Tuesday, April 12, 2011

Mark Mobius, George Soros on India's Economy, Equities, Copper (Videos)

MarkMobius (Twitter)
Mark Mobius, executive chairman of the Templeton Emerging Market Group, and George Soros, founder of Soros Fund Management, were featured on India's ET Now (The Economic Times) a few days ago. Watch the videos after the jump. As expected, Mr. Mobius said he is bullish on emerging markets and inflation hedges, and favors India's natural resources, copper, equities (which adjust to inflation), Indian small-cap stocks, information technology and banks. "The trend will continue to be up for commodities, in Dollar terms", he said.

When asked to give his big global prediction, Mr. Mobius said, "volatility will increase" and "the perception of emerging markets is changing to become more positive; it's becoming an important asset class for investors, and that's a sea change. Ten years ago it was considered to be a very risky arena." He made sure to mention that corrective mechanisms still exist (regarding Central Banks tightening).
George Soros via Wikimedia

George Soros mentioned how the developing world is doing exceptionally well compared to the developed world ("which is sinking"), and India is one of the beneficiaries. "India is actually unusual because its growth is mainly domestically generated, so it is less exposed to the global situation; less exposed but still exposed."

"(India) is not growing as fast as China, but perhaps it is not as exposed to overheating as China is; so India is relatively very well situated"

Monday, April 11, 2011

Put a Music Store In Your Basement (Borders Liquidation Pic)

I went inside a Borders being liquidated and look what I found.

Reads: Bill Gross, Chris Wood, Soros, Hussman, Dalio, SPX Valuation, USD, Canada, Real Estate, MCDX

High powered link fest for 4/11/2011

CLSA's Chris Wood on a U.S. sovereign debt crisis - Business Insider

Bill Gross Is Now Short US Debt, Hikes Cash To $73 Billion, An All Time Record - Zero Hedge

What Is Low Volume Telling Us? - Barron's

The Post-Crash: Wall Street Won - New York Magazine

JPMorgan Accused of Breaking Its Duty to Clients - New York Times at Yahoo Finance

Charles Plosser and the 50% Contraction in the Fed's Balance Sheet by John Hussman. Investors Intelligence Bull/Bear Sentiment, the Federal Reserve's balance sheet is leveraged 50/1, equities ("overvalued, overbought, overbullish, rising yields" syndrome"), bonds, silver and gold. - HussmanFunds.com

Is the Market Overvalued? (Yale's Robert Shiller vs. BofA Merrill Lynch strategist, David Bianco) - Wall Street Journal (h/t valuewalk)

Chart of MCDX 5Y (credit risk in muni bond market) tightened since January - Markit

US State and Local Government Finances: from Recession to Austerity (pdf) - BNP Paribas (h/t Dutch Book)

Signs point to a severe housing correction in Canada - The Globe and Mail. It looks at price/income, price/rents, etc. Would U.S. banks take a hit?

"So much for the ‘conservative’ Canadian consumer: Another look at Canada’s credit bubble" (mortgage debt/GDP, household debt/GDP) - Financial Insights (3/30/2011)

Side note, read: CMHC (Canada Mortgage and Housing Corporation) - Canada's Breaking Point - americaCanada (June 2009). Mortgage securitization in Canada (MBS) is insured by the CMHC (the Government).

Tata chief warns of India unrest over $39b Telecoms corruption scandal - Financial Times

Facing Default, Publisher Lee Enterprises Sells 'Junk' to Foil Distressed Investors - Wall Street Journal

Best Currency Forecasters See Dollar Weakness as QE2 End Looms - Bloomberg

U.S. Treasuries 'Ponzi scheme': ex-PBOC official - MarketWatch (h/t Zero Hedge)

China Inflation ‘Somewhat Out of Control,’ George Soros Says - Bloomberg (Bretton Woods Conference)

Sunday, April 10, 2011

Greece Named as Riskiest Sovereign Debt for the Second Quarter in Succession (CMA)

I thought you might be interested in CMA's Q1 report on sovereign debt credit risk (credit default swaps):

Sovereign CDS (CMA Datavision)
"Embargoed until 8am GMT Thursday 7th April 2011

Greece named as riskiest sovereign debt for the second quarter in succession

CMA today published its Sovereign Debt Credit Risk Report for the first quarter in 2011, click here to read.

No change at the top
The report found no change in the six riskiest sovereign debts, with Greece retaining its position as the world’s most risky for the second quarter in succession, with a 58% chance of a debt restructuring occurring within five years. Despite a rally in January, Greece widened to reach a high of 1100bp following downgrades by Moody’s in early March. Egypt and Lebanon have replaced Spain and Hungary in the top 10, with unrest in the Middle East making it a testing quarter for the region. Scandinavian countries again dominate the least risky sovereign debts. The Netherlands is a new entry at five, and Chile has ousted Australia from the top 10, a result of the lower market recovery assumption for emerging markets. The best performers of the quarter all came from Western Europe.

Sharp rises in the Middle East and North Africa flatten out
It was an eventful quarter for the Middle East and North Africa, with sharp rises in CDS prices occurring in Egypt, Tunisia, Saudi Arabia, Morocco, Bahrain and Israel at the end of January, triggered by the Egyptian people’s call for democratic elections. Except for Bahrain, the initial rise was followed by a relatively stable period in March, albeit at higher levels from the start of the quarter, perhaps signalling that markets believe that the unrest will not affect the economies in the longer term.

Japan shows resilience
Japan CDS showed remarkable resilience first to a downgrade by Standard and Poors to AA- at the end of January in the face of concerns over the $12trillion debt, and then to the devastating earthquake where the cost of protection initially jumped 40bp. Despite these events, the CDS ended only 27bp wider on the quarter at 99bp."

