Tuesday, November 23, 2010

Text of FOMC Minutes; GDP, Unemployment, PCE Projections (11/3/2010)

Below is an excerpt from the Federal Open Market Committee (FOMC) Minutes on 11/2/2010 and 11/3/2010. The quoted text does not include staff reviews. Here is the FOMC Statement.

"Participants' Views on Current Conditions and the Economic Outlook
In conjunction with this FOMC meeting, all meeting participants--the six members of the Board of Governors and the heads of the 12 Federal Reserve Banks--provided projections of output growth, the unemployment rate, and inflation for each year from 2010 through 2013 and over the longer run. Longer-run projections represent each participant's assessment of the rate to which each variable would be expected to converge, over time, under appropriate monetary policy and in the absence of further shocks. Participants' forecasts are described in the Summary of Economic Projections, which is attached as an addendum to these minutes.

XRT/HYG (Retail Index/High Yield Bond ETF) Testing April High - Chart

XRT/HYG, what do you think y'all. Can the ratio pry through April, 2010 resistance? Or will retail sales disappoint and stocks fall faster (or rise slower) than high yield bonds.

Futures Down, Dollar Up on South Korea Attack (ES, USDJPY, EURUSD, EURJPY - Charts)

S&P futures are down and the US Dollar is up on Korea tensions. EUR/JPY is testing the downtrend line. See charts after the jump (ESZ10 -0.73% at 1,189.25). Will provide an update after the close.

North Korea Fires at South Korean Island (Video and Links)

Update: North Korea attacked a South Korean Island. Below are links and a video clips after the jump (added a live MBC News stream).

N. Korean attack sets S. Korean island ablaze, at least 1 dead - BNO News
S. Korea Scrambles Jets, Returns Fire After North Shells Island - Bloomberg
Marines killed one person, injured 13 people.. army on alert - YTN.ko.kr (title translated)
NK Fires Coastal Artillery at S.Korean Island (Yeonpyeong) - KBS World (kbs.co.kr)
North Korea fires on South Korea – live coverage - Guardian
North and South Korea Exchange Dozens of Artillery Shells - New York Times
North Korea and South Korea exchange fire, raising tensions - FT/BeyondBrics Blog
North Korea bombs South Korean island - The Telegraph
North Korea Fires Rockets at Island - WSJ
Two Koreas exchange fire across maritime border - Reuters
'Artillery firing' on Korea border - Al Jazeera English

Analyst Mary Meeker on Internet Trends at 2010 Web 2.0 Summit (Video/Slides)

The Web 2.0 Summit is great. See web venture capitalists Fred Wilson and John Doerr battle it out in my previous post. Mary Meeker, an technology analyst at Morgan Stanley, did a presentation on "internet trends" (globality, mobile, social ecosystem, advertising, commerce, media, pace of change etc). I embedded the video and presentation slides after the jump. Mobile is blowing up..

"Global Unit Shipments of Smartphones > Desktop/Notebook PCs by 2012". Also, internet ad spending is "out of whack" with consumption, using TV, print and radio as comparables (chart in the report).

Other interviews at the Web 2.0 Summit include Eric Schmidt (CEO of Google) and Mark Zuckerberg (Facebook).

Monday, November 22, 2010

Gregor Macdonald on IEA's Oil Projection (65% of Future Supply Coming From Fields Not Yet Discovered)

Gregor Macdonald of Gregor.us and Macrotwits Hour was on Max Keiser's show on 11/20/2010 talking about the IEA's recent world oil production projection (w/ chart) out to 2035. I embedded Part 1 after the jump, see parts 2 and 3 at MaxKeiser.com. IEA = International Energy Agency.
"The IEA very surprisingly and I must say rather strangely, has forecasted that the bulk of future oil supply will come from fields not yet discovered or developed" (65% of that future oil)

Has The Market Been Rigged For Decades? (Hedge Fund Raids/Tech Ticker Video)

"The most valuable commodity I know of is information" -Gordon Gekko. Nothing new going on here people.

1) U.S. in Vast Insider Trading Probe

2) FBI Visit Exposes Trade-Probe Tactics

3) FBI Raids Two Hedge Funds (Diamondback Capital Management LLC and Level Global Investors LP) Amid Insider-Trading Case.

4) FBI raids Loch Capital

5) SAC Capital, Janus, Wellington Receive Inquiries on Insider Trading, SAC Discloses Government Subpoena

6) Citadel Receives Subpoena

Expert Networks:

1) Expert-Broker Chu Steered Hedge Fund to Asia, U.S. Says
"Don Ching Trang Chu, the “expert- network” executive arrested yesterday on insider-trading charges, had a roster of Asia-based employees of North American technology companies to feed information to clients, according to court documents."

