Bill Gates' TED 2011 Speech: State Accounting Tricks, Healthcare and Education Spending

Bill Gates gave an interesting speech at the 2011 TED conference on state budgets, healthcare and education spending trends. He mentioned that states use government accounting tricks to balance their budgets (pension accounting) that would make Enron blush. Wow. Watch the video after the jump. I added two slides on healthcare trends from his presentation.

Bob Prechter is Bearish on Stocks, Silver and Oil, Likes Dollar (2/25/2011)

Robert Prechter, president of Elliott Wave International, was featured on Tech Ticker on 2/25/2011. The last time I featured Prechter was on 8/12/2010, when he was bearish on stocks and bullish on the US Dollar. Since then, the market rallied hard during QE2 and the $USD declined, but he still hasn't changed his views. In fact, Prechter noted that investor optimism in stocks is at an extreme not seen since 2007, when the stock market peaked. Prechter is confident that the S&P 500 is in a cyclical bull market within a structural bear market. Watch the video after the jump with links to 2 and 3.

  • "AAII (American Associate of Individual Investors) 10 week average of the % of bulls - % of bears is above where it was at the peak in 2007 for the stock market" 
  • "Advisors (Investors Intelligence) on a 10-week moving average are also higher than they were in 2007, meaning they are more optimistic or have been over the past 10-weeks"
  • "Futures traders hit 93% (98% bearish 2 years ago at the bottom)"
  • "I think we are nowhere near the end to the bear market." (he said the stock market could make a new low)
  • "Oil has hit not only 97% bulls (daily sentiment index) but the last time it hit that number was the first week of July 2008 just before it crashed 78%. It has also retraced 62% of its crash decline since 2008, and it's on news...."

Eric Sprott: Between ETFs, You and Us, There's No Silver Left (PSLV, SLV)

Eric Sprott, CEO of Sprott Asset Management, gave a presentation on gold and silver at the Fall 2010 Casey Research Gold & Resource Summit. The video shows slides as well. Sprott's firm started an exchange traded physical silver trust (ticker symbol: PSLV) and a physical gold trust (PHYS). It appears that market participants have cornered the silver market.

Sprott Phsyical Silver Trust ETF
($PSLV Stockcharts.com)
"One of the statistics that I fully agree with is the availability of gold versus silver. I use the number $6 trillion as the amount of gold that's available in the world. And the amount of silver that's available in the world is about $22 billion. A billion ounces of silver at $22, of which the ETFs already own half, and between you guys and us, we probably own the other half. Which means there's nothing left".

After the jump watch the full video courtesy of Casey Research and see a chart of 24 Hour Silver Spot and London PM Fix 1985-Present via Kitco.

Larry Fink is a Big Buyer of the U.S. Dollar, Market At Reflection Point

Larry Fink, CEO of BlackRock, the largest money manager in the world with $3.56 trillion under management, said he was a "very big buyer of the U.S. Dollar here" on Bloomberg TV. He mentioned that banks in Europe are still undercapitalized and the PIIGS (Greece, Ireland etc) still have sovereign debt issues.

The most interesting part of the interview, first noted by Washington's Blog, was Fink's comment that markets prefer totalitarian governments "where you have an understanding of what's out there", rather than democracies (democratizations of countries) which can be "dirty and messy". He thinks what we're seeing in North Africa is a "negative uncertainty" that could bring volatility to the market, and the jump in oil was pricing this in. Watch the BloombergTV video with Erik Schatz after the jump.

Libya Unrest, Saudis Protest Arrest of Sheikh Tawfiq Al-Amer (Videos, Tweet Reaction)

I'm reading that Sheikh Tawfiq Al-Amer was calling for a constitutional monarchy in Saudi Arabia and got arrested. That's why people are protesting. According to PressTV, it was organized on Facebook. There is also a protest planned for March 11. Today there was violence in Libya, as rebels clashed with Gaddafi's forces in Zawiyah (outside of Tripoli).

