trader's market commentary

When war is neither “hot” nor “cold”, money is the bullet

Knowing that, CCP is producing money (not M2, but GDP) fast, with China GDP grows 11.1% in Q1, 2007.

Can China manage its growth in a sustainable fashion? The question prompted some kind of cross-board selling of CCP200 related stocks and funds in US last Thursday , the stock market’s way of asking questions, and often the way for investors to buy at dip.

The answer to the above question is not in economics, but in politics, or PA, one of my terms. For readers with further interest, I suggest a reading list started with Vladimir Lenin’s book such as “State and Revolution”. Lenin basically transformed Marx’s theory into organization and practice, and he was one of the masters of “organizational politics” in human history.

That may sounds too crazy, even in terms of “out of box”, so instead, let’s just review briefly the Chinese soap opera “Major Ma”.

In the story, “Major Ma”, together with a group of his homeless teenagers buddies was arrested by police, when they started a debt collection business. Major Ma questioned the police: what is wrong with collecting debt from those corporate debtors? The police read him a CCP document (not really a law) that “at present, no individuals or corporations should be allowed to set up any debt collection business, whatsoever”. I guess, the story time was when many China state enterprises, including banks, were notoriously “trapped in a debt triangle”, and everybody thought China banks would collapse going forward. Of course, a few WS folks, such as GS, were smart enough and managed to get a few pieces of China banks before they went IPOs in 2005 and 2006.

The point is: with a history of 56 years of “hot” and “cold” war experience, and Master Lenin and Mao’s theories, particularly of those “Organization and Management”, and with a 40M party “MBAs” managing various governmental and corporate businesses, what cannot be “managed”? Except for "manufacturing Bill Gates Types".



It seems that not only people like Major Ma is increasingly “Unite Around Party”, but also other Asian countries:

“The share of Developing Asia's intraregional exports went from 26% in 1985 to 37% in 2005.
• Asian exports have tilted increasingly to China, especially for Taiwan, Hong Kong, and Korea” (Steven Roach)
“ the Japan-China linkage is now getting heightened focus at the senior political level - reinforcing the doubling of trade flows between the two nations in the past five years.
Asia's two largest economies collectively account for 82% of pan-regional GDP. If they become increasingly integrated, that would have profound implications for the rest of the region - to say nothing of the global economy.” (Steven Roach)
Asia, like Eurozone, is not only “decoupling” from US (“beta), but also getting their own “alphas” going.

So, now we have two growing Asia and Euro “alphas” and a stagnating (1H 2007) to a goldilocks (2H2007& 2008) US “beta”. (Stephen Jen) Is this what behind the global stock market’s recovering rally from the Shanghai Scare?

A soldier never dies, neither the war. Today’s war is neither “hot” or “cold”, it is the one between bears and bulls. Just don’t miss the bullet.
/marketreflections.com/

 

You almost have to jump, just like SOLF

FA, TA, PA are all “tools”, and bears, bulls, Fed, socialists, CCP, and capitalists are all “players”, and S&P500, CCP200 are all “chips”. My philosophy of trading or investing is “role playing”, seeing the market and economy though the eyes of “bears, bulls, Fed, socialists, CCP, and capitalists”, figuring out how they play the
”chips”.

LT, I am a bull, and sometimes my trading getting into the way of my thinking: I think I made right call on the bottom of the recent correction, but overestimated the length of it; My repeated “correction” picks of CAF, FXI and PGJ starting on Feb 27. 2007 have been good, and my recent “growth” picks are SOLF and TSL, started on Apr 17, 2007.

I sometimes get “plugged in”, as one reader commented, and emotion should always be controlled. By the way, I always like the comments from readers, which are helpful. And I hope I have answered some of your questions today.

So, what is the recent thinking of the smart bulls?

Let’s start from Mundell (an economist and Nobel laureate):

“Mundell was unstoppable and Socratic.
He never, never in the time I saw him in
Chicago answered any question other
than with another question. He always
held that what was already on paper
was too stale to look at or talk about,
what was just in the making was the
challenge.”

“What did it do for us? The
most extraordinary learning experience,
questioning established truth, learning
to think through a proposition, getting
a view of the economy in our head with
which to think on our feet.” (Rudi Dornbusch)

This is almost a perfect description of stock market’s role as a forward thinker.

