons to other countries...)

As for the US domestic equity markets, the strong bullish upmove from last week resulted in more gains takers than I had expected, this probably has to more with a pyschological factor ahead of earnings with mroe investors erring on the side of caution (better be safe than sorry). As i had expected the revisions of the Job markets really leaves the fundamentals not that significantly different from summer...

On the chart for S&P 500:
back testing shows shows, in my opinion at least 5-6 months of bullishness. The 20 SMA seems to do the job on the back test. Around july through september for the past 3 years the 20 SMA traded within the price before breaking under for upward support. Strong support of the 50 and 200 SMA also ensue, in bullish order of 20 on top of 50 which is on top 200. The RSI shows it got room of around 10 before considered oversold. what only worries me is that each year the downward movements became more significant with each year. It is possible that the bullishness may not last the full 5-6 months and may take a downward turn earlier. Primarily in the short term I am bullish, volume still is letting up in a traditional pattern which alludes to higher highs.

Complentary techinicals and fundamentals, what remans the sentiment...

Bond Market is now not as certain on anothe Fed cut considering the strength of the Job Market, but the bond markets sentiment is as fickle as ever. More importantly the consumer...

With lagged affects perhaps the consumer may feel in part what the finanicals have been experience the past months... Which naturally leads to this slow down in consumption. But i think this move has already happend or is occuring, and the consumer is bound to spring back, considering my inflationary scenario i presented prior...

*back thoughts
As I have been going through IBD, I just can't shake the nagging reoccuring feeling that the tech sector will start catching up with the other indices as the past year as I have followed it has always been some what laggard to the other indexes.

Friday, October 5, 2007

Entry for October 5, 2007

Ahead of Jobs reports and consumer credit report, we have media beating a bullish sentiment. Though questionably to the effect it will have on the economy is still in question. Ahead of the opening of domestic markets people are pricing in a bullish open, though i would be surprised a strong open to fade. Any positive news is always good for wall street but not overly positive as to have the Fed's breathing down everyones neck.

Upon speaking to many recent graduates and my own sister, the labor markets are very unreceptive to theses new graduates despite all their prestige and ivy league diplomas. Many are forced into jobs that are unwanted or jobs that significantly pay less than desired. As though I can only speak from an east coast perspective, it is no doubt it is reflective of the current business cycle. Though this may be more bullish news for my own graduating class, by then hopefully the business cycle will be more receptive for our group, and mostly likely will be in a few years given that in that time span all the current sup prime and credit problems and housing should smooth out by then.

The US dollar finally seems to get a footing, though is stalling before the open. Taking off from my forex trading platform at 1.41 28. Strengthening against vs the majority of major currencies. Given positive economic conditions the dollar is poised only to strengthen further, though I get more of the feeling of a stale jobs report. Numbers may not be as expected but won't disappoint by a large margin. Obviously any significant negative number will definitely give more weight for Fed's to cut rates more, and will be reflected in the interest rates.

Given a strong enough number in the job reports, the S&P 500 which is scratching resistance may break through today depending on how much momentum can be sustained through the day.

Tuesday, October 2, 2007

Oct 1, 2007 cont...

Following my prediction on a higher inflation by next quarter showing up this would definitely lead to a significantly weaker dollar, looking on the dollar index charts, there is significant downward momentum, i don't think the dollar has been this low for many years. The only way this weak dollar, would not weaken further if the interest rates were raised... there is no way the Fed is going to do that with current economic conditions. If anything this is better for long term recovery, domestic production should spur, and we should be exporting more, which should help the balance of payments deficit. This current weakening in the exchange rates for the US all reflects this.

