VIX Update: Implied Volatility On Volatility (10/17)

According to Bloomberg (VIX Posts Worst Losing Streak in Four Years as Dow Tops 10,000 ), the $VIX (Volatility Index) is down 74% from the November 2008 high. It closed at 21.43 on Friday. The $VIX is the forward 30 day implied volatility on S&P 500 index options (Go to: Ten Things Everyone Should Know About the VIX at Vixandmore.com). So if you're worried about market volatility going forward, buying puts on the S&P are CHEAPER than they were 6 months ago. The only problem is they could get cheaper (if appreciation is your main goal). Here is the CBOE VIX Index streaming via freestockcharts.com.

There are also options on VIX futures contracts that you can follow. For a few months now (chart below), implied volatility on the VIX has been higher than 30 day historical volatility. Spikes in $VIX implied volatility have translated into underlying $VIX moves, however the VIX moves translated into either a higher market (late July) or minor sell offs.

Now we have interesting action again in the $VIX, $VIX implied volatility and VIX futures. As of 10/17, VIX Implied Volatility is at 106.59% while VIX Historical Volatility is at 58.42%! That is a decent spread between what the market is implying going forward vs. 30 day historical VIX volatility. Hat tip @smsearsBarrons. Not only that, there's a big spread between VIX put implied volatility and call IV. Ivolatility.com data shows that VIX Put IV is at 111.54% while call IV is at 101.64%. People like those puts, watch the 10/16 Volatility Sonar report. Eventually VIX volatility will sell off (imo) and the $VIX will move, just like the July 22 peak (Put IV was also higher than Call IV at that time). The actual $VIX calculation is hitting lows at 21.43, the October VIX future is at 22.35 while the February contract is at 27.30. Something has to give here, again.


VIX Implied Put/Call Volatility (Courtesy of IVolatility)

For better interpretation and knowledge hit up OptionMonster, VIXandMore, DailyOptionsReport and InvestingWithOptions. If you have a website on volatility put a link in the comment bar, I'd like to see it.

Geithner Speech Video At Buttonwood Gathering 'Fixing Finance' Event

Secretary Tim Geithner spoke at the Buttonwood Gathering (Fixing Finance) event. You can find it here at Bloomberg.com. It's a 58 minute video.

Robert Shiller: Don't Expect Dramatic Continuation to Rally, Surprised By Momentum and Housing Turn

At the very end of the video Yale Professor Robert Shiller says:
"My idea is we're kind of bouncing around a resistance level... My price/earnings ratio is around 20 now... You know it's ok to buy stocks but don't expect a dramatic continuation of this".
He's shocked by the market momentum and rebound in home prices. "This is the sharpest turnaround we've seen since 1933". Watch the whole video.


How Goldman Made $3 Billion in Q3: Dylan Ratigan, FICC Revenues (MSNBC Video)

Hat tip Zerohedge.

Goldman Sachs made $10.02 Billion from trading and principal investments! Fixed income, currency and commodities (FICC) net revenues increased 368% to $5.9 Billion from $1.6 billion a year ago (8/29/2008). These numbers were lower than Q2. I have some good news for the U.S Taxpayer though. From their earnings release.
"On July 22, 2009, the firm repurchased the warrant issued to the U.S. Treasury pursuant to the Treasury’s TARP Capital Purchase Program for $1.1 billion. The U.S. taxpayers’ annualized return on their total investment in the firm was approximately 23%" (Source: Goldman Sachs)

Goldman's Q3 Revenues By Segment (Earnings Release)



Goldman you should come out with a rap album to demand respect in the game.

