27 Dec Euro moves

FOREX COMMENTARY

If there is no concerted effort to penetrate 1.4700 in coming week till 7 Jan, we may see Euro dropping back to test 1.3000, or even 1.2000.

Though I may not rule out an immediate drop to 1.3500 then rise again to test 1.4700, with target 1.5000-1.5200 and then drop back to 1.3000, this moves have to be executed in short timeframe and thin liquidity. (Probability low).

Hence a likely scenario would be a slow deterioration of Euro, dripple down to 1.3800, then 1.3500, and then sharp moves below 1.3000 again, gunning for 1.2000 this time. This would be accompanied by a Gold now at resistance 880 (slopping downtrend channel) into 800.

If Gold can hold 800, then Euro test may just stop at 1.3300-1.3500.

If Trichet signals more cut coming for Euro to 1%, then differential between all currencies would diminish making holding USD preferable in the short term.

Long term view is still for USD to drop, bços of Democrats inclination to weaken currency to jerk export, which eventually leads to the next wave of commodity bull markets.

Hence Oil and Commodities still have quite sometime to consolidate before the next wave begins.

EQUITIES COMMENTARY

Checked the monthly SPX, the averages just crossed down, i.e. we are in for a long long Bear Market, with further plunge. The deeper the plunge, the shorter the recovery period.

With all the intervention, bailouts of Autos, FED buying of mortagage securities, eventually corporate debts (to alleviate the Commercial Real Estate market), further sharp plunge is more remote by the days. Looking at the CDS market, CDS prices on Equities have been dropping. TED spread narrowing.

The Bulls and Bears looking for the retest of the bottom, for the Bull to go into short term long, and Bears to take short term profits. Hence a significant retest would not be forthcoming. Plunge and Rally would be short lived. Essentially the market is in a trading range of 800 to 950 for next few months.

Critical time would be end March towards April, when the Obama Euphoria wears off and the world turn attention to the next G20 meeting in April.

It is better to hold cash in the right currencies.

SURPRISE

The bond market bubble may just burst and monies flow suddenly into Commodities, metals, Crude.
China is embarking on big Infra building, as well as its next fleet of Aircraft Carriers, the demand for metals would be immense. When China start importing metals,
(it is already importing agriculture,and setting price bottoms to protect its domestic production).

Protectionism would rear its ugly head in 2009, where exports of commodities would be disrupted. Hence we may see the next Commodity Rally, which leads to the next Hyper Inflationary Cycle (justified by the monies supplies).

Economies may just toggle into Hyperinflation at the flick of a switch. Speculators would capitalise on the reduced capacities to mount the next crude rally. Probably they would allow another 3 months for the deflation cycle to play out.

If I am a large Speculator, I would not want to fight the FED with its promise of using all possible tools to support the economy. I would just turn around and ride the wave of liquidity promised by Bernanke and other central banks.

We would see Slow or Zero growth and Inflation by end of 2009.

25 Dec Positive News

On Tuesday, SEC has approved a UK company LCH.Clearnet Ltd to operate as a central clearing house for CDS. This is a milestone in containing the CDS monster, and provide transparency. This was long proposed by George Soros, he mentioned it during this year Davos economic meeting.

Hence the rougue Hedge Funds which terminated all the Investment Banks, bankrupted or near bankrupted Lehman Brothers, AIG and Citigroup now have lesser weapons on hand.

We have yet to see GM fall, as well as the Commercial Real Estate market.

With the G20 meeting in London in early April, GM viability dateline on 31 March. Obama inauguration on 20 January, expect market volatility to persist which is good for swing trading.

Over the Xmas period, some positive news have come out,
(A) Japan announcing a near 1 Trillion USD fiscal package,
(B) Biden said that the package is near done, and ready to be given to the Congress.
(C) GMAC now a bankholding company, eligible for FED loans
(D) SEC CDS clearing house in operation
(E) A better than expected US consumer spending

We are starting to see some lights, let see if there would be a January rally afterall.

You are most welcome to exchange views and discuss.

24 Dec Christmas

Forex trend to watch would be the hitting parity of GBP and Euro. However London would likely emerge from the recession earlier than Europe.