Thursday, April 7, 2011

Jeff Gundlach on High Yield Bonds, Ginnie Maes, Treasuries (CNBC, 3/9/2011)

Jeffrey Gundlach on CNBC
This video is old, but still relevant. Jeffrey Gundlach, CEO of DoubleLine Capital, which manages about $9 billion (check out DBLTX, the DoubleLine Total Return Bond Fund), gave his views on high yield bonds, Ginnie Mae securities and Treasuries on CNBC on 3/9/2011. He released a research report in January and was featured in Barron's ("The King of Bonds") in February. According to his website, Gundlach will appear on CNBC's Strategy Session on April 14. My next post will feature the deflation and muni bond segments.

Gundlach on high yield bond volatility, spreads to Treasuries and Ginnie Maes (not from an official transcript):
"The problem with high yield bonds is that their volatility is so high and they are priced for the reality of low defaults. For the last 12 months defaults on high yield bonds are under 1%; they were back in double digits just 2 years ago.."
"People compare high yield to Treasuries and they say Treasury bonds yield about 2%, and they use the whole basket of Treasuries; and then they say high yield to no losses, the way they quote it, yields about 6.75%. So it's a spread of almost 5 points; and they say, hey, that's historically average, so what's wrong with that? I point out that the volatility of high yield bonds is a lot more like the 20-year Treasury. It has a standard deviation persistently of 12. The Treasuries that they are comparing it to have a standard deviation persistently of 5. So you really can't compare high yield to the total basket of Treasuries, you need to compare it to the long Treasuries... The actual spread is only about 225 basis points, which is about as low as it's been in history"

Wednesday, April 6, 2011

Rep. Paul Ryan Plans $6.2 Trillion Spending Cut (Budget PDF, CNBC)

I embedded the House Budget Committee's Fiscal Year 2012 Budget Resolution, Rep. Paul Ryan's appearance on CNBC, and a 3-minute video showing a visualization of the House Republican's budget. The budget plans to cut "$6.2 trillion in government spending over the next decade compared to the President’s budget, and $5.8 trillion relative to the current-policy baseline." It targets Medicare, Medicaid, corporate welfare (Fannie Mae, Freddie Mac, energy and farm subsidies), the tax code and new health care law. I linked to articles, counterpoints and President Obama's Budget for Fiscal Year 2012 below. Thoughts?

Tuesday, April 5, 2011

Moody's Downgrades Portugal to Baa1, Bonds, EUR/USD Fall (Charts)

Portugal 10y Bond 8.76% (Bloomberg)
From Moody's Investors Service:

"London, 05 April 2011 -- Moody's Investors Service has today downgraded Portugal's long-term government bond ratings by one notch to Baa1 from A3 and placed the rating on review for possible downgrade. Concurrently, Moody's placed the government's (P)Prime-2 short-term debt rating on review for possible downgrade.

Moody's rating action was driven primarily by increased political, budgetary and economic uncertainty, which increase the risk that the government will be unable to achieve the ambitious deficit reduction targets set out in the update of its Stability and Growth Programme for 2011-2014 and put its finances on a sustainable trajectory."
(read full release at Moodys.com)

EUR/USD (freestockcharts.com)
Baa1 is three notches above junk (Ba1). As a result of the downgrade, yields on Portugal's 2-Year government bonds and 10-Year government bonds spiked to 8.971% and 8.766%, respectively (chart above). Greek government bonds still have higher yields.

EUR/USD is at 1.4164, down 0.41% since early Monday (1.4223, see chart). It was testing the 3 year downtrend. EUR/USD is also near the uptrend from early January, an important near-term support level.

Further reading:

Portugal Banks Threaten to Shun Sovereign Bonds: Report (Reuters)

Moody's cuts Portugal, says bailout needed urgently (Reuters)

Portugal Rating Cut to Baa1 From A3 by Moody’s on Bailout View (Bloomberg)

Portuguese Government Bonds Decline for 11th Day After Moody’s Cuts Rating (Bloomberg)

Portugal Hit With Downgrade (New York Times)

European Stocks Lower On Portugal Downgrade (Dow Jones Newswire)

Bernanke Speech on Clearinghouses, OTC Derivatives, Financial Reform (4/4/2011)

Fed Chairman Ben Bernanke ("The Bernank") gave a speech at the Federal Reserve Bank of Atlanta's Financial Markets Conference yesterday. It involved clearinghouses, OTC derivatives and financial reform. "Tonight I would like to discuss post-crisis reform as it relates to a prominent part of our financial market infrastructure--namely, clearinghouses for payments, securities, and derivatives transactions." In case you didn't already know, bank balance sheets leveraged with worthless subprime debt securities (built on fraud), OTC credit derivatives, "uncertain counterparty credit risk" (debt insurers) and failures made by credit rating agencies and bank regulators, all caused the financial system to collapse in 2008. Listen to John Paulson's interview with the FCIC for the full run down.

This is selected text; read the full speech at FederalReserve.gov
"Clearinghouses and Financial Reform
Broadly speaking, the recent financial reform legislation bears on the future structure and role of clearinghouses in two different ways. First, it aims to increase the resilience of these critical institutions against severe financial shocks, the issue that I have emphasized thus far. Second, it also encourages the greater development and use of clearinghouses to address weaknesses identified in other parts of the financial system. Of course, increased reliance on clearinghouses to address problems in other parts of the system increases further the need to ensure the safety of clearinghouses themselves. As Mark Twain's character Pudd'nhead Wilson once opined, if you put all your eggs in one basket, you better watch that basket.

The theme of expanded use of clearinghouses as a tool to address other problems in the system is perhaps best illustrated by the derivatives provisions of the Dodd-Frank Act. Prior to the crisis, some of the same economic forces that had led to the development of clearinghouses for other instruments were already pushing industry participants toward greater use of clearinghouses for OTC derivatives transactions. For example, as one response to the growth of the market for interest rate swaps in the early 1990s, a clearinghouse was created in London in 1999 that, by the onset of the financial crisis, was handling a major portion of interdealer activity in those swaps. Also, in the years leading up to the crisis, the Federal Reserve Bank of New York initiated joint efforts with other regulators and market participants to improve clearing arrangements for credit default swaps. However, for several reasons, the willingness of market participants to move all derivatives transactions to clearinghouses was limited. Notably, many believed that the standardization of derivatives contracts that is needed for multilateral clearing imposed too high a cost on end users with needs for customized arrangements. Market participants also were concerned that the establishment of clearinghouse guarantees might require implicit subsidies from clearinghouse members with stronger credit to those with weaker credit.

