CDO Comedy: Customer Screwed Was Bank Doing the Screwing

Listen to this podcast on the rise and fall of CDOs (collateralized debt obligations) at NPR's Planet Money. Listen to the whole thing, it's kind of funny. Below is a quote 14 minutes in. This is why banks should not exist in current form today (imo)!

Bernanke's Speech in Jackson Hole; Committed to Fighting Deflation

Bernanke will fight deflation, to the death.

"At this juncture, the Committee has not agreed on specific criteria or triggers for further action, but I can make two general observations.

First, the FOMC will strongly resist deviations from price stability in the downward direction. Falling into deflation is not a significant risk for the United States at this time, but that is true in part because the public understands that the Federal Reserve will be vigilant and proactive in addressing significant further disinflation. It is worthwhile to note that, if deflation risks were to increase, the benefit-cost tradeoffs of some of our policy tools could become significantly more favorable.

Second, regardless of the risks of deflation, the FOMC will do all that it can to ensure continuation of the economic recovery. Consistent with our mandate, the Federal Reserve is committed to promoting growth in employment and reducing resource slack more generally. Because a further significant weakening in the economic outlook would likely be associated with further disinflation, in the current environment there is little or no potential conflict between the goals of supporting growth and employment and of maintaining price stability.

Dick Bove vs. CLSA's Mike Mayo on Citigroup Cooking the Books (DTAs)

Charlie Gasparino broke news on Fox Business that Citigroup (C) might be cooking their books. Read and watch it here: Analyst: Citigroup Is Cooking the Books. CLSA analyst Mike Mayo said Citi needed to take a $50 billion writedown on "deferred tax assets" and the result would be a $10 billion loss. Ha, Dick Bove said Citigroup is not cooking the books: Dick Bové: FYI, Citi Is Not “Cooking The Books” (Dealbreaker). In July, Bove said Citigroup was headed toward $8.50. I embedded the Fox Biz video. I'd like to see what the accounting blogs say. The chart says Citigroup either triples or goes to zero from here (chart).

Nikkei 225 Shorts Cover, 20-Year JGB Yield Spikes (Chart Comparison)

Today traders rallied the Nikkei 225 Index (Tokyo Stock Index) back into the green and dumped JGBs (yields rose).  Bloomberg articles on why:

1) Japanese Stocks Rise After Yen Weakens on Policy Expectations; Sony Jumps 
2) Yen Weakens on Speculation Japan Will Take Action to Curb Currency's Gains
3) Japanese Bond Slide, Yields Rise Most in 19 Months, on Policy Speculation
4) Japan automakers report solid production growth

Below is a Bloomberg chart comparing the Nikkei 225 (NKY) and 20Y Japanese Government Bond (GJGB20). Are JGB yields bottoming out? Some hedge funds are betting on it, see post: Kyle Bass: Wouldn't Be Long Stocks, Short Japanese Government Bonds, Bet On Higher Rates Cheaply (CNBC Video). Will U.S. markets copy this move tomorrow (higher market/lower Treasuries)? All eyes are on the U.S. Q2 GDP Growth Revision tomorrow via bea.gov. Consensus calls for 1.4% from 2.4% initially (Briefing.com). U.S. futures are unchanged and Europe is lower.

Energy and Security Issues in the Red Sea Transforming as “the Age of Gas” Begins in Earnest - Guest Post

Submitted by OilPrice.com

Energy and Security Issues in the Red Sea Transforming as “the Age of Gas” Begins in Earnest

Major new energy issues are about to transform still further the strategic balance of the Horn of Africa and the Red Sea, with foreseeable consequences for the global energy market over the coming decade. Soon-to-be-evident new wealth in the Red Sea/Horn of Africa region will transform the intensity of conflict there, which in turn will affect not only the region, but the world’s most important trading route: the Red Sea/Suez sea line of communication (SLOC).

Much of the anticipated change is developing around the flood of new discoveries and exploitation of natural gas fields in the Indian Ocean region, particularly extending through Ethiopia, Egypt, and other countries of the Red Sea region. Apart from the impending influx of new energy wealth into the region, facilitating new levels of confidence and capability in the security environment, the boom of the “Gas Age” also seems set to promise — within a decade — an oversupply of gas to the world market, almost certainly precipitating a collapse in price for gas and petroleum.

