Larry McDonald on Lehman Examiner's Report, Greatest Hide The Salami Move In The History of Wall Street (Repo-105, Counterparties, Videos)

Larry McDonald (a former bond trader at Lehman who helped make the firm $2 Billion in 2007) was on Bloomberg talking about the Lehman Chapter 11 Examiner's Report and called Lehman the "greatest hide the salami move in the history of Wall Street". According to the report Lehman hid assets through the use of off balance sheet Repo-105 transactions which painted a misleading picture of their financial condition. Lehman had 7 counterparties involved in the Repo-105 deals who could have "squeezed" Lehman given their exposed weakness (read Zero Hedge post: Lehman's Repo 105 Counterparties Barclays, Mizuho, UBS, Deutsche Bank, And KBC May Have Attempted To "Squeeze" The Bank).  Sounds like Repo-105 in this case was desperation + auditing (via Ernst & Young) gone amok. The video is from BloombergTV on Youtube.

Citigroup Call Options Triple With Pandit's Bullish Estimates At 2010 Citi Financial Conference, $C

This week saw big call option activity in Citigroup ($C) at the $4 strike. A few days ago CEO Vikram Pandit testified before the TARP Oversight Committee and said commercial real estate was not an issue on their books and they wouldn't come back for aid [Full video here].  After Citigroup paid back TARP funds, US taxpayers still own 27% of the common stock at $3.25.  Today Vikram Pandit made a presentation at the Citi 2010 Financial Services Conference.  From the full PDF file here are a few bullish estimates or goals he made [Source: Citigroup].
  • Citicorps "Global Revenue Pool" could grow 21.8% to $3.9 Trillion with emerging markets representing 55% revenue growth [Page 12].
  • Goal to increase managed assets 5% annually (compound annual growth rate) from $1.38 Trillion in 2009.
  • Goal to see 1.25%-1.50% Return on Assets from 1.15% in 2009. 

Full Examiner Report of Lehman Brothers Bankruptcy, Repo-105

Here are links to the "Report of the Examiner in the Chapter 11 proceedings of Lehman Brothers Holdings Inc." by Anton R. Valukas of the Jenner & Block law firm.  It looks like Lehman hid some assets look at Volume 3 - "Repo 105".  Zero Hedge blog has a detailed post on it and check out this Bloomberg story (JPMorgan, Citigroup Helped Cause Lehman Collapse, Report Says).  For Volume 6-9 Appendices visit http://lehmanreport.jenner.com/.

Volume 1 - Introduction, Executive Summary & Procedural Background; Risk
Volume 2 - Valuation; Survival
Volume 3 -  Repo 105
Volume 4 - Secured Lenders; Government
Volume 5 - Avoidance Actions; Barclays Transaction

Here's a look back at Lehman's last moments before bankruptcy during the weirdest time in financial history.

Lehman Disaster Sending Index Futures Lower, BAC Buys MER (September 14, 2008)
Lehman Brothers In Play, South Korean Bank Buy Out? (Option Analysis) (August 24, 2008)
Freddie Mac, Lehman hit in the Fannie Mae, Dow! (July 11, 2008)

Hedge Fund Managers Are On Your Side (Hugh Hendry), CDS Thoughts

Hugh Hendry, hedge fund manager at Eclectica Management, wrote an interesting piece in the Daily Telegraph (h/t Trading Trophies).
"You don't know me; we've never met. But I fear you are being encouraged to dislike me. Let me explain: I'm a speculator. I manage a hedge fund. Apparently I profit from your misery. Accordingly, our political leaders are keen to see the back of me.

Only yesterday, Germany and France were calling for the "fastest possible" adoption of new rules to put an end to financial speculation. But before you write me off I ask that you listen to my side of the story." [read full article at Daily Telegraph]

How long will this debate go on for?  I agree with him that speculators are not to blame for anything.  In my opinion, if there was more price transparency when dealing with credit default swaps and/or other over-the-counter hedging vehicles on public company debt (now sovereign/munis), nobody would have an excuse to blame anybody for anything.  I remember Soros made a speech that CDS should be outlawed because bond investors had a bigger incentive to bankrupt a company than reorganize ["It's like buying life insurance on someone else's life and owning a license to kill him"-Soros].  Soros, John Paulson and Burry of Scion Capital made a lot of money buying CDS on subprime mortgage portfolios.  CDS gave signals of the coming mortgage slowdown -> meltdown in 2006.  When things start to turn for the worse, price signals in the private financial insurance market matter to not only the hedge fund manager hedging or speculating on a $2B default, but as we've seen, everybody who lives on planet Earth who has a job or owns a business/investment.  If CDS started trading on the secondary market would the market become too efficient?

Hugh Hendry also spoke recently at the 2010 Russian Forum with Marc Faber, Nassim Taleb etc (link).

US Graduation Rate Ranked 18, School Budgets Squeezed (NBC Videos)

NBC's Nightly News talked about the public finance and education crisis in the US.  "Four decades ago America had the best high school graduation rate in the world but by 2006 it had slipped to 18th out of 24 industrialized countries" (Brian Williams).  What the hell happened?  This is happening when school funding is scarce and schools are closing down.  Kansas City might shut down half their schools (700 jobs would be cut) and Illinois could cut school spending by 17% if they can't raise taxes.  Regarding those students who do graduate, James Altucher says don't send your kids to college, it's a scam (lol).  Watch the videos.

Updates: OPEC Oil Forecasts, El-Erian on Sovereign Debt, China Inflation Higher, Argentine Soy Producer US IPO, Foreclosures Down 2% From January, Miami-Dade Hospital System Needs $67M Advance From County

Distressed Volatility Global News of News Wire for 3/10/2010  
OPEC Raises Forecast for Oil Demand on Lower NGL Estimate (BusinessWeek)
OPEC, EIA lift demand views, but U.S. data still seen bearish (MarketWatch)
"Opec Warns Members to Reign in Production as Next Meeting Looms" (EnergyIntelligence)
Front running China Mobile's 20% acquisition of Shanghai Pudong? (BusinessInsider)
Foreclosures saw 2% decline from January -RealtyTrac (ZeroHedge)
Pimco’s El-Erian Says Public Finance Shock May Deepen (Bloomberg)
Opinion: How to handle sovereign debt explosion -El-Erian (FinancialTimes) h/t @Zerohedge
Senate passes $149 billion for jobless aid, tax breaks (Reuters)
Big Miami-Dade hospital system nears insolvency, needs $67M advance from County (AP)
China inflation at 16-month high, consumer prices up 2.7% on year (Reuters)
China Tightens Land Purchase Rules, Bans Villas (Bloomberg)
Hedge Fund-Backed Argentine Soy Producer Tejar Weighs U.S. IPO (BusinessWeek) h/t @SoybeanWatch
Citi, AIG, leap with other bailed-out firms (Reuters)
Wholesale inventories drop 0.2 pct in January while sales advance for 10th month (AP)
REGIONAL AND STATE EMPLOYMENT AND UNEMPLOYMENT — JANUARY 2010 (BLS.gov) h/t @GregorMacdonald

iPad Release Date April 3, Apple Leads QQQQ Above January Highs, SPY Yet To Clear Resistance, iPad Commercial ($AAPL, $SPY, $QQQQ, $TLT, $GLD, $USO Charts)

Apple ($AAPL) led the Nasdaq ($QQQQ) above resistance today.  $SPY (S&P ETF) tested resistance but sold off.  Will high beta tech lead the S&P like last year?  People are trying to game the iPad launch on April 3 [Apple iPad Sales May Approach 7 Million in 2010, Says Report, Eweek].  I also charted out USO, GLD and TLT below.  I just bought a Macbook and now I kind of want an iPad.

Crude Oil at Resistance, OVX Higher High, Dollar/Oil Narrowing in Lockstep, Oil Futures In Contango ($WTIC, $OVX, $USD, USO) Will There Be Blood?

