Elizabeth Warren: Half of Commercial Real Estate Loans Under Water Expiring 2010-2014, Loan Losses Will Affect Community Banks (Videos, Report)

Whether credit spreads, equities, community banks and/or printing press hedges need to price this in or not, the massive refinance wave for underwater commercial real estate mortgages will hit between now and 2014, according to the Congressional Oversight Panel's February report.  $700 Billion ("half of $1.4 Trillion") commercial real estate mortgages are underwater and 2,988 banks are classified as "having a risky concentration of commercial real estate loans".  Also, TARP stress tests only factored in losses through 2010 and only at big banks.  "Commercial property values have fallen more than 40 percent since the beginning of 2007" (85% loan-to-values (LTVs) pushed and bought in mass are now at 140%) and losses at banks could hit $200-300 Billion, according to the report.  Below are videos of Elizabeth Warren, Chair of Congressional Oversight Committee, introducing the COP's February report.

GLD/SPY Ratio At 1.0, Been Swing Dancing, When Will Spread Widen and Which Direction

If you look at the GLD/SPY ratio it is at 1.00.  At some point the spread has to widen no?  Or GLD and SPY will be joined at the hip because of a lower $USD (real return).  Look at GLD/SPY charts on multiple time frames with trends and moving averages.

1) The GLD:SPY 1 year chart is in a triangle and near an inflection point, just above the 50 and 200dma.  The GLD has been swing dancing with SPY in a 0.20 range since April, 2009.

2)  The GLD:SPY 3 Year chart is in a long term uptrend but is being squeezed in a symmetrical triangle.  If GLD falls hard, SPY spikes or simply SPY outperforms GLD to the upside / GLD falls harder than SPY on the downside, the ratio could test the August, 2009 bottom at 0.90 (also near uptrend support).  Or GLD/SPY breaks out to upside...  The GLD:SPY Ratio is up 10 fold since the beginning of the recession.  I will look at gold, silver, US Dollar and S&P 500 specifically in next post.  Thoughts?

Charts courtesy of Stockcharts.com

Put Option Activity in ZION and XHB, Plus $LUMBER Contract (Charts)

Today had interesting option activity in ZION (Zion Bancorp) and XHB (Homebuilders ETF). First here are articles for more detail:

Unusual Options Activity: S, OMX, ZION, STI, PALM, AIG, NVDA & PEP (TheOptionInsider)
Thursday Options Update: S, ZION, GDX, PBR, BSX, AIG & PEP (Andrew Wilkinson)
Large put buying in homebuilder ETF (OptionMONSTER)

The activity that stuck out was the 12,500 put spread on the April $17-$13 puts. Also around 5,000 traded on both the March $20 call and $17 March put which was interesting. Regarding XHB, 6,500 traded on both the June $16 puts and calls and 10,695 June $14 puts traded (w/6,439 open). Again, read the articles for better analysis on the trades.  ZION closed at $18.17 and XHB, $15.76.

So here are the charts. First, ZION tested $20 for the 3rd time in what looks like an ascending triangle from April.  If weakness prevails here it could fall to trend line support and the 200dma, but above $20 resistance looks like a decent hedged long.  Does Zion Bancorp have viral CRE exposure?

ZION Chart Courtesy of Stockcharts.com

The XHB chart looks like an ascending triangle as well.  A long would be above previous resistance at $16.20.  You can see the tight inflection point coming.  XHB has been trading at the same level for 6 months now so wait for something to happen imho.  XHB closed at $15.76.  The 200dma is at $14.26.  There are a lot of people bearish on housing given the overhang of inventory, foreclosures and people don't have jobs or access to credit.  Also, the Option ARM reset wave is hitting this year.  I'll find a chart and post it, or Google Whitney Tilson housing report.  Also what is up with the lumber contract?  It is testing 2007 and 2008 highs.  I guess watch all housing data (inventory, sales figures, home prices, lumber).

XHB and $LUMBER (Random Length) Courtesy of Stockcharts.com

Also if interested, I just did a post on Chicago housing, including the S&P/Case Shiller Chicago Index, a video from Crain's Chicago giving analysis and foreclosure data.  Analysts don't expect a real recovery until 2013.  I embedded the video.

Soros Interview at Davos 2010 On China Overheating, Gold Bubble, Bank Regulation

For the archives, here is a video of Soros being interviewed at Davos by BloombergTV. He talks about bank regulation, China overheating, bubbles, unstable markets and more.

