Tuesday, April 28, 2009

'Wall Street 2' Coming Soon? (Link)

'Wall Street 2': Oliver Stone, Michael Douglas to return for sequel, Shia LaBeouf in talks http://hollywoodinsider.ew.com/2009/04/wall-street.html

SPY Chart From The Future

I think Conficker got to my laptop. Nice channel.



-DV

Dendreon Down 45%, Up 118% AH, Implied Volatility 538%!

This is a chart you do not want to wake up to in the morning, especially if you're long or short puts. Today shareholders of biotech company Dendreon awaited a data release for it's prostate cancer vaccine Provenge. In the morning the stock tanked 45% on an implied volatility reading 538% via the ISE. **WOW, After Hours: 25.75 +13.94 (+118.04%) 7:59PM ET**.

4/27: Dendreon Short Sellers Bet Drug Won't Win Approval (Bloomberg)
Dendreon's Provenge Passes the Test (Thestreet.com)
Prostate cancer vaccine extends survival in study (AP)



S&P June Future, QQQQ, Index Comps Overnight Update

As I speak (2:11am/3:11est) the E-mini S&P June future is down 1.72% to 842.25. The markets are getting ready for the consumer confidence/home price reading today as well as the GDP/FOMC rate decision on Wednesday. The Swine Flu outbreak could also put pressure on risk appetite however if home prices improve unexpectedly it could put some pressure on the shorts.

The E-mini S&P future is up 27% since it hit 666 in early March. It is now at 842 testing resistance and is being wedged which will soon force a direction. The QQQQ (Nasdaq ETF) is also being wedged at 200 day moving average resistance. I also provided a performance chart comparing the Industrials, Nasdaq, S&P, Russell 2000, and the Gold/Silver Index over a 2 month period. The Russell and Nasdaq outperformed the S&P and Dow and the Gold/Silver index underperformed all indexes significantly. During this time frame the chart favored the risk appetite trade. Will this trend ease up? The charts below are from Optionsxpress.com.


E-Mini S&P June Future 6 Month (Optionsxpress)


QQQQ 6 Month Chart (Optionsxpress)


Index Performance Comps 2 Months (Optionsxpress)

Monday, April 27, 2009

GM Conference, Bond Exchange Offer Deadline May 27

Today General Motors President/CEO Fritz Henderson hosted a press conference (April 27, 2009). He mentioned the bond exchange offer which is important to stay out of bankruptcy court (press release and press conference video below).

They are offering 225 shares for 1,000 principal value for bond holders. Bond holders will then own 10% of GM, UAW VEBA/Treasury 89% and previous stock holders 1%. The exchange offer deadline is May 27, 2009. Bond holders will get chopped and take less of a stake in the company. Thoughts? GM Stock was up 20% today.

Sunday, April 26, 2009

US Dollar Views Diverge & Converge, Inflection Point Near

The US Dollar is a complex animal and judgment day is coming for this piece of paper. I've been hearing so many views that diverge and converge with each other that it's no wonder the chart is forming an inflection point.

So we got firms globally that are de-levering and paying back loans denominated in USD which is putting a bid under the USD and there's also a safe haven bid. Then there's the theory that the US will recover first making the USD more attractive relative to other currencies and the shrinking US trade deficit (article below) could also be positive. Also if yields rise in the US compared to other countries wouldn't that attract a carry trade bid? Not sure about the timing given the interventions. Plus, what if there's deflation? That should bode well for paper vs. hard assets no?

On the other hand the US has $11.2 trillion (4/23/09) in Federal debt up from $9.2t on 1/08, $1.75T deficit, monetary inflation, and the "China may dump treasuries/USD" chatter which could in theory ruin the US Dollar. This will definitely be the case if the global economy recovers and Bernanke doesn't unwind Federal programs in time to control US denominated inflation.

So all of this pressure is being squeezed into this chart I provided below from stockcharts.com. You can see the inflection point. Watch it.



Take a look at this Bloomberg article..

