Macro shift underway

Looks like a large macro shift is underway. The long end of the curve continues to rally and the dollar is weakening. Im watching the yen closely for what I believe is a long overdue short squeeze.

Sell off is once again denied. AD line is mixed. The long end of the yield curve is once again rallying because of economic weakness. So far credit and stock markets have not been rattled.

Is anyone paying attention to the fact the the US power could be diminishing because of the failed policy in Iraq? The world is ignoring us and several rogue regimes are running around doing whatever they want. It all traces back to oil and our refusal to change our lifestyles. Therefore the world is becming a more risky place

Stephen Roach had a pretty good article today on MS global economic forum. He believes that investors are overestimating consumption outside of the US. He is probably correct. If the rest of the world was confident that the domestic demand existed then the CA deficit wouldnt be getting nearly 1 trillion dollars and there wouldn't exist a reason for on going massive support for the dollar. Former MS economist Andy Xie had a got article about the isssue of domestic demand outside the US a couple of months ago. It was his belief that Asia wouldnt decouple from the US led growth model until there was protracted downturn in consumption in the US. This is the conclusion Roach reaches as well. If there hypothesis turn out to be correct what are the ramifications for the capital markets? Demand for large purchases like cars and houses are clearly sliding. Real Estate is a very long, slow cycle that could take years to bottom. Does the rest of the world continue to purchase our debt or do they decide to stop buying and concrete efforts to encourage more consumption? I dont know the answers, but it is a problem staring everybody in the face. I dont think another stock market bubble is likely because the market is too savy to let markets run up another 20 percent from current levels.

Really slow day. Market was jam jobed higher around midday. Volume was light. Apparently risj appetite is alive and well because credit spreads do not widen ever. There is so much leverage and liquidity floating around that the market is looking past all of the housing weakness. Tomorrow may be the final blow off top.

I am really starting to wonder how much longer this entire system can keep going. How many more credit outlets are there? The fed is so out gunned its hilarious. Bernake keeps acting like everything is normal out in the financial world. He really thinks that bubbles are a good idea. A couple of years from now I think we are going to wonder if the fed should be abolished. Its an institution that has outlived its usefulness. The aysmetrical policy of driving rates super low and then gradually raising them has led to a massively inflated global financial system. At least the ECB recognizes it.

The markets are being pretty well propped up because the end of the month is in two days. The AD is evenly split on both exchanges. Semi's are getting a bid even after goldman said motherboard demand is falling off a cliff. Oil is down is gold oddly enough is holding its own. up around 10 bucks.

Back to flickering pack as they like to say on Minyanville. World markets were mostly lower last night. The dollar is mixed and interest rates unchanged. Getting closer to the elections. Death toll in Iraq passed 100 people this month. I wonder if anyone has a picture of me in my halloween costume?

Midday update.

Action seems to be really slowing down. Robotrader continues to by all the dips in the indexes. Hey, if nobody has to sell we can all be rich!

I guess I should be happier because in an asset based ecomy its good to see assets rising! As Hank Paulsen noted earlier in the week he hopes people are happy that stocks are going up even though real estate isn't. If I had a crystal ball I would gaze into it and figure out how much longer we can inflate asset prices, borrow against them, and then use the money to fuel consumption.

Apparently spy vol is going to zero.

No posts yesterday. I was too busy driving my self made trading index futures. No trading today. A couple of thoughts for today.

1. The dollar is falling in response to slow gdp growth. The stock markets around the world keep acting as if the number is a lie. Its seems just a matter of time before people start heading to the exits again.

2. I'm coming back to the same points as yesterday. How does a failing war in Iraq affect the global macro environment? If the war makes US look weak couldnt that undermine peoples faith in our bonds and the dollar?

3. If our superpower status begins to look questionable does that mean a risk reduction trade could take place? However, a trade out of dollars and into something else? Metals, oil, other curruncies?

4. How long are the macro imbalances going to build? Is the current account deficit and the trade deficit double every year? What is china going to with its dollars? California is nice. Maybe they are going to buy it!

If you look closely. You might notice someone. Thats right its Ben Bernake! Stuck in the Great Depression

Well surprise, surpise! The fed did nothing. Which gives the green light for the weak dollar high oil, gas trade to go back on. I seriously wonder what planet Ben Bernake is from. Oh wait. He's stuck in the great depression.

