Chart Comparison of Four Bear Markets

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You have probably seen these charts around the web created by 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.


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

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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
  • 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)

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StockTwits 4 Life!

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

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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)

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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

Distressed Volatility Clears 11,000 Page Views In August!

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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

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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)

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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 (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: 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.


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.


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.


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).


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.


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.


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.


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.


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.



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.

Bearish Butterfly Put Strategy on FXI - China 25 Index ETF

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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.

October VIX Future Trading at Big Premium To Cash, VXX

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Check out today's Volatility Sonar report from 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

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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

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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 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)

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Capitalism: A Love Story (Trailer)

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

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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.

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

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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)

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

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.
9:01 A.M. EDT


TABB Group's Sussman on High Frequency Trading

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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)

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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 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.

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

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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."

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

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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.

Hedge Fund Manager Andrew Lahde's Farewell Letter 2008

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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.

Check Out Zillow Real Estate Market Reports, Home Value Index

| | 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.

Trader Buys Cheap Out Of The Money Natural Gas Calls

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This was an interesting article out of, 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 (

Genco CFO on Baltic Dry Index Volatility, Chart

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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..."

FXI Put Protection, Andy Xie On China's Bubble

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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.


Diane Swonk Sees Rocky Road To Recovery (Video)

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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......"

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

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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

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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)

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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.

Marc Faber Sees US Dollar Strength and Market Correction

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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

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

Tyler Durden of Zero Hedge Speaks With Max Keiser

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

On the Edge with Max Keiser – The Fed, front running, ponzi schemes (
Max Keiser's Youtube channel at
Also visit

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

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Uh oh, this just out at 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 (

Simple Explanation on High Frequency Trading

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Here is a simple explanation on high frequency trading with Market Place Senior Editor Paddy Hirsch explaining co-location, algorithms, program trades, automatic market makers and flash orders. Visit my previous post with CNBC/Bloomberg guests explaining HFT.

High-frequency trading from Marketplace on Vimeo.


John Paulson Keeps GLD Investment, Watching Symmetrical Triangle

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From his most recent SEC filing, John Paulson's fund Paulson & Co. kept it's 31.5 million share position in GLD (the gold ETF). This position could be a hedge against inflation and/or a hedge on one of his funds denominated in gold. I bet he is watching this symmetrical triangle though. OR he dumped post June 30, we'll see. I'm looking at his whole portfolio later.

GLD (Gold ETF)

Here is when we first heard about his $GLD position:
Paulson Buys GLD, GDX. Laidi Long Gold/Oil Pair Trade (May 20)

Jim Rogers Not Buying Chinese Stocks, Buying During Collapse (Video)

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This is a 2 weeks old. Jim Rogers on Bloomberg talking about Chinese equities and commodities. He's staying away from buying Chinese equities at these levels. Yeah, $FXI has doubled over the past 9 months ($20 to $40), I see some hedging going on but someone might be buying a 50% retracement spike. Check next post.

  • Not buying any stocks in China, bought last shares in October and November of 2008
  • The market has more than doubled over the last 9 months
  • Much rather buy when things collapse, got another 10, 15, 20, 30 Years
  • Real estate has boomed in last 2-3 months, back around 2004 bubble levels
  • Certainly not selling but market has doubled in 9 months, usually a worrisome sign (buying puts Jim?)
  • Down 70-80% a year before that
  • To play China buy commodities, China has to buy commodities
  • We are "told" that the Chinese are spending Dollars on real things
  • Water treatment, infrastructure, agriculture booming in China no matter what happens

Steve Forbes Eating A Cheeseburger At McDonalds, 1996 Campaign Trail

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Now on Distressed Volatility History Channel. Ever wanted to eat dinner with Steve Forbes at McDonalds? Well now is your chance. Virtually via time warp. Steve Forbes ran for President in 1996 and campaigned through Iowa (Youtube below). You can watch the full 55 minute video including his press conference at Also check out "The 90's" series. It shows footage of the 1989 Tiananmen Square political uprising with students in China discussing the revolt. There was also an educational segment on crack cocaine in Hell's Kitchen, NY, and a bit on the early stages of the internet and email via "Wired In". Interesting retro videos there, btw futures are up.
"Steve Forbes one of the many 1996 Republican Presidential candidates makes a campaign stop at a McDonalds before the Iowa Caucuses. The awkward silence speaks for itself. You can watch the full video and learn more about the filmmakers here" full video is at

