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Archive for November, 2011

A late day sell off caused by S&P downgrades to almost everyone – even the squid!

On the futures chart, this created a flat hammer sitting right at the former support stated by the old fib. Although indicators aren’t exactly pointing towards a pivot at this moment, the case for a continuation back to the channel/next resistance at around 1250 isn’t that much stronger. Taking a page from fundamental events going on this week, markets are still expecting some kind of workout in the EUR for other backstoppers this week – like usual.

But the most interesting development today is Fed Vice Chair Janet Yellen’s almost transparent statement that additional easing is possible. Of course the markets are reading this as another round of QE, and are acting as such as of now. But do be careful that Yellen is one of the more dovish members on the board. Although the doves certainly have Bernanke’s ear, markets may soon be fatigued by continual “warning” of QE3 without actual action.

Anyways, if you’re long the market right now, good. I’d take today’s action as moving up stops to break-even. I wouldn’t not try to enter new trades right now since this is just no-man’s land.

 

By the way, I closed my real account, but this is the only trade I have on my demo one from the office. I bought this right at the bottom… I would have done so except i couldn’t fund it quick enough. Plus, ZARJPY is one of the only bullish buys I would even consider right now.

Hopefully when I re-open my account, the market will be at once more of a flux point.

To the best of good buys.

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Turning Keynesian for a bit here – in a trading sense, this proposal will destroy a good part of my risk-off positions. However, with any fiat world/Lord Keynes proposal, it will help my gold holdings. Also btw, gold’s risk correlation has held for the past 4 weeks already. yup, liquidity still low and risk still on.

This is another commentary about how governments are fighting the goals of their counterpart central banks. While banks are easing liquidity, central governments are doing the opposite. In the US, while the Fed keeps purchasing, the Treasury is increasing their debt issuance. Doesn’t take a Chairman to realize that when there’s more debt on the market, prices fall and yields increase.

I applaud the British – the Bank of England’s history (since around WWI) of easing and having the country bounce back first in most recessions, and at least a few people in government who know how the government works.

Today’s Autumn report from the Exchequer George Osborne contained, well, pretty much the same thing that Dave told him to do – cut costs. However, while other proposals are slated to kick in at the end of the decade, the most immediate is the allowance of a wage increase float.

From what I discovered yesterday, this kind of budgetary easing may in fact be the most useful, coupled with monetary easing. Instead of spending and having the “trickle down” effect, the government is directly putting more money into the hands of consumers – although only in the public sector.

Thus, although artifically intervened with, Britain may be able to weather a double dip recession, combined with a stronger spending platform stabilized with austerity in the past.

Surely the US can directly intervene in the labor markets as well. Although right now there won’t be an alphabet soup of programs like in the Great Depression, the proposal to raise minimum wages across the board may be on the table. Admittedly, there are many kinks to be worked out and restrictions of that sort, but this plan would be tailored to the US consumer dominated economy – letting the poor spend more.

The most immediate concern, of course, is that this will actually hurt the labor markets as a price floor is effectively placed, altering the equilibrium prices for labor. Even with this, surely enough the government can give allowances (even in the form of debt) to those companies affected. And for the places not even giving minimum wages currently, what’s the incentive for them to start doing it now?

Just a thought I came up with during review session. If monetary easing hasn’t worked that well yet, and with the bottom of interest rates, perhaps budgetary easing is in store. Even though we’re not China and we can export and manufacture our way out of another possible dip, surely we can spend our way out.

Obama’s got one more year to do whatever he can to remain in office. And I don’t think this plan is going to get a lot of flak from the Republicans.

To the best of good buys.

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Unlike the run of the mill definition of a recession as 2 or more consecutive quarters of negative GDP growth, something more tailored to the US should be used to gauge US economic health. While most developing nations have most of their output in investment, lower have in government/investment, more developed countries are driven by their domestic consumption. Although arguable Germany and Japan are different in this case, they can be dismissed because those are still export economies (however first world). We’re not that good at making reliable things that people want, except weapons.

So we’re kind of like France. Not wine, not nuclear waste; just waffen.

Because US GDP is basically tied to consumer spending (which in turn powers investment, though that’s a larger part because of how GDP is calculated – and most consumption is reinvested to a tune of 60-70%), a better measure or forecast of US productivity should be consumer willingness to spend. Though with anything else in economics where data are all blind men feeling an elephant, the core indicator is how much people earn or feel richer.

