On the Dow falling to 6,000, Charles Biderman's recent Video

Market crashing on 10/9/2008, features bailout squad

Remember in 2010 when Robert Prechter called for the Dow to hit 1,000 in the next 5-6 years? Or in 2010-2011 when Charles Nenner called for the Dow to hit 5,000 in the next few years? Well, there are still bears out there. Charles Biderman, founder of TrimTabs Investment Research, a firm that specializes in market liquidity flows, told his viewers on 3/13 that he sees the Dow falling to 6,000 when the Fed stops propping up the market with liquidity (or when "the Fed fix stops working"). And it's not just about the Fed, Biderman thinks the cyclically adjusted price/earnings ratio, or Shiller P/E, should be lower to reflect lower income growth and historical comparables. Another interesting thing he said was income growth and P/E expansion, since 1904, have been led by technological breakthroughs in communications, which he says is currently lacking. I somewhat agree. When will we see household holographic communications take off, or household humanoid Watson-bots? Or a crazy energy breakthrough that hits the masses? That should do it. I embedded Biderman's Youtube video below (originally saw it on Zero Hedge - hat tip). If you can't watch the video, you can read the transcript at TrimTab's blog at the link below.

Biderman’s Daily Edge 3/13/2012: Stocks Could Drop More Than 50% When Fed Fix Ends (TrimTab blog post with video):

"Historically stock prices sold at a 10 PE when income growth was 3% or less and with the Dow at 13,000 the PE is 23 today using Robert Shillers 10 year earnings PE.

Historically there have been three major bull markets since 1900 each lasting 24 to 25 years. During each bull run income growth averaged over 5% after inflation; and as a result of that rapid income growth the price to earnings ratio, or PE, grew rapidly.

On the other hand, during the 1930’s bear market and from 1967 to 1982 when stocks did nothing, income growth averaged 3% net of inflation or less. During those low growth times, the PE dropped to 10 or less."

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30-Year U.S. Treasury Bond Got Killed This Week ($USB)

30y Treasury Bond Price (stockcharts.com)

After the Fed's FOMC statement was released, which said it plans to keep rates at 0-0.25% through late 2014, continue its "operation twist" policy with maturing Treasury securities, and reinvest agency debt into MBS, 30-year Treasury bonds got smoked (or it was related to something else). Check out the chart of the 30-year Treasury bond price ($USB). It broke through floor support and then pierced through the 200 day moving average, closing at 136.62. Other levels to watch are 136.44 (the August 2010 peak) and 134.85 (the October 2011 low). The relative strength index (RSI) looks weak, and the MACD is below zero and trending down. Something to watch going forward. Have the bond vigilantes finally arrived?

Fiscal policy news:
U.S. Budget Deficit Revised Upward to $1.2 Trillion for 2012 (Bloomberg, 3/13/2012)

Related posts on on bond vigilantes:
David Stockman: Vicious Sell-Off In Bond Market Could Force Action on Budget Deficit, Debt (5/25/2011)
Niall Ferguson: Treasury Bond Vigilantes Coming, Default Or Inflation Choice For US (7/7/2010)

Gold In Sacks! Financial Links for 3/14/2012

I found GS street propaganda, ha

Interesting news out today (and some GS street propaganda).

Top News: Greg Smith, a former UK Goldman Sachs executive in U.S./LatAm equity derivative sales in Europe, resigned from Goldman and wrote a negative op-ed in the New York Times about the firm. Below are a bunch of articles on it, and this week I found some GS street propaganda (perfect timing). They just hired a new PR guy, which is interesting: Goldman Hires a New P.R. Chief. Why doesn't Goldman hire a social media firm, and start blogging, tweeting, facebooking, cross posting research, etc? I see the Federal Reserve just registered a Twitter account.

Why I Am Leaving Goldman Sachs (NYT)

"What are three quick ways to become a leader? a) Execute on the firm’s “axes,” which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit. b) “Hunt Elephants.” In English: get your clients — some of whom are sophisticated, and some of whom aren’t — to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them. c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym."

"I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients"

Dang! But, if you've been reading Zero Hedge for the past 3 years, or watched the congressional hearings during the financial crisis (videos: 1, 2 and 3), this is old news. Here is everything you need to know about GS:

Goldman's response in an employee memo: We Were Disappointed to Read Assertions (WSJ)

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European, U.S. Leveraged Loan Market Analysis For March 2012 (LCD Videos)

Leveraged Loan Market Update

LCD (Leveraged Commentary & Data), a unit of S&P, uploaded video analysis on the European and U.S. leveraged loan markets for February 2012, and showed charts of the:

S&P/LSTA Leveraged Loan Index;
U.S. and European LCD Flow Name Composite (15 largest, most liquid names);
U.S. Volume of New Institutional Loans;
U.S. Average New-Issue Loan Clearing Yield;
U.S. Amend-to-Extend, High-Yield Bond Take-out Volume ($billions);
U.S. Opportunistic Deal Flow (Repricings, Dividends);
U.S. Leveraged Loan Default Rate;
European HY Bond Flow Name Prices;
ELLI Multi-currency Loan Return (monthly);
European New-issue: Loans vs. HY Bonds;
ELLI Default Rates - European Leveraged Loans.