Commanding Heights: Privatization in Britian (Video)

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This video is from Commanding Heights a series made on PBS. The video below is called the "Privatization of Britain" about targeting state-owned industries, the economics of coal, breaking the miners' strike and socialism turned back. The battle of socialism vs. capitalism and free markets vs. State ownership. It took place in the early 1980s. The full series is at

ProShares UltraShort Real Estate ETF SRS Faces Lawsuits -Video

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$SRS faces class action lawsuits.. As you can see from the chart SRS tried to stay alive in July but the sharp market rally combined with leverage killed SRS violently with a hanzo sword.

Economic Activity Leveling Out, Inflation Will Remain Subdued (FOMC 8/12/09)

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Here is the FOMC statement on August 12, 2009. I provided charts of GLD (gold), UUP (us dollar bullish), TLT (long Treasury bond) and SPY (S&P 500) reactions. As of 3:20 $SPY is +1.71%, $TLT -1.22%, $UUP -0.55% and $GLD +0.34%. Below are 1 min/3 hour charts at 3:30est.

Release Date: August 12, 2009
For immediate release

Information received since the Federal Open Market Committee met in June suggests that economic activity is leveling out. Conditions in financial markets have improved further in recent weeks. Household spending has continued to show signs of stabilizing but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. Businesses are still cutting back on fixed investment and staffing but are 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.

GLD Trade Setting Up Here + UUP, AUDJPY Pre FOMC

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Update: The biggest trade set up in the history of GLD (gold etf) might be forming through a symmetrical triangle. It is being squeezed to the point of no return and will break soon with momentum. After the commodity currency $AUDJPY sold off to 78 last night, it quickly reversed earlier this morning and broke above 80 resistance. It is trading at 80.10 and awaiting the Fed and will follow commodities +/- Australia/Japan economic data and debt. It hit the 2 year 50% retracement level a few days ago. UUP is down 0.59% and awaiting a catalyst (yesterday's post on technicals/recent volume). Get ready for some action.

AUDJPY Selling Off After Hitting Retracement Level

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AUDJPY has come a long way since the late 2008-09 commodity crush. The Australian Dollar is a commodity currency and is imported by China to purchase Aussie goods. When traders have appetite for risk they can utilize the AUDJPY (Australian Dollar/Japanese Yen) carry trade where they borrow cheap yen to buy higher yielding Australian dollars/assets. When this trade gets overextended AUDJPY sells off and these days it's coupled with commodities and risky assets. AUDJPY hit the 50% retracement level a few days ago and is selling off (2007 highs to 2008 lows). It also broke through 80 support. If the reflation trade (RFLA) reprices here, AUDJPY would follow suit IMO.. The reflation trade needs jumper cables part 2.

US Dollar Index ETF Sees Volume Ahead of FOMC ($UUP)

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The US Dollar Index ETF (UUP) is setting up for the FOMC meeting tomorrow. From the chart below you can see that volume rushed into UUP during the past few trading sessions. UUP implied volatility is up in the last week with UUP call IV (14.11%) at a slight premium to put IV (13.35%) from A large amount of UUP September calls are open between the 24-27 strike with a large block of puts open at 22. Btw there are 25,000 March 2010 $26 calls open, interesting to say the least. At the close of Aug 11, the put/call open interest ratio stood at 0.63. If you remember from March the UUP put/call ratio was at 6.41 before the big US Dollar implosion. Either way I see hedges or speculative bets being made on UUP. Watch the SPX, FOMC reaction, safe haven appetite, real yields and global yield differentials. Let the market decide. It still needs to break above the 50 day moving average and downtrend. Utilize hedges, remember UNG this year?

