Tag Archives: stock market

Market Wrap: May 27, 2011

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GBR Market Wrap, May 27, 2011

In this Week’s Issue

Weekly Snapshot

• The U.S. Dollar fell to a new record low against the Swiss Franc on Friday (Reuters)
• U.S. consumer sentiment increased to 74.3 in May from 69.8 a month earlier (Bloomberg)
• U.S. real GDP increased at an annual rate of 1.8% in the first quarter of 2011 (BEA)
• Greek opposition parties fail to agree on Papandreou’s austerity measures (Bloomberg)
• Japan’s CPI rose 0.6% from a year earlier-first annual rise in over 2 years (Reuters)
• U.S. corporate profits grew 5.3% in Q1 and are $45bn above their prior peak (Economy.com)
• U.S. personal income increased 0.4%; disposable personal income up 0.3% in April (BEA)
• CFTC charged oil trading firms with attempting to manipulate oil prices in 2008 (AP)
• U.S. durable goods orders in April 2011 decreased 3.6% to $189.9 billion (ESA)
• S&P lowered its credit outlook for Italy from stable to negative (Economist)
• U.S. new home sales up 7.3% from the revised March level but down 23.1% y/y (ESA)
• Credit rating agency Moody’s said it might cut its rating on 14 UK banks (Reuters)
• U.S. housing starts were 523,000, 23.9% below the revised April 2010 rate (ESA)

Market Barometers

Stock Market Barometer 5-20-11

FX-5-20-11

Weekly Chart

While the world has been focusing on a wide range of economic and political news this week, we saw a rather subtle but nevertheless significant development in the foreign exchange markets.  The U.S. Dollar fell to yet another record low against the Swiss Franc on Friday.  This came as the yield on the 10-year U.S. Treasury Note fell to a six month low of 3.05%.  Whatever your sentiments about inflation may be, Treasuries aren’t pricing in any significant inflation yet and the Dollar continues to suffer.

Our weekly chart shows a comparison between historic 10-year T-Note yields versus the Dollar-Swiss Franc exchange rate.  This looks quite sobering when you consider that the Dollar is now worth about one fifth of what it traded against the Swiss Franc since currencies started to freely float.

On first glance, one could fall into the correlation=causation trap since the decline in the greenback correlates strongly with the decrease in interest rates during the last three decades. But it’s not all about interest rates.  Japanese interest rates have been at rock bottom for two decades and yet, the Japanese Yen has gained the upper hand versus the Dollar.  Similarly, the Swiss Franc has traditionally been a low yielding currency in terms of deposit rates.  As we speak, the yield on a comparable 10-year Swiss government bond is about 1 percent lower than the U.S. 10-year T-Note.  Could there be another reason for the ongoing decline in the U.S. Dollar? See Video below…

USDCHF-vs-Tnote

Recommended Read

In view of the long holiday week-end, we’ve decided to keep things a bit lighter than usual.  If you like subtle cynicism, more common among British reporters, you will enjoy this week’s recommended read:  You can’t prosecute foolishness.

Recommended Video:

Discussions about the handling of the rather alarming size of the U.S. debt continue – without much progress so far…

Some commentators have suggested that we’re not much better than some of the Club-Med countries (Greece, Portugal, Spain, Italy).  Suppose the U.S. Dollar wasn’t the world’s reserve currency (which I’m not debating), how would we be different from other countries who continue to ignore fiscal responsibility?

Good luck and good investing!

Clemens Kownatzki, MBA is an adjunct professor of financial risk management at the Graziadio School of Business and Management, as well as the founder and CEO of FX Investment Strategies, a Registered Investment Advisor. In addition to running his investment advisory firm, he is a contributing author at SeekingAlpha.com and BusinessInsider.com. He also authored the book, Money Music 101, available on Amazon and Kindle, in addition to publishing the popular investment blog www.fxinvestmentstrategies.com along with a weekly newsletter.

Disclaimer
Neither the information nor any opinion contained in this communication constitutes a solicitation or offer by us to buy or to sell any securities, futures, options or other financial instruments or to provide any investment advice or service. Each decision by you to do any investment transactions and each decision whether a particular investment is appropriate or proper for you is an independent decision to be taken by you. In no event should the content of this communication be construed as an express or an implied promise, guarantee or implication by or from us that you will profit or that losses can or will be limited in any manner whatsoever. Past results are no indication of future performance. Please note that there is no requirement and no commitment to make any payments to FX Investment Strategies LLC in order to access our published information be it via email or via website publication. All information is publicly available without any required monetary consideration.  Any payments or donations made by you are deemed to be voluntary and cannot be considered as payments for investment advice given to you.

