FOMC Statement 9/21/2010, Expect 0-1/4 Percent For Extended Period

Federal Open Market Committee Statement from FederalReserve.gov.

"Release Date: September 21, 2010

For immediate release

Information received since the Federal Open Market Committee met in August indicates that the pace of recovery in output and employment has slowed in recent months. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak. Employers remain reluctant to add to payrolls. Housing starts are at a depressed level. Bank lending has continued to contract, but at a reduced rate in recent months. The Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be modest in the near term.

September CMBS Update: Total Delinquencies Up, 90+ Days Down (RealPoint)

RealPoint has their September CMBS (Commercial Mortgage Backed Securities) Delinquency report up for the month of August at Realpoint.com. Key points from the executive summary.
"In August 2010, the delinquent unpaid balance for CMBS increased by an additional $551.8 million, up to $61.39 billion from $60.84 billion a month prior."

Papandreou: Greece Won't Default, 10y GGB Inflection Point (11.36%)

Greek Prime Minister, George Papandreou, was interviewed on the floor of the NYSE yesterday by Bloomberg TV. In the video he said "We (Greece) are not going to default" and refuted Roubini's claim that Greece was insolvent (read: The Eurozone’s Autumn Hangover - Project Syndicate 9/15/2010).

The 10-Year Greek Government Bond (GGB) is yielding 11.36%, around the May high. It doubled since November 2009 and is now testing trend support. If the 10y GGB yield breaks down, it could violate a few trend lines and retrace. The Greek 5-Year Credit Default Swap closed at 881 basis points, which is still elevated but below the June peak of 1125bps. The CDS appears to be losing strength as well. I'm not quite sure what's going on behind the scenes, but watch the charts for breaking news. Betty Liu interviews Papandreou after the jump.

Also.. Riot Police On Standby, As Greek Truckers Form Massive Protest Blockade (BusinessInsider)

Worries About Consumer Demand, Deflation Drive Down Oil Prices - Guest Post

Guest post by OilPrice.com

Worries About Consumer Demand, Deflation Drive Down Oil Prices

Oil Market Summary for 09/13/2010 to 09/17/2010

Flagging consumer sentiment and renewed concern about deflation sent oil prices into the doldrums this week, as prices dropped 1.2% on Friday to close the week down 3.6%.

The benchmark West Texas Intermediate futures contract settled at $73.66 a barrel on Friday, down 91 cents on the day, compared to $76.45 a week ago.

A pair of bearish statistics on consumer sentiment and inflation drove down crude oil prices on Friday.

Flagstar On Unusual Stock Volume (FBC), $600 Million Share Sale #banks

Flagstar Bancorp ($FBC), a regional bank headquartered in Troy, Michigan (who needs a capital injection) put out a press release regarding the big stock volume on 9/14 and 9/15/2010. They didn't address the volume specifically but reaffirmed their outlook for 2010 with key drivers. I originally found this information at Crain's Detroit Business.

MatlinPatterson Global Advisers LLC, the majority owner of Flagstar, who provided a $250 million capital injection in December 2008, is trying to raise $600 million through a stock offering. For a better explanation, listen to this Bloomberg audio interview with an Oppenheimer analyst.

It will be interesting to see what happens. Below is part of the press release, $FBC's stock chart with volume and a ychart showing the five year net income and revenue trend ending on 6/30/2010. $FBC hit a 52 week low of $1.73 on 9/15 and closed at $1.94 today.
FLAGSTAR RESPONDS TO UNUSUAL MARKET ACTIVITY

USD/JPY 15 Minute Wedge Getting Tighter After Yen Intervention Spike

USD/JPY (US Dollar/Japanese Yen) is in a rising wedge on the 15-minute chart and it's getting tighter. It's above the 50 day moving average and brushing up against downtrend resistance from the peak in May. Dollar/Yen is up big since the Yen intervention spike. I bet there's a retracement at some point. You are fighting "strong monetary easing". Quote from Bloomberg today:
“The BOJ pretty much left the full amount of intervention in markets, a sort of effective unsterilization,” Nishioka said. “The chance for additional policy easing is increasing after the government finally intervened in the currency market.”
Keep an eye on the Yen and JGBs (Japanese Government Bonds). Keynesian end point?

George Soros on Gold's Bubble, "Blah" U.S. Economy, China (Video)

Billionaire George Soros, who runs (or used to run) billions at Soros Fund Management, spoke with Reuters about the "blah" U.S. economy, double dip recession risk, fiscal restraints, effectiveness of quantitative easing ("if there's no demand [for the money], it won't be used"), China's explosive growth, the undervalued Yuan, Euro, Japanese Yen intervention and the gold bubble.

AIG CDS Chart Reflection (Insurance on the Insurer) 2008-2010

Below is the 5-Year AIG Group Credit Default Swap from 2008-2010 via Bloomberg.com (link: CAIG1U5). The chart shows the insurance premium to protect against the default of the biggest property and casualty insurance company in America (in 2006 and 2007). AIG's Fortune 500 rank was #9 in 2006, #10 in 2007, #13 in 2008 and #245 in 2009. AIG Group CDS is currently trading at 2008 levels, the period of complacency before the Lehman bankruptcy bomb hit. Pretty big moment in history no?

