Tuesday, June 30, 2009

Kneale of CNBC Takes On Financial Bloggers! Evolution of Financial Media

This was a historic day for financial journalism, imho. Dennis Kneale was on CNBC replying to blog posts made about his calls. He brought on a blogger from AnnuityIQ.com who GOT THE GONG. He even said dickweed which was funny. Comedy aside.. Anonymity or not, "the most valuable commodity I know of is information" whether it's from CNBC, Fox Business, Bloomberg or Zero Hedge. The financial journalism war serves well for the public interest.

Monday, June 29, 2009

Nasdaq Volume Highest Since Oct 2008 ($COMPQ)

Just to note, the Nasdaq Composite Index ($COMPQ) traded 3.619 Billion shares on Friday, a level not seen since September and October 2008.


Nasdaq ($COMPQ) - Courtesy of Stockcharts.com

Or it is just.. Record Volume on Nasdaq Close for Russell Reconstitution (Barron's). Either way watch the Nas.

Sunday, June 28, 2009

SPY Head and Shoulders Chart Pattern, Watch 875 Neck Line

The S&P 500 has been in the 880-950 channel since early May and SPY (S&P ETF) could be setting up for a head & shoulders breakdown if it can't hold above the 50 and 200 day moving averages. However, in order for this to occur there needs to be a negative catalyst to force a technical breakdown. If there is no catalyst this could be a "pause that refreshes". The 50/200d golden cross is STILL in effect to the upside. Once these averages are violated and neckline is broken on strong volume, 800-875 could be the next trading range. This action would also set up the ULTIMATE inverted head and shoulders pattern on the long term chart if the 666 S&P bottom sticks.

Saturday, June 27, 2009

Save Capitalism From S&P Futures Manipulation!

Weekend note... Save capitalism from the possibility of S&P Futures manipulation ($ES_F). Read this post at Zero Hedge and follow the instructions to notify the SEC so they can investigate the matter..
"Since FINRA and the Securities and Exchange Commission believe in going only after $1,000 insider traders with the full weight of their enforcement teams, yet ignore major market manipulation in futures and other markets, Zero Hedge wanted to present readers an opportunity to be heard by the market's regulators."

Lets heal the world people, we are the world.

Thursday, June 25, 2009

Ken Lewis' Testimony on the Bank of America/Merrill Lynch Merger

I posted Bernankes testimony on the Bank of America/Merrill Lynch merger today. Here is the CEO of Bank of America, Ken Lewis, testifying before congress on June 11 (full video via CSPAN).

Bernanke Testimony On Bank of America, Merrill Lynch Merger

Here is the full video of Bernanke's testimony on the Bank of America/Merrill Lynch merger via CSPAN.





Here is Bernanke's full testimony:

Chairman Ben S. Bernanke
Acquisition of Merrill Lynch by Bank of America
Before the Committee on Oversight and Government Reform, U.S. House of Representatives, Washington, D.C.
June 25, 2009

Chairman Towns, Ranking Member Issa, and other members of the Committee, I appreciate the opportunity to discuss the Federal Reserve's role in the acquisition by the Bank of America Corporation of Merrill Lynch & Co., Inc. I believe that the Federal Reserve acted with the highest integrity throughout its discussions with Bank of America regarding that company's acquisition of Merrill Lynch. I will attempt in this testimony to respond to some of the questions that have been raised.

Background


On September 15, 2008, Bank of America announced an agreement to acquire Merrill Lynch. I did not play a role in arranging this transaction and no Federal Reserve assistance was promised or provided in connection with that agreement. As with similar transactions, the transaction was reviewed and approved by the Federal Reserve under the Bank Holding Company Act in November 2008. It was subsequently approved by the shareholders of Bank of America and Merrill Lynch on December 5, 2008. The acquisition was scheduled to be closed on January 1, 2009.

As you know, the period encompassing Bank of America's decision to acquire Merrill Lynch through the consummation of the merger was one of extreme stress in financial markets. The government-sponsored enterprises, Fannie Mae and Freddie Mac, were taken into conservatorship a week before the Bank of America deal was announced. That same week, Lehman Brothers failed, and American International Group was prevented from failing only by extraordinary government action. Later that month, Wachovia faced intense liquidity pressures which threatened its viability and resulted in its acquisition by Wells Fargo. In mid-October, an aggressive international response was required to avert a global banking meltdown. In November, the possible destabilization of Citigroup was prevented by government action. In short, the period was one of extraordinary risk for the financial system and the global economy, as well as for Bank of America and Merrill Lynch.

Discussions Regarding the Possible Termination of Agreement to Acquire Merrill Lynch
On December 17, 2008, senior management of Bank of America informed the Federal Reserve for the first time that, because of significant losses at Merrill Lynch for the fourth quarter of 2008, Bank of America was considering not closing the Merrill Lynch acquisition. This information led to a series of meetings and discussions among Bank of America, the regulatory agencies, and Treasury. During these discussions, Bank of America's CEO, Ken Lewis, told us that the company was considering invoking the Material Adverse Event clause in the acquisition contract, known as the MAC, in an attempt to rescind its agreement to acquire Merrill Lynch.

In responding to Bank of America in these discussions, I expressed concern that invoking the MAC would entail significant risks, not only for the financial system as a whole but also for Bank of America itself, for three reasons. First, in light of the extreme fragility of the financial system at the time, the uncertainties created by an invocation of the MAC might have triggered a broader systemic crisis that could well have destabilized Bank of America as well as Merrill Lynch. Second, an attempt to invoke the MAC after three months of review, preparation, and public remarks by the management of Bank of America about the benefits of the acquisition would cast doubt in the minds of financial market participants--including the investors, creditors, and customers of Bank of America--about the due diligence and analysis done by the company, its capability to consummate significant acquisitions, its overall risk-management processes, and the judgment of its management. Third, based on our staff analysis of the legal issues, we believed that it was highly unlikely that Bank of America would be successful in terminating the contract by invoking the MAC. Rather, an attempt to invoke the MAC would likely involve extended and costly litigation with Merrill Lynch that, with significant probability, would result in Bank of America being required either to pay substantial damages or to acquire a firm whose value would have been greatly reduced or destroyed by a strong negative market reaction to the announcement. For these reasons, I believed that, rather than invoking the MAC, Bank of America's best option, and the best option for the system, was to work with the Federal Reserve and the Treasury to develop a contingency plan to ensure that the company would remain stable should the completion of the acquisition and the announcement of losses lead to financial stress, particularly a sudden pullback of funding of the type that had been experienced by Wachovia, Lehman, and other firms.