Let’s repeat one more times:

“what was already on paper
was too stale to look at or talk about,
what was just in the making was the
challenge.”

To the stock market,

“What was already on paper” is US “beta”:
economy in the range of “stagnating a little” to “goldilocks”, and stocks are still cheap, particularly the big caps with international exposure, although lacking growth in general.

“What was just in the making” and imagination are Euro and Asia growing “alphas”, and particularly Asia, where the imbalance of growing savings vs. the lack of domestic financial assets is also “growing”.

About valuation:
“Valuation - High, But Not at Sell Levels: While the forward P/E is 21% above the long-term average, Asia-Pacific remains attractive versus interest rates and on our COV framework. Valuation is high, but not a sell signal.” (MS)

Having just recently successfully “corrected” bulls, bears are now far away from “capitulation point”: Public/NYSE specialist short sales are currently at 9.45, as compared to 3.81 (12M low) on 11/17/06, and 13.15 (12M high) on 0316/07), 1.04 (5Y low) on 08/28/02, 13.15 (5Y high) on 03/15/07. (IBD)

And having just recently capitulated around 03/15/07, bulls are now full of “animal spirits”, and they are ready for “jumping” more, and so is SOLF, and perhaps TSL as well, even TA wise.
Marketreflections.com

 

The capitalism’s enemy: not Marxism, but “climate change”

The death of Yeltsin, unlike the picture in which he stood atop a tank, defing the August coup attempt of 1991, did not get much attention from international media.

And Gorbachev, once the boss of Yeltsin and everybody else in the Soviet Communist Party, has been largely forgotten these days, so is his once famous “glasnost” (liberalization, opening up) and “perestroika” (reconstruction), etc

If going back to August 1991, we will be probably more interested in checking out the indexes:
August 1991

Dow: 3016
S&P: 387
Nasdaq: 525

After Lenin, Stalin, Khrushchev, Brezhnev, the Soviet CP collapsed under the 4th or 5th generation of leadership of Gorbachev, almost as John Foster Dulles had predicted.

Dulles was a cold war warrior. He predicted that, by the third or fourth generation, Communist party leaders would lose their communist zeal and gradually change color, allowing their people to become free. Dulles enunciated the policy of "peaceful evolution" rather than war as the means to free the "enslaved people" in the Soviet Union, China and other communist nations. He was US secretary of state from 1953 to 1959. Of course, he didn’t anticipated that Chinese people, still under the CCP’s leadership, are now just as “free”, good and crazy in making money like everybody else, if not “crazier”.
From 1953 to 1959:
Dow: 278-601
S&P: 24-56

The “hot war”: Vietnam war, 1959 to 1975
From 1959 to 1975:
Dow: 601-768
S&P: 56-83

From the end of Vietnam war to the “The Fall of the Berlin Wall”: 1975 to 1989
Dow: 768-2692
S&P: 83-363
Nasdaq: 70-472

And the “new global capitalism”: 1989-present
Dow: 2692-12953
S&P: 363-1480
Nasdaq: 472-2524

When would “hot” or “cold” war return?

Not in the foreseeable future. CCP just recently declared that
China will be busy with its current style “young socialism” for at least 100 years, as it just passed the “property rights law”, in which all land is owned by state representing all people, but some of it will be leased to those who can afford, and the lease will be automatically renewed every 70 years. So, don’t worry, just stay focused at making money.

The war is now between capitalism and “mother nature”
Having overwhelmed its Communist foes and prospered globally with a few different “brands”, particularly the famous “Chinese socialist style”, the capitalism now find its new enemy is environment.

“Fit to survive”. Capitalism survived Marx’s revolution call by creating a middle class, and recently it has received an “environmental call” from US Supreme Court, when the Court has ruled that the EPA has the authority to regulate carbon dioxide emissions, on Apr 4, 2007

The US Supreme Court’s ruling is historical, and it is “The Roe vs.Wade of Alternative Energy(thepanelist.com):

“The 5-4 decision has been widely criticized, with some calling the move an act of "judicial imperialism". Article III of the Constitution states that the courts should not meddle in executive branch authority, and in revoking EPA policy, the Supreme Court has showed no modesty. Critics argue that the decision is similar to the Roe vs. Wade abortion decision, where judges decided they must save the people from themselves. In a nutshell, the Supreme Court ruling states that global warming is too important to be left to an elected president or Congress.”
In a sense, the US Supreme Court, just like CCP, believes that capitalism has to be “managed” sometimes.