Dollar Wins Heads-or-Tails Toss on Growth or Weakening Economy
"April 27 (Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan said five years ago that predicting currencies is no better than tossing a coin. A growing number of traders are betting that heads or tails, the dollar wins.

Investors bullish on the U.S. economy say the dollar will strengthen as America recovers first from the global economic recession. Those who expect the longest contraction since the early 1980s to continue say the currency should appreciate as the haven from turmoil in world markets. Foreign investors bought a net $22 billion of U.S. financial assets in February, the Treasury Department said April 15."

Check Out Financial Blog Zero Hedge

If you haven't been to Zero Hedge you should check it out. I found the site via Twitter. The financial blog started on January 9, 2009 and to this day has published 1447 articles w/ 2,092,358 visitors. It's a very complex blog that covers the entire financial asset spectrum. Tyler even fills in for the authorities at times. The blog was recently featured in Abelson's Barron's article Don't Bank on It. I think this blog kills any other financial site imo. Here are recent articles from April 24-26.

The ECB continues to mismanage the crisis and underestimate CEE
Is There A REIT Reverse Inquiry Conspiracy?
Lecture By Eric Rosenfeld Of LTCM
The One Trillion Commercial Real Estate Time Bomb
Jumping The Shark In HY On Record Low Recoveries
The Stress Test Cliff Notes
Renaissance Underperforms S&P by 17% In April
GM Liquidates Two Employee Benefit Plans
Weekly Macro Observations
Fed Releases "Stress" Test Assumptions
Additional Thoughts On The GGP Substantive Consolidation Threat
Novelty Market Chart Of The Day
Treasury 2s10s Curve Steeper Than Pre QE Announcement
CalPERS Sold Out Of Over 13% Of Top Positions In Q1
Follow Up On GGP's Substantive Consolidation

Friday, April 24, 2009

Soros Speech at Bertelsmann Conference (4/23/09 - 41min)

George Soros spoke at the Bertelsmann Foundation Opportunities in Crisis conference in Washington (from Bloomberg.com). This was a very interesting and complex speech.


Click here for full video

"It's not enough to regulate the money supply because monetarism is part of this false paradigm, credit and money don't go hand in hand. If you increase money supply you can have an asset bubble developing. So you cannot regulate credit purely using monetary means so you need other instruments......." He gets into China's capital requirements.

"We need to arrest and reverse the collapse of credit and on the other hand we have to rebuild the global financial system because it was fundamentally flawed and we can't put Humpty Dumpty back together again....."

"To arrest the collapse of credit there's only one source of credit and that's the State. So you have to increase effectively the money supply or Governmental guarantees to compensate for the collapse of credit and that's what we have done in America where the balance sheet of the Federal Reserve went from $800 billion in 9/2008 to over $2 trillion now with something between $7 and $8 trillion worth of guarantees of various kinds. And even then this has not been sufficient to arrest the pressure as reflected in the fact that the Dollar is so strong because the strength of the dollar is not due to the fact that people want to hold Dollars in preference to other assets, it's because people owe dollars and they can't roll over their obligations" (15:33-16:56)

"The collapse of Lehman brothers set in motion a rapid course of events which really brought the financial system to a standstill....."

"And even if all the banks kept their balance sheet there's a tremendous amount that is in the hands of non-banks like hedge funds which are not under the control of the banking authorities. So that is still an unsolved problem."


He also touched on self-reinforcing super bubbles, divergence between housing/willingness to lend, market self-correcting failures fueled by excesses and distortions, Alan Greenspan, monetary policy/money supply, Eastern Europe's inability to guarantee their debt like the US and EU and special drawing rights.