Keep an eye on the Middle East, Libya, Egypt and oil prices. If serious geopolitical volatility spikes, gold and possibly the U.S. Dollar could see a safe haven rush (imo). Right now oil is up 2.54% at $104.50, gold is up 0.92% at $1,429 and the S&P 500 is down 1.34% at $1,313. GLD and GDX calls are active relative to puts at the ISE. See videos of the peaceful protests in Saudi Arabia after the jump via Zero Hedge. Below the videos I embedded live reactions from twitter on #libya and #saudiarabia in streaming search widgets. I recommend you follow @SultanAlQassemi, @AlArabiya_Eng, @AJEnglish and @AbdulHamidAhmad (GulfNews) on twitter for news.

Sheikh Tawfiq Al-Amer Jailed again (Rasid News Network)

Anti-govt. protests held in Saudi Arabia (PressTV.ir)

Related post from yesterday (Saudi Arabia's Tadawul Stock Index Down 20% In 2 Weeks Charts)

The royal house is rattled too (Economist)

*UPDATE: "Saudi Arabia is drafting in up to 10,000 security forces to the north eastern Muslim Shia provinces ahead of mass protests planned next week." (Telegraph.co.uk)

Libya News

"@REUTERSFLASH:‎ At least 30 civilians killed by pro-Gaddafi forces after attack on Zawiyah - Residents"

Fighting rages in Libya's east, 30 civilians killed (Al-Jazeera)

Challenges for State and Local Governments (Ben Bernanke, 3/2/2011)

"Chairman Ben S. Bernanke
At the 2011 Annual Awards Dinner of the Citizens Budget Commission, New York, New York
March 2, 2011

Challenges for State and Local Governments

I am pleased to have the opportunity to speak to a group that has such a long and distinguished record in identifying and addressing crucial issues affecting the governments of the city and state of New York. I will focus this evening on a top challenge not only for New York, but also for states and localities across the nation--namely, the imperative of achieving fiscal sustainability in both the short and the long term. I will first discuss the fiscal pressures currently confronting states and localities, then turn to longer-term challenges and opportunities faced by these jurisdictions.

Recent State and Local Fiscal Developments
As you know well, the deep recession of 2008 through 2009 and the subsequent slow recovery have battered state and local budgets. As the recession took hold, revenues dropped precipitously, especially at the state level. Driven partly by balanced-budget requirements under their constitutions, many governments have responded by cutting numerous programs and reducing workforces. As necessary as these cuts may have been, they have left some jurisdictions struggling to maintain essential services. The fiscal problems of state and local governments have also had national implications, as their spending cuts and tax increases have been a headwind on the economic recovery. Moreover, concerns about both the current fiscal condition of these governments and their longer-term commitments to provide pensions and health benefits have recently led to strains in municipal bond markets.

Lynn Tilton To Save U.S. Manufacturing Base (Diva of Distressed Reality Show)

Lynn Tilton, who runs the $7 billion private equity firm Patriarch Partners, has a reality show out called "The Diva of Distressed". The 9-minute video below (via New York Magazine) is filmed at Old Town Fuel & Fiber, one of her portfolio companies. The mill is trying to produce bio-butanol from wood pulp.
"Lynn will star and go around the country looking for businesses on the brink to work with endangered entrepreneurs in an attempt to get them back on track. The most deserving business owners could score an equity investment from Patriarch or a much needed loan." (FishBowlNY)

Saudi Arabia's Tadawul Stock Index Down 20% In 2 Weeks (CDS, SASEIDX Charts)

Saudi Arabia's Tadawul All Share Index lost 20% since February 12, 2011. The thought of contagion risk from the uprisings in Tunisia, Egypt and Libya, as well as protests in Bahrain, Yemen and Oman, probably spooked investors holding Saudi Arabian stocks (FT: Political unrest sparks ‘panic selling’). There are also protest fears. "Activists have set up Facebook pages calling for protests in Saudi Arabia on March 11 and 20." (Reuters). Recently King Abdullah promised his country a $36 benefit package to "address inflation and housing, expand social security benefits, and ease unemployment and education costs" (CSMonitor). I embedded a Twitter search widget with the #SaudiArabia hashtag below just in case anything happens. A disruption to Saudi oil supplies would spike oil prices.