Entry For October 1, 2007

Though as i do not like to beat my chest, but i believe my technical analysis was pretty decent. Despite hesitating fundamentals the equity markets rallied quite significantly. The Dow broke through 14,000, I believe the only significance only being in that people were psychologically ready this time to follow through instead of immediately dragging down the index by taking mass gains. I believe the Dow will add to the bullish tone in the markets fueling a break through resistance in the s&p 500. Volume and momentum don't warrant this enough alone to break through. But, people jumping on the bull train will be able to accomplish this. I'm sure there will be some people who are going to take gains on the break or on resistance, when this occurs I only see steady growth, as once the break occurs it sets up a nice support line at around 1555. With the current volume, it is about the same as the previous day and not a significant or abnormal spike though as volume will dwindle steady increases in price will occur. Looking on the 2 year chart this is a similar dip that occurs where the 50 SMA crosses under both for about 3 months and thing finally crosses back on top followed by a nice rally for about a year (one can consider march 2007 to be a whipsaw in the broader prospective).

One thing i would like to mention about the economy and bond markets tonight...
I feel that this cut will spur inflation that may not be huge but it will be unexpected. All the recent information has been lagged and will in turn lead to what my belief to be increases in the CPI and PPI. Though i mentioned before there will be a retreat on the yield of interest rates, if my prediction is correct, a sellout will occur and yields may go back up...

To confirm this on the technical side:
Longer term rates (5, 10, and 30) say that there is still upside momentum for about 2-3 months in my opinion. That is when resistance will tend to kick in. Shorter term rates may react sooner... So by the next quarter or so, inflationary pressures may increase by the next quarter or possibly sooner. ..

Thursday, September 27, 2007

sept 27 night continued...

Upon looking at the economic calendar, soft data or less than expected estimates may agree with my analysis, though will a more than positive GDP and strength remaining in Jobless claims, and if home sales can remain somewhat in the range it has been, the stock markets will react strongly in a bullish manner. Though with the current trend as seen in the past i feel things can only be near the same conditions ( as slightly better conditions) or a continued lagged weakened effect of economic data. What i mean by this is that things are indeed improving but the data coming is not current and may reflect poorer conditions in the past. Regardless the markets will react to this news. Though i would hope by now all the professionals have at least priced in some bad news...

Wednesday, September 26, 2007

Entry for September 27 (night)

The S&P 500 will dip slightly and continue upward. The dip extending to the lower trading channel around 1500 and may whipsaw to around 1490, and continue upward. Volume and momentum confirm this. Actually upon further analysis the MACD and RSI actually point to a failing in momentum. It appears as if resistance will win over leading to no break through. This will probably mean, a whipsaw will really be leading to a downward movement to support of the closest being 1500. Also to confirm this is the crossover of 100 SMA over the 50 SMA. This is only a legitimate indicator because it is standard with most packages and many investors just use it as a gauge to see what the non institutional investors are making their decisions of. Stripping away all the indicators though, sticking with simplicity with what usually works for some, the upward stepping pattern is bullish, only thing to worry about is if their is enough momentum to break resistance and continue with out all the people taking gains. Based off this simple analysis, i think that's what has happened in the pas, every time the S&P500 approached new resistance levels the peak was reached and the a slip dip occurred due to profit takers but people jumped right on the bull train. So despite all the indicators leading to a more bearish tone, i can't but help feel my gut says other wise. The US domestic equities are still seen as a viable financial capital investment, supporting this idea is the interest rates, today the interest rates yields continued to go up slightly, but i feel this move will soon come to a pause and reverse slightly. Though i need more time to research this matter.

Tuesday, September 25, 2007

Lennars, Lowes, housing, retail... all down. All in line with my expectations. All these all contribute to the downward movements in Housing and eventually bottoms will form sideways trending support opposed to a bounce off support. All this also may point into less inflation from a weaker economy. One argument to a temporary slow down in the economy can be that the higher end consumers are about 30%+ of the consumer make up a considerable amount of GDP drive. Tied close is their net worth and partly in the Stock Markets. This will have short term adverse affects in consumer spending, since the stock markets may continue a downward trend we may see a slow in economic growth, though this will all be lagging in the Economic data coming in. In other words when these reports come in as they do, conditions may be better than they appear, which presents a buying opportunity.

Oil prices starting on a retreat will also definitely contribute to future growth. This may allow lower end consumers to be able to spend house hold income else where.