Crude oil looks ripe here for a catalyst.  It's been trading in a sideways channel since September of 2009 (7 months).  The Oil Volatility index ($OVX) is making a higher high which is interesting because crude is testing upside resistance again.  OVX measures volatility on the Oil Fund ETF ($USO) so the relationship is similar, USO and OVX are converging (higher high in USO volatility vs. lower high in USO itself).  So why is oil implied volatility not testing the lows, like the VIX, as the underlying (Oil or USO ETF) tests upside resistance?

If a positive oil catalyst presents itself (cut in inventories, Asia/China demand, Middle East battles, inflation, dollar dump?) and Skynet Terminator trading bots rush oil over resistance it could head to $90-$100 (9/09-3/09 ceiling resistance respectively).  Oil is at $81.72.  Oil has also been moving in lockstep with the US Dollar recently which is hard to figure out.  The Euro is probably forcing the marriage at the moment but something has to give.  On the other side of the trade, as with the S&P, if there's a double dip recession, China tightens too hard or a deflationary safe haven bid knocks out risk/commodities, demand for oil could see a double dip and price would sense it with a $70 breakdown.  A stagflation scenario would be interesting.  Looking out on the oil futures curve I see that it's in contango.  A year out oil is trading at a 4.5% premium, just think a year ago January crude oil was trading at a 30% premium to February 2010!

$WTIC (Light Crude Oil - Continuous Contract) 

Reads: US States, Greece, Portugal Austerity, Vineyard Defaults, CMBS Delinquencies 6.29%, Chicago Unfunded Retirement Deficit

Depressing and somewhat interesting news from today and last night.  Mostly state and sovereign related since that's where the volatility is.  Get ready for my 13D war post..

Mutual funds saw quickest decrease in cash since 1991 (BusinessWeek, also see Prechter's explanation)
Papandreou warns of crisis "domino effect", driving up borrowing costs, reign in speculators (Reuters Video)
Portugal follows Greece with austerity measures, European Monetary Fund coming? (Reuters)
Chicago unfunded retirement deficit up 4.4 fold in 10 years -Civic Federation (ChicagoTribune)
Also read..  Illinois has $5.1 Billion unpaid bills (Comptroller)
States’ Payrolls Lag as U.S. Austerity Sets In: Chart of Day (Bloomberg)
Another Record In CMBS Delinquencies, 6.29% -Fitch (ZeroHedge)
AIG sells Alico to MetLife for $15.5B in ongoing bid to payback government (AP)
China cautions against expecting fast yuan rise (Reuters)
Can California Declare Bankruptcy? (Slate)
Vineyard Defaults Surge as Bargain Wines Hurt Napa (Bloomberg)
US taxpayers on the hook for $5 Trillion Fannie Mae, Freddie Mac debt (Tech Ticker Video)



Barney Frank Asks Top Four Banks To Write Down Second-Lien Mortgages.. (ZeroHedge)
Worlds biggest hedge fund is JPMorgan (High Bridge Capital), Pensions & Investments Says (Bloomberg)
FDIC prodding pension funds to invest in failed banks: report (Reuters)
Oil traders end petrol supplies to Iran as US pressure pays off (FT.com)
March 3:  Energy Supply and the Individual States (Gregor.us)
Can we roll out the Bloom Box already....  We need an energy revolution right now.

Is S&P 500 Ready To Hit Abby Cohen's 1250-1300 Target, 50 Month Moving Average? 10-40 Year Monthly Charts, $SPY $SPX, $VIX

The S&P 500 definitely pierced through the downtrend line which is bullish structurally if it can hold.  In the 10 Year S&P chart below, every time the S&P broke above or below the trend line it switched directions.  That's why I think this particular downtrend is so important.  It's currently in process of confirmation and needs to take out the highs from January (top of channel) to attempt a decent long to possibly the 50 month moving average or 1230.  Every time the S&P closed above or below the 50 month moving average the trend was confirmed for a few years. What's interesting is on the 40 year S&P chart (exhibit 2) the last time the index traded well below the 50 month moving average was in 1973 (before 2001 and 2008).  The MACD needs to close above zero which is currently at -32.4 on the monthly.

A few weeks ago Goldman strategist Abby Cohen said S&P fair value was between 1250-1300 [video] so that's another possible target.   If I attempted to pull the trigger to ride an upside breakout I'd buy some cheap puts for downside protection just in case there's a catalyst that fakes the break (which Marc Faber thinks could happen). The Volatility Index (VIX) is testing lows again, however if history repeats itself volatility (option or insurance premium bids) could rush into S&P index options and bring down the S&P or SPY, which would make your puts more valuable.  The same would hold true if I wanted to get short and hedge with calls if the S&P broke back below the ultimate downtrend and channel support.  It's all risk management.  Learn more about buying index puts to hedge at the Chicago Board of Options Exchange (CBOE.com).  It appears that crude oil, the S&P and gold are all testing major resistance levels (except gold which is minor resistance below the December 2009 peak).  I'll update tomorrow.  All eyes are on any sign of a double dip recession, the market will lead the data.  Watch out for catalizadores.

S&P 500 - 10 Year Chart [FreeStockCharts.com]

Vikram Pandit to TARP Panel: Won't Need More Aid, CRE Not An Issue (Taxpayer Still Owns 27% $C Common Stock)

Since the American Taxpayer now owns 27% of Citigroup common stock according to CEO Vikram Pandit, if you haven't seen it yet Vikram testified before the TARP Oversight Committee.  He said commercial real estate was not an issue for Citigroup and there will be no need for additional aid.  If you short Citi you are short yourself folks.  How is the yield curve looking, nice and steep?  Video below is courtesy of Cspan.org.

Reads: Regulators vs. Forex Leverage, SAC Golf Outing, Detroit Strategic Defaults, Cali Job Losses, Panasonic and Best Buy 3D TV Discounts

Link pimping for 3/7/2010, my twitter stream is on fire.

Metro Detroit:  Owners walk from homes, values erode - DetroitFreePress
California job losses grow - ContraCostaTimes (h/t @GregorMacdonald)
Regulators about to limit forex leverage?  - Business Insider
BlackRock's Doll says China not a bubble - Bloomberg (h/t @Asiablues)
SAC had golf outing at Bear Lakes Country Club - Bloomberg
Zero Hedge gets email from Greek Embassy to attend US briefing - Zerohedge
In 3D TV push, Panasonic and Best Buy give 50% discount - WSJ (h/t @bored2tears)
Buy Russian stocks on ‘symbiotic’ ties with China (HSBC) - Bloomberg
China "nullifying" guarantees on local Governments - Bloomberg (h/t @bored2tears)
3.1M Cablevision/ABC feud could leave 3.1 Million without Oscar broadcast - AP
RBS branch sale may be hit by funding gap: report - Reuters
Goldman conviction buy/sell list - Zerohedge
China’s Bank Chief Says Currency Is Unlikely to Rise - NYT
Zhou Xiaochuan:  Days of "special yuan" policy numbered (Dollar peg) - Telegraph

Investors Not Settling For Beta Monkeys In China!

