Jan '09 Technicals: Dow, S&P, Gold, USD, TNX, BAC, C, XLF, XHB

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As I mentioned in my previous post the markets got killed today. The Dow actually closed down 332 points and the S&P closed down 44.90 or 5.28%! Volatility is rocking the market again. Obama's inauguration ceremony could not support the market. I want to provide some charts and technicals giving you a visual of todays trading activity. I looked at the Dow Industrials, S&P 500, Gold, US Dollar, Bank of America, Citigroup, Financials, Homebuilders and 10 Year Treasury Yields. Click on the chart for a larger view.

If the Dow can't rally above that minor support level it just pierced it could retest November lows, 7449.

Dow Jones Industrial Index (6 Months)

The S&P has a chance of minor support around 805 (late November capitulation tops). However the Dow (DJIX) did pierce through that level and has been leading the overall market recently. If there's no short squeeze on an Obama stimulus injection it could retest 741 (IMO).

S&P 500 (6 Months)

The US Dollar index rallied hard off of it's 50 day moving average. It has a bullish RSI reading and a bullish MACD centerline cross. It might want to retest old highs at 88.48 and then decide where to go from there.

US Dollar (6 Months) (source: stockcharts.com)

Gold is sitting right between the 50 and 200 day moving average plus it is in a few wedges. If it can break through the 200 day and ride through the steep wedge gold could make a major trend reversal. But it could be in this 760-880 range for a while. Anything can happen though with currencies in question.

Gold (6 Months) (source: stockcharts.com)

Look at what happened to Bank of America and Citigroup today. BAC saw some crazy volume spikes today on a 28% move lower. Lehman deja vu?

Bank of America (BAC) (6 Months)

Citigroup (C) (6 Months)

The XLF financial index pierced through the November lows today on some decent volume. Would like to see some conviction. Surprisingly the housing etf is 20% above it's lows. Wondering how the XLF/XHB gap will close... I haven't heard much about the homebuilders lately. Wondering if they are done writing down excess inventories and losses. We shall see.

XLF (6 Months)

XHB (6 Months)

It's interesting that the 10 year sold off at the beginning of the day but quickly recovered in the afternoon, lowering yields. The inverted hammer candle shows the rejection of the higher yields. It also looks like a 2-2.6% channel. It could retest lows but how much lower can 10 year yields go??

10 Year Note Yield (source: stockcharts.com)

Can Obama's economic team reflate our economy?

"Obama Team Pushes to Complete Rescue as Stocks Plunge

By Rich Miller and Robert Schmidt

Jan. 21 (Bloomberg) -- President Barack Obama's economic team is pushing to complete a bank-rescue plan that can be twinned with the $825 billion stimulus package being negotiated with Congress to alleviate the rapidly deepening financial crisis.

While full details of the rescue haven't been settled yet, people familiar with the deliberations said the package is likely to include a $50 billion-plus program to stem foreclosures, fresh injections of capital into the banks and steps to deal with toxic assets clogging lenders' balance sheets." Full article

If they make some USD injections and the pipes don't need plumbing the reflation trade could dominate.

Market, BofA and Citi Get Killed After Obama's Inauguration

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Barack Obama has a lot on his plate. As of 3:03p Est, The Dow Jones Index is -290, -3.56% at 7,988 and the S&P 500 is -39, -4.60% at 810. The VIX (volatility index) is printing new highs on the day at 55.70 up 20%. It seems like all sectors are hurting across the board. The XLF (financial etf) is -14% to 8.35, the XHB (homebuilding etf) is -7% to 10.72 and the XLE (energy etf) is -5% to 44.22. Insolvency is threatening both Bank of America (BAC) -23% and Citigroup (C) -19% (under $3). Surprisingly both gold and the US Dollar are +2% probably putting fear ahead of deflation. Also 10 year treasury yields are up 14 basis points to 2.44% (*It didn't make sense but they actually ended unchanged). As I write the market keeps getting killed! There is blood on the streets and banks are leading the way. XLF implied volatility was predicting this the other day, I posted an ISE chart. Also Royal Bank of Scotland is not helping the situation or the British Pound. TARP II, III coming? (*-added after the close)

Here's a view from Henry Blodget and Aaron Task of Tech Ticker. It's interesting that they said banks were hoarding government money to maintain their regulatory capital ratios. That's probably why we haven't seen a reflationary bounce yet. Once the velocity of money is able to multiply through our economy we'll see some action. Also I provided a video of PIMCO's Bill Gross on the $1 trillion dollar deficit, treasuries and inflation (via Bloomberg). Let's hope Obama can save the economy from a deflationary spiral....