Or click here (Bloomberg.com)

Next, according to this article at Telegraph.co.uk, George Soros said "the ultimate asset bubble is gold". So will gold peak at $1,225 or $5,000?

Check Out The BigDog and PETMAN Robots by Boston Dynamics (Videos)

Before I get back to regular programming, I saw this link from @moorehn pointing to TheAwl.com which had a video of BigDog, a military robot built by Boston Dynamics. They explain it in detail here.  I dug a little deeper and found a PETMAN robot walking on a treadmill.  You can push these robots over and they regain balance.  It is insane.  Also GM and NASA just unleashed humanoid robots (Robonauts) that work on ergonomic tasks on an assembly line.  We already have have robots controlling the Federal Reserve vaults, conducting symphony orchestras, controlling the stock market and robot substitute teachers, chefs and receptionists.  Soon we will have Johnny Cabs too.  Is this the end of human work?

Dow 2010 vs. 1930 Rally, Tariffs Put Fuel On Fire, What Could Do It Now? (Chart Video, News)

First off, I compared the Dow bear market rally in 1930 to 2009 (August, 2009) and it's been a very popular post (top 3 on the "popular pages" widget).  I compared both charts and dug into the Smoot-Hawley Tariff Act of 1930 which ultimately led to the Great Depression.  Go to the post here.  So what is going on today?  The Dow corrected at the 2007 downtrend (charts) which was actually a 50% rally from the lows. It could be a normal 10% pullback in a new bull market, as Wharton Professor Jeremy Siegel believes, but in this crazy world you never know wtf will happen next.  Look at what's going on a year after the biggest bailout in history: 9% unemployment, sovereign debt crisis, protectionism, currency conflicts, geopolitical tension etc..

China says U.S. protectionism jeopardizes trade ties (Reuters)
China, U.S. Friction on Trade Issues Is Escalating, Zhong Says (Reuters)
S&P Sees More Defaults in Middle East (WSJ)
UK businesses threaten to pull out of China over protectionism (Telegraph)
Trade war is no option (China Daily)
Ahmadinejad warns Israel against any military move (Reuters)
China Army Urges Treasury Dump, ADEDY Strike In Greece, Iran Anniversary (DVLINK)

Looking specifically at price action, Adam Hewison at MarketClub looks at the 1929-1932 chart, 50% correction, 2007-2009 similarities and potential psychological implications.  The video is free, go here:  Is It Déjà Vu All Over Again for the Dow?.  For FTC compliance I'm an affiliate of MarketClub.  I will chart out the S&P, Dow, US Dollar and gold tomorrow.  SPX looks like it's testing downtrend channel resistance. Also, Marc Faber (Gloom Boom Doom Report) thinks China's economy is slowing and will hurt industrial commodities in the near term.  China Economy Will Slow, Hurt Commodities, Faber Says (Update1) (BusinessWeek).

Screenshot from video

Bernanke Testimony on Fed Exit Strategy 2/10/2010, Compare To London School of Economics Speech on 1/13/2009

It would be interesting to compare this statement to his "exit strategy" speech at the London School of Economics on 1/13/2009 (link).

Chairman Ben S. Bernanke
Federal Reserve's exit strategy
Before the Committee on Financial Services, U.S. House of Representatives, Washington, D.C.
February 10, 2010

Statement as prepared for delivery. The hearing was postponed due to inclement weather.

Chairmen Frank and Watt, Ranking Members Bachus and Paul, and other members of the Committee and Subcommittee, I appreciate the opportunity to discuss the Federal Reserve's strategy for exiting from the extraordinary lending and monetary policies that it implemented to combat the financial crisis and support economic activity.

Broadly speaking, the Federal Reserve's response to the crisis and the recession can be divided into two parts. First, our financial system during the past 2-1/2 years has experienced periods of intense panic and dysfunction, during which private short-term funding became difficult or impossible to obtain for many borrowers. The pulling back of private liquidity at times threatened the stability of major financial institutions and markets and severely disrupted normal channels of credit. In its role as liquidity provider of last resort, the Federal Reserve developed a number of programs to provide well-secured, mostly short-term credit to the financial system. These programs, which imposed no cost on the taxpayer, were a critical part of the government's efforts to stabilize the financial system and restart the flow of credit.1 As financial conditions have improved, the Federal Reserve has substantially phased out these lending programs.

