Does QE2 doom the USD?

On its own, probably not. But it certainly doesn't help the beleaguered greenback, which is primarily suffering from the protracted weakness in the US economy contrasted with relative strength in other major economies, especially Asian regional and other emerging markets. The price action in recent weeks highlights our view that it's relative growth prospects that are driving central bank policy expectations, which in turn are driving key currencies. As one indication, the USD index at 76.55 is only slightly lower than the 76.70 level at the time of the Fed announcement, with EUR/USD similarly nearly unchanged. Yes, the USD weakened between the Fed's decision and Friday's NFP report, but that's the point: the USD recovered after Oct. jobs surprised to the upside, suggesting improving US growth prospects. GBP/USD is only about 100 points higher than pre-Fed levels, but this stems more from the surprising resilience in 3Q UK GDP reported 2 weeks ago, which led the BOE to refrain from its own QE2 this past week. AUD and NZD have similarly outperformed both the USD and other major currencies after surprising strength in NZ 3Q employment and an unexpected rate hike from the RBA, again due to strong growth prospects and limited spare capacity.

So we hesitate to conclude that QE2 in and of itself will lead to further USD weakness. More important will be the evolution of incoming US data, and to the extent it improves, the USD has the potential to stabilize. The better than expected Oct. jobs report, while far from cause for exuberance, does hold out the prospect for further improvement in consumer confidence, and with it US consumption. Now that QE2 is out of the way, other major currencies are at risk of coming under the microscope, especially if incoming data begins to disappoint. In particular, we think EUR and GBP strength against the USD is especially vulnerable to data setbacks and the strong likelihood of slower growth in the months ahead. EUR is also vulnerable to renewed peripheral stressors (see below). On the technical side, we would note a daily bearish engulfing candlestick in EUR/USD on Friday, potentially suggesting a reversal lower, and we would highlight the daily Ichimoku Tenkan and Kijun lines at 1.4008 and 1.3951 as a critical support zone that must hold for the EUR/USD to strengthen further. The USD index also has long-term trendline support at 75.60/65 as another indicator of whether USD weakness is extending. GBP/USD has long-term trendline resistance at 1.6300/10, above which we would expect gains to extend. AUD, NZD, and CAD (to a lesser extent) seem most likely to continue to outperform (see below), not just against the USD, but also EUR, GBP and JPY. Should the USD recover more quickly than expected, rapid gains in Gold, Silver and crude oil are at risk of a sharp sell-off. We go into next week cautiously optimistic for a USD recovery overall.

Dow Usually Rallies After Midterm Elections

Democrats and Republicans may both have something to celebrate in the months following the midterm elections: A stock market rally. From 1922 to 2006, the average gain of the Dow Jones Industrial Average over the 90 trading days following midterms (roughly November until mid-March) was 8.5 percent, according to a new study authored by Brian Gendreau, market strategist for Financial Network. That's almost 5 percent higher than the Dow's gains in non-election years.

Historically, the post-election period has been a good one for stocks. "So the question is, 'Did the markets go up in the midterm election years by more than average in non-election years?' Gendreau says. "And the answer is, 'Yes, by a huge amount more.'" The Dow has risen following 19 of the last 22 midterm elections.

Also, after the midterms, there is generally a more balanced share of power between the president and Congress, so the chance for compromise is more likely. "The market seems to like that," he says.

So what about this year? Gendreau is the first to admit that he's not the first economist to release a survey like this. His research just covers a longer period of time. He also notes that given the ever-increasing wealth of information available to traders today, the effects of this trend may be somewhat weaker going forward. But so far this year, the Dow has been steadily rising in anticipation of the midterms, gaining about 7 percent year-to-date.

Looking further out, the year following the midterms or the president's third year in office is usually the best year for the Dow, according to an older study by Gendreau. From 1871 to 2005, the average return of the S&P Composite Stock Index during the third year of a president's term was 10.1 percent. During the fourth year in office the index was up 7.5 percent, on average--a marked improvement over average returns in the first year (3 percent), and the second (2.7 percent).

What Jim Rogers Said.

"This is way back in 1970, when I was still new to markets and the business. I had all my money in puts in January, which people thought was nuts. I sold my puts the day the market hit bottom and tripled my money. Two months later, I sold short several companies — but in the next two months, markets kept rallying, stocks kept going up. I was wiped out and lost everything. Interestingly, the companies I'd short also went bankrupt over the next two years, but I was wiped out first.

This episode taught me that i didn't know enough about markets and market timing.
I thought I was smart but I didn't know better."

Constrution sector is Overweight

Domestic contracts for 3Q stood at RM5.6bn (+337% y-o-y, +64% q-o-q). Contract wins from 1Q - 3Q ave already surpassed last year's full year amount of RM10bn. PFI based jobs and the Sarawak infra play continues to be the recurring themes witnessed. The momentum of positive news flow to continues, fulled by projects scheduled under the ETP. With the KLCON now trading at mean valuations, further upward re rating is potential.

source by OSK Investment Bank.

Goldman Sachs Says U.S. Economy May Be ‘Fairly Bad’

Goldman Sachs Group Inc. said the U.S. economy is likely to be “fairly bad” or “very bad” over the next six to nine months.

