2010 Year End Macro Note To Read

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GregorWeekly Year End Macro Note: 2010 Wrap Up and Closing Letter

Borders' General Counsel, CIO Resigned, Delayed Vendor Payments, Will It Merge With Barnes And Noble? (BGP, BKS)

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What is going to happen with Borders? From Barron's Tech Trader Daily this morning.

"Late yesterday, beleaguered bookseller Borders Group (BGP) announced two executives resigned, Thomas D. Carney, the firm’s general counsel, and Scott Laverty, its chief information officer." (1/4/2010, Barron's)

And this comes after Borders delayed payments to vendors.

"The book chain Borders entered 2011 on an unsteady note, telling major publishers last week that it would delay payments owed to them, and stoking fears that it would not be able to recover from declining sales." (1-3-2010, NYT)

"PW has learned that at least one of the “big six” New York houses has suspended shipping books to Borders, a troubling sign for the company as it attempts to find lenders to refinance its debt and provide enough liquidity to get the national book retail chain through to early 2012." (12-31-2010, Publishers Weekly)

Bill Ackman's Pershing Square Capital Management owns 37% of Borders and on 12/6/2010 he offered to help finance a bid for Barnes and Noble.

"Hedge fund manager William Ackman is raising his wager on bookseller Borders Group Inc (BGP.N), offering to help it buy larger rival Barnes & Noble Inc (BKS.N) for $963.7 million." (12/6/2010, Reuters)

$BGP is trading at 96 cents, right around the 1-year low (chart 2). It hit an intra-day low of .87 before closing at .96 (chart 1). Get ready for something interesting to happen!

Charts courtesy of Yahoo Finance (click for larger view)

Niall Ferguson: Empires on the Edge of Chaos (ABC/ForaTV)

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Harvard Professor and Historian, Niall Ferguson, gave an hour long speech titled "Empires on the Edge of Chaos" in Australia on 7/28/2010 (h/t 
Zero Hedge). Niall also did the must see documentary "The Ascent of Money" on PBS. Here's the summary of his speech and watch the full program at Fora.tv.
"Throughout history the rise and fall of empires isn't slow or cyclical, as we like to think, but arrhythmic...it mostly happens very, very suddenly. America is a superpower on the edge of chaos, according to economic historian and author Niall Ferguson. U.S. debt levels, he says, and its unwillingness to address the problem, has put it in the same category as other great empires which have collapsed throughout the ages.

Ferguson argues the world is changing. There's the rise of authoritarian China as a super-power; a Keynesian president leading a weakened United States; the re-emergence of democratic India as a great power; the continued decline of Japan; and the probability of continued global economic instability ahead.

Is the rise and fall of empires cyclical or arrhythmic? How does economic profligacy -- whether the result of arrogance or naivety -- contribute to the downfall of civilizations? Not to be missed, the address will offer a timely review of primacy, leadership, and the complex factors behind the rise and fall of great powers and civilizations."

Recent Posts with Niall Ferguson:

*Niall Ferguson On The Pitfalls of Keynesian Economics [Daily Beast Innovators Conference, 10/24/2010] (Zero Hedge)

*Niall Ferguson: Treasury Bond Vigilantes Coming, Default Or Inflation Choice For US at [Aspen Ideas Festival 7/7/2010] (Distressed Volatility)

Explore Hidden New York City Infrastructure (Undercity Video)

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This is an amazing video and it's related to the "municipal" channel of the blog. So what do taxes and revenue bonds finance? Check out New York City's hidden infrastructure through the eyes of Urban Historian/Photographer Steve Duncan and Director/Cinematographer Andrew Wonder. They look at hidden NYC subway areas, sewer tunnels, tops of bridges, the hidden Amtrak tunnel etc. The website to visit is undercity.org. I embedded the "Undercity" video after the jump.

Robert Shiller Sees S&P 500 At 1,430 In Year 2020! (CAPE Ratio)

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Yale Economics Professor, Robert Shiller, who recently gave his view on 
November's S&P/Case-Shiller Home Price Index, was on CNBC last week explaining how a CAPE (Cyclically-Adjusted Price/Earnings) ratio of 15, projected real S&P earnings of 78.2 and 2% inflation, was forecasting 1,430 on the S&P 500 in year 2020! That is 13.7% upside from Friday's close. Shiller quote via CNBC.com:

"We're talking ten years out. So I'm going to go back to 100 years. The growth of real inflation directed earnings is surprisingly low. From 1890 to 1990 it was only 1.5 percent a year," he said.

"I take earnings and I extrapolate them out at 1.5 percent from where they—S&P earnings—are now and then I apply a price earnings ratio of 15, which is the historical average for 1890 to 1990," Shiller said.

The 1,430 level actually makes sense if you look at the 50 year chart extended out to 2020 (click for larger view).

I'll do a new post with a chart analyzing Shiller's data at econ.yale.edu (S&P, EPS, CPI, Bond Yields and CAPE). I asked David Einhorn in a post on 12/12/2010 if he thought the CAPE would test the lows around 6, which is where the market bottomed in 1932 and 1982. I believe we're around 22 now, up from 13 when the market bottomed in March of 2009 (still double the low). Watch the CNBC video after the jump.

George Soros 2009 Interview On Bubbles, China, Currencies, Fed (WSJ)

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I came across this George Soros interview from June 2009 and thought I'd post it (hat tip Howard Lindzon). When he sees a bubble (gold?) he buys it, but admitted to shorting Amazon early during the tech bubble. Timing still needs to be right in a bubble. The gold balloon will be interesting to watch from here. Soros also talked about the Federal Reserve, currencies, US Dollar, commodities, China, Graham and Dodd valuation models vs. market perceptions of price (traders guessing), risk management and probably more. This video will be something to look back on. I also embedded a bunch of videos with Soros talking about the theory of reflexivity. Click the labels or search on the blog.

Goldman Sachs Invests $450 Million In Facebook, $50 Billion Valuation (FBOOK, GOOG, TWIT, GS, GRPN)

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According to DealBook, Goldman Sachs invested $450 million and Digital Sky Technologies invested $50 million in Facebook. This is going to be a crazy IPO. How high can they get $FBOOK's valuation? Read the article at Dealbook (NYT).

