Cameron Hanover Daily Oil Recap (11/9/2010)

Cameron Hanover Daily Oil Recap (courtesy of www.fmxconnect.com)

The oil complex was completely mixed on Tuesday, with crude oil prices lower and the front months of both heating oil and gasoline higher. Deferred months in refined products were both higher and lower. Traders wanted to push quotes higher, and they traded on both sides of unchanged during the day, but by the final bell the biggest factor was the US dollar, which advanced through Tuesday’s session, starting at about 7 AM. It continued to rally into the afternoon and early evening, and it was enough to bring selling into the market. Crude oil prices traded up to $87.63 and they tried to finish above $87.15, but the dollar’s strength was just too much.

50% Tariffs on Chinese Imports? Didn't This Fuel the Great Depression?

Alan Tonelson, a fellow at the United States Business and Industry, was on Tech Ticker the other day saying the U.S. needs to put a 50% tariff on all Chinese Imports. Smoot Hawley Tariff Part II? Any thoughts on the trade deficit? Why not focus on the currency peg?

Higher Yields Hurt SPY and GLD But Boost Dollar Crosses - Market Update 11/9/2010

Market technical update by @Dvolatility for 11/9/2010

I'm only looking at equities, Treasury yields, gold and some Dollar crosses in this post. As you can see in the chart below, $SPY, $GLD and $EUR/USD (Euro/Dollar) fell as the 30-year Treasury Bond and 10-year Treasury Note yields rose more than 3%. You don't see it on this chart but the yield on the 10-year note broke above the 50-day moving average and the 30-year bond yield broke above the 200-day moving average. Both major technical levels in my opinion. See this post from earlier with $TNX and $TYX charts.

$SPY sold off at the 61.8% retracement level and broke through the April high. SPY is still above the 50-month moving average 120.58, I'm watching that MA. SPY closed at $121.61. I reported earlier that USD/JPY broke a minor symmetrical triangle and downtrend and could test the major downtrend line and 50DMA. Yields will be interesting to watch. By the way Ireland credits were top wideners on CMA's most active credit default swaps. Chart after the jump.

Shady XLF Black Box Quote Stuffing

See an XLF black box get sent to the ETF pit (courtesy of optionmonstertv). How does all of this stuff work? Related: XLF Sets World Record In Quote Stuffing With 23.3 Quotes Per Millisecond.

USDJPY (Dollar/Yen) Chart Update +0.91% to 81.68 (FXY, UUP)

USD/JPY (Dollar/Yen) broke a few resistance levels. Watch USD fight JPY on the shelf going forward. The 50DMA is at 82.50. The downtrend line is right around the 50DMA but moving lower. USD/JPY took out a minor symmetrical triangle.

Doug Kass: "Cash for Stock Market Gains" Market Has Peaked, Watching Interest Rates (CNBC Video, $TYX, $TNX, $SPX)

Doug Kass of Seabreaze remains skeptical of QE2 and believes the S&P has topped out, but admits he believed it topped out 50-60 points ago. "We had cash for clunkers and now we have cash for stock market gains". Kass said he's also watching Treasury yields and risk premiums.

I see that the 30-year Treasury Bond Yield is testing the 200 day moving average at 4.195% (+1.3%) and the 10-year note yield is above the 50DMA at 2.587% (+0.94%). The S&P is down 0.28% at 1,219.88. Below are charts of $TNX, $TYX, $SPX and the Fast Money video. Kass is at 7:50.

Marc Faber on U.S. Exports, Emerging Market Growth via U.S. Monetary Policy (CNBC 11/9/2010)

Marc Faber (Dr. Doom) was on CNBC's Squawk Box on 11/9/2010. He thinks emerging economies should send Ben Bernanke a thank you card since U.S. monetary policy "fostered industrial production growth in China, employment growth, wage increases, domestic consumption, increased demand for raw materials, that then lifted commodity prices"..... "I think it's a dream to think that the U.S. can double its exports in the manufacturing sector but I think that the U.S. can export more in the agricultural sector and that the revenues from agricultural exports can go up because of higher prices for agricultural commodities". He also thinks a new asset bubble is forming.

Frank Berlage of Multilateral Partners Global Advisory Group mentioned industrial production data: China industrial production is about 49% of GDP, Japan is 24%, Germany is 29% (excluding agricultural products) and U.S. industrial production/GDP is 10%, which is mostly the assembly of foreign components. Watch the CNBC video after the jump.

$UUP (Dollar ETF) and $WTIC (Crude Oil) at Support/Resistance - Charts

$UUP (US Dollar Index Bullish ETF) is testing $22 support for the third time and oil is testing the April high. The actual US Dollar Index is testing support in a multi-year symmetrical triangle. If UUP can't hold triple support it would make fresh new lows. After the jump are charts of $UUP and $WTIC on 11/8/2010 with technical indicators. $WTIC must take out $87 to break the sideways channel. For more information on the oil market read yesterday's Cameron Hanover report. Tonight the US Dollar is falling against the Yen but gaining against the Euro. Watch that USD/JPY downtrend line from September. News: Dollar Falls on New China Rules - WSJ.

John Hussman's Thoughts on S&P Valuation and Effective Duration

Read John Hussman's new weekly market comment titled "Bubble, Crash, Bubble, Crash, Bubble...". 

On valuation.

"Even though the S&P 500 is substantially below its 2007 peak, it is also strenuously overvalued once again"

This part was interesting on effective duration.

"Keep in mind that the effective duration of the S&P 500 is now over 50, which implies two things. First, the sensitivity of stock prices to any rise in yield will be exaggerated here. Every 10 basis points of increase in yield (say, from the current 1.89% to 1.99%) implies a price decline of over 5%. Given that the historical norm of the S&P 500 yield is about twice the present level, it is clear that a significant reversion of expected returns from presently depressed levels would require a massive price adjustment."

He also talked about QE2, monetary policy, employment, market correlations, momentum indicators and market climate. Read the report at HussmanFunds.com (direct link).

Inside Job (Official Trailer) - Movie About the 2008 Financial Crisis

I saw Inside Job today and it was good. Remember the global financial system collapsed 2 years ago? It was produced, written and directed by Charles Ferguson. Get more info at the Inside Job website (Sony Pictures). Hat tip to everyone reminding me to see this. The official trailer is after the jump in HD.

Cameron Hanover Daily Oil Recap (11/8/2010)

Cameron Hanover Daily Oil Recap (courtesy of www.fmxconnect.com)

The oil complex was mixed to higher on Monday, with crude oil and heating oil prices higher and gasoline prices lower. Crude oil prices broke Friday’s high of $87.22 with a surge up to $87.49 before the stronger dollar pressed oil traders to take profits. Crude oil settled over $87.00, but came nine cents shy of settled at $87.15, which is the number on the charts worth watching. It was a new two-year high, but prices just could not hold the day’s highs. Nonetheless, it was a strong close and if and when the dollar weakens again, we would expect to see prices able to sustain one of their next moves higher. Crude is on the doorstep of finishing over $87.15, which would be unequivocally bullish.

Dennis Gartman: Gold is Overbought (Upper Bound of GLD Price Channel Hits 148-154 - Chart)

Dennis Gartman (Gartman Letter) was interviewed at HardAssetsInvestor.com:
"My bet is that we get another washout, which will make the market healthy again. And we will go to even higher levels a year from now. But is gold, in the short term, preposterously, egregiously, exaggeratedly, shockingly, surprisingly over-bought? Oh, you bet it is." [read the full interview at HAI]
I'm looking for TV interviews. Also check out the rising GLD channel from Feburary 2009. The upper-bound of the price channel hits between $148-154 on the chart if strength continues. Watch that uptrend line from August for any failures.

$SPY (S&P ETF) at 61.8% Fibonacci Retracement Level Again, Above 50-Month Moving Average, Pierced April High (Charts)

SPY technical update: The S&P ETF is at the 61.8% retracement level, broke above the 50 month moving average and pierced the April high. Charts after jump.

