Keep An Eye On The BDI (Baltic Dry Index)

The Baltic Dry Index is up 3 fold since December, 2008. China has been loading up on Iron Ore and the trend is still up. The question is, is it sustainable? (1, 2)
"Reuters cited Mr Simon Crean Australia's Trade Minister as saying that Australian exporters of iron ore and coal are enjoying healthy sales to China thanks to Beijing's economic stimulus plan, but they could create oversupply if the economy slows.

Mr Crean said that "I think what's important is the stimulus packages that the Chinese government has implemented some AUD 800 billion worth, going significantly into infrastructure is clearly going to be a benefit to Australia's resource industry. He said that and it's true that it might create, in the future, a circumstance of oversupply, but that's only if the domestic economic activity slows." (Steel Guru)

The industry is still dealing with capacity issues, ship breaking fire sales and piracy/protectionism threats, however, Lloyd's List said investment funds are eyeing "cheap tonnage".

"Globally also, some interesting developments are taking place. As reports in the Lloyd’s List suggest, a rather more sedate set of investment funds is moving towards the shipping sector. New investment funds have started raising a couple of billion dollars to take advantage of the distressed prices of shipping assets.

With leverage, it is felt, the funds could muster financial strength of $5-6 billion. The reports also give names of some funds whose managers are believed to be tapping investors, raising hope that a plentiful supply of cheap tonnage is becoming available and that there will be trading profits between entry and exit, the underlying principle being the simple old concept of buying cheap and selling dear." (HinduBusinessLine)

Next check out the technicals. The BDI needs to break overhead resistance and the shipping ETF needs to prove it can trade out of the 7-13 channel.

Baltic Dry Index (BDIY) (Bloomberg.com/May 8, 2009)




BDI Rates (Cape, Panamax, Supramax) (Dryships.com)


Claymore/Delta Global Shipping ETF (Stockcharts.com)

UUP Puts Almost In The Money, Broke 200 Day Moving Average. Moving Inversely w/ Market and Risk Appetite.

The USD Index broke through it's mother trend and 200d moving average recently. It moved inversely with the market, emergence of risk appetite and the commodity bid. The US Dollar Bullish ETF (UUP) also broke through those levels and closed at $24.63 on Friday.

US Dollar Index (Stockcharts.com)
UUP (Stockcharts.com)

I wrote before about all those puts open at the 24 strike (May and June). It looks like they could be in the money soon if there isn't a safe haven/deflation bid (read articles below). If it doesn't regain strength at $24.50 the next support levels reside at $23 and $24. UUP has 5,111 put contracts open at the May 24 strike, 5,562 at the June 24 strike and an interesting 3k block traded today w/ 11,604 open at the Sept 22 strike. 19,497 calls are open at the Sept $27 strike. Hopefully someone can exercise those 10,000 puts below $24 if bot. Time is running out for May.

UUP May Puts (Yahoo Finance, May 8, 2009)

UUP June Puts (Yahoo Finance)

UUP September Puts (Yahoo Finance)


USD Decline May Be Start of Bigger Downturn Due to Risk Appetite (DailyFX)
Euro Surges Versus US Dollar, but Outlook May Shift on CPI Results (DailyFX)

Geithner, Wilbur Ross on PPIP (Public-Private Investment Program)

I wanted to touch on the Public-Private Investment Program because now that the stress tests are out there could be some interesting asset exchanges between the quasi-nationalized banks and private sector using FDIC leverage. Wilbur Ross plans to commit $1 billion to scoop up toxic financial assets. He explains the art of the PPIP (low interest, non-recourse, levered transaction) which is attractive on a risk/reward basis (Bloomberg video below). This leverage allows for higher bids on the assets.

"For example with 6-to-1 leverage, which is fundamentally being talked about, what would've been a 9% unleveraged IRR suddenly becomes a 26% IRR after fees", "It's not only a high degree of leverage it's non-recourse so you've limited your exposure and it's at a very low interest rate."

