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Carlos X. Alexandre
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Carlos X. Alexandre is a Stock Trading Tactician (far more impressive than being a mere trader) and has managed investments privately — stocks, bonds, commodities and currencies — for over two decades. An investment industry outsider and politically independent, he developed proprietary trading... More
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  • Boston Terror Event Will Shift Politics 0 comments
    Apr 20, 2013 8:45 AM | about stocks: SPY, DIA, QQQ, VTI, IWM, AGG, OIL, USO, GLD, SLV, UUP, FXE, FXY

    The fact that officials were somewhat quiet regarding the Boston terror attack was viewed with suspicion by some of the quiet people that I deal with, and a little over 12 hours after the FBI provided the public with some photos and video, all kinds of information surfaced - names, nationalities, intent - as if this was CSI: Boston, or the typical TV show that is solved in 40 minutes, discounting commercials. Turns out that the FBI had interviewed one of the terrorists two years ago. Now that Osama bin Laden is dead we don't have anything to worry about, or so goes the story, and although I question the need for some firearms and some accessories, I suspect that the talk about tougher gun laws will subside. The emerging public perception is that we're still not safe, and the polls will show the political fallout all the way to the White House, because the softer form of diplomacy and appeasement will be questioned till the cows come home, and a sense of distrust is building up.

    In other news, the Fed Beige Book stated that the U.S. economy is growing at a "moderate" pace, with five districts reporting "moderate" growth, five reporting "modest" growth, and New York and Dallas reporting "slight accelerations." Problem here is that "moderate" and "modest" are synonyms, and "slight" is not much different. On debt quality, Egan-Jones, a credit rating agency that is always ahead of the curve, downgraded Germany to A from A+ and indicated that debt will rise to 100% of GDP due to exposure to the Eurozone. In addition, Fitch downgraded UK long-term foreign and local currency to AA+ from AAA.

    Apparently Cyprus is not a done deal, and voting will take place regarding the bail-in deal, while Ireland, Greece and Portugal are resurfacing as trouble spots.

    Portugal is readying itself for a convulsive moment when the government attempts to bypass a constitutional court ruling that bans many of its most caustic austerity measures. The situation worsens daily in Greece. And then there is Ireland. A plan to slash €1 billion from the public service pay bill over three years has just been rejected by unions, plunging the Fine Gael/Labour government into crisis.

    However, it appears that Portugal found some resources to circumvent the Constitutional Court's slap, and approved "around €800 million of new spending cuts on Thursday." Meanwhile, Germans are fed up and "two top advisers to German Chancellor Angela Merkel have called for a tax on private wealth and property in Eurozone debtor states to force the rich to fund rescue costs, marking a radical new departure for EMU crisis strategy," while the German Parliament approved the Cyprus deal. But the pressure is being felt throughout the Eurozone, and car sales are only one indicator as they head for a 20 year low. An important metric was Germany's auto market plunge of 17%. Yet, the European officials in charge of repairing the damage continue to be in a state of denial.

    "The euro area has made further progress in the implementation of its comprehensive crisis-response strategy," European Union officials will tell the Group of 20 finance ministers this week, according to a draft statement obtained by Bloomberg News at an EU meeting in Dublin two days ago. The bloc expects "a mild recovery setting in toward mid-2013 and strengthening in the second half of 2013 and in 2014."

    The IMF wants reforms in the Eurozone to accelerate but are not very clear on what to do, while reducing growth estimates and now "sees the 17-country euro area shrinking 0.3 percent, compared with a 0.2 percent retreat in January." They also urge the Europeans to stimulate demand. Seriously? ECB's Mario Draghi is now a storyteller and his reference to 1763 only indicates that he feels that people don't get the picture.

    In 1763, exactly 250 years ago, Amsterdam was the centre of a deep financial crisis. Highly leveraged investors were faced with a situation of falling asset prices. The rolling over of existing obligations became very difficult and the liquidity crisis became severe. Investors could not refinance themselves other than through fire sales of distressed assets. Amsterdam bank houses went bankrupt and merchants suffered significant losses.

    While the U.S. became a larger market for Japan's exports, pushing China to number two, the event is an indication of the economic malaise that is still being kept hidden in China. Adding clarity to the subject, and as a rare statement from a Chinese senior auditor, Zhang Ke shared with the world that "we audited some local government bond issues and found them very dangerous, so we pulled out. Most don't have strong debt servicing abilities. Things could become very serious." Finally, Brazil rose the Selic rate by 25 basis points to 7.50%, trying to contain inflation, while the economy keeps drifting downward. It's the BRICS story that keeps on giving.

