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

The White House has a blog. Obama is officially Web 2.0. Below are quotes from the blog at whitehouse.gov. 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)

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 (stockcharts.com)

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)

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

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

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

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

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)

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)

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

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)