August 25, 2008

An English Central Banker's Opinion of Ben et al.

Refreshing blunt criticism of the Bernanke Fed by a former member of the Bank of England's monetary policy committee, Willem Buiter. After conceding that the BOE hasn't exactly been brilliant dealing with the crisis, he has a few choice things to say about Ben and his acolytes (emphasis mine):

"Throughout the 12 months of the crisis, it is difficult to avoid the impression that the Fed is too close to the financial markets and leading financial institutions, and too responsive to their special pleadings, to make the right decisions for the economy as a whole."

"Cognitive regulatory capture of the Fed by Wall Street resulted in excess sensitivity of the Fed not just to asset prices (the 'Greenspan-Bernanke put') but also to the concerns and fears of Wall Street more generally."

"Between the TAF, TSLF, the PDCF, the rescue of Bear Stearns and the opening of the discount window to (Fannie Mae and Freddie Mac), the Fed and the US tax payer have effectively underwritten directly all of the 'household name' U.S. banking system...and probably also, indirectly, most of the other large highly leveraged institutions."

"Although the Bernanke Fed has but a short track record, its too often rather panicky and exaggerated reactions and actions since August 2007 suggest that it also may have a distorted and exaggerated view of the importance of the financial sector for macroeconomic stability."

He also sees a "remarkable collection of analytic flaws" in general in the FOMC members and senior staff. This is as close to calling the FOMC a bunch of idiots as a central banker will ever come. Like a said, refreshing.

August 20, 2008

No Gold Medals for the Chinese Stock Market

While all eyes are on China, the Beijing Olympic Games and their seemingly superhuman heroes (Michael Phelps and Usain Bolt to name the two main demi-gods so far), not many people are noticing the Chinese Stock Market which, despite all the rosy predictions, has been in self-implosion mode since the end of 2007. The amazing thing is that you would think some kind of Olympic truce would have been observed by the sellers but no such thing happened and the selling has been fast and furious the last couple of weeks.

But as one can see in the weekly chart of FXI (click to enlarge), the main Chinese Stock Market ETF, we are approaching a significant support zone and some nibbling here would make sense. FXI is now trading at 39.63, near the March 2008 low of 39.44, the August 2007 low of 36.60 and the May 2007 high of 38.85, all potential supports. The 14-week RSI is at 35.63, near its level when FXI strongly rebounded last March. Getting long here would entail putting a mental stop a bit below 35 and keeping a close eye on FXI's behavior especially right after the Games are over.

I am not by nature a bottom-picker but nurture should take precedence over nature when a well-defined profit opportunity presents itself. While no sign of a bottom has been forthcoming, I like the notion of getting long at this level in small size (making the risk of being a little early bearable) with a plan to buy more if and when strong clues to a bottom start materializing.

Stay tuned.

August 19, 2008

Definitions of Technical Analysis

Courtesy of the Google MarketsList, here are a few definitions of Technical Analysis that I found at the same time particularly accurate and elegant:

- The study of market action (price , volume, open interest), primarily through the use of charts, for the purpose of identifying future price trends

- The art of inferring Expected Value of market price given data generated by the process of trading

- The analysis of available market data to unbalance the trading odds in your favor

And finally, maybe the most accurate...

- The subjective analysis of the markets dressed up in a lab coat