Ultimately, on December 30, the Bank of America board determined to go forward with the acquisition. The staff of the Federal Reserve worked diligently with Treasury, other regulators, and Bank of America to put in place a package that would help to shore up the combined company's financial position and reduce the risk of market disruption. The plan was completed in time to be announced simultaneously with Bank of America's public earnings announcement, which had been moved forward to January 16, 2009, from January 20, 2009. The package included an additional $20 billion equity investment from the Troubled Asset Relief Program and a loss-protection arrangement, or ring fence, for a pool of assets valued at about $118 billion. The ring-fence arrangement has not been consummated, and Bank of America now believes that, in light of the general improvement in the markets, this protection is no longer needed.

Importantly, the decision to go forward with the merger rightly remained in the hands of Bank of America's board and management, and they were obligated to make the choice they believed was in the best interest of their shareholders and company. I did not tell Bank of America's management that the Federal Reserve would take action against the board or management if they decided to proceed with the MAC. Moreover, I did not instruct anyone to indicate to Bank of America that the Federal Reserve would take any particular action under those circumstances. I agreed with the view of others that the invocation of the MAC clause in this case involved significant risk for Bank of America, as well as for Merrill Lynch and the financial system as a whole, and it was this concern that I communicated to Mr. Lewis and his colleagues.

Disclosures

The Federal Reserve also acted appropriately regarding issues of public disclosure. As I wrote in a letter to this Committee, neither I nor any member of the Federal Reserve ever directed, instructed, or advised Bank of America to withhold from public disclosure any information relating to Merrill Lynch, including its losses, compensation packages or bonuses, or any other related matter. These disclosure obligations belong squarely with the company, and the Federal Reserve did not interfere in the company's disclosure decisions.

The Federal Reserve had a legitimate interest in knowing when Bank of America or Merrill Lynch intended to disclose the losses at Merrill Lynch. Given the fragility of the financial markets at that time, we were concerned about the potential for a strong, adverse market reaction to the reports of significant losses at Merrill Lynch. If federal assistance to stabilize these companies were to be effective, the necessary facilities would have to be in place as of the disclosure date. Thus, our planning was importantly influenced by the companies' planned disclosure schedule. But the decisions and responsibilities regarding public disclosure always remained, as it should, with the companies themselves.

A related question is whether there should have been earlier disclosure of the aid provided by the U.S. government to Bank of America. Importantly, there was no commitment on the part of the government regarding the size or structure of the transaction until very late in the process. Although we had indicated to Bank of America in December that the government would provide assistance if necessary to keep the company from being destabilized, as it had done in other cases during this time of extraordinary stress in the financial markets, those December discussions were followed in January by significant and intense negotiations involving Bank of America, the Federal Reserve, the Treasury, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency regarding many key aspects of the assistance transaction, including the type of assistance to be provided, the size of the protection, the assets to be covered, the terms for payments, the fees, and the length of the facility. The agreement in principle on these items was reflected in a term sheet that was not finalized until just before its public release on January 16, 2009. The Federal Reserve Board and the Treasury completely and appropriately disclosed the information as required by the Congress in the Emergency Economic Stabilization Act of 2008.

In retrospect, I believe that our actions in this episode, including the development of an assistance package that facilitated the consummation of Bank of America's acquisition of Merrill Lynch, were not only done with the highest integrity, but have strengthened both companies while enhancing the stability of the financial markets and protecting the taxpayers. These actions were taken under highly unusual circumstances in the face of grave threats to our financial system and our economy. To avoid such situations in the future, it is critical that the Administration, the Congress, and the regulatory agencies work together to develop a new framework that strengthens and expands supervisory oversight and includes a broader range of tools to promote financial stability.

I would be pleased to take your questions.

Frontline - Breaking The Bank, Shadiest Weekend In Financial History

Yup, the shadiest weekend ever in financial history.


The Frontline video, "Breaking The Bank", gives a behind the scenes look at the moments leading up to the Lehman bankruptcy and Bank of America/Merrill merger. Was September 13-14, 2008 the shadiest weekend in financial history? DV was there, Lehman Disaster Sending Index Futures Lower, BAC Buys MER. The drama continues tomorrow as Bernanke testifies before congress regarding allegations that he pressured Bank of America's Lewis to buy Merrill from Thain. Hopefully I'll be able to embed the hearing video.



"In one of the most dramatic days in Wall Street’s history, Merrill Lynch agreed to sell itself on Sunday to Bank of America for roughly $50 billion to avert a deepening financial crisis, while another prominent securities firm, Lehman Brothers, filed for bankruptcy protection and hurtled toward liquidation after it failed to find a buyer." New York Times

Hat tip Value Plays

Fed Keeps Rate At 0-0.25%, (6/09 FOMC Statement)

Release Date: June 24, 2009

For immediate release

Information received since the Federal Open Market Committee met in April suggests that the pace of economic contraction is slowing. Conditions in financial markets have generally improved in recent months. Household spending has shown further signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Businesses are cutting back on fixed investment and staffing but appear to be making progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.

The prices of energy and other commodities have risen of late. However, substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some time.

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve will buy up to $300 billion of Treasury securities by autumn. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

FederalReserve.gov

Tuesday, June 23, 2009

August USO, XLE Put Options Active

I just checked out today's option activity on $USO and $XLE and found big out of the money August put volume. USO (oil ETF) closed at $37.41 today and 9,370 August $37 puts traded with 192 open and 25,897 August $34 puts traded with 2,209 open. Call action was minimal. XLE (energy stock ETF) also had large out of the money August put action. XLE closed at $47.03 today and 12,836 August $45 puts traded with 333 open.

The volume/open interest ratio was very wide on these trades. So were these trades speculative out of the money longs or sellers? Lets say these ballers were long. Using XLETS (XLE Aug $45 Put) $1.99 premium at the close, traders dropped $2,554,364 for the right to sell 1,283,600 shares of XLE at $45 which would make profit < 43.01. I'm sure OptionMonster has information on the actual ticks. XLE broke below the 50 and 200 day moving average and the Oil Volatility Index ($OVX) gathered strength recently (chart below). This could be a crazy summer for the energy sector. Watch out for hurricanes in the Gulf and/or volatility in Tehran.

Monday, June 22, 2009

AUDJPY Hit Retracement Level, Needs Reflation Jumper Cables


I'm revisiting the $AUDJPY currency pair. It just hit the 50% fibonacci retracement level and sold off (104 2008 high - 55 2009 low, hits 80). I wrote about the AUDJPY carry trade unwind, reflation trade and commodity currency relationship a few posts ago. The Australian Dollar bottomed out against the Yen and rallied hard as the reflation trade caught traction (or China restocking unwound the carry trade unwind - Baltic Dry Index On Fire, 1, 2, 3). China is a big importer of Australian commodities which requires Australian Dollars. With oil, gold and other commodities losing strength it could sink the $AUD. GOLD could sell off to the 200dma (875ish) if the risk aversion trade sticks for a while.

