Jim Rogers Interview on 10/6/2010 (Protect Yourself With Hard Assets)

Jim Rogers was interviewed by Tech Ticker's Aaron Task on the streets of NYC on 10/6/2010. Key theme to this interview, as always, "protect yourself with hard assets" [silver, agricultural commodities, gold (with possible correction)].

Soros: Treasury Yields Could Follow JGB Yields Lower, Renminbi Appreciation is Wild Card (Columbia Speech)

Famed reflexive hedge fund manager, George Soros, gave a speech at Columbia University on 10/5. He said Treasury yields could move even lower if the U.S. follows Japan (deflation, 0% cash rate, 1% 10y Japanese Government Bond yield). He mentioned that US banks would continue to borrow at 0% and invest in Treasuries. We already have the Fed bid in place (NY Fed's Brian Sack's speech on 10/4).  However, if the Chinese Government allowed the Renmimbi to appreciate against the U.S. Dollar it would change his view.

Tourism Resorts and Oil Exploration in the Caspian Sea - Guest Post

Guest post by GlobalintelligenceReport.com

Tourism Resorts and Oil Exploration in the Caspian Sea

SITUATION: One indirect consequence of the Gulf of Mexico oil spill is the impact it may have on the financing of the many tourism projects that have sprouted along the Caspian Sea. Bordered clockwise from the North by Kazakhstan, Turkmenistan, Iran, Azerbaijan, and Russia, the Caspian Sea is one of the largest bodies of water and an object of strategic ambitions. Though the global financial crisis put may grandiose Caspian Sea tourism projects on hold, some of them are coming back to life, but investors should be alert to tourism trends, corruption, and unanswered questions about demand and potential profit.

ANALYSIS: The magnitude of the consequences of the Gulf of Mexico oil spill is still hard to assess, even more so as there is no consensus as to the exact quantity of oil left in the water: The government says 25% while other organizations, such as the University of Georgia, say 75%.

Jon Stewart Takes Jab at Foreclosure Robo-Signing Crisis, Catch 22 (Video)

Jon Stewart on the foreclosure crisis. Hat tip to Zero Hedge blog.

Large XLK December 20-23 Put Spread at Resistance, $7.6 Million Net Debit

A large put spread was put on in the tech ETF $XLF. According to CrimsonMind 112,300 December $23 Puts were bought for $0.87 and 112,300 December $20 Puts were sold for $0.19. That's a net long put position worth $7.6 million. XLK is at technical resistance so the puts could be hedging underlying long exposure. Both Chris McKhann at OptionMonster and CrimsonMind thought they were connected with shares. WallStreetPit also had analysis. Read the articles for exact profit/loss figures. If XLK trades down to $20, the spread would make decent money.

XLK SPDRs Select Sector Technology ETF (FreeStockCharts.com)

Chris Whalen: Less Than 1/4 the Way Through Foreclosure Process (AEI Presentation)

Chris Whalen, who runs Institutional Risk Analytics, gave a presentation at the American Enterprise Institute (AEI) on 10/6. Here are the slides. He gave some harsh warnings about the banking system in 2011. You can watch the conference at Pragcap.com.
"Mounting cash flow stress on all lenders is reaching crisis levels. Non-payment by borrowers and mounting foreclosure backlogs are creating the conditions for the collapse of some of the largest U.S. banks in 2011." (Chris Whalen presentation at AEI. Slides also at Business Insider)

Follow Chris Whalen on Twitter (@rcwhalen) for updates.

Karl Denninger on Dylan Ratigan Show Talking Foreclosure Fraud, State AGs Across the Country Lash Out at Banks

Dylan Ratigan spoke with Karl Denninger, author of Market-Ticker.org, on his show about the foreclosure mess going on. If you didn't know, State Attorney Generals all across the country are accusing banks of fraudulently foreclosing on properties. I embedded the MSNBC video below and linked to various articles.