Hedge Fund Insider Trading Case! (Galleon, New Castle, Intel Capital), Recent Ponzi News 10/16/09

Hedge fund Galleon is in some trouble for insider trading.
  • Galleon Statement (Reuters)
  • Galleon Busted In $20 Million Insider Trading Case (Zero Hedge)
  • One Of U.S.' Richest Men , 5 Others, Charged In Insider Trading (NPR)
  • Who Cooperated With The FBI On Galleon? (DealBreaker)
  • Insider Trading Arrests Rock Wall Street (Thestreet.com)
  • Hedge-Funder Raj Rajaratnam Got Cranky When People Refused to Partake in His Insider-Trading Scheme (NYMag)
  • GALLEON PRESS CONFERENCE BLOG: FBI Says 'Average' Investor Got Hurt (WSJ)
  • Galleon's Rajaratnam, Others Charged In Insider Case (WSJ)
  • Galleon’s Rajaratnam Charged in Insider Trading Scam (Bloomberg)
  • Hedge Fund Executive Is Charged With Insider Trading (DealBook)

Full report by David Faber at CNBC.com (Six Charged With Hedge Fund Insider Trading)


How about recent ponzi scheme news while I'm at it (I found Indian and Canadian schemers as well, to make the US feel a little bit better). I present to you Madoff aftershocks.
  • SEC Charges Three Florida Men in Alleged $14.3 Million Ponzi Scheme (WSJ)
  • S.F. man accused of 30-year Ponzi scheme (SFGate)
  • Florida man indicted in $20 million Ponzi scheme targeting Harrisburg area (TheSentinel)
  • New Jersey man confesses to $6 million life insurance Ponzi scheme (IFAwebnews)
  • Elk Grove Village man accused of stealing millions from investors in Ponzi scheme (Chicago Tribune)
  • FBI, IRS looking into Canadian Ponzi scheme (MontrealGazette)
  • Detroit Man Indicted in $200 Million Ponzi Scheme (Bloomberg)
  • Mass. Hedge Fund Manager Gets Seven Years For Ponzi Scheme (FINalternatives)
  • Breaking: Alleged Ponzi Schemer Nicholas Cosmo Jailed (WSJ Blogs)
  • Broker accused in SEC complaint of luring elderly into Ponzi scheme (Freep)
  • Second Man Arrested for Fraud in Canada’s Biggest Ponzi Scheme (Bloomberg)
  • Firm booked for duping investors of Rs 1.2 cr (TimesofIndia)
  • Beverly Hills investment advisor pleads guilty in Ponzi scam (LA Times)
  • Riverside County man sentenced to 100 years for operating Ponzi scheme (LA Times)
  • Montana Seeks Assets in Alleged $14M Ponzi Scheme (NY Times)
To keep you updated here is a google news search on "ponzi scheme" during the past month. Wow, so much for ethics classes.

Break Point

Break Point (Update on California and oil by Gregor.us)

If Google Finance Had a Stock Chart Embed Feature, I'd Use It!

It would be cool if Google Finance had a stock chart embed feature so I could throw them up on my blog. Kirk and Cartoon Barry are with me on this one too. I see a "link to this chart" feature but no embed. I'd embed the charts every day If I could draw trend lines on them. Google Finance has great charts for stocks and indexes on foreign exchanges, let alone the NYSE/NASDAQ etc. For example here is the Hang Seng Property Index and Henderson Land Development Co out of Hong Kong.

Exact Chart Source at Google Finance

Joe Saluzzi Is Not Buying This Rally On P/E, Q-Ratio (Video)

Joe Saluzzi of Themis Trading is not buying this rally. Summary of his thoughts, watch the video.
  • If you're looking at a forward P/E over 16, that prices in a vibrant economy, not an economy that is still suffering.
  • Regarding banks: Fed is giving away money for free and they lend it out at 5% (easy money).
  • If the economy is so great, why is the Fed keeping interest rates at 0%?.
  • "I'm betting still that the problems that we have in housing and unemployment and the deficit rising are going to trump all of that".
  • Foreclosed shadow inventory will put pressure on housing.
  • Realistically we have to be 15-20% lower to start. Looking at cyclically adjusted P/E and the Q-Ratio (total price/replacement cost) he sees a 35-40% retracement.
  • The market is not efficient.
Regarding the Q-Ratio, Bill Gross mentioned it in his December 2008 Investment Outlook called Dow 5,000 Redux where he explains it. A corrective wave will come people!

Marcus Millichap's Harvey Green: Commercial Real Estate Update (CNBC, 10/15)

David Faber challenges Harvey Green of commercial real estate broker Marcus Millichap on CNBC. Here are a few of their national outlook reports from October 2009 on retail, apartments, office, second half medical office, industrial, senior housing. All can be found on their research tab, you have to sign up for free.