Looking at interest rates on the 10 year note, support can be found around 108, there appears to be convergence which would lead me to believe a bounce of support thus current yields will start retreating once a slight increase is experienced. As the same can be said for the 5 year note with support at 106, 2 year note at 103. This predicted move in the bond markets can mean short term fears of economic growth and fear of further credit problems, and downward movements in the equity indexes.
Quick scan of s&p 500 chart:

Taking the S&P 500 on the max chart, the general chart is saying up trend. Though we are once again hitting resistance of 1550-1555. Starting at after 2001, during the crash, there seems to be a upward trend from august until the new year, where it which then experiences a downtrend. This trend continues to reoccur till present day. Though each year it is less and less prevalent and after January now makes more of a sideways trend. already we are seeing this trend, from June through July with the credit and sub prime problems dropped and hit support level of 1370 in August. Already an upward move is in place, i believe there to be enough momentum to carry this through to the new year.

In general there are enough fundamentals of the economy to reflect this move bullish idea, though it is very likely the markets will be moving out of sync with the true fundamentals.
I'm sure this upcoming month one can price in that auto sales will not be as reflective as they used to with the GM UAW strikes. Though an increase in market share of Japanese cars such as Toyota will be interesting to watch. As far as attributing to signs of economic growth one can discount it. As usual housing will be a slump, though if the Feds can produce another rate cut, I'm sure it would help housing to an extent. People should be able to take this advantage and refinance their mortgages with lower interest rates. It is already quite possible the bond markets will be factoring in another cut. As shown before, it may take more than simple fed cuts to fix this problem. If the Fed's keep cutting they may make a weak foundation that may present a great shorting opportunity later if this is correct. Though if perhaps if the mortgage discipline can sort this mess out properly right now can be a great buying opportunity as long as one has knowledge of what he she is investing in.

Though the mixed sentiment on the markets maybe shifting to more toward a bearish view which may spread more and more if credit problems keep surfacing. If anything sentiment could kill the model i presented earlier. I am sure retail reports shall point to a weak consumer, this maybe the certainly the case for now, but by next year the lag effect of the recent cuts should be able to buoy the economy. In short term the economy maybe very stale but in general i feel there will be stronger growth to come. Global growth will help keep the US chugging along 2% or a little more.

Short term bear in other words.

Friday, September 21, 2007

Thursday, September 20, 2007

Jobless Claims:

Interesting news today on the labor market. It appears that the loosening of the job markets may have been a fluke in the previous month. I think this report can only be substantiated with more labor economic reports. If as Bernake claims there are to be more turmoils in the market and if there is a consensus on wall street that supprime and credit problems are not over, people should expect the job market to continue to remain not as strong. I wouldn't be surprised to find a rise in unemployment. Though I don't expect significant changes in the labor market. Today the Dollar continued to further plummet against the euro, i can only expect that this weak dollar will be benifcial for the economy. I would expect to see an increase of manufacturing, and following a labor market that won't signficantly fluctuate. As i expect housing and the credit problem will take a while to sort itself out. This will leave a lingering taste of uncertainity in the mouth world investors, spectulators and traders. Because of this the dollar shuold not expect some extreme rally. Though if housing does in improve or a solid bottom is forseen, one can expect the dollar to return to an upward trend. But, all this rambling has its point, that if all these conditions are as stated, the logic shuld follow though i can be very wrong and this analysis may seem very simplifed and amateuristic...

supprime, credit problems and media should maintaing a --> Weak dollar --> good for exports ---> more manufacturing --> job opportunity --> nice tight labor market --> happy people (pending inflation) ---> consumer that will drive this economy at a decent pace...

though obviously housing will still be taking a decent chunk out of the GPD. I mean this is not even factoring in inflation and the other 459864905689 things that can happen.

