Market price shocks and macroeconomics

Discussion in 'Trading' started by Lojanica, Mar 11, 2010.

  1. My theory on the current bull market is that it will take a shock to bring it down for a double dip. Possible causes:

    1) needs revenue.

    2) Interest rate increases.

    3) Debt default.

    Traditionally the market peaks in Spring and nadirs in Fall.

    If this is true then mid-March, mid- April, and mid-May come to mind as temporal sell points.

    Statistically the market goes up 75% of the time. So statistically we have a 75% chance we will end up 2010 on Dec31st above 1115.

    Problems: We ran hard in a 12 month period. Looking back unemployment peaks 20 months after peak job loss. We are up into resistance and mid-March, mid- April, and mid-May are traditionally temporal sell points.

    My take: Trade don't buy and hold but as many are finding out the environment for unhedged shorts is not favorable either. The doomsday complete meltdown scenario could unfold and investors need to be wary but as has been seen not if the FED can help it.
  2. ObamaCare, Carbon-taxes and tax-hikes are likely.

    More debt is a forgone conclusion. 2010 deficit is est 1.3 Trillion. Month of Feb ran a deficit of 220 Billion (annualized, 2.6 Trillion).

    Higher rates are a forgone conclusion. We pay off the debt without monetization and it'll make 1929 look like a picnic. That's not hyperbole.
  3. So with monetization where do we put currency to work?

    Seems like many assets are overbought with this in mind. Even short long bonds looks crowded.
  4. Agriculture, Chinese yuan-denominated AAA debt, foreign miner stocks, blue chip equity in low-debt emerging markets (india, china, brazil).

    Nothing is a forgone conclusion. Bernacke may withdraw from bonds and we go Depression. Or, he may monetize, kill the shorts (not that he cares), and trash the dollar.

    Whether we go 1929 or Zimbabwe, is up to him.

    A win-win trade is Chinese Government debt. If Bernacke monetizes, China decouples, the yuan appreciates magnificently against the dollar + interest. If we go deflation, the yuan is pegged with a yield.

    Except for blue chip equity/debt positions in emerging, low-debt markets, now is not the time to commit to macro trades. It's still wait-and-see, imo.
  5. Chile better stop practicing that Voodoo or there gonna get more earthquakes and the price of copper is gonna go to the moon.

    5.1 and 7.2 hit today.

    Sorry Chile, the Americans sent their charity money to the degenerates in Haiti; no more money left over for you who actually produce something of value.
  6. Do you know what resources are best to research Chinese yuan-denominated AAA debt?

    Thank you for your viewpoint!!!
  7. achilles28 is correct. Global debt levels are probably a bigger systemic risk than the economy itself. And yes, if the Fed attempts to "fight" $82 Crude, a more restrictive monetary policy could be disastrous.

    We can also assume that Government expenditures, from all levels of government, can only decrease from these lofty levels. In other words, it's not like California is going to increase spending at this stage of the game. They simply can't. Thus, much of the stimulus from the G is over.

    Politics-particularly now-with issues like cap and trade, nationalized health and expiration of the Bush tax cuts, looms large with trader/investors. So do the U.K. elections.

    Right now markets are buoyed by the following expectations:

    A dramatic pick up in GOP held congressional seats as a backstop against perceived anti-business Obama initiatives.

    A decisive victory for David Cameron's Tories.

    Economically, traders see a U.S. employment situation that still has largely spared professional workers with college degrees. (around 5%) and unemployment in other nations is even more benign. (Brazil, 7.2%, Australia, 5.3) As bad as unemployment seems, many bears assumed by Q1/2010, we'd see global workforce dislocations at markedly higher rates. Please note though, quite a few nations have seen upticks in unemployment the first two months of 2010.

    Any reversal in the above trends will spark a sell off in global equities.
  8. 1) More commonly known as "Sell in May, go away, stay sober until October".
    2) Statistically, the market can rally more than it falls but it remains stagnant a lot too. That 75% "number" is too high. You're not taking into account that markets decline faster than they rally.
    3) Were in the wrong part of the decade to be bullish. We'll see how it plays out. :eek:
  9. AAII is too bullish.

    March 11: Bull 45.29%
    Neutral 29.41%
    Bear 25.29%

    Year high before mini dip
    January 14: Bull 47.44%
    Neutral 25.64%
    Bear 26.92%

    Prior mini dip
    October 14: Bull 47.30%
    Neutral 18.92%
    Bear 33.78%

    Sitting on hands.
    After OE or probably after the month ends things should be a little more clearer where the market is headed. There's probably gonna be some interesting tape painting to make Q1 #'s look good. Wanna bet AIG ends the month over $40? how bout $50?