December 24, 2011

Season’s Greetings!

As the year is coming to a close let’s put numbers, markets and Dollar signs aside for a few days and share in the spirit of the season.  Wishing you all a happy holiday season full of joy and peace.

May the year 2012 bring you good health, happiness and prosperity!

Xmas

December 17, 2011

Market Wrap For The Week Ending 16-December-2011

Here is our latest issue of market insights. Enjoy!

In This Week's Issue
• Weekly Snapshot
• Weekly Barometers
• Weekly Chart
• Precious Metals, a quasi Religion?

Weekly Snapshot
• The Italian 2 year yield is down to 5.29% - the 10 year yield is at 6.59%.
• The Spanish 2 year yield is down to 3.46% - the 10 year yield is down to 5.31%.
• The Euro fell below 1.3000 vs US$ but recovered to close at 1.3045 on Friday
• U.S. initial jobless claims fall to 366,000, the smallest number since May ’08
• Euro area annual inflation was 3.0% in November unchanged compared with October
• U.S. CPI increased 3.4% over the last 12 months before seasonal adjustment
• U.S. current account deficit decreased to $110.3 billion or 2.9% of GDP Q3 of 2011
• U.S. industrial production decreased 0.2% in November versus +0.7% in October
• OPEC ministers likely to keep oil production steady at 30M barrels a day
• IFO cut forecast for Germany, projecting GDP of +3% in 2011 and only +0.4% in 2012
• U.S. retail sales were $399.3 bn, up 0.2% from October and up 6.7% from one year ago

Weekly Barometers

2011-1216   fx2011-1216

Weekly Chart
2011 has been a bumpy year for stock investors.  In the U.S. the punters will be happy if they can break even for the year.  Yet, if you feel U.S. markets have been volatile, think again.  Most emerging markets have had an even tougher year.  Investors in China probably won’t be too happy with the Shanghai Stock Index currently down over 20% for the year.  But that pales in comparison to the parabolic rise and fall of Chinese stocks since 2006.  The rise and fall was so dramatic that you can actually fit the shape of an Eiffel tower into the chart (see below). 

Shanghai-Eiffel-01

Given these wild price swings, we should feel relatively safer investing in U.S. stocks.  The direct comparison of Chinese equities with the S&P 500 makes the impact of the credit crisis on our turf look like a lame duck event. So then, are we better off investing in U.S. markets?  Since 2006 Chinese equities are still up about 80% while U.S. stocks barely broke even.  You may have lost your sanity along the way but if you had the courage to hold on, 80% over a 5 year period isn’t all that shabby.

SSEX

Precious Metals, a quasi religion?  
Precious Metals have had a difficult few months. Gold is off 16% from its high, Silver almost 40% down from the record high established in May of this year.  But things aren’t just difficult for Gold and Silver, Mark Dow predicts more head wind ahead for 2012.  Please consider: Another Grim Year for 2012–Even For Commodities.

Good luck and good investing!

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.

December 10, 2011

Market Wrap For The Week Ending 09-December-2011

Here is our latest issue of market insights. Enjoy!

In This Week's Issue
• Weekly Snapshot
• Weekly Barometers
• Weekly Chart
• Corzine: I don’t KNOW, KNOW, KNOW
• Recommended Read

Weekly Snapshot
• 23 EU nations agreed to tighten their fiscal coordination; UK stays out
• Moscow’s RTS index lost 8.8% after civil protests voice election concerns
• The ECB cut its key interest rate by a quarter percentage point to 1%
• Chinese inflation slowed more than expected to 4.2% in November from 5.5% in October
• Italian government announces a €30bn three year budget deficit reduction plan
• Brazil’s economy was flat in Q3 but grew 2.1% compared with last year
• U.S. consumer sentiment rose to its highest level in six months in early December
• U.S. trade deficit in October was $43.5 billion, down from $44.2 billion in September
• Australia's central bank decided to cut interest rate by 25 basis points to 4.25%
• S&P placed ratings of the entire Eurozone on "Creditwatch” with negative implications

Weekly Barometers

st-2011-12-09   fx-2011-12-09

Weekly Chart
While there are imminent signs of a global economic slow-down, there may yet be some bright spots on the horizon.  U.S. equities have held up surprisingly well despite signs of trouble in Europe and in emerging markets.  Please consider our weekly chart, courtesy of Political Calculations.  Based on expected future dividends per share, the glass might just be more than half full in the coming year.

SP500-qdps-2009Q1-2011Q3-futures-through-2012Q4

Corzine: I don’t KNOW, KNOW, KNOW 
The collapse of MF Global may not mean much to the average investor.  However, traders of financial futures and options considered this firm as one of the premier commodities and futures brokers not too long ago.  Who is to blame for their collapse?  No one it seems, certainly not the former CEO Jon Corzine who resigned just days after the firm declared bankruptcy.  While the finger pointing is now in full swing, I wanted to bring up a “slight” accounting discrepancy which occurred earlier this summer.  According to data from the CFTC, the Commodities Futures regulator, MF Global had Excess Net Capital of -$150M, i.e. a shortfall, in July of this year.  They miraculously recovered in August but then no more reports were published since September and in October, the firm declared bankruptcy. 