Chesapeake Energy/Natural Gas Price Spread Wide

Check out the relationship between Chesapeake Energy (CHK) and Natural Gas. There seems to be a wide gap between the two prices. The CHK:$NATGAS ratio is at 5.54 and it looks like every time the ratio hit 6 the spread tightened. I'm wondering how this gap gets filled and how it could yield a potential trade (natural gas rally, CHK correction or both). During the recession Chesapeake and other companies have been cutting natural gas production to stay in line with demand.
"Chesapeake Energy Corp. said Thursday that it will curb its production by another 200 million cubic feet of natural gas a day in response to lower natural gas prices. Chesapeake, the largest independent producer of natural gas by volume, has cut its natural gas output by a total 400 million cubic feet, or about 13% of its gross operated natural gas production capacity, since March."

"Aubrey McClendon, Chesapeake's chief executive, said in a news release, adding that lower drilling activity will help rebalance the natural gas market by late 2009 or early 2010." (Source: WSJ)

Natural gas inventories are still very high compared to historicals. From eia.doe.gov, working gas in storage as of April 17, 2009 was 1741 cubic feet, 35.8% above year ago levels and 22% above the 5 year average (2004-2008).

Chesapeake has a great asset base. In their April 2009 presentation they calculated a $42 NAV with $6 natural gas. They also actively hedge their production. For 2009 42% was hedged w/ natural gas swaps at an average price of $7.79 and 40% was hedged with collars (Floor: $7.3, Ceiling: $9). As of 2/13/09 their hedges amounted to $1.6 billion in open mark-to-market value. This could benefit the bottom line during this environment. They also have $12 billion in senior notes that start to mature in 2013 ($864MM) and expect to net $1.2B in cash (sources-uses) in 2009.

Perhaps the equity is forecasting higher natural gas prices or better earnings going forward. I will be watching the charts to see how the CHK/NATGAS spread narrows (if it does...)

Thursday, April 23, 2009

Forex Rate Pinching Canadian Pot Exporters, Tax it!


Source: Library of Congress

Speaking of currencies. The recent increase in the Canadian Dollar/US Dollar has been pinching profits for Canadian marijuana exporters. $8 Billion - 6% = -$480 million (for full year today, less FX hedging..) On a political note, why not pay off our Federal debt and dollar printage with a marijuana tax? Don't forget we also have dwindling tax reciepts due to unemployment. As of April 22, 2009, Total Outstanding Federal US Debt stood at $11,191,057,364,056.82. Here's a video I found at minyanville.com and a Tech Ticker video featuring Diane Garnick saying the State and Local Governments will need to be bailed out. Plus a CAD/USD chart below.

Wachovia- China/US Recovers First, USD Benefits, IMF Economic Update

Hat tip to Francesc's Weblog at Fxstreet.com for providing this. Wachovia expects USD to continue to trend higher. Here's the full pdf from Wachovia Economics, The Global Economy: Who Gets Out of the Gate First.
"The U.S. economy faces some formidable challenges, but it should be one of the first economies to post positive growth numbers again due to the unprecedented stimulus that has been applied."

Also here is the World Economic Outlook report out from the International Monetary Fund (IMF). Out of the advanced economies listed below, during 2009 the U.S and Canada are expected to fare out the best with -2.8%, and -2.5% year over year change in output. The 2009 projection for China is +6.5%, India +4.5%, Middle East +2.5% and Africa +2%. They are up but well off highs (2007: China +13.5%, India +9.3% and Middle East +6.3%). So based on Wachovia's note and IMF's output comparables, will currency still flow toward the USD (USDX)? Or will monetary inflation force currencies toward commodities (Copper gains strength on China buying) and commodity currencies (CAN, AUS, BRAZ)? Follow the flows!!! Also keep watching the USDX's monthly uptrend.

IMF World Output Projections (Source: IMF)


Here's the full World Economic Outlook Press Conference on April 22, 2009 (click video or here).


Features:

Olivier Blanchard,
Economic Counsellor and Director, Research Department

Charles Collyns,
Deputy Director of IMF`s Research Department

Jorg Decressin,
Chief of the World Economic Studies Division, IMF Research Department

I Like the ADSDAQ Online Ad Exchange. Open The Market!

