Tuesday, September 8, 2009

50 Cent on Power Lunch (CNBC Video) and First Song Ever Made

Rapper 50 Cent talks about the rap industry, his new book "The 50th Law" (co-authored by Robert Greene), $100 million he made on the Vitamin Water buy out and the recession. He has an estimated net worth of $150 million!

Monday, September 7, 2009

Santelli vs. Pento on Gold, Charts: CRB, Gold, Dollar, 30Y Treasury

On September 3, Michael Pento of Delta Global Advisors and Rick Santelli argued about the price of gold going forward on CNBC. Gold broke out recently and is now fighting the $1,000 resistance level.

Pento: Gold will hit $1200 by the end of the year, mentions ISM prices paid component surge, China PMI, real interest rates plummeting, commodities in CRB index rising which is 40% CPI.

Santelli
: Next big move in gold will be a sell off, sees recent gold move as a technical break out, short covering, 3 day charts on dollar, gold and bonds tell a different story, dollar did nothing.

There are definitely input cost pressures globally which I'll touch on next but Rick Santelli makes an interesting point about intermarket relationships. I provided a performance comparison between Gold, the CRB Index (commodities), US Dollar and the 30 Year Treasury Bond from August 13th. Over that time period CRB lost 6.63%, US Dollar lost 0.31%, 30 Year Treasuries gained 1.82% and Gold gained 4.14%. Interesting.... *Updated chart, didn't include gold performance.

Saturday, September 5, 2009

George Soros Theory of Reflexivity MIT Speech 1994

Via Ritholtz

Delivered April 26, 1994 to the MIT Department of Economics World Economy
Laboratory Conference Washington, D.C.

When Rudi Dornbusch invited me to speak at this conference, he gave me a totally free hand in deciding what I wanted to talk about. Well, I want to discuss a subject which fascinates me but doesn’t seem to interest others very much. That is my theory of reflexivity which has guided me both in making money and in giving money away, but has received very little serious consideration from anybody else. It is really a very curious situation. I am taken very seriously; indeed, a bit too seriously. But the theory that I take seriously and, in fact, rely on in my decision-making process is pretty completely ignored. I have written a book about it which was first published in 1987 under the title The Alchemy of Finance; but it received practically no critical examination. It has been out of print for the last several years but demand has been building up as a result of my increased visibility, not to say notoriety, and now the book is being re issued. I think this is a good time to get the theory seriously considered.

I was invited to testify before Congress last week and this is how I started my testimony. I quote: “I must state at the outset that I am in fundamental disagreement with the prevailing wisdom. The generally accepted theory is that financial markets tend towards equilibrium, and on the whole, discount the future correctly. I operate using a different theory, according to which financial markets cannot possibly discount the future correctly because they do not merely discount the future; they help to shape it. In certain circumstances, financial markets can affect the so called fundamentals which they are supposed to reflect. When that happens, markets enter into a state of dynamic disequilibrium and behave quite differently from what would be considered normal by the theory of efficient markets. Such boom/bust sequences do not arise very often, but when they do, they can be very disruptive, exactly because they affect the fundamentals of the economy.” I did not have time to expound my theory before Congress, so I am taking advantage of my captive audience to do so now. My apologies for inflicting a very theoretical discussion on you.

The theory holds, in the most general terms, that the way philosophy and natural science have taught us to look at the world is basically inappropriate when we are considering events which have thinking participants. Both philosophy and natural science have gone to great lengths to separate events from the observations which relate to them. Events are facts and observations are true or false, depending on whether or not they correspond to the facts.

This way of looking at things can be very productive. The achievements of natural science are truly awesome, and the separation between fact and statement provides a very reliable criterion of truth. So I am in no way critical of this approach. The separation between fact and statement was probably a greater advance in the field of thinking than the invention of the wheel in the field of transportation.

But exactly because the approach has been so successful, it has been carried too far. Applied to events which have thinking participants, it provides a distorted picture of reality. The key feature of these events is that the participants’ thinking affects the situation to which it refers. Facts and thoughts cannot be separated in the same way as they are in natural science or, more exactly, by separating them we introduce a distortion which is not present in natural science, because in natural science thoughts and statements are outside the subject matter, whereas in the social sciences they constitute part of the subject matter. If the study of events is confined to the study of facts, an important element, namely, the participants’ thinking, is left out of account. Strange as it may seem, that is exactly what has happened, particularly in economics, which is the most scientific of the social sciences.

Classical economics was modeled on Newtonian physics. It sought to establish the equilibrium position and it used differential equations to do so. To make this intellectual feat possible, economic theory assumed perfect knowledge on the part of the participants. Perfect knowledge meant that the participants’ thinking corresponded to the facts and therefore it could be ignored. Unfortunately, reality never quite conformed to the theory. Up to a point, the discrepancies could be dismissed by saying that the equilibrium situation represented the final outcome and the divergence from equilibrium represented temporary noise. But, eventually, the assumption of perfect knowledge became untenable and it was replaced by a methodological device which was invented by my professor at the London School of Economics, Lionel Robbins, who asserted that the task of economics is to study the relationship between supply and demand; therefore it must take supply and demand as given. This methodological device has managed to protect equilibrium theory from the onslaught of reality down to the present day.

I don't know too much about the prevailing theory about financial markets but, from what little I know, it continues to maintain the approach established by classical economics. This means that financial markets are envisaged as playing an essentially passive role; they discount the future and they do so with remarkable accuracy. There is some kind of magic involved and that is, of course, the magic of the marketplace where all the participants, taken together, are endowed with an intelligence far superior to that which could be attained by any particular individual. I think this interpretation of the way financial markets operate is severely distorted. That is why I have not bothered to familiarize myself with efficient market theory and modern portfolio theory, and that is why I take such a jaundiced view of derivative instruments which are based on what I consider a fundamentally flawed principle. Another reason is that I am rather poor in mathematics.

It may seem strange that a patently false theory should gain such widespread acceptance, except for one consideration; that is, that all our theories about social events are distorted in some way or another. And that is the starting point of my theory, the theory of reflexivity, which holds that our thinking is inherently biased. Thinking participants cannot act on the basis of knowledge. Knowledge presupposes facts which occur independently of the statements which refer to them; but being a participant implies that one’s decisions influence the outcome. Therefore, the situation participants have to deal with does not consist of facts independently given but facts which will be shaped by the decision of the participants. There is an active relationship between thinking and reality, as well as the passive one which is the only one recognized by natural science and, by way of a false analogy, also by economic theory.

I call the passive relationship the “cognitive function” and the active relationship the “participating function,” and the interaction between the two functions I call “reflexivity.” Reflexivity is, in effect, a two-way feedback mechanism in which reality helps shape the participants’ thinking and the participants’ thinking helps shape reality in an unending process in which thinking and reality may come to approach each other but can never become identical. Knowledge implies a correspondence between statements and facts, thoughts and reality, which is not possible in this situation. The key element is the lack of correspondence, the inherent divergence, between the participants’ views and the actual state of affairs. It is this divergence, which I have called the “participant’s bias,” which provides the clue to understanding the course of events. That, in very general terms, is the gist of my theory of reflexivity.

