George Soros Interviews | Davos, Switzlerland 2009 (Reuters, Bloomberg)

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George Soros likes the good bank/bad bank solution for the banking sector but he thinks the "good bank" must be recapitalized with private capital.

But Mr. Soros, who doubted that nationalization of big banks are possible amid the current market sentiment, said he would prefer that under such a model the “bad bank” keeps the bank’s current capital, while private investors should be allowed to invest in the healthy part. “We could mobilize private investors [to recapitalize the banks],” Mr. Soros said. “I would be interested in investing in the good banks since the margins are very high.” Mr. Soros, who declined to estimate how long the financial crisis might last, said the current problems showed “the efficient market hypothesis has been disproved.”" Full story at

More George Soros wisdom...

"Markets always misprice assets, however, and this is the reflexivity idea. The mispricing of assets has ways of changing affecting the fundamentals that the markets are supposed to price. So you have a feedback mechanism that can move you in a self-reinforcing way, and that's why markets are prone to create bubbles" (Reuters Interview | Davos 2009)

CIBC's Rubin on Reflation, Oil, Yield Curve, Quantitative Easing etc..

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I found a great economic report by CIBC's Jeff Rubin on reflation, oil prices, treasuries, quantitative easing and infrastructure. He sees supply destruction affecting oil prices when global demand snaps back and burns through inventories. Today's oil prices cannot support the "incremental cost of finding, developing, and producing a new barrel of oil", he says. Rubin sees $60-$100 oil in 2010 look at the chart in his report.

It's interesting what he thinks about the yield curve. By Dec '09 he sees a narrowing of the 30/2y spread by 50bp to 2.00 with most of the upside coming from the 2y. He sees the 2y yield almost doubling to 1.45 and the 30y yield up only 6% to 3.45.

Normal Sloping Yield Curve (1/26/09) (

2 Year Note Yield (1/26/09) (

More reports can be found at CIBC's website. For oil research check out

Is Gold Finally Ready to Move?

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After watching Friday's action I'm wondering if gold is finally ready to move. Gold tried to break resistance in the beginning of January but failed. It looks like $GOLD and the GLD broke some major barriers on Friday. It pierced through the downtrend line with 200 day moving average support. Feb calls were also very active (below). So will it successfully retest new support levels? Is the market starting to price in reflation? Is the gold move strictly a safe haven trade guarding from insolvent banks, countries, and a global currency dump? The chart will answer all of the questions.

It's Obama vs. Deflation now. Gold futures are -6.20, -0.69% tonight. Lets see if it can hold.

Gold Contract (


GLD Feb Option Chain (As of Jan 23 close, Yahoo Finance)

NEW VIX ETN COMING? (Volatility, $VXX)

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I just heard some great news. It looks like Barclays might be rolling out some VIX ETNs pending regulatory approval. The iPath S&P 500 VIX Short-Term Futures and iPath S&P 500 VIX Mid-Term Futures ETNs will track these S&P indices.

“The S&P 500 VIX Short-Term Futures Index measures the return from a daily rolling long position in the first- and second-month VIX futures contracts, resulting in a constant one- month maturity profile.”

“The S&P 500 VIX Mid-Term Futures Index measures the return from a daily rolling long position in the fourth-, fifth-, sixth- and seventh-month VIX futures contracts, resulting in a constant five-month maturity profile.” S&P Press Release

The VIX measures options on the S&P 500 or its implied volatility. It is inversely related to the stock market and will spike if the S&P 500 gets dumped. When market participants become anxious the market gets volatile and option prices are bid up to play the swings. When we were in a steady bull market from 2002-2007 the options on the S&P were very cheap since there were no big moves in the index. A few years ago CBOE rolled out VIX futures and option contracts on those futures. VIX futures trade differently than the VIX spot price. There are risks involved with these ETNs, read the articles and fact sheets below for more information.

