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Indeed what you said was very true. If everyone, including the Fed, starts to clamp down on inflation with collective rate raise and some anti-inflationary measures, oil and many other commodities should be heading downwards. But just that week alone, where oil shoots $16, it is just a bull market behaviour.
Good news is treated as really good news. In fact, bad news is also treated as good news. Just look at the period from Sept 07 to Oct 07. It is similar to the Hong Kong Market when the rumours of the 1st rate cut spread, HSI shoots despite all the credit problems, moderate performance by the US markets, huge writedowns and so on. So in a way, Trichet's comments were just an excuse for the bulls. The chain of events thus took place in everyone's mind. Also in addition to this, oil was slowly sliding down and not falling dramatically. If it was a topping signal like what John Kilduff said, then I think oil should be plunging down heavily. The behaviour tells me that it is searching for some catalyst to shoot up again. That catalyst came in the form of Trichet's comments of a possible 1st rate rise since last July.
According to the current situation, the main issue is still the dollar and of course Fed's rate decision. In my opinion, everything else will only be attributed to short term price fluctuations. I agree that the dollar will strengthen slightly (will explain below). But I don't think Fed will raise rate during the June meeting. Maybe July, I'm not sure. It is more likely that they will want to adopt a wait-and-see approach. (A good video by Kudlow, a cnbc contributor, on Fed's rate and inflation)
As you have mentioned, this week is a very interesting week for oil. We have the dollar's best weekly performance against the Euro in three years and output increase from Saudi. Very negative for oil prices? The only positive news for oil prices is the strike in Nigeria. All things being said, oil is down 2% or $3 for the week and still holding above $130.
I hope I have given a good reply to addressed your views sufficiently. Thank you for your interest and I would really appreciate your comments on other posts in the future.
P.S: I believe you are some analysts or at least related to the finance sector right? You do know that my mid-week post #8 only refers to those irresponsible experts. =)
Lehman Brothers, Bear stern's brother?
In the end, my worry for Lehman price movement was justified. Lehman was up 13% on friday, closing at $25.81. Hopefully you have covered at least half of your holdings at $22. Lehman is announcing earnings on monday, unclear over whether it's before bell or after.
Lehman is on a two black crow on the weekly chart but two white soldier on the daily chart. I like Lehman on monday alone. Short covering despite horrible earnings report. Remember last quarter earnings? Lots of bad earnings from heavily shorted stocks and they were all up for the day. If you are holding on to the other half of Lehman, cover them at $26 if you can get the price, making the price of cover at average of $24. A nice 20% gain overall. Poor handling of Lehman during the week as I could have covered all at $22. If you are still ALL of Lehman shorts, it's very tricky though. I would suggest holding Lehman for the week.
The Dollar
1. This is the daily chart for dollar. We are about 74.6 for the dollar index. As you can see, we have a window or a gap from 74.5 to 75.5. The dollar crosses slightly into the gap and I'm slightly confused on its movement. All gaps must be closed - remember this! But dollar ended friday with a black shooting star. Sorry for the small graph, I can't find any better. Monday movement is very important for dollar. If it opens higher, I believe we can see some dollar strengthening till the index of 75.5 because I assume it will close up the gap.
2. The weekly chart is simple and easy in my opinion. Nice gain for the week. Hardly anything stopping sign. Based on this, I am inclined to the upside for dollar. Dollar should be testing the level of 75 and honestly if it breaks 75, I'm quite confident it will test 75.5 based on the daily chart (the gap).
3. In conclusion, dollar has more to the upside if monday opens and moves well. Target of 75.5.
So... do we short oil?
In a way, yes. We should short oil for the week.
A lot of tough talk of inflation lately. Possible stronger dollar for the week. Shorting oil next week sounds good. After all it is very volatile and that's what traders want. I see at least a downside of $4 towards $130 - the whole number theory again. It has occurred at $100 and $110 before so do exercise some caution. Highly unlikely that it will fall below $130 because as projected, dollar gains will be capped to the index of 75.5. Just in case it does fall below $130, I think it will look for $126.
Overseas Visitors.
I have noticed a number of visitors coming to my blog recently therefore I shall touch on some overseas markets as well.
A friend of mine, nicknamed the "Mailman" (he always delivers), informed me of an interesting situation - the vietnam dong.
Vietnam Dong
If you have time, read the follow article.
1. Vietnam Inflation
2. What will happen a or b
For those who do not have the time (I hope you fork out some please), here is a summary of the views expressed.
1. Inflation is at 25% last month (WHAT!)
2. The trade deficit more than tripled in the first five months of the year to $14.42 billion from $4.25 billion in the same period a year earlier
3. Stock market is down nearly 60% this year
4. The dong is allowed to trade within 1 percent on either side of a daily fixing rate
5. Vietnam was being hailed as the next Asian miracle, a success story to match the rise of the Asian tigers of the 1990s and more recently the stunning growth of China and India.
