Credit Default Swap Spreads Still Elevated

It looks like credit default swap spreads are still elevated and after reading these articles, G20 leaders facing world trade 'emergency', Double-digit unemployment hits 7 states, Roubini Says Stocks Will Drop as Banks Go ‘Belly Up’, Obama Said to Find Bankruptcy Likely for GM, Chrysler, you can understand why.

Credit Derivatives Research provides charts of their CDS indices on their website updated daily. Here's a snapshot of their CDR Liquid 50 Indices and CDR Counterparty Risk Index as of 3/31/09. I added trend lines. Most spreads are near their previous highs. The Counterparty Risk Index is retesting highs not seen since the Lehman bankruptcy in 9/2008. As for the Liquid 50 Indices: The CDR Liquid 50 NAIG (investment grade) chart is in a strong uptrend, the CDR Liquid 50 NAHY (high yield) chart is in a channel near previous highs and the CDR Liquid 40 EUXO (Euro high yield) chart is in a wedge and waiting for clearance to either break through previous highs or fail. Go to creditresearch.com for all of this data and more. Eventually risk will be overpriced and institutions will make mad dough selling this protection. When that day comes.


CDR Liquid 50 NAIG Index (creditresearch.com)

CDR Liquid 50 NAHY Index (creditresearch.com)

CDR Liquid 40 EUXO Index (creditresearch.com)

CDR Counterparty Risk Index (creditresearch.com)

Gold and US Dollar ETFs, Talks of New Intl Reserve Currency.

The Gold and US Dollar ETFs are sitting right around the 50 day ma ahead of the G-20 meeting. $GLD closed just below the 50 day moving average and 90ish support level while $UUP closed just below 50 day resistance. A catalyst could bring some technical breaks which could dictate some trends. It will be interesting to see if Gold/USD trade in tandem or decouple from here (safe haven v. reflation). The pair briefly divorced when Bernanke announced he was going to create $ to buy Treasuries (chart at bottom). Right now, early Tuesday morning, Gold is down 0.11% and the USD is down 0.47%.

Also China and Russia both want to replace the US Dollar as the worlds reserve currency with a basket of currencies and gold as Special Drawing Rights. This talk could have an affect on USD/Gold.

Also look at the 1 year chart of GLD, it is unchanged!

GLD 6 Week Chart

GLD 6 Month Chart

GLD 2 Year Chart

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A Car That Flies at Terrafugia (Videos)

Wright Brothers + Henry Ford x Carl Dietrich ^ Elon Musk = Electric Car Plane Spaceship.




Actually I'm just talking about a car plane that runs on unleaded gasoline. Carl Dietrich is the CEO/CTO of Terrafugia, a MIT spin off company based in Mass that is bringing The Transition® or "first practical street legal airplane to the world". The Transition® is "a small aircraft that can fold up it's wings, drive on the road, gas up at a normal gas station and park in a single car garage." It even has better gas milage than most cars (27m/g in the air and 30m/g on the ground). Phase 1 was just taking off and landing on a runway which is shown below. This will be a new era of personal aviation. It's $194,000 which is a lot of dough but they have refundable $10,000 deposits. The roadable aircraft will be delivered in 2011. You need a sport pilots license which takes 20 hours of training in the air. Real life Jetsons is coming people.

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USD Index Went From 92 to 151 In Early 1980s. A Look At USD, CPI and Fed Funds During 80s Recession.

I thought I'd check out the relationship between the Trade Weighted U.S Dollar Index, Consumer Price Index and Fed Funds Rate during the early eighties recession. Here's a brief summary via Wikipedia (last updated on March 24, 2009). I suggest you read the whole thing which explains the S&L crisis and the Continental Illinois National Bank bail out. There was a banking crisis with inflation, fed funds and unemployment all hitting double digits from 1980-83 (inflation-> fed funds-> unemployment).

The early 1980s recession was a severe recession in the United States which began in July 1981 and ended in November 1982.[1][2] The primary cause of the recession was a contractionary monetary policy established by the Federal Reserve System to control high inflation.[3]

The recession was the most serious recession since the Great Depression[4] until the current recession.

