Warren Buffett's 2010 Annual Letter, BRKB vs. SPY Since 1996 (Chart)

Here's a link to Berkshire Hathaway's 2010 Annual Shareholder Letter by Warren Buffett http://www.berkshirehathaway.com/letters/2010ltr.pdf. The company realized a $222 million gain on equity puts written against the S&P 500, FTSE and other indices between 2004-2008 (read: Buffett cleans up on derivatives bet).

BRKB vs. SPY

News:
Berkshire Profit Climbs 43% on Derivatives, Burlington Northern's Earnings (Bloomberg)
Buffett Says His `Trigger Finger Itchy' to Buy, With $38 Billion in Wallet (Bloomberg)

Brent Crude Oil Hit $119 This Morning (Chart: S&P, USD, T-Bond and Oil Comparison)

Futures are active this morning, especially Brent Crude Oil (from the North Sea) and West Texas Intermediate Crude (WTIC). The March E-mini S&P Future (ESH11) is at 1,295.75 (-0.75%) and pierced through the uptrend line from August. It could test 1,200 (April 2010 support) if a breakdown is confirmed. Tom DeMark mentioned that level on CNBC on Tuesday.

The April Brent Crude contract was very volatile this morning. It hit a high of $119.79 before pulling back to $113.92. Was it a blow off top? We'll see. April WTIC is currently trading at $100.37 after hitting a high of $103.41. Look at the relationship between the 30 Year Treasury Bond Future (USH11), U.S. Dollar Index Future (DXH11), E-Mini S&P Future (ESH11) and WTIC Crude Oil Future (CLJ11) during the past 2 weeks. Traders bought Crude and T-Bond futures and sold the S&P and US Dollar Index futures. This was during the unrest in North Africa, so it makes sense if this was a flight to safety and oil output trade (Oil/USD and Treasuries). Higher oil prices could also affect the economy, so watch to see if these correlations change. Update: According to Zero Hedge Chinese oil facilities were attacked in Libya. See the charts after the jump.

Tom DeMark Predicts 11.2-16.8% Decline For S&P 500, Monthly Indicator Confirmed (CNBC 2/22/2011)

Tom DeMark, CEO of Market Studies, expects an 11.2-16.8% decline from here in the S&P. He created the DeMark Indicators which identify levels of trend exhaustion on charts. In the segment below, DeMark said the daily, weekly and monthly time series on the S&P 500 Index recorded a "13" or "major turning point" (exhaustive top).

He was on CNBC on 1/26/2011 predicting an 11% decline, but the unanticipated crisis in North Africa rebalanced the downside force (market gapped higher). In addition, only the daily and weekly time series had a 13 at that time. He believes the delay will just make the fall more intense. For technical confirmation, DeMark needed to see the March S&P Future close below 1326.30 ✓ and make a lower low tomorrow (today). He talked about the DAX as well.


Combo Weekly Chart - Source: CNBC

If you just look at the chart of the S&P, it looks like it could break through that uptrend from August 2010 and test the trend line from March 2009 (and pre-flash crash high). I put up the weekly chart below. The 50 week moving average (1171.58) is testing the 200 week MA (1179.53). SPX cash closed at 1315.

Jeff Gundlach's S&P, Muni, TNX and Home Price Targets (DLTNX, DBLTX)

Jeff Gundlach, CEO of DoubleLine Capital LP (adviser to the DoubleLine Funds), was Barron's cover story this week. His DoubleLine Total Return Bond Fund (DLTNX/DBLTX) is up 17.36% since it launched in April 2010, outperforming competitors. He made interesting calls in the Barron's article.

DLTNX - DoubleLine Total Return Bond
Courtesy stockcharts.com
In summary, Gundlach thinks the S&P "will hit 500 in the next couple of years", "expects home prices to fall by another 10% to 15%", and if there are muni defaults "there will be a panic at the margin, and muni bonds from the highest-rated on down will plummet". He's setting up a fund to scoop up distressed municipal bond funds at "40% of NAV". I wonder if Kyle Bass is doing the same. I'm going to check what muni-bond funds and ETFs own.

Regarding Treasuries, Gundlach said, "a renewed slowdown in the economy would drive 10-year bond yields sharply lower, but not below 3%, unless a banking panic similar to last year's euro-zone crisis ensues. Here is a link to Gundlach's January report.

DoubleLine's January 11, 2011 Report (via StoneStreetAdvisors)



DoubleLine Opens the DoubleLine Multi-Asset Growth Fund via Load and No-Load Share Classes (PR Newswire)

Lady Crashes Car About To Be Repossessed Into A Chase Bank (Dearborn Heights, MI)

You don't see this everyday. A lady crashed her 2006 Ford Fusion into a Dearborn Heights, MI Chase Bank when it was about to be repossessed. Watch out for "driving demons", bankers. The video is after the jump courtesy of FOX2News Detroit.


Crude Oil Up 4% As Volatile Protests Spread In Libya (2/21/2011 Charts)

The April crude oil future (CLJ11) is trading at $93.44 (+4.16%) and close to testing $94 resistance (chart 1). I compared April-July crude contracts (CLJ11-CLN11) on chart 2. Watch the live #Libya tweet stream below to see what's going on. Articles: Libya revolt spreads to Tripoli - Al Jazeera, Libya death toll reaches 233: Human Rights Watch - Reuters Africa.