Here's a recent press release from the US Treasury saying they received 100 unique applications for the program. I also provided a Council on Foreign Relations interview with Tim Geithner explaining the program on 3/25/09 and a fact sheet from Treasury.gov. This should get interesting.

"FOR IMMEDIATE RELEASE: April 29, 2009
CONTACT: Treasury Public Affairs (202) 622-2960
tg-109

Treasury Announces Receipt of Applications to Become Fund Managers under Public Private Investment Program

Washington, DC -- The Treasury Department today announced the receipt of more than 100 unique applications from potential fund managers interested in participating in the Legacy Securities portion of the Public Private Investment Program (PPIP). A variety of institutions applied, including traditional fixed income, real estate, and alternative asset managers.

Successful applicants must demonstrate a capacity to raise private capital and manage funds in a manner consistent with Treasury's goal of protecting taxpayers. Treasury will also evaluate the applicant's depth of experience investing in eligible assets. Finally, the applicant must be headquartered in the United States.

Treasury expects to inform applicants of their preliminary qualification around May 15, 2009. Once a fund receives preliminary qualification, it can begin raising the expected minimum of $500 million in private capital that will serve as the investment that, pending further approval, will be matched with taxpayer funds. As we have stated previously, Treasury anticipates opening the program to smaller fund managers in the future, which may result in a lower minimum private capital raising requirement.

Since announcing the program details on March 23, Treasury has encouraged small, veteran, minority and women owned private asset managers to partner with other private asset managers. On April 6, Treasury extended the deadline for fund manager applications to provide more time to facilitate these types of partnerships. We are pleased to see a number of creative partnership proposals among the applications we are currently evaluating.

Today's announcement is the latest milestone in making operational the PPIP for legacy loans and securities, a key part of the Administration's efforts to repair balance sheets throughout our financial system and ensure that credit is available to the households and businesses, large and small, that will help drive us toward recovery." (Source: FinancialStability.gov)









PPIP Fact Sheet PPIP Fact Sheet dvolatility

Roubini- Race Between Bank Earnings & Write Downs

The stress test results just came out. "The Federal Reserve said Bank of America Corp. needs $33.9 billion in capital; Wells Fargo & Co. needs $13.7 billion; and Citigroup Inc. needs $5.5 billion." Stress test results: what it all means (AP). Roubini thinks it will be hard to get private capital because of dilution risk.

SPY 2002 Market Bottom v. May 2009 (Charts)



Look how the S&P ETF (SPY) bottomed out during the 2002 recession and how it compares to today. Even though today's recession is much worse than 2002 look how SPY based out with a double bottom and a higher low retest. It looks like we are due for a correction unless the black swan is a very steep V shaped recession. SPY volume has been weak but relative strength is breaking out hitting levels not seen since May, 2008. We're around ceiling and 200 day resistance at $95. Quiero dinero efectivo ahora. May puts getting killed!


SPY 2 Year Chart (Stockcharts.com)

SPY 10 Year Chart (Bigcharts.com)


SPY 2002-2003 Bottom (Bigcharts.com)

Liesman vs. Santelli Regarding "Dumb Things"

Hat tip to Zero Hedge.





Steve Liesman: "But Dennis, ask the question in a more compelling way, I want you to save the world and not disclose".

Rick Santelli: "Come on Steve, are we going to come up with excuses to break the rules? To break the law? You sound like Richard Nixon! Who did you vote for, Steve?"

Steve Liesman: "All I was posing was the ethical issue here. If it helps out to stabilize the system, is there a compelling reason to not disclose? I am not advocating that."

Rick Santelli: "You don’t break rules in a crisis condition!"

Steve Liesman: "If you want to blow a gasket on that, Rick, well then blow it on somebody else, not me."

Rick Santelli: "Well, then don’t open your mouth and say dumb things!"
Great idea Steve!

