Economic Muddles

The current economic mess in Western Europe and the US brings to mind what I regard as the greatest challenge the West has to face, even greater than an aging demographic: middle class jobs. We used to have a lot of good paying jobs in the steel industry; now we have the rust belt. Before that, we had good paying jobs in the shoe industry; now we have Italian shoes, perhaps made in China but subcontracted to Viet Nam. At any rate, no good paying jobs in the shoe industry in New England. Before that, the textile industry left New England, went to the South. Then it left the South, went to... last heard from in China. The auto industry was filled with good paying jobs (and bad management) in the 60s. Then came the computer industry...oops! Programming is done better and cheaper in India, and China is subcontracting the assembly process, though we still have Fabs and most of the engineering. 

The problem then is how to restart the economy. The housing industry is supposed to lead us out of the slump (historically) but there are at least two problems: an overhead of foreclosed houses and -- ta daaa -- no one with a job that pays enough to buy a house. While "no one" is an overstatement, it does express the large contrast with the 40s, 50s, 60s, 70s and 80s. So, although liquidity is necessary, stimulus isn't stimulating the economy because there are so few jobs that pay more than minimum wage. Nor are the shareholders of the large banks, oil companies, and so on, getting big dividends Because the good-old-boy-&-girl network that runs the boards of directors, each for the other, has authorized billions to be spent, quite unnecessarily, on bonuses, thus removing the money from dividends and, for practical purposes, from the economy.

Daily Blatt August 15 2011

$US/ChF is trying to turn up. Day trading only in ChF until direction (most likely ChF down) clarifies.

$A broke to the upside today. 1.08 is the target for now.

€ had a strong bullish day, but still are not trending. The same is true for £.

$C look to be starting another run up. On the $US/$C chart, that is down with a target at 94

Bonds had an inside day and still look as if the next move will be down. ES had a small upward move. I expect the dominant theme, for a few days at least, will be up. Crude looks much like ES.

HG is not a happy camper. For the moment, I'd not trade long.

NG is curious. In some ways it is less bearish than HG, even though it was down and HG up today. I'm in no hurry to take a position here, either.

Week-end update Forex

The Ozzie is poised to head north. Action above 1.0350 is buying time.

The €, on the other hand, is stuck in heavy traffic. My gizmos show it as being both neutral and as wanting to quit being neutral. But with France's woes added to PIIGS, ???

The £ is also neutral, although it does a dance that is separate from the €.

The Loonie is bearish against $US, but...

The $US seems to be trying to get turned around against ChF and ¥.

Week-end update Stocks, Bonds, Energy

The 30 year market is set up for a decline. It's first target is just above 132. The 10 year is set up to drop to the 127 '20 area, and likely further from there.

Sept. emini is headed first for 1212, then 1244 -- unless we get a very surprising change in course Monday and Tuesday.

88.20 then 91.20 are the current targets for Sept. crude. NGas is looking for at least 4.310-4.320. High Grade looks to want to go to around 4.24-4.25 for now.

Week-end update Gold, Silver

 Gold has been a run-away train for some some time now. Gold bugs are sure it will last forever, for, in their infinite stupidity, they think(?) gold is the only true 'currency,' the only true store of value, the only standard by which a country can run a monetary system. At least the gold cranks say those things.

In the real world, gold is, for now, well above any possible "true value." Gold, like all other traded creatures, is either over-valued or under-valued, passing through fair value on the way from one to the other extreme. If you are wondering what gold's fair value is... so is everyone else except gold bugs.

Silver leads its own mundane, reality based existence, a rather different creature now than glamorous gold. But a few years ago, silver had a huge price run-up not shared by gold. There was money to be made on the trip up, and as much to made, even more quickly on the way down.

Gold is, as we all can see, clearly in a bull market. Silver was in a bear phase at the beginning of July, only to turn to the bull side, yielding a fairly easy $4/oz. Now it is flirting with going into a bear market.

What next? Volatility, I should imagine. Gold ran up 20% from early July to yesterday's high. That is too much too fast.

End of Day Aug 11

Energy had good days, and look like they want to go up even though still in a variety of bear market.

