Thursday, January 31, 2008
EURUSD 1.50 Within Reach Though Retailers Increasing Their Shorts
The ratio of long to short positions in the EURUSD stands at -1.59 as nearly 62% of traders are short. Yesterday, the ratio was at -1.48 as 60% of open positions were short. In detail, long positions are 0.9% lower than yesterday and 20.8% stronger since last week. Short positions are 6.9% higher than yesterday and 28.2% stronger since last week. Open interest is 3.8% stronger than yesterday and 9.5% above its monthly average. The SSI is a contrarian indicator and signals more EURUSD gains. The considerable jump in short positioning over the past week reflects retailers’ confidence in resistance read at 1.49. However, since retailers are usually on the wrong side of the trade on trends and breakouts, this position may foreshadow the break to 1.50 that the market has threatened for many months.
Stagflation dilemma haunts euro
But other analysts say European growth worries are premature
LONDON (MarketWatch) -- When it comes to the threat of stagflation, the European Central Bank has appeared much more worried about the inflation portion of that dreaded compound word than signs of a stagnating economy.
But some foreign exchange analysts say Thursday's muted reaction by foreign-exchange and fixed-income markets to another round of troubling euro zone inflation data increased the likelihood that policymakers may soon pay more heed to signs of slowing European growth.
Stagflation describes a period of low or negative growth and high price inflation. Signs of the latter have been evident for a while, and more evidence emerged Thursday.
LONDON (MarketWatch) -- When it comes to the threat of stagflation, the European Central Bank has appeared much more worried about the inflation portion of that dreaded compound word than signs of a stagnating economy.
But some foreign exchange analysts say Thursday's muted reaction by foreign-exchange and fixed-income markets to another round of troubling euro zone inflation data increased the likelihood that policymakers may soon pay more heed to signs of slowing European growth.
Stagflation describes a period of low or negative growth and high price inflation. Signs of the latter have been evident for a while, and more evidence emerged Thursday.
U.S. mortgage rates reverse course and rise
CHICAGO (MarketWatch) -- Mortgage rates rose this week, ending about a month-long streak of declines, according to Freddie Mac's weekly survey released Thursday.
"The movement in fixed mortgage rates was broadly consistent with the movements of Treasury bonds over the week," said Frank Nothaft, Freddie Mac chief economist, in a news release. The 30- and 15-year fixed-rate mortgages rose by about 0.2 percentage points, he said, erasing the previous week's decline.
The 30-year fixed-rate mortgage averaged 5.68% during the week ending Jan. 31, up from last week's 5.48%. The mortgage averaged 6.34% a year ago. The 15-year fixed-rate mortgage averaged 5.17%, up from 4.95%. The mortgage averaged 6.06% a year ago.
Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 5.32%, up from last week's 5.13%. The ARM averaged 6.04% a year ago. And 1-year Treasury -indexed ARMs averaged 5.05%, up from 4.99%. The ARM averaged 5.54% a year ago.
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"The movement in fixed mortgage rates was broadly consistent with the movements of Treasury bonds over the week," said Frank Nothaft, Freddie Mac chief economist, in a news release. The 30- and 15-year fixed-rate mortgages rose by about 0.2 percentage points, he said, erasing the previous week's decline.
The 30-year fixed-rate mortgage averaged 5.68% during the week ending Jan. 31, up from last week's 5.48%. The mortgage averaged 6.34% a year ago. The 15-year fixed-rate mortgage averaged 5.17%, up from 4.95%. The mortgage averaged 6.06% a year ago.
Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 5.32%, up from last week's 5.13%. The ARM averaged 6.04% a year ago. And 1-year Treasury -indexed ARMs averaged 5.05%, up from 4.99%. The ARM averaged 5.54% a year ago.
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Expect more than a typical recession
SEATTLE (MarketWatch) -- Call this the perfect financial storm or what you will; Wall Street has made fools of financial institutions around the world with their CMOs, CDOs, and greedy boo-boos.
At least they didn't lose as much as their customers. The stock market is in distress, bond insurers are looking for a $200 billion bailout, junk-bond markets are at risk of further losses and life-, home- and auto insurers' risk has not yet been fully assessed.
We need real ready-to-go financial leadership and we need it now. Tell the presidential candidates, Congress and economists to stay home. We need regulators with clear priorities.
Former Federal Reserve Chairman Paul Volcker, former FDIC Chairman Bill Isaacs and anyone they trust would be good choices. They beat inflation and presided over the savings and loan cleanup. Tell Ben Bernanke to go home.
