Market News

November 4, 2008: Some of us might have been waiting for this day longer than others. Some of us may have been clamoring for it, while some of us may have been dreading its arrival. Either way, that day is here and a major change could be in order. That’s simply because …

The last week was witness to rise in global stock markets coupled with a dip in the dollar and the Yen. This seemed to indicate that risk appetite was returning on the back of the rescue packages being put forth by governments all over the world.

Ebb in risk aversion means a flow of risk appetite by definition. And risk appetite may mean it’s time for commodities, which have been body slammed, to make a decent correction; maybe of the multi-week variety.

Does the ‘establishment of temporary reciprocal currency arrangements’ mean anything to you? Yeah, it kind of went by me in a blur the first time I read it. Basically, this has become one of the side shows for the Federal Reserve.

Buy the rumor of a 1% Fed Funds and sell the news? Hmmm….Maybe today’s better than expected US durable goods orders will neutralize that in here.

How did the actions of subprime mortgage borrowers in the US affect global financial markets and lead to the ongoing liquidity crisis – and will the resulting fallout hurt the wider economy? Here’s a cool interactive explanation of the credit squeeze from FinancialTimes.com.

The conspiracy crowd is working overtime these days. Many “deep thinkers” among the gold crowd still spout conspiracy stuff on a regular basis to help explain why their beloved metal is not now sitting at least $2,000 an ounce.

Ahhh, let’s see … recent buzz words in the investor vernacular have been risky assets, subprime, inflation, decoupling, current account, globalization … and the list goes on. The newest buzz word to make the list: deleveraging.

Though we luckily have not had the experience, and the physical pain is obviously different, this move in the dollar today seems to us the psychological equivalent to being chomped on by a 20 ft. long white shark. Blam!

It seems to be the time when the dollar has begun to defy laws of gravity again. During the last decade, the dollar defied laws of economics and stayed buoyant in spite of a huge and ever widening current account deficit.

If you’re a currency trader that became tired of only hearing about interest rates … or tired of only hearing about the carry-trade dynamic … or tired of only hearing about yield differential as the primary force impacting the foreign exchange market, then the global lending crisis and impending economic meltdown has offered a refreshing change of pace!

I received an email yesterday, from a very smart man who happens to be a professor of sciences in one our top institutions. He wrote: “Been stunned by the number of free market folks who squeal for interventions.

So what’s changing? Well, credit market indicators have improved. The first signs of improvement came as last week finished up. And so far this week the improvement has stuck.

The global financial crisis seems to have taken the US by storm. Statements by the US Fed suggest that the nation’s economy is headed for a recession if already not there.Even though, the US announced a US $ 700 billion rescue package, opinion is fast emerging that this may not be sufficient

Interesting! It seems the chances for another Asian-style financial crisis lingers and is rising (we are already seeing it in S. Korea; chart below). This is surprising since it appeared the entire region was well position to whether a downturn in the major economies–at least the view before the downturn morphed into an all out assault on all the ties that seem to bind the global financial system together.

Global shift in consumer sentiment and an unknown quantity of toxic paper still buried make us believe any recession will be more L-shaped rather than V-shaped recession.

Looks like someone popped the champagne cork too early. I say that because stocks made short order of Monday’s record climb. On Wednesday, the Dow dropped the most in 21 years. The plunge of over 700 points erased over a trillion dollars in market capitalization – only the second time that’s happened … ever.

Of course we wouldn’t ask the question if we didn’t believe the chances are good. But, the major caveat is the same we’ve shared before–in a fundamentally-driven market (or major event-driven) the technical analysis takes a back seat.

Last week there was a huge cooperative among the world’s central banks to cut interest rates. Central Banks in the US, UK, Sweden, Eurozone, Switzerland, China, South Korea, Taiwan and Hong Kong all got involved.

The US economy is the midst of an economic upheaval and yet the dollar is up. The US Fed cut interest rates to induce liquidity and yet the dollar rose. The dollar’s skewed behavior seems to be a silver lining for the US currency.