Alan Greenspan Converses With Council on Foreign Relations 9/15/2010 (CFR.org)

Alan Greenspan (President of Greenspan Associates and Former Federal Reserve Chairman who kept interest rates artificially low in the early 2000's, heh), had a conversation with Mort Zuckerman at the Council on Foreign Relations today (September 15, 2010).

He discussed the future of the housing market, prospects for recovery, how raising taxes would decrease the deficit and how "stimulus is crowding out private investment".

Link: http://www.cfr.org/publication/22947/conversation_with_alan_greenspan_video.html

Nouriel Roubini at Google Zeitgeist 2010 (Video)

Dr. Realist, Nouriel Roubini, spoke at the 2010 American Google Zeitgeist conference. Nouriel starts at 19:50. The video includes:

Chrystia Freeland Global Editor-at-large, Reuters
James Wolfensohn Chairman, Wolfensohn & Company, LLC
Nouriel Roubini Chairman & Co-founder, Roubini Global Economics
Ted Turner Chairman, United Nations Foundation
Tom Brokaw Special Correspondent, NBC News
Mikkel Vestergaard CEO, Vestergaard Frandsen Group


Links: LA Port Traffic, Pimco's Deflation Bet, China CDS, TARP Deadbeats, Yen Intervention (USD/JPY, Nikkei Charts)

Pimco Makes $8.1 Billion Bet Against `Lost Decade' of Deflation - Bloomberg (h/t Morgan_03)

LA Port Traffic in August: Imports Surge, Exports down year-over-year - Calculated Risk (h/t credittrader)

China to Allow Credit-Default Swaps With Restrictions - BusinessWeek

Flagstar ($FBC) seeking $600 million share sale: report - Reuters

TARP Deadbeat Bank List Tops 120 in August - SeekingAlpha

Japan Intervenes for First Time Since 2004 to Rein in Yen - Bloomberg

$SPY at Apex Point in Symmetrical Triangle (Weekly Chart) 9/14/2010

*$SPY (S&P 500 ETF) symmetrical triangle inflection point alert on the weekly chart. Omfg. Directional judgment day is near for $SPY. The downtrend line from 2007 is closing in on the uptrend line from 2009, near the apex point (where the trends cross). Watch for a strong catalyst that breaks a trend. All I can say is, hedge accordingly.

$SPY price position:
> 50 Week Moving Average
< 200 Week Moving Average
< January 2010 High (potential left shoulder)

SPY chart courtesy of freestockcharts.com

Continued from: $SPX Trend Line From 1974 Hits 650-800 Until 2015 ($SPY, S&P 500)

$SPX Trend Line From 1974 Hits 650-800 Until 2015 ($SPY, S&P 500)

I'm taking you back to the seventies (1974 low) in the first $SPX chart (S&P 500 Index). I drew important trend lines and added the 50 and 200 month moving averages to both charts. The second chart shows the 2000-2010 chop-fest. Writeup pending..

*Writeup 9/14/2010: On the first $SPX log chart, I drew a trend line that hit the 1974 low, 1982 recession low and almost the March 2009 low. The S&P/Trend Line spread widened significantly during the late eighties and early nineties, but tightened when the tech bubble burst. Today, after rallying 80% from the March 2009 low and correcting a bit, market participants have to decide if we're experiencing a 2004 redux (see chart 2) or in a 100 year structural change. If we're in a 2004 redux, the S&P must break above the 50 month moving average. All throughout 2004, $SPX was above and below that level and eventually found support.

As you can see from chart 1, the S&P is trading above the 200 month moving average and below the 50 month moving average. What we don't want to see is the 50 month cross the 200 month to the downside. It would either put overhead pressure on the S&P or aggressively price it in before it occurred (imho). You can't see it, but I bet the 50 month crossed the 200 month to the upside in the early eighties, which sparked the 20-25 year rally. I'm saying this now because the moving averages haven't been this close since that time period.

Links: Jim Simons on CNBC, Warren Buffett (No Double Dip), Albert Edwards, Pento on Interest Rates, BofA (9/13/2010)

Banks Rise as Basel Gives Firms Eight Years to Comply - BusinessWeek

The graphs indicate bonds are at inflection point - Citywire

Microsoft Said to Plan Debt Sale to Pay for Dividends, Buybacks - Bloomberg

Chart of the Day: Beware Downward Adjustments to Earnings Estimates (by David Rosenberg) - Credit Writedowns

Hussman: Watch the lagging indicators - Credit Writedowns

Jim Simons (Renaissance Technologies): Market 'Resilient,' Not Going Much Lower - CNBC [3 part video - Market Outlook, Flash Crash, Future of Renaissance and Math for America]

Goldman's Hatzius Sees 25-30% Chance of Recession, Tax Expiration Risks, Quantitative Easing on 10% Unemployment (CNBC Video)

Jan Hatzius, Chief US Economist at Goldman Sachs, was on CNBC today. Here's a summary of what he said and the video.