2) U.S. Trading Probe Puts Research, Expert Networks in Spotlight

3) Consultant of 'Expert Network' Gerson Lehrman Group May Be Drawn Into Insider-Trading Probe (*update 11/30/2010)

Tech ticker video talking about it after the jump.

Sunday, November 21, 2010

Bernanke's ECB Speech: Global Imbalances, Unemployment Pose Risk to Recovery, Defends Policy (11/19/2010)

Bernanke gave an interesting speech at an ECB conference on Friday. He mentioned a few things that could "undermine" the global recovery: global trade imbalances, currency undervaluation, temporary cyclical unemployment turning into long-term structural unemployment and further disinflationary pressures (source: federalreserve.gov). I also embedded a video clip from EUX.tv.

Chairman Ben S. Bernanke
At the Sixth European Central Bank Central Banking Conference, Frankfurt, Germany

November 19, 2010

Rebalancing the Global Recovery

The global economy is now well into its second year of recovery from the deep recession triggered by the most devastating financial crisis since the Great Depression. In the most intense phase of the crisis, as a financial conflagration threatened to engulf the global economy, policymakers in both advanced and emerging market economies found themselves confronting common challenges. Amid this shared sense of urgency, national policy responses were forceful, timely, and mutually reinforcing. This policy collaboration was essential in averting a much deeper global economic contraction and providing a foundation for renewed stability and growth.

In recent months, however, that sense of common purpose has waned. Tensions among nations over economic policies have emerged and intensified, potentially threatening our ability to find global solutions to global problems. One source of these tensions has been the bifurcated nature of the global economic recovery: Some economies have fully recouped their losses while others have lagged behind. But at a deeper level, the tensions arise from the lack of an agreed-upon framework to ensure that national policies take appropriate account of interdependencies across countries and the interests of the international system as a whole. Accordingly, the essential challenge for policymakers around the world is to work together to achieve a mutually beneficial outcome--namely, a robust global economic expansion that is balanced, sustainable, and less prone to crises.

Friday, November 19, 2010

Fred Wilson vs. John Doerr at 2010 Web 2.0 Summit, sFund Announcement Video

The E-mini Nasdaq, S&P and Dow futures are unchanged tonight. Here's an update on the 15-min $SPY chart. I will report on the market tomorrow after travels. For now, watch this clip from the 2010 Web 2.0 Summit featuring venture capitalists' Fred Wilson (Union Square Ventures) and John Doerr (Kleiner Perkins Caufield & Byers - KPCB). They are early stage venture capital funds that invest in internet companies. For example, Union Square funded Twitter and Zynga and KPCB funded Google, Zynga and the sFund (Facebook is a partner, see KPCB video). Watch both videos for a good perspective on what's going on in web finance.

Both Fred and John think the web market is overvalued (volatility coming?). Fred dissed Apple's mobile platform (vs. Android), Google and Facebook as well! John Heilemann brought up that Fred said "Facebook is a photo sharing site with some chat attached". Fred responded:

Thursday, November 18, 2010

Jim Chanos on China; It Is Using Price Controls to Tame Inflation (11/17/2010) FXI, SSEC)

Jim Chanos, who runs hedge fund Kynikos Associates and is openly bearish China, was on Fortune TV on 11/12/2010. He's been bearish on China for a while now. See his presentation from last year. China is enacting price controls to tame inflation (CPI +4.4% in October). $SSEC, the Shanghai Composite Index, is right above the 50 and 200 day moving average (chart). Video after the jump.

China to auction state sugar reserves to curb price rises - Gov.cn (Chinese Government website)
Chinese government announces guidelines to tame price rises - Gov.cn
China targets liquidity to cool inflation - Gov.cn
China imposes price controls to stave off inflation - CNN Money
Chinese consumers blame US as prices spiral up - AFP
Related: Cotton ETN $BAL Up 63% in 3 Mos, Cotton Price Inflation Hits China - Post, 10/15/2010

EIA: Crude Oil Inventories Declined By 7.3 Million Barrels, 1.2 Million Rise Expected, Still Above Average Range (11/12/2010 Report)

Below is an excerpt from the 11/12/2010 Weekly Petroleum Report via the Energy Information Administration (EIA). I noted the drop in oil imports and inventories. U.S. crude oil stocks (inventories) were down on the week but remained above the average range.