The online advertising market is very interesting. I want to talk about ADSDAQ's online ad exchange since I use their service along with Google's Adsense to display ads. The main difference between the two is ADSDAQ allows me to set prices on my inventory while Google auctions it off to the highest bidder (correct me if I'm wrong). I like how Adsdaq gives the publisher more power. If I put the price too high buyers will walk away and lower my fill rate. I can then tweek my price toward the bid or rotate to another ad network if I'm not satisfied. There are actually market makers on the ADSDAQ exchange (first video). I also don't want buyers to price out CPMs and not fill the inventory, what's the point of that?

Tuesday, April 21, 2009

US Dollar ETF (UUP) Components, June Futures Charts (Euro, Yen, Pound, Cad, Krona, Franc)



I keep posting about the US Dollar because it's at an inflection point. Here's my previous post where I broke out the USDX spot price and June future and embedded an interview with Soros. Now I'm going to break down the components of the US Dollar Index Bullish Fund ETF (via PowerShares) into their June 2009 futures. Here are the weights.

Euro 57.6%
Japanese Yen 13.6%
British Pound 11.9%
Canadian$ 9.1%
Swedish Krona 4.2%
Swiss Franc 3.6%

Here's the chart of UUP via stockcharts.com. It just pierced through the 50 day and will soon be ready for judgment at the inflection point.


Central Bank interest rate moves and "non standard measures" of easing will determine currency values against the USD at this point. For example:

Bank of Canada lowers rate to 0.25 percent
European Central Bank mulls more easing: Trichet

The EUR/USD needs to find support either at 1.275ish or 1.25 to give it a chance to break out of that wedge to the upside. Also read this article from DailyFX.com Euro/US Dollar Loses Correlation to S&P 500 - Time for Turn Lower


Euro FX June 2009 Future (barchart.com)

JPY/USD is in an ugly looking bearish wedge. It's under the 50/200 day moving average and needs to make a move here.


Japanese Yen June 2009 Future (barchart.com)

GBP/USD hit right up against the downtrend line and pulled back. I drew a possible support level in there but it looks choppy.


British Pound June 2009 Future (barchart.com)

CAD/USD looks like it's in a wide channel. You can see the reaction from today's rate cut. Economic health aside, if commodities keep moving lower it could affect the Canadian Dollar.


Canadian Dollar June 2009 Future (barchart.com)



Swedish Krona June 2009 Future (barchart.com)

Swiss Franc June 2009 Future (barchart.com)


If you're eager to get short the US Dollar via UUP or buying the UDN (bearish USD ETF) I'd make sure these charts start building strength imo. The day will come. Also check out the option action in $UUP. 5,000 blocks are open on the 24 May and June puts. There are also 4,000 puts spread out from the 22.5-26 strike in June (outnumbering calls). 5,000 were open on the April 25 puts but they expired worthless. September is interesting. 17,700 September 27 calls are open and 11,900 22 puts. Are they trying to strangle some premium here or finance a crazy out of the money trade??? Effen interesting to say the least.

Note: These are the June futures contracts not the spot prices I charted out.

The $UUP or $UDN ETF is "based on the Deutsche Bank Long US Dollar Index (USDX®) Futures Index™ (DB Long USD Futures Index) and the Deutsche Bank Short US Dollar Index (USDX®) Futures Index™. The Indexes, which are managed by DB Commodity Services LLC, are rules-based indexes composed solely of long or short USDX® futures contracts."

"The ICE US Dollar Index is calculated by Reuters in real time from a multi-contributor feed of the spot prices of the Index’s component currencies. The price used for the calculation of the Index is the midpoint between the Reuters top of the book bid/offer in the component currencies. This real-time calculation is delivered to the Exchange and redistributed to all data vendors. The prices of the DX futures contracts are set by the market, and reflect interest rate differentials between the respective currencies and the US dollar.


https://www.theice.com/publicdocs/nybot/ICE_Dollar_Index_FAQ.pdf

Saturday, April 18, 2009

Soros, Are You Long Or Short The US Dollar?