The theory has far-reaching implications. It draws a sharp distinction between natural science and social science, and it introduces an element of indeterminacy into social events which is missing in the events studied by natural science. It interprets social events as a never-ending historical process and not as an equilibrium situation. The process cannot be explained and predicted with the help of universally valid laws, in the manner of natural science, because of the element of indeterminacy introduced by the participants’ bias. The implications are so far-reaching that I can’t even begin to enumerate them. They range from the inherent instability of financial markets to the concept of an open society which is based on the recognition that nobody has access to the ultimate truth. The theory gives rise to a new morality as well as a new epistemology. As you probably know, I am the founder—and the funder—of the Open Society Foundation. That is why I feel justified in claiming that the theory of reflexivity has guided me both in making and in spending money.

But is it possible to come up with a valid new theory about the relationship between thinking and reality? It seems highly unlikely. The subject has been so thoroughly explored that probably everything that can be said has been said. In my defense, I did not produce the theory in a vacuum. The logical indeterminacy of self-referring statements was first discussed by Epimenides, the Cretan philosopher, who said, “Cretans always lie,” and the paradox of the liar was the basis of Bertrand Russell's theory of classes. But I am claiming more than a logical indeterminacy. Reflexivity is a two-way feedback mechanism, which is responsible for a causal indeterminacy as well as a logical one. The causal indeterminacy resembles Heisenberg’s uncertainty principle, but there is a major difference: Heisenberg’s theory deals with observations, whereas reflexivity deals with the role of thinking in generating observable phenomena.

I am thrilled by the possibility that I may have reached a profound new insight, but I am also scared because such claims are usually made by insane people and there are many more insane people in the world than there are people who have reached a profound new insight. I wonder whether my insight has an objective validity or only a subjective significance.

That is why I am so eager to submit my ideas to a critical examination and that is why I find the present situation, where I am taken so seriously but my theory is not, so frustrating. As I have said before, the theory of reflexivity has received practically no serious consideration. It is treated as the self-indulgence of a man who made a lot of money in the stock market. It is generally summed up by saying that markets are influenced by psychological factors, and that is pretty trite. But that is not what the theory says. It says that, in certain cases, the participants’ bias can change the fundamentals which are supposed to determine market prices.

I ask myself, why did I fail to communicate this point? The answer I come up with is that I tried to say too much, too soon. I tried to propound a general theory of reflexivity at a time when reflexivity as a phenomenon is not even recognized. In retrospect, I think I should have started more modestly; I should have tried to prove the existence of reflexivity as a phenomenon before I tried to revise our view of the world based on that phenomenon. It can be done relatively easily, and the financial markets provide an excellent laboratory in which to do it. And that is what I should like to do here today.

What I need to do is to demonstrate that there are instances where the participants’ bias is capable of affecting not only market prices but also the so-called fundamentals that market prices are supposed to reflect. I have collected and analyzed such instances in The Alchemy of Finance, so all I need to do here is simply to enumerate them. In the case of stocks, I have analyzed two particular instances which demonstrate my case perfectly; one is the conglomerate boom and bust of the late 1960s, and the other is the boom and bust of real estate investment trusts in the early 70s. I cite may other instances, such as the leveraged buyout boom of the 1980s and the boom/bust sequences engendered by foreign investors. But these cases are less clear cut.

The common thread in the two instances I have mentioned is so-called equity leveraging; that is to say, companies can use inflated expectations to issue new stock at inflated prices, and the resulting increase in earnings per share can go a long way to validate the inflated expectations. But equity leveraging is only one of many possible mechanisms for transmitting the participants’ bias to the underlying fundamentals. Consider, for instance, the boom in international lending which occurred in the 1970s and led to the bust of 1982. In the boom, banks relied on so-called debt ratios, which they considered as objective measurements of the ability of the borrowing countries to service their debt, and it turned out that these debt ratios were themselves influenced by the lending activity of the banks.

In all these cases, the participants’ bias involved an actual fallacy: in the case of the conglomerate and mortgage trust booms, the growth in earnings per share was treated as if it were independent of equity leveraging; and in the case of the international lending boom, the debt ratio was treated as if it were independent of the lending activities of the banks. But there are other cases where no such fallacy is involved. For instance, in a freely-fluctuating currency market, a change in exchange rates has the capacity to affect the so-called fundamentals which are supposed to determine exchange rates, such as the rate of inflation in the countries concerned; so that any divergence from a theoretical equilibrium has the capacity to validate itself. This self-validating capacity encourages trend-following speculation, and trend-following speculation generates divergences from whatever may be considered the theoretical equilibrium. The circular reasoning is complete. The outcome is that freely fluctuating currency markets tend to produce excessive fluctuations and trend-following speculation tends to be justified.

I believe that these examples are sufficient to demonstrate that reflexivity is real; it is not merely a different way of looking at events; it is a different way in which events unfold. It doesn't occur in every case but, when it does, it changes the character of the situation. Instead of a tendency towards some kind of theoretical equilibrium, the participants’ views and the actual state of affairs enter into a process of dynamic disequilibrium which may be mutually self-reinforcing at first, moving both thinking and reality in a certain direction, but is bound to become unsustainable in the long run and engender a move in the opposite direction. The net result is that neither the participants’ views nor the actual state of affairs returns to the condition from which it started. Once the phenomenon of reflexivity has been isolated and recognized, it can be seen to be at work in a wide variety of situations. I studied one such situation in The Alchemy of Finance which was particularly relevant at the time the book was written. I called it “Reagan’s Imperial Circle.” It consisted of financing a massive armaments program with money borrowed from abroad, particularly from Japan. I showed that the process was initially self-reinforcing but it was bound to become unsustainable. A similar situation has arisen recently with the reunification of Germany, which eventually led to the breakdown of the European Exchange Rate Mechanism. The ERM operated in near- equilibrium conditions for about a decade before the reunification of Germany created a dynamic disequilibrium.

What renders reflexivity significant is that it occurs only intermittently. If it were present in all situations all the time, it would merely constitute a different way of looking at events and not a different way for events to evolve. That is the point I failed to make sufficiently clear in my book. I presented my theory of reflexivity as a general theory in which the absence of reflexivity appears as a special case. I was, of course, trying to imitate Keynes, who proposed his general theory of employment in which full employment was a special case. But Keynes proposed his theory when unemployment was a well-established fact, whereas I proposed the theory of reflexivity before the phenomenon has been recognized. In doing so, I both overstated and understated my case. I overstated it by arguing that the methods and criteria of the natural sciences are totally inapplicable to the study of social phenomena. I called social science a false metaphor. That is an exaggeration because there are many normal, everyday, repetitive situations which can be explained and predicted by universally valid laws whose validity can be tested by scientific method. And even historical, reflexive processes have certain repetitive aspects which lend themselves to statistical generalizations. For instance, the trade cycle follows a certain repetitive pattern, although each instance may have some unique features and there is a lot more to be gained from understanding the unique features than the repetitive pattern.

I have also understated my case by presenting reflexivity as a different way of looking at the structure of social events rather than a different way in which events unfold when reflexivity comes into play. I made the point that, in natural science, one set of facts follows another irrespective of what anybody thinks; whereas in the events studied by social science, there is a two-way interaction between perception and facts. I also drew a distinction between humdrum, everyday events in which the element of indeterminacy introduced by the reflexive connection can be treated as mere noise, and historical events where the reflexive interaction brings about an irreversible change both in the participants' views and the actual state of affairs. All this is very profound and very significant, but the really interesting undertaking is to study the difference between humdrum and historical events and to gain a better understanding of historical processes.