Bonds tick up, stocks up, crude up, gold up, dollar down.

President Bush is speaking about Iraq and economy. Elections are less than two weeks away and seem to be more important than prior years. Nancy Pelosi(D) is favored by many to take over as speaker of the house. There seems to be very little positive news out of iraq. Kind of a damned if we do damned if we dont situation. The President seems to think it his divine mission to succeed in Iraq. I dont disagree with him, however changes need to be made.

How would a defeat or a earely withdrawl affect our debt and currency markets? Sadly, I think it would seriously undermine our credibility as the worlds only superpower. The dollar and bonds could really take a beating. Has this occured to the markets? Of course not.

Markets open up slightly stronger. This seems like the strongest mania since 2000 in the US. Due to program trading and reliance on the futures the market just grinds up like at 45 angle with buying come in at key points in the futures. I just looked at a chart that says the dow is the most overbought since 99. The great paper momentum chase continues. If its not energy its tech. The liquidity is seemingly neverending. Semi's continue to report average earnings.

A couple of thoughts before tomorrows FOMC meeting.

1. Does the fed really have a handle on financial conditions? Over the past couple of meetings the chatter seems to be really conflicting. Prosser, Lacker want a hike. Bernake doesn't want to hike because he is convinced that housing is going to drag down growth and inflation. I dont know who is going to be correct, but there is scant evidence from the markets that anyone is worried about anything. However, just like in 2000 market participants can rapidly change there opinion.

2. Is the real estate bust going go to last a lot longer than everyone thinks? I say yes. Ancedontly, prices seem too high in the face of falling demand and still expanding supply. Not to mention that toxic mortgages and fraud are rampant. The problems are not going away anytime soon.

3. Where is job growth expected to come from? The entire country is based on consumption. Problems in real estate are certainly going to have an impact on Americans ability to consume

4. What the fuck is the US going to do about Iraq? I certainly support the was on terror. We have a right to defend our way of life and I have no sympathy for evil islamic fundamentalists. That being said, the war isnt going well. Changes need to made. If we leave how to do we appear to the rest of the world? I dont think we can leave without a serious blow to our credibilty. Radical islam would surely gain strength.

Markets continue to drift modestly lowerled by the nasdaq The tick seems to be drifting lower throughout the day and the +1000 level has only been crossed a few times.

The dollar did an abrupt turnaround and subsequently gold and oil rallied.

I am anticipating the ndx touching 1705 today.

Ouch. RIMM rallied around 1015 am and is in my face. Got up to 16 and is now down to 114.50

The yen continues to be weak and interest rates are unchanged. The AD line does seem to be weakening.

I'm starting to feel like I felt in May. Very frustrated and tired to no movement.

RIMM moves off its intraday highs. Interest rates continue to move higher. Maybe FCBs and Bill Gross are selling?

I'm getting excited for Villanova University basketball again. I had more fun than expected at homecoming. Has it really been 5 years since I graduated?

The markets surge higher in sympathy with the dax and other overseas markets. Bonds are lower across the board with the 30 year almost at 5 percent. The AD isnt somewhat mixed. The russell is lagging behind the nasdaq.

And the final kick in the pants is another vlo chart. Left ten bucks on the downside. Oh well. There are two months left and there should be money to be made somewhere

The markets liked goog, rmbs, xlnx, vrsn, altr. sndk and flash were dumped hard.

The dollar was weak today and this was the second month of a decline in the philly fed.

Tomorrow is options expiration which is ususally boring.

SPX implied vol is now back to record low. Apparently spreads are never going to widen.

Wow. Its been a longtime since I have posted. I think its time to update my thoughts.
Markets-

1. I nailed energy before the majority of the market and made great money. In retrospect I got out too early. I guess those are the best trades. Getting in before the smart money realizes the trend change and not holding out for the bottom.

2. The bond market and stock market bottomed at the sametime in july. In a finance based economy this makes perfect sense. The market cares about only about what it is going to cost them to borrow and leverage.

3. As long as the rest of the world continues to provide cheap credit to the US this game can continue. As Randall Foresyth pointed out in Barrons, the world economy is like the US and USSR during the cold war. Mutual assured destruction.