The bond market did not care for the mediocre cover ratio of today's 30 year auction, even though yields were down 44+ basis points. Technically, the 10yr looks like it will go to 130 and the 30 yr to 124 '20.

The emini hasn't really turned up yet. Nevertheless, it seems like it wants to make a run at 1212 or maybe 1244 (or maybe turn into a bull market?)

In Forex trading, the Yen was sideways, ChF down, $A, $C, £, € were all up, but no trends, not even prospectively, are evident.

Grain reports were out today. Some of the follow up hoopla called for a $2 to $3 increase in the price of beans. Maybe so, but yesterday I was talking about beans possibly rising because the Chinese are buying -- or have already bought, given they usually do their buying before press releases announce it. Beans were up, but not any sort of break-away move. Other grains were quite ho-hum about the numbers. While I'm clearly bullish on corn, and don't see how wheat and beans can fail to follow, at this moment none of them are in what I would describe as a bull market.

30 Year Auction

Today's auction dropped yields "only" 44-45 basis points (44.8 on the average accepted bid). That scared the futures market, or disappointed the players, engendering a quick 64+ tick sell-off. That selling took prices through yesterday's lows where the bond bulls stepped in, bringing prices back up a bit.

Stocks were up a bit on the news, but currencies were basically flat.

Beans

From the China Daily: "China will maintain an upward trend in soybean imports with the rise being driven by the widening profit margins of soybean oil crushers and the recovery of the hog production industry."


We shall see whether that picks up bean prices in the US

Daily Blatt August 10 2011

Bonds had an inside day after the players over-reacted to yesterday's Fed announcement.

Equities were down today, giving up most of yesterday's gains. Copper went with them while energy managed to hold on for only small losses.

Grains & rice were weighed down by the negativity of the stock market.

The $US was clearly stronger against $A, $C, £ and €. Muted against ChF and  Yen.

Prediction for tomorrow: continued volatility and indecisiveness.

Interest Rates

This month's 10 year bond auction went off without a hitch. Yields were 2.140%, down about 0.75% from last month.

If the mortgage lenders are competitive, which they were ten years ago, mortgage rates should drop at least 0.25% with 0.50% a more reasonable amount.

Morning Thoughts

Equities are in limbo. A rally lasting days, weeks or months is very likely. But not today. Structural problems of so-called post-industrial economies, meaning Western Europe, the US and to a lesser degree Canada & Australia, have not been solved. Nor will they be solved so long as corporations are allowed limitless size and power, be it economic or political.

Industrials commodities are holding up pretty well, implying the users think a rebound in attitude is likely, and that rising equities will allow the commodities prices to rise.

Bonds are having an inside day to the upside.

The USD is rebounding against all save the Yen.

End of Day Aug 9

Equities had a strong showing today, likely putting an end to the decline. Bonds were up very strongly on the Fed announcement, but gave back most of the days gains by the close. Natural gas is the strongest of the industrial components, but both copper and crude followed equities. My biases for tomorrow are (1) leave bonds alone, and (2) any trading of this group tomorrow likely should be from the long side.

Gold was up but silver down. Were I going to trade, I'd trade silver from the short side.

In Forex, it appears that the appreciation of the USD is over, and we will be returning mostly to the USD down. Specifically, $A and $C both traded at parity against the USD, but both seemed to have reversed course. The next moves look to be against the USD. The € and the £ are too choppy to provide decent risk/return ratios for position traders.

Corn is in neutral. I think the bull market will resume there, taking prices up very considerably. My current target for corn is 820. Wheat is in neutral with a bearish bias. Beans are in bear mode, but I don't much like trading the short side this time of the year. Rice is in neutral but my target for it is just under 1900. Oats, like beans are in bear mode.

emini update

The emini recaptured half its losses from Friday's high to Monday night's low, then eased off, awaiting the Fed report. Not a good time to be in the market unless one is really long term, and even then...

3 yr auction at 10

This doesn't usually generate waves, but in the current fearful environment, you never know. If you're short USD/ChF or BP/USD, consider protecting your position.

Waiting for the Fed: general update

It would seem that all eyes are on the Fed today. Trading Fed announcements is tricky business. Sufficiently tricky that I, for one, have never come up with a reliable approach -- perhaps you have.