Second, after reducing short-term interest rates nearly to zero, the Federal Open Market Committee (FOMC) provided additional monetary policy stimulus through large-scale purchases of Treasury and agency securities. These asset purchases, which had the additional effect of substantially increasing the reserves that depository institutions hold with the Federal Reserve Banks, have helped lower interest rates and spreads in the mortgage market and other key credit markets, thereby promoting economic growth. Although at present the U.S. economy continues to require the support of highly accommodative monetary policies, at some point the Federal Reserve will need to tighten financial conditions by raising short-term interest rates and reducing the quantity of bank reserves outstanding. We have spent considerable effort in developing the tools we will need to remove policy accommodation, and we are fully confident that at the appropriate time we will be able to do so effectively.

Liquidity Programs
With the onset of the crisis in the late summer and fall of 2007, the Federal Reserve aimed to ensure that sound financial institutions had sufficient access to short-term credit to remain sufficiently liquid and able to lend to creditworthy customers, even as private sources of liquidity began to dry up. To improve the access of banks to backup liquidity, the Federal Reserve reduced the spread over the target federal funds rate of the discount rate--the rate at which the Fed lends to depository institutions through its discount window--from 100 basis points to 25 basis points, and extended the maximum maturity of discount window loans, which had generally been limited to overnight, to 90 days.

Many banks, however, were evidently concerned that if they borrowed from the discount window, and that fact somehow became known to market participants, they would be perceived as weak and, consequently, might come under further pressure from creditors. To address this so-called stigma problem, the Federal Reserve created a new discount window program, the Term Auction Facility (TAF). Under the TAF, the Federal Reserve has regularly auctioned large blocks of credit to depository institutions. For various reasons, including the competitive format of the auctions, the TAF has not suffered the stigma of conventional discount window lending and has proved effective for injecting liquidity into the financial system.2

Liquidity pressures in financial markets were not limited to the United States, and intense strains in the global dollar funding markets began to spill over to U.S. markets. In response, the Federal Reserve entered into temporary currency swap agreements with major foreign central banks. Under these agreements, the Federal Reserve provided dollars to foreign central banks in exchange for an equally valued quantity of foreign currency; the foreign central banks, in turn, lent the dollars to banks in their own jurisdictions. The swaps helped reduce stresses in global dollar funding markets, which in turn helped to stabilize U.S. markets. Importantly, the swaps were structured so that the Federal Reserve bore no foreign exchange risk or credit risk.3

Joseph Stiglitz and Hugh Hendry Debate About Greece Bailout (Video)

Economist/Professor Joseph Stiglitz and Hugh Hendry (Eclectica Asset Management) debate about a Greece bailout on BBC.  Hugh Hendry thinks Greece should default on their debt, take a haircut and start over.  Stiglitz says give them aid and they will bring down the deficit.  Two very different perspectives.  We all know there's no chance of default (or is there...). Also watch Marc Faber, Hugh Hendry and Nassim Taleb debate at the 2010 Russia Forum.  Stiglitz recently said there was NO WAY the U.S, Greece or UK would default. By the way unions are striking in Greece: Berlin Considers Greek Bailout as Unions Strike (Spiegel).

I originally found this at Business Insider.

Updates: China Army Urges Treasury Dump, ADEDY Strike In Greece, Taiwan Drops Submarine Request, Iran Anniversary and Something Out of Moscow

Geopolitics never sleeps..

Greek unions vow to fight austerity cuts (AFP VIDEO)
Greek unions launch 1st assault on austerity plan (AP)
Greek public sector workers strike as spectre of bailout looms (GUARDIAN)
Greek Strikes Defy Papandreou’s Bid to Stop Crisis (BLOOMBERG)
*Taiwan drops request for U.S. military subs: source (REUTERS)
China PLA officers urge economic punch against U.S. (REUTERS)
Iran anniversary 'punch' will stun West: Khamenei (AFP)
Italy Says Iranian Militia Attacked Its Embassy (REUTERS/NYT)
Moscow says U.S. missile shield aimed at Russia (REUTERS)
Chinese Reserve Managers Notified That Any Non-USG Guaranteed Securities Must Be Divested (ZERO HEDGE)
Revolution day will put Iran's disunity on show (REUTERS)

*GSEE union plans to strike on 2/24/2010.

