Friday May 21, 2010 - 13:40:44 GMT
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Black Swan Capital - www.blackswantrading.com
A lot to worry aboutKey News
- Britain posted its largest April budget deficit since monthly records began in 1993. (Bloomberg)
â€śDo not worry if you have built your castles in the air. They are where they should be. Now put the foundations under them.â€ť â€”Henry David Thoreau FX Trading â€“ A lot to worry about
The stock market of late seems to be noticing them. But it seems commentators seem to be looking right past themâ€”systemic risks. Why do I say that? Well, it seems every time I flip on the TV to a financial show, one mutual fund manager after another is trotted out to tell me this is a great buying opportunity. They do it with such confidence. They are dressed so well. They are usually fairly good looking, trim and fitâ€”not dumpy and ruffled like me. All part of the sales package is my conclusion.
Granted, I think a lot of these managers do actually believe what they say. But they really do lack perspective. I would prefer if they said something like this: It may be a good buying opportunity if this is a correction, but the reality is that we human beings never really know if a correction is a correction or a major change in trend. I donâ€™t care how good you say your technical indicators areâ€”you never know until the gift of hindsight is handed to you.
So Mr. Fund manager, a little more humility might be in order given what we do know as potential systemic risks lingering out there; they arenâ€™t insignificant:
1. The potential demise of the Europe monetary union
2. China deceleration in growth linked with credit bubble woes
3. War between North and South Korea
4. War between Israel and Iran
5. US job market deterioration
6. Civil war in Thailand
7. Eurozone demand falls off the cliff on austerity measures
8. The US consumer goes back into his shell scared by stock market
9. Global deflation becomes the new norm; corporate pricing power tanks
10. China thumbs its nose on yuan appreciation and US retaliates with trade barriers
Any one of the items above can create problems of varying degrees. Any two makes matters worse. Oddly, the potential for many of these things to occur at the same time is real.
I think this is the takeaway in which the events above collectively will damage stock markets when linked with: The regulatory â€śreformâ€ť in the US and increasing German control of EU budgetsâ€”a seeming big part of becoming premiere bailout paymaster in Europe, has one major thing in commonâ€”it reduces the amount of credit getting to the real economy.
Interestingly, at the same time China continues to press down on credit at the margin, deflation, we think, is embedding itself deeply into the developed world economies. (For those who believe rising government debt MUST be inflationary, we point again to Japan as an example of rising debt and rising deflation. It is not about debt, it is about how the real economy uses credit. Bank lending in Japan went south for many years no matter how much government built up debt.)
Consumer Installment Credit Outstanding 1943-2010: Notice something very interesting in this chart? Consumer credit is turning over in a big way in the first time for forever!!
[Chart not available in text format.]
Ask yourself how that happens when monetary and fiscal policy are working overtime in the US to create credit? Then ask yourself if this is an inflationary or deflationary shift in the economy?
Monthly Consumer Credit Year-Over-Year % Change (black line) vs. S&P 500 Index (purple): Not a great deal of rebound that seemingly the stock market was forecasting?
[Chart not available in text format.]
We think commodities markets, commodity currencies, and stock markets may be reflecting:
A) Headwinds in the real economy related to what might represent a secular change in the way Mr. Consumer views credit and debt.
B) The regulatory credit cycle now in motion designed for politicians more so than markets.
C) The fact that nasty geo-political events historically germinated at times similar to this.
That is a lot to worry about. [Chart not available in text format.]
Happy Friday! Be careful out there.
Black Swan Capital
www.blackswantrading.com Currencies are another asset class â€¦
David Newman hereâ€¦ â€śInvesting vs. Tradingâ€ť
How many times have you seen pictures of people sitting on the beach with their laptop in hand in those â€śTrade Forex, Commission-Free!â€ť advertisements? â€śOpen an FX account, quit your real job, sit on the beach and get richâ€ť is the implicit message. Itâ€™s ridiculous! But unfortunately that is what sells.
It doesnâ€™t have to be that way. You donâ€™t have to buy into the hype ... and you donâ€™t have to take that much risk in order to get involved in currencies. Trading can be profitable; but it requires extreme focus and discipline. There is another way if you want to â€śinvestâ€ť in currencies.
Investing in currencies for the long haul means using currencies as another asset class in your portfolio. An asset class that will stand along stocks and bonds and hopefully provide some much needed diversification.
There are plenty of low leveraged long-term investment choices available to you so you can make real money in currencies. They are called Currency Exchange Traded Funds (ETFs).
An ETF is a simple straightforward currency product that you can buy and sell in your standard equity brokerage account. Itâ€™s the same as buying any other fund traded on the exchange. We offer recommendations on Currency ETFs in our month Currency Investor newsletter. We donâ€™t recommend trading them; we do recommend investing in them using a long-term buy and hold strategy.
To sum it up: Our monthly Currency Investor newsletter is geared toward newcomers and experienced investors who are looking for a conservative approach to the foreign exchange market, and learning more about how the global economy works.
In plain language we deliver global macroeconomic analysis and actionable ideas geared toward exchange rate fluctuations over time.
Our analysis is comprehensible and our recommendations consist of ETFs, as I said. So donâ€™t get turned off by buzz words like â€śexchange ratesâ€ť or â€śforeign exchangeâ€ť â€“ this investing strategy is as easy to implement as buying and selling stocks.
Plus, at $39 per year itâ€™s a deal youâ€™d be hard-pressed to find anywhere else.
Thorough global analysis plus complete investment guidance ... and all for only $39 per year? You can become a Member of our Currency Investor service at our homepage via credit card or PayPal.
All the best,
Director of Sales and Marketing
Black Swan Capital
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