Wednesday, November 29, 2006

Who let the Bears out?

The dollar fall put downward pressure on the stock markets and we saw some really volatile days beginning this week. However, after an initial sell off on Tuesday morning by panicking individuals who had put in at-the-market orders, the institutional buyers were coming in pushing the Stockholm index back to unchanged levels. The buying continued today Wednesday and we are up over 1.5 percent at the moment. US GDP 3rd quarter was better than expected at 2.2% and the the European markets continued up. The longer trend is still up and I buy the pullback if nothing more severe is to happen.

Friday, November 24, 2006

Dollar continues to sink

The dollar continued this weeks downward trend today setting a new 19-month low against the Euro. The fall was exacerbated by thin trading and a stronger than expected Ifo figure yesterday. The recent dollar devaluation and its increasing volatility put pressure on the stock markets in Europe and Japan. I think this dollar slide is inevitable and will continue after a few days of consolidation. A lower dollar will ultimately make the US firms more competitive abroad and help the US economy restore equilibrium. From a European perspective I will look for buying opportunities again in the US markets when the downward pressure on the dollar is over. Also, remember Gene Epstein's case for a 5 percent plus dollar revaluation. Ergo, whichever scenario, it will be buying opportunities soon again. I remain bullish and let the bears stay in hibernation, at least till spring.

Thursday, November 23, 2006

Strong Ifo and a Falling Dollar

In Barrons this week, Gene Epstein wrote an article about the dollar ("The Buck Takes Wing") and predicted it has hit the bottom and might rise the year ahead by at least five percent against other currencies. However, the greenback continued its devaluation this week and today it hit a 5 month low against the euro after Germany reported a strong Ifo figure. The fall might be due to traders wanting to clear their books before the holidays in Japan and the US, and the volume today Thursday is very low on the foreign exchange markets. Also, many investment banks could be booking their profits before they end their books. However, the Fed is unlikely to raise US rates further and the ECB is sounding increasingly hawkish. Maybe the carry-traders is also starting to unwind their positions now. We will see if Mr Epstein will be right, but i would not bet on it.

Friday, October 27, 2006

Consumer Confidence 93.6

The Michigan consumer confidence index was 93.6 in October.
The market expected a revised figure of 92.7.

GDP +1.6% lower than expected

The economic growth rate in the US is the lowest in three years and was lower than expected by Wall Street economists. The median estimate of 25 economists was a 2.2% increase according to a survey by Dow Jones and CNBC. MSFT reported an 11% increase in profit but the revenue forecast was lower than expected. This may put pressure today on stocks and the index futures are down indicating a lower opening. We are also waiting for the Michigan index to come out after New York open.

Wednesday, October 25, 2006

Beware of the carry trade

The yen-carry trade, borrowing yen to buy higher-yielding assets, has been a popular investment strategy in recent years. However, the BOJ announced earlier this year that it ended its Quantitative Easing. This move probably helped fule the spiraling selloff in May and sending the yen higher. The yen has since receded back to previous levels. The Japan economy is heavily dependend on export and capital spending since it lacks domestic demand, and the BOJ may therefore be cautios to raise interest rates. But carry traders should still be wary since the dollar is likely to continue its fall which extends to a higher yen. The dollar is off about 30% against the developed world, mostly against the euro and very little agains the yen. So even if the dollar is done devaluing against the euro it probably has more to come against the yen. Just remember, there's no such thing as a free-lunch.

Monday, October 23, 2006

Who will be the last bear to go into hibernation?

Here we go again! Up that is. The markets are ticking higher and it feels good playing the markets from the right side. There's a lot of reports coming out this week both in the US and here in Sweden. Ericsson and Nokia reported last week sending Eric higher and Nokia on a thrilling move down. But this is a bull's world now so I believe Nokia will come back, especially when considering its low projected P/E of 13 for the next year.

There's nothing on the macroside today and no important earning reports in Sweden, so I was expecting a calm trading day. And it was, until the New York opening bell. As I write the Dow is up 0.8%, Nsdq 1.3%, and S&P500 0.6%. This woke up traders in Sweden sending the market into a late (hurry before the close) rally. In Sweden we now have snow so bears should be sleeping, but maybe there still are a few awake. When will the last bear be in hibernation? Please tell me so I know when to begin going short.

Monday, October 09, 2006

Time to get (ever more) Bullish

My headline should be a warning signal to seasoned traders, but I believe that the Dow setting a new ATH and the sentiment still being somewhat bearish should push stocks still higher. Yes, we have had a few good years now; yes, there are serious threats to the economy (housing bubble, geopolitical concerns, commodities inflation etc). But this will not be the end to the bull period. A weakening dollar will make US goods more competitive abroad and moneatary policy is still accomodating. Even if a potential housing bubble will burst, companies CAPEX spending will hinder the economy from going into a recession. The Asian consumers are also taking a much more important role in the economic growth engine now than for a decade ago, which will be good when the americans start saving. And the most clearly signal for a bright future scenario is the Dow itself setting a new high. This is for me a strong buy signal and the end of the low volatility period. Stocks will go up and don't forget that the markets has fat tails.