Articles of interest:

Roubini Predicts U.S. Losses May Reach $3.6 Trillion (Bloomberg)
Bank of America: How to Lose $20 Billion of Value in 2 Trading Days
Merrill Architects Criticized (WSJ)

Barack Obama's Full Inauguration Speech Video and Text

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Here is Barack Obama's full inauguration speech via CBS Video.

Watch CBS Videos Online

......"we are in the midst of crisis is now well understood. Our nation is at war, against a far-reaching network of violence and hatred. Our economy is badly weakened, a consequence of greed and irresponsibility on the part of some, but also our collective failure to make hard choices and prepare the nation for a new age. Homes have been lost; jobs shed; businesses shuttered. Our health care is too costly; our schools fail too many; and each day brings further evidence that the ways we use energy strengthen our adversaries and threaten our planet.

These are the indicators of crisis, subject to data and statistics. Less measurable but no less profound is a sapping of confidence across our land — a nagging fear that America's decline is inevitable, and that the next generation must lower its sights.

Today I say to you that the challenges we face are real. They are serious and they are many. They will not be met easily or in a short span of time. But know this, America — they will be met.

We remain a young nation, but in the words of Scripture, the time has come to set aside childish things. The time has come to reaffirm our enduring spirit; to choose our better history; to carry forward that precious gift, that noble idea, passed on from generation to generation: the God-given promise that all are equal, all are free, and all deserve a chance to pursue their full measure of happiness.

In reaffirming the greatness of our nation, we understand that greatness is never a given. It must be earned. Our journey has never been one of short-cuts or settling for less. It has not been the path for the faint-hearted — for those who prefer leisure over work, or seek only the pleasures of riches and fame. Rather, it has been the risk-takers, the doers, the makers of things — some celebrated but more often men and women obscure in their labor, who have carried us up the long, rugged path towards prosperity and freedom".......

View the full text at

The Ascent of Money by Niall Ferguson (Videos)

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The Ascent of Money, by Harvard professor, author, economist and historian Niall Ferguson, is a very interesting movie about financial history and the evolution of money. It is broken up into 6 episodes and can be found in full at PBS.org. Episode 5 talked mostly about property ownership in Detroit from the great depression to the subprime bust. I just did a blog post about distressed properties for sale in Detroit which gave real examples of the situation. Niall explains very well how our country got cked securitizing subprime loans. Also episode 4 talks about the history of risk management leading to billion dollar hedge funds. Watch them all at http://www.pbs.org/wnet/ascentofmoney/.

Warren Buffett Praises Barack Obama As Commander-in-Chief (Dateline)

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Warren Buffett was interviewed by Tom Brokaw on Dateline NBC tonight. Buffett believed that Barack Obama was the right commander-in-chief for our country. He also talks about the current economic crisis. I provided some quotes from the transcript below.

"Well, actually, in September I said-- this is an economic Pearl Harbor. I-- that was the time congress had made it in. It really is an economic Pearl Harbor. It-- the-- the country is facing something it hasn't faced since World War II. And they're fearful about it. And they don't know quite what to do about it. And the point is-- and-- and it-- and temporarily it looks like we're losing. It has that-- that same aspect. Interestingly enough, we were losing for a while after Pearl Harbor. But the American people never doubted that we'd win. I mean, we had that attitude then. I think, right now, that they're sort of paralyzed."

"He's the absolute right commander in chief. That-- you know, that's another thing the American people seem to do, occasionally, is that we elect people that are right for the times. You know, whether it was Lincoln, Roosevelt. And-- and I would say Obama-- you-- you couldn't have-- anybody better in charge."

"Well, he's-- he-- he's smart, he's got the right values, but he also-- he understands economics very well. He's cool. He's-- he's-- he's analytical. But then, when he gets it all thought through, and he's fast-- he can convey to American-- the American people what needs to be done. Not to expect miracles. That it's gonna take time. But that we're gonna get to the other end. And-- and I-- I-- I don't think there's anybody better for the job than-- than-- the president-elect."

"He's a listener. I-- I first met him, maybe, four years ago, or something like that. He was a listener then, he's a listener now. But, on the other hand, he makes up his own mind. He will-- he will not be-- his team won't run him. He'll use his team, he'll use them very effectively. He'll synthesize, he'll-- he'll-- he'll analyze. But, in the end, it'll be his decision." Full Transcript via CNBC