“Green and clean energy” is gaining unprecedented momentum now everywhere: economically and politically, domestically and internationally.

If internet is a “legacy” of “cold war” and has hit “big”, what about “green and clean energy” in the euphoria of global capitalism? I don’t believe that “green and clean boom” will be as crazy as “internet boom”, but the momentum behind it is hard to be overestimated.
Marketreflections.com

 

Animal spirits chases sun

"Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits - a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities."
(The General Theory of Employment Interest and Money, 161-162)

Keynes, understanding the “animal spirits” of market participants(or agents) in a capitalist economy, postulates that government shall intervene when necessary.

Largely due to Keynes’s foresight,
Fannie Mae (originally the Federal National Mortgage Association), was created in 1938 as part of President Franklin D. Roosevelt's New Deal plan.

As kind of a “government” business, sort of like those CCP200, Fannie Mae retained special perks such as a credit line with the Treasury and state-tax exemptions that created a perceived link with the federal government that allowed it borrow more cheaply than other private companies.

Freddie Mac, formally called the Federal Home Loan and Mortgage Corp., was created in 1970 to provide competition for Fannie Mae.
Today, More than $6 trillion of mortgage bonds are outstanding, dwarfing the amount of U.S. government debt by about 50 percent.

And particularly since 2001, when 911 prompted Fed’s series of rate cut, and China increasingly recycled its increasing trade surplus into US bond market after joining WTO Nov 2001, further stimulated US real estate boom:

U.S. housing boom from 2001 to 2006 when median home prices increased 56 percent

Amount of mortgage bonds outstanding increased 82 percent over that period.

Of course, market participants took Uncle Sam’s housing policy to the extreme:

Subprime mortgage bond sales grew to $450 billion in 2006 from $95 billion in 2001, and today, as many as 2.4 million Americans may lose their homes, although they are only minority of those “liar loan” holders.

While Marx pointed out the “contradiction” of capitalism, i.e., the growing wealth and decreasing (in absolute and/or relative terms) income of working class, Keynes figured government could help.

Why getting tied up to gold standard while State can printing money? Why state can not spend or lend when necessary with printed money? Why economy has to rely on “animal spirits”?

Of course, politicians, Fed or CCP and everybody else, as smart as they are, got it all.

As to the today’s environmental matters, where everybody, rich or poor of mankind, is at stake of “life and death”, politicians as well as market participants, cannot be trusted, and strong state interventions are prescribed, and that’s all what the US Supreme Court’s ruling on April 4, 2007 is about.

As “animal spirits” further chases Sun, I added STP as another growth pick.
marketreflections.com

 

It’s so scary not to be biased


Per wikipedia.org

“A bias is a prejudice in a general or specific sense, usually in the sense for having a preference to one particular point of view or ideological perspective. However, one is generally only said to be biased if one's powers of judgment are influenced by the biases one holds, to the extent that one's views could not be taken as being neutral or objective, but instead as subjective. A bias could, for example, lead one to accept or deny the truth of a claim, not on the basis of the strength of the arguments in support of the claim themselves, but because of the extent of the claim's correspondence with one's own preconceived ideas. This is called confirmation bias.”

I am biased and scared when reviewing of my “bad” trades, hate facing failures of my own trading.

I am biased in the sense that I am “automatically” delighted to see the “nice” comments about my posting and “de-delighted “ when words such as “crab” came out. Well, we are all human beings or “animals”.

Contrary to the common sense, it takes courage and effort not to be biased.

In a futile effort of trying figuring out “why”, I came back to the “animal spirits” Keynes had talked about market participants.


In a sense, “animal spirits” may be the “core” of our spirits as an individual, in the sense that we are naturally “selfish”, “self-centered”, “self-worth”, “ego”, etc.

The full animation of “animal spirits” is displayed daily in the anonymous financial market, and once a while in the “balance of power” in international relations.

Per wikipeia.org:

“A balance of power exists when there is parity or stability between competing forces. As a term in international law for a 'just equilibrium' between the members of the family of nations, it expresses the doctrine intended to prevent any one nation from becoming sufficiently strong so as to enable it to enforce its will upon the rest”.