In the wake of the 1973 oil crisis and the 1979 energy crisis, stagflation began to afflict the economy of the United States. Unemployment had risen from 5.1% in January 1974 to a high of 9.0% in May 1975. Although it had gradually declined to 5.6% by May 1979, unemployment began rising again thereafter. It jumped sharply to 6.9% in April 1980 and to 7.5% in May 1980. A mild recession from January to July 1980 kept unemployment high, but despite economic recovery unemployment remained at historically high levels (about 7.5%) through the end of 1981.[5] Inflation, which had averaged 3.2% annually in the post-war period, had more than doubled after the 1973 oil shock to a 7.7% annual rate. Inflation reached 9.1% in 1975, the highest rate since 1947. Inflation declined to 5.8% the following year, but then edged higher. By 1979, inflation reached a startling 11.3% and in 1980 soared to 13.5%.[6][1]

A brief recession occurred in 1980. Several key industries—including housing, steel manufacturing and automobile production—experienced a downturn from which they did not recover through the end of the next recession. Many of the economic sectors that supplied these basic industries were also hard-hit.[7]

Determined to wring inflation out of the economy, Federal Reserve chairman Paul Volcker slowed the rate of growth of the money supply and raised interest rates. The federal funds rate, which was about 11% in 1979, rose to 20% by June 1981. The prime interest rate, at the time a highly important economic measure, eventually reached 21.5% in June 1982.[2][8]

The trade weighted US Dollar Index made a double bottom at $88.30 on 10/30/1978 and $92.24 on 7/10/1980 and hit a high of $148.12 on 2/25/1985 (St. Louis Fed Database). The inflation rate hit a high of 13% and Fed Chairman Paul Volcker tightened up liquidity and sent the effective fed funds rate to 19% which killed the inflation. As you can see the U.S Dollar Index followed the CPI and Fed Funds rate with a 60% gain. That's interesting.

The question I have is what will happen to the U.S Dollar Index once inflation hits and Bernanke burns the liquidity he created. Here's his exit strategy. It will be interesting to see if the U.S economy recovers before other nations and how Bernanke times the inflation risk. If the U.S recovers first and parked U.S Dollars start to multiply, inflation could hit which could dilute USDs. What if Bernanke is ahead of the curve and liquidates lending programs and hikes rates forcefully like Paul Volcker? What if there's a global yield gap that brings profitable carry trades to the U.S??? But if Bernanke waits too long would people exit the USD and debt based on tighter foreign spreads and a negative real return? It's all about timing it seems.

Of course Central Bank Interventions and a global U.S Dollar threat (1,2) could ruin this market force. Also the U.S has some fiscal issues with the national debt sitting at $11.046 trillion on 3/26/09. But from 1982 to 1985 Reagan increased the national debt by record amounts, however Debt/GDP was much lower back then. Either way this is one big mind f*.

Also I found an 80s video about the coordinated Plaza Accord that broke down the U.S Dollar in 1985. It features Prof. Paul Krugman.

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Great Jim Rogers Interview via CNN's Talk Asia

This is a great Jim Rogers interview via CNN's Talk Asia.

Question: Why Wall Street?

Jim Rogers: "My passion has always been the world and what's going on in the world and suddenly I found a place that would pay me, pay me a lot of money, if I could just tell and figure out what was going to happen in the world, and what was going to happen in the future. I couldn't believe it. They wouldn't have had to pay me I would've done it for free!

Question: What specifically? What was the interest? Was it the politics, how the economy is inter..?

Jim Rogers: How it all interacted together. If there's a revolution in Chile it's not just a revolution in Chile it affects the price of copper, it affects a lot of things. When the price of copper skyrockets, there's a lot of knock on affects. It's all fascinating to me, it's a 3 dimensional puzzle and the pieces are always changing. It's such an unbelievable challenge and every day they come in and they change the pieces in the 3 dimensional puzzle and you gotta figure out oh my gosh what about Chile it might turn into a revolution or what about Malaysia you know something could happen in Malaysia. You got to put this puzzle.., this was so fascinating to me I couldn't believe it."

He also talks about the Quantum Fund with Soros and his world travels.




Via A Jim Rogers Blog.

G20 Protest Videos in London, I-Volatility High

London's implied volatility is spiking. A massive march is planned at the Bank of England on April 1. *Update Looks like protesters broke windows at the Royal Bank of Scotland. There were some bloodied up blokes and it looks like someone died too.

This is interesting: 'Hanging bankers' prof is suspended

"Chris Knight, professor of anthropology at the University of East London, is organising protests under the banner G20 Meltdown.

He told BBC Radio 4's PM programme: "We are going to be hanging a lot of people like Fred the Shred from lampposts on April Fool's Day and I can only say let's hope they are just effigies."

His outburst continued: "To be honest, if he winds us up any more I'm afraid there will be real bankers hanging from lampposts and let's hope that that doesn't actually have to happen.

"They should realise the amount of fury and hatred there is for them and act quickly, because quite honestly if it isn't humour it is going to be anger.