IndyMac Foreclosed Detroit Property: $600

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This blog has no limits. I'm going to do a post on distressed residential Detroit real estate. I was just browsing the FDIC website and I found a database of foreclosed IndyMac properties. I found a 1100 square foot 3 bed/1 bath single family home built in 1986 for $600 (pictured below). Hey it might need a little work and who knows about the neighborhood but $600? Thought it would be interesting to value this as an income property. Wondering if someone could rent out the rooms for $25 a month w/ utilities for an annual $900NOI/$600 or 150% cap rate and sell it in 3 years at a 30% cap rate for $3000. That's a gain of 400%! That's not looking at comparables and historicals though which I found at Zillow.com (hopefully a reliable online source). Here's the original 13722 Moenart property which looks like it sold for $3,600 in 10/05, and $5,850 in 4/08. Close by there is a 1182 sq foot 3 bed/1 bath house at 13402 Bloom selling for $1,500, a 1350 sq foot 4 bed/2 bath at 13781 Moenart selling for 2,0001-3,000, and a a few blocks north there's a 500 sq foot 3 bed/1 bath at 17190 Caldwell selling for $900 which sold in January, 2008 for $16,800! The next listing shows how the auto industry is killing employment and property prices. Across the street there's a 11,600 sq ft auto mechanic/tool-die/BMW part warehouse at 5431 E. Davidson on sale for $1,650,000 with auto parts, machinery and 9 lots included. What if this city becomes the 'electric car' capital of the world and global investment invades the city again?? I will come back to this post in 5 years. If you live in this area or have any views comment below. I guess the main point of this post is check out all of the foreclosed properties listed at FDIC.gov it's crazy. Also here are some recent articles about Detroit real estate.

How low can homes go? Try $0 (DowJones)

"Earlier in the day, I'd previewed the North American International Auto Show, where the car of the year was a Hyundai. A Hyundai Genesis, to be precise, with an MSRP of $37,250. Here, even a Kia or a Pontiac listed for $16,000. By contrast, the median price of a home sold in Detroit last month was $7,500, according to Realcomp, a Farmington Hills, Mich., multiple-listing service, down 50 percent from last year. Mason counted 1,228 homes listed for under $10,000, 209 of which were under $1,000. "Many of them are in pretty decent shape," he said, "and some can be lived in."

Why Contrarian Investors Should Consider Detroit (NREIonline)

View Larger Map

Related Post: Distressed Detroit... (July, 2008)

S&P 61.8% Fibonacci Retracement Level at 818. Volatility in Financial Sector (XLF)

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I found a Bloomberg video clip today talking about the Fibonacci levels on the S&P. This mathematical sequence makes up a spiral.
"The first number of the sequence is 0, the second number is 1, and each subsequent number is equal to the sum of the previous two numbers of the sequence itself, yielding the sequence 0, 1, 1, 2, 3, 5, 8, etc." Wikipedia"
I'm thinking anything that moves in a continuous cycle with momentum can be measured by this sequence which is why it works well as a technical indicator in the stock market. The sequence is found in shells, sunflowers, pine cones, and even leaf arrangements. I would even bet you that weather patterns and mood swings have the pattern. Tell me if I'm wrong. It's crazy because once the trend breaks the 100% level a new 61.8 - 38.2% level is created which explains the infinite spiral. Trading bots are all over this. Anyway here's the clip.

Here's a short and long term chart of the S&P with Fibonacci levels. It looks like the S&P broke the 50% retracement level at 842, tested the 61.8% level at 818, and then rallied back slightly above the 50% level. There is also decent historical support at the 61.8% 818 level, where Roger Volz of Hampton Securities thinks the S&P is headed. He mentioned on Bloomberg: "Anytime you break a level, it does open the risk for follow through", "at this point, there is probably more risk, given the weakness in the financial sector". I'm thinking he was talking about the break in the 50% level.

Looking at the long term chart below it looks like the 61.8% level is at 1060 or 25.7% higher from here. So if the S&P did in fact put in a sustainable fib low at 741, or even retests it, the bulls could have Fibonacci on their side soon. But it's all about timing..! Charts from Stockcharts.com.

S&P w/ Fibonacci Levels (3 Month)

S&P w/ Fibonacci Levels (2 Years)

Looking at the trends, the S&P is in a 1 month downtrend and today there was a bullish tail put in on high volume probably because Congress passed the second release of the TARP. There has also been volatility in the financial sector with Citigroup falling apart before earnings and Bank of America getting aid and asset guarantees. Implied volatility on XLF was up 14% yesterday to 86% (via ise) but nowhere near the 130 highs. Option volume exploded (550k vs. 242k avg) probably pending a big move on Citi's earnings tommorow. XLF closed down on higher volume. Watch the video via Tech Ticker with NY Times columnist Joe Nocera. Also Obama's inauguration is in a week so things could get volatile. Dow futures are up 92 and S&P up 9.70 at 4:45am... We'll see what happens.

XLF Volatility (ise.com)

Analyzing the Platinum/Gold Spread and Platinum Fundamentals.