These calculations, however, were substantially changed by the galvanizing events of 2008, notably the development of large and uncertain counterparty credit risks in many bilateral derivatives agreements. On the heels of the crisis, the Group of Twenty countries endorsed a policy of mandatory central clearing for standardized OTC derivatives. The aim was to reduce systemic risk in the financial system more broadly as well as to improve the transparency of the OTC derivatives markets. In the United States, title 7 of the Dodd-Frank Act incorporated a mandatory clearing policy for standardized derivatives. Other major countries are following suit. In the spirit of keeping a close eye on the basket, as dependence on clearinghouses grows, private-sector participants and regulators will need to review risk-management and member-default procedures for financial market utilities to ensure that they meet high standards of safety."

Monday, April 4, 2011

Muni, Corporate Bond Index Yields, Spreads, Nikkei VIX, Hang Seng VIX (Links)

The St. Louis Fed added BofA/Merrill Lynch Corporate Bond Indexes (US Corporate Master and High Yield Master II) and Bond Buyer GO 20 Municipal Bond Indexes to its FRED databases:

Corporate bond effective yields (BofA/ML)
Corporate bond option-adjusted spreads (BofA/ML)
Corporate bond yields (Moody's) -already in the database
Municipal bond yields (Bond Buyer)

I found the NIKKEI Volatility Index on Bloomberg.com (VNKY.IND). I couldn't find it during the Japanese crisis. Here is a chart; look at the spike.

NIKKEI Volatility Index (Source: Bloomberg)

There is now a volatility index for the Hang Seng Index in Hong Kong using CBOE VIX methodology.

EUR/USD (1.42) Testing Long-Term Downtrend From July 2008 Again (Charts, Articles)

Technical Update: EUR/USD (1.4223) is testing its long-term downtrend again, which started in July 2008. The pair is currently above the 200-week moving average. The second chart is more short-term; you can see the trend line EUR/USD must hold to prevent a near-term breakdown. It is also testing the exhaustive high made on November 4, 2010 (1.4282). Read the articles below for more analysis.

EUR/USD (weekly log charts - courtesy FXStreet.com)




Analysis on the web:

*ECB Dual Strategy Will Cause Problems: Ulrich Leuchtmann, CommerzBank Head of Research (CNBC Video)

*ECB Rates and Federal Reserve Policy (ForexYard)

*Forex: EUR/USD failed at 3-year downtrend - Commerzbank (FXStreet.com)

*ECB set to raise interest rates for the first time - BHF Bank (FXStreet.com)

*EUR/USD ended higher despite fairly strong payrolls - KBC Market Research (FXStreet.com)

*Euro Declines Versus Dollar on Concern Rate Increases May Damage Periphery (Bloomberg)

*Trichet Seen Burying Ailing Nations With Rate Rise on Inflation (Bloomberg)

*EURUSD: A Double Top Taking Shape? - Ilya Spivak (Daily FX)

*Euro is Guaranteed Trend and Momentum with the ECB Rate Decision - John Kicklighter (Daily FX)

Greece Has Highest Default Probability, 5Y CDS Spread at 1028, 2-Year Bonds Yield 15.79% (Charts)

Greece 5Y CDS - Bloomberg.com
I haven't blogged about Greece in a while so here is a checkup on Greek CDS and government bond yields. According to CMA Datavision's Sovereign Risk Monitor, Greece has the highest default probability percentage at 57.42%, with a 1028 mid-spread (in basis points). You can check out Greece's CDS quote and chart (Greece CDS USD SR 5Y:CGGB1U5) at Bloomberg.com. It is testing resistance.

Greece 10Y Bond Yield - Bloomberg
Greece Government Bond Yields are also testing their highs. 10-Year GGBs yield 12.74%, 5-Year GGBs yield 14.36% and 2-Year GGBs yield 15.79%, as of April 1. According to FT.com, 10-Year Greek Government Bonds trade at a 9.58 spread to German Bunds and a 9.51 spread to 10-Year Treasuries. Is it time again for Eurozone volatility? What about the Euro. I'm watching the EUR/USD downtrend line on the 5-Year chart, as well as the short term uptrend line (see Daily FX link).

Greece in the News:

Sovereign CDS sector eyes day of reckoning (Financial News, 4/4/2011)

Germany Press: IMF Pushes For Restructuring Of Greece's Debt (Automated Trader, 4/3/2011)

EURUSD: A Double Top Taking Shape? (Daily FX, 4/3/2011)

Greek FinMin rules out debt restructuring (Reuters, 4/2/2011)

Papaconstantinou Says Still Chance for Bond Sales in 2011 (Bloomberg, 4/1/2011)

Portugal, Greece Downgraded by S&P on Restructuring Concerns (Bloomberg, 3/29/2011)

Sunday, April 3, 2011

George Soros Speech on Reflexivity at INET Conference (4/9/2010)

INETeconomics (Youtube)
On April 9, 2010, George Soros gave a speech (Anatomy of a Crisis: The Living History of the Last 30 years) at an Institute for New Economic Thinking (INET) conference at King's College in Cambridge, UK. He explained his theory of reflexivity and how it relates to economic behavior and financial markets. Below I provided quotes from the speech transcript. Watch the full video after the jump courtesy of INET.