As you can see from the chart below, $AUDJPY broke through the 75.52 support level and could test the 38.2% retracement level (74.26) then possibly hit 70 if nothing can hold. C-bank moves and Japan fundamentals could also affect this pair. It will be interesting to watch and stay protected w/ stops. I'd probably hedge w/ ITM calls somehow. So will the Yen carry trade unwind unwind, unwind?

For better info and analysis visit these articles:

Barclays’ Englander Sees Room for Australian Dollar to Retreat (Bloomberg)
Dollar and Yen Extend Rally on Falling Stocks and Commodities (IBTimes)
Risk Aversion Spikes as World Bank Sees Deeper Recession (FXStreet)
Yen gains as uncertainty stalks market ahead of Fed (Guardian.co.uk)
Australian, New Zealand Dollars Decline on World Bank Outlook (Bloomberg)
Nikkei Plummets As Stocks See Massive Sell-off On Economic Woes (RTTNews)



AUDJPY (FXstreet.com)


Sunday, June 21, 2009

Market Needs Support From IYT, Transports, FDX


Not too long ago the Dow, S&P and Nasdaq all busted through their 200 and 50 day moving average. The Transports ($TRAN, $IYT) tested and failed that level recently and now price action is being squeezed between the 50 and 200dma awaiting trend decision. I wouldn't stand in front of this uptrend (or at least in size) until it breaks the 50 day and trend support. Also watch for the 50/200 day "golden cross" to the upside which would be a long term bullish indicator. Puts open are dominating calls however there is no crazy OTM activity. The IYT Schaeffers Volatility Index is at 0.41, up 10% from 0.37 on June 5. Look at the $IYT chart.


Stockcharts.com


Friday, June 19, 2009

Prechter: Another Wave Lower Coming -Elliot Wave

Robert Prechter of the Elliot Wave International was interviewed on Bloomberg. Something to look out for.
"On a short term basis I think after 3 months coming into the 11th of June we might have ended the first wave up so we may be in for some correction for a while and if everything goes ideally, which it doesn't always do, we would have a second leg up in the summer and that would probably complete things." (By "complete things" he means complete the counter trend rally).

Thursday, June 18, 2009

25,000 XHB $10 January 2010 Puts Traded

Hat tip to Crimson Mind for the information. 25,000 January 2010 $10 puts just hit the tape. Not sure of the exact nature of the trade (hedging, spec short pocketing change or spec buy) but if $XHB (Homebuilder ETF) violates support here it could retest lower levels. It's trading at $11.42 right now. This is looking out 7 months. I will continue to monitor housing data (Housing Analysis June 3 - Housing Starts, Building Permits, Pending Home Sales). Will WCI Communities and TOUSA be the only public building casualties? Unless I am missing one. Also read this after reading the WCI post. I'm wondering when there will be more M&A in this space.

Wednesday, June 17, 2009

Russia Plans To Sell Oil To China In Ruble



At the recent BRIC meeting Russia and China talked up settling trades in Ruble and Yuan instead of the US Dollar. Russia plans to sell oil to China denominated in Ruble. The USD better get a hold of itself. Survival of the fit only the strong survive....
"June 17 (Bloomberg) -- The leaders of Russia and China agreed to expand use of the ruble and yuan in bilateral trade to lessen dependence on the U.S. dollar a day after they took part in the first summit of the so-called BRIC countries." (Bloomberg.com)

JP Morgan's Lee Sees Recovery, S&P Target 1,100

Thomas Lee, Chief U.S Equity Strategist at JP Morgan spoke at the 2009 Reuters Investment Outlook Summit. Here's a summary and video from Reuters.com.
  • Global synchronized economic recovery taking place (U.S this summer)
  • Consumer will stabilize
  • Employment will improve 2nd half 2010
  • Businesses will rebuild inventory, areas of underinvestment
  • Attractive rates for businesses to lever up again
  • Will either buy companies, stock or invest in capital (expand)
  • Unanticipated wave of innovation will drive both consumer and business spending
  • 2009 S&P Target 1,100

Tuesday, June 16, 2009

Roubini Sees Deflationary Pressures, Unemployment at 11% and Output Gap

Dr. Roubini at the Reuters Investment Outlook Summit was interviewed at by Dan Burns. Here is the video and a few points he made, he thinks the $GOLD run is premature.
  • Too much talk about green shoots, sees mostly yellow weeds
  • Still sees data showing contraction rather than expansion
  • For next year and a half deflationary pressures will be dominant
  • Massive output gap: Demand falling relative to excess supply/demand
  • Prices will be cut to sell inventories
  • CPI still negative in US and across the world
  • Labor market is a major slack, unemployment will reach 11% in US
  • Slack in goods and labor markets = deflationary pressures
  • Sees inflation problem in 2 years due to Fed monetization of debt
  • Thinks oil and gold are overpriced

Are Blogs Diluting Yahoo's CPM Rate?

Are blogs (like Dvol) diluting Yahoo's advertising dollars per CPM? I'm wondering if they are scooping up independent online video properties? This is an interesting clip I found at BNN TV. Brigantine Advisors managing director Colin Gillis initiated coverage on Yahoo with a SELL and $13 target.
"The supply of pages that are available online is tremendous and it's the supply piece of the equation that we have to be worried about. Ad rates are dropping particularly for Yahoo on display advertising. When they used to get 12-$15 per 1000 page views that has dropped down to $5" continued at BNN.ca.
Check out this chart that compares Yahoo, Google, Bing search traffic from StatCounter. Also below I provided $Yahoo's stock chart from stockcharts.com ($15 at 50d/trend support, 200d just under $14).

Crazy SPY Tick Volume, Bots Taking Over!

Have you seen how $SPY volume hits the tape? On the tick charts below in about a second tick volume increased from 0 to about 40,000 shares (and SPY is trading at 92 so it's not cheap). The volume triangles were so perfect that I made boat sails out of them in MS Paint for your viewing pleasure. It's weird that I didn't see any massive red volume spikes. WTF? The bots are taking over!

SPY Tick Volume (Optionsxpress)

Someone Loading Up on SPY Aug Puts? Or Just Hedging. Don't Break Trend!

Check out the PUT v. CALL volume on the $SPY August option chain. Are traders loading up here for volatility or are these funds getting hedged out of the money. I wish I knew, but it is possible a correction overshoots and these options make some money if bought-to-open by August expiration. $SPY is at 91.73 right now.