Marengo Mining Raises C$20M For Yandera Project (MRN, Copper)

If you're interested in copper or molybdenum mining companies check out Marengo Mining (MRN.to). It is a microcap mining company based in Australia but owns the major Yandera Copper-Molybdenum-Gold project in Papua New Guinea. I wrote about Marengo last year when I read that Quantum Partners LDC (a Soros fund) scooped up 20% of the equity during a capital raise. With MRN trading at 0.16/share on the Toronto Stock Exchange, the stock is essentially a call option on the Yandera asset and expansion. As of 9/23/2010 Marengo had 738.8 million ordinary shares outstanding and 84.7 million options open to acquire shares at various prices.

On August 23, 2010, Marengo raised C$20 million at C$0.084 from various investment funds in North America. The company has no revenue except for interest on cash and has netted losses every quarter due to expenditure burns. For the quarter ended 6/30/2010, Marengo had A$59,498 in revenues, a net loss of A$(4,284,756), A$6,984,582 in cash +A$24,000,000 capital raise, A$25,769,730 in total assets and A$22,443,518 in equity. I put up snapshots of annual and quarterly trends from the Q3 release. It's pretty clear what's been going on, they burn cash and then raise after a year. But going forward, if $COPPER breaks out (IMF says 'few signs' metals supply can keep pace with demand, Copper Will Trade at $11,000 in a Year, Goldman Says), Asian economies boom, inflation hits and/or currencies debase; Yandera could be a hidden gem. The biggest risk here would be lack of capital to survive.

USD/JPY's Descending Travels Continue, Pierced Pre-Intervention Support (at 82.786, Chart)

USD/JPY just pierced through the pre-intervention low of 82.87. It is currently trading at 82.69. Watch for major capitulation to catch an upside wave. This channel reminds me of the Euro earlier this year. The Bank of Japan wants the Yen down but they are also fighting Fed policies.

Japan’s 10-Year Bond Futures Fall Most in a Month After Auction - Bloomberg
Dollar hits 15-yr low vs yen, falls broadly - Reuters

USD/JPY (US Dollar/Japanese Yen)

Courtesy of FreeStockCharts.com

Hugh Hendry is Short Cheap Japanese Industrial Credits Using CDS

First off, check out the office of Eclectica Asset Management in this BBC interview with CIO/CEO Hugh Hendry (hat tip Paul Kedrosky's blog). In the comment section someone said this video was a year old. If you didn't know, Hendry is currently short $2 billion worth of 10 year Japanese industrial debt with a 1% yield using credit default swaps. That's cheap! Listen to this KingWorldNews interview for more. Carney's NetNet Blog at CNBC.com noted today (via FT) that he's betting against China by shorting Japanese corporate debt.
"Mr Hendry has purchased cheap credit protection on companies such as Nippon Steel or JFE Holdings for as little as 50 basis points annually, expecting that spreads will blow out following an export-led slowdown."
Was this trade the next "John Paulson trade" he was talking about at that Russian Forum earlier this year?

Hussman: Market is Overvalued With Economy Slowing (10/3)

John Hussman, who runs the Hussman Funds, put out a new market comment on October 4 titled "Economic Measures Continue to Slow". He still believes the market is overvalued based on Shiller's P/E ratio.
"At a Shiller P/E of 21 and a historical peak-to-peak S&P 500 earnings growth rate of 6%, a simple reversion to the historical (non-bubble) Shiller norm of 14 would require seven years of earnings growth and yet zero growth in prices. Stocks are not cheap here."

He also talked about the ISM and Fed Indices, ECRI Weekly Leading Index, dividend payout ratio vs. operating earnings growth, and how he views "current market conditions as something of a Ponzi game"! The most interesting part was on his hedges. Read the full comment here.

Reads: Brian Sack, Hatzius Scenarios, Gary Shilling Housing Update

There is quality information popping up in the blogosphere tonight! Here's a quick link festival. I already squawked most of these links on Twitter (@dvolatility).

Brian Sack: Managing the Federal Reserve's Balance Sheet /Remarks at 2010 CFA Institute Fixed Income Management Conference, Newport Beach, California - New York Fed

David Rosenberg Attacks The Fed's Intentional Ponzi Approach - PragCap (Sack talked about propping up asset prices)

Here's Why House Prices Will Now Drop Another 20% - Business Insider

Goldman's Hatzius: Two main economic scenarios "fairly bad" and "very bad" - Calculated Risk

The Gas Cartel Idea: On the Road to Another OPEC? - Guest Post

Guest post by the Global Intelligence Report team

The Gas Cartel Idea: On the Road to Another OPEC?