Russia Forum 2011 (Video Links)

If you missed the Russia Forum 2011 on February 3-4, find all the videos at http://2011.therussiaforum.com/. The panels below had interesting views on Treasuries, interest rates, US Dollar, U.S. stocks, the Euro, Yen, JGBs, Nikkei, agricultural commodities and gold.

1) Global Investment Outlook: Where is the Money & What are the Risks? (click for full video)

Featuring Marc Faber (Gloom Boom Doom Report), Nassim Taleb (NYU Polytechnic Institute, Author of Black Swan), Maria Gordon (PIMCO), Hugh Hendry (Eclectica Asset Management), Scott Minerd (Guggenheim Partners), Russell Napier (CLSA) and Nouriel Roubini (NYU Business, Roubini Global Economics).

2) Is Russia the Best or Worst in BRIC? (click for full video)

Featuring Aivaras Abromavicius (East Capital), Marc Faber, Mario Garnero (Brasilinvest), Christopher Granville (Trusted Sources), Vladislav Soloviev (UC Rusal) and Nassim Taleb.

Gaddafi's Son Saif Addresses Libya (Video), Live #Libya Tweet Reaction

Muammar Gaddafi's son, Saif Gaddafi, addressed the Libyan people today on Libya TV. Below is the video translated into english, courtesy of CNN World. I also embedded a live Twitter search widget of the #Libya hashtag. There were violent clashes in Benghazi and Tripoli (Libya's capital). Libya borders with Egypt, Tunisia and Algeria in North Africa. For more information watch Al Jazeera English live online.

Big West Texas Intermediate/Brent Crude Price Differential (Gregor Macdonald on StockTwitsTV, Chart)

Source: BarChart.com
Look at the price differentials between West Texas Intermediate Crude (April 2011: $91.56) and Brent Crude (April 2011: $103.55) futures. Click the chart to your left. Find quotes and charts of energy futures at barchart.com. WTIC delivers light sweet crude oil in Cushing, Oklahoma while Brent uses light sweet crude from the North Sea (shipped from Sullom Voe in the Shetland Islands off of the UK- source). Given the enormous spread, there's probably an arbitrage opportunity somewhere using the futures contracts.

Gregor Macdonald, oil analyst at Gregor.us, was on StockTwits TV explaining the spread and what refiners were doing. I embedded the video below and a table of the WTIC/Brent Crude price spread through September, 2011. Who is going to corner the spread? They can store oil in tanks on vacant land.

Month (2011)West Texas Intermediate Crude OilBrent Crude OilDifferential
April91.54103.5713.14%
May93.52103.9311.13%
June94.75104.159.92%
July95.75103.257.83%
August96.02103.347.62%
September96.6103.47.04%


Morgan Stanley Research on Tablet Demand, Disruption (Video, PDF Link)

via Wikimedia Commons
Morgan Stanley's Global Technology, Media and Telecommunications Equipment Team released an extensive blue paper on tablet demand. I embedded the "Morgan Stanley North American Equity Morning Meeting" video featuring Kathryn Huberty (IT Hardware), Adam Holt (Software) Mark Lipacis (Semiconductors) and Francois Meunier (Technology) discussing the blue paper.
"Tablet Demand and Disruption, Mobile Users Come of Age

"Tablet demand is still underappreciated: shipments could reach 100 million by 2012, in our bull case scenario. A series of proprietary surveys covering more than 8,000 consumers and 50 chief information officers suggest that tablets are accelerating the adoption of the mobile internet. Our data yielded several surprises: 1) two-thirds of companies expect to allow tablets on their networks within a year; 2) consumer interest in tablets is even greater outside of the US, and 3) users are moving beyond web surfing, email, games, video, and applications to content creation. Tablets are additive to the broader computing market, and we see more beneficiaries than challenged companies." (read the full report at MorganStanley.com)
Printing companies and PCs better watch out. Slide 9 is titled: Printing: Underappreciated Cannibalization Story.

Gary Shilling vs. John Tamny (China, Commodities, Stocks, Inflation)

This is a must see macro debate. Gary Shilling (A. Gary Shilling & Co.) and John Tamny (RealClearMarkets / H.C. Wainright Economics) were on Tech Ticker on 2/15/2011. Shilling believes monetary tightening in China, which could overshoot and bring on a hard landing, will cause commodity prices to crash. He believes it will hit industrial and agricultural commodities as "hot leveraged money" finds a safe haven.

John Tamny disagrees. He believes the agricultural moves are "currency driven" since they're all moving at once. (side note: On CNBC the other day, Kyle Bass (Hayman Capital) was worried about Q2 food price inflation globally.

They agree on U.S. stocks. Shilling said U.S. stocks look "frothy" and John Tamny said "I wouldn't be a long term holder of stocks... stocks tend to do best during strong dollar decades during the 80s and 90s". They differ on the inflation vs. deflation debate (third segment).

