Sunday, May 24, 2009

Gold-USD-S&P Charts. Reflation, Stag or Deflation Correction?

I provided a chart below of the relationship between the US Dollar, Gold and the S&P during the past few months. As you can see from the chart starting around 4/20/2009 the S&P:USD pair decoupled while gold rallied which was possibly signalling reflationary pressure.

On May 10 the S&P started to correct while the USD/GOLD continued their inverse relationship. So is the S&P 500 correction simply a correction or will there be a nice retracement with continued strength in the reflation trade? Or is this just a correction in the deflation trade? As Peter Schiff says the indices could move higher but relative to gold they could move lower (inflation hedge). We'll see if cost/job cuts relative to revenues can prop up EBITDA in this environment, at least that's what the market is hoping. Lets also not forget that a lower dollar will make dollar denominated overseas earnings higher and could boost exports, if they are still buying our sh*.


S&P:Gold:USD (Stockcharts.com)

News of interest:

China stuck in ‘dollar trap’ (FT.com)

Goods Orders, Home Sales Preview (Bloomberg)

Saturday, May 23, 2009

Fred Wilson, How Internet Disrupts Industries

Here's some Memorial Day entertainment. Fred Wilson did a speech at Google's headquarters about the Internet and how it disrupts industries. He is a venture capitalist and managing partner at Union Square Ventures. Current investments include Twitter, Tumblr, Boxee, Disqus and Covestor. They recently sold Del.icio.us and FeedBurner (to Google). Also back in 1999 Fred and his venture capital firm sold Geocities to Yahoo for $3.5 Billion. He has a blog AVC.com. In his talk he gets into the new era of accredited education, online journalism, virtual currencies etc. I don't see how the floor couldn't drop on the whole accredited school concept lol (crowded tuition trade?). I also provided a USV talk about "Hacking Education" below. Very interesting stuff from a VC worth listening to. Below is the video and his slides.




(Source: Audio Recordings From Event)

Friday, May 22, 2009

American Casino Movie Trailer

American Casino movie trailer from Leslie and Andrew Cockburn on Vimeo.


http://www.americancasinothemovie.com/

H/T Bigpicture.com

Thursday, May 21, 2009

I.O.U.S.A Video, UK, U.S AAA Rating At Risk

Hate to be spewing US debt Armageddon stuff but after today's action in Treasuries and the USD maybe people should know what's going on w/ our Federal debt. Pimco's Gross: Sell-off (US Dollar, Stocks, Bonds) driven by fears US could lose AAA (Reuters, Bloomberg Phone Interview).


In other news:

Rosenberg Says U.S. Stock Market May Test March 9 Low (Birinyi is bullish) (Bloomberg)


UK risks losing AAA rating (S&P but Fitch/Moody's Disagree) (Reuters)

Goldman Expects Large Drop In Rents; REITs Impacted (Zero Hedge)

N.Y. Fed says bought $7.398 bln Treasuries Thurs (Reuters)

Kokusai Cuts Treasuries as Fukoku Sees End to Rally (Bloomberg)

Commercial Mortgage Bonds Rally on Fed’s Legacy Assets Plan (Bloomberg)

U.S. Economy: Leading Indicators Index Gains as Recession Eases (Bloomberg)

Here Comes the Option ARM Mortgage Explosion (Business Insider)

US's Geithner- obligation to sustain strong dollar (Reuters)

Cheaper to finance a house than U.S debt (Zero Hedge)

Geithner Says TARP Can’t Help U.S. States Solve Budget Crises (Bloomberg)

Birinyi Says S&P 500 May Surge 88% in Three Years (Bloomberg)

U.S. Dollar to Fall Further on Stimulus Spending, Says Windheim (Bloomberg)

Fed Unconvinced Economy’s ‘Stabilization’ to Persist (Bloomberg)

U.S. 2-Year Range Break Could Steepen Curve: Technical Analysis (Bloomberg)

Watch for a break out in the yield curve (2s - 10s - Bloomberg.com)



Wednesday, May 20, 2009

Thousands Of Hecla Mining Calls Open ($2.50-5.00 - June, Sep '09, Jan '10)

There is large open interest in Hecla Mining's June and Sep $2.50 - $5.00 calls. Check out the $HL option chain via Yahoo Finance today. Something is up here, either someone is hedging a large short position, putting on vertical call spread or bulls are salivating to own this thing between $2.5-5. June has over 40,000 calls open vs 9,000 puts. September is also active with over 12,000 calls open vs. 1,000 puts. If you look way out to HL January 2010 options there are about 67,000 $2.50 calls open w/ last bid at $1.05. As always for better info on how these contracts were bought or sold to open hit up optionmonster.com, schaeffersresearch.com or investingwithoptions.com.

