Trading With Common Sense

posted by Trader No 1 on Jun 16

Inflation fell in May to its lowest since the beginning of 2008, but remained higher than most economists expected.

The smaller than expected fall in consumer price inflation from 2.3 per cent in April to 2.2 per cent last month, compares to economists’ expectations for a drop to 2 per cent.

However, the retail price index fell by 1.1 per cent in May compared with prices a year ago, the Office for National Statistics reported on Tuesday. The fall was the second consecutive month of annual declines, although slightly less of a drop than the 1.2 per cent fall seen in April.

The CPI has fallen for the last three months and is well below its the recent peak of 5.2 per cent last September, which was brought on by soaring oil prices. It is now at its lowest since January of last year.

Many economists and the Bank of England have put the recent strength of inflation down to the sharp fall in sterling over the course of the financial crisis, driving up the price of imports. UK inflation remains well above that in the rest of the EU and the eurozone.

After the weaker pound worked its way into price levels, the UK economy still has to face the impact of higher unemployment on demand and inflation. The sharp fall in energy and commodity prices since last summer should also mean inflation falls much further by this autumn.

“With unemployment set to soar even higher over the next year, more than containing underlying inflationary pressure in the labour market, sterling may just have postponed the downside inflation risks, rather than killing them off altogether,” said Colin Ellis, economist at Daiwa Securities SMBC.

The Bank’s long term forecast is for inflation to fall below its 2 per cent target for an extended period of time.

Sterling hit rose to its highest level of the year against the euro following the release of the inflation report. The euro fell to £0.8444 against the UK currency, its weakest level since early December. The pound was also stronger against the dollar and the Swiss franc as investors bet the Bank of England would have to raise interest rates from their historically low level of 0.5 per cent earlier than previously thought.

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posted by Trader No 1 on Jun 13

Two of the nation’s most powerful bank regulators were once again at each other’s throats.

At a public meeting three weeks ago, John C. Dugan, the comptroller of the currency, blasted a proposal to impose stiff new insurance fees on banks as unfair to the largest banks, which he regulates. The financial crisis stemmed in part from problems at small banks, he insisted.

Sheila C. Bair, chairwoman of the Federal Deposit Insurance Corporation and the regulator for many smaller, community banks, could barely hide her contempt. The large banks, she said, had wreaked havoc on the system, only to be bailed out by “hundreds of billions, if not trillions, in government assistance.” She added, “Fairness is always an issue.”

Behind the scenes, the two regulators have been clashing over a host of issues, officials said, be it the administration’s coming regulatory overhaul or Ms. Bair’s campaign to shake up the top management at Citigroup.

The long-running and deeply personal feud between Mr. Dugan and Ms. Bair, two Republican holdovers with similar career paths in Washington, is now helping to shape President Obama’s attempt to revamp financial regulation aimed at preventing the regulatory lapses that contributed to the economic crisis.

Some of Mr. Obama’s advisers and some senior Democratic lawmakers have suggested creating a single bank regulator. But the administration’s current version, which could be announced as early as this week, would not combine the regulatory agencies. Instead, it would give Mr. Dugan and Ms. Bair significant new powers — and could intensify their turf battles.

Ms. Bair and Mr. Dugan declined to comment for this article.

The Treasury secretary, Timothy F. Geithner, the main author of the administration’s plan, in recent weeks has refereed among the competing views of Ms. Bair, Mr. Dugan and Ben S. Bernanke, the Federal Reserve chairman. The four generally agree that, if starting from scratch, they would not create the cumbersome system that has evolved piecemeal over the last 150 years.

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posted by Trader No 1 on Mar 31

All those wise heads who have been calling the end of the bear market will have to wait just a little longer before being able to say “I told you so” as the FTSE 100 delivers a rather alarming setback to start the week.

Once again the failure of the of the FTSE at the all important combination point of the 50 day moving average and the line of Resistance at 3,950 dating back from January 2009 means that the wise ones amongst us would be best served to give this market the benefit of the doubt……just But for those who would still like to, only an end of day close below the grey 20 day moving average at 3,758 is the trigger for a retest of the lows.

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posted by Trader No 1 on Feb 15

Well it has certainly been an interesting week on the Markets and this is how we see it at the Trading With Common Sense Desk. First of all with regards to the UK, the FTSE and of course Lloyds Bank, where do we stand?

Well to be honest one never knows exactly with these sort of shenanigans going on but here is an educated guess from the Trading with Common Sense Team.

I think most experts are in accordance with the fact that no one knows exactly how deep the hole is at HBOS (possibly even the HBOS management don’t know which is really worrying) but for a certainty I would bet that the LloydsTSB Hierarchy don’t know and that is what is causing the distress and uncertainty at the moment.