"Facebook, the popular social networking site, has raised $500 million from Goldman Sachs and a Russian investor in a deal that values the company at $50 billion, according to people involved in the transaction. The deal makes Facebook now worth more than companies like eBay, Yahoo and Time Warner." (continue reading)

DealBook also covered Groupon's ($GRPN) recent capital raise.

"The 30-year-old founder and chief executive of Groupon, Andrew Mason, could raise as much as $950 million from investors in the next few weeks, laying the groundwork for a multibillion-dollar initial public offering in 2011." (continue reading) 

Social media is bubbling up! Amazing times for this space. Will Google buy Twitter ($TWIT)? Here's what Howard Lindzon, CEO and Co-Founder of StockTwits, had to say.

"I think that Google has to buy Twitter and that will start to be a meme soon. It’s a chess game and nuclear war now in the social space." (continue reading)

Gerald Celente's Top Trends for 2011 (Trend Research Institute)

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Gerald Celente, who runs the 
Trends Research Institute (since 1980), released a preview of his "Top 11 Trends of 2011" report (pdf) and hit the media scene. He sees Gold at $2,000/oz, people switching to "quality" foods, social unrest (unemployment, housing) and a huge alternative energy breakthrough. His list, Fox Video interview and links are after the jump.

Long-Term Bonds: The Best Possible Investment? Think Again (Elliott Wave International)

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Note: This is an interesting post on bonds by Elliott Wave International. It includes charts of 'Moody's Corporate Bond Yields (Aaa, Aa, A, Baa)' from 1929-1932 and the Dow Jones 40-Bond Average from 1915-1933.

Long-Term Bonds: The Best Possible Investment? Think Again
A free Club EWI report reveals why bonds do not provide shelter from the storm
December 23, 2010

By Elliott Wave International

TREASURIES -- the very name conveys a thing that is secure, protected, and will appreciate over time. Otherwise, it'd be called something like "TRASHeries" or "Mattress Stuffers." Then, there's the official seal of the US Department of Treasury: its image of a scale and a key symbolize "balance" and "trust."

And, finally, there's the mainstream economic experts who have it on good authority that long-term bonds increase in value during financial instability and uncertainty.

On this, the following news items from November-December 2010 reflect the enduring faith in fixed-income assets as the ultimate safe-havens:

Market and Economic Forecasts For 2011 (Oil, Housing, Stocks, Rates)

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More 2011 forecasts for your enjoyment. Continued from my previous post on 12/19 (2011 S&P Forecasts 1250 to 1450, 10y Yield, EPS and GDP) and 12/31 (Biggs, Gerson, Levkovich, SocGen).

*Marc Faber’s January 2011 Outlook, Correction Imminent - Wall Street Pit

*Goldman's Key Charts To Kick Off 2011 - Zero Hedge

*2011 and an arbitrary point of reflection - Stone Street Advisors (Dutch_Book)

*2010 Intermarket Relationship Charts with the SP500 - Afraid to Trade (Corey Rosenbloom)

*A Fed-Induced Speculative Blowoff - John Hussman (HussmanFunds)

*Top 11 Trends of 2011 by Gerald Celente - Trends Journal

Albert Edwards, SocGen bear, takes a bite out of China - Guardian.co.uk

*Keep Ahead of the Herd in 2011 - Elliott Wave International

*Oil Predictions for 2011 - Chris Jarvis ($120 doable) vs John Kilduff (bearish) - CNBC Video

*Happy New Year from The North Sea. Or, Secrecy By Complexity (Oil) - Gregor.us

*UBS: Short-Term Picture Intact but Clouds Gathering (Hindenburg Omen) - Hedge Analyst (12/21)

*Gary Shilling: And Now House Prices Will Now Drop Another 20% - Business Insider

*Peter Schiff: Home Prices Are Still Too High (looks at historical trend line) - WSJ

*The Long View by Decision Point (technical analysis) - PragCap

*A New Year brings new economic headwinds by Hedgeye - Fortune Magazine

More 2011 trends to watch by Doug Kass (Seabreeze Partners) and Josh Brown (Fusion Analytics) and see reader submitted charts on 2010 energy data at TheOilDrum. If there are more forecasts please put a title and link to the report or blog post in the comment section. Good luck!

Peter Schiff: Federal Reserve Could Bail Out Municipal Bond Market (MUB)

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Peter Schiff (Euro Pacific Capital) thinks the Federal Reserve will bail out the municipal bond market. He argued with Don Luskin on the Kudlow Report on 12/23/2010 (video after the jump). Before the debate they showed a clip with Warren Buffett giving his view on munis in June 2009: "How would I rate the States and major municipalities. I mean if the Government will step in to help them they're triple A. If the Federal Government won't step in to help them, who knows what they are. I don't know how I would rate those myself now, in other words because it's a bet on how the Government will act over time". I embedded the full CSPAN video

Schiff thinks Meredith Whitney is sugar coating the upcoming muni-geddon. I could see the Fed backstopping muni obligations. If so, gold will probably like that no? And $TYX. PIMCO's Bill Gross actually sees a few muni-bond bargains based on yield spreads. So, what are the chances that $MUB tests the 2008 low?

Andy Xie: China Inflation vs. U.S. National Debt, Who Crashes First

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Andy Xie, former Chief Asia-Pacific Economist at Morgan Stanley who's now independent, was on Bloomberg TV talking about inflation in China, tightening measures, potential property market effects, hard landing versus soft landing, U.S. monetary policy, U.S. National Debt and the coming Treasury crash. After watching the video read his recent write up at caing.com titled "Good Tidings in 2011":

"The last crisis started in the U.S. If China hadn't reformed a decade ago, it could have started in China. An economic crisis in China would have prolonged the U.S.'s economic cycle by bringing down oil and other commodity prices, which would have improved the U.S.'s cash flow.

The most likely candidates to trigger the next global crisis are the U.S.'s sovereign debt or China's inflation. When one goes down first, the other can prolong its economic cycle. China may have won the last race. To win the next one, China must tackle its inflation problem, which is ultimately a political and structural issue, in 2011. If China does, the U.S. will again be the cause for the next global crisis. China will suffer from declining exports but benefit from lower oil prices."
(read full article at Caing.com, Caixin Online)

2011 will be an interesting year of economic engineering. Happy MMXI everyone.