Hecla Mining June, Sep, Jan (2010) Option Chain (Yahoo Finance)

Hecla Mining Chart (Stockcharts.com)

H/T Schaeffers Research (Bulls Gold-digging with Hecla Mining Call Options)

Hecla beat Q1 earnings estimates on the top and bottom line and silver production surged 126% QoQ. They also paid off a $40 million bridge loan with an equity offering (credit markets froze up making this an issue). Also from the release, "In early February, Hecla also announced that it had reached an agreement with its banking syndicate to reschedule debt payments of $66.7 million due in 2009 to 2010 and 2011." Hecla also wants to buy some silver/mining assets. The stock is up 2 fold from earlier this year and closed at $3.17 today. If traders can't successfully move this over the 200d it could revisit the $2s but Hecla could be a long term play if they keep their business risk in check and gold/silver fundamentals improve. Below is the Q1 Earnings Release and presentation at European Growth Forum on 4/30/09.

Hecla Mining - Q1 Earnings Press Release

Hecla Mining - European Growth Forum


Articles of interest:

Hecla Mining reports first quarter results (IdahoBusiness)

Hecla mulls potential acquisitions in silver, gold (MiningWeekly)

Roger Wiegand: On the Cusp of a Significant Rise in Gold (Likes Hecla) (Gold Report)

Paulson Buys $GLD, $GDX. Laidi Long Gold/Oil Pair Trade (DistressedVolatility)

Paulson Buys GLD, GDX. Laidi Long Gold/Oil Pair Trade

It's time to look at gold as a possible break out candidate. I'm talking about the BIG one this time. Timing might be pre-mature but the commodity still deserves a spot on your screen as it flirts with the $1,000 resistance level, a level going back about 2 years. Gold spot is at $930.

With USD dilution, central bank demand, possible green shoot/reflationary pressures and a safe haven bid less equity rally re-allocation, lets take a look.

Ashraf Laidi of CMC Markets was on Bloomberg TV last week and was bullish on the risk aversion trade (higher yen/stabilizing US Dollar/lower equities). He thinks we reached a peak in the 2 month up cycle. Laidi also touched on the gold/oil ratio. He believes gold could outperform oil in the coming weeks and gold could test and successfully break the $1,000 level. We'll see.

Oil is interesting here at $60. Watch out for the potential contango dump (1) Close to 150 million barrels oil, products stored at sea, (2) Flattening crude curve may unleash flood of U.S. oil (Reuters). If the USD continues to fall it could support crude here. I provided a Gold/Oil chart below with the 200d moving average support level. On 10/29/2008 I embedded a video w/ Ashraf Laidi featured on Tech Ticker talking about gold, USD, etc.




2 Year Gold Chart (above moving avgs) (Stockcharts.com)


Gold:Oil Ratio On 200d Moving Average (Stockcharts.com)


Paulson & Co scooped up GLD, GDX and a bunch of miners during the first quarter. At 3/31/09 Paulson & Co. owned 31.5 million shares of GLD (gold etf, 8.7% of the fund/$2.8B), 17.3 million shares of GDX (miners), 18.2 million shares of Gold Fields (GFI), 30.7 million shares of Kinross (KGC) and 2.9 million shares of AngloGold (Source: GuruFocus, 13F).

Here's another interesting factoid, the firm said in a statement that the GLD holding was a hedge against one of his funds denominated in gold Source: Bloomberg).

Also check out the CBOE Gold Volatility Index chart from curvingfutures.com. As with all other markets implied volatility is being liquidated which is bullish if it sticks. In conclusion, it's going to be a fight up to the $1,000 level and if I were to try something here I'd def be hedged w/ puts/stops. Also watch the Ivolatility, it's hitting support levels not seen since early '08 but you can't rule out a 180° turn.

Paulson's got the hot hand.... Good luck.

Macke's Voice Of Reason Guiding Kneale On CNBC

Jeff Macke got off the bus in crazy town tonight. This is a funny CNBC clip. What the hell is going on over there?

Tuesday, May 19, 2009

Fed Adds Older CMBS to TALF, The Shoe Dropped! (Trepp)

This is good news for CMBS and the funding mechanism.