Kyle Bass: Restructuring Has To Happen For World To Grow Again (CNBC Interview)

Kyle Bass, who runs hedge fund Hayman Capital, was on CNBC yesterday giving his views on the market, global economy and munis. He strongly believes the world needs to restructure in order for it to grow again. This was an interesting statistic he mentioned: "Total credit market debt in the world in the last 10 years has gone from 80 trillion to 200 trillion. That's an 11% growth rate in credit market debt globally while GDP's grown at 4%. In the end the question you have to ask yourself is, does debt matter? If it doesn't matter then we are in a cyclical upswing and everything's going to be fine." Watch the videos after the jump.

Regarding Japan

*Japan reaches Keynesian end-point (can't service their debt);
*This will happen when there's loss of confidence in their debt market, similar to Greece;
*Fears will switch from deflation to inflation;
*Japan's Debt/Revenue ratio is 20;
*Watch 5 and 10 year cash JGB rates (Japanese Government Bonds)

Regarding U.S. stocks and investing in this environment

*Not surprised at U.S. market, look at Zimbabwe's stock market during past decade (nominal terms);
*Bernanke is printing $3.3 billion a day;
*If you print enough money to recapitalize banking system losses, the tree never fell in the woods;
*Moved systemic risk from private balance sheet to public balance sheet;
*For now own productive assets (MLPs, apartments), nonproductive (gold, silver), real estate, cash;


*"Plan B is, to the extent that I'm right, and you start to see sovereign dominoes falling and the focus ends up on Japan very quickly, what do you do with your money? Well, if we go to +4 in GDP to -3 or 4 in global GDP, and we have an equity market contraction of 40 or 50 percent, you're going to need some money to buy. That's going to be the greatest time in the world to buy once these restructurings happen."

Federal Reserve FOMC Minutes, 2011-2013 Economic Projections (1/26/2011)

Here are economic projections by the Fed from the FOMC Minutes release on 1/26/2011 (source). Read the full document after the jump. Lets see if they get it right.

Table 1. Economic projections of Federal Reserve Governors and Reserve Bank presidents, January 2011
Percent

VariableCentral tendency1Range2
201120122013Longer run201120122013Longer run
Change in real GDP3.4 to 3.93.5 to 4.43.7 to 4.62.5 to 2.83.2 to 4.23.4 to 4.53.0 to 5.02.4 to 3.0
      November projection3.0 to 3.63.6 to 4.53.5 to 4.62.5 to 2.82.5 to 4.02.6 to 4.73.0 to 5.02.4 to 3.0
Unemployment rate8.8 to 9.07.6 to 8.16.8 to 7.25.0 to 6.08.4 to 9.07.2 to 8.46.0 to 7.95.0 to 6.2
     November projection8.9 to 9.17.7 to 8.26.9 to 7.45.0 to 6.08.2 to 9.37.0 to 8.75.9 to 7.95.0 to 6.3
PCE inflation1.3 to 1.71.0 to 1.91.2 to 2.01.6 to 2.01.0 to 2.00.7 to 2.20.6 to 2.01.5 to 2.0
      November projection1.1 to 1.71.1 to 1.81.2 to 2.01.6 to 2.00.9 to 2.20.6 to 2.20.4 to 2.01.5 to 2.0
Core PCE inflation31.0 to 1.31.0 to 1.51.2 to 2.00.7 to 1.80.6 to 2.00.6 to 2.0
     November projection0.9 to 1.61.0 to 1.61.1 to 2.00.7 to 2.00.6 to 2.00.5 to 2.0


Borders Files For Bankruptcy, Here Are The Stores Closing (BGPIQ)

Borders filed for bankruptcy today. It was expected. They released details at http://www.bordersreorganization.com/. I embedded the "Chapter 11 Store Closure List" pdf after the jump and it looks like they are closing this beast. R.I.P.

Links:
Borders Files for Bankruptcy (New York Times)
Borders Gets $505 Million in Bankruptcy Loans Led by GE Capital (Bloomberg)

City CAFR MuniTerminal (Annual Financial Reports)

Continued from Part 1: State CAFR MuniTerminal

Here are direct links to city CAFRs (comprehensive annual financial reports). When you open the pdf, check out the general fund (and fund transfers), debt service fund, tax base, ratios and bonds outstanding. There's a statistical section at the end with trends. I tried to find the most recent audits, but double check the ones from June 2009 for updates.

City CAFRs are easier to dissect, but riskier credits, since they have "smaller economies, less resources and limited abilities to tax" (Chris Mier of Loop Capital). However, unfunded pension liabilities are running amok at both the state and local level (*see articles below re: Fitch/Moody's credit ratings).

From the Milken Institute report Ensuring State and Municipal Solvency:
As the recession drags on, states and municipalities find themselves in a deep hole. For the first time since the Great Depression, income, sales and property taxes have declined in unison. The cyclical challenges are clear: falling tax receipts, high unemployment, tepid investment returns, and overall economic uncertainty.

But even more daunting are the long-term structural issues that are simultaneously coming to a head: trillions of dollars in unfunded pension obligations, the escalating costs of other post-employment benefits (OPEB), record numbers of retirees poised to tap pensions and benefits, increasing longevity, and significant revenue/expenditure mismatches.
I will continue to update this list. The smaller cities have been in the news recently.

