Monday, October 22, 2007

US weakness ? Not anymore...

Seem I am the only one thinking this week-ends G-7 was much closer to getting actual wording on the weak US dollar. I note with some interest this headline from The Guardian :

(America vetoes G7's dollar alert) add to this following text from post G7 press conference:

"WASHINGTON (Thomson Financial) - Euro group president Jean-Claude Juncker said the euro zone will continue to monitor exchange rates closely following the euro's strong rise against the dollar.

He said the euro zone and its G7 partners are monitoring exchange rates 'in particular in light of recent sharp moves' in currencies.

The euro set a new record of 1.4318 usd earlier.

Juncker told a news conference at the G7 meeting in Washington that the euro zone had noted 'with great attention' that the US authorities had reaffirmed to their G7 partners that a strong dollar is in the interest of the US economy.

Markets should be aware of the risks of one-way bets in currency markets, he added.

European Central Bank president Jean-Claude Trichet said the US authorities' comment on the strong dollar was 'very important' and he fully subscribes to US Treasury Secretary Henry Paulson's comments that a strong dollar is in the US interest."

You got mixture for a cocktail which I call 2000 in the reverse! In other words, 2007 will soon become like 2000, only this time it's to sell EUR vs USD, not the other way around.

We are still VERY long USD calls vs EUR, NOK and CAD.

In the stock market we took profit on short STOXX50 into the close Friday- we will most certainly sell again, but... rule of thumb is to wait 24 hrs before initiating new trade.

The SUPERFUND SIV, "sponsored" by Paulson, is getting a lot of bad press and rightly so, I will not add to this equation but note this: It will only move risk from 2007 into early 2008.

If you are in doubt whether there is new round of credit weakness coming let put this to you:

1. RBS and Barclays ... went to Fed, yes Fed to borrow money.. Not a sign of gr8 things to come. Barclays went lower than August 17 low todat and rightly so. It is a bank runned by fair weather guy who cant see any issues anywhere.

2. Robert Rubin will NOT sign Citibanks accounts. He is simply afraid of the new legislation which makes his personal fortune liable if Citi is sued. He is as smart as they get.. and he is not signing anything with C in it!!!

3. The Average decline from Oct. 3 to Nov. 8 in years ending with 7 has average decline of 14.2%. 11 such incident has happened only one deviated (small gain of 1.7%) (source: Peter Eliades, Stock Market Cycles)

4. There are 5.000 stocks in the NASDAQ, but the top 50 stocks accounts for more than 75% of volume. Equals = massive speculative. This is not broadbased.

I am certain the next move is about tangible vs non-tangible asset.

Gold will do well as the US continues to use printing press to create US dollar to sustain their excess demand. Inflation is coming and fast. Gold has become new reserve currency.

In the same mold crude and agricultural products. I am keen on DBA US and other related commoditiy funds.


Fx: Long USD vs NOK, EUR, and CAD
FI: Took 50% of big 10y position off. Strong seasonal into Nmovember.
Commo: Buying gold and crude on dip. Note that Crude makes cyclical high most often in October (>10%) with December being the low.
Equity: Flat, but short Cramer favourites: RIMM, GOOG, AAPL and AMZN
Selling Barclays today....for fall-out this Q4

Performance: +67 bps since live update started.



CV said...

Hi Steen,

Nice to have you back in blog action again.

I am a bit surprised by the attention which the G7 got really. Ok, they did not mention the Yen but that is only because they found another scapegoat in the RMB. As for the Euro, well they are squirming in Frankfurt and really it is going to be a tough ride for the central bankers I fear since stagflation is going to sound all over the jungle drums very soon. Of course, with the added ingredient that unemployment is going to stay relatively low because of demographic fundamentals.

As for you EUR/USD call, I absolutely agree; it will soon be time to collect. My guess is that the ECB is playing it like an Autriche expecting it all to go away but at some point cards HAVE to come on the table and real economic data will only substantiate this I think. Moreover, as I have hinted here before Eastern Europe still has the potential to see everything a blaze with an unwind of some of the pegs. However, until that happens ...

Another observation is that the Yen looks way too expensive in my opinion. I will be looking for something like 118-120 to the Dollar as we get into Q3 data.

I am positioning myself accordingly with all of my (some of) funny money in Saxo Bank's investment game. Althoug at the moment I am actually long EUR/USD since I thought that 1.4159 was a little bit too low for the Euro in the very short term. The interesting thing will be to see if the EUR/USD goes to something like 1.43-1.44 again and what happens on the downside. The safe thing would of course be to short the damn thing and wait it out, but it is more fun shorting at 1.44 than 1.41 :).

Also I have a good eye to the Kiwi and the Aussie; my guess is that they will raise in Australian and of course if my Yen call comes in it means that the carry trade will continue to chuckle along. If it does not ...good thing it is only funny money then :). I can afford to play the next months a bit of gung-ho.

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