Morning Reading – Thursday, February 10, 2011

The Big Picture: The Battle of Bull vs Bear

The bears are bloody but unbowed — they know a correction is imminent. But the bulls have heard this line for nigh on two years, and yet still the market still powers higher. The Dow, S&P and Nasdaq are all at multi-year highs. There is a different between being early — a matter of days or weeks — and wrong. So far, the bears have been wrong.

The Big Picture: Risk Management: Watch the Hang Seng

We’ve lightened up a little and monitoring the Hang Seng closely and a break of 22,600 would lead us to reduce risk across the board and get short certain commodities. A break in China would almost instantly turn all the market chatter about inflation into deflation, in our opinion. We are not certain where the Hang Seng and China are headed but we do know our action plan if certain support is broken.

FT Alphaville: Conspiracies and a lack of contango in silver

Last week silver on the Comex closed in a nearly-complete state of backwardation — that curious situation where the price for future delivery of the metal is lower than for immediate delivery. There is now almost no contango anywhere in Comex silver.

FT Alphaville: SEC probes ‘ETF-stripping’ by insider traders — FT

The practice, known as ETF-stripping, would allow the trader to benefit from movements in the company’s share price without directly buying or selling that stock.

FT Alphaville: Portugal, unmoored

Over in a quiet corner of the eurozone — Portugal’s government bonds have been slowly getting worse…

FT Alphaville: Return of the ECB bond purchases…

After a two-week hiatus, the European Central Bank is back; reportedly intervening to buy up Portugese bonds on Thursday after yields on the Club Med debt surged.

Macro Man: How to Catch Knives and Weekend at Abdullah’s

To that end, TMM are thinking that one of two things are possible – we see a bounce within the next few weeks in EM, likely after some more bloodshed OR we move into a generalized risk off. DM vs EM may have seen its best days this year (after 8% or so of alpha in 6 weeks, depending upon your reference indices) but things that have taken an absolute pasting this year – US rates, bearish bets in DM, etc etc may not be dead just yet. TMM are looking at a few other favorites like IBEX/DAX and thinking that though this is probably not the end as we know it, its likely time for a turn.

JESSE’S CAFÉ AMÉRICAIN: Showdown in the Metals Markets: Let’s Get Ready to Rumble

The suppression of the metals by the central banks since 1971 will not fall apart in a moment. But if there is a time to which later people will point and say, ‘this was the turning point,’ it is likely to be in the intital breakout of silver above twenty and of gold from its big cup and handle formation. To borrow an analogy from wartime, this was their Stalingrad, prelude to Kursk.

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