THE DOT - if this turns orange or red be alert

Thursday, May 29, 2008

The FED exodus

Its quite amazing that Mishkin steps down and leaves the FED in a unique situation 3rd vacancy plus another who stays on until Bush leaves white house. Interesting to me is that in a situation of crises someone would leave who joined not even 2 years ago and has his job until 2014. Now where Fisher the most hawkish man claimed the FED might be forced to hike rates and Mishkin was one of the architects of aggressive cuts. Is it for the difference of 130k in income he left or due to the fact he will not join the clean up of a hazardous FED policy which might create a hyperinflation even based on their own artifical low inflation figure policies - check out this site but basically everybody is sub-/consciously aware of it.
So the FED is bailing out investment banks but does not do anything about its two targets inflation and economy - even the contrary Helicopter Bernanke will prove he did it litaraly and the world will pay with hyperinflation which will raise house prices at some point but almost nobody will be able to afford the high interest rates since the cleansing of the financial system will take years or to be honest I suspect it will be a process which will be more intense when many might think right now since many balance sheets of banks are creatively massaged in the hope they will survive by miracles but actually we will have a wave off chapter 11 cases starting 2009. The underlying structure for balance 'cheat' will be disastrous with a weakening consumer base so far mostly the effect of subprime was the driver, the regular consumer is now on the edge with rising negative house equity job losses and inflation squeezing money he does not have out of his pocket. The FED has not achieved any improvement for mainstream. We will have a little relief period with falling commodity prices in Q3 and oil likely dropping back towards 100 which will trigger another leg of the rally but thats a trap medium term since next year look for a severe correction in stocks steeper than the one in Q4 07-Q1 08. In astrological terms starting November 2008 one should be on highest alert levels its gonna be a very unpleasant election campaign in the final stage and Republicans will pull all strings and one of them might be throwing America into war with Iran ( a surgical strike). In any case the FED is running out of bullets and we might see a repetition of the Japanese story interest rates close to 0 but still markets will drop sharply still. The toxic waste is still in the books of the banks my estimation is closer two 2 Tril. so we have done 2-3 innings yet and nothing but a severe economic upswing could save them from disaster.
Unfortunately we are heading for disaster the next years are in astrological terms a repetition of 1929 a depression is very likely and the odds are there. Inflation is going out of hand the events in Burma and China are small warnings of the things to come since they happened in good angles of the same planets which will enter hard aspects starting Nov. 2008 til 2012. Pluto is in Capricorn which is by itself very challenging last time it happened 240 years ago - from famine unrest to wars everything happened plus we had special climatic events where Millions of people were killed through a breakout of a volcano in 1783.
We have to be aware that life happens in cycles and nothing can be taken for granted we got used to our life style and it seems that the ugly things can only happen to the other people but our media helps us to ignore the reality surrounding us - right now in Somalia we have a genocide going on and nobody takes care of them ( they do not have any resources of interest like oil ) . The bird flu freaked us out because it could have reached everybody but Aids is still spreading and nobody talks about it. Billions of Dollars disappear in Iraq but Bush veto's a health-bill for children in USA. This world is out of balance in a major way but we should not forget that in a bigger context things go back to their point of balance thats a physical and universal law and that is usually what happens in a crisis the balance is restored.
Coming back to the financial situation banks have made money by constructing profits and swaping away the losses since the bonus was the only target nobody acted in the interest of the stock-owners and the universe forbid in the interest of society or the planet but they squeezed all out to the limits - its like an Enron on a global scheme and the supervisors let them do it. FED and SEC let the banks ride leverages of times 30 exactly like 1929 and that they could sell things with highest ratings for mortgage bonds where 20% even never paid their first mortgage payment as I heard in a congress hearing. The banks who knew what was going on still paid out this year record bonuses just to step up a few weeks later to raise capital. Who are those stock-owners who let themselves get ripped off in such a manner - well the majority of stocks is managed by funds and they do not dare to raise their voice for good reason.