Michael Burry Warns of Another Fed Failure

Must read from 11/5/2010: Bernanke Will Fail in Bid to Use `Poison as Cure,' Ex-Fund Head Michael Burry Says - Bloomberg.com. Burry ran hedge fund Scion Capital from 2000-2009. He was the one who sold short billions of subprime mortgage CDOs using credit default swaps at his home office in California. He was featured on 60 Minutes in March. He is long gold and farmland. Read the article.

BAL, JJC, GLD, SLV Are Down 38%+ Priced in Netflix Since March 2009 (Cotton, Copper, Gold, Silver), NFLX Price/Book Ratio

Is Netflix (NFLX) the "realest" asset out there? Also look at NFLX's price/book ratio (net asset value) since 2002. WOW.

S&P Priced in the Commodities Index is Down 70% Since 2000 ($SPX:$CCI)

I did a post about this a few days ago but this chart is way better (from Gregor Macdonald via Stockcharts.com). It shows how the value of the S&P 500 since 2000 is down 70% priced in the Reuters-CRB Continuous Commodities Index (CCI). Since the March 2009 low the market has only increased in "nominal" terms not "real" terms (adjusted for commodity inflation). Look how S&P:Commodities ($SPX:$CCI) vs. S&P are diverging. A lower Dollar is pushing up the S&P. However, a lower US Dollar, QE liquidity and global supply constraints are pushing up commodities more than the S&P. $SPX:$CCI is trending towards the March 2009 low (top chart) while $SPX pierced through the April high (bottom chart). It is interesting and people should know about this since higher commodity prices could increase food and energy costs. Fed Governor Kevin Warsh is monitoring this.

Side note: The S&P is at the 61.8% Fibonacci retracement level again

Fed Governor Kevin Warsh on Commodity Prices, Pass-Through Risk and Future Policy (11/8/2010)

I've been posting a lot about the Federal Reserve recently as quantitative easing II, combined with supply/demand issues around the world, spike commodities and Fed Chairman Ben Bernanke doesn't seem to think it will affect consumer prices (see Bernanke speak to students at Jacksonville University). However, Fed Governor Kevin Warsh addressed the concern in a WSJ op-ed.
"Lower risk-free rates and higher equity prices—if sustained—could strengthen household and business balance sheets, and raise confidence in the strength of the economy. But if the recent weakness in the dollar, run-up in commodity prices, and other forward-looking indicators are sustained and passed along into final prices, the Fed's price stability objective might no longer be a compelling policy rationale. In such a case—even with the unemployment rate still high—we would have cause to consider the path of policy. This is truer still if inflation expectations increase materially." [read full article at WSJ.com]
Hat tip Zero Hedge

David Rosenberg on S&P's QE2 Bet, Thomas Lee Sees 1,300 on S&P By Year End (Video)

David Rosenberg, Chief Economist at Gluskin Sheff, said on BloombergTV that the stock market is betting that QE2 (quantitative easing) will reflate the economy, prevent wage deflation, lower the unemployment rate and betting on Bush tax cut extensions. Rosenberg still sees structural headwinds during this "balance sheet recession" with "chronic excess capacity". So... all clear for Thomas Lee's S&P 1,300 target by year end? Fed Asset Purchases Could Spark 10% Rally in S&P 500, JPMorgan's Lee Says (Bloomberg.com). If so, JP Morgan's Chief U.S. Equity Strategist has made unbelievable calls during the past two years. See the index of blog posts from June 2009. The David Rosenberg clip is at Bloomberg.com or after the jump. Are there any bears left?

David Stockman: Fed Monetary Heroin Injection Into Financial System Will One Day Kill The Patient (Video)

This video was going around last week. David Stockman, former director of the Office of Management and Budget under President Reagan, said the "Fed was injecting high grade monetary heroin into the financial system of the world and one day it will kill the patient". Uh oh. BloombergTV clip from 11/4/2010 after the jump.

Bernanke at Jacksonville University on Commodity Price Increases, Fed Balance Sheet and How They Aren't Printing Money (11/5/2010)

Chairman of the Federal Reserve, Ben Bernanke, spoke with an economics class at Jacksonville University. He talked about how the Fed works, how they stopped the financial panic of 2008 (lender of last resort), AIG, the 2009 bank "stress tests", the unwind (tightening policy using interest rates, draining reserves or selling assets), the Fed balance sheet, Treasury securities and reserves in the banking system.

"Sometimes you hear the Fed is printing money, that's not really happening, the amount of cash in circulation is not changing. What's happening is the banks are holding more and more reserves with the Fed".

During Q&A Bernanke was asked if recent commodity spikes (cotton for example) could trickle down to the consumer. Does it threaten your outlook for low inflation?

Cameron Hanover Daily Oil Recap (11/5/2010)

Cameron Hanover Daily Oil Recap (courtesy of www.fmxconnect.com)

The monthly unemployment report was a surprise – it was surprisingly robust. A reported 151,000 new jobs were added against predictions that had been calling variously for increases of 60,000 to 80,000. That should have been unqualified bullish news. On top of that previous job losses were revised down by 110,000, meaning that this report made us aware of 261,000 more jobs than we had. And that was almost 200,000 more people working than had been expected. Granted, the unemployment rate remained unchanged because we need to create that many jobs just to tread water, but it was the best news we have had in a very long time.

Oil and Gas News from This Week (11/5/2010) - Guest Post

Submitted by Global Intelligence Report

Oil and Gas News from This Week

European Energy Consortium to Sign Turkmen Gas Deal

A consortium of two European energy companies and a financial institution are seeking to strike a major gas supply deal with Turkmenistan by the end of this month, to bring gas to Europe, bypassing Russia, which has recently experienced some disappointment in its dealings with Turkmenistan. If the deal goes through as planned, the first Turkmen gas would make its way to Europe by 2014. The information came from Turkmenistan's honorary consul to the EU, Koen Minne. "Our timeline is to get an agreement in principle during the month of November," he said. "The feasibility study was completed in the middle of September, and we've come to our conclusions on the commercial part." This is a historic deal that would cement indications that Turkmenistan has snubbed Russia and its pipeline plans and chosen instead to supply Western-backed pipelines. Among the energy companies are reportedly Italian oil group ENI.

China's CNPC Resumes Turkmen Gas Supplies

Research Updates (QE2 Recap): Goldman, Chris Wood, Jim Rogers, David Rosenberg

Zero Hedge: Goldman Sachs on Gold and TreasuriesAlbert Edwards (Société Générale), Chris Wood (CLSA), UBS's Art Cashin (QE2 = rolling PPT?)

Bloomberg: PIMCO's El-Erian on QE2, Deutsche Bank on 10-year Note, Jim Rogers on QE2 (video), Gluskin Sheff's David Rosenberg (video), Mark Mobius (Templeton)

CNBC: Art Cashin of UBS (video)

Optionmonster: XLF quote stuffing (video), VIX update (video), put buying in materials

FMXconnect: David Rosenberg (Breakfast w/ Dave on QE2)

Jim Rogers Interview in Oxford, UK on QE2, Commodities and Bernanke

Watch this Jim Rogers interview in Oxford (UK) with a decent Grandfather Clock in the background (BloombergTV Media link with Stephen Morris). He gave his outlook on commodities and QE2. Nothing new here if you've been listening to him on Distressed Volatility during the past 2 years. Did you take his advice (or opinion) to own silver on June 22, 2010? $SLV was at $18.26 and today it closed at $26.20 (+43.4%). He expects the commodity bull market to continue for several years based on supply/demand and currency debasement. He favors the most depressed commodities.

Also read about the speech he made at Oxford University: Bernanke ‘Doesn’t Understand’ Economics, Rogers Says  (Bloomberg.com) and it looks like economist Paul Krugman had something to say about Rogers and QE2 on his blog.

Bill Fleckenstein and Barton Biggs (Traxis) on QE2

Bill Fleckenstein of Fleckenstein Capital and Barton Biggs of Traxis Partners were on Bloomberg TV talking about the Fed.

