04 November 2008

Today's Moves

Two Hours Traffic - Stuck for the Summer

I picked Two Hours Traffic's power pop as I spent almost two hours this morning standing on line to vote.

I may have missed the opening gap-up in the market, but I didn't stay on the sidelines for long:

Bought 100 shares of FXP at $78.70. Couldn't get my late order filled for another 100 shares at $74.40--perhaps tomorrow.

Sold another 3/8 of my AIG position for $2.40, for a loss of 49.4%. AIG ran up for a gain of over 12.5% at the close. AIG is also quite overbought in the short-term, with an RSI(2) reading of 95 at the close.

If you found my purely technical justification for shorting China via FXP, Nouriel Roubini offered up some choice bearish fundamental arguments favoring shorting China, via Clusterstock:

That recent uplift in global stock prices? A "sucker's rally." The recent economic news in the US? "Worse than awful." Read on...

For the last few years the global economy has been running on two engines, the U.S. on the consumption side and China on the production side, both lifting the entire global economy. The U.S. has been the consumer of first and last resort spending more than its income and running large current account deficits while China (and other emerging market economies) has been the producer of first and last resort, spending less than its income and running ever larger current account surpluses.

For the last few months the first engine of global growth has effectively shut down as the latest batch of macro news from the U.S. are worse than awful: collapsing consumption and consumer confidence, plunging housing, collapsing auto sales, plunging durable goods spending (while also supply side indicators such as production, ISM and employment are also free falling). The U.S. is entering its worst consumer recession in decades both supply and demand data look worse than in the severe recessions of 1974-75 and 1980-82. And in due time this tsunami of awful macro news, together with ugly downside surprises to earnings will take another toll on equity valuations that are now temporarily lifted by another bear market sucker's rally.

More worrisome there are now increasing signs that the other main engine of the global economy – China - is also stalling.

No comments: