Can Europe Be Saved?Wednesday, May 12, 2010
The EU dropped a bomb on global speculators when they unveiled their nearly $1 trillion aid package.
I’m sure South Park fans on trading desks the world over heard the EU’s roar as Cartman’s favorite catch phrase “Respect my Authority!”
Make no mistake: The Europeans are fighting for their financial lives. They faced fiscal annihilation going into last weekend, and were compelled to violate the terms of their own constitution to put this package together.
Of course they won’t tell it that way -- maybe that’s why they are structuring this as “off balance sheet” financing and placing it in an Enron-made-famous vehicle called a "special purpose entity".
The only question worth asking at this point is, will it work? Is it enough to pull Europe back from the brink? Could it be enough to reignite the equity bull market?
As it currently stands, it looks to be enough to postpone the cascading effect of systemic risk that looked about ready to engulf Europe. So score one for the Europeans on avoiding a total melt down.
The big bailout buys the EU time, but it solves none of the deeper problems facing the so called PIIGS (Portugal, Italy, Ireland, Greece, Spain) countries. It’s going to take sustained economic growth, along with austerity measures, to get the PIIGS back on a solid financial footing.
The EU action should prevent any Sovereign defaults, but it will also slow the process of change that a sovereign default would have wrought. Ultimately it’s a negative for the Euro currency, and without a significant rebound in the global economy, Europe will find itself dealing with magnified versions of the same problems sooner than they think.
It’s also going to cause political and social unrest as more productive Europeans are compelled to shoulder the burdens (via higher tax rates) of less productive Europeans.
Another fly in the global growth ointment happens to be China. While their trillion dollar stimulus plan helped them avoid the 2008 recession, it may have all been in vain.
Always remember that the cure for a recession is the recession itself. Recessions are needed to reset asset valuations, wash out poorly managed enterprises, and set the stage for the next cycle of demand. You can’t avoid them -- they are an inherent part of the capitalist process.
Anyway, back to China. Over the last few months, China has been desperately attempting to cool inflation via government intervention. Additionally, it appears that up to 440 billion dollars worth of Chinese government stimulus money has either been looted or lost through bad bank loans. So we face the distinct possibility of a Chinese banking crisis, matched with a government engineered slow down of the Chinese economy.
Such a possibility does not bode well for commodities, especially if the US Dollar continues to move higher, which I expect it will.
Another country that stands to get hurt by a Chinese slowdown is Australia. The resource boom driven by the industrialization of China has been very beneficial to Australia. Any hiccup in China is sure to be felt in Australia’s equity markets as well as in their currency, which is why both look like prime shorts.
Australia is compounding the effect of a potential China slowdown by trying to get a 40% tax passed on all companies that mine in Australia. In the best of times this would be, as the kids say, an “epic fail” policy, but in this environment it could prove disastrous to the Australian economy if the big mining firms decide to shelve their expansion plans.
Yes....somehow we tend to forget China and the impact it may cause if things really got out hand. This is food for thought?
While I think it’s too early to try and buy equities on this weakness, in my opinion it would be a mistake to say that the equity bull market is dead.
Don’t try and be a hero here. Let the market play out and look for either a successful retest of the lows on the S&P 500 or a break to new highs before committing new money to equities.
Of course, the inverse of that is also applicable ... an unsuccessful test of the lows should be used as an opportunity to increase short positions.
Don’t try and guess what the market will do next. Wait for the appropriate confirmation signal, then back your signal and make sure you use a stop or a hedge to protect your down side.
Saturday, May 15, 2010
Saw this by Chris Rowe on May 11.
More Greek Bull? Believe it and Get Hammered! Short the Squeeze! Don't let the European governments play you.
Nothing great has actually happened over there in the last 48 hours, so if you're betting the skies will stay clear now that a bailout has been announced, you might want to reconsider your position.
Remember on September 19, 2008 when the S.E.C. tried to deliver a financial punch in the face to "the evil" short sellers in the U.S. by banning short-selling in 799 bank stocks? The market lost over 25% in 2 weeks, 35% in 2 months, and 45% in 6 months!
The European governments are simply manipulating their markets higher, and they are doing so with tax dollars! Markets aren't rallying in celebration of a solution. Instead, the eurozone is simply stepping in front of a big short position and buying tons of Greek bonds (and they're willing to do the same for whoever else needs help in that neighborhood). It's causing short-sellers, who realize there is new demand keeping prices from falling any further, to buy back their short positions, thereby causing a short-squeeze.
For perspective, consider this the opposite of what happened in the winter of 2008-2009. Hedge funds, whose clients requested cash, were forced to dump tons of stock in great companies that they didn't really want to sell. That pushed the prices of those great companies even lower.
Well, in the eurozone, the shorts don't think Greek bonds should advance, nor should the euro, but they're forced to exit their bearish positions ... pushing prices higher. But nothing has really changed in the last two days.