S&P Priced in Silver Makes New Low! (SPX/Gold, SPX/Copper, SPX/BAL - Cotton)

So the S&P 500 is doing great right? Making new highs. It is exactly what the Fed wants to happen with quantitative easing. From Bernanke's Washington Post op-ed:

"This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate the most recent action. Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion."

However, if you priced the S&P in precious metals or commodities, it either made new lows or flatlined since QE1 or early 2009 when the market bottomed. The S&P priced in Silver just broke through the March 2009 low, the S&P priced in Gold is not that far off (watch the descending triangle inflection point), the S&P priced in Copper and Cotton (ETN) got annihilated and the S&P priced in Oil flatlined. So in real terms equities have underperformed most commodities and precious metals. Will these commodity spikes, especially in the agricultural space, ever squeeze household budgets or S&P margins going forward? Or will the US Dollar and/or 10-year note sub 2% (Bob Janjuah of Nomura) force people into equities either way.

Ireland Credit Default Swap Hits Record (586bps), Portugal In Play, Greece Has Highest Default Probability, U.S. 5yr CDS Widens

Sovereign Credit Update: The cost of 5-year insurance on Ireland Government bonds hit a new record of 586 basis points (5.86% to protect $10 million annually). 586.85bps was the 5-year mid spread. Portugal CDS rose 4.51% to 441.29bps and, although demonstrably lower than EU CDS spreads, U.S. 5-year CDS were up 6.18% at 41.79bps. Greece was at the top of CMA's sovereign "Highest Default Probability" list at 52.39% with a 857.84bps mid spread (8.57%). Ireland was in third place at 40.08% and Portugal sixth place at 32%. See table snapshots and articles below > >

Fed Chairman Ben Bernanke Blogged About QE2

What the Fed did and why: supporting the recovery and sustaining price stability - 11/4/2010 Washington Post (hat tip Zero Hedge).

Goldman Economist Jan Hatzius Sees No Inflation Threat, Home Prices Falling 3% (CNBC)

Goldman Sachs Chief U.S. Economist, Jan Hatzius, was on CNBC talking about QE2, inflation vs. deflation, home prices going forward, the unemployment rate and economic growth in 2011.

ETF Reactions to QE2, Traders Destroy TLT (GLD, SPY, OIL, UUP) - Charts

First read the QE2 announcements by the Federal Reserve and NY Fed (specifics). Also read Bernanke's op-ed in the Washington Post. Now for a few charts.

Reaction to QE2 announcement (2:15east): 20+yr Treasury Bond ETF (TLT) got destroyed, gold (GLD) snapped back hard (but closed red), equities (SPY) and the Oil ETN (OIL) hitched onto gold (closed green) and the US Dollar ETF (UUP) and Corporate Bond ETF (LQD) were weak. Some analysts say TLT got hit on less than expected Fed purchases on the long-end.

On the day: TLT -2.06%, SPY +0.40%, OIL +1.39%, GLD -0.69%, UUP -0.47%, LQD -0.33%. Bonds did not react well, however, the high yield bond ETF HYG rallied hard which was interesting. Duration?

Last but not least, check out SPYs ascending channel. It looks similar to the January-April rally. It could re-test the 122 high (closed at 120) but keep "one eye up" for any potential negative catalysts of the black swan variety that could break SPYs ascent. Don't miss the charts after the break.

New York Fed Statement on 850-$900 Billion Treasury Purchases (Includes Agency Debt/MBS Reinvestments)

$TLT (20+ Treasury Bond ETF) is down 2.50 at 3:32est. Here is a more detailed statement by the NY Fed.
Statement Regarding Purchases of Treasury Securities

November 3, 2010

On November 3, 2010, the Federal Open Market Committee (FOMC) decided to expand the Federal Reserve’s holdings of securities in the System Open Market Account (SOMA) to promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate. In particular, the FOMC directed the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York to purchase an additional $600 billion of longer-term Treasury securities by the end of the second quarter of 2011.

The FOMC also directed the Desk to continue to reinvest principal payments from agency debt and agency mortgage-backed securities into longer-term Treasury securities. Based on current estimates, the Desk expects to reinvest $250 billion to $300 billion over the same period, though the realized amount of reinvestment will depend on the evolution of actual principal payments.

Fed to Buy $600 Billion of Longer-Term Treasuries (Statement 11/3/2010)

Release Date: November 3, 2010

For immediate release

Information received since the Federal Open Market Committee met in September confirms that the pace of recovery in output and employment continues to be slow. 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 continue to be depressed. Longer-term inflation expectations have remained stable, but measures of underlying inflation have trended lower in recent quarters.

BAL (Cotton ETN) is Killing It, +176% Since March 2009 Low, +64% Pre-Flash Crash High

The fabric of our lives, cotton, is breaking price records due to global supply constraints (Pakistan/India), emerging market demand, the reflation bid (flight to real assets) and a lower Dollar. The question is, when do these costs pass through to the consumer, or cotton hedges expire and profit margins get squeezed. I compared BAL to JJC (copper etn), QQQQ (Nasdaq 100 etf ), DIA (dow etf) and GLD (gold ETF). I read that the price of cotton is at a 140 year high (1870). At some point there will be a quick 38.2% Fibonacci retracement in $BAL and cotton futures. Boo ya.



+64% from Flash Crash
+176% from March 2009 Low

AUD/USD Testing Highs on RBA Rate Hike to 4.75%, RBA Statement and Charts (Australia)

AUD/USD is testing the October highs after a 25 basis points rate hike by the Reserve Bank of Australia to 4.75 percent. A few moments ago it pierced through the Oct high (1.00024) but sold off. QE2 + U.S-Australia yield differentials widening is bullish for AUD/USD, which explains the 0.22% spike to 0.99970 (in my opinion). You can also see that AUD/USD is trying to break through an ascending triangle.

However, going forward, if gold comes under pressure again and/or the US Dollar is bought on QE2, AUD/USD could retrace back to that uptrend line. It needs to stay above 1.0. Watch commodity currency reactions and volatility during the election and QE2. Below is the RBA statement released to the media at rba.gov.au and AUD/USD charts.

Good Read: Lessons From a Lost Decade (John Hussman)

Lessons From a Lost Decade: Valuations - Fed Policy and QE - Market Climate by John Hussman at hussmanfunds.com.

Roubini Sees a "Fiscal Train-wreck" With Congressional Gridlock (CNBC)

Nouriel Roubini (NYU Prof and Chairman of Roubini Global Economics) sees a "fiscal train-wreck" ahead (CNBC video 10/29/2010).

Yale's Robert Shiller on the Liquidity Trap, Home Price Index (Buttonwood Gathering)

Yale Professor and co-creator of the S&P Case Shiller Home Price Index was on Tech Ticker (w/ Aaron Taks) outside the Buttonwood Conference. He said if home prices go down another 5% that would put stress on financial institutions going forward. Shiller also mentioned the liquidity trap, or the lack of confidence to borrow money even at extremely low interest rates. Watch the vid after the jump.

Watching Credit Spreads During QE2, LQD Has 30,000 March 2011 $100 Puts Open, Thoughts?

I'm watching bonds and credit spreads during QE2 week. LQD, the investment grade corporate bond ETF, just pierced through a rising wedge and is trading right under the 50DMA. It is not volatile. Elliott Wave's Bob Prechter just released a report on bonds titled "The Next Major Disaster Developing for Bond Holders" (link). Take from it what you will. With the Fed propping up Treasuries to lower rates, it is kind of hard to figure out how to price "risk" at the moment as the "risk-free" rate (Treasuries) is being manipulated. We'll see if traders drift away from Treasuries and use another credit instrument to price risk at some point. Also, why are 33,659 LQD $100 March 2011 Puts open? I don't see much interest anywhere else. I see they were bought in September (see thoughts by OptionMonster on the trade). This trade is the option to sell 3,365,900 shares at $100 if LQD is in the money (below $100 + premium). Interesting hedge. See charts > >

SEC Investigating JP Morgan/Magnetar "Squared" CDO of CDOs Deal

After the SEC collected $150 million from the Goldman "Abacus" CDO (collateralized debt obligation) investigation, they are now looking at the JP Morgan/Magnetar "Squared" CDO (of CDOs). Read the article at ProPublica.