I have done a lot of work in that direction since I wrote The Alchemy of Finance, not so much in the financial markets as in the historical arena. I have come to distinguish between normal conditions and far-from equilibrium conditions. In normal conditions, there is a tendency for the participants’ views and the actual state of affairs to converge or, at least, there are mechanisms at work to prevent them from drifting too far apart. I call these conditions “normal,” because that is what our intellectual traditions—including philosophy and scientific method —have prepared us for. I contrast them with far-from- equilibrium conditions, where the participants’ views are far removed from the actual state of affairs and there is no tendency for the two of them to come together. I have always found the far-from-equilibrium conditions much more fascinating, and I have studied them both in theory and in practice.

There are two very different kinds of far-from-equilibrium conditions: one is associated with the absence of change, and the other with revolutionary change. These two opposite poles act as “strange attractors”—an expression with which has become familiar since chaos theory has come into vogue.

So we can observe three very different conditions in history: the “normal,” in which the participants’ views and the actual state of affairs tend to converge; and two far-from- equilibrium conditions, one of apparent changelessness, in which thinking and reality are very far apart and show no tendency to converge, and one of revolutionary change in which the actual situation is so novel and unexpected and changing so rapidly that the participants’ views cannot keep up with it.

Interestingly, the rise and fall of the Soviet system presents both extremes. During Stalin’s time, reality and dogma were very far apart, but both of them were very rigid and showed no tendency to come together. Indeed, the divergence increased with the passage of time. When the system finally collapsed, people could not cope with the pace of change and events spun out of control. That is what we have witnessed recently.

But the two extremes can also be observed in totally unrelated contexts. Take, for instance, the banking industry in the United States. After the breakdown of the banking system in the Great Depression, it became closely regulated and very rigid; but when the restrictions were relaxed, the industry swung to the other extreme and entered a period of revolutionary change. I can locate the transition point with great precision: it was on that evening in 1973 when the management of First National City Bank held an unprecedented meeting for securities analysts in order to promote the stock as a growth stock. The pattern in the rise and fall of the Soviet system closely parallels the pattern in the fall and rise of the American banking system.

These three conditions are perhaps better explained by using an analogy. The analogy is with water, which also can be found in nature in three conditions: as a liquid, a solid or a gas. The three historical conditions I am trying to describe are as far apart as water, ice and steam. In the case of H2O, we can define exactly the three conditions; it has to do with temperature. Can we establish a similar demarcation line among the three conditions of historical change? I believe we can, and it has to do with the values that guide people in their actions. But I am not yet ready to give a firm answer. That is the problem that I am currently working on. But I feel rather exposed in dealing with such an esoteric issue. I need to know whether what I have said so far makes any sense; that is why I have imposed on you by giving you this rather heavy theoretical lecture, and I would welcome your comments either here or on another occasion.

--George Soros.

Friday, September 4, 2009

Intermarket Update On Gold, US Dollar, Aussie Dollar, S&P Charts (GLD, UUP, FXA, SPY)

First, here is an updated chart on the S&P ETF ($SPY). It is up trough to peak more than 56% from the March lows with a 9.5% correction along the way. It now has to prove there is still strength to keep this above trend. RSI is just above the important 50 level but has trended lower since late July. You can also see an interesting volume spike on that big sell off day and MACD sitting on its uptrend. Is there another head and shoulders forming, we'll see next week.

I presented below charts of the US Dollar and USD/S&P relationship. They've been moving inversely for some time now. The USD is trading just below the 7 month downtrend and needs a short covering jolt to violate the trend line. The S&P and USD are in this together, unless the trend suddenly flips over. Finally, gold broke out of that symmetrical triangle recently and is now testing the psychological $1,000 level. It could be hedging inflation, hedging a Dollar and/or market sell off, a terrorist attack or it was just technical in nature (Reuters).

I wanted to point out the relationship between Gold, the US Dollar, S&P and Australian Dollar ($XAD) in early 2008 and now. In early 2008 the S&P started selling off, gold hit 1,000, oil hit $147 and the US Dollar made new lows. Eventually the inflation trade overshot and the financial crisis flipped the commodity inflation trade upside down. You can see that commodity currencies, oil and gold sold off while the Dollar spiked during the Lehman bankruptcy, bank freeze and carry trade unwind. There were times when the USD and Gold rallied together which was interesting look at the yellow boxes below. Of course we all know what happened, Central Banks around the world injected trillions into the global economy which eventually found its way into commodities, commodity currencies, the stock market and now input costs (next post). So the attempt to reflate the economy worked, for the first receivers at least.

Fast forward to today, the S&P is in a steep uptrend, USD in a downtrend, gold is testing 1,000 resistance and AUDUSD broke out above resistance today. So what is gold telling us. Is inflation coming? Stagflation? Market sell off? Something bad about to happen? Or was it just a technical head-fake (Santelli). I wish I f'in knew. But follow the charts aka the money and stay hedged to protect from Elliot.

Thursday, September 3, 2009

GLD Breaks Out, December $100 Call Up 49% (Charts: GLD, Comex Gold Futures)

DV posted many times about the inflection point in GLD, the SPDR Gold Trust ETF (1, 2). It finally broke out of a symmetrical triangle. The October and December Comex Gold futures "pierced" through resistance. Not sure of the exact catalyst, could have been the FOMC Minutes, manufacturing growth in China with inflationary pressures or a safe haven bid. More on China's data.
"Improved demand conditions boosted companies’ pricing power in July, highlighted by the first rise in prices charged in just under a year. Anecdotal evidence suggested that firms had raised their output charges in response to higher input costs. According to the latest data, input price inflation was registered for the first time since September last year. Strong growth of input prices was in contrast to the considerable declines registered around the turn of the year. Survey responses suggested that more expensive raw materials had placed upward pressure on firms’ cost burdens. (CLSA China Manufacturing PMI, CLSA.com)

I provided the GLD chart plus the October and December Comex Gold future. Volume in GLD hit levels not seen since March and volume spiked in the December futures.

Wednesday, September 2, 2009

Bill Gross September Outlook: On The "Course" To a New Normal

Here are key highlights from Bill Gross's September 2009 Investment Outlook titled On the “Course” to a New Normal . The full report can be viewed publicly at Pimco.com.

"The investment implications of this New Normal evolution cannot easily be modeled econometrically, quantitatively, or statistically. The applicable word in New Normal is, of course, “new.” The successful investor during this transition will be one with common sense and importantly the powers of intuition, observation, and the willingness to accept uncertain outcomes. As of now, PIMCO observes that the highest probabilities favor the following strategic conclusions:
  1. Global policy rates will remain low for extended periods of time.
  2. The extent and duration of quantitative easing, term financing and fiscal stimulation efforts are keys to future investment returns across a multitude of asset categories, both domestically and globally.
  3. Investors should continue to anticipate and, if necessary, shake hands with government policies, utilizing leverage and/or guarantees to their benefit.
  4. Asia and Asian-connected economies (Australia, Brazil) will dominate future global growth.
  5. The dollar is vulnerable on a long-term basis."
Go $TLT GO!