Karl Denninger Interviewed By Max Keiser (9/10/2010)

Karl Denninger who writes the Market Ticker blog was interviewed by Max Keiser. Real talk.

Link: http://maxkeiser.com/watch/on-the-edge/episode-70-10-september-2010-guest-karl-denninger/

Signs of Financial Stress First Appeared in Credit Default Swaps (CDS)

I was flipping through this month's Bloomberg Markets magazine and came across page 150 titled "Finding Stock Clues in CDSs". Here's a quote:
"This year's fiscal turmoil in Europe and the market slump of 2008 have something in common: Both had their roots in debt. Be it Greece in 2010 or Lehman Brothers Holdings Inc. and General Motors Co. two years ago, some of the earliest signs of financial stress first appeared in the credit markets--specifically, credit-default swaps--before spreading to other asset classes such as equities." (from the October issue)

Credit default swaps are insurance contracts on a company's bonds that trade over-the-counter between banks, institutional investors and hedge funds. There has to be a way for smaller "accredited" players to get involved in a liquid and more transparent CDS market, since "too big to fail" obviously didn't work. How about a revolution in securitization as well? I'll give more thoughts on this later.

Price moves in credit default swaps provide "material" (in my opinion) information on underlying credits and have more credibility than the actual credit rating. If CDS prices spike dramatically, either a bank or hedge fund is speculating on higher default risk, nervously hedging underlying long exposure, or as billionaire hedgie George Soros put it,

Michael Burry Bets On Farmland, Gold, Small Tech and "Special Situations" in Distressed Real Estate

Dr. Michael Burry, former hedge fund manager and main character in Michael Lewis's book, "The Big Short", thinks farmland (with water on site), gold, small tech companies in Asia and "special situations" in distressed real estate (raw land cheapest) are attractive investments. He doesn't see a robust recovery ahead and prefers alternative investments that are uncorrelated with the overall market (see video #1). You know who else likes gold and farmland? Marc Faber.

Live Video of San Bruno Fire, CBS Coverage via Livestream

San Bruno, California is on fire from a huge natural gas explosion. Hope everyone is alright.

Links: Albert Edwards, Kyle Bass, Michael Burry, Whitney Tilson, The Fly, David Rosenberg, Goldman FX

Albert Edwards: "Equity Investors Are In A Vulcan Death Grip And Are About To Fall Unconscious" - Zero Hedge

Kyle Bass Expects Radical Government Intervention in Japan - Absolute Return + Alpha

Goldman Continues Bashing The USD, Sees Short-Term Dollar Strength Followed By QE And A Plunge - Zero Hedge

Chart Patterns That Mark Twain Would Give A Second LOOK $SPX $SPY - Hedge Analyst (theback9)

David Rosenberg: Here Are 13 Signs That We're Actually In A Depression Right Now - Business Insider

Wall Street Journal vs. New York Times (Animated Video by Next Media)

I'm starting to really like this news organization. Watch "Wall Street Journal Takes On New York Times" by Next Media Animation. Find more videos at their website http://www.nma.tv or on Youtube. This network broke news on the Jay Leno/Conan/NBC debacle, Tiger Woods, Taliban monkey fighters and more. View the video after the jump.

SPX November 675 Puts Opened (S&P Futures, $SPY)

According to Brenna at OptionMonster TV (video at Dr. Js Blog), 25,000 SPX November 675 Puts opened yesterday (September 7). The trade was 38% out of the money and $2.7 billion in notional value! See the video here. Is someone protecting against market turbulence going into the mid-term elections? I wrote yesterday that SPY (S&P 500 ETF) was preparing to make a big move out of that symmetrical triangle. She also talked about option activity in $FXI (China ETF). *Also check out this Mr. Top Step vs. Top Notch video from the CME today.

USD/JPY Weekly Chart Broke Below November Support (84.74), Trading at 83.76 (FXY)

Nothing new here, just showing that USD/JPY (US Dollar/Japanese Yen) broke the critical 84.74 support level from last November. On August 30, the Bank of Japan's emergency meeting and Yen intervention rumors attempted to save that level, but failed. I don't see any support on USD/JPY going back 2.5 years, so who knows if the BoJ intervenes to save Japanese exports (Japan machinery orders up 8.8 percent in July - AP) or not.

The descending channel and 84.74 ceiling resistance are major structures to break in order to get long in size (in my opinion). 400x leverage? Patience might be required. If USD/JPY doesn't break descending channel resistance by year end, it could trade as low as 78. Check out the weekly chart of USD/JPY. Unfortunately I could only go back to mid-2008 on this chart but it still works. Oh and watch JGBs (Japanese Government Bonds).

Sideways Action Won't Last Forever, Prepare For Catalysts (SPY, VIX)

SPY (S&P 500 ETF) is being squeezed inside a symmetrical triangle and could go ballistic at any moment (melt-up or down). It can't move sideways forever. For further upside, SPY must take out the 200 day moving average (red) and downtrend resistance level from April. Shorts would probably cover and intra-second high frequency trading perma-bull bots would feed on that. If that were the case, I'd probably look into a bull vertical spread of some sort. I just don't see that much upside, but keep in mind some strategists believe the S&P will hit 1,300 (130 SPY) by year end.