With an estimated $1.2bn in customer assets still missing, the clients of MF Global are obviously outraged. As the lawsuits against the firm and its regulators are starting to pile up, please consider this video of Jon Corzine’s testimony before a congressional committee.  Enjoy!

Recommended Read
Here is a succinct summation of the devastating effects a Euro break-up might have. Please consider :
The terrible consequences of a Eurozone collapse.

Good luck and good investing!

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.

November 13, 2011

Market Wrap For The Week Ending 11-November-2011

Here is our latest issue of market insights. Enjoy!

In This Week's Issue
• Weekly Snapshot
• Weekly Barometers
• Weekly Chart
• Recommended Read

Weekly Snapshot
• Mario Monti accepts post as Italy's new prime minister
• Italy imposed a ban on naked short selling of all Italian securities
• US stocks end a turbulent week in positive territory
• US consumer sentiment has risen to 64.2, the highest level since June
• Italian prime minister Berlusconi resigns and Italian Senate passes budget
• Italy's bond yields dropped to 6.46% after hitting a 14-year high above 7%
• China's exports underperformed in October due to the weak global economy
• US Trade deficit in September was $43.1 billion, down from $44.9 billion in August
• China's inflation in October fell to an annualized +5.5% from +6.1% in September
• US 30-year fixed mortgage rates fell below 4% for just the second time in history

Weekly Barometers

st-2011-1111   fx-2011-1111

Weekly Chart
Do Central Bank interventions work? The short answer is yes, but very often they influence only the short-term direction in the currency markets.  Last week, we looked at a picture-perfect central bank intervention.  Markets reacted immediately shedding about 400 points off the value of the Yen against the US Dollar.  Since then however, the Japanese Yen slowly gained strength again and has since retraced about 60% of its losses from the intervention.  While we had a picture-perfect central bank intervention last week, technical traders would appreciate the picture perfect retracement this week.  With almost spooky precision, the USD/JPY exchange rate retraced 61.8% from its recent up-move, a textbook-like Fibonacci retracement level.  But just in case this technical support level does not hold, the Bank of Japan might find out, much to their chagrin, that market interventions don’t always produce the intended results.

USD-JPY

Recommended Read
Since the events in Europe have had such a big impact on the financial markets worldwide, it is worth taking a closer look at the past, the present and the future prospects of the European Union.  Please consider:
Europe, the International System and a Generational Shift.

Good luck and good investing!

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.

November 05, 2011

Market Wrap For The Week Ending 4-November-2011

Here is our latest issue of market insights. Enjoy!

In This Week's Issue
• Weekly Snapshot
• Weekly Barometers
• Weekly Chart
• Recommended Read: Bonds Beat Stocks
• A Picture Perfect Central Bank Intervention

Weekly Snapshot
• Greek Prime Minister George Papandreou survived a crucial vote of confidence
• US nonfarm payroll employment continued to trend up in October (+80,000)
• US unemployment rate was little changed at 9.0%
• The unemployment rate in the Euro zone was 10.2% in September, the highest since 1998
• Fed downgrades its growth forecasts; it expects GDP to rise by just 1.7% this year
• Chinese residential real-estate prices fell a monthly 0.23% in October
• MF Global filed for bankruptcy on Monday leaving about 150000 accounts in limbo
• US consumer confidence down 6.6 pts in October. It now stands at 39.8 (1985=100)
• Japan intervened against the rise of its currency, selling about ¥7 trillion ($89.7 bn)
• New ECB head Mario Draghi lowers interest rates a quarter-point to 1.25%

Weekly Barometers

st-2011-1104   fx-2011-1104

Weekly Chart
With all eyes on Europe again this week, investors could have easily overlooked the much more important economic data affecting the US economy, namely the employment report that came out Friday morning.  The US economy only added
80,000 jobs – somewhat disappointing on first glance. However, employment numbers for August and September were significantly revised upwards leaving us with a specter of hope that October may have a similar upward revision going forward. 

Although the unemployment rate remains stubbornly high, there are few encouraging signs.  First, the trend is going in the right direction.  Some might suggest that it takes another 4 years to get back to the employment level of 2007, but it looks like the worst is behind us and the longest employment recession since WWII is loosing steam.  Job creation will clearly be an important component of the next presidential election and that should bring about additional jobs programs.

EmployRecOct2011

Although still unacceptably high, the number of long-term unemployed (six months or more) fell to 3.8% of the labor force.  Given the right combination of jobs programs and real incentives to work + real disincentives not to work, that number could come down as fast as it went up.  Let’s hope that our political leaders will hear this and get the incentives right.

Unemployed26WeeksOct2011

Recommended Read: Bonds Beat Stocks
Please consider: Say What? In 30-Year Race, Bonds Beat Stocks. Cordell Eddings suggests that “the biggest bond gains in almost a decade have pushed returns on Treasuries above stocks over the past 30 years, the first time that’s happened since before the Civil War.” I haven’t had the chance to check the math on this yet but suppose it is correct, we might have to rewrite some of our finance text books. 