Rick Santelli vs. Steve Liesman vs. Roubini vs. Fred Mishkin (CNBC)

On CNBC yesterday, Rick Santelli told Steve Liesman he fights like a girl, and Nouriel Roubini said rising commodity prices could be deflationary down the line and crimp the recovery. Must see!

Stand Up to NIMBY - and Create Jobs - Guest Post

Guest post by Llewellyn King for OilPrice.com

Stand Up to NIMBY - and Create Jobs

In Britain, they call it "DADA." It means Decide. Announce. Defend. Abandon.

In America we call it "NIMBY" - "not in my back yard."

It applies to all kinds of infrastructure construction, from airports to roads. But it is electric and gas utilities that feel the brunt of local opposition.

These localized forces of "no" have caused the buildup of a substantial backlog of infrastructure projects, not only for sexy green-energy technologies but also for the traditional needs of energy production and distribution - pipelines, power lines, replacement of aging equipment and the construction of new facilities to meet new loads and move the energy infrastructure into the 21st century.

It also includes old-fashioned technology - meters, switches, transformers - to get new green electricity to the consumer.

Ken Fisher Is Neutral On US Stocks!

He runs Fisher Investments which oversees $43 billion in assets. Read at Reuters.

Hussman: S&P Is Richly Valued With Shiller PE Ratio Above 24

John Hussman gave an update on the S&P cyclically adjusted P/E ratio in his weekly market comment. Will the CAPE revert back to the 5-25 range?

"Last week, the S&P 500 Index ascended to a Shiller P/E in excess of 24 (this "cyclically-adjusted P/E" or CAPE represents the ratio of the S&P 500 to 10-year average earnings, adjusted for inflation). Prior to the mid-1990's market bubble, a multiple in excess of 24 for the CAPE was briefly seen only once, between August and early-October 1929. Of course, we observe richer multiples at the heights of the late-1990's bubble, when investors got ahead of themselves in response to the introduction of transformative technologies such as the internet. After a market slide of more than 50%, investors again pushed the Shiller multiple beyond 24 during the housing bubble and cash-out financing free-for-all that ended in the recent mortgage collapse." [read full report with charts]

Productive Agricultural Land Turned Into Residential Roads To Nowhere (Videos)

I found an interesting YouTube channel that tours through the aftermath of the real estate crash. Since October 2009, EconCat88 drove through empty residential real estate developments (roads-to-nowhere he called them) and vacant commercial real estate in Ohio, Florida, Michigan, Indiana, Nevada, Arizona and Georgia, and uploaded 210 videos. He's not a big believer in the recovery. I found two videos showing farmland that was converted into residential subdivisions at the peak of the bubble. I embedded a video titled "Plant corn and wheat instead of adding to food inflation and the housing collapse", which was taken outside of Toledo, Ohio on 2/11/2011The next video was shot outside of Ft. Wayne, Indiana on 1/26/2011 showing a similar situation. After seeing these videos, I'm starting to think Gary Shilling is right that home prices need to fall another 20%.

Felix Salmon: Blogs Are Selling At 5-6x Revenues, AOL Bought Huffington Post At "Justifiable Price"

Felix Salmon, the business blogger at Reuters, thinks AOL got a good deal for The Huffington Post at $315 million (lower end of estimates). He said blogs right now sell for 5-6x revenues. So who buys Business Insider? Yahoo? Better yet, who buys Distressed Volatility for $1 billion. Kara Swisher of AllThingsDigital (a WSJ property) also appeared during the CNN segment.

State CAFR MuniTerminal (Annual Financial Reports)

I linked to state CAFRs (comprehensive annual financial reports) and archives after the jump. When you open the pdf, check out the general fund (and fund transfers), debt service fund, tax base (assessed and taxable property values), general obligation bonds and revenue debt outstanding, and tax ratiosThey should show trends as well. States and municipalities use GASB (Government) reporting which looks slightly different than normal. City CAFRs, which I'll provide in another post, are easier to dissect, but riskier credits, since they have "smaller economies, less resources and limited abilities to tax" (Chris Mier of Loop Capital). However, unfunded pension liabilities are running amok at both the state and local level.

From the Milken Institute report Ensuring State and Municipal Solvency:
As the recession drags on, states and municipalities find themselves in a deep hole. For the first time since the Great Depression, income, sales and property taxes have declined in unison. The cyclical challenges are clear: falling tax receipts, high unemployment, tepid investment returns, and overall economic uncertainty.

But even more daunting are the long-term structural issues that are simultaneously coming to a head: trillions of dollars in unfunded pension obligations, the escalating costs of other post-employment benefits (OPEB), record numbers of retirees poised to tap pensions and benefits, increasing longevity, and significant revenue/expenditure mismatches.

Borders Could File For Bankruptcy Next Week, Close 200 Stores, What Do You Put In These Empty Spots (BGP)

The nail is almost in the coffin for Borders (BGP). WSJ broke the Borders news hereBorders Nearing Bankruptcy Filing. In my opinion, it should be expected that 3 story buildings selling books, CDs and DVDs file for bankruptcy. Unless, like I mentioned before on Twitter, they convert these things into 3 story Lapstopistans (NYT) with cafes, a Fed-Ex center, private conference rooms? and turnstiles for the magazine section. There are so many people in college, web entrepreneurs, unemployed/underemployed people and business folks that do work from their laptop computers.