"U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 7.3 million barrels from the previous week (Analysts polled by Platts expected a 1.2 million barrel increase). At 357.6 million barrels, U.S. crude oil inventories are above the upper limit of the average range for this time of year. Total motor gasoline inventories decreased by 2.7 million barrels last week and are in the upper half of the average range. Both finished gasoline inventories and blending components inventories decreased last week. Distillate fuel inventories decreased by 1.1 million barrels and are above the upper boundary of the average range for this time of year. Propane/propylene inventories increased by 0.9 million barrels last week and are in the lower half of the average range. Total commercial petroleum inventories decreased by 9.1 million barrels last week."

"U.S. crude oil imports averaged 7.9 million barrels per day last week, down by 225 thousand barrels per day from the previous week. Over the last four weeks, crude oil imports have averaged 8.5 million barrels per day, 64 thousand barrels per day below the same four-week period last year."

Read the full report with data tables and charts at EIA.gov

More Analysis:
UPDATE 2-US crude stocks plunge most in over 14 months-EIA - Reuters
EIA ANALYSIS: Product stocks drop on abnormally low imports - Platts.com

Michael Steinhardt: Debt Markets Are Overvalued (2-year Treasury Price Chart)

Yesterday on CNBC (11/16/2010) former hedge fund manager, Michael Steinhardt, discussed QE2, inflation, GDP, municipalities and the overall run in commodities, stocks and bonds. He is currently short the 2-year Treasury Note and believes debt markets are overvalued.

In the second video, David Faber and Gary Kaminsky asked Steinhardt what he'd do if his firm was allocated GM shares in the IPO. He said, "(I'd sell out) as quickly as I can. Well, I don't think one should be a long term holder in Government securities, particularly Government equity securities". Ouch.

*Larry McDonald talked about GM convertible bonds in the second video

Wednesday, November 17, 2010

Reading Reports by Knight Research, Hussman and Albert Edwards

"The Game Is Over" by Knight Strategic Research @ zerohedge.com
"The Cliff" by John Hussman @ hussmanfunds.com
China/U.S's global game of chicken by SocGen's Albert Edwards @ zerohedge.com

$SPY Trading Channels to Watch on 15-Min Chart (11/17/2010)

If interested, below is the $SPY (SPDRs S&P 500 ETF) 15-min chart from 11/8/2010-11/17/2010 courtesy of freestockcharts.com. SPY is at the channel inflection point in the immediate term. Here is a link to the layout: http://www.freestockcharts.com?emailChartID=4c7efba9-e30e-40b7-8681-28dfbd8894d7

$SPY Click for larger view

Chris Whalen: California Will Default On Its Debt, Eventually They'll Have to Restructure, CA$ (Pension Funds Hold California Debt)

First read California's Fiscal Outlook (2011/12 Budget). LAO expects a $20 billion deficit through 2015/2016 (operating shortfall). Chris Whalen of Institutional Risk Analytics was on Tech Ticker yesterday and said California will default on its debt and "force their creditors to come to the table and talk". Or they will issue their own currency again like they did in the 1840s! Cali-bucks. CA$/IL$ coming soon? Whalen said "I think eventually the debt will have to be haircut and pension obligations are going to have to be repudiated". "If there's even a hint of a bailout, you're going to have Illinois, New York, several other states right behind California". The "IOU game" will continue until people don't take the "funny money" anymore. Crazy times. Video after the jump.

Nikkei/S&P Ratio Technical Analysis ($NIKK/$SPX), Nikkei Outperformed S&P and Shanghai Since 11/1/2010 - Charts

Ratio Technical Analysis for 11/17/2010: Anyone watching the Nikkei/S&P ratio? $NIKK:$SPX broke above the 50DMA, a descending channel and pierced ceiling resistance from November, 2009. Is NIKK/SPX positioning to test that ultimate downtrend? If so, i'm thinking it would coincide with USD/JPY strength. But would the S&P correct further and Nikkei rally? For NIKK/SPX to test that uptrend, the Nikkei must either rise faster than the S&P or fall slower from here. Interesting, I'll be watching this.

Since 11/1/2010, the Nikkei has outperformed both the S&P and Shanghai Index. However, on a longer term basis $NIKK has underperformed. We shall see how the gap closes. The Nikkei recently gathered strength after putting in an inverse head and shoulders pattern. It hasn't participated in the recent sell off. See both charts after the jump. Thoughts?

California's $20 Billion Annual Operating Shortfall Through 2015/2016 (Fiscal Outlook, 2011/2012 Budget Report) CMF, CXA, BFZ, PCQ, PCK

LAO just released California's Fiscal Outlook, 2011/2012 Budget, and the State has a "$25 billion budget problem that needs to be addressed in the coming months". The California Legislative Analyst Office, who released the report, also forecasts a $20 billion annual operating shortfall in their General Fund through 2015/2016 (chart below). Cali should have legalized it. Also, these forecasts don't include underfunded pension liabilities.