This is a great interview with George Soros on Tech Ticker regarding his view on the US Dollar. Here are some quotes.
Aaron Task: "So how are you positioned currently in the Dollar?"

George Soros: "....Actually the dollar currently is very strong, much stronger than it was this time last year and that is actually a measure of the sickness, the fever chart in a way, because people don't buy dollars because they want to hold dollars, they buy dollars because they owe dollars and (__) their loans, so that is what is supporting the Dollar"

Aaron Task: Would you advise your fund managers to be long the Dollar at this point?

George Soros: "Well look, it's a very complicated thing and of course I know exactly what the dollar is going to do but I'm not at liberty to (tell)..

Indexes Need a Dow Follow Through (DIA, SPY, QQQQ Weekly Charts)

The SPY (S&P 500) broke though a minor trend however the DIA (Dow) needs to follow through. The Dow must be able to break these levels to confirm a SERIOUS move for the whole market. There also needs to be a spike in volume. I wouldn't step in front of this train, but it wouldn't hurt to insure some long positions or put stops in. The SPY could be forming a bearish wedge but it could turn bullish. It all depends how the economy reacts to these Gov injections and how the market digests earnings. Roubini still thinks we're in a bear market rally (Keynote speech video April 8, 2009 via Globeandmail). I provided a CNN Money Roubini interview below. Plus I didn't know Roubini and Jim Cramer had beef. Very interesting times..., up or down from here get ready.


SPY WEEKLY (Stockcharts.com)


DIA WEEKLY (Stockcharts.com)


QQQQ WEEKLY (Stockcharts.com)



Friday, April 17, 2009

Jim Cramer "Betting the Market" PBS Frontline '97

I found some interesting PBS Frontline videos from 1997 featuring Jim Cramer and Peter Lynch etc. It gives a picture of the market right before the tech bubble. The last video talks about the retiring baby boomers and stock market risks. What's interesting is the market hasn't moved since these videos!


S&P 500 1/1997 - 4/2009 (Bigcharts.com)

Thursday, April 16, 2009

Bernanke Speech/Q&A at Morehouse College (4/14/2009)

Bernanke's Speech at Morehouse College in Atlanta, Georgia on 4/14/2009. I found Q&A videos too.
"The current crisis has been one of the most difficult financial and economic episodes in modern history. Recently we have seen tentative signs that the sharp decline in economic activity may be slowing, for example, in data on home sales, homebuilding, and consumer spending, including sales of new motor vehicles. A leveling out of economic activity is the first step toward recovery. To be sure, we will not have a sustainable recovery without a stabilization of our financial system and credit markets. We are making progress on that front as well, and the Federal Reserve is committed to working to restore financial stability as a necessary step toward full economic recovery." Full Text

Wednesday, April 15, 2009

Time to Hedge SPY Longs w/ Puts? Testing Resistance, Well Above 50 Day Moving Average.

If I was long $SPY in size I'd probably hedge with some May-June puts for insurance. Lower volatility has pulled down premium, however lower vol could limit option (insurance) profitability if SPY corrects just a few points. Someone with dough could even sell out of the money covered calls to lower their cost basis/increase yield. Here are the May and Jun SPY option chains. Puts require less capital to risk but price points and volatility are key for profitability (you'll rip up the contract or sell at a loss if the market spikes or declines less than premium before May/June). Going short or buying inverse ETFs could also hedge a technical breakdown but you're deploying more capital against long positions. All of this is my opinion. Here are sites I go to for options and volatility research Schaeffersresearch, Optionmonster, Investing With Options, VixAndMore, Daily Options Report.

$SPY increased 30% from $66.62 to $86.54 in a little over a month so it could take a rest eventually. Today retail sales numbers took the S&P down 2%. Total sales declined -1.8% vs. consensus +.03%. Here is Briefing's take.

