Ireland, Italy, Spain Stock Indexes Pierced Technical Levels (Charts)

Hat tip to @gold_tracker on Twitter for this post at Gold Versus Paper - Ireland - First PIIG to Break Down. It looks like the Dow Jones Ireland Stock Index ($IEDOW) broke $180 support, closing at $178. It tested that level 3 times since May and finally gave in yesterday. Italy also blew through its 50 day moving average and has the risk of violating a symmetrical triangle. Spain pierced its 50dma and must hold 370 next week or there's risk of further downside. Is a new EUR/USD downside wave about to occur on growth risk? Be careful with European equities. Here's what currency hedge fund manager John Taylor had to say 10 days ago on Bloomberg (if still relevant): John Taylor (FX Concepts) Eyeing EUR/USD Trend Reversal, Greece, Spain Will Default, COT Chart (EUR/USD, USDX, DXY, UUP, FXE). Charts after the jump.

Doug Kass: Approaching Time to Re-Risk (Buy), Likes Financials Not Technicals (Fast Money Video 8/20)

Doug Kass of Seabreeze, who called for a classic bottom a few weeks ago (correctly), now thinks it is time to get "longer". He said "it's approaching a time to re-risk" in the "contained" trading range between 1020 - 1150 (or 11-13x his 2011 SPX earnings estimate of $90/share). He also said, "if the market continues to decline I will expand the long book further". He bought Citigroup and Bank of America on Friday. Kass does not believe in technical analysis.

The consensus view seems to be that the market will rally into the November midterm elections, betting on Republicans getting elected (Gallup: GOP Shows Strongest Positioning Yet in 2010 Vote Test). Does it even matter what Congress does at this point? I thought the market was supposed to rally on reflationary policies, not without them. I guess we'll have to see what the big money HFT trading algorithms decide to do, collectively.

Link to Interview w/ Paul Denlinger on China Economy, US Relations

Check out this interesting interview with Paul Denlinger at the competitivefutures.com blog. Here's the direct link -> Paul Denlinger: China’s Strategic Future. Denlinger writes the blog chinavortex.com and I follow him on twitter.

California Controller: Cash Will Run Out In Late October (CDS at 284bps)

Jane Wells spoke with California State Controller John Chiang today on CNBC. 150,000 State workers took an unpaid day off today (a furlough Friday). Chiang said if nothing is changes "we will run out of cash in late October". They are facing a $19 billion deficit with tax revenues down 14% in 2009 and might have to issue IOUs again. Read Jane's blog post today (California Acts Stoned Over a Rock). So are they going to legalize marijuana in November with proposition 19? Maybe they should bump it back a month. State of California credit default swaps, or insurance on its debt, actually tightened a bit in July and August. The 5Y California CDS is currently trading at 284 basis points (2.84%) to protect $10 million in bonds. I found articles from yesterday on Cali CDS in the LA Times (How a credit default swap deal works, Credit default swap deals unnerve California). I also embedded a video from Arnold Schwarzenegger (8/13).

$SPY Trend Update; Be Aware Of Weekly, Monthly Moving Averages

The market is falling today on an unexpected jump in jobless claims and disappointing regional manufacturing (Stocks drop as jobless claims rise unexpectedly - Associated Press). I'm thinking technical vulnerabilities (head and shoulders) are at stake here as well. There are ways to protect yourself against technical risk. You can hedge long exposure with put options or offset with securities or ETFs that move inversely with the risk asset, which changes as well. Treasury Bonds (TLT), the U.S. Dollar (UUP) and Volatility (VXX) have moved inversely with the S&P (SPY) since the April peak. The Dollar didn't gain much but it still preserved capital. I first did technical analysis on $SPY using weekly and monthly charts with trends and moving averages and then compared UUP, TLT and VXX performance with SPY since April (backward looking).

US Steel (X) Out-of-Money Call Options Active on Takeover Rumor (August-October)

U.S. Steel (NYSE:X) had mucho out-of-the money call options active today, from August to October, on rumors that ArcelorMittal (MT) was interested in buying U.S. Steel for $80/share. Steel analysts thought it was highly unlikely.