For the meltdown camp, if SPY's 50 day moving average gets taken out *again* I'd say it's a decent short (hedged with calls) to the uptrend line and, if all runs smoothly, 95 on SPY or 950 on the S&P. That level corresponds to the mid-2009 plateau and Blue Marble Research's SPX target by the end of 2010. The VIX (Volatility Index) is glued at the 200 day moving average (23). Also, the Investor Intelligence Bearish Percentage is diverging with the Volatility Index (read John Hussman's weekly comment from 9/6). See charts after the jump.

Investors Intelligence Bearish Percentage vs. VIX (Hussman)

John Hussman, in his most recent weekly market comment titled "the recognition window", made an interesting observation that the Investors Intelligence Bearish Percentage was diverging with the Volatility Index (VIX), or as he put it "bearishness without nervousness". Here's a quote.

An important part of last week's advance appeared to be a simple "clearing" of the a short-term oversold condition in prices and bearish sentiment. While the recent increase in bearish sentiment might have deserved something of a "clearing rally," it is notable that we're observing what might be called bearishness without nervousness. The chart below presents the Investors Intelligence bearish percentage versus the CBOE volatility index (VIX), which is often viewed as a "fear gauge" for the stock market. Historically, increases in the level of bearishness early in a market downturn are often both accurate and persistent, as we observed all through 2008 and in many past market cycles. It's difficult to look at the evidence and conclude that investors are excessively bearish, much less terrified here. " (read full note with charts at http://www.hussmanfunds.com/wmc/wmc100906.htm)

He also charted out the historical relationship between the ECRI Weekly Leading Index (3 Month Lead), Philadelphia Fed Index (1-Month Lead) and ISM Purchasing Managers Index (manufacturing). I recommend you read Hussman's weekly comments, they are packed with information.

Hat tip Pragmatic Capitalism

Steel Price Charts, Futures (Scrap Iron, Hot Rolled Coils, Rebar, Plate)

While talking about US Steel (X) call action today and the 4.5% underlying move, when $SPY closed -1.13% (h/t @sellputs, btw what is going on with US Steel? $X options were active on AUG 19 as well through October), I came across a site (metalprices.com) that has embeddable steel price charts for:

(1) Scrap Iron #1 Dealer/Bundles (Chicago Mill) (2) Scrap Iron HMS (Chicago Mill) (3) Cold Rolled Coils (East of Mississippi) (4) Hot Rolled Coils (East of Mississippi) (5) Rebar (EoM) and (6) Standard Plate (EoM). They offer other metals as well, check out the site.

It appears that the prices lag, I'm not sure why. The data ends on July 13 for scrap iron and July 26 for steel. Today is September 7. It could be related to steel price reporting as other commodities show various end dates as well. Either way, check out the 6-month and 3-year charts for Scrap Iron #1 Bundles, Hot Rolled Coils and Rebar. Find more at the site. You can also chart out U.S. Midwest Domestic Hot-Rolled Coil Steel Index Futures at CME.com which trades everyday and the Steel Stock Index ETF (SLX). The steel price benchmarks look similar to the S&P.

Vinny Catalano's S&P Targets: 950 End of 2010, 750 in 2011 (Blue Marble Research) S&P Chart

Vinny Catalano, of Blue of Marble Research, on Tech Ticker six days ago (9/1/2010) said the S&P 500 was in a trading range between 1020 and 1150 and to watch support/resistance levels. Ultimately, Vinny believes the S&P will break to the downside and hit 950 by year end and 750 in 2011. He believes a political gridlock will not be good for the stock market and sees negative catalysts ahead. See the Tech Ticker video after the jump and S&P chart. I think the summer 2009 chop fest highs get tested around 950.

Let Housing Fall, Jim Rickards Interview, Strike in France

Omnis, Inc's Jim Rickards Interview, Says Sell Stocks - King World News

Unemployment in U.S. May Rise Toward 10%, `Feeble' Growth (BofA, Morgan Stanley) - Bloomberg

Housing Woes Bring a New Cry: Let the Market Fall - New York Times

BHP, Rio Tinto to Pay Mining Tax as Gillard Wins Support for Government - Bloomberg

10-Year JGB Yield Spikes 25bps (27%) in 12 Days (Japanese Bonds)

If you didn't notice, Japanese Government Bonds (JGBs) had a wild August. They reversed course abruptly starting on August 18. I told you to keep your eye on JGBs on August 9 and gave links to charts of various Japanese Government Bond yields at Bloomberg.com. Then on August 18 Kyle Bass (one of the few hedge fund managers who made bank shorting subprime mortgages using CDS) came on CNBC and said JGBs were a great short (lower price/higher yield). The market listened to him, 10-Year JGBs sold off hard and yields ran up to 1.15% from 0.90% in 12 sessions. (+25 basis points or 27%). They were overbought.

Paulson & Co. Update

Must read at Zero Hedge (featuring AG). Read the full post.

