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Posts Tagged ‘bear markets’

1 Apr 6 2010 @ 9:55am by Matt Smith in Random, risk management

Bulls! Bears! Boll Weevils?!

Markets that make you go 'uh oh'.

You are more than likely aware of the terms ‘bull’ and ‘bear’ markets. However, there are many lesser-known terms used to describe market conditions; consider this somewhat of a glossary:     

Bear Market – it is a general decline over a period of time. It is a transition from optimism among investors, to general fear and pessimism.    

Bull Market – is the opposite of a bear market; it is a prolonged period characterized by rising prices.      

Groundhog Market – is a market phenomenon where a day’s trading has a certain familiar feel about it, like exactly the same trading pattern happened the day before.       

market watching, meerkat stylee

Jellyfish Market – is scary, but essentially lacks any backbone. Like a jellyfish, this market is only for those participants with no brain or no nerves.      

Boll Weevil Market – much like its namesake, a boll weevil market is one which is brought to prominence in early spring, and runs through to midsummer, when it dies. It has a prolific existence, before dying off as abruptly as it started.      

Bull Shark Market – is the same as a bull market, except the price move higher is much more vicious, and is coming from a position well under water. This market is also likely to chew you up and spit you out, all to a scary soundtrack.    

Meerkat Market – a barren and twitchy market, it makes you sit up and pay attention, keeping you constantly on your toes. Watch out!     

Koala Market – similar to a bear market, except it is more more stealthy in duping you. It steals your money, yet you can’t help being engaged with it. (and feeding it eucalyptus leaves).      

...prone to spikes.

Chimpanzee Market – is a market where all isn’t quite as it seems. This type of market may seem harmless, but is smarter than it looks, ready to manipulate, deceive, or just play with you. 

Groundhog Market – didn’t we do this one already?     

Puffer fish Market – looks like a very attractive market, but in reality, it is just all hot air (or, err, water).     

Porcupine Puffer fish Market – is worse than a standard puffer fish market, as it is prone to spikes (in price). 

Please feel free to add any market conditions that you are aware of (or have made up) – any good ones will merit a prize.

0 Feb 26 2010 @ 10:55am by Matt Smith in Capital Markets, Economy, Global Energy, Natural Gas, Technology

Burrito Bites

Happy Friday! This week has been distinctly dominated by dark clouds and impending economic storms on the horizon. Economic data has been consistent (in that it has been consistently downbeat), while next week brings a new month and a new set of data – sweaty-palm time if you have placed all your chips on rising markets. As for life here in energyburritoland, I have gained some interesting perspectives on energy markets this week. There’s fascinating stuff going on in natural gas, as prices fall while storage levels deplete (now at a deficit versus last year). And while colder weather is being scapegoated for the increase in demand, in reality it seems its the (improving) economy, stupid. (smokescreened by enfeebled economic sentiment). And just to provide a contrast, crude oil and US crude product prices continue to exhibit strength while demand has nipped out to go to the store and not returned…in 18 months. Anyhow, here’s to a weekend of downing tools and raising hell toasts: 

This clown was caught speeding. Seriously.  

Natural gas may help cut emissions. (ya think?!).

–Life is creating smarter grids, appliances and consumers.

–This weightlifting ant is able to bench press 100 times its bodyweight. Without breaking a sweat.

–The next three links are like a burrito bite of burrito bites dedicated to Google. First up, as someone who uses about 17 different Google applications, I really should realize there is no such thing as a free lunch – big Googlebrother is watching you. 

–Then there is more – big Googlebrother is also playing (in the energy markets). 

–And finally, courtesy of big Googlebrother Earth via Treehugger, US military airplane graveyard

–Headline of the week: The Best Way To Enjoy Wine: Try Overpaying. (Aw, c’mon, wine snobs: we all know it’s true).  

–There’s been more hype about this in the energy world this week than a new Apple iproduct… a ‘power plant in a box’ from Bloom Energy.

Competition for the oddest book title of the year. This year’s shortlist contains book titles including worm hunters, lethal robots and Nazi spoons, with previous champions being “Bombproof Your Horse” and “Living With Crazy Buttocks.”

The Burrito Deluxe Award of the week goes to San Francisco Fed’s Janet Yellen. Like a port in a storm, she was once again the voice of reason this week, telling it like it is on the US economy. If David Rosenberg is Batman, Janet Yellen is Wonderwoman. 

