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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: ild who wrote (47498)	12/16/2005 11:23:06 AM
From: ild	Read Replies (2) \| Respond to of 110194

Date: Fri Dec 16 2005 12:04 trotsky (@the Yen) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved with the dollar's rate differential versus Yen and Euro becoming more and more favorable in the course of this year, big speculators correctly perceived that the carry trade would be revived, and began to put heavy bets against these currencies in the futures markets. recently e.g. the speculative net short position in Yen futures reached record levels. once a speculative short position becomes this lopsided, the danger of violent counter-trend reactions grows. with year end approaching, an excuse to square positions came along with the wording of the recent FOMC statement, which seemed to imply the end of the road for the Fed's rate hikes was close. this doesn't remove the rationale for the short position in the Yen completely ( after all, at least one more rate hike seems almost certain ) , but it was a short term trigger of the 'let's protect those profits' type. it is interesting that this has led to similar reactions in ALL the other futures markets that have sported extreme speculative positions recently. gold ( too many longs ) , oil ( too many shorts ) , etc. in short, an exercise in year-end book squaring triggered by the Fed. Date: Fri Dec 16 2005 11:49 trotsky (@pm stocks) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved what are they saying? they are 1. confirming that indeed, the public at large isn't ( yet ) aboard. the downside following gold's recent short term top would have been much greater otherwise. 2. as i've alluded to previously, the fact that gold has broken the highs of the post 1980 bear market rally peaks is technically highly significant. usually after such a break a series of tests follows, often undershooting the new support levels. oil's break of the $40 level happened in a roughly similar manner. after the break, the market soon went below $40 again, however the oil stocks seemed largely unmoved by this. 3. they may be signaling a growing belief that a steepening of the yield curve isn't too far away. currently the curve is in danger of inverting, in fact it has already partially inverted ( at the very short end - t-bill yields are now well below the FF rate ) . inversions seldom last long, as they usually signal a growing recession risk. 4. as a more general remark, once a full inversion actually happens, there will probably be a correction, as both the stock market and commodities should begin to weaken , and all the buyers who are in the market due to perceived 'inflation risks' will probably sell at first. 5. it may not necessarily work out 'as usual' this time, due to the China and India factor. this is a big imponderable, in view of China's recent admission that its economy is already far larger than previously thought ( not really a surprise actually if one looks at electricity and import statistics ) . 6. on a technical note, we have now a combination of large put OI in the XAU options with large call OI in individual sector component options. this is normally considered bullish. Date: Fri Dec 16 2005 11:24 trotsky (WileE) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved if you recall, i mentioned last night that there was a good chance that the overnight plunge was meaningless. when TOCOM is limit down two days in a row, you must allow for at least one more down day during which the longs finally get a chance to liquidate positions. there must have been a ton of 'get me out as soon as it trades' orders.