A Picture Perfect Central Bank Intervention
Last week we hinted at a possible central bank intervention as the Japanese Yen approached yet another all-time record against the US Dollar.  The Bank of Japan dutifully obliged and sold almost $90bn worth of Yen (¥7 trillion) to weaken their own currency and support the dollar.  Here is a picture perfect chart of the impact of a central bank intervening in the currency markets.  The short-term effect was swift and powerful (about 400 points in 3 hours), however, it remains to be seen how effective this intervention will be in the medium- to long-term.

JPY-Intervention

Good luck and good investing!

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.

October 29, 2011

Market Wrap For The Week Ending 28-October-2011

Here is our latest issue of market insights. Enjoy!

In This Week's Issue
• Weekly Snapshot
• Weekly Barometers
• Weekly Chart
• Recommended Read
• Recommended Video
• And The Winner is...

Weekly Snapshot
• US consumer spending rose in September while personal savings declined
• The Japanese Yen was at a new record of 75.65 versus the US Dollar
• China's manufacturing sector expanded moderately in October
• EU asks Greece's creditors to take losses of 50% on their holdings of Greek bonds
• US consumer sentiment improved in October for the second month in a row
• US real GDP grew at an annual rate of 2.5% in the third quarter of 2011
• US durable goods orders for September rose 2.4% excluding airplane orders
• US home prices were up 0.2% in August, the 5th straight monthly increase
• The Bank of Japan eased monetary policy by purchasing government bonds
• India raised interest rates to 8.5%, the 13th increase in the past 19 months

Weekly Barometers

st2011-1028   fx2011-1028

Weekly Chart-All Eyes on Europe 
It was all about Europe again as the world awaited results from the European summit which focused on the Greek debt crisis.  There was an “agreement” of some sort wherein creditors were asked to take a 50% haircut on their holdings of Greek government debt. Painful indeed for those who were daring enough to lend money to Greece but perhaps still better than the values implied by bond markets.  While Greece may have some short-term relief now, the news does not bode well for long-term prospects.  It will take a long time and far higher bond yields to attract additional financing which is clearly going to be needed next time the Greek cash runs out again.  My guess is three months from now…

In terms of the impact on Europe and its flagship currency, a major crisis has been averted for now.  With combined efforts, Frau Merkel and Monsieur Sarkozy have become very adapt at kicking the much bigger can a bit further down the road.  The markets cheered and rallied across the board in an all encompassing sigh of relief.  What about future prospects though?  Will the focus of the markets now shift to the other European periphery countries, Portugal, Ireland perhaps even Spain and Italy?

Is the Euro going to be more stable now and will it survive yet another round of attacks?

Putting things somewhat into perspective, we should recall that the Euro was only at 1.2 versus the Dollar when the Greek crisis first unfolded about 18 months ago.  Many analysts then wrote that the Euro was “toast.”  Fast forward to today and the Euro is trading above 1.4, substantially higher and than 2 summers ago.  With Greece at a technical default level, the Euro has indeed remained remarkably strong, at least in relative terms compared with the Dollar. While Europe awaits the next sovereign debt issue, possible candidates are Portugal and Ireland, here is a direct comparison with equities.  From this perspective, the Euro has performed remarkably well, was ahead of the S&P 500 and also only about half as volatile so far this year.  However, we can rest assured that there is more to unfold in this European saga.

SPY_vs_FXE

Recommended Read
The financial services overhaul legislation is well under way by now. Still, most players in the financial services industry are spooked by uncertainty as to when and how the new rules will pan out and how they will affect us if and once they are actually implemented.  Please consider
Dodd Frank’s long-distance paper chase by Gillian Tett, questioning whether more rules will make our financial lives any safer.

Recommended Video
The Euro is not toast after all. In fact, it has shown much resilience so far.  But despite this week’s positive market signals and an extension of a Greek default (although they are technically at default level), fundamentally nothing has changed.  Greece still has a mountain of debt and the financial conditions of Portugal, Ireland and, to a lesser extent, Spain and Italy are essentially the same.  This leads to the question as to the long-term viability of the Euro and its constituent countries.  Please consider the following interview with Mark Dow who succinctly lays out the options for the Eurozone going forward.

And The Winner Is…
After a summer of political debate over the U.S. debt ceiling and while the European sovereign debt crisis has been brewing, quietly and almost surreptitiously, the Japanese Yen has continued to gain strength against the Dollar.  This week, the U.S. Dollar fell to a new all-time low of 75.65 against the Yen.  Perhaps more so a reflection of Dollar weakness rather than pure Yen strength, the strong currency however, is giving Japanese policy makers a big conundrum.  Japan has again softened monetary policy hoping to lessen the value of the Yen going forward.  Continued currency strength is a problem for an export-driven economy.  So far the trend is clearly in favor of a stronger Yen.  We are slowly approaching intervention territory.  Let’s see how far the Bank of Japan will let the Yen rise before additional measures are taken.

USD-JPY

Good luck and good investing!

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.