S&P 500 at 50 Month Moving Avg Resistance Again (30 Year SPX Chart)

The S&P is testing the 50 month moving average again. It failed at that level in April. The 50MMA is currently at 1204.25 according to freestockcharts.com (see below). Also look at the long term ascending triangle. SPX is currently in a multi-year cHoPpy ascent towards the 2000/2007 peak. It made a high of 1,195 today (pre-QE2 and elections) and quickly reversed to $1,179 just now. It probably makes sense to insure longs here, the chart looks overextended (imo)! But a crazy QE injection could destroy that idea.

December VIX Options Active, Will Market See a Volatile Rally or Fall? - Video

Hat tip to optionMONSTERtv / @coffeygrinds [big buys December 20 Puts, December 22 Calls, VIX spot at 21.6].

Marc Faber Sees Asset Price Correction, Dollar Rally, China Gloom (UUP, SPY, FXI)

Marc Faber, author of the Gloom Boom and Doom Report, was on Bloomberg on 10/26/2010. He said if QE2 (quantitative easing 2) is less than $1 trillion it could correct asset markets (stocks, commodities and precious metals) and rally the US Dollar (USDX, USD/JPY). However, Faber doesn't believe the bull market in stocks and commodities is over. In the long run he likes stocks over U.S. Government Bonds and cash (courtesy of Fed quantitative easing or the "economic put").

In the second segment Faber was gloomy on the Chinese economy. He said economic imbalances, capital flows, artificially low interest rates (credit growth), the property price boom and rising inflation (example corn/cotton) will slow down the economy. Marc Faber joined short seller Jim Chanos. If Chanos is right and the Chinese credit bubble pops, will the People's Bank of China (PBOC) just print money, backstop losses and buy assets to avert a crisis?

Marc Faber on Bloomberg TV with Margaret Brennan on 10/26/2010 after the jump.

Peter Schiff: Keep Your Head Above Dollar; Video Updates on Gold, Stocks, Economy, QE2 (Videos, Blog Post)

Peter Schiff of Euro Pacific Capital, who correctly said "home equity and phony wealth" would evaporate multiple times on CNBC before the mortgage fraud super bubble popped, gave a few market updates on Friday (Europac.net blog post, Schiff Report) and on Tech Ticker on 10/18. First his post.
Keep Your Head Above Dollar

By: Peter Schiff
Friday, October 29, 2010

There has been so much discussion recently about "QE 2" that you would think the entire financial sector were about to embark on a transatlantic cruise. Unfortunately, they, and we, are not so lucky. In the year 2010, "QE 2" doesn’t refer to a sumptuous ocean liner, but a second, more extravagant round of "quantitative easing" – stimulus. In the past, this technique was simply called "printing money." As if the nation has not already suffered enough from the first round, Captain Ben Bernanke and the Fed are determined to compound the damage by hitting us with another monetary juggernaut. Their stated goal is to boost the economy and create jobs. However, since economic growth cannot be achieved by printing money, their QE 2 will sink just as surely as the Titanic.

Bob Janjuah's S&P, Gold, Treasury Yield Targets, QE2 Reaction (2011)

Bob Janjuah, co-head of cross-asset allocation strategy at Nomura International, was on Bloomberg with Erik Shatzker on 10/27/2010 giving his outlook on the S&P, emerging markets, currencies, gold, QE2, Treasuries and asset bubbles. In 6 months time, Bob predicts: 10 year note yield sub 2%, S&P sub 1,000, gold prints 1500 in next 3-months (but absent policy response gold could fall).

Financial Research Updates (10/25/2010-10/30/2010) | powerLINKS

powerLINKS: Halloween Edition (*updated links 10/31/2010 5:48pm)

Activity in XLF Call Options, Watch 15 Resistance, XLF vs. SPY (Charts)

Interesting activity in XLF calls yesterday (financial sector ETF) -> @RMBrenna (optionmonster TV) and Benzinga. Watch $15 resistance and the 200DMA. Also XLF underperformed SPY by 10% during the past six months (XLF -9.41%, SPY +0.66%). How does the performance spread tighten?

Nikkei Future Under Pressure, Broke 50dma (9,195, NKZ vs Yen) - Charts

The Nikkei 225 (Dec future) is under pressure tonight. It is down 1.71% at 9,195 and broke through the 50 day moving average. It is testing July support and if 9,200 officially gets taken out it could bleed to the 8/31 low (8,775). 9,200 support is critical for a potential head and shoulders reversal. Japanese stocks really need a strong jolt here to pull it off IMO. NK is still trading in a descending channel. Over the past six months (since April) the Yen is up 15%+ and the Nikkei is down 15%+. So there's a clear inverse relationship. Japan needs a lower Yen. Charts and articles after the jump.

Ireland 10year Yield Makes New High (7.06%) on Deficit Worry, CDS at 463bps

Irish 10-year bonds were active today on deficit worries. The 10-year yield spiked to 7.06% before closing at 6.80%. Charts after the jump.

Irish borrowing costs at new high on debt fears - BusinessWeek
Ireland Credit Debt Swaps Soar on Anglo Bond Standoff (463bps) - BusinessWeek
Irish FinMin: Greece, Portugal weigh on Irish bond yields - Reuters
Irish four-year plan designed to prevent bailout-Fin Min - Reuters
Lenihan Says Ireland Needs ‘Significant’ Budget Cuts in 2011 - BusinessWeek
Irish, Portuguese Bonds Decline on Deficit, Political Concerns - Bloomberg

John Taylor (FX Concepts): US Dollar Will Remain Weak Through November, Still Sees EUR/USD at Par

John Taylor who runs the biggest currency hedge fund in the world (FX Concepts) thinks QE2 is priced in and believes the US Dollar will remain weak through the end of November [EUR/USD tops out between 1.40-1.43]. Taylor still believes EUR/USD hits 1.0 (par). He was on BloombergTV talking with Erik Shatzker watch below. Oh and beware of currency wars fueled by protectionism. You hear that Central Bankers?

Pimco's Bill Gross: Fed QE is a Ponzi Scheme, 30-year Bond Bull Market is Over

Bill Gross who runs the biggest bond fund in the world at PIMCO said quantitative easing and even our public debt has ponzi-like characteristics. Wow.
  • The Fed’s announcement of a renewed commitment to Quantitative Easing has been well telegraphed and the market’s reaction is likely to be subdued.
  • We are, as even some Fed Governors now publically admit, in a “liquidity trap,” where interest rates or trillions in QEII asset purchases may not stimulate borrowing or lending because consumer demand is just not there. Escaping from a liquidity trap may be impossible, much like light trapped in a black hole. Just ask Japan. Ben Bernanke, however, will try – it is, to be honest, all he can do.
  • The Fed’s announcement will likely signify the end of a great 30-year bull market in bonds and the necessity for bond managers and, yes, equity managers to adjust to a new environment.
  • Check writing in the trillions is not a bondholder’s friend; it is in fact inflationary, and, if truth be told, somewhat of a Ponzi scheme. Public debt, actually, has always had a Ponzi-like characteristic.

Night of the Living Fed, Jeremy Grantham's October Letter (Bonds or Equities?)

Night of the Living Fed by Jeremy Grantham
GMO's co-founder and chief equity strategist Jeremy Grantham released his 3Q 2010 letter titled "Night of the Living Fed". Check out the cover page to your left (click for full view). GMO runs $94 billion in client assets. After listing the "ruinous costs" of Fed asset price manipulation, Grantham questioned bonds versus equities since both are overpriced and bonds are manipulated. Read the full report here in PDF form.

"5) Should we buy overpriced stocks when bonds are even worse?

