Year: 2010

CDS , Credit default swaps, 2010

Hamilton

 

cds 2010

There is this myth that sovereign (countries) do not default. Actually this is a rather amusing concept as, with a very few exceptions virtually all have at some point in their history. Outright reneging or, what amounts to the same, refusing to pay , is actually  quite normal. For obvious reasons simple debasing one’s currency is to be preferred, especially if much of the debt is held by foreigners that do not vote. Better yet obfuscate the issue, your municipal bond, even if issue by ,shall we say a very big US city , may be entirely dependent on the use of the swing-set in the park for its repayment and not that city’s general revenue, this is clearly explained on page 234, paragraph e, subsection 21. Did you miss it ?

And, if you assume you do not own any of this stuff you may be surprised to learn that the 7% that you are supposed to earn on that XYZ bond fund, is entirely predicated on the proper functioning of this market.

DAX Feb. 2010

Hamilton

The DAX is not that much different from the TSE or the Dow Jones, most charts are pretty similar as is NORMAL in bear markets as the correlations move close to 1. Here is the DAX again.

DAX feb 2010

I always marvel at how well EW actually describes what should happen. Roughly speaking we went down 50+% and then retraced 50+% in almost text-book fashion. There can be a lot of argument concerning some of the details, like what is the real top and did we ,or did we not have a triangle in 4, most of which is not all that relevant to what should happen next. 5 waves never stand alone. so another set should be forthcoming , which should take us to a new low or , if a more complex correction is occurring, to at least 4500.

Just to complete the picture , here is the TSE for comparison purposes.

TSE feb 2010

There are others like the AEX or even the FTSE that look identical for all intents and purposes.

Copper, FCX and China. Feb 2010.

Hamilton

Lately it would seem that China is the source of all growth in the World, and consequently I was a little surprised that it was not Jim Rogers or some other guru to which this growth could be attributed. After all China has been around for a few thousand years whereas Jim Rogers only recently moved there. Also it was interesting to note that not everyone seems to agree, in particular a fellow by the name of David Threkeld who runs his own metals trading firm (see   http://www.cnbc.com/id/35313321  ) and believes that copper, the metal, will be the next bubble, or is the next bubble. His view appears to be based on the simple fact that the marginal cost of producing the stuff is $1 and we all know that miners are undisciplined and will , at some point, produce to their hearts content. Also , I might add, the Ivanhoe mine in Mongolia ,IVN, is so large that it will have a distorting impact once it does start producing. In the meantime their is the riddle of what happened to 2 mln tons of the stuff.

More interestingly, in a  report entitled “Technical Outlook – Commodity Calamity” that  came out Feb 1 , 2010 by no one less than RBC Capital Markets’  excellent commodity group, the suggestion is made that looking at copper the trend reversal may now dent the growth outlook. Very interesting as these guys are no slouches. Here is the copper chart, not as traded on the LME London Metals Exchange, but by way of the front futures contract.

COPPER Feb 15 FCX Feb 2010

Also , for comparison, we show FCX, the largest producer operating in Indonesia (Greenberg). Notice that both display distinct corrective up moves from the March low. Copper itself seems even to say that nothing had happened. In the meantime ALL technical indicators are terrible and perhaps the guys at RBC are right, and perhaps even David Threkeld. If nothing else get defensive with virtually all commodities!. The arrow down in the copper chart is merely a possibility, it does not have to go that far to cause a lot of damage.

GLD Feb. 2010

Hamilton

GLD feb 2010

Gold , here represented by the ETF GLD has confused most of us most of the time. Today , in the Toronto Star , there was a list of the best and worst and  at the very top was HXD and at the bottom a good number of the gold mutual funds. How can this be , is not gold supposed to go up when the world breaks apart?? Well, actually no, not if the world is going into deflation! I have no idea how low gold will go but for the moment we should look for 850 as the first stop and then about 680. Time will tell, I will keep you appraised.