California municipal bond ETFs (CMF) sold off last week, as did the National muni-bond ETF (MUB). Muni-bond credit risk and perhaps interest rate risk is being re-priced. This action wasn't a surprise (tax-base/pension fund update 10/26, California Comptroller on 8/20 and Meredith Whitney said States may need a Federal bailout in 12-months on 9/30/2010). California is in process of selling $10 billion of short-term notes.

Tuesday, November 16, 2010

Cameron Hanover Daily Oil Recap (11/16/2010)

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

Oil prices were significantly lower on Tuesday as a tidal wave of asset liquidation hit the markets. It started with a stronger US dollar, which poured cold water on commodities, and it spread into equities, which were down substantially on Tuesday. The DJIA ended the day down 178.47 to 11,023.50. The two “back” stories were the possibility of a eurozone bailout of Ireland, which was in ongoing negotiations, and the very real likelihood of Chinese monetary tightening. The first feature, the concerns over an Irish bailout, helped boost the US dollar. The fear of Chinese tightening helped raise worries over the world’s economic locomotive.

SPY Approaching 50 Day Moving Average 116.7, Trading at 118.23 -1.5% (11/16/2010)

Yesterday Jim Iuorio and Katie Stockton said on CNBC that the S&P correction would continue towards the 50 day moving average (116.7). With the S&P 500 ETF ($SPY) down 1.5% right now at 118.23, 50DMA/SPY convergence could come in a matter of days (or hours, who knows). The Ireland debt-crisis (bailout rumors), Greece aid (Austria holding out?), China inflation controls, Fed comments and muni-bond madness are dominating my Twitter news stream. Crazy day today. I'm going to dissect what's going on and put up a links post, chart out ETFs and currencies, and then do a long post on the municipal bond market (California, MUB, GO Bond 20 Index, Muni-Treasury spread etc). For now here is a chart of $SPY showing 50DMA support and the ascending channel it just broke. Hopefully you have puts riding the volatility. Last time I checked the volatility index ($VIX) was up 13% at 22.86.

*See an index of $SPY posts since 10/21/2010 to see the action and analysis that led up to today.

Cameron Hanover Daily Oil Recap (11/15/2010)

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

Crude oil prices ended mixed, with the first two months lower and the deferred months higher. Heating oil prices were higher and gasoline prices were lower. Traders and investors were trying to figure out which factors were important to the oil markets, even as those “leader” markets or “bellwethers” struggled to figure out what factors would make them rise and fall. The US dollar had not been a major bellwether for oil in more than a week and yet we feel obliged to start there. Concerns over Ireland’s sovereign debt were paramount in investors’ thinking on Monday and these investors were buying US dollars and avoiding riskier asset plays.

Congressional Oversight Panel Examination of Foreclosure Crisis (11/15/2010 Report, Video)

The Congressional Oversight Panel released a report (pdf) on 11/15/2010 titled: Examining the Consequences of Mortgage Irregularities for Financial Stability and Foreclosure Mitigation (hat tip Housing Wire). Below is an excerpt from the executive summary and a video with Senator Ted Kaufman giving an introduction.

"Executive Summary*

In the fall of 2010, reports began to surface alleging that companies servicing $6.4 trillion in American mortgages may have bypassed legally required steps to foreclose on a home. Employees or contractors of Bank of America, GMAC Mortgage, and other major loan servicers testified that they signed, and in some cases backdated, thousands of documents claiming personal knowledge of facts about mortgages that they did not actually know to be true.

Monday, November 15, 2010

Spot Gold Technical Update, Consolidation? (XAU/USD Video)

Adam Hewison over at MarketClub did a video on spot gold and I embedded it below. Are we seeing consolidation in an overall uptrend? He shows you the MACD momentum indicator below XAU/USD price action and divergences. Video after the jump.

Gary Shilling on Deleveraging, 30Y Bond, Stocks and EUR/USD (Tech Ticker/Bloomberg Video Links)

Below are links to Tech Ticker videos and a Bloomberg video featuring Gary Shilling who runs economic consulting firm A. Gary Shilling & Co. He still likes the 30y Treasury Bond for appreciation not yield and sees EUR/USD and stocks lower from here.