"Release Date: May 19, 2009

The Federal Reserve Board on Tuesday announced that, starting in July, certain high-quality commercial mortgage-backed securities issued before January 1, 2009 (legacy CMBS) will become eligible collateral under the Term Asset-Backed Securities Loan Facility (TALF).

The TALF is designed to increase credit availability and support economic activity in part by facilitating renewed issuance of consumer and business asset-backed securities (ABS) and CMBS. The Board authorized the TALF on November 24, 2008, under section 13(3) of the Federal Reserve Act. Under the TALF, the Federal Reserve Bank of New York (FRBNY) has extended loans secured by triple-A-rated newly issued ABS backed by certain consumer and business loans and leases. On May 1, 2009, the Board announced it would expand the range of acceptable TALF collateral to include newly issued CMBS starting with the June subscription.

On March 23, 2009, the Federal Reserve announced that it would evaluate extending the list of eligible collateral for TALF loans to include certain legacy securities. The objective of the expansion is to restart the market for legacy securities and, by doing so, stimulate the extension of new credit by helping to ease balance sheet pressures on banks and other financial institutions. Tuesday’s announcement marks the first addition of a legacy asset class to the list of eligible TALF collateral.

The CMBS market, which has financed approximately 20 percent of outstanding commercial mortgages, including mortgages on offices and multi-family residential, retail and industrial properties, came to a standstill in mid-2008. The extension of eligible TALF collateral to include legacy CMBS is intended to promote price discovery and liquidity for legacy CMBS. The resulting improvement in legacy CMBS markets should facilitate the issuance of newly issued CMBS, thereby helping borrowers finance new purchases of commercial properties or refinance existing commercial mortgages on better terms.

To be eligible as collateral for TALF loans, legacy CMBS must be senior in payment priority to all other interests in the underlying pool of commercial mortgages and, as detailed in the attached term sheet, meet certain other criteria designed to protect the Federal Reserve and the Treasury from credit risk. The FRBNY will review and reject as collateral any CMBS that does not meet the published terms or otherwise poses unacceptable risk.

Eligible newly issued and legacy CMBS must have at least two triple-A ratings from DBRS, Fitch Ratings, Moody’s Investors Service, Realpoint, or Standard Poor’s and must not have a rating below triple-A from any of these rating agencies. More broadly, the Federal Reserve is formalizing procedures for determining the set of rating agencies whose ratings will be accepted for various types of eligible collateral in the Federal Reserve’s credit programs.

The initial subscription date for TALF loans collateralized by newly issued CMBS will be June 16, 2009. The subsequent subscription dates for TALF loans collateralized by newly issued and legacy CMBS will be announced in advance. The subscription date for loans collateralized by all other ABS will remain toward the beginning of the month.

A new term sheet and a frequently-asked-questions document, specific to legacy CMBS, are attached. Also attached are a revised term sheet and frequently-asked-questions document for newly issued asset-backed securities and CMBS." (FederalReserve.gov)

Still, CRE is not looking good WITHOUT these interventions. Hopefully the Fed can put a floor under this shoe. Here's a chart of commercial real estate loan delinquencies w/ data from the Federal Reserve. Trepp LLC also analyzes this data (article and video below).




Commercial Mortgage Delinquencies in U.S. Rise to 11-Year High (Bloomberg, May, 7, 2009).
Commercial mortgage delinquencies in the U.S. climbed to the highest level in at least 11 years in April as scarce credit made it difficult for landlords to refinance loans, according to property research firm Trepp LLC.

The percentage of loans 30 days or more behind in payments rose to 2.45 percent, Trepp LLC said in a report. The delinquency rate was more than five times the year-ago number, Trepp said. The New York-based researcher’s records go back to 1998.

“It’s about as bad as it’s ever been,” said Thomas Fink, a Trepp senior vice president. “I don’t think we’re done yet. Where it’s going to top out, I don’t know, but we’re not done.”

Properties bought in 2006 are now worth on average 11 percent less than their original price, and those bought in 2007 are worth almost 20 percent less, Moody’s said." (Source: Bloomberg)

Here's Tom Fink, TREPP LLC, senior vice president on CNBC (CNBC.com).




More News..