I started watching the VIX when it hit all time lows (under 10) in early 2007. Veteran investors were warning about future market volatility and were shorting the indices. I wish I could find the Forbes article but they were loading up on DXD (short Dow Jones Industrials) and getting ready for an upsurge in volatility and a market correction. They were 6-8 months early but they made a killing if they held through 2008. If the investors bought VIX futures they would have magnified their gains since volatility exploded by the end of 2008 due to the collapse of the banking sector. Look at this 2 year chart comparing the VIX (spot) and S&P on a percentage basis. I also charted out the technicals and it looks like it's building up a wedge waiting for a big move. Hopefully it breaks down to test the 200 day moving average, makes lower lows, the S&P rallies to 1000 and Nouriel Roubini puts spike 3200%. Here's the ^VIX quote at Yahoo Finance.

VIX vs. S&P (

VIX 1 Year Chart (

These ETFs will be a great way to hedge against market crashes or even as a speculative short to play a market bottom. Check out the Volatility Sonar report via OptionMonsterTV which gives updates from the VIX pit.

OptionMonster VIX Update (

So will the VIX ETN be a good tool for retail investors to hedge against market volatility? It looks like the ETN won't realize the FULL potential of VIX spot spikes since they are futures but I still like the idea. Another thing... These notes would be backed by Barclays which is having some issues at the moment. Maybe they should wait a month or two.

Pair Of VIX-Tracking ETNs On The Way (IndexUniverse)
Benchmarks For VIX-Tracking ETNs Ready To Go (IndexUniverse)
VIX Futures White Paper (PDF,
S&P VIX Futures Indices (PDF Fact Sheet)

Using intraday Vix reversals to spot intraday market reversals… over, and over, and over… (Hawaii Trader)
Potential New VIX Product — Beware!! (Don Fishback)
New VIXes On Tap? (Daily Options Report)
Barclays VIX ETNs Slated to Begin Trading on Friday (Vix & More)

DHL Job Cuts Ruin Wilmington, Ohio

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DHL, Wilmington, Ohio's largest employer, shut down it's domestic operations affecting thousands of jobs in this small town. This reminds me of the Michael Moore movie 'Roger and Me' when GM shut down plants in Flint in the 80s. This shows the evil side of free markets and it's even worse when big layoffs are concentrated in one area. More on the story at 60 Minutes and Here's a quote from the original DHL press release.

"In order to meet its financial goals, DHL U.S. Express will close its U.S. ground hubs, and reduce the number of stations from 412 to 103. This will result in an additional reduction of 9,500 U.S. jobs at DHL Express on top of the approximately 5,400 positions already reduced since January. The company will retain 3,000 to 4,000 U.S. Express employees, tailored to the needs of international express customers. These measures will allow DHL's U.S. Express business to reduce its operating costs from $5.4 billion to under $1 billion, a decrease of over 80%. DHL"

60 Minutes Video

VOA Report, November 17, 2008

Here are more stories on the issue. NPR, NYT, CNN

Obama's American Recovery & Reinvestment Plan (Video via White House Blog)

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The White House has a blog. Obama is officially Web 2.0. Below are quotes from the blog at The full text to the video is available at the blog.
In his first weekly address since being sworn in as the 44th president of the United States, President Barack Obama discusses how the American Recovery and Reinvestment Plan will jump-start the economy.

"This is not just a short-term program to boost employment," he said. "It’s one that will invest in our most important priorities like energy and education; health care and a new infrastructure that are necessary to keep us strong and competitive in the 21st century."

The Administration is still working with Congress to refine the plan, but in the address, President Obama lays out the key priorities. He goes into detail, noting that the plan will update our electric grid by laying more than 3,000 miles of transmission lines; weatherize 2.5 million homes; protect health insurance for more than 8 million Americans in danger of losing their coverage; secure 90 major ports; renovate 10,000 schools; and triple the number of science fellowships.

Reflation finally here? Is this why gold and silver violated some huge barriers on Friday? Posting soon.

Jim Rogers: UK Going Bankrupt!? (Video)

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Here is Jim Rogers battling a UK banker and investor about the current state of the UK economy. Jim thinks the "recession is the worst since the second world war". There are also fears that UK's credit rating could be cut (1,2). Both Spain and Portugal had their credit rating cut by S&P. Also check out the chart of the British Pound it lost 31% in 6 months. Hopefully George Soros was short sterling in size again. Things are getting ugly on this planet.

Jim Rogers (pt. 1)

Jim Rogers (pt. 2)

British Pound Index - 6 Months (

Plus Barclays, the UK's "remaining giant", was down 18% on Friday due to a nationalization clause in their recent Middle East deal.