SPY AUG Option Chain (Yahoo Finance)

SPY AUG 87.00 PUT , 2 Day (Optionsxpress.com)



 
DON'T BREAK THIS TREND $SPY! (Optionsxpress)

SPY/UUP Ratio to SPY, Jim Rogers Dow 30,000, Market Correction v. USD Bid

If the market corrects here $UUP (US Dollar Index ETF) could catch a bid again. Look at the inverse relationship between the S&P and US Dollar. I specifically charted out the SPY:UUP Ratio vs. SPY below. It looks exactly the same. That's why Jim Rogers on CNBC said the Dow could reach 20,000-30,000 during a currency crisis. The inflation play is all about timing..

SPY:UUP/SPY (Stockcharts.com)


Monday, June 15, 2009

S&P Futures In Backwardation

Source: Barchart.com


More information:
Contango Vs. Normal Backwardation (Investopedia)
S&P 500 futures market and the normal backwardation hypothesis (JEF, PDF)
Contango, Backwardation, and The Futures Curve (InformedTrades Video)

Sunday, June 14, 2009

$MAR Implied Volatility, Short Interest and $VIX Update

This is a continuation of my last post, Marriott, Hotel Downturn Analysis - Economist Video ($MAR). I want to look strictly at sentiment. $MAR volatility plunged along with the $VIX, short interest increased 7.7% from 33.28 million shares to 35.82 million shares on June 1, 2009. This gave the short ratio a boost given the lower volume (4.4 to 7.9). Something has to give here... Either $MAR is setting up to crush crowded shorts on better than expected Q2 earnings/guidance OR implied volatility spikes and $MAR breaks down on strong volume to test some levels. There needs to be a volume boost either way to confirm that traders are buying the dull trade (low volatility/green shoots) or selling the re-emergence of fear trade. Get ready! Here's a VIX update by OptionMonster.com.

Saturday, June 13, 2009

Marriott, Hotel Downturn Analysis - Economist Video ($MAR)

I just watched a video on The Economist's Youtube channel about Marriott and the hotel industry so I thought I'd flood this post with some info. I did not know Marriott only owned 2% of their hotels and franchised out the rest. This Economist video titled "An Unlevered Hotel Chain" explained that Marriott did not lever-to-own hotels during Greenspan's cheap rate environment. They left money on the table but at least they are not handing over keys to secured lenders. The video also shows how RevPAR (Revenue Available Per Room) volatility affects both the owner and franchiser. "A 1% drop in RevPAR will lower franchise profits by 1% and ownership profits by 5%". Here is a snapshot of Marriott's Q1 performance from their 8K. RevPAR dropped 18% worldwide in constant dollars. Q1 Total debt net of cash = $2.8 Billion and EBITDA = $89 Million.

From the clip, here are quotes from Arne Sorenson, President of Marriott International on the industry today.
"These are probably the worst times we've ever seen in terms of year over year comparison for the hotel business. So we thought in the fall of 2001 after the events of 9/11 that they were sort of stunningly bad lodging environments for us. Interestingly today when we look at the way the global business is performing, the U.S is about as bad as it was in the 4th quarter of 2001 even without that significant terrorist event, and the rest of the world is significantly worse than it was in 2001."

Friday, June 12, 2009

Pimco's Mohamed El-Erian, Fed Not Raising Rates

Reuters News spoke with Mohamed El-Erian, CEO of Pacific Investment Management Co, on rate hikes going forward. On the video he said major moves in unemployment will keep the Fed on hold for the rest of the year. In the beginning they put up a snapshot of the January 2010 Fed Fund future. On June 5 it sold off hard (99.6->99.3) but since regained most of it's losses. He also thinks the FED will buy Treasuries and mortgage-backed securities again to lower yields. PIMCO must have some longs under pressure, or they just went long in size!!

Thursday, June 11, 2009

Household Net Worth Down 1.3 Trillion During Q1, Equities Up!

That's a lot of dough. At least "the speed at which net worth shrunk slowed at the start of the year" (AP). During Q2 so far household "stock" net worth measured in $SPY (S&P 500 ETF) is up 21.5%, however those who rushed to buy $IEF (7-10 Treasury ETF) are down 8.3% since March 31. Things could all reverse tomorrow so be careful. Here's the full June 11, 2009 report (Federalreserve.gov) and a few articles. Is Soros's reflexivity theory currently at work?

U.S. household net worth falls to $50.4 trillion (Reuters)
Household wealth drops for 7th straight quarter (MarketWatch)
Household Wealth in U.S. Decreased by $1.3 Trillion (Bloomberg)

Q2 7-10 Treasuries Net Worth
Q2 SPY (S&P) Net worth


10Y-Treasury Yield Spikes, Will S&P Follow? (MOVE Index, Mortgages, TNX, SPY)

The 10 Year Note Yield and S&P 500 have been married since mid-March. In other words Treasury prices and equities have been in an inverse relationship since the rally in risk appetite commenced in March (treasuries -> equities). During the past month the combination of 0.25% rates, inflation expectations, green shoots, fiscal deficits and the questionable USD brought significant volatility into Treasuries. Check out the Merrill Lynch $MOVE index which measures implied volatility on 1-month Treasury options (SeekingAlpha). Treasury I-vol broke out of a long term downtrend and spiked in May. Also today's disappointing 10Y Treasury auction did not help. Watch to see if the 10Y Yield/S&P relationship decouples. If rates overshoot it could squeeze the already distressed consumer/business. At some point something has to give or the Gov has to intervene unless the black swan is a Q2 GDP spike driven by exports.

The 10 year yield directly affects mortgage rates and mortgage applications fell last week. Also oil is at $72 and gas is up 9% since Memorial Day. Would the market OD on green shoots if the Fed raised rates in November? (Debates: 1, 2, 3). Look at the Fed Fund futures curve.

The 10 year yield is at 4% resistance so watch that level. Could the $MOVE Index see spikes like the $VIX did in 2008?

$TNX and $SPX (Stockcharts.com)

Merrill Lynch MOVE Index (Bloomberg.com)
Bankrate - 30Y Mortgage Rate (Bloomberg.com)



Wednesday, June 10, 2009

Lloyd Blankfein: Recovery Will Feel Just Like This

Lloyd Blankfein, CEO of Goldman Sachs, was at the 2009 IOSCO Conference in Tel Aviv and Bloomberg put up the Blankfein video clip. He said Fiscal and central bank moves significantly reduced or "priced-out" the worst-case scenario and this complacency translated into higher asset prices, and you can see this on the $VIX:S&P (Volatility Index) chart below.