"I am trying to keep it humorous and let the anger come up in a creative and hopefully productive and peaceful way.

"If the other people don't join in the fun - I'm talking about the bankers and those rather pompous ministers - and come over and surrender their power obviously it's going to get us even more wound up and things could get nasty. Let's hope it doesn't." (More)

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US Dollar and Crude Oil Both Sitting At Trend

Look at this logarithmic chart via stockcharts.com comparing the U.S Dollar with West Texas Intermediate Crude Oil ($USD:$WTIC) over a year. They are both hitting their long term trend. Oil is priced in USDs and it's interesting to watch this pair since there's a tug of war between oil supply/demand and monetary dilution taking place.


US Dollar vs. Crude Oil (Stockcharts.com)

Natural Gas Rig Count Down, UNG Volume Spikes at Resistance, Oil:Natural Gas Gap Widens.

The UNG (Natural Gas ETF) has continuously failed to break through resistance levels. It's been a slow death since energy prices peaked in 2008. UNG is at critical levels again but this time it tested it's 50 day moving average and down trend resistance level with close to 20 million shares behind it (look at the volume spike on the chart). UNG hasn't seen that volume level since September 2008.

Since we're in a recession the lack of natual gas demand has pushed up storage levels. From the EIA on 3/13/09 working gas in storage was up 24.6% from 3/13/08 and up 16% from the 5 year average. As a result natural gas rigs have plummeted.

"NEW YORK, March 20 (Reuters) - The number of rigs drilling for natural gas in the United States fell 27 to 857 last week, the lowest level since early May 2003, according to a report issued on Friday by oil services firm Baker Hughes Inc in Houston. "The current gas rig count stands about 576 below the same week last year..." More"

It's a race between supply and demand that will determine natural gas prices going forward. If UNG gathers enough strength to break through resistance it could get bid up to the $20-$25 level (next resistance). If it can't I'd stay short and wait (in my opinion). $UNG closed at $17.81 today. Read the bullish and bearish articles below.


UNG (Natural Gas ETF) via Stockcharts.com


Natural Gas Storage via EIA



Articles to read:

US natgas rig count at lowest level since May 2003
Marsall Adkins: Natural Gas: Weakness Borne of Strength
Aronstein Turns Commodity Bull After Picking 2008 Top
Is Natural Gas Potentially Bottoming?

S&P, Dow, Nasdaq All Above 50 Day Moving Average. Can It Stick This Time?

All indices were up 6%+ today on the Gov's plan to soak up bad bank assets and from a gain in existing home sales. This analyst from Canaccord Adams saw fundamental strength not short covering.

"Analysts said they saw more fundamental strength in Monday's buying than they saw at the start of the rally. Dave Rovelli, managing director of trading at brokerage Canaccord Adams, said there appeared to be less short covering, which occurs when traders are forced to buy to cover misplaced bets that stocks would fall." AP

At the beginning of today's rally the S&P and Nasdaq were above their 50 day moving averages but the Dow was still battling that level. As buyers overwhelmed the sellers the Dow ultimately broke it by the end of trading. Not only did the indices break through the 50 day they also broke through some downtrend and top resistance levels. Over 130,000 contracts traded on the $SPY 85 strike with 39,000 open today (bot?). SPY closed at 82.22 and 18% above average 3 month volume. There's heavy resistance from 82-86 in the $SPY. People could be trying to ride this to 85 but I'd have stops and a finger on the put trigger for protection (in my personal opinion)... *There could be unexpected events that could force the indices to test the 50 day and new support levels, as well as pull down call premium. Also those 276,000 XLI April $18 calls open are looking profitable!


S&P 500 ($SPX)


Dow Jones Industrials ($DJI)


Nasdaq Composite ($COMP)


SPY (SPDR S&P 500 ETF)

Hovnanian Trading Activity, Housing Starts Rebound. When is the Inventory Squeeze?

I thought I'd post about some interesting trades I saw on Hovnanian ($HOV) at the end of the day Friday. There were volume spikes that brought this up .10 to $1.33 but a minute after the close there was a big volume dump that took HOV down to $1.18. The volume number isn't unusual but the prints/price movement was interesting. It looks like it failed to break above the 50 day moving average today (1.38). I thought I'd check out their #s and it looks like they have cash flow/debt issues (articles below) which isn't surprising. The question is when will sales and inventory absorption put a floor under home prices?


