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Stock analysis is a serious hobby for me. I compete at Ken Kam's Marketocracy, where they do capital management using the best member mutual fund track records with extensive tabulations of alpha, beta, R-squared, and many other fund management evaluations. I've been running 4 funds there for... More
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  • Bad Omelet 0 comments
    Nov 17, 2011 1:02 PM | about stocks: FXE

    I watched with interest Jim Cramer's Mad Money last night where this "grizzled veteran" as he likes to style himself bemoaned the fact that all his laborious fundamental analysis on his favorite stocks is being overrun, stampeded in fact, by whatever one unrelated thing was doing. He related that, in the past, that one thing could be gauged by Pfizer's stock, this or that - and now that one thing is the FXE. This is the ETF tracking the euro. Earnings beats by major bellweathers here in the US in the morning - doesn't matter. Just look at the FXE and there's your market for the day.

    It's been that way since about mid-August, when attention turned from the US debt downgrade and the bickering in Washington to the Euroland problems. The state of Europe's bonds and banks is certainly more of a pressing problem than the US at this juncture.  Everyone is treating Europe's bonds like an ugly, red-headed step child - except Jon Corzine.

    What we have in Europe now is an omelet made with a poor recipe and now we are asking "Breaking Up The Euro ? Try Unscrambling An Omelet" . This article says the omelet is not edible and ponders what to do with it:

    The potential danger of a breakup, both to euro zone economies and the global financial system, is so great that it is often cited as a reason it will never happen.The potential danger of a breakup, both to euro zone economies and the global financial system, is so great that it is often cited as a reason it will never happen.


     
    This morning's CNBC interview with a bond fund manager Stephen Walsh of Western Asset Management was marked by his comment that liquidity in European bonds (other than German) was lower than he has seen at any time since late 2008. Larry Kudlow's recent guest made the comment that the banking system over there is "freezing up".  MF Global has been collapsed over here. It's as if we have all the ingredients of 2008 except the market crash.

    If you just take a cold hearted look at Cramers "just one thing" indicator, the FXE, and consider its technical condition, you see this:


    Not good. If this is the one thing in the driver's seat of everything, let me out. I'll walk. This agrees with the conclusion drawn in the above article:


    The problem is that barely anyone believes that any kind of re-configuration can be achieved without destroying public confidence, prompting investor flight and hitting financial institutions as hard, or more so, than the Lehman Brothers collapse in 2008.

    If you knew your euros were about to be switched to, say, new drachmas or an untested currency called the Seuro, would you leave them where they were?

    “I don’t think there is a peaceful solution to their problem,” said Andrew Clare, professor of asset management at Cass Business School in London. “The real problem is the potential runs on banks.”

    Poison omelet anyone?






     
    Stocks: FXE
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