And then they provided upcoming trends. Keep an eye on these trends in the illiquid institutional credit markets.

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FOMC Statement, Stress Test Results and JP Morgan Increases Dividend

FOMC Meeting (Wikipedia)

In its latest statement, the Federal Reserve's Federal Open Market Committee (FOMC) said the economy was growing, the unemployment rate was declining, and there was low inflation. But the Fed is sticking with accommodative policy by keeping its "target range for the federal funds rate at 0 to 0.25 percent", and "maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction." 

Right now gold and Treasury bonds are crashing, while the S&P is rallying hard. This could have been pricing in JP Morgan's dividend hike or the results of the Fed's bank stress tests. "The bank said in a statement that the Federal Reserve has informed the company that it did not object to its plans to distribute capital." (Reuters/Yahoo). Citigroup, Ally Financial, MetLife, and SunTrust all failed (Reuters/CNBC).

Read the FOMC statement here or below.

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StockTouch App Review (Interactive Stock Market Heat Map For iPad, iPhone)

There's an interesting app available for the iPad and iPhone called StockTouch. It's an interactive stock market heat map that allows you to analyze sector performance, or specific stock performance, on an intraday to 5-year basis. They sent me the app for free to review (full disclosure), so here it goes. I mainly look at charts, but I think this interactive heat map is a valuable tool for market analysis, and could be even better with a few updates and additional markets.

When you open up the app, there are nine squares labeled as a sector (consumer goods, services, healthcare, energy, technology, financial, industrial goods, materials or utilities), and then each sector has a hundred stocks. So a total of nine hundred stocks and nine sectors can be monitored at once. You can then zoom in on the specific sector or stock. There's an option for U.S. stocks or global stocks.

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Sal Khan Is Revolutionizing Education (60 Minutes), What About The $870 Billion Student Loan Balance

Millions of people around the world are using the Khan Academy for free online education. Salman Khan, founder of Khan Academy and former hedge fund analyst, uploads video lectures from his computer in a tiny office, and you can only hear his voice and see him drawing from a digital pad. It turns out that Bill Gates is a big fan of Khan Academy and his kids use it. And Eric Schmidt, executive chairman of Google, thinks Khan Academy could take off and revolutionize education (from elementary school to advanced college courses).

Nice, now what about the $870 billion student loan balance with a 10% delinquency rate. And when loans deferred until after graduation are removed from the balance, the delinquency rate is 21%. See more numbers after the videos (read the New York Fed report). Watch the 60 Minute videos after the jump. I also embedded Khan's TED talk from March 2011 that features Bill Gates.

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Links for March 12, 2012: Fund Managers, Strategists and Economists

Here are interesting views on the market and economy from fund managers and strategists I follow.

Man and machine: The economic ideas of the world’s most successful hedge-fund boss, Ray Dalio (Economist)

Jim Rogers Interview with Business Insider on oil, agricultural commodities, gold, and China (Business Insider)

John Hussman: Warning: A New Who's Who of Awful Times to Invest (Hussman Funds)

Yale's Robert Shiller on housing and stocks (interviewed by CNBC and Associated Press)

Gary Shilling's 6 Favored Asset Classes (Pragmatic Capitalism)

Bill Gross's March 2012 Investment Outlook (PIMCO)

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CDO Rap From Former Deutsche Bank Bond Trader

CDO graphic (FCIC)

I randomly came across this internal Deutsche Bank email from November 8, 2005, which was part of FCIC's report on the financial crisis, with former Deutsche Bank bond trader Rocky Kurita rapping about the CDO market. Deutsche Bank was a huge player in RMBS and CDOs, and Kurita was on Greg Lippmann's trading desk that built a $5 billion short position against the subprime mortgage market with credit default swaps.

The funny thing is, Kurita and Lippmann both had conversations with former hedge fund manager Michael Burry because he was originally a corporate CDS client, and he purchased $60 million worth of CDS referencing six subprime mortgage bonds on May 19, 2005. Burry and Lippmann were featured in Michael Lewis' book 'The Big Short'.

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Zimbabwe - last to leave, Never Mind Turning Off the Lights - They're Already Off (Guest Post by OilPrice)

Kariba Dam, Zimbabwe (Wikimedia Commons)

Guest post by John C.K. Daly of Oilprice.com

Zimbabwe - last to leave, Never Mind Turning Off the Lights - They're Already Off

In the 32 years of his benighted rule, Zimbabwe's President Robert Gabriel Mugabe has done more damage to the country than its white-led minority government ever did.

