Philosophy over coffee

Market Trading: Currencies, ETFs, and then some.

In Headlines, Size: Venti on October 22, 2008 at 10:19 pm

Monday marked the 2nd time that the week began on a positive note, after last week’s record rally of 936.42. And yesterday and today also marked the 2nd time that the rallies were followed by plunges. It was another 514-point decline to the Dow, bringing the index to its 5-year low. Intraday trading even saw the Dow fall as much as 698 points just moments before the closing. Only shows you that last week’s high was indeed a simple bear rally. The bottoming is not yet over.

Everyone’s fearsome right now of the looming recession or one that’s already begun. Demand for commodities have declined, even from China, which reported a GDP growth of just 9.0, way below the 9.7 expected. And that’s a single digit growth rate for you. BHP Billiton, Australian-based steel company, reported negative outlook on the demand from China. Germany, as the world’s biggest exporter, also softens its growth forecast for 2009. The country’s exports account for as much as 41% of its GDP and such an outlook for the coming year is indeed a sign of what is to come. This is particularly risky for emerging markets, which are less stable. Latin American countries in particular are facing tough times. Argentina’s government decision to nationalize its pension funds may be looked at in two ways. The government claims it is to protect the funds for future generations while some say it is to fund its spending and public works. Some fear that the country is at the brink of defaulting.

With the economic slow down comes weakening currencies. As the investing public becomes more and more fearful, where do they run for safety? To the US and its currency- the main reason behind the dollar’s big appreciation against major currencies including the Euro and Sterling. So what trading options does one have?

Since everyone’s bullish on the dollar, how’s Powershares DB US Dollar Index Bullish (UUP)? One warning: it has been appreciating so much the past several days, it might not see so much growth anymore. Just how much has it grown? Euro to dollar used to be at 1.50-1.60. Now, it’s at 1.2858- a low from early 2007. Remember when the pound stood at twice the value of dollar? Now it’s at 1.6268. People are still bullish on Yen so that might be a good trade; dollar to yen is at 97.865. And of course, emerging market currencies are also another opportunity. Short.

The Dow has gone down a lot and we might see a little rally soon. But if indeed the bottoming is not yet over, there’s DXD, an ETF that shorts on the Dow30 and a way for one to hedge. Its S&P component is SDS.

If you’re following the major countries tumble and want to make money, one can short EWG- an ETF for Germany, EWY for South Korea, and EWZ for Brazil.

I am glad that ratings agencies are finally under fire. The hearing today at the Congress sure did give them what has long been due. While regulations might have begun the crisis, the works of rating agencies undeniably exacerbated things rating assets as if they were safe to own.

Earnings continue to be laid in front of us. Amgen, Amazon, Northwest Airlines, ConocoPhillips, Merck, and McDonald’s all beat analyst’s expectation while Boeing, AT&T, and Wachovia disappointed. Apple and Yahoo released their earnings yesterday and AAPL earned 15 cents higher than expected while YHOO was in line. Others to report tomorrow are Bristol-Myers, Burlington Northern, Credit Suisse, Eli Lilly, Iberdrola and Microsoft.

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