FOMC Mintues Released From August 11-12, Fed Balance Sheet To Expand

Selected text from the FOMC Minutes release. GLD, SLV and TLT broke out today.
"Participants' Views on Current Conditions and the Economic Outlook

In their discussion of the economic situation and outlook, meeting participants agreed that the incoming data and anecdotal evidence had strengthened their confidence that the downturn in economic activity was ending and that growth was likely to resume in the second half of the year. Many noted that their baseline projections for the second half of 2009 and for subsequent years had not changed appreciably since the Committee met in June but that they now saw smaller downside risks. Consumer spending appeared to be in the process of leveling out, and activity in a number of local housing markets had stabilized or even increased somewhat. Reports from business contacts supported the view that firms were making progress in bringing inventories into better alignment with their reduced sales and that production was stabilizing in many sectors--albeit at low levels--and beginning to rise in some. Nonetheless, most participants saw the economy as likely to recover only slowly during the second half of this year, and all saw it as still vulnerable to adverse shocks. Conditions in the labor market remained poor, and business contacts generally indicated that firms would be quite cautious in hiring when demand for their products picks up. Moreover, declines in employment and weakness in growth of labor compensation meant that income growth was sluggish. Also, households likely would continue to face unusually tight credit conditions. These factors, along with past declines in wealth that had been only partly offset by recent increases in equity prices, would weigh on consumer spending. The data and business contacts indicated very substantial excess capacity in many sectors; this excess capacity, along with the tight credit conditions facing many firms, likely would mean further weakness in business fixed investment for a time. Even so, less-aggressive inventory cutting and continuing monetary and fiscal policy stimulus could be expected to support growth in production during the second half of 2009 and into 2010. In addition, the outlook for foreign economies had improved somewhat, auguring well for U.S. exports. Participants expected the pace of recovery to pick up in 2010, but they expressed a range of views, and considerable uncertainty, about the likely strength of the upturn--particularly about the pace of projected gains in consumer spending and the extent to which credit conditions would normalize.

Traders Start September Dumping Risk (SPY, QQQQ, UUP, VIX, FXA, AUDJPY, JJC - GLD)

The markets sold off hard today. Traders started off September dumping risk and the reflation trade. Our markets could follow Shanghai lower if they are supposed to be the global growth story. Funds have been hedging risk for some time now. DV has been watching the Volatility Sonar report and saw that people were scooping up protection in the 30s, Hedging a Market Pullback Using The VIX (Aug 11)
October VIX Future Trading at Big Premium To Cash, VXX (Aug 26).

In the beginning of June the Baltic Dry Index slowed down, then the Shanghai Index, then slowly everything else it seems (Aug chart comparison). It is interesting that GLD caught a bid while UUP and other commodity currencies sold off today (FXA, AUD/USD, AUD/JPY). AUD/JPY sold off after hitting the 50% retracement level. The currencies and commodity ETFs I plotted are at big inflection points, either at trend support (FXA, JJC, UUP and AUD pairs) or at a symmetrical triangle point (GLD). FXI, the China ETF, broke below trend support and traders have been hedging with puts (1, 2).

AUD/USD is interesting. The 20wma on the AUD/USD has been moving higher and could support the pair (on dips) to cross the 100wma eventually. AUD/USD broke above both moving averages and the 20wma is currently at .80. Australia's GDP grew 0.6%, more than expected, and they left the overnight cash rate unchanged so traders are speculating a rate hike in October or November . The CS AUD Price Move For next 12M:CS1YRBA index using the Overnight Index Swap Curve is pricing in a 183 basis point hike over the next year.

CS1YRBA (Bloomberg.com)


SPY (S&P 500 ETF) 2 Year Chart

Bearish Put Spread On IYR Real Estate ETF, SRS Call Activity (Charts n' Chains)

While looking through a bunch of chains I found interesting option activity in the real estate ETFs, IYR (Dow Jones Real Estate Index) and it's shady counterpart SRS (2x Inverse DJ Real Estate Index). First off the market sold off hard today and if we continue to see weakness I'm sure IYR will follow SPY, we will see though.

I saw that IYR had activity in October and November on the $38 and $33 Put strike. 31,000 contracts traded on both the October 38-33 puts and around 25,000 traded on the November 38-33 strike. It was a bearish put spread to protect from an underlying disaster (Andrew Wilkinson of I-brokers mentioned the October trade). Was November just a hedge on that spread or another trade.. Not scoping out ticks.

LeFrak, Bair: Commercial Real Estate Loan Losses On Small Banks (2010)

Will community and regional banks continue to get hit by commercial real estate loan losses? Sheila Bair and LeFrak share their thoughts.

Bair:
  • Commercial real estate is a looming problem
  • Commercial real estate losses will be more of a driver of bank failures- end of '09, 2010
  • We've known about this for some time, part of the process to clean banking system.
  • She also has "beef" with a Super-Regulator (Case Against a Super-Regulator - NYT).

Tuesday, September 1, 2009

Andy Xie: Shanghai Index Fairly Valued At 2,000, Could See Bounce (Video)

Andy Xie, writer at Caijing and former economist at the IMF and Morgan Stanley Asia, has been warning about the Shanghai Index since early August and it lost 22% since then. It broke below the 50 day moving average and could eventually test the 200 day moving average at 2,479. During the Bloomberg interview Xie said there could be a September bounce but said the Shanghai index was still expensive at 3x book and 30x earnings and was fairly valued at 2,000 or less. It sounds like the Chinese asset markets got over-reflated by Government stimulus. He sees a potential slowdown in the 4th quarter and explained that it will take time for China to change their economic model (from export driven). In this Reuters article in April 2007 Andy Xie predicted the global recession.

Monday, August 31, 2009

Chart Comparison of Four Bear Markets

You have probably seen these charts around the web created by Dshort.com. These charts are updated daily at the site. Also check out the real (inflation adjusted) "mega-bear" extended chart, four bears rally off lows chart and the S&P 500 moving averages current update. The first chart below is linear and the second is logarithmic.


Source: Dshort.com

Sunday, August 30, 2009

Moody's Downgrades Detroit $781M GO Debt Further Into Junk

Detroit, Michigan (The City of Boom)

This is DV's annual review of Detroit. Read Distressed Detroit on July 12, 2008 where I looked at the city's 2006 CAFR. On August 21, 2009 Moody's PFG (U.S Public Finance Group) downgraded $781 million General Obligation debt further into junk ($491 million GO unlimited Debt to Ba3 from Ba2 and $290 million GO limited debt to B1 from Ba3). Go here for the ratings scale. These June 30, 2007 numbers are prehistoric! On June 30, 2007 things were just getting started; the credit crisis, global recession, GM and Chrysler bankruptcies, 28.9% Detroit unemployment rate, -25% YoY housing prices (Detroit/Las Vegas were the only cities that saw housing price declines in July) and a corrupt local Government. It is all catching up now.
"Charles Beckham, Bing's chief administrative officer, said the city is operating with a $60-million to $80-million cash shortage -- one that could implode come October -- on top of the $275-million to $300-million overall deficit." (Freep, Aug 25)

Review of City of Detroit 2007 CAFR (PDF or ci.detroit.mi.us)
  • General Fund Rev-Exp with transfers $15 million (slide 4)
  • Total Government Funds Rev-Exp w/ transfers -$16 million (5)
  • Total Government Fund Balance Down 65% ($456M to $157M) from 2003 (6)
  • Using RANs and TANs for short term cash flow needs ($129.3 Million) (3)
  • Net Cash & Investments $153M - Short Loan Payables $129M = Net Cash $23.7M (Moody's) (2,3)
  • Net Cash: '01 = 38M, '02 = 59M, '03 = 121.6M, '04 = 101M, '05 = 59.4M, '06 = 30.3M
  • Total General Fund Deficit -91M, improved 14% from -107M (still a deficit since '05) (1)
  • From General Fund $70M transferred to Transportation, $67M to Debt Service Fund
  • Swap agreement amended but termination would owe $400M to counterparties (p.22)
  • Principal property tax payers in 2007: Chrysler, Detroit Edison, GM, MGM Grand, American Axle

(1) General Fund Reserved and Unreserved Balance Trend


(2) General Fund Assets FY 2007

(3) General Fund Liabilities FY 2007
(4) General Fund Rev-Ex FY 2007

(5) Total Governmental Fund Balance Trend (Rev-Ex)

(6) Total Gov Fund Balance: Transfers In/Out, Ending Balance Trend


Plus they have a population/infrastructure ratio that is under 1. Dave Bing talks about Detroit's shrinkage. (CrainsDetroit video)

StockTwits Rings Closing Bell at NASDAQ! (Video)

StockTwits 4 Life!