As for you personally, it's every person for themselves and their family. Study the charts: This is a bear market.
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At least they didn't lose as much as their customers. The stock market is in distress, bond insurers are looking for a $200 billion bailout, junk-bond markets are at risk of further losses and life-, home- and auto insurers' risk has not yet been fully assessed.
We need real ready-to-go financial leadership and we need it now. Tell the presidential candidates, Congress and economists to stay home. We need regulators with clear priorities.
Former Federal Reserve Chairman Paul Volcker, former FDIC Chairman Bill Isaacs and anyone they trust would be good choices. They beat inflation and presided over the savings and loan cleanup. Tell Ben Bernanke to go home.
As for you personally, it's every person for themselves and their family. Study the charts: This is a bear market.
READ THE REST
Jobless claims surge, spending softens
WASHINGTON (Reuters) - The number of workers filing new claims for jobless aid surged last week to the highest since October 2005, and consumer spending softened at the end of last year, according to reports on Thursday that heightened worries about a possible recession.
The Labor Department said initial claims for state unemployment benefits jumped by 69,000 last week to 375,000. It was the biggest jump since September 2005 and the highest since October of that year, just after Hurricane Katrina devastated the U.S. Gulf Coast.
Separately, the Commerce Department said consumer spending edged up by 0.2 percent in December after a 1 percent gain in November, just enough to keep pace with inflation.
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The Labor Department said initial claims for state unemployment benefits jumped by 69,000 last week to 375,000. It was the biggest jump since September 2005 and the highest since October of that year, just after Hurricane Katrina devastated the U.S. Gulf Coast.
Separately, the Commerce Department said consumer spending edged up by 0.2 percent in December after a 1 percent gain in November, just enough to keep pace with inflation.
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Gold Investments Market Update
Prior to the Federal Reserve’s 50 basis point interest cut to 3%, gold was down $3.60 to $921.20 per ounce in trading in New York yesterday and silver was down 4 cents to $16.74 per ounce. Gold surged (from $920 to $934.25) to new record highs after the interest rate decision at 2:30 p.m (1930 GMT) in after-hours trading on the Comex division of the New York Mercantile Exchange (NYMEX). Silver surged to new highs at $16.87.
Both have seen profit taking and have since sold off in Asian and European trading. A monthly close above $900 tomorrow, the first ever, would obviously be very bullish from a technical point of view.
Negative real interest rates (with the key discount rate less than the rate of inflation) in the world’s largest economy is very inflationary and could lead to gold reaching $1,000 in the coming weeks, as the dollar comes under further pressure. The moniker ‘Helicopter Bernanke’ is looking more and more apposite as the Federal Reserve chairman again drops copious amounts of liquidity onto the increasingly troubled financial and economic waters. The risk is that by attempting to prevent deflation in asset classes, the Federal Reserve ends up creating stagflation and a mild form of hyperinflation. Or even worse by endeavoring to protect the banks, stock and property markets they end up putting the dollar’s position as the global reserve currency at risk.
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Both have seen profit taking and have since sold off in Asian and European trading. A monthly close above $900 tomorrow, the first ever, would obviously be very bullish from a technical point of view.
Negative real interest rates (with the key discount rate less than the rate of inflation) in the world’s largest economy is very inflationary and could lead to gold reaching $1,000 in the coming weeks, as the dollar comes under further pressure. The moniker ‘Helicopter Bernanke’ is looking more and more apposite as the Federal Reserve chairman again drops copious amounts of liquidity onto the increasingly troubled financial and economic waters. The risk is that by attempting to prevent deflation in asset classes, the Federal Reserve ends up creating stagflation and a mild form of hyperinflation. Or even worse by endeavoring to protect the banks, stock and property markets they end up putting the dollar’s position as the global reserve currency at risk.
READ THE REST
Eskom Withdraws Authorisation for Mining Industry
JOHANNESBURG, January 31 /PRNewswire-FirstCall/ -- Gold Fields Limited ("Gold Fields") (NYSE, JSE, DIFX: GFI) is disappointed to confirm that Eskom has informed the Company that authorisation to increase electricity load from 80% to 90% by this evening, has been temporarily withdrawn in order to "protect further frequency decay and system instability."
To comply with this instruction, and in the interest of safety, production at Gold Fields' operations is being pulled back to the 80% power level.
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To comply with this instruction, and in the interest of safety, production at Gold Fields' operations is being pulled back to the 80% power level.