Even the United States (the world's largest economy, which has the largest quota to pay to the IMF) has its tax dollars being used by European governments to bail out Greece and company.
Let's book some bearish profits on the next downfall, just like we did from September to November, 2008!
Don't get me wrong, I'm not saying the same exact thing will definitely happen all over again, but it's certainly very possible. And if it happens, you're gonna profit from it. But at the same time, keep in mind that the U.S. government had been manipulating its equity market higher for over a year quite successfully. Can the eurozone do the same? I doubt it.
Let's remember one more thing: The euro-mess just happens to be the hot story of late. It's not the only thing that can smack this market down. Whether the eurozone bailout is a magical silver bullet or not, the fact is in the U.S., the economy is far from perfect. And now that we've seen a sharp jolt in the market, the bears will likely start to smell the blood.
Which Will Be the Fate of the Eurozone?
Sure, maybe a bunch of broke countries will be able to lend each other money. Sure. And heck, maybe it DOES make sense for the European Central Bank to literally accept, as collateral for loans, junk-bonds that have seen their default insurance (CDS) go from $5,000 to over $900,000 to insure $10 million of Greek debt for a five-year period. (And that's up from $250,000 in January of this year.)
But to me, that just doesn't sound like a rosy picture.
Hey, I'll be the first one to play both sides of the market. I have both bullish and bearish positions on right now. Soon I'll have a more bearish model portfolio, and as the market evolves, I will too. Financial markets are a dangerous place to "stick to your guns". So I strongly recommend you stay tuned and keep reading your daily dose of The Tycoon Report for updates on any changes in stance.
Until next Tuesday -- stay safe, stay hedged, limit your downsides, and don't believe the hype.
Wah....spot-on! on hindsight.
Nothing great has actually happened over there in the last 48 hours, so if you're betting the skies will stay clear now that a bailout has been announced, you might want to reconsider your position.
Remember on September 19, 2008 when the S.E.C. tried to deliver a financial punch in the face to "the evil" short sellers in the U.S. by banning short-selling in 799 bank stocks? The market lost over 25% in 2 weeks, 35% in 2 months, and 45% in 6 months!
The European governments are simply manipulating their markets higher, and they are doing so with tax dollars! Markets aren't rallying in celebration of a solution. Instead, the eurozone is simply stepping in front of a big short position and buying tons of Greek bonds (and they're willing to do the same for whoever else needs help in that neighborhood). It's causing short-sellers, who realize there is new demand keeping prices from falling any further, to buy back their short positions, thereby causing a short-squeeze.
For perspective, consider this the opposite of what happened in the winter of 2008-2009. Hedge funds, whose clients requested cash, were forced to dump tons of stock in great companies that they didn't really want to sell. That pushed the prices of those great companies even lower.
Well, in the eurozone, the shorts don't think Greek bonds should advance, nor should the euro, but they're forced to exit their bearish positions ... pushing prices higher. But nothing has really changed in the last two days.
Even the United States (the world's largest economy, which has the largest quota to pay to the IMF) has its tax dollars being used by European governments to bail out Greece and company.
Let's book some bearish profits on the next downfall, just like we did from September to November, 2008!
Don't get me wrong, I'm not saying the same exact thing will definitely happen all over again, but it's certainly very possible. And if it happens, you're gonna profit from it. But at the same time, keep in mind that the U.S. government had been manipulating its equity market higher for over a year quite successfully. Can the eurozone do the same? I doubt it.
Let's remember one more thing: The euro-mess just happens to be the hot story of late. It's not the only thing that can smack this market down. Whether the eurozone bailout is a magical silver bullet or not, the fact is in the U.S., the economy is far from perfect. And now that we've seen a sharp jolt in the market, the bears will likely start to smell the blood.
Which Will Be the Fate of the Eurozone?
Sure, maybe a bunch of broke countries will be able to lend each other money. Sure. And heck, maybe it DOES make sense for the European Central Bank to literally accept, as collateral for loans, junk-bonds that have seen their default insurance (CDS) go from $5,000 to over $900,000 to insure $10 million of Greek debt for a five-year period. (And that's up from $250,000 in January of this year.)
But to me, that just doesn't sound like a rosy picture.
Hey, I'll be the first one to play both sides of the market. I have both bullish and bearish positions on right now. Soon I'll have a more bearish model portfolio, and as the market evolves, I will too. Financial markets are a dangerous place to "stick to your guns". So I strongly recommend you stay tuned and keep reading your daily dose of The Tycoon Report for updates on any changes in stance.
Until next Tuesday -- stay safe, stay hedged, limit your downsides, and don't believe the hype.
Wah....spot-on! on hindsight.
Time to pull back all excesses!
