Monday, July 2, 2007

Don't look now but the Yen (chart top center) has been up 5 of the past 6 sessions. Mao said a journey of a thousand miles begins with one step so this could be a start. I still believe that this is a major (if not the major) prop under this whole house of cards. The BOJ jawboning with continue, but I always operate under the assumption that when it comes to politicans, central bankers, and Wall St., I am being lied to. A move thru 82 on the $XJY or FXE, if you prefer, would be very encouraging.

10 year note. The yield on the 10 year $TNX (chart lower center) is correcting the recent pop and is falling back and now kissing the descending trendline from 8% back in Nov/94. This was the #4 of the 5 falling trendlines I counted as broken in a post on June 27. The action here since the June 13 spike high of 5.136 could be counted as a falling wedge.

Crude continues to act well, climbing a wall of worry. Get used to higher energy prices, it is fact of life as we are running out of the stuff. Should make a run for the old highs made back in July.

BCE - This is something that as a Canadian I am intimately familiar with. The Ont. Teachers pension guys/gals are some of the smartest around, not withstanding the fact if many of them went to Western, I can hear them now, saying how jealous I am (the standard UWO retort). The point her is does the above chart of BCE smack of a bargain or a top. Sometimes the shrewdest people get caught up in a mania and sometimes they buy just cause its for sale. Free money never hurt anyone either.A traders chart, you bet, but a buy and hold investors chart, you're kidding right. Where were these guys back in 02' when the stock was 65% cheaper. Actually the deep value guys like Brandes were all over the telecoms at that time. My guess is he is happily selling it to em'. Gotta like the guys who make a market for you. Livermore always did, and he was the best of the best !

Under the catagory of "Are you kidding me?" we get this from Lehman concerning Bear Stearns. I must say I am speechless, which as my friends well know is a rarity indeed. No threat to earnings you say, to quote Lietenant Frank Drebin of police squad, nothing to see here, move along.

I firmly believe that the subprime/CDO story is only the appetizer before the main entree. The corporate side of the ledger is fraught with covenant light deals private equity deals which are nitroglycerin laced bombs waiting to go off. Debt servicing ratios have dropped from the 3.5X neighborhood to the current 1.8X. Would it not behove you, as a lender, to rachet up the covenants given the deterioration in serving ratios. No, not in new millenium finance it wouldn't. In this parallel universe the worse your cash flow the more we'll lend, bad credit history, no problem with just let you pay us back with interest in kind. This whole thing just bogles the mined and makes you say "what were/are they thinking". Well the answer is they aren't thinking and they never heeded the UNCF's motto of a mind is a terrible thing to waste. Here is another sobering article on the CDO situation.

As I and many others have said before, the trade is heads I win big, tails you lose even bigger when it comes to OPM(other peoples money) These are trades that none of these jokers would put on with their own bread on the line. Dollars to doughnuts their dough is in money market or gold not one of these time bombs. But this is a free market and people are free to throw away their money as they see fit, or as Gordon Gekko once said, "a fool and their money are soon parted, that's asssuming they were lucky enough to get together in the first place."

In more evidence the covers are being pulled back, Wall St. does what it tends to do best at these moments in time and execute its best 'circle the wagons' routine. After loading their clients up with this toxic crap they would never dream of selling to their mother. Let me take that back, they would if it would push them up a level on the commission grid but I digress. What a fiasco, and this is just getting started ! Speaking of a fiasco, its a great read by Frank Partnoy and I would highly recommend it. Forwarned is forearmed or at least that's what I think Bob Citron's tombstone would counsel. I included the link for those who weren't around for his escapades and also for those who may have forgotten him. Remember, those who don't learn from history are doomed to repeat it.

On the inflation front I caught a piece over the weekend from my old chief strategist Donald Coxe, who continues to put out insightful stuff. He was talking about the state of grain inventories but what caught my eye is that he had conversations with 70 institutions and none of them had seen the numbers. Lets just say that this reinforces my belief that this so called "smart money" is not as smart as we give it credit for. These guys are asleep at the switch, and collecting management fees to boot, ahhhhh the good life! DBA continues to consolidate down here and I am watching for some volume to accompany a move back up thru $28.50. At $28 I will have an itchy trigger finger. Good luck and good trading you all.

No comments: