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