Barclays shares plunge 18 per cent to new low (Timesonline)

"Shares in Barclays continued to plunge today, losing a further 18 per cent of their value to fall below 50p to a new low, as investors continue to take fright at the state of the British banking sector.

The bank's stock lost a further 10.7p to 48.5p after The Times revealed yesterday revealed the existence of a little-known clause in a deal, done last October, under which Barclays raised £7.3 billion from investors in Dubai and Abu Dhabi.

The clause effectively blocks the Government from attempting to part-nationalise Barclays and would deliver it into the hands of its Middle Eastern investors should it try to raise more capital through the market before the end of June."

Also here is recent info on the UK's CDS spreads via FT Alphaville

"In Europe, CDS spreads for the UK’s sovereign debt hit a new record at 151.7bp, out from 142.1bp at the New York close, CMA said. In a rare occasion, traders began quoting prices for Switzerland’s debt on Wednesday morning. CDS for Switzerland was quoted at 139.1, around 4bp wider from Tuesday evening, according to the CMA." Read full story, 1/21/09

Also read this: Barclays Stock Indicates 70% Risk of Nationalization

Watching TBT Action (Inverse 20+ Yr Treasuries)

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A few weeks ago I posted about the ProShares UltraShort Lehman 20+ Yr Treasuries ETF (TBT). On Jan 7 TBT could not break above the 42-43 resistance level and eventually retraced back to the 61.8% fib level around 38.5. Buyers still couldn't resist this thing and quickly pushed it back up to resistance. It closed today at 42.84 up 6.22% on some decent volume.

What is driving this action? I'm not exactly sure but data speaks for itself. It looks like China swapped some long-term Treasuries for bills.
A few quick words on the November TIC data (Brad Setser)

"China sold $9.2 billion of long-term Treasuries. But it also bought $38.2b of short-term Treasuries. China’s total Treasury holdings are up by $29.1b. By contrast it sold $3.1b of long-term Agencies and also reduced its short-term holdings by about $5 billion. China reallocated its US portfolio, but it hasn’t cut back on its dollar purchases."

Obama's reflationary policies could also be scaring people out of long-term Treasuries and articles coming out of Asia are not helping the bulls.
China's US bond appetite to slow: economists (AFP)

"SHANGHAI (AFP) – China is expected to ease its spending on US debt as growth in its foreign exchange reserves slows and Beijing seeks to fund its own economic stimulus plan, analysts say."

‘Time to Sell’ Treasuries, Biggest Korean Fund Says (Bloomberg)

"Jan. 19 (Bloomberg) -- A rally that sent U.S. Treasuries to their best year since 1995 is coming to an end, South Korea’s National Pension Service, the country’s biggest investor, said. U.S. government efforts to combat the recession will prompt the Federal Reserve to raise interest rates this year, said Kim Heeseok, who oversees $160 billion as head of global investments for the service in Seoul."

But then again you have a Government that is willing to artificially prop up long-term Treasuries to "anchor" long term rates and narrow the spread to spur growth. So if these countries happen to unwind their Treasury positions it might not even have an effect on the market.

If I were to go long I'd watch for a break out above 44 with conviction to prove it had enough confidence to reach 52. Once it broke I'd probably buy cheap insurance and use protective stops. It looks like there were some interesting trades today in the Feb calls. From the 50-56 strike over 4414 contracts traded with 94 contracts open. There must be some spread trades going on unless someone is levering up for a BIG Treasury dump. I'll be watching this.

Ben Bernanke's Exit Strategy

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How will Ben Bernanke scale back all of these lending programs once growth and inflation start to appear. Here are quotes from his speech at the London School of Economics on 1/13/2009.

Exit Strategy

"Some observers have expressed the concern that, by expanding its balance sheet, the Federal Reserve is effectively printing money, an action that will ultimately be inflationary. The Fed's lending activities have indeed resulted in a large increase in the excess reserves held by banks. Bank reserves, together with currency, make up the narrowest definition of money, the monetary base; as you would expect, this measure of money has risen significantly as the Fed's balance sheet has expanded. However, banks are choosing to leave the great bulk of their excess reserves idle, in most cases on deposit with the Fed. Consequently, the rates of growth of broader monetary aggregates, such as M1 and M2, have been much lower than that of the monetary base. At this point, with global economic activity weak and commodity prices at low levels, we see little risk of inflation in the near term; indeed, we expect inflation to continue to moderate.