At this moment, the e-mini is hugely off its overnight lows; bonds are down a little; the USD is a lot sideways; crude is back above $80 ($82k in fact) and gold is down.

Grains have been hurt by the falling equities prices and general fear. There is some recovery there as well.

Yuan will rise sooner rather than later

Below is the Chinese CPI. The government has tried almost as many ways to slow it without raising the Yuan exchange rate as the US Tea Party has found ways to reduce the US Federal debt without raising taxes. Neither will work; neither can work. If the world wants to make the Yuan the reserve currency, it will benefit the US considerably. The second chart shows the PPI which implies accelerating, not declining future CPI numbers. Look for a rate hike followed by an increase in the value of the Yuan. A sufficiently valuable Yuan will stifle inflation -- but it won't be good for exports.

Half way through Black (?) Monday

Equities are sharply lower, but so far, they haven't dropped as much as they "should." If they hold on, or better, rally after lunch, we could see an end to selling sooner rather than later.

Despite Standard & Poor's efforts to undermine the (rather randomly run) US political process, the US bond market looks strong indeed. Hard to square that with hopes of an equities rally, but there it is.

Crude is down to $83, and copper is at $4, a 7 day drop of 11% or so, quite a lot for copper.

Ozzies have done nothing but go down for six days, and have given up 7¢ to the USD. Now they are, surprise, oversold -- as they were Friday.

€ and £ continue to go up yesterday, down today, sideways net. No decisions in the offing, at least none visible on the charts.USD continue to rally against $C. Another penny or so will bring parity, which we haven't had since January.

Gold is in the clouds. Looks like a good time to release any longs. Silver is not joining the tea party, which implies that gold's lofty price is craziness. But gold bugs are crazy and anyone who thinks gold and silver are the correct currency is worse than crazy.

BP trade

BP mildly overbought. Cash them in or hope they don't go back to entry point.

GBP trade

Trying to switch back to bullish are GBP. Buy 6442 stop.6476,89 &7500 are upside targets of the break out.

emini trade

hourly close below 1160 is a short with lesser targets of 1135 & 1127 and a main target of 1119

cable trade

An hourly close below 16400 triggers a short. Early targets are 6356, 6343 with main target at 6328

10yr trade

Best was an hour ago at 127 '05. Long ZN with a target of 128 '04

Euro & Ozzie trades

An hourly Ozzie close below 370 should set up a move down. Primary target is 10222 with lesser targets of 10253 & 10284

An hourly Euro close below 4318 should trigger more selling. Primary target is 4215; lesser targets are 4236 & 4257

After the US credit down grade

6:15 EDT sees the e-mini down and attacking Friday's lows. Bonds are down mildly. The dollar is up against the $A and looks like it might go more. The Euro started off up vs. the USD, but looks like it will not hold on.

If London and New York start selling equities, look for the USD to strengthen and bonds to rise, to hell with the dumb-ass "ratings" firms that were primary causes of the banking disaster of three years ago.

emini update 2

a 30min close >= 1211 creates the following set of targets -- may take through Monday.

A. 1230
B. 1242
C. 1252
D. 1258Publish Post

Ozzie

Next Ozzie target is 10620 but I'll be surprised if we see that today.

emini update

target 1216

Update

$A are trying for 10527

€ next target is 14330

Good and Bad

Pretty good new jobs numbers (117,000, well above most estimates), unemployment down 0.1%, and no stock market rally. Ugh! This may well portend noticeably lower stock market prices over the next few weeks/months.

Today and Tomorrow

As is obvious, tomorrow can bring almost anything. Today's near-freefall in the equities markets translated into bonds and USD higher, everything else lower.

Labor Report tomorrow morning: If 75,000 jobs are created, as the market expects, the free-fall will end. We might even see a rally. In the unlikely event of > 100,000 jobs, stocks will rise sharply, bonds and the USD will fall sharply.

BUT if the report comes in < 50,000 we could see a repeat of today.

Bond Targets

TY/ZN target 126'25

US/ZB target 130 ' 22

BoJ Intervention

Bank of Japan intervention in the currency market proved to be the straw that, at least for the past several hours, has broken the camel's back. S&P futures were rising and bonds falling; no more.