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Dealing with Recession
Clifford F. Thies
For all the talk by the Federal Reserve about "inflation targeting," we now see that responding to short-run problems is paramount for the Fed. Holding the line on inflation is something the Fed does when it is convenient. Resorting to inflating the money supply when times are tough is predictable, as is a continuing loss of purchasing power of the US dollar. The only uncertainty is how fast the dollar will lose purchasing power. Will it be at a creeping rate, or at a galloping rate, or at a hyperinflationary rate?
You might think that we learned our lesson about inflation during the 1970s, when we moved first from a creeping to a galloping rate, and then risked a further move to hyperinflation. The double-dip recession we then went through starting in 1979 fell in the second tier of economic downturns (below only the Great Depression). There is currently no indication that a severe downturn is on the horizon. But, if we work hard enough at it, with fiscal and monetary policy pumping up the economy and delaying and exacerbating the inevitable, we can make such a severe recession possible in the future. FULL ARTICLE
Ron Paul's replies on CNN debate Jan. 30, '08
And here is a Debate Synopsis by Justin Raimondo on Takimag.com
Four signs that gold has further to rise
It's been a great start to the year for gold - and its fellow precious metals - so far.
In fact, I’m beginning to wonder if my target of a high in gold of $1150 an ounce this year was a little conservative. Perhaps I’m feeling too exuberant and that’s a warning signal, but there are certain signs that suggest an intermediate-term top is coming - I'll tell you what they are in a moment - and I don’t see many of them.
In fact, if the Federal Reserve cuts interest rates later today by half a point, we might even see my target before the end of February...
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In fact, I’m beginning to wonder if my target of a high in gold of $1150 an ounce this year was a little conservative. Perhaps I’m feeling too exuberant and that’s a warning signal, but there are certain signs that suggest an intermediate-term top is coming - I'll tell you what they are in a moment - and I don’t see many of them.
In fact, if the Federal Reserve cuts interest rates later today by half a point, we might even see my target before the end of February...
READ THE REST
MBIA credit rating fear
Shares in MBIA, the world's biggest bond insurer, tumbled after reporting its largest-ever quarterly loss and admitting it's considering how to raise new capital.Late yesterday the company reported a loss of $2.3bn for the last three months of 2007. MBIA, which together with other bond insurers guarantees $2.4 trillion of debt, is scrambling to keep hold of its top credit rating. The loss of the rating would threaten the ratings of a further $652bn of securities.
Analysts reckon that fears that MBIA and Ambac will lose their ratings contributed to the volatilty in stock markets last week.
The high-profile banking analyst who triggered the resignation of Citigroup chairman Charles "Chuck" Prince is predicting investment banks will need to take further write-downs of $40bn (£20bn) to $70bn as a result of the current crisis in the bond insurance market.
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Update: MBIA shares rise; bond insurer highlights liquidity
Also note the Ripple Impact of $534 Billion Debt Downgrade
Desperate Measures in Desperate Times
The Fed cut interest rates eight days after the last shift, but why do I feel that the biggest economy in the world is being run on a rolling day-to-day basis with policy makers reacting to each and every little toss and swirl of the markets?
Last week we had a 0.75pc cut which was odd enough (striking one almost as if game of scissors, paper, rock presided over whether to go for 1pc, 0.75pc or 0.5pc and paper won).
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Then, however, to follow it up only a few short days later with another 0.5pc smacks of desperation. The theory going round is that the Fed does not want to be seen as having being spooked by the Société Générale debacle, about which they were as in the dark as the French Government and has, therefore, followed up last week's panic move with a further cut. A bit fanciful, perhaps, but the whole thing does look a bit strange.
Last week we had a 0.75pc cut which was odd enough (striking one almost as if game of scissors, paper, rock presided over whether to go for 1pc, 0.75pc or 0.5pc and paper won).
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Then, however, to follow it up only a few short days later with another 0.5pc smacks of desperation. The theory going round is that the Fed does not want to be seen as having being spooked by the Société Générale debacle, about which they were as in the dark as the French Government and has, therefore, followed up last week's panic move with a further cut. A bit fanciful, perhaps, but the whole thing does look a bit strange.
Forex Market Update - 30/01/2008
By FX Insights Moderator,
As expected, Bernanke and the FOMC gave the markets an additional 50bps cut, dropping the Fed's key interest rate to a paltry 3.00%... The market's first-wave, initial response was to drive the euro up 100 pips against the dollar, but as we indicated in our chat this afternoon, we'd then see a pullback and retracement of at least 50 pips, which has since materialized as we're sitting comfortably at the 1.4830 level...
