reality check

The market has finally realized that economy is slowing down and governments all over the world are hitting a debt wall. Stimulus are gone and slow growth is the new norm. The stock market will be range bound for a while. One last push high for the bulls may come from the finacial regulation. If finreg is watering down then, financials may get a strong bounce. Use it as an opportunity to take profit if it happens.

China moves on currency

China is moving to loose the control of its currency and the market is getting excited. Personally, I believe the impact will be small and some positives and some negatives:

Positives:
1. reduce pressure on inflation in China and lesson the chance of interest rate moving up.
2. Some positive impact on commodity prices.

Negatives:
1. reduce profits for exporting companies in China
2. small increase in inflation pressure in U.S. due to higher Chinese products prices.
3. more questions on U.S Global reserve currency status.

I am cautious on the market

another stimulus package?

U.S. economy is stalled. The growth in the second half of this year would be below 2%. Obama is looking for 2nd stimulus but was met by strong resistance from congress. The stock market will be much more difficult in the next few months. I sold my TD bank today @ 73.25.

Fedex and BP

Today, Fedex reduced its earning expectation for next year. Its excuses is the higher expenses because of strong business. I do not buy it. How can you have higher revenue but lower earnings? If marginal revenue can not cover marginal cost, then, stronger business is a negative.

BP is going to set up a 20 billion fund to pay claims. I do not believe the 20 billion is enough. The stock is having a rally but not its bonds. if you own the stock, you should switch to bonds.

The market is performing quite good among all the bad news. I do not think it can last much longer.

BP bond being downgrade

BP's bond is being downgrade. It is more serious than market's reactions. Many hedge funds and financial institutions have to adjust their valuations because of the downgrade. The market is trading artificially today because of option expiration week.

I will buy 300 HXD (short TSX) @C$12.72.

crude oil

I expected that the oil spill in Gulf would have increased prices of crude oil but it did not over the last month. The crude is trading in the lower range of my target for this year. I still believe that oil will probably go up because of the long term supply concern.

The market is up today but I still expects a trading range between 1030-1130 for S&P 500 and 10800-11800 for TSX. The European debt crisis, BP oil spill and exhausted stimulus spending have made the current situation much worse that 2 months ago.

energy stock is rebounding

Energy stocks are rebounding strongly just as I expected yesterday. The market may rally for a couple days but I do not expect it to exceed my range (1000-1100 for S&P500).

British Government is going to get involved in BP dealing with U.S. government soon as I predicted a week ago. The market is also bringing the liability number to 40 billion as I predicted 3 weeks ago. I do not expect BP to go bankrupt. It will pay out the damage through future cash flow. The stock will be depressed for long time but there maybe opportunity in its bond. Wait until the bond to be traded under 50 cents on the dollar.