too much into this, however, given that European authorities

Shadow Capitalism have been working one step behind every step of the way.

MARKET COMMENTARY BY NAUFAL SANAULLAH Perhaps the best example of that is this Thursday’s ECB
meeting, which was supposed to lay out exit strategies from
Tuesday, November 30, 2010 summer emergency programs after the Greek crisis hit. It is
more likely we see an extension of full allotment as well as
Portugal placed on negative credit watch as Euro-drivers the black swan potential for a nuclear option announcement,
take a breather and large wave of dataflow takes the wheel particularly if Portuguese concerns elevate much further,
although drastic measures appear unlikely at the moment,
The S&P placed Portugal’s A- rating on CW negative today, in
with the Irish budget confirming the bailout yet to even be
in a relatively stable NY session for the euro after seeing big
voted on.
selloffs in European markets. Nothing new from this
development, as everyone’s eyes have already been glued to But while everyone’s eyes are on Portugal, the action is
POR for a while now. starting to really brew in Belgium and Hungary/Austria, all
three of which I’ve mentioned as “potential next legs” in
In more humorous European news, another round of “secret”
recent pieces. Belgium’s €1.425b 3mo bill auction saw a
stress tests are being planned, and are “designed to be more
menial bid-to-cover of 1.48 today, much lower than the 3.52
rigorous than last summer's widely criticized exams,” as per
last month, and yielded 86.4bps, almost 10bps higher than
the WSJ. The news is being met with expected criticism and
prior. Six months of no government and a 101% debt/GDP
skepticism due to the passing of stress tests five months ago
aren’t helping to remove Belgium from the cross hairs.
by the banks of Ireland, where incidentally talks of a proposal
from German & French MEPs to set a minimum EU-wide 25% Meanwhile, Austria, who today withdrew a bond issue (ht
corp tax rate by next year is being met with similarly expected CheekyBastard) is likely closely watching developments in
criticism. Hungary, where the ruling Findesz party members (the same
folks who thought it wise to bring up the “very real”
However, it appears that unsterilized bond purchases/QE may
possibility of default as a way to blame the prior
be increasingly likely (as the option concurrently has been
administration for current conditions), are attempting to
gaining recent traction by market
usurp total control of monetary policy and are addressing
observers/forecasters/participants, as evidenced by hedge
significant budget concerns by financing tax cuts in one sector
funds selling euros but “shirking” CDS, which correlates well
with tax hikes is another (against the EC’s regulations)
with an expression of QE theses, given that it would
without finding a substitute for the IMF, all in the midst of the
presumably stem sov credit risks while adding much more risk
pensions debacle still going on there. CHFHUF broke out
to the currency itself due to the expansion of money supply
yesterday and may be breaking to new highs in the next
as well as credibility concerns), given recent political
couple months, and especially given the pervasive exchange
developments, including these stress tests. Trichet hinted at
risk in the cross-border flows-fueled homeowner sector of
an expansion in bond purchases by the ECB while speaking at
the Hungarian economy, all of this could lead to things
the European Parliament today, stating that “pundits are
unraveling quickly in Hungary and CEE. Austrian banks have
under-estimating the determination of governments.” In this
very large exposure to CEE, and can draw upon €75b in
light, the stress tests may potentially be a precursor to
2
government guarantees (which can be extended to €100b in
introducing the nuclear option and beginning a longer-term
special circumstances) if rolling over liabilities proves
revamp of current conditions, rather than passing rushed ad-
unfeasibly at market rates. Erste & Raiffeisen, two of Austria’s
hoc bailouts of little efficacy but massive implications on the
largest banks, doubled down last month on their investment
populace. The stress tests may also be telegraphing the
in Hungary by not pulling out after the budget’s tax policy,
creation of a bank recap fund to address long-term issues, but
with Raiffesien stating yesterday that it now expects bad-
this is more than just a banking liquidity crisis, exemplified by
loans to rise all the way to mid-2011, surprising the
a still-likely-to-default Greece and a just-bailed-out Ireland
consensus, pointing at loans to Eastern Europe. A bank crisis
that will see a jump in the market funding required
in Austria, probably overdue and now potentially imminent
proportionate to surplus cash flow from 7% to almost 20% of
due to surging borrowing costs, quickly materializes into a
GDP (as per Reggie Middleton), the latter of which represents
sovereign debt crisis due to the government guarantees, and
the levels that led to default risk in the first place, right after
such developments in the current market environment would
CACs come into play in 2013. I would caution against reading
surely send Austria way of the bond vigilantes. And lest we countertrend bounces go at this current juncture. EURCHF
forget, Hungary problems are risks to Italy too, via Unicredit. posted a strong intraday reversal, so EUR may bounce here.