Beta Monkeys lol.  Someone needs to grab that url. "In finance, the beta (β) of a stock or portfolio is a number describing the relation of its returns with that of the financial market as a whole" (Wikipedia). Beta (relationship against S&P, Shanghai Composite etc.) is what managers should beat or you'd be better off owning a China Index ETF with lower fees and less risk (which still requires research). For example, iShares FTSE/Xinhua China 25 Index (FXI), SPDR S&P China (GXC) and iShares MSCI Hong Kong Index (EWH). Btw, the S&P, Dow and Nasdaq are at or near January resistance....
"There is a lot of interest in China, but investors are looking for top quality stock pickers in that market, and won't settle for the 'beta monkeys'," said Pyrke of Triple A Partners. (Link: Risk. Not for us, say some investors - 3/5/2010, Reuters)

Updates: Net Euro Shorts/Yen Longs, US Unemployment 9.7%, Payrolls Fall Less Than Expected, Greek Workers Tried To Storm Parliament, Footsie 18 Month High, S&P Cuts $3.39B Leveraged-Buyout Loans

Greek Protests Mount as Parliament Passes Budget Cuts: Video




Payrolls in U.S. Fell 36,000 (less than expected); Unemployment at 9.7% (Bloomberg)
Footsie jumps to 18-month high (FT.com)
S&P: Junk-Rated Issuers Tally Steady On Defaults, Downgrades (WSJ)
GM to reinstate 600 dealerships slated to be cut (AP)
Banks shuttered in Fla., Ill., Md., Utah (AP)
Western sanctions draft targets Iran's banks abroad (Reuters)
S&P Cuts Ratings On Another $3.39B Of Leveraged-Buyout Loans (CLOs) (WSJ)
Banks defend use of sovereign CDS trade to hedge risk (FT.com)
Net Euro Speculative Short Positions Decline Marginally From Record, Yen Longs Surge (ZeroHedge.com)
Google Targets Microsoft With DocVerse Deal (WSJ)
Obama Budget Plan Underestimates Deficits, CBO Says (Update1) (Bloomberg)
Wen May Struggle With 3% Inflation Goal After China Credit Boom (Bloomberg)
Greeks ban hedge funds in bond sale (FT.com)
Striking Greek workers shut down transport and tried to storm parliament (Bloomberg)
Yields on Tax-Exempt Bond Sales Reach Lowest in Three Months (Bloomberg)
Greece Won’t Sell Islands to Cover Debts (NYT)
UPDATE 1-Beijing says working with Google to resolve dispute (Reuters)
Robert Prechter Says Equities to Drop, Invest in Cash: Video (Bloomberg Video, 3/4)
Pandit Says Citi Playing Critical Role in U.S. Recovery (Bloomberg Video, 3/4)

S&P 500 Re-Testing Downtrend Resistance From 2007 Peak ($SPY, $TLT, $SPX)

The market (S&P 500, $SPY) is re-testing the ultimate downtrend from 2007 again after correcting 9% (see put activity) from that level in January.  All eyes are on the jobs numbers tomorrow to provide a catalyst for direction.  Also look at the 20 month moving average.  Since 2000, if the S&P broke above/below the 20DMA it determined the next multi-year bull/bear market.  BUT, from 2000-2007 $SPY was riding an uptrend from 1989 which was broken in 2008.

In the end, $SPY (S&P 500 ETF) needs to break through the downtrend from 2007 and above the January 2010 highs to build supportive infrastructure to reach the castle and defeat the King aka the 2000-2007 double top which looks like 1,500.  That's 378 points away and we just added 500 from the March 2009 lows so it could take months or years.  That will be a memorable moment and will probably set the stage for the next 20 year bull market but hopefully it won't be the result of hyperinflation and/or artificial in nature (a breakout but not priced in gold).  If the market fails at this downtrend, the correction from January could proceed and the February lows would be in play (see free MarketClub video: Line Drawn In The Sand For Equity Markets).

S&P 500 40 Year Chart (Courtesy of FreeStockCharts.com)

Edward Lampert 2010 Sears Holdings Annual Letter, 13F RBS Partners (Fiscal Year 2009)

Is it time to start charting out valuation ratio trends, comparables and financial statement trend Elliot Waves? Find the Sears Holdings annual letter and Q4/fiscal year 2009 results at http://www.searsholdings.com/invest/ and see RBS Partners (holding company for Sears Holdings) Form 13F for holdings ended 12/31/2009. Next Warren Buffett?

Sears logs best quarter in 3 years, Chairman Lampert answers critics of his strategy (ChicagoBusiness)
"Chairman's Letter

February 23, 2010

To Our Shareholders:

Today we announced our financial results for our 2009 fiscal year. I am pleased to report that we delivered both stability and progress, resulting in roughly $1.8 billion of Adjusted EBITDA, an improvement of more than $200 million over 2008. While this may be surprising to some, it isn’t to me. The dedication of our associates and leadership team led by Bruce Johnson and the diversity of the Sears Holdings business portfolio—Sears Full Line stores, Kmart stores, our Home Services business, Sears Auto Centers, Outlet Stores, Hometown Stores, the Kenmore, Craftsman, DieHard and Lands’ End brands, our majority interest in Sears Canada, and our online business properties including sears.com—have allowed us to successfully manage through the economic and financial crisis of the past two years.

Today, the United States stands with an unemployment rate close to 10%, a housing market that appears to be stabilizing at depressed levels, and uncertainty over government policy and geopolitical events. Despite this, Sears Holdings continues to make progress against our strategic initiatives and our long-term financial goals. I recognize that our financial results, while substantially improved from 2008, remain well below where we would like them to be. At the same time, we have seen significant improvements in our focus on customers and the transformation of our culture.

I would like to do several things in this letter. First, review 2009 at Sears Holdings. Second, look ahead to 2010 and beyond. Third, discuss some policy issues generally including job creation, and finally, address some consequences of ecommerce tax practices.

2009 in Review

In 2009, we kept expenses under control and stayed focused on our vision and strategic, operational, and financial goals. We were both prudent and opportunistic in spending money and in allocating capital at a time when many others had to make major adjustments.

Early in the year we amended and extended our revolving credit facility through June 2012. In one of the most difficult financing markets in recent memory, we found significant support from numerous financial partners led by Bank of America, Wells Fargo and General Electric, and we executed one of the largest revolving credit facilities in the past couple of years. Our substantial asset base and our strong cash flow management were important factors in this successful deal. When people take a close and objective look at our company, our strengths are not difficult to see.

Gold Rallying In US Dollars, Update on Gold/S&P, Gold/USD, USD/SPX, USDX

It's been an interesting week.  If the US Dollar Index (Chart 2) breaks support and tests the uptrend (79.5), 50DMA (78.84) or floor support (78.5), Gold priced in US Dollars (Chart 1) could test $1,150 aka the January highs.  In the first chart you can see it pierced through a downtrend resistance level and is riding the 50 and 100 day moving average.  Gold in US Dollars is currently trading at 1,134.  1,150 is an important resistance level and will prove if the mini inverse head and shoulders bottom has legs.  If that level is broken with momentum it could possibly be a decent hedged long to test the ultimate highs and beyond (like I said earlier 2/21).

Regarding Gold v. S&P (Chart 3), they've been dancing since the beginning of the year trading between .99-1.02.  When gold broke out at the end of 2009 (Oct-Dec) the Gold/SPX ratio went from .95-1.10.  Por último, look at the USD/SPX ratio (Chart 4).  With the recent rally in the S&P and a stagnant Dollar, the USD/SPX ratio is now testing the 50 day moving average and December support level.  If Marc Faber is right that the Euro gets squeezed to 1.40, that will support the USDX correction trade.

A bunch of decisions need to be made in the overall market. I'm waiting for a big catalyst even if technical.  Btw:  Greece braces for deeper spending cuts, as EU tightlipped on rescue plan (AP) ("We are today in a state of war in front of negative scenarios for our country," Prime Minister George Papandreou said."). 

Marc Faber: Euro Oversold, If S&P Above 1150 Could See 20% Correction

Marc Faber was on Bloomberg in Hong Kong giving detailed thoughts on the market. He writes the Gloom Boom Doom Report.  I quoted the segment for those with Youtube blocked. He gives his thoughts on the market, Euro and US Dollar.
Market: "I'm not so sure that we'll make new highs but if we make a new high above 1,150, I don't think it will be that far above the 1,150 level, maybe 1,200, and that thereafter we have a bigger kind of correction on the downside.  I think if we make a new high then I wouldn't rule out a correction of at least around 20% and don't forget many shares in America and globally have already corrected 20%, so for them to make a new high isn't going to be all that easy in the first place. So what we could see is a new high in the S&P and the Dow Jones that is not confirmed by the new high list. In other words you will make a new high with fewer stocks making a new high than in January."