10Y Greek Bond Yield/Bund Spread Elevated, CDS 894bps, 3M Yield Plummets

Technical sovereign debt update for Greece. The Greek 10-year Government Bond Yield (11.324%) is in a steep uptrend and close to the May high. The Greek 3-month Bond Yield (4.72%) plummeted, so the yield curve just got steeper. More.. The 10y Greek Bond/German Bund (2.34%) spread widened and Greek 5y CDS (credit default swap) is in a symmetrical triangle inflection point, at 894bps (close to highs). The outlier is the 3-month Yield. Thoughts? People still think Greece will default or have to restructure (Do not fall for talk of European solvency - FT.com). More articles and Bloomberg charts after the jump.

Pento on Inflation, Gold, Housing, Consequences of Monetary Stimulus (Inflation)

Mike Pento, Senior Economist at Euro Pacific Capital, was interviewed by King World News last week. He's a specialist in "Austrian Economics". Here are a few points he made (full interview).
  • Bernanke promises "unconventional" methods to combat deflation. (read Jackson Hole speech)
  • "He (Bernanke) already purchased longer dated Treasuries and he's already purchased mortgage-backed securities, I can only assume he's ready to buy stocks and real estate...." (increase Fed Balance sheet)
  • "Monetary base has gone from $800 billion to just under $2 trillion...."
  • "(Gold) is absolutely, 100%, an inflation hedge"
  • "We've had decades of a massive increase in the money supply, a massive increase in lending and a massive increase in asset price inflation (Nasdaq stocks, real estate prices). When that ends the natural occurrence for healing would be for a deflationary depression"
  • Money supply has to shrink, consumers have to deleverage (pay down debt/sell off assets)
  • "You might get a nominal increase in the major averages, you might stop the hemorrhaging that's in the housing market, but at what cost?"
  • "When you increase the supply of currency it is never EVER evenly distributed"

Hear the full interview at King World News

Roubini at Ambrosetti Forum Italy (Video), Sees Stall Speed Growth

Nouriel Roubini  (NYU Professor/Roubini Global Economics) spoke with CNBC Europe Squawk Box before the Ambrosetti Forum in Italy. The view is from Villa D'Este on Lago di Como (Lake Como), Roubini Twitpic'd a better view. He still sees a 40% chance of a double dip recession. View the full 12 minute video below.

Today, the Labor Department reported that the economy lost 54,000 jobs, better than the 120,000 (economists) or 90,000 (wall street) loss expected. The unemployment rate rose to 9.6% (Aljazeera, Forbes). Also, Royal Bank of Scotland Plans to Cut 3,500 Jobs. Happy Labor Day people. Nice short covering today, $SPY closed at 110.91 +1.30%, see previous post for long and short term charts with moving averages. I parsed a few things from the video.

*Growth in the second half of the year will be worse than the first half, we'll reach a stall speed for the economy less than 1%.

S&P-Nikkei Performance Spread Wide, Nikkei >9000, E-mini S&P Future at Inflection Point (ES, NK, SPY, EWJ, Japan)

Right now I'm watching Nikkei 225 Index Futures (September/December), the ES-NK performance spread and E-mini S&P December Future. Starting in July, the performance spread between the E-mini S&P and Nikkei 225 Index widened dramatically. I wonder when and how the gap closes, or if Japan and U.S. growth rates (or prices) diverge from here. These are financial futures in case you are lost.


Nikkei (NK) vs. E-mini S&P (ES) - December Future (courtesy of optionsXpress)


Nikkei 225 Index Futures are still trading in a descending channels but could be forming a falling wedge reversal pattern. You can see the downtrend and apex point to break. 

Ben Bernanke, Sheila Bair at 2008 Financial Crisis Hearing (9/2/2010)

Federal Reserve Chairman Ben Bernanke and FDIC (Federal Deposit Insurance Corporation) Chair Sheila Bair testified before the Financial Crisis Inquiry Commission about the actions of the Fed during the 2008 financial crisis.

The U.S. Lost Decade is Over

According to Doug Kass (TheStreet.com)

U.S. Faces Deflation Risk Due to Indebtedness (Linda Yueh/Oxford Economist - Video)

Oxford University Economist Linda Yueh was on Bloomberg on 8/30/2010 talking about the Yen (BoJs recent move) and deflation risks in the U.S. and portions of Europe.
"I think there is a real (deflation) danger for the United States. It's less of a danger for Europe even though this was the big thing at Jackson Hole. Trichet is very worried about Europe going into a 1990s style Japanese deflationary trap because of all this debt de-leveraging which can cause a deflationary price spiral. As debt gets shed, prices fall, output falls, and then it's reinforcing. However, in the U.S. where this is more likely to be the case because of the scale of the financial crisis and the scale of indebtedness, Bernanke wasn't worried about deflation and he's really viewing the U.S. more as a slow growth story".

Former Lehman CEO Dick Fuld Testified Before FCIC (9/1/2010) $LEH

Dick Fuld testified before the Financial Crisis Inquiry Commission yesterday. Click the link to see the video at Cspan.org.