Sovereign Debt Crisis Redux? "Tough Medicine" Isn't Curing Europe's PIIGS, Shilling Says - Tech Ticker

Of Course The Fed's Latest Plan Won't Work, Says Gary Shilling--We're Still Deleveraging! - Tech Ticker

Middle Class in Crisis: America Needs a Reality Check, Gary Shilling Say - Tech Ticker

Gary Shilling: Fed "Losing Credibility" as It Becomes "an Arm of the Administration" - Tech Ticker

Gary Shilling Sees `Significant' Stock Selloff Within 12 Months (11/12/2010) - Bloomberg.com 

Facebook's New Messaging System (Zuckerberg Presentation, 11/15/2010) $FBOOK

Here is Mark Zuckerberg presenting Facebook's new messaging system [1) Seamless messaging 2) Conversation history 3) Social Inbox] via FacebookLive.

S&P Correction Could Hit 1,155-1,160 (Jim Iuorio on Options, Katie Stockton on Technicals - CNBC Video)

11/15/2010: Jim Iuorio of TJM Institutional Services and Katie Stockton of MKM Partners believe the S&P could correct to 1,155-1,160, which is around the 50 day moving average. Iuorio is basing his case on the options market, mainly the reaction in the VIX (volatility index) last Friday, and Stockton on technicals. Iuorio correctly called for a U.S. Dollar spike in November 2009 and was bullish on Silver in May 2010 before its massive move. They both think this pullback is a buying opportunity (Jim mentioned Fed support). Interest rates vs. dividend plays, utilities, oil and tech are also mentioned during the segment. For more potential support levels see my previous post. The CNBC video clip is after the jump and the S&P is at 1,199.80 (+0.05%).

Leveraged Loan Market Update (S&P LCD Analysis, 11/5/2010)

Below is an update on the leveraged loan market by S&P LCD for November. It was posted on 11/5/2010. The S&P/LSTA U.S. Leveraged Loan 100 index is around the April high (92.39), new-issue clearing yields were at a 5-month low in October (6.7%) and the default rate was at a 22-month low (2.3%). Loan players expect new-issue yields to "grind tighter" but "accounts are eyeing 2012-2013 with caution". View the video and chart after the jump.

Chesapeake Energy CEO on Shale Gas in U.S. (60 Minutes), Pros/Cons CHK

Chesapeake Energy's CEO Aubrey McClendon was featured 60 Minutes last night. He said the U.S. has two Saudi Arabia's worth of natural gas. Chesapeake Energy (CHK) is the biggest independent natural gas producer in the U.S.. Natural gas extracted from shale rock is making millionaires all over the country (shaleionaires). They extract gas by fracking the rock (hydraulic fracturing). There are cons to this practice though, like when gas leaks into the water supply. Related news: (Chevron bets on shale gas with $3.2 billion Atlas buy 11/9/2010).

Sunday, November 14, 2010

Technical Update: S&P Back Under 50 Month Moving Average (GLD, FXY, UUP, EUR/USD Charts) 11/14/2010

Technical market update for 11/14/2010 by dvolatility: The S&P 500 is back under its 50 month moving average after selling off at the 61.8% retracement level and ceiling resistance from the April high. GLD (chart 5) is riding an uptrend from the beginning of 2009 and close to testing multi-year ascending channel resistance (if you have a better GLD chart post it in the comments).

The first chart is of the S&P 500 (monthly) which features the $1,000 support level where $12B hedge fund manager David Tepper told CNBC he'd be long 100% equities hedged with the "Bernanke Put". The S&P closed at 1,199 on Friday. I'm reading headlines that Tepper sold some financials and bought tech in his Q3 13F filing. I'll look into that further. I also added Jeremy Grantham's fair value target on the S&P which is $900 (cnbc video). The blue line is the 50 month moving average.

Cameron Hanover Daily Oil Recap (11/12/2010)

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

We should almost start handicapping this market by starting each week with a number of unlikely scenarios, and examine their most likely responses, followed by a comparison with that week’s most likely scenarios, with an analysis of their least likely responses or reactions. We should then mix these together and construct an imaginary committee’s most implausible combination, from which we would choose the least desirable from both bullish and bearish perspectives. Where they intersect is what we should expect to see. And, no, we are not just trying to vaporize in an amusing way. We will actually go through it to show how we got the week that has just concluded.

Inflation vs. Deflation Debates (Shilling vs. Pento, Prechter vs. Schiff)

Links to Schiff Radio.
Gary Shilling vs. Michael Pento (11/10/2010)
Robert Prechter vs. Peter Schiff (11/8/2010)

Pento: Japan is Next Sovereign Debt Crisis (Savings, JGB Yields), U.S. is Next, Gold vs. Real Rates - Tech Ticker, 11/12/2010

Michael Pento (Euro Pacific Capital) thinks Japan is the next sovereign debt crisis after Ireland. And then the United States. Here are a few important points he made on Tech Ticker with Aaron Task.

