trotsky [ PM ]
September 11, 2007 12:26PM
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Posts: 233
the current state of affairs is that options traders are bullish on all stock market sectors except gold and banks.
this is via the comparison of the 3 front months combined equity options put/call open interest ratio of all sectors with all readings over the past 52 weeks.
now, i can understand why traders would belatedly become bearish on banks - after all, the banks really are in trouble.
however, the December gold contract has clearly broken out over significant resistance, and as mentioned before, only the May 2006 high (which tested the September 1980 secondary high of the last bull market) stands now in the way.
what does this recent move in gold signify? if we look at the fact that GLD has gained over 50 tons since mid August, it is probably fair to say that a small flight into real money has begun. my guess is that this is due to a combination of fears over growing systemic risk and expectations of inflationary policies coming down the pike to combat the current squeeze on financial institutions.
there is serious constipation in the asset backed commercial paper market, in which issuance has recently been in free-fall. the entire interbank payment system remains in jeopardy, as there still are strong misgivings about the potential for solvency problems at many banks. consequently LIBOR, and equivalent interbank lending rates elsewhere, have continued to shoot up.
this could in turn create ever more problems in the derivatives arena, where LIBOR is a major pricing benchmark (as an aside, it is also a pricing benchmark for many variable rate mortgage loans).
thus i don't agree with those that assert that a rising gold price here is a measure of a once again growing risk appetite. i think it is the exact opposite - a sign of growing worries.
let's also keep in mind that gold could be sending an early warning signal w.r.t. a potential 'black swan' event - namely a currency crisis. this is not to say that a currency crisis will happen, but a reminder that the possibility should be put back on everybody's radar screen - DXY is now trading below 80, and 78 is really last ditch support. the higher probability bet is as always that this support will hold - but if it falls, it would represent a momentous event.
note also that Japan has fallen into recession and its CPI is back in deflation. this could have a big effect on the yen carry trade, as economic weakness in Japan often inspires repatriation of funds.
lastly, let's all take note of the last hour slide in Shanghai's stock market yesterday. this market recently traded 55% above its 200-dma, and is now on an MACD sell signal - with little in terms of technical support for about 1000 points. the final nail in the coffin for the global boom?
trotsky [ PM ]
September 11, 2007 12:36PM
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Posts: 233
chart of the size - and recent decline - of the ABCP market:
bp3.blogger.com
LIBOR futures (the inverse of the LIBOR rate):
tfc-charts.w2d.com
yen:
tfc-charts.w2d.com
gold weekly (not current, shows Friday's close, but the break-out is visible on this continuous contract chart, and the Dec. contract likewise has broken out):
tfc-charts.w2d.com |
