At what point does this rally turn sour?

well its all just numbers really as the share price is denominated in pounds/dollars which are plummeting in value. the only certainty going forward is increased volitility

Sir Dennis

How to you come to the conclusion that the pound is currently fallen in value. It has fallen in value but more recently has actually recovered.

The one reason for the stock markets recovering is Low Interest Rates and QE, qhich is not gouing away any time soon. To putthis in perspective. This rally is merely pulling back the value lost when it dawned on those in positions of power realised something was wrong. How much were the markets oversold by, in fear , and in necessiuty to cover positions.

The markets have rallied on the back of cheap money (zero interest rate policies), massive liquidity injections through QE, massive collateral exchanges orchestrated by the FED (qualitative easing) and simply through manipulation orchestrated by Goldman Sacks (proxy for US Treasury) and JPM (proxy for FED). None of this will stop.

IMO the markets will turn when:
1. Ben Bernanke decides he needs money to run out of equities and into safehaven (?!?!?!) US Treasuries. A lot of US debt has to be raised and rolled over in the next 6 months. Goldman Sacks and JPM will know when that is, you won't.
2. Ben Bernanke decides to step in to defend the dollar before the decline gets away from him. So far, he's getting exactly what he wants.
3. US unemployment (U3) reaches 12pc (look for Stimulus II early next year in a political attempt to prevent this. What happens to the US dollar is another story)
4. War erupts (Pakistan, Iran, Venezuela, etc)
5. Black Swan

Disclosure: long gold, short USD, short C & WFC

agree with half of that post. i thinkwe see commodity prices collapse and everyone rush for dollar safety. liquidity withdrawal will be a precursor to rates rising.

The current situation is a wonderland being sustained by massive fiscal deficits and money printing. When there's good news the market goes up as might be expected, when there is bad news the markets go up because it means that interest rates will remain low for longer. Madness, utter madness and however it unwinds isn't going to be pretty.

it is amazing to think we can be creating more bubbles so quickly

when these ones burst several major countries will be bust for a long time

seems like we keep rebuilding the skyscraper every time it collapses but each time on shallower foundations!

Rushing to the USD as a safehaven was the play when the markets, the financial institutions and the economy was collapsing in the autumn of 2008. Will this play out again? It may, or it may not, a lot has changed since. USG deficits are an unsustainable nightmare with no end in sight and the FED's balance sheet reeks of toxic assets. Safenhaven??? I doubt if anyone who can fog a mirror considers the USD a safehaven but we are all faced with the same conundrum. What else?

Bernanke has painted himself into a corner. Zero interest and monetization through MBS purchases will continue for a long time (Bullard hinted on that yesterday and next year he is a FOMC voting member). The FED is now THE market for mortgage securitization in the US. With higher interest rates the already insolvent US banking sector totally collapses from loan defaults and IRS contract liabilities.

Don't look for the USD to reverse any time soon.

respectfully disagree. i think you need to look at the new liquidity measures/requirements that are going to come into play for banks.

rally will be extended a while yet imo. governments will be propping it up with stimulus, bailout etc still, on and under the table.

Don

Seems we agree for a change!!.. This is a marathon not a sprint, We will see another dip when stimulus is withdrawn and interest rates increased. Economies will be too fragile to survive without support for years to come.

That however, is why you can not short something, when you do not know what else will be thrown at it.

That however, is why you can not short something, when you do not know what else will be thrown at it.

i'll counter:

That however, is why you can not be long something, when you do not know what else will be thrown at it.

i still think the street will have to buy back dollars if the stocks retrace. simply as the usd is been the ccy people borrowed to buy every other asset class. forex markes are very nervous on d/side and usd calls are very expensive compared to puts. even stock traders are buying usd calls to protect their long spx and indexes positions. this should make the usd rally - if it happens - even more violent as low liquidity will be amplified by the short gamma the fx got on any usd upside, and repatriation of funds. on top, the markets will correct only if the free money is withdrawn, which being hawkish for rates, should provide extra support for the usd.

Don't get technical and knowledgeable on us JW.
Not good form you know.
Basic rule of currency trading has always been short the USD at your peril.
Menelaus is suggesting there has been a paradigm shift.
He may be right, but who knows really ?

sorry. what i meant is that a lot of people are buying dollar call options to protect their portfolios ( ie deciding they want to be long dollars if the stocks turn ). this is likely to create a self fullfilling circle whereby all the banks who sold the usd calls to the guys looking for protection, will have to cover themselves in case of a dollar rally, and will end up amplifying the move up by simply buying even more dollars ( thats the 'gamma' of a book ). sorry to have sound technical, i didnt realize i had been.

I was sort of joking JW.
You just keep on providing us with good and sound technical observations, based on your active experience on a currency trading desk.
We need all the help we can get, believe me.

About 5500,check the charts and ratios and the math.

Pipedreamer
Please no Americanisms on here.
"---------- and the maths "

Agreed

Goose,I will leave it to the professionals!

i say it is going to fly up at tremendous speed now as our national currencies go into default shortly - uk and usa.

DonWarro, care to give any timescales on that prediction? :)

prediction of default i assume u mean -

i will say by march 2010. to be fair this time last year i said march 2009 for this lol but they propped it up with further international borrowing etc. i think this time though china have told us to f-off - or more specifically told obama to, on his recent trip.

but it's already started showing through imo, so could even be sooner. watch usa.

or to put what jw is saying in historical context, just look at the JPY spike when the carry trade unwound

Don Warro

Dont be so ridiculous!

ftse down 170. pretty sour for one day...

like i said some weeks ago, betting a whole market like the ftse is not clever. certain sectors are going to do very well out of this and others are going to do appaulingly and see huge drops. who knows what the net ftse movement will be...

when i say stocks are going to fly up, i mean the one's i'm in. lol.