Updates: GM Recalling 1.3 Million Vehicles, Dave Bing Downsizing Detroit, Unemployment Benefits Extension Blocked In Senate, Gold Counterfeiting Using Tungsten, Betting On The Blind Side (Scion Capital)

Frank speaks with Mayor Dave Bing about downsizing Detroit to save it (Audio WJR/760 Detroit)
Bing blames union for looming city worker layoffs (DetroitFreePress)
Betting on the Blind Side (Vanity Fair) about Scion Capital's Michael Burry (h/t Morgan_03)
GM recalling 1.3 million vehicles over steering problems (Reuters) h/t ZeroHedge
US senator single-handedly freezes unemployment payment (BBC)
2,000 transportation workers idled over impasse (AP)
Gold counterfeiting using tungsten? (Zero Hedge)
Japan's unemployment rate falls in January (AP)
Australia Raises Key Interest Rate to 4% on Recovery (Bloomberg)
Google acquires Picnik: Perfect fit for Chrome OS (ZDNet) (photo editor)
Google buys Photo-editing Site Picnik (TechTree)
Gross Says Sovereign Debt to Resemble Corporate Returns (Bloomberg Video)
Finnish Recovery at Risk as Strikes Threaten Exports, Traffic (Bloomberg)
ABC Threatens to Go Dark in New York in Spat With Cablevision on Sunday (TheWrap via SkyGrid)
Swiss PMI hits two-year high, price pressures emerge (Reuters)

Double Bottom In Mutual Fund Cash Ratio? Prechter Thinks Optimism Signals Top and Bond Market Biggest Bubble In The History Of The World (Video)

Robert Prechter of Elliot Wave International (see below) is back trying to kill everybody's buzz, lol.  He was featured on Tech Ticker on 2/24/2010.  He's still bearish and probably one of the biggest contrarians on the market right now.  He mentioned that mutual funds have a 3.6% cash/assets level which he considers "an incredibly dangerous level indicating extreme optimism among mutual funds and their clients" and "low cash levels tend to coincide with tops".  So will the mutual fund cash ratio double bottom here at 3.6% (3.4% in 2007) or will the cash ratio squeeze to 3.2% before a volatile event forces re-balancing.  That's yet to be seen, but he always makes interesting points.  In the interview he provided a chart comparing the mutual fund cash-to-assets percentage to the market.  It's interesting that he also thinks the "bond market is the biggest bubble in the history of the world".  So he said stay in cash inside safe institutions or in Treasury Bills (shortest duration).  I'm going to chart out $SPX and SPY on long and short term time frames next.  The long term trend is the most interesting and at an inflection point..

Greece, UK Debt Crisis Through Eyes of Currencies (EUR/USD, GBP/USD)

Watch the sovereign debt crisis in Europe through the eyes of currencies (March 1, 2010).  In this case the Euro (EUR) and Pound (GBP).  EUR/USD (Euro in Dollars) is still trading in a downtrend channel and 1.3457 is ultimate support which, if broken, opens the door to lower levels (1.30 or perhaps parity). Read the post I did on Sunday for more info on Euro/Gold, Euro/USD, the Euro hedge fund meeting (Soros, SAC etc.) and an interview with German banks via Deutsche Welle.

EUR/USD (Euro/US Dollar) - FreeStockCharts.com

Now a look at the British Pound.  On February 8 I did a blog post on GBP/USD when it was at 1.55 and said make sure it stays above October 2009 support (1.57) or it will test the 1.40s.  It hit a low of 1.478 this morning, -1.5% on the day and -4.6% in 3 weeks.  There was buying/covering off that level this morning.

Updates: Greece Bailout?, Faber at Japan CLSA Forum, VW Profit Falls, February Payroll Preview, Brazil Stocks, Real, US Unemployment Benefits and China Labor Shortage

News from Twitter stream and journey around the interwebs on 2/28/2010.

Greece Bailout Plan Takes Shape [WSJ]
h/t @alea_
Defying Global Slump, China Has Labor Shortage [New York Times] h/t @asiablues
Markets poised to punish Spain [FinancialTimes]
Payrolls Probably Declined in February: U.S. Economy Preview [Bloomberg] h/t @gregormacdonald
Brazil stocks end Feb up 1.7 pct, real firms 4 pct [Reuters]
1.2 Million to Lose Unemployment Benefits Today [Calculated Risk]
Ze Germans: "Only The IMF Can Help Greece" [ZeroHedge]
TCW On Greece: "Let It Burn" (Komal Sri Kumar) [ZeroHedge]
CLSA Greed & Fear [theback9]
Fannie Taps Treasury for $15.3 Billion More After a 10th Loss  [Bloomberg] h/t @in_economy
Lloyds in £42bn bill from toxic HBOS [FinancialTimes, 2/26]
VW Profit Falls 80% as Buyers Favor Less Costly Cars [Bloomberg, 2/26]
January home sales fall 7.2%, median price unchanged  [USA Today] h/t @asiablues
U.S. Stocks to Fall, Faber Says; Wood Doubts Recovery [Bloomberg 2/22, CLSA Japan Forum]
Marc Faber, One Dr. Doom has brighter view of Japan [MarketWatch 2/22, CLSA Japan Forum]

Bernanke Semiannual Monetary Policy Report to Congress (2/24/2010)

Careful Behzad! Read this: Is Ben Bernanke The Second Coming Of Rudolf von Havenstein, The Central Banker Responsible For Germany's Hyperinflationary Collapse (And Ostensibly WWII)?

Chairman Ben S. Bernanke
Semiannual Monetary Policy Report to the Congress
Before the Committee on Financial Services, U.S. House of Representatives, Washington, D.C.
February 24, 2010

Chairman Bernanke presented identical remarks before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, on February 25, 2010

Chairman Frank, Ranking Member Bachus, and other members of the Committee, I am pleased to present the Federal Reserve's semiannual Monetary Policy Report to the Congress. I will begin today with some comments on the outlook for the economy and for monetary policy, then touch briefly on several other important issues.

The Economic Outlook
Although the recession officially began more than two years ago, U.S. economic activity contracted particularly sharply following the intensification of the global financial crisis in the fall of 2008. Concerted efforts by the Federal Reserve, the Treasury Department, and other U.S. authorities to stabilize the financial system, together with highly stimulative monetary and fiscal policies, helped arrest the decline and are supporting a nascent economic recovery. Indeed, the U.S. economy expanded at about a 4 percent annual rate during the second half of last year. A significant portion of that growth, however, can be attributed to the progress firms made in working down unwanted inventories of unsold goods, which left them more willing to increase production. As the impetus provided by the inventory cycle is temporary, and as the fiscal support for economic growth likely will diminish later this year, a sustained recovery will depend on continued growth in private-sector final demand for goods and services.

Hedge Funds Bearish On Euro, German Banks Speak (XEU/USD, XEU/XJY, XEU/GOLD)

This was an interesting report out of Deutsche-Welle on 2/24/2010 on how banks view the Euro's future. Deutsche Bank didn't comment but economists at Deka Bank and Commerzbank did.  People on the street said they were used to the currency and didn't see a need to switch. Today (Saturday, 2/27/2010) all eyes are on Greek debt.  Germany, France, Dutch to buy Greek bonds: MEP (Reuters).
"ATHENS (Reuters) - Germany, France and the Netherlands plan to buy Greek bonds to help Athens cope with a severe debt crisis, a German member of the European Parliament said on Saturday." [full article]

Greece must take more measures or face sanctions: report (Reuters)
Flip Floppage (2/28): Greece may take more debt steps (Reuters)

Live Hawaii Tsunami Coverage Ustream Video (CBS KGMB)

Wow live video coverage of the Hawaii tsunami warning courtesy of CBS KGMB on Ustream. One day we will live stream an asteroid about to hit us, after an ad. Dvol hopes everyone in Hawaii and on the West Coast will be alright.

Tsunami Warning for Hawaii and Alaska (NOAA), Chile/Japan Earthquakes

Taking a break from market waves at the moment for a more important issue. There is apparently more action in the ocean. A tsunami warning for Hawaii and Alaska (via NOAA twitter) is in effect from the 8.8 mag earthquake that hit Chile (LA Times).  A 6.9 earthquake also hit Southern Japan (xinhuanet).  The US earthquake weapon is hard at work.  Is the Earth about to explode?  Here is a graphic from NOAA (from the tweet) showing Tsunami travel times and the most recent message from the NOAA.  It looks like tsunami warnings are all around the world.  Prepare for Tsu-wave volatility...