Peter Schiff's Thoughts On Dow 10,000, USD, Oil Breakout and Inflation (Video)

Here is Peter Schiff on Dow 10,000, the US Dollar and an oil breakout. In real terms, measured in purchasing power (US Dollars), the S&P hasn't moved much over the year even with the swings. Look at the USD/SPX chart. It beat holding straight cash though. Pedro also believes that the market could fall in nominal terms or WITH the US Dollar, which would break apart the current inverse relationship. David Tice of the Prudent Bear Fund is also in this camp. Something to keep an eye on... By the way it does look like oil broke above resistance, if $75 sticks. Next up is $85 resistance from early 2008. We'll see if there is real growth attached to this action.


S&P vs. US Dollar Index (Courtesy of Stockcharts.com)

West Texas Intermediate Crude Oil ($WTIC - Courtesy of Stockcharts.com)

Partying Like It's 1999 Again, Dow Hits 10,000 (3/29/1999 CNBC Video)

The Dow hit 10,000 today. We haven't budged in 10 years. Here is a look back on March 29, 2009 when CNBC reported that magical day. Now a crisis and a trillion dollars later, we were able to reach that level again.

March 29, 1999

October 14, 2009

Stuy Town/Peter Cooper Village Default Risk Updates (Video, Links)

Remember that other shoe? Here are Manhattan commercial real estate updates:

An 11,000 apartment complex in Manhattan, owned by Tishman Speyer (a unit of BlackRock Inc), could default on it's loans. And it looks like pension funds could lose $600 million. From the video below: The property was bought for $5.4 Billion and financed with a $3 billion first mortgage plus a $1.4 billion mezzanine piece. An equity investor included the Church of England. Real Point said the property is now worth $2.1 billion.



  • Update: Stuy Town Still Screwed (Gothamist)
  • High-Profile Tishman/BlackRock Property in New York in Danger of Default (WSJ.com)
  • NYC housing complex on verge of loan default: report (Reuters)
  • Pension funds stand to lose $600M in Manhattan venture (LA BizJournals)
  • Real estate deal could cost CalPERS $500 million (SacBee)
  • T Minus Four Months Until Stuyvesant Town Defaults (New York Magazine)
  • Church of England could lose in StuyTown (The Deal)
  • Real Estate News: Stuy Town Teeters, Insurers Drop Drywall Victims (WSJ Blogs)
Also, Zero Hedge has an interesting article on the Union Square W Hotel .

Jim Rogers: Inflation Could Be Worse Than Seventies Stagflation (TT Video)

Jim Rogers was on Tech Ticker a couple days ago. He says inflation going forward could be worse than the seventies.
  • The Government is printing a "stupendous" amount of money.
  • He mentions that there are shortages developing of everything (agriculture, mining products) and capacity constraints.
  • "All of this before has led to higher prices".
  • "The way inflation works is, it starts slow and it gets worse and worse and worse".
  • "The Federal Reserve has laid the groundwork for some serious inflation down the road by printing all this money but so have many other Central Banks."



The seventies had stagflation mainly as a result of shortages from price controls. So prices went up even when the economy was bad.

Explaining the 1970s stagflation (Source: Wikipedia)

"Following Richard Nixon's imposition of wage and price controls on August 15, 1971, an initial wave of cost-push shocks in commodities was blamed for causing spiraling prices. Perhaps the most notorious factor cited at that time was the failure of the Peruvian anchovy fishery in 1972, a major source of livestock feed.[16] The second major shock was the 1973 oil crisis, when the Organization of Petroleum Exporting Countries (OPEC) constrained the worldwide supply of oil.[17] Both resulted in actual or relative scarcity of raw materials. The price controls resulted in shortages at the point of purchase, causing, for example, queues of consumers at fueling stations and increased production costs for industry.[18]"


The deflation argument is still alive and well though (Prechter on 10/6). Aaron Task also mentioned something interesting on Twitter:
"When the Dow 1st hit 10K in '99: total U.S. debt was $24.6T vs $50.8T now, gold was $280 vs $1,070, oil $16.44 vs $74.80 etc. -Peter Bookvar" (Source: @atask)

