Trader's hEdge

The Abduction of Europa

dtseng123 — Mon, 19 Sep 2011 05:23:40 +0000

Rembrandt - Abduction of Europa

This oil painting by Rembrandt is a perfect symbol of what has happened to Europe. First I’ll cite Wikipedia on this story as I am no art/Greek mythology buff:

The mythographers tell that Zeus was enamored of Europa and decided to seduce or ravish her, the two being near-equivalent in Greek myth. He transformed himself into a tame white bull and mixed in with her father’s herds. While Europa and her female attendants were gathering flowers, she saw the bull, caressed his flanks, and eventually got onto his back. Zeus took that opportunity and ran to the sea and swam, with her on his back, to the island of Crete. He then revealed his true identity, and Europa became the first queen of Crete. Zeus gave her a necklace made by Hephaestus and three additional gifts: Talos, Laelaps and a javelin that never missed.

It is interesting how Zeus changed himself into a bull to convince Europa to get on his back. In this metaphor Zeus could be considered the Maastricht Treaty which created the Euro currency in a “In God We Trust” sort of way – while promising bull markets. Europe consolidates as a monetary union and gives 4 “gifts”: The free movement of goods, capital, people and services. [necklace by Hephaestus, Talos(Giant Bronze bodyguard), Laelaps(super dog), and Javelin(a spear)] This is the case under the Maastricht Criteria, which at first look seems great but is like a completely unrealistic “prenuptial” agreement. (You can’t cheat on me before but after we’re married all bets are off and I may resort to horseplay, BDSM, and midget orgies.) It has four main criteria for member states to enter:

1. Inflation Rates: Less than 1.5 percentage points greater than average of the least inflating member states of the EU.
2. Gov. Debt and Deficit: annual gov. deficit/DP < 3% at the end of the preceding fiscal year. Gross gov. debt/GDP < 60% at the end of the preceding fiscal year.
3. Exchange Rate: nations should have joined the ERM2 under EMS for 2 consecutive years and should not have devalued its currency during that period.
4. Long-term interest rates: The nominal long-term interest rate < 2 percentage points higher than the 3 least inflation member states.

Assigning ceilings and floors in economics are impossible feats, not to mention the blatant contradictions in this criteria. By the end of 2010, only Poland and the Czech Republic fit #2.

I guess the best part of this metaphor is that it is Greek Mythology – like the Greeks EU membership in a few days…or Europa drowns on the way out.

EURUSD 1hr 12:33AM 09_19_11

Technically, I see further long-term weakness in the Euro and Dollar strength to match it. It may pull up temporarily to 1.3730 in the next few hours as it currently settling comfortably at a long term 61.8 Fibonacci retracement level and its 1.3672 pivot point level. I expect it to eventually smash downwards after.

Fundamentally, there are big winds that don’t show anything positive that I can think up. Greece default rumors are circling and have been this past weekend. Papandreou canceled a trip to the US this past week to tend to some serious crap going down in the markets. Its default could be a sign of acceptance and the markets may actually go positive for a short, albeit VERY SHORT while. Its only better than the alternative of the EU going down with Greece…it may still go down regardless of Greece’s departure. The moment will be only be defined as bittersweet…no, a better analogy is a massive .50 cal bullet wound followed by a serious morphine overdose.

The flip side on this is US action. Operation Twist or no? I and others view intentional yield curve flattening as suicidal and Bernanke as of late has been showing some humility.

As for the US equity markets? The volatility is a like trying to shuffle a deck of cards and play Texas hold’em with you friends while skydiving. You might have a great hand but everything is going down and fast. And when I say down I don’t mean the market, I mean your account long or short is going down. Forget cocaine, this market is on methamphetamines. Its got some serious tachycardia, and it may be climbing a roof but its health is shit, and its once youthful face is melting…

I got the SMF to get to tomorrow at 2. I’m the only one insane enough to manage the financial sector team this year. I clearly have no intention of jumping into an finance sector equities. My strategy? Hold cash and convince as many other students to do so as well. With no shorting or leverage allowed by the prospectus, that’s the best strategy I can think of. Preservation of capital is crucial when shit is hitting the fan. I’m also looking into Muni-bond ETFs but I want to wait until I get some clarity from the FED.

Bank Of America $BAC

dtseng123 — Fri, 02 Sep 2011 22:28:39 +0000

I received a call over a marketing position for Bank of America a few months ago. I had started laughing hysterically when they had asked me if I were interested in coming in for an interview. When they had called, I was busy talking smack on BofA and other banks on some Anonymous wannabe related site expecting the release of certain damning files. It was ironic, hence the laughter. The lady on the other side didn’t know why so she asked. I told her it’d be like a CIA agent doing marketing for the KGB.

