What do I know? What do I not know?

Americas Indexes Dow Jones Industrial Average 14,000.57 +0.86% 13,880.62 14,001.19 13,880.62 16:41:30 S&P 500 Index 1,515.60 +0.88% 1,502.42 1,515.64 1,502.42 16:40:38 Europe, Middle East & Africa Indexes EURO STOXX 50 Price EUR 2,630.05 +1.95% 2,590.02 2,630.46 2,590.02 17:03:04 FTSE 100 Index 6,335.70 +0.70% 6,291.54 6,347.25 6,291.49 11:35:30 EUR-USD 1.3218 +0.0028 +0.21% 16:39:11 USD-JPY 94.5500 +1.4400 +1.55% 16:39:45 GBP-USD 1.5075 -0.0175 -1.17% 16:40:22 USD-CHF 0.9294 -0.0007 -0.18% 16:39:18 U.S. Government Bonds 2-Year 0.2500 2015-01-31 99-00+ / 0.2500 +0.0039 / -0.0020 02/22/2013 10-Year 2.0000 2023-02-15 100.3438 / 1.9627 +0.1328 / -0.0147 02/22/2013 30-Year 3.1250 2043-02-15 99.4688 / 3.1533 +0.2734 / -0.0142 02/22/2013 U.K. Government Bonds 2-Year 5.0000 2014-09-07 107.2150 / 0.2643 -0.0530 / +0.0087 02/22/2013 10-Year 1.7500 2022-09-07 96.9280 / 2.1076 -0.0725 / +0.0089 02/22/2013 30-Year 4.5000 2042-12-07 121.0830 / 3.3723 +0.1355 / -0.0065 02/22/2013


So, I was in a cab home last night, and the driver says to me, did you hear about the UK credit rating downgrade? And of course my initial reaction was what? I tend to follow markets and news quite closely, however Friday was a very busy day for me at work.

What do I know? My last post from March 2012, says Long the Dow. Right now, I am anticipating, within the next week or so, for a sell off to begin in global equities. I am looking for a 10-15% correction in the Dow. (However I believe that accomodative global monetary policy is likely to maintain a continuing longer term uptrend in stocks). So short term, I must also expect the Dollar to Rally. 9:54 Sunday 24th Feb, despite an initial sell off on Friday following the news of Moody's Downgrade, GBP/USD has gapped lower. Currently at 15072. There is no technical support til 1.44 . I am not convinced to short at this point, however once it breaks 1.49, I will look to sell there. (There could quite likely be a bounce to 1.51 early on Monday open). However technically, and as I believe the Dow is overbought, my contention for the dollar to strengthen vs the pound is a high probability play. Moody's: “There is a risk, given the pace of deficit and debt reduction, that the government may not be able to reverse the debt-to-GDP trajectory before the next economic downturn happens.”

What do I not know? Italian election reuslts are due tomorrow. Will a Berlusconi win trigger a EUR/USD sell off? Is Austerity the reason behind slowing UK growth? Or is that we have made enough cuts? UK GDP Q4 revision due out next week, could a lower revision impact the FTSE or GBP/USD? (unlikely I think)

What do I think? Overall I think Equities go lower over the coming month, and while many contend that "it's the end of the bull market in government bonds" Once again I recall the words of Hugh Hendry. Epic bull markets go out with a "bang" not with a whimper!! I believe that US, and also UK (despite moody's cut) will head lower, especially if equities do sell off and we have a bout of risk aversion. I have not yet had time to formulate a longshort US/UK equities/rates strategy.

How to trade it? Sell IF GBP/USD@ 1.4995, Stop 15100 target 14700 Duration 1-2 weeks