Saturday, August 29, 2009

RenTec's James Simons Stony Brook Interview Video, Other Interview Links

Mathematician James Simons, head of hedge fund Renaissance Technologies, made $2.5 billion last year making him the highest paid hedge fund manager of 2008. Below is a 60 minute Stony Brook video interview with James Simons and physicist C. N. Yang on March 28, 2008. Simons testified before congress along with hedge fund managers Paulson, Griffin, Falcone and Soros in late 2008 during the credit crisis.



More articles on James Simons:

Simon's Doesn't Say: Meet The Man Whose 1990s Returns Are Better Than George Soros (Financial World 1996 PDF)

The Secret World of Jim Simons (Institutional Investor, Nov 2000)

Interview with James Simons: The billionaire hedge fund manager discusses the impact of mathematics on his former life in academia and his new one in finance. (Seed Magazine 2006)

Btw, Zero Hedge has interesting posts about RenTec, Renaissance
.

SPY Is Defying Gravity For Now (Aug S&P ETF 3 Year Chart)

From escaping a black hole to defying gravity pretty much sums up the past year in the SPY. Looking a few weeks back the 20 week moving average crossed above the 50 week moving average which was a bullish sign. Look how the 20 crossed below the 50 in the beginning of 2008. At some point the S&P will price in all of the stimulus steroids, positive (less negative) economic data and bottom line improvement and reach a new orbit (trading channel). Even in bull markets there are <10% corrections just like the June '09 correction (previous posts with charts: June 2, June 16). Unless of course there is a currency crisis (Jim Rogers: Dow could go to 20-30,000 during currency crisis).

Technicals: SPY broke above the 38.2% Fibonacci retracement level and is right around the pre-Lehman break down in 2008. It might want to fill that gap. If SPY gets another steroid injection with year end fundamental support, the 50% retracement level 109 is not out of the question and eventually the 61.8% retracement / 3 year downtrend resistance level around 120. Looking at a previous post about the 1929-30 bear market rally the Dow rallied hard and retraced 50% of its losses before selling off (not saying that is a definite comparable). Get ready for September folks.


SPY (Courtesy of Stockcharts.com)

Friday, August 28, 2009

Distressed Volatility Clears 11,000 Page Views In August!

Distressed Volatility cleared 11,000 page views in August. Without transparent data, the Internet, Google and Twitter followers this blog would not exist.


GLD Call Options Active at Dec, March $100 Strike

I noticed 21,594 December GLD Calls traded at the $100 strike today with 12,363 open. According to this Reuters article there was also a large $100 - $120 call spread on GLD expiring in March 2010. GLD is at a critical inflection point on the chart and I'm sure option players are positioning for a move. It is taking a while for the actual breakout/breakdown to occur... Look at the 2 yr chart you can see the inflection point on the long term pennant or short term symmetrical triangle whatever you are looking at. If these players are betting on a breakout, Robert Prechter (video) is taking the other side of the trade. Whatever happens there will be big price movement on judgment day. Currency issues, inflation and geopolitical events could affect gold going forward.


GLD 2 Year Chart

Watch GLD stream




GLD DEC Option Chain (Courtesy of Yahoo Finance)
GLD MAR '010 Option Chain (Courtesy of Yahoo Finance)


Posts on SPDR GLD:

John Paulson Keeps GLD Investment, Watching Symmetrical Triangle (August 13)
GLD Trade Setting Up Here + UUP, AUDJPY Pre FOMC (August 12)
Paulson Buys GLD, GDX (May 20)

FDIC 2nd Quarter Results (Sheila Bair Presentation Video, Slides)

Sheila Bair spoke at the FDIC Quarterly Banking Profile Press Conference on August 27, 2009. The full 60 minute video with Q&A can be found at events.vcall.com (takes you to the exact video). FDIC senior staff members make presentations after Bair. I provided her speech and slides below.


FDIC 2nd Quarter Results (Video Link)

Source: FDIC.gov Press Releases

Statement by FDIC Chairman Sheila Bair at the Quarterly Banking Profile Press Conference
August 27, 2009


Good morning everybody, and welcome to our briefing on industry results for the second quarter.

We've all seen the good news that has come out on the economy in the past few weeks. While challenges remain, evidence is building that the American economy is starting to grow again. But no matter how challenging the environment ... the FDIC has ample resources to continue protecting insured depositors as we have for the last 75 years. No insured depositor has ever lost a penny of insured deposits ... and no one ever will.

One of the themes of today's quarterly profile is that banking industry performance is -- as always -- a lagging indicator. The banking industry, too, can look forward to better times ahead. But, for now, the difficult and necessary process of recognizing loan losses and cleaning up balance sheets continues to be reflected in the industry's bottom line.

Insured institutions posted a $3.7 billion net loss in the second quarter. As this first chart shows, they earned $424 million in net operating income. But one-time losses and other items totaling $4.1 billion pulled the overall results into negative territory.

SLIDE 1

Positive net operating income was achieved even after a special assessment of about five and a half billion dollars to bolster the Deposit Insurance Fund.

Higher provisions push earnings lower


As this next chart shows, deteriorating loan quality is having the greatest impact on industry earnings, as insured institutions continue to set aside reserves to cover loan losses.

SLIDE 2

Of all the major earnings components, the amount that insured institutions added to their reserves for loan losses was, by far, the largest drag on industry earnings compared to a year ago. As you can see, loss provisions were $16.5 billion higher than a year ago. In all, banks and thrifts set aside $67 billion to cover bad loans in the second quarter.

Other factors that weighed on earnings included expenses stemming from write-downs of asset-backed commercial paper, which increased extraordinary losses ... and higher deposit insurance premiums. (Absent these premiums, non-interest expense would have declined, reflecting banks' efforts to cut costs.)

The upward trend in loan-loss provisions dates back to the second half of 2006. But while the early losses were related to residential loans and complex mortgage-related assets ... where the crisis really began ... we're now seeing problems with more conventional types of retail and commercial loans that have been hit hard by the recession.

This chart shows how loss provisions have grown as a share of the industry's net revenues.

SLIDE 3

In the second quarter, loss provisions were 10 times what they were three years ago. The obvious reason for this is the ongoing need to bolster reserves in the face of rising levels of troubled loans. These credit problems will outlast the recession by at least a couple of quarters.

Problem loans still increasing

This chart shows the amount of loans that have been written off each quarter (that's the blue segment) ... as well as the quarterly change in the amount of non-current loans remaining on banks' balance sheets (that's the red segment).

SLIDE 4

The chart shows that both charge-offs and non-current loan levels are still rising. The continued growth in these categories lifted the net charge-off rate and the non-current loan rate to historic highs in the second quarter. And as you can see from this next chart, the gap has also been growing between the level of non-current loans (that's the green line) ... and the industry's reserves (that's the blue line).

