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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
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CXA Markets BroadView
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The Strategic Truth about Investing
  • Bernanke, China And Europe Rain On Parade 0 comments
    Jun 22, 2013 6:21 PM | about stocks: SPY, DIA, QQQ, VTI, IWM, AGG, OIL, USO, GLD, SLV, UUP, FXE, FXY

    Beyond rate hikes by the Fed, which will not happen before 2017 in my book, easing the less than economically effective QE is the only way that Bernanke and company will combat the risk of inflation that will not happen. The driver is still the unemployment rate, and very little attention is being paid to the labor force participation rate, as if it doesn't matter. Despite the Fed's projections, which are nothing more than arbitrary numbers derived from linear economics in a non-linear world, reality remains that economic times are feeble considering the monetary and fiscal policies.

    As the market adjusted to Bernanke's words, it was expected that somebody would be out with a soothing message, and "Federal Reserve Bank of St. Louis President James Bullard said the Fed 'inappropriately timed' a plan to trim $85 billion in monthly bond purchases amid slowing inflation." Problem here is that consumer sentiment depends on the market's bullishness, which has been Bernanke's focus for a while now, and declining stocks don't play into Bernanke's plans. Bad timing? When exactly is a good time to curtail the addiction without consequences? In addition, Jon Hilsenrath also tried his hand at damage control with the article "Analysis: Markets Might Be Misreading Fed's Messages," highlighting how smart he is and how dumb everyone appears to be for not understanding Bernanke's position. Ultimately Bernanke didn't say anything and provided enough conjecture to keep everyone confused.

    China moved to the front burner with Fitch warning not only about the credit bubble, but how unprecedented it is in world history, paving the way to the collapse of the communist country.

    "The credit-driven growth model is clearly falling apart. This could feed into a massive over-capacity problem, and potentially into a Japanese-style deflation," said Charlene Chu, the agency's senior director in Beijing. "There is no transparency in the shadow banking system, and systemic risk is rising. We have no idea who the borrowers are, who the lenders are, and what the quality of assets is, and this undermines signaling," she told The Daily Telegraph.

    Moody's also weighed in, pointing to how "local government debt poses a key risk for Chinese banks." In addition,

    Among 388 city construction companies Moody's surveyed, only 53% of them have sufficient cash to cover estimated debt and interest payments in 2013 without resorting to borrowing more. The National Audit Office said on June 10 that the debt of 36 local governments had risen 12.9% to 3.85 trillion yuan (US$628 billion) in the two years to the end of 2012.

    Interestingly, the Chinese Ministry of Human Resources and Social Security addressed the unemployment figures (Chinese data is as corrupted as the government), highlighting how "since 2002, the registration-based unemployment rate has been between 4.0 and 4.3 percent, even in the midst of the global financial crisis." Time to reform or come clean.

    Meanwhile China's central bank wasn't in the mood to assist the credit crunch in the interbank bond market that developed on Monday, with overnight rates shooting up as high as 15%. Then on Friday funds were made available and "the one-day repurchase rate fell 3.84 percentage points to 7.90%, while the seven-day rate dropped 3.51 percentage points to 8.11%."

    While Brazil is dealing with widespread protests and experiencing the side effects of the BRIC disease that the experts never saw coming, because the BRICS would save the world, Cyprus was reported to call for a bailout overhaul, as bad loans in Spanish banks increased to 10.87% in April from 10.47% in March and 8.73% one year ago. In addition, "The total amount of non-performing loans at Italian banks rose to a 2-year high in April. They are 22.3% above a year ago, a tad lower than Spain's 24.5% increase." The good news is that Cyprus President Nicos Anastasiades denied that the country was trying to renegotiate the terms - and we know how denials by politicians always work out.

    The ECB is prepared to use non-standard measures "to help repair the euro-zone economy," while Draghi stated that the responsibility lies with the various members, not the ECB. Got it! Meanwhile, "hedge funds brace for renewed debt crisis" in Europe with a Cyprus style bailout very likely to hit another euro member, just as uninformed people started to embrace the idea that the worst was over. Not by a long shot!

    Market TrendsBernanke threw a wrench into the markets, and all indices turned short-term negative and long-term neutral. Unlike recent action, equities dropped as the dollar rose, with the greenback turning short and long-term positive. Interestingly the euro is still long-term positive, with the short-term trend now negative. In addition, the yen is now neutral all around. WTI and Brent oil are both short-term negative, with WTI holding the long-term neutral line and Brent going negative long-term. The spread narrowed to $7.40. Gold and silver were hit with a ton of bricks and reacted beyond the simple dollar appreciation, reminiscent of capitulation in motion. Needless to say, both precious metals are negative all around, and I still remember the Donald Trump event that I mentioned on December of 2011.