Queensland Flood Information, Police Briefing, News Videos (12/30/2010)

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There is a massive flood in Queensland, Australia. I embedded the Queensland Police flood briefing and news videos after the jump. This is a disaster. Some towns could be 80% underwater.

200,000 Australians evacuated in Queensland floods (worst flood in 50 years) - Guardian

Queensland Flood Warning Centre - Bom.gov.au

Counting the cost: the bill could run into billions, warns Bligh - The Australian

Australian PM visits flood-devastated Queensland - CNN

Military called in as flood crisis deepens - The Australian

New payments announced for flood victims as crisis continues in Rockhampton, Emerald - The Australian

Australia Floods to Worsen in East As Cyclone Looms in West - WSJ

Reads: Marc Faber, Davidowitz, Borders, Clearwire, Barton Biggs, Tobias Levkovich, Gerald Celente

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End of year articles and videos (12/29/2010-12/30/2010)

Long-term U.S. Treasuries are a suicidal investment (Marc Faber) -

Borders delays payments to certain vendors as part of potential refinancing - Reuters, AP

Howard Davidowitz: U.S. consumers are in terrible Shape, talks about U.S. retailers - Bloomberg video [h/t Zero Hedge]

2011 Predictions (Barton Biggs, Jeffrey Gerson) - PragCap.com

U.S. Stock Funds See First Weekly Inflow Since April - Bloomberg

Bolivians Protest Against 73% Rise In Gas Prices (Gasolinazo) - Video

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Gasoline prices in Bolivia increased by 73% and Diesel rose 83%. People are not happy. Watch the AP video after the jump.
"Fuel prices had been frozen for six years, but the government said it could no longer afford to subsidize them, especially since much is smuggled across the border to neighboring countries." Read: Protests intensify in Bolivia over gasoline prices (AP)

XLF, IWM, XME Put Option Activity On 12/29/2010 (Charts)

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Interesting put activity yesterday. Charts courtesy of freestockcharts.com.

$XLF (financials) Put Spread (debit)
30,000 March 2011 XLF $15 Puts bought for $0.39
30,000 March 2011 XLF $13 Puts sold for $0.09 (read more at theoptionsinsider.com)

XLF (SPDRs Select Sector Financial ETF)

$IWM (small caps) Put Spread (debit)
19,000 March 2011 IWM $77 Puts bought for $2.93
19,000 March 2011 IWM $70 Puts sold for $1.23 (read more at optionmonster.com)

IWM (iShares Russell 2000 Index Fund ETF)

$XME (metals/mining) Puts Bought (Hecla Mining is the top holding at 5.6%)
19,000 February 2011 XME $63 Puts bought for $1.38 with 14 open (h/t crimsonmind)

XME (S&P Metals & Mining ETF)

Josh Brown: Three Investment Fads To Watch In 2011 (Fast Money)

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Josh Brown of Fusion Analytics and TheReformedBroker.com gave three trends to watch in 2011. Watch the CNBC video after the jump.

1) Social IPO Explosion (watch -> Twitter, Zynga, Skype, Groupon)
2) Municipal Bonds (Muni-Geddon)
3) Commodity Pickers Market (likes agriculture, not commodities building out Chinese infrastructure)

Doug Kass 2011 Forecast, Sees Secular and Cyclical Headwinds (Video)

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Doug Kass (
@dougkass) of Seabreeze Partners thinks the economic recovery and market rally will be short lived. A big portion of it is "recession fatigue", he said. He's also going against consensus estimates. Here are the headwinds he sees affecting the economy. Video after the jump.

Secular headwinds: Fiscal imbalances, inevitability of higher marginal tax rates, excess housing inventory, gridlock/reluctance to address the deficit, structural increase in unemployment.

Cyclical headwinds: Rising interest rates, inflation, rising commodities like oil (and agricultural commodities), corporate profit margins are at a 57 year high and are vulnerable to mean regression, sees less top line growth, and I think he said "some reversal in wage deflation".

Home Prices Make New Lows In Six U.S. Cities, Shiller On The Trend (Video)

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Robert Shiller, Yale Economics Professor and co-creator of the S&P/Case-Shiller Home Price Index, was on WSJ Hub Extra talking about the recent trend in home prices. The recent price decline was not expected according to a Bloomberg survey. Shiller was wondering if the 3-month downtrend would continue, and if so, the market follow suit. However, Congress could step in again with an additional tax credit or stimulus measure. The odds of that happening compared to 2009 are lower.

Light at the end of the tunnel: Shiller's professional forecasters (on average) at his firm Macro Markets see home prices up 7% by 2014, but could get pessimistic after this read. Just a blip? For a housing battle read
Housing: Bill Ackman vs Gary Shilling at Felix Salmon's blog. Also read Roubini: 'Housing Prices Can Only Move Down' at CNBC NetNet. See the WSJ video after the jump.

"U.S. Home Prices Weaken Further as Six Cities Make New Lows According to the S&P/Case-Shiller Home Price Indices

New York, December 28, 2010 – Data through October 2010, released today by Standard & Poor’s for its S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, show a deceleration in the annual growth rates in 18 of the 20 MSAs and the 10- and 20-City Composites in October compared to what was reported for September 2010. The 10-City Composite was up only 0.2% and the 20-City Composite fell 0.8% from their levels in October 2009. Home prices decreased in all 20 MSAs and both Composites in October from their September levels. In October, only the 10-City Composite and four MSAs – Los Angeles, San Diego, San Francisco and Washington DC – showed year-over-year gains. While the composite housing prices are still above their spring 2009 lows, six markets – Atlanta, Charlotte, Miami, Portland (OR), Seattle and Tampa – hit their lowest levels since home prices started to fall in 2006 and 2007, meaning that average home prices in those markets have fallen beyond the recent lows seen in most other markets in the spring of 2009." [Read the full release breaking out the data at standardandpoors.com]

When Does Distressed Detroit Turn Around? (Videos and Info)

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12/28/2010: Detroit area deleveraging and pension losses continue. Where is the bottom on Detroit's chart? Also check out the videos I embedded below.