RBS Bob Janjuah Sees 3rd and Final Leg of Bear Market (February, 2010)

A Bob Janjuah RBS report was released yesterday morning. You can find the full text at Zero Hedge. He is riding wave C!
"I now think we have begun the 3rd and final leg of the multi-yr bear mrkt which began in 2007 and which SHOULD, hopefully, finish late this yr, but which COULD (hopefully not) drag on deep into 2011. This new bear leg SHOULD see S&P trade sub-1000 this mth. After which we can bounce a little (back up to 1080/1100) over late Q1/early Q2. However, this I think will then be followed by a move down at least into the low 800s in Q2/H2 10, and depending on how policymakers behave, potentially down towards/to New Lows." (read full text)

Two EUR/USD Outlooks by Mr. Top Step and John Rogue, Charts USDX/EURUSD

Arbing information here from premium financial media. Here are outlooks on EUR/USD by Mr. Top Step on OptionMonsterTV and John Rogue on Tech Ticker.

In the short term Rogue thinks the Euro rally could fail here and make a new low at 1.30. Same goes for DXY (US Dollar Index) on the other side of the trade. In the long term Rogue thinks the US Dollar Index is headed lower and mentions the 200 week moving average. "The DXY is right at a downward sloping 200 week moving average". I charted out the 200WMA and trends below. This video comes courtesy of Tech Ticker.

Greece Will Not Default (Stiglitz), EU Bailout? Germany Loan Guarantees? EUR/USD at 1.378

Joe Stiglitz (economist), on Bloomberg, said there's no default risk for Greece.  Sovereign debt interest rate risk is another story.  Stiglitz Sees No Greek Default as ‘Speculative Attacks’ Persist (Bloomberg).  He thinks their plan will work.  Greece’s Papaconstantinou Unveils Tax Overhaul to Boost Revenue (BusinessWeek).  So will provide aid to Greece.  From Bloomberg:
"The European Union dropped hints that a summit this week will offer an aid package to financially- stricken Greece as officials seek to prevent its budgetary woes from eroding confidence in the euro.

“We are talking about support in the broad sense,” Olli Rehn, the EU’s new economic affairs commissioner, said in an interview in Strasbourg, France today. Michael Meister, financial affairs spokesman for German Chancellor Angela Merkel’s Christian Democratic Union, said in an interview in Berlin that aid would come “under strict conditions and if the Greek government undertakes far-reaching state reforms.” (Full article at Bloomberg)

Also this was a headline on WSJ just now.
"Germany is considering loan guarantees for Greece and other troubled euro partners, but a final decision may not come this week."

Below is the video of Joseph Stiglitz talking about Greece on Bloomberg.  EUR/USD is trading at 1.3780 and I provided more news links.

2nd UPDATE: Germany Working On Possible Greek Aid Package (WSJ)
European Governments Agree to Help Greece: Source (ABC/Reuters)
Treasurys Down On Reports Of EU Aid To Greece, 3Y Auction Looms (WSJ)
UPDATE: Almunia: Greece Must Pay Price For EU Support (WSJ)
EUR/USD, Trichet Leaves Early For ECB Meeting, Stiglitz: No Default For US, UK (yesterday)

Marc Faber, Nassim Taleb, Hugh Hendry at Russia Forum 2010 (Video Link)

At the 2010 Russian Forum, Marc Faber asked Nassim Taleb (Black Swan), Hugh Hendry and other panelists how they'd put $100 million to work in the next 12 months.

Taleb said to short S&P-to-Gold ratio, use way out-of-the-money options betting on hyperinflation (gold, silver, treasury puts) and short US Treasury Bonds. Hugh Hendry talked about UK interest bets and the next "Paulson" trade which would risk 1.5% for 75%, he claims. Hendry is long US Treasuries (and I believe bullish on US Dollars), taking the other side of Faber and Taleb. Hendry thinks the US interventionists (monetary/fiscal) will fail to spark inflation so he is betting on deflation. You know where Hugh Hendry stands on China. Marc Faber thinks "self sufficiency" will one day be important (living on farmland) and water is a concern. Hendry considers agriculture a risk asset at the moment. This was a very interesting panel, I suggest you watch it. They also chat about Japan, China, geopolitical risks etc. Click here or the pic.

EUR/USD, Trichet Leaves Early For ECB Meeting, Stiglitz Says No Default For US, UK

News was jumping tonight on sovereign debt issues.  A catalyst is coming soon for Greece debt, CDS and the Euro. Whether the ECB (or someone else) steps in or not, watch the Euro trade against the US Dollar. On 2/1/2010 I looked at EUR/USD using a Screenr video when it was trading at 1.3912 and it looked like it would hit 1.35 support without an upside catalyst. It hit 1.358 yesterday and since then rallied up to 1.366.  Is Euro weakness priced in or just getting started?  We'll see.