Local Banks Face Big Losses in CRE (WSJ)

RealPoint Downgrades Hundreds of CMBS Classes, CRE Deterioration Accelerates (Zero Hedge)

Stronger focus on fundamentals cools REIT rally, for now (Deal Reporter)

Rising U.S. CMBS Delinquencies Concentrated in Distressed States (Fitch)

U.S. CMBS Loan Defaults Spike in 1Q, to Exceed 5% in 2009 (Fitch)

S&P Says CMBS Ratings May Suffer Amid Refinancing Woes (Dow Jones)

Bank Loans More Vulnerable to Commercial Real Estate Losses (ResearchRecap)

Stimulus Programs, Financial Market Intervention to Benefit CRE--But Not Right Away (Commercial Property News)

VIX Around Pre-Lehman Bankruptcy Levels, $29.14

All of the Government stimulus injections and programs definitely brought down fear factor during the past 6 months. $VIX cash is trading at $29.14 or pre-Lehman bankruptcy levels. It looks like there's support around $26.86 (2007 channel, now resistance). The one question I have is will there be an aftershock after this huge earthquake we experienced..

By the way in Dec, 2008 OptionMonster Volatility Sonar reported some great May 30 Put trades , nice timing there.

VIX (Volatility Index) 3 Year Chart

Monday, May 18, 2009

S&P Channel Is Your Friend Until It Breaks

Look at the nice channel the S&P built over the past few months. The 200d moving avg 943 is right near 930 resistance. The S&P was up over 3% today on positive news out of Lowe's, higher homebuilding sentiment and upbeat bank comments by analysts AP. The bulls have most of the bears held hostage. So in conclusion, the S&P channel is your friend until it breaks. I wrote earlier that the UltraShort Real Estate ETF (SRS) looked like a nice set up on the long side, au contraire, it went the other way and tanked BIG today. As always protect yourself before you wreck yourself w/ stops. SRS is still testing a double bottom at the 52 week low ($19.55). So what will the next big catalyst be? Or is the VIX going to 10.

S&P 500 Daily (Stockcharts.com)


S&P 500 Weekly (Stockcharts.com)


Friday, May 15, 2009

SRS June '09 Option Activity

Option traders were rolling into the June 25 calls on $SRS (UltraShort Real Estate). 4,737 $25 calls traded vs. 2,974 open and June calls dominated puts. $SRS closed up 6.67% at $24.46 and pierced through $25 intraday. It was interesting to see all the volume from $30-32 in June. Is it a spread or soylent green shoot calls?

I couldn't see the actual ticks so OptionMonster.com would probably be a better place for valid open-to-buy vs. sell-to-open info. Call implied volatility was greater than put vol. Are traders wrong bidding up calls here? We'll soon find out. I talked more about SRS, commercial real estate index and CMBX index here. Recently REITs have been active w/ secondary offerings in order to "re-equitize" their balance sheets. There is also the possibility that net operating income could come in short of expectations. It could be risky gambling w/ the Gov and PPIP here so protect yourself. **Fed opens TALF to legacy commercial property loans (Reuters) 5/19/09.

From Barron's article "The Other Shoe" 5/4/09.
"It is expected that industry net operating income, a key financial measure for the realty trusts, will be down in the low-to-mid single digits for 2009 and 2010, thanks to declining rents for office buildings, apartments and shopping malls."

"Other major challenges lie ahead. Goldfarb expects what he calls the "re-equitization" of REITs to continue, with potentially tens of billions of dollars of capital left to be raised." (Alexander Goldfarb, a REIT analyst at Sandler O'Neill)

June SRS Option Chain Snapshot (Optionsxpress.com)

June $25 SRS Call (Optionsxpress.com)

Wednesday, May 13, 2009

UltraShort Real Estate $SRS Moving, CPPI/TBI Still In Downtrend, GGP LCDS Auction

The market is tanking on some red shoots and the UltraShort Real Estate Index ($SRS) downtrend looks overextended, imho. Tight green shoot stops! It peaked at $111.22 in early March and it's at $24.08 today. Also I just saw blocks of shares, over 295k total in a minute move this thing above $24.50 (2:21p). We'll see if that has any meaning going forward. **UPDATE, May 19, 2009** Can't Fight The Fed!

"The Federal Reserve Board on Tuesday announced that, starting in July, certain high-quality commercial mortgage-backed securities issued before January 1, 2009 (legacy CMBS) will become eligible collateral under the Term Asset-Backed Securities Loan Facility (TALF)." (FederalReserve.gov)

UltraShort Real Estate (SRS) 6 Month Chart

There's also some interesting news coming out of zerohedge.com regarding the GGP "LCDS Auction" which could reprice "secured obligations" in the commercial real estate market. (GGP LCDS Auction In Process, GGP Inside Market Midpoint 43.25, $20 MM Sell Interest).

