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Archive for the ‘Finance and Economics. Strategy and Society’ Category

Morbius Glass new blog address

Posted by Adrian on April 3, 2009

Please update links and RSS accordingly:

morbiusglass.blogspot.com

Posted in Blogroll, Books, Comic Reviews, DVD reviews, Finance and Economics. Strategy and Society, Melbourne City Urban Visuals. Mixed images, philosophy and science, politics and social commentary, Popular Culture/Culture | 3 Comments »

Markets Insane volatility

Posted by Adrian on April 1, 2009

GM and Chrysler pending bankruptcy (news agency’s tug of war of truth and speculation, amusing to watch), China PMI dead in the water, South Korea’s over producing (inventories swell on huge trade surplus), Australia’s retail slumping and over capacity in construction (housing) – pointing to huge downturn, Japan’s manufacturing index (Tankan) collapsed to -58% (worst ever), Mark to Market rules to be changed.

below is a video of Meredith Whitney who is an expert in credit/banks analysis, she also discusses Mark to Market rules and how it will effect banks balance sheets:

please click here for video

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End of Q1 stocks rally 2009, G20 and the bad news aint going away

Posted by Adrian on March 31, 2009

Stock markets are not recovering pe se, volatility is sill there; this is short term trading, lead by big institutional players. So their books look good for the the first quarter of 2009. Market rallies? On what good news? None. Japan’s jobless up, Germany’s jobless up, US consumer confidence and housing still collapsing. They are sucker rallies and as mentioned in US stocks over sold in bear market rally, I was correct as there will be sell off’s and there was on Monday 30th 2009 when the Dow dropped 254 points.

The G20 will be a bun fight as each country is going to try and figure out how they are gong to protect their capital without following the American path to bankruptcy. Namely protecting what little value they have left in their own currencies. The US with the OECD and IMF behind them do not want to see the USD lose it’s footing as a base currency for the world. China, Russia have showed concerns and would like to see a broader based currency to replace the USD. Will this happen? Well think price collusion in a deflationary sense, now thing about price collusion with a deflationary spin from country to country. What does that mean? Well the US will try and destabilize currencies to protect it’s own, the only way they can do that is to depress the other currencies. How? Well an attempt to try and get them to agree to start quantitative easing, which means dropping interest rates and printing money. This would depress all the currencies pretty much at the same time, hence keeping the USD as the base currency. Why replace it when all the other currencies are just as terrible. What’s in it for the rest of the world? Well the US wants to emerge out of the global recession first. A theory that the world needs them to restart consumption again. A dangerous and arrogant disposition. Especially with the the Federal Reserve buying treasures, yet housing is still terrible, which would indicate that Fridays (3rd April 2009) jobless (US) claims will be bad. The US dollar will continue to tank. And China’s investments in the US may not be paying off, there could be a massive sell on the USD in 2009

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US Stocks oversold in Bear Market rally

Posted by Adrian on March 26, 2009

So watch for a sell off, could be anytime soon. Stocks rallied after Treasury Secretary Tim Geithner announced the Treasury plan (23rd March 2009) to purchase toxic assets from banks. To put simply a purchase agreement in which the American tax payer will guarantee toxic bank assets, with a small percentage of private investors (also guaranteed by the taxpayer) will contribute in the purchase. This is to clear out the banks depreciating assets, hence (in theory) get the banks to lend to each other. In effect an attempt to free up global interbank lending which in turn then will re-lend to the consumer. Of course the plan won’t work. Suffice to say stocks rallied. Although the rally is essentially an artificial stock rally as economically the US is still very weak (the US shrank by 6.8% last quarter).

Also Treasury yields hit negative, inflation could be on the rise with the US Dollar being sold off. Note also gold is rising. I think most traders gut feelings (trust the gut…it’s always right) something is going to give with the US government, as it becomes a monetary expanding debt binged monster.

The US stocks rallied in almost every industry, good to note that the banking sector rallied although somewhat muted. Note the 8300 line (US banks) in my opinion doesn’t show a sustained recovery, so it has to be put into context that the Tim Geithner plan is related solely to banks, not the broader economy. In may be a long time before banks return sustained profit as most of them are operating as zombies. In conclusion there is no major rebound in the banking sector, even with the rally.

