Monday, May 17, 2010

Update 5/17

Today's action in the stock and currency markets strongly smell of central bank manipulation; there was a brief moment when volume spiked and the DOW tanked badly; the euro was already well below $1.23. It was at this moment that Bernanke's beeper went off and "the call" was made to the shady trenchcoat dudes in the basement to start "corrective actions". Most market vets know this is the drill. But my question is.. how long can and/or will they continue rescue operations ? If their intention is to restore confidence, they have instead convinced seasoned market folks that all is far,far from well. I fear this will not be the only such rescue operation of the week.

Shaun's blog had a chilling analysis of the situation facing Greece: "However I have seen some analysis done by Daniel Gros (an economist who specialises in this area) who has done a calculation for how much he expects Greek economic output to fall for each 1% reduction in its fiscal deficit. His analysis leads him to believe that for each 1% of GDP decline in Greek government spending, economic output in Greece will fall by 2.5% of GDP. So if you put in a fiscal adjustment of 10% you get a fall in GDP of 25%. Now the analysis is a little simplistic but it is revealing as to the depths of recession we can expect and I feel it will be worse much worse than is being factored in now. You see if anything like this happens (and it is consistent with the experience of Latvia) then the numbers the IMF has calculated for a stable path for Greece simply fall apart"

The Euro rebounded mid afternoon thanks to central bank intervention and hit a high of $1.2407, so I'm now long one Euro from $1.24; the close was $1.2396. But the bigger news was in the copper markets; it finally tanked like I thought it would months ago.. today it lost twenty cents on news that sales of homes in China were down 50%.. yes 50%. Therefore I "sold" two copper contracts at $3.00 even and copper closed at $2.9320, so for me this means I made about $3,300 on today's copper trade. $2.75 copper is within sight.


  1. Hi Mr. Kowalski, the Chinese housing market in the big cities is showing all the signs of a real bubble right now. Prices went up crazy fast last year, in some cases over 20%. Some major Chinese cities have house prices comparable to London and New York right now, while income per person is only at one tenth compared to those cities. Conventional wisdom would say this is not sustainable anymore. Any ideas on when this bubble will burst? Next week, next year?

  2. Hi John.. my initial thoughts on China are that even if there's a bubble, China's reserves of all kinds are roughly $3 trillion and will easily absorb any shocks even if it does burst, which I do would expect over the next year. It's just a speed bump.