For the week, the Dow added 0.8% (down 7.2% y-t-d), while the S&P500 was little changed (down 7.4%). The Transports were down 1.9% (up 12.7%), while the Utilities rose 2.4% (down 3.6%). The Morgan Stanley Cyclicals added 0.2% (down 5.7%), and the Morgan Stanley Consumer index gained 0.5% (down 6.3%). The broader market gave back some recent out-performance. Both the small cap Russell 2000 (down 4.2%) and the S&P400 Mid-Caps (up 0.9%) declined 0.9%. The NASDAQ100 declined 1.2% (down 5.7%) and the Morgan Stanley High Tech index fell 1.1% (down 4.2%). The Semiconductors dropped 2.9% (down 3.5%). The Street.com Internet Index dipped 0.2% (down 2.7%), while the NASDAQ Telecommunications index added 0.2% (up 2.0%). The Biotechs lost 2.2% (down 4.6%). The Broker/Dealers added 0.4% (down 21.6%), while the Banks sank another 4.2% (down 24.8%). With Bullion sinking $32.30, the HUI Gold index was clobbered for 7.7% (down 2.7%).
Dear reader, after the overview of this weeks markets from www.prudentbear.com let’s have a quick overlook at the fundamentals and technicals
Well dear reader, the fundamentals for equities certainly still do look atrocious. The statistics from www.shadowstats.com show clearly why. With a real annual GDP running at a negative 2%, Real Consumer Price Inflation at more than 11%, Real unemployment at over 13% and real M3 increasing at over 16% it should not be a surprise that one feels that equities is not the market to be invested in. The question is rather why has the market been relative stable for such a long time and why are the prices still at lofty levels and not where they should be. Well dear reader the fingerprints of the PPT Plunge Protection Team, or in official writing the Presidential Group for Financial Markets, are visible all over. I’d like to give you first a comment from Bill King (The King Report) and afterwards I’d like to give you some statistics from www.shadowstats.com. First to the King Report “The technicals, seasonals, fundamentals and financial system conditions are negative. And now the Fed is suggesting that it will no longer cut rates. Rallies should be viewed as a gift from the trading gods.”
And forward to shadowstats.com
Quote
U.S. Currency as Sound as the CDOs Backing It? Updating the numbers as of June 4, 2008, the Fed reported physical U.S. currency (Federal Reserve Notes) in circulation at about $787 billion, the better portion of which circulates outside the geographic confines of the United States. While the U.S. currency has been a fiat currency (not backed by gold) for decades, the Federal Reserve Notes presently in circulation are collateralized by securities held by the Fed. Those securities primarily had been U.S. Treasury securities up until late-2007. Since the onset of the banking solvency crisis and the establishment of various new lending facilities by the U.S. central bank, however, an increasing portion of the U.S. Treasury securities held as collateral has been lent to troubled financial institutions in exchange for largely illiquid collateralized debt obligations -- including mortgage backed securities -- those non-Treasuries now total in excess of 22% of the collateral backing the Federal Reserve Notes and appear to be increasing regularly. Bernanke the Inflation Fighter? Despite developing claims to the contrary, the Fed's primary concern remains preventing a systemic financial collapse; everything else is secondary or tertiary, including the dollar, inflation and the economy. The Fed has very limited ability at present either to stimulate the economy or to contain inflation, despite severe problems in both areas. From a practical standpoint, its ability to rally the dollar also is limited: (1) to jawboning, which is underway and (2) to intervention, which likely already has been seen on occasion on a covert basis. Raising rates, though an option, could play out very negatively in the domestic markets and economy, and hence the bank
Unemployment Rate. Shown are two official
seasonally-adjusted unemployment measures, U.3 and U.6, and the SGS-Alternate Unemployment
Measure. All three measures moved sharply higher in May in response, at least partially, to rapidly deteriorating labor conditions, standing respectively at 5.5%, 9.7% and 13.7%, up from 5.0%, 9.2% and 13.1% in April. U.3 is the popularly followed unemployment rate published by the Bureau of Labor Statistics (BLS), while U.6 is the broadest unemployment measure published by the BLS. U.6 is defined as total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers. Marginally attached workers include the discouraged workers who survived redefinition during the Clinton Administration. The SGSAlternate
Unemployment Measure simply is U.6 adjusted for an estimate of the millions of discouraged workers defined away during the
Clinton Administration -- those who had been "discouraged" for more than one year.