Articles:
Goldman’s Blankfein Says Market Gains Reflect Government Aid (Bloomberg)
UPDATE 1-IOSCO-Goldman CEO Blankfein sees long recession (Reuters)
IOSCO-Goldman Sachs CEO urges convergence of rules (Reuters)


Blankfein Remarks on Asset Prices (Bloomberg Video)
VIX:S&P (Yahoo Finance)


It is interesting that all of these TARP recipients are making moves in the market. Read posts about $SPY (S&P ETF) activity at zerohedge.blogspot.com where TD provides Bloomberg Terminal snapshots of block trades. TD also shows SPY Indication of Interest activity which has been getting heat from regulators. Very interesting to see WTF goes on behind the scenes! ZH posts are very informative and entertaining.

Market (Lack Of) Action Charts
Intraday SPY Indication Of Interest Update
Goldman Now Dominating Dark Pool Trading; Who Is Sigma X?
Proudly Gunning Every Market Upswing Since TARP
Goldman Sachs Principal Transactions Update: 741 Million Shares
SLP Brokers Taking Their Role Not Too Seriously, Others Gunning Market
SPY Block Trading Update

Peter Schiff on Daily Show With Jon Stewart, Yes He Was Right

Peter Schiff was right about the recession coming. It's funny how people were laughing in his face on TV. Here he is on the Daily Show with Jon Stewart.

The Daily Show With Jon Stewart
Mon - Thurs 11p / 10c
Peter Schiff
www.thedailyshow.com

Daily Show
Full Episodes

Political Humor
Newt Gingrich Unedited Interview


NYSE Bullish Percent Index 6/2009 - $BPNYA (Charts)

I'm going to check out the NYSE Bullish Percent Index, a breadth indicator that measures the percent of NYSE stocks showing a point & figure buy signal. Stockcharts.com explains it all: NYSE Bullish Percent Index, P&F charts and pattern alerts. They also show which stocks are buys based on signals.

P&F charts smooth out price movements to make support and resistance levels more convincing. From investopedia.com, P&F charts "filter out non-significant price movements". Readings above 70% are considered overbought and readings below 30% are oversold. If the Index crosses back above 30% it is considered a buy and back below 70% is a sell. Of course there are exceptions during extremes.

Check out the relationship between the NYSE Bullish Percent Index and each top and bottom in the S&P 500 since late 2007. The Bullish Percent Index improved drastically from the October low of 2.76% and also diverged with the March S&P lows and printed higher highs (2.76->12.11%) which was a distressed buy signal. It closed at 74.83 today. Watch for $BPNYA to break below 70% as that could be a signal to sell or position shorts. However in this crazy environment you never know what will happen. The index could hit extreme highs. For more information on this index go to
Investopedia
.

NYSE Bullish Percent Index (Stockcharts.com/$BPNYA)


Here is the S&P 500 P&F chart. The column of X's broke through triple top resistance and pierced early '09 highs. Watch to see if we close below 932 (I believe that's where the X hits) and print a column of O's. Until then the S&P will keep defying gravity or trade in a boring channel.

Tuesday, June 9, 2009

Oakland, California Denies Bankruptcy Rumors, General Fund Drying Up

I just got this link to Mish's blog on Twitter so I thought I'd check out what the deal is. Below is Oakland, California's June 30, 2008 CAFR (Comprehensive Annual Financial Report) filed at Oaklandnet.com. It looks like their General Fund is drying up with an $83 million - $100 million deficit expected on July 1. Police, fire and debt service payments are squeezing their general fund which could lead to cost cuts/police layoffs. Eastbayexpress says they need a $67 million police grant. What happens to muni bond holders in a bk??
City of Oakland Denies Bankruptcy Rumors (CBS5 VIDEO)
Budget woes have Oakland mulling bankruptcy (sfgate.com)
Bankruptcy not immediate option for Oakland (Mercury/Oakland Tribune)
Oakland faces $115M budget deficit (ABC7 SF)
Oakland Officials Discussing Bankruptcy (Listen to Podcast)(KGO Newstalk)
Oakland Considers Bankruptcy (East Bay Express)


From their CAFR look at revenue/expenses on the public safety line. They need that grant!




Apple WWDC 2009 Full Keynote Video - MacBook Pro, iPhone, Mac OS

The 2009 Apple WWDC (Worldwide Developers Conference) Keynote video is up at Apple.com. Here is the full Quicktime Movie link or you can find the link at Apple.com. Schiller first talked about the thin 15 inch MacBook Pro with the revolutionary lithium-polymer battery which allows up to 7 Hours of battery life. It's the fastest notebook they've ever made with speeds up to 3.06 Ghz using the Intel 2 Duo Core processor with 6MGs of Level 2 Cache. Everybody clapped when he said it allowed up to 8GBs of memory with 1066 MHz DDR3, 500GB hardrive. It costs $2,000 fully loaded or the minimum is $1699. The 13inch MacBook Pro looks good too and starts at $1,199. These people are geniuses. They also talk about the iPhone 3G S and Mac OS Snow Leopard.

"Watch Philip Schiller, Senior Vice President of Worldwide Product Marketing, unveil the new iPhone 3G S, the new MacBook Pro family, and Mac OS X Snow Leopard."


Apple WWDC 2009 Keynote Video


Also: What is inside the MacBook Pro 13"? Disassembled at ZDNET.

The Green Shoot Revolution!

Hat tip Zero Hedge

Monday, June 8, 2009

Does VIX to SPY Converge or Diverge Here?

It all comes down to one moment and a final fear vs. complacency decision will determine if the S&P can reach 1,000. Either volatility spikes and $SPY corrects or fear premium is sold and $SPY moves to 100. $VIX is the measurement of implied volatility on S&P index options.


VIX to SPY

Roubini Dismisses Green Shoots Sees Complacency

Here's Roubini at the St. Petersburg International Economic Forum talking about the outlook for banking regulation. I couldn't find the video on clipsyndicate so here's the full video at Bloomberg.com. You can also find a nice write up at Business Insider.


Sunday, June 7, 2009

S&P Testing 2002 Bear Market Rally High

Last historical relationship chart, for now. The S&P is testing the 2002 bear market rally high. If you look at the 2002 double bottom "W" formation it rallied to 964 on 8/23/2002 (Bigcharts.com interactive chart). The SPX last week hit a high of 950. Not that this resistance line means much but it could be on the minds of traders or Bots.

Notice that the long term RSI and MACD is still well below the zero level, however a bullish cross could bring some upside momentum and knock this thing to 1,000. Also from the chart the monthly rate of change to the upside seems to be abating.

So Mr. Market are you consolidating or is it correction time? Don't be a b-otch $VIX!