Hang Seng Property Index Battling 28,000 Level, Tsang Has Bubble Concerns

Distressed Volatility (仿旧波动) - China Section (中国科)

Switching it up. This for traders at the HKEX (Hong Kong). I was watching a symmetrical triangle form on the Hang Seng Property Index (HSP quote/chart) on this post and it could be breaking out. It still needs to clear the 28,000 resistance level to prove it has strength to retest 29,000 (August highs). There are risks. Andy Xie thinks Chinese stocks are overvalued and imo the chart does look ripe for an extended pullback at some point. So if HSP fails here and volatility picks up, it could test 26,000. Another risk to the downside is Government intervention. If I was on the long side I'd have puts for protection and to play downside volatility, if it shall arise.


HSP just tested 28,000 and sold off as we speak. There isn't a Hang Seng Property Index ETF so you have to go straight to the source at the 香港交易所.

Hang Seng Property Index (Courtesy of Bloomberg)

Looking at the 5 min chart, it pierced through 28,000 after the lunch break.


30Y Treasury Yields Lower at Resistance, $TLT Up (Live Charts)

Updates on the 30 Year Treasury yield and $TLT (20+ Treasury ETF). 30Y T-Yields are selling off of a clean downtrend and what looks like 50 day moving average resistance. It could be the "no rate hike" speculation, safe haven buying or the Fed propping up the market. If you know disqus below. Here are a few articles by Bloomberg:

Treasuries Rise on Speculation Rates to Stay Low, Dollar Falls (Bloomberg)
Oct. 13 (Bloomberg) -- Treasuries rose for the first time in three days on speculation the dollar’s decline will spur demand from foreign investors as the Federal Reserve keeps interest rates at a record low through late 2010.
Treasury Bond Rally Fails the Asset-Bubble Test: Caroline Baum (Bloomberg)

TIPS Show Bernanke Isn’t Whipping Inflation Concerns (Bloomberg)

I prefer to watch price action for updates. Here are charts of the CBOE 30 Year Treasury Index and $TLT. Keep an eye on that TLT uptrend, if it breaks here there could be some yield volatility. $TYX would have to break above that downtrend.

TLT

TYX

Housing: XHB, PHM Calls Positioning Before October Expiration

Earlier this morning I saw that 15,000 October 15 Calls traded with 4,400 open. $XHB is trading at 15.42.


This is interesting because OptionMonster just came out with a release on Pulte Homes (PHM) showing that the October $11 calls were active. What's up here, levering up or hedging short positions. They got 3 days until expiration.

Options look for pop in Pulte Homes (OptionMonster)

Pre-Earnings Chart Analysis: SPY, VIX, XLK, TLT, XLI, IYT, UUP, GLD, USO (10/12/09)

Here are charts and technical analysis before major moves occur this week and next. I first charted out sector ETFs individually (Tech:XLK, Energy:XLE, Transports:IYT Industrials:XLI) and then did a 20 day performance comparison.

XLK has had a monster run and is now challenging the September '09 high and early 2008 lows. RSI (strength) is at 61 but has been diverging with price, same with the money flow index. The MACD (momentum) has been diverging with price but is still above zero, meaning the 12dma (faster moving avg) hasn't crossed below the 26dma (slower moving avg). You can also see that XLK is trading in a steep triangle and is near the moment of trend judgment. It did break above that 2 year downtrend and it is currently above the 50dma. IMO, wait for the catalyst. Either we retest the 50d or break out to 24.

Same goes for XLI, but it needs to break above the September 2009 high to reach the next resistance level, 32. Money flow is below 0 at -0.064. IYT has a historical ceiling and a downtrend to break above. MACD is just above zero so watch momentum. What's interesting is the money flow index. It is at -0.0176, hitting levels not seen since June.

XLE looks the best. It just pierced through resistance and if there is a follow through XLE could test 2008 levels, or 62. Money flow and RSI are strong but there has been price divergence.

Looking at 20 day sector performance comps, energy outperformed up 5.88%, tech was up 2.37%, industrials were unchanged while the transports lost -2.38%. Strength must pick up in the transports.