As a general strategy under the current circumstances, looking to preserve wealth and assets needs to be a primary concern, along with the liquidity and safety of investments. The approaching financial maelstrom already has come over the horizon and appears to be making landfall, albeit slowly. When it hits with full force, those investors who have taken shelter in cash or near-cash outside the U.S. dollar and in gold will be the ones with the wealth and assets available to take advantage of the extraordinary investment opportunities that should follow.
From shadowstats.com back to King
More from King
M. Ramsey King Securities, Inc. Friday June 13, 2008 – Issue 3892 "Independent View of the News"
Bernanke proved on Thursday, by providing $32B of repos and $24.997B of TSLF juicing that he is trying to bs the markets with tough talk while he floods the system with credit because key financial firms are having ‘difficulties’. Some analysts might mitigate Ben’s Thursday repos by saying $33B of repos were expiring, but Thursday repos have been under $30B the past several weeks.
More importantly Ben did $31B of repos on Tuesday when only $9B was expected. So there was already a $22B repo ‘overhang’ in the market. Now add $32B of Thursday repos and $25B in TSLF (Notice that the Fed, like wily retailers that mark items at $1.99, kept the TSLF from a 25 handle) and you have $88B of credit in 3 days…MZM (+26% y/y) hit a new high.
http://research.stlouisfed.org/publications/usfd/page5.pdf
We must, until evidence proves otherwise, conclude that Ben began talking tough last week, because he had to hit the credit accelerator about three weeks ago due to a new round of system duress. And fearing inflation, or rather recriminations from other central bankers, including his brethren at the Fed, he’s trying to euchre the markets. So far he’s had mixed results – dollar up, bonds & stocks down, oil pausing.
Plunge Protection Team
Please read the information on the following webpages
http://www.archives.gov/federal-register/codification/executive-order/12631.html
http://www.gao.gov/new.items/gg00046.pdf
http://www.efinancialnews.com/usedition/index/content/1045631696
http://www.washingtonpost.com/wp-srv/business/longterm/blackm/plunge.htm
http://www.guardian.co.uk/business/2001/sep/23/september112001.usnews1
Well dear reader, the PPT is a fact. The original intend of the Working group was certainly justified and well meant. However today the mechanisms are used in not such a healthy way. Why? Well I believe it is not healthy to keep certain markets artificially high (stock markets) and on the other hand to keep other markets artificially at lower levels than they should be (precious metals and interest levels). The more time the PPT tries to keep things under control and thus let the cancer grow, the harder the wake up will be. Yes dear reader, the history shows us that the pendulum tends to swing to both extremes and not only to one, before it swings back to the mean.
FED
Due to several problems such as CDO’s and others, the FED has opened the flood gates to previously unthinkable levels. In the past month the FED has pumped 500 billion USD into the US and foreign banks. The FED has definitely moved from the lender of last resort to the garbage collector of last resort. If this all seems as a scam, it’s because it is exactly that. The game is designed to transfer wealth from the hands of the many to the hands of the few. Smart money has recognized that already a few years ago and started to invest their funds in precious metals.
Inflation
Emerging markets face inflation meltdown
By Ambrose Evans-Pritchard
The Telegraph, London
Friday, June 13, 2008
Central banks across much of Asia, Latin America, and Eastern Europe will soon have to jam on the breaks or risk a serious crisis as inflation spirals into the danger zone. As the stark reality becomes ever clearer, this year's correction in emerging market bourses and bond markets has now accelerated into a full-fledged rout.
Shanghai's composite index touched a fourteen-month low of 2,900 yesterday. It follows moves this week by the central bank raised reserve requirement yet again, draining a further $60bn from the banking system. Chinese stocks have now slumped by almost 50pc since peaking in October.
In India, Mumbai's BSE index has lost 27pc of its value as the exodus of foreign funds accelerates. The central bank has raised rates to 8pc to curb inflation and halt a run on the rupee, but critics still say the country waited too long to tackle overheating. The current account deficit has shot up to near 3.5pc of GDP. A plethora of subsidies has pushed the budget deficit to 9pc of GDP.