Of course, now, US, China and their alike are strong enough, sometimes, or not strong enough other times, when enforcing “Treaty on the Non-Proliferation of Nuclear Weapons” on Iran and North Korea. Of course, US would say we had nuke because Soviet Union got one, and China would say we had nuke because you guys had it first. What about Iran and North Korea? just shut up, you “evils”.

Unlike market participants who are openly “selfish”, politicians often claim that all they have in their minds are the interest of people who they represent and get power from, politicians being almost everybody in the entire spectrum of politics, from Soviet CP, CCP, to Republicans whose “Boy Genius” being Karl Rove.

Of course, there are differences or progresses in the political systems of countries, as much as we could have. And in the international arena, UN is better than without UN. My this post would not have been published in China, and here in US, it’s published already as I write, just never going to appear in the mainstream media for “quality” reasons.

I actually appreciate Karl Rove when his famous “Rovism” claims that

"All politicians operate within an Orwellian nimbus where words don't mean what they normally mean, but Rovism posits that there is no objective, verifiable reality at all. Reality is what you say it is, ..." (per wikiepedia.org).

At least, Rove thinks that those non-politicians such as us would figure it out anyway.

Of course, Rove was speaking in an extreme way. Politicians, just like salesman, have to do promotions to do their jobs, and lines between promoting and lying are often ambiguous in reality and in their minds.

That said, I am a trader/investor per se, and would only talk about politics when it relates to market place. About Fed, I try to figure out towards whom and when Fed is going to be “biased”, “Joe (employment)”, or “bond investors(inflation)”. That seems as much as WS cares, and I can't care more than they do.

About CCP, I try to figure out how they are going to play in the capitalism game. That seems as much as WS cares, and I can’t care more than they do.

Speaking of bond investors, they are still buying 2Y notes with a yield 60 base points below Fed’s overnight lending rate of 5.25%, since market is still thinking Fed may cut the rate sometimes, although less enthusiastically.

“The December Eurodollar futures yield rose 4 basis points to 4.99 percent. The yield is the market's forecast for the interest rate on three-month bank deposits, which closely tracks the Fed's target for the overnight lending rate between banks. The three- month rate currently is 5.36 percent” (Bloomberg.com)

“Ian Shepherdson of High Frequency Economics on Bloomberg's chart of the day sees the fed funds target sinking to 3.75% by Mar on increasing unemployment & slowing growth. He says, "A further substantial leg downwards is very likely over the next few months, as cross-infection from the housing crunch spreads and the lagged effect of higher interest rates bites,'' & is looking for 07 GDP at 1.5%, with unemployment at 5.3% by Sept.”(Reuters)

Bond investors are still “worried”, and contrarian wise, that’s the “wall of worries” on which stock indexes further climb.

As mega caps are being bought and bought, and becoming more “expensive”, investors would start chasing small-mid cap “growth”, and likely CCP200 solar will be further chased, and I added STP to my growth picks today.
Marketreflections.com

 

You just don’t want to be outsmarted, by nobody

Rich or poor, strong or week, communist or capitalist, we all have to play in this increasingly popular capitalism game, as long as we are alive. Except for a few incidents here and there such as the recent killing of Chinese oil workers in Africa and the attempted attack in Saudi Arabia, I don’t see any serous challenge to the global capitalism as we know.

However, I agree with Marx that the capitalism is not a perpetual system beyond which mankind cannot progress any more. But who cares?

Capitalism is so far the most “civilized”, “fair” and productive game. Every individual has the potential to play to his best.

I have been recently watching a Chinese soap opera produced in Taiwan, about a power struggle in a famous university hospital, where the game is about how to get promoted into professorship and become Chief of Surgery.

The old professor and Chief, Mr. Tang, got a stroke upon hearing that instead of himself, his competition, Chief of Internal Medicine was appointed as the CEO of the Hospital. Mr. Tang was outsmarted.

He was even more upset when knowing that His deputy Chief of Surgery, Mr. Qiu, one of his past students, “surrendered” to the new CEO in order to become Chief of Surgery after Mr. Tang.
Seeing the old Professor and Chief paralyzed in the bed and tears in his eyes, his wife cursed his “enemies”, now including his old student, Mr. Qiu.

“Don’t blame them, it is not their fault, and nobody’s fault. It’s the name and rule of the game.” The old Chief told his wife.

