New Years Prediction, where will the market be?

December 8th, 2009, 04:49 AM

Seems everyone I talk to is expecting a Santa Claus Rally...that's almost enough to make me wanna go short right about now!

*THE* trade of 2009 has been "ABTD" (Anything But The Dollar). ES has had a correlation of 0.90 to EURUSD this past 8 months, typically the correlation is not statistically significant. I think Roubini is right, a very large % of the reflation we have seen in risk assets this year has been funded by USD carry trade and when it unwinds it's gonna be messy.

*When* is the big question. The press mistakenly believe that USD carry will only be unwound when the Fed starts raising rates. Not so. All that needs to happen for carry trades to start to be unwound is for volatility of risk assets to rise. There is a heap of complacency in risk assets right now. VIX at 21 when we don't even know whether the US is out of recession? You see vol kick up and carry traders will start running for the exits. The World is massively short the USD and once this starts to unwind, I think we'll see an almighty short squeeze in the USD and a corresponding collapse in the price of risk assets.

The other thing that happens is the press/investment community at large ascribe a HUGE amount of information value to movements in the stock indexes. If the Dow is strong, the economy must be good. If the Dow is weak, the economy must be bad. So a steep fall in the stock indexes will be enough to get everyone talking about double-dip recession etc which will further dampen consumer sentiment etc.

So keep your eye on DXY! Once it bottoms (and it may have just done that IMHO)...helmets on!

ES: 1040
CL: 65

Cheers
Simon

December 8th, 2009, 05:55 AM

I hope you're right on both counts BigMike.

But that's the spooky part...when the prognosticator(Neely) hopes and prays that they're wrong but continues to honestly interpret their signals.

Big Mike

Maybe I should sell more of my 401k and build a bomb shelter and start stocking it... cuz if that happens, we'll be near world war 3 I think

I agree there will be a sell off, but even deeper than the first? I think no, even for the entire 2010 year which I also agree will be very bearish, I don't see us dipping below 700.

As for oil, I doubt we'll see it above $100 anytime soon, unless there is in fact a major war.

Mike

New Years Prediction, where will the market be?

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New Years Prediction, where will the market be?