There's just a few points I want to cover in today's update... some food for thought going forward... Today's Fed action, in my opinion, will keep the USD under pressure in the near-term. In yesterday's update we discussed each possible scenario that could play out today and I won't take the time to re-hash as you can read yesterday's update if you like...
In addition, Fed Funds Futures is pricing in additional rate cuts in March, possibly bringing the Fed's key interest rate as low as 2.25%! So, what does this mean for the dollar? I'd like to use the CHF as an example of something I believe could play out should the Fed decide to keep cutting and cutting and cutting all the way down to 2.25% or lower... For the past few years the Swiss have kept their key interest rate at or below the 2.50% level -- it was only last year that the SNB finally moved rates to where they currently sit at 2.75%, which is a major factor why the CHF has gained against the USD...
Now, when the Swiss kept rates hovering around the 2.00% to 2.50% levels, the markets beatup the CHF by using it as a funding currency and as a carry trade currency... the crazy thing about that is, Switzerland has always been a very fundamentally sound economy and very prosperous, with solid GDP and low unemployment rates, however, their artificially low interest rates took a damaging toll on the CHF... banks, investors, and traders used the CHF as a funding currency because Swiss rates were so low and it was cheap to borrow and cheap to repay...
These banks and investors would use cheap francs to invest in either higher yielding currencies and or higher yielding investments like equities, commodities, etc... you get the idea... What I'm getting at is this -- should the Fed keep hacking interest rates, keep price fixing, and keep devaluing the dollar, I believe the USD could go the way the CHF went for the past few years, which is the USD being used as a funding or carry trade currency...
Think about it... these are some scary and current interest rate differentials:
USD and AUD -- 375bps in favor of the AUD
USD and NZD -- 525bps in favor of the NZD
USD and EUR -- 100bps in favor of the EUR
USD and GBP -- 250bps in favor of the GBP
USD and CHF -- 25bps in favor of the USD
In this market, the money flows to where there is a higher rate of return and right now, there are many other places to get a higher rate of return...
Now, I'm not making any predictions that the dollar is going to turn into a carry traded currency, but I truly believe this is a real potential should the Fed keep on this super rate cut cycle... with those interest rate differentials as they are presently, why would the banks buy up dollars, especially if the Fed is just going to keep going lower with rates? Maybe I'm thinking too logically here, but it just wouldn't make any sense to say buy dollars and sell-off Aussies when there's a 375bps interest rate differential... Moving on...
Today's action left some traders scratching their heads, wondering why the euro couldn't sustain a break above the 1.4900 level... well, please keep in mind we have a mega fundamental release -- NFP.Now that the banks have gotten today's FOMC out of the way, the next hurdle before we make any bigger, extended moves is Friday's NFP...
I believe the banks are formulating a gameplan and are likely saving their heaviest firepower for Friday... in addition to NFP, there's likely an option expiry on Friday morning, after NFP, at the option barrier of 1.5000... We'll talk more about NFP tomorrow and as we run-up to the data release... but as far as trading goes, it's the same old story I've been saying for the past two weeks...
I'm staying euro long at this point -- cautiously long -- playing the market tight on the intraday, and keeping my best euro longs from the 4385 to 4658 level open at this point on a swing basis... We could certainly see some more retracement between the 0300 and 0700 EST timeframes as the market may want to allow the euro to correct a bit, then buyers will re-emerge to pickup better entries... Can we go to 1.5000? At this point, I believe it's possible...
I have to imagine there are some big stop sets between 1.5000 and 1.5020, and experience tells me the banks and brokers will do what they can to run stops and trigger stops... that being said, let me repeat that I'm playing the intraday cautiosly long and certainly not loading the boat and blindly expecting 1.5000 to show up on our doorsteps by Friday... As always, please practice smart and strict risk/money management the rest of this week... keep your margin in check...
Today's price action for the euro was correlated to the Dow, gold, and oil, so let's keep our eyes on those market correlated variables as we trade tomorrow... fundamentally, we have another huge day tomorrow, so please prepare accordingly... bear in mind, as we said, the market may be holding it's heaviest fire power for Friday...Lastly, if you're a yen trader, stay strapped in because your rollercoaster ride from hell could just be getting warmed up in the near-term...
-FX Insights
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