With the exception of the smuggling of "blood diamonds" the country's economy, once the "breadbasket of Africa," resembles nothing so much as a slow motion train wreck.

One of the foundations of modern nations' economic prosperity are reliable sources of power and here too, Mugabe and his Zimbabwe African National Union cronies have managed to screw things up.

While the country has a peak electricity demand of about 2,200 megawatts, it only produces 1,200 megawatts because its installed power generation capacity cannot meet demand, which primarily comes from the Hwange Power Station (HPS) and Kariba Power Station (KPS).

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ISDA: Greek Debt Exchange With CACs Triggers Credit Event, $3.2 Billion Net CDS Exposure Affected

ISDA has declared that the Greek debt exchange with CACs (collective action clauses) is a credit event that will trigger credit default swap payments. Below are the details along with a CNBC video with ISDA's CEO. Here is ISDA's official press release: "ISDA EMEA Determinations Committee: Restructuring Credit Event Has Occurred with Respect to The Hellenic Republic". But, ISDA's Q&A document (pdf) on the credit event provides more details. Look at the chart of Greek 5Y CDS at Bloomberg.com. It is tradable insurance on Greek government bonds.

"Greek Sovereign CDS Credit Event Frequently Asked Questions (FAQ)
March 9, 2012

Why did the ISDA EMEA Determinations Committee rule that a credit event occurred?
The Determinations Committee determined that the invoking of the collective action clauses by Greece to force all holders to accept the exchange offer for existing Greek debt constituted a credit event under the 2003 ISDA Credit Derivatives Definitions."

[...]

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GAME CHANGER: Citigroup Hires IBM's Watson Computer

Source: IBM

This is big news for the financial industry and could disrupt jobs on Wall Street. IBM's Watson computer, which "is built on IBM DeepQA technology for hypothesis generation, massive evidence gathering, analysis and scoring" and "applies advanced natural language processing, information retrieval, knowledge representation and reasoning, and machine-learning technologies to open-domain question answering" (IBM's definition), was just hired by Citigroup. This is what business school grads will be competing against. From Bloomberg:

"Watson can comb 10-Ks, prospectuses, loan performances and earnings quality while also uncovering sentiment and news not in the usual metrics before offering securities portfolio recommendations. It can also monitor trading, news sources and Facebook (FB) to help a treasurer manage foreign exchange risk."

Last November, after watching the PBS documentary on Watson's Jeopardy challenge, where it defeated two champions (video below), I wrote about IBM's Watson and Boston Dynamics' PETMAN humanoid robot, which, combined, could be a Terminator. Is there a way to put Watson's brain in PETMAN's head? There would be no need for human labor at that point. Here is the official IBM/Citi press release from March 5, but, more importantly, read what Manjoj Saxena, General Manager of IBM Watson Solutions, sees Watson doing in the financial services industry going forward (bold emphasis mine).

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GM, Chrysler To Sell Natural Gas Trucks, See Price Gap Between Natural Gas, Gasoline and Oil

This could help the price gap between gasoline, oil and natural gas close if this trend really takes off. As well as lower the fuel tax on consumers.

"General Motors Co. on Monday plans to disclose it will offer bi-fuel Chevrolet Silverado and GMC Sierra 2500 pickups in the fourth quarter. The trucks will be built by GM and sent to a supplier that will retrofit them to use compressed natural-gas tanks." (read more at WSJ)

Natural Gas, Gasoline and Oil (source: stockcharts.com)

Greece's 1-year Bond Yield is at 1,006%, Debt Swap Decision Ahead

This is for the DistressedVolatility archives. View the chart/quote of the 1-year GGB yield at Bloomberg.com.

Source: Bloomberg.com

News:

Private Investors Holding About 20% of Greek Debt to Participate in Swap (Bloomberg)
Investors call on ECB to play fair in sovereign credit (Reuters)
ECB still obstacle to Greek deal (ekathimerini)
Goldman Secret Greece Loan Shows Two Sinners as Client Unravels (Bloomberg)
Venizelos Says Greece Prepared to Force Bondholders Into $140 Billion Swap (Bloomberg)
Greece Is Prepared to Force Debt Swap: Venizelos (Bloomberg Video)
Private Holders of Greek Debt Should Reject Swap Offer, DSW Says (Bloomberg)

ECRI's Achuthan Says 2012 Recession Call Still Stands (CNBC, 2/24/2012)

Source: CNBC/ECRI

ECRI's Lakshman Achuthan was on CNBC's Squawk Box on February 24 reiterating his call that the U.S. will be in a recession by mid-year 2012, despite the consensus view and haters saying otherwise. He made his original recession call in the media in early October 2011.

Achuthan mentioned that ECRI's U.S. Coincident Index (output, jobs, income and sales) was at a 21 month low, and said: "you haven't had a decline like that in the past 50 years without a recession following in short order." Below is a summary of the key points he made during the interview followed by the video.

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