Hedging a Market Pullback Using The VIX

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The optionMONSTER Volatility Sonar reported yesterday that someone bought 25,000 Sep $37 VIX calls for 0.65. "It's a continued hedge on a major pullback". VIX futures have been trading at a premium to spot recently which is interesting (charts). Today the VIX is up 5.56% to 26.38. I'm also watching for a USD breakout.

Dow 1929 Bear Market Rally Compared To 2009 Rally (Charts + Smoot Hawley)

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And now for a comparison between the 1929 bear market rally and the current 2009 rally. During the 1929 bear market rally the Dow rose 48% and pierced through the 50% retracement level before breaking down (198 - 294). Looking historically, the Smoot Hawley Tariff Act of 1930 was the downside catalyst for the stock market. Massive protectionism and cartels ruined trade and prices. Read Rothbard's America's Great Depression (quote below) also the Economist in 2008.

High Frequency Trading, Flash Orders Explained (Videos + Articles)

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I provided a collection of news articles and video interviews regarding the high frequency trading/flash orders debacle. First of all props to ZeroHedge for bringing up the issue a few months back. Here are Google search links of "high frequency trading flash orders" on Zero and Here's a recent post out of ZeroHedge: Is The SLP The NYSE's Answer To Direct Edge's "Advance Look" Enhanced Liquidity Provider Program Or You Trade You Lose, You Trade Goldman Wins (link) and Direct Edge CEO Redirects Flash Anger Back To Exchanges (link). If firms are using flash orders to front run trading activity it is bullshiz. Senator Schumer challenged flash orders recently and Mary Shapiro talked about HFT on CNBC.

The Onion Is Out With Potential Market Moving News For Equities and Treasuries

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The Onion could move the markets this week after these articles.

Solitary Crow On Fence Post Portending Doom, Analysts Warn (TheOnion)

"GREELEY, NE—Experts confirmed Monday that a single black crow perched ominously on a fence post in rural Nebraska is almost certainly a harbinger of great doom and despair for all Americans." Read full article

Rosenberg Takes Other Side of Abby Joseph Cohen's Call (Bear Market Rally)

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David Rosenberg (former Merrill economist, now at Gluskin Sheff) was featured on Fast Money taking the other side of Abby Joseph Cohen's bullish call. He believes "we may be in the midst of the mother of all bear market rallies" (quoted by Melissa Lee). Like Denninger he mentioned the 2002 inventory build.
"If I remember correctly in the opening months of 2002, under similar, not the same but similar circumstances, which was an inventory build that we know in 2002 was never backed up by an improvement in consumer demand which was why GDP growth by the end of 2002 was 0, and the stock market surprisingly hit its lows....."

Abby Cohen: In a New Bull Market, Sees 1050-1100 Target on S&P

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What financial collapse six months ago?? Erase that from your head. The economy now runs on the reflexivity of market prices. Today on CNBC Abbey Joseph Cohen, investment strategist at Goldman Sachs, told viewers that we are in a new bull market and that the recession could have ended in March, exactly when the market bottomed. She also expects to see the S&P to hit 1050-1110 by year end and a stair-step recovery (slow, not V shaped). She likes tech, energy and financials (why not, Gov subsidized balance sheets w/ free steep spread income?). Full Story at

Gold Spot Eyeing $1,000, GLD at Inflection Point (2 Year Chart)

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Traders have a big decision to make on the price of gold here... $GLD is forming a symmetrical triangle formation which means judgment day is approaching. Below is the 2 year chart and the Gold/US Dollar relationship. Since May, Gold and the US Dollar moved inversely (gold up, dollar down) once the safe have bid collapsed and fiat-flationary forces took hold. If deflationary pressures continue with low inflation expectations and decent real yields, Gold's time to shine above $1,000 might be on hold. However if this new bull market (according to Abbey Joseph Cohen) puts pressure on prices or expectations going forward, Gold would probably be a great hedge. Remember that monetary policy could also throw the currency markets a curve ball. Rates have nowhere to go but up. Watch to see if Gold gathers momentum and breaks through resistance. I'd wait for the set up to play this on the long side with put protection, or vice-versa (short). Or as BNY Convergex Group says, buy options on gold as volatility increases (chart below). No recommendation. Watch the chart.