Determined to play to the end, the old Chief struggled in his wheelchair into the room where weekly “Meetings of Chiefs” was held, and called Mr. Qiu the “bitch” in front of everybody, with most of them his past students.

Mr. Tang struggled to stand up and walked towards the Chair of Chief of Surgery. His past student, Mr. Qiu, embarrassed, stood up and left the Chair, trying to help his old Professor to sit on it, only to see Mr. Tang collapsed just a few inches away from the Chair.

Although frequently writing about Chinese or US “rulers”, politicians, Fed, Wall Streets, I really don’t have any negative or positive feelings towards them. They are just doing their jobs, playing their roles in the game, the way they are supposed to play, which I am always curious about.

“If you can't beat them, just join them”, and one of “them” is Morgan Stanley, which produces nice reports. And one of their reports commented on the Russia’s recent decision on April 11, 2007 to invest part of Russia CB’s reserve “in a wider array of assets, including equities, oil options and other assets outside the sovereign bond space.”

Obviously, China CB and other CBs are making similar moves.
MS further observed that

“just as private investors are turning somewhat nervous about valuation, leverage and other risks, SWFs (part of CB reserves) are moving into risky assets.”

Along with CBs are also those Private LBO guys, they are basically selling bonds and buying equities, in taking those targeted companies private with borrowed money.

“the returns on (risk-free) sovereign bonds and those on equities are very different, with sovereign bond yields being remarkably low while the return on equities is relatively high. For these two markets to be less out-of-sync, both bond yields and the P/E ratios will need to rise. The fact that private equity flows and M&A activities are so strong is a reflection of the perception that equity prices are too low, relative to the prevailing interest rates and the pool of liquidity available to be deployed. In my writings, I have highlighted (i) excess global liquidity arising from a fundamental mis-match between savings and investment, (ii) a global shortage of investable financial papers (our ‘Asset Shortage Hypothesis), and (iii) a more balanced global economy between the three pillars supporting risky asset prices. We now add the SWFs as the fourth pillar, one that is longer term in nature. “

As powerful as institutions are, the game is not really institutionals vs. individuals, it is everybody vs. everybody. Otherwise, the individuals, or at least most of us, would have been long “wiped out” already, and that is one of the progresses the capitalism has made for us.

Individual by definition is never going to have the “institutional edge or power”, but there is no limit in his acquiring of intelligence or rationality, and only with that, he can progress.
In that sense, anybody is my “hero”, as long as he has some “mind power” for me to learn from, whether he is Marx, Lenin, the senior with “read my lips” or the junior with “mission accomplished” , Fed, CCP, etc.

And I wish my daily “foes”—market makers also publish some “propaganda” for me to study as well. They just never say anything, and they don’t have to.

Except for learning from my “heroes”, What else could I do?

As to today’s market:
“Give me a break!”, bears would yell, and I agree with them, TA wise. But how? Even the bleak GDP numbers would not deter the bulls’ relentless advance.
marketreflections.com

 

Pricing a world on board the global capitalism train co-captained by US & China

Briefly scanning through “A global history: from prehistory to the 21st century, by L.S. Stavianos”, I can’t find any period in human history where almost the entire population on earth of different counties, of different cultures, and of still very different political and social systems all synchronize and standardize on any one common economic system , not even remotely.

However, the whole world now is on board the train of global capitalism, with its passenger population is still growing in almost every language, with Capitan Uncle Sam working on getting nations in Arabian world on board via the Western entry of “freedom and democracy”, and with Comrade CCP trying pulling North Korea on board from an Eastern entry of “socialist market economy”.

Amazingly, Uncle Sam and CCP have been teaming up with each other very well as co-captains of the global capitalism train, not so much because they become friends now from being “foes” of each other in the past, but more likely out of choices.

For CCP, having led its 1.3 billion people, or 20 percent of the world's population, march on the road of market economy since 1978, it has long past “the point of no return”. “Growth is the hardcore of all truth” is legacy left by the architect of China’s socialist capitalism—Deng Xiaoping, and today it has become “the truth of all truth” for every citizen. You just got to have money. Otherwise, you can’t even “lease” a piece of land which is supposedly owned by you through the state, according to the newly passed “property rights law”. Similarly, you would have to pay state government property tax on the land you own in US.

“All crows are of the same black color” is the Chinese way of exposing the common nature of all “evils”. Capitalism is just not evil any more in China: everybody likes it and nobody wants to go back to Mao’s time. So, Captain CCP has to work hard and drive the train forward.