Rational expectations and the Efficient Market Hypothesis failed:

"Anyhow, rational expectations theory was pretty conclusively falsified by the crash of 2008 which caught most participants and most regulators unawares. The crash of 2008 also falsified the Efficient Market Hypothesis because it was generated by internal developments within the financial markets, not by external shocks, as the hypothesis postulates.

The failure of these theories brings the entire edifice of economic theory into question. Can economic phenomena be predicted by universally valid laws? I contend that they can’t be, because the phenomena studied have a fundamentally different structure from natural phenomena."



Theory of Reflexivity:

"In human affairs thinking serves two functions: a cognitive one and a causal one. The two functions interfere with each other: the independent variable of one function is the dependent variable of the other. And when the two functions operate simultaneously, neither function has a truly independent variable. I call this interference reflexivity.

Watch 'Inside Job' by Charles Ferguson, Full Video (Must See!)

Inside Job, a documentary film directed by Charles Ferguson on the 2008 global financial meltdown, is now available to watch online for free. I embedded it below via archive.org (with embed code). Hat tip to Zero Hedge and Open Culture. I saw Inside Job when it was in theaters; it is a must see if you care about the economy and financial markets.

The DVD is available on Amazon. Charles Ferguson won an Oscar for Best Documentary Feature at the 2011 Academy Awards. Watch his acceptance speech here. He was also interviewed by Charlie Rose, Deal Book (Andrew Ross Sorkin), PBS (Tavis Smiley), INET (Institute for New Economic Thinking) and France24 (2010 Cannes Film Festival).*Update: The video was down the last time I checked. Perhaps it is still at archive.org in a different location. I still recommend you see the movie.

Friday, April 1, 2011

David Sokol Resigns From Berkshire (CNBC Interview, Buffett's Letter, Lubrizol Trades LZ)

David Sokol on CNBC 3/30/2011
David Sokol, former Chairman and CEO of NetJets, and Chairman of MidAmerican Energy and John Mansville, all owned by Berkshire Hathaway/BRK, resigned unexpectedly on March 28, 2011. His resignation letter came as a "total surprise" to Warren Buffett (read Buffett's response below). Many people thought Sokol would be Buffett's successor; but he told CNBC yesterday that resigning "has been on his mind for two-and-a-half years" in order to start a "mini-Berkshire".

This is where it gets interesting. In early January, Sokol bought 96,060 shares of Lubrizol (NYSE:LZ) for $104 per share (roughly $10 million), two months before Buffett bought the company for $9.7 billion or $135 per share! This has to be the takeout trade of the year so far.

Lubrizol/LZ - Stockcharts.com
During the CNBC interview (watch below), Sokol mentioned that he bought Lubrizol for his personal family account, as he thought it was an attractive undervalued investment. He recommended Lubrizol to Buffett as a potential opportunity for Berkshire and disclosed that he bought LZ shares. He didn't think Buffett was interested in the company, or would have acted as quickly.

Call options could have been betting on a deal. According to Livevol, LZ April call options traded 7 times normal volume on March 9. Was that Buffett levering up or someone in the know? I provided links below for more analysis on what happened. In any event, Sokol timed his $LZ investment pretty well (+30% non-annualized). Here are quotes from the CNBC transcript:

Wednesday, March 30, 2011

Jim Rogers on Japan, Buffett on Social, Shiller on Farmland, Bartels on S&P, FCIC Interviews

I find interesting blog posts and articles everyday on Twitter (@dvolatility) and Google. They are mainly analyst notes or views by hedge fund managers and economists. I thought I'd post the most informative links on this post. I linked to FCIC interviews (and transcripts) with Michael Burry, John Paulson, David Einhorn and William Black at the bottom.


NYSE - via CarmelBuds
Buy Japan Stocks: Jim Rogers - CNBC Video (3/30/2011)

Buffett Says Social-Networking Sites Overpriced Ahead of Public Offerings - Bloomberg

Foreclosure Backlog Hits 30 Months, Average Delinquency Period 537 Days (Option Arm Cliff Arrives) - Zero Hedge

‘Shadow Inventory’ of U.S. Homes Totals Nine-Month Supply (CoreLogic) - Bloomberg

David Rosenberg On QE3 ETA - Zero Hedge

Mary Bartels BofA: S&P 500 Could Drop 9.9% Before Resuming Rise (1,400 Target) - Bloomberg, VideoZero Hedge (chart)

Passport Capital's John Burbank Interview (resource scarcity, oil prices, Saudi Arabia) - Bloomberg Video

Chart: S&P Case-Shiller index on home prices in 20 key cities declines for seventh month in a row - St. Louis Fed

Video Interview with Seth Klarman in 2009 - ValueWalk

Consuelo Mack Interview with Niall Ferguson - ValueWalk

GARY SHILLING: And Now House Prices Will Drop Another 20% (charts) - Business Insider


Monday, March 28, 2011

President Obama's Speech On Libya (Video-Transcript, 3/28/2011)

Watch the video and read the full transcript after the jump via WhiteHouse.gov ("Remarks by the President in Address to the Nation on Libya", 3/28/2011). Disqus below.

After 40 years of Nuclear Passion, It Hurts - Guest Post

Written by Llewellyn King for OilPrice.com

After 40 years of Nuclear Passion, It Hurts

For 40 years I've written about nuclear power, defended it and believed, as I still do, that it offers the best signpost to a great future; to what Churchill called the "sunlit uplands"; in short, utopia.

I regard electricity as one of mankind's great achievements, saving people from the menial, painful drudgery that marks daily existence without it. Growing up in Africa, I'd see men and women walking miles, many miles, barefoot across the savanna, looking for a few pieces of wood to burn for cooking and hot water.

Electricity, I've believed for these four decades, is assured for thousands of years through nuclear. With advanced breeder reactors and with the energy stored in weapons plutonium, it comes close to perpetual motion: So much energy from so little fuel.

The alternative choice is to burn up the earth, fossil fuel by fossil fuel, until we are searching, like the people of the African savanna, for something that is left to burn.