*Detroit on time with annual audit (NPR Michigan Public Radio)

*Detroit Files CAFR On Time (Bond Buyers)

Michigan Town (Hamtramck) Is Left Pleading for Bankruptcy (New York Times)

Hamtramck manager: We'll pursue bankruptcy until 'door is shut, locked, barricaded, bolted' (mLive)

Detroit pension fund spends $30 million to fix $1-million building (Detroit Free Press)

Risky bets cost Detroit pension funds $480 million (Detroit Free Press)

A&P wants to terminate 21 retail leases in metro Detroit, bankruptcy filing shows (Craines Detroit)

Detroit Water and Sewer Revenue Bonds Are Downgraded by Moody’s (BusinessWeek)

Detroit Mayor Plans to Halt Garbage Pickup, Police Patrols in 20% of City; Expect Bankruptcy, Massive Municipal Bond Turmoil in 2011 - (Global Economic Analysis by Mish)

Michigan budget may fall short by $1.85B in 2011-12 (Detroit News)

Recent Detroit Housing Info

October S&P Case Shiller Home Price Index: 68.86, -2.5% over September 2010 and -5% over last year. "An October index level of 68.86 in Detroit indicates that average home prices are more than 30% below their January 2000 values." (December 28 press release Standardandpoors.com)

Detroit home sales decline leads slumping Metro area (Detroit News)

I came across the FNC Inc. Residential Price Index. It says October Detroit home prices hit 78.2, +1.9% over September 2010 and unchanged over last year. Never heard of it.

India (Tata Technologies) looking to hire 400 employees in Detroit. CNN Video after the jump from 12/10/2010 and more.

Bill Gross (PIMCO) Avoiding Illinois, Some Muni Bond Yields Attractive On Risk/Reward Basis (CNBC)

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Bill Gross, who runs the world's largest mutual fund in the world PIMCO Total Return, which could now include up to
10% in preferred stock and convertible bonds, thinks some municipal bond yields are decent on a risk/reward basis. For example, 6.65% on New York City Build America Bonds and 7%+ in California. Again, just like commercial real estate (cap rates), how do you price in interest rate risk for Treasury yields going forward? Will the 10-year Treasury yield stay between 2-4% during the next 5-10 years? If tax rates rise significantly to fund our Nation's expenditures, is that the true alpha? Based on tax base/revenue risk though, it's a Muni pickers market imho. Have we seen the worst yet of the muni carnage? See the CNBC video after the jump.

The ‘Subsidy’: How a Handful of Merrill Lynch Bankers Helped Blow Up Their Own Firm (ProPublica.org)

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This is an interesting read at ProPublica.org. It's an ongoing investigation. Listen to the NPR podcast Wall Street Trickery Inflated The Bubble and read Banks’ Self-Dealing Super-Charged Financial Crisis at ProPublica. Also see the Inside Job. Great movie...

"The ‘Subsidy’: How a Handful of Merrill Lynch Bankers Helped Blow Up Their Own Firm 
By Jake Bernstein and Jesse Eisinger ProPublica, Dec. 22, 2010, 3:37 p.m.

Two years before the financial crisis hit, Merrill Lynch confronted a serious problem. No one, not even the bank's own traders, wanted to buy the supposedly safe portions of the mortgage-backed securities Merrill was creating.

Bank executives came up with a fix that had short-term benefits and long-term consequences. They formed a new group within Merrill, which took on the bank's money-losing securities. But how to get the group to accept deals that were otherwise unprofitable? They paid them. The division creating the securities passed portions of their bonuses to the new group, according to two former Merrill executives with detailed knowledge of the arrangement." [continue reading at propublica.org]

Gartman's Top 3 Trades for 2011: Agriculture, Strongs, Regional Banks That Benefit (BRICmerica)

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Dennis Gartman, who writes the Gartman Letter, was on CNBC giving his top 3 trades for 2011.

1) Agriculture (softs)
2) Strongs (coal, steel, ball bearings, railroads)
3) Small Regional Banks in the Midwest that benefit from U.S. farming and the positive yield curve (BRICmerica!)

He's still bearish on the Euro. Watch the video clip after the jump.

Biderman of TrimTabs Still Doesn't Know Who's Buying Stocks! (CNBC Video)

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Charles Biderman, Founder and CEO of TrimTabs Investment Research, who specializes in data-mining, volume, liquidity and fund flows in the stock market, still doesn't know who's buying stocks! He mentioned this a year ago (1/8/2010) on BNN. Here is data from TrimTabs on Mutual Fund and ETF flows (via CNBC).

FundsDecember (MTD)2010 (YTD)
U.S. Equities+16.7B-41.3B
International Equities+8.5B+84.3B

This is what he said (watch the video after the jump):
"It's very strange for someone like me who watches money because individuals have been selling, companies are net selling, [...] insider selling and new offerings are swamping any buyback or any cash M&A activity since QE2 was announced. Pension funds, hedge funds don't really have that much new cash to invest. So [...] who's buying the stock that people are selling. It's QE2. Since QE2 the market's gone up. So what nobody's asking or what I'm asking is what happens when QE2 stops? If the only buyer is the Fed and the Fed stops buying, I don't know what's going to happen."

On where money is leaving:

Reads: China Raises Rates, Einhorn on U.S. Rates, Jim O'Neill Bullish on U.S. Economy (GSAM)

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Links for 12/26/2010 - hat tip Twitter stream

Goldman Asset Management chairman Jim O'Neill bets on the US - The Telegraph

1) China Increases Interest Rates to Curb Its Fastest Inflation in Two Years - Bloomberg

2) China Rate Increases in 2011 May Be Front-Loaded as Inflation Accelerates - Bloomberg (Reuters)

The economic outrage of 2010: Cowardly leaders failed to help working people -- and coddled the rich - Joe Stiglitz - NY Daily News

Bolivian Govt raises petrol price by 73 per cent - New Zealand Herald

And, what's going on here.. Icahn Sued by Blockbuster Creditor Over Conversion of Equity - Bloomberg

S&P/LSTA U.S Leveraged Loan Index Update, New ETF Coming

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Below is a presentation on the leveraged loan market by S&P/LCD. It covers trends, price returns, leveraged loan volume, loan default rates, new issue clearing yields and forecasts . Also read: 2010 Leveraged finance volume recap: A record rebound (and dividends)" by LCD. After the video and slides, I threw up a charts of the S&P Leveraged Loan 100 index, Credit Suisse Leveraged Loan Average and info on the new Invesco PowerShares Leveraged Loan ETF.

