FXIS Market Insights

Here is our latest issue of market insights. We decided to give our readers a bit of a (reading) break this week by focusing on the positives among the plethora of bad news emanating from the markets. While viewing the economic glass as half full, it still pays to be vigilant.  Be careful out there!

In This Week's Issue
• Weekly Positives
• Weekly Barometers
• Weekly Chart

Weekly Positives
• Federal Reserve does operation twist- US Treasuries rally to new record highs.
• Bankrate.com reports that the average 30 yr mortgage rate falls to 4.0%
• U.S. building permits in August 2011 up 3.2% from July and up 7.8 % from August 2010
• U.S. Existing Home Sales at 5.03mm annualized were 280k more than expected
• U.S. Leading Economic index increased 0.3% in August to 116.2 (2004 = 100)
• Crude oil futures fell below $80 prompting lower gas prices at the pump
• European reality check: Greek economy is only about 2% of Europe's GDP
• Despite a near certainty of a Greek default, the Euro is still trading around $1.3500
• Sharply lower commodity prices easing pressure on inflation and cost of living

Weekly Barometers

Weekly Chart 
Gold prices Gold crashed more than $100 on Friday but the elephant in the room in terms of market volatility was clearly silver.  U.S. silver futures dropped 18% on Friday, the biggest daily loss since 1987. However, there was a bit of a “silver” lining amidst these massive falls in commodity prices.  The supporters of doom and gloom scenarios who bought gold, and to a lesser and much later extent also silver, were proven wrong at least for the week.  Perhaps the fall in precious metals will now prompt a move towards a re-allocation into equities after the dust settles. Nevertheless, it still pays to keep your financial seat-belt fastened.  Be careful out there and tread lightly in these murky waters!

Source: Stockcharts.com

Good luck and good investing!

Disclaimer
Neither the information nor any opinion contained in this communication constitutes a solicitation or offer by us to buy or to sell any securities, futures, options or other financial instruments or to provide any investment advice or service. Each decision by you to do any investment transactions and each decision whether a particular investment is appropriate or proper for you is an independent decision to be taken by you. In no event should the content of this communication be construed as an express or an implied promise, guarantee or implication by or from us that you will profit or that losses can or will be limited in any manner whatsoever. Past results are no indication of future performance. Please note that there is no requirement and no commitment to make any payments to FX Investment Strategies LLC in order to access our published information be it via email or via website publication. All information is publicly available without any required monetary consideration.  Any payments or donations made by you are deemed to be voluntary and cannot be considered as payments for investment advice given to you.

Here is our latest issue of market insights. Enjoy!

In This Week's Issue
• Weekly Snapshot
• Weekly Barometers
• Weekly Chart
• Recommended Read
• Recommended Video

Weekly Snapshot
• A "rogue trader" in London racked up about $2 billion in trading losses for UBS (WSJ)
• The ECB is expected to pause monetary policy tightening until Q2 of 2012 (Economist)
• The Euro area annual inflation during August was stable at 2.5% (Eurostat)
• World's leading central banks to provide unlimited dollar funding to EU's banks (WSJ)
• Foreign investment into China remained strong in August, up 11.1% y/y (Economist)
• U.S. consumer sentiment index inched up to 57.8 in September from 55.7 in August (AP)
• U.S. current-account deficit decreased to $118bn or 3.1% of GDP in Q2 of 2011 (ESA)
• U.S. consumer price index for all urban consumers increased 0.4% in August (BLS)
• U.S. industrial production increased 0.2% in August versus 0.9% in July (Federal Reserve)
• U.S. retail sales in August unchanged from July and up 7.2% from one year ago (BLS)
• The Producer Price Index for finished goods was unchanged in August (BLS)
• China imports surged 30.2% in August from a year ago, following a 22.9% rise in July (WSJ)

Weekly Barometers

Weekly Chart 
This week marked the third anniversary of Lehman Brothers' bankruptcy filing. It was one of the largest implosions of financial institutions and became a catalyst for the 2008 financial crisis. Steven Davidoff of NY Times Dealbook gives us a brief history lesson in a tale of two deals: the acquisition of Merril Lynch by BofA and the purchase of Lehman’s investment banking and capital markets operations by Barclays. 

Which was the better deal?  The chart below suggests that shareholder value for Lehman was completely lost.  However, as Steven Davidoff suggests, “by buying Lehman out of bankruptcy, Barclays did not take on Lehman’s toxic assets. These consisted of more than $600 billion in debt. Barclays avoided liability for most of it.” 

Too bad we can’t make those kinds of deals…

Source: Yahoo! Finance

Recommended Read
Please consider This $2bn mess has uncanny historical echoes, a succinct assessment of another rogue trading scandal.  Despite supposedly tighter controls and vastly improved risk management models, UBS was yet another bank that has failed miserably in preventing an alleged rogue trader from potentially bringing down the Swiss bank.  As Gillian Tett concludes, would someone please translate “déjà vu” into Swiss German?