"The fairly broad declines in sales for retail businesses in March has created some concern that the improvement in January and February might have been owed more to a temporary bounce than anything else following some bleak sales reports in the fourth quarter. This isn't good economic news and it certainly fits more with the weak employment data than the surprisingly good reports seen in January and February. It is a setback that is apt to cause a number of investors to second guess the big run seen in the retail stocks." (Source: Briefing.com)

Even with decent news from Goldman Sachs and Wells Fargo , I'm wondering if poor earnings or an ugly GM bankruptcy could throw the market a curve ball. Also if the S&P wants to hit 1100 by year end (Leuthold Group's call), a minor fib retracement would provide a stronger foundation IMO.

The $SPY is testing its long term downtrend as well as 87 ceiling resistance. A break above those levels with volume would give victory to the bulls and the economic recovery. If it fails, the 50 day moving average and $80-ish look like decent support levels. SPY hasn't officially broken down yet so watch for the TIPI break!.

Tuesday, April 14, 2009

Obama's Speech at Georgetown (Full Video 4/14/09)

Obama's speech on "How we are going to deal with so many of our economic challenges".



Saturday, April 11, 2009

StockTwits is a Valuable Resource for Traders and Investors

I thought I'd give my perspective on StockTwits since it was just featured on CNBC and I've been on it since August, 2008.



Below I provided two StockTwits videos that explain the service. The second video features Co-Founder and CEO Soren Macbeth and Co-Founder Howard Lindzon. In order to use StockTwits you need a Twitter account since StockTwits uses the Twitter platform. Twitter calls it a real-time short messaging service (here's the Wikipedia definition). StockTwits sorts out investment oriented information via Twitter when users put the $ symbol in front of quotes or $$ at the end of a sentence. StockTwits users can filter the information further based on personal preferences (specific quotes and/or people). StockTwits provides a recommended list to start you off. It's pretty cool for people interested in the markets.

Friday, April 10, 2009

Peter Schiff Expects a New Low in Nominal Terms

Here's a Peter Schiff video blog post on Thursday April 9, 2009 via the PeterSchiffChannel. Sometimes it gets fuzzy but check it out. I plan on looking at currencies and homebuilding numbers this weekend.
"I'm still convinced here in the U.S that we're looking at a bear market rally. I still expect the U.S market to make a new low in nominal terms. If it doesn't make a new low it will only be because inflation is so..... that a new low is not possible nominally. The market will make many many new lows in terms of (inflation?) or other foreign currencies that will lose less value than the (US) Dollar. But I think some of the markets abroad, uh these rallies could be more legitimate and long lasting........


Monday, April 6, 2009

Soros Interviews, Inverted Square Root Sign Recovery (Reuters/Tech Ticker, 4/6/2009)

The first interview is via Reuters.com
"I think there's a real danger that people don't understand that the system was fundamentally flawed and there is no return to where we come from"

"I don't expect the U.S economy to recover in the 3rd or 4th quarter. I think we're in for a pretty lasting slowdown."

"In 2010 there might some (recovery)... Whether you have a recovery depends on how deep you go. I think that for the US economy... What I expect is an inverted square root sign. In other words, you hit bottom you automatically rebound some. But then you don't come out of it in a V shape or anything like that, but you settle down.. Step down."

"The banking system as a whole is basically insolvent. The anticipated value of the assets is less than the liabilities. What we've created now is a situation where the banks will be able to earn their way out of a hole, but by doing that they're going to weigh on the economy instead of stimulating the economy. They will be drawing the lifeblood so to speak out of profits away from the real economy in order to keep themselves alive. This is the zombie bank situation"

Sunday, April 5, 2009

Bernanke Speech on 'Credit Easing', Balance Sheet (4/3/09)

Here is a two part video of Bernanke's speech at the Federal Reserve Bank of Richmond 2009 Credit Markets Symposium in Charlotte, NC (April 3, 2009). The full script is here. Also to enhance transparency the Fed set up a site providing balance sheet and liquidity program updates.
"As I will discuss further today, the great majority of our lending is extremely well secured. And our programs have been aimed at improving financial and credit conditions broadly, with an eye toward restoring overall economic growth, rather than toward supporting narrowly defined sectors or classes of borrowers..."