I've practically lived in these places during the past 5 years while studying or blogging, in a slightly active suburb of Detroit and Chicago. This past month, when I tried to set up shop in a Borders cafe, it was 100% full every time. So, should "Laptopistan" be considered retail or office real estate. Or do they merge. REIT Agree Realty (ADC) leases some space to Borders. I'm not sure if that's priced in or not. Click the label for recent posts on Borders.

On January 7 I did a post on Howard Davidowitz, retail commercial real estate and XRT option activity. Davidowitz, who's been consulting on retail commercial real estate for 30 years, sees a revolution in the whole retail real estate strategy during the next 5 years. From Bloomberg TV on 12/30/2010 with video below.

Whitney Tilson Covers Netflix Short, Price/Sales At New High 5.81 - NFLX

It was all over Twitter that Whitney Tilson (T2 Partners) covered his short position in Netflix ($NFLX). He released a report at Value Investing Letter explaining why.

"Why We Covered Our Netflix Short
By Whitney Tilson and Glenn Tongue, Managing Partners, T2 Partners LLC

In mid-December, we published a lengthy article on why Netflix was our largest bearish bet at the time. With the stock up nearly 25% since then, one might assume that we’d think it’s an even better short today, but in fact we have closed out our position because we are no longer confident that our investment thesis is correct. There are three primary reasons for this:" (continue reading at VIL)

In other NFLX news, its price/sales ratio (5.81) broke above the March 2004 high (5.57) and revenues have been growing since 2001. Want to see something interesting? Take a look at NFLX price/sales and quarterly revenue going back to 2002.

Live Video From Tahrir Square, Cairo With #Egypt Tweets Streaming

Watch protests at Tahrir Square (Cairo, Egypt) live via CBSNews LiveStream or MSNBC. The live Twitter search widget has the #Egypt hashtag. If videos are down visit Al Jazeera English (LiveStation). You don't see revolutions everyday (actually recently we have).

Bernanke Q&A Session With Paul Ryan Discussing Price Stability

Rep. Paul Ryan questions Ben Bernanke on QE2, fiscal policy, U.S. inflation, the steep yield curve, commodities, emerging market inflation and his exit strategy. CNBC Video after the jump.


St. Joe Explores Options With Stock Trading at 3x Book Value ($JOE)

Florida homebuilder St. Joe ($JOE), which is 30% owned by Bruce Berkowitz's Fairholme Fund (FAIRX) and trading at 3x book value, is exploring strategic alternatives with Morgan Stanley "to enhance shareholder value". Berkowitz and Charles M. Fernandez (President of Fairholme) are on the board of directors. From the press release:
WaterSound, FL - February 8, 2011 - The St. Joe Company (NYSE:JOE) today announced that its Board of Directors has unanimously decided to explore financial and strategic alternatives to enhance shareholder value.

The Board intends to consider the full range of available options including a revised business plan, operating partnerships, joint ventures, strategic alliances, asset sales, strategic acquisitions and a merger or sale of the Company. The Board of Directors has retained Morgan Stanley & Co. Incorporated to assist it in the evaluation of these alternatives. The Company noted that there can be no assurance that the exploration of strategic alternatives will result in any transaction.

Britt Greene, St. Joe's President and CEO, said, "We have engaged Morgan Stanley to undertake a comprehensive and thorough review of all available alternatives, and our Board and management are committed to taking the appropriate and necessary actions to enhance value for St. Joe shareholders."

Chart Showing Internet Advertising Revenues in 1996

I was trying to find information on 1-800-Music-Now (remember you could buy music through your phone?) and came across internet advertising statistics. We've come a long way. From The Economist on 5/8/1997:
"Total Internet advertising revenues last year were just $267m (see chart 6), compared with $33 billion spent on television advertising in America alone—even though top Internet sites have television-sized audiences of a million viewers a day. America Online, with 8m subscribers the biggest Internet service provider, has more viewers than any cable television network or newspaper, and all but the world’s two most popular magazines. So where is the big advertising money Internet media companies are expecting? Waiting and seeing: the market is too new for advertisers to be sure they will get their money’s worth."

source: economist.com

Bernanke's Testimony to House Budget Committee on Inflation, Fiscal Policy (2/9/2011, C-SPAN Video Link)

Congress Questions Fed Chairman on Inflation | C-SPAN (Video, 2/9/2011). Bernanke's testimony:
Chairman Ben S. Bernanke
The Economic Outlook and Monetary and Fiscal Policy
Before the Committee on the Budget, U.S. House of Representatives, Washington, D.C.
February 9, 2011

Chairman Ryan, Ranking Member Van Hollen, and other members of the Committee, I am pleased to have this opportunity to offer my views on the economic outlook, monetary policy, and issues pertaining to the federal budget.