2008 Financial Crisis and Systemic Risk, Lehman Brothers Hearing (cspan.org)

"Thomas C. Baxter, Jr., General Counsel and Executive Vice President Federal Reserve Bank of New York Richard S. "Dick" Fuld, Jr., Former Chairman and Chief Executive Officer Lehman Brothers Harvey R. Miller, Business Finance & Restructuring Partner Weil, Gotshal & Manges, LLP Barry L. Zubrow, Chief Risk Officer JPMorgan Chase & Co."

SPY Pierces 50-Day Moving Average, Holds 200-Month But Growth Recession Upon Us

Simple Technical Analysis on SPY, S&P 500 ETF - 9/1/2010 (Distressed Volatility Research - For Internal Use Only*see charts after the jump

Today SPY pierced the 50 Day Moving Average and held the 50 Month moving average but still needs to conquer the 200 Day Moving Average, 50 Week Moving Average, 200 Week Moving Average and 50 Month Moving average. We'll see how the HFT bots trade the market between now and the elections. Bank of America/Merrill Lynch forecasts a "Growth Recession" ahead (From LA Times).
"Bank of America Merrill Lynch on Wednesday downgraded its forecast for the economy, calling for a “growth recession.”

What’s that? As BofA Merrill economists describe it, the U.S. would continue to grow in the fourth quarter and in 2011, but not fast enough to generate significant employment gains." (read article for more numbers)

Speaking of HFT, I think CNBC's Fast Money needs to hire an HFT Robot correspondent to tell people what's really going on in the market. Zero Hedge is the only site out there talking about it in depth.

Dan Rather Interviews SecondMarket CEO Barry Silbert, Revolutionizing Markets

Barry Silbert of SecondMarket.com is revolutionizing markets. Big things happening here! As of June they were managing $25 Billion in illiquid assets according to the Dan Rather interview. Centralize it! SecondMarket is a global platform for liquidity with competitive bids for illiquid assets. From their website, SecondMarket trades asset backed securities, auction rate securities, bankruptcy claims, collateralized debt obligations, limited partnership interests, private company stock (also see StockTwits "Private Ticker"), mortgage backed securities, bankruptcy claims, restricted securities, whole loans and soon to come, 363 bankruptcy sales, condo hotels, private REITs, and trust preferred securities (TRuPS).

Watch Dan Rather interview SecondMarket CEO, Barry Silbert - SecondMarket

Gunman James Lee In DiscoveryTV Building Holding Hostages (Video, Links)

This hostage situation in the Discovery Channel building (Maryland) has been going on for hours now. James Lee is holding a "small" number of people hostage. Watch the live video stream below for real-time information via WashingtonPost.com. First, read the initial incident.

"Money-throwing protester gets probation, fine
California man would face jail if he comes within 500 feet of Discovery building" (Gazette.net).

VIDEO: James Lee Throwing Cash In The Air During Earlier Stunt At Discovery Channel (BusinessInsider.com)

That was "Wave 1", now for "Wave 3"..

Jim Rogers Q&A, Gold Should Be >2,000, Prefers Silver (GLD, SLV)

Jim Rogers prefers Silver over Gold here but owns both in his portfolio. He made his case on CNBC on August 29.
  • Gold should be greater than $2,000/ounce if you adjust it for the 1980 high
  • If there's a currency crisis both gold and silver will rise  
  • Prefers Silver over Gold because (a) it's so depressed (b) potential for more gains on a percentage basis

Today I charted out $GLD and $SLV (Gold and Silver ETFs) and both are testing ceiling resistance levels. SLV is plotting a 2008 ceiling breakout which Gold took out 10 months ago (November, 2009). $SLV needs to rush the opposition (sellers) successfully at $19.50 resistance to run free (imo, mid-20s, top of ascending channel, see chart update link).

GLD, SLV Approaching Highs From May, June (Charts) - August 31, 2010

Chart Update, Ratio Analysis: GLD, SPY, SLV, IWM, TLT, UUP, GDX, GDXJ, SP-500 Index - August 25

FOMC Minutes From 8/10/2010

Find the August 10, 2010 FOMC Minutes release here (FederalReserve.gov) and read this article at Bloomberg.com: Fed Officials Saw Risk of Sending Wrong Policy Signal (Bloomberg). Here's a snippet.

Fed Allows CIC (China) to Acquire 10% of Morgan Stanley Voting Shares (MS)

I was looking for the FOMC Minutes PDF and found another interesting release. First off, CIC (China Investment Corporation) owns MS convertable notes from 2007:

CIC Sells Another 1.6M Morgan Stanley Shares--Filing (WSJ)
"CIC now owns 150.8 million shares of Morgan Stanley and will take possession of about 116.1 million of those shares when the roughly $5.6 billion in principal of mandatory convertible notes yielding 9%--bought in late 2007--convert into common stock, a conversion set to happen on Aug. 17."