Yes...it is high time to be ready for the double dips thingy even if it never happen. Best to be ready...esp with the shit happening in Europe at the moment. It won't be that easy to fix with just pumping more money into the system becoz Euro is made up of so many countries and everyone is worried about their own problem blowing up in their own faces to bother to help the PIGS countries. This is why it took them so long to come up with the plan to help Greece.
The situation is totally different from the issue faced by US and UK in 2009. They took fast actions...and that saved the day for all plus with China doing it's part.
Now....with European countries and their currencies facing meltdown, the problem is a huge one ( many more times larger then a few banks going to the dogs ). This time it is countries going to the dogs not just banks.
This is crazy time....and is this the start for 2012????? A scary thought?And it is best to be ready even if it is not....sad just to think of it. The whole situation is man-made and now people will be make to pay for all the excesses for a few people.
The situation is totally different from the issue faced by US and UK in 2009. They took fast actions...and that saved the day for all plus with China doing it's part.
Now....with European countries and their currencies facing meltdown, the problem is a huge one ( many more times larger then a few banks going to the dogs ). This time it is countries going to the dogs not just banks.
This is crazy time....and is this the start for 2012????? A scary thought?And it is best to be ready even if it is not....sad just to think of it. The whole situation is man-made and now people will be make to pay for all the excesses for a few people.
Euro stock and currency....meltdown?
Global shares have fallen sharply as concerns continue about the impact of financial austerity measures in Greece, Portugal and Spain.
Amid fears the crisis may hit the European-wide economy, the UK's main FTSE 100 index ended down 3.1%.
Spain was worse hit - its shares lost 6.6%. France's Cac fell 4.6% and Germany's Dax 3.1%.
US share markets fared less badly, with the Dow Jones ending a choppy session down a relatively modest 1.5% at 10,620.2 points.
Both the dollar and gold rose as investors sought their traditional "safe-haven".
Concerns that Greece's debt crisis could spread to other countries fuelled worries about a euro collapse.
The euro hit an 18-month low against the dollar, as doubts grew that a joint rescue plan by the European Union and the International Monetary Fund would be able to contain the crisis.
Banks hit
Across Europe banks were among the biggest fallers, with shares in Spanish lenders Banco Santander and BBVA losing 10.3% and 8.2% respectively.
In France, Societe General lost 9%, BNP Paribas 7.2%, and Credit Agricole 7%.
Among UK banks, Barclays was the biggest faller, losing 6.1%, followed by Lloyds Banking Group, which lost 4.7%.
In Germany, Deutsche Bank declined 4.6%.
Euro warning
Earlier, the German government denied a newspaper report that Chancellor Angela Merkel only agreed to back the aid package given to Greece after French President Nicolas Sarkozy threatened to pull France out of the eurozone.
Analyst Lee Kok, head of research at Phillip Securities in Singapore, said investors were concerned whether the austerity measures will hit wider economic growth.
"It was taken as good news at first, but investors are starting to focus on the impact the austerity measures will have on the macroeconomic picture in Europe," he said.
In late Friday trading, the euro was trading at $1.24.4.
The value of the euro was not helped by comments made late on Thursday by Paul Volcker, a special adviser to President Obama.
Speaking in London, he warned of the "potential disintegration" of the euro.
"Clearly, I think we have to say that the euro failed and fell into a trap that was evident at the beginning," said Mr Volcker.
Austerity plans
On Wednesday, Spain's Prime Minister Jose Luis Rodriguez Zapatero announced austerity measures including a 5% cut to public sector salaries, as well as reductions to pensions and regional government spending.
Greece and Portugal have unveiled similar measures.
Meanwhile, on Monday emergency measures worth 750bn euros were agreed to try to prevent the Greek public debt crisis from affecting other eurozone countries.
The 16 countries that share the European single currency will have access to 440bn euros of loan guarantees and 60bn euros of emergency European Commission funding.
The International Monetary Fund (IMF) will also contribute up to 250bn euros.
Banks in the UK and Europe risk their credit ratings being damaged because of "contagion" from Greece's debt crisis, a ratings agency has warned.
Moody's said banking systems faced "very real, common threats" if doubts were raised about their governments' abilities to pay debts.
It referred specifically to UK, Irish, Italian, Portuguese and Spanish banking systems.
With all these problems....it won't be a good thing for the Asian markets come Monday. Most likely there will be another round of blood-letting too. The question is how bad? Sighed.....
Amid fears the crisis may hit the European-wide economy, the UK's main FTSE 100 index ended down 3.1%.
Spain was worse hit - its shares lost 6.6%. France's Cac fell 4.6% and Germany's Dax 3.1%.
US share markets fared less badly, with the Dow Jones ending a choppy session down a relatively modest 1.5% at 10,620.2 points.
Both the dollar and gold rose as investors sought their traditional "safe-haven".
Concerns that Greece's debt crisis could spread to other countries fuelled worries about a euro collapse.