Market Wrap: April 29, 2011

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GBR Market Wrap, April 29, 2011

In this Week’s Issue

Weekly Snapshot
• Spot Gold surges to yet another all-time high near $1,570 on Friday (FT)
• The U.S. Dollar fell to a new low of 0.8625 against the Swiss Franc (AP)
• Eurozone inflation in April rose to 2.8%, the highest level since October 2008 (Reuters)
• The Chinese yuan has breached 6.5 to the dollar for the first time since 1993 (Reuters)
• Ben Bernanke: rates will stay at 0-0.25% for another “couple of meetings” at least (CNBC)
• BEA advance estimate: U.S. real GDP grew 1.8% in the first quarter of 2011 (ESA)
• S&P cut outlook on Japan to negative from stable, and affirmed its AA- rating (Reuters)
• March new orders for U.S. manufactured goods rose 2.5% to $208.4 billion (ESA)
• Greece’s budget deficit in 2010 significantly larger than expected (WSJ)
• Greek 10-year Bond yields over 16%, 2-year yields above 25% (Bloomberg)
• Home prices in 20 U.S. cities decreased 3.3% from year earlier (Bloomberg)
• The price of spot silver reached a 31-year high of $49.85 on Monday (Bloomberg)

Market Barometers

Stock Market 4-29-11

FX & Commodity Market

Chart(s) Of The Week

Are you nauseated by this week’s market movements?  Welcome to the club…

Fed Chairman Ben Bernanke gave the first news conference after a Fed meeting (see video below), which was seen as a non-event by some commentators.  Still, I thought there were some important takeaways, not so much in terms of what he said but how he said it.  For instance,

The federal reserve believes that a strong and stable dollar is both in American interests and in the interest of the global economy. There are many factors that cause the dollar to move up and down over short periods of time. Over the medium term, where our policy is aimed, we’re doing two things. First, we are trying to maintain low and stable inflation by our definition of price stability. By maintaining the purchasing value of the dollar, keeping inflation low, that’s obviously good for the dollar. The second thing we’re trying to accomplish is to get a stronger recovery and to achieve maximum employment. Again, a strong economy growing with attracting foreign capital is going to be good for the dollar. In our view, if we do what’s needed to pursue our dual mandate of price stability and maximum employment, that will also generate fundamentals that will help the dollar in the medium term.

Steve Liesman’s Response: Mr. Chairman, one can’t help but notice it’s been unsuccessful so far.

If you felt a lack of confidence in his voice and demeanor, you were in the same camp as market sentiment, which was most immediately apparent in the price of Gold that shot up following the Q&A session.

Gold versus Bernanke

Gold Bernanke

Click on chart to view larger image

There were also a number of other negative records in U.S. Dollar terms which supported Steve Liesman’s response to Ben Bernanke.  The Dollar dropped close to multi-decade lows against numerous currencies.  Other currencies, such as the Singapore Dollar and Swiss Franc, let the U.S. Dollar tank to successive new historic lows, continuing the sad trend in recent months.

USD versus Singapore Dollar

USDSGD7

Click on chart to view larger image

USD versus Swiss Franc

USD Index

Click on chart to view larger image

Following the financial crisis, the Fed wanted asset prices to rise and so they did.  Outside of housing, most asset prices have been on the rise since QE1 and QE2 were implemented.  However, there was a cost to it and it has been showing in an ultra weak U.S. Dollar.

U.S. Dollar Index

USD Index

Click on chart to view larger image

And lastly, in terms of quantifying U.S. Dollar weakness, our recently mentioned targets of $50 for silver and $1,600 for gold are now clearly up for grabs. Take a look at how silver brings a new meaning to the notion of parabolic rise. This of course raises the question as to how much further the rally can go?  Time for a mini-survey.  When and at what price do you think silver will top?

Spot Silver

Spot Silver
Click on chart to view larger image

Recommended Read
Amidst all the hoopla about gold, silver, and the waning greenback, it’s easy to forget that other regions have their share of economic struggles too.  Not nearly as talked about these days is the ongoing Greek (fiscal) tragedy showing up in almost unreal bond yields.  Double-digit yields, which are highest in 2-3 year maturities, indicate that the market sees a much greater likelihood of default within the next couple of years.

2-year Greek Bond Yield

Greek 2-year bond yield

3-year Greek Bond Yield

Greek 3year Bond Yield

In this context, please consider: The eurozone’s quack solutions will be no cure by Wolfgang Münchau.

Recommended Video
Here now is the Q&A session during Ben Bernanke’s news conference.  Enjoy!

Good luck and good investing!

Clemens Kownatzki, MBA is an adjunct professor of financial risk management at the Graziadio School of Business and Management, as well as the founder and CEO of FX Investment Strategies, a Registered Investment Advisor. In addition to running his investment advisory firm, he is a contributing author at SeekingAlpha.com and BusinessInsider.com. He also publishes the popular investment blog www.fxinvestmentstrategies.com along with a weekly news-letter.

Disclaimer
Neither the information nor any opinion contained in this communication constitutes a solicitation or offer by us to buy or to sell any securities, futures, options or other financial instruments or to provide any investment advice or service. Each decision by you to do any investment transactions and each decision whether a particular investment is appropriate or proper for you is an independent decision to be taken by you. In no event should the content of this communication be construed as an express or an implied promise, guarantee or implication by or from us that you will profit or that losses can or will be limited in any manner whatsoever. Past results are no indication of future performance. Please note that there is no requirement and no commitment to make any payments to FX Investment Strategies LLC in order to access our published information be it via email or via website publication. All information is publicly available without any required monetary consideration.  Any payments or donations made by you are deemed to be voluntary and cannot be considered as payments for investment advice given to you.