Regarding one of our “2 Sure Fire Winning Strategies”  I hope those of you who had downloaded the free report in time took action as there was a nice range of about 40 odd points to aim at and there were profits to be had certainly. I know we didn’t make as much as we could have but the news caught everyone on the hop and I guess that was what added to the confusion and mark down amongst Traders.

Where to next? Well for those adventurous amongst us there has to be the rather enticing prospect of at least some sort of “dead cat bounce” so perhaps a long bought in the 50-55 pence region and then aim for a quick and dirty 10 points or so and get out when it hits the 60 pence region. If nothing else this could certainly help pay for this years family summer holiday and leave the rest of the bounce or so to the “deep pocket brigade”. I always advise on something like this to set your target, aim, fire and then get out before the shouting starts so to speak and also whilst still in profit.

Why do I think there is going to be some sort of “dead cat bounce”?

Well the logic goes as this. Firstly yes there is a hole; we don’t know how deep (possibly as I’ve said the management don’t either) but you can bet the top level management at Lloyds are going to be “working their butts off” to come out with some sort of positive news campaign to reassure the markets. How successful remains to be seen but they will definitely have to try and then let’s see what effect this has. There has to be some and the longevity of this approach depends upon how much “spin goodwill” credits the management team have with the media. I think they have more than most people realise and this is tied into my next viewpoint as to whether the rumours abounding about bank nationalisation are to be taken seriously.

I think Lloyds Banking Group and the entire Banking sector are going to need more cash as we have the full effect of the Alt-A fiasco to percolate through and most of this won’t emerge until after the first quarter of 2009. Secondly this will hit the banks hard but possibly not Lloyds as much as the rest as they were by and large (apart from HBOS) fairly immune to these sorts of transactions prior to the whole banking crisis starting.

Secondly to nationalise Lloyds Banking Group would be a massive act of bad faith on behalf of the UK Government as they did…….er …ask Lloyds to step in as a “White Knight” to rescue HBOS in the first place and to then “nick their shares” and shaft them afterwards for being so obliging in the first place would basically send a notice out to the markets that UK Govt Plc (especially Mssrs Brown and Darling) are not to be trusted ever again.

There will be a fudge (there always is, as that is what us Brits are experts in) and some sort of accounting “jiggery pokery” will take place but that is all. The share Price of Lloyds has been in this sort of range before and the key thing is that LloydsTSB via its retail banking operations is sitting on large piles of cash so Aunt Sals and Grannies annuities are safe for the foreseeable future.

With regards to the markets then it would appear that at the moment with the FTSE we have possibly reached one of the those “cusp” moments where it could so easily go either way. The fact that the market has remained so positive throughout the plethora of bad news since Christmas is indeed a positive thing and one that gives most bulls confidence but….(isn’t there always a but?) we have now come bang up against the trend line that has been in force since Christmas and the key level to watch is an end of day close below the 4,100 level. Below that and you would expect another test of the Oct / Nov lows but it has to be stressed how resilient the FTSE has performed as of late and so nothing it would seem is a done deal yet. It would appear that it is likely to take something major to take the FTSE down again (perhaps another partial Banking meltdown) and so performance this week with reporting underway is crucial.

In the US, the next leg down is perhaps already underway and the DOW is only effectively around 300 points away from breaking historic intraday lows but again with new information surrounding the Obama Rescue package out this week, don’t necessarily bet on new lows being established this week as volatility appears to be the order of the day and this could see fairly violent swings either way.

All this adds up to terrific conditions as far as the Market Trader are concerned with plenty of action to be had both up and down and that as Traders are concerned is all we can ask for.

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posted by Trader No 1 on Feb 10

What a day eh? Once again Politicians conspire to screw things up but as far as we’re concerned here at TWCS Central, bring it on guys. As long as the markets are moving then we don’t care as we believe in trading every which way we can, long or short we don’t care as long as there is opportunity for profit.

For example, initially we sold the FTSE this morning and also early afternoon. By late tea time GMT we thought we saw a window of opportunity to go long on the DOW round about the 7980 – 8000 range and went for it. £30K and 30 minutes later that went well and we got out when a couple of indicators flashed up and the market fell about another 100 points. Then we called the DOW long at 7880 and got out around the 7925 mark so profits were there also to the tune of £40K in six minutes.

From our point of view it will be interesting to see what happens overnight in the Far East. As long as the DJIA futures don’t sustain too much damage and drag the FTSE futures down again below the 4,100 mark then we could see a bit of a rebound we reckon. The key level is around the November support level of 4,100. An end of day close below that and it’s probably fill your boots time and sell, sell (at least for a few days). Maintain a position above that (and it is as we write at 4,171) and then we could see a rebound with a target of between 4,300 – 4,600 at least.

The trouble is that with the performance today of our esteemed Bankers in front of a Parliamentary Sub Committee then that could cloud matters and cause all sorts of uncertainties and confusion etc. The one thing (as today’s reaction in the US showed) is that it is uncertainty and surprises that spook the market. We all know there is bad news and by and large that is already priced in by the market makers but it is when our lovely politicians throw the odd unexpected spanner in the works that everybody goes into a flat panic.