I also checked out MIT.edu which has a transaction based commercial real estate index and a MIT/Moody's Commercial Real Estate Index. Here's a snapshot. Remember they are backward looking but still useful.


TBI All Properties Price Index (Source: MIT.edu)
(Transaction Based Index)


Moodys/REAL National Commercial Property Price Index(Source: MIT.edu)

Moodys/REAL Retail CPPI (Quarterly)(Source: MIT.edu)


Also look at the recent rally in Markit's CMBX.NA.AAA.5 Index. It rallied with the overall market from March. Read the second article I provided below for more on this.


CMBX.NA.AAA.5 Index (Markit.com)


Articles of interest:

MIT real estate index continues slide (Boston Business Journal)
CMBS Continues to Rally, But Is It Sustainable? (Another Financial Portal)

Chicago Freight Train Bottlenecks Worst In U.S (AAR, PBS)

On April 21, 2009 PBS had a special on how freight train bottlenecks are causing delays which have forced companies to use trucks which are less efficient and more expensive. Chicago's rails are slower than the roads.
"RICK KARR: But traffic on Chicago's rails is even slower than traffic on its roads. A 2002 study found that freight trains pass through the city at an average of just 9 miles an hour.

DINO MCCULLOUGH: I got a 10-mile-an-hour track restriction here. I can only go 10 up here. They just might be out there working on track. It just could be anything, you know? It could be broken rail.

RICK KARR: One reason for the slow speed is that some of the technology on Chicago's rails hasn't emerged from the 19th century. For example, McCullough and Dooley had to bring their 130-car train, which was carrying nearly 9,000 tons of coal, to a dead stop in the city so that Dooley could climb down through the locomotive and make sure that it went on to the right track at a switch by hand, even though most switches these days operate by remote control." (Transcript, PBS.org)

Here's what Frank Barre of UPS had to say.
"FRANK BARRE, UPS: The typical lifespan of a package in this facility is less than 15 minutes. This facility can process above 100,000 packages per hour. We've actually demonstrated during our Christmas peak period of processing more than 120,000 packages per hour.

RICK KARR: Barre says, if railroads want to do business in the 21st century, they need a 21st-century rail network.

FRANK BARRE: The railroads need to certainly make sure that consistently they provide good service. There needs to be an increased amount of technology placed into the rail system, as well as more capacity, as we have the growth to move goods.

RICK KARR: But, he says, railroads can't do it alone. They need cooperation from industry and government." (Transcript, PBS.org)

Also Global Insight expects that Chicago's freight volume will increase by 80 percent by 2030. View the full transcript at PBS.org. Click the flash link below for the full PBS video (Freight Rail Bottlenecks Hinder U.S. Potential). I also dug up an MSNBC video covering the hidden tax of bottlenecks from January, 09.

Tuesday, May 12, 2009

QQQQ Testing 200 Day Moving Average $33.69, Bulls Are Not Backing Down (Update)

QQQQ pierced through it's 200dma of $33.69 this morning hitting a low of $33.52 but rallied back to $33.93 at the close. The Nasdaq has been leading the market higher and if the Qs break down here it could put pressure on the overall market. If the green shoots are real the S&P/Dow could test 200d as well.

The S&P initially sold off this morning and pierced through the 900 level but closed flat. The VIX is down 3.62% to 31.68. The bulls are not backing down yet....... Also note that options expire on May 15.

QQQQ 3 Year Chart (Stockcharts.com)

QQQQ 1 Day Chart


Headlines:

Reasons to be wary of rally.

Social Security Fund Will Be Depleted by 2037

Greenspan Sees ‘Seeds of a Bottoming’ in U.S. Housing

Advanta’s Card-Lending Shutdown May Imperil Customers

Gasoline nears $2.25, crude briefly above $60

NY Fed says bought $6 bln of Treasuries

First Tax-Month Budget Deficit Since 1983

Jim Rogers On Bloomberg (May 11, 2009)

Jim Rogers was a guest on Bloomberg on May 11, 2009. He talks about banks, currencies, commodities, inflation and the stock market.





Obama's Speech at White House Correspondents' Association Dinner (Parts 1 and 2)



Monday, May 11, 2009

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)

Saturday, May 9, 2009

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)

Thursday, May 7, 2009

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.

Wednesday, May 6, 2009

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)

Tuesday, May 5, 2009

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!

Monday, May 4, 2009

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)


Sunday, May 3, 2009

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!

Saturday, May 2, 2009

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.

Thursday, April 30, 2009

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)

Wednesday, April 29, 2009

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)


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