This widening gap is driving the high loss provisions. And it's the reason that we expect provisions to remain at elevated levels for some time.

SLIDE 5

Areas of improvement


Not all of the news in the second quarter was bad. While total non-current loans and net charge-offs continued to rise, the increase was smaller than in the first quarter. Also, non-current home equity and junior lien mortgages declined for the first time in six quarters. And the volume of loans that were 30 to 89 days past due, fell across all major loan categories.

Are these signs of a turning point in asset quality? This may turn out to be the case. But we're going to need another quarter or two to confirm a trend.

Another positive during the quarter was an improvement in net interest margins for community banks as well as for larger institutions. This is good news for community banks, since three-fourths of their revenues come from net interest income.

SLIDE 6

In many important respects, financial markets are returning to normal. Combined with the positive economic news in recent weeks, we're hopeful that this will lead to a moderation in credit problems in coming quarters. But, as our report shows, cleaning up balance sheets is a painful process that takes time. This process is absolutely necessary in order to restore the industry's profitability, and to strengthen its capacity to lend to businesses and consumers.

Problem list grows


As banks and thrifts continue cleaning up their balance sheets, more are coming onto our problem list. The number rose during the quarter to 416. This chart shows the trend since the Problem List hit an historic low in 2006, when bank profits were at record highs. Although the number continues to increase, it's still well below the levels seen during the last crisis.

SLIDE 7

As you know, the number of failures is also up. There have been 81 so far this year. We expect the numbers of problem banks and failures will remain elevated, even as the economy begins to recover. (Problem banks and bank failures also tend to be lagging economic indicators.)

DIF update

Now let me turn to how failures are affecting the Deposit Insurance Fund, or the DIF. First: failures cost money. And the costs are charged to the DIF. But one thing that you should know is that the DIF balance has already been adjusted downward for the cost of failures that are expected to occur over the next year. Just as banks set aside reserves for loan losses, we set aside reserves for anticipated bank failures.

Our total reserves -- consisting of both the DIF balance and a contingent loss reserve -- are available to absorb losses. The DIF balance reflects the net worth of the insurance fund. It's also a guide for setting deposit insurance premiums for our industry-funded system. So when a bank fails, to the extent that we have already reserved for a failure, the loss comes out of the contingent loss reserve. For example, when Colonial Bank failed two weeks ago ... there was no reduction in the fund because the estimated loss had already been reserved for.

We review the adequacy of the contingent loss reserve every quarter, and make adjustments as warranted. As illustrated in this chart, we have been shifting large sums to the contingent loss reserve as our failure projections have grown. The total reserves are now over $42 billion.

SLIDE 8

FDIC resources run deep


Our total reserves should be distinguished from the cash resources at our disposal to protect depositors. As this last chart shows ... our sources of liquidity to protect depositors in future failures include not only the $22 billion of cash and Treasury securities held by the DIF as of June 30, but also the ability to borrow up to $500 billion from the Treasury. To sum up, a decline in the fund balance does NOT diminish our ability to protect insured depositors.

SLIDE 9

Conclusion

The FDIC was created specifically for times such as these. Our resources are strong. Your insured deposits are safe. And again, no insured depositor has ever lost a penny of insured deposits ... and no one ever will. Thank you very much.


Thursday, August 27, 2009

Bearish Butterfly Put Strategy on FXI - China 25 Index ETF

Interesting option action yesterday on the China ETF $FXI. A trader utilized a bearish butterfly put transaction using 40,000 October $FXI puts. Total cost was 61 cents. Traders are either long and hedging their arses off or speculating a breakdown to $36. Looking at the chart FXI is hanging onto uptrend support. I wrote about FXI put activity on August 17: FXI Put Protection, Andy Xie On China's Bubble so it is not surprising.

Wednesday, August 26, 2009

October VIX Future Trading at Big Premium To Cash, VXX

Check out today's Volatility Sonar report from optionMONSTER.com/Group 1 Trading. It seems like action is picking up in the VIX pit at the CBOE. There were some big out of the money call trades from 35-40. Also look at the VIX futures curve below and the 5 point gap between VIX cash and the October future. There has been a premium gap for some time now. Watching VIX to SPY.
  • 8/25- 80,000 Nov 40 Calls financed by a 20,000 Nov 25-27 strangle for 0.75
  • 8/25- 20,000 Sep 35 Calls for 0.65, then trader asked the crowd a quote on 150k, wtf?
  • 8/20- 50,000 Oct 37.50 for 1.55

Economist WalStreetPro On The $9 Trillion Projected Fiscal Deficit

I was wondering when WalStreetPro2 would mention this: White House raises 10-yr deficit forecast to 9 trillion dlrs (AFP). He breaks a few printers and a big bird rocking chair and provides debt/gdp and unemployment charts. Parental advisory, explicit content.



ht zero hedge

AAR August Weekly Rail Traffic Report + Monthly Indicators Video, $IYT

On August 21, 2009 the American Association of Railroads released their weekly rail traffic and carloading report and AAR has gone Web 2.0 with their "Rail Time Indicators Report" widget. Watch the video with AAR's economist. Also the total (intermodal, baseline, cyclical) industry traffic YoY% change chart from railfax.transmatch.com could be bottoming out. Just like the recent housing numbers show, we are seeing lower negative YoY numbers. Less bad means good at this point until it is fully priced into the market (NYSE:IYT - iShares Transports ETF chart below). In 2010 or 2011 hopefully we see positive growth compared to this years traffic data but will it still be below 2007-8 levels? To break out the total traffic data visit Railfax and you can also find charts on crushed stone and lumber/wood carload activity.

Michael Moore Takes On Capitalism (Trailer)

Capitalism: A Love Story (Trailer)


Prechter: S&P Will Break 2009 Lows, Likes Dollar Not Commodities

Prechter of Elliot Wave expects the market to break the March 2009 lows. Will the Elliot Wave overpower the printing press? He hit up all of the media outlets recently and I embedded videos from Tech Ticker and Bloomberg. I summarized some of his thoughts from the Tech Ticker interview below. I also found a chart of the South Sea bubble he was talking about.

Tuesday, August 25, 2009

QQQQ: 441,000 September $38 Puts Open, Watch $40 Support

I'm watching $QQQQ and the 40 support level here. If 40 breaks, we could head towards 38.50 support and then 37 from June imo. That's IF the Qs can break this strong uptrend. I noticed that 441,000 September $38 puts were open. That put strike dominates the option chain in September. The puts expire on September 18. We'll see if they were designed to hedge and/or make money very soon.

Obama Reappoints Bernanke As Fed Chairman (Video, Transcript)




THE WHITE HOUSE

Office of the Press Secretary
--------------------------------------------------------------------------
For Immediate Release August 25, 2009


REMARKS BY THE PRESIDENT AND BEN BERNANKE AT THE NOMINATION OF BEN BERNANKE FOR CHAIRMAN OF THE FEDERAL RESERVE
Oak Bluffs School Filing Center
Oak Bluffs, Massachusetts


8:55 A.M. EDT

THE PRESIDENT: Good morning, everybody. I apologize for interrupting the relaxing that I told all of you to do, but I have an important announcement to make concerning the Federal Reserve.

The man next to me, Ben Bernanke, has led the Fed through one of the worst financial crises that this nation and the world has ever faced. As an expert on the causes of the Great Depression, I'm sure Ben never imagined that he would be part of a team responsible for preventing another. But because of his background, his temperament, his courage, and his creativity, that's exactly what he has helped to achieve. And that is why I am re-appointing him to another term as Chairman of the Federal Reserve.

