The [First] Week in Review: A Capital Flows Sandwich?

Not a bad start to the year if you were in the right space.  A Frenchman with a long position in “Apple the Sovereign” was up over 8 percent in Euros.   Note, Apple rose another $2.00 to $338 after Friday’s close on the Verizon deal announcement.   Mrs. Watanabe, long “nattie” in the U.S., was up over 7 percent in yen.    On the other hand,   Joe the MOTU with a convoluted long gold in euro trade got clocked for over 7 percent this week.

The first week confirmed our view the dollar and U.S. transformative tech are the place to be in 2011.  Though the nonfarm payroll report disappointed, the trend is in the right direction, one month’s data point is noise, and we feel strongly the markets are signaling a better than expected jobs recovery in 2011.  Economists and bureaucratic data  look backward, markets look forward.

We really can’t get a handle on and are a little nervous about China’s tightening and its implications for commodities and emerging equities so we have little exposure in those markets for now.   We also fear “regulatory risk” as there will be little patience for speculators if commodities continue to rise in 2011.   Gold is a relatively benign store of value, wheat and crude are not.  Food riots are just beginning to breakout.

The risk and uncertainty from the East – China tightening — coupled with those from the West — Europe’s sovereign debt crisis — could create a “Capital Flows Sandwich”,  where the U.S. is in the middle and receiving end of  money flowing back into its market at the beginning of 2011.

We don’t like bonds, the euro, or the yen.  The Hang Seng is signaling risk will be rewarded, however, and as a friend, and well known market veteran,  told us today over lunch, “rigged markets always go up.”

Next week California’s new governor announces a budget plan and the fireworks really begin in Europe as some of the PIIGs start the refinancing of the periphery’s Euro 450 BN plus bonds which mature this year.  The Euro is close to breaking support of a head and shoulders pattern, which could take it down to its birth rate and long-term support of $1.19-1.20.  We suspect the “powers that be” will make the auctions a “success.”   Watch how the European banks perform next week as a gauge to what the markets really think.  Stay flexible, humble, thankful,  and always afraid of losing capital, and stay tuned!

This entry was posted in Apple, Bonds, Charts, China, Commodities, Currency, Economics, PIIGS, Sovereign Debt, Sovereign Risk and tagged , , , , , , , . Bookmark the permalink.

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