The Lead Economic Indicator:

Contrasting today's good news on the Job situation was the downward movement of the Lead Economic Indicator. It is no wonder the domestic equity indexes experience a mixed to down day. I really need to look further into this economic indicator, I mean if the bond market can ignore and my beloved media glorify it... how legitimate is this. I mean its not like this any new news. It no surprise that the economy is not bustling, Though the move in equity trading is more relevant to this, so i guess one can attribute it in part to the downward moves seen today. But, it is not like this should be new news overall on the economy. I could have told you that the economy poised to not do as well as the we all hope...

it is as almost as if people these days relay on these indicators as the Word of God without doing any legitimate research themselves...

I feel this indicator is not an indication of a reversal/turning point or a pending recession (though recession is still very possible despite whatever the has done)... isn't this a lagging indicator anyway?
Bear Stearns - 61% down ;)
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Goldman Sachs up 79% 0_O

As i was trying to explain to those bear representatives, some funds obviously were better at managing their exposure and hedging properly, as Lehman and Goldman Sachs also have exposure in mortgage markets, though not as much, yet still manage to surprise analyst estimates.

Though on a whole, i didn't expect that much of a significant rise out of Goldman Sachs, then again comparing market caps and diversification of Gold vs Bears it does make sense in hindsight. Considering the more volatile moves in bond markets I can see how Bears Sterns fixed income investments could have taken greater losses since fixed income securities make up a significant portion of Bear Stearns bottom line ( as i was informed by representative). Though as mentioned, Bear Sterns certainly believes they are not doing horrible as shown in the move for significant buyback. Whether to inflate the P/E ratio, or whether they truly believe in future gains, time will show us the true face of Bear Stearns. I am sure a fund with their reputation will avoid the same mistakes of the past.

As these results come in, it still shows turmoil in the mortgage and credit markets despite the Fed's willingness to step in to " save the day. " .....

Bearing bearish bear stearns

Yesterday at the career fair, i spoke with some representatives from Bear Stearns, though they were only looking for career positions, i feel i was able to gain valuable insight upon the inner workings and environment of the firm.

I am quite surprised such a "prestigious" company would send desk controllers who have been working there for years that were quite unable to defend their company fundamentally or in an decent manner to convey confidence for todays earnings report. I mentioned that they have been headlined quite a bit in the past, and automatically in natural human behavior these controllers automatically i assumed i was attacking them and they reverted into some subprimal mode, and defended their great honor with the toddler defense. "Well we are not the only ones who have problems, everyone else is too..." i soon expected to see tongues flying in my direction. I am not to sure if thats how you respond to a major debt holder or share holder question who needs answers to see if they have made the right choice in the end. They further went to tell me that "we are known as a conservative firm, and we decided to risk more and we payed the price..." another explanation along those lines. What i heard was, we are a firm lacking in discipline and blindly dove into a risky investments just because all the major investment banks were also doing it, and we lacked the foresight to properly hedge our assets, well because... we simply didn't know..." After that they discussed how one of their "senior VP's came down to talk with EVERYONE personally, to reassure everyone that everything was going to be fine for the upcoming earnings report." This can be scene as a double edge sword, this can show that management actually has a grip on things and knows how to control their employees psychology, to inspire this sense of security (wheather fake or not, just look at the Enron environment) . Further noted by the desk controllers is that the executive did not simply send out a memo or a email saying all was fine but personally told everyone in person. Honestly doesn't that sound alarming? If an executive comes to talk to you personally, take time out of his massively busy schedule, you know there a serious problem, whether the problem be the stop or rampart fear from spreading, or to guise the truth as they try to sort it out.

Though Honestly all in all, Bear Stearn has had its days, and is a solid firm over all, Perhaps it has learned from its past mistakes, and will build a stronger foundation now. I asked about how the desk controllers felt about the environment, whether it was relaxed or more stressful and tight. They strongly emphasized to me that it was a more laxed and relaxed work environment... that may seem kind of troublesome, but considering the area of work they were in, im sure it is what prompted that answer.

Based on a purely information, sentiment, aspect looking at no technicals or fundamentals, i expect earnings for Bear Stearns naturally to be affected by the current credit and mortgage conditions, and post lower than expected earnings. To the degree that this significance, i feel it does not weigh to heavily on the overall future performance of the fund as long as they can stick to a discipline that works, and not loose way as before.