Japan: "I think Japan because their savings rate has plummeted from 15% to 2%. Very soon they're going to have to tap the outside sources other than the Japanese to finance their debt. And that's when interest rates soar and that's when they become insolvent." [Related: Hedge fund manager Kyle Bass is short Japanese Bonds (CNBC video, 8/18/2010), see Japanese Government Bond quotes/charts]

Saturday, November 13, 2010

Quantitative Easing Explained, "The Deflation is Very Bad"

Here's a funny Xtra Normal cartoon floating around about quantitative easing. I'd like to see one on robo-signing.

Janet Tavakoli: Banks Underestimating Foreclosure Fraud Issue (Video) - JPM, BAC, WFC

Janet Tavakoli (Tavakoli Structured Finance) was interviewed by David Fry of etfdigest.com. She's an expert in structured finance (securitization/credit derivatives) and warned about the financial crisis.

Bernanke on Housing and Economy From 2005-2007 (CNBC Videos), Clearly Underestimated Risks

Nassim Taleb was right. The Chairman of the Federal Reserve, Ben Bernanke, clearly didn't see the "accumulation of hidden risk in the system" before the financial crisis (see clip of Taleb on BloombergTV on 11/11/2010). I found a video on Youtube with various clips of Bernanke on CNBC from 2005-2007. In July 2005, when Bernanke was Chairman of the Council of Economic Advisers, Bernanke told CNBC:
"I'm hopeful that, I'm confident in fact, that the bank regulators will pay close attention to the kinds of loans being made and making sure that underwriting is done right [whoops]. But I do think that this is just a localized problem and not something that will affect the national economy."

Who was the regulator again? When Bernanke became Fed Chairman in February 2006, he was clearly wrong on the economy and misled the public. During all of his speeches in the video below, Bernanke never mentioned any risks inherent in the banking system. I recommend you see the movie "Inside Job" where it looks at not only the usual suspects involved in the financial crisis (Federal Reserve, Alan Greenspan, credit rating agencies, politicians, derivatives, Bank CEO's and predatory lenders) but economics professors that got paid to consult and direct the big banks and AIG into the ground (see the trailer). Something doesn't make sense. Is there a Keyser Söze? See the "Bernanke was wrong" video after the jump.

Friday, November 12, 2010

Nassim Taleb: The Fed Doesn't Understand Risk! (Video)

Nassim Taleb, author of The "Black Swan: Fooled by Randomness", NYU Professor and advisor at Universa Investments, told Eric Shatzker on BloombergTV that Ben Bernanke doesn't understand risk and "he reminds me of LTCM people" (Long Term Capital Management was a hedge fund that blew up in 1998). Video after the jump.

Meredith Whitney: Regional Bank Stocks Overvalued, New Jersey Debt/GDP (CNBC Video 11/11/2010)

Meredith Whitney was on CNBC yesterday (11/11/2010). The video is after the jump but here is a summary of what she said:

*Regional bank stocks are overvalued
*Expects 5,000 branch cuts on profit squeeze from new banking regulations (Reg-E)
*Big banks aren't fabulously attractive buys here, people won't care about banks for a while
*Sees legal overhang from ongoing mortgage fraud / misrepresentation lawsuits (read Matt Taibbi, Washington's Blog)
*Expects another leg down in housing this year and continuing into next year 2011
*Higher unemployment could increase credit losses
*New Jersey has worst Debt/GDP and highest tax burden (California, Illinois have issues)
*Sees 2 million State and local Government job losses on Government program cuts

Everything is Down on Quote Widget, Rare Occurrence (11/12/2010)

You don't see this every day.

Matt Taibbi on the Foreclosure Crisis

This is a quote from Matt Taibbi's new article in Rolling Stone Magazine on the foreclosure crisis.
"For most people, the former bit about homeowners not paying their damn bills is the important part, while the latter, about the sudden and strange inability of the world's biggest and wealthiest banks to keep proper records, is incidental. Just a little office sloppiness, and who cares?

But in reality, it's the unpaid bills that are incidental and the lost paperwork that matters. It turns out that underneath that little iceberg tip of exposed evidence lies a fraud so gigantic that it literally cannot be contemplated by our leaders, for fear of admitting that our entire financial system is corrupted to its core......" [full article at RollingStone.com]

And read this funny post at Zero Hedge... 1,125,000,300 = The Number Of Pages Needed To Be Read For Every CDO Squared Purchase. How does all of this BS end?