Hovnanian ($HOV) 3/20/08 Day Chart (Optionsxpress.com)
Hovnanian Stock Chart 6 Months (Stockcharts.com)

3/19: Hovnanian cash declines may threaten bond payments (Reuters)
3/16: Fitch Cuts Hovnanian's Ratings To Highly Speculative Grade (WSJ)
3/6: Moody's Cuts Hovnanian, Beazer To Highly Speculative (WSJ)

Here's a snapshot of their income statement and balance sheet (click charts to enlarge). Their equity is dwindling away which probably explains why the stock was at .50/share a month ago. They do have $842 million in cash but total shareholders equity decreased 49.15% to $167 million compared to October 31, 2008. Price/Book = 0.55 with 78 million weighted average shares outstanding.

They also have $100 million Senior Subordinated Notes due on 1/15/2010 that currently yields33.7%. This kind of reminds me of WCI Communities when they tried to refinance $125 Million that was put to them. That didn't end well. Hovnanian is making moves though to retire it's debt and preserve cash.

“Since the end of our first quarter, we purchased approximately $240 million of face value of unsecured senior notes and $75 million of face value of unsecured senior subordinated notes for approximately $105 million in cash, resulting in approximately a $210 million gain and a corresponding increase in stockholders’ equity. While we continue to explore debt exchanges and purchases, we remain committed to the preservation of our cash balances,” concluded Mr. Hovnanian." (Press Release)

HOV's revenues for the quarter were down 65.82% from Q1 2008. Expenses were down only 51.61%. They had a total impairment loss of $110 million and the total loss for the quarter was $178 million or -2.29/share.

Hovnanian Income Statement 1/31/09 (SEC Filing, 8K)


Hovnanian Balance Sheet 1/31/09 (SEC Filing/8K)


Hovnanian Liabilities & Shareholders Equity (SEC Filing/8K)


The housing industry had some good news in February: U.S. Economy: Housing Starts Unexpectedly Jumped (Bloomberg), Government report shows construction of new homes jumped 22% in February (CNNMoney). It was mainly in apartment building though. Watch video below. Watch for a double bottom and trend break for housing starts and building permits. The equities will probably know about it before it happens. I'll chart out other housing metrics on another post.

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LVS '09 Call Option Activity, Short Interest at Yearly Highs. Place Your Field Bet.

Las Vegas Sands (LVS) saw some interesting April and June option activity during the past month. OptionMonster noted the April call action was a bull spread.

Here's the Put/Call open interest chart expiring on April 17, 2009 via Schaeffersresearch.com. Calls are dominating puts, however, 4,000 contracts on both the 2.5 and 5 April calls traded Friday which could either be new money or profit taking (price sold off). There's also 17,000 and 42,000 open at the 5.0 and 7.5 June '09 strike and 11,000 puts open at the 5.0 June '09 strike. On 3/19 the Schaeffers P/C open interest ratio stood at 0.35 and the P/C volume ratio was at 0.32. So there's bullish sentiment in the options. I put up the April and June option chains below via Yahoo Finance (3/20/09). Players could be hedging short exposure but either way, if speculative, the April options have until 4/17 to be realized.

Short interest hit a record on 3/1/09. 55.6 million shares were short, up 130% since November 2008. Implied volatility is at 208 far off the Nov highs and very close to historical volatility (203). LVS itself is testing it's downtrend as well as the Nov '08 lows (just like the market). So specific business risk aside, this should follow the overall market. If LVS can break through the trend with strength there could be a nice short squeeze...

As of Dec 31, 2008 LVS had 741.96M EBITDA (ttm), 421.82M Interest Expense (ttm), 3.04B Cash (mrq), 10.47B Debt (mrq), Current Ratio of 2.44 and EBITDA/Interest 1.75. Data from Yahoo Finance and 10K. This is just a simple look. Read specific EBITDAR metrics used in the 10k. The next few quarters could get ugly if revenues get squeezed or Stanley Ho keeps up his anti-American speak. Cash flow is getting hit and debt covenants could be breached...

"Amid projected weakness this year, S&P expects Sands to face "a significant liquidity shortfall" next year and likely violate covenants on its Macau credit line by the third quarter absent the sale of noncore assets on the Chinese island.

Some analysts disagree, however. Earlier this month, Bernstein Research analyst Janet Brashear said in a research note that Sands is poised to survive its problems because it still has enough assets worthy of selling off to prevent covenant violations." (WSJ)

Hedge your field bet folks! No recommendations here.