We can induce prosperity by printing, but real wage growth is still key. Furthermore unlike GDP data which is released only every quarter, wage and inflation data are released every month, which gives a more active gauge of the current state.

In a healthy economy, wage should outpace inflation. And conversely in a bad one, wage decreases sooner. Although by extension of the Phillips curve where unemployment (and wages – market prices of labor) are hand-in-hand with inflation, wage in this case is more reactive than inflation. Prices are sticky, even in bad economic times, and in the above graph, because of the next idiot clause, not wanting to have a red entry in the books etc etc etc, prices fall much slower.

And another problem with this (as an additional comment) is that whenever wage growth falls below inflation, deflation occurs. People will refuse to spend not because they think things will be cheaper, but because they do not have the opportunity to buy right now… or later as long as prices still outpace their income.

This kind of deflation, like negative GDP growth, indicates a recession.

It truly does – though more alarmingly, if real wage growth falls below 1%. Another point – the arbitrary 1% seems to form a resistance/support line. Depending on which direction the current data is approaching from, it could mean a pivot or a reversal.

A quick gander at the list of recessions in the US will confirm this chart. What’s even better about this is that although GDP has been relatively positive and gives no indication of some kind of pivot or continuation, this real wage growth index points to moderate gains again (perhaps by Obama’s re-election policies) and then another high likelyhood of a turn lower.

And the 16 or 21 economists saying QE3 is possible in the US. I bet this speculation will knock the dollar lower for this week – then it’s time to buy again.

While many people say that a recession is not likely in the US, I have no doubts about that. Looking at all the recent data, it does seem that the US economy is moderately recovering, helped by consumer spending as consumer credit grows slightly. Could this be because of new banking regulations freeing up capital for actual lending to people instead of prop trading? Possibly…

However, the true likelyhood that I’m considering now is a European recession, either because of the Germans agreeing to print too late, or any haircut drawing away too much capital from the banks. The occurrence of a dual-speed world economy is completely possible, and that’s for the next set of charts.These charts showing real wage growth is not wasted, however. We just need them to give a good signal at some point.

After all, Americans do like to spend. They were fighting each other for $1.88 towels.

Here are the charts with some other data for Europe/US retail as well. EasternEUY

To the best of good buys.

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Given the massive amounts of debt being written right now by federal governments, munis, banks and corporations, will the Fed ever risk trying to raise rates?

All those paper certainly will track the FOMC baseline, especially the more “public” ones which include mortgages and for me personally, student loans.

Unless the Fed is slow to raise rates, meaning that they will first let the dollar devalue as a result of inflation, and then use rates to reign in price stability again. I think that is the only way/time the FOMC will tick ’em up.

If not, then because of again, the massive amount of debt being written right now, which has the effect of leveraging the current low-interest environment, could the Fed cause another liquidity drain by raising the rate by even 25bps? Certainly if that is the case, then with all that QE morphine in the system right now, will the Central Bank do it again?

Going back to my roots, I have to say that gold is not something to trade, but something to invest in.

Yes, this is the fed’s balance sheet, but I shall find some data on combined debt written since FOMC rate <.50%

To the best of good buys.

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What a good day to end my current trading regime. SEK, HUF, AUD all got pummeled. Profitable even on yen pairs.

The account is now closed, and money has been used to buy the RX8. Will be posting some macro research with actual research with less trading commentary. Really need to clamp down and survive 3x math this semester.

To the best of good buys.

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北原 → 原西 → (西川) → (川崎) → (崎江)  (It’s car kanji shiritori!)

So this time, like the last, it will be in California since I actually want to meet my friends and their families this Thanksgiving instead of driving halfway across the country, coming home smelling like god knows what and possibly killing the rotors.

Destination is Atacasdero, and here is the new toy.

And probably with this, I’m going to close my trading account to fund it, and start again when the Miata gets sold.

And here it is, on the driveway. I love it so much!!!!! aaaahhhhhh

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The FRBSF has an awesome game about the economy. Bernanke can only wish inflation was at a controllable 3% and unemployment near the same. And dollar bulls likewise with the FOMC rate at 3.5%

Game here: http://www.frbsf.org/education/activities/chairman/index.html

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