We plan to write more substantively on this topic in the near future, but for now the short answer is that bond prices are currently manipulated, and are yielding less than any market clearing price would suggest. They absolutely do not reflect the substantial fears in many quarters about inflation in the long term. Even in less manipulated times, bond prices can be quite silly for the usual behavioral reasons, as demonstrated most clearly by the 15% yield on the 30-year Treasury in 1982! Bonds are thus emphatically not a reasonable yardstick for measuring value in stocks. We use the long-term returns for stocks to decide what their fair value is. They are currently overpriced. Bonds are even less attractive. Yet, remember that in a strongly mean-reverting world, you need to be careful about enthusiastically buying the less ugly of two overpriced investments. Cash has an option value: on the chance that stocks or bonds or, better yet, both, decline, the investor will need resources from which to buy." [full report]

Big Volume in US Dollar ETF, March 2011 Call Options ($UUP), Get Ready For November Catalysts

The US Dollar Bullish ETF ($UUP) and its March 2011 call options saw big volume yesterday. UUP closed up 0.13 or 0.57% at 22.65 on 15.43 million shares (average of 3.76M) and a total of 227.57K options traded (average of 21.49K). UUP hasn't seen this much volume since May. UUP is testing the 2008 and 2010 lows which could explain the upside positioning, whether speculative or hedging.

Check out the two block trades: 99,000 UUP March 24 Calls traded at 0.34 (6,586 open interest) and 54,000 UUP March 23 Calls traded at 0.61 (48,617 open interest). The big volume was on the PHLX. It was a vertical call ratio spread according to OptionMonster. UUP was also on my ISE widget with 4,823 calls opened versus 253 puts opened.

Charts Get Upgrade in Google Docs Spreadsheets (Video)

Check out the new charting features in Google Docs Spreadsheets. Free advanced web-based charts. Thanks Google. The video below is from the Google Blog and ZDNet did a post.

The Real Estate Bust's Impact on Tax Increment Financing (TIF)

If interested in public finance here's a presentation on TIFs (Tax Increment Financing). Leveraging the tax base! CDFA - BNY Mellon Development Finance Webcast Series: Real Estate Bust Impact on Tax Increment Finance.

Bob Prechter: The Next Major Disaster Developing for Bond Holders (New Report)

There's a new report out by Bob Prechter of Elliott Wave International on bonds. You'll like the charts.

Download your free copy of Robert Prechter's new 10-page report, The Next Major Disaster Developing for Bond Holders, now -- it's free.

About the Publisher, Elliott Wave International

Founded in 1979 by Robert R. Prechter Jr., Elliott Wave International (EWI) is the world's largest market forecasting firm. Its staff of full-time analysts provides 24-hour-a-day market analysis to institutional and private investors around the world.

William Black on the Foreclosure Crisis, Mortgage Fraud (Dylan Ratigan)

Professor William Black is probably the right guy to explain the current foreclosure crisis. He was a former bank regulator and S&L investigator during the Savings and Loan crisis in the late eighties. He said today's crisis is the S&L/junk bond bust x 40. Below is a statistic he gave on mortgage fraud.

"Credit Suisse says that by 2006, 49% of all mortgage originations in the United States were liars loans. The lowest incidents of fraud is 50% and that’s when the fraud fraudsters study it themselves. When independent folks study it, it’s in the 80 to 90% range."

Also did you know that the FBI warned about a mortgage fraud epidemic in September 2004? FBI warns of mortgage fraud 'epidemic' (CNN). Lisa Epstein is featured first in the video clip.

Municipal Tax Base and Pension Fund Update (Milken Institute, Northwestern and SF Fed Info)

If you've been following the public finance crisis on my blog during the past 2 years, nothing has really changed. State governments and local municipalities are being squeezed by lower tax revenues (offset by tax hikes) due to the great recession, debt-deflationary drag, foreclosures, lower property values, unemployment and slower economic activity. Read: Lower Property Values Hit City Revenues (WSJ).

Analyst Meredith Whitney sees darkness ahead for the States: Whitney Says States May Need Federal Bailout in Next 12 Months (Bloomberg video). State credit default swaps, or insurance on State debt (see Illinois, California) have premiums almost as high as GreecePortugal and Ireland who are going through a similar situation. Chris Mier of Loop Capital disagreed with Meredith Whitney. On Bloomberg TV he said States "have their own resources, are sovereign and have deep powers to tax". Focus on local units of Government since "they have less resources, they have smaller economies and have limited abilities to tax"See the Bloomberg video here. Either way, get ready for a spike in taxes or a Federal bailout.

Gary Shilling on CNBC (Treasuries vs. Stocks), Home Index Rolls Over (ITB, XHB, TLT, SPY, XLF)

Gary Shilling of A. Gary Shilling & Co. was on CNBC on 10/22/2010. He sees home prices falling by another 20% and mortgages under water rising to 40% from 23%. Maybe that is why bank indexes are underperforming the Nasdaq and commodities (+ the mortgage put-back crisis). He also sees the 30-Year Treasury yield hitting 3%. Before Shilling came on, CNBC reported that the Clear Capital Home Data Index was rolling over. He says watch the standoff between Treasuries and stocks. One will give. Watch the S&P ETF (SPY) chart stream live here.


$USB (30-Year US Treasury Bond Price) vs. $SPX (S&P 500)


US Dollar Future Flash Crash or Capitulation? Prints 74.60 Low, Yen Running Higher (DXZ, JPZ, UUP, FXY)

Someone or a currency bot decided to pierce through October support in the December US Dollar Index Future (DXZ10) and print a low of 74.60. More on that print here, here and here. Short covering bots quickly rallied the almighty Dollar back to unchanged territory. It is now rolling over post G20 meeting (Dollar sell-off resumes after G20, eyes on Fed). Was that a flash crash or legit capitulation? Why are we seeing this happen in SPY and the Dollar Future during after hours? Watch 76.33 support which was the actual low on 10/15/2010. The Yen is making new highs as well. Watch that rising trend line. Charts after the jump. This week will be interesting.

60 Minutes: California Unemployment + UNDERemployment is 22% (U6), Thoughts On Economy

60-Minutes did a special on the unemployment problem in the U.S and specifically in California. We are currently in a debt-deflationary depression (see this MacroTwits video with Gregor Macdonald from 8/16/2010, he explained it). The trillion+ in Government stimulus (quantitative easing) was supposed to cure this problem. Instead the money backstopped banks, inflated stocks and commodities, deflated the US Dollar and attempted to put a floor under housing prices by buying Treasuries/agency mortgage-backed Securities to lower mortgage rates. As you can see from the Clear Capital Home Data Index reported last week, we might be experiencing a double-dip in housing.

The Fed's second stimulus (quantitative easing #2) could be announced at the November 3rd meeting which would focus on buying longer-term Treasuries to lower rates even further. Short term rates are at 0%. The Government hopes it will fuel refinancing activity and lower borrowing costs for businesses and households to provide an economic jolt. Hopefully commodity inflation doesn't mess that up.

Niall Ferguson vs. Keynes, US Steel on Manufacturing Crisis, Cotton Makes New High - powerLINKS (10/24/2010)

powerLINKS for 10/24/2010

Harvard's Niall Ferguson was at the The Daily Beast's Innovators Summit in New Orleans on 10/22/2010. Watch the full video at Zero Hedge. This was an interesting quote:
"We've had an enormous of stimulus in the US, it's the biggest fiscal stimulus in the world, and huge unprecedented monetary stimulus. What's been stimulated? Not jobs in Michigan. What's been stimulated has been commodity markets and emerging markets. Because the liquidity just leaks out, and that's why another round of stimulus would not stimulate in the promised way." [link]
*Michigan's unemployment rate is at 13% and the cotton future tripled since early 2009.