Obama Bipartisan Health Reform Panel, Business Roundtable (Videos)

For the DV archives. Videos from the Bipartisan Meeting on Health Reform: Part 1, 2, 3, 4 and the Business Roundtable.

S&P Under 50DMA, TLT and 30-Year Yield At Make Or Break Point (SPX, SPY, TLT, TYX)

While the S&P camps out below the 50 day moving average and potentially forms a right shoulder (we'll see), the 20+ Treasury bond ETF ($TLT) and 30-Year Treasury Yield ($TYX) are both at inflection points. TLT is just above the 50DMA and close to testing downtrend resistance.  If inflationistas get spooked on the long end and sell because Bernanke is too soft on the short end, TLT could retest the June 2009 lows of $86.

On the other hand RSI is building as is momentum so if there's some type of flight to safety and/or deflation consensus, it could break the downtrend and test the 200DMA at 92.20.  Below I also provided the 30 Year Treasury Yield chart ($TYX).  You can see the obvious make or break level at ceiling resistance and at the triangle point.  $TYX is just above the 50 day moving average so in my opinion if it breaks below that it could test the 200DMA (230 basis points lower around 44 or 4.4%).  Since the October 2009 low $TYX always found support at the 200DMA. 

If the S&P decides to roll over and test the 200 day moving average ($1,037), in the past Treasuries caught a bid so perhaps yields (inverse of price) would follow suit.  I'm not sure if that's the definite dynamic today given jitters on the long end.  Is the long bond now considered "risk" on the "flight to safety" trade even though it's technically "risk free"?  Is "temporary flight" risk officially priced in? I'll just watch the charts, follow the dough...  Charts below are $SPX, TLT and $TYX.

Municipal Crisis Is Spreading, Updates on Distressed Munis | February, 2010

ALERT FROM DVpf (Distressed Volatility Public Finance)

I've been writing about the public finance crisis since 2008. The craziest story so far has been out of Jefferson County, Alabama.  Bankers at JP Morgan bilked Jefferson County, AL ("county paid banks $120 million in fees, six times the prevailing rate") into buying $2.7 billion interest rate swaps that turned out to be viral when the recession hit, debt was downgraded, auction-rates skyrocketed and swaps violated covenants which put them on the brink of bankruptcy (read the Bloomberg story:  JPMorgan Swap Deals Spur Probe as Default Stalks Alabama County).

Municipalities feed on their tax base, so when their underlying economy is booming they can lever up against tax revenues and throw cash at projects/developments to improve the area and create jobs. It's great until the economy crashes, tax revenues slow and they're left servicing debt and unprofitable operations, in GASB terms. So just like a company they have to cut projects, lay off workers and try to kill or lower debt payments. During the past few years I've been watching this unfold all across the Country.

Distressed Detroit.. (Analysis of Detroit Economy in 2008) (7/12/2008)
Jefferson County, AL - Possibility of Biggest Municipal Bankruptcy In History (8/13/2008)
The Municipal Meltdown. Current Health of U.S Municipalities (Videos / Links) (10/19/2008)
Oakland, California Denies Bankruptcy Rumors, General Fund Drying Up (6/9/2009)
California Issues IOUs, California GO Bond Bets (7/1/2009)
Jefferson County Volatility, Interest Rate Swaps to National Guard (8/5/2009)
Moody's Downgrades Detroit $781M GO Debt Further Into Junk (8/30/2009) 
Illinois Insolvency, Chicago Commercial Real Estate Outlook, Warehouse Vacancies Hit 12.1% (1/22/2010)
Chicago CTA Volatility, $95M Budget Hole, Service Cuts, 1100 Laid Off (Video) (2/6/2010)

So munis are distressed and it's just getting worse..

Read: UBS Pound Foreast 1.48, Soros on China, Rosenberg on FHA, GGP/Brookfield, SEC Curbs Short Selling, Fed Keeping Rates Low, Zero Hedge vs. RBS, $SPY Quant Algo, Aiko Toyoda Statement Video

Articles for 2/24/2010, read up... 

SEC Curbs Short Selling, Disappointing Goldman Sachs (Bloomberg, Video)
Bernanke pledge of low rates lifts Wall Street (Reuters)
UBS Cuts Three-Month Pound-Dollar Forecast to $1.48 From $1.59 (BusinessWeek)
Surface Tension: George Soros on China (Caing.com, 财新网)
Real Market Control for Bubbly Real Estate (Caing.com, 财新网)
David Rosenberg: Get Ready For FHA To Go Completely Bust, Housing Market To Take Hit (BusinessInsider)
Greek strike halts transport, people back reform (Reuters)
Record Direct Bidder Share And Near Record Direct Take Down Masks Indirect Shrinkage (Zero Hedge)
General Growth shuns Simon, picks Canadian buyer (Indystar)
New class action lawsuit targets Yelp (CNET)
Is the SPY getting a "Jump" at key levels from a quant algo?  (HedgeAccording.ly) interesting
Latvia Sells 2-Year T-Bills for First Time Since 2007 (Bloomberg)
Junk Bonds May Post Double-Digit Returns in 2010: Pimco (Reuters/CNBC) wow
Bear Market Armageddon: Why Prechter Might Be Right This Time (TechTicker Video)
Greenspan: U.S. recovery "extremely unbalanced" (Reuters)
The 2014 HY Maturity Cliff: Bank of America's Take (ZeroHedge)

Auto News..
FBI raids Toyota suppliers in Michigan (DetroitFreePress)
GM to Wind Down Hummer After Sale to Tengzhong Fails (Bloomberg)
Toyota dealers rally in defense of brand (CNN)
After Toyota Recall, Best Deals Ever for Hybrids (HybridCars)

"Toyota President Aiko Toyoda gives his opening statement before the House Commerce Oversight Committee hearing 2/24/10" (CSPAN).

PIIGS, Goldman and Shanghai Index All Below Their 200 Day Moving Average

I first heard about this from John Murphy at StockCharts.com (S&P 500 May Retreat Below 200-Day Average: Technical Analysis (BusinessWeek), that the PIIGS (Portugal, Ireland, Italy, Greece and Spain), Shanghai Composite Index ($SSEC) and Goldman Sachs ($GS) are all trading below their 200 day moving average. China is tightening and the "PIIGS" are dealing with a sovereign debt crisis (with Goldman as financial engineer 1, 2). The February report by Bill Gross mentioned that public debt escalation (debt-to-GDP >90%) could slow economic growth by 1% and put pressure on asset/investment returns (Ring of Fire: February report at Pimco.com).

So with major indexes currently trading below their 200dma, could they drag the S&P, Dow, Nasdaq, TSE, Sensex, FTSE, Nikkei, Hang Seng and even Bovspa (Brazil) down to test that level?  Most indexes are just under the 50 day as of today's close so if they can't get above that level I'd say there's a possibility.  Here are charts courtesy of StockCharts.com.  The 200dma is the red line.

Shia LaBeouf, Wall Street 2 Jimmy Kimmel Interview, Schwab Training and People Busted For Insider Trading On Twitter

Hat tip to MissTrade for the video.  Actor Shia LaBeouf was on Jimmy Kimmel discussing his new movie Wall Street 2: Money Never Sleeps (international movie trailer and teaser trailer). The most interesting part of the interview was when he talked about training at a Schwab office in Encino.  He was training to be a proprietary trader in the movie. With help from others, LaBeouf said he turned $20,000 into $489,000 and 4 of the 9 guys he was training with went to jail for insider trading on Twitter!

EUR/USD at Primero Downtrend Resistance 1.3636, Decision Imminent (Chart Continuation or Breakout)

EUR/USD (Euro to the US Dollar) is nearing downtrend resistance. Like I stated in my previous re: $FXE (Euro Index ETF) post, if that trend gets violated it could see decent upside momentum, which would then need confirmation. I provided multiple time frames for FXE, XAU/USD and $Gold. EUR/USD is currently trading at 1.3636 and the decision is imminent imo. Check it out, here's a static chart of EUR/USD from 11:22pm central tonight (2/22/2010).