S&P 500 (Bigcharts.com)

Blogger "Operation Aborted" Error on Internet Explorer

I thought maybe I could get some help if I do a blog post about the "Internet Explorer Cannot Open The Internet Site", "Operation Aborted" Blogger issue. Also the error occurs pre-Disqus comment installation on January 11, 2009. It briefly loads but then comes up with the "operation aborted" message. Is it related to my Stocktwits, Twitter Counter, Disqus or Feedjit traffic widgets I have installed? Is it an Internet Explorer issue? Or is the Google comment system confused. I do not have the "Google Follower" widget on here so that is not the problem. BUT... I am now logged into google comments and my pages seem to work again. WTF? Any idea on what is going on here? Thanks. Examples below -DV

Charts Comparing 1974, 1982, 2002 Market Bottoms To Today, 80s Recovery

Digging into historical charts here. I know nothing repeats itself but I feel bits and pieces do. I am providing charts of market bottoms during the 1973, 1982 and 2002 recessions and comparing them to today. I guess you could say the 1983 bottom and sharp recovery looks similar to the March lows. In early 1982 the SPX double bottomed at 105 and capitulated just below that level which shook out all longs. Was the 666 low in early March capitulation??

From Wikipedia:

"According to Keynesian economists, a combination of deficit spending[citation needed] and the lowering of interest rates slowly led to economic recovery. From a high of 10.8% in December 1982, unemployment gradually improved until it fell to 7.2% on Election Day in 1984.[5] Nearly two million people left the unemployment rolls.[31] Inflation fell from 10.3% in 1981 to 3.2% in 1983.[1][32] Corporate earnings rose by 29% in the July-September quarter of 1983, compared with the same period in 1982. Some of the most dramatic improvements came in industries hardest hit by the recession, such as paper and forest products, rubber, airlines, and the auto industry.[31]"

Use that Wikipedia data with caution. Also I found an article and Reagan's radio address from 1982. "Year Of Economic Recovery in 1982" (Evening Independent January 4, 1982), Reagan Radio Address to the Nation - Program for Economic Recovery (May 1, 1982).

Saturday, June 6, 2009

1973-75 Recession History, Chart, 2009 Comparison?

I provided a S&P chart during the 1973-1975 recession and other information. Wikipedia: From 1973-75 the Dow lost 45% of it's value, real GDP growth slowed to -2.1% and inflation (CPI) jumped from 3.4% in 1972 to 12.3% in 1974 due to oil embargo, USD devaluation etc. With the S&P, oil and other commodities on the rise and US Treasuries being dumped lets hope it is forecasting strong growth with stable prices going forward w/ I guess the Gov picking up the employment tab (2)? Plus is China trying to bring down the price of oil by showing their reserves (WSJ 1, 2). Keep an eye on crude.

S&P 500 1971-1976 (Bigcharts.com)


This is also interesting. Analysts called 1973 wrong (Time Magazine article on January 8, 1973, mentions economist Alan Greenspan).


"Most Wall Street analysts are convinced that the market will continue to climb smartly in 1973. Brokers looking for a marked increase in trading volume see signs that small investors are beginning to overcome fears instilled by the Wall Street slide of 1970 and return to the market. Investment from abroad is also on the rise. Economist Alan Greenspan estimates that foreigners put $1.6 billion into American securities last year and will buy $3 billion worth in 1973."

A Gilt-Edged Year for the Stock Market (TIME - January 8, 1973)



Other news links I found about the 1973-1975 recession:

David Rosenberg: Recession to Be Worst Since 1970s (WSJ Blog)

Recession 1973 vs. 2008 (Jack B. Walters)

The Recession of 1973-75 in the U.S. (applet-magic.com)

1973–1974 stock market crash (Wikipedia)

George Bush Impersonator, Colbert (Correspondents Dinner)

If I had a blog in 2006, this would definitely be on there. At the White House Correspondents Dinner in 2006 George Bush and an impersonator were on stage at the same time. Also Colbert Roasted Bush too. I couldn't embed the C-span videos but they are both available on Google: Bush Impersonator, Colbert Roasts Bush. Bush was funny for doing that.




Posted by newsbysector blog.

Friday, June 5, 2009

G7 Currency Implied Volatility Up Since May

Kind of related to my last post about the Latvian Lat. The currency markets could get volatile again based on the JPM G7 Currency Implied Volatility Index at Bloomberg.com. Fund X has been bidding up volatility since early May. Today the index closed at 15.67 which is up 17% since it hit bottom in early May (13.38). It is interesting that G7 volatility caught a bid right when the US Dollar broke down. Someone is anticipating currency swings but implied volatility isn't even close to the 2008 highs. I'll be watching for premium sellers or G7 currency movement on news going forward. Also euro/dollar implied vol is at an 8 week high. We shall see people.


G7 Currency Volatility Index (Bloomberg.com)

VIX, Currency Options Signal Rally May End: Technical Analysis (Bloomberg)
Forex Options Show US Dollar Sentiment Extreme, Bounce Likely (DailyFX)
Carry Interest Rising, Lack of Risk Doesn't Translate Into Strong Fundamentals (DailyFX)

Thursday, June 4, 2009

Obama Speaks in Cairo, Egypt (Full CSPAN Video)

"PRESIDENT OBAMA: Thank you very much. Good afternoon. I am honored to be in the timeless city of Cairo, and to be hosted by two remarkable institutions. For over a thousand years, Al-Azhar has stood as a beacon of Islamic learning; and for over a century, Cairo University has been a source of Egypt's advancement. And together, you represent the harmony between tradition and progress. I'm grateful for your hospitality, and the hospitality of the people of Egypt. And I'm also proud to carry with me the goodwill of the American people, and a greeting of peace from Muslim communities in my country: Assalaamu alaykum. (Applause.)"

Full Transcript at Whitehouse.gov

Economic Blogger Mish Speaks at Google (Video)

Mish (Mike Shedlock) who runs the blog "Mish's Global Economic Trend Analysis" spoke at Google. His blog is great for economic analysis.

Latvian Lat Falls, Blondes Rally

A failed Latvian short-term debt auction on Wednesday made the Lat and other Eastern European currencies fall against the Euro and USD. The fear is that Latvia would devalue it's currency to spur exports due to the economic slump (Latvia expects -18% economic growth, budget deficit 8.2% of GDP -FT). This would make it harder for Latvian companies/consumers to service their debt or pay back loans denominated in other currencies (Swedbank -15.9% -FT). Nigel Rendell of RBC Capital had this to say about the country.

"Nigel Rendell, senior emerging markets strategist at RBC Capital Markets, said: “The country is in a mess with the economy expected to contract very sharply this year, while the budget deficit is horribly high. Devaluation looks very likely as a way of boosting exports and growth.” (FT.com)
Last thing we need right now is another interbank lending freeze which could spill into the Euro and US Dollar funding markets and bank CDS (which would ultimately lead to more Gov backstops). Latvia's CDS spread widened while it's Central Bank said it would keep the Lat pegged to the Euro (Bloomberg, Reuters).