In non-European news, Chicago PMI beats with a 62.5 print vs

59.9 expected, showing Production component improvement
to levels not seen since 2005 and New Orders to 2007 levels,
although the Prices Paid index is now at April 2010 highs, at a
whopping 70.7 print, while 30yr yields are 100bps lower than
the same time. Consumer Confidence also beat, with a 54.1
print vs 53.0 expected and 49.9 prior, but the Case-Shiller
Composite-20 showed a decline to +0.59% YoY growth in
September, below +1.00% estimates, while August’s was
revised downward to +1.67%. September Canadian GDP
missed expectations of +0.1% MoM growth, posting a -0.1%
decline, compared to +0.3% sequential growth the prior
month. Australian GDP also missed, with a +0.2% QoQ print
for Q3 vs +0.4% consensus vs a revised-downward +1.1%
prior. However, consequent weakness was reversed after
Chinese November PMI beat expectations of 54.8, printing a
respectable 55.2. Tomorrow brings the US’s ISM PMIs.

The S&P gapped down sharply today due to overnight

weakness in the euro and risk assets, but closed with a doji
candle after an over 0.61% loss on the day, again finding an
intraday bid at the 55d and the rising trendline support. The
1170-1200 zone remains key, and it will be important to see if
dormant leading stocks resolve their recent silence with base
breakouts or consolidation breakdowns in order to get good
context for directional bias.
The name of the game in FX save haven flows in today’s risk-
off session was definitely the yen, and USDJPY is down over a
big fig from recent highs. A bid in US fixed-income due to risk
aversion (due to concerns abroad), a respite from headlining
Korean concerns, and three very large POMOs by the Fed to
start off this week led to US-JP yield spread compression,
putting a damper on the recent JPY selloff. With the Canadian
GDP miss, that means one of my favorite longs, CADJPY, was
one of the worst underperformers today, but it held the 81
support level and so I remain holding the position. My EURJPY
long punt (spec position to hedge my others) saw the pair
plunge and the trade get stopped out quickly.

EURUSD sliced right through its 200d & Fibo level today, on
its way to another big fig of losses, but with the 200d in the
DXY coming up and significant support at 1.29 in EURUSD
from August & September cycle highs, we may get a short
term bid here ahead of Thursday’s ECB meeting that some
traders may decrease bearish positions ahead of. Still hoping
for a bounce to 1.33 to add to my shorts but the charts will
tell if we’re not getting one and whether or not the 200d
breakdown in EURUSD holds will likely determine how far any
 Maybe a bit of late sector rotation in commodities as the
energy complex took the day off, although ags did perform.
Also, silver appeared to have broken out of a month-long
triangle today, and I picked up a couple more silver proxies to
get more exposure; gold & miner equities performed well
today too, as gold priced in EUR broke out to new highs and
gold priced in USD AUD NZD GBP posted technical breakouts.
I also went long RIMM early this morning right before posting
it on my Twitter, and the stock followed through for almost
5% in gains today on strong volume ahead of earnings in two
weeks.