Wednesday, May 28, 2008

The Goldmann miracle

It is interesting to notice that GS plays an obscure game they are the firm with the highest VAR and per se are a HF with a M&A side-shop and its very puzzling that they are allowed to give calls on equities (conflict of interest). There is an interesting phenomen of spreading their people around - nowadays from Treasury over FED to other mayor firms like Citi and Merrill they have their former people at top spots. They have the myth of rainmakers but if you meet single persons they have the same intelligence like all the other guys on Wallstreet so what is their trick it cannot be that they make calls on Mondays and have picked them up on Friday already (front running) that would be prevented by the SEC - or might we find former GS guys there as well - like they did the last Monday's with AMZN and AAPL buy recommendations and their former equity strategist (Abby Cohen, who said one week ago SPX would likely stay between 1400 and 1300 and break out in q4 to test the highs) a permanent bull has called the market not right most of the time - still they make more money but that they get tipped of by former partners is unthinkable what do they have Chinese walls for.
On Tuesday GS came up with a summer rally call (buy in May until Labourday) and was followed swiftly by MER yesterday with the same reasoning that historically markets go up around that time (remember the top 3 people at MER are former GS) - well I remember that just by statistical means the time from May to Labourday is particularly dull as you can see by the above chart. Pre election with a chance that a Rep. wins its a different ball game but on the opposite side an Iran strike in Q3 has a probability.
Well I do not think that June will be a good month for bulls but we have an intermarket divergence which favors the tech sector clearly. SPX and XBD broke out of flags to the downside thereby NDX defended the channel support retested the 200 MA and looks by far the strongest segment. Obviously the financials have the biggest impact on the weak SPX and that impact will stay until we see another test of the lows in the XBD. Medium term I agree we will see another rally in the second half since the MAs of the ISEE have not reached critical levels for a severe drop and some indicators are already softening again like Investor Intelligence Bulls came dome from 47 to 37. But be aware that especially the next 3 weeks any information will be less reliable with Merkur an Neptun retrograde sine the 26. and window dressing period combined with half year results being 'produced' for investment banks. when June starts more consolidation can be expected. The next days will have likely an upside bias though if GDP allows for it but the statistics are a miracle by themself.

Saturday, May 24, 2008

The oil trap

Trading against Insiders is not an easy enterprise since the luxury of one's own thoughts can be contra-productive. Big loads of misinformation through the governments institutions and interest groups will create some confusion (thats the intention).
I am following the markets now for 22 years and as a professional for 20 years and the manipulation techniques have been refined over time but nowadays we are falling back to simplistic lies (just pretend the most obvious is not true ) more importantly to survive and make a success depends on the discriminating act of what you think is going on and what the crowd believes or is made to believe. since that will be what the markets will do until the goal is achieved which might lead to the opposite result since the campaigns (fairy-tails) can be motivated on different levels, e.g. the fairy tail of low inflation was constructed to save the government hundreds of billions every year. USA ows around 8Tril. and pays interest based on 4-5 points artificially lower inflation = 360 Bil. lower interest payment - good for the Nations debt but bad for the people of the nations because he gets taxed indirectly - that eats away buying power of the average consumer since his savings loose buying power on many angles (his wage increase are notoriously too low and his savings are rewarded with too low interest)

Lets come back to the real markets for now contradicting information about the oil and commodity markets are running through the media but as a matter of fact although OPEC has a extremly high interest in high prices their statement that the surge is not driven by physical demand is closer to the truth. Hugh institutional money is now in the game:

Excerpts from a homeland security subcommittee hearing

1. Index Speculator Demand Is Driving Prices Higher
Today, Index Speculators are pouring billions of dollars into the commodities futures
markets, speculating that commodity prices will increase. Chart One shows Assets
allocated to commodity index trading strategies have risen from $13 billion at the end of
2003 to $260 billion as of March 2008, and the prices of the 25 commodities that
compose these indices have risen by an average of 183% in those five years!

2. In fact, Index Speculators have now stockpiled, via the futures market, the equivalent of
1.1 billion barrels of petroleum, effectively adding eight times as much oil to their own
stockpile as the United States has added to the Strategic Petroleum Reserve over the
last five years

Well from a fundamental perspective its strange that the US government supported the rising prices buy being a buyer for strategic reserves at the highs - they just stopped a week ago. Since elections are close at some point it might be reasonable and likely that strategic reserves are thrown on the market.
From a technical and astrological perspective within 2 weeks we should see an intermediate top in the 135-140 area and the following correction should bring us down to 100-05 (38,2% retracement) within Q3-Q4. This will be one of the reasons for the next leg up in stocks in the same period.
For now against the contradicting call from Goldman ( who made many wrong calls recently?? like 1160 before 1360 in the SPX) buy in May and sell Labour day the technical picture is showing south clearly with a bias on financials which should retest the lows (XBD, BKX) before a rally in Q3 starts. The SPX has reached first target at 1370 but very likely will drop to 1310 before the 2nd leg of the rally starts. Some Momentum and sentiment indicators are far too bullish (Rydex,MACD, etc) and gave sell signals with a VIX making a bottom. Expect consolidation with a negative bias through June.
Have a good week

About Me

I am a professional independent trader