The Burnt Burrito Award of the week goes to global econonic data this week. There were some bright spots (from GDP upward revisions), but generally, they sucked. Big style.

Have a good one!

0 Feb 25 2010 @ 7:40am by Matt Smith in Capital Markets, Economy, Global Energy, Random, risk management

Negative inflation starts with a ‘d’ and ends in tears

a deflationary environment would make it cheaper to phone home.

I made the above comment in my daily market update last Friday, before realizing the gravity of the adverse CPI (= consumer price index, aka inflation) number released that morning. The core CPI index (which differs from the ‘headline’ number, as it removes two of its most volatile components – food and energy prices) showed a negative print. ‘Big deal, burrito boy’, I hear you cry. But wait, my friend; this was a doozie of a print because it was the first negative print since 1982. Yep, we’re talking the year of E.T., the album Thriller, and the birth of Ben Roethlisberger. Let’s take a quiet moment reflect on how really, really long it has been since then.

Ok, lets move on.

Last week actually saw a double doozie of data releases – the first being the aformentioned 28-year breaking of a duck, while the second designated doozie was from the Federal Reserve (= the Fed), who raised the discount rate from 0.5% to 0.75% late Thursday evening. The discount rate is the interest rate charged to banks for direct loans, so although it doesn’t necessarily directly impact us mere mortals, it does issue a battle cry from the Fed that they are ready to fight the enemy – whatever form they may take.

But herein lies the problem: armed with the weapons to fight inflation doesn’t mean you can do the absolute opposite to avoid deflation. War against inflation lends itself to raising interest rates or decreasing the money supply as two of the more common weapons wielded (incidentally, the latter is where Ben Bernanke got his ‘helicopter Ben’ moniker from; back in 2002 he said the best way to invoke inflation was to throw money from a helicopter). On the flip side, the onset of deflation can be staved off through the promotion of confidence in an economy, but like a bite from a vampire, once deflation sets in, all you can do is let it run its course (ie – become undead).

Japan proffers a deflationary horror story twicefold; not only because it suffered a ‘lost decade’ starting in the early 1990’s, but because the US is on a similar trajectory (a real estate bubble + equity market bubble = zero interest rates and quantitative easing….sound scarily familiar??). That’s not to say the Fed are not aware of the perils of their decisions – quite the opposite. And that’s why we should worry – if we can see them using their silver bullets, we know all too well how many they have left.

deflation = more zombies, less thrills

Now, to wrap this up in our all-encompassing tortilla. Deflation, by its very definition, is a general decline in prices. I am not declaring that we have lost the battle to deflation, I am merely highlighting that deflation is a real and potential risk to our economy. And if this were to happen, energy commodity prices would be dragged lower with every other asset class. Even worse, if the engine-room of the current global recovery – emerging markets – were to avoid such a deflationary environment, it would only exacerbate the problem in the US by continuing to boost global commodity prices. A horrifying prospect indeed. On that bombshell, I’ll leave you with this; the conundrum of how to deal with deflation reminds me of Woody Allen…he once said ‘I got this powdered water – now I don’t know what to add’. The answer for this is the same as it is for deflation…….silence.

3 Feb 10 2010 @ 10:38am by Matt Smith in Crude Oil

Crude oil is Keyser Söze

usual_suspectsIf you haven’t seen the 1995 film ‘The Usual Suspects’, reading this post is going to be like hearing a hilarious catchphrase from a comedy series you have never seen;- not that good out of context. So, if you have seen it, good deal – read on. If you haven’t seen it, I recommend:

a) you watch the film then read this post, or
b) you watch the film anyway.

Do not read this post, thinking you will watch the film at a later date, because I am only going to ruin it for you. Sorry.

When I lived in London, some rather mean-spirited person decided to graffiti the best bit of the film – the shocking twist at the end – on the wall of a London Underground station. With about 100,000 people passing through Piccadilly Circus each day, out of all the things they could spray-paint, I always thought it was pretty lousy for someone to write ‘Kevin Spacey is Keyser Söze’. (I have just ruined it for you if you haven’t seen it – I told you not to read on).

Kevin Spacey is Verbal Kint.

Kevin Spacey is Verbal Kint.