    As gold reached for the sky, with the interim daily high of $1,920 taking place on September 6, the word spread that the metal was the "thing" to own, and the argument for further gains was plastered all over the media. Then on September 15, Donald Trump accepted a security deposit in gold for a lease by American Precious Metals Exchange.

    Copper joined the parade and remained negative short and long-term. The 10-year Treasury rate jumped to 2.51% from 2.13%. The 10-year note and the 30-year bond have been short and long-term negative since May. Next week we'll get U.S. housing data, consumer confidence, final Q1-2013 GDP, and plenty of FOMC speeches. In addition, we'll have another Eurozone economic summit to keep the conversation alive.

    InvestmentsYTD20122011
    CXA Markets Nimble
    Average Daily Risk Exposure: 38.9% of Capital
    14.73%43.84%77.75%
    S&P 500 ETF (SPY) 100% of Capital - including reinvested dividends12.19%16.01%1.04%

    Economic Recap

    U.S.A.The Mortgage Bankers Association's mortgage application activity index decreased 3.3%. Refinancing decreased 3.0%, and home purchases decreased 3.0%. Freddie Mac's average 30-year mortgage declined to 3.93% from 3.98%, and the 15-year decreased to 3.04% from 3.10%. Jobless claims increased 18,000 to 354,000, and the 4-week moving average increased 2,500 to 348,250. The number for seasonally adjusted insured unemployment decreased 40,000 to 2,951,000.

    The Empire State Manufacturing survey increased to 7.8 from -1.4, while the new orders index dropped 6 points to -6.7. In addition, shipments fell twelve points to -11.8, and the unfilled orders index fell eight points to -14.5. Labor market declined to zero and the average workweek index declined ten points to -11.3. In contrast, Philly manufacturing index rose from ‑5.2 in May to 12.5. New orders increased from ‑7.9 to 16.6, and shipments index rose 13 points to 4.1. Labor market was up 3 points to ‑5.4, and negative. Markit flash PMI eased to 52.2 in May from 52.3.

    The National Association of Home Builders/Wells Fargo housing-market index increased to 52 in June from 44 - the first time the index reached positive territory since 2006. New homes construction rose 6.8% in May to an annual rate of 914,000, while building permits, an indicator of future demand, declined 3.1% to an annual rate of 974,000. Existing-home sales increased 4.2% in May to an annual rate of 5.18 million, giving false appearances that the recovery is alive (more on that later with article coming before month's end). The median existing-home price hit $208,000 in May, the highest since 2008, because more sales took place at higher prices, and not everyone can afford it.

    CPI was up 0.1% in May, with the core rate up 0.2%. CPI is up 1.4% over the last 12 months, and the core rate is up 1.7%, indicating that inflation is nowhere to be found. More importantly, inflation-adjusted hourly wages declined 0.2% in May with the annual rate up a meager 0.5%.

    GlobalEurozone trade balance delivered a €14.9 billion surplus with exports falling 0.8% while imports rose by 0.5%. Eurozone consumer sentiment improved from -22 to -19. Markit's Flash Eurozone Composite PMI increased to 48.9 in June from May's 47.7. German flash PMI declined to 48.7 from 49.4, and French flash PMI rose to 48.3 from 46.4. ZEW's German investor confidence rose to 38.5 in May from 36.4. ZEW Eurozone investor confidence increased to 30.6 from 27.6. German PPI was up 0.2% in May on an annual basis.

    Italy's foreign trade surplus declined to €1.9 billion in April from €3.24 billion in March. Exports were unchanged while imports declined 0.9% for the month. Year-on-year, exports increased 4.4% and imports decreased 2.6%. U.K. consumer inflation increased 2.7% on an annual basis in May, up from 2.4% in April. Retail sales increased 2.1%. UK PPI increased 1.2% on an annual basis, with the core up 0.8%.

    The HSBC China Flash Manufacturing PMI declined to a nine-month low of 48.3 in June from 49.2, with decreases in both production and demand. China's foreign direct investment registered an inflow of $9.26 billion May, only 0.3% higher than one year ago. Japan's exports jumped 10.1% on an annual basis, yet the trade deficit registered ¥993.9 billion because imports rose 10%.

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