LVS April Put/Call Open Interest (Schaeffersresearch.com)


LVS April Option Chain (Yahoo Finance)


LVS June Option Chain (Yahoo Finance)

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Peter Schiff Says Beware of Inflation, U.S Dollar (Video)

Peter Schiff Says Beware of Inflation, U.S Dollar

Interview With Bill Ackman On Target, GGP (Video)

This was a great Bloomberg interview where Bill Ackman talked about his REIT and credit card plan with Target as well as his investment in struggling GGP (General Growth Properties). His Target fund is down 93%. He admits the Target 'levered' co-investment fund put a stain on Pershing's track record. He still sees a positive outcome though as he owns long dated Target options.

He said in 2002 he bought credit default swaps on MBIA and was originally down 99.99% but eventually prospered when MBIA's credit rating was downgraded for insuring too much toxic debt. Go to my previous post from Nov, 08 that talked about his TIP REIT plan: Bill Ackman Trying To Make REIT Move w/ Target (historical valuation comparables, CMBX (AAA) index, commercial real estate price index).

NEW YORK (Dow Jones) -- Pershing Square Capital Management, headed by activist investor Bill Ackman, said it plans to nominate five candidates for election to Target Corp.'s 13-member board. The nominees include Ackman as well as Jim Donald, former chief executive of Starbucks Corp., and Michael Ashner, chief of Winthrop Realty Trust, among candidates who Pershing said are skilled in real, credit cards and real estate. (CNN Money)

He also talked about his GGP investment. Citi actually foreclosed on one of their shopping centers in Louisiana. He expects GGP to file for bankruptcy in the next few days but he says it's a "solvent company with a liquidity problem". So he thinks the equity still has value after it is reorganized. Good luck Will.

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S&P At Key Resistance, Kass v. Roubini, VIX Sees Overhead Confusion.

The Dow and S&P have had a nice rally during the past 10 days. The Dow rallied about 15% and the S&P about 18%. The S&P is sitting right at its downtrend line and 50 day moving average resistance level. It would be healthy to see a correction here. It's Doug Kass vs. Roubini at this point. Kass is standing behind his market bottom call and Roubini thinks we're in a bear market suckers rally. You have to wonder about all of those XLI and XLU calls open though...

The Volatility Index ($VIX) rallied off of the 200 day moving average support level and faces heavy overhead resistance. An unexpected event would be the catalyst to break the $VIX above these levels.



S&P 500 Daily (Stockcharts.com)


Dow Jones Industrials Daily (Stockcharts.com)


Volatility Index Daily (Stockcharts.com)

iShares TIPs Fund (TIP) Spikes Above 50 and 200 Day Moving Average

$TIP, the iShares Barclays TIPS Bond Fund spiked after the Fed announced it would scoop up Treasuries, agency-mbs, agency debt. It's all explained in this last post re: $UUP dump, Apr 5,000 25 Puts. The $TIP broke above the 50 and 200 day moving average and is now testing trend resistance. Watch the CPI trend going forward.

"The iShares Barclays Treasury Inflation Protected Securities Bond Fund seeks results that correspond generally to the price and yield performance, before fees and expenses, of the inflation-protected sector of the United States Treasury market as defined by the Barclays Capital U.S. Treasury Inflation Protected Securities (TIPS) Index (Series-L). (iShares.com)

$TIP (iShares Barclays TIP Bond Fund) (Stockcharts.com)

Fed Buying Treasuries, $UUP (US Dollar ETF) Broke Down, 5,000 April 25 Puts Open

It looks like the $USD might not be a pink dolphin/black swan after all. Not yet at least. The USD and real assets could be starting to price in the global stimulus effort, monetary dilution, the re-emergence of risk and a commodity bid (comparing USD:Oil next post). Earlier in March the US Dollar re-tested and failed to break through the November highs and has had an inverse relationship with the the market and commodities. After a massive rally the market is up against resistance which could cause a reversal in the USD. Eventually it could brush up against 50 day resistance and decide it's TRUE structural fate.

Today's Fed statement forcefully broke down the US Dollar Index. The Fed will print money to buy $300 billion long dated U.S Treasuries, $750 billion agency-MBS, $100-200 billion agency debt. The robots at the Fed vault will be working over time.

Release Date: March 18, 2009

Information received since the Federal Open Market Committee met in January indicates that the economy continues to contract. Job losses, declining equity and housing wealth, and tight credit conditions have weighed on consumer sentiment and spending. Weaker sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories and fixed investment. U.S. exports have slumped as a number of major trading partners have also fallen into recession. Although the near-term economic outlook is weak, the Committee anticipates that policy actions to stabilize financial markets and institutions, together with fiscal and monetary stimulus, will contribute to a gradual resumption of sustainable economic growth.

