Market Observations 09/22/06
In our top story tonight, the leader of al-Qaida in Iraq, Abu Musab al-Zarqawi, is STILL dead and someone else has taken his place.
It appears that the spectre of a global economic slowdown tied to the US housing bubble ATM and a Chinese "soft" landing has finally taken roost.
Since May 10th the signals in the equities market have been obscured by a sideways pennant waving pattern.
Observe a chart of the XAU, XOI & CRB to see the gravity. Since Aug 10th, witness major pullbacks in crude $79 to $60, breaking support @ $66 & gold $675 to $588. Both finding temporary support at $575 & $60 as China is buying on the dip.
With oil revenues falling, Middle Easterner's are buying 25% less gold and recycling more into US Bonds as yields have been cut 50 bps during this period. This signals a flight from commodities speculation to "safety" in bonds and LOWER interest rates.
The CRB Reuters/Jefferies index tracks 17 commodities, losing over 20% broke its 4.5 year support line at 305. This could be signaling an impending major global recession.
Witness, Q2 Corporate profit +2.1% vs Q1 +14.8%, Q2 GDP +2.9% vs Q1 5.6%. Bottom up & top down economic reports have not been good. This is being downplayed by the hook in mouth media and IGNORED by investors.
Observe the VIX chart for investor complaceny. However, anxiety is UP of late as the VIX has gone from 10.5 to 13 in 7 trading days. VIX Calls & October PUTS are starting to look good.
This rally is nearing exhaustion (OEX & SP500 made all time & multi year highs) and we believe a late September - mid October shakeout is coming for equities.
Today, KB home warned as have all homebuilders. 07/29/05 - 07/21/06: HGX collapsed 293 to 186. Observe HGX rally since mid July on BAD NEWS. Are they catching falling knives or have we seen a bottoming?
Maybe, maybe not, with economic slowing, lower interest rates reduce borrowing costs, money printing, currency debauching & stock buybacks all inflate equity book valuations.
As economies cool further, central banks will decrease rates and money printing (through the still operating Japanese Yen zero rate carry trade) will be in order to combat the attendant housing led asset deflation.
For the moment, it appears that the central bankers are getting their way by slapping commodities speculators and stagflation with the only stick they have: rate increases. But now they pause...
Riddle me this Batman?? In a potential upcoming deflation scenario. Lower real wages, substantially reduced income streams and the negative savings rate all come into play.
Despite lower rates, efforts to save and/or falling home values prohibit borrowing against ones assets. Household incomes will be additionally cut due to job losses and even if spending stays the same (rising demand is off set by cheap import prices.)...
...less borrowing forces lenders to drop rates even lower, thus trapping the banking & financial institutions in the same decelerating income & increasing debt spiral that the consumer is already in.
News flash: This scenario has all the makings of a depression, just ask the Japanese after the last 15 years. Something to ponder and hope that the central banks can print or connive their way out of.
Keep it tween da ditches, we take it day by day and keep our eyes peeled to the sky, because it could be a name brand that pancakes us. Just my opinion, I could be wrong, this is The Nattering Naybob and your NOT!!!
It appears that the spectre of a global economic slowdown tied to the US housing bubble ATM and a Chinese "soft" landing has finally taken roost.
Since May 10th the signals in the equities market have been obscured by a sideways pennant waving pattern.
Observe a chart of the XAU, XOI & CRB to see the gravity. Since Aug 10th, witness major pullbacks in crude $79 to $60, breaking support @ $66 & gold $675 to $588. Both finding temporary support at $575 & $60 as China is buying on the dip.
With oil revenues falling, Middle Easterner's are buying 25% less gold and recycling more into US Bonds as yields have been cut 50 bps during this period. This signals a flight from commodities speculation to "safety" in bonds and LOWER interest rates.
The CRB Reuters/Jefferies index tracks 17 commodities, losing over 20% broke its 4.5 year support line at 305. This could be signaling an impending major global recession.
Witness, Q2 Corporate profit +2.1% vs Q1 +14.8%, Q2 GDP +2.9% vs Q1 5.6%. Bottom up & top down economic reports have not been good. This is being downplayed by the hook in mouth media and IGNORED by investors.
Observe the VIX chart for investor complaceny. However, anxiety is UP of late as the VIX has gone from 10.5 to 13 in 7 trading days. VIX Calls & October PUTS are starting to look good.
This rally is nearing exhaustion (OEX & SP500 made all time & multi year highs) and we believe a late September - mid October shakeout is coming for equities.
Today, KB home warned as have all homebuilders. 07/29/05 - 07/21/06: HGX collapsed 293 to 186. Observe HGX rally since mid July on BAD NEWS. Are they catching falling knives or have we seen a bottoming?
Maybe, maybe not, with economic slowing, lower interest rates reduce borrowing costs, money printing, currency debauching & stock buybacks all inflate equity book valuations.
As economies cool further, central banks will decrease rates and money printing (through the still operating Japanese Yen zero rate carry trade) will be in order to combat the attendant housing led asset deflation.
For the moment, it appears that the central bankers are getting their way by slapping commodities speculators and stagflation with the only stick they have: rate increases. But now they pause...
Riddle me this Batman?? In a potential upcoming deflation scenario. Lower real wages, substantially reduced income streams and the negative savings rate all come into play.
Despite lower rates, efforts to save and/or falling home values prohibit borrowing against ones assets. Household incomes will be additionally cut due to job losses and even if spending stays the same (rising demand is off set by cheap import prices.)...
...less borrowing forces lenders to drop rates even lower, thus trapping the banking & financial institutions in the same decelerating income & increasing debt spiral that the consumer is already in.
News flash: This scenario has all the makings of a depression, just ask the Japanese after the last 15 years. Something to ponder and hope that the central banks can print or connive their way out of.
Keep it tween da ditches, we take it day by day and keep our eyes peeled to the sky, because it could be a name brand that pancakes us. Just my opinion, I could be wrong, this is The Nattering Naybob and your NOT!!!
Comments