The Stratfor article, presented in its entirety at the end of this letter, has failed to take into account historical precedents that are now having significant sway over the outcome of the popular uprising in Iran. Moreover, suggesting this to be “isolated to students at elite universities in Tehran proper” is grossly inaccurate. As a deeply concerned citizen of the world with very close Iranian contacts in many of the cities throughout Iran, I have first hand footage from Tabriz, Shiraz, Rasht, Esfehan, Mashad, Bandar-Abbas, Karaj and other areas showing brutal repression of popular protests. Although this started out as isolated demonstrations in support of the losing candidate, it has since transformed into a broad rejection of the political system and widespread calls for a political referendum. This is no longer about who won the Presidency.
The ego is a particularly strong component of the human mind and we are naturally prone to certain egocentric tendencies. All traders and investors must work to understand these tendencies:
Egocentric memory: the natural tendency to forget evidence and information which does not support our thinking and to remember evidence and information which does.
Egocentric myopia: the natural tendency to think in absolute terms within an overly narrow point of view.
Egocentric infallibility: the natural tendency to think that our beliefs are true because we believe them.
The largest share redistribution of the country’s financial companies is about to take place right before our very eyes. This is the final crescendo of the Financial Crisis of 2008: Massive share sales of the strongest banks that are standing right now. ..
All of a sudden, showing strength for the past several weeks and clamoring to exit the TARP and government meddling has resulted in a mandatory stock sale by these same banks. So JPM, AXP and any bank wishing to exit the TARP, must prepare to dilute their current shareholders. That dilution is rather severe, but the devil’s in the details.
Corporate bonds have been on a tear since April; however, the paper of financial firms has outperformed all other categories by a significant margin. This is odd and perhaps suggests the market is either not correctly pricing this paper, or something is artificially preserving their value. During April and May, investment-grade subordinated financial bonds returned an average of 18%. Certain subordinate notes from SunTrust, Capital One, Regions Financial, Fifth Third, and PNC have posted gains of 50% or more in May alone.
There’s a lot of play here right now, and this group has consistently been on the top of my performance list. They’re a wild bunch and you have to try and trade against the herd, otherwise there’s no liquidity and you’ll get picked off like an ugly zit. The theme is really revving up and the stage is being set for China to fill the U.S.’s shoes as consumer kings. Except China consumes raw materials and exports finished goods to the U.S. And since all the stimulus has been supply side Keynesian Dogma, it’s quite apropos that we’re seeing a surging supply side recovery underway.
The SPX bottomed 3/6/09 at 666, and has never looked back, as the index galloped into the longest buying stampede in decades. Major indices are in the process of forming an intermediate “top” with insiders selling like mad. At the same time, many of the leading groups are breaking below their relative strength support levels. The major indices appear to be showing weakness and upside over downside volume indicators are screaming “sell.”
Most of the participants that missed the lows in early March are now looking for those winning lottery tickets that may have been neglected by careless traders. The only problem is the observant players have already made their money and have locked in their gains. The “easy money” is over.
Implied dividends of European stocks based off of dividend swaps on the DJ Eurostoxx 50 index, have jumped, indicating growing optimism about equity markets worldwide.
Implied dividends were at distressed levels near the end of Q’4 last year. The cause was a scramble by dealers to hedge their long dividend exposures. Worsening dividend forecasts combined in a perfect storm as natural counter parties willing to take on long exposures, hedge funds, were taken out on stretchers. Dealers are generally long dividends because of the equity structured products they sell, which tend to be bullish. However, dealers’ need to unload dividends as decreased dramatically due to positive performance in equity markets and a lack of negative earnings surprises.