The euro hit an 18-month low against the dollar, as doubts grew that a joint rescue plan by the European Union and the International Monetary Fund would be able to contain the crisis.
Banks hit
Across Europe banks were among the biggest fallers, with shares in Spanish lenders Banco Santander and BBVA losing 10.3% and 8.2% respectively.
In France, Societe General lost 9%, BNP Paribas 7.2%, and Credit Agricole 7%.
Among UK banks, Barclays was the biggest faller, losing 6.1%, followed by Lloyds Banking Group, which lost 4.7%.
In Germany, Deutsche Bank declined 4.6%.
Euro warning
Earlier, the German government denied a newspaper report that Chancellor Angela Merkel only agreed to back the aid package given to Greece after French President Nicolas Sarkozy threatened to pull France out of the eurozone.
Analyst Lee Kok, head of research at Phillip Securities in Singapore, said investors were concerned whether the austerity measures will hit wider economic growth.
"It was taken as good news at first, but investors are starting to focus on the impact the austerity measures will have on the macroeconomic picture in Europe," he said.
In late Friday trading, the euro was trading at $1.24.4.
The value of the euro was not helped by comments made late on Thursday by Paul Volcker, a special adviser to President Obama.
Speaking in London, he warned of the "potential disintegration" of the euro.
"Clearly, I think we have to say that the euro failed and fell into a trap that was evident at the beginning," said Mr Volcker.
Austerity plans
On Wednesday, Spain's Prime Minister Jose Luis Rodriguez Zapatero announced austerity measures including a 5% cut to public sector salaries, as well as reductions to pensions and regional government spending.
Greece and Portugal have unveiled similar measures.
Meanwhile, on Monday emergency measures worth 750bn euros were agreed to try to prevent the Greek public debt crisis from affecting other eurozone countries.
The 16 countries that share the European single currency will have access to 440bn euros of loan guarantees and 60bn euros of emergency European Commission funding.
The International Monetary Fund (IMF) will also contribute up to 250bn euros.
Banks in the UK and Europe risk their credit ratings being damaged because of "contagion" from Greece's debt crisis, a ratings agency has warned.
Moody's said banking systems faced "very real, common threats" if doubts were raised about their governments' abilities to pay debts.
It referred specifically to UK, Irish, Italian, Portuguese and Spanish banking systems.
With all these problems....it won't be a good thing for the Asian markets come Monday. Most likely there will be another round of blood-letting too. The question is how bad? Sighed.....
Friday, May 14, 2010
SMIC - downgraded
Yes...after coming out with the latest result plus the guidance for the qtr, it was down graded by HSBC to under-weight. For the guidance of likelihood of a profit for the second half of this year which is a good thing, the price is most likely to drop to the 38.2% Fibonacci retracement level before bouncing up again. Thus making this a S3 counter.
For the immediate moment...the share price may fall below the above level to around 62-63 HKD cts after which it will most likely to recover to the recent high of around HKD1.00 level since it's God-father is doing very well for the latest qtr too.
In fact...it's guidance is that the chip business will see a 20-25% up-side.
Just need to watch out on this SMIC trading volume for sign whether the "play" is back or not. With the weak close for the US market plus the blood-letting in Euro markets....come Monday, mostly likely to see this stock to revisit the 38.2% retracement level of 67cts at the start of trading and then going down further. Esp after it's Friday performance.
For the immediate moment...the share price may fall below the above level to around 62-63 HKD cts after which it will most likely to recover to the recent high of around HKD1.00 level since it's God-father is doing very well for the latest qtr too.
In fact...it's guidance is that the chip business will see a 20-25% up-side.
Just need to watch out on this SMIC trading volume for sign whether the "play" is back or not. With the weak close for the US market plus the blood-letting in Euro markets....come Monday, mostly likely to see this stock to revisit the 38.2% retracement level of 67cts at the start of trading and then going down further. Esp after it's Friday performance.
Up-date - to short the market in the coming week.
For the week, hardly do any trade which to me is a good thing since the fears are still there plus the dead-cat bounce.
Therefore with these couple of days of blood-letting over in the US and European markets....looks like it is most likely for the Asian markets to follow the leaders come Monday esp for HK and SGX.
Believed the markets still have some way to fall before it can find it's legs. If I want to trade then it will be to short the HK and SGX market, esp after seeing how bad the situation in Europe and how it impacted the US market too, so it will always impact the Asia market in the immediate future with all the fears present still.
Therefore with these couple of days of blood-letting over in the US and European markets....looks like it is most likely for the Asian markets to follow the leaders come Monday esp for HK and SGX.
Believed the markets still have some way to fall before it can find it's legs. If I want to trade then it will be to short the HK and SGX market, esp after seeing how bad the situation in Europe and how it impacted the US market too, so it will always impact the Asia market in the immediate future with all the fears present still.
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