The dow and s&P500 are both now sitting above the 50 day average and touching the upper Bollinger band, the RSI (although better suited for stocks) shows overbought signals.

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Australia could go bankrupt

Posted by Adrian on March 25, 2009

Further to my post Australia’s economic situation. The AAA rating has been stripped from local governments as the Federal government guaranteed banks deposits and their debt. This in turn has made it hard for Australian States to raise capital from their own debt (bonds). Now the Federal government will now guarantee State government debt.

This will put massive pressure on the Government balance sheet and it will need extra funds, hence the Reserve Bank of Australia will begin to print money. Either this or they start to raise interest rates to push the Australia dollar up to try and raise capital via the mining industry. Of course the problem is the world is gripped in a deflationary and currency downturn. But being a commodity producing country a higher AUD could become an investor haven. Unfortunately the US has sparked a money printing bonazza and currency meltdown (globally), as all currencies are trying to debase at the same time; more so commodity producing countries and their currencies as they compete with deflation on commodity prices. As China is shopping around.

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US goverment creates hedge fund with tax payer money – market rallies

Posted by Adrian on March 23, 2009

So far the US tax payer has:

Bailed out the whole US banking system (tax payer funded bailouts)

Bailed out the car industry ( tax payer funded bailouts)

Propped up bonuses for AIG executives and help refurbish the offices for Citigroup (also US taxpayers bought Citigroup a private jet)

And now the US taxpayer will help fund a speculatively driven hedge fund created by the US Government, this tax payer funded hedge fund is so speculatively designed that it will need money constantly pumped into it via the Federal Reserve. Otherwise it will freeze up instantly as it will carry ALL the toxic junk (assets) that the US banking and yes other non US banks will offload onto it’s balance sheets.

So in other words this American taxpayer (who had no say in the creation of this fund) funded hedge fund will always run at a loss. It will never make money for the goverment or it’s forced investors (taxpayers), but it will be kept alive by Federal Reserve money printing operations.

But it will create money for Wall Street as Wall street will speculate from a distant via using Government and taxpayer money.

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Australia’s economic situation.

Posted by Adrian on March 23, 2009

After more than a decade of uninterrupted economic growth Australia is now in recession and with the help of government fiscal irresponsibility, it will be a deep one.

Governments in Australia enjoy giving millions of dollars to the tax payer sans appropriate social security and public health care. It’s vote grabbing initiative that the former conservative government embarked on with a terrible decision to give out a ‘baby bonus’ to couples, now the centre left goverment has guaranteed a severe deficit by throwing billions at the public in the form of first home owner grants. Australia’s revenue almost solely relies on a continuous export market of raw materials to China. Of course with China in recession the commodity markets have slumped, more so base metals and coal exports. Which makes up for 57% of Australia’s exports and Australia’s GDP got crunched in January 2009;  from 1.80% at the end of 2008 to the current 0.3% (Jan 2009). But the centre left goverment in Australia also has decided to bail out the car industry and under written bank debt and guaranteed bank deposits. As local Australian banks raise capital selling their goverment protected debt onto the market, this puts pressure and risk on Australia’s sovereign fund. Which in term will eventually be downgraded as risky assets on the the funds balance sheet grows. This in turn will make it almost impossible for Australia to sell short and long term goverment bonds onto the market. Combining the inability to raise capital and a possible credit downgrade of goverment funds, governments may have no choice but to raise taxes on everything. As the main revenue driver for government accounts was the GST (General Services Tax) tax. Already land tax (commercial property) is now being passed onto tenants of offices buildings, as local goverment try and reverse their deficits. This land tax being passed from landlords onto tenants of office buildings is at a time when office vacancies ate increasing at an alarming rate (due to the recession). Increased taxes on private business will ensure that job losses will mount.