Recommended Video
Please consider U.S. Treasury Secretary Tim Geithner’s interview with Jim Cramer.  Lots of interesting suggestions by a competently speaking Mr. Geithner. However, as he points out the elephant in the room i.e. the political dysfunction of governments, we must wonder how more government and more Dollars in the hands of dysfunctional governments can do the trick.

Good luck and good investing!

Disclaimer
Neither the information nor any opinion contained in this communication constitutes a solicitation or offer by us to buy or to sell any securities, futures, options or other financial instruments or to provide any investment advice or service. Each decision by you to do any investment transactions and each decision whether a particular investment is appropriate or proper for you is an independent decision to be taken by you. In no event should the content of this communication be construed as an express or an implied promise, guarantee or implication by or from us that you will profit or that losses can or will be limited in any manner whatsoever. Past results are no indication of future performance. Please note that there is no requirement and no commitment to make any payments to FX Investment Strategies LLC in order to access our published information be it via email or via website publication. All information is publicly available without any required monetary consideration.  Any payments or donations made by you are deemed to be voluntary and cannot be considered as payments for investment advice given to you.

Here is our latest issue of market insights. Enjoy!

In This Week's Issue
• Weekly Snapshot
• Weekly Barometers
• Weekly Chart
• Recommended Read
• Yet More Signs Of The New Normal

Weekly Snapshot
• U.S. 10-year T-note yields decreased to an all-time low of 1.9% on Friday (AP)
• Chinese inflation fell in August to an annualized +6.2% from +6.5% in July (Bloomberg)
• U.S. President Obama proposes a $447 billion Jobs Stimulus Plan (Bloombgerg)
• European Central Bank cut its economic growth forecast and left rates unchanged (AP)
• The Bank of England has left its benchmark interest rate at 0.5% (Bloomberg)
• U.S. 30-year fixed-rate mortgages fell to 4.12%, the lowest in over 50 years (WSJ)
• Chinese officials said the Yuan will achieve “full convertibility” by 2015 (Bloomberg)
• The U.S. international trade deficit for July decreased 13.1%, to $44.8bn (ESA)
• The Bank of Japan has kept its key interest rate at zero to 0.1%, as expected (Reuters)
• The Swiss National Bank set a minimum exchange rate target of 1.20 Francs per Euro (Reuters)

Weekly Barometers

Weekly Chart 
In these uncertain times when the markets are going haywire, investors have an even higher desire to find answers to the multi-million dollar question:  “What drives the markets and where will prices be tomorrow?”  Responses from all sorts of forecasters are abundant but somehow the market observer trying to find reasonably sensible answers often gets disappointed.  Personally, I find a solace in simplicity:  If there are more sellers than buyers, prices will go down.

One way to cope with uncertainty is to use humor and the inquisitive Felix Salmon found just that in the following blog post: JP Morgan explains the euro crisis with lego.  Please refer to the index below to fully appreciate this graphic.

1. The toreador in a floppy hat, and the F1 driver with his helmet, represent Spain, Italy and the rest of the Euro Periphery. 2. The three men with helmets, shields, and medieval weaponry represent the CDU, CSU and FDP parties in Germany. 3. The blue-and-white sailor boy is Finland. Obvs. 4. The woman with an oversized carrot and her friend in overalls with a shovel represent the Social Democrats and Greens. 5. Wotan represents the Bundesbank. 6. The piggy bank is the IMF. 7. The grey-haired Banque chap is the ECB. 8. The chap in the red bib is Poland. 9. The artists are France. 10. The angry chef, the sweeper with a broom, the airline pilot, and the rest of the motley crew at bottom left, represent EU taxpayers in Core countries. 11. The storm troopers are the EU Commission and Euro Group Finance Ministers, chaired by Jose Manuel Barroso and Jean- Claude Juncker. 12. The monocled banker and his assistant are EU bondholders and shareholders.   Sources: JPM/Reuters

Recommended Read
Stephen King, the chief economist of HSBC came up with a compelling rationale for the current dilemma facing financial markets.  The answer is worthy of his namesake, the author best known for his work in the horror and suspense genre.  Please consider:  I can’t hear the markets but I can smell fear.

Yet More Signs Of The New Normal
Last week, we examined a number of charts indicating a gradual trend to the now famous phrase: “The New Normal”.  Here are a few more milestones on the path to the new normal…

Increasing government efforts towards managing exchange rates: The Swiss National Bank could no longer tolerate the rapid appreciation of the Swiss Franc against the Euro (and the Dollar).  In a statement, the central bank said it will enforce a new target rate of 1.2 Swiss Francs per Euro “with the utmost determination and is prepared to buy foreign currency in unlimited quantities." The market reaction was immediate and vehement.  One of the biggest currency interventions in recent history.  The US Dollar gained about 10% against the Swiss Franc on the news.