USD/Latvia Lat (INO.com)

News Links:
Latvia, Lithuania, SEB CDS rise sharply-CMA (Reuters)
EU Warns Latvia on Budget Deficit Amid Crisis (WSJ)
Latvia auction flop sparks fears of struggle to find debt buyers (FT)
Baltic concerns take their toll of krona (FT)
IMF agreement on budget critical for Latvia-Fitch (Reuters)
Waiting for Latvia to devalue (FTAlphaville)
Make no mistake, the ‘Baltic Three’ are in the dock (FTAlphaville)
Latvia Finds Itself In Currency And Funding Crisis, Kills EM Rally (Zero Hedge)

Forint Falls Most in Three Months on Latvia Devaluation Concern (Bloomberg)

To stay up to date on currency pairs of Eastern Europe vs. USD I embedded live charts below from forexpros.com.

Wednesday, June 3, 2009

Housing Datathon: Housing Starts, Building Permits, Pending Home Sales

This is part 1 of a DV housing datathon. I'm going to dig into housing and housing related data on my next few posts to show what's going on in the industry and to see if we are at the bottom.

Housing Starts/Building Permits: The total Housing Starts (HOUST) chart is still in a downtrend however you could say the pace is getting less worse. Housing Starts for 1 Unit structures (single family homes) actually increased 2.8% from March. It is brushing up against downtrend resistance so watch out for a break there and possible leadership. The data point that killed HOUST was apartment building starts. Also building Permits hit a new low.


Total Housing Starts (Stlouisfed.org)

Housing Starts (1 Unit) (Stlouisfed.org)

Construction Permits (Stlouisfed.org)


Full Bernanke Testimony Video/Text (House Budget Committee) - 6/3/2009

Chairman Ben Bernanke testified about the state of the U.S economy before the House Budget Committee today (June 3, 2009). Below is the full hearing video via CSPAN and text.



"Chairman Ben S. Bernanke
Current economic and financial conditions and the federal budget
Before the Committee on the Budget, U.S. House of Representatives, Washington, D.C.
June 3, 2009


Chairman Spratt, Ranking Member Ryan, and other members of the Committee, I am pleased to have this opportunity to offer my views on current economic and financial conditions and on issues pertaining to the federal budget.

Economic Developments and Outlook

The U.S. economy has contracted sharply since last fall, with real gross domestic product (GDP) having dropped at an average annual rate of about 6 percent during the fourth quarter of 2008 and the first quarter of this year. Among the enormous costs of the downturn is the loss of nearly 6 million jobs since the beginning of 2008. The most recent information on the labor market--the number of new and continuing claims for unemployment insurance through late May--suggests that sizable job losses and further increases in unemployment are likely over the next few months.

However, the recent data also suggest that the pace of economic contraction may be slowing. Notably, consumer spending, which dropped sharply in the second half of last year, has been roughly flat since the turn of the year, and consumer sentiment has improved. In coming months, households' spending power will be boosted by the fiscal stimulus program. Nonetheless, a number of factors are likely to continue to weigh on consumer spending, among them the weak labor market, the declines in equity and housing wealth that households have experienced over the past two years, and still-tight credit conditions.

Activity in the housing market, after a long period of decline, has also shown some signs of bottoming. Sales of existing homes have been fairly stable since late last year, and sales of new homes seem to have flattened out in the past couple of monthly readings, though both remain at depressed levels. Meanwhile, construction of new homes has been sufficiently restrained to allow the backlog of unsold new homes to decline--a precondition for any recovery in homebuilding.

Businesses remain very cautious and continue to reduce their workforces and capital investments. On a more positive note, firms are making progress in shedding the unwanted inventories that they accumulated following last fall's sharp downturn in sales. The Commerce Department estimates that the pace of inventory liquidation quickened in the first quarter, accounting for a sizable portion of the reported decline in real GDP in that period. As inventory stocks move into better alignment with sales, firms should become more willing to increase production.

We continue to expect overall economic activity to bottom out, and then to turn up later this year. Our assessments that consumer spending and housing demand will stabilize and that the pace of inventory liquidation will slow are key building blocks of that forecast. Final demand should also be supported by fiscal and monetary stimulus, and U.S. exports may benefit if recent signs of stabilization in foreign economic activity prove accurate. An important caveat is that our forecast also assumes continuing gradual repair of the financial system and an associated improvement in credit conditions; a relapse in the financial sector would be a significant drag on economic activity and could cause the incipient recovery to stall. I will provide a brief update on financial markets in a moment.

Even after a recovery gets under way, the rate of growth of real economic activity is likely to remain below its longer-run potential for a while, implying that the current slack in resource utilization will increase further. We expect that the recovery will only gradually gain momentum and that economic slack will diminish slowly. In particular, businesses are likely to be cautious about hiring, and the unemployment rate is likely to rise for a time, even after economic growth resumes.

In this environment, we anticipate that inflation will remain low. The slack in resource utilization remains sizable, and, notwithstanding recent increases in the prices of oil and other commodities, cost pressures generally remain subdued. As a consequence, inflation is likely to move down some over the next year relative to its pace in 2008. That said, improving economic conditions and stable inflation expectations should limit further declines in inflation.

Conditions in Financial Markets

Conditions in a number of financial markets have improved since earlier this year, likely reflecting both policy actions taken by the Federal Reserve and other agencies as well as the somewhat better economic outlook. Nevertheless, financial markets and financial institutions remain under stress, and low asset prices and tight credit conditions continue to restrain economic activity.

Among the markets where functioning has improved recently are those for short-term funding, including the interbank lending markets and the commercial paper market. Risk spreads in those markets appear to have moderated, and more lending is taking place at longer maturities. The better performance of short-term funding markets in part reflects the support afforded by Federal Reserve lending programs. It is encouraging that the private sector’s reliance on the Fed’s programs has declined as market stresses have eased, an outcome that was one of our key objectives when we designed our interventions. The issuance of asset-backed securities (ABS) backed by credit card, auto, and student loans has also picked up this spring, and ABS funding rates have declined, developments supported by the availability of the Federal Reserve’s Term Asset-Backed Securities Loan Facility as a market backstop.

In markets for longer-term credit, bond issuance by nonfinancial firms has been relatively strong recently, and spreads between Treasury yields and rates paid by corporate borrowers have narrowed some, though they remain wide. Mortgage rates and spreads have also been reduced by the Federal Reserve's program of purchasing agency debt and agency mortgage-backed securities. However, in recent weeks, yields on longer-term Treasury securities and fixed-rate mortgages have risen. These increases appear to reflect concerns about large federal deficits but also other causes, including greater optimism about the economic outlook, a reversal of flight-to-quality flows, and technical factors related to the hedging of mortgage holdings.