Saudi Arabia's 5Y Credit Default Swap spread closed up 1.65% at 140 basis points, according to CMA Datavision.  Credit default swap spreads measure the cost to insure underlying debt from default (a credit rating that trades). On January 30, Saudi Arabia CDS was at 109.83 basis points, so it's up 27% in a month. Check out the charts below of the Tadawul All Share Index. It closed at 5323.27.

Reads: Ned Davis On Stocks, Hugh Hendry's Credit Bet, David Rosenberg on Oil, Yields, Deflation

Belated linkfest for February 2011
    • On CNN, billionaire George Soros took shots at Obama's economic agenda and said municipalities could default. Also, when the Fed stops pushing money into the economy (QE2), interest rates will go up which will choke off the economic recovery;
    • Market Crash 2011: It will hit by Christmas by Paul Farrell at MarketWatch.com featuring Ned Davis and Jeremy Grantham;
    • Congressional Oversight Panel Hearing on Commercial Real Estate's Impact on Bank Stability (2/4/2011)Panel #1: Sandra Thompson (FDIC), Patrick Parkinson (Board of Governors of the Fed), David Wilson (Office of the Comptroller of the Currency). Panel #2: Matthew Anderson (Foresight Analytics/Trepp), Richard Parkus (Morgan Stanely Research) and Jamie Woodwell (Mortgage Bankers Association in CRE Research). Link: cop.senate.gov;
    • Hugh Hendry's recent report (Eclectica Management): Profiting From Contrarian Opinion: Just How Investment Grade Are Japan's Credits - Read at Business Insider;
    • David Rosenberg: Forget Oil And Inflation, The Real Story Is In The Bond Market (read the article at Business Insider). Read the "Breakfast With Dave" report at FMX Connect;
    • Jim Grant sees interest rate risk for municipal bonds (likes mortgage REITs, Annaly Capital) - BloombergTV (from early February).

    High Yield CDX Spreads Widened (CDX.NA.HY.8, CDX.NA.HY.9)

    High yield credit default swap spreads widened yesterday. CDX.NA.HY.Series 8 and Series 9 were the most active on CMA's website. I'm not a CDS trader, but the curve is steep and could be flattening or default risk is being repriced on high yield credits (more info from @credittrader 1, 2).

    From CMA Datavision's "Largest Widening Spreads" list on 3/1/2011

    5-Year Mid CDX.NA.HY.Series 8: 117.02 basis points, +21.24 bps, +22.17%
    5-Year Mid CDX.NA.HY.Series 9: 147.22 basis points, +12.00bps, +8.88%


    On Markit.com they provide information everyday on the most recent series or "roll", which is currently CDX.NA.HY.Series 15.

    3Y CDX.NA.HY: 276bps
    5Y CDX.NA.HY: 407bps
    7Y CDX.NA.HY: 440bps
    10Y CDX.NA.HY: 427bps


    To your left is a chart of 5Y CDX.NA.HY.Series 15. The red line is the index spread which rises when credit conditions deteriorate, or when curve and basis trades are being played.

    CDS indices would be interesting to analyze if I could watch them trade on an exchange and chart out free data. On 9/19/2008, three days after Lehman went bankrupt, I charted out the investment grade credit default swap index future (CX: CBOT CDR Liquid 50 NAIG Index, post ). Unfortunately it never took off because it would've made the CDS market more transparent. It looks like banks are rolling out electronic platforms to trade CDS (Barclays, UBS, Credit Suisse), so we'll see what happens. The CBOE is coming out with Credit Event Binary Options (CEBOs) or credit options, which is a pure play on bankruptcy. See their website: http://www.cboe.com/micro/credit/introduction.aspx. The future looks bright for real-time credit ratings.