Albert Edwards: Heading Back to S&P 450 (1982), Long Treasury Bonds 10y+

Check out Société Générale's Albert Edwards recent research report on the market (Albert Edwards: "We Are Returning To 450 On The S&P (charts) - zerohedge.com). He sees the Long Treasury Bond/S&P inverse relationship continuing (bonds up, equities down). I posted a chart of TLT/SPY yesterday and you can see the clear relationship. It looks like Treasuries/S&P took over the US Dollar/S&P inverse relationship recently which is interesting.

This call is similar to Charles Nenner's target on the Dow: Charles Nenner's Cycles See Dow 5,000, Gold 2,500 in Few Years (Deflation, Military Conflict). Folks, if these people are right, that's a 50%+ haircut from here. You can protect yourself from these targets with far out-of-the-money put options (disaster insurance) and probably on the cheap. For more on Albert Edwards read this NYT piece from August 9: The Rise of the Permabears.

Charles Nenner's Cycles See Dow 5,000, Gold 2,500 in Few Years (Deflation, Military Conflict)

Charles Nenner, a market timer who studies cycles at the Charles Nenner Research Center, was on Bloomberg TV today and here's a summary of what he said:
  1. We are following Japan (deflation) worldwide
  2. Not much more the Fed can do
  3. Gold is risky in the short term, but sees it hitting $2,500 on a cycle of "major military conflict" starting in 2012-2013.
  4. Sees Dow hitting 5,000 in the next few years
Nenner did market timing models for Goldman Sachs for 12 years. All algorithms! I embedded the video below.

Chart Update, Ratio Analysis: GLD, SPY, SLV, IWM, TLT, UUP, GDX, GDXJ, SP-500 Index

It's been a minute, here's a fresh technical chart festival including ratios and one price comparison. The most appealing ETFs on the long side, strictly on price action, are the gold and silver ETFs (GLD, SLV) and gold stock indexes (GDX, GDXJ). I forgot to check out the silver stock ETF. If precious metals want to move in tandem, I say play the potential silver breakout. GLD broke through its all time high in October, 2009 while SLV lagged. Two months ago famed commodity investor, Jim Rogers, said silver looked cheap being "70% below its all time high" (see post with Jim Rogers on CNN Money).

All of these plays look good with put protection and a stop under support (imo). I think put options (depending on implied volatility, consult with an options pricer) would work well as a hedge if gold and silver failed at resistance. They'd probably blast through their 50 week, 50 day and 200 day moving averages and ascending channel support from 2008, which would bring massive downside volatility and make the puts profitable. The same thing happened in June but it was a correction. So in the near term, precious metals ETFs either break free from here or violate the lows from July (imo). If you're on the index page, 12 charts are after the jump link.

Roubini Sees Less Than 1% Growth in Q3, 40% Chance of Recession

FYI: Nouriel Roubini sees less than 1% GDP growth for Q3 and a 40% chance of recession. He tweeted this today:
"Q3 GDP growth very likely to be below 1%; and likely to be closer to 0% than to a pathetically lousy 1%. So double dip risk is now > 40%" (source: Twitter)

Also from a Bloomberg article:
“With growth at a stall speed of 1 percent or below, the stock markets could sharply correct, and credit spreads and interbank spreads widen while global risk aversion sharply increases,” (source: Bloomberg.com)

International Sanctions Inflicting Pain At Gas Pump, Stalling Energy Projects - Guest Post

Submitted by OilPrice.com

International Sanctions Inflicting Pain At Gas Pump, Stalling Energy Projects

Although the Iranian government insists that countries like China and Russia can make up lost Western investment in the petroleum sector, rising gas prices and stalled energy projects are signs that the regime is beginning to buckle under international sanctions.

The United States, Canada and Australia, as well as the United Nations and the European Union, have stiffened financial penalties over the last several weeks against Iran for its nuclear program, which Tehran argues is meant for civilian uses like power generation and medical purposes.

In recent weeks, Tehran has begun to feel “a lot of pressure” on the gasoline front, said Houchang Hassan-Yari, a professor of international relations at the Royal Military College of Canada in Kingston, Ontario. The government is now curbing from 100 liters to 60 liters (roughly 26.4 gallons to 15.9 gallons) the amount of subsidized gas consumers can buy each month, Hassan-Yari told OilPrice.com.

Ireland Index Technicals Predicted CRH Earnings Cut, Bank Worries and S&P Downgrade (CDS Also Made Moves In August)

On Saturday, I posted a chart of the Dow Jones Ireland Stock which pierced firm support on big downside price action on Friday. You could tell traders were nervous about something when the red candlestick creeped through support on a line that held 3 times during the last 4 months. Technicals matter. Look at the headlines on Monday and Tuesday and the -6.35% move in the Ireland Index. I also threw up a chart of Ireland 5Y CDS during August. Credit default swaps insure debt for a fee. Credit traders who bought naked CDS in the beginning of August are up 50% on their money, or a financial institution hedged their long exposure in Irish Government Bonds.