I ask quite a few people about what they think of BofA, and mostly I get these 2 responses: Positive – “They’re convenient and everywhere”; Negative – “Those bastards steal my money with fees.”

I check out Twitter Sentiment and this is what I get:

Yes. 67% have negative sentiment in regard to the bank. I get 70% on Tweetfeel.

Now the FHFA is suing 17 banks plus 12 people from BAC. Finally, it took long enough. The Buffet’s $5 bil. investment in BofA smelt of the same rotting shit that happened to GS. They obviously needed the money. You can look all over the internet for the evidence: 3,500 employees may get laid of, BofA selling half of Chinese Construction Stake to raise 8.3 bil., what’s next?

At the risk of being called a perma-bear, I’ve been one since I’ve I started with the markets. This is largely due to the MBS fiasco and its non-start reformation by the gov’t. Every since learning about sell side. vs buy side analysts, and that many Wallstreeters worship Gordon Gecko I realized that Wallstreet was suspect.

If you asked me back in ’08, Countrywide and Merrill Lynch + BAC was a bad idea x3. But, who cares what I said, in the end, the chart says it all:

The hits just keep on coming…

Where’s the Beef?

dtseng123 — Sun, 12 Jun 2011 06:21:00 +0000

In 1982, Wendy’s came out with a hit commercial Where’s the Beef? I find myself asking that whenever I hear about a real bottom in our economy…I’ll come back to this.

Now, I’ll share a quick technical analysis on the daily EURUSD chart:

TD_sequential 9 has signaled a turn on the end of the day this past Wednesday. Demarker divergence is signalling further USD strength with support at 1.3966. I’d buy USD and aim to 1.4123.

The fundamentals scream dollar strength. We are deflation mode for now. The end of QE2 is being priced in and the S&P500 has decided to take a downward trend for the past 6 weeks. The unemployment rate is at 9.1% and that’s assuming the BLS is legit and not stuffing the birth/death rate model.

What’s next, I will have to credit to John Mauldin. If you don’t get newsletters from him then do so now. He is very connected, balanced, and experienced and the only economic analyst I follow.What is shared by Mr. Mauldin is originally from economist Kash Mansori at http://streetlightblog.blogspot.com/2011/06/betting-on-pigs.html It is about default insurance exposure of US and European financial firms to PIG’s pending death default. Here’s the most important takeaway quote from the article, ”In essence, European firms have been betting that a PIG default will happen sooner rather than later, while US firms have been betting that default would happen later or not at all.” Lovely.

Please read this article at Zerohedge about a $600 billion stealth bailout of foreign banks by the FED before going on.

Done? Are you angry or skeptical? It is fair to be either, but you’ll only be one for only so long. According to the Zerohedge article, the wool was pulled over our eyes again with QE2 and QE3 is a certainty. It explains PIMCO’s treasury short. Expect dollar strength in the short run and dollar weakness in the long run when QE3 is announced.

A recent paradigm I received in discussion with an uncle of mine was over how the world’s economy will be fine because of financial relativity. According to him, if everyone inflates equally and in coordination, everything is okay and the rest is numerical illusion and fear. That might be theoretically correct, but in a time of persistent unemployment, depressed housing asset values, stock market manipulation, declarative/distractive media, predatory private educational loans, too-big-to-fail banks and reckless greed on a global level, I have to ask first, where’s the beef? The numbers are going to end in blood or revolutions. Wendy’s may have asked “where’s the beef”? but it is Notorious BIG who defined “what’s beef“

I’ll leave the pertinent lyrics of here [with my explanation in brackets]:

What’s beef? Beef is when you need two gats [wars] to go to sleep
Beef is when your moms ain’t[isn't] safe up in the streets
Beef is when I see you
Guaranteed to be an ICU [IOU=T-bill=risk free rate], one more time [QE3,4,5,6,7?]
What’s beef? Beef is when you make your enemies start your Jeep [export your manufacturing base to foreign countries]
Beef is when you roll no less than thirty deep [$30 mil.from hyperinflation]

And yes, I just ended my financial blog article with rap lyrics. I’ll leave you with this article to ponder about.

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"Let The Children Guard What The Sires Have Won."

dtseng123 — Thu, 02 Jun 2011 18:40:00 +0000

I recently went to an Market Traders Association meeting in Boston with another Fx Trader Clair Wyant. Its good to meet other Fx traders near you and if you live around the Boston area feel free to drop a line, we can grab coffee.