Today’s address by US Treasury Secretary Geithner certainly has not helped the markets for those in search of a little stability and the amazing thing is that to be honest most traders could have foretold what the reaction was going to be to these proposals. Wall street closed last Friday looking for serious gifts from the Treasury (as one US Media spokesperson put it) and now it is being told that the gifts are not coming from the Treasury alone but also from Private Institutions as well. This latter part is going to be very interesting as I did say that these proposals were going to go down badly in an earlier article and without wishing to be too self effacing – I am no “Sooth Sayer” and if I could spot how badly they would be received then how in heaven’s name could the US Treasury not do so?

The only other rationale could be “its grim news, it’s going to go down badly anyway so at east let’s get things out in the open. Watch the markets panic and try and re build stability gradually”. The trouble with this strategy is that it implies that the authorities are thinking constructively and logically about what they are doing.

Something that they don’t have too much of an impressive track record doing.

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posted by Trader No 1 on Feb 9

Been a funny old day at the Trading With Common Sense offices in that the markets have to all intent purposes been treading water but as far as our accounts are concerned we have had a “blinding time” i.e. on one account we started the day at £57,259 and just recently closed the last transaction of the day to bring the fund up to £102,118.74 a staggering profit for the day of £44859.04 and an ROI for the fund for the day of 78.34% which equates to an annual rate of……well “loads of wonga” as a colleague of mine once eloquently put it.

The strange thing was as you see the as far as most FTSE trades were concerned the index actually opened and closed within 15.74 points of each point but the story of the day was the tremendous range trading in between. Perhaps we were lucky and perhaps we just managed to “get into the zone” for the best part of the day but to be honest that would be making more of it than it actually was. A lot of the trades were so mind stunningly simple to make that it would “over egg” the report to make anything more of it than usual.

The day kicked off with better than expected results from major UK Bank Barclays which though as I said better than expected still didn’t manage to fire up the markets to the degree that they perhaps would have done in the halcyon days before the present muddle that we find ourselves in. Still at least they didn’t throw the market into a downward spiral which has quite often happened in the past. With net profits of £6.08Bn they were 14% down on the previous year but up on analysts expectations so as a result rose by some 10% on the day.

I think the key story lay “over the pond” as we Brits like to affectionately refer to the Atlantic in that what was fast emerging from various sources was a slightly different take on the so called “financial bailout” or stimulus plan as the “Obama” Whitehouse would have us view it. The plan being discussed now was one with which a major component was to include a large degree of private funding from a various number of sources that would be underwritten by various Federal Agencies.

Basically the markets are running scared now and looking for a gift and one with which there are very little in the way of surprises. This as you could imagine does not exactly fit the bill and the end result was market which started by plunging 60 points straight after the opening bell and then spent the rest of the day see-sawing between 8300 points and the lower 8200’s and ultimately finished at around the 8237 mark.

One of these days Politicians will learn that the best way to stabilise or control the markets is to actually limit the number of surprises it experiences and therefore altering a large part of a hitherto announced financial package at the last moment falls into the category of what is known as a surprise.

Bankers might be incompetent but banks controlled by politicians, now that’s a concept guaranteed to strike fear into the hearts of most free thinking folk. Heaven save us from Politicians.

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posted by Trader No 1 on Feb 6

I know gloating is not a nice thing to do and certainly in todays economic climate when there is so much global economic pain but we are doing a celebratory little “Yey we got it right” dance in the office at the moment.

Went long on the DOW @8043 and closed at 8147, long on the FTSE @4256 and closed at 4287 and short on Sterling @1.4714 and closed at 1.4635.

We don’t always get a three way break but there were reasons for it and so sign up for the free E-Book to find out how you could have reached those decisions.

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posted by Trader No 1 on Feb 6

People keep asking me on Twitter ( Follow Me On Twitter) why I have suddenly decided to go long on the FTSE and US30 instead of constantly selling.

The reason is this. Its matter of psychology and is not 100% percent scientific but holds as good as any other theory doing the rounds at the moment. The markets have seen an awful lot of terrible data recently and funnily enough everytime new data surfaces the markets seem to shrug and ignore bad news – its as if the bad news is already priced into the market price. Conversely when good news surfaces the market rises modestly but thats about it.

As of the time of this posting we have seen awful data from the UK and Germany and the market has “rolled with the punches” and now there are rumours of better than expected US Non Farm Payrolls. If these materialise then perhaps they might be scope for a couple of hundred points on the DOW and hence I thought it might be worth taking a punt.

That having been said, do keep a few hedges in place just in case……:-)

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posted by Trader No 1 on Feb 6

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posted by Trader No 1 on Feb 5

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