Russia, Brazil, India, Vietnam, South Africa, Indonesia, Nigeria, and Chile -- among others -- have all had to raise interest rates or tighten monetary policy in recent days. Most are still behind the curve.
"The inflation genie is out of the bottle. Easy money is the culprit," said Joachim Fels, chief economist at Morgan Stanley.
Read on
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/06/13/cnemerging113.xml
Peak Oil
The chief executive of the world's largest energy company has issued the most dire warning yet about the soaring the price of oil, predicting that it will hit $250 per barrel "in the foreseeable future".
http://www.independent.co.uk/news/uk/home-news/an-ominous-warning-that-the-rapid-rise-in-oil-prices-has-only-just-begun-844217.html
Well dear reader I am still out of the oil investments. I am waiting to reenter. However the volatility seen this week made me wait on the sidelines. I would be really great to have oil prices go down to the level of 100 or 110 USD per barrel. Please keep in mind that any action in the Middle East would have a strong contrary effect on the oil price. With all the noise lately, any escalation is possible at any time.
Credit crisis / housing in the US
Dear reader the following part I have found on www.lemetropolecafe.com. I think it is an excellent example of how the situation in the US really is. If you intend to buy real estate in the US, it seems a good idea to postpone the buying decision to a later date.
http://www.morgan-florida.org/quick-notes
From Mike Morgan:
June 5 - Florida at the Precipice of Depression - I was going to call this "Banks March Us Into Depression," or maybe more fitting is . . . "Complete Collapse of US Banking System." Folks, that is what we are looking at. I don't see any way around it. What we're seeing here in Florida, is your crystal ball. And what happens here, is coming to a town near you . . . soon.
This past week I didn't write anything, because what I am seeing unravel is disturbing to the point I had to question what I was seeing and hearing. So I decided to take as much time as I needed to digest it all, and then put something together for you. So here goes . . .
I could prepare volumes of spread sheets with Bernankesque numbers. I could talk about commodity prices and oil and third world politics and a dozen other metrics that all lead to the same conclusion. But let me give you a ground zero look. That¡¯s what I do best. I will leave the manipulation of the numbers to the folks on Wall Street that do it best. The same folks that have created the precipice they will soon push us off.
I spend a great deal of time dealing with Asset Managers hired by banks stuck with REOs. So as not to re-hash the events leading to the housing crisis, I will not discuss the free-money policies of the past, and I will not discuss the absolute lack of accountability in making the bad loans of the past. Let's just deal with how the banks are attempting to recover.
Unfortunately, banks are not making a realistic effort to address the crisis. That may be because they cannot. As the banks and builders have announced write down after write down, my mantra has been . . . and continues to be . . . NOT ENOUGH ¨C NOT ENOUGH ¨C NOT ENOUGH. I still believe that. The builders and the banks have underestimated the magnitude of the problem, and they continue to do so. Analysts continue to look at the rear-view mirror and attempt to manipulate numbers based misguided historical assumptions. NAR and the economists continue to twist the numbers, lie and then slip in prior-month adjustments without actually comparing apples to apples. But that is another article. The bankers and the fat cats on Wall Street sit back and watch the carnival, collecting fees from everyone they can snooker.
I have recently started turning away REO properties from banks and asset managers, even though hundreds of thousands of real estate agents nationwide are lined up waiting for these listings. I made the decision because we have reached a point where these listings are costing us money, and the asset managers are squeezing harder and harder . . . because they can. There are GREAT asset managers and there are incompetent ones. The majority fall into the incompetent bucket, but we eliminate them quickly. The banks, on the other hand, continue to throw away money with the bucket of incompetent managers. It seems like the mortgage brokers that pushed funny money for the last six years are now starting asset management companies. We still work with a number of asset managers and banks directly, but the list of asset managers is growing smaller as properties fail to sell. When that happens, properties are bundled up and sold in bulk or at auction. This puts further downward pressure on markets because of lower prices and the inventory was not absorbed . . . it just changed hands.
