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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
  • Fed In Damage Control Mode, Europe To Spread Cyprus Virus 0 comments
    Jun 29, 2013 8:15 AM | about stocks: SPY, DIA, QQQ, VTI, IWM, AGG, OIL, USO, GLD, SLV, UUP, FXE, FXY

    What was widely advertised as a one-time event will now become the norm, and "the European Union agreed on Thursday to force investors and wealthy savers to share the costs of future bank failures." Thus far, nobody is seeing the peril on the horizon judging from euro trading, but the "Cyprus Virus" will undoubtedly affect investor sentiment in due time, and capital flight, the biggest fear Jean-Claude Trichet had, will wreak havoc in the Eurozone. Meanwhile, The Fed's plan to reduce QE has impacted the Eurozone's debt problems, and as US yields shot up, so did Spain's and Italy's because that is how markets function. If I can get a higher yield with less risk, then higher risk debtors must pay more. While the argument can be made that higher Treasury rates are an indication of an improving economy, the assumption that the U.S. is out of the economic woods is as incorrect as it gets.

    After Bernanke's now famous press conference, the Fed has been in damage control mode with many members hitting the press and literally begging the markets to calm down. Dudley said that "Fed policy, while aggressive by historical standards, is not sufficiently accommodative." Kocherlakota added that "The committee's communications have provided insufficient detail about how its policy strategy will play out when the recovery is more advanced," implying that the markets got the message wrong. Fisher went as far as calling market participants "feral hogs" and warned people not to test the Fed. But then Stein suggested on Friday "that the central bank's first tapering move could come in September." What the behavior by Fed members shows is that the stock market is extremely important to their game, when it shouldn't be.

    As we move closer to the first half of 2014, the scheduled time of reckoning, the word is that "Italy is likely to need an EU rescue within six months as the country slides into deeper economic crisis and a credit crunch spreads to large companies, a top Italian bank has warned privately." In addition, Italy is dealing with some obscure derivative play.

    Italy risks potential losses of billions of euros on derivatives contracts it restructured at the height of the euro zone crisis, according to a confidential report by the Rome Treasury that sheds more light on the financial tactics that enabled the debt-laden country to enter the euro in 1999

    The French are under extreme pressure to address their budget shortfall, and austerity is once again the word du jour.

    France's budget watchdog has called for another round of drastic cuts and an immediate freeze in public sector pay and benefits, warning that public finances are badly off track as deep recession eats into tax revenues.

    The Bank of International Settlements, an institution that doesn't say much, added an interesting twist to the conversation, and it stated in its annual report that "using current monetary policy employed in the euro zone, the U.K., Japan and the U.S. will not bring about much-needed labor and product market reforms and is a recipe for failure." In short, while central banks were instrumental in preventing a deeper crisis, they are powerless as far as general market economics are concerned, and governments must embrace true reform, with investors taking their losses and moving on. Now if we could convince arrogant central bankers of these facts, we'll be a step closer to a resolution.

    China has experienced its own cash crunch lately, but "Document Number Nine" is now all the rage.

    The officials identified several threats, including calls for "Western constitutional democracy" and universal values; promotion of "civil society"; support for "neo-liberalism" (an attempt, the officials said, to change China's "basic economic system"); and endorsement of "Western news values" (an attempt, they said, to loosen the party's control over the news media and publishing). Such calls, the officials agreed, were "extremely malicious".

    To summarize, the Chinese economy is in trouble, but they are working hard at keeping the political system intact. No "malicious" democratic values need apply.

    Market TrendsThe S&P 500, Nasdaq 100 and Wilshire 500 are long-term negative; the Russell 2000 and Dow are long-term neutral. The short-term picture is different, with the S&P 500 and Dow neutral, Nasdaq 100 and Wilshire 5000 negative, and the Russell 2000 positive. To summarize, we're at an undecided juncture and next week a clearer trend should develop. The dollar keeps on rising and is positive short and long-term, while the euro has hugged the $1.30 level and is neutral long-term and negative short-term. The yen resumed its fall and is negative all around. WTI and Brent oil continue to diverge, with WTI short-term positive and long-term neutral, while Brent is short and long-term negative. The spread narrowed further to $5.60 from $7.44 last week. Gold and silver dove deeper and continue to hold short and long-term negative trends. Copper is also negative all around. The 10-year Treasury rate eased to 2.48% from 2.51%. 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. PMI, trade balance, unemployment and the July 4th break. ECB rate decision, Eurozone PMI numbers, CPI and unemployment, and China's PMI will be published.

    InvestmentsYTD20122011
    CXA Markets Nimble
    Average Daily Risk Exposure: 38.5% of Capital
    22.40%43.84%77.75%
    S&P 500 ETF (SPY) 100% of Capital - including reinvested dividends13.14%16.01%1.04%

    Economic Highlights

    U.S.A.The Mortgage Bankers Association's mortgage application activity index decreased 3.0%. Refinancing decreased 5.0%, and home purchases increased 2.0%. Freddie Mac's average 30-year mortgage jumped to 4.46% from 3.93%, and the 15-year increased to 3.50% from 3.04%. Jobless claims decreased 9,000 to 346,000, and the 4-week moving average decreased 2,750 to 345,750. The number for seasonally adjusted insured unemployment decreased 1,000 to 2,965,000.

    The Richmond manufacturing index rose 10 points in June to 8, with new orders up 19 to 9 and shipments increasing 3 to 11. Jobs moved up 7 to 4. Durable goods orders increased 3.6% due to jets, with the core reading rising only 0.7%.

    Home prices rose 12.1% on an annual basis according to the S&P/Case-Shiller index, with prices rising 1.7% in April after seasonal adjustments. New homes sales rose 2.1% in May to 476,000, with the median price dropping 3.2% to $263,900. Supply increased to 4.1 months. Pending home sales climbed 6.7% in May. The Conference Board Consumer Confidence Index rose to 81.4 in June from 74.3 in May, and the University of Michigan and Thomson Reuters consumer-sentiment index declined to 84.1 from 84.5 in May.

    GDP was revised considerably lower for Q1-2013, registering 1.8% growth instead of the original 2.4%. Weaker consumer spending on services and lower business investment accounted for the change. However, residential investment increased 14% in Q1-2013, up from the original 12.1%. Consumer spending rose 0.3%, incomes increased 0.5%, and the savings rate rose 3.2% from 3%. The PCE index increased 0.1% in May, and is up only 1.0% in the past 12 months. The core rate, which excludes food and energy, also increased 0.1% and is up 1.1% on an annual basis.

    GlobalEurozone private loans declined 1.1% in May, compared with -0.9% in the previous month. The Eurozone's retail PMI rose to 49.1 in June from 46.8, and remains negative. The German Ifo Business Climate Index rose to 105.9 from 105.7, while the Belgium Business Confidence declined to -12.8 from -12.4. German unemployment declined by 12,000 people to 2.94 million, with the jobless rate at 6.8%. German retail sales rose 0.8% in May, after a revised 0.1% drop in April. Italian retail sales declined 0.1% in April, the eight consecutive monthly drop, with the annual decrease registering 2.9%.

    Japanese manufacturing PMI rose to 52.3 from 51.5, and the average household spending decreased 1.6% on an annual basis. CPI was unchanged and retail sales increased 0.8% in May from one year ago. Unemployment rose to 4.1% from 4.0%.

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