Wind and solar are defined by their geography and limited by their scattered nature. Their place at the table is assured but not dominant. Industrial societies need large, centralized energy sources.

Yet a nuclear tragedy of almost immeasurable proportions is unfolding in Japan. The sum of all the fears about nuclear is being realized. Hades and Poseidon have joined to cut nuclear down.

Quotes From Fed Presidents on Ending QE2 (Excess Reserves, Monetary Base Charts)

Excess Reserves of Depository Institutions and
St. Louis Adjusted Monetary Base (St. Louis Fed)
Since all eyes are on the Federal Reserve to see if they will vote to end, or extend, quantitative easing (QE2/Treasury bond purchases), below are quotes from Fed Presidents last week. I threw up a chart showing excess reserves and the monetary base, as well as an excerpt from John Hussman's weekly market comment on QE2 (3/28/2011).

After reading what the five Fed Presidents had to say, it seems likely that the Federal Reserve will end its bond buying program after QE2. We shall see. Thoughts?

Philadelphia Federal Reserve Bank President Charles Plosser's speech on 3/25/2011 titled "Exit":

"If this forecast is broadly accurate, then monetary policy will have to reverse course in the not-too-distant future and begin to remove the massive amount of accommodation it has supplied to the economy. Failure to do so in a timely manner could have serious consequences for inflation and economic stability in the future. To avoid this outcome, the Fed must confront at least two challenges." (continue reading at philadelphiafed.org)

"I don't think that is necessarily imminent, but we have to be very careful we don't get behind the curve," Plosser said, as he warned of the relative fragility of the Fed's inflation fighting credibility among the broader public." (via Dow Jones Newswires after his speech)

Video of Tsunami Hitting Port of Kesennuma in Japan, Water Rising Towards Cameraman

This is very freaky... When the tsunami struck the Port of Kesennuma in Japan, the water kept rising towards a cameraman on a roof of a building. FYI: Visit "Resources related to the 2011 Japan Crisis" at Google Crisis Response for "latest information about this crisis, resources for those affected, and ways to contribute to relief efforts in Japan."
"Some 27,000 people are confirmed dead or missing, with more than 2,000 bodies recovered from the sea. About 240,000 are homeless, sheltered in about 1,900 evacuation centers spread mainly across the devastated northeast but also in cities like Tokyo." (Time.com)

Sunday, March 27, 2011

February New Home Sales at 250,000 Units, Makes All Time Low (Since 1963) - Charts

Source: St. Louis Fed - (Since 1963)
The new home sales figure for February was abysmal. It hit an all time low of 250,000 units. Take a look at the short and long term charts. From the U.S. Census Bureau (3/23/2011):
"NEW RESIDENTIAL SALES IN FEBRUARY 2011

Sales of new single-family houses in February 2011 were at a seasonally adjusted annual rate of 250,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 16.9 This is 16 9 percent (±19 1%) percent (±19.1%)** below the revised January rate of 301,000 below the revised January rate of 301 000 and is 28 0 percent (±14 8%) below the and is 28.0 percent (±14.8%) below the February 2010 estimate of 347,000.
10 year Chart - St. Louis Fed

The median sales price of new houses sold in February 2011 was $202,100; the average sales price was $246,000. The seasonally adjusted estimate of new houses for sale at the end of February was 186,000. This represents a supply of 8.9 months at the current sales rate."

What does this mean for public housing equities and ETFs (ITB, XHB), and the economic recovery in general? Further review:

Behind the Numbers: New Home Sales Keep Falling - WSJ

No more McMansions: Half of home sales under $200,000 - Christian Science Monitor

R.I.P., New Home Sales - Floyd Norris at New York Times

Home sellers pull out all the stops to attract wary buyers - USA Today/AP

WRAPUP 2-U.S. new home sales hit record low, outlook gloomy - Reuters

New-Home Sales Tumble To Record Low - Investors Business Daily

Saturday, March 26, 2011

Nevada Saves $8 Million a Year Using Private Medicare Insurance Exchange, Thoughts on Exchanges For Credit, Derivatives

Source: Pew Center on the States 2010
It is well known that U.S. States face a $1 trillion shortfall in funding long-term pensions and health care liabilities. The unfunded liability percentage is worse for retiree health care and other non-pension benefits. From Pew Center's "Trillion Dollar Gapreport:

"But pensions are just one side of the problem. Retiree health care and other non-pension benefits represent the other half of the challenge facing states: a $587 billion long-term liability, with just over five percent of that amount, or almost $32 billion, funded as of fiscal year 2008. Pew found that only two states have more than 50 percent of the assets needed to meet their liabilities for retiree medical or other non-pension benefits: Alaska and Arizona. Twenty-eight states have less than one percent of their liabilities funded, and twenty states have not set aside any funds." (source: pewcenteronthestates.org)

Aside from cutting services and benefits, or raising taxes and premiums, there is another way for states and municipalities to cut retiree health care costs (administrative and premiums) and retain benefits. Instead of overspending on group plans, States and munis can utilize a private medicare health insurance exchange, similar to Expedia for airline tickets and Lending Tree for loans, to let retirees purchase private medicare supplement insurance plans at competitive rates (Read: Extend Health prescribes new model - San Francisco Business Times).

Thursday, March 24, 2011

Victorville, California Has Net Asset Deficiencies, Liquidity Concerns - June 30, 2010 CAFR

General Fund Balance 2010 vs. 2009 (CAFR)
MUNI UPDATE: Victorville, CA released its Fiscal Year June 30, 2010 CAFR; here is a quote from the city's independent auditor, Mayer Hoffman McCann:
"The accompanying financial statements have been prepared assuming that the City will continue as a going concern. As discussed in Note 21 to the financial statements, the City has suffered recurring losses in its General Fund, the Southern California Logistics Airport Authority Enterprise Fund and the Municipal Utilities Enterprise Fund, and those funds have a lack of liquidity and net asset deficiencies that raise substantial doubt about the City's ability to continue as a going concern. Management's plans in regards to these matters are also described in Note 21. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the City be unable to continue as a going concern."