Overnight Futures Update 11/12/2010: Nikkei, E-mini S&P, Dollar Index (Flight From Risk)

Overnight futures technical update: The December Nikkei 225 Future pierced the September shelf (9,730, -1.22%, Chart 1), December E-Mini S&P Future is testing ascending channel support with potential breakdown risk (1,196.75, -1.18%, Chart 2) and the December Dollar Index Future is heading towards downtrend resistance from June (78.53 +0.22%, Chart 3). Cotton is down for the third day in a row after putting in that blow off top (151.95) on 11/10. The March Cotton Future is trading at 134.3, -3.51%. It doubled in 4 months. See charts and news driving the flight from "risk" after the jump.

Thursday, November 11, 2010

Growing Space Focus in Sino-Indian Rivalry - Guest Post (Geopolitics)

Interesting analysis courtesy of Global Intelligence Report (11/11/2010)

Growing Space Focus in Sino-Indian Rivalry

SITUATION: China has directed a $13 million loan to Pakistan toward a joint communications satellite project, while space cooperation between America and India reaches new levels of sophistication.

ANALYSIS: Pakistan's Ambassador to China, Masood Khan, signed a loan agreement with the government-owned Export-Import Bank of China on 9 October to finance the ground control apparatus for a new 'Paksat-1R' communications satellite, to be launched on 14 August 2011. This bilateral effort to ensure technical interchange illustrates space as a growing area of contestation in regional strategic developments.

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

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

Oil prices were mixed on Thursday as traders took a brief time-out from pushing quotes higher after crude oil and gasoline joined heating oil with decisive technical breakouts to the upside. All three major oil contracts are in clear trends higher, with or without help from currencies or equities. Crude oil prices ended the day in fractionally lower territory, along with heating oil, while gasoline prices ended slightly higher on the day. Traders were impressed by early news from China, which showed refinery throughput at a new record high. Trading volume was on the light side on Thursday, with a number of businesses closed for Veterans’ Day.

EEM/SPY Testing 50DMA Support, Goldman Note (EEM, EWH Puts Were Active Yesterday) - Chart

Interesting, there was an out-of-the-money EEM March 2011 put spread yesterday ($46-$41) which appears to be active again today. And there is activity in EEM December 2010 puts today less than open interest (10,000+ contracts moved on both the $46 and $44 puts in the morning). Not sure about the ticks. EWH (Hong Kong ETF) puts were active yesterday as well.

Goldman Sachs told investors in a note to close out long China and EEM/SPX trades. I see that the EEM/SPY ratio (iShares MSCI Emerging Markets Index ETF/S&P 500 Index ETF) is right on the 50 day moving average (0.390) and pierced through October, 2009 support (0.3925). EEM/SPY is currently trading at 0.391.

Jeremy Grantham: Fed Driving S&P to Dangerously Overpriced Levels, Bonds are Worse Than Stocks! (Must See CNBC Interview)

Jeremy Grantham, co-founder of GMO LLC which has $104 billion under management, was on CNBC talking with Maria Bartiromo about the economy, S&P fair value, QE2, commodities, emerging markets and currencies. It was a warning call. Watch the must see interview after the jump. Notable quotes:
"The Fed has spent most of the last 15 to 20 years manipulating the stock market whenever they feel the economy needs a bit of a kick. I think they know very well that what they do has no direct effect on the economy. The only weapon they have is the so called wealth effect"

"What are they going to use as ammunition if they (the Fed) cause another bubble and it breaks, let's say, in a couple of years? Then we might have some real Japanese type experiences"

"We don't like to play games with overpriced assets and that's the world that we're in now. The Fed is driving the S&P, which is overpriced— the Standard & Poor's 500— a broad measure of the U.S. market, is driving it from already substantially overpriced into what I would call dangerously overpriced. This is about the boundary line. We expect on a seven-year horizon one percent only plus inflation from the U.S. market. And now, as you push it up another 20 percent perhaps in the next year, it becomes dangerously overpriced."

Reads: China Inflation +4.4%, Goldman Pulling Funds From Falcone, New Zealand Farm Prices, Ireland Bank CDS, Alan Greenspan on US/China Protectionism, Seth Klarman..

Global PowerLinks for 11/10/2010 (follow me on Twitter @dvolatility, I tweet news links daily)

China’s Inflation Rises at Fastest Pace in Two Years - Bloomberg

Rising food costs boost China's inflation rate to 25-month high - Xinhuanet (China)

China Wants World To Believe Inflation Jumped By 4.4%, In Line With Shadow Expectations, Fastest Fake Price Growth In Two Years - Zero Hedge

Goldman Sachs Said to Pull $120 Million From Falcone Hedge Fund - Bloomberg

Wednesday, November 10, 2010

S&P Future on April Support, EEM Put Trade, CSCO Disappoints - Chart

E-mini S&P December Future (ESZ10) is walking on April support (1,208). It is also testing that steep uptrend from September in a wedge for the third time. Will the recent breakout be confirmed or fail? Watch the chart with a 10-minute delay at INO.com. ESZ10 is currently trading at 1,210.25 -3.75 (-0.31%) tonight.  Cisco ($CSCO) was down 12% in after hours trading after "forecasts fall short of estimates" [Bloomberg.com].