Ashraf Laidi Gives Update on USD/JPY, EUR/USD, G20 Meeting, Carter Worth on Market Technicals (BNN)

Ashraf Laidi, Chief Market Strategist at CMC Markets, was on BNN giving his thoughts on USD/JPY (Dollar/Yen), EUR/USD, the G-20 meeting and Central Bank currency interventions. The Yen is very strong at the moment and Ashraf said the Bank of Japan might try to squeeze USD/JPY shorts after the G20 meeting. See Ashraf's interview here (bnn.ca). If you remember, a few weeks ago the BoJ tried to defend USD/JPY support but failed. Currency trading is all about gaming Central Bank moves. I wonder how much insider trading goes on. Also check out the USD Future flash crash today courtesy of @NicTrades. She said some trades were cancelled.

Carter Worth, Chief Market Technician of Oppenheimer & Co., was also on BNN and said the S&P 500 ends the year where it started, REITs move higher (based on lower interest rates) and Gold and Apple consolidate after powerful advance. See Carter's interview here (bnn.ca).

H&R Block (HRB) Option Volatility, CDS Spike on Put-Backs, RALs (Refund Anticipation Loans)

It seems like H&R Block (HRB) is the only stock with volatility spiking at the moment. There are two things going on. Since an ex-entity of theirs, Option One Mortgage, originated mortgages at the peak of the bubble, they could be exposed to $33 billion in mortgage put-backs. The CEO said they have $188 billion in reserves though. Read more at CNBC NetNet.

However, this is probably more serious. H&R Block was told by HSBC that they couldn't sell "refund anticipation loans" anymore due to new IRS rules. This is a major part of their business.
"HSBC told Block it could not provide funding for the RALs and refund anticipation checks because the IRS has decided to stop providing a debt indicator next tax season that would say whether a taxpayer has liens outstanding, and that would make the loans too risky to provide." [WebCPA.com]

According to Bloomberg and WebCPA, 3 to 4 million of their clients used RALs last year or 17% of total tax returns. Moody's recently downgraded H&R Block to Baa2 and S&P put them on Credit Watch (BusinessWeek).

So check out the activity in its credit default swaps, options and stock. Business Insider and Bloomberg both reported that H&R's credit default swaps (Block Financial LLC) were spiking. I couldn't find a chart on Bloomberg.com but here are CDS quotes as of 10/21/2010:

List of Government Bond Yields, Credit Spreads, Volatility Indexes

Here are useful indicators to watch during the financial mortgage put-back conflict or any upcoming sovereign debt (or bank) black swan events. I also linked to other interesting indicators at Bloomberg.com. For a list of sovereign and corporate (including U.S. and European bank) CDS (credit default swap) quotes, go here.

Is a Market Turn In the U.S. Dollar Getting Close? - Guest Post (Charts)

Provided by guest contributor Jennifer Gorton from Forex Traders

Is a Market Turn In the U.S. Dollar Getting Close?

It’s old news that the U.S. dollar is weak. In fact, the U.S. dollar is so weak that it has been on a one way path of devaluation since early June. If we know anything from the last two years of economic unrest in the global financial markets, one thing we do know is that U.S. dollar direction tends to be sharp and long. A quick look at the U.S. Dollar Index is quite revealing.




In the chart pictured above, you can see quite clearly that the U.S. dollar has moved, for the most part, in very strong trending moves for months and years at a time over the last 4 years. Although there have been small retracements in each impulsive move, you can see that traders who focus on trend following techniques in the U.S. Dollar Index have been offered plenty of trade opportunities over the last few years. Let’s break down a quick recap of U.S. dollar direction over the last 4 years.

John Hussman Thinks Quantitative Easing (QE) is Priced In

John Hussman who runs the Hussman Funds thinks QE is priced in.
"My impression is that much or all of the potential upside of quantitative easing is already fully reflected in stock, bond and commodities markets. Investors now rely not only on QE itself, but also on its success. This is a dangerous place to be." [read his full report at HussmanFunds.com (The Recklessness of Quantitative Easing)

QQQQ, JJC Above April 2010 High (+GLD, BAL TLT and Gold Video) | 10/20/2010 Technical Analysis

I drew lines on $QQQQ, $BAL (Cotton ETN), $GLD and $JJC (Copper ETN) earlier today. $JJC and $QQQQ are just above the April highs (pre-flash crash) and are leading the market. Watch that thin shelf and steep uptrend for any violations. The Cotton ETF is up 62% in 3 months in a rising wedge and GLD is testing its ascending channel. I'm watching for near-term structural reversals. I saw there was a breakdown in $TLT (the first chart). It broke below that ascending channel but caught support at 100. It's also below the 50DMA. I'll be watching $100 support closely. If TLT breaks down and Treasury yields breakout, Marc Faber said that could support the US Dollar. I could see that happening, but there are still overhead resistance levels for UUP to conquer (see previous post on $USD and $UUP).

So how does Gold play out? Adam Hewison who runs MarketClub thinks it is going lower (see video below). Something interesting is about to happen in the market. I'm not sure what it is. If I was crazy long the reflation trade (commodities, equities etc.) I'd probably have some downside insurance in place after these huge runs. Plus Doug Kass thinks we are forming a top. I'd like to know what Robert Prechter thinks at this juncture. Thoughts? Check out all the charts below and the gold vid.

The Unconventional Gas Red Zone (Chart) - Guest Post

Submitted by OilPrice.com

The Unconventional Gas Red Zone

Great chart from PFC Energy. Presented at an Institute of Energy Economics, Japan seminar last month.

The piece shows the "red zones" in global unconventional gas (shale, tight gas, coal bed methane). Comparing the unconventional sector in North America to six unnamed Asian nations (lettered A to F, so as not to hurt any feelings), across ten categories related to the gas business in each country. Green is good, yellow okay, red poor.

Foreigners Buy $117 Billion in Treasuries During August (Charts) - Guest Post

Submitted by OilPrice.com

Foreigners Buy $117 Billion in Treasuries During August

The U.S. bond market is murky these days.

Yields have been plummeting. But some of the action is almost certainly due to the Federal Reserve once again buying Treasuries. Since August 19, the Fed has bought $40 billion in government bonds.




But the Fed has no influence over foreign buyers of U.S. Treasuries. And these purchasers have been coming on strong.

Violent French Protests Against Pension Reform Bill Affects Fuel Supply

A pension reform bill in France led by Sarkozy, which, if passed, will raise the retirement age by 2 years to 62, is sparking riots and strikes across the Country. Oil refinery strikes are disrupting fuel supplies and hitting public transportation. See videos after the jump.

Screen shot 2010-10-20 at 7.34.42 PM
Click for Bloomberg Video on 10/19
French strikes and protests: as it happened - Guardian.co.uk
French pension reform 'necessary' - BBC Radio
Violent protests have ‘weakened unions’ in retirement battle - France24
French energy supply hit as blockades continue - France24
Police break fuel blockade in France strike - rfi english
Are the French a bunch of lazy slackers? (diss) - rfi english
France clears fuel blockades before pension vote - Reuters
Factbox: French media comment on strikes and pensions reform - Reuters
French Protests Over Pension Turn Violent - NPR
French protests turn ugly as riots hit wealthy Lyon - Reuters
Protesters block French airports - World News Australia
Like France, will US soon move to boost retirement age? - Christian Science Monitor (oui)

"Masked youths clash with police as pension reform protests get radical in France" - Russia Today footage below

Kass Put vs. Bernanke Put, Doug Kass Thinks Equities in Process of Topping Out

There's a new blog post out by Doug Kass at TheStreet.com titled "Kass: Equities Edge Toward a Top" (10/19/2010). Here's a quote:
"In light of what I expect to be a disappointing economic impact from QE 2 -- I call it quantitative wheezing -- and the negative consequences of that strategy ("screwflation") on the majority of Americans, I now believe that equities are in the process of putting in the highs for the year." [read more]

Kass successfully called for a market bottom in July on Twitter.