General Fund information:
"General Fund of the City of Victorville, (Continued)

The City’s general fund has incurred an excess of expenses over revenues and estimated fund deficit (unaudited) of approximately 4.5 million through January 31, 2011. Management has estimated an excess of expenses over revenues for the fiscal year ended June 30, 2011 for the City’s General Fund of approximately 5.3 million. Management is estimating general fund balance at June 30, 2011 of approximately $2.2 million.

Tuesday, March 22, 2011

Charles Nenner is Cautious on Economy, Sees Dow 5,000 in 2013, Likes Exxon (XOM)

Charles Nenner, founder of the Charles Nenner Research Center, was featured on Fox Business, CNBC and Yahoo Finance Tech Ticker earlier this month. Here are a few quotes. He shared his cyclical views on the economy, oil, ExxonMobil, copper, gold and Treasury yields. Find the videos after the jump.

"What our indicators show is that this bounce in the economy is going to be over in a couple of months. Which worries me because everybody now thinks that times are good, and we are not taking the measures we have to. And we'll get scared again in a couple of months when the economy is going to be weaker than expected." (Charles Nenner on Tech Ticker, 3/10/2011)

He still sees the Dow falling to 5,000 in 2013! The catalyst? War (and the sun spot cycle).

"I don't want to depress you, but I also do war and peace cycles and it shows that we're going to have a major war starting at the end of 2012 and 2013, and I think that is what's going to do it" (Charles Nenner on Fox Business, 3/9/2011)

Monday, March 21, 2011

Meredith Whitney Gives Update on Muni Defaults, Home Prices (3/21/2011, Link)

Maria Bartiromo interviewed Meredith Whitney at USA Today Online today (3/21/2011). She shared her views on the housing market and municipal defaults.

Carl Icahn Returning Funds to Limited Partners, Will Icahn Take IEP Private?

Icahn Enterprises L.P. (IEP)
On 3/8/2011, Carl Icahn decided to return all fee paying capital back to limited partners ($1.76 billion). In August 2007, two months before the market peaked, American Real Estate Partners, a public real estate and home fashion company majority owned by Icahn, acquired Carl Icahn's "interests in the management company and general partner of the Icahn Funds" for $810 million AREP depository units, and changed its name to Icahn Enterprises (IEP). At that time there was "$5.0 billion of third-party fee paying assets under management"! Currently Carl Icahn owns 92.6% of $IEP as of 12/31/2010 (via Yahoo Finance major holders). Icahn should take IEP private in the $20s, start a new $7 billion fee-based hedge fund, and go public again in a few years. Does IEP's investment in the Icahn Fund stay put?

His funds put up decent numbers in 2009 and 2010, 33.3% and 15.2% respectively (see below), but lost 37% in 2008. Here's a look at Icahn's bombs at Wall St. Cheat Sheet. Remember, he was "actively" trying to create value by restructuring boards and firing management. The macro environment trumped any kind of equity analysis and skilled activist investing, in my opinion. Since inception though (2004), Icahn Funds were up 106.9% (see below). Before I get to his investor letter, here are IEP's Q4 2010 results and valuation ratios.

"New York, NY – Icahn Enterprises L.P. (NYSE: IEP) reported revenues of $2,488 million for the three months ended December 31, 2010 as compared to $1,863 million for the three months ended December 31, 2009. Net income attributable to Icahn Enterprises was $82 million for the three months ended December 31, 2010, or $0.94 per LP unit, compared to a net loss of $1 million or $(0.09) per LP unit in the prior year period.


Sunday, March 20, 2011

Links: French-U.S.-UK Fire Missiles at Libya, Yemen-Syria Protests, Saudi-Bahrain-Iran Conflicts, Gaza-Israel

Geopolitical Headlines: Middle East/North Africa Edition - ending 3/19/2011 (curated by Dvolmeme). Warning: Intense link-fest.

Libya (now in war)

Gaddafi Threatens Attacks In Mediterranean - SkyNews
Fighter Jet Shot Down in Benghazi - Russia Today Video
Libya state television says 48 killed, 150 wounded in allied air strikes - @Reuters
French fighter jets fire the first shots at Gaddafi's forces (pics) - smh.com.au
British and French jets over Libya. US, UK ships fire 112 Tomahawks - DEBKAfile
Libya Hit by Coalition Missiles, Air Raids as Qaddafi Decries ‘Crusaders’ - Bloomberg
Libya: British forces launch missile attacks on Gaddafi - The Telegraph

Saudi Arabia / Yemen / Bahrain

Saturday, March 19, 2011

Cracks Open and Close, Gush Water In Tokyo Park From Earthquake, Japan Coast Guard Heads Into Tsunami Wave (Videos)

Two more must see videos I found. The first one is courtesy of AGU (American Geophysical Union) Blogosphere, which shows cracks opening and closing, and gushing water, in Tokyo's Central Park from the Sendai earthquake (h/t @pkedrosky). The second video is of the Japanese Coast Guard heading into the initial tsunami wave via Russia Today. If you haven't noticed, DistressedVolatility.com covers market, science, geopolitical and social volatility.

Friday, March 18, 2011

President Obama's Statement On Libya (Video/Transcript) - 3/18/2011

President Obama addressed the nation today on the situation in Libya. I embedded the full transcript and video after the jump (via WhiteHouse.gov). Today 30 protesters were killed and 200 wounded in Yemen, there were protests in Syria and Saudi Arabia sent forces into Bahrain. If there are wars in the region, oil prices would rise and markets would see increased volatility. I'll throw up a bunch of articles to read in my next post. Here's a quote from the transcript:
"Now, once more, Moammar Qaddafi has a choice. The resolution that passed lays out very clear conditions that must be met. The United States, the United Kingdom, France, and Arab states agree that a cease-fire must be implemented immediately. That means all attacks against civilians must stop. Qaddafi must stop his troops from advancing on Benghazi, pull them back from Ajdabiya, Misrata, and Zawiya, and establish water, electricity and gas supplies to all areas. Humanitarian assistance must be allowed to reach the people of Libya. Let me be clear, these terms are not negotiable. These terms are not subject to negotiation. If Qaddafi does not comply with the resolution, the international community will impose consequences, and the resolution will be enforced through military action."