Banks cannot afford to take 50-75% hits on mortgages, and that is exactly what is happening. The precipice is here, and we are on it. Recent reports about home sales rebounding are insignificant, because no one is accurately describing the growing inventory build-up. Banks simply don't have the margins to deal with this crisis. And for that reason, we will see massive bank failures and this will snowball into a complete economic meltdown. If you have an argument against this scenario, I'd love to debate you on a live conference call. We deal with the banks. We know what is going on before the numbers show up at the Fed or any analysts desks. We deal with the public, so we hear the desperation at all levels. I listen to grown men cry about how to explain to their families that they are losing everything. I listen to people that I fear are on the verge of suicide. I read about people committing crimes simply to put food on the table. Spend a week with me, and you¡¯ll understand why there is no feasible way to avoid a Depression.
The banks will fail, just as they failed in 1929 . . . but worse because this time some of this leverage is as high as 40:1. Insurance? Where is that going to come from? There is no insurance that can cover the cost of the coming bank failure, unless we just print more money. We are two generations removed from 1929. I am talking about Biblical 40 year generations. And when you look at who we were in 1929 and who we are now, you'll realize just how ugly it is going to be. In 1929 there was a stronger base of family values. There was a work ethic that we don't see today. The generation from 1929 - 1969 grew up with a totally different set of values than the generation from 1969 - 2009. The first generation worked their way out of the Depression. Today's generation doesn't understand work. We only understand creative financing and how to live off the next generation. And sadly, that is where we are today. We are at the precipice, and we are going to push our children over the edge because we lived so far above our means and ignored all of the warning signs. We lived just like the Romans in their final days.
Harsh? Like I said, spend one week with me, and you will go home with a new outlook about life, people and the crisis that is unfolding. You will go home with a sick feeling in the pit of your stomach. Guaranteed.
Just Florida? No, but Florida is your crystal ball.
The next generation? I would like to think we will eventually build ourselves out of this Depression with nuclear plants, solar and wind farms, seawater desalinization plants, cars of the future and a biotech/health industry that one can only dream of. Unfortunately, who is going to get their hands dirty? For those that study history, how would we manage a WPA with today's generation? It will be a much tougher recovery, because we have lost the fundamentals that made us the greatest country in the world.
More about credits
Well dear reader I mentioned already several time the problems of the bond insurers MBIA and Ambac. Both have now been downgraded to AA, which in my humble opinion is still a rating that is by far too high. Well dear reader also justified the development has potentially severe consequences for cities and states that so far relied and still rely on an AAA bond rating to sell their bonds with relatively low interest rates. The downgrading will mean first of all that trillions of dollars in bonds issued by municipal and state entities will lose their rating too and prices will fall. That means some more losses can be expected. It also means that these bonds will become less liquid and it will mean that states and cities will find it much harder to raise capital be it for example to invest in needed upgrades of infrastructure. I think it is safe to expect that this will have a negative impact on the economy.
For your information, the AA rated tranches of 2007 subprime mortgage debt are now trading at 12% of face value. The BBB grades are down to 5%. The debacle is reaching the 2004 vintage debt.
As roughly 1,100 billion USD of insured debt must be downgraded in lock-step due to the down gradings of the bond insurers AMBAC and MBIA it will certainly have a strong impact on the market as such. Pension funds for example will have to liquidate holdings. A fire sale looms.
Lehman
Lehman Bros. announced it will be raising $6 billion in emergency funding. The brokerage house said it expects a $2.8 billion second quarter loss, about 10 times bigger than the typical analyst expectation.
Well dear reader that does not come as a surprise at all. We should however not forget that Lehman and other US institutions hold billions of Level III assets. Maybe not all of these assets have to be written down. However the fact is that the market for most of these assets is actually not existent. So any Marked to model prices simply are fantasy. Some of those assets might not even get 12cents on the dollar.
Coming back to Lehman, some market observers felt that last weeks statement of was fishy. Why? Because they said that they reduced the mortgage exposure by 15-20%. That means that they had to sell billions of toxic mortgage/real estate assets in a stressed market. The observers believe that this is hardly possible. Well dear reader it was certainly strange the way Lehman made it’s statement. They could have waited a few weeks. So why did they feel it necessary to make the statement now? Why did they change COO and CFO shortly after the statement? Shouldn’t they have changed the CEO and the whole board instead?
Food
Well dear reader, in my last musings I gave you already some information about the green revolution and the actual problems. Following some more facts.