Ok, after all that, my point today (there was one, I promise) was to highlight how crude oil is in fact, Keyser Söze. And here is why: after all the shenanigans of 2008 when oil hit a warlording $147, it had an equally crazy journey in 2009, bouncing from a beaten-down and limping level of $32 to a high of $80 by year-end.

Now 2010 has started with a flourish-turned-flop, and crude is looking like Verbal Kint once again. But here’s the thing; it is all a ruse. Crude is borrowing from the first page of Keyser Söze’s playbook – ‘The greatest trick the Devil ever pulled was convincing the world that he didn’t exist.’  The spotlight shines so brightly on the US dollar and equities to explain away the moves in crude oil, that the dreadfully weak (yet recovering) fundamentals of the oil market remain waiting in the wings. 

And what’s more, crude is more than happy to play out the role of Verbal Kint (‘a man can convince anyone he’s somebody else, except himself’), with Keyser Söze orchestrating moves at stage left, ready for the underlying fundamentals to once again lead an unsuspecting market. Just see the below chart; the signs are all there. By the time the relationship wanes between crude and the current drivers du jour, prices will have gotten away. Demand will be back at pre-recessionary levels, with supply constraints from resource nationalism moving back to center stage once more.  And like that….the opportunity is gone. oil demand nb. dotted line on OECD oil demand is estimated by IEA.

0 Feb 4 2010 @ 10:24am by Matt Smith in Capital Markets, Crude Oil, Economy, Natural Gas, Random

A Weapon called the Word

roger-federer again

I find it amazing that at a time when information has never been more accessible, and there has never been so much data to digest, that focus falls on the scrappiest of morsels to move markets.

For example, everyone waits with bated breath to compare and contrast the latest statement from the US Federal Reserve after their meetings, with markets hinged on the subtlest of changes to their rhetoric. Markets have rallied like Roger Federer or sank like the Titanic on single words; just this past Wednesday we saw equities and commodities rally as the statement changed from ‘economic activity is likely to remain weak’ to ‘economic recovery is likely to be moderate’ – a blunderbus of betterment by Fed standards.

As an aside, Ben Bernanke  (banana Ben, helicopter Ben, Widow Twankey, choose your weapon – I prefer to call him Sir) learnt the power of his words the hard way. In the first few months of Mr Bernanke’s tenure as Fed Chairman he spoke candidly to Maria Bartiromo (= rather pleasant CNBC pundit) at a Washington dinner.  His remarks were subsequently reported a few days later, and stock prices plunged.  Mr Bernanke learned a hard but important lesson. 

lexluthor

If the Fed’s power seems somewhat unwieldy, it is equally matched by the preposterousness (or prowess, delete as appropriate) of Opec. Like Britney Spears, Roger Federer (that man again) or Lex Luthor, just when you think Opec has lost their power and influence…poom!…they come back with a vengeance. You can gauge when an Opec meeting is on its way, as commentary starts from the various cartel comrades. Which would be fine if a) they all sang off the same Opec hymn sheet or b) if their comments didn’t move markets. But herein lies the problem. The greater the need for Opec to placate the market, the seemingly greater their efforts to be less cohesive and more misleading, as their esoteric interests pull them in different directions.

Back at the chopping block of our burrito, we know natural gas can be moved by certain analysts expressing their market opinion (or even just a soundbite) to the newswires. Unable to access the underlying research to understand their logic, we are left to extract what we can from their quotes (or – more accurately – the journalist’s intepretation of such).

britney-spears

The phenomenon of markets latching on to certain scraps and discarding others, can be explained away to a certain extent. If market sentiment is bullish prior to new information, then investors cannot help but look for the bullish angle to validate their point of view, and vice versa. If data releases are a surprise to consensus, then prices can whipsaw in the opposite direction. Or sometimes we simply see the Kansas City Shuffle.

What all this leads to explain is that markets are unpredictable. But that still doesn’t justify why they focus on certain news flows. It does highlight, however, that a few choice words from a certain sphere of influence (i.e. the Fed, Opec, an analyst, etc) can have much more force than a fact. What got me off on this tangent in the first place was the Nigerian militant group, MEND, who last weekend announced an indefinite end to their ceasefire. And this was the ironic thing: in the past their greatest impact has come from brute force and violence to prove their presence. Admittedly, while they still undertake certain acts of sabotage, they have come to realize that one of  the other advantages they have is a different weapon – a weapon called the word.