Ben approached a financial system on the verge of collapse with calm and wisdom; with bold action and out-of-the-box thinking that has helped put the brakes on our economic freefall. Almost none of the decisions that he or any of us made have been easy. The actions we've taken to stabilize our financial system, to repair our credit markets, restructure our auto industry, and pass a recovery package have all been steps of necessity, not choice. They've faced plenty of critics, some of whom argued that we should stay the course or do nothing at all. But taken together, this "bold, persistent experimentation" has brought our economy back from the brink. They're steps that are working. Our recovery plan has put tax cuts in people's pockets, extended health care and unemployment insurance to those who have borne the brunt of this recession, and is continuing to save and create jobs that otherwise would have been lost. Our auto industry is showing signs of life. Business investment is showing signs of stabilizing. Our housing market and credit markets have been saved from collapse.

Of course, as I've said before, we are a long way away from completely healthy financial systems and a full economic recovery. And I will not let up until those Americans who are looking for jobs can find them; until qualified businesses, large and small, who need capital to grow can find loans at a rate they can afford; and until all responsible mortgage-holders can stay in their homes. That's why we need Ben Bernanke to continue the work he's doing, and that's why I've said that we cannot go back to an economy based on overleveraged banks, inflated profits, and maxed-out credit cards.

For even as we've taken steps to rescue our financial system and our economy, we must now work to rebuild a new foundation for growth and prosperity. We have to build an economy that works for every American, and one that leads the world in innovation, in investments, and in experts -- exports.

Part of that foundation has to be a financial regulatory system that ensures we never face a crisis like this again. We've already seen how lax enforcement and weak regulation can lead to enormous wealth for a few and enormous pain for everybody else. And that's why even though there is some resistance on Wall Street from those who would prefer to keep things the way they are, we will pass the reforms necessary to protect consumers, investors, and the entire financial system. And we will continue to maintain a strong and independent Federal Reserve.

We will also keep working towards the reform of a health insurance system whose costs and discriminatory practices are bankrupting our families, our businesses, and our government. We will continue to build a clean energy economy that creates the jobs and industries of the future within our borders. And we will give our children and our workers the skills and training they need to compete for these jobs in the 21st century.

Much like the decisions we've made so far, the steps we take to build this new foundation will not be easy. Change never is. As Ben and I both know, it comes with debate and disagreement and resistance from those who prefer the status quo. And that's all right, because that's how democracy is supposed to work. But no matter how difficult change is, we will pursue it relentlessly because it is absolutely necessary to lift this country up and create an economy that leads to good jobs, broad growth, and a future our children can count on. That's what we're here to do, and that's what we will continue to do in the months ahead. So I want to congratulate Ben on the work that he's done so far, wish him continued success in the hard work that he has before him. Thank you so much, Ben.

CHAIRMAN BERNANKE: Thank you, Mr. President. I'd like to express my gratitude to President Obama for the confidence he's shown in me with this nomination, and for his unwavering support for a strong and independent Federal Reserve.

It has been a particular privilege for me to serve with the extraordinary colleagues throughout the Federal Reserve System. They have demonstrated remarkable resourcefulness, dedication, and stamina under trying conditions. Through the long nights and weekends and the time away from their families, they have never lost sight of the critical importance of the work of the Fed for the economic well-being of all Americans. I am deeply grateful for their efforts.

I especially want to thank my own family -- my wife Anna and our children, Joel and Alyssa. Without their support and sacrifice, I could not undertake this task.

The Federal Reserve, like other economic policymakers, has been challenged by the unprecedented events of the past few years. We have been bold or deliberate as circumstances demanded, but our objective remains constant: to restore a more stable financial and economic environment in which opportunity can again flourish and in which Americans' hard work and creativity can receive their proper rewards.

Mr. President, I commit today to you and to the American people that, if confirmed by the Senate, I will work to the utmost of my abilities -- with my colleagues at the Federal Reserve and alongside the Congress and the administration -- to help provide a solid foundation for growth and prosperity in an environment of price stability.

Thank you, sir.
THE PRESIDENT: Thank you. Great job.
CHAIRMAN BERNANKE: Thank you.
END
9:01 A.M. EDT

Source: Whitehouse.gov

TABB Group's Sussman on High Frequency Trading

Here is Adam Sussman, Director of Research at TABB Group talking about high frequency trading on Tech Ticker. Continued from previous post: Is Dark Pool Trading Transparent? (TABB Group Money:Tech 2008 Presentation)

Is Dark Pool Trading Transparent? (TABB Group Presentation)

What the hell goes on in these dark pools. I just read VWAP No More? at Zero Hedge and he said big volume could have been relayed through a dark pool. Shouldn't publicly traded companies be 100% transparent on a public exchange? Tyler also mentioned this article from thetradenews.com: Goldman Sachs Sonar algorithm can now access SIGMA - 11/28/2007. Here's an excerpt.
"The algorithm works in two modes, 'stealth' and 'dark'. Under stealth mode, it seeks liquidity while avoiding signalling risk. Dark mode enables the algorithm to make either a portion or the entire balance of an order available for non-displayed crossing using SIGMA as a trader-defined benchmark."

"The Sonar algorithm helps European traders reduce information leakage to the market and improve their execution performance. It combines the benefits of algorithmic trading, automation, and anonymity with the ability to source 'block' liquidity in the SIGMA dark pool," he continues." Source


It sounds like a big crack deal in a dark alley. I understand funds don't want to signal the market but how can big blocks of publicly traded shares cross internally without being displayed to the public. It looks like Goldman will report all volume traded in its Sigma X dark pool though (Goldman responds to calls for US dark pool transparency, US dark pools to accept new trade reporting standard). I also found a presentation by Larry Tabb of TABB Group at the O'Reilly Money:Tech Conference on February 8, 2008 talking about search, dark pools and disappearing traders. It is interesting technology.

Monday, August 24, 2009

BMO's Adornato on CRE, Capitalized REITs and Distressed Buys

Paul Adornato of BMO was on Bloomberg talking about the commercial real estate market.

"First to back up, we still see the fundamentals deteriorating throughout the commercial real estate sector. The backdrop that we're talking about is still one of rising vacancy and falling rents. But the publicly traded REITs have been successful in issuing equity this year, about $20 billion so far. They also have recycled capital by forming joint ventures with other institutional investors. They've also issued corporate unsecured debt, that market was really closed for many months but has now come back to life. And they've also been able to issue secured debt, traditional mortgage debt, which although it's more expensive than it has been, it's still available from the stronger banks."

Saturday, August 22, 2009

Producer Price Index Volatility Going Back To 1930, 1947 (BLS)

The PPI (Producer Price Index) declined 0.9% in July. I provided historical PPI charts below including the PPI: Finished Goods month over month percent change and 12 month percent change since 1947 and the PPI: All Commodities 12 month percent change since 1913. As you can see from the charts in late 2008 producer prices deflated to levels not seen since the 1930s (all commodities) and 1949 (finished goods - when BLS started reporting PPI data). In the beginning of 2009 we bounced back from deflationary pressures and declined 0.9% in July more than expected. So there's been interesting producer price volatility. The question is will the deflationists (Gary Shilling) be right going forward or will the bounce back in business inventories and underlying consumer demand bid up prices with the help from stimulus dollars and low interest rates.