China finally gives an indication of a time frame: During a talk with European business executives, Chinese officials suggested that the Yuan will be fully convertible by 2015.  This is perhaps the strongest indication of a target year in which China may actually come onto the world stage of capital markets.  Everyone seems to agree that the Chinese Yuan is still vastly undervalued.  It is expected that China will gradually manage its currency to slowly get back to the level prior to the massive exchange rate adjustment of the mid 90’s.  While everyone seems to agree that the Chinese Yuan will continue to appreciate versus the US Dollar, the contrarian in me says we should at least consider the possibility that a freely convertible currency might cause substantial capital flight potentially causing a weakening of the Yuan.  Might 2015 be the year to buy Dollars again?

Japan all over again: The yield on the 10-year Treasury Bill fell to a new record low of 1.9% on Friday.  This is clearly the result of a growing sense of uncertainty among investors.  The same type of risk-off reaction continues to weigh on equity prices bringing some painful memories to those who had invested in Japanese stocks towards the end of the 1980’s when the Japanese stock index peaked.  Japanese stocks never recovered despite massive government stimuli and essentially 2 decades of near zero rates.  The Nikkei Index today is barely at a quarter of its value of the peak.  US markets by contrast are only at the first “lost decade” in terms of equity returns but the same Japanese-style policy is being employed to combat deflationary pressures, so far with only mixed results.  Perhaps policy makers should examine the historic chart of the Japanese Stock Index.

 

Risk-Free rates no more:  While the major developing nations are still able to finance budget deficits by incurring yet more debt at ultra(lower) rates, developments in Europe are showing the effects of investor sentiment who have lost the least bit of hope that Greece can come out of their quagmire without a default.  The yield on 1-year Greek government bonds rose to a stratospheric  97.96%. As investors of Greek government paper have come to realize, it is their risk-free rate no more.

Good luck and good investing!

Disclaimer
Neither the information nor any opinion contained in this communication constitutes a solicitation or offer by us to buy or to sell any securities, futures, options or other financial instruments or to provide any investment advice or service. Each decision by you to do any investment transactions and each decision whether a particular investment is appropriate or proper for you is an independent decision to be taken by you. In no event should the content of this communication be construed as an express or an implied promise, guarantee or implication by or from us that you will profit or that losses can or will be limited in any manner whatsoever. Past results are no indication of future performance. Please note that there is no requirement and no commitment to make any payments to FX Investment Strategies LLC in order to access our published information be it via email or via website publication. All information is publicly available without any required monetary consideration.  Any payments or donations made by you are deemed to be voluntary and cannot be considered as payments for investment advice given to you.

Here is our latest issue of market insights. Enjoy!

In This Week's Issue
• Weekly Snapshot
• Weekly Barometers
• Weekly Chart
• Recommended Read

Weekly Snapshot
• Investors rushed into safe-haven Treasuries again; 10-year yield near 2% (WSJ)
• 2-year Greek government bond yields rose above 47% on Friday (Bloomberg)
• U.S. nonfarm payrolls were unchanged in August, unemployment rate held at 9.1% (BLS)
• Brazil's GDP growth slows 0.8% in 2nd quarter as boom fades (Reuters)
• Brazil unexpectedly slashed its key interest rate to 12% from 12.5% (Reuters)
• Euro area unemployment rate remained unchanged at 10.0% in July 2011 (Eurostat)
• Eurozone inflation remained unchanged at an annualized 2.5% in August (Eurostat)
• China widens reserve ratio for banks to limit inflation (Bloomberg)
• U.S. home prices increased by 3.6% in the second quarter of 2011 (Standard&Poor's)
• U.S. consumer confidence slumped to 44.5, the weakest since April 2009 (Bloomberg)

Weekly Barometers

Weekly Chart 
The employment picture continues to be a major drag for the prospects of a sustainable economic recovery.  The chart below shows a particularly concerning element of the jobs picture: The long-term unemployed (red line).

More Signs Of The New Normal…
In view of the upcoming U.S. Labor Day, we’ll keep things a bit on the lighter side this week.  No commentary, just a selection of charts indicating the “new normal.” Enjoy! 

Ultra-low Rates

Higher Volatility

Sideways Markets

A Weakening Dollar

End of the Debt Super-Cycle?

Best wishes for a happy Labor Day week-end!

Disclaimer
Neither the information nor any opinion contained in this communication constitutes a solicitation or offer by us to buy or to sell any securities, futures, options or other financial instruments or to provide any investment advice or service. Each decision by you to do any investment transactions and each decision whether a particular investment is appropriate or proper for you is an independent decision to be taken by you. In no event should the content of this communication be construed as an express or an implied promise, guarantee or implication by or from us that you will profit or that losses can or will be limited in any manner whatsoever. Past results are no indication of future performance. Please note that there is no requirement and no commitment to make any payments to FX Investment Strategies LLC in order to access our published information be it via email or via website publication. All information is publicly available without any required monetary consideration.  Any payments or donations made by you are deemed to be voluntary and cannot be considered as payments for investment advice given to you.