Cloud Based Google Chrome OS Cr-48 Laptop (Videos)

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Check out the Google Chrome OS Cr-48 laptop computer. It is a pilot device. All of your files are stored in a cloud on the internet. It is essentially a Chrome browser with Wi-Fi and 3G capabilities through Verizon.

Last MacroTwits Episode

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Below is the last MacroTwits Hour episode with Gregor Macdonald (Gregor.us/@gregormacdonald) on Stocktwits.tv. I learned a lot watching MacroTwits over the past two years. It was like getting an MBA in Economics (on top of Dvol's MSF, that's right). See the archive here and video after the jump (12/19/2010).

Ben Thompson Reacts to Meredith Whitney's Muni Call (CNBC)

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Ben Thompson, who managers $6 billion+ in municipal bonds (or fixed income) at Samson Capital, thinks Meredith Whitney is way off on her muni call (see her on 60 Minutes/CNBC). Does anyone agree with her besides Charles Biderman of TrimTabs? Keep an eye on this space. Municipalities across the Nation have massive budget shortfalls (google news) with an already stressed tax base, high unemployment and $3 trillion in muni debt outstanding.

U.S. Population Growth Interactive Map (Census Data 2010), Nevada +35.1%, Michigan -0.6%

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Results from the U.S. Census Bureau are in. Check out the interactive map after the jump. During the 2000-2010 decade:

Nevada 35.1%
Arizona +24.6%
Utah +23.8%
Idaho +21.1%
Texas +20.6%
North Carolina +18.5%
Georgia +18.3%
Florida +17.6%
Colorado +16.9%
South Carolina +15.3%
Delaware +14.6%
Wyoming 14.1%
Washington +14.1%
Alaska +13.3%
New Mexico +13.2%
Virginia +13%
Oregon +12%
California +10%
Michigan -0.6%
Puerto Rico -2.2%

Tweets Can Predict Stock Market Days In Advance (IU Informatics)

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According to Johan Bollen at Indiana University's Informatics Department, mood on Twitter can predict stock market moves 4 days in advance, 87.6% of the time. Here is the research paper by Johan Bollen, Huina Mao, Xiao-Jun Zeng (University of Manchester). According to Bloomberg, the Derwent Absolute Return Fund just raised $39 million to capitalize on this. Read more at Bloomberg.com and IDS (Indiana Daily Student). *I embedded a Bloomberg clip featuring Bollen from 10/20 after the jump.

SPY Rally From 2009 Low Looks Like 1996-1998, LTCM Moment Coming? (Chart)

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I saw that the trend looked similar on the 15 year chart. These events led to the market panic and Long Term Capital Management's demise. From PBS Frontline:

"The Asian financial crisis that was triggered in July 1997 was a shocker. Even two years after it ended, anxiety still loomed over global financial markets. What was at the time perceived to be a localized currency and financial crisis in Thailand, soon spread to other Southeast Asian countries--including Malaysia, Indonesia and the Philippines. By the fall of 1997, the contagion extended its reach to South Korea, Hong Kong and China. A global financial meltdown had been ignited. In 1998, Russia and Brazil saw their economies enter a free-fall, and international stock markets, from New York to Tokyo, hit record lows as investors' confidence was shaken by the volatility and unpredictability in the world's financial markets."

Meredith Whitney Talks Munis On CNBC After 60 Minutes Interview (12/21/2010)

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Meredith Whitney was on CNBC yesterday responding to all of the ruckus over her 60 Minutes appearance. She put more fuel on the fire. She thinks the U.S. sees "social unrest" as Governments "lay off 1-2 million people over the next 18 months" and municipal bonds see "indiscriminate selling" as major credits default (reorganize). On a positive note, Meredith thinks a sell off will provide buying opportunities for quality muni credits. S&P and $7 billion municipal bond fund manager Ben Thompson disagrees with her bearish views. Watch the CNBC clip after the jump. Thoughts?

Doug Kass: Gold Briefly Trades Under $1,050 In 2011 (CNBC Video, GLD Chart)

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Doug Kass (Seabreeze Parters) believes Gold will be volatile in 2011 and "briefly trades under $1,050 per ounce (-25%), ending the year at roughly between $1,100-1,200 per ounce". $1,000, or $100 on $GLD, is a strong support level. I could see $GLD pulling back to trend support or the 200 day moving average in the near term. Kass gave potential catalysts for weaker Gold: Real interest rates rise, world stock markets surprise to the upside, U.S. Government addresses deficit and GLD is a crowded trade in the hedge fund community.

Tim Seymour mentioned that Central Banks increased their gold reserves by 30-40% YoY. Read "China Should Consider Increasing Gold Reserves, Central Bank Adviser Says" (
Bloomberg). See the CNBC Fast Money video after the jump (hat tip pragcap.com).

GLD (SPDR Gold ETF) - Stockcharts.com

Gary Shilling, Dan Fuss, Jeffrey Gundlach on Treasuries (Dec/2010, TNX, TYX Charts)

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Bond Forecast Arbitrage: Jeffrey Gundlach of DoubleLine Funds thinks it is time to buy bonds (not stocks) on upside yield exhaustion. From
Reuters on 12/14/2010:
He said the rapid rate rise will hit "exhaustion" in the weeks to come and that investors should now purchase Treasuries and bond funds.

"I don't think the economy can take much of a rate rise above 3.5 percent," Gundlach said on a conference call with investors.

Also see Gundlach's bearish December presentation "Independence Day" at Zerohedge.com (12/14/2010).

Dan Fuss of Loomis Sayles bought the 30-year bond at 4.61%, thinks fair value is 4.2%, but believes the 30 year secular bull market in Treasuries is over (Reuters: Loomis' Fuss bought 30-year Treasuries at 4.61 pct, 12/20/2010). Hat tip Jennifer Ablan.

