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Market and trading 1/3/2014

around novemeber I said I would write weekly about the markets, unfortunately, I didnt know about certain sec violations and rules and got a free riding violation because the broker I was using was not margin enabld for my accounts sized. What this meant was, I couldnt trade anywhere near as liquid as I wanted, so I ended up just buying a stock and holding unto it for a month (ARCW). But now that 2014 has rolled in, I have a new broker, a new account, more money in the account, and am ready to go violation free and margin enabled.

Thoughts on 2014 market:

Commodities are making a comeback! Steel is up, and I expect aluminum, Coal and other metals to follow through. I am still bearish on gold though, There are just to many issues with switzerland and China revolving around gold thats hard to say what will happen. Also gold is coming off a multi-year bubble, and I dont think 8 months is anywhere near good enough of a correction. Gold miners might have a little pop, since they are down a lot, but gold spot price... I am not too sure about.

Secondly I believe China and Russia will be good markets, and I am looking into Indonesia, Vietnam and other smaller emerging markets. China has a booming middle class, a still insanely roaring economy, and much more financially aware people entering the market place daily. This coupled with that fact the market is undervalued on a P/E to book value basis, and the credit cycle in China, as well as potentially more foreign invesment coming from the recovering United States and Japan, China has a huge upside to downside ratio.

Buying immense fear and bases has proven over and over again to be a good idea. I learned this via Jesse Stinne's books and tweets (amazing stuff defintely worth checking out). Greece for example is up substatially, while the wall of worry couldnt have been any bigger. The truth is the worry was much bigger than the reality, and the greece GDP was quite resileient, at least relative to the greek market. In other words, the market was vastly out of line with fundamentals, and was based on fear, the disconnect was just too glaring.

Effects of Fed Tapering on Emerging Markets

On Saud

EM bonds are being sold off with India and Indonesia leading the way, joined by Thailand close behind down 9 trading days in a row (20% decline since may, worst since 1998). Equity markets are being sold off with the Indian banking sector down 2.5% Monday, (35% from the highs), while the worsening situation is in the Philippines exchange. The IDR has collapsed by 3.9% overnight (biggest drop in 5 years), while the INR fell from its best day in 11 months to end the day 1.5% lower. Elsewhere the TRY has hit fresh lows against the EUR. With FED tapering on the horizon, moderate bids of the US Treasuries continues with more demand expected in the coming weeks, as capital floods out of emerging nations and into the security of US paper.

Effects of tapering by the FED have begun to shape, as emerging market currencies begin to decline sharply. The worst fear is that domestic borrowers in these countries may not be able to pay back their dollar-denominated loans. In part, realizing a worst case scenario wherein, defaults across the domestic banking sector resulting in banking losses, or even failures across emerging nations. The IMF has warned against a rush to exit from ultra-easy policies that have been put into place to spur growth. Speech by Christine Lagarde, IMF Managing Director, "Policies and policy coordination are not yet where they need to be. Failing to act at the global level, with each country playing its part, could put the global recovery at risk… I do not suggest a rush to the exit. UMP (unconventional monetary policy) is still needed in all places it is being used, albeit longer for some than for others. In Europe, for example, there is a good deal more mileage to be gained from UMP. In Japan too, exit is very likely some way off."

The initial statement of creating a consortium of central bankers exists in smaller central-European and east-Asian nations, but not between major and emerging nations. The fears of FED tapering have rattled emerging nations in the past week, currencies are depreciating against the USD, as per the below matrix:

Turkish CB has been attempting to control TRY weakness via regular auctions

-TRY auctions are usually around $50mio, latest policy meeting changed to $100mio

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