As you know, last month, the federal bank regulatory agencies released the results of the Supervisory Capital Assessment Program (SCAP). The purpose of the exercise was to determine, for each of the 19 U.S.-owned bank holding companies with assets exceeding $100 billion, a capital buffer sufficient for them to remain strongly capitalized and able to lend to creditworthy borrowers even if economic conditions over the next two years turn out to be worse than we currently expect. According to the findings of the SCAP exercise, under the more adverse economic outlook, losses at the 19 bank holding companies would total an estimated $600 billion during 2009 and 2010. After taking account of potential resources to absorb those losses, including expected revenues, reserves, and existing capital cushions, we determined that 10 of the 19 institutions should raise, collectively, additional common equity of $75 billion.

Each of the 10 bank holding companies requiring an additional buffer has committed to raise this capital by November 9. We are in discussions with these firms on their capital plans, which are due by June 8. Even in advance of those plans being approved, the 10 firms have among them already raised more than $36 billion of new common equity, with a number of their offerings of common shares being over-subscribed. In addition, these firms have announced actions that would generate up to an additional $12 billon of common equity. We expect further announcements shortly as their capital plans are finalized and submitted to supervisors. The substantial progress these firms have made in meeting their required capital buffers, and their success in raising private capital, suggests that investors are gaining greater confidence in the banking system.

Fiscal Policy in the Current Economic and Financial Environment

Let me now turn to fiscal matters. As you are well aware, in February of this year, the Congress passed the American Recovery and Reinvestment Act, or ARRA, a major fiscal package aimed at strengthening near-term economic activity. The package included personal tax cuts and increases in transfer payments intended to stimulate household spending, incentives for business investment, increases in federal purchases, and federal grants for state and local governments.

Predicting the effects of these fiscal actions on economic activity is difficult, especially in light of the unusual economic circumstances that we face. For example, households confronted with declining incomes and limited access to credit might be expected to spend most of their tax cuts; then again, heightened economic uncertainties and the desire to increase precautionary saving or pay down debt might reduce households’ propensity to spend. Likewise, it is difficult to judge how quickly funds dedicated to infrastructure needs and other longer-term projects will be spent and how large any follow-on effects will be. The Congressional Budget Office (CBO) has constructed a range of estimates of the effects of the stimulus package on real GDP and employment that appropriately reflects these uncertainties. According to the CBO's estimates, by the end of 2010, the stimulus package could boost the level of real GDP between about 1 percent and a little more than 3 percent and the level of employment by between roughly 1 million and 3-1/2 million jobs.

The increases in spending and reductions in taxes associated with the fiscal package and the financial stabilization program, along with the losses in revenues and increases in income-support payments associated with the weak economy, will widen the federal budget deficit substantially this year. The Administration recently submitted a proposed budget that projects the federal deficit to reach about $1.8 trillion this fiscal year before declining to $1.3 trillion in 2010 and roughly $900 billion in 2011. As a consequence of this elevated level of borrowing, the ratio of federal debt held by the public to nominal GDP is likely to move up from about 40 percent before the onset of the financial crisis to about 70 percent in 2011. These developments would leave the debt-to-GDP ratio at its highest level since the early 1950s, the years following the massive debt buildup during World War II.

Certainly, our economy and financial markets face extraordinary near-term challenges, and strong and timely actions to respond to those challenges are necessary and appropriate. Nevertheless, even as we take steps to address the recession and threats to financial stability, maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance. Prompt attention to questions of fiscal sustainability is particularly critical because of the coming budgetary and economic challenges associated with the retirement of the baby-boom generation and continued increases in medical costs. The recent projections from the Social Security and Medicare trustees show that, in the absence of programmatic changes, Social Security and Medicare outlays will together increase from about 8-1/2 percent of GDP today to 10 percent by 2020 and 12-1/2 percent by 2030. With the ratio of debt to GDP already elevated, we will not be able to continue borrowing indefinitely to meet these demands.

Addressing the country's fiscal problems will require a willingness to make difficult choices. In the end, the fundamental decision that the Congress, the Administration, and the American people must confront is how large a share of the nation's economic resources to devote to federal government programs, including entitlement programs. Crucially, whatever size of government is chosen, tax rates must ultimately be set at a level sufficient to achieve an appropriate balance of spending and revenues in the long run. In particular, over the longer term, achieving fiscal sustainability--defined, for example, as a situation in which the ratios of government debt and interest payments to GDP are stable or declining, and tax rates are not so high as to impede economic growth--requires that spending and budget deficits be well controlled.

Clearly, the Congress and the Administration face formidable near-term challenges that must be addressed. But those near-term challenges must not be allowed to hinder timely consideration of the steps needed to address fiscal imbalances. Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth."

Tuesday, June 2, 2009

$SLV Back Month Options Active, Implied Volatility Up

Silver has been on fire recently moving inversely with the US Dollar. Tonight the USD is at 78.51 down from 82 a few weeks ago. The USD has support around 78 where it could start to retrace. $SLV is up 30% from the beginning of May. I recently wrote about Paulson & Co's GLD/GDX buys and Hecla Mining option activity.

Back to $SLV's options. Last Friday ONN.tv, (article) reported that 100,000 Jan 2010 $13 puts were sold, 75,000 Jan 2010 $14 calls were bought and 100,000 $19 calls were sold (vertical call spread) on $SLV. If these prints are correct someone is levering up to own 7.5 million shares of $SLV at $14 before Jan 15, 2010 with a $19 cap. Here it is visually.

$SLV Jan '10 Calls (Yahoo Finance)
$SLV Jan '10 Puts (Yahoo Finance)

I also saw interesting action in October today. Over 6,000 contracts traded on both the Oct '09 $17 and $22 calls. Is this an out-of-the money credit or debit spread? The ticks were quite peculiar. Either way calls on this ETF are being played with from $14-22 expiring Oct-Jan. The 75k-100k volume speaks much louder. I provided a charts for the Oct '09 $17 and $22 strike.

$SLV Oct '09 Calls (Yahoo Finance)

$SLVJQ Oct '09 $17 Call (OptionsXpress)

$SLVJV Oct '09 $22 Call (OptionsXpress)

Also check out implied volatility on $SLV. It's been trending higher recently with a big volume spike. Check out this chart from Ivolatility.com. Options are anticipating a move here.


On the chart $SLV recently broke out and is testing a flattish downtrend and overhead resistance (early 2008). RSI is strong at 78 but could get overbought eventually. The 50/200 crossed to the upside which could support a rising trend going forward. Resistance is at $19 and $20 . Silver looks like a good long term story imo. We'll see.