The Economic Outlook
The economic recovery that began in the middle of 2009 appears to have strengthened in the past few months, although the unemployment rate remains high. The initial phase of the recovery, which occurred in the second half of 2009 and in early 2010, was in large part attributable to the stabilization of the financial system, the effects of expansionary monetary and fiscal policies, and the strong boost to production from businesses rebuilding their depleted inventories. But economic growth slowed significantly last spring and concerns about the durability of the recovery intensified as the impetus from inventory building and fiscal stimulus diminished and as Europe's fiscal and banking problems roiled global financial markets.

Israel Set To Join the Rich Countries Club (Natural Gas Discovery) - Guest Post

From Noble Energy Presentation
Guest post by OilPrice.com (with added map)

Israel Set To Join the Rich Countries Club

From Israel, there is good news and bad news.

The good news - and it is huge - is that Israel will soon be awash in natural gas. Gas discovered on the country's outer continental shelf will turn the country from being hydrocarbon-deprived to being a net exporter.

Indeed, Israel is set to become so rich that it is laying the groundwork for creating a sovereign wealth fund for overseas investments in order to protect the country from inflation and the shekel from getting too strong.

The bad news is that with Hezbollah poised to control Lebanon's government, Iran has de facto arrived on Israel's northern border. Even without an Iranian nuclear weapon, this is a grave deterioration in Israel's security.

Already Lebanon has asked the United Nations to guarantee that Israel does not violate the integrity of Lebanon's outer continental shelf, where Iran plans to help Lebanon drill for gas.

Geology is about to change the political geography of the world's most combustible neighborhood.

VIX Made a New Low This Morning (14.86), Futures Curve Update

At 9:32 this morning, VIX cash tumbled to 14.86, below the April 2010 low (15.23), but quickly recovered. It closed at 15.84. Was that a mini VIX flash crash? It hit a low of 8.23 in December 2006. Jamie Tyrrell of OptionMonster gave an update on the VIX futures curve in the video below. VIX contango is tightening and in the 20s.

The VIX (Volatility Index) "is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices." (CBOE). Click the image for a larger view, courtesy of FreeStockCharts.com.

AOL Buys Huffington Post For $315 Million (Animation)

AOL bought The Huffington Post for $315 million. They also bought TechCrunch recently. NMAtv reported on the story below.

Mike Ryan of UBS: S&P Earnings To Hit 165, S&P 2,450 By 2020 (Video)

This post is for the bulls. Michael Ryan, head of UBS Wealth Management Research, was on CNBC today. Here are a few of his thoughts on the market and economy from the video (not from an official transcript). See the video below.
U.S. Will Remain Dominant Power In World: "We still think that the U.S. equity market will continue to do well. Remember U.S. corporations will continue to benefit from the environment here in the U.S., but also the ability to leverage some of the strong growth prospects outside the U.S. because of the fact that they are really multi-national corporations with a global footprint."

Watch Social Media Week New York Live

Since it is hot right now, watch Social Media Week New York live on Livestream from 2/7-2/11/2011.

Soros On State Deficits, US Stock Market and QE2 Ending (Davos 2011 - CNBC)

George Soros, founder of $27 billion hedge fund Soros Fund Management, was on CNBC in Davos, Switzerland on 1/26/2011. Watch the interview after the jump. Here are a few quotes from the interview.

1) On U.S. States and Municipalities: "This going to be the drama of the next year or so. The State's can't run deficits. And they do have very big deficits. They can't increase taxes because that's very strongly resisted. So they'll have to cut services and also put pressure on the unions to renegotiate the deals they have. So, State's can't go bankrupt. You can't do what you could do for General Motors and get rid of the accumulated liabilities. So, how do you to do it. It's going to be a lot of pain and conflict."

[Regarding State bankruptcy, some policymakers are trying to change the Federal law. Read these posts: Is State Bankruptcy Law In Play?First GM, now states? Pros and cons of bankruptcy. Also Illinois just raised income taxes.]

S&P Has Two Strikes, Is It 2000 and 2007 All Over Again? (SPY Chart)

First, an interesting read at Comstock Partners:
"It's 2000 and 2007 All Over Again

The stock market is at a highly vulnerable point, both fundamentally and technically. Fundamentally, the current rate of economic growth is unsustainable and the valuation of the S&P 500 is significantly above its long-term average. Technically, the market is overbought and is losing momentum. We cite the following points."
(read more)
Now look at the SPY chart from 1990 to last Friday.

Look At Light Crude Oil and S&P Gap ($WTIC vs. $SPX Chart)

LOOK AT THIS GAP PEOPLE. How does it close. An oil spike, S&P crash or a different variation. Should've charted out the ratio.

$WTIC (Light Crude Oil) vs. $SPX (S&P 500)
Courtesy of StockCharts.com

Watch Boiling Water Turn Into Snow In Mid-Air, Birth Of An Island (Videos)

Science Volatility: I thought I had to post something today. How about some science videos. Watch someone in Northwest Canada, in -30 celsius weather, throw boiling water into the air and watch it turn into snow (h/t Capitalogix). The second video shows a volcanic eruption under the ocean and just barely breaking above sea level. If the eruption was stronger it could have formed an island but waves pushed it away (h/t Paul Kedrosky via BBC). Videos after the jump.

