Sunday, August 22, 2010

AUD/JPY Carry Trade and SP500 Correlation

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There is a high correlation between the SP500 and AUD/JPY and also AUD/USD.
This chart shows SPY(SP500 vs AUD/JPY)


Australia's elections over the weekend has resulted in hung parliament, which will take some time to resolve once all the votes are counted. With Issues in Australia over elections we might see AUD/JPY selling (risk aversion/unwinding carry trade) and this will help the bears bring the SP500 down. We are also seeing continued strength in the USD/JPY and Treasuries which has caused weakness in Crude Oil and Copper due to the inverse correlation relationship. (Crude Oil and Metals like copper have high correlation to AUD/USD, CAD/USD, and NZD/USD).

The bear scenario for next week-
SELLING IN-AUD/JPY, CAD/JPY SP500, Crude Oil, and Copper
BUYING IN- JPY vs all currencies, 30yr bonds, and VIX

Here are some old Intermarket Correlation resources from ForexAutomaton the period 2002-2008-




Here are some links that look at Currency Correlation of the AUD/JPY vs SP500 and the current state of 30 year treasuries-

aud vs jpy
Presenting The New Correlation Regime: Treasury Butterflies And Risk | zero hedge
Visualizing The Past Of The Treasury Yield Curve, And Deconstructing The Great Confusion Surrounding Its Future | zero hedge
Will Tonight's AUD Slide Be The Start Of Another Major Market Selloff? | zero hedge
HomeTrader: SP500 update and AUDJPY , AUDCAD and EURUSD.
Lessons from the Pros - 06/15/2010 Issue - Stocks Article: Money for Leads?
ES-AUDJPY "Swiss Watch" Recoupling Means Money In The Bank For Divergence Chasers | zero hedge
... from IDEAtrader Suite
The Rational Move
News | Currency Trading News | Currency Quotes | Commentary | Analysts - FX 360>
Dollar Soars As S&P500 Hits 5 Year Lows - Forex Analysis, Currency Forecast, FX Trading Signal - Action Forex
The Strongest Forex Correlations | Kathy Lien | FX360.com
Commodity Currencies & SPX | Samadhi Research Investments
Forex @ DailyFX - Currency Correlations Tighten Through Risk and Dollar-Based Foundations
Unwinding Of The AUD/JPY And Other Carry Trades Is Going To Take BHP Billiton Ever Lower - theyenguy -- Seeking Alpha
Chronic Deflation Will Send 30-Year Treasuries to 3% (Gary Shilling)
Australia election results point to hung parliament | World news | guardian.co.uk

Saturday, August 21, 2010

Squak Audio from May 6 2010 stock market flash crash

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Wednesday, August 18, 2010

Richard Fuld - Walks away with 500 million

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Lehman Brothers was the largest US Bankruptcy at $691 Billion dollars.
The CEO; Richard Fuld, walked away with around 500 million dollars.
This video is just a reminder as to how truly messed up things were less then 2 years ago.

Richard

Sunday, August 15, 2010

Long End Treasury Yields Falling

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With the 2 year Note Yield at record lows and the 5 year near record lows, I wanted to examine how much further they could fall and how much further the 30 year bond could fall to catchup to the levels seen when the 30 year made record lows December 18, 2008.

The Chart below shows yields on the 2,5,10, and 30 year going back to January 2008.


The Chart below shows the yield spread between the 30 vs 2, 30 vs 5. I also divided the 30 yr by the 2 year and the 30 year by 5 year to see the spread at a more magnified view.

The 2 year has breached 2008 lows and is making new record lows, while the 5 year is 20 basis points from the low of 1.266 set December 18,2008. The 30 year has a long way to go if it is to catchup to the yields it saw during December 2008 lows. Given the Short end of the curve has already hit or is near record lows, how much further does the 30 year have to drop to catchup?
The 30 year made a record low of 2.53% on December 18, 2008, which means as of Fridays close the 30 year trading at 3.87% would have to drop 1.34% or 134 basis points to retest those record lows.

With ZB currently trading around 132, we could expect ZB to rise all the way to 142 if yields are to retest December 2008 lows.
Here is a chart of ZB Trading Today August 15, 2010.


Here is a chart of ZB trading under the March 2008 contract during the period of December 2008.

Here is a good article from Bond Squawk on Negative Tip spreads.

If negative TIP spreads don't currently forecast rising inflation, but just a reduction in forecast GDP and economic growth, then would gold be a good investment? Most people believe gold is a good inflation hedge; however, Mish Economic Analysis found Gold to be a better investment during periods of Deflation as opposed to periods of Inflation.

So what should we do? Bet on Deflation and a possible double dip recession? Buy the long end of bonds, go long gold, and stay out of stocks? We shall see in time what happens.

Wednesday, August 04, 2010

Live Futures and Stock Trading Chat Room at Justin.TV

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Stop by the Trading Room. I host a live trading group of mainly ES, Crude, Gold,  and momentum stock Traders. Anyone is free to join, but we have mods who don't hesitate to ban people who don't take trading seriously.


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