In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion. Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months. The Federal Reserve has launched the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses and anticipates that the range of eligible collateral for this facility is likely to be expanded to include other financial assets. The Committee will continue to carefully monitor the size and composition of the Federal Reserve's balance sheet in light of evolving financial and economic developments (Federalreserve.gov)

The U.S Dollar Index and $UUP (Bullish USD ETF) broke below their 50 day moving average with volume and are probably ready to test the 200 day (*if other central bank factors DON'T decide to ruin their currency). Analysts were predicting a USD sell off IF the Fed decided to scoop up US Treasuries. Last time it broke the 50 day it had a big move to the downside however retraced to retest old highs. Yesterday at 10:00am 5,000 $UUP April $25 Puts traded pre Fed announcement at 0.25. Less any hedging activity, if those puts were bought it allows the trader to profit if the underlying gets exercised < $24.75 with the ability to sell 500k shares at $25.. The price on the .UUPPE is already up 140% to 0.60 unrealized. This morning by 11:34am the $UUP hit a low of $24.80 and the 200 day ma stood at $24.65. Charts are below. It's also interesting via barchart.com that $USDX futures call/put premium ratios are widening going out until May. (April: 0.36, May: 0.31). Also look at the big monetary base and reserve balance spikes during the crisis (via St. Louis Fed). $TIP (iShares TIP Fund) also spiked and the yield curve is steep. Watch out for creeping inflation once private equity starts scooping up the big banks.

UUP (US Dollar Bullish ETF) Chart (Stockcharts.com)


UUP (.UUPPE) April 25 Put (Optionsxpress.com)


Reserve Balances w/ Federal Reserve Banks (St. Louis Fed)


Monetary Base (St. Louis Fed)


Regarding M2 below via St. Louis Fed, once lending rebounds and the velocity of money multiplies through the system hopefully Bernanke can unwind lending programs in time.

Marc Faber Says War May Result From Economic Crisis (CNBC Video)

This is interesting.... He talks stocks, commodities and war.

(CNBC) "Where do you see Russia economically and geopolitically in the near future?"

(Marc Faber) "This economic crisis will be very lengthy and I think the way to come out of it will eventually be war, and this war will be very unpleasant. We have a horrible situation in Afghanistan and in Pakistan and it's obviously not in the interest of the Russians or the Chinese that the Americans succeed in Central Asia and that will lead to more and more tensions. I think that actually Russia in the long run will do quite well and they will regain some of it's influence in the political arena" -Dr. Marc Faber on CNBC 3/16/09 via youtube.com/marcfaberchannel

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Chairman Bernanke Interview on 60 Minutes, Believes Big Banks Under Fed Regulation Solvent

Ben Bernanke talks to America directly via 60 Minutes. Also check out his exit strategy from his speech at the London School of Economics on 1/13/09.

"(PELLEY) Are all the big banks that you regulate solvent?

(BERNANKE) I believe they are, yes. But we are doing a– a– a stress test right now, where we’re looking at what the positions of the banks are under a tougher economic scenario than the one that we currently expect. And what we plan to do is to say how much capital would each bank need to be well capitalized. Not just solvent, but well capitalized, even in these more adverse scenarios.

(PELLEY) Are you committing in this interview, that you are not going to let any of these banks fail? That no matter what their balance sheet actually looks like, they are not going to fail?

(BERNANKE) They are not going to fail. But what we can do, should it be necessary, is– is try to wind it down in a safe way." Source

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Jon Stewart v. Jim Cramer. Too Much Hidden Risk! (Daily Show Videos)

After watching Jon Stewart grill Jim Cramer on The Daily Show it looks like people did not do their DD on Jim Cramer. People should read his book Confessions of a Street Addict before watching Mad Money. It is one of my favorite books. People forget that Jim Cramer was running $100s of millions every day, winning and losing on trades and smashing cell phones into computer monitors. Here are great quotes from his book.

"She would later tell me that she was praying I wouldn't slam the monitor with the staple gun or overturn the whole desk. The last time I tossed the desk my system froze as I thought Intel was going up... First to go was the keyboard. Sometimes I would just smash it with a phone. This time I picked it up, turned it on its side, and gave it four good whacks with enough force to send the QWERTY keys to the left and ZXCVB keys to the right" Quotes from Confessions of a Street Addict. LOL

The point Jon makes is there are two markets, the institutions moving trillions of dollars and the long term investor putting money in a pension or 401k. It turns out these big banks and institutions (Bear, Lehman, AIG..) were gambling with levered up shareholders equity, went bust and brought EVERYONE down with them. I think for the game to be fair there needs to be more transperancy in the market. There was too much over-the-counter greed and abuse combined with hidden black box trading that made the VIX hit all time highs when the global financial system almost collapsed in Nov, 08. There was so much risk hidden in the system that even Dick Bove thought Lehman was worth $20/share a month before bankruptcy.