Hugh Hendry's Eclectica Fund is Top Macro Fund YTD

Link: Congratulations To Hugh Hendry For Achieving The Best Macro Hedge Fund YTD Return (Zero Hedge). 

Don't know who Hugh Hendry is? See recent media appearances here, you won't regret it. He and partners run Eclectica Asset Management in London.

"Requiem For Detroit" Documentary, It's Now a Depressed Turn Around Story!

I found this interesting film documentary on the city of Detroit titled "Requiem for Detroit", directed by Julien Temple on BBC Two. I couldn't find the film anywhere else on the internet. It went through the rise and fall of Detroit during the 20th century. It was an hour long history, economics and social study of Detroit.

It started with Henry Ford's invention of the automobile and the subsequent economic boom. It then traveled through a bunch of ups and downs throughout history including the 1929 stock market crash, Great Depression, WWII/industry bail out, 50s car boom, highway system, racial riots burning down the city, mass flight out of Detroit occurs to surrounding suburbs, 70s oil crisis brings Japanese competition, plants close, the last cheap oil/gas guzzling car boom occurs (Hummer) and of course ends with the $4 gas spike, credit crisis, housing bust, unemployment and GM bankruptcy.

July Existing Home Sales -27% over June on Tax Credit Expiration, Prices Hold Up But Inventory Months Up (Data Table, ITB Chart)

A dismal existing home sales number rocked the market today but should've been expected given the expired tax credit. July preliminary existing home sales came in at 3,830,000 versus 5,260,000 in June or -27.2%, and -25.5% over 2009. Existing inventory on the market clocked 3,984,000, +2.5% over June but -1.9% over 2009. Given the slower pace of sales, months of inventory on the market rose 40.4% to 12.5 months over June, and 31.6% over July 2009. Prices were relatively stable, we'll see what happens going forward though with the months of inventory on hand. If mortgage rates head on down to 2% that would provide a decent backstop (see the recent 30-Year fixed rate mortgage chart going back to 1975). Here's what Lawrence Yun, chief economist at NAR (National Association of Realtors) had to say and I embedded the existing home sales data below via Scribd. ITB (the US Home Construction ETF) might've already priced the news in, it's up 0.46% to $10.85 (chart below). Looks vulnerable at support though if it rolls over again.
"July Existing-Home Sales Fall as Expected but Prices Rise

Washington, August 24, 2010

E-mini S&P, Russell, Nasdaq Futures at Inflection Point (Head and Shoulders, Descending Triangle, Dark Cross)

The E-mini S&P, Russell and Nasdaq are at a serious inflection point. They all formed a head and shoulders pattern, are trading inside a descending triangle from the April peak to July low and all have overhead "dark crosses" in play (when the 50 day moving average crosses the 200 day). We can't hold this sideways channel forever. I wouldn't want to be long the market until the descending trend gets violated. I could see SPX testing the July 2010 low, which is about 4.5% downside from here on the S&P index. We are technically still in a sideways channel but the chart looks creepy no? Hopefully you're already hedged accordingly with short exposure or put insurance, given the Hindenburg Omen and 1987 crash signals out there (Aug 12: Bob Prechter: Dow Chart Similar to 1987 Top, Bullish on US Dollar, 100% Cash (Video).

The VIX futures curve (volatility index curve) is steep with spot at 25 and October at 32, meaning volatility traders are expecting a higher read between now and October expiration. This same type of action occurred in late 2009. Check the Daily Options Report and VIX and More for more information on the VIX. Get ready for some interesting action in equities and Treasuries. Blow off top coming for TLT? Charts are after the jump link.

Nikkei 225 Index Breached 9,000 Support (Charts)

On July 16, I told you to watch the Nikkei 9,000 support level when it rolled over at downtrend resistance (see charts). It breached that level today in Japan, closing at 8,995, down 1.33%. It hit an intra-day low of 8,983. The S&P E-mini future is down 0.82% overnight and could follow tomorrow. I charted out the Nikkei 225 September Future and the Index* (as of yesterday's close but zoomed out). You can see the obvious descending triangle breach in the future. The September future was trading at 8,935. If 9,000 turns out be to be new confirmed resistance, there's a chance Tokyo's Nikkei could sell off to 8,000 (-11%) or even double dip to early 2009 levels. If I was a long only mutual fund, I would not want to own Japan yet until a) 9k support was set in stone and b) the Nikkei took out that downtrend line from 2007.