"In pursuing our strategy, which I have called "credit easing," we have also taken care to design our programs so that they can be unwound as markets and the economy revive. In particular, these activities must not constrain the exercise of monetary policy as needed to meet our congressional mandate to foster maximum sustainable employment and stable prices..."

"At its December 2008 meeting, the Federal Open Market Committee (FOMC) reduced its target for the federal funds rate close to its lower bound, setting a target range between 0 and 1/4 percent. And, with inflation expected to remain subdued for some time, the Committee has indicated that short-term interest rates are likely to remain low for an extended period. With conventional monetary policy having reached its limit, any further policy stimulus requires a different set of tools..."

"To be sure, the provision of liquidity alone cannot address solvency problems or erase the large losses that financial institutions have suffered during this crisis. Yet both our internal analysis and market reports suggest that the Fed's ample supply of liquidity, along with liquidity provided by other major central banks, has significantly reduced funding pressures for financial institutions, helped to reduce rates in bank funding markets, and increased overall financial stability. For example, despite ongoing financial stresses, funding pressures around year-end 2008 and the most recent quarter-end appear to have moderated significantly..."

Friday, April 3, 2009

Arbinet Insider Buying, Income and Equity Down

Arbinet, (ARBX), is a leading provider of innovative voice and IP solutions for buying and selling telecommunications capacity. They route for its Members approximately 2% of the world's international voice traffic to 1,300+ destinations worldwide. Arbinet's membership base includes approximately 75% of the world's 40 largest international carriers and 8 of the world's prepaid service providers. Members own 70+ mobile networks and 75+ broadband networks (arbinet.com).

They provide a variety of services to its members. Below is a visual view of their MarketAxcess and Assured Axcess products.

CRB, CCI Commodities Index Gathering Momentum

The Reuters/Jeffries CRB Index and the Continuous Commodity Index (CCI) are both gathering momentum. The R/J CRB Index is the 10th revision of the CCI Index. In 2005the energy weighting increased to 39% from 21.4% while other commodities got cut down (pie chart). Zeal LLC has a bunch of essays explaining the differences. He has charts that show the CRB and CCI decoupling in 2006 due to plummeting oil prices. He believes the old index better depicts the overall commodities market. All here 1, 2, 3, 4). I see this index as a re-flation barometer. If commodity prices catch a sustained bid here it could be planting seeds for a rebound in growth and/or a global commodity inventory/demand balance. Also, global currency dilution could be putting upside pressure on commodities. Monetary inflation benefits those who get the newly printed money first so why not buy commodities on the cheap?

So I decided to chart out both of them and provided the CCI futures curve. It's 5% higher from Cash to August. The charts below are at the close on April 1, 2009. On April 3 the call/put premium ratios were also interesting via barchart.com. For the options expiring 4/9/09 the Call/Put Premium Ratio was 0.07, for 6/12/09 the Call/Put Premium Ratio was 2.11 , and for 8/14/09 the Call/Put Premium Ratio was 2.23. So it looks like sentiment is skewing toward the bullish side but total premium values on Jun and Aug are much lower than April. Très Intéressant!!

From the Charts, the new CRB Index is testing support after breaking the long term downtrend. It's been in a channel since December, 2008. It's also above the 50 day moving average which is positive. Bottom support and the 50 day could provide some bids but if it fails the $200 level looks supportive. RSI looks decent and must stay above 50. As for the CCI, it's also in a channel and is sitting above the 50 day. RSI looks good. This could test resistance levels (382ish) and needs a push to break above that level to set it free. On a technical basis at least.

Thursday, April 2, 2009

Yuan Swaps, $UUP $24-25 Puts Open Until June and SDRs.

This continues from my previous post about $UUP April $25 put action after the Fed's decision to buy Treasuries, agency-MBS and agency debt. Now Russia and China are trying replace the US Dollar with a "Super Reserve Currency" (Special Drawing Rights consisting of currencies, gold, baseball cards etc.) to diversify sovereign credit risk. The idea was put off at the G20 meeting because #1 priority was saving the global economy (Reuters). But leaders were definitely tweeting about it probably.