All these lead to one thing - Devaluation of Dong. The downward pressure is too huge and dong is at an artificially high value because the government pegs it to the dollar. Of course, the government can continue to buy up dong and keep at this unreal valuation.
The peg has to break and dong is bound to devalue sharply. Two scenarios are possible: Either there is a slow but substatial devaluation in the coming months or there is a sustatined value preceding a bust. The situation is similar to the same as Thai Baht in 1997. I would not like to see history repeats itself, but somehow shorting dong is almost considered a very safe investment. I wonder if Soros will speed up the process like he did before with bank of England. Actually I'm also wondering if there is any means of shorting the dong.
Let's say we can't short Vietnam Dong. What else can we do?
You can wait for it to plunge and buy back some Dong because IMF or other similar institutions might step in. This will traslate into gains when converting back from Dong to your base currency. For example, the dong falls to 20000 Dong to the Singapore dollar. You buy in and than it revalues to 15000 Dong to the Singapore dollar, an invested amount of $1000 will return of 33%. Remove this if you want
Or... ...
Singapore Property
Short Singapore Property Stocks. I am not sure if the banks have large amount of assets in Vietnam but I am pretty sure property stocks like Capitaland, Citydev and Keppel Land have heavily invested in vietnam and have assets valued in vietnam dong. Prepare to see a huge writedown in their balance sheets as they declare assets in Singapore or US Dollars.
This is a long term shorting play. You can hold real long put warrants or use SBL and short them for months.
P.S: I would like to thank Tony and his effort to bring his friends to this blog. Hopefully you guys can benefit from this blog.
Latest Update
Found an article where Goldman Sachs downgrade the whole of property sector in Singapore on 10 June 2008.
A loss never bothers me after I take it. I forget it overnight. But being wrong - not taking the loss - that is what does damage to the pocketbook and to the soul.
Jesse Livermore
Hi,
The approach of the ECB seems clear - inflation is its primary target. however, we have seen significant weakness in the Fed when it comes to its resolve on dealing with inflation. The Housing market and the related subprime crisis has not blown over as yet. Raising rates may not be the approach it wants to adopt as yet.
I would like to thank you for making such an insightful post on my website. It really did set me thinking. Here are my views on the points you raised.
The approach of the ECB seems clear - inflation is its primary target. however, we have seen significant weakness in the Fed when it comes to its resolve on dealing with inflation. The Housing market and the related subprime crisis has not blown over as yet. Raising rates may not be the approach it wants to adopt as yet.
Indeed what you said was very true. If everyone, including the Fed, starts to clamp down on inflation with collective rate raise and some anti-inflationary measures, oil and many other commodities should be heading downwards. But just that week alone, where oil shoots $16, it is just a bull market behaviour.
Good news is treated as really good news. In fact, bad news is also treated as good news. Just look at the period from Sept 07 to Oct 07. It is similar to the Hong Kong Market when the rumours of the 1st rate cut spread, HSI shoots despite all the credit problems, moderate performance by the US markets, huge writedowns and so on. So in a way, Trichet's comments were just an excuse for the bulls. The chain of events thus took place in everyone's mind. Also in addition to this, oil was slowly sliding down and not falling dramatically. If it was a topping signal like what John Kilduff said, then I think oil should be plunging down heavily. The behaviour tells me that it is searching for some catalyst to shoot up again. That catalyst came in the form of Trichet's comments of a possible 1st rate rise since last July.
According to the current situation, the main issue is still the dollar and of course Fed's rate decision. In my opinion, everything else will only be attributed to short term price fluctuations. I agree that the dollar will strengthen slightly (will explain below). But I don't think Fed will raise rate during the June meeting. Maybe July, I'm not sure. It is more likely that they will want to adopt a wait-and-see approach. (A good video by Kudlow, a cnbc contributor, on Fed's rate and inflation)
As you have mentioned, this week is a very interesting week for oil. We have the dollar's best weekly performance against the Euro in three years and output increase from Saudi. Very negative for oil prices? The only positive news for oil prices is the strike in Nigeria. All things being said, oil is down 2% or $3 for the week and still holding above $130.
I hope I have given a good reply to addressed your views sufficiently. Thank you for your interest and I would really appreciate your comments on other posts in the future.
P.S: I believe you are some analysts or at least related to the finance sector right? You do know that my mid-week post #8 only refers to those irresponsible experts. =)
Lehman Brothers, Bear stern's brother?
