Issues & Risks For 21-02-2008

Risks
Serious negatives to watch out for:
>Housing loan default in the US
>Housing loan delinquencies in India
>Malls being converted into office space
>2-Wheeler sales and any borrowing-delinquencies here
>Credit card default in the US
>More sub-prime blowups in the US
>Personal spend in the US
Issues
>From the Fed's minutes released last night: "...Many participants were
concerned that the drop in equity prices, coupled with the ongoing decline in
house prices, implied reductions in household wealth that would likely damp
consumer spending...''.
What could sound worse, coming from the horse's mouth?
>The Fed's minutes were interpreted at Wall Street as saying they will cut, cut,
and cut to the bone this year. And also that such cuts would eventually ward off a
recession or slowdown in the US.
Forget about the interpretation of The Street. The fact remains that all the
euphoria of owning an American house whose price was never-endingly rising for
the past three years, has now resulted in utter and complete washout of those
rises. Quite obviously, when you think the price of your house is going to rise
endlessly, you also need to assume that there is a buyer on the other side at
those endlessly higher rates.
Reality: There isn't any there.
And on that side, the buyer is beating the seller to death.
The moment the seller even opens his mouth to beg for a small hike in the sixfeet-
below-the-floor-price offered by the buyer, the buyer threatens to walk out of
the discussions. Ending in mindless insanity inside head of seller.
Housing meltdown; Lender meltdown; Credit card meltdown; Not spending any
more meltdown...and numerous other diseases are afflicting the groins of the
American consumer.
DO NOT expect this chap to support a word that the Fed thinks is right.
That's the fact as of now.
>The rupee fell to a five month low at 40.21. JP Morgan and Goldman have both
revised their forecasts from a rising rupee to a weakening one. We should know
that a weak currency happens when money leaves a country. And the reverse
too is true. So if the rupee has fallen from those 39.40 levels to 40.21, it's clear
that the stock market selloff by FIIs and long-short Hedge Funds has made them
take their cash out. There may be other reasons for the rupee's fall, but this is
key.
How much more in the months ahead?
>When oil rises, fears develop about inflation. And inflation means that the best
hedge is gold. Which is why gold crossed its alltime high yesterday and is now at
$943.
However, don't assume that gold will go on and on. This too will hit a wall when
oil slips in future.
Long positions in gold must be held with a stict watch on trailing stops. And then
be ready to short it.
>The yen is weaker now. Far Eastern markets are doing alright this morning and
so expect ours too to rise today. But also know that the longer term view for the
yen is for it to keep rising on the dollar this year. A rising yen also means that the
now-forgotten-yen-carry-trade will keep closing. Which means if you've borrowed
on the yen and took those monies out of that country to buy higher-yielding paper
and stocks, then you will also start closing out those longs outside Japan.
>The dollar is slated for some more drops for many weeks.
But don't expect it to keep dying.
There's a limit there too.
Currencies and Commodities
>Euro: The euro looks like it will rise some more...and then only turnaround. It's
been running a rally on the dollar from the 1.3014 levels in January 2007 to close
yesterday at 1.4724. The current rally of the past month still has steam and so
don't be surprised at the magical 1.50 levels if the US Fed do cut the rate yet
again on 19th March. However, don't assume that the dollar will only die. It won't.
A lot of cash had left the US during the past six months due to subprime, but that
kind of heavy outflow looks like it's ending. A recession in the rest of the world
too will bring back cash to the US.
For now, be ready for a new high in the euro before it stops and turns back.
>Aluminium: The price rose 2 rupees in line with the current rising trend in all
metals. Stay long with the stop still at 102.
>Copper : The price trend stays firmly upwards. Our stop has been revised to
302.
>Crude: Oil stayed nearabouts yesterdays' levels. The stop now is at 3600.
>Gold: One of the classic signs that a bull market in a given asset class is
ending is when you hear some analyst-ass on TV saying that "...the manner in
which gold is going right now, I think that it will ..er...mmm..double this year or
next.."..then it's time to get the hell out of that asset.
Also, time to switch channel or shoot-analyst-in-currently-shrivelled-single-gonad.
Anyway...The manner in which gold is going, it looks like another two to four odd
weeks of a rise...and then the change in this super-bull-run. Watch your long
stops at all times and be ready to short this as well. We have no fresh entry-long
calls in the middle of such a powerful burst from $850 in the first week of
January to $943.50 yesterday.
>Natural Gas: The stop has been brought up to 328. Stay long as the trend
looks set for another rise.
>Nickel: This downward trend han't changed despite all the rises in other
metals.
>Silver: Look out for another burst of a rise in silver during the expected upmove
in gold..and then a turnback in this trend too. But don't get off longs just yet.
There's more ahead.
>Zinc: The stop has now been brought forward to 99. The larger view in this
trend is weak.
The Mood
>Some hope here for days like today when Wall Street doesn't go blowing itself
up.
What to expect today, this week, and going forward
Today:
>A rising day from the opening to digest and factor in global rises.
In Feb:
>Rally awaited, awaited, awaited...and it WILL come.
From March onwards after the Budget:
>Allow the Budget to be digested, and then only plan shorts.
Day trades ...Only with TIGHT stops...DO NOT c/o
>Buy the Nifty at the start
Price & Volume
action is hectic here