Natural Gas Price/Volume Converging, Fundamentals

Here's a look at the Natural Gas 2009 June (NGM9) and July (NGN9) future and $UNG (Natural Gas ETF). Look how volume has been converging with price on each security. The June future pierced through near term downtrend resistance and could head toward the $3.75 - $3.98 range (50 day moving average resistance) if it can follow through. Natural Gas is still in a long term downtrend but should be monitored for relief rallies or a structural reversal. As you can see from all of the charts below natty gas failed to break out on multiple occasions so stops and/or protection are mandatory imo (for example).

As for fundamentals, working gas in storage is at a very high level (chart at bottom) and rig count is declining, however according to Baker Hughes the decline slowed down a bit last week. We'll see if that trend sticks. I'm trying to hunt for the bottom here. Supply/demand tightening or hurricane anticipation could bring some volatility going forward. I also provided the April 30 AGO Natural Gas Update via Scribd and a bearish article: Natural gas prices on the verge of a deeper slide (Purchasing.com).


Natural Gas June Future (NGM9) (Optionsxpress)


Natural Gas July Future (NGN9) (Optionsxpress)


Put Buying On Index ETFs, Plunge Protection? (XRT, XLY, XLI, KRE, FAZ)

Bearish put strategies or hedges are popping up on a variety of Index ETFs. First here's what Jim Fitzgibbons of Susquehanna Intl. Group had to say on the floor at the CBOE. He saw people buying protection on the Retail and Industrial ETFs as well as the S&P 500.

Larry Page U of M Commencement Speech Video

Larry Page, co-founder of Google, gave a great speech at U of M's 2009 commencement. Follow your dreams!

US Dollar vs. Oil, S&P Chart; 374.6M Barrels in Inventory, IEA World Oil Demand.

Is oil vs. S&P and USD converging here or is this just a bear market head fake? Oil, the USD and S&P pierced through trend resistance and support levels. The USD has been moving inversely with the S&P and it's been acting like "a fever chart" during the financial crisis. (Soros).

But the S&P is up 30% since the March 666 lows and oil has been following the equity market, even with a higher inventory reading. US Crude Oil inventories (excluding SPR) are at 374 million barrels, levels not seen since 1990 (chart below). There is also oil inventory being stored offshore utilizing the contango spread which will eventually be dumped on the market soon. Read these articles.

4/30 -Floating oil lake likely to curb future oil prices (Reuters)
4/28 -Crude oil contango may flatten in second quarter (Reuters)
4/10 -IEA Cuts 2009 Oil-Demand Forecast (WSJ)


So is the oil market pricing in favorable inventory/production/demand levels going forward? Read Price Pop? by Gregor.us. If lower demand eats up existing inventory combined with lower production wouldn't that translate into higher prices eventually? The IEA predicts world oil demand will bottom out in Q2 2009 (Chart below). Also don't forget inflationary pressures and Treasury yields breaking resistance levels. We'll see what happens from here. Check out the futures curve, you can make 19% storing oil from June 2009 - June 2010 ($53-$63) so go hoard some oil on the Detroit River.

Granholm/Obama vs. Hedge Funds (Chrylser Bankruptcy)

I dug up these press conferences featuring Governor of Michigan Jennifer Granholm and President Obama on the Chrysler bankruptcy and hedge funds that didn't take the haircut.

Also this just out:
Perella Weinberg Xerion Fund Agreed To Chrysler Settlement (WSJ)
Chrysler Shutdown Could Push Parts Makers to the Brink (WSJ)


SPY Put/Call Ratios, XLI Puts, S&P June E-Mini Future Update and Chrysler Bankruptcy News

Here I go again talking about SPY Put/Call ratios (volume, open interest) w/ charts from Schaeffersresearch. I threw in some interesting May XLI put activity (hat tip Mr. Unexpectedly). I also charted out the ESM9 (E-mini June Future) and an interesting VIX May option open interest configuration. All good stuff.