As oil sees its image tarnished from the disastrous oil spills that took place off the coast of the Gulf of Mexico and off the coast of Dalian, China, and as the most promising oil fields remain off limit to the Western oil majors, gas is gaining in popularity.

Gas is present in large quantities and in many countries of less questionable reputation such as in the United States and is also less harmful to the environment than oil. Though gas is not intended to replace oil, some gas-rich countries such as Russia and Iran are strongly advocating for a gas cartel to regulate the industry, which can explain the reluctance of Russia to adopt sanctions towards Iran at the United Nations as both countries heavily rely on the income generated by their natural resources.

Sell Mercedes, Put Gold Rims on Tractor; Jim Rogers on Commodities and Stocks (CNBC Video)

Jim Rogers (Rogers Holdings) was back on CNBC yesterday giving market calls. Below is a summary of what he said plus the video after the jump. He thinks you should dump your Mercedes and put gold rims on a tractor while farming agriculture (not necessarily in those words). Look at previous posts featuring Jim Rogers. He's been right the majority of the time and has timed trades publicly very well.

Sheila Bair of FDIC: Beware of Bond Bubble, Interest Rate Risk!

Sheila Bair, Chairwoman of the FDIC, was on CNBC today talking about bonds. She believes bonds are in a bubble in the long term. See my recent post on LQD, the investment grade bond ETF, a few days ago.

"Longer term, I do worry about interest rate risk and the ramifications of this very long, protracted period of very low interest rates. Eventually they're going to start going up, and what happens? A bit of a bond bubble now, it appears"....(from CNBC transcript)

$USDJPY Bouncing Around Support Lows In Descending Channel, What If USDX Rallies

Watch these levels on USD/JPY. I threw up the weekly, daily and 15 minute charts of USD/JPY. Watch the descending channel, near term support on the 15-minute (83.16) and the long term downtrend from 2008. If USD/JPY holds support here it could test that downtrend line and 50 day moving average resistance (not on chart). The trend is clearly down. But if $USDX rallies from here I'm wondering if there'd be a short squeeze. A trend violation would bring on a decent retracement. Something to watch going forward.

*Japan: BoJ Interest Rate cut to 0.0%-0.1%
*Forex: JPY weakens on BoJ rate cut (FXStreet.com)
*BOJ Steps Up Asset Purchases, Lowers Benchmark Interest Rate (Bloomberg)

JPM's Lee Bullish on October, Kass, QQQ Pullback, U.S. Auto Sales, Stiglitz on Euro, Rosenberg on Q4 GDP

Articles for 10/3/2010-10/4/2010 (more articles after the jump)

Kass: Quantitative Wheezing - TheStreet.com

David Rosenberg: GDP Could see negative 4th Quarter vs. John Ryding (also read the Breakfast With Dave report this morning)

Dealbreaker Sales Talks: A Hot Market for Blogs - Dealbook

Bank of America Chief Technical Strategist Anticipates 10-12% Pullback In Nasdaq - Zero Hedge (QQQQ, NDX)

Rare Earth Mineral Prices Explode In Q3 - Zero Hedge (China/Japan trade dispute)

Nomura Joins Goldman In Saying QE Is Priced In, That It's No Longer Safe To Buy Treasuries - Business Insider (TLT)

Bernanke's Speech on Fiscal Challenges (Rhode Island Public Expenditure Council)

Chairman Ben S. Bernanke
At the Annual Meeting of the Rhode Island Public Expenditure Council, Providence, Rhode Island
October 4, 2010

Fiscal Sustainability and Fiscal Rules

The recent deep recession and the subsequent slow recovery have created severe budgetary pressures not only for many households and businesses, but for governments as well. Indeed, in the United States, governments at all levels are grappling not only with the near-term effects of economic weakness, but also with the longer-run pressures that will be generated by the need to provide health care and retirement security to an aging population. There is no way around it--meeting these challenges will require policymakers and the public to make some very difficult decisions and to accept some sacrifices. But history makes clear that countries that continually spend beyond their means suffer slower growth in incomes and living standards and are prone to greater economic and financial instability. Conversely, good fiscal management is a cornerstone of sustainable growth and prosperity.