Anyhow, Vikram Mansharamani, author of Boombustology, spoke of some interesting indicators that he found that would uncover boom and bust cycles. His examples consisted of Sotheby’s stock price, a new world tallest skyscraper and actual prices of items bought in auctions compared to the appraisal price. He highlighted a ancient Chinese vase that sold for an absurd amount of 43 mil. GBP. Lesson learned: a bloated prosperity concentrated in few, combined with your taxi driver talking about high tech stocks was a good highlighter of a boom about go bust.

After his presentation and the networking time afterwards I met a few interesting people but one of them made me want to throw a vase at the establishment so to speak. It wasn’t his fault. He was a nice individual. It was more so the scam I felt I was a victim of. John Doe was a junior at Boston University and worked at a small <10 person hedge fund in Boston. It was ironic because he admitted he didn’t know very much about economics, equities, fx, investing, or trading for that matter and it made me really frustrated that I couldn’t relate to someone my own age, and in my own major. Its difficult to find competent, impassionate people even in my university… unless its connected to homework, papers, or exams, no-one wants to hear it.

As you can tell now, this scam I felt a victim to was the formalized public and private education system. It may be harsh that I call it as such and to be truthful is only partially so. I will have to give credit that it can do a great job educating you to become ~~someone’s bitch~~, a successful employee for some firm. I for one, have been increasingly disillusioned the more years I’ve spent in this system and I’ve just about had it. Call it an inverse relationship. Educational Loans are just enough pathway to becoming an indentured servant/ slave. I call shenanigans!

I’m still an obsessive reader and no longer care for the confines of introducing/ intermediary university classes. Informal, passionate learning-by-doing is the only way to go. I started reading Fooled by Randomness by Nassim Nicholas Taleb and I cannot help by feeling elated for the sense of vindication I get from realizing that thinking in a probabilistic manner instead of historical biases is going to be a good way to go in the long run. It has officially gotten me interested in Monte Carlo simulations and I look forward to embedding them in equity curve simulations.

As you all know, the world is in a bit of a sovereign debt debacle. It can’t end well in a formula where accumulation of wealth is the primary objective of all actors and representative forms of government lead to abuse of power..its only a matter of time when the bills of Karma come due. The invisible hand is only invisible because it was chopped off for stealing from their neighbor.

So while Greece remains broke, America is in denial, China admits its evil, Japan is in nuclear ruin, Anonymous without it’s hacker heads are targeting the IMF…while Strauss-Kahn is waiting for trial. What a punchline.

Shakespeare created Tragedies and Comedies as life is a reflection of both aspects. I’ll sit here laughing and crying surreptitiously as I write the epic poem of all of humanity’s potential futures in hope that I may have a hand to change it for the better. Wait ’til I flip that hand, because we are nation of Facebook and Google and even as Machiavelli’s the Prince taught modern leaders how to lie to their public, our forefathers never had the internet.

Your “burning down the great-firewall ~~of bullshit~~ non-analyst” analyst,
Darren Tseng

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To QE or not to QE? That is the question.

dtseng123 — Mon, 28 Mar 2011 19:03:00 +0000

In regards to an earlier post I will admit that a prediction date is rather amateur and will refrain from making such specific calls in the future without a specific reason. However, I will not rescind my opinion that the market & DXY will tank like a heart of 700lb fat lady on a triathlon.

There are those who are convinced that the economy is improving as QE offsets the deflationary pressure from the subprime and credit crises’. There are those who are convinced that the FED’s QE is causing inflation abroad through devaluing our currency towards hyperinflation (I’m in this). We all know the unemployment numbers as well as new home sales and Case Schiller are not really improving. QE has certainly pushed the yield curve to a normal healthy looking curve in which case POMO does the rest, shooting amphetamines into the equity markets artificially sending the indices higher.

The gap between headline inflation and core inflation are concerning because people can’t eat their ipads. It is also argued that supply shortages are the reason for oil & commodity prices shooting upwards.

But what’s the truth? Probably a combination of all concerns above. We’ll know on June 30. The end of QE2. Will the FED start QE3 or not? Yes, because of Japan + Europe? No, because the economy is improving? I call time-out. Who’s going to pick up the slack once the FED stops purchasing US treasuries? I share this question with PIMCO’s Bill Gross and you should too.

I think the FED has got its fingers on the pulse of Money Velocity and as it keeps falling along with all the other important economic numbers, they’ll have a marked propensity for more QE. Bernanke is a deflation/ Great Depression expert he is far more averse to a deflationary environment. The FED has stronger controls on inflation with interest rates and reverse repos. Letting the air out of the tire is far easier than working to pump it up.

As QE causes an artificial boosts in equity prices and causes revolutions abroad with inflation, where’s the beef? Rotting because it was left out on the counter too long. Putting it back in the fridge won’t make it any safer to eat. You know what I mean? My fear is, this stimulus is nothing more than a temporary fix to buy us time and we are in a situation where we must QE towards hyperinflation and dollar destruction or NoT QE and head into a deflationary spiral.