G7 Intervention Statement, BoJ Injects ¥3 Trillion, USD/JPY Spikes Back Above 1995 Low

USD/JPY 1995-2011 (FxStreet.com)
USD/JPY (US Dollar/Japanese Yen) fell through a level not seen since 1995 yesterday as banks-traders-portfolios made risk adjustments, unwound carry trades or demanded liquidity (what else), due to the earthquake/tsunami aftermath and nuclear fears. On Monday, USDJPY initially pierced through a symmetrical triangle to the downside, but quickly recovered once the Bank of Japan pumped 15 trillion yen into money markets. Japanese equities also got killed. Post tsunami, the Nikkei 225 Stock Average fell 6% and then crashed 10.55% (14% at the low), and Nikkei 225 futures on the Osaka exchange lost 16.2% at the low. Maybe some fund managers got spooked, via Reuters:
"The monthly global fund managers' survey from Bank of America-Merrill Lynch, conducted before Friday's earthquake, showed allocations to Japanese equities rose to a net 8 percent overweight in the month compared with 4 percent in February."

Thursday, March 17, 2011

Federal Reserve FOMC Statement (3/15/2011), Still Easing

"Release Date: March 15, 2011

For immediate release

Information received since the Federal Open Market Committee met in January suggests that the economic recovery is on a firmer footing, and overall conditions in the labor market appear to be improving gradually. Household spending and business investment in equipment and software continue to expand. However, investment in nonresidential structures is still weak, and the housing sector continues to be depressed. Commodity prices have risen significantly since the summer, and concerns about global supplies of crude oil have contributed to a sharp run-up in oil prices in recent weeks. Nonetheless, longer-term inflation expectations have remained stable, and measures of underlying inflation have been subdued.

Raw Footage of Tsunami Hitting Kesennuma City, Aerial Video of Damaged Fukushima Daiichi Nuclear Plant

This is probably the closest a Japanese cameraman got to the tsunami. It was shot in Kesennuma City in Miyagi Prefecture (see street view on Google Maps h/t Telegraph). I added aerial video of the damaged Fukushima Daiichi nuclear plant that was just released.

Updates:
Japan nuclear situation reasonably stable: IAEA - Reuters
"The situation remains very serious but there has been no significant worsening since yesterday."
Fukushima Crisis Worsens as U.S. Warns of a Large Radiation Release - NY Times
Fukushima Daiichi nuclear plant workers' fight to stop meltdown - NYDailyNews
Japan Noodle Shop Owner Who Lost Home In Tsunami Offers Free Food - CNN.com
Food, gas scarce in Tokyo - CNN.com (rice, bread, instant noodles, canned foods)
Japan nuclear crisis could last for weeks, U.S. nuclear official says - LA Times
Blizzards Follow Earthquake, Tsunami - CNN.com (they lack kerosene, petrol)

Japan Market Watch: USD/JPY, Nikkei 225 Future Charts, JGB Links

Tokyo Stock Exchange
Tokyo Stock Exchange (Wikimedia/Stéfan)
With volatility running wild in the Japanese markets after the earthquake/tsunami hit, keep an eye on the Nikkei 225 Index Future (via Singapore Exchange), USD/JPY and JGB rates (Japanese Government Bonds). Most of the time money breaks news faster than the media (watch NHK World in English with #fukushima tweet stream). If you're worried about the fate of Japan and the radiation threat from Fukushima, monitor these charts as another source.

Being a contrarian on Japan's lost, deflationary decades, has to work out at some point. On Yahoo's Breakout yesterday, Marc Faber called Japan "a lifetime buying opportunity" once the correction ends (10-15% downside and 100-200% upside). It will be hard to time, but a good guide will be to watch the long term structure of the Nikkei chart. Did the recent black swan event bring the lifetime buying opportunity closer to (or further from) reality? For example, "Analysis: Japan heading back into recession" (Susumu Kato, Credit Agricole via Reuters h/t StockJockey). Or will another external event, China for example, affect Japanese equities and credits. See Hugh Hendry's CDS betsKyle Bass, hedge fund manager at Hayman Capital, also has interesting views on JGBs, the Yen and Japanese stocks. The charts below are courtesy of ForexPros and FuturesPros.com. Links to JGB rates point to Bloomberg.com.

Tuesday, March 15, 2011

Osaka Nikkei 225 Future Falls 16% at Low, Nuclear Fears Dominate Trading

Nikkei 225 Future (source)
Yesterday, the Nikkei 225 Stock Average hit a low of 8,227 (-14.5%) before closing at 8,605 (-10.55%). In the first few hours of trading, the Nikkei 225 June Future on the Osaka Futures Exchange fell 16.2% to 7,300 (from 9,310) before recovering. Nikkei 225 on the Singapore exchange fell even further I think. Circuit breakers were triggered on that trade, according to Reuters. Watch for capitulation when volatility peaks out. Where's the NKY VIX?

Nikkei 225 Index (Bloomberg)
This morning looks like a classic flight to quality with Treasury bonds and the U.S. Dollar green and the E-mini S&P future down 2.4%. Traders are trying to price in multiple black swan events (earthquakes, tsunamis, radiation fears, an economic slowdown in Japan, Middle East and North Africa unrest, municipal and sovereign debt crises etc.). Update: King of Bahrain declares state of emergency (Telegraph).

