The Money Map Advantage
Friday, June 16, 2006
By Horacio Marquez
Email – #47
** Buying Opportunity Confirmed - Our Picks Are Still On Sale
Inflation numbers came in mixed during the week, with a subdued PPI and a CPI that performed on the headline, but showed an uncomfortable 0.3%, which was higher than expected. But half of that 0.3% was housing, which we know is correcting seriously in bubble areas, and the rest of the components were, in general, already showing the slowdown of the economy. As housing prices fall, so will inflation. So we are on our way to the end of the Fed tightening.
Today we have quadruple witching – expiration of stock options and futures, and index options and futures. Because of this we saw massive volatility and volume yesterday… As shorts closed their huge profits in derivatives, we learned just how short they were: They were EXTREMELY short in what was one of the biggest liquidity squeezes that I have ever witnessed.
Yesterday, the CBOE Volatility Index (VIX), which measures the level of complacency or anxiety in the market, experienced its largest drop in 10 years. Yesterday’s drop was even greater than that which occurred on September 1, 1998, when Long Term Capital Management was being saved from liquidation.
The LTCM situation was characterized by panic selling and forced liquidation, much like this situation. Over the next four weeks following the September 1, 1998 VIX drop, the S&P 500 rallied 7%. I expect a similar path for the S&P 500, with still high – but diminishing – volatility. Our stocks should do much better than the S&P.
Fed Chairman Bernanke gave a more balanced, soothing view of the economy last Thursday, recognizing that the Fed will be managing inflation in an environment of high energy prices. But the market is still wounded by the prior broken super-speculation in commodities.
While the outlook for commodities continues to be very constructive, with long-term global growth remaining strong, we now know that the Fed will not allow rampant speculation in commodities and against the U.S. dollar to get out of hand and risk adding to inflationary pressures, which is good for the stability of markets longer term.
Next Tuesday, housing numbers, which should come out on the weak side, should be supportive of the market, reassuring the Fed that most of its work is done. The S&P is cheap and bonds are selling off, readjusting to higher expected Fed tightening, and they offer no “safe-haven” until they reach levels close to the higher expected Fed funds.
On June 29, the Fed will almost certainly hike Fed funds another 0.25%, to 5.25%, which is totally discounted by the market. This could be the last rate hike. But we will see whether that is the end when we get more data.
Yesterday, we saw Brazil peak at 12% higher than the bottom found the day before, and the S&P recovered 3% from the same low. Our pro-cyclical portfolio experienced a very similar performance. Today, when both are giving back part of the gains, is a good time to start putting more money to work across the board, without going overboard.
Mining stocks and Brazil and Mexico seem decimated on liquidation, and offer much better value, with higher volatility. I met yesterday with senior Brazilian corporate executives who confirmed to me that the economy there is strong and looking to accelerate into the elections. So, new subscribers can put in a second leg into our portfolio, averaging into this bottom that is being formed. We’ll keep buying the entire portfolio on dips…
Recommendation: New subscribers can take a position in the iShares Brazil Index Fund (AMEX: EWZ) at market. Speculative investors can buy the Sept 2006 $40 calls (EWZ IH) at no more than $1.10.
Enjoy and profit,
Horacio Márquez
Stock
Current Price
Comments
Telivisa (NYSE: TV)
$17.70
Buy
Unibanco (NYSE: UBB)
$62.31
Buy
Peabody Energy (NYSE: BTU)
$52.38
Buy
IShares Brazil Fund (Amex: EWZ)
$35.17
Buy
BHP Billiton (NYSE: BHP)
$39.94
Buy
Banco Bradesco (NYSE: BBD)
$27.84
Buy
Petrobras (NYSE: PBR)
$78.83
Buy
Mitsubishi UFJ Finan. (NYSE: MTU)
$12.86
Buy
iShares Japan Fund (AMEX: EWJ)
$13.00
Buy
Tenaris (NYSE: TS)
$35.13
Buy
MSCI Austria Fund (AMEX: EWO)
$28.40
Buy
Market Watch
NASDAQ
1528.95
0.00
SP 500
813.88
0.00
DJIA
7749.81
+89.84
As Of 6:12AM 3/26/2009
Attention Money Map Subscribers!
Money Map Report,
New China Trader
& Money Moves Alert
are now found at www.moneymappress.com