From the Fed release:
"FEDERAL RESERVE SYSTEM
China Investment Corporation Beijing, People’s Republic of China
Order Approving Acquisition of an Interest in a Bank Holding Company
China Investment Corporation (“CIC”), Beijing, People’s Republic of China, has requested the Board’s approval under section 3 of the Bank Holding Company Act of 1956, as amended (“BHC Act”),1 to acquire indirectly up to 10 percent of the voting shares of Morgan Stanley, New York, New York. (read full PDF at Federal Reserve here).

Also read: CIC's bitter payoff for Morgan Stanley stake (8/8) (MarketWatch.com)

GMO's Q2 Letter

Read "Seven lean years: No recovery till 2016: 10 reasons Jeremy Grantham's betting $100 billion on historic game-changer" at MarketWatch.com.

Here is GMO's Q2 letter (from July)

GLD, SLV Approaching Highs From May, June (Charts)

GLD (SPDR Gold Trust) - FreeStockCharts.com (Gold ETF)

SLV (iShares Silver Trust ETF) - FreeStockCharts.com (Silver ETF)


*See previous post for more thoughts on this: Chart Update, Ratio Analysis: GLD, SPY, SLV, IWM, TLT, UUP, GDX, GDXJ, SP-500 Index (8/25/2010)

Nikkei Back Below 9,000 (-3.55%, 8,824), Nikkei Futures Charts (NKY, EWJ, NK_U, NK_Z)

The brief rally (1, 2) might be over in Japan after the initial Nikkei 9,000 breach on 8/24. The Nikkei blasted through that level again today, closing down 3.6% at 8,824. Anyone know where I can find a chart of the Nikkei Volatility Index ($VXJ)? I bet it was going crazy these past few weeks.

If I were forced to be a perma-Nikkei 225 bull, I'd watch for a downtrend breakout and of course a break above 9,000. Until then, like I said on 8/24, the Nikkei could swim in the 8000's for a bit and perhaps test the 2008/9 lows if Japan double dips. I'm watching to see what happens with the S&P at neckline support. U.S. E-Mini futures are currently unchanged to slightly lower at 5:02/6:02am. Below is the 1-day Nikkei Index move and the September (NKU10), December (NKZ10) Nikkei futures.

Read: Canada Housing Market, Zhou Xiaochuan (PBoC), Oil, Gary Shilling on 3% 30y-Treasury Bonds

Gary Shilling (A. Gary Shilling & Co.) on Fast Money said the 30-Y Treasury Yield will hit 3% (you'd make 15% from here, or 28% on a 30-Year Zero Coupon Bond) (CNBC Video)

Why Canada's housing market may be heading for a correction - The Globe and Mail (h/t @FLYir)

Peter Beutel (Cameron Hanover) told CNBC Monday that oil should be at $10 (CNBC Video)

J.P. Morgan cuts 3rd-quarter oil price forecast to $75 a barrel (MarketWatch) (predicts $65 by October, Nymex Crude is at $73.59)

*Top China bank official's defection rumors quashed (Zhou Xiaochuan) - (Washington Post)

*Japan Confirms Meeting With Zhou Amid Speculation He Left China (Bloomberg)

Read the articles and watch a video from Stratfor.com today (found originally by Zero Hedge). The rumor was he lost $430 Billion holding U.S. Treasury bonds and would be punished by the Chinese Government, so he fled to the U.S. It's funny because the value of Treasury bonds are testing their all time highs and Gary Shilling (see first article) thinks they are going higher. The original thought from my Twitter stream was that maybe Treasury derivatives blew up in his face, or the losses were from GSE securities.

Dow Industrials P&F Chart Targets: 9750 (Daily), 9150 (Weekly) $INDU $DIA

Check out the Dow Industrial Average ($INDU) point & figure chart. P&F charts represent "filtered" price movements over time, or cut out the noise (read more at Stockcharts.com ChartSchool and see P&F Pattern Alerts). The daily $INDU P&F chart is giving a downside target of 9,750 and the weekly chart says 9,150. It's another form of technical analysis.

The Dow closed at 10,009 today, so the daily sees -2.5% downside from here and the weekly sees -8.5% downside. Keep in mind that big price movement tomorrow could change the P&F's mind. Below are the daily and weekly $INDU P&F charts and the wider versions.

President Obama Update On Economy (Video, 8/30/2010), Alaska Protester Wants Free Speech

"The President talks about his Administration’s focus on moving the economy forward and urges Congress to pass legislation that will benefit small businesses in remarks to the press after meeting with his economic team at the White House." (Whitehouse.gov) #Obama

Hurricane Earl and Tropical Storms Danielle, Fiona in Atlantic (Radar)

Hurricane Earl and Tropical Storms Danielle and Fiona are creeping in the Atlantic Ocean. Hurricane Earl is a category 4 hurricane and right around the Virgin Islands. Check out the radars of wind speed probabilities and 5-day forecasts at NOAA.gov. They forecast Hurricane Earl will hit the coast of New Jersey on Friday.



$SPY Symmetrical Triangle Approaching Vertex Point, Hedge Risk (S&P 500)

SPY is approaching the vertex point in the symmetrical triangle. If I was long I'd hedge downside risk. Below is the weekly chart. SPY is still below the 50 week and 200 week moving average resistance levels. The MACD (momentum) indicator is below the midline (-0.98).