The petro-chemical inputs are both less effective and much more expensive than they used to be. Result? In 1961, crop yields grew by 10% per year. Lately, they’ve increased less than 1% per year and in many areas in fact the average harvest is each time less.
In 1970 there was about 1 acre of arable land on this planet for each person. However now, as the habitants have doubled since than on one side and arable land has decreased (due to urbanization, highways, pollution, desertification etc.) on the other hand, the situation is quite different.
Utopia or something we have to get used to?
Real Estate
Spain’s property crash is calamitous. House prices have tumbled 15% since September, say the developers. Over 98% of Spanish mortgages are on floating rates, priced off 3 months Euribor. You can imagine dear reader how the reaction was in Spain, when the president of the European Central Bank mentioned recently that interests should go up. Well dear reader, if you had plans to buy your villa in Spain, wait some time, you should get it at lower prices soon.
Gold
From www.shadowstats.com
Inflation-Adjusted Historic Gold High. Outside of the current period's March 17th high of $1,011.25, the earlier all-time high of $850.00 (London afternoon fix) of January 21, 1980 still has not been hit in terms of inflation-adjusted dollars. Based on inflation through April 2008, the 1980 gold price peak would be $2,347 per troy ounce, based on not-seasonally-adjusted
CPI-adjusted dollars, and would be $6,484 per troy ounce in terms of SGS-Alternate CPI adjusted dollars.
Gold
Found on www.gata.org
By Peter Brimelow
MarketWatch.com
Sunday, June 8, 2008
http://www.marketwatch.com/news/story/story.aspx?guid=%7BD534C413%2D16E9...
NEW YORK -- Bears were blindsided by the past week's sudden spike in gold and commodities. But gold bugs have an explanation: the world smells war in the Middle East, specifically, an attack on Iran.
When I last wrote on gold, it had withstood a serious late-April selloff and had started a rally. The Gartman Letter, the widely-followed institutionally-oriented newsletter with a good record of catching rallies had jumped back in. An exciting time for gold's friends seemed ahead.
Well, it was exciting, both for bulls and bears. Euphoria and misery swept both camps in unprecedented quick succession.
Gold continued to climb, gaining to above $930 an ounce, but then it ran into stern resistance.
Late May saw concentrated waves of selling send gold reeling down as low as $864 at Thursday's New York open. Having been stopped out, the Gartman Letter actually went short on Thursday, for the first time in several years, loudly proclaiming that a wide commodity sell-off imminent.
Gartman, as is often rumored, may well have known something. Despite a general, powerful rally in commodities, gold, having opened with a violent drop, only partially recovered, finishing down $8.30 on the day. Australia's the Privateer noted: "On June 5 ... oil rose $5.50 and the $US index (USDX) fell 0.43 -- and gold fell $8.30. Even silver was up 23 cents on the day. We cannot remember the last time we saw a 'shear' of such magnitude between the gold and silver price."
But Friday, of course, saw the bears massacred. Gold rose $23.50, blowing Gartman ignominiously out of its stop. And this was only the quiet part of a sweeping commodity rally, led by oil. As the Privateer pointed out: "The oil price rise on June 6 was its biggest one-day rise ever in simple dollar terms. In two days, it rose 13.3%. To put this in perspective, had gold risen by a similar percentage amount over June 5-6, it would have closed the week this week at $992 instead of $US 899."
Nevertheless, Friday's gold move was enough to turn the Privateer's authoritative $US5X3 chart positive. See chart:
http://www.the-privateer.com/chart/gold-pf.html
What is going on? And can it continue?
Answer to Question 2: Probably. MarketVane's Bullish Consensus for gold closed Friday up 3 points at only 74%, four points below its mid-May top. It spent a good deal of March over 90%. Oil closed up two points at 76%. It was at 90% as recently as of May 20. There seems to be no reason from a contrary-opinion standpoint that further advances cannot occur.
And the first question? I am temperamentally drawn to the radical gold bugs appearing on the LeMetropoleCafe Website.
One LeMetropoleCafe contributor formulated the issue like this: "Today's fantastic, 1979-style action, with gold up $23.50 in the Comex regular session (and more in the after-market) was of course matched by events in other markets, notably grain and oil. All have fundamental reasons for strength, but sudden moves of this magnitude need more explanation."
