Finance / the Markets

• Get Ready for the Final Flush in October

  What a quarter that was! Q3, 2011, will go down in the history books as one of the worst in market history, and certainly one of the most volatile. 1929, 1987, and 2008 come to mind. Is the fat lady getting ready to sing in October? The economic data is saying definitely not, while commodities are saying definitely yes. The one economic indicator I would choose to receive if I were stranded on a desert island, the weekly jobless claims, showed a blockbuster decline of 37,000 over the previous week to 391,000, the first drop under the boom or bust…

• Soros: Europe is in a More Dangerous Situation than the U.S. in 2008

  Although stocks around the globe appear to be expecting the Eurozone to produce a game changing plan involving a leveraged, TARP-like approach, not all investors are convinced that Europe is out of the woods. In a number of recent interviews, noted financial expert, legendary hedge fund manager and philanthropist, George Soros, expressed his professional conviction and provided advice regarding Europe’s current financial crisis. Soros believes Europe is worse off than the U.S. back in 2008 given mass uncertainty. “It is a more dangerous situation…to the global financial system than the collapse of Lehman Brothers…” the 81-year old investor said. “Even…

• Selling Oil Again for a Hedge

  With oil having bounced $5.50 over the last couple of days, I am going to flip back to the short side for several reasons, not all of which have to do with Texas tea. The trigger was oil’s failure to rally in the wake of a surprisingly large draw down in inventories this week, some 6.7 million barrels. This comes off the back of a large build in gasoline inventories of 2 million barrels, which has been a great leading indicator for crude. For a start, I have run out of “RISK OFF” positions, having covered them all during the…

• Itching to Get Into Corn

  Long term readers of this letter know that I have long been banging away on the fact that the world is making people faster than the food to feed them. According to the World Bank, the world’s population is expected to jump 2 billion, from 7 billion to 9 billion in the next 40 years. Half of that increase will come in the arid, food deficient Islamic world. This is happing when the rate of increase of the world’s agricultural productive capacity is rapidly declining. Ancient aquifers everywhere are falling, thanks to “water mining”, especially in India, Saudi Arabia, and…

• Bring Back the Uptick Rule!

  When the Dow crashed 514 points on August 8, the market lost a staggering $850 billion in market capitalization. High frequency traders were possibly responsible for half of this move, but generated a mere $65 million in profits, some 7/1,000’s of a percent of the total loss. Are market authorities and regulators being penny wise, but pound foolish? The carnage the HF traders are causing is triggering a rising cry from market participants to ban the despised strategy. Many are calling for the return of the “short sale test tick rule”, or SEC Rule 17 CFR 240.10a-1, otherwise known as…

• My View of the Stock Market for the Rest of 2011

  Down, then up, then down again. How about that? I believe that the global risk markets will bottom sooner than people think, and that the time has come to compile a shopping list of investments to pick up on distressed days in the market. I think that at the most extreme, the S&P 500 will bottom at 1,000 at the lowest from yesterday’s 1,023 close. More likely are important bottoms at the Fibonacci levels of 1,045 and 1,065. At 1,000, the index will be showing a 28% decline from the April 29 peak. The market multiple will have collapsed from…

• Commodity Price Fears and China’s Growth Forecasts

  Commodity markets lost more than $16 billion in value during last week’s selloff, Reuters reported in a special report. Equity and commodity markets plunged as growing anxiety over the global economic outlook spurred a flight to safe-haven bonds. The drop in prices wiped out $16 billion in value, mainly due to oil prices dropping 6 percent and investors losing $7.3 billion on paper, the report said. The rout was caused by S&P’s downgrading of the US’ “AAA” rating and panic over the unsustainable rise in Euro-zone debt spreads potentially pushing the region into a breakup of the Euro or a…

• Use the Melt Down to Load Up on India

  Take a look at the chart for the emerging market ETF (EEM) below and you will be surprised to see how well it has held up in the recent collapse. This is in sharp contrast to its performance during the 2008 crash, when emerging markets outperformed developed markets to the downside by a factor of two or three. So I thought it would be useful to spend some time with Sunil Asnani, portfolio manager at Matthews International Capital Management in San Francisco. He argues that you want to buy these markets during periods of market instability. Historically, they take the…

• Bernanke Says Buy Stocks, Or Else!

  I believe that the risk markets are discounting a recession that isn’t going to happen. Not yet, anyway. So I am going to start adding some small, limited risk call options here. After analyzing the statement from the Federal Reserve yesterday, it is clear that Ben Bernanke is holding a gun to your head, threatening to pull the trigger if you don’t buy stocks. By taking the ten year Treasury bond yield down to 2.0%, some 80% of equities now have dividend yields greater than bonds. A substantial number of companies are paying dividends double or more the ten year…

• Is QE3 Back From the Dead?

  When I went to bed late last night, the (SPX) was trading down 30 points, and I was thinking “here we go again”. When I woke up, the market was up 30 points, and I had to blink hard. The overnight range was an unprecedented 60 points, or 560 Dow points. From the July high to the Asian low, the (SPX) has fallen 23% in 12 trading days. When QE2 ended on June 30th, I argued that there was zero chance of Ben Bernanke moving straight into another quantitative easing program. But as my recent performance has convincingly testified, I…