Regarding GDP and Australia’s reliance of raw material exports, it could be a distinct possibility that the Australian mining sector could collapse, from junior miners to medium size miners all will have their profits squeezed as the Australian dollar becomes depressed and demand slumps from Asia. The mining sector and goverment were both winners when the Australia dollar was at an all time high and demand was strong from Asia, this of course has changed dramatically with the Aussie losing 35% since July 2008 and the global economy falling off the cliff mid last year. A strong AUD is unlikely in the short and long term as long as goverments are content at going to ground zero with interest rates and printing money, which in retrospective is a form of currency protectionism. As goverments then fall into major trade surpluses with swelling inventories. Australia may be no different, a cheaper currency could allow exports to pick up in mining but unfortunately profits also will shrink with a collapsing currency. A lower Australian dollar will not be viable for companies to survive especially in a recession environment. Also deflation in global currencies will ensure competition (deflationary) against other commodity producing countries to try and secure their export markets, minus their import markets. As discussed in Global currencies devaluing – protectionism end games, this is an alarming stage in protectionism on trade.

But as the Australia dollar is sold off and money supply increases plus a trade surplus expands, imports will be more expensive, exasperating a pullback in import purchases thus widening the recession. Inflation on imported goods will occur and goods become more expensive due to a collapsing dollar. But like Spain (now falling into a deep recession), Australia has an extremely over leveraged housing market and rental bubble. Due mainly to goverment cash incentives (grants) to buy property a housing bubble has ensured second to Spain’s and worst than the US housing bubble prior to the collapse.

Australia’s stock market and currency are good indicators of investors fears about the Australian economy; both the stock market and currency may slump further as the Australia economy falls deeper into a recession in 2009.

ALL ORDS (one year):

AUD/USD (note recent artificial rally of the AUD, due to the USD weakness, watch for Australian rate cuts and money expansion into 2009):

aud_usd

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Global currencies devaluing – protectionism end games

Posted by Adrian on March 19, 2009

Ok, my post here was essentially a caffeine (yes caffeine) induced conversation with a friend who trades in the market. Basically we were amazed (as was everybody) as US taxpayers paid AIG executives bonuses, although not entirely surprised. We tried to imagine the possibility of the US government reversing it’s ‘bailout everybody’ policies; to protect it’s own wealth (taxpayers monies). So it is a fantasy. Nothing more. The reality is that the US (with other countries already beginning the process) is now on a mission to destroy it’s currency. This quantitative easing (printing money) and buying up mortgage back securities and any other securities tied to the credit markets, is essentially a massive attempt at flooding the USA and world with cash. Courtesy of the Federal Reserve under a self confessed money printer Ben Bernanke.

This is of course will lead to inflation even in deflationary environments, but the other factor is the protectionist aspect as all global currencies are been devalued at the same time. So it could be wise to assume that a huge debasement in global currencies and their value is the first shot in a protectionist agenda.

As the US attempts to self capitalize, outflows of investment from USD and USD related assets will occur. Today I listened to an economist at a certain big bank explaining the benefits of the massive money printing exercises by the Federal Reserve, but again he missed the point that inflation will trump any internal inflows of cash into the US economy (hey like Zimbabwe!). But as discussed with all the global Central Banks attempting to do the same as the Federal Reserve like the Bank of Japan and Bank of England; by collapsing their currencies they will of course force import prices up. So it’s a terrible situation for the global economy. But expected.

So, from a trading perspective it’s time to look at inflation protective buys. Obliviously gold, oil and the few currencies that still show a degree of value, at this point the Japanese Yen although I would say short term. Stocks, such as bigger oil refinery and produces, some bigger mining companies. Pharmaceuticals, although debased currencies will kill the import market on drugs (hence effecting company profits) although depending if there is crisis such as a severe flu out break. Or watch for tariffs removed for flu drugs. Some ETF’s, say long term purchases on Japaneses stocks. Still if you trading short term, ETF’s on silver, index put warrants on all major indices. Short US banks.