AUDUSD finding a bid near the early October low around

9530-9550, and whether it breaks below this level or above
9700 will determine near-term trend, in my opinion. The
Chinese data reversing losses from the GDP miss is
constructive in the near-term for Aussie, although I think we
are in the midst of a wider-timeframe reversal that will offset
that in significance. I’ve been hearing of bearish RM flows in
AUD, as 2010’s top performers get liquidated ahead of
Chinese tightening and new developing themes of renewed
risk from Eurozone & Koreas, as opposed to buy-on-dip RM
flows in CAD. And as strange as it sounds, bearish AUD may
be an expression of further/higher-than-expected QE from
the Fed (in monetizing munis or longer-term Tsys for
instance) due to the inflationary implications of this in China,
which would translate to incrementally more tightening risk,
which has been hurting AUD lately. More importantly,
however, the risk of Australian and/or Chinese banks not
being able to take Chinese tightening in stride is the real
thesis at play here in the longer-term. 2011 will be a year
worth watching.

In US equity, I was stopped out of a few nice charts (before

today), which is never a pleasant experience, but I noticed
some nice technical popping up in coal stocks, such as BTU,
WLT, PUDA, & MEE, leading me to pick them up for a trade.
The Wikileaks release of confidential documents relating to a
“large U.S. bank” appears to be about Bank of America, and
(also just before Tweeting about it), I re-started my short in
BAC, assuming the sizable bounce from 11 I wanted to
materialize to short into would not be coming. Support is
broken, MBS putback risk is on-pause from the headlines (aka
when the smart money jumps in, ahead of the next
resurgence of news), and Assured Guaranty’s CEO out today
with more claims that putback risk is no blow-over and is a
real potential gamechanger (obvious biases and conflicts of
interest notwithstanding). BofA out with rejections of the
claim, but the explanation is less than comforting: "More
than a year ago WikiLeaks claimed to have the computer hard
drive of a Bank of America executive.” Trivializing the
effectiveness of Wikileaks in following through with
assertions like this is not the best defense imaginable and
leads me to believe BofA really may be at risk here a little bit.
We’ll see, but just so we are clear, this Wikileaks story does
not comprise my BAC short thesis, although it is adding fuel
to the fire and may have helped to catalyze my reentry
trigger a bit, due to the story’s implications on the stock’s
technical.
OPEN TRADES
Short APOL | 51.90 | stop 54.00 | +34.49%
Long VECO | 39.00 | stop 36.30 | +12.77%
Long USD/JPY | 80.75 | stop 79.85 | +270 pips
Long ACAS | 6.67 | stop 6.25 | +7.65%
Long CAD/JPY | 79.60 | stop 78.55 | +100 pips
Short EUR/CHF | 1.3725 | stop 1.3490 | +700 pips
Short BP | 42.40 | stop 44.80 | +5.66%
Long USD/HUF | 195.45 | stop 192.70 | +220 pips
Short ACOR | 28.00 | stop 28.70 | +5.68%
Short /HG | 4.06 | stop 4.15 | +5.67%
Short AUD/USD | 0.9980 | stop 1.0075 | +400 pips
