Wednesday April 28, 2010 - 13:44:25 GMT
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Black Swan Capital - www.blackswantrading.com
Brazil is loved, but how much is priced into that perception?Key News
â€˘ An auction of land in Beijing was cancelled after bidding exceeded a price ceiling set for the lot as the Chinese government expands efforts to rein in the nationâ€™s property market. (Bloomberg)Quotable
â€śIt's not a question of enough, pal. It's a zero sum game, somebody wins, somebody loses. Money itself isn't lost or made, it's simply transferred from one perception to another.â€ť â€”Gordon Gekko, Wall StreetFX Trading â€“ Brazil is loved, but how much is priced into that perception?
Gotta love that quote: â€śâ€¦simply transferred from one perception to another.â€ť It really does sum it up well. We know Blue Horse Shoe loved Anacot Steelâ€¦we know gold bugs love goldâ€¦we know commodities bulls love all things commoditiesâ€¦and we know Morgan Stanley loves Brazilâ€¦
â€śThe [Brazilian] economy is firing on all cylinders. Recent activity data have been strong, and even better than expected - including numbers such as February industrial production (up 18.4%Y) and retail sales (up 12.3%Y). Partial proxy indicators for March look upbeat. Ranging from energy consumption and car production, all the way to paperboard sales and heavy vehicles traffic in main roads, all figures were once again sequentially positive in March (month-on-month, seasonally adjusted), with most year-on-year comparisons firmly in double-digit territory. For their part, demand drivers are supportive - including credit conditions, labor markets and sentiment surveys among consumers as well as businesspeople.â€ť
â€¦ but there are some things we donâ€™t know.
How much of this good news is already in the price of Brazil and all things commodities to which Brazil is a poster childâ€¦the Brazilian-USD pair has not yet made it back to its old credit-crunch highâ€¦
Brazilian Real-USD Weekly: [Chart not available in text format.]
Brazilian real/US$ and the Brazilian stock market are joined at the hip; it is about money flowâ€¦and coincidently the Brazilian stock market got whacked yesterday (along with the US), breaking below its daily trend line going all the way back to March 2009: [Chart not available in text format.]
In a world where a couple of interesting things are happening: 1) Europe is trying to stave off risk that could lead to major contagion, and 2) China seems serious about reining in some of its tower real estate through credit controls, it might mean the demand expectations for all things commodities is in for some dampening. That has been our thinking, and itâ€™s why we think the commodity currencies are at least fairly valued, if not overvalued against the buck.
But we could look at this from another direction: Given the huge run in stocks, the lagging CRB index tells us commodities are relatively undervalued. After all, if stocks are right about a boom in global demand, more commodities demand would follow...
CRB Index versus World Stock Index Daily: There is a huge divergence here? Brazilian Real-USD Weekly: [Chart not available in text format.]
â€¦and if more commodities demand follows then Morganâ€™s love for Brazil will likely be rewarded.
Whatâ€™s your perception?
I think Gordon Gekko nailed it. In a world where there is a continuous feedback loop between prices and fundamentals, and fundamentals are fleeting, it has to be about money transferring from one perception to another.
Black Swan Capital
www.blackswantrading.com It Comes Down to Money Flow.
Is there a day when all the â€śat-riskâ€ť Eurozone members will declare group default?
Is there a day when traders will in unison decide Europe will be the laggard for years to come?
Maybe. But itâ€™ll be nearly impossible to pinpoint that day until it is well past us.
Is there a day when the euro will suddenly cease to exist?
Tough to say. But in all likelihood that day isnâ€™t coming before the day the value of the euro reaches par with the US dollar. That day is coming fast.
Yeah, yeah, yeah â€“ nothing goes straight up, or straight down ... blah, blah, blah. But as steady and paced as we think this euro move to US dollar parity will be, things like this can sneak up on you. Itâ€™s great if you can time the pullbacks perfectly and enter then. And it almost hurts when you miss a big daily, or weekly, move.
But the fact is, when youâ€™re playing for a major, longer-term move like this it makes sense to be in the market. Of course, you donâ€™t want to be blind about it. Even in lasting moves, there are time to be careful and times to be gutsy. And you can do this in the longer-term ... or the shorter-term, depending on your appetite for risk and your investing approach.
Donâ€™t waste anymore time.
TICK ... TOCK ... TICK ... TOCK ...
(Hereâ€™s our website if you need us: www.blackswantrading.com.)
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