And another contributor offered the probable explanation: "To all; this smells like war to me. Oil has rallied $17 in 24 hours to new all-time highs. Diesel is currently locked "up limit". The equity markets are faltering badly. CNBC as usual has nothing but candy-a-- explanations of these market movements. Nothing in today's environment has any logical explanation. I smell war."
Wall Street hates having to think about politics, much less foreign affairs. But around the world, especially in potential war zones, people do think about them.
They also think about gold.
Derivatives
Well dear reader, now we go the really scary part of this musing. Some people think that we still would have a chance to solve the problem. However I doubt that the parties that should do something are willing to do it and being already in a difficult situation would be able to do it.
According to the BIS, the Bank of International Settlement, the notional value of all outstanding derivatives totals now approximately $1.144 QUADRILLION. As of the last report it appeared that both listed and OTC derivatives was under $600 trillion. Now listed credit derivatives alone stood at $548 Trillion . The OTC derivatives are shown as $596 trillion notional value, as of December 2007. One can only imagine what number they are at now.
Well dear reader having a quadrillion in derivatives is in my opinion simply too high. Some people say it is nuts because they say that the notional value becomes real value when either counterparty to the OTC derivative goes bankrupt.
Gold is the easiest market to trade for the aggressive investor. Sell 1/3 when the market looks like a Rhino Horn which you will see with your French Curves at the point of the rollover.
Buy 1/3 back when the price of gold looks like a fishing line hanging off a fishing rod. Your maximum power down trend line will give you this.
More about derivatives
Exchange Traded Derivatives Increased 30%, BIS Says (Update1) By Liz Capo McCormick
June 9 (Bloomberg) -- Trading in derivatives, led by short- term interest-rate futures, climbed 30 percent to a record $692 trillion in the first quarter, signaling a possible easing of tensions in the money markets, the Bank for International Settlements said.
The value of short-term interest-rate futures traded on exchanges rose to $548 trillion during the three months ended March 31, a gain of 32 percent over the same period last year, the Basel, Switzerland-based BIS said today. The contracts are designed to speculate on, or hedge against, moves in borrowing rates. The figures are based on the notional amounts underlying the agreements.
The increased trading ``suggests that liquidity conditions in the term money markets might have recovered to some extent after the stressful 2007 year-end,'' analysts Naohiko Baba, Patrick McGuire and Goetz von Peter wrote in the BIS's quarterly review.
The gains were concentrated in derivatives denominated in U.S. dollars and euros, which had undergone a ``significant retreat'' in the prior quarter, they wrote. Banks were still pressed for cash, according to another part of the report.
A derivative is a financial obligation whose value is derived from interest rates, the outcome of specific events or the price of underlying assets such as debt, equities and commodities. Derivatives include futures, which are agreements to buy or sell assets at a set date and price, and options, which are the right but not the obligation to do so.
Eurodollar Deposits
Turnover in futures and options on three-month Eurodollar deposit rates ``picked up sharply'' in the period, extending a rise from the previous quarter, said the BIS, a global organization formed in 1930 that monitors financial markets and serves as a bank for central banks.
Eurodollar futures are priced at expiration to the three- month London interbank offered rate, or Libor, for U.S. dollars. Turnover in futures and options on the federal-funds rate fell in the quarter.
The increase in exchange-traded derivative trading in the first quarter erased a 21 percent slide in the previous period, the biggest drop in at least 14 years. Trading had declined as banks hesitated to lend to each other amid mounting losses on securities linked to U.S. subprime mortgages.
Even as conditions in the money market improved in the first quarter, early signs in the current quarter show that banks were still pressed for cash, BIS analysts Ingo Fender and Peter Hordahl wrote in a separate section of the report.
`Extreme Stress'
``Interbank money markets continued to show clear signs of extreme stress from March to May,'' they wrote. ``Spreads between Libor rates and corresponding overnight indexed swap (OIS) rates, due to counterparty credit risk as well as liquidity concerns, were generally at least as high at the end of May as three months earlier.''
This appears to imply there were expectations that interbank strains ``were likely to remain severe well into the future,'' Fender and Hordahl wrote.