Gary Shilling is still sticking with his 3% call on the 30-year bond. See him debate with Brian Wesbury (who sees 5% $TYX) on the CNBC video below. I also drew the long term downtrend in yields. I agree that yields are in the process of bottoming out, but when does the 30y yield officially break that descending structure? David Rosenberg of Gluskin Sheff on where the 10-year bond bases out:
"I’m kind of thinking that the secular bull market in bonds will be a basing period of rolling lows near the 2% level on the 10-year Treasury note yield." (Business Insider, 12/15/2010)

$TNX 10 Year Treasury Yield Index 3.349

$TYX 30 Year Treasury Yield Index 4.598

Marc Faber: Emerging Markets To Fall 20-30% In Next 6 Months (Video, $EEM Chart)

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Marc Faber on CNBC TV18 - India (12/10/2010). He talked about emerging markets vs. developed markets, India, U.S. Dollar Index, Crude Oil and China interest rates. Video after the jump.

EEM (iShares MSCI Emerging Markets ETF)

David Stockman on Dylan Ratigan Show (Impact of Tax Cut Extension)

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David Stockman, former Budget Director under President Reagan, thinks the U.S. can't afford the tax cut extension.

Meredith Whitney: 50-100 Municipalities Could Default (60 Minutes Video)

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Watch this must see 60 Minutes video "State Budgets: Day of Reckoning" featuring analyst Meredith Whitney, New Jersey Governor Chris Christie, Illinois state Comptroller Dan Hynes etc.
"How accurate is the financial information that's public on the states? And municipalities," Kroft asked.

"The lack of transparency with the state disclosure is the worst I have ever seen," Whitney said. "Ultimately we have to use what's publicly available data and a lot of it is as old as June 2008. So that's before the financial collapse in the fall of 2008."

There's not a doubt in my mind that you will see a spate of municipal bond defaults," Whitney predicted.

Asked how many is a "spate," Whitney said, "You could see 50 sizeable defaults. Fifty to 100 sizeable defaults. More. This will amount to hundreds of billions of dollars' worth of defaults."

I've been covering the municipal financial crisis for 2.5 years now. Click:
Municipalities or Municipal bonds for the archive. Watch the 60 minutes video from 12/19/2010 after the jump.

Marcus Millichap: Cap Rate/Treasury Spread Means Buy Commercial Real Estate (CNBC Video, 12/15/2010)

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According to Hessam Nadji at Marcus & Millichap, commercial real estate is a buy based on valuation. The spread between Cap Rates (Net Operating Income/Purchase Price) and Treasury Yields is at 480 basis points (4.8%), which has historically been a "buy" signal for commercial real estate. So higher CRE prices will close the Cap Rate/Treasury gap. I see that the ten most active markets in the U.S. have cap rates between 6.35%-7.79% (avg = 7.19%) at Real Capital Analytics. The 10-year yield is at 3.33%. I found a chart of the NCREIF Cap Rate to Treasury spread in a September blog post. Also read this Bloomberg article. Is NCREIF cap rate data available anywhere?

I'm curious how CRE analysts factor in the Federal Reserve subsidizing Treasury yields and the risk of bond vigilantes, at some point in the future, abruptly ending the 30 year bull market in bonds. What happens if Treasury Bond volatility spikes (MOVE Index) and Treasury Yields/Cap Rates invert? Would that affect CRE prices? Reggie Middleton of the BoomBustBlog mentioned this not too long ago on Bloomberg TV (video below).

CSPAN Interview With Rep. Ron Paul On The Federal Reserve (Newsmakers)

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Rep. Ron Paul, incoming Chairman of the Financial Services Subcommittee on Domestic Monetary Policy (who "will have Congressional oversight of the Federal Reserve"), was interviewed by CSPAN's Newsmakers for thirty minutes. Video after the jump.

"On C‑SPAN's Newsmakers, he shares his concerns regarding the agency's monetary policies. In the past, the representative has been very vocal in his criticism of the way the Fed is handled and has gone so far as to propose that it be eliminated in his latest book, "End the Fed." Source: Newsmakers

2011 S&P Forecasts (1250 to 1450), 10y Yield, EPS and GDP (Links)

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It looks like the expert consensus for 2011 is to own stocks. Buy Buy Buy? The S&P closed at $1,243 on 12/17/2010 and the 10y Note Yield closed at 3.33%.

Barron's 2011 Outlookpic source

Brian Belski - Oppenheimer Asset Management
2011 S&P 500 Target 1,325, SPX EPS 88.5, 15x, GDP 3%, 10y yield 3.75%

David Bianco - B of A Merrill Lynch
2011 S&P 500 Target 1,400, SPX EPS 93, 15x, GDP 2.8%, 10y yield 4%

*Douglas Cliggot - Credit Suisse
2011 S&P 500 Target 1,250, SPX EPS 91 (2012 91), 13.7x, GDP 2.8%, 10y yield 3.5%

Barry Knapp - Barclays Capital
2011 S&P 500 Target 1,420, SPX EPS 91, 15.6x, GDP 3.1%, 10y yield 3.5%

David Kostin - Goldman Sachs
2011 S&P 500 Target 1,450, SPX EPS 94 (2012 104), 15.4x, GDP 2.7%, 10y yield 3.25%

Michael Ryan - UBS Wealth Management
2011 S&P 500 Target 1,350, SPX EPS 90, 15x, GDP 2.7%, 10y yield 3.25%

James Paulsen - Wells Capital Management
2011 S&P 500 Target 1,425, SPX EPS 95 (2012 103), 15x, GDP 4%, 10y yield 4%

Henry Mcvey - Morgan Stanley Investment Management
2011 S&P 500 Target 1,362.5, SPX EPS 93.5, 14.57x, GDP 4%, 10y yield 4%

Jeff Knight - Putnam
2011 S&P 500 Target 1,350, SPX EPS: 95 (2012 105), 14.21x, GDP 3.5%, 10y yield 4.25%

David Kelly - JPMorgan Funds
2011 S&P 500 Target 1,400, SPX EPS: 98 (2012 103), 14.28x, GDP 3.7%, 10y yield 4.25%


Nicholas Snowden vs. Josh Brown on Copper (CNBC Video)

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Copper Outlook: Josh Brown of Fusion Analytics (and TheReformedBroker.com) and Nicholas Snowden of Barclays Capital had a debate over Copper on CNBC. Both had interesting views. They talked about supply/demand fundamentals, mines, new physical copper ETFs, China demand, and market psychology. Copper is up 230% from the January 2009 low and is testing the 2008 high (reflation trade). Watch the debate after the jump and read Josh's article at CNBC.com - Brown: The Financialization of Copper.