Waste and Scrap Carloads Correlate With Economic Growth (GDP), Weekly Chart Update

via Weekly Railfax
Track weekly North American rail traffic data and trends (via AAR) at railfax.transmatch.com. At the bottom they provide a chart of waste and scrap material carloads (4-week rolling average). According to this Bloomberg infographic, "shipments by train of waste and scrap have a higher correlation with economic growth than coal or copper". There's an 82% correlation between waste carloads and GDP.

"The correlation coefficient between carloads of waste and year-over-year growth in gross domestic product from the first quarter of 2001 through the same period of 2010 is 0.82, according to Bloomberg calculations." (Bloomberg)

The 2010-2011 waste and scrap chart just spiked and is matching the cyclical rise/fall from Q3-2009 to Q1-2010 (so far). When comparing waste and scrap shipments during Q2-2009 and Q2-2010, you can see the divergence, which accounted for the soft-patch in GDP growth during Q2-2010. Click on the chart above for a bigger view and watch this indicator going forward.

From CNN Money on 8/10/2010:

"NEW YORK (CNNMoney.com) -- The U.S. economy sputtered to a near stop in the second quarter, according to new estimates from the government released Friday, although the slowdown wasn't as bad as many had feared.

The nation's gross domestic product, the broadest measure of economic activity, was revised sharply lower to an annual growth rate of 1.6% in the three months ending in June. The initial reading had been for a 2.4% growth rate in the period."

What about this statistic. Could the U.S. ship waste and scrap just to feed China's growth?

"According to data provided by the U.S. International Trade Commission, Chinese imports of U.S. cast-offs (scrap metal, waste paper, and the like) surged by an eye-popping 916 percent over the 2000-2008 period, with most of that expansion occurring after 2004." (US News

Robert Shiller at Davos: Everything is Overpriced (Stocks, Bonds, Real Estate)

Robert Shiller, Professor of Economics at Yale and co-founder of the Case/Shiller Home Price Index, was interviewed by Henry Blodget in Davos, Switzerland. Listen to the CinchCast at Business Insider. Shiller thinks housing could resume its downward trend and said everything is overpriced.

"It seems like everything is overpriced: stocks, bonds, and real estate. And index bonds were given a negative yield recently; maybe they’re coming back. Nothing looked attractive." (Business Insider)

Recent posts on Robert Shiller:

Robert Shiller Sees S&P 500 At 1,430 In Year 2020! CAPE Ratio (January 3, 2011)

Home Prices Make New Lows In Six U.S. Cities, Shiller On The Trend-Video (December 29, 2010)

Ben Bernanke's Speech at National Press Club with Q&A (2/3/2011)

Ben Bernanke, Chairman of the Federal Reserve, gave a speech at the National Press Club today. Text from the Q&A session can be found at Reuters or Business Insider. I found the full speech video at CSPAN.org.

Chairman Ben S. Bernanke
At the National Press Club, Washington, D.C.

February 3, 2011

The Economic Outlook and Macroeconomic Policy

Good afternoon. I am pleased to be here at the National Press Club, and I'm especially glad for the opportunity to have a conversation with journalists who write about economic policy from our nation's capital. Your job is not easy, but it is essential. Virtually every American is affected by developments in the economy and in economic policy. But contemporary economic issues can be highly complex, and few nonspecialists have the time or the background to master these issues on their own. The public must therefore rely on the diligent reporting, clear thinking, and lucid writing of reporters determined to go beyond dueling bumper stickers and sound bites to help people understand what they need to make good decisions, both in their personal finances and at the polls. These are weighty responsibilities, and the journalists I know take them very seriously.

Today, I will provide a brief update on the economy and how I expect it to evolve in the near term. Then I will turn to the implications for monetary policy. Finally, I will briefly discuss the daunting fiscal challenges that we face as a nation.

The Economic Outlook
The economic recovery that began in the middle of 2009 appears to have strengthened in recent months, although, to date, growth has not been fast enough to bring about a significant improvement in the job market. The early phase of the recovery, in the second half of 2009 and in early 2010, was largely attributable to the stabilization of the financial system, the effects of expansionary monetary and fiscal policies, and a strong boost to production from businesses rebuilding their depleted inventories. But economic growth slowed significantly last spring as the impetus from inventory building and fiscal stimulus diminished and as Europe's debt problems roiled global financial markets.

"Devil's Bargain" by Bill Gross of PIMCO (February 2011 Investment Outlook)

"Devil’s Bargain
  • Money has become the economic and political wedge for profound changes in American society.
  • Perhaps the most deceptive policy tool to lessen debt loads is the “negative” or exceedingly low real interest rate that central banks impose on savers and debt holders.
  • Old-fashioned gilts and Treasury bonds may need to be “exorcised” from model portfolios and replaced with more attractive alternatives both from a risk and a reward standpoint."
Read full report at PIMCO.com

Live Streaming Tweets On #Egypt Anti-Government Protests

I embedded a Twitter search widget monitoring the hashtag #Egypt. They are the the top tweets scrolling live.