Zuckerberg Talks About Facebook Movie (Video), Added a 2005 Interview at Facebook Offices

Great interviews here. Facebook Founder/CEO, Mark Zuckerberg, spoke at the Y-Combinator Startup School on 10/16/2010. It was interesting to hear his thoughts on the Facebook movie (The Social Network). He talked about his days between Harvard and Silicon Valley and how he didn't build Facebook just to get girls or join a club. He also addressed how Facebook could work with China and other countries that are sensitive to speech. He said someone in Pakistan is trying to get him sentenced to death. Zuckerberg is worth $6.9 Billion on the Forbes List (more than Steve Jobs). I embedded Zuckerberg's 2009/2010 Startup School interviews with Jessica Livingston below via Justin.tv. He mentioned Eduardo, Peter Thiel and Shawn Parker in the 2009 interview. I also embedded a 2005 interview with Zuckerberg at Facebook's HQ in Palo Alto (includes keg stand footage haha). At that time he was mainly focused on expanding the "college directory product" to other schools. I remember the buzz about Facebook in 2004 when Friendster was big. Great success story.

Financial Crusades: PIMCO, NY Fed, Blackrock Sue Bank of America, BofA Sues FDIC, Chicago Home Loan Bank Sues BofA

powerLINKS - financial crusades edition (PIMCO, NY Fed, Blackrock, TCW Group, MetLife vs. Bank of America)

BofA says to fight mortgage bond investors - Reuters

Bank Of America Rebuffs Mortgage Letter From Investors - WSJ

Pimco, NY Fed Said to Seek BofA Repurchase of Mortgages - Bloomberg

What Do Katy Perry and Eminem Have in Common? - Guest Post

Submitted by OilPrice.com

What Do Katy Perry and Eminem Have in Common?

Answer: both were quoted in the keynote speech last week by U.S. Commodity Futures Trading Commission (CFTC) commissioner Scott O'Malia, at the 13th Annual Energy and Commodities Conference in Houston.

Referencing pop culture in a speech on derivatives is a little unorthodox. But what O'Malia was describing to conference attendees was even more so.

The commissioner was discussing the CFTC's implementation of the Dodd-Frank Act. Otherwise known as the financial reform rules in the U.S.

A major thrust of Dodd-Frank has been the regulation of derivatives. Options, futures, swaps and other such instruments that are seen as being a large and potentially risky part of the financial infrastructure.

Chris Whalen on Property Tax, Foreclosure, MBS Note Crises (Video)

Chris Whalen of Institutional Risk Analytics explains the whole foreclosure crisis in 7 minutes on Bloomberg TV. He thinks the foreclosure crisis is a cancer, or a "slow wasting" deflationary process that is undermining our communities. Here are a few quotes from the video which is after the jump. What I took from the video is, not only did Wall Street / Credit Rating Agencies misprice the trillions in mortgage-backed securities, investors weren't even secured by the underlying collateral! The securitization process needs to be restructured (imho).
"We are turning our banks into REITs; we're turning them into operators of real estate and I think Washington has to take a page out of the depression..."

"The other thing we have to really think about big picture is property taxes. Every time there's a foreclosure somebody stops paying their property taxes" (muni crisis)

"When you have foreclosures, what's the next thing that's going to happen? Not a Federal moratorium; not a voluntary moratorium by lenders who can't deal with their backlogs anyway; we're going to have State moratoria the way we did in the 1930s and the Governors of those states are going to say "folks stay in your homes, keep paying your property taxes, default on your mortgage", that's Washington's problem"

"A lot of mortgage backed securities (MBS) have a case where the trustee may or may not have a note. Lets assume he's actually got a completed note in his files. He still may not be able to foreclosure because he may not have clear title to the underlying collateral... There's an awful lot of investors out there who don't know what they own. They may have unsecured debt instead of a fully collateralized piece of paper. The litigation's going to go on for years, you have trustees, custodians..."

"Most securities issued in the U.S. are governed by New York law.. Under New York State law there are certain things that have to happen when you set up a trust to issue securities.. The dealer has to deliver to the trustee the notes that evidence the obligation.. So if the trustee doesn't have those notes and if the name of the trustee is not actually inserted in the document in some cases, the contract isn't live. A lot of investors may hold securities that are in fact uncollateralized, in other words the trustee may not have the capacity to go out and foreclose on a home to make those bonds money good."

Steve Jobs Mentions Google and Android During Q3 Earnings Call

Speaking of Apple, listen to Steve Jobs calmly rant about Google and the Android operating system during the Q3 earnings call. Courtesy of Business Insider.

Nasdaq 100 is Leading the Market, Watching 2,050 Support (NDZ, NDX, QQQQ, XLK)

The Nasdaq 100 Index is currently leading the stock market (Apple is 19.97% of $QQQQ ETF). Apple reported record revenues and earnings today but traders sold the news as iPad sales fell short (read 1, 2 at SF Gate). The Nasdaq 100 future is currently down 1.1%. The support level to watch is 2,049 in $NDX, NDZ (Nasdaq 100 December Future) and NDQ (e-mini). There is a steep uptrend line that must hold as well. XLK has a similar level as well (chart 4). I'm watching the US Dollar, QQQQ, XLF (banks), ITB (construction) and commodities for overall confirmation. I want to see if shorts can put a dent in the chart.

S&P Flash Crash Part 2? NYSE Cancels Large SPY Trades During After Hours

What the hell happened here in $SPY (S&P 500 ETF)? Was this an after hours flash crash? Well, either way, the trades were cancelled. $766 million (7.2 million shares x $106.46) moved in eight seconds according to Bloomberg. That's a decent amount of money to transact for no reason. What would trigger this? I actually saw the number first on my live quote widget and had no idea what was going on. Apple and IBM reported earnings after the bell today and SPY is trading right at the 200 week moving average (DIA just broke that level). From Bloomberg:

"NYSE Euronext cancelled all trades in the $74.8 billion SPDR S&P 500 ETF Trust that occurred at almost 10 percent below the security’s opening price, according to an email sent by the exchange.

The trades occurred on the NYSE’s Arca platform at 4:15 p.m. New York time today and priced the exchange-traded fund that tracks the Standard & Poor’s 500 Index at $106.46 compared with its opening price of $117.74.
The ETF plunged 9.6 percent over eight seconds as 7.2 million shares traded on NYSE Arca, according to data compiled by Bloomberg. The S&P 500 rose 0.7 percent to close at 1,184.71 today."

Doesn't this look similar to the flash crash in April?  Below are after hours charts showing the 106.46 print (courtesy of FreeStockCharts.com). To see the actual time/sales of each trade go to Zero Hedge.

Links: Mauldin on Mortgages, Goldman's Outlook, Big Mac Index (Yuan Undervalued by 41%), Cotton at 140 Year High

Some reads... I'm watching the large, regional and community bank ETFs and indexes.

Copper Leads Decline in Metals as Dollar Rallies, China Inventories Grow - Bloomberg

The Subprime Debacle: Act 2 (and foreclosure, title, MBS crisis) by John Mauldin - Credit Writedowns

Goldman's David Kostin gives outlook on S&P and economy - Zero Hedge

Banks Shared Clients’ Profits, but Not Losses - NY Times

Flashback to 1870 as Cotton Hits Peak (at 140 Year High) - WSJ

Big Mac Index: Euro is overvalued by 29% (to the US Dollar), Yuan is 41% undervalued - Economist

Facebook CEO Mark Zuckerberg interviewed at YCombinator’s Startup School - AllFacebook.com

Pension Funds Flee Stocks in Search of Less-Risky Bets - WSJ

Auto industry's new math sends leases soaring - Automotive News

Internet ad revenues break records during first half of ’10 - IAB and PwC

Rosengren/Evans Speeches at Boston Fed, LSAPs vs. Deflation (10/16/2010)

Boston Fed President Eric Rosengren and Chicago Fed President Charles Evans spoke at the "Monetary Policy in a Low Inflation Environment" economic conference at the Boston Federal Reserve. They want to bring down longer term rates (Treasury yields) even further by using LSAP channels (Large Scale Asset Purchases) to avoid the Japanese deflation trap. They believe these policies will drive lending, mortgage refinancing activity and reflate the economy. Hedge fund manager David Tepper mentioned this on CNBC that the Fed would lower mortgage rates significantly to avoid deflation. Read the speech slides below. Gregor Macdonald during MacroTwits Hour mentioned these speeches (hat tip). Here is Ben Bernanke's full speech at the Boston Fed conference. Also read "NY Fed's Brian Sack on Asset Prices and Balance Sheet Policy 10/4". The Federal Reserve and Government Sponsored Enterprises (Freddie Mac, Fannie Mae and the FHA) are deeply involved in the markets right now.

