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Silexx Finacial Systems, LLC Newsletter
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Obsidian Trading Platform
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About The Author
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Michael Williams
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With two decades of experience as an option market
maker and institutional floor broker on the trading floor of the PCX/Arca
Exchange, Michael has been on the front lines in the trading pits. He has
lectured and consulted for exchanges, the SEC, universities, and private
investment funds. He is also the co-author of "The Fundamentals of the
Options Market" by McGraw Hill.
Michael is one of the founders of Silexx Financial
Systems, a financial software company that designed the trading/risk
management platform, Obsidian, used by traders that clear Goldman Sachs and Merrill Lynch. He
is also a partner in Kinetic Strategic Group (KSG) - a private investment
firm.
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Traders,
The
first trading day of the year and it looks like the futures are getting a solid
boost, but so are oil, gold, and commodities. It's the dollar, which is
under serious pressure in the pre-market boosting the risk trade (equity
futures) and commodities. Part of that was seeing the Fed's Fund Rate
trade at its lowest level ever .05% - but I think that is primarily some window
dressing for quarter/year-end. However it is putting some surprising pressure
on the dollar this morning. Bernanke spoke over the holiday weekend and gave "some"
indication that it would rates would be adjusted accordingly, however I think (as
probably many do) that it is just talk as the Fed Fund Rates and current policy
remains the same. I am a little skeptical on the dollar retreat this morning
and wonder if this is more of a one-day pull-back.
The
last day of the year did see some retreat (about 1% or more) across the equity
indices. However, with ultra-light volume I wouldn't put too much into it
(bullish or bearish). This week is also loaded with some economic data and revisions
- the November jobs number was a massive surprise, but let's see if
the revisions improves or adjusts down the those previous numbers.
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2010 year of economic recovery?
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No
doubt we will see strong growth continue (with some volatility) in the emerging
markets. China continues to show strength across the board, while maybe not as
robust as the high double digit numbers they had been reporting, it does maintain
high growth. We are also seeing strong growth in India, Indonesia, Brazil, and
several other nations around the world. With an increase in manufacturing comes
jobs and money. There are 100s of 1,000s of people moving up from the poverty
line in these nations. While by our own standards making $15 a day, instead of
$2 a day seems like a joke - it also means 100s of billions of more being
spent by these people on food and durable goods. Cell phones, basic
electronics, fast food, soft drinks, etc are no longer luxuries for the very
small percentage, but rather a mass of people are moving up this chain.
The
question we ask is how does it affect us in this nation. From an economic
standpoint, it does little to help as the standard of living in this country is
already very high and thus the cost of living. Jobs that pay enough to meet the
current social standards is something that will be difficult. NPR this morning
had an interesting list of job recoveries, and of the top 10 - the 7
largest growth centers will be low paying jobs (retail, food preparation, services,
etc.), the manufacturing jobs most likely will not return as they continue to
move over seas. That means the broader middle class will either move upward or
downward - thus expanding the gulf. It seems more than ever a college
education carries more weight in obtaining a higher paying job (lawyer, doctor,
engineer, programmer, etc.) as the broader high paying jobs (that do not
require a college degree) are leaving our shores.
From
a equity perspective, it would seem those nations that have a secure footing in
emerging markets and expanding will do well and in some cases very well. We are
seeing more and more companies build factories in China and other nations
(which also means more jobs leaving our shores). From a business perspective it
is a smart choice, it means lower costs and saving massive amounts in shipping.
Those companies will be technology companies as well as services and products
that manage to cut out a big slice of the pie.
What
companies will have difficulty? Well those that are too entrenched in the U.S.
relying on the U.S. consumer. Wal-mart and Target on the other hand might
capture more business as the higher end retailers continue to see revenue
contraction. There will be a couple of high-end retailers that will continue
well because of their niche and international market, like Tiffanies. The commercial
real-estate sector along with the big chain stores will certainly find
challenges. For the most part domestic retailers are looking to reflect "Frugal
is Cool" image - but this also means cutting prices and keeping
prices low to move inventory.
The
NPR story and emerging market growth is definitely going to make for a
challenging year and depending on which yardstick you decide to measure the
recovery, whether it is the stock market or jobs - it will most likely
tell two different stories. The Fed and Government are more focused (or so they
say) on the economic picture and that remains weak, despite international
recovery and growth. That means that a change in monetary policy could put some
pressure on equities and a rush back out of the risk trade. This will most
likely not happen for a couple of months, but could inject serious volatility.
The
commodity story remains robust as the emerging market expands. Sure the durable
goods might see slower growth domestically - it is the emerging market
story that is creating that great sucking sound of commodity consumption from
soft to hard commodities. At the end of the day those that have the raw
materials have real equity, that stores more value than any fiat currency (or
paper money).
As
the year progresses I think it will be a more sector driven story, rather than
a general bull or bear market. Sure we will most likely see some huge broad
based volatility injections based on monetary policies. It will be those
companies that have bridged that emerging market story that will continue to
reflect strength if the domestic market remains weak or continues to weaken.
The question we ask - is the emerging market big enough to off-set a
possible weakening domestic market? Probably not generally, but there will be
certain sectors of the market that are seeing enough growth overseas to off-set
the current domestic problems.
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Futures Pre-market
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Futures
are pointing stronger - expect a big pop at the opening. Between the
dollar dropping and China's growth report.
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Support/Resistance
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INDU 10,500 (We will most likely break through 10,500 -
let's see if this becomes the support area for the start of 2010.)
NDX 1850 / 1900 (We might not hit 1900 today - but futures
are showing growth.)
SPX 1100 / 1150 (Futures showing some strength in the pre
market, but on any retreat watch that 1100 area.)
RUT 600 / 650 (RUT in the middle of the range. It is looking
stronger in the premarket.)
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Conclusion
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Gold
and commodities are showing strength going into 2010 and oil is back above 80,
but no one seems to notice since everyone seems to be focusing on the equity
rally this morning. I think part of that rally is a sharp pull off in the
dollar index as well as China's strength story. There is also a massive
cold snap across the country, it was even getting into the 40s this morning
here in Florida - I had to break out a jacket this morning and put on
long pants - YIKES!
The
10-year is still below 4%, but many are wondering when that is going to happen.
Additionally we are looking for some economic data, including some revisions.
It is those revisions that I think we need to pay attention to - in order
to determine if we are seeing any real economic growth. Watch closely!
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Disclaimer: Silexx Financial
Systems, LLC is not a registered investment adviser and does not offer
personalized advice. Nothing contained in this email constitutes a
recommendation to buy or sell any security. Our personnel and/or affiliates may
hold positions and/or trade in the securities mentioned. We are not compensated
in any way for publishing information about companies referred to in the email.
The email is for informational purposes only and the views are held by the
author and not Silexx Financial Systems, LLC or its affiliates. Any investments should be made only after consulting
with your investment adviser and only after reviewing the prospectus or
financial statements of the company.
Silexx Financial Systems, LLC, (941) 953-6800
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