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Check out the wide spread between platinum and gold futures which was recently brought up by veteran commodities trader Eric Bolling on Tech Ticker. Since platinum prices had been crushed relative to gold he said a long position in the platinum/gold futures pair would be a great way to play the narrowing of the spread (long platinum and short gold). This pair trade could be done using ETFs (PTM/GLD) but he had liquidity issues with the platinum exchange traded note. PTM trades about 36 thousand shares a day while GLD trades about 12 million. Bolling also said he was bullish on commodities and bearish on the USD with Obama about to dilute the currency. Watch the video.

This is an interesting bet because it makes sense. But it has risks which I provided below. Bolling also wrote an article at thestreet.com a few days ago. Here's a quote.

"Over my 22 years trading, I have watched the relationship between gold and platinum prices. It is a rare occurrence that platinum, the more precious metal , has traded down to the gold price. It happened in 1987 after the crash. It also happened in 1991 and 1997. But only in 1991 did platinum dip below gold. On all occasions platinum rallied substantially after the parity price." link to full story

So lets look at some charts. It looks like he's right. Every time gold and platinum traded at parity or gold was greater than platinum the spread quickly narrowed and platinum was bought/gold sold. In 1991 it looks like gold was 7% higher than platinum but quickly narrowed. The biggest reversion took place from 1996-98 when gold sold off hard while platinum stayed in a channel. Also look at the huge run up in the platinum/gold pair between 2000-2008. Demand outstripped tight supply from South Africa and energy/labor issues did not help. At times platinum more than doubled gold! Now look at the huge gap on the chart. Pretty darn interesting.

Gold/Platinum 30 yr chart (futuresource.com)

Gold/Platinum 5 yr chart (futuresource.com)

I also looked at platinum's fundamentals and risks. The metal is used for jewelry and industry but not as a monetary base like gold. Platinum is used heaviliy by the auto industry in their catalytic converters and with GM, Ford and Chrysler almost filing for bankruptcy you can understand why there was selling pressure. Plus the global slow down affected demand for vehicles at Honda and Toyota.

There is also the risk that auto makers will swap out platinum for gold (or another metal) in their catalytic converters to cut costs. Read this recent article at Seeking Alpha, 'Will Gold Replace Platinum in Catalytic Converters?'. Plus look what happened to platinum futures in 1988 when this headline came out, 'Ford's Catalytic Converter Eliminates Use of Platinum' (NYT). Also the South African investment bank and asset manager Investec recently lowered their price forecast on platinum due to the lack of demand. So there are risks to this trade.
"The platinum price has rallied in the last few weeks, but a weak rhodium price and strengthening rand mean the platinum group metal basket price remains low and a number of mines are still losing money," said Investec analyst Rebecca O'Dwyer in a research note. "We see downside risk to the platinum price in the near-term, particularly if vehicle sales continue to decline in the first few months of 2009. "The bank said it now sees platinum prices at $970 an ounce in 2009 and $1,350 an ounce in 2010, down from previous forecasts of $1,350 and $1,675 an ounce respectively. Investec cuts platinum forecast on soft demand outlook (Reuters)

Here are some 2009 predictions:

Platinum or gold - which will be the better performer in 2009? (Mineweb.net)

Looking Ahead: Will Platinum Bottom in 2009? (Financialsense)

Bernanke on 2009 Fiscal Stimulus, More Bank Aid

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Ben Bernanke spoke at a news conference at the London School of Economics today (Jan. 13, 2009) talking about the state of our economy, Federal funds rate, fiscal stimulus plans and bank aid.
"Although the federal funds rate is now close to zero, the Federal Reserve retains a number of policy tools that can be deployed against the crisis. One important tool is policy communication. Even if the overnight rate is close to zero, the Committee should be able to influence longer-term interest rates by informing the public’s expectations about the future course of monetary policy. To illustrate, in its statement after its December meeting, the Committee expressed the view that economic conditions are likely to warrant an unusually low federal funds rate for some time. To the extent that such statements cause the public to lengthen the horizon over which they expect short-term rates to be held at very low levels, they will exert downward pressure on longer-term rates, stimulating aggregate demand. It is important, however, that statements of this sort be expressed in conditional fashion--that is, that they link policy expectations to the evolving economic outlook. If the public were to perceive a statement about future policy to be unconditional, then long-term rates might fail to respond in the desired fashion should the economic outlook change materially." Full script.

S&P 500 (SPY) Sentiment Check, Put/Call Activity, Volatility Index and Short Interest Charts

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I want to analyze the option activity on the SPY (S&P 500 ETF). I found some interesting activity on the SPY put/call volume, open interest ratios, implied volatility, and short interest.