Although state and local governments face significant fiscal challenges, my primary focus today will be the federal budget situation and its economic implications.1 I will describe the factors underlying current and projected budget deficits and explain why it is crucially important that we put U.S. fiscal policy on a sustainable path. I will also offer some thoughts on whether new fiscal rules or institutions might help promote a successful transition to fiscal sustainability in the United States.

$LQD in Rising Wedge Around 2003 Peak (10y Yield, C0A0 Spread)

Not much has changed since my previous post on bonds on August 23. $LQD, the iShares iBoxx Investment Grade Corporate Bond ETF, is trading at 112 which is 4.4% away from the 2003 high (117) and up 47% from the October 2008 low. It is trading in a rising wedge which should be watched closely. Friday saw some interesting "flash crashy" action on big volume which sent $LQD down 9% to 101 at one point. See hedge accordingly and zero hedge blogs. The trades below $108 were considered erroneous and cancelled by the NYSE.

So how does the story end with bonds? If you're "balls to the walls" bearish, you have to time the reversal perfectly. I'll be watching for Treasury bond volatility (via MOVE Index) or widening credit spreads which could catalyze a retracement. If quantitative easing by the Fed combined with growth/deflation fears push the 10y Treasury yield down to 2% support, LQD could retest the 2003 high of 117 (less any credit scares that could re-price default risk and freak out spreads). I'd rather watch for a rising wedge breakdown with volatility.

Below I gave an update on LQD's key statistics, technicals on LQD using multiple time frames, the 10-year Treasury Note yield chart, BofA/Merrill Lynch U.S. Corporate Master Index Option Adjusted Spread to Treasuries (C0A0) chart and a snapshot of the US Investment Grade CDS Index via CDR.

John Paulson of hedge fund Paulson & Co, Jeremy Siegel of Wharton and Tom Lee, Chief U.S. Equity Strategist of JP Morgan, all said in some form that bonds are either in a bubble or should be sold. I agree, the 30 year bull market is over, but can it overshoot? Goldman and Nomura say no.

Overnight Charts: E-mini S&P -0.6%, Nikkei Future -1.3%, Yen Rallies Back

Futures update overnight:

December S&P E-mini future (EMZ10) -0.66%,
December Nikkei future (NKZ10) -1.36%
December Japanese Yen (JPZ10) +0.14% (takes back all losses!)

Watch JPY ceiling resistance (1.2070), 1,125 on the Dec E-mini S&P and 9,200 -> 9,000 support levels on the Nikkei future. Correction time?

Nikkei future

E-mini S&P

Japanese Yen future

Charts courtesy of Optionsxpress

10y AAA General Obligation Muni Bonds Yield 2.65%, Watch Treasury Spread

No credit or interest rate worries yet for the 10y AAA tax exempt General Obligation bond index as of 10/1/2010. According to Bloomberg though, New Jersey just sold bonds above this yield. If you're interested in actively watching this space, monitor the downtrend line on the chart for a potential breakout in yields. Also, watch out for State bailouts.

Regarding interest rate spreads, QE2 is your friend until the end. Check out the yield spread between the AAA GO 10y Muni Bond Index and 10Y Treasuries. AAA 10y Muni's yield 2.65% and 10y Treasury Notes yield 2.51%, a 0.14 spread. The municipal bond index is from Municipal Market Advisers.

Sovereign CDS Wideners: New York, Illinois, California, Jersey

States topped the sovereign CDS wideners list at CMA Datavision on Friday. Did Meredith Whitney spook CDS traders? U.S. Government may bail out States in next 12 months - Bloomberg video. A credit default swap (CDS) is insurance on debt.

New York 5Y CDS +13.1% to 219.63 basis points (100 bps = 1%)
Illinois 5Y CDS +9.81% to 285.50 bps
California 5Y CDS +7.88% to 280.50 bps
New Jersey 5Y CDS +5.76% to 222.07 bps

Related: New Jersey Pays for Negative Outlook as Yield Widens on $669 Million Sale