SPY (SPDRs S&P 500 ETF) via FreeStockCharts.com

When Do Treasury Bonds Officially Breakdown (Schiff, Faber on CNBC, TLT)

Here's a post for my hyperinflationist readers. Nothing new here, just Peter Schiff (Euro Pacific Capital) and Marc Faber (Gloom Boom Doom Report) telling CNBC viewers that Treasury bonds are in a bubble. Marc Faber's view is that Treasury yields bottomed out (prices peaked) in December 2008 (2.08% on the 10-year and 2.53% on the 30-year yield). He said "there isn't much upside for Treasuries unless it's for the short term and even the short term is uncertain". He believes the weak economy and policies will expand the Government debt even further and said "one day the interest payments on the Government debt will become unbearable". Faber likes gold, farmland (+6% in the Midwest 8/26) and agricultural commodities.

Peter Schiff is also concerned about interest payments.

"What I'm afraid of is that when people realize that we can't pay this money back, we're not going to be able to roll over all this short term debt, and so it's not just paying the interest, we're going to have to start retiring the principal, and that is just impossible, so there's going to be massive inflation".

Schiff thinks the bond market is the mother of all bubbles: "when it bursts the losses will dwarf the combined losses of the stock market bubble and real estate bubble".

"This decade is going to be the worst decade for bonds in U.S. history. Bond holders are going to get wiped out, because either the Government's going to default or they're going to inflate, but either way the people holding the bonds are left holding the bag."

USD/JPY Volatility, Yen Intervention Rumor Was Sold, Dilute The SOB BoJ

Look at USD/JPY (US Dollar/Japanese Yen) volatility tonight. Traders bought the Bank of Japan Yen intervention rumor and sold the news, hard.

"The BOJ will boost the amount of funds in the facility by 10 trillion yen ($116 billion) to a total of 30 trillion, the bank said in a statement after an emergency meeting in Tokyo. Governor Masaaki Shirakawa led the gathering after cutting short a U.S. trip in the wake of increasing calls from politicians for the BOJ to help stem a surge in the yen to a 15-year high." (read full article at Bloomberg.com)

USD/JPY swung between 85 and 86 and the Nikkei closed +1.76%. Also read: Yen Erases Loss on Concern BOJ's Steps Not Enough to Curb Gains (Bloomberg.com). USD/JPY would be a decent long if it broke through that downtrend line. It is testing critical support from December (chart after the jump). Dilute the SOB BoJ!

Bernanke Pledge on Economy Gives Some Relief to Oil Prices - Guest Post

Guest post by OilPrice.com

Bernanke Pledge on Economy Gives Some Relief to Oil Prices

Oil Market Summary for 08/23/2010 to 08/27/2010

Oil prices recovered some lost ground Friday after Federal Reserve chairman Ben Bernanke said the Fed stands ready to do whatever it takes to support economic recovery.

USD/JPY Spikes on BoJ "Monetary Control" Meeting, Nikkei Up 3% (FXY, NKY)

USD/JPY spiked on this news and Tokyo's Nikkei 225 Index was up 3%. Traders last week were already gaming the Nikkei to the upside. S&P and Nasdaq E-Mini futures are up 0.80%. Recently the U.S. markets have been following the Nikkei. Check out the charts below and the BoJ release.

Quantitative Easing Will Resume (Zandi), Dollar Could Collapse (Hussman) USDX DXY

Moody's Analytics President, Mark Zandi, told Bloomberg on 8/26 that quantitative easing would resume when the unemployment rate picks back up again in the next few months. He also increased the odds of a double dip recession to 1/3 from 1/4.

"I do think that the Federal Reserve will restart quantitative easing over the next few months. I think the economy's going to be at best very weak, so weak that unemployment will begin to rise again and I think that will be the signal for the Fed to resume quantitative easing".

"It could be for example if angst about the European debt situation were to flare up again and we'd see the equity markets, stock prices fall another 5-10-15%, I think that would qualify and certainly push us back into recession".

Bill Ackman Bought BP CDS In May (280bps), Short BP Debt

Hat tip to Bloomberg via DealBreaker who posted Pershing Square's Q2 Investor Letter. According to Ackman's letter, Pershing averaged into BP CDS at 280 basis points per annum, or bought credit insurance on BP's bonds. He's betting that BP's credit risk is mispriced due to U.S. operation risk, balance sheet impairment risk ("clean-up costs, penalties and legal liabilities") and statistically speaking, the CDS is mispricing the probability that "the current liability estimates that have been publicly promulgated materially underestimate the ultimate costs to BP".

Back in June I reported that BP CDS spiked to 382 bps (+128% in 7 days) and BP bond yields hit 7.82% (chart) when oil was flowing like mad and killing birds. Ackman's letter stated that BP CDS peaked at 600bps. So if another event threatens BP's financial condition, even if nothing happens to the company, BP credit traders could buy BP protection again and run the CDS up to 600bps (test the top). The value of Ackman's CDS holding would rise 114%.

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.