Slicing the Neckline: A Classic Technical Pattern Agrees with the Elliott Wave Count - Guest Post

Slicing the Neckline: A Classic Technical Pattern Agrees with the Elliott Wave Count

By Elliott Wave International

In the August issue of his Elliott Wave Theorist, market forecaster Robert Prechter alerted readers that the U.S. stock market was slicing the neckline of a classic head-and-shoulders pattern in technical analysis, and that this may send the market into critical condition.

Prechter said that when the Elliott wave count and a head-and-shoulders pattern are saying the same thing about the stock market, it's best to pay attention.

Kyle Bass: I Wouldn't Be Long Stocks, Short Japanese Government Bonds, Bet On Higher Rates Cheaply (CNBC Video)

Kyle Bass, managing partner at hedge fund Hayman Advisors, was on CNBC today giving free institutional advice on how to make big money risking very little capital. Remember credit default swaps on sub-prime mortgage CDOs? Kyle Bass, along with hedge fund managers John Paulson and Michael Burry, also bet against sub-prime mortgage pools using CDS (8/2007 Forbes article, 6/2007 investment letter, 12/2007 Bloomberg) and even warned former Bear Stearns co-workers about the risks he saw in the mortgage market in 2006 (See the FCIC hearing below).

This time Bass is betting against Japanese Government Bonds (quotes) using interest rate derivatives or CDS. He thinks JGBs are mispriced, unsustainable and susceptible to the "Keynesian endpoint". I'm sure U.S. Treasuries will be vulnerable at some point in the future. I can see the Government hearings now. Here's a WSJ article from December 2009:

"Traders are betting against Japan's debt in myriad ways. Some bearish traders are entering into option contracts betting on "forward rates", or the direction of Japanese yields. These options are among the most heavily traded of the commonly used bearish tools, so some beginners to the game are embracing them. The downside is investors can find themselves exposed to big losses if yields fall further.

Reflation ETF Call Options Active on ISE: TBT, SLV, USO, UNG, MOS

Reflation ETFs had the most customer call options/puts opened today on the ISE (International Securities Exchange). The ISE widget on the right column shows the most actives from the ISE Put/Call Ratio. The ISEE ratio is actually measured by Calls/Puts (opened) * 100. Today the reflation squadron topped the list (QE2?). In words:

Reads: Highland Hospitality, Treasury Butterflies/ES, Gross on GSEs, Waddell's Steve Avery on Markets

  • Hotel Chain Explores Bankruptcy (Highland Hospitality) - WSJ
  • BREAKING: Ex-Illinois Gov. guilty on one count, faces retrial - Reuters 
  • *Presenting The New Correlation Regime: Treasury Butterflies And Risk (2s10s30s/ES Chart) - Zero Hedge
  • U.S. bankruptcy claims trading hits record in July - Reuters 
  • Manager in flash crash: markets too fragile (Waddell's Steve Avery) - Reuters 
  • Trading Group Fined for Driving Up Oil Price ($12 million fine for 2008 $100 Oil)- FT
  • Pimco's Gross Urges `Full Nationalization' of Housing Finance - Bloomberg
  • Fed Buys $2.551 Billion Treasuries in Resumption of Purchases - Bloomberg
  • Dana in talks to buy more Suncor assets - sources - Reuters 
  • Dollar Libor dips again on low rate forecasts - Reuters (via Yahoo UK)
    • Gold rises to highest since July as euro gains - Reuters 
    • GM recalls Chevy Traverse, GMC Acadia, Buick Enclave, Saturn Outlook over seat belt - USA Today

    Similarities/Differences Between Japan of 1990 and U.S. Today (National Inflation Association Video)

    Will the U.S. experience hyperinflation or deflation from here? The National Inflation Association thinks hyperinflation. They put out an interesting video explaining Japan's lost deflationary decade(s) and showed similarities and differences between "Japan of 1990" and the U.S. today. For example, the Japanese Government borrowed from its own citizens who saved their money, while the U.S. borrowed "$4 trillion" from foreigners and "$1 billion" from Japan", the narrator said. U.S. citizens are starting to save though. The Nikkei 225 (Japan Stock Index) peaked in 1989 at 38,900 and troughed in 2008 at 6,900 (-82% in 21 years). In 2008 it revisited the 2003 AND 1982 lows. See my post from 3/2009 with a long-term Nikkei chart. Deflation and unemployment were so bad in the 1990s that the Bank of Japan lowered rates to 0% in 2001. The Nikkei then followed the U.S. leverage bubble/bust and Yen carry trade/unwind. Which will it be, chronic deflation (Gary Shilling), hyperinflation or stagflation? Watching $TLT, $GLD and $SLV.