First off here is some news hitting the wire overnight. AP Source: Chrysler lender talks break off, company headed for bankruptcy protection (Link)

The first chart is the S&P June 2009 Future ($ESM9) which was snapped from optionsxpress.com. One hour after I doodled on this it pierced through the $872 ceiling resistance level up 1.7% to $884. Lets see if it can hold. Is the Chrysler BK good news??



Next are Put/Call ratio charts. First is the Put/Call Open Interest ratio. Look how it has spiked since the March low. It's at 1.71 vs. 1.18ish in March. So sentiment is either bearish or longs are nervous. The Put/Call Volume ratio also spiked recently. Look at previous spikes vs. price. So IF I saw a technical breakdown in SPY I'd probably short the stock w/stops and buy puts. It's all about timing though and this is def not a recommendation. You can't fight this tape until you see confirmed weakness!.

SPY Put/Call Open Interest Ratio (Schaeffersresearch.com)

SPY Put/Call Volume Ratio (Schaeffersresearch.com)


USDX, EUR/USD Testing Trend Support/Resistance

US Dollar Index is testing uptrend support and EUR/USD is testing downtrend resistance. Keep an eye out. I break it down in this post.


EUR/USD (FXstreet.com)


US Dollar Index (FXstreet.com)

Market Reaction to FOMC Statement: TNX, SPY, TLT, UUP Charts

Post FOMC statement, $SPY initially spiked to $88.36 then took a seat to close at $87.39. $UUP (USD ETF) initially sold off to $25.17 but regained strength to close right around the open (gap down open) of $25.31. The 10 Year Note yield spiked to 3.096% and $TLT (20+ Treasury ETF) continued it's sell off. $TIP closed -.42 to $100.93. $QQQQ pierced through the 200 day moving average of $34.15 but closed at $33.94. Here are 5 minute charts of $SPY, $TNX, $TLT, and $UUP. Click to enlarge. Very interesting day.



30Y Treasury Yield Above 200 Day, 10Y Testing Resistance, Yield Curve Widening, Mortgage Rates Down.

I thought I'd provide interest rate charts and news before the FOMC reports tomorrow. Treasury yields have been moving higher with the 10 Year Treasury yield hitting 3% resistance (3.02%). The IEF (7-10 Treasury Bond Fund ETF) is in a wedge and under the 50 day moving average. The 2y-10y yield curve is widening and the full curve is normal/steep (charts).

An important chart is the 30 Year T-Bond yield. It just broke through the 200 day moving average and downtrend closing at 3.95%. The $TLT (20+ Treasury ETF) also broke the 200 day moving average and cut through the $100 support.

It will be interesting to see how Treasuries react tomorrow. Bernanke could be more optimistic about the economy: Fed May Keep Asset Purchases Unchanged as ‘Green Shoots’ Emerge (Bloomberg). Or the Fed could keep buying Treasuries to keep rates low which could reverse this trend. Bill Gross thinks the Fed will boost Treasury purchases if the 10 year yield hits between 3-3.1%. Of course a safe haven bid could always re-emerge and spike Treasuries. Yields could also be pricing in expected reflation or a move by China. Regarding China this is interesting, China Increases Gold Reserves 76% to Fifth-Largest. Auctions also have an affect on the market. The Treasury auctioned off $35 billion in 5 year notes at a higher yield than expected (1.94%).

The Fed has been able to bring down mortgage rates by scooping up mortgage-backed securities. I charted out part of the Feds balance sheet which includes MBS which is up 23,515%. So are the charts saying something?

Articles:
Fed May Keep Asset Purchases Unchanged as ‘Green Shoots’ Emerge (Bloomberg)
Gross Says Fed Likely to Boost Buyback If Yields Rise (Bloomberg)
At meeting, Fed to weigh options to revive economy (AP)
U.S. 30Y Bond Yields Soar on Auction-Increase Speculation (Bloomberg)



10 Year Treasury Yield (Stockcharts.com)


'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)

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.

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

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...)

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?

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

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)



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)

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

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!.

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".