Unsurprisingly, the Yen is down, down, down against the USD. For rather opaque reasons, the $A and $C have reversed their early course, and are down sharply against the USD.  € and £ are somewhat lower.

This surprise means the pre-session targets are all DOA. It looks like the $C would dearly love to reach 9778 and the $A 1.0525, if the morning US Employment report doesn't turn things around -- and it may not, with the big picture report due out Friday.

Expectations for Aug 4, 2011

FOREX: expect the dollar to lose ground tomorrow. € is trying to reach 4570 but that should be out of reach tomorrow: think more like 4400-4425. Ozzies will be shooting for 840; £ would like to get to 6550, but that may be more than it can manage tomorrow;  and $C will make a run at 9510.

STOCKS/BONDS: Stocks are likely to rally a bit and bonds are due for a drop. The 10yr would like to get below 126, and the 30yr would like to get to the 129'14-'16 zone. The emini will be looking for 1275 or so.

ENERGY: rallies in crude and natural gas are probable.

Forex for Aug 3, pre session

Ozzies are not so bullish now. I'd make the odds about 3:2 for strengthening of the USD Wednesday. Probably better odds will show up late in the week. The Euro continues to slide against the USD. The miracle is that it hasn't been hit hard. BP...??? and the $C is likely to continue to fall against the USD. On the USD/$C chart, look for a run to 9780 or higher.

Weekend Grain CoT

 CoT for corn was little changed this week. Price action was not bullish, and waiting for a week to find my entry leaves me dubious about the future. On the other hand, it may be only D.C. idiots that are messing up the pricing.

Bean price action was distinctly bearish this week, making beans look like they want to go back to $13 or below. Contrariwise, funds got a bit longer and commercials a bit shorter this week.

Wheat, the least bullish for a good while not, was the least bearish. Commercials expanded their longs -- commercials aren't usually long this time of yer -- to the highest levels seen in a year. Evidently, they fear that when all is said and done, there will not be enough wheat to go around. 

I'll not be selling grains for the next few months, and still expect to see price rise, but my expectations are not the force driving the markets.

1022 EDT update

Expect relaxation in bonds soon. It is happening now in $A and ­€. £ may have reached its peak, and $C its low.

Looks like politicians are being donkeys. If that continues through Monday Midnight, expect the unexpected. Midnight in DC is 8AM in London, just in time for the traders to really get ready, though who knows what reality will be.

One might expect gold up, everything else that is denominated in USD down, but I will wait until the smoke clears before getting in the middle of that possible chaos.

Forex update 945 EDT

£ powered through its goal of 6382, now wants to try for 6441.

€ managed to get to 4363 and will now try for 4402

Euro short term

4363 will be the first spot aimed at by the bulls, then 4402.

BUT Why € and not $A? With so many breaths being held, caution

Today and Tomorrow

Grains were pretty quiet: beans down a bit, corn down a bit, and wheat more of the same.

In Forex, the dollar was a hair (way too slow to be a hare) stronger against $A and € but a bit weaker against the $C and £.

Bonds rallied. Stocks tried to rally, but couldn't hold on.

Crude was about even, natural gas was down. Copper rallied a bit, closing near yesterday's opening.

While it is unlikely that tomorrow's results will be an exact repeat of today's, something similar is likely in store.

I think I'll trade about two hours of bonds, then go fishing.

Taxes Around the World as % of GDP

This is a long list, compiled by the ultra-conservative Heritage Foundation. It shows collected taxes as a percentage of GDP. You will note that of what are called First World Countries only SOUTH KOREA has a lower percent of GDP collected as taxes (by 1/10%). I have highlighted the US in blue, other modernized, post-industrial economies in yellow. Also note that the US has a lower rate of collections than tax have Switzerland.

