Once again the US Fed Head is talking tough on interest rates. The 'massaging' of perceptions continues, but as Peter Schiff points out-'what is he going to do-raise interest rates 100 bps-big deal'. In addition, Treasury Sec. Paulson is talking once again about a 'strong dollar' and would not rule out intervention. No doubt they are going to do something about the relentless weakening of the USD. But how far they will go is anybodies guess, but the tough talk is unwinding some of the excess speculation. 2 yr bonds are closing in on 3%-currently 2.87%, while 10 yrs are at 4.05. The flatter yield curve and rising interest rates are not going to help the US Financials repair their balance sheets.
Lehman Brothers raises 6 bln in capital (4 bln common equity, 2 bln preferred at 8.75%) and participation is mainly US based-very little foreign buying. Maybe the foreigners (SWFs) have told the US that their money is no good anymore until they do something to stop the decline.
What does that mean-SLOW Growth if growth at all. The FED is once again following the mkt and not leading. ECB President Trichet called out Bernanke. Inflation is a problem and rates need to go up. Until rates rise above the money supply growth figures-talk is cheap.
Question remains-how vigilante, how long before initial move, how will higher rates affect the financials and real economy.
Tuesday, June 10, 2008
Sunday, June 8, 2008
Time for Sacrifice
Here we are at the crossraods of history. The US needs to make a stand, or its role as the only remaining super power is about to be diminished. Over the last 20 yrs, the US has squandered its lead in technology, commerce, free speech, civil rights, and a host o other issues as the mistakes of history get repeated-AGAIN. The more things change, the more they stay the same as human nature is a difficult animal to corral.
The US is in a war-whether it is a War on Terror, or a War of Christian beliefs vs Islam, or a War of Imperical Power vs Colonial autonomy-it makes no difference. It is a war. In War, sacrifices need to be made. To date, 4000 US service men and women have sacrificed their lives. In addition, the secret, private war of third party combatants has also claimed numerous lives. What are the sacrifices at home. Besides the skyrocketing price of oil and essentials, there is no sacrifice. No taxes have been raised to pay for this war. No programs have been implemented to increase the war effort to add supplies and soldiers to the program. There is a clear lack of direction at the top. It is like a blind fighter swinging wildly at his opponent with no help from his trainers regarding direction. Something needs to be done to change this path of ruin.
Some sort of National Plan needs to be implemented. The War Hawks are running roughshod once again through the halls of the US Gov't. Remember Manifest Destiny. It is back. How many pompous US Congressmen and wamen have been hijacked by the indusrtial military complex. It is becoming ludicrous. In the past the US just printed more of the reserve currency. But that game is up. The Rest of the World (ROW) is up to their eyeballs in US$. They have enough. Now they want to spend them on either their own citizens or to consolidate their power. Strategic Resources are wanted. Food, Water, energy, shelter and Land are in demand. Things are going to get tense and hostile in the next decade. Is the US going to seize the day and return to glory, or will it join the Roman empire as a neat bit of history that my great grand children will read about.
More to come in later letters.
The US is in a war-whether it is a War on Terror, or a War of Christian beliefs vs Islam, or a War of Imperical Power vs Colonial autonomy-it makes no difference. It is a war. In War, sacrifices need to be made. To date, 4000 US service men and women have sacrificed their lives. In addition, the secret, private war of third party combatants has also claimed numerous lives. What are the sacrifices at home. Besides the skyrocketing price of oil and essentials, there is no sacrifice. No taxes have been raised to pay for this war. No programs have been implemented to increase the war effort to add supplies and soldiers to the program. There is a clear lack of direction at the top. It is like a blind fighter swinging wildly at his opponent with no help from his trainers regarding direction. Something needs to be done to change this path of ruin.
Some sort of National Plan needs to be implemented. The War Hawks are running roughshod once again through the halls of the US Gov't. Remember Manifest Destiny. It is back. How many pompous US Congressmen and wamen have been hijacked by the indusrtial military complex. It is becoming ludicrous. In the past the US just printed more of the reserve currency. But that game is up. The Rest of the World (ROW) is up to their eyeballs in US$. They have enough. Now they want to spend them on either their own citizens or to consolidate their power. Strategic Resources are wanted. Food, Water, energy, shelter and Land are in demand. Things are going to get tense and hostile in the next decade. Is the US going to seize the day and return to glory, or will it join the Roman empire as a neat bit of history that my great grand children will read about.
More to come in later letters.
Friday, June 6, 2008
Plenty of action y'day
In what could be a turning point for the mkts in general y'day, stocks, and commodities rallied hard while bonds sold off. Maybe the inflation trade is starting to gain traction. In the early stages of an inflation, everything goes up-including interest rates. However, the trick remains to contain inflation before it gets out of control-difficult to do.