Tokyo Nikkei 225 Index Sep 2010 (NKU10) - OptionsXpress

Reading: Market Risks, Silver, Japan Breaches 9,000, Illinois Debt

I'm trying to find some good news folks, I really am. I guess you could say temporary employment +23% in Q2 year over year is good news, but it better translate into permanent employment or we'll be in a wage raping contract economy with zero benefits just to keep EPS and stocks up.

Housing Slide in U.S. Threatens to Drag Economy Into Recession - Bloomberg
China Stock Futures Drop; Commodity Producers May Fall on Slowdown Concern - Bloomberg
Nikkei down 1%, breaches 9,000 level - Reuters
Taleb's Pessimism Lures CIC - WSJ
If S&P Breaks 1010, Back To 878? - CNBC Fast Money
Japanese 10-Year Bond Futures Advance on Stronger Yen, Economic Concerns - Bloomberg
Wheat Futures in Chicago Plunge as Much as 2.1%, Extending Earlier Losses - Bloomberg
Credit Suisse's Morse Says Wheat Price Gains `Overdone': Video - Bloomberg
Facebook Deletes Accounts Purporting to Be From North Korea - Bloomberg
Housing in 'Double-Dip': Economist Mark Zandi at Moody's Analytics - CNBC
Jim Cramer Sees ‘Very Negative’ Trend in Market - CNBCs Mad Money
Retail Investors Don’t Trust the Market: McCaughan of Principal Global Investors - CNBC
Current Bubble: Bond Bubble Believers! - CNBC Fast Money
Commercial Real Estate Gains for First Time in 2 Years: Study - CNBC
Hurricane Danielle Forms in Atlantic, Seen Strengthening - CNBC
Is Illinois Worse Off Than Greece with a Little LTCM and Bear Stearns Thrown In? - Zero Hedge
IOU Part Two: California To Issue IOUs For Second Year In A Row - Zero Hedge
James Turk - Upside Explosion In Silver - KingWorldNews
KWN Weekly Market Wrap-Up with Art Cashin - KingWorldNews
Richard Russell - The Stock Market Is Crumbling - KingWorldNews
Why Coffee Is Getting More Expensive - NPR Planet Money

Bond Bubble? H0A0, HYG, JNK, PHK, TLT, LQD, Baa/S&P Spread, OAS (Chart Action, Part 2)

This post takes off from part 1Bonds in Bubble Mode! Spreads to S&P, Treasuries Narrowing (JPM's Tom Lee, CDR's Tim Backshall and Wharton's Siegel). Below I charted out TLT, LQD, JNK, HYG, PHK, the Merrill Lynch US High Yield Master II Index, OAS (option adjusted spread to Treasuries), Baa-S&P 500 earnings yield spread and the Baa-10Year Treasury yield spread.

Bond ETFs look ripe for a correction, especially when looking at the yearly charts of PHK and LQD. PHK (Pimco High Yield) retraced the entire 2008 crash and LQD is testing the 2003 highs! In the immediate term, watch to see how HYG and JNK break their symmetrical triangles and if the 20 week moving average crosses the 50 week moving average.

Bonds in Bubble Mode! Spreads to S&P, Treasuries Narrowing (Tom Lee, Tim Backshall, Siegel Videos) Part 1

Bonds are in parabolic mode across the risk curve, from Treasuries to High Yield Corporate Bonds, mainly due to Fed policy, banks surfing the yield curve for spread (borrowing at 0% and investing in 30 Year Treasuries at 3.66%) and funds flowing out of equities and into bonds. Tom Lee, Chief U.S. Equity Strategist at JP Morgan, mentioned a few days ago (video below) that we could see a huge refinancing-boom for mortgages and corporate bonds. However, he sees risks on the other side of the trade.

Oil Prices Spiral Downwards as Economic Gloom Intensifies - Guest Post

Guest post by OilPrice.com

Oil Prices Spiral Downwards as Economic Gloom Intensifies

Oil Market Summary for 08/16/2010 to 08/20/2010

Crude oil prices continued their downward spiral during the week as new data confirmed that U.S. economic growth is slowing.

The benchmark West Texas Intermediate contract settled 2.6% lower for the week on Friday, at $73.46 a barrel compared to the $75.39 close a week ago, itself a decline of 7% from the previous week.