Monthly Archives: January 2012

29th January – Germany wants Greece to relinquish its budget to the European Commission

I am getting a bit tired of writing about Greece. Endless commentary, months of negotiations and billions wasted on bailouts, yet still the situation remains unresolved. I’ve now decided what will happen, will happen. I have money in the market and I can do no more than invest based on my reading of the ticker. As I wrote last time, the market continues to exhibit strength, albeit fairly weak strength.

Even so the inevitability of the Greek default and the futile attempts at avoiding it, have totally eroded my confidence in the political class to lead us anywhere other than oblivion. The photo bellow says it all.

I struggle to think how IMF Chief, Christine Lagarde, could have behaved more inappropriately. Did no-one think that waving a designer handbag around asking for more money for the IMF to bail out profligate countries would send out entirely the wrong message? Continue reading

25th January 2011 – Fed doesn’t say much but gold surges

Tonight’s FOMC policy announcement didn’t give a great deal.

They will keep interest rates at 0% until 2014, with 6 members expecting not to have to increase rates until 2015. QE2.5 continues, but so far QE3 hasn’t been announced.

In spite of this gold surged $48 over the course of the day. Remember that commodity prices should not behave like this.

We now have the clearest indicator we could hope for that the Fed will print again and the market expects inflation. This will be good for stock prices. For average people it will be painful.

I find it interesting that the Fed insist their long-term inflation target is 2%. With Chinese imported deflation at an end, perhaps they hope the collapse in financial assets will put enough pressure on prices to keep the inflation genie in its bottle.

For now though I am happy I am on the right side of the line. Hold.

23rd January 2011 – Markets straining at the leash

Since the Dow broke through 12,200, stock markets have been rising steadily.

Many commentators are scratching their heads at this, especially when we consider the macro-conditions facing us;

-        The ongoing Greek saga/European Sovereign Debt Crisis/European banking crisis (yawn…..)

-        The US increasing its deficit again several months before it was meant to

-        The prospect of a European recession

-        The supposed threat to the Euro (which I believe will survive)

-        Increased tensions in the Middle East

-        The self-imposed, short-term liquidity crisis (last week a record €528billion was parked with the ECB overnight – thank you Google Alerts!)

None of these problems are going away of their own accord, much as policy makers may wish them to. However, as my Market Strength Test Tool demonstrates, the stock market appears immune to these threats.

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Continue reading

17th January 2011 – European insurers on the edge; Might the hedge funds orchestrate a Greek default?

Recently columnists on Zerohedge have been decrying the state of European insurance companies, most notably Allianz Se of Germany and Generali of Italy. They believe that a disorderly Greek default is inevitable, which will cause a credit event and in turn trigger payments on credit default swaps. If this happens the panic could be on a comparable scale to that of late 2008 in the aftermath of Lehman. It might even be worse.

I’ve written recently that in spite of this threat, markets have remained pretty resilient. Although we have not made new highs since last May, things could be a lot worse. It looks like there is still some life left in the old bull yet.

I am a regular reader of Zerohedge, but can often find their apocalyptic analysis doesn’t mirror what is happening in the market. In the long run they will probably prove to be right. The financial system is broken beyond repair and the policy initiatives of the last four years have likely made the situation much worse.

But bringing my focus back to the purpose of this blog, my goal is to assess current general conditions and make investment decisions accordingly.

Friday’s downgrade of France was big news, but was also widely expected. It didn’t trigger a serious sell off. This was perhaps surprising, especially given the suspension of talks between Greece and her creditors.

Trying to form a view in the face of such a counter-intuitive response is tricky.

Starting with the insurers, I went back to S&P’s original statement to put the Europeans on CreditWatch. On December 6th last year the European sovereigns were warned they were on the list. The insurers were warned six days later on December 12th.

France was downgraded on Friday and the EFSF was downgraded yesterday. The latter move was no real surprise and further-emphasised the weakness in Europe’s attempts to solve the Sovereign Debt Crisis. Remember that 25% of the guarantees in the “bailout” came from Italy and Spain, so this was never going to be taken seriously.

With all this in mind could the European insurance companies be downgraded by the end of the week? Continue reading

13th January 2012 – “To study physics you need mathematics as well”

I loved this quote earlier in the week from Michael Fuchs, Deputy Floor Leader of the CDU in Germany. A prominent member of Angela Merkel’s governing party Fuchs was making the simple point that Greece’s default is a matter of arithmetic (apparently Merkel is a physicist).

This departure from the official line simply tells us what we already know, but I also believe a shift has occurred in the handling of the Greek question.

