The interest rate outlook from PFG Best : Apologies for the lack of research since my last post on November 4 th , but I was out sick; luckily not the Swine Flu!  Let’s look back to that piece because frankly, my views haven’t changed much.  Of the two scenarios I laid out on the morning of November 4 th , I chose Scenario 2: “The FOMC does not change their language on rates.  Look for the 10 year T-Note futures to top out above 119-08 and 10 year T-Note cash yields to approach 3.35%.  This would add a small pop to stocks, a drift down in the USD and an increase in the price of gold; we are already seeing this scenario partially priced into the markets today.” This scenario has pretty much played out, although this week’s weak economic data added to the level of risk aversion in the markets, giving strength to the USD and pushing 10 year T-Note futures towards a new resistance of 120. We are continuing to experience the push and pull of risk aversion versus dollar weakness/interest rate concerns.   Post-FOMC comments, the US Dollar Index fell from 76.30 on November 4 th to 74.67 on November 16 th ; a 15 month low.  This move, coupled with weak economic data, played into a rebound in the US Dollar Index, bringing us a full point higher today at 75.67.  With these moves, the stock markets spiked up but have fallen from their highs on November 16 th .  I feel there is still some more room for the US Dollar Index to climb, with first resistance around $76.25-30, then $77.50 and near term support at $74.75. Next week should bring heavier volume trading on the 23 rd and 24 th and then a tapering in action beginning shortly after the 7 year T-Note auction on the afternoon of the 25 th given Thanksgiving.  Although we’re looking at a holiday week, numerous important data releases are occurring, so look for an increase in the VIX: November 23 rd : Existing Home Sales, 3 month and 6 month T-Bill auction (~ total of $62bn) and then the 2 year T-Note Auction (~$44bn) November 24 th : Q3 GDP, Case Shiller HPI, Consumer Confidence, 4 week T-Bill auction and then 5 year T-Note Auction (~$42bn). November 25 th : Durable Goods Orders, Personal Income, Initial Jobless Claims, Consumer Sentiment, New Home Sales, EIA Report and the 7 year T-Note auction ($32bn) Considering the numerous focus points of next week, I feel we should continue to see a pull back across the markets, excluding the USD, with a renewed aversion to risk.  For one reason, I believe we’ll see continued profit taking from gains made in November and increased concerns regarding the housing sector.  I believe we will see a downside correction in GDP for the 3 rd quarter, although only slightly.  I believe consumer confidence will slip again given the increasing unemployment rate and the impressively grim “underemployment” rate of 17.5% for October. What’s to Come : With this in mind, look for the S&P 500 to cross support at 1080, with solid support at 1065.  Look for Crude Oil to trade down to support just under $76 and then back up to resistance just above $80.  Late this week, 10 year T-Note futures bounced off of their support @ 120. However, given the possibility for negative surprises next week from economic data, coupled with the short/mid-duration treasury auctions, we will see a bounce between 118-16 to 120-16. However, if data next week surprises to the upside, which is much less likely, we could see the USD break support of $74.75 and approach $74.50 and 10 year T-Note futures approach the lower end of the channel.  Although there is room for the dollar to approach the $72 level we experienced in March 2008, it will be very difficult for this to actually happen for two reasons.  First, foreign central banks are in the process of deflating their currencies versus the USD.  Second, the FOMC is slowly, and slyly, changing their verbiage towards a stronger dollar “policy.” As the FOMC continues their “strong dollar” verbiage, not policy, the USD should strengthen as this verbiage is actually acting like policy for now.  Transparency from the FOMC is very important and it will be interesting to see how directly they address the USD and how its value is affecting the rest of the world and not just our economy over the coming weeks.  A weaker dollar makes sense for the US in order to balance our deficits and spark growth, especially exports.  Also, given the US has been prodding the Chinese to appreciate the Yuan for years now, a weaker dollar may be an interesting work-around to force the Chinese government to adjust their policies.  Looking out to when the FOMC might adjust rates, I still believe we will see a hike in the 2 nd quarter of next year; a rate reset to 50bps or 75bps is still an extremely low rate and well below historical levels. Additionally, as foreign central banks continue to sell their currencies and buy the USD to offset the appreciation of their currencies, we should see upside kicks to the USD, especially as the US Dollar Index bounces off of support levels just below $75; this is one reason for the recent strength in the US Dollar index. As we approach December and year-end, my main concerns are for potential profit taking at the end of the year as well as increased foreign central bank intervention and commentary.  With the massive gains that have occurred across the board in stocks and commodities, I believe we may experience a pullback in the 2 nd half of December from the recent highs alongside a strengthening of the USD.  However, outside of the profit taking, domestic and foreign central bank verbiage and policy will weigh heavily on markets as foreign nations begin to unravel their stimulus policies.  However, are investors ready for this unraveling and do they actually believe economies are strong enough to move forward on their own?  Only time will answer these questions, but it seems to me like the world economy is on a choppy but upward trajectory towards recovery. Eaven Horter PFGBEST Research Team ehorter@pfgbest.com See original here: THE TREND IS YOUR FRIEND…UNTIL IT’S NOT

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Yesterday, it was reported that analysts at SocGen had sent out a guide on what to do if the world goes completely to hell. Well, the full report has surfaced, via ZeroHedge , and it’s very, very fun if you like doom and gloom. Basically, they’re extremely concerned about public debt, and the effect that will have on developed economies, and they draw extensive parallels to Japan. Follow this link: SocGen: Prepare Yourself For The Worst Case Scenario!

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