SLV SEP $14 Puts Active, 20,000 Contracts

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Wow h/t CrimsonMind. After I saw that GLD DEC 75-85 Put spread I checked out Crimson Mind and saw that 20,000 $14 SLV Puts traded at 0.50 with 628 open. $SLV is currently at $14.49. This could be a quick flip or a massive hedge on a long position. Either way watch for a move in $SLV, and the $14 level.

GLD Dec OTM 75-85 Put Spread, GDX Dec 45 Call Active

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**Updated w/ GDX call activity

GLD is at an inflection point on the 2 year chart. It looks like someone initiated a Dec 75 - 85 put spread today and it is trading at $94.66. Is someone hedging there? At 2:30 1 million shares hit on $GLD raising it from $94 to $95 in a minute so something is up. Looking at the Gold Miners ETF ($GDX), 22,000 DEC $45 calls traded at $2.80 with 1,324 open and GDX closed at 40.85. Option activity is all over the place. Here's a good explanation: Gold GLD ETF implied volatility to rise (Forbes).

Economic Update From The Shed (Aug 5)

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FYI, new video out from WalStreetPro2... Parental advisory explicit content.
"The *** recession's over huh? That's why 39 million people got food stamps in June, which is up 20% from just a year ago. Oh everything's ok though. People on food stamps is part of the economic recovery, you know?"

Jefferson County Volatility, Interest Rate Swaps to National Guard

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This report comes to you from the DV muni bond division. Municipal volatility continues in Jefferson County, Alabama. See other municipal posts at the bottom.

If you remember this post from late 2008, Jefferson County was hit hard by a bunch of external forces that ruined them financially (auction rate security freeze, rate spike, recession, downgrades, interest rate swap default etc). To this day they are trying to stay out of bankruptcy with $3.9 Billion of sewer debt they are unable to service. Bond insurers are also threatening to sue the County for failing to disclose pertinent financial information on the 2003 sewer "refunding" deals (Bond Buyer). S&P is threatening to downgrade their sewer revenue bonds to default if they fail to pay principal or interest (WSJ). It seems like they are already insolvent..

SPX Relative Strength index, Chaikin Money Flow At October 2006 Levels (8/09)

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Here is a closer look at technicals on the $SPX continued from the ETFs Above 70 RSI post. The Relative Strength Index (RSI) and Chaikin Money Flow oscillator are hitting highs not seen since October 2006 on the S&P. The CMF oscillator measures the strength of the accumulation/distribution line. For a better explanation visit Chart School: CMF.

From the chart below you can see that once the head and shoulders breakdown failed, traders and investors rushed into the S&P 500. The RSI, CMF and volume all made strong moves..

SPX (S&P 500) 3 Year Chart (

Nasdaq Volume Highest Since Oct 2008 ($COMPQ) (June 23, 2009)


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There are a few ETFs trading above 70 on the RSI (relative strength index). ETFs I included below are SPY (S&P 500 SPDRs), QQQQ (Nasdaq 100 Trust), RUT (Russell 2000 Index), DIA (Dow Diamonds Fund ETF), HYG (iShares iBoxx High Yield Corporate Bond) XLF (Financial Select Sector SPDR), KRE (SPDR KBW Regional Banking), IYR (iShares Dow Jones US Real Estate) and XHB (SPDR S&P Homebuilders).

Relative strength could overshoot and/or prices could move higher while strength declines, that would be the negative divergence to look out for. The RSI should also dip below 70 for confirmation. For more information on the RSI (relative strength index) and Investopedia have information. Here are chart snapshots you can find at Also watch that 38.2% Fibonacci retracement level on the $SPX at 1,014.

XHB Dec Call Option Up 30 Percent In Eleven Days, RSI Alert

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The $XHB DEC 16 Call was active again today with over 30,000 contracts traded. If you remember my post on July 27 I wrote that 42,000 calls traded at the DEC $16 strike. To be exact 39,864 XHB Dec 16 Calls traded at 0.575. OptionMonster mentioned that it could have been a "ratio trade".