Trichet Leaving Sydney Early to Attend EU Meeting (Correct)(Business Week)
Trichet leaves early to attend crisis meeting (ABC)
Greece Says Call for Aid Would Send ‘Worst Signal’ (Update1) (Bloomberg)
The Ever Increasing Parallels Between AIG And Greece... And The CDS Puppetmaster Behind It All (Zero Hedge)
Goldman Sachs’ response to The New York Times article on AIG (Goldman Sachs)
Euro ‘January Effect’ May Signal Drop, MIG Says: Chart of Day (Bloomberg)
Euro Near 8-Month Low Against Dollar on Greece Fiscal Crisis (Bloomberg)
Australia Sovereign Risk Nears 9-Month High on Greece Debt Woe (Bloomberg)
Stiglitz: It's Time To Go "Sparta" On Evil Greek Speculators (Business Insider)
No Exit in Sight for U.S. As Fannie, Freddie Flail (WSJ)
Ayatollah Khamenei: Iran Set To Deliver Punch That Will Stun The West (Business Insider)
Stiglitz Says U.S., U.K. Default Is ‘Absurd’ Investor Notion (Bloomberg)
Portugal, Greece, Spain default worries rise (Market Watch)
Two Hedge Funds One Bank? Is There A Concerted Effort To "Destroy" Greece? (Zero Hedge)
Pimco’s El-Erian Says 2010 Will Be About Sovereign Risk (Business Week)

Take Off Your Dow 10,000 Party Hats For Now, Need A New Keg

The Dow 30 is at 9,964 as I type. The same number we hit in March, 1999.  Today a value manager on Tech Ticker (Vitaliy Katsenelson of Investment Management Associates) said we will trade around 10,000 for the next 10 years! I have great vids on this post:  Partying Like It's 1999 Again, Dow Hits 10,000 (3/29/1999 CNBC Video) (10/2009).  Tech Ticker video below.

(Chart courtesy of FreeStockCharts.com)

GBP/USD Pierced Floor on Weekly, Riding Downtrend On Hourly, Is Action Based On Yield, Growth or Sovereign Risk (CHARTS)

It appears that GBP/USD pierced through a floor from October on the weekly chart and is riding a downtrend channel on the hourly. If the Pound doesn't want to see the 1.40s, or perhaps double bottom, it needs to get back above that yellow line. Or in other words, the Dollar needs to "consolidate gains". Currencies in Europe are trying to sober up after the newsfest last week out of Greece, Portugal and Spain.  Here is a look at EUR/JPY last week.

GBP/USD (British Pound/US Dollar) Hourly Chart

GBP/USD Weekly Chart
(Charts courtesy of FreeStockCharts.com)

Forex: GBP/USD dips to a fresh 8-month low at 1.5530 (FXSTREET)
Dollar climbs as debt concerns linger (MarketWatch)
Dollar May Consolidate Gains (FXSTREET)
Debt problems weigh on equity markets (Report) (BHF Bank/FXSTREET)
2/5: British Pound May Remain Under Pressure As Yield Outlook Diminishes (DailyFX)
2/4: Morgan Stanley: Even We Can't Believe How Fast The Euro Has Unraveled (BusinessInsider)

Watch GM/NASA's Robonaut "Humanoid Robot" Work On Assembly Line (Video)

Doesn't Robonaut "R2" look like a 1984 Terminator? Check out these videos. Engineers will use the GM bot to automate "dull, repetitious or ergonomically difficult tasks as well as to test software, sensors" etc. (DiscoveryNetworks video). Soon they will do dishes, laundry, cook and play baseball outside with your kid. The videos come from Gmblogs, Traclabs and Discoverynetworks on Youtube.

Chicago Housing Market Bottoms In 2013? S&P/Case Shiller Index, Foreclosures and Futures (Video/Home Price Chart)

This continues from my previous posts on the Chicago CTA, Illinois financials and 2010 commercial real estate outlook. I found a Chicago housing article at Crain's Chicago (video below). Burns Real Estate Consulting and Fiserv said the Chicago housing recovery was years away, perhaps 2013, as underwater mortgages, the tight lending environment, high price/income ratio, foreclosures and high unemployment put pressure on upside momentum.