The SPY put/call volume ratio looks very interesting here. Look at the huge drop off in put volume. Puts were trading about 1.5x calls from October to November due to the banking crash but now two months later SPY puts are trading 0.79x calls, down 47%. During this time the implied volatility on the SPY also peaked and is currently sitting at monthly lows. Look at the relationship between the ETF and the volatility index it looks exactly like the gold/dollar chart I put up earlier. Something needs to give here. The SPY could be setting up for another break to the downside. If that's the case volatility and put volume could pick up again. That's the contrarian view.

SPY Put/Call Volume vs. Price (Schaeffers Research)

SPY Price/Volatility Index (Schaeffers Research)

Now check out the positioned sentiment. Look how the put/call open interest ratio and short interest have been increasing since they bottomed out after Lehman went bankrupt. This shows that investors are still anticipating a move to the downside or just flat out nervous. They don't want to experience the madness again. It's interesting that the put/call open interest ratio is not nearly as high as it was before the banking massacres but short interest increased exponentially (360+ million shares). Also the Feb OI configuration looks pretty ugly. There is currently a bearish view on the market that is drugged up. It will be interesting to see if the market needs a higher dose of it's psychotic meds (fed stimulus) during 4th quarter earnings. Obama and his economic advisors are trying to save the day. I'd say one positive out of this is that 360 million shares will need to be squeezed one day. Lets hope the SPY holds the 50 day and gets squeezed out of the pennant formation.

SPY Put/Call Open Interest vs. Price (Schaeffers Research)

SPY FEB Put/Call Open Interest Configuration (Schaeffers Research)

SPY Short Interest vs. Price (Schaeffers Research)

Oil Speculation Vs. Supply/Demand (60 Minutes Video)

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Did Speculation Fuel Oil Price Swings?
"About the only economic break most Americans have gotten in the last six months has been the drastic drop in the price of oil, which has fallen even more precipitously than it rose. In a year's time, a commodity that was theoretically priced according to supply and demand doubled from $69 a barrel to nearly $150, and then, in a period of just three months, crashed along with the stock market.

So what happened? It's a complicated question, and there are lots of theories. But as correspondent Steve Kroft reports, many people believe it was a speculative bubble, not unlike the one that caused the housing crisis, and that it had more to do with traders and speculators on Wall Street than with oil company executives or sheiks in Saudi Arabia."

Disqus, IntenseDebate or JS-Kit?

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Someone told me that Blogger comments took too long so I'm trying to figure out which comment application I should use to embed inside Blogger. I picked Disqus for now because that's what most blogs I use, use. I want to make sure I have control over the content and also make sure the application won't slow down my blog. I like how Disqus is community based and
@disqus is on Twitter answering questions. But I'm wondering if Blogger is making moves in this space. I found a few applications, any thoughts? FYI: I've been using Disqus since inception and it has been a great experience.

Disqus: http://www.disqus.com/

JS-Kit: http://js-kit.com/

IntenseDebate: http://www.intensedebate.com/

Peter Schiff Compares U.S Economic Crisis to Collapse of U.S.S.R.

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Wow, take a look at this interview with Peter Schiff of Euro Pacific Capital via RussiaToday. Peter Schiff is at it again predicting more doom and gloom for the U.S economy. He's talking his own book but he also predicted this crisis in 2006. He thinks Obama will make things worse. I say the Schiff trend is your friend until it breaks.

Roubini Sees 20% Downside in S&P, Government Bond Safe Haven and Stimulus Consequences (Business Week Interview)

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Columbia's Amar Bhidé and NYU's Nouriel Roubini
BUSINESS WEEK, 1/7/09, Maria Bartiromo

In this interview Roubini believes the Dow and S&P will be 20% lower from here, job losses will total 2.5 million in 2009, Government bonds will be a safe haven until mid year and there will be consequences to our trillion-dollar budget deficits.

Kind of depressing. Also watch the S&P for a confirmed break of the 50 day moving avg on volume spikes. The Dow broke it on Friday. It could be time to put on some protected shorts in size if Roubini's right.


S&P Setting Up for Jobs Report, VIX Broke Out Recently.

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The S&P chart looks to be setting up for the jobs report. It is forming a triangle of confusion and the ultimate trend decision will be made toward the point. Traders are anticipating the jobs report along with ugly 4th quarter earnings. The S&P is also sitting right on the 50 day moving average and a break below that could bring a herd of sellers. Also the VIX broke out of a monthly downtrend recently with traders probably positioning for continued market anxiety. A Marketwatch survey of economists predict 500,000 jobs will be lost in December. The reaction will depend on the psychology threshold of market participants. If the number comes in better than expected the market could rally but if it's worse than expected the S&P could break the 50 day and go into free fall.