Such domestic and international discontent may end with the international dollar’s decline. So as the military industrial complex finds reasons for war caused by revolution (Libya & MENA) to boost the dollar (risk aversion trade) and as QE may keep going on to weaken the dollar and boost the domestic equity markets, the international community will eventually call bullS**t and the cards will all fall.

In the meantime, look for George Soros to make a big fuss [Bretton Woods II ]and watch all the nations ignore him on April 8th.

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Daily Bundle

dtseng123 — Thu, 13 Jan 2011 16:00:00 +0000

Social Finance: The New influentialshttp://static.slidesharecdn.com/swf/ssplayer2.swf?doc=socialfinance-thenewinfluentials-110110053440-phpapp02&stripped_title=social-finance-the-new-influentials&userName=MarcoNappolini1

View more presentations from Marco Nappolini.

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The Grain of Rice that will tip the scale

dtseng123 — Wed, 22 Dec 2010 20:28:00 +0000

I already made my prediction in the last post. However, I just gave a time frame of when it may start to drop. This information may be sufficient for an investor who wants to sit do things longer term, but as a trader I personally would like to know exactly second when to switch my bullish positions to bearish positions. Sorry to be so schizophrenic; the markets require it! The following chart should be of fundamental interests as it highlights the 10 year treasury yield vs. foreign holdings.

The drop in foreign holdings while the increase of yields causes express concern to me. It means the trust of foreigners in our government finances are dropping as the cost of borrowing for us is increasing(particularly for mortgages).

Tipping the Scale
It is the moment where enough “vigilante” bond traders refuse to keep buying treasuries without demanding higher interest rates. If and when that moment in time occurs, the scale will tip from bulls to bears. The major media news outlets will report it but I’ll be specifically looking for a one day drop in the S&P500 greater than 3% to switch positions or a period of 3 days in a row which the S&P500 declines greater than 1%.

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The Calm Before the Storm

dtseng123 — Tue, 21 Dec 2010 20:17:00 +0000

They call it the Christmas rally. I call it the calm before the storm. VIX was at 17.39 on December 16th while put/call ratios signal extreme bullish positioning. All this while the muni-bond markets were getting hit and risk of defaults were talked about all last week. With a rise of unemployment to 9.8% in November(9.6% for the 4 months before)and 1.3 million discouraged workers and 2.5 million marginally detached workers, I don’t see why a US equity rally is sustainable with the current situation.

This rally is a direct cause of QE2 as Bernanke has the FED buying more T-bills causing the dollar to rally and gold to also sink back… all relative to EU’s debt crises. Yields are also supposed to go down because of Quantitative Easing..Why aren’t they? This subsequently increases the cost of borrowing and makes it more difficult for potential home buyers.

5 minutes in front of a Bloomberg terminal and I’m convinced my last weeks call that the US equity markets may start crashing from 3% to 30% in the next 40 days and extend to 4 months isn’t as ridiculous as it sounds. I’ll quote:

Analysts at Citi FX says stocks might sell off in Jan: charts of post – Christmas suggest ‘that 2011 will not be a good year for the equity market,’ just as they suggested 2010 would be OK. Their favored technical comparisons are ‘the spooky chart’ of 1929-1939,’1966-1976, and the 1906-1909 period. Average market fall in these periods is -48% over 19 months. So beware Jan 3, 2011!

I think those Citi Analysts are also referring to the Hindenburg omen!

Citi also warned of a “fresh wave of bank failures and sovereign defaults in Europe unless the EU lenders come up with a credible response to the crises.”

Lesson: If you have a systemic risk…solve it and don’t avoid it with liquidity. I’ll be waiting for the Dominoes to fall.

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EUR/USD Short

dtseng123 — Wed, 17 Mar 2010 22:12:00 +0000

The Eurodollar is over due for a 3 wave break downward after its most recent correction identified in the daily and hourly charts below. Entry is at 1.3634; TP is at 1.3218. Fundamentally, I’m thinking that the Greece issue will spread to Portugal and Spain and they will need to be bailed out as well.

EUR/USD Daily

EUR/USD Hourly

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John Bogle: The Free Market’s Moral Crisis

dtseng123 — Fri, 16 Oct 2009 19:55:00 +0000

John Bogle, founder of the Vanguard Group talks to Columbia MBAs about the financial crisis as a question of ethics in the financial services industry. That as a group, managers in industry have veered from stewardship to salesmanship; and shifted focus from long-term investment, to short-term speculation. Excellent insights courtesy of fora.

http://fora.tv/embedded_player