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Thursday, February 12, 2009

Risk Appetite, Waning

Currencies are excellent measures of risk appetite. FX moves both foreshadow and then confirm moves in risky assets.

The appetite for risk is definitely waning... again. That should send equities cliff diving.

Yen Gains as Stocks Fall on Concern Bank-Bailout Plan Will Fail: "The yen rose against the dollar and the euro as stocks around the world fell on concern the U.S. government will fail to revive bank lending, boosting demand for Japan’s currency as protection against the financial turmoil.

The euro also fell for a third day against the yen after a report showed industrial output in the 16-nation region declined the most on record in December, giving the central bank more reason to cut interest rates. The dollar weakened against the yen for a fourth day before data that may show retail sales fell for a seventh month and the number of Americans filing first-time jobless claims remained near a 26-year high.

“There’s a general negative tone blowing through the market,” said Paul Robson, a London-based currency strategist at Royal Bank of Scotland Group Plc. “The relief rally has been short-lived and ended with the disappointment from the recent U.S. stimulus-plan announcements.”"

Pound Drops a Third Day, Gilts Rise as Risk Appetite Evaporates: " The pound slid against the euro and the dollar for a third day and gilts climbed on concern the British recession is deepening, depressing demand for riskier assets such as stocks.

The currency also dropped against the yen as the benchmark FTSE 100 Index of stocks declined 1.3 percent. The spread between two- and 10-year government bonds reached the widest since at least 1992 after Bank of England Governor Mervyn King said yesterday the economy is in a “deep recession” that may prompt policy makers to keep cutting interest rates and pump money into the economy.

“The downside risk for the pound has increased,” said Lee Hardman, a currency economist in London at Bank of Tokyo- Mitsubishi UFJ Ltd. “The Bank of England made it clear we’ve a serious economic problem, and they’re moving toward quantitative easing. Although their measures will eventually help the pound, the sentiment toward the currency should remain negative in the near term.”

The pound tumbled 1.5 percent to $1.4188 as of 11:57 a.m. in London. Against the euro, the British currency weakened 0.9 percent to 90.43 pence. It declined 1.8 percent to 127.77 yen. Hardman predicted the pound will depreciate to $1.35 in the next three months.

The pound’s trade-weighted index, a gauge of its performance against currencies of Britain’s trading partners including the yen, Swiss franc, euro and dollar, declined 3.6 percent this week to 73.54."


Dave Narby said...

Great analysis.

And many thanks for delving into currency analysis, it's the area where I'd like to learn more.

I was thinking perhaps a parallel event might be rising gold and USD at the same time. Gold usually trades opposite the USD, so the two going up in tandem should be bearish for stocks(?).

Vijay said...

Ben, my good man, it is HERE. The triangle going back to Oct 10/Nov24 has been sliced through like a hot sword through warm butter. Prepare for a roaching son. Time to get *deeply* short. You can put in a tight stop around 830.

Ben Bittrolff said...


USD and Gold going bid is definately really Bearish.

This actually happened today. An emergency meeting of the former 'Masters of the Universe' leaked out. The topic of discussion was Timbo "TurboTax" Geithner's bank bailout plan. Bottom line: The Masters don't think it will work.

Timmmy! Urglaraugarala!

Ben Bittrolff said...


Oh I am short. Believe me.

IYR rolled over and died. Break DOWN and OUT. (Therefore, SRS popped.)

Commercial real estate is about to start making serious headlines.

Vijay said...

I'm with you son. I'm DEEPLY short IYR. Fuck those pigs. Although it seems like only today it's behaving a bit more aggressively than the market on the downside. For the last few weeks it was just like an ultra S&P. CRE is dead meat tho.

Johnabi said...

Thanks for sharing your thoughts. Have been a daily reader here for "many moons". :)
Just got into ARE (short)today. looks like a nice short for commercial real estate.