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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
My company:
CXA Markets
My blog:
CXA Markets BroadView
My book:
The Strategic Truth about Investing
  • U.S.A. Becoming A Banana Republic 0 comments
    May 25, 2013 12:57 AM | about stocks: SPY, DIA, QQQ, VTI, IWM, AGG, OIL, USO, GLD, SLV, UUP, FXE, FXY

    With every passing day the revelations about how the administration operates are chilling to some, yet not surprising, and while I understand and accept why people voted for President Obama, the writing was on the wall and goes well beyond Chicago style politics. Although on a smaller scale the behavior thus far draws parallels with well known dictatorships, at this pace it is only a matter of time before the operators get out of the shadows and hunt dissenters regardless of political beliefs. When I wrote "The Strategic Truth about Investing" in 2010, my first book and something that I do for fun, I threw in a political observation.

    I cannot resist closing with a political note, and from a broader perspective, we are witnessing the death of Socialism and the failed policies of the past 50 years, despite the doctrine's last experiment taking place in Washington, D.C., as we speak. They can deny that Socialism is not the foundation of their policies, but I can smell them and they have dropped the disguise far too often. I've seen them, dealt with them, and socialized with them, and the populist messages, tactics, arrogance, and associations look and feel exceptionally familiar. And this is about ideology, not skin color, because the latter has already been addressed by the fact that a majority of the American people already cast their ballot while being color blind. That was the prime accomplishment of 2008.

    The tactics are a reflection of hard core Socialism and the reason why they play hard ball is because their arguments never hold water, and although Capitalism is flawed as it exists and Socialists do have some valid points and grievances, their solutions are non-existent. Furthermore, it's always about power, not the people as many believe.

    Thus many that cherish Michelle's bangs and engage in silly adoration exercises will become quiet and will try to disavow their actions as they realize how a Banana Republic truly functions. Fair enough, you were duped! And if anyone thinks that the above comments are racially driven, a common accusation when rationality is absent, I will advance that Hillary Clinton is worse, and we can always try it out and, like they say, learn through the school of hard knocks. Even well known Democrats are surprised by the turn of events, and are starting to think that they don't know who Barack Obama is.

    How much of Wednesday's market performance was related to the ongoing political scandals is hard to tell, although some traders made the connection. We had Bernanke testifying and then Lois Lerner pled the fifth. Or was it Doug Shulman recalling his visit to the White House for the Easter Egg Roll? Hmm! Now we have to hire a magician to get the Easter rabbit out of the hat. But back up a second. Although the law is ambiguous, Lerner's potential waiver of the fifth is viewed by experts as bad legal advice, and she's a lawyer, no less. But that is Law 101 and not even a rookie would screw that up or take a chance. The fifth is simple: Shut up! Or was it by design, and her assertion that she didn't do anything wrong can be construed as true because she was only following orders from above. "Immunity please," she may say, "and I'll spill the beans."

    Macro Note: Obama's ideology is aligned with Wallace's Progressive Party, not the Democratic Party, and while the progressive movement in America is headed to irrelevance and entered the decline phase in 1996 (coincidentally that was the year that Obama was first elected to the Illinois Senate, although the cycle was set before he was born), Capitalism is in need of reform (Capitalism is not a movement, but rather a human condition). As a result, a great opportunity presents itself to redesign politics, social welfare policies and the democratic process, and to develop socially and economically sound alternatives to the status quo. I have been quietly researching economic cycles for the last 14 years - politics are always driven by economics - and in due time will present the findings, not theories.

    Aside from politics, the Fed continues to be confused. Bernanke said that "more progress needed before stimulus pullback." Then James Bullard, president of the Federal Reserve Bank of St. Louis, told us that the "Fed not 'that close' to winding down stimulus." In addition the minutes from the last meeting indicated that a "number" of central bank officials were willing to slow bond buying, while a "couple" of Fed officials said that the Fed may have to buy some more. And this is what we get from an institution that consumes almost $5 billion annually in taxpayer funds? What's a "number?" These academic hacks love to play games, and we the people, whom they serve, apparently have no business knowing what these questionably illustrious minds are thinking, if anything.

    In Europe the question still is whether Cyprus was or wasn't a template, and the more we look, the clearer it becomes that we have a Cyprus Virus, although the logic is well understood.

    European Union lawmakers on Monday voted in favor of a draft law that would protect small bank depositors from losses in further bank rescues, but could see customers with more than 100,000 euros in savings being hurt. The Parliament's economics committee voted for a "bail-in" scheme to be up and running by 2016, but that shareholders and bondholders should come first in line to take losses in future bank bailouts.

    The other source of revenue, or tax-in, is clear, especially in France, where "more than 8,000 French households' tax bills topped 100 percent of their income in 2012." Meanwhile we learned that "Spanish banks will need to put aside extra provisions of up to €10bn to cover loans that borrowers will struggle to repay, according to an internal estimate by the Bank of Spain." A little story that didn't get much attention covered "Sweden's capital hit by worst riots in years." What was amusing, and extremely biased, was that the writers chose to highlight an interesting fact without providing context.

    After decades of practicing the "Swedish model" of generous welfare benefits, Sweden has been reducing the role of the state since the 1990s, spurring the fastest growth in inequality of any advanced OECD economy.

