"The market will bottom once everyone stops guessing where the bottom will be"

It's a nice quote that I came across a few days ago. I think it makes perfect sense. This market will not bottom if everyone is trying to catch the bottom. That explains the all time high volatility levels in the stock market.

...It has been a long time since I last updated my blog, primarily because I still have been trying to accumulate capital in a bid to start trading the FX market.

...Here are my quick thoughts on banks

I have been thinking about the banks lately. It is clear that the market hates the investment banks. It's amazing to see GS trade at 10 year lows given that the firm is filled with amazing talent. The fact that we see that stock trade at such low valuations is because the market is just uncomfortable with the fact that the government is taking stakes in the banks. In fact, all the banks who participate in the TARP program are liable to the government and have to be accountable to their stakeholder - the US Treasury. It's obvious that the market is trying to get used to the numerous interventions by the government in the market. And they hate it. Look, the Fed cuts interest rates, stocks fall, the Fed takes up equity in the banks, stocks fall. They flood the system with money, and stocks also fall. They establish swap lines with other central banks and stocks also fall.

The US banks are now quasi-government. If the stock keeps falling everyday, it is inevitable that the banks become nationalized. Actually, there is nothing wrong with a quasi-government bank. Some markets are comfortable with a quasi-government bank - like the Singapore market. Singaporeans have been all along aware that Temasek has a stake in DBS and all through the years the bank was traded on the exchange as one of top local bank on SGX.

Local investors were perfectly comfortable with the government taking a stake in the bank. The stock continued to rise through time and investors are still looking to buy more DBS stock as it drops further. This goes to show that it is really a matter of perception and confidence that investors have in the company. In order to shore up their stock price, the banks have to win the public's confidence. Maybe cut salaries, shore up risk management, tone down leverage..

...On capital market expectations

I think we might see lower oil and gold prices in future. Yes, I think it is better to short the rally than to buy them on dips. Same for Corn

I think equities might head higher, but I am still cautious on them.

30 Years are neutral, would wait before shorting them. 10 Years might continue to see a strong rally. 2 Years are neutral, would also wait to short them.

The Euro is oversold, the Aussie might be supported. The pound might slide further. The yen might surge if the equity market breaks down. And the Canadian dollar also might slide. The Franc might depreciate a bit, which means that the dollar might weaken

I had stopped trading as the portfolio had a margin call due to the recent market volatility. I had left the long USD/JPY position open, the yen surged on tremendous selling pressure by investors and the rest is history. The portfolio had a margin call which I did not see coming. It is times like these I learn to pay more attention to risk management. I had never expected the market to turn lower so quickly. What I felt was cheap in the equity market seemed to have gotten cheaper - I clearly overlooked how volatile the market could be.

I would have to spend some time 'raising capital' so that I can have enough deep pockets for the next round. I would need to build sufficient capital as well as my confidence once again.

I feel that the equity market is nearing a bottom soon, but not until we see another round of bears versus bulls. I suspect volatility might remain high. There have been large price moves in the Asian markets. Volumes are low but price movements are clearly high and biased to the upside. I think this is the "new president" effect. Obama's victory seems to signal that the a new dawn is approaching and the market likes it. The market is behaving now as if we are going to see a recovery in the next two quarters. I am still waiting for more bouts of volatility before I touch equities.

Commodities on the other hand, look more attractive than equities. It seems that they appear to have more holding power. Prices are still sticky and judging from the past seasons, commodity companies are the only ones that are reporting profits. The rest are just taking the heat from a slowing economy. SIA profits are down in double digits, DBS also down and cutting jobs, OCBC down, UOB almost unscathed. There are two things moving forward, either the market is comfortable with the current commodity price level and we move forward from here, or we see another round of slaughtering and commodity prices fall lower.

The US Dollar is moving in a range, looking for a direction. On the one hand, we see paired currencies weakening with generous cuts from central banks; The US dollar strength is hurting some of the Asian company reportings as we have been so comfortble being exporting countries and reliant on Western domestic demand. Now, the US dollar is stronger and it seems that our exports are looking cheaper to the West but they are not consuming because they are slowing down. What I think needs to happen is that Asian countries unify together and build the base and lead the global economy to the next chapter. Asian currencies have to appreciate, Asian domesitc demand has to be built and more manufacturing jobs have to be exported to the Western allies. But this will take a long while to be established.

Trade Recommendation : Long EUR/USD for the short term