    Market TrendsAs the market was shooting for new highs, gold fell apart and then Boston was attacked by terrorists. As it stands now, trends have changed color, and while the short-term turned negative on a dime for all indices, the Nasdaq 100 and Russell 2000 are now long-term negative. S&P 500, Dow and Wilshire 5000 are neutral long-term, and the overall change in long-term trends was the first since January 2, 2013. The dollar reversed course and is now short and long-term positive, with the euro holding in neutral. The yen rebounded slightly and then resumed the trip south. WTI and Brent oil are negative all around, bringing some relief at the gas pump, while keeping the $11 spread. Gold finally dropped like a stone, extending last week's decline, and silver followed. Needless to say, short and long-term trends for precious metals are as negative as they can be. Copper kept its negative trends and hasn't been this cheap since the fall of 2011. The 10-year Treasury rate decreased to 1.70% from 1.72%. The 10-year note and the 30-year continue to hold short and long-term positive trends. Next week we'll get U.S. advanced GDP for Q1, housing data, durable goods, and global PMI numbers.

    CXA Markets Nimble
    Average Daily Risk Exposure: 38.9% of Capital
    Dow Jones Credit Suisse Core Hedge Fund Index - Long/Short Equity4.35%2.07%-7.27%
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    (click to enlarge)

    U.S.A.The Empire State manufacturing index registered its third positive month with a reading of 3.1, although new orders declined 6 points to 2.2. Shipments dropped seven points to 0.8, and employment rose 4 to 6.8. The Philly Fed manufacturing index eased to 1.3 from 2.0 in March, with new orders declining to -1.0 from 0.5. Industrial production rose 0.4% in March, largely aided by utility output due to weather. Capacity utilization moved up to 78.5% from 78.3%. CPI declined 0.2% in March, thanks to lower gas prices, with core prices increasing 0.1%.

    The National Association of Home Builders/Wells Fargo index of builder confidence declined to 42 from 44 in March and the lowest level in 6 months. Housing starts increased 7% in March to an annual rate of 1.04 million, and the highest level since June 2008. Building permits declined 3.9% to an annual rate of 902,000, easing future building activity.

    The Mortgage Bankers Association's mortgage application activity index increased 4.8%. Refinancing increased 5.0%, and home purchases increased 4.0%. Freddie Mac's average 30-year mortgage declined further to 3.41% from 3.43%, and the 15-year decreased to 2.64% from 2.65%. Jobless claims increased 4,000 to 352,000, and the 4-week moving average increased 2,750 to 361,250. The number for seasonally adjusted insured unemployment decreased 35,000 to 3,068,000.

    GlobalEurozone's trade surplus registered €10.4 billion in February, with imports decreasing 7% and imports rising by €2.6 billion on an annual basis. Italian trade balance posted a surplus of €1.09 billion. Eurozone current account had a surplus of €16.3 billion in February, although combined direct and portfolio investment had net outflows of €11 billion. ZEW Economic Sentiment for Germany plunged to 36.3 from 48.5, while ZEW Economic Sentiment for Europe dropped to 24.9 from 33.4.

    Eurozone inflation held steady at 1.7%, with the core number rising to 1.5% from 1.3%. German PPI is running at 1.2% annually, and rose 0.2% in March. U.K. inflation was unchanged in March, while the annual increase registered 2.8%. The core number moved up to 2.3% from 2.2%. UK PPI output rose 2.0% month-to-month, and input increased 0.3%. UK unemployment rose to 7.9%, with 70,000 people joining the jobless ranks. UK retail sales declined 0.7%, after a 2.1% jump in February.

    China's GDP grew 7.7% in Q1-2013, and slower than 7.9% registered in Q4-2012. Industrial production increased 8.9% in March, while retail sales slowed to 12.6% growth. Fixed-asset investment rose 20.9%, and foreign direct investment continues to be extremely low, recording 1.4% growth and a far cry from 13.2% growth in 2011. FDI declined 3.6% in 2012.

    Japan's industrial output increased 0.6% in February, while the country's trade deficit of $3.7 billion was the 9th consecutive negative month. Exports rose 1.1% on an annual basis, and imports increased 5.5%.

    Themes: Market Outlook Stocks: SPY, DIA, QQQ, VTI, IWM, AGG, OIL, USO, GLD, SLV, UUP, FXE, FXY
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