The difference, or spread, between the three-month dollar London interbank offered rate and the overnight index swap rate, known as Libor-OIS, is 67 basis points today. The spread was 73 basis points on March 31 and peaked last year at 106 basis points in December. The spread averaged 11 basis points for the 10 years prior to August, when the global credit crunch began.
Dollar Swaps
Overnight indexed swaps are over-the-counter traded derivatives in which one party agrees to pay a fixed rate in exchange for the average of a floating central-bank rate over the life of the swap. For U.S. dollar swaps, the floating rate is the daily effective federal funds rate.
Trading in stock index futures and options fell 2.7 percent to $73 trillion in the fourth quarter, compared with $75 trillion in the prior quarter, according to BIS analysts Baba, McGuire and von Peter. Trading rose 22 percent versus the same period a year earlier. The Standard & Poor's 500 index declined 9.9 percent in the three months to March 31. The Dow Jones Stoxx 600 Index in Europe dropped 16 percent during the same period.
Foreign exchange futures and options volumes advanced in the first quarter, led by trading in the euro, yen and Swiss franc derivatives, the BIS said. These increases offset retreats in currencies that included the Canadian dollar and the U.K. pound.
Trading in currency futures and options rose to $6.7 trillion, a jump of 11.7 percent from fourth-quarter 2007 and a gain of 32 percent from the same period last year, the BIS said.
Currency Volatility
Volatility implied by options among the seven most-traded currencies increased 25 percent in the first quarter, matching the rise in the previous quarter, a JPMorgan Chase & Co. index shows.
Global trading in commodity derivatives grew by 52 percent to 489 million contracts in the first quarter from the year-ago period. The BIS said notional figures weren't available. Agricultural and energy products led the climb, it said. Commodity trading data is not included in the BIS's aggregate derivative figures.
Trading in derivatives not listed on exchanges increased during the second half of 2007, led by growth in the credit segment ``due possibly to heightened demand for hedging credit exposure,'' the BIS said.
The notional value of all outstanding over-the-counter derivatives rose 15 percent in the second half to $596 trillion, following a 24 percent gain in the first half of the year, the BIS said. The gross market value of credit default swaps, which measures the cost of replacing all existing contracts, almost tripled to $2 trillion in the second half of 2007, compared with a rise of 53 percent in the first half, the BIS said.
Credit-default swaps, which make up the majority of credit derivatives, are financial instruments investors use to speculate on the ability of companies to repay debt or hedge against the risk they won't.
Well dear reader if you like to read the opinion of a seasoned derivative specialist who believes that we still can solve the risky situation, then please read the information on the following web page
http://www.financialsense.com/fsu/editorials/2008/0605.html
Currencies
Dollar RIP?
The bearish case for the dollar is overwhelming, according to James Turk. “Despite all the talk about the so-called ‘strong dollar’ policy, nothing is being done to make it happen. Instead of taking action to strengthen the dollar (for example, raising interest rates and reducing the rate of money growth), the Federal Reserve is focusing on the deteriorating economy, heavy debt load and bank fragility...
“So (says Turk) I am still looking for a crisis in the dollar by this summer, but we need a new low in the U.S. dollar index to confirm that its short-term downtrend has resumed. For three months, the dollar index has been in a trading range that extends from around 71.40-73.50. The dollar index needs to break out of this trading range to the downside and make a new record low. This new low will reconfirm the bearish outlook for the dollar and validate the downward pointing arrow on the following chart of the U.S. dollar index.”
Well dear reader following a recap of what I am doing regarding investments or what I intend to do
Long Gold
Long Silver
On the sidelines on Oil but long term long
Long Natural Gas
Long Uranium
Long Grains (I hold only Soybeans for the moment being)
Long other softs (I hold a small position in Palmoil)
Short Treasury Bond
Short US Dollar (no investment yet but soon)
Short equity market (no investment yet)
I do hold a handful rather small positions in mainly mining stocks. As I am not positive for the broad stock market and as I expect sooner or later a correction, I wait with further purchases of stock. However if I would have to invest in stock I definitely would prefer stocks related to Oil, Natural Gas and Coal. There are some interesting natural resources income trusts in Canada if you are interested in stock with high dividend yield.
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