EUR/USD Daily (FreeStockCharts.com)

CME Chairman Melamed Sees Bubble In Equities Not Commodities, Likes US Dollar Over Euro (Fox Business)

Interesting interview on Fox Business with CME Group Chairman Leo Melamed.  He said the only bubble he sees is in EQUITIES and that commodities already retraced their move. He also likes the US Dollar over the Euro (USD/EUR) with interest rate pressures in Europe (with the PIIGS in critical condition).  He blames Government and derivatives for the cheap money fueled financial crisis. Hopefully the video comes up, if not go to Fox Business.

Is Bloom Box An Energy Revolution? (60 Minutes Video)

People are buzzing on Twitter about the Bloom Box so I thought I'd find the 60 Minutes video from last night (2/21). Supposedly a box you can put in your basement can generate enough power to nix the need for power lines/the grid. It's a plug-in power plant. It's like going wireless on a phone or computer. They said one disc powers one light bulb and 64 discs (fuel cells) in a box can power a Starbucks! "In 5-10 years we'd like to be in every home", the founder and CEO K.R. Sridhar said. He said it would be around $3,000. Here is the full article with all the videos at 60 Minutes (CBSNews).  It looks very cool.  Also, what about solar panels?  Check out Nanosolar's panel assembly factory (video). It looks to me like we're in an energy revolution, it just hasn't gone parabolic yet.

Abby Cohen Still Thinks S&P Fair Value is 1250-1300 (Video), Likes Technology, Commodities and Sees M&A or Share Repurchases With Cash On Hand

Goldman strategist Abby Joseph Cohen is bullish on the market. Last week she said the recession's been over for several months and thinks fair value for the S&P is between 1,250 and 1,300. With the S&P at 1,109, that would mean we are 12%-17% undervalued. She likes technology from business investment, commodities from improved global demand and sees share repurchases/m&a activity from cash on hand. She was on Bloomberg radio last Wednesday. Cohen's call for 1250-1300 is unchanged from her view in December, 2009 (videos). Maybe she can get Goldman Sachs ($GS) over its 200DMA while she's at it. If she's right a break above 1,150 would probably be an area to get long in size with put protection to $1,300 (not a recommendation). Until then... Ride the double dip (where the black swans at?)!

(Courtesy of Stockcharts.com)

Large $FXE Volume, Option Trade, USDX, Golden Crosses and Sunday Action (EUR/USD, $USDX, FXE, XAU/USD, Gold Continuous Contract, GLD)

Sunday night Gold, Euro and $USD report for 2/21/2010:  Btw, long US/CAD Olympic hockey (4-2).  Did you see the volume on FXE (Euro Trust Index ETF) Friday?  Over 3 million FXE shares traded on Friday (5.1 million on the week), a level not seen since Aug/September 2008.  Look at the volume blocks on Friday bringing up the gap down.  Tonight EUR/USD is up 0.35% breaking out on the 30-minute chart and XAU/USD is on the move.  So on Sunday at 8pm central it looks like a push out of the Dollar into the Euro and Gold.  Can't tell you what's going to happen tomorrow. 

From the charts below though the FXE trend is down, however, if Greece gets monster backing or a positive catalyst, short covering could break the closest downtrend and cause some damage.  There is another downtrend to test.  On this post (2/14) I gave you multiple FXE resistance levels for the longs to battle, including ceiling resistance, the 50dma, 200dma and downtrends (technical chess).  The weekly volume has been increasing with lower lows which is interesting.  Charts are from freestockcharts.com.  Speculative shorts on the Euro contract hit a record, see link below.  What do you make of that?

FXE (Rydex CurrencyShares Euro Trust ETF (1-minute on Friday, Feb 19)

FXE (3 month, Daily w/ 50/200dma, squeeze range)


FXE 6 Month Daily Chart

FXE Weekly (rising volume)

Now a look at the US Dollar Index ($USDX, Friday), Gold Continuous Contract ($GOLD) and XAU/USD spot (Sunday).

Soros Owns a Sh*t Ton Of $GLD (Gold ETF), Doubles Down Ending 12/31/2009 Q4 Holdings Report

According to the most recent Soros Fund Management 13F Q4 holdings report, it appears that Soros's hedge fund doubled down on their GLD position (for holdings ending 12/31/2009). To be exact he increased his position by 152% to 6,178,342 shares. It is the biggest holding in the Soros Fund Management portfolio, totaling 676.3 million dollars.  John Paulson also owns GLD en masse which I'll touch on in a separate post.  Keep in mind these holdings are reported from the 9/30/2009-12/31/2009 period, so we'll know wtf he did with his holdings in a few months.   His top holdings are as follows:

The Onion: "Nation Realizes Money Just A Symbolic, Mutually Shared Illusion"

Funny article from The Onion.com:
"U.S. Economy Grinds To Halt As Nation Realizes Money Just A Symbolic, Mutually Shared Illusion

WASHINGTON—The U.S. economy ceased to function this week after unexpected existential remarks by Federal Reserve chairman Ben Bernanke shocked Americans into realizing that money is, in fact, just a meaningless and intangible social construct." [Read full article at TheOnion].

So does this mean debt jubilee, gold spike, bartering or none of the above ahead?

Peter Schiff in 2006 on Debt Ceiling, Housing and Gold, "If Things Were So Great We Wouldn't Be Raising Debt Ceiling" (CNBC/Bloomberg Videos)

I like this line. "If things were so great we wouldn't be raising the debt ceiling", Peter Schiff on CNBC (2006). LOL. Congress raised the debt ceiling to $9 Trillion at that time and today they just raised it to $14 Trillion! Trim Tabs Biederman did not agree with anything he was saying. Schiff also made a decent gold call in the Bloomberg video. Seems like those who followed Peter Schiff's public views from 2006 are doing quite well being short housing and long gold on a 4 year time frame. So 4 minutes of free advice from Schiff, two $7 trades, some GLD puts and XHB calls as hedges (CBOE example) and you could have been up 100%+ in 4 years while sleeping at night. Not bad at all.  He runs Euro Pacific Capital.

Update: Restaurant Stocks, Basicland to Sorrowland (Munger), Volcker On Retirement Age, 20th Bank Failure of 2010, CPI Inflation, Mortgage Delinquency Rate Falls, Brevan Howard Not Short Greece CDS, Tiger Woods Apology Video

Links for Friday February 19, 2010

Slate: Basically, It's Over: A parable about how one nation came to financial ruin. (Charles Munger of Berkshire Hathaway)

AP: Banks in Calif., Ill., Fla., Texas are shut down (20th of 2010)
ZeroHedge: Volcker Discusses The Housing Market, GSEs, Raising The Retirement Age,Volcker Rule
ZeroHedge: Options Expiration Blowout (look at restaurant stocks) via RobotTrade
WSJ: China Retail Sales Up 17.2% On Year In 7-Day Lunar New Year
Bloomberg: U.S. Economy: Consumer Prices Rise 0.2% in January (Update1)
Bloomberg: Buffett’s ‘Dangerous Business’ Grips Bond Insurers (Update1)
Bloomberg: MBA Says Delinquency Rate for Mortgage Loans Fell to 9.47%
WSJ: IMF Economist: Yuan Rise May Help China Direct Resources-Xinhua
Reuters: UPDATE 2-High borrowing costs for Greece threaten others-PM
Reuters: Brevan Howard Not Short Greece; Holds No Italian, Spanish CDS
ETFdb: Three Reasons Why The Copper ETF (JJC) Is Soaring
Reuters: Hong Kong shares hit 1-week low on Fed move, China fear

Any more? Provide a link in comments.  I'm doing a post dedicated to $FXE (Euro Index ETF) and then SPY, EUR/USD, $USDX (Dollar Index), GLD, $Gold (futures), IYT, XLP, QQQQ (tech), 30Y-Treasury Bond Yield and anything else I can think of next. Last but not least, the Tiger Woods apology video (courtesy of Fox).

