Roubini Speech at PIRSA



Hat tip to ZeroHedge.com for finding this. Roubini did a 51 minute speech at the Perimeter Institute for Theoretical Physics on May 1, 2009. The speech was titled "Interpreting the failure to predict financial crises and recession". You can find the full video here.

At this institute they also talk about black holes, quantum physics, adiabatic and iso-curvature perturbations, cluster cosmology and fermion superconductors so this place is no joke.

GM In Penny Stock Land, Bankruptcy Planned June 1

I was wondering when the common stock would dip into penny land especially since bond holders are taking a haircut on the restructured equity (2). The S&P closed up 1.36% today and pierced the 200 day moving average.

GM 3 Month Chart (Stockcharts.com)

General Motors to File For Bankruptcy Protection

GM Bankruptcy Could Trigger Depression, Says Expert (MyFoxDetroit)

Fiat and Magna in running for takeover

News on GM:
Germany May Pick Magna If Prior Deal With GM Signed, State Says (Bloomberg)
GM Suppliers Face New Cash Threat as Bankruptcy Looms (Bloomberg)
GM to bring back plant for new small car (Detroit News)
GM Swaps Traders Prepare for Biggest Settlement Since Lehman (Bloomberg)
U.A.W. Members Easily Ratify G.M. Contract Concessions (NYT)

US Dollar ETF ($UUP) June 24 Puts At-The-Money

I've been writing about the US Dollar Index and $UUP (USD ETF) for a while now and so far no big blocks of UUP puts have hit the jack pot (1, 2). Actually there are 3,000 June 25 to 26 puts in-the-money but 5,744 are open at the 24 strike and $UUP closed at $24.07 today and 23.87 a few days ago. The combination of the Treasury massacre, tightening dollar funding spreads, equity rally, USD dilution and expected reflation (recovery) have GUTTED the US Dollar recently. The USD is also moving inversely with gold.

Back to the ETF. UUP is sitting right at the June 24 put strike which is support and coincides with $USDX $80 support. I'm not sure of the exact nature of the trade (calendar spread, hedging, naked shorting etc.) however if $UUP can break below $24 and head to $23 before June 19 less premium Fund X could net over 400k (3-6 fold) if they were long ((5000x100=500,000*$24 - " "*$23)-100k or 50k premium).


June $UUP Puts (Yahoo Finance)

UUP Chart (Stockcharts.com)

Lets see if CBs support the US Dollar here and cap Gold's $1,000 break out. Also watch out for a USD safe haven bid. Things are heating up in Pakistan/North Korea.

Articles:
FOREX-Dollar dips towards 5-mth low on US debt worries (Reuters)
Geithner to Urge China to Boost Demand, Official Says (Bloomberg)
China's Senior Official Expects USD to Maintain Its Reserve-Currency Status (DailyFx)
ECB's Constancio sees no collapse of U.S. dollar (Reuters)
Devaluation of U.S. dollar global trend: Brazilian official (Xinhuanet)
Why Beijing Wants a Strong Dollar (WSJ/Opinion)

I'll leave you with funny words from rapper 'Devin the Dude' on his song "Almighty Dollar" about the declining value of the USD and commodity inflation of 2007 (Explicit). Note this was made before the $Trillion stimulus package.

VIX Testing Long Term Downtrend (at 32.81)

The VIX is seeing activity with the recent market weakness and pending GM bankruptcy. It looks like major GM bond holders OKd a revised debt-equity deal which could put a cap on volatility but watch out for a rough reorganization, runaway Treasury yields and activity in North Korea. Option premium could get a bid if the downtrend in fear gets broken, at least in the short term. Watch the 33.24 resistance level. We'll see what happens.

VIX (Volatility Index) 2 Month Chart

More posts:
VIX Around Pre-Lehman Bankruptcy Levels, $29.14 (May 19, 2009)
VIX Support at 30, Implied Volatility and Futures Trending Higher (May 11, 2009)

Also check out today's Volatility Sonar report at Optionmonster.com. There were some bullish trades.

CBOT Action: Treasury Yields Spike, Curve Pierces Resistance

CBOT/LaSalle St - Chicago

Big day at the Chicago Board of Trade (CBOT). The 2-10 year Treasury yield spread pierced through resistance while yields spiked on 10-30 year money (10yr=3.69%, 30yr=4.6%). This action benefited the UltraShort 20+ Treasury ETF or $TBT which was up 3.76% on the day. I provided Bloomberg articles and charts below.
"Treasuries Fall on Concern Record Sales Will Overwhelm Demand

May 27 (Bloomberg) -- Treasuries fell for a fourth day, pushing the difference in yields between two- and 10-year debt to a record amid concern record supply will overwhelm investor demand as the economy begins to show signs of stability.