The recent bids in the VIX were probably anticipating this event. Traders could've been scooping up volatility on the cheap to set up
straddles or strangles to play a move in either direction. Try Option Monster, Daily Options Report or VIX and More for more info on S&P options (VIX). These next couple of months at the CBOE could get very interesting.


VIX (Volatility Index)

Short Treasuries? (TBT) China Might Lose Appetite for US Debt. But Will U.S Print and Fund Its Own Debt?

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I keep reading articles saying now is the time to short treasuries. In fact it was the cover story of Barron's this week. There's also news that China could lose it's appetite for U.S debt to fund its own problems. Now might be a great time for China to unwind into treasury strength since the U.S Dollar is right at late 2004-05 levels and 30 year treasury prices are at 132'25, up 18% from 112'00 in '05. This is only if China loaded up on Treasuries in 2004-'05 when Greenspan didn't understand why the yield curve was flat when inflation was a concern. Not sure if the unwind would work smoothly right now but look at the chart below. Also look at the chart of the UltraShort 20+ Treasuries ETF. IF it breaks above 44.12 on strong volume it could reach a $50 handle. If not a retest is in the works.

US Dollar:30 Yr Treasuries (futuresource.com)
TBT (UltraShort 20+ Treasury ETF)

Here are bits from articles I've read recently. They are from respected sources and the whole general idea makes sense. But the Fed is talking about buying long term treasuries to keep borrowing costs low which could 'artificially' mediate the effect. We'll see. I also provided an article from FT Alphaville re: Goldman Sachs not believing the bubble hype, for now at least.

Financial crisis is causing suicides

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Is this the modern day equivalent to people jumping out of windows during the 1929 stock market crash?

German Billionaire Commits Suicide

Trader takes own life over large losses

Mortgages Ltd. chairman's death ruled a suicide

Suicide Madoff investor was 'honorable man'

Billionaire Merckle commits suicide

Real-Estate Executive Found Dead in Apparent Suicide

Private equity boss kills himself

Obama on 'Check, Please' in 2001 Reviewing Restaurants in Chicago

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I thought I'd post this up in honor of Obama's inauguration. By the way your new President likes the Southern Sampler and Peach Cobbler at Chicago's Dixie Kitchen.
"In this 2001 "lost episode" of Check, Please!, then state senator Barack Obama reviewed Dixie Kitchen and Bait Shop in the Hyde Park neighborhood of Chicago. The full episode will air on January 16th at 8:00PM on WTTW." checkpleasetv.com

Obama Stimulus, Ivy Zelman on Housing, and Alcoa Cutting 13,500 Jobs

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Traders are anticipating major moves by the Obama administration once he takes office on January 20. Obama believes the economic stimulus package will be approved within 2 weeks of his inauguration. A horrible jobs report is expected on Friday so we'll see if Obama trumps the recession trade (or if job losses come in less than expected).

Obama Urges Swift Action on Economy - VOAnews

In other news Alcoa is about to cut 13,500 jobs. Not sure how the economy can recover if companies continue to delever their labor force expense which ultimately puts a squeeze on personal income statements and forces the consumer to delever. And once they stop spending it causes a domino effect of job cuts. Hurry up Obama!
"Alcoa, the largest U.S. aluminum maker, said Tuesday that it would cut 13,500 jobs, or about 13 percent of its global work force, and reduce spending and output because of the economic downturn. The company, based in Pittsburgh, said that in addition to the job cuts, 1,700 contractors also would be eliminated and that it was implementing a global salary and hiring freeze." International Herald Tribune
On the housing front, star homebuilding analyst Ivy Zelman said on CNBC this morning to sell this homebuilding rally. She thinks job losses will not allow the market to deal with the oversupply of distressed inventory fast enough and that homebuilders are rallying strictly on Obama stimulus anticipation. She's bearish because delinquencies continue to rise and a "tsunami" of foreclosures are expected to show up on the market during the next several years. She thinks loan modifications will fall short and mortgage nationalization would be the only cure because there's too much negative housing equity on the market. The video below takes you to CNBC.com.

Ivy Zelman (Housing Analyst) on CNBC

Has the market already priced in this madness? Can Obama create enough jobs to soak up all of this housing inventory? Place your bets.

Watching Copper Futures...

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It looks like the recent disconnect between base metals:precious metals is starting to close. Copper Futures are up 3.6% to 151.15 tonight. Gold futures have tanked recently due to a recent USD rally. Let's see if $copper can recover from here or at least successfully retest the 5 year base. There's still an issue with global demand.

Comex Copper Futures Recover To End Near Steady 1/5/08

"The base metals made an uncertain start to the year, and in the absence of any clear direction were again caught currency watching," Westgate said. "The metals all recovered from their intraday lows, however, with a combination of short-covering activity and fresh buying interest coming into play."