I wouldn't blame Jim Cramer for providing his stock ideas on TV everyday for people willing to risk their money. Maybe CNBC should've taken the game more seriously... I think Fast Money kind of filled that gap. Either way check out stocktwits for better real time interactive market commentary. These are uncensored videos via Comedy Central.

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XLI April $18 Call Open Interest Over 278,000, XLU Calls Active

Shout out to Investing With Options for mentioning this on Ustream. The Industrial Select Sector SPDR (XLI) saw 269,000 contracts trade on it's April 2009 $18 Calls at around $0.30 on March 5, 2009. That's the right to buy 26.9 million shares at $18 by Apr 17, 2009 (not sure of the exact nature of the full trade). It closed at $17.22 today. Either someone was hedging their short exposure or getting long for a month in size. If XLI hits $19.30 by April 17 and the calls are exercised the trader would net $26.9 Million or 330% (26.9Mil/8.07Mil premium). Wouldn't be bad for a months pay.. On a technical standpoint there isn't resistance until $19-$20 (Nov low, 50 day moving average). This blog post is a little late but it will still be interesting to see how this ends up.

There was also activity in the XLU (Utilities ETF). As of yesterdays close the April '09 $25 calls had 173k open and the Sept '09 26 calls had 100k open. XLU closed at $23.30 today. Read the articles below and watch Rebecca Darst, NYSE Euronext managing director, on CNBC explain this activity on 3/6/09.


XLI April 2009 Call Chain (Yahoo Finance)


XLI April 2009 $18 Call (Optionsxpress.com)

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S&P's New Low to Test: 666, SPY Put/Call Open Interest Dumped. Bear Market Rally?

The S&P rallied 6% today on news of Citigroup's monthly profit, possible re-institution of the uptick rule and a well needed oversold bounce. The new official low to re-test now on the S&P is 666, the number of the beast. The S&P must defeat the bears at this support level and break through the down trend to confirm this soon-to-be historic buying opportunity. The Dow needs to re-test 6495 (charts below). I also saw that the put/call open interest ratio on the $SPY (S&P ETF) declined about 30% this past month and the put/call volume started to roll over. There could be a nice short squeeze here. Remember: A bunch of smart people (Roubini) still see a 600 handle on the S&P, -16% from here.



New S&P Support Level (Stockcharts.com)


New Dow Support Level (Stockcharts.com)

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Roubini Sees S&P at 600 or Below. CBOE Speech Videos via CNBC (3/9/09)

Roubini is a machine! I have bad news though, he thinks the S&P could hit 600 or below (Bloomberg) with a possible L-shaped 36 month recession. "He puts the chance of a severe U-shaped recession at 66.7 percent, and a more severe L-shaped recession at 33.3 percent." (CNBC.com, 4th video below). The S&P 500 closed at 676 today (3/9/09.

Roubini was keynote speaker at the CBOE Risk Management Conference today and I found his full speech via CNBC.com. I say ride the Roubini trade until the trend breaks. I threw in a Barclays S&P forecast at the bottom.

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Nikkei at 1982 Levels, Exports Fell 45% in 2008, Watching Nikkei/Yen Relationship

The appreciating Japanese Yen and global recession has killed Japan's export driven economy. Here is the data from Japan's Finance Cabinet in a pdf file. A snapshot is provided below for the year 2008. Japan's Gross Domestic Product (GDP) fell -3.3% from the previous quarter, or at an annual rate of -12.7% from the Oct-Dec period. It was the "steepest slide since the oil shock of 1974 and more than triple the 3.8% annualized contraction in the U.S. in the same quarter" (Source: Reuters, AP). Exports got killed. On an annualized basis from the Oct-Dec period exports fell -45%. Since Japan is an export driven economy when global demand slows and the Yen appreciates it kills the top line. Export pain continued through January 2009 with exports "tumbling" -46% from a year earlier with the trade deficit widening for the 4th straight month (source).

Japan 2008 Numbers (Source: Esri.cao.go.jp)
What's interesting now is the Yen started selling off in February. Here are three possible reasons to explain this. Which is right? We will find out. 1) Risk appetite is coming back to the market with people building Yen carry trades. 2) The Yen lost it's safe haven status. 3) Yen Intervention threats.