For Captain Uncle Sam, “the mission is yet to be accomplished”, the mission being its historical mission to prevail capitalism, freedom and democracy globally.

The “division of labor” between the “odd couple” seems have worked out pretty well. CCP, with the 20% of passengers on board the train being Chinese, is obviously focusing its attention on “growth engine” related tasks. Uncle Sam is still enthusiastically carrying on his old job as a “politician and policeman”. Needless to say, Uncle Sam’s job is often costly and vulnerable to attacks of “gangsters”, if not “evils”.

Unwilling and/or unable to take over Uncle Sam’s job, CCP fully understands that if the train is sabotaged or overthrown in any way, such as energy crisis, military or political conflicts of significantly scales, the workfare and welfare of its 1.3 billion native passengers on board would be seriously threatened.

Knowing that and CCP’s needs in keeping its low-key profile in world political matters, the corporation between Uncle Sam and CCP has been very implicit, diplomatic and effective. The progress of corporation in those sensitive but important non-economic areas is even more rapid than expected, just like China’s GDP growth: US is less and less enthusiastic in criticizing China in the area of “human rights”, “freedom and democracy”, etc. And reportedly, China is even sending or already sent out a military delegation to Pentagon to improve its “report” on China’s military and defense.

What about Mr. Karl Rove? CCP would definitely need his talent in PR.

So, how to price such a world? After all said and done, that’s all what financial market participants would care about.

Seeing the growing “comradeship” between Uncle Sam and CCP, bond market, with its historical low yield on long end of the curve, and with the short-end of it being regulated by Fed, already give the answer to Mr. Gross, who has been complaining about “risk not being paid”: there is not much “term or uncertainty premium” left anymore, and what you are complaining about?

What about the stock investors? If there is not much upside potential for long bond yields, then PE for stocks have to expand, so its “yield” would not be too far away from the “parity” between bond and stocks, as defined by Fed model. How much PE would have to expend? Look for the “next immediate resistance level”, which was established in 2000, chart wise.
marketreflections.com

 

Invest with trend, trade with MMs

Trading, daily or swing, is largely a game with MMs, or market makers, particularly of those WS firms, such as GS, ML, and UBS, which are also among the 21 so-called primary dealers of bonds, who trade directly with the Fed.

Functionally, MMs are supposed to create and/or facilitate market for securities with each security requires a few MMs, and are subject to certain regulations.

Practically, maximizing trading profits is the goal for every MM, helped by MM’s institutional and other edges.

Of course, as long as market opens, MM trades, mostly profitably, the more the better.

Partially because of that, security’s price often fluctuates away from FA or TA, or any analysis, and more so, the shorter the time frame is.

Because of that, successful trading is more of experience and skills in gaming with MMs, less of FA or TA or any A. Besides, you have to love it and better doing it full time.

Knowing that, a lot of traders prefer to stay away from high- volume stocks such as INTC, often because MMs for those stocks are the best ones in WS.

As time frame expands, the advantages of “A”s such as FA, TA start to come up for investors who are good on those analysis.

Yes, there is still an “earnings game”.

“Ahead of every quarter, Wall Street analysts have optimistic forecasts for company earnings. Then, as the quarter progresses and the earnings reports approach, estimates drop quickly (and sometimes sharply).

This conservative approach lowers the bar of expectations. As a result, every quarter without fail, about two-thirds of companies beat the average Wall Street earnings estimate. Furthermore, the aggregate percentage gain in the S&P 500 companies' earnings typically exceeds Wall Street estimates by 2% to 3%. This is such a highly predictable result that it becomes expected.

When a company reports earnings, it is often said that "earnings beat expectations" or something similar. In fact, what has really happened is that earnings have been compared to the recently-lowered average analyst estimates, not true market expectations. “(briefings.com)

Why earning games? Why not?

Still, the earnings, like other FA factors, particularly their trends, are largely analyzable, and market, particularly the indexes, tend to trend with “the trend of economy” or fundamentals. I don’t believe that WS or anybody can really manipulate major indexes regularly.

I have written repeatedly about the basic “trend of economy” as far as we can see now: US’ mature economy is probably trending towards more to “goldilocks” than to “stagnation”, while the rest of the world is on the train of solid growth, and about 45% of S&P500’s revenue come from outside of US.