Wednesday, September 19, 2007

Entry for September 19

Today's domestic equity's are rallying off the news of the Federal Reserve. As a spring board you have worldwide equity markets reacting in the same manner. It is my fear that these substantial moves are not related to the fundamentals. It is just assumed that a fed cut will automatically fix the problems by providing more liquidity to the money supply.
After talking to a interesting consulting firm at the career fair today, it is in his opinion that there are many fund still lacking in discipline and knowledge of their own investments that are still to come in the red. In my past entries i have trying my best to paint a contrarian bullish scenario, but with the recently upward bounds in the domestic equity indexes, and as they approach old resistance levels it is my belief that key economic events will truely determine or not we are able to break these resistance levels. As these levels are approaching, it would wise to start looking for signs of weakness.

PPI and CPI.

The PPI and CPI were in general down on a whole, though looking at core rates slightly up. It is my belief these are only lagging indicators, and in the coming months with all this excess liquidity, inflation will be more prevalent.


Once again oils still have upward momentum, and continued today to press higher currently reaching aroud $82 a barrel and around 81.97 currently. Continued tight supplies of oil and fears of storms are ever prevalent 10 of the past 11 weeks oils have slumped to six month lows as cited by Angela Macdonald-Smith and Christian Schmollinger.

Similar conditions exist within natural gas, people are worried about there being enough supplies for the upcoming winter.

Once again the $100 dollar per barrel is being harped on again, which is no surprise. The effects of such an environment in my opinion would be to extreme and would not last long if ever to occur. Such repercussion could only have a negative affect on the economy strongly biting into the consumer (consumers would simply stop paying gas, and find other means of heating etc if prices were to reach that high)

If you are such one person who strongly believes in oil reaching $100 per barrel, you can only be a bear.

I am still taking the stance the Oil is indeed inflationary, though to what extent and at what time is all dependent on the zeightgheist of the time. One can argue with higher gas prices lower middle class and poorer classes will downgrade their means of living, and middle class americans will just save less and spend less on other items, either way its a negative impact on the economy.

It would be most important to maintain sentiment and volume and how much momentum remains in this move. It is possible that further momentum will lead to higher prices with a slight retracement and head back up to higher prices, but i feel seasonality will not let prices reach ridiculous levels. Unless pending, we have a huge supply crisis, or massive storms that will be wiping out supplies.


Considering the Bond markets, the majority of people had already priced in .25 rate cuts, so with this move its gives more free fall or cushion for mortgages to fall. My fear is that this significant drop will affect all the people who need lower rates to make these payments. Essentially we are only extending the problem, instead of fixing it. With these lower rates, banks will only continue this malicious practice. I'm sure now many prime lenders are finally loosing up, or at least the very tips are starting to thaw.

Expectations of the consumer to be confident from this rate cuts will not be fore awhile i feel. As with any cut, there is the lag affect with the consumer. I mean obviously i feel that the feds might over do it and cut more based on lagged information and indicators. Previously what happened is that there was not enough liquidity for these banks to make these loans, and people were not paying them aka defaulting etc... with this new wave of liquidity, we are back to where we started. As i have said before, long term bubbles can only mean long term solutions. The housing market will be stale for some years. Housing reports should be no surprise for people at this point, though im sure it will always will be. It is not as if we live in the time of Manifest Destiny with massive amounts of land to claim. Many internal problems in housing and bond markets need to be worked out, many investors have lost confidence in these secondary markets and that takes time to repair...

So all in all, if all other areas can perform well, we will see average growth in general.


