Jim re: your comments...
First thanks for your comments.
What a couple of weeks...
-- we saw a 1314 point swing in the Dow.
-- witnessed a bank run (Countrywide).
-- heard the credit markets come to a grinding halt.
-- felt the effects of the Yen-carry unwind in gold
and metals markets.
-- and saw Bernanke performing like a hedge fund trader
with his pre-opening knee-capping of the shorts on
Friday.
I don't think we could find better action in Vegas,
Atlantic City, or Macau.
So far this has been a market that both bulls and
bears have made money in. Being a trader -- these
are my kind of markets.
I think the bears perhaps made a couple of mistakes
nearterm here...
In my opinion, they underestimated the resources and
the willingness of the Fed to intervene.
And I think they got a little greedy... as put/call
ratio's in the financials got very top heavy.
For the metals bulls... I am still dumbfounded by
the complete lack of anticipation of this yen-carry
unwind from by gold bug community.
This was telegraphed long ago, as Yen-carry traders
had been warned… by the BIS back in June.
Yen-carry traders have pumped up everything from
commodities, to the New Zealand and Australian
dollars, and the German Dax.
The Dax has risen from 5,500 to 8,214(+50%)and the
Euro itself versus the Yen, has risen 17% adding a
sizeable currency return to the stock trade.
The wildcard this week is the BOJ meets Aug 22-23.
Traders in Singapore have priced in a 100% chance of a
BOJ rate hike as the September Yen Libor futures contract
is yielding .085% as compared to the BOJ’s 0.50% loan rate.
There's tremendous presssure from New Zealand, Australia,
the Euro zone, and the IMF for the BOJ to bring their
rates in line with the rest of the market.
If the BOJ hikes rates... we quickly find out how much
of the yen-carry trades hasn't already been wrung out.
And metals could see more downside.
I have a feeling...that they won't hike rates. Paulson
knows the Yen-carry is needed to prop up US markets and
the US Dollar.
The shakeout here imho, was a well orchestrated tranfer
of wealth. Financial engineering never creates wealth...
it just transfers it.
Here's something interesting...a list of the top
holders of derivatives:
RANK BANK NAME DERIVATIVES
in $U.S. Billions
(as of 12/31/2006)
1 JPMorgan Chase 65,347.3
2 Bank Of America 26,674.4
3 Citibank 25,403.6
4 Wachovia Bank 5,491.9
5 HSBC Bank 4,465.0
6 Bank Of New York 892.8
7 Wells Fargo Bank 851.3
8 State Street Bank & Trust Co. 504.0
9 PNC Bank National 231.5
10 Lasalle Bank 190.2
11 Suntrust Bank 146.7
12 National City Bank 143.0
13 Mellon Bank 131.5
14 Northern Trust Company 99.1
15 Keybank 95.3
16 U.S. Bank 59.4
17 Lasalle Bank Midwest 48.1
18 Merrill Lynch Bank 43.9
19 Countrywide Bank 41.6
20 Regions Bank 40.0
21 Fifth Third Bank 35.6
22 First Tennessee Bank 31.0
23 Branch Banking & Trust Co. 26.6
24 Deutsche Bank Trust Co. 26.0
25 Union Bank of California 24.0
Warren Buffet, Eddie Lampert et al are buying
Bank of America, Citibank and Wells Fargo hand
over fist here.
Another thing that I think bears need to keep in mind
is that not all derivatives are created equal.
Barrons had a great expose piece this weekend about
how many of the lower credit tranches of these mortgage
derivatives were "lipsticked" up and sold off to foreigners.
Nearterm the financials were oversold:
They really outperformed on the reversal here:
The Fed still holds the rate cut card... a surprise
50 bp cut is instant death to the shorts and the
markets is pricing in .50bp to .75bp before year
end.
With 18 of the top 20 Central Banks expanding money
supply in double digits...and with this recent
global injection of liquidity... if one was properly
positioned they made money by shorting the slime, buying
the prime...and getting precious metals handed back
to them on a silver-platter by the yen-carry unwind.
This key to this week is the BOJ meeting.
SOTB |