"Copper came under pressure "in light of a stronger dollar today brought about by talk of aggressive stimulus plans being contemplated by the Obama administration," MF global analyst Edward Meir said in a research note."

Reflation Trade Analysis. Recent Action in Gold, USD, OIL, FXC, AUD/JPY, US Treasuries and Jim Rogers Wisdom

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I want to start off the year revisiting the reflation trade. I posted about the carry trade/reflation not too long ago (1,2). Today on December 31, 2008 the ETFs $GLD (Gold), $SLV (Silver), $TBT (UltraShort 30 Yr Treasuries), $USO (Oil), $DRYS (dry bulk shipper) and the U.S markets are rallying big time. Also the AUD/JPY (carry trade) broke out of a range, the $VIX dipped below 40 and the $UUP (US Dollar Bullish ETF) is unchanged after a recent correction. At the bottom I decorated charts revealing some potential setups. Must be careful with this directional trade though because it could just be a bear market rally. Stay protected!

Here's some wisdom from legendary investor Jim Rogers who had a long interview on Bloomberg recently and was bullish (as always) on commodities.

Wingsuit base jumping, as crazy as the stock market this year.

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wingsuit base jumping from Ali on Vimeo.

2008: The Year of Anxiety, How About This Distressed & Volatile Year?

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How about this distressed and volatile year? I learned something new every day. Investors need some Zoloft after experiencing a 49% ytd loss in the S&P in November. Right now (Dec 30, 2008) we're down 39% ytd. Hopefully your mutual fund managers beat that #. As you know the U.S Government is throwing hundreds of billions of dollars at the U.S economy to try to spark growth and save jobs¹²³. China is engineering a $585 billion stimulus package and they recently lowered the one year lending rate¹. Japan is also trying to stimulate their economy and intervene in the forex market to halt the rise of the yen which has been killing Japanese exports. It also looks like Europe might need a big stimulus as well. So central banks and their printing presses are throwing as much money as they can at this global growth/deflation problem. Investors are positioning themselves for this deflationary period by sacrificing yield to protect principal. Treasuries are like the new savings account. Hopefully 2009 will be a better year. Happy New Year, PEACE!


Interview with Yahoo Founder Jerry Yang at Web 2.0 Summit 11/5/08

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"What happened with the Microsoft deal? Why didn't you take the $33 a share Jerry?!"

I always wanted to put up this interview with Yahoo's Founder (CEO/Chief Yahoo/Whatever) Jerry Yang at the Web2.0 Summit on 11/05/2008. John Battelle's interview with Jerry Yang touches on the Microsoft deal as well as the 10 year search monetization deal with Google that fell apart. It was a crazy year for Yahoo. Remember Icahn, with help from John Paulson and T. Boone Pickens, led a proxy fight and nominated a slate of directors including Mark Cuban?
"June 3 (Bloomberg) -- Yahoo! Inc. Chief Executive Officer Jerry Yang is facing increasing shareholder pressure to sell the Internet company he helped found or step aside. Billionaire investor Carl Icahn told the Wall Street Journal that if he wins control of the board, he will seek to oust Yang, who rejected a $47.5 billion takeover bid from Microsoft Corp. last month. Yahoo said today that it will hold the shareholder vote on the board on Aug. 1.

Icahn has amassed support for his proxy fight from hedge- fund manager John Paulson and BP Capital LLC Chairman T. Boone Pickens since Yang, 39, spurned the offer. Yahoo shares closed at $26.15 today, or 21 percent less than the last bid."

Icahn Pressures Yang as Yahoo Investors Urge Sale (Bloomberg)

I guess Microsoft was smart to walk away after Yahoo turned it down. The global recession was coming and Yahoo lost over a 1/3 of it's value in the next 6 months. It closed at $8.94 in November. Here's the video with a 1 year chart. Also Yahoo should carve out Tech Ticker and take it public. It is revolutionizing financial business news on the internet.

Adami & Macke Pretty Much Sum Up 2008 (Tech Ticker). Also Peter Schiff on Fast Money (11/20/2008)

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The Fast Money traders pretty much sum up 2008, lol.

Also here's an interesting clip from CNBC's Fast Money on Nov 20, 2008 featuring Peter Schiff.

Plus I'm watching long term Treasuries, US Dollar,
CRB Index, base metals, Aussie/Yen and precious metals. By the way it's interesting that the moves in base metals have been lagging the Aussie/Yen which has been lagging the precious metals. There continues to be monetary stimuli across the world, Australia has commodities, there could be Japanese currency intervention and there's still a global recession.... So it will be interesting to see what happens with that disconnect.

GLD, SLV, USO and Options Active, Probably Due to 0% Rates, Mideast/Asia Tensions. Inflation Risk?