Technical Outlook by John Murphy, Stockcharts.com on China, Europe 200 Day Moving Average

I found a technical outlook by John Murphy (StockCharts.com) on Bloomberg.com.  I use their free charts and educational sources and go to their blog which is useful for trading.  So in this case, will the US equity indexes follow China and Europe below the 200dma?
"S&P 500 May Retreat Below 200-Day Average: Technical Analysis

Feb. 16 (Bloomberg) -- Declines by other countries’ stock markets and by individual companies suggest that U.S. equity benchmarks are likely to extend the past month’s retreat into a bear market, according to John Murphy, chief technical analyst at StockCharts.com Inc." [Read More]

Euro, US Dollar, Gold Move On Fed Discount Rate Decision (Analysis on EUR/USD, XAU/USD, Charts, Video)

Look what happened to the EUR/USD (Euro/US Dollar) and XAU/USD (spot Gold) after the Fed raised the discount rate. This trade is at the crossroads.  The Euro actually broke the recent lows.  I've been watching spot Gold and Euro-$FXE recently and the last few days have been choppy around the 50 day moving average, 100dma and top of a new XAU/USD downtrend channel.  First here's the carnage from a few moments ago.

Spot Gold (USD) (fxstreet.com)

EUR/USD Minute (fxstreet.com)

So now for the short-medium term view.  If you look at the weekly charts, EUR/USD clearly broke the lows and if a magical bid doesn't appear at 1.35, it could head towards 1.30-1.32 support.  I charted out the Euro Index/FXE and saw support around the same area.

With Europe's fiscal crisis putting pressure on the EURO and higher USD interest rate (on long end at least) pressures coming from a tightening bias and discount rate releases like today, the US Dollar could see more upside which could affect the long XAU/USD (spot gold priced in US Dollars) trade.  Perhaps not XAU/EUR (Gold in Euros)We'll see where money flows.  If money flows to both the US Dollar and Gold it would be a wash for XAU/USD (sideways).  Tell me if I'm off somewhere here.  Looking specifically at the weekly gold chart, is there a wave coming in the channel?  You can see the downtrend channel and 1,008 support level from March 2008 which was broken.  The 200 day moving average hits at 1,028.

Text: Fed Raises Discount Rate From .50% to .75%, Discount/Fed Funds Spread Now 1/2 Percent, 30Y Treasury Yield Attempting To Break Out

Interesting.   This comes after the FOMC Minutes release yesterday.  Uncle Ben is making some moves!  $TYX (30 Year Treasury Yield) looks like it is attempting to jump over 4.75% resistance, from the June, 2009 and January, 2010 highs, I'll chart it out later.  When (if ever) do metals/commodities react to higher interest rates and does it need to be on the short end of the curve?

MarketWatch: Yield curve steepens to record as long debt drops
Bloomberg: Treasurys Extend Losses On Better Data; Supply Eyed
Bloomberg: Dollar Soars Against Euro, Yen as Fed Increases Discount Rate

"Release Date: February 18, 2010
For release at 4:30 p.m. EDT

The Federal Reserve Board on Thursday announced that in light of continued improvement in financial market conditions it had unanimously approved several modifications to the terms of its discount window lending programs.

Like the closure of a number of extraordinary credit programs earlier this month, these changes are intended as a further normalization of the Federal Reserve's lending facilities. The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy, which remains about as it was at the January meeting of the Federal Open Market Committee (FOMC). At that meeting, the Committee left its target range for the federal funds rate at 0 to 1/4 percent and said it anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

The changes to the discount window facilities include Board approval of requests by the boards of directors of the 12 Federal Reserve Banks to increase the primary credit rate (generally referred to as the discount rate) from 1/2 percent to 3/4 percent. This action is effective on February 19.

In addition, the Board announced that, effective on March 18, the typical maximum maturity for primary credit loans will be shortened to overnight. Primary credit is provided by Reserve Banks on a fully secured basis to depository institutions that are in generally sound condition as a backup source of funds. Finally, the Board announced that it had raised the minimum bid rate for the Term Auction Facility (TAF) by 1/4 percentage point to 1/2 percent. The final TAF auction will be on March 8, 2010.

Easing the terms of primary credit was one of the Federal Reserve's first responses to the financial crisis. On August 17, 2007, the Federal Reserve reduced the spread of the primary credit rate over the FOMC's target for the federal funds rate to 1/2 percentage point, from 1 percentage point, and lengthened the typical maximum maturity from overnight to 30 days. On December 12, 2007, the Federal Reserve created the TAF to further improve the access of depository institutions to term funding. On March 16, 2008, the Federal Reserve lowered the spread of the primary credit rate over the target federal funds rate to 1/4 percentage point and extended the maximum maturity of primary credit loans to 90 days.

Subsequently, in response to improving conditions in wholesale funding markets, on June 25, 2009, the Federal Reserve initiated a gradual reduction in TAF auction sizes. As announced on November 17, 2009, and implemented on January 14, 2010, the Federal Reserve began the process of normalizing the terms on primary credit by reducing the typical maximum maturity to 28 days.

The increase in the discount rate announced Thursday widens the spread between the primary credit rate and the top of the FOMC's 0 to 1/4 percent target range for the federal funds rate to 1/2 percentage point. The increase in the spread and reduction in maximum maturity will encourage depository institutions to rely on private funding markets for short-term credit and to use the Federal Reserve's primary credit facility only as a backup source of funds. The Federal Reserve will assess over time whether further increases in the spread are appropriate in view of experience with the 1/2 percentage point spread." [Source:  FederalReserve.gov]

Joe Stack Flew Plane Into Austin Echelon Building (Videos/Manifesto Text)

A guy named Joe Stack flew a Piper Cherokee plane into the Echelon office building in Austin, Texas. In his manifesto (text below) he said he was fed up with the IRS, Government, etc. I embedded videos from local news sources. It appears he burned down his house as well?? I'm gathering links. The MSNBC article said 2 people were injured and one was "unaccounted for". Crazy stuff.

Statesman: Witness accounts: Plane was in ‘full dive mode’
VancouverSun: Texas plane crash: Austin man sets fire to home, flies plane into IRS building
WSJ: Pilot May Have Targeted IRS in Austin Crash
Austinist: #ATXPlaneCrash: Pilot Wrote Manifesto
Statesman: About the Piper Cherokee plane that crashed
BBC: Texas plane crash 'may be deliberate tax office attack'
Fox News: Pilot Crashes Plane Into Texas Building Over IRS Woes
NPR News Blog: Austin Pilot Details All Over Web Despite Police Silence
MSNBC: Man crashes plane into Texas office building, Officials: Pilot was upset with IRS, act may have been intentional

The full manifesto:
"If you’re reading this, you’re no doubt asking yourself, “Why did this have to happen?” The simple truth is that it is complicated and has been coming for a long time. The writing process, started many months ago, was intended to be therapy in the face of the looming realization that there isn’t enough therapy in the world that can fix what is really broken. Needless to say, this rant could fill volumes with example after example if I would let it. I find the process of writing it frustrating, tedious, and probably pointless… especially given my gross inability to gracefully articulate my thoughts in light of the storm raging in my head. Exactly what is therapeutic about that I’m not sure, but desperate times call for desperate measures.

We are all taught as children that without laws there would be no society, only anarchy. Sadly, starting at early ages we in this country have been brainwashed to believe that, in return for our dedication and service, our government stands for justice for all. We are further brainwashed to believe that there is freedom in this place, and that we should be ready to lay our lives down for the noble principals represented by its founding fathers. Remember? One of these was “no taxation without representation”. I have spent the total years of my adulthood unlearning that crap from only a few years of my childhood. These days anyone who really stands up for that principal is promptly labeled a “crackpot”, traitor and worse.

While very few working people would say they haven’t had their fair share of taxes (as can I), in my lifetime I can say with a great degree of certainty that there has never been a politician cast a vote on any matter with the likes of me or my interests in mind. Nor, for that matter, are they the least bit interested in me or anything I have to say.