In the end, my worry for Lehman price movement was justified. Lehman was up 13% on friday, closing at $25.81. Hopefully you have covered at least half of your holdings at $22. Lehman is announcing earnings on monday, unclear over whether it's before bell or after.
Lehman is on a two black crow on the weekly chart but two white soldier on the daily chart. I like Lehman on monday alone. Short covering despite horrible earnings report. Remember last quarter earnings? Lots of bad earnings from heavily shorted stocks and they were all up for the day. If you are holding on to the other half of Lehman, cover them at $26 if you can get the price, making the price of cover at average of $24. A nice 20% gain overall. Poor handling of Lehman during the week as I could have covered all at $22. If you are still ALL of Lehman shorts, it's very tricky though. I would suggest holding Lehman for the week.
The Dollar
1. This is the daily chart for dollar. We are about 74.6 for the dollar index. As you can see, we have a window or a gap from 74.5 to 75.5. The dollar crosses slightly into the gap and I'm slightly confused on its movement. All gaps must be closed - remember this! But dollar ended friday with a black shooting star. Sorry for the small graph, I can't find any better. Monday movement is very important for dollar. If it opens higher, I believe we can see some dollar strengthening till the index of 75.5 because I assume it will close up the gap.
2. The weekly chart is simple and easy in my opinion. Nice gain for the week. Hardly anything stopping sign. Based on this, I am inclined to the upside for dollar. Dollar should be testing the level of 75 and honestly if it breaks 75, I'm quite confident it will test 75.5 based on the daily chart (the gap).3. In conclusion, dollar has more to the upside if monday opens and moves well. Target of 75.5.
So... do we short oil?
In a way, yes. We should short oil for the week.
A lot of tough talk of inflation lately. Possible stronger dollar for the week. Shorting oil next week sounds good. After all it is very volatile and that's what traders want. I see at least a downside of $4 towards $130 - the whole number theory again. It has occurred at $100 and $110 before so do exercise some caution. Highly unlikely that it will fall below $130 because as projected, dollar gains will be capped to the index of 75.5. Just in case it does fall below $130, I think it will look for $126.Overseas Visitors.
I have noticed a number of visitors coming to my blog recently therefore I shall touch on some overseas markets as well.
A friend of mine, nicknamed the "Mailman" (he always delivers), informed me of an interesting situation - the vietnam dong.
Vietnam Dong
If you have time, read the follow article.
1. Vietnam Inflation
2. What will happen a or b
For those who do not have the time (I hope you fork out some please), here is a summary of the views expressed.
1. Inflation is at 25% last month (WHAT!)
2. The trade deficit more than tripled in the first five months of the year to $14.42 billion from $4.25 billion in the same period a year earlier
3. Stock market is down nearly 60% this year
4. The dong is allowed to trade within 1 percent on either side of a daily fixing rate
5. Vietnam was being hailed as the next Asian miracle, a success story to match the rise of the Asian tigers of the 1990s and more recently the stunning growth of China and India.
All these lead to one thing - Devaluation of Dong. The downward pressure is too huge and dong is at an artificially high value because the government pegs it to the dollar. Of course, the government can continue to buy up dong and keep at this unreal valuation.
The peg has to break and dong is bound to devalue sharply. Two scenarios are possible: Either there is a slow but substatial devaluation in the coming months or there is a sustatined value preceding a bust. The situation is similar to the same as Thai Baht in 1997. I would not like to see history repeats itself, but somehow shorting dong is almost considered a very safe investment. I wonder if Soros will speed up the process like he did before with bank of England. Actually I'm also wondering if there is any means of shorting the dong.
Let's say we can't short Vietnam Dong. What else can we do?
You can wait for it to plunge and buy back some Dong because IMF or other similar institutions might step in. This will traslate into gains when converting back from Dong to your base currency. For example, the dong falls to 20000 Dong to the Singapore dollar. You buy in and than it revalues to 15000 Dong to the Singapore dollar, an invested amount of $1000 will return of 33%. Remove this if you want
Or... ...
Singapore Property
Short Singapore Property Stocks. I am not sure if the banks have large amount of assets in Vietnam but I am pretty sure property stocks like Capitaland, Citydev and Keppel Land have heavily invested in vietnam and have assets valued in vietnam dong. Prepare to see a huge writedown in their balance sheets as they declare assets in Singapore or US Dollars.
This is a long term shorting play. You can hold real long put warrants or use SBL and short them for months.
P.S: I would like to thank Tony and his effort to bring his friends to this blog. Hopefully you guys can benefit from this blog.
Latest Update
Found an article where Goldman Sachs downgrade the whole of property sector in Singapore on 10 June 2008.
A loss never bothers me after I take it. I forget it overnight. But being wrong - not taking the loss - that is what does damage to the pocketbook and to the soul.
Jesse Livermore
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