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Today was a very interesting day for gold, silver and oil and I was monitoring their ETF equivalents $GLD (Gold), $SLV (Silver) and $USO (Oil).. There's been geopolitical tension around the world recently between India/Pakistan, Israel/Palestine and Russia/Ukraine and it could be that these commodity traders are either anticipating an ugly event, pricing in the 0% interest rates or covering their short positions for a reversal/bear market rally. Either way $GLD rallied on volume spikes right before 1:00p and had active front month call activity. It's interesting because I saw $UNG and it's options get bid up a few days ago on the Russia/Ukraine debt conflict (blog post). It's tough to tell what exactly is driving all of this activity because we're in a recession with disinflationary forces. But billions of dollars are set to multiply through the economy once banks start lending again.

Anyway check out the intraday volume spike in GLD today in the chart below. GLD Options were also active. The JAN 90 strike traded close to 6,000 contracts, the JAN 100 strike traded close to 14,000 and the JAN 110 strike traded 5,000 contracts on cheap premium. Calls outnumbered puts. Looking at the technicals on the 9 month chart it broke the 200 day moving avg which probably brought a herd of buyers but it's knocking right up against the downtrend line which could act as resistance. Also GLD moved higher on low volume and all of the option activity occurred in JAN so it's a short term time horizon.

$GLD (Gold ETF) Intraday Volume Spike (Yahoo Finance)

$GLD 9 Month Chart (Yahoo Finance)

$GLD Option Activity, Call Volume Active (Yahoo Finance)

Below I provided the USO (Oil ETF) and SLV (Silver ETF) charts. Both were being bid up today. All of this activity could bring a short squeeze in commodity prices or a bear market rally on the charts. But this slowdown is serious and there definitely needs to be more conviction. If the USD can't sustain a downtrend and rates remain at 0%, a commodity rally will probably be unsustainable. But I'm watching for a reflaciones trade folks! There are a bunch of moving parts in a global reflation trade so I'll blog about it in pieces and maybe I'll come up with something interesting.

$USO (Oil ETF) - (Yahoo Finance)

$SLV (Silver ETF) - (Yahoo Finance)

Natural Gas ETF $UNG Sees Activity On Gazprom/Naftogaz Debt Issues

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I've been seeing conflicting indicators in the market regarding a potential reflation trade linked to commodities, currencies, interest rates, and the BDI shipping indices. It's been a tug of war between deflationary and inflationary forces and with oil plummeting, the US Dollar and gold bouncing in a channel, and 3 month T-bills yielding 0% I need more conviction before even thinking about price stabilization and risk appetite.

But market indicators aside, political risk is showing itself in the natural gas market. I saw some interesting movement in the natural gas ETF this morning primarily related to the Gazprom/Naftogaz debt conflict and gas meetings in Moscow. Russia's Gazprom is ordering Ukraine's Naftogaz to pay back billions in debt by the end of the year and warned Western Europe of potential gas
disruptions if they aren't paid.
"The Russian gas-export monopoly, Gazprom, and the Russian government have warned European consumers of possible disruptions in supplies pumped through Ukrainian territory at the start of 2009. Gazprom is threatening cuts to Kiev over a $2.4 billion (1.8 billion euro) debt Russia says Ukraine's state gas company Naftogaz owes Gazprom." Deutsche Welle

Putin also said today the "Era of Cheap Natural Gas is Ending".
"Speaking in Moscow at a meeting of the Gas Exporting Countries Forum, or GECF, Prime Minister Putin said liquefied natural gas has become an expanding global business that requires construction of more liquefaction facilities and special terminals to transfer supplies. He says existing gas fields are being depleted and promising new ones are farther away from leading consumption centers. As a result, says Mr. Putin, expenses for exploration, extraction, and transport of gas are rising." Voice of America

2008, The Year of Anxiety, Will Monetary Stimulus Save The Global Economy?

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How about this distressed and volatile year? I Learned something new every day. Investors need some Zoloft after experiencing a 49% ytd loss in the S&P in November. Right now (Dec 30, 2008) we're down 39% ytd. Hopefully your mutual fund managers beat that #. As you know the U.S Government is throwing hundreds of billions of dollars at the U.S economy to try to spark growth and save jobs¹²³. China is engineering a $585 billion stimulus package and they recently lowered the one year lending rate¹. Japan is also trying to stimulate their economy and intervene in the forex market to halt the rise of the yen which has been killing Japanese exports. It also looks like Europe might need a big stimulus as well. So central banks and their printing presses are throwing as much money as they can at this global growth/deflation problem. Investors are positioning themselves for this deflationary period by sacrificing yield to protect principal. Treasuries are like the new savings account. Hopefully 2009 will be a better year. Happy New Year, PEACE!