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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum
GLD 408.76+2.6%Jan 5 4:00 PM EST
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To: carranza2 who wrote (36794)7/10/2008 5:39:00 PM
From: TobagoJack   of 219018
 
naughty :0)
this just in in-tray

· Market action in the West is becoming ever more deflationary again, with the US 10-year Treasury bond yield falling by 46bp since mid-June. GREED & fear's fundamental view is that the unwind of structured finance and the related dramatic deleveraging precipitated by the housing downturn will prove to be much more powerful deflationary phenomena in 2008 and 2009 than the cost-push inflation generated by commodities.

· GREED & fear's view remains that the current US bond market rally should be expected to continue, while the oil-led commodity complex has to correct sooner or later. The deflationary pressures are likely to win over the inflationary ones in the Western world. The US Treasury bond market will receive further support if the dollar rallies and commodities correct, as should happen in coming months as more evidence emerges that the rest of the world is slowing.

· The American authorities desperately want to defer a problem Japanese-style in the forlorn hope that the relevant financial institutions will be able to weave and dodge their way out of what is a systemic problem. Similarly, the regulators continue to try to pretend that Fannie Mae and Freddie Mac are adequately capitalised when it is stunningly obvious that they are going bust if house prices continue to decline in coming months at the rate projected by the house price futures market.

· At some point US policy makers are finally going to have to make some tough decisions. One decision will be whether to nationalise Fannie and Freddie thereby making these entities the formal liability of the US taxpayer. A second decision is whether the Fed and other central banks will buy outright the garbage securities they increasingly hold as collateral. But both decisions are only likely to be precipitated by another market panic.

· Macro traders should start betting now on monetary easing by the likes of the ECB, the Bank of England and the Reserve Bank of Australia. The ECB's rate hike last week is in GREED & fear's view very likely to be the last, while the US federal funds rate will ultimately decline below 2%.

· GREED & fear remains convinced that a significant medium-term correction in oil, defined as oil breaking decisively below US$120 per barrel, will have commenced before the end of this year even if the near term risk of a further parabolic spike remains. Investors should also not forget the potential for China announcing more cuts in energy subsidies before the end of this year.

· The renewed rally in the US Treasury bond has for now taken the momentum out of the Japanese bank story as the JGB yields have declined in tandem. Still, the Japanese banks remain remarkably clean relatively to their Western counterparts' massive problems.

· The latest allegations aimed at Anwar Ibrahim have further raised the stakes in Malaysian politics. GREED & fear remains of the view that Anwar Ibrahim is going to return to run Malaysia sooner or later. That prospect certainly makes the Malaysian story more interesting. But in the short term it is not necessarily bullish since the current turmoil increases uncertainty and definitely makes the Chinese business community more nervous.

· GREED & fear is convinced more than ever of the deflationary disaster awaiting the British economy. Macro traders should remain short sterling against the Singapore dollar. They should also short sterling against the yen and even against the US dollar. Investors who want to buy financials for the anticipated oil correction should buy Asian and emerging market financials, not Western ones.

· The position in China Life in the Asia ex-Japan thematic portfolio will be doubled by removing Ping An. The weighting in China in the relative-return portfolio will also be raised by 2ppts with Thailand reduced to zero.

· The risk of confrontation seems to be growing between pro- and anti-Thaksin forces with the anti-Thaksin lot seeming to think that they have the backing of the "highest authorities". This does not look good
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