On August 3, 30,000 contracts hit the bid at 0.75 with 85,243 open (ht crimson mind). If a hedge fund bought 30,000 contracts at 0.575 and flipped it at 0.75 eleven days later that is a 30% profit, or $525,000. This is assuming the trade was solely speculative based on the price and volume. It could have been new money or part of a spread.

Denninger Looks Back At 2001 Bear Market Rally, Inventory Drawdown (CNBC)

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On July 31, Karl Denninger ( was featured on Dennis Kneale's show on CNBC. He first discussed the Q2 GDP number. He then talked about the 2001 bear market rally where hope led to 30% losses from the peak. The 2001 bear market rally was fueled by an unexpected drawdown in business inventories. The most recent GDP report showed a record decline in inventories (economist reactions).. Will we see a 2002 redux? I provided the change in private inventories chart below from the St. Louis Fed. Look at the massive decline. Denninger and others believe this will lead to higher Q3 GDP. It will be interesting to see how the supply/demand equation plays out and if the replenishment overshoots.

Pimcos El-Erian: July Stock Rally Sugar High Built On Assumptions, Sees 2% GDP

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When the bond guys start making calls on equities, something has to give here. Pimco's Mohamed El-Erian, who manages $750 billion in bonds with Bill Gross, believes the July stock market rally was built on assumptions and on a sugar high. The Nasdaq is up 57% from the March lows and continued to rise with the better than expected Q2 GDP number.
"So as investment guys we look at the rally in equities, especially what happened in July, and you get a feeling that the equity market is now on a sugar high. Assumptions are being made, assumptions are being made on things like.. corporate profitability can continue to be driven just by cost cutting, that's not true you need revenue growth. Assumptions are being made that the stimulus is going to have a permanent affect, that's not true just look at what happened in China today. The Chinese equity market was down 5% on talk that some of the stimulus may be withdrawn. And finally an assumption is being made that the stabilization of housing is sufficient to get this economy going again. It's not sufficient, it's necessary but it's not sufficient. So our feeling is that the July part of the rally was a bit of a sugar high"

Skyworks (SWKS): Smartphone Growth, Aug Call Option Up 740% Since Feb

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SWKS is up 140% since we covered it in early February and currently trading at $12/share. Skyworks builds wireless semiconductor solutions (power amplifiers, front end modules, RF subsystems, diodes) for devices across different markets (smart phones, handsets, infrastructure, wimax, rfid, automotive, medical etc. They continue to capitalize on the high-end smart phone trend with Samsung, Sony Ericsson, Motorola and LG all 10% customers (Nokia in the high single digits)-Q3 call.

Revisiting Arbinet Corp, Broke Above $2.0 (Small Cap $ARBX)

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Sometimes DV looks at illiquid small cap stocks and analyzes price valuation comparables and historicals. More often during times of growth and small cap buyouts (2005) with ThinkOrSwim Group the lonely exception (analysis pre-2008 TD Ameritrade buyout). Full disclosure I do not own ARBX. I've been watching this stock tank since the IPO. I'm revisiting Arbinet Corp after this post on April 3. Arbinet is a global telecom minutes exchange and call router. From their company overview:
"Arbinet is a leading provider of innovative voice and IP solutions empowering communications companies to create the most efficient and valuable global interconnections. Arbinet manages business relationships, backoffice operations and call routing for Members who route through Arbinet approximately 2% of the world’s international voice traffic to more than 1,300 destinations worldwide."

Recession Is Over According To Newsweek, Obama Responds

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The cover of Newsweek.... Get your party hats on. Barack Obama responded to this Newsweek article during a speech in Raleigh, North Carolina (video below).

"The Great Recession, which rolled over our financial lives like one of P.J. Keating's giant pavers, is most likely over. Home sales, while still far below the levels of a year ago, have risen for three straight months—a first since 2004. The stock market has rallied 44 percent since March, thanks to renewed optimism and improving earnings from big companies like Goldman Sachs and Apple. In June, seven of the 10 indicators in the Conference Board Leading Economic Index pointed upward, including manufacturing hours worked and unemployment claims...... Read full article"