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.

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.

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

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)."

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?