Up until Greece’s last Prime Minister, Papandreou, announced a referendum on the bailout package in the wake of October’s summit to save the Euro, Germany and France had been steadfast in their refusal to push Greece out of the Euro. This idea was quashed and Papandreou rapidly exited stage left. I noted Franco-Saxon frustration at the time and I suspect now that this was the point they privately gave up on the Greeks.

I don’t agree with decisions the Germans and French have taken in their approach to dealing with the Sovereign Debt Crisis, but they were certainly loyal. When the Greeks proved to be unreliable partners (for the umpteenth time) I believe enough was enough.

It now looks like Greece has been marginalised and is now being edged out of the Euro. Continue reading

11th January 2012 – Does Hungary pose the greatest current threat?

I’ve been researching my idea for a trade in European banks and the Euro. I’ll write more about this soon, but in brief it is too complex and not something I will follow up.

Even so, the research has not been in vain. I’ve learnt a lot more about the parlous state of Europe’s banks as well as the murky world of credit default swaps. I am sure the latter is another topic I will be returning to.

Now that I have money in the market, I find I am paying much more attention to conditions. I still believe the record liquidity waiting to enter play will do so this year, but the ongoing Sovereign Debt Crisis surely has to be the greatest near term threat to my positions. With this in mind I’ve formed a rather troubling view. While trawling through numerous sources I now believe is not Greece, which could set off all manner of nastiness, but rather non-eurozone member Hungary.

Much of the last eighteen months has been dominated by Greece’s impending default. Numerous summits and attempts at bailout packages have only succeeded in delaying the inevitable. What has been most surprising/foolish/impressive (you pick), has been the ECB’s steadfast resolve in keeping the leaky ship afloat.

Greece has been put into the financial equivalent of a medically induced coma. Totally reliant on the ECB, IMF and European Union to fund its public expenditure and crippling deficit, the country has not been allowed to fail for fear of what this might do to the Euro. The exact same could be said for Ireland and Portugal. Politics has trumped sensible economics and the degradation of the ECB’s balance sheet to no real end is more than likely going to come back to haunt Europe’s “leaders”.

Events in Hungary could hasten the arrival of this day. Continue reading

4th January 2012 – Quick update on gold, Amazon and shorting the Euro/going long European banks

Today’s post is slightly academic. I am fully invested into seven British stocks, all listed on AIM.

This said there are three trades I am going to track progress of in the coming months.

First is the gold position I wrote about the other day. I am still likely to enter this market, but not for the time being. There has been a 4.5% rally since last week, so this one is back on my monitoring list. When I wrote the last post I should have mentioned that gold was trading at $1,540/oz when I was considering buying the option. I also came across this article yesterday, which succinctly outlines the main reasons to be bullish on this metal.

The next major trade I am interested in is Amazon. Below is the chart from the trading system;

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At first glance this makes fairly nasty viewing. While the NASDAQ (which Amazon is listed on) has been rising, albeit haltingly, Amazon looks to have topped out, making a series of lower highs and lower lows in quick succession. Although the stock has halted at secondary support, a failure to hold this level could well lead to another $30 decline to primary support. Continue reading

1st January 2012 – Revisiting gold as my first trade of the year

Although my two recent forays into gold proved ill-timed I am still very bullish on the metal’s prospects.

Many commentators have leapt on last month’s sell-off as definitive proof that gold’s lustre is waning and its remarkable bull market is at an end. Certainly the charts don’t make pretty viewing. A double top occurred at the end of August and in early September. This marked the beginning of the declines. Over the rest of 2011 a series of lower lows and lower highs were made. Eventually the important 200MA was breached (where I first entered) and the selling continued. The price closed at $1,568/oz.

Chief amongst the anti-gold arguments is its lack of application. There is some truth to this. When asked what gold is used for most of us would probably answer “jewellery”. With the world’s economy as it is and with India and China seeming to slow down (two of the major markets for real gold) the bearish view is seemingly strengthened.

Another argument against gold is the apparent lack of inflation. Many have viewed gold as being a hedge against inflation through its role as an international store of wealth. As major currencies continue to be weakened by the monetary policies of the Fed, ECB, Bank of England and Bank of Japan, gold has offered investors a safe haven. The theory holds that as inflation rises so too will the price of gold. What has been problematic for bullish gold investors is that inflation has remained relatively benign in spite of all the stimulus measures. The latest American CPI figure was 3.4%, which is well below the double digit rate experienced during the 1970s.

This gives the anti-gold camp much encouragement. Continue reading