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Trading Gold? We Are...

While many market participants suggest that you can’t trade around positions like this, I refute that submission. Provided that you have a proactive risk management process, and you understand how to apply behavioral psychology to trading, you can trade around your exposure to an asset that remains in a bullish fundamental up Trend. We just did.

In the chart below I have outlined my playbook for trading gold. As prices change, I will… but right here and now I’m a seller at $1,008/oz (dotted red line), and a buyer in the range of $921-935/oz (shaded green). Massive support remains at the $840/oz line (thick green), and if gold bulls were to capitulate further from today’s lows, that’s where I suspect the real selling stops.

For now, given that I think global equity markets will come under further selling pressure from here (I am short Asia and the Dow), I am long gold again… at my price.

Keith R. McCullough
CEO / Chief Investment Officer

Queen Mary Follow Up: South Korea Cutting Their Exposure to US Treasuries ...

Bloomberg just flashed this chart on Bloomberg TV – and I think very illustrative of a potentially much larger problem.

The problem, of course, being a big one if you can foresee a scenario whereby this Bloomberg headline reads “China” or “Japan” … “Cutting Exposure To US Treasuries”…

While we do not have that data point yet… we certainly should be managing risk around that potential scenario.

Unlike the US Government’s new idea of risk management “stress tests”, real risk managers manage the risk that lies out on the tails.
KM

Eye On Poland: Cutting, But Will It Help?

Poland’s central bank reduced its benchmark interest rate yesterday by 25bps to a two-year low of 4%.

The cut is less than most of us in global macro-land estimated, particularly given the recent tone of news flow coming out of Eastern Europe. However, the lower scale of the cut signals that the central bank is worried about further contractions to an already depreciated Zloty: the currency has lost 12.8% versus the Euro and 24.3% versus the dollar in this year alone. Bloomberg purported that the Zloty was the worst performer of the 25 emerging market currencies it follows.

Polish Central Bank Governor Skrzypek said the economy should grow 1.7% this year from 4.8% in 2008. Industrial output fell 14.9% in January (the biggest decline in 20 years) and unemployment stands at 10.5%, the highest in 9 months. So we’ll take the under on Skrzypek’s estimate.

The central bank is surely wrestling with the balance between cutting rates to stimulate the economy and raising rates which would dampen economic growth but protect the Zloty. The balance is one that much of Eastern Europe is presently struggling with. Already Eastern European central banks are signaling that they may raise interest rates when they next meet to defend their currencies in the face of mounting Euro and Swiss Franc denominated loans which they owe Western European banks and the IMF.

One way to play Eastern Europe on the short side is via the GUR etf.

Matthew Hedrick
Analyst

Andrew Barber
Director

Early Look

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Judd Gregg has the Republicans Doing The Math Now...

Judd Gregg (Obama turncoat), of all people, is now on the YouTube giving the Republican "response" to the Obama budget...

Now you know at least one of the reasons why Gregg gassed the idea of working for Obama as the Commerce Secretary. There are differences between Keynesians and Free Market Capitalists, indeed...

This is not good for the US stock market. Confusion on the budget will ultimately breed contempt.
KM

BYD ASSUAGES CREDIT CONCERNS

When there is a stock with a 30-50% NET free cash flow yield, there needs to be more to the short story than just “business is challenging”. Guess what? Liquidity, covenants, and bankruptcy aren’t it. BYD management expects to “remain in compliance” with covenants.

What's Worse, These Numbers or the Government's Estimates?

This week’s jobless claims number was horrific (see chart). Coming in at 667,000 claims, this number was 36,000 higher than last week’s peak (and last week’s high was revised up!). This takes the 4 week moving average up, considerably, to 639,000.

What are the market implications?

1. It’s bad for the US Dollar (US$ is down -0.27%) today…
2. What’s bad for the buck is good for stocks (perverse, but factual)
3. It’s really bad for this concept of a “stress test” (because the test is based on estimates that readings like this crush)

If the US Government thinks we can trust “stress tests” of US Banks that are based on their reactive and revisionary economic predictions, we may as well throw in the Japanese towel here and call us the largest socialized economy of the world.

I’m selling US stocks into today’s strength because in the end these jobless claims numbers, as horrifying as they are, aren’t enough to break the buck by enough that will matter. The only way to break the US$ down is to publicly call for a devaluation of it. If the US Government wants us to wait and trust the “stress test” of their economic forecasts, I am sure I speak for most Americans who have a pulse in saying that I’d rather hoard my cash (savings up = US$ strong) and save it than invest alongside that plan.

KM

Keith R. McCullough
CEO / Chief Investment Officer

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.64%
  • SHORT SIGNALS 78.61%
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