All the rest are self explanatory. The SPY needs to break above near term resistance if it wants to test 117 (July 2008 resistance). The VIX is hitting yearly lows for the third time at 23. I also provided charts of USO, TLT, GLD and UUP. USO is riding oil strength and is brushing up against symmetrical triangle/June resistance. A break above those levels would be interesting. I'd say provide some charts in the comment section but Disqus can't embed pictures. Wack.

XLK (Courtesy of Stockcharts.com)

XLI

IYT

XLE,XLI,XLK,IYT 20 Day Performance

SPY

VIX

UUP

GLD

USO

TLT

Doug Kass Has Highest Net Short Position Since February

Full article can be found at Realmoney Silver by subscription. Remember Kass took the other side of the bull in 2006-7?
Slipping Away From the Herd (RealMoney Silver $)
02:30PM 10/12/09

By Doug Kass

"I see an imbalance of rewards on numerous short positions and an imbalance of risk on the long side.~I am now [am] at my largest net short position since February."

Kudlow vs. Kass 11/27/2006

XLF November 16 Calls Active, 162,000 Contracts Traded (10/12/09)

Big volume on the XLF (Financial ETF) November 16 Call today. Over 162,000 calls traded with 27,206 open. You can see blocks of 48,000+ at both 0.46 and 0.49 from my OptionsXpress screen shot. Will the big banks benefit from yield curve induced net interest margins with lower than expected write downs? Possibly security write ups? We'll see. Traders can cash out with profits if XLF goes above 16.46-16.49, or if call volatility spikes by November expiration. Implied volatility is at 39 and historical is at 31.35 from the ISE.

XLF November 16 Call (Source: Optionsxpress)

Technically XLF is testing the downtrend started in October 2007. If the market buys the numbers and guidance, it could break out of the official downtrend and test $17.5+. If it fails...

XLF (Courtesy of Stockcharts.com)

I'm not sure of the DNA makeup of the trade but Jon Najarian thinks institutions are betting on higher prices. It's funny that our financial system collapsed less than a year ago... But I guess follow the dough! At some point there has to be a volume explosion, good luck.




More information:
Bullish traders pile into financial ETF (OptionMonster)
Monday Options Recap: Fred Ruffy on SeekingAlpha
Options Update: XLF, ENER, NBR, MGM, QCOM, AYE & TIBX (OptionsInsider)

Latvia's Budget, Mortgage Plan, CDS, EUR/LVL etc (10/12/09 Updates)

Thought I'd update you with links on Latvia situation (10/12/09) and provide a live Euro/Lat currency chart.

Latvia default risk jumps to month high on donor budget dispute (BalticBusinessNews)
Swedish banks downplay Latvian threat (Risk.net)
UPDATE 2-Latvia says agreed to cut budget deficit for EU/IMF (Reuters)
Latvia agrees budget cut goal (BBC.co.uk)
Latvia Mulls Budget Cuts to Appease Bailout Donors (Bloomberg)
Latvia – The Insanity Continues (iStockAnalyst)
Latvian Employers' Confederation: economy yet to reach the lowest point (baltic-course.com)

EUR/LVL (via ForexPros.com)

ForexProsForex Charts Powered by Forexpros.com - The Forex Trading Portal.

QQQQ-to-SPY Underperformed IWM-to-SPY Late July-October 2009 (Chart)

I'm comparing the 2 Month and 20 day performance between QQQQ/SPY and IWM/SPY as ratios. From Yahoo Finance QQQQ has a 5 year beta of 1.12 and IWM 1.24. The beta (β) of a stock or index is a number describing the relation of its returns with that of the financial market as a whole or S&P 500 and in this case SPY (more at Wikipedia). When the breadth thrust launched the market in early March, QQQQ dominated the market technically and pulled up SPY and DIA (Dow Industrials ETF) during moments of indecision. Examples:

QQQQ Testing 200 Day Moving Average $33.69, Bulls Are Not Backing Down
(May 12)
SPY, DIA Hanging Onto QQQQs 200 Day Support Level (May 27)

Now I'm adding IWM (Russell 2000 Small Cap ETF). I charted out the performance of QQQQ/SPY and IWM/SPY from the most recent QQQQ/SPY peak in late July, or 2 months and 20 days ago. I saw a divergence between QQQQ/SPY and IWM/SPY performance since IWM/SPY made a higher high and QQQQ/SPY made a lower high. In numbers, QQQQ underperformed SPY by -2.08% while IWM outperformed SPY by 2.31%. Why didn't QQQQ's beta give it powers to overpower SPY during the past 3 months? Does Tech know something? How will the IWM:SPY:QQQQ gap close.. It's a conspiracy.