    Gregor Macdonald: We're in a Debt Deflation Depression, Nominal-to-Real Values Widening (MacroTwits Video)

    Macro-economist, energy analyst, investor, Gregor Macdonald (@gregormacdonald on twitter), who writes about energy and economics at Gregor.us (w/ premium newsletter), StockTwits.com and runs the MacroTwits Hour on StockTwits TV (Sunday/9pm eastern) had an interesting show last night. I embedded the video below. Here are a few topics he covered:

    • Fake Pound coins in circulation, Gresham's Law (bad money drives out good)
    • Treasury bond prices haven't broken their 2008 highs yet, how will they react to QE2?
    • We're in a "debt deflation depression" not recession; we're not in a 1930s style depression yet
    • Fed printing money vs. debt deflation and money velocity
    • Post-war economics and contemporary economists
    • Deflation in "real" vs. "nominal" terms, spread widening between nominal and real values
    • Potential end game for Japan and the Yen (JPY)
    • Downward revisions to GDP

    30-Year Fixed Rate Mortgage at Record Lows 4.44%, Falling Wedge Reversal Pattern (chart)

    As of 8/12, the Freddie Mac 30-Year Fixed Rate Mortgage stood at 4.44%, a record low. I threw up a chart from the St. Louis Fed which starts at 1975. There will soon be a crazy multi-decade falling wedge reversal. It will be hard to time, but watch out for the bond vigilantes when rates start breaking out and Treasury volatility moves. Hopefully as a result of reflationary growth instead of stagflation. These rates are currently being fueled by the Fed and appetite for Treasuries by banks, savings et al. Also 78% of all "loan applications nationwide", according to the Mortgage Bankers Association, are refinancings (Washington Post).

    MORTGAGE30US - 30-Year Fixed Rate Mortgage US Average (Freddie Mac)


    Chronic Deflation Will Send 30-Year Treasuries to 3% (Gary Shilling)

    Gary Shilling still sees a 3% yield on the 30-Year US Treasury Bond and a lower stock market due to "chronic" deflation. His views haven't changed since July 21, when he was interviewed on Bloomberg. Since then the 30-Y Treasury yield ($TYX) lost 93 basis points and price ($USB) gained 1.5% to 132. The yield is sitting on floor support and could breakdown tomorrow. You can also see a clear descending channel, so if support gets violated 3.6% looks like support. Bonds are in bubble mode and could spike to form a capitulative top (yields move inversely with price). In my opinion, either Gold or 30-Year US Treasuries move parabolically from here to new highs. Which will it be.. I put up a chart of the 30-Year Treasury yield and embedded the Shilling interview courtesy of Tech Ticker. The deflation topic is hot right now. I'm writing about about the high yield bond-S&P yield spread on my next post with charts and videos. HY overvalued here?

    David Rosenberg: Bring Out Post 1700 History Books, Not Post 1945 (Video Interview)

    From this article at WSJ.com (Is a Crash Coming? Ten Reasons to Be Cautious), I found this 26 minute WSJ interview with Gluskin Sheff's Chief Economist David Rosenberg (former Chief Economist at Merrill Lynch).

    7:00 mark
    "This is a whole new paradigm. This is where we bring out the history books, not post 1945, maybe you know post 1700. This is a credit contraction of historical proportions and what happened was that for a period time, say for 3 quarters, maybe 4 quarters, we had this tremendous policy stimulus at the same time we had the green shoots from the effects of the inventories. That's all behind us right now."

    "The range of outcomes right now is extremely wide, wider than I've seen certainly in my professional lifetime. So I'm willing to say that there's tremendous uncertainty out there."

    "When I look at the economy bottom up, it's tough for me to get GDP growth rates much above 1% and in fact I think the odds that we could be contracting by the 4th quarter, barring some major unforeseen exogenous positive shock, I think that the odds that we slip back into recession, if we ever left the first recession, I think are a lot higher than a lot of market pundits are talking about right now."