Euro:GBP = 1.1 to 1.2 would be a good buy. 8 Jan BOE rate decision, 15 Jan ECB rate decision.

Now Euro at 1.4000, after retreating from 1.4719. PERHAPS Euro has another leg up to perhaps 1.4900-1.5000 before retreating into 1.3000 for a while.

Watch next week and the 1st week of Jan for the move.

Treasuries USB/UST now showing topping action. With VIX at low, does this foretell a rally in Equities ? SPX now at 860, trying to poke the sacred 850.

Interesting times indeed, welcome comments and discussion.

21 Dec Forecast

Was looking at the TV and caught a glimpse of Bernanke marching into his FOMC meeting. With benefit of hindsight, it was pretty smart for the Bush to have appointed Bernanke to the post, with his background on deflation fighting, and being a outstanding student of Depression.

We have to give due credits to the learned academics that they would learn from Japan and steer US away from Japan's 10 years of moribund.

Then thinking ahead with Volcker appointed as the advisor to Obama, one may forsee that a high inflationary world awaits us, once this crisis fades. We would see a high inflationary world knocking on our doors sometime in 2010, 2011.

Long Term
My forecast for the economy would be:
Economy bottoms mid 2009, though unemployment rate may continue climbing. Stock market would confirm a bottom sometime in 1st Quarter 2009, with a good rally.

The equities would continue to slow rally into 2010 (the speed is slow at first). While economy stays at below trend growth, while inflation creeps quickly up.

Sometime in 2011 we would see the peak of the rally, with the end of the next bubble, the world would descend into the next Great Depression in 2012. (probably to conincide with the brewing of the WWIII, with a nuclear facet).

We should reach SPX at sub-500 level in 2012.

As for currency, USD may stage a recovery in 2009, while inflation rises. Commodities rise with USD, a double dose of poison.

2007 weak USD strong commodities
2008 strong USD weak commodities
2009 strong USD strong commodities

Short Term

For the coming Xmas, the politicians and Hank decide to play the tricks one more time with 350billion remaining of TARP funds.
they may stage the next market plunge to nudge the Congress into approviing the remaining 350billion.

Scanning through the markets commentary, I see a lot of Bullish views on crude, like Oil is oversold, hedge Gold position using Oil, Contango, etc.

Let us talk about Crude.
A lot of the Crude meteoric rise to 147 can be attributed to hedge funds rigging, and the China mopping up of crude during the SzeChuan Earthquake. The China has to fly 24 hours sorties of helicopters, airlift to deploy troops.

A oil trader was investigated for rigging. Short of any natural disasters, the demand for oil is not expected to rise. Most business in Asia is looking for a slump of activities after the January Chinese New Year. (Obama inauguration is on 20 Jan). Demand for oil is not expected to rise in the 1st Qtr.

Hence oil would probably fall further, into 30dollars. Hence all the bull talk on oil is just a setup for a bull trap.

Equally we would not expect any significant rally in Equities, or Commodities. The markets would hit another bottom somewhere in March 2009. Expect SPX to touch 600 then. HangSeng Index probably into 10000, now at 15000.

As for next week,
with 350 billion of TARP fund at stake, Hank may stage another market plunge to scare the Congress into approving. Obama is now on holiday in Hawaii, (as Nostradamus said, the prince from the seas). SPX may break or touch 800 one more time to confirm Nov bottom.

20 Dec Trade War looming

http://sg.news.yahoo.com/ap/20081220/tap-us-china-trade-bb10fb8.html

Only weeks after US and China met, US is starting its first complaint to WTO over China uses of Export Subsidies. This does not bode well for the USD. Wait for USD to go lower, let say, 1.3500, load up for the next explosive leg of Euro rise.

9 Dec closer to Full Moon

3 more days to full moon. including today trading.
SPX on its way to test 929, 932.

Meanwhile the Chinese is holding a economic conference on whether to devalue the RMB to save the exports. It has immense implication.
If they decide to devalue RMB, expect USD to surge to 90 on DXY. and a market plunge alongside.

3 Dec Paulson going to China

This would dictate the USD move in coming months.
Think China would be duped into devaluing their currencies, leading to a outflow of monies, the communist regime is under challenge.