Friday, May 21, 2010

The World is Ending!!??

People think the world is ending.
More likely, market weakness is based on other factors: We are sitting on top of 70%+ gains; mutual fund managers are all in, impacting liquidity; Supply is in control over Demand. Overall, the market simply looks tired.
Thursday's drop put the sp500 extended the fall to 12% from it's high - this is the first key area of falls. Many traders are now expecting a bounce, before the real test of what will happen in the market begins. - will the market hold the february low of 1050?.

HOT TOPIC OF THE WEEK - DEFLATION
Deflation is scarier than inflation and could be the real decider of whether or not the market makes crazy lows - inflation is bad because it leads to higher i/rates, deflation is bad because we get zero growth like the japanese deflation of the 90's.

Deflation can also skew the p/e figures, keeping markets 'relatively expensive', with 'fair value' estimated at 900 on the sp500.

However, as I've been stressing, maybe we should just stop overreacting, because europe's effects are unlikely to cover materially onto economic conditions - if anything sentiment is driving this market.
generally markets tend to bounce after a 3%+ one day decline
the financia majors goldman and jp are holding their feb lows, despite the financial regulation bill progress.

Australia
Asx having another shocker of a week coming off across the board, although the majors like BHP and RIO are holding up fairly well. Friday's reversal of early session losses may indicate an upcoming bounce over the next week - I think you set up your shorts here if you play the bearish angle, or you can get set up for some long term holdings as mentioned in my previous post.
Retail sales are slowing down - can they stop raising interest rates already!!!

Oil
Down 21% off highs.
Stupidly I tried to catch a falling knife in oil through my long in WPL - the long in my NCM (gold) luckily offset my foolery.
I'm wondering why the oil price are falling, but petrol prices are not?

Gold
I still believe the Oil/Gold convergence is going to happen, only it's cost me so much money in the past year trying to play these convergence trade, I'm thinking I need a better financial model to predict the amount to risk on each position, as well as the timing on the trades.

Bubbles
Interesting research on riding bubbles as an asset strategy

Let's not forget about rising tensions with North Korea's bombing of South Korean sub