    What's missing? Between 1990 and 1993 Swedish GDP tumbled 5% and unemployment jumped from less than 2% to almost 10%, causing the worst economic crisis in Sweden since the 1930s, because they couldn't afford welfare. Now we're clear and journalistic fraud is once again highlighted! And what's going on in Japan? Higher yen, higher yields because ultimately the private market always dictates what happens next. Remember when Japanese Management style was the rage in the 1980s? Now it's "Abenomics," and the following observation is important.

    "He is trying to make money cheaper, but [the] Japanese government bond yield is going the other way, and he hasn't said how he's going to stabilize bond-market yield. ... That's worrying the market," said Kim Eng Securities director of sales trading Andrew Sullivan

    An interesting article covered the retail investor's lack of rationality, and it is no wonder that many, if not most, lose money over time and then blame Wall Street.

    The latest poll of Morgan Stanley's top clients from across the world says it all. Chief economist Joachim Fels tells us that not a single investor at the bank's Florence forum thought the world economy would rebound with any strength later this year. Just a quarter expect a return to trend growth. Some 57pc think there will be no escape from the "twilight" conditions afflicting the western world, and 20pc expect a full-blown global recession. That is a remarkably bearish set of views. Yet the same investors are overwhelmingly bullish on stocks and property.

    In closing, Goldman Sachs upgraded its forecasts and now predicts that the S&P 500 will reach 1,750 by December, which is doable. But that isn't all, because in 2014 the index will climb to 1,900, and then reach 2,100 in 2015. That may explain the reasoning in the poll above, and Abby Joseph Cohen must be back with her famous non-stop linear projections.

    Market TrendsPerfection was interrupted, aided by the extremely overbought condition that has persisted since the beginning of May, although long-term trends are still positive for all indices. The dollar retreated while holding its long-term positive trend, and the euro pulled back after hitting the $1.30 mark, keeping its long-term negative trend in place. The yen is still negative but oversold, and is looking at the $0.0101 level. WTI and Brent oil are still neutral and negative respectively, and the spread is virtually unchanged at $8.44. Gold and silver failed to mount a meaningful rally and continue to be long-term negative. Copper is now negative and looking for direction. The 10-year Treasury rate rose again and is now up to 2.01% from 1.95%. The 10-year note and the 30-year bond are still long-term negative. Next week we'll get U.S. housing prices, consumer sentiment, personal spending and the second take on Q1-2013 GDP. Eurozone will give us unemployment and CPI, and China's official PMI will close the week.

    InvestmentsYTD20122011
    CXA Markets Nimble
    Average Daily Risk Exposure: 39.2% of Capital
    13.60%43.84%77.75%
    Dow Jones Credit Suisse Core Hedge Fund Index - Long/Short Equity7.24%2.07%-7.27%
    S&P 500 ETF (SPY) 100% of Capital - including reinvested dividends16.59%16.01%1.04%

    (click to enlarge)

    U.S.A.The Mortgage Bankers Association's mortgage application activity index decreased 9.8%. Refinancing decreased 12.0%, and home purchases decreased 3.0%. Freddie Mac's average 30-year mortgage rose to 3.59% from 3.51%, and the 15-year increased to 2.77% from 2.69%. Jobless claims decreased 23,000 to 344,000, and the 4-week moving average decreased 500 to 339,500. The number for seasonally adjusted insured unemployment decreased 112,000 to 2,912,000.

    Existing home sales increased 0.6% in April to an annual rate of 4.97 million units, with the added point that sales were 9.7% higher as compared to April 2012. On an annual basis, the median price increased 11% to $192,800, and it must be noted that supply jumped to 5.2 months from 4.7 months, questioning the tight inventory claim. New home sales rose 2.3% to an annual rate of 454,000 from a upwardly revised 444,000. The median price increased 15% to $271,600 on an annual basis, and supply held steady at 4.1 months.

    The Markit Flash PMI decreased to 51.9 from 52.1, the lowest since October 2012. Durable goods orders increased 3.3% in April, with the core reading registering a smaller gain of 1.3%. Capital goods gained 1.2%, although shipments declined 1.5%.

    GlobalThe flash Eurozone services PMI rose to 47.5 in May from 47.0 in April, and the manufacturing PMI increased to 47.8 from 46.7. Flash France services PMI was unchanged at 44.3, and the manufacturing PMI rose to 45.5 from 44.4. Flash Germany services PMI increased to 49.8 from 49.6, while the manufacturing PMI rose to 49.0 from 48.1. Overall, we're still in negative territory. Italian retail sales declined 0.3% in March after a 0.2% decrease the previous month. Eurozone consumer confidence improved slightly to -20.2 from -20.4

    German PPI registered -0.1% on an annual basis, and it fell 0.2% on a monthly basis. UK CPI registered 2.4% in the year to April 2013, down from 2.8% in March. Core CPI declined to 2.0% from 2.4%. UK PPI output increased 1.1%, while input prices declined 0.1%, highlighting the continued deflation in motion. UK retail sales declined 1.3% in April, and increased a meager 0.5% on an annual basis.

    HSBC's flash PMI reading for China dropped to 49.6 in May from 50.4 in April, with both new orders and exports decreasing. Japanese trade balance registered a deficit of ¥880 billion, driven by an increase in imports of 9.4% and only 3.8% in exports.

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