Friday, August 21, 2009

Hedge Fund Manager Andrew Lahde's Farewell Letter 2008

Hedge fund manager Andrew Lahde of Lahde Capital Management made 877% betting against the subprime market in 2007 and decided to close his hedge fund in 2008. He wrote a farewell letter last year that I had to put up. Also read the Lahde Capital letter to investors on March 8, 2008 via FTAlphaville. Hopefully he's not smoking that bammer right now.

Thursday, August 20, 2009

Check Out Zillow Real Estate Market Reports, Home Value Index

Zillow.com is a real estate site that has a real estate market report section which includes the Zillow Home Value Index, median list price, median sales price and more metrics including % homes foreclosed. You can compare states, metros and time periods. They also have a site that show the national mortgage rate and a chart. You can dynamically display rates and payments. Also check out their mortgage blog, Mortgages Unzipped. Here's a widget of the Home Value Index for Chicago and Detroit.

Wednesday, August 19, 2009

Trader Buys Cheap Out Of The Money Natural Gas Calls

This was an interesting article out of FT.com, Hedge fund bets millions that gas price will triple. Is someone levering up a bet to own natural gas cheap on a spike and/or capitalize on a move in call volatility before February? $NATGAS spot closed at $3.47 and the trader bought 10,000 January $10 calls for 0.056.

EIA's weekly storage report ending August 7 showed that 3,152 billion cubic feet were in storage. The storage number is up over the week, up over the year, and above the 2004-2008 range so it's flat out bearish and has been reflected in the price.


Natural Gas Spot (Stockcharts.com)

Tuesday, August 18, 2009

Genco CFO on Baltic Dry Index Volatility, Chart

Interview with Genco CFO John Wobensmith on Bloomberg News on the Baltic Dry Index. The BDI has been in a downtrend since June. When will there be a Baltic Dry Index ETF, ETN?
"I think that the dry bulk industry has turned the corner... What has really made the dry bulk industry come off of those lows is all the spending that has been going on in China. The stimulus spending, the increased loans and the increased steel industry which has been driving the iron ore imports. What we've also been seeing are coal imports going into China, increased coal imports going into India as well as Japan. So we are now starting to see just the beginnings of those recoveries, and we think towards the end of the year you'll start to see iron ore import numbers increase as well..."

Monday, August 17, 2009

FXI Put Protection, Andy Xie On China's Bubble

Here is an update on FXI or the iShares FTSE/Xinhua China 25 Index. From the chart below FXI almost doubled from the March lows and more than doubled from $19-20 in late November 2008. Also see Jim Rogers saying Chinese equities were overpriced. FXI is brushing up against the lower channel of the uptrend and sitting on $40 support and the 50 day moving average.


FXI (stockcharts.com)


Diane Swonk Sees Rocky Road To Recovery (Video)

Chi-town represent. Diane Swonk of Mesirow was on BloombergTV saying she sees a rocky road to recovery.
".... So all that along with inventories rebuilding a bit, you'll get some growth but it's half of what we should be getting given the depths of the crisis. And as we get into 2010, unless we see that emergence of good news, which is employment gains you can't see a self feeding recovery. I think we will see that but even that limited. Many companies who relied on short term credit to finance payrolls can't anymore even as we emerge from the crisis......"

Sunday, August 16, 2009

Chart Comparisons: Copper, BHP, Shanghai Index, Baltic Dry Index

First went the Baltic Dry Index ($BDI, shipping indices), then the Shanghai Comp ($SSEC), now will $Copper spot and BHP (Iron ore co.) follow? Check out the chart comparisons. As you can see the BDI has been in a downtrend since June and the Shanghai Index broke below some support and the 50day moving average. Copper doubled since the beginning of the year and BHP has been piggy backing China. Shanghai is down tonight about 2.80%. Watching to see how Copper and BHP reacts, if it flat lines or breaks down. I think Asia needs reflation jumper cables.

$AUDJPY, $AUDUSD, FXA Fibonacci Retracements, Articles

I've been watching $AUDJPY and $AUDUSD recently and the 50%, 61.8% retracement levels. My post a few months ago retraced $AUDJPY from it's 2008 highs to see a correction which filled at 70ish (6/22 Post). Now I'm looking at AUDJPY's 50% retracement level from the 2007 peak. $AUDJPY pierced above resistance but could not hold 80. It might need jumper cables again. If the Baltic Dry Index doesn't rally back here and China and commodities sell off, AUD could take a hit IMO, thoughts? AUDJPY is part of the global reflation, risk appetite and commodity trade, however interest rate differentials and inflation data are also important. If Japan sees deflationary pressures while Australia sees inflationary pressures, money could keep flowing to the $AUD based on interest rate speculation. But when will that trade be priced in and/or the yield gap peak (article looks at AUDUSD)? We'll see what happens with the Aussie. Read the articles below for more info on what is driving the currency pair.

David Tice: S&P to Hit 400, Earnings Multiple Overpriced (Video)

Uber bear David Tice of Federated investors was on Bloomberg saying the market was dramatically overpriced and fair value on the S&P is $400 in the near future. He is bullish on gold and silver, hedging against Helicopter Ben.
"We think we are going to get to $400... We think the market is dramatically overpriced at 22 times 2010 earnings according to strategist numbers. That's an exceptionally high number for the bottom of a bear market.. We think earnings are still going down and the problem is that expectations that were beat were being done at much lower levels than last year due to cost cutting, revenues were down significantly..."
Anyone know what 2010 EPS number he is looking at to get a P/E of 22? Here is Standard and Poor's 2009 and 2010 reported and operating EPS estimates in a spreadsheet. It looks like 2010 EPS estimates average out to 70.

Saturday, August 15, 2009

Marc Faber Sees US Dollar Strength and Market Correction

Marc Faber (Dr. Doom) made a macro call on CNBC last week. Faber sees US Dollar strength and a market correction in the next few months. That has been the correlation these days. Nouriel Roubini (Dr. Realist) also asks him a few questions during the segment. Faber also believes the US Government is in a bubble. Aired on August 12.
"What we have is a bull market in assets between 2002 and the end of 2007, early 2008, and a weak dollar during that time. 2008 was the opposite, a strong dollar and all asset markets went down except for bonds. And now 2009 we bottomed out on the S&P at 666 in March and since then have rallied strongly and in emerging markets even more, but the dollar was weak. And I expect now maybe for the next couple of months a period of a recovering dollar and a correction time in asset markets..... Because a strong dollar means global liquidity is tightening." Watch the full interview."

2nd Half Economic Recovery Update From WalStreetPro

WalStreetPro's 2nd half economic update is up. Go to his site at WalstreetPro2.

Friday, August 14, 2009

Tyler Durden of Zero Hedge Speaks With Max Keiser

The man, the myth, the legend, Tyler Durden of Zero Hedge speaks with Max Keiser about high frequency trading and the Fed.






Source:
On the Edge with Max Keiser – The Fed, front running, ponzi schemes (MaxKeiser.com)
Max Keiser's Youtube channel at http://www.youtube.com/user/MaxKeiserTV
Also visit ZeroHedge.com

Bob Janjuah of RBS: Global Stock Markets Will Test March Lows

Uh oh, this just out at Telegraph.co.uk. Bob Janjuah, Chief Credit Strategist at RBS believes the V shaped recovery will fail and "expects global stock markets to test their March lows". He made some good calls last year: RBS issues global stock and credit crash alert (Telegraph, June 18, 2008). This could explain the elevated put/call ratios on SPY today. Watch out for black swans!

Read full article:
RBS uber-bear issues fresh alert on global stock market (Telegraph.co.uk)