High Grade Copper HG (courtesy of CMEgroup.com)

Einhorn's Presentation On Why He's Short St. Joe Vs. Bruce Berkowitz Who Owns 30% ($JOE)

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St. Joe ($JOE) Valuation War/David Einhorn vs. Bruce Berkowitz: David Einhorn of Greenlight Capital thinks $JOE is worth $650-950 million or $7-10 per share and needs to take significant impairment charges. It closed at $21.27 today. St. Joe is the largest private land owner in the State of Florida with 577,000 acres of land. Einhorn gave a detailed presentation at the Value Investing Congress on 10/13/2010 on why he was short. View the 138 slide presentation PDF ("Field of Schemes: If You Build It, They Won't Come") here. To your left is a snapshot of the 134th slide (click for larger view). MarketFolly.com also embedded the speech audio.

On the bullish side, Bruce Berkowitz of Fairholme Capital (Fairholme Fund/$FAIRX) owns 29% of the company and is extremely bullish. He gave reasons why in a Morningstar interview on 5/29/2009. He said the new Northwest Florida Beaches International Airport (Southwest hub) will be the upside catalyst for the company and surrounding area. More from the Morningstar interview:
"Really this company should be more a liquidating trust. I think a private real estate family would love to get their hands on this company to keep them busy for 50, 75 years"

and he recently told Reuters via Business Insider
"if we were able, we would buy the whole company"

St. Joe articles and $JOE stock chart after the jump. Will it crack the downtrend line or proceed to 7 smackers?

Wikileaks vs. Bank of America/Merrill Lynch

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Bank of America says it won't process payments intended for WikiLeaks (Kansas City Star)
Bank of America says cuts off WikiLeaks (Reuters)


Source @wikileaks on Twitter 1, 2 (wow, fight club?)

Monthly CMBS Delinquency Report- December (RealPoint)

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Remember CMBS? The December CMBS (commercial mortgage-backed securities) Monthly Delinquency Report is out on RealPoint's website. It is full of charts. RealPoint is a Nationally recognized credit-rating agency owned by Morningstar. Here is the 

"In November 2010, the delinquent unpaid balance for CMBS increased by an additional $1.94 billion, up to $61.11 billion from $59.18 billion a month prior (a 3.3% increase). This followed the previous month’s substantial decrease of $3.02 billion - the first reported decrease in over a year. The delinquent unpaid balance for CMBS at such time had decreased uncharacteristically to $59.18 billion from $62.19 billion a month prior, mostly attributed to the resolution of the $4.1 billion Extended Stay Hotel loan from the WBC07ESH transaction, which had been 90+-day’s delinquent".... [read it free at RealPoint.com]

The Shape of the World in 2020 - Guest Post

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Guest post by Global Intelligence Report

The Shape of the World in 2020

None can foretell the future, and yet the shape of what we face can be shrewdly estimated with enough attention to historical trends; with broad contextual understanding; and with sufficient insight into the character of leaders, their societies, and the structures which define their basis.

These estimates will be tempered by the sudden acts of nature, the sudden emergence of true leadership from unexpected quarters, or key breakthroughs in science. Still, we can hazard reliable views on the shape of the world in, say, a decade - in 2020 - if present trends and characters remain, and on a knowledge of certain baseline levels of wealth and capability which presently exist.

In 2011, the world will probably remain beset by the lingering of the present crisis of currency levels and economic performance. This is essentially a mass psychological crisis, based around the perceptions which create trust, particularly trust in asset values and institutions.

In some respect, historical trends have given populations in modern societies excessive trust in the ability of their institutions to remain operational, untended by their populations. As a result, governments have grown larger and less efficient, and have arrogated to themselves more and more of the resources of societies, thereby inhibiting productivity. At some point, those societies, when beleaguered and impoverished, lose faith in the institutions of governance and leadership succession.

Katsenelson: Japanese Yields Will Rise, U.S. Market In Secular Trading Range

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Vitaliy Katsenelson, CIO at Investment Management Associates and writer at http://contrarianedge.com/, was on Tech Ticker on December 10. He thinks Japanese Government Bond yields (JGBs) will rise in the future as rates re-price to compete with other Government bonds. With Japan's Debt/GDP at 200% and funded mostly internally by their aged population, when they're forced to tap outside sources to buy their debt, investors will demand higher rates. If demand is soft, Japan will reach the "Keynesian endpoint" and have to monetize their debt by raising taxes and printing money, which leads to "high" inflation. Watch the video below. Interesting, so when does the secular bear market begin in the Yen?

Regarding the U.S., Vitaliy believes QE2 will result in stagflation (TT video #2) and equities are stuck in a secular trading range just like 1966-1982 (Barron's December 11, 2010).

Flagstar Has Special Meeting On December 21 To Authorize Share Increase (FBC, FBC-P)

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After volume spiked in Flagstar Bancorp's common (FBC) and convertible preferred (FBC-P) stock yesterday, I found out there's a "Special Meeting" (proxy vote) on December 21 that would authorize an increase of 400 million shares to common stock outstanding (from 300 to 700 million shares, +133%). It would allow the preferred stock to convert to common and fend off any takeover attacks (100 million shares). Here are quotes from the release I found important. I also embedded the DEF-14A filing from November 15. Flagstar will be interesting to watch in 2011 as the market either prices in continued economic growth or a new recession.