Some notes- the GLD and SLV have been rumoured to have loaned out their holdings. As qtr end approaches, the loans will have to be called back as the accountants step in. Could be interesting. Silver starting to outperform gold-maybe a warning sign of a top, or a sign of the long talked about short squeeze. Gold equities starting to outperform the physical, but it is still a way from normal levels.
Oil tacked on 5+ $ y'day to end close to 128. I still think we will see 110-115 this summer (not alone as several oil bulls have pulled back their horns-namely Frank Holmes and the Aden sisters). Oil is statistically overbought, but even the few brave souls looking to short are quick to cover-mainly because they have been burned since the 105 break.
If the inflation trade is going on-stocks are in and in particular real asset stocks. Still avoid financials-more writedowns dead ahead. MBIA and Ambac got downgraded y'day-the spiral continues.
Some notes- the GLD and SLV have been rumoured to have loaned out their holdings. As qtr end approaches, the loans will have to be called back as the accountants step in. Could be interesting. Silver starting to outperform gold-maybe a warning sign of a top, or a sign of the long talked about short squeeze. Gold equities starting to outperform the physical, but it is still a way from normal levels.
Oil tacked on 5+ $ y'day to end close to 128. I still think we will see 110-115 this summer (not alone as several oil bulls have pulled back their horns-namely Frank Holmes and the Aden sisters). Oil is statistically overbought, but even the few brave souls looking to short are quick to cover-mainly because they have been burned since the 105 break.
If the inflation trade is going on-stocks are in and in particular real asset stocks. Still avoid financials-more writedowns dead ahead. MBIA and Ambac got downgraded y'day-the spiral continues.
Friday, May 30, 2008
China Slow Down
Expect China to slow down its growth trajectory as it heads in to the Olympics? Counterintuitive perhaps, but all the supplies China needs to build the facilties for the games are already in the country. Maybe food and fuel will remain unscathed, but a drop in other materials is likely as China shuts down some of their toxic polluters to 'clean up the air' for the games. Coal is obviously a suspected loser as is iron ore.
However, after the games, expect a renewed surge as the need for China to rebuild the Sichuan area after the earthquake and house the migration of 250mm rural citizens into the cities over the next decade continues.
However, after the games, expect a renewed surge as the need for China to rebuild the Sichuan area after the earthquake and house the migration of 250mm rural citizens into the cities over the next decade continues.
June 30
June 30 is qtr end for the fast money crowd. There is 3 trillion sitting in mmkt funds-part of that is retail and part is fast money hiding. Watch for the money to gravitate towards the qtrs winners. GOOG, AAPL, RIMM could trade up on money flow. I suspect the sp500 trades higher into q2 end, but fails to break to new intermediate highs. We will see.
Also I suspect the mutual fund side will continue to see redemptions as the lifestyle of many consumers is going to see savings eaten into.
Also I suspect the mutual fund side will continue to see redemptions as the lifestyle of many consumers is going to see savings eaten into.
Watch the Bond Mkt
Long term yields are starting to move higher. Technicals have confirmed a downtrend in Price, possibly a 75 to 100 bp back up in long term yields. Either the mkt is sniffing inflation ( possibly) and/or foregn buyers of US debt paper are not as interested. This weeks bond auctions were not well received.
The stock/bond model still suggests stocks should outperform bonds. Not entirely true as the writedowns in the financial sector are not included in estimated SP500 earnings. Bonds are expensive given the inflation picture, stocks are still expensive, but just not as expensive.
The stock/bond model still suggests stocks should outperform bonds. Not entirely true as the writedowns in the financial sector are not included in estimated SP500 earnings. Bonds are expensive given the inflation picture, stocks are still expensive, but just not as expensive.
Oil/Gold and other commodities.
The commodities complex is enduring a bout of profit taking. There is no doubt that 4$ gas and 130 oil is starting to destroy demand. In any bull market, it is not the peaks that are important, it is the valleys-how much of a pullback can we expect. Taking the standard 20% from 135 gives us a 108 target.
As for gold, 20% of 1030 is approx. 830. The mkt needs to wash out the johnny come lately, weak handed momentum players who chase performance. This will happen and I look for the mkt to consolidate through the summer, before the late q3, early q4 move higher. Risk is being pared back, and even more important is credit/leverage is being reduced.
As for gold, 20% of 1030 is approx. 830. The mkt needs to wash out the johnny come lately, weak handed momentum players who chase performance. This will happen and I look for the mkt to consolidate through the summer, before the late q3, early q4 move higher. Risk is being pared back, and even more important is credit/leverage is being reduced.
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