Why is it that a handful of thugs and plunderers can commit unthinkable atrocities (and in the case of the GM executives, for scores of years) and when it’s time for their gravy train to crash under the weight of their gluttony and overwhelming stupidity, the force of the full federal government has no difficulty coming to their aid within days if not hours? Yet at the same time, the joke we call the American medical system, including the drug and insurance companies, are murdering tens of thousands of people a year and stealing from the corpses and victims they cripple, and this country’s leaders don’t see this as important as bailing out a few of their vile, rich cronies. Yet, the political “representatives” (thieves, liars, and self-serving scumbags is far more accurate) have endless time to sit around for year after year and debate the state of the “terrible health care problem”. It’s clear they see no crisis as long as the dead people don’t get in the way of their corporate profits rolling in.

And justice? You’ve got to be kidding!

Updates: AIG Keeps Derivatives, Ackman Grand Slam, Toyota Corolla Steering, State Pension Shortfall, Israel/Britain, Google Buzz Lawsuit, Fake French Wine, Goldman Sues Fleeing Brokers, Greece, Law Firms, IMF Gold Sale, Botnets

Up late wandering around the robonaut inter-botnets and found some interesting articles.

CNET:  Zeus Trojan found on 74,000 PCs in global botnet
CNET:  Google gets Buzzed with a class action lawsuit
BusinessWeek:  Toyota May Recall Corolla After U.S. Investigation (Update2)
NewYorkTimes:  French Court Finds Fraud in Wine Sent to U.S.
Telegraph:  British threat to Israel over Dubai Hamas assassination
FinancialTimes:  AIG drops derivatives portfolio sale plan
Reuters:  U.S. state pension funds have $1 trillion shortfall: Pew
Reuters:  Greece says not seeking EU taxpayers' money
Reuters:  Goldman sues seven former executives for C.Suisse move
Bloomberg:  Ackman May Make $170 Million on ‘Grand Slam’ General Growth Bet
Bloomberg:  Making Partner Less Likely as Big Law Firms Face Cash Crunch
MarketWatch:  Dollar gains on euro after IMF announces gold sale

Inside Look at Goldman Sachs, Gods Work (PBS Videos)

Great two part series about Goldman Sachs on PBS Newshour. Featuring Jeff Macke and Nomi Prins (former Goldman trading strategist). Expand post for videos if on index page. These videos can be found at PBS Making Sen$e with Paul Salmon.

Stiglitz: Banks That Were Saved By Countries Are Now Attacking Them!

We live in a global casino and the house will NEVER lose folks. This was funny, he said: "these very banks that were saved by these countries are attacking the countries". "The first round is not over by any means at this juncture, but what I'm really worried about is the next round".. Also, see Stiglitz and John Paulson speak about the credit bubble at an Economist panel not too long ago.


[Courtesy of Tech Ticker]

FOMC Minutes Release For January 27 Meeting, Yields Rose (Released 2/17/2010)

While I watch Gold spot and EUR/USD, here is the FOMC Minutes release from the 1/26-1/27/2010 Federal Open Market Committee meeting.  This is just a portion of the text, I embedded the full PDF below.  They talked about asset sales and reducing reserve balances. Yields rose a bit today.

"Finally, staff noted that the Committee might want to address both the eventual size of the Federal Reserve's balance sheet and its composition. Policymakers were unanimous in the view that it will be appropriate to shrink the supply of reserve balances and the size of the Federal Reserve's balance sheet substantially over time. Moreover, they agreed that it will eventually be appropriate for the System Open Market Account to return to holding only securities issued by the U.S. Treasury, as it did before the financial crisis. Several thought the Federal Reserve should hold, eventually, a portfolio composed largely of shorter-term Treasury securities. Participants agreed that a policy of redeeming and not replacing agency debt and MBS as those securities mature or are prepaid would contribute to achieving both goals and thus would be appropriate. Many thought it would also be desirable to redeem some or all of the Treasury securities owned by the Federal Reserve as they mature, recognizing that at some point in the future the Federal Reserve would need to resume purchases of Treasury securities to offset reductions in other assets and to accommodate growth in the public's demand for U.S. currency. Participants expressed a range of views about asset sales. Most judged that a future program of gradual asset sales could be helpful in shrinking the size of the Federal Reserve's balance sheet, reducing reserve balances, and shifting the composition of securities holdings back toward Treasury securities; however, many were concerned that such transactions could cause market disruptions and have adverse implications for the economic recovery, particularly if they were to begin before the recovery had become self-sustaining and before the Committee had determined that a tightening of financial conditions was appropriate and had begun to raise short-term interest rates. Several thought it important to begin a program of asset sales in the near future to ensure that the Federal Reserve's balance sheet shrinks more quickly and in a more predictable manner than could be achieved solely by redeeming maturing securities and not reinvesting prepayments; they judged that a program of asset sales spread over a number of years would underscore the Committee's determination to exit from the period of exceptionally accommodative monetary policy in a manner and at a pace that would keep inflation contained without having large effects on asset prices or market interest rates. A few suggested that the pace of asset sales, and potentially of purchases, could be adjusted over time in response to developments in the economy and the evolution of the economic outlook. The Committee made no decisions about asset sales at this meeting.

Staff Review of the Economic Situation
The information reviewed at the January 26-27 meeting suggested that economic activity continued to strengthen in recent months. Consumer spending was well maintained in the fourth quarter, and business expenditures on equipment and software appeared to expand substantially. However, the improvement in the housing market slowed, and spending on nonresidential structures continued to fall. Recent data suggested that the pace of inventory liquidation diminished considerably last quarter, providing a sizable boost to economic activity. Indeed, industrial production advanced at a solid pace in the fourth quarter. In the labor market, layoffs subsided noticeably in the final months of last year, but the unemployment rate remained elevated and hiring stayed weak. Meanwhile, increases in energy prices pushed up headline consumer price inflation even as core consumer price inflation remained subdued.

Update: Unemployment vs. Insured, MZM/M2 Velocity, Treasury Securities Held at Commercial Banks (H/T Full Carry, AC)

February 2010 update.  I've been noticing información económica muy, muy interesante on my Macrotwits (twitter) stream from @fullcarry and @aricostello lately. Check these charts out. They seem to be leaning towards recovery/inflation no? These are 3 data points out of a gazillion but should be noted imo.

  1) Treasury securities held at Commercial Banks, 2) Velocity of money turning corner? and 3) Insured unemployment rate vs. unemployment rate.

Pricing Nuclear Bomb Risk (VIX), Take a Look Back at Hiroshima (Video)

Is nuclear bomb risk priced too low? Nations need to keep nuclear implied volatility under control before something sourd happens.
"Hear first-hand accounts from the air and ground, re-telling every memory from the day the world first witnessed the horrors of atomic warfare."


(Courtesy of BBC on Youtube)

Bill Gross/Pimco February 2010 Investment Outlook: Ring of Fire

I came across Bill's most recent February 2010 investment outlook titled "The Ring of Fire" at Pimco.com and it's a good read.  He favors the "less levered" developing world (China, India, Brazil) over the bloated G-7 countries (US, UK, Japan, Europe -less Germany).  In the developed world Gross prefers Canada given "current yields" and fiscal constraint (last paragraph).  He says stay far away from UK debt (paragraph 3).  Also see his "ring of fire" chart comparing country debt-to-GDP ratios with related growth studies.

"Risk/growth-oriented assets (as well as currencies) should be directed towards Asian/developing countries less levered and less easily prone to bubbling and therefore the negative deleveraging aspects of bubble popping. When the price is right, go where the growth is, where the consumer sector is still in its infancy, where national debt levels are low, where reserves are high, and where trade surpluses promise to generate additional reserves for years to come. Look, in other words, for a savings-oriented economy which should gradually evolve into a consumer-focused economy. China, India, Brazil and more miniature-sized examples of each would be excellent examples. The old established G-7 and their lookalikes as they delever have lost their position as drivers of the global economy.

Invest less risky, fixed income assets in many of these same countries if possible. Because of their reduced liquidity and less developed financial markets, however, most bond money must still look to the “old” as opposed to the new world for returns. It is true as well, that the “old” offer a more favorable environment from the standpoint of property rights and “willingness” to make interest payments under duress. Therefore, see #3 below.