Long SGD/JPY | 63.60 | stop 62.95 | -25 pips
Long SNE | 33.70 | stop 32.30 | +5.28%
Long HIT | 47.35 | stop 44.80 | -0.15%
Long /NKD | 9768.00 | stop 9686.00 | +2.32%
Short REV | 10.50 | stop 11.20 | +5.52%
Long EK | 4.79 | stop 4.30 | -1.67%
Long AMR | 8.22 | stop 7.90 | +4.14%
Long N | 24.00 | stop 23.20 | +3.42%
Long LVS | 49.30 | stop 43.50 | +1.58%
Long TGA | 14.65 | stop 13.45 | +13.38%
Long NOG | 22.20 | stop 21.80 | +2.93%
Long USD/SGD | 1.3085 | stop 1.3015 | +100 pips
Long AAPL | 307.50 | stop 395.35 | +1.19%
Long CSTR | 63.45 | stop 58.15 | +1.56%
Long MAT | 25.25 | stop 24.80 | +2.34%
Short ARG | 63.50 | stop 64.90 | +2.76%
Long DG | 32.35 | stop 31.30 | +1.51%
Long SNDK | 42.95 | stop 40.35 | +3.84%
Long SSYS | 33.50 | stop 33.10 | +0.96%
Long CMCSA | 20.15 | stop 19.70 | -0.55%
Long REGN | 29.25 | stop 28.35 | -1.15%
Long VSAT | 40.75 | stop 39.90 | +1.50%
Short LMT | 68.30 | stop 69.50 | +0.38%
Short XRX | 11.50 | stop 11.90 | +0.35%
Long THRX | 21.65 | stop 20.55 | +15.38%
Short PIN | 23.75 | stop 25.00 | +1.18%
Long XEC | 81.00 | stop 78.15 | +0.57%
Long FWLT | 28.30 | stop 27.00 | -1.07%
Long GRA | 33.40 | stop 31.00 | +0.21%
Long UAL | 28.10 | stop 27.00 | -1.49%
Long VSH | 14.15 | stop 13.30 | +0.78%
Short GBP/USD | 1.5700 | stop 1.5850 | +165 pips
Long CHF/HUF | 208.00 | stop 205.00 | +70 pips
Long NG | 14.05 | stop 13.50 | +2.61%
Long SLW | 34.80 | stop 32.80 | +6.01%
Long DNN | 2.85 | stop 2.60 | +8.77%
Long CIE | 10.85 | stop 10.10 | +4.70%
Long URRE | 2.90 | stop 2.50 | +26.21%
Long STT | 43.50 | stop 41.80 | -0.69%
Long PCAR | 54.95 | stop 52.00 | -1.98%
Short FRO | 26.10 | stop 27.00 | +0.61%
Short CCE | 24.00 | stop 25.75 | -0.63%
Long /CL | 85.00 | stop 82.80 | -0.20%
Short /NG | 4.33 | stop 4.55 | +2.54%
Long SINA | 63.75 | stop 62.05 | +0.42%
Short JKS | 25.65 | stop 27.90 | +10.45%
Long CLW | 80.80 | stop 78.50 | -0.37
Long IO | 7.03 | stop 6.64 | +2.28%
Long /ZW | 690.00 | stop 675.30 | +2.46%
Long /ZC | 550.00 | stop 541.90 | -0.18%
Long BHP | 82.55 | stop 80.90 | -0.18%
Long MOTR | 30.90 | stop 26.30 | -3.90%
Long NZD/USD | 0.7440 | stop 0.7390 | +25 pips
Short GBP/SEK | 10.905 | stop 11.115 | -10 pips
Short EOG | 89.00 | stop 93.10 | -0.06%
Short CHK | 22.00 | stop 22.70 | +4.00%
CLOSED TRADES
Long CEO | 226.96 | sell 218.00 | -3.95%
Short X | 47.30 | cover 47.85 | -1.16%
Long EXXI | 25.50 | sell 25.10 | -1.57%
Long GOOG | 591.00 | sell 571.15 | -3.36%
Long EURJPY | 110.05 | sell 109.35 | -70 pips
NEW TRADES
Long X | 48.10 | stop 46.40
Short MT | 32.00 | cover 31.30| +2.19%
Long PUDA | 13.60 | stop 12.35
Long MEE | 49.10 | stop 47.25
Long BTU | 58.00 | stop 55.00
Long SVM | 12.35 | stop 11.20
Long AGQ | 130.65 | stop 117.00
Long RIMM | 60.50 | stop 57.70

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DISCLAIMER: Nothing contained anywhere in this commentary, including

analysis and trade ideas, constitutes or should be construed as investing or
financial advice, suggestion, or recommendation. Please consult a financial
professional and do due diligence before engaging in any purchase or sale of
securities.