Also, an interesting trade occurred in the iShares MSCI Emerging Markets Index ETF ($EEM). It closed at $48.03 and traders bought a March 2011 46-41 put spread. According to Crimson Mind, investors bought 43,500 March 2011 $46 puts for $2.44 (avg) and sold 43,500 March 2011 $41 puts for $1.08. Andrew Wilkinson, senior market analyst at Interactive Brokers Group, mentioned this as well at Seeking Alpha (21,700 on each side). This insurance (or spec) would make the most money if EEM fell to $41 by March 2011 expiration. Also there were put trades in the Hong Kong ETF (EWH), read at Optionmonster. The S&P hasn't broken down yet, but hedging a potential downside catalyst makes sense.

Risk Management 900 Feet in the Air - Video

I had to embed this video I saw at BusinessInsider.com. Watch kids in Russia walk on steel beams 900 feet in the air.

Video: Riots at Tory HQ on £6,000 Tuition Hike (London, 11/10/2010)

Interesting day today in London. Students invaded the Tory HQ / Millbank Tower to protest against the proposed tuition hike set for 2012. Fees would triple to 9,000 pounds a year. 50,000 people protested on the streets. Tuition hikes are part of the UK's "dramatic" austerity measures or budget cuts [Finanical Times]. Videos courtesy of TelegraphTV and Russia Today.

IEA World Energy Outlook 2010 (11/9/2010)

The International Energy Agency (IEA) released its 2010 World Energy Outlook on 11/9/2010. Find the *Presentation to the press and Executive Summary (PDFs) at worldenergyoutlook.org. IEA also has an archived webcast from the launch in London. Key points from the presentation below each chart (projections out to 2035):

"*The age of cheap oil is over, though policy action could bring lower international prices than would otherwise be the case

*Global energy use grows by 36%, with non-OECD countries – led by China, where demand surges by 75% – accounting for almost all of the increase

*Demand for all types of energy increases in non-OECD countries, while demand for coal & oil declines in the OECD

Ireland 10yr Gov Bond Yields 8.64%, EUR/USD at 50DMA, Ashraf Laidi's Take on BloombergTV

Ireland's 10-Year Government Bond yield hit a new high of 8.64% after clearing house LCH Clearnet upped the margin requirement on Irish Government bonds (read more at WSJ.com). EUR/USD is sitting on 50-day moving average support.

Ashraf Laidi of CMC Markets on BloombergTV said Ireland budget cuts could boost the Euro, but in the long term the affect on GDP could put downside pressure on the Euro against the Canadian Dollar and Swiss Franc. Goldman Sachs thinks an IMF/EFSF bailout would "resolve current market tension and not lead to contagion" (read at Bloomberg.com). Video and charts after the jump.

U.S. vs. China Currency Rap Battle (US Dollar/Chinese Yuan)

US-Sino Currency Rap Battle courtesy of NMA.tv (Next Media Animation). Featuring U.S. President Obama, Treasury Secretary "Timmy-G" (Geithner) and Chinese president Hu Jintao. Things are getting serious.

Home Prices Are Falling Again (Clear Capital/Zillow) 11/9/2010

Home Prices Continue Plunge Across Much of U.S. - read full report at Clear Capital

"National/Four Region Overview: National home prices have changed -5.0% quarter-over-quarter. In fact, looking at national home prices since their mid- August peak, price declines are even more dramatic, changing -6.8%.

It’s Going to Be Another Long, Hard Winter in Housing - read full report at Zillow Real Estate Research

"According to the third quarter Zillow Real Estate Market Reports, home value depreciation began to accelerate again in September, fueled by lower transactional volumes and increased inventory levels. Home values dropped 0.4% from August to September and 4.3% from September 2009 (see Figure 1 below)."

Tuesday, November 9, 2010

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).

Monday, November 8, 2010

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

Sunday, November 7, 2010

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?

Saturday, November 6, 2010

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?

Friday, November 5, 2010

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.

Thursday, November 4, 2010

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.

Wednesday, November 3, 2010

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.

Tuesday, November 2, 2010

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.

Monday, November 1, 2010

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.

Sunday, October 31, 2010

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).

Saturday, October 30, 2010

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

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

Friday, October 29, 2010

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?

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