Now to the Yen/Nikkei relationship. Looking at the chart below the Nikkei is sitting at levels not seen since October 1982. It's also down 81% from the 1990 peak! The Japanese Government is trying to stimulate its economy by "buying commercial paper, corporate bonds, and stocks from financial institutions to try to help infuse money into companies" (1, 2) and possibly intervene in the forex market to lower Yen/stabilize exports. Last month the Yen sold off while the Nikkei made lower lows (chart). Looking at the Yen/Nikkei relationship historically they either moved together or were inversely related. It will be interesting to see where commodities and the US Dollar go from here and how the Nikkei will be involved.

When will the Yen reach a point where Japanese exports catch a bid? As with the U.S market, wait for the Nikkei to base out and make higher lows w/ volume before scooping up a protected iShares MSCI Japan Index (EWJ) long position (not a recommendation)

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Jon Stewart Ruins CNBC (Sir Allen Stanford Clip)

Jon Stewart ruins CNBC and has clips to back himself up. The best part was when Jon Stewart showed a CNBC clip with Carl Quintanilla asking Sir Allen Stanford (guy who ran an $8 billion dollar ponzi scheme) questions about how he avoided the subprime crisis and about being a billionaire.

Carl Quintanilla: "Before we let you go, is it fun being a billionaire.?"
Sir Allen Stanford: (Laughs) "Well uh yes, yes I have to say it is fun being a billionaire".
Jon Stewart: "F* You!".

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Bernanke: AIG Was a Hedge Fund Attached to a Stable Insurance Company

This video is on Bloomberg.com.

Bernanke's Own Words on Government Bailout of AIG

"If there's a single episode in this entire 18 months that has made me more angry I can't think of one more than AIG. AIG exploited a huge gap in the regulatory system. There was no oversight of the financial products division. This was a hedge fund basically that was attached to a large and stable insurance company that made huge numbers of irresponsible bets and took huge losses."

$USO, March 25 Calls Made Moves, Trend Still Down but Contango Narrowing...

I saw some action in $USO and the March '09 25 Calls today. I have no idea if these moves were related but thousands of blocks hit the calls at 1:50pm for $1.45 right before a 4% upside move in the ETF. 21,398 Mar 25 calls and 17,294 Mar 24 puts traded by the end of the day. I got this quote from remoratrade.com or @remoratrade on twitter.

"~USO (UBOCY: MAR'09 25.00 CALL) 13:50 (15,204 @$ 1.45) [BID: 1.45 ASK: 1.50 BIDSIZE: 5,092 ASKSIZE: 47] (atBID) VAL: $2,204,580"

The value of the trade was $2.2 million and it looks like they hit the bid. I have no idea how the full trade was set up or if it was playing the long side (17k puts traded) but I'll show you what happened to the value of the calls and USO right after the transaction occurred. Here's part of the order book below.

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Is the US Dollar a Black Swan?

Is the U.S Dollar a Black Swan? The consensus bet has been that the U.S Dollar would fall as the trillion dollar stimulus and monetary base spike would dilute the value of the USD. That makes sense however the break down in other currencies has put a bid under the US Dollar as a safe haven. The spot USD Index pierced through resistance at the November 2008 highs. The trend is your friend but watch out for unexpected catalysts that could reverse the trend (reflation/CRB currency bid). If it can sustain it's run here the next resistance level is around 92-93 from the highs made in 2005.


US Dollar Index Spot (Fxstreet.com)

Dollar Index March Future (Optionsxpress.com)


Dollar Index June Future (Optionsxpress.com)

S&P Technicals: Ugly Logarithmic Chart, Broke 2002 Lows, at 1996 levels (700).

The S&P closed today at 700 on the dot. We're at levels not seen since October 1996. In order to go long this market you have to wait until the market retests support successfully and sees higher lows. I'd also wait for the ^VIX (the market fear gauge) to implode. It recently broke out of a pennant formation and is currently testing resistance at 53. I feel like I have a couple blog posts talking about this. You have to keep your inverse index ETFs (DXD, SDS) hedged with some upside call protection until the trend reverses itself with conviction. If you're itching to be net long you have to wait until real market value is discovered. The market is still awaiting the fate of Bank of America, Citigroup and GM.

Below I posted linear and logarithmic charts of the S&P going back 30 years. The logarithmic chart evens out the percentage difference on the y-axis. The long term log chart is more frightening than the linear chart. The linear chart shows the trend line hitting today in the high 600s however the log chart goes into the 500s. Remember these are just lines but they do provide a historical look at supply/demand for the S&P. Also you can draw lines from different data points to provide a different perspective. Good luck.


S&P Logarithmic Chart (Bigcharts.com)


S&P Linear Chart (Bigcharts.com)