Market Wrap: April 8, 2011

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GBR Market Wrap, April 8, 2011

In this Week’s Issue:

Weekly Snapshot

• Spot Gold rose to yet another record above $1,474 per ounce (Reuters)
• Spot Silver above $40 per ounce for the first time since 1980 (Reuters)
• WTI Oil futures price above $113, Brent Crude oil above $126 on Friday (AP)
• The Dollar under renewed pressure as U.S. budget deadline looms (WSJ)
• China to let Yuan be traded against a wider variety of currencies (AP)
• Australian dollar above 1.05 highest in 29 years against the U.S. dollar (Reuters)
• European Central Bank raised interest rates by a  quarter point to 1.25% (AP)
• Bank of England kept its benchmark interest rate at a record low of 0.5% (Bloomberg)
• Portugal seeks bailout and becomes 3rd victim of European debt crisis (AP)
• Nasdaq 100 rebalancing will slash Apple’s weighting from 20.49% to 12.33% (Reuters)
• Moody’s has cut Portugal’s long-term government-bond rating to Baa1 from A3 (WSJ)
• China raised rates for the 4th time since October; one-year lending rate at 6.31% (AP)
• China’s consumer prices rose 4.9% in February, driven by an 11% jump in food costs (AP)

Market Barometers

4-8-11-stock

fx-2011-0408

Macke’s Purple Crayon
Traders aren’t known to be of the quiet introspective kind; there is typically not enough time to be too analytical when the clock is ticking and your positions are exposed to market risk. Instead, most traders stick to a few rules that are time-tested and work in practice. To learn a few of these rules including some color recommendations, please consider the often controversial but always entertaining Jeff Macke.

Chart Of The Week

Speaking of purple crayons, this week’s markets caused a much higher than usual consumption of purple crayons, at least in our office. While Mr. Bernanke maintains the view that inflation is under control, commodity prices have been on fire, reaching a number of new records (see weekly snapshot above). In this context, I’d like to add one more rule to Mr. Macke’s purple crayon rules: Don’t fight the trend!

Whether you believe in technical analysis or not, one of the most effective tools in terms of establishing major trend-lines is indeed the purple crayon (you may of course use a different color of your liking). It has one overarching purpose: Determine the major price trend and make sure your position is in line with that trend. Now let’s examine one more chart in addition to Jeff Macke’s examples:  Silver!

Silver-weekly_chart

As the purple crayon shows, the underlying long-term trend is up. But we are also using another color (red) to indicate a hot trend. Silver has indeed been red-hot as it broke through the major trend line on the upside earlier this year.  If you are long silver, congratulations! How much higher can we go from here? According to some recent analyst reports, $50 is the next target. Having said that, you may still want to use one of Jeff Macke’s exit rules and set a stop below the (red) trend line this time. We probably won’t see a change in the overall trend (purple) in the near-term, but if Macke is right in terms of taking some money off the table, you may consider yet another rule: Don’t get married to your position(s). Or, as Jeff Macke puts it:

“Love is for your kids and your dog, not for your investments.”

Things That Make You Go Hmm…
In light of the possible U.S. government shutdown over the debate on the debt ceiling, the inquiring mind is pondering about the Presidential Proclamation of April as the “National Financial Literacy Month.” As the proclamation notes:

Americans’ ability to build a secure future for themselves and their families requires the navigation of an increasingly complex financial system. As we recover from the worst economic crisis in generations, it is more important than ever to be knowledgeable about the consequences of our financial decisions. During National Financial Literacy Month, we recommit to improving financial literacy and ensuring all Americans have access to trustworthy financial services and products.

Good luck, good investing and hmm…

Clemens Kownatzki, MBA is an adjunct professor of financial risk management at the Graziadio School of Business and Management, as well as the founder and CEO of FX Investment Strategies, a Registered Investment Advisor. In addition to running his investment advisory firm, he is a contributing author at SeekingAlpha.com and BusinessInsider.com. He also publishes the popular investment blog www.fxinvestmentstrategies.com along with a weekly newsletter.

Disclaimer
Neither the information nor any opinion contained in this communication constitutes a solicitation or offer by us to buy or to sell any securities, futures, options or other financial instruments or to provide any investment advice or service. Each decision by you to do any investment transactions and each decision whether a particular investment is appropriate or proper for you is an independent decision to be taken by you. In no event should the content of this communication be construed as an express or an implied promise, guarantee or implication by or from us that you will profit or that losses can or will be limited in any manner whatsoever. Past results are no indication of future performance. Please note that there is no requirement and no commitment to make any payments to FX Investment Strategies LLC in order to access our published information be it via email or via website publication. All information is publicly available without any required monetary consideration.  Any payments or donations made by you are deemed to be voluntary and cannot be considered as payments for investment advice given to you.