The USD/YEN – notice the USD about to punch through 93 Yen support, then it will reside in the trading range of 83-92:

usd_yen

Oil:

wti_crude

Gold against the USD (self explanatory):

gold_usd

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Market rallies won’t hold up, watch the sell on bad news

Posted by Adrian on March 18, 2009

Technically the markets are very oversold, so rebounds can be found. But in light of the snowballing fiasco that AIG will turn into (bail outs and bonuses been paid with taxpayer monies). Ben Bernanke’s whimsical assumption that the US will pull out of recession in 2010. The loss of confidence in Treasury Secretary Tim Giethner who could get pulled the shortest straw very soon. The bank/toxic waste bail out (yes again by the tax payers) could become another one for the waste basket bin, as congress will now implode. European law makers will watch in earnest if the whole thing flops on it’s arse in the US, only because the bailouts are backfiring, as bankrupted giants like AIG and Citigroup start to pay out the top management as the businesses will at some point breakup. A delayed syndrome of free market purging thanks to terrible decisions by policy makers, all backfiring in an amusing and tragic way.

So if you charting the main US indices and looking for some indication where the market is going, say the Dow and S&P500; you can see a trading range occurring which is quite tight. But one thing is showing a concern for a pending sell off, is the rise of the market in Jan 2009 from it’s Nov 2008 lows and the new year selling all the way into March 2009. Although now an attempt for the market to see a bottom in March 2009 could be premature. The RSI index shows a similar patten just above 50, mirroring the 50+ the Dow and S&P 500 in Jan 2009 (before the sell off).

If you have access to charts you can tweak the indicators to be more precise, but it shows that a sell is on the cards, that could hit the lows early in March 2009 on the Dow and S&P 500

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Bear Markets, new year rallies, US treasuries and the China Syndrome.

Posted by Adrian on March 16, 2009

Global stock markets have rallied, mirroring the rallies in November 2008 that latter petered out into 2009. Oversold markets showed some life after banks Citgroup and Bank of American speculatively informed the market they may return to profit in the next quarter

refer to graph:

Still in fragile economies and negative market sentiment, the bad news just keeps coming. Can US markets maintain rallies out of a brutal bear market, or get sucked back down into new lows? Whether oversold or not, one thing remains is the terrible state of the global/US economy. I was discussing the rallies with a friend of my on the weekend, we both agreed that market would rally but agreed that the rallies showed investor caution, especially when the rallies were speculatively driven.

Yet our discussion kept going back into general human psychology and the mentality fear. We were trying to pinpoint the basis of fear and fear reaction, not so much regarding markets per se but generally. The idea of survival of the fittest kept coming up, not entirely biologically driven, but also not dismissing the idea of survival of the fittest in human instincts and survival. But also adding cultural/economic power structure of survival of the fittest. As I discussed in The wrongs of Government intervention in the free markets, biology and survival of the fittest – Governments may become totalitarianism based., the theory that was reached, which could be a shock in someways. Is with governments of the world trying to maintain asset prices from collapsing could actually allow them to collapse. This conclusion came out of the recent remakes from China’s Premier Wen, when he came out recently and said he was concerned about US Treasuries, since China holds 1 Trillion of US debt.

To me it still comes back to gain over pleasing the electorate, for example governments eventually protecting their wealth rather than intervening in markets to please the taxpayer. Even though market invention has been a complete fiasco (at the expense of the taxpayer), note AIG massive bonus payouts, and counterparties (overseas and local US investments backs) getting taxpayer dollars connected to the AIG bailout! It just gets worst and worst for the Obama administration. But the real fear is China’s concern of their US investment of US debt. If markets rally due to money printing and asset support and Treasures tank, with an added bonus of an absolutely deteriorating US economy. China may edge closer to selling or threatening to sell US Treasuries. This may cause the Obama administration to reverse it’s obsessive bailout programs and sink the stock indices to add weight back into Treasures. Thus keeping it’s (US) major investor (China) happy. Could Governments turn from asset support policies to deflation liquidating policies and hammer the private equity markets back down? All this to protect the inflows of investment into Government debt?

With a bottom in bear markets months away, concerns that tax payers are getting shafted and China thinking (not in a good way) about their investments in the US. A complete reverse in US government economic policy could occur. Only because the fear of a China sell on Treasures and the banks and private sector abusing taxpayer money; at some point the US taxpayer will want to see some free market failure.

The US government could allow the free markets to punish somebody (corporate). To keep faith both from the taxpayer and it’s main investor.

So we both felt, albeit speculatively that the US government may have no choice but to stop supporting asset prices and try and drive Treasures up. In other words allow for a massive deflation to occur, or simply put fall into a depression and hope it’s a sharp one.

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