Zhou Xiaochuan, Chairman of the Peoples Bank of China, thought 'Special Drawing Rights' should play a bigger role as a reserve asset. Here are quotes from his speech via pbc.gov.cn on March 23, 2009.

Reform the International Monetary System

Zhou Xiaochuan

I. The outbreak of the crisis and its spillover to the entire world reflect the inherent vulnerabilities and systemic risks in the existing international monetary system.

Issuing countries of reserve currencies are constantly confronted with the dilemma between achieving their domestic monetary policy goals and meeting other countries' demand for reserve currencies. On the one hand,the monetary authorities cannot simply focus on domestic goals without carrying out their international responsibilities on the other hand,they cannot pursue different domestic and international objectives at the same time. They may either fail to adequately meet the demand of a growing global economy for liquidity as they try to ease inflation pressures at home, or create excess liquidity in the global markets by overly stimulating domestic demand. The Triffin Dilemma, i.e., the issuing countries of reserve currencies cannot maintain the value of the reserve currencies while providing liquidity to the world, still exists.

When a national currency is used in pricing primary commodities, trade settlements and is adopted as a reserve currency globally, efforts of the monetary authority issuing such a currency to address its economic imbalances by adjusting exchange rate would be made in vain, as its currency serves as a benchmark for many other currencies. While benefiting from a widely accepted reserve currency, the globalization also suffers from the flaws of such a system. The frequency and increasing intensity of financial crises following the collapse of the Bretton Woods system suggests the costs of such a system to the world may have exceeded its benefits. The price is becoming increasingly higher, not only for the users, but also for the issuers of the reserve currencies. Although crisis may not necessarily be an intended result of the issuing authorities, it is an inevitable outcome of the institutional flaws.

II. The desirable goal of reforming the international monetary system, therefore, is to create an international reserve currency that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies.

1. Though the super-sovereign reserve currency has long since been proposed, yet no substantive progress has been achieved to date. Back in the 1940s, Keynes had already proposed to introduce an international currency unit named "Bancor", based on the value of 30 representative commodities. Unfortunately, the proposal was not accepted. The collapse of the Bretton Woods system, which was based on the White approach, indicates that the Keynesian approach may have been more farsighted. The IMF also created the SDR in 1969, when the defects of the Bretton Woods system initially emerged, to mitigate the inherent risks sovereign reserve currencies caused. Yet, the role of the SDR has not been put into full play due to limitations on its allocation and the scope of its uses. However, it serves as the light in the tunnel for the reform of the international monetary system.

2. A super-sovereign reserve currency not only eliminates the inherent risks of credit-based sovereign currency, but also makes it possible to manage global liquidity. A super-sovereign reserve currency managed by a global institution could be used to both create and control the global liquidity. And when a country's currency is no longer used as the yardstick for global trade and as the benchmark for other currencies, the exchange rate policy of the country would be far more effective in adjusting economic imbalances. This will significantly reduce the risks of a future crisis and enhance crisis management capability.


Here's Geithner's response to his proposal at the Council on Foreign Relations. The White House did come out on 3/31/09 saying the USD would remain the worlds reserve currency (Reuters).

Mark-to-Market Rule Changed, Market Up Big.

This accounting change could boost bank profits in the first quarter. The liquidity problem is the reason why FASB is doing this. Does this ruin transparency and the market healing process? Here's a line from Rick Santelli from the CNBC video below.
Rick Santelli on CNBC: "Changing the rules in the middle of the game makes a lot of metrics that have contributed to healing change very quickly and dynamically and the PPIP fund will be one of the casualties."
Also, world leaders at the G20 agreed to pledge $1 trillion of emergency aid. Market is up 3.8%.

Wednesday, April 1, 2009

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)

Tuesday, March 31, 2009

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


Monday, March 30, 2009

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.

Sunday, March 29, 2009

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.

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.