*However, at some point, when credit markets and the economy have begun to recover, the Federal Reserve will have to unwind its various lending programs. To some extent, this unwinding will happen automatically, as improvements in credit markets should reduce the need to use Fed facilities. Indeed, where possible we have tried to set lending rates and margins at levels that are likely to be increasingly unattractive to borrowers as financial conditions normalize. In addition, some programs--those authorized under the Federal Reserve's so-called 13(3) authority, which requires a finding that conditions in financial markets are "unusual and exigent"--will by law have to be eliminated once credit market conditions substantially normalize. However, as the unwinding of the Fed's various programs effectively constitutes a tightening of policy, the principal factor determining the timing and pace of that process will be the Committee's assessment of the condition of credit markets and the prospects for the economy.*

As lending programs are scaled back, the size of the Federal Reserve's balance sheet will decline, implying a reduction in excess reserves and the monetary base. A significant shrinking of the balance sheet can be accomplished relatively quickly, as a substantial portion of the assets that the Federal Reserve holds--including loans to financial institutions, currency swaps, and purchases of commercial paper--are short-term in nature and can simply be allowed to run off as the various programs and facilities are scaled back or shut down. As the size of the balance sheet and the quantity of excess reserves in the system decline, the Federal Reserve will be able to return to its traditional means of making monetary policy--namely, by setting a target for the federal funds rate.

Although a large portion of Federal Reserve assets are short-term in nature, we do hold or expect to hold significant quantities of longer-term assets, such as the mortgage-backed securities that we will buy over the next two quarters. Although longer-term securities can also be sold, of course, we would not anticipate disposing of more than a small portion of these assets in the near term, which will slow the rate at which our balance sheet can shrink. We are monitoring the maturity composition of our balance sheet closely and do not expect a significant problem in reducing our balance sheet to the extent necessary at the appropriate time.

Importantly, the management of the Federal Reserve's balance sheet and the conduct of monetary policy in the future will be made easier by the recent congressional action to give the Fed the authority to pay interest on bank reserves. In principle, the interest rate the Fed pays on bank reserves should set a floor on the overnight interest rate, as banks should be unwilling to lend reserves at a rate lower than they can receive from the Fed. In practice, the federal funds rate has fallen somewhat below the interest rate on reserves in recent months, reflecting the very high volume of excess reserves, the inexperience of banks with the new regime, and other factors. However, as excess reserves decline, financial conditions normalize, and banks adapt to the new regime, we expect the interest rate paid on reserves to become an effective instrument for controlling the federal funds rate.

Moreover, other tools are available or can be developed to improve control of the federal funds rate during the exit stage. For example, the Treasury could resume its recent practice of issuing supplementary financing bills and placing the funds with the Federal Reserve; the issuance of these bills effectively drains reserves from the banking system, improving monetary control. Longer-term assets can be financed through repurchase agreements and other methods, which also drain reserves from the system. In considering whether to create or expand its programs, the Federal Reserve will carefully weigh the implications for the exit strategy. And we will take all necessary actions to ensure that the unwinding of our programs is accomplished smoothly and in a timely way, consistent with meeting our obligation to foster full employment and price stability."

Chairman Ben S. Bernanke,
London School of Economics
January 13, 2009
The Crisis and the Policy Response (full text)

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:

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:

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:

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 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

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 (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 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

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 (

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 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 (

Gold/Platinum 5 yr chart (

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? (

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.




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 (
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."

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

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."

Gold (GLD) vs. US Dollar (UUP) Inflection Point Coming Soon... (Charts)

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Today the market roared 3%. Everything was up except Gold ($GLD). At this point there could be big moves coming for both $GLD and $UUP (US Dollar ETF). Some think gold will reach $2000 this year others think gold will retest lows. Big money will be positioning itself in January. Here's some technical analysis for both ETFs click charts to enlarge. These ETFs look positioned for a trade so watch volume on trend breaks. -@dvolatility

UUP (Bullish U.S Dollar ETF)

GLD (Gold ETF)

US Dollar:Gold (