The slump in Treasuries is helping to send yields on mortgage bonds higher, prompting holders of the securities to sell government debt used as a hedge to protect portfolios against rising interest rates.

‘We are in a bit of a freefall,” said Kevin Giddis, head of fixed-income sales, trading and research at the brokerage Morgan Keegan Inc. in Memphis, Tennessee. “This is the beginning of a lot of sales.”" (More)

---

"Treasury Yield Curve Steepens to Record as Debt Sales Surge

May 27 (Bloomberg) -- The difference in yields between Treasury two- and 10-year notes widened to a record on concern surging sales of U.S. debt will overwhelm the Federal Reserve’s efforts to keep borrowing costs low." (More)

2 to 10yr Yield Spread (Bloomberg.com)
10 Year Yield ($TNX) (Yieldx10)

30 Year Yield ($TYX) (Yieldx10)

$TBT (UltraShort 20+ Treasuries)


For an in depth look at Treasury flows and issuance data go to Brad Setser's blog at cfr.org (Council on Foreign Relations). Recent entry: The Treasury market, in a world no longer dominated by central bank reserve managers (Link)

Lower GBP/USD = Lower Cocaine Purity

At Distressed Volatility we analyze trends in all markets (ex: $CAD/USD Pinching Margins On Canadian Marijuana Exports). From Bloomberg it looks like a lower GBP/USD rate lowers the purity of cocaine. Why not hedge FX risk and keep everybody happy? According to British Police, a year ago the purity of seized cocaine was 32% and now it's at 22% due to the USD rally (GPB/USD -20% MayOMay). Like she says on the video they have to keep their margins up. Kind of like how cereal boxes keep getting smaller. I'll keep my eyes open for more news on the street pharmaceutical industry.

"Chart of the Day- As Pound Erodes, So Does Purity of Cocaine" (Bloomberg)

Wells Fargo ($WFC) July Puts Active, Over 20k July 21 Puts Trading

What's going on at Wells Fargo ($WFC). This caught my eye, over 20,000 traded so far on the July 21 Puts. Looking a little closer there's some activity spread out in that month with 10,000 on the 25 strike and 11,000 on the 16 strike. I didn't see the actual prints but looks like some type of vertical spread or someone is selling a lot of puts. Watch for a chart break of some sort..

CBOE Most Active Put/Call Table via DJ

Wells Fargo ($WFC) Chart

$WFC July Puts (Snapshot via Yahoo Finance)


Also, just found this from OptionMonster: Wells Fargo gets bullish trades. Wait a minute.... Warren Buffett owns 6.43% of Wells Fargo. Warren are you selling puts!?

SPY, DIA Hanging Onto QQQQs 200 Day Support Level

QQQQ (Nasdaq ETF) has been leading the market higher since early March and they should since the index consists of high beta stocks. QQQQ has also been on a roll technically. It recently pierced through the 200 day moving average but gathered enough strength to break above that level. It rallied off of that level yesterday but is ending lower today. Currently the 200d moving average is at 33.11 and QQQQ is trading at 34.49. If the Qs stay resilient and can stay above the 200 day I'd expect the SPY (SPY ETF) and DIA (Dow ETF) to follow suit. If it breaks all bets are off. Right now Nasdaq is +11, Dow -23, S&P flat. **UPDATE** 3:32est Nasdaq -17, Dow -162, S&P -15.6, VIX up 4.6% to 32.

QQQQ (Stockcharts.com)

SPY (Stockcharts.com)

DIA (Stockcharts.com)

QQQQ Critical 200d Moving Average Level 33.11

I'll dig into the main components of QQQQ in a bit. I also took a look at the Fibonacci levels on the Nasdaq composite index. The 38.2% retracement is at 1,875.19 and we're at 1,760 today. Also check out the $COMPQ:$SPX ratio and how it has been killing the S&P. They always say the sectors that lead us into the recession will not lead us out. Will tech lead the market and demand multiples going forward?

Nasdaq Composite w/ Fibonacci Retracement (Stockcharts.com)

Golden Shofar (Source: mi.sanu.ac.yu/)

S&P Bat Signal


Source:Stockcharts.com

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)

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)

American Casino Movie Trailer

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


http://www.americancasinothemovie.com/

H/T Bigpicture.com

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)



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?

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

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)


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)

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.

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)



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)