Country	Heritage Foundation[1]
United Arab Emirates	01.4
Kuwait	01.5
Equatorial Guinea	01.7
Oman	02.0
Qatar	02.2
Libya	02.7
Chad	04.2
Bahrain	04.8
Burma	04.9
Saudi Arabia	05.3
Angola	05.7
Congo, Republic of	05.9
Nigeria	06.1
Sudan	06.3
Afghanistan	06.4
Yemen	07.1
Iran	07.3
Algeria	07.7
Central African Republic	07.7
Cambodia	08.0
Guinea	08.2
Bangladesh	08.5
Haiti	09.4
Mexico	09.7
Pakistan	10.2
Gabon	10.3
Sierra Leone	10.5
Panama	10.6
Bhutan	10.7
Madagascar	10.7
Syria	10.7
Laos	10.8
Nepal	10.9
Indonesia	11.0
Niger	11.0
Burkina Faso	11.5
Guinea-Bissau	11.5
Ethiopia	11.6
Guatemala	11.9
Comoros	12.0
Paraguay	12.0
Tanzania	12.0
Federated States of Micronesia	12.3
China, Republic of (Taiwan)	12.4
Uganda	12.6
Hong Kong	13.0
Congo, Democratic Republic of	13.2
Ecuador	13.2
Liberia	13.2
El Salvador	13.3
Mozambique	13.4
Vietnam	13.8
Costa Rica	14.0
Armenia	14.1
Rwanda	14.1
Singapore	14.2
Lebanon	14.4
Philippines	14.4
Tunisia	14.9
Dominican Republic	15.0
Peru	15.1
Côte d'Ivoire	15.3
Mali	15.3
Sri Lanka	15.3
Benin	15.4
Mauritania	15.4
Malaysia	15.5
Togo	15.5
Honduras	15.6
Egypt	15.8
Zambia	16.1
Tajikistan	16.5
China, People's Republic of	17.0
Thailand	17.0
Burundi	17.4
São Tomé and Príncipe	17.4
India	17.7
Azerbaijan	17.8
Nicaragua	17.8
Vanuatu	17.8
Cameroon	18.2
Kenya	18.4
Chile	18.6
Bahamas, The	18.7
Gambia	18.9
Mauritius	19.0
Senegal	19.2
Djibouti	20.0
Macau	20.1
Turkmenistan	20.2
Maldives	20.5
Malawi	20.7
Ghana	20.8
Lithuania	20.9
Uzbekistan	21.0
Jordan	21.1
Kyrgyzstan	21.4
Belize	21.6
Georgia	21.7
Fiji	21.8
Suriname	22.1
Morocco	22.3
Albania	22.9
Argentina	22.9
Cape Verde	23.0
Colombia	23.0
Saint Lucia	23.1
Uruguay	23.1
Belarus	24.2
Papua New Guinea	24.5
Solomon Islands	24.7
Venezuela	25.0
Samoa	25.5
Saint Vincent and the Grenadines	26.5
Croatia	26.6
Kazakhstan	26.8
Korea, South	26.8
South Africa	26.9
United States (all levels)	26.9
Bolivia	27.0
Tonga	27.0
Jamaica	27.2
Japan	27.4
Montenegro	28.0
Trinidad and Tobago	28.0
Romania	28.1
Namibia	28.8
Macedonia	29.3
Switzerland	29.4
Slovakia	29.5
Dominica	30.3
Latvia	30.4
Australia	30.8
Ireland	30.8
Guyana	31.9
Seychelles	32.0
Canada	32.2
Estonia	32.3
Turkey	32.5
Barbados	32.6
Greece	33.5
Moldova	33.8
Mongolia	33.8
Poland	33.8
Serbia	34.1
Bulgaria	34.4
New Zealand	34.5
Botswana	35.2
Malta	35.2
Czech Republic	36.3
Luxembourg	36.5
Israel	36.8
Russia	36.9
Portugal	37.0
Hungary	37.3
Spain	37.3
Ukraine	38.1
Brazil	38.8
United Kingdom	39.0
Cyprus	39.2
Slovenia	39.3
Netherlands	39.8
Swaziland	39.8
Iceland	40.4
Germany	40.6
Bosnia and Herzegovina	41.2
Italy	42.6
Lesotho	42.9
Austria	43.4
Finland	43.6
Norway	43.6
Cuba	44.8
France	46.1
Belgium	46.8
Sweden	47.9
Denmark	49.0
Zimbabwe	49.3