  • "The Special Meeting is for the purpose of considering and acting upon the following matters:

    1. to amend the Amended and Restated Articles of Incorporation of the Company to increase the number of authorized shares of common stock, par value $0.01 per share (the “Common Stock”), from 300,000,000 shares to 700,000,000 shares; and

    2. to transact such other business as may properly come before the Special Meeting or any adjournments thereof.

    NOTE: The Board of Directors is not aware of any other business to come before the Special Meeting.

Volume Spikes In Flagstar Common and Preferred Stock (FBC, FBC-P)

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Remember the big volume in Flagstar (FBC) on 
September 17 before the public offering? Since then, Flagstar raised $400 million in common (at $1) and convertible preferred stock and "entered into an agreement to sell approximately $474 million of non-insured non-performing residential first mortgage loans". They expect to receive 44% of the book value (source).

MatlinPatterson owns 66.2% of Flagstar's common stock. It will be interesting to see if the directors and management can turn this distressed bank around. Only the strong regional banks survive at this point. FBC and FBC-P 1-day charts are after the jump, as well as the 5-year disaster.
"TROY, Mich., Dec. 15, 2010 /PRNewswire/ -- Flagstar Bancorp, Inc. (NYSE:FBC - News) (the "Company") today announced that in light of the unusual market activity in its common and preferred stock this afternoon, the NYSE has contacted the Company in accordance with its usual practice, and the Company has stated that its policy is not to comment on unusual market activity." (Source: Yahoo Finance)

Watch "Steel on Wheels" Video Live (Dylan Ratigan Show)

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If interested the "Steel on Wheels" stream starts at 7pm Eastern time via the Dylan Ratigan Show. The theme of the town hall is "How to get America Working Again". It features: Dan DiMicco (CEO of Nucor Steel), Duncan Moore (Center for Entrepreneurship at the University of Rochester), Andrew Jenks (from MTV series "The World of Jenks") and Chrystia Freeland (Reuters Global Editor-At-Large who recently interviewed Jim Rogers of Rogers Holdings and John Taylor of FX Concepts at the Reuters Investment Outlook Summit). Live video after the jump.

Violent Riots Hit Greece Today, Protesting Austerity Measures (Videos)

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Videos courtesy of Russia Today (12/15/2010)

Breakdown in Retail (XRT) Would Signal Economic Weakness, Chart Watch

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click for larger view
XRT broke above the June 2007 high (45.51) and April 2010 high (45.64) recently. It closed at 47.26 yesterday. Keep an eye on those support levels just in case it rolls over. I'm thinking if retail stocks break down, that would signal economic weakness ahead (consumer). Also check out the steep channel from the March 2009 low and the near term wedge. XRT hasn't violated any levels yet, so how high will it go in this channel? I'm also watching the risk race: 

Watch XRT (SPDR Retail ETF) trade live here: http://www.freestockcharts.com?emailChartID=429d1177-dc58-47b0-b9db-78b0f377f49a.

Muni Bond ETF Got Crushed Again, GO Bond Yields Moving Higher (MUB, MMA 10y GO Bond Index)

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Municipal bond ETFs got crushed again yesterday. It could be due to the rise in municipal bond credit risk (
Cali fiscal emergency?), re-pricing of bond yields, potential end to Build America Bonds or forced selling somewhere. If you've been reading this blog for a while this shouldn't come as a surprise (see index: municipal bonds, municipalities)$MUB (National Municipal Bond ETF) is down 8.2% since early October, which on the chart looks kind of bloody.

On October 3 I told you to watch the MMA (Municipal Market Advisors) AAA 10-year General Obligation Bond Index Yield (MMAI10Y) when it was at 2.65%. Since then it rose to 3.22%, which is a decent amount (+57 basis points or 21.5%). The Bond Buyer 20-year GO Index (BBWK20GO) went from 3.84% to 4.86% (102 bps, +26.5%). Bond yields have been rising across the board (see GO Yields/Treasury Yields chart below).  It doesn't look like MCDX spreads (muni bond credit default swap index that reference revenue and GO bonds) made new highs since my post in July. Charts are after the jump as well three interesting articles.

Ashraf Laidi's Outlook on British Pound Sterling, QE Expectations and UK Inflation (Videos)

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Ashraf Laidi, Chief Strategist at CMC Markets said, "overall I think into next year, it's not so much that they're going to raise rates, it's really fading expectations of further QE that would provide the Pound with a decent base" (CNBC video after the jump).

John Taylor (FX Concepts) Sees U.S. Recession By Mid-2011 (Reuters Investment Outlook Summit)

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John Taylor, who runs $8.5 billion currency hedge fund FX Concepts, was interviewed by Chrystia Freeland at the 2011 Reuters Investment Outlook Summit. He believes the U.S. will be in a new recession by the middle of 2011 (video embedded below). Here's a summary of what he said and links to video clips at Reuters.com.

*His trades are betting that the U.S. economy will be in a recession next year
*Commodities could come off affecting the Australian Dollar (AUD) and CAD
*British Pound Sterling becomes more valuable in Euros in next year (GBP/EUR)
*Predicts Euro/US Dollar will hit 1.0, sell EUR/CHF (Swiss Franc)
*In the long term he thinks the US Dollar will go down (U.S. austerity, fiscal problems)
*Gold will drop LESS than other assets
*After Ireland, bailouts hit Portugal, Spain, Italy or Belgium, France (10 year event)

In the short term he sees weakness in commodities, commodity currencies and a boost in the US Dollar as carry trades unwind during the next U.S. recession (mid-2011). In the longer term John is bearish on the U.S. Dollar due to fiscal problems.

John Taylor: Euro problems to spread (2:56) Reuters Video
John Taylor: Gold to "drop less" (1:16) Reuters Video
John Taylor on 2011 currency moves (7:14) Reuters Video
John Taylor: Recession back in 2011 (2:04) Reuters Video (embedded below)

FOMC Statement 12/14/2010 (Federal Reserve)

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Via FederalReserve.gov
"Release Date: December 14, 2010

For immediate release

Information received since the Federal Open Market Committee met in November confirms that the economic recovery is continuing, though at a rate that has been insufficient to bring down unemployment. Household spending is increasing at a moderate pace, 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. The housing sector continues to be depressed. Longer-term inflation expectations have remained stable, but measures of underlying inflation have continued to trend downward.