This recent move With the Fed pushed the US to near all time lows vs the euro. Most interestingly this move may lead for some countries to abandon tying their own currencies to the US dollar, for example saudi arabia did not lower interest rates in synch with the US. News from the middle east might suggest that the dollar maybe sold due to inflationary risk. Im sure this move in the Fed further prompted carry trade. I'm sure the Yen and Australian dollar are benefiting from this. In terms of the dollar and euro, further downward moves maybe limited to the fact that investors will buy us currency to protect options if they should weaken further against triggers 1.40's. I can confirm this by looking on the currency charts, resistance seems to be form and volume slowing down. Right now the Australian dollar will should remain healthy vs the yen. Currently the US dollar presents a good deal of risk, but many people may be willing to take that risk as the dollar is poised to strengthen. The current weak dollar may lead to an outflow of goods and capital to other countries, which can be seen positive for GDP growth eventually...

The roommate is complaining, off to bed...

Tuesday, September 18, 2007

We sure like stomping on our own currency...

Entry for September 18, 2007 follow up

A person learns from his mistakes, and admitting defeat is only partly the path to greatness. Well it would seem the PPI experienced a 1.5% drop, which should admit tingly lead to a rate cut. But then again, sub prime, and credit problems don't seem as bad either. Take a look at Lehman earnings, surprisingly they did not do as bad as analyst estimates expected. Why? Simple, compare Lehman to Funds like Bear Stearns and Goldman whose funds have been infamously headlining. Sub Prime has not been as a significant problem for Lehman funds who deal with MBS. As i said before, with proper hedging and proper discipline the "subprime" and "credit crisis" is not a big a deal as everything thinks. Considering the amount of people involved with poor discipline though, adding furthermore average joe listening to every spoon fed word of the media, only sustains the problem, instead of resolving to action that would fix the problem, and as American culture is, we always want to depend on someone else to fix our problems, and blame everybody else.
This is why, in my opinion, the feds should not cut rates. By cutting rates it fixes no fundamental issues, but may only help persist already existing problems. One may argue that more liquidity is necessary to fix this problem, but by using a quick fix, many steps of the healing process may be over looked.
Also, the fact is that since Inflationary pressures are not as great as perceived, which i find so perplexing, since i see the prices of many of items I purchase are regularly increasing... I feel this decrease in the PPI is artificial. It is also quite possible that this drop maybe to attributed to the volatile food and energy part of the PPI. Though this idea of a drop being artificial due to the volatility of food and energy, can mean there is a more significant drop and a rate is more deserved or the drop is not as significant as stated. Perhaps as revisions for the PPI come in, this drop may be not as significant. (tommrow CPI report shall be interesting).

In regards to oil:
Perhaps there are still bull's fighting own ward to the very end of the season for oil or people are once again ignoring fundamentals as prices are back up over $80's (this would seem that this move in oil goes against the idea of tame inflation). Looking at the future's contract for october crude, it seems that today resistance level was broken and there is still upside momentum. By the end of October i would expect to see some divergence and people starting to close out positions for profits and start preparing to short.

But in general as Lehman has shown, the environment is not as bad as everyone thinks. Hopefully the federal reserve will see this so, and act accordingly. But with the recent news, i can find it hard to see no other way then a .25 cut considering the past actions of the fed (injection billions of $ for liquidity). But, perhaps they will see that the recent liquidity should be enough for the economy to work itself out. One thing is for sure though, if a rate cut happens, I'm not going to be happy when i see the price of more goods i need to buy go up further.

Domestic Equities:
On the interesting note, this would be a "surprise" as the technicals were reading more downward movements, but as i specified early in the morning, that this is a day heavily dependent on economic reports as market movers.

new news:
Upon finding a new piece of news, the feds have added 9.75 billion dollars of liquidity in the over night reserves. With this news perhaps a rate cut is not to be needed at all. Or perhaps this is a precursor to a more significant rate cut.

The housing market has not improved, the key media word is "soaring" which is probably propelling stock prices higher ahead of the opening bell. With housing this down, it is another reason to help the bears get a rate cut, but! in the past even with poor housing news the Feds never cut rates for that reason. Considering the new economic environment, i think many more presidents are leaning towards a rate cut, this new news can only add more to the equation for a rate cut... though i feel it would be most unwarranted.

This looks like its going to be an exciting day, until tonight then...
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