QQQQ-SPY & IWM-SPY (Courtesy of Stockcharts.com)

David Tice: S&P Going to 400, US Dollar Going Below 65!

Every bull's best friend, David Tice, was on Bloomberg a couple days ago. Not only does he think the market will tank, he also thinks the US Dollar Index is headed below 65. It's interesting that he thinks the US Dollar will fall with deflation. But a Dollar crisis could kill it.
"The stock market has a long way to fall because GDP is going to fall, we're going to have to work off debt, unfortunately we see a funding crisis down the road, interest rates are going to have to go higher, the Dollar is likely to go lower. We're in a heck of a mess here, and in fact we're in a mess globally."

"I think stated unemployment could easily go to 14-15% or so. GDP could decline potentially 10-15% down the road."
Wow.

LCCMX Chart Testing 50 Day, Diverging With RSI, MACD (10/09/09)

My last post was "Leader Capital's John Lekas Sees Dow 6,300, Municipal Mergers" so why not chart out his mutual fund: LCCMX (Leader Short Term Bond Fund). It is up 13% from the March lows. It is now on the 50 day moving average and RSI and MACD are near the mid points waiting for direction. What is interesting is the divergence between price and RSI and MACD .

LCCMX (Leader Short Term Bond Fund) Courtesy of Stockcharts.com

Current Yield is 4.23%, Annual Turnover: 211%, Net Expenses 1.93% (*looks like 1.35 see comments) and the top 10 holdings (mostly floating rate notes it looks like) with % allocation and maturity are as follows (data as of 8/31 from Morningstar):

Freeport-Mcmoran Copper & Gold FRN: 3.25%, 4/1/2015
Amer Honda Fin Corp Mtn Be144a 144A FRN: 2.80%, 6/2/2011
Natl City Bk Cleve Sub Mtn Be FRN: 2.44%, 6/7/2017
BANK AMER CHRLT NC MTN: 2.32%, 6/15/2016
Fifth Third Bancorp FRN: 2.26%, 12/20/2016
HSBC FINANCE CORP: 2.15%, 4/24/2012
Goldman Sachs Grp FRN: 2.05%, 3/22/2016
General Elec Cap FRN: 1.89%, 12/20/2016
Principal Life Income Fd Mtn FRN: 1.78%, 11/15/2010
GOLDMAN SACHS GROUP: 1.62%, 9/29/2014

The guy is betting on the short end of the curve and against Muni's and the equity markets. The fund is heavily weighted toward financials and it's floating, a hedge on interest rates? Read his July conference call summary.

LCCMX in the news:
Fund Managers Bracing for a Sell-Off (BusinessWeek) - 10/5/09
Eight Funds That Scream 'Dump Me!' (Morningstar) - 9/7/09

Leader Capital's John Lekas Sees Dow 6,300, Municipal Mergers

John Lekas of Leader Capital is a bear and expects the Dow to hit 6,300 by the end of 2009 and 4,200 by the end of 2011. Going "below the double dip" on weak earnings on the top and bottom line. He thinks unemployment will be a drag on the economy [mentioning that 785,000 jobs were lost using the U6 data point, not the 265,000 number promoted] and that number will get worse, "26 to 27 million people out of work, that's not going to work, and until that number gets better we will not see a recovery".

He also thinks in-organic growth from extraordinary items will drive earnings going forward (asset sales etc.) but consolidations, mergers and refinancings recently have helped. Michael Cuggino of Permanent Portfolio Funds took the opposite view. You have to give credit to the last standing bears.

I thought what John said about municipalities was the most interesting part.
"I think it will get to the point where we see Municipalities merge in order to create efficiencies."



I did chart analysis on LCCMX right after this post here.

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