My time in Houston has come abruptly to an end. I’ll be traveling back to NJ tomorrow so I won’t be posting. I’ll resume my normal posting schedule next week. :)
Back To NJ
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Monthly Archives: August 2007
Bill Gross On The Warpath!
Mr. Gross makes a good point, will the Bush Administration bail out the ailing homeowner or will they tell them to “go eat cake?”
Why is it possible to rescue corrupt S&L buccaneers in the early 1990s and provide guidance to levered Wall Street investment bankers during the 1998 LTCM crisis, yet throw 2,000,000 homeowners to the wolves in 2007? If we can bail out Chrysler, why can’t we support the American homeowner? [PIMCO Bonds - Investment Outlook- September 2007 "Where’s Waldo?"]
USDJPY Carry Trade – Yen Weakens!
Ah yes, my USDJPY carry trade model seems to be correct after all! Luckily, I went long USDJPY last night at 115.63 and the currency is now trading at 116.98. Too bad I sold half when I was +35 pips in profit, now I have to sell at +150 pips. :)
Here’s what I believe happened. The markets all overshot over the last few weeks, the Yen included. Despite this crazy action, the Yen is still yielding 0.5% and the Dollar is still 5.25%. Bottom line, the carry trade will be reestablished and my model exposed a temporary market inefficiency.
Current target: 119 at a 4.62% 10 yr t-note bond yield.
I should really sell this model to a hedge fund, any buyers out there? :)
S&P500 Volatility Timing Model Drops!
I watched yesterday as the volatility indicator started to drop rapidly yesterday in my S&P500 Volatility Timing Model. If this continues throughout the week and back under a reading of 1, then the market turmoil has likely passed.
That’s good news because the markets will likely trend higher but we must remain vigilant for more buying, and even profit taking, opportunities.
If the pattern continues this week, I’ll write about it in my weekly volatility briefing email. To get a FREE copy, drop me an email to be put on the list.
Emerson’s Self Reliance
On a random aside, one of my favorite authors from years gone by is Ralph Waldo Emerson. I know that Ugly is exploring Ayn Rand’s Objective philosophies and I suggest he read Emerson’s Essay on Self Reliance as part of his “spiritual” growth.
If our young men miscarry in their first enterprises, they lose all heart. If the young merchant fails, men say he is ruined. If the finest genius studies at one of our colleges, and is not installed in an office within one year afterwards in the cities or suburbs of Boston or New York, it seems to his friends and to himself that he is right in being disheartened, and in complaining the rest of his life. A sturdy lad from New Hampshire or Vermont, who in turn tries all the professions, who teams it, farms it, peddles, keeps a school, preaches, edits a newspaper, goes to Congress, buys a township, and so forth, in successive years, and always, like a cat, falls on his feet, is worth a hundred of these city dolls. He walks abreast with his days, and feels no shame in not ‘studying a profession,’ for he does not postpone his life, but lives already. He has not one chance, but a hundred chances. Let a Stoic open the resources of man, and tell men they are not leaning willows, but can and must detach themselves; that with the exercise of self-trust, new powers shall appear; that a man is the word made flesh, born to shed healing to the nations, that he should be ashamed of our compassion, and that the moment he acts from himself, tossing the laws, the books, idolatries, and customs out of the window, we pity him no more, but thank and revere him, — and that teacher shall restore the life of man to splendor, and make his name dear to all history.
It is easy to see that a greater self-reliance must work a revolution in all the offices and relations of men; in their religion; in their education; in their pursuits; their modes of living; their association; in their property; in their speculative views.
Global Correction
I got this link from Ugly’s del.icio.us links and find the map of the global correction very enlightening. It seems that foreign markets have been hit the hardest, relative to the US markets, since the highs on July 19th. Based on the map, the worst hit regions of the world were portions of South Asia and Brazil.
I’m glad I rotated money across the board in my 401k’s that day. If you signed up for my S&P500 volatility signals (sign up here), you would’ve received my email around lunch time on the 16th where I told readers what I was planning to do.
Methinks that the rest of the world is going to get squashed if the biggest economy in the world goes down because of the subprime mess. Even China is now backtracking on Mr. Xia Bin’s comments, because they’re not stupid.
What’s in store for the future? Who really knows but I think we’ll be stabilizing around these levels for a while. If Ben cuts the rates in a few weeks then we’ll see a rally for sure.
Financial Select Sector SPDR (XLF)
I’ve been eyeing the the Financial Select Sector SPDR (XLF) during this credit crisis meltdown. So far the 50 WMA remains over the 200 WMA, which is Bullish, but its breaking down. The question is, will it test the 200 WMA and hold?
Everything seems to depend on the Fed and whether or not they decide to cut the interest rates. I’m debating buying some XLF for our retirement portfolios in a few days, check out the top 10 holdings it has:
| Company | Symbol | % Assets |
| AMER EXPRESS INC | AXP | 2.59 |
| AMER INTL GROUP INC | AIG | 6.47 |
| BK OF AMERICA CP | BAC | 7.75 |
| CITIGROUP INC | C | 9.06 |
| GOLDMAN SACHS GRP | GS | 3.15 |
| JP MORGAN CHASE CO | JPM | 5.9 |
| ML CO CMN STK | MER | 2.59 |
| MORGAN STANLEY | MS | 3.15 |
| WACHOVIA CP | WB | 3.49 |
| WELLS FARGO & CO NEW | WFC | 4.18 |
Euro Model Remains UP
I went long the EURUSD pair last night because my EURUSD neural net model indicated that the trend remained up, even during the credit crisis selloff. This makes sense because everyone is now betting on a rate cut from the US Federal Reserve which should put downward pressure on the dollar. I’m hoping that the EURUSD will pop higher, but that remains to be seen. :)
For a brief moment I thought about going long the USDJPY because I believe its oversold (should be trading at 118) but then again my USDJPY Carry Trade neural net model could be flawed and I just watching and waiting.
Alright, its off to Houston again. I’m still waiting for my Houston readers to buy me a drink but I suspect only one Texan reads this blog and he’s not in Houston. ;)
S&P500 Weekly Volatility Briefing
Here’s a copy of this week’s S&P500′s weekly briefing. If you want to get this on a weekly basis, just contact me via my contact form.
USDJPY Carry Trade
My USDJPY carry trade neural net model is telling me that it should be trading at 118, its currently trading at 114. Either my model is wrong or the Yen has overshot itself and will weaken. It should be interesting to see how things work out over the next few weeks. Here’s the latest curve, ain’t she a beauty?
Yesterday Was A Buy
Alright, I’m guilty of catching a falling knife but my S&P500 volatility model flashed a BUY signal yesterday. I moved cash into our 401k’s yesterday but don’t worry, there will be more knife catching opportunities soon (maybe even today).
The S&P500 traded over 5 billion shares yesterday, wow. People are in panic mode, everyone is selling just because everyone is selling. I still have a lot of cash on hand and I’ll be watching my model for key buy points. There’s a high probability that I’ll be riding this trend down and will have some nice losses to recover from.
Nassim Taleb Is Annoyed
I chuckled when I read Nassim Taleb’s recent blog post:
I am at the Edinburgh literary festival and the last thing I care about is you finance people. I’ve been swamped by emails telling me that I was right (forwarding stories about “25 sigmas” by the Goldman Sachs CEO –who needs to be replaced or banned from speaking to the press — or the Rothman guy in the wsj on 1 in 10,000 year events). I don’t understand these emails. It is as if I didn’t know that I was right. Tell me what I don’t know.