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)

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"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)