Wikileaks Founder Julian Assange on 60 Minutes, WikiRebels Documentary (Part 1)

Watch Julian Assange, founder of Wikileaks, on 60 Minutes after the jump. Find the transcript and extras at cbsnews.com. Assange hacked into the U.S. Military's internet for two years in the 1990s. Watch the WikiRebels documentary (part 1 via SVT/Swedish Television) after the 60 Minutes video.

Baltic Dry Index Down 60% On Excess Shipping Capacity (BDI, CCI and Shanghai Composite Comparison)

Since my previous post on BDI vs. Copper on 1/6/2011, the Baltic Dry Index has continued its descent toward the December 2008 low. Remember the good old days? In late 2008, when the credit freeze started to thaw, the BDI bottomed first, then commodities and then the stock market. I'm not sure if the same pattern holds true today. There are a bunch of moving parts that affect freight rates. The BDI is down 60% from the November 2010 peak, and it appears to be due to excess shipping capacity (tonnage) and potentially growth concerns out of China.

"“Even given the increased demand for iron-ore from China, there is far too much (ship) tonnage available,” said Simon Penn, a strategist at UBS." (WSJ/The Source)

"The increasing amount of ballasters appearing in the Atlantic trading region from Asia are not being met with many fresh minerals or grain orders, said one broker." (Lloyds List DCN)

"Maritime sector still in distress: 37% more capacity in two years, UAE tops the orderbook" (Emirates 24/7)

Dry Bulk 2011: Working Through the Glut (TheStreet.com)

Iron-ore port inventories, new vessels coming to sea, China inflation (tightening) and Australia shipment disruptions due to floods (and now Cyclone) could all be factors as well.

Oil Price Could Doom Obama (Guest Post)

Guest post by Llewellyn King for OilPrice.com

Oil Price Could Doom Obama

Like death and taxes, the price of oil is always with us. And like taxes, it may be President Barack Obama's worst nightmare at election time next year.

Among forecasters, there is a sharp division between those who see an inexorable rise in the price of oil and those who believe it will stabilize about where it is now.

The hawks see gasoline streaking ahead to $4-a-gallon this year and $5-a-gallon in 2012.

Others say demand will collapse and it won't go that high. The Energy Information Administration is very conservative in its forecasts and it gives very high prices only a 10-percent chance of coming about.

James Simons' Speech at MIT (Renaissance Technologies, Medallion Fund Founder)

James Simons, founder of Renaissance Technologies, gave a speech at MIT on 12/9/2010. He started the Renaissance Institutional Equities Fund (RIEF) and Medallion Fund that use proprietary trading algorithms. Renaissance is one of the most successful hedge funds. From Wikipedia: "Since 1989, the company's $5 billion Medallion Fund has averaged 35% annual returns, after fees." According to a document at Market Folly, the Medallion Fund made a 21%-98% annual return from 1993-2004 and made 80% in 2008 and 39% in 2009. Decent..

Tom DeMark On CNBC Predicting a Market Top, 11% Decline (1/26/2011)

Source: CNBC
On 1/26/2011 on CNBC, Tom DeMark, creator of the DeMark Indicators, said "we see at least an 11% decline from current market, if not more. Everything is aligning such that the market could experience a precipitous decline as early as tomorrow."

According to DeMark's chart of the S&P 500, there was a 13, or "major turning point", at the 2009 low and now when using the daily and weekly time series. The snapshot is of the "combo weekly".  Watch the video for more charts. According to Bloomberg, Steven A. Cohen (SAC Capital) and John Burbank (Passport Capital) are partners in Demark's firm, Market Studies. Watch the full interview after the jump.

Keep Eye On Crude Oil Futures If Unrest Spreads to Middle East (Dennis Gartman on CNBC)

CLH1 March 2011 Crude Oil Future
On CNBC's Fast Money last Friday, Dennis Gartman said Crude oil futures could rise if social unrest in Egypt spreads to the Middle East. He said to watch WTI specifically (West Texas Intermediate Crude Futures). Quotes of crude oil futures are at CMEGroup.com. Crude oil futures from March 2011 to February 2012 are in steep contango (89.93-98.67). Consumers and businesses globally (except oil producers) probably won't like oil above resistance right now (imho). Dennis said check out Canadian oil producers like Suncor ($SU). See the video and the April oil future after the jump (March is to your left)

Israel and Saudi Arabia CDS Spike On Friday, Keep Eye On Contagion Risk

via Bloomberg
According to CDS quotes on Bloomberg.com, Israel Government 5Y CDS (credit default swap) spiked 17% to 145 basis points ($145,000 to insure $10 million of debt against default) on Friday 1/28/2011. Keep an eye on the protests in Egypt for potential contagion risk, as well as oil prices.

I also see that Saudi Arabia 5Y CDS jumped 48% on Friday to 109.83 basis points (CMA Datavision) and Egypt CDS spiked as well (Zerohedge). You can't trade CDS on Scottrade but they are interesting to watch.

Watch Live Coverage Of Egypt Anti-Government Protests Online

Watch live coverage of anti-Government protests in Egypt at Al Jazeera (English) http://english.aljazeera.net/watch_now/.

If for some reason the live stream doesn't work watch it at LiveStation.com http://www.livestation.com/channels/3-al-jazeera-english-english.