The charts looked sick before the earthquake and tsunami hit Japan (3/14/2011, 3/11/2011 tsunami hit and 3/10/2011 pre tsunami) and Tom DeMark was right. Catalysts are sometimes evil. Hopefully Japan enters its recovering phase very soon. For real-time updates on Japan, watch NHK World in English live on this blog post with #fukushima tweets streaming in a widget.

Articles to read:

Officials told residents living within 20km of Fukushima No. 1 nuclear power plant to leave due to increased radiation levels. Those living 20km-30km from the plant were told to stay indoors. This was a graphic I snapped from NHK World.


BOJ: Earthquake Will Likely Decline Production, Sentiment Might Deteriorate

The Bank of Japan released its Monthly Report of Recent Economic and Financial Developments for March (hat tip Seeking Alpha). I'll write about the Nikkei 225 crash next with some must see charts. The report seemed quite calm after what just happened to the country.
"Japan's economy is emerging from the current deceleration phase. Exports and production are showing signs of resuming their uptrend. Business fixed investment is picking up. The employment and income situation has remained severe, but the degree of severity has eased somewhat. Private consumption is showing signs of picking up. Housing investment has started to pick up. On the other hand, public investment is declining.

Japan's economy is expected to return to a moderate recovery path. However, the damage of the earthquake has been geographically widespread, and thus, for the time being, production is likely to decline and there is also concern that the sentiment of firms and households might deteriorate." (continue reading at Bank of Japan)

Speaking of monetary policy.
"The Bank of Japan added 8 trillion yen ($98 billion) to the banking system today in Tokyo. Governor Masaaki Shirakawa pledged yesterday at a news conference in Tokyo to keep pumping cash as needed after adding a record 15 trillion yen to the economy. The central bank yesterday also doubled its asset- purchase program to 10 trillion yen." (continue reading at Bloomberg)

Monday, March 14, 2011

E-Mini S&P Future -0.73% at 1,291.75 Pre-Open 3/14/2011 (Chart)

After the earthquake and tsunami destroyed Japan, the E-mini S&P June Future is down 0.73% at 1,291.75 pre-open on Monday. Read my posts linked below for more information on the charts. The market could test lower levels if it can't hold this shelf. It already took out the uptrend line. Also check out the MACD, Moving Average Convergence-Divergence (chart school). It measures momentum using moving averages. It could bust through the centerline. I also chart out futures at barchart.com and cmegroup.com.

Interesting news: Stifel cuts Toll Brothers to sell from hold (TOL) (MarketWatch).


E-mini S&P June Future - ESM11 9-months
(courtesy OptionsXpress)

E-mini S&P, Nikkei, Oil Down After Tsunami Hits Japan, ZB Tipped Off ES Earlier (Treasuries/S&P) - 3/11/2011

E-Mini Nasdaq 100 Future Broke Its 50 Day Moving Average (Charts) - 3/10/2011

Post Tsunami, Nikkei Falls 6% to 9,620, USD/JPY Moves on BoJ Injection (In Symmetrical Triangle)

USD/JPY (freestockcharts)
After an earthquake and tsunami destroyed parts of Japan on Friday and killed thousands of people, I think the markets still need to digest the situation and acknowledge new risks. Experts say there's a 70% chance a major aftershock could strike by Wednesday (WiredNews). Is there any possible way to hedge land masses against seismic wave volatility? The answer is in the Adams–Williamson equation somewhere.

The Fukushima nuclear power plant was damaged by the earthquake and reactors keep exploding (hydrogen), so there are fears the plant could meltdown or spread radiation. Lastly, there is the aftermath. You have infrastructure and houses destroyed, production halts (oil refining, power, steel production, Honda and Toyota) and a million people without water. Read this Reuters article.

Nikkei 225 (marketwatch)
So now Japan has to either tax or borrow from their citizens, or tap the "external" markets to foot the bill. However, Japan is already fiscally constrained or JGB investors could ask for higher rates. See videos featuring hedge fund managers Kyle Bass and Vitaliy Katsenelson for their views. This is why I want to see how everything reacts, including the Nikkei 225 Index (stocks), Japanese Yen and JGB rates (Japanese Government Bonds).

To stabilize the financial system, the Bank of Japan (BoJ) "pumped 15 trillion yen or $183 billion into money markets" and doubled asset purchases (read more at Bloomberg). Last night the Nikkei 225 Index closed at 9620, -6.18%, USD/JPY was volatile around BoJ statements (81.83) and JGBs saw safe haven buying. Click the charts for a larger view.

More News:
Japan quake feared to fuel S. Korean inflation (Yonhap News)
Moody's: Japan fiscal crisis not imminent (MarketWatch)
Quake impact on Japan non-life insurers seen limited: analysts (Reuters)
Analysis: Japan quake risks severe near-term economic damage (Reuters)
Japanese Quake Causing a Temporary `Panic' in Iron Ore Market, Trader Says (Bloomberg)
Sendai's homeless are fearful (SifyNews)
*Watch NHK World Live in English (#Fukushima Information #Japan) - (DistressedVolatility)

Sunday, March 13, 2011

Uzumaki Whirlpool From Japan Tsunami, Shinmoedake Volcano Erupts (Videos)

One more video, then back to regular scheduled financial programming. "Uzumaki whirlpool Japan tsunami" via TheHifromjapan on Youtube. Previous videos: Ground video of tsunami and helicopter footage from NHK World. There has to be a way to protect land masses from tsunamis and earthquakes. Here is a good survivor story: Japanese man found floating out to sea on his house - CTV News). Donate at Red Cross. UPDATE: The Shinmoedake volcano erupted in southwestern Japan. I found video. WTF is going on?

Watch This Tsunami Video (Iwaki City, Japan - 3/11/2011)

Watch ground video of the tsunami that hit Japan. The Earth is going insane. I'm using Twitter (#Japan hashtag search) to monitor live news feeds and conversations on Japan. Also see before and after photos at ABC News (Japan Earthquake: before and after). Devastating.