US Dollar/S&P-Oil-Gold Relationship Watch, UUP RSI and ADX Indicators - Technical Update

Technical Update on USD Relationships 10/17/2010: As mentioned previously on 9/28, the $USD inverse relationship trade (US Dollar/S&P-Oil-Gold) has been working during the past month and a half (chart 1). UBS's Art Cashin mentioned this relationship on King World News on Friday. So lets look at the charts. The US Dollar Index ( $USD) looks like it's due for a reversal in the short term and could possibly test that downtrend line using the two lower highs from June and September (chart 2, 3). RSI (relative strength) looks oversold and the MACD (moving average convergence-divergence) indicator could cross to the upside. The MACD is still below the mid-line though which still confirms overall downside momentum and the 50/200DMA death-cross is still in play. Watch the multiple downtrend lines. Volume increased on the rally on Friday.

Peter Schiff: Creating Inflation Will Not Solve Unemployment Problem

Peter Schiff on Tech Ticker (10/15/2010). He talked about the implications of a lower Dollar, inflation, 0% Fed Funds, CPI ex-food and energy, commodity prices, rising costs, inflation/unemployment, lower Dollar/exports, the trade deficit and financing the Government debt. I embedded the video after the break.

Weekly Geopolitical Summary, 14 October 2010 - Guest Post

Submitted by the Global Intelligence Report

Weekly Geopolitical Summary, 14 October 2010

·Head of Turkmengaz Fired and Replaced with Deputy
·CYBERCOM to Go Operational This Month
·Govt Takes over Hungarian Plant after Deadly Toxic Spill
·French Transport and Oil Industry Strikes Risks Radicalization
·Bolivia to Start Lithium Production in October
·ISAF's Torkham AfPak Border Crossing Reopened
·Iran's President Visits Lebanon in Clear Attempt to Boost Hezbollah

Bernanke Speech at Boston Fed: Monetary Policy in a Low-Inflation Environment (10/15/2010)

Chairman Ben S. Bernanke
At the Revisiting Monetary Policy in a Low-Inflation Environment Conference, Federal Reserve Bank of Boston, Boston, Massachusetts

October 15, 2010

Monetary Policy Objectives and Tools in a Low-Inflation Environment

The topic of this conference--the formulation and conduct of monetary policy in a low-inflation environment--is timely indeed. From the late 1960s until a decade or so ago, bringing inflation under control was viewed as the greatest challenge facing central banks around the world. Through the application of improved policy frameworks, involving both greater transparency and increased independence from short-term political influences, as well as through continued focus and persistence, central banks have largely achieved that goal. In turn, the progress against inflation increased the stability and predictability of the economic environment and thus contributed significantly to improvements in economic performance, not least in many emerging market nations that in previous eras had suffered bouts of very high inflation. Moreover, success greatly enhanced the credibility of central banks' commitment to price stability, and that credibility further supported stability and confidence. Retaining that credibility is of utmost importance.

Gary Shilling: Home Prices to Fall 20%, Likes 30y Bond and Cash (Sees Decade of Slow Growth and Deflation)

Gary Shilling, who runs research firm A. Gary Shilling & Co., was featured on a Bloomberg Podcast on 10/14/2010. He's still in the deflation camp and believes home prices will fall by another 20% to revert back to the long term trend. 30 Year Treasuries are still his favorite investment and have been for 29 years. He has a new book coming out next month titled: "The Age of Deleveraging: Investment Strategies for a Decade of Slow Growth and Deflation". So you know where he stands. Shilling believes gold is rising on "the rejection of paper currencies" not because of inflation. It's interesting that he doesn't care about the recent price moves in agricultural commodities (corn, cotton). Maybe food spikes will be the next "$147 oil" catalyst that brings on the next crash in risk assets.

In his portfolio, Shilling said he's heavily weighted in cash and 30-year Treasury bonds (sees the 30y bond yield at 3% and 10y-note yield at 2%) and remains "suspicious" on stocks and commodities. $TLT (20+ Treasuries ETF) better hold $100 and the 50DMA btw. For more, listen to the whole 10 minute podcast here (via Bloomberg Radio).

Justin Bieber vs. Alan Greenspan on Housing Bust (Jimmy Fallon Video)

This is funny. Pop star Justin Bieber (impersonated by Jimmy Fallon) blamed former Fed Chairman, Alan Greenspan, for inflating the housing bubble and causing the "credit freeze" by keeping interest rates artificially low for too long.

Greenspan already testified before the Financial Crisis Inquiry Commission about this (link - Overseas Savings Glut Kept Long Term Rates Low, Fed Funds Rate Was Ineffective In Controlling Housing Inflation, Financial Crisis Inquiry Commission Testimony). Watch the video after the jump.

Bond ETF Technical Update: TLT, LQD, HYG, IEF (TLT Broke Ascending Channel, 100 is Critical)

TLT (20y+ Treasury ETF) broke through an ascending channel, a near term support level AND the 50 day moving average. $100 support from the mid-2009 high and, if that breaks, the 200DMA ($96.27 but rising) look like support. Will the two year lower high in TLT stick and confirm the 30 year bottom in yields? $100 and the 200DMA are very important levels to hold here.

Bank Repos Hit Record of 102,134 in September (RealtyTrac, Sharga Interview)

According to RealtyTrac, banks repossessed a record number of 102,134 homes in September. During the third quarter, bank repossessions (bank-owned foreclosures or Real Estate Owned/REOs) hit a record of 288,345 (+7% from Q2 2010, +22% from Q3 2009), foreclosure auctions scheduled hit a record of 372,445 (+5% from Q2 2010, +4% from Q3 2009) and default notices declined to 269,647 (-1% from Q2 2010, -21% from Q3 2009). Read the press release for data on total foreclosure filings (defaults, scheduled auctions and bank repossessions), foreclosure sales and foreclosure rates by state. Below is a quote from RealtyTrac's CEO, James Saccacio, and an interview with Senior VP Rick Sharga on Tech Ticker.
“Lenders foreclosed on a record number of properties in September and in the third quarter, taking a bite out of the backlog of distressed properties where the foreclosure process was delayed by foreclosure prevention efforts over the past 20 months,” said James J. Saccacio, chief executive officer of RealtyTrac. “We expect to see a dip in those bank repossessions — and possibly earlier stages of the foreclosure process — in the fourth quarter as several major lenders have halted foreclosure sales in some states while they review irregularities in foreclosure-processing documentation that has been called into question in recent weeks.”

Cotton ETN $BAL Up 63% in 3 Mos, Cotton Price Inflation Hits China

Cotton inflation is hitting China. Watch the video below: Video: High cotton prices strike textile industry - CNTV. By the way, did you know the iPath Cotton ETN is up 63% in the last 3 months? Also take a look at the actual futures contract from 2005. There must be a put play in there somewhere.

$BAL (iPath DJ-AIG Cotton Total Return Sub-Index) - (courtesy of StockCharts.com)


Cotton Continuous Future (CT) - 2005-10/2010 (courtesy of FutureSource.com)


Related stories:

Industry seeks check on ‘speculative' cotton export registrations - Hindu Business Line

Cotton Futures Advance to Record on Speculation China May Boost Imports - Bloomberg

Cotton prices rule at record levels - Business Recorder

NY cotton ends at 15-yr high on dlr, Chinese rally - Reuters

Windmill Country: Gins fire up on high cotton yield, prices - GoSanAngelo.com

Cotton cloth producers fall on hard times - CNTV [China]