Wednesday, December 06, 2006

Something has got to give.

The markets the last few weeks have been confusing for me.

Bonds up, Stocks up, Dollar down !

Economic numbers have clearly been on the weaker side, with little to no signs of inflation (except from "Fed Speak"). Where does this leave us. Well from basic economics it should mean Stocks lower, Bond yields higher and the dollar under some pressure. So then why are stocks remaining bid. I think they be trying to tell us something and as such I am starting to think the following.

1. The market is very short of Dollars (against all currencies)
2. The market is totally discounting inflation (this I agree with)
3. The market believes growth is slowing...alot.

On the third point I do believe that the economy is slowing but I also think that we are one strong to moderate employment number away from a large retracement. This could take place this month (Friday Dec 8) or in January, or both. With everyone positioned similarlly and this being December (Vacations and thin liquidity) this move could be very erratic. Overall I believe that the dollar should remain weak and the economy slower, but stocks may have some (substancial) room to the downside.

As for my Euro short, I am seeing the high as 1.3320 exactly where I said to leave a stop. So on this one it looks like I placed the stop in the wrong place.

I still like it lower and I have resold at 1.3315 this time however I will leave my stop above the high at 1.3370



Anonymous Anonymous said...

I have been thinking the same thing on this issue. To me it seems like the markets are all mixed up. While the news for the USD continues to look bad, you take a look at COT and you see that USD positions are mixed but starting to go long, and EUR and GBP are majorly short! I guess what this translates into, is the larger market does not really believe that things are going to recess, at least not yet, and maybe not to the extent of requiring a panic to ensue. In my opinion the stock market is way overbought, and I have been expecting it to cool of a little for quite some time, but it continues to defy gravity! Something somewhere is definately do to give!

5:05 PM  
Blogger Banker said...


From your comments and those of others I have spoken to (all thinking that Stocks are overdone)it could mean that stocks go up before coming down. Time will tell. For now I am short Euro ag Usd, but I think a trade with plenty of potential is Short Usd ag Zar. Good Luck

6:06 PM  

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