As world economy grows, so is the need for green and clean energy, and that is another trend I am betting on.

MMs can manipulate a stock, but they can’t change the trend. That’s why I study or “guess” the trend very hard, while day trading. Of course, any guess is still a guess, at its best.
Marketreflections.com

 

“Gone with the Wind”

If you are an investor, you really need to chew US economic numbers, and the chewing almost becomes both a science and an art. The growth is .., the inflation is.., actual vs. expected, etc.

Sometimes, my readers complain that they don’t know what I am really talking about in my posts, partially because I am a trader. Besides, do we really know how many miles the US economy is from “stagnation” and how many miles it is from “goldilocks”? Investors may care, but not traders.

Investors normally have “ideology”, either bullish or bearish one, just like Turkey military. “Ideology” makes you upset when the reality goes against you. In the case of Turkey, military threatens to overthrown the elected government if Turkey joins EU.

Traders are free of “ideologies”, because they don’t want to be blinded or burdened by “ideologies” and get slaughtered by market makers. “Gone with the wind”, and the wind is MMs. MMs are ruthless, trading to maximize their daily profits.

As to Fed, do we really know its agenda? Some of Fed’s minutes are not released to public, which has “no need to know”, I guess. What about their rights to know if they have one? I guess USD is somewhere in Fed’s mind , and Fed would not cut the rate unless US economy really “stagnates”, knowing that US financial market is supposed attract $2B a work day to finance US’s trade deficit.

Speaking of USD: Euro, the USD’s primary competition, started its conception in 1960’s when European countries don’t want to go along with US monetary policy burdened by Vietnam-war related inflation.

What about Turkey military’s threat? Who cares. Turkey has to and will come along with the rest of world.

By the way, Turkey military did not make traders ask for more for European CDS.

Incidentally, CDS is “the fastest growing part of the $370 trillion market for derivatives, financial obligations whose value is derived from the price of underlying assets such as bonds, equities, commodities and currencies.” (Bloomberg.com).
$370T, about 5 times of world GDP, that is a lot to trade.
Marketreflections.com

 

What is capitalism and democracy? A “capital weighted average”

Having stayed around in a few places, seeing “socialism”(close to but not really what Marx had in his mind), European and US capitalism, I have to say that US capitalism is the capitalism in its “strongest form”. Although largely a “capital weighted average”, small guys without capital are still “counted” and sometimes impact “average” due to large quantities of them, where in “socialism” small guys are “counted” less and with less impacts. Small guys can grow into big guys, in both systems, but with a much better chance to succeed in capitalism. Economically, China is developing its own version of capitalism and has been very successful so far.

“Capital weighted average” is probably in its “strongest form” in financial market, in the sense that big “capitalists” determine the price, and more so, the shorter the time frame is, and regardless of FA sometimes.

The News Corp.’s $5B bid or $60 a share for DJ, as compared to market’s trading price of $37 a share. is a perfect example, per Briefings.com:

“The Wall Street Journal is obviously a jewel asset, and the Journal does a fine job with their online divisions, but that hardly justifies the premium.

Dow Jones had operating profits of $1.14 per share over the past four quarters. That puts the price/earnings multiple at 52.6 for a company that had higher revenue and profit per share ten years ago than it does today. The newspaper industry is in steady decline and growth prospects are questionable. Yet, if someone has the cash to pay $60 per share, the stock is worth just that.”

Successful retail traders have long figured that out. They dare to trade to live and are look very “courageous”. Inside, they are very “humble”, always trying in their own unique ways to look for and follow big traders who are the “bosses”, and very often the institutional ones. The institutional traders, I guess, would try to look for and follow the smart ones among themselves, where the information may just “weight” as much as capital.

Speaking of information or FA, I think TA rather than FA matters more now in terms of market trend in short term. I think market has already passed “inflection point” where market has to “reflect” seriously about “stagnation” or “goldilocks”.

Yes, today’s job number are a little bit weaker and business investment are a little bit stronger, so what?

Yes, US net national saving rate plunged to a record low of 1% of national income over the 2004-06 period, and US has to keep running current account and trade deficits in order to attract the foreign capital. That problem is still a problem, and may be a big one. Politicians of US and China, please work out something.

Meanwhile, technicians, let’s focus on how big traders are going to trade from here.

marketreflections.com