    Bullish Moves In VIX Options Today (3/1/2011)

    Courtesy StockCharts.com
    The VIX (Volatility Index) closed up 14.5% today at 21.01. The volatility index measures the implied volatility percentage of S&P 500 options (option price changes). VIX spot is still relatively low compared to the SPX lows in May 2010, but watch oil against the S&P going forward or economic catalysts. According to Bloomberg yesterday, Barclays raised its S&P target to 1,450 and EPS estimate to $93 (Bloomberg). Here's a quote from Barclays' Barry Knapp from the article:

    “The market is currently struggling to quantify a new exogenous risk, the political instability in the Middle East and a related oil shock,” Knapp wrote. “However, given the experience of the last decade, our current thinking is that the shock will not be large enough to derail the recovery.”

    Could a new "exogenous" risk for the economic recovery be more sellers than buyers? Below is Chris McKhann of OptionMonster going over today's action in the VIX futures options.

    The Extraordinary Events in the Middle East and the Coming Global Tsunami - Guest Post

    Guest post by John C.K. Daly for Global Intelligence Report

    The Extraordinary Events in the Middle East and the Coming Global Tsunami

    The extraordinary events in Tunisia, Egypt and Libya are the initial high tides of an eventual tsunami that will impact the world that globalists have so fervently promoted for decades, in ways not necessarily to their liking. The first wave has struck and is now retreating from the shore, but will shortly return with redoubled force, and what and who will be swept away and what will be left standing is anyone's guess.

    Per usual, America's intelligence agencies on which $60 billion a year is lavished, or $200 for every man, woman and child in the U.S., have given zero benefit to the American citizenry in anticipating events in the North African Magreb, as the CIA along with America's 15 other federal intelligence agencies were completely blindsided by events, if public information is to be believed. If any comfort can be had in this, it is the fact that America's favorite bĂȘte noire, al Qaida, much less other Islamic fundamentalists such as the Islamic Brotherhood in Egypt, were apparently caught flatfooted as well.

    As "Beltwayistan" frantically tries to conceptualize events in North Africa now threatening the larger Muslim world, Washington's pundit class has tried a number of insta-definitions to explain events.

    SEC Charges Former Goldman Sachs Board Member Rajat Gupta With Insider Trading

    Source: Wikimedia
    Wow, this Rajat Gupta guy is (or was) no joke. Read more about him on Wikipedia. From the SEC press release (SEC Order PDF after the jump):

    "Board Member of Goldman Sachs and Procter & Gamble Charged in Insider Trading Scheme

    FOR IMMEDIATE RELEASE
    2011-53

    Washington, D.C., March 1, 2011 – The Securities and Exchange Commission today announced insider trading charges against a Westport, Conn.-based business consultant who has served on the boards of directors at Goldman Sachs and Procter & Gamble for illegally tipping Galleon Management founder and hedge fund manager Raj Rajaratnam with inside information about the quarterly earnings at both firms as well as an impending $5 billion investment by Berkshire Hathaway in Goldman.

    The SEC’s Division of Enforcement alleges that Rajat K. Gupta, a friend and business associate of Rajaratnam, provided him with confidential information learned during board calls and in other aspects of his duties on the Goldman and P&G boards. Rajaratnam used the inside information to trade on behalf of some of Galleon’s hedge funds, or shared the information with others at his firm who then traded on it ahead of public announcements by the firms. The insider trading by Rajaratnam and others generated more than $18 million in illicit profits and loss avoidance. Gupta was at the time a direct or indirect investor in at least some of these Galleon hedge funds, and had other potentially lucrative business interests with Rajaratnam.