Wednesday May 6, 2009 - 12:26:31 GMT
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Black Swan Capital - www.blackswantrading.com
â€˘ The downturn in home prices has left about 20% of U.S. homeowners owing more on a mortgage than their homes are worth. (Wall Street Journal)
Key Reports Due (WSJ):
8:15 a.m. Apr ADP Employment Survey: Previous: -742K.
â€śFreedom is the right to tell people what they do not want to hear.â€ť
â€śAll political thinking for years past has been vitiated in the same way. People can foresee the future only when it coincides with their own wishes, and the most grossly obvious facts can be ignored when they are unwelcome.â€ť
â€śDuring times of universal deceit, telling the truth becomes a revolutionary act.â€ť
â€śWho controls the past controls the future. Who controls the present controls the past.â€ť
George Orwell (a man likely to be expelled from the UK today)
FX Trading â€“ Thatâ€™s nothingâ€¦
John Ross and I were discussing what a â€ś$35 billion funding gapâ€ť, as its being report, really meant for Bank of America; JR said, â€śHeck, thatâ€™s like the cost of a McDonaldâ€™s cheese burger to our government these days.â€ť Funny, but sadly true. Also, true that McDonalds seems one of the few places real people can afford to dine, despite their government having endless supplies of cash.
But we need not worry little things like â€śfunding gapsâ€ť in the midst of all those â€śgreen shootsâ€ť shoost-up their lovely little heads. Credit markets are loosening. Junk bond distributors are back in the game. China announced this morning they are growing ahead of expectations.
Canâ€™t deny or trade against the trend of expectations, for expectations incite real people to move real money. And when real people looking for some return on capital see prices going their way, they tend to add more money to the trend. Thus, self-reinforcing it all becomes. This is the way it is and has to be. Otherwise how can one ever pretend to define â€śfundamental valueâ€ť? Even the Sage of Omaha seems be have trouble with the Ben Graham model latelyâ€”intrinsic value be damned.
I blurted through that to get to this possible point of interest: Fundamental valuation may be an illusion, but fundamentals driving supply and demand are real. And we have yet to see anything significant across the field of green that implies a change in the US consumer demand, which we have all learned is the same as saying â€śglobal demand.â€ť
Oil seems a decent general indicator of real global demand. In the chart below we compare oil to the MSCI Emerging Stock Index--the key risk asset class thatâ€™s enjoyed a very nice green shoot inspired run.
(Chart unavailable in text format.)
This chart may be telling us: a) oil is about to surge higher on a big rebound in demand; b) emerging markets are overextended precisely because underlying demand hasnâ€™t pushed oil higher; or c) absolutely nothing.
But, there is another chart that may be telling us even more. Below is a comparison of McDonaldâ€™s stock price to the S&P 500 index:
(Chart unavailable in text format.)
And we find yet another divergence. This should make bulls feel good. If Mickey D tanks, it may mean consumer are back in the game (eating real food again) and that $35 billion so-called â€śfunding gapâ€ť is yet another meaningless statistics that makes headlines sound so juicy.
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Black Swan Capital LLC
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