BofA / Merrill Lynch is out with a note on interest rates. They see the Bank of Canada as the next central bank to move on interest rates.
– Bank of Canada’s Carney speech hinted that the central bank is considering a rate hike earlier than the prior forecasted mid-2010.
–There is a trade surplus expected for December and a 15 month high for January housing starts. Both of these data points support a forecast for the first Bank of Canada rate hike in June 2010.
Meanwhile, as the world turns, so does the Factory and it’s cast of characters. X is monitoring world events; The Consigliere continues to build his law firm specializing in the law of attraction; Pinky Megiston is beautiful; and Anything Anywhere! seeks more avenues through which he can add value.
Apart from all that, sovereign risk spreads are igniting. The dollar is catching a flight to safety bid and stocks are crushing lower–the S&P 500 is off about 2.5% as I write. Gold and silver have been pummeled most severely, off 4% and 5.5% respectively.
Sovereign risk spreads have risen dramatically this week, led by the European majors. Holders of sovereign debt—in particular Portugal, Italy, Ireland, Greece, and Spain—are running for cover. Not surprisingly, politicians will blame these events on speculators. However, a closer look at the money flows reveals true fear: real money is fleeing sovereign debt (selling government bonds) as opposed to speculators driving risk higher by buying credit default swaps (insurance). Nations with the largest deficits and the most in need of short term financing are being sold the hardest.
Dubai has continued to see risk premiums rise, as it scrambles unsuccessfully to sell off some of it’s holdings. Like a skydiver free-falling through the air, Dubai is reaching for it’s reserve chute. The velocity is building to the perilous downside. Hope is not a viable strategy here and now; but other than bluff, it may be all they have.
We are sitting on the precipice of something special. An event where fortunes will be made and lost. Great art will be inspired, and an ageless tale will be re-told.
Meanwhile, back at The Factory, the expansion continues and my mission is in motion. Extensive time travels have my clock out of whack. Life is so strange — Destination Unknown.
Conditions
S&P 500 - Weekly
Since the March 2009 bottom, we have seen an uptrend with little interruption. In light of some regression analysis, it is evident that we could go either way. This could be a time to buy the index, or it could be a time to sell it. Like a man on a high wire, falling down and being out of the game is not an option. But I must make it back to one side. Will it be the buy side or the sell side? In correlation, here are some data points that I ponder:
1) Dubai Credit default swaps have continued to trade wider, at levels not seen since November.
2) The Volatility Index (VIX) made a large move higher last week.
3) Volatility dispersion is at it’s highest level in months–indicating higher probability of a systemic problem and trouble with the entire structure of the market and it’s underpinnings. If the market is a sell, it will be best to short the market indexes as opposed to individual names.
4) Some individual names look as though they can move much, much higher from here. My re-positioning will depend on various factors that I will continue to monitor.
Stock market futures initially sold off on the payroll and unemployment headlines this morning at 5:30 AM PST. They spent the day recovering, and ended up rallying to the highs of yesterday.
S&P 500 Futures - 15 Minute
The Dollar sold off, squeezed the shorts, then fell to the lows of yesterday.
$USD Futures - 15 Minute
Gold rallied, pulled back to it’s logical limit, then rallied to near yesterday’s highs.
Loneliness has followed me my whole life. Everywhere. In bars, in cars, sidewalks, stores, everywhere. There’s no escape. I’m God’s lonely man… June 8th. My life has taken another turn again. The days can go on with regularity over and over, one day indistinguishable from the next. A long continuous chain. Then suddenly,
there is a change.
-Travis Bickle
Monday, February 8, 2010 