“We see two main scenarios,” analysts led by Jan Hatzius, the New York-based chief U.S. economist at the company, wrote in an e-mail to clients. “A fairly bad one in which the economy grows at a 1 1/2 percent to 2 percent rate through the middle of next year and the unemployment rate rises moderately to 10 percent, and a very bad one in which the economy returns to an outright recession.”

The Federal Reserve will probably move to spur growth as soon as its next meeting on Nov. 2-3, Hatzius said. Expectations for central bank action have already led to lower interest rates, higher stock prices and a weaker dollar, according to Goldman, one of the 18 primary dealers that are required to bid at government debt sales.

Fed Chairman Ben S. Bernanke and his fellow policy makers are debating whether to increase Treasury purchases to spur the U.S. economy by keeping borrowing costs low. U.S. five-year yields dropped to a record 1.1755 percent today amid signs the recovery is losing momentum.

The “fairly bad” outlook for slow growth and rising unemployment without a recession will probably be the one that occurs, the e-mail said.

Renewed Recession

Hatzius’ note reiterated comments he made yesterday at a forum in Washington, when he placed the odds of a renewed recession at 25 percent to 30 percent. He told reporters that was up from 15 percent to 20 percent at the start of the year.

Another $1 trillion of asset purchases by the Fed would probably lower long-term interest rates by about 0.25 percentage point, adding a “few tenths of additional GDP growth,” he said yesterday.

The Fed bought $1.7 trillion worth of Treasury and mortgage debt in a program that ended in March. The purchases helped push mortgage rates to historic lows.

New York Fed President William Dudley, the Boston Fed’s Eric Rosengren and Chicago’s Charles Evans have all advocated further Fed action. Bernanke said Oct. 4 that restarting large- scale asset purchases would probably spur growth, after saying last week the central bank has a duty to aid the economy as unemployment holds near 10 percent.

Investors forecasting Fed purchases pushed two-year Treasury yields to a record low of 0.3987 percent on Oct. 4. The Standard & Poor’s 500 Index rose 2.1 percent yesterday to the highest level since May.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, slumped 0.9 percent yesterday to the lowest since January.

5 Tips to Build Wealth and Success

1. Live Below Your Means.
Being wealthy isn't just a product of your salary or investment prowess; it's learning how to save.

2. Bounce Back From Defeat
With nearly 15 million workers unemployed right now in the U.S., it's easy to get discouraged. Don't! Most successful and wealthy people have overcome obstacles and failure along the way. Steve Jobs was ousted from Apple when he was 30. Today, he's a billionaire and a legend. Plus, after getting fired, he created another billion-dollar media company, Pixar.

3. Self-Promote
Regardless of the profession, the rich and successful tend to have a strong sense of self-worth — key to skillfully navigating an upward career path. Mark Hurd, who was ousted as CEO of Hewlett-Packard in August, couldn't be kept down for long. Using his business skills and connections, in September, Hurd was named president of Oracle.

4. Have Street Smarts
Bernie Madoff lived the high life for decades, scamming unsuspecting clients, with a money-making formula that proved too good to be true. Only afterward did we learn that with a little due diligence, most clients could have easily uncovered the fraud.

5. Buy Cheap
The rich can afford to splurge, but that doesn't mean they do.

BOJ Pledges Near-Zero Rate Policy

The Bank of Japan pledged to keep its benchmark interest rate at “virtually zero” until deflation has ended after unexpectedly reducing borrowing costs for the first time since 2008 and expanding its balance sheet.

The bank cut the overnight call rate target to a range of 0 percent to 0.1 percent, the lowest level since 2006, from 0.1 percent, it said in a statement in Tokyo. Policy makers will set up a 5 trillion yen ($60 billion) fund to buy government bonds and other assets, inflating the balance sheet at a time when U.S. and U.K. central bankers are contemplating similar moves.

Genting up on short-covering, OCBC upgrade

Shares of casino operator Genting Singapore rose as much as 5.9% on Friday as investors bought the stock to cover their "short" positions and a local brokerage raised its target price.
OCBC Investment Research on Friday raised its target price for Genting Singapore to $2.38 from $1.85 and maintained its "buy" rating.

Gamuda, MMC, MRCB to benefit from infra projects

OSK Research said key players involved in infrastructure development are expected to benefit from the implementation of the Economic Transformation Programme, including the RM36 billion KL mass rapid transit which features in the Greater Kuala Lumpur plan.

In a research note on Wednesday, Sept 22, it continued to see the beneficiaries being those involved in infrastructure development, including Gamuda (TRADING BUY, FV: RM4.00) and MMC Corp (TRADING BUY, FV: RM2.59) for the MRT and MRCB (TRADING BUY, FV: RM1.80), which may be involved in land development around KL.

“Do note that all these stocks have minimal or no upside to our fair values, and are very much Trading Ideas riding on positive sentiment from economic reform,” it said.

Wilmar target cut to $7.45 from $8.00

Morgan Stanley cuts Wilmar (F34.SG) target price to $7.45 from $8.00 after reducing FY10-12 earnings forecasts by average 9% to factor in plantation group’s weak 2010 results, later-than-expected 2H10 recovery in midstream margins, according to Dow Jones.

Morgan Stanley expects share price to be capped by lack of growth this year but still keeps Overweight call on view Wilmar remains most vertically integrated plantation play. “In addition, Wilmar has significant direct exposure to China and India, which makes it a rare emerging market play,” says research house. Shares +0.2% at $6.35.