Monday, May 9, 2011

Updates: Gold, Silver, S&P, Treasuries, Munis, Greece, Housing, Fed (5/4/2011-5/9/2011)

Links to articles and videos on gold, silver, equities, munis, Treasuries, housing, Greece, EU rates and Fed governors.

Interview with Jim Rogers: Why Gold Can Go Higher ( 5/9/2011

Deutsche Bank To Invest $1 Billion In Oil And Gold For John Paulson (ClusterStock) 5/9/2011

Kass: Sell the Rallies ( 5/9/2011

Treasury Volatility Approaching Four-Year Low as Bonds Rally at End of QE2 (Bloomberg) 5/9/2011

Moody's Mulls Greece Downgrade On Debt, Recovery Concerns (WSJ) 5/9/2011

S&P cuts Greek credit rating to B (Financial Times) 5/9/2011 -EUR/USD is selling off; currently at 1.43581.

EU eyes lower rates for Greece, Ireland amid chaos (Reuters, CNBC Video)

Morgan Stanley Follows Goldman, Downgrades Economy (Zero Hedge) 5/8/2011

BOJ Warns Monetization May Lead To Severe Inflation, Rise In Long-Term Interest Rates; Yet Will Buy ¥350 Billion In Bonds (Zero Hedge) 5/8/2011

*Goldman Sachs Chief Equity Strategist David Kostin kept his 1,500 target on the S&P despite a H2 2011 GDP downgrade by GS economists (click the links to read more at Zero Hedge)

Saturday, May 7, 2011

JPMorgan's Thomas Lee Raises 2011 S&P Target to 1,475 (Bloomberg)

Source: BloombergTV
JPMorgan's Chief U.S. Equity Strategist, Thomas Lee, raised his year-end (2011) target on the S&P to $1,475 from 1,425, and his 2012 EPS estimate to $105 from $102 (14.04 multiple = 1,475). During his interview on Bloomberg TV on May 2, 2011 (see below), Lee said to watch stocks relative to "tail assets" (ex. gold and oil) to prove that the move is real. He believes the death of Osama Bin Laden will help this correlation, since gold and oil are used as terrorism insurance (terror premium in the price).

"We should see relative performance of stocks versus what we call tail assets. In other words, if stocks begin to outperform gold; stocks versus oil; we know investors are starting to believe this."

On Treasury yields moving lower (10-year went from 3.77% to almost 3.25%).

"It just shows you the Treasury market is a lot more than just about QE, *because I think everyone was thinking Treasuries (yields?) would back up because of QE (*double check this). But, you know what? Maybe a lot of it is discounted. It is really hard to tell what the 10-year is telling us. I would just tell you, I'm worried if the 10-year is at 4.5 to 5.0%; that would really destroy the case for stocks."

Mr. Lee believes we are in a structural bull market. I thought we were in a cyclical bull market?

SPX 1475 2011 Target, 1,250 Low (FreeStockCharts)
"It's been a very tough market. Remember people have been kind of bearish on this; they've been wanting to sell every rally here and it's been hard to embrace this as a secular bull market" (does this mean the Dow won't hit Charles Nenner's target of 5,000 in 2013?)

A few weeks ago Lee said the S&P will not breach the 1,250 low this year. I embedded that video as well. If you look at the chart to your left, 1,475 looks possible if the S&P were to rise to the vertex point of the 2-year wedge. By the way, ever since the market bottomed in March 2009, Tom Lee's S&P targets have been spot on.

JP Morgan's Tom Lee: S&P Target 1,300, 14.5x 2011 $90 Earnings By Year End - June 15, 2010

JP Morgan's Thomas Lee on 2010: S&P Will Hit 1300, Cyclicals.. - December 16, 2009

JP Morgan's Lee Sees Recovery, S&P Target 1,100" - June 17, 2009

Friday, May 6, 2011

Jim Chanos: China's Economic Growth Path Is Unsustainable (CNBC)

Jim Chanos (Source: CNBC)
Famed short seller Jim Chanos, who runs the $6.7 billion hedge fund Kynikos Associates (went short Enron before it collapsed), was on CNBC yesterday. If you're a hyper-bull on China and "resource economies" (Brazil, Australia and Canada etc), you might want to take his view into consideration. Watch the video after the jump.

"Well, we have what we think is an unsustainable growth path for china. They are growing on the back of investment, and specifically real estate construction. So the consumer as a percent of China's economy is actually dropping, Maria. Net exports, are also dropping interestingly enough. All of the slack and then some is picked up by construction. Particularly and most concerning, high-rise construction of offices and condos in the tier one, tier two and tier three cities. Fixed asset investment including land, according to the Chinese, is now 70% of their economy. And to put that in perspective, the asian tigers in the mid-90s, that grew so fast and then blew up, had a number about half that. About 30% to 35%. So China has embarked on something almost unprecedented here."

Related blog post (4/25/2011): "China Has 64 Million Vacant Apartments, Shanghai Property Index Near Inflection Point (000006.SS Charts), Andy Xie On Inflation"

Thursday, May 5, 2011

SEC Charges UBS With Bid-Rigging 100 Muni Bond Reinvestment Transactions, Pays $160 Million

Source:, UBS transactions pdf
Another investment bank gets charged with f'ng over municipalities! UBS is paying $160 million to settle bid-rigging charges that affected "at least 100 municipal bond reinvestment transactions in 36 states". Last year Bank of America paid federal and state authorities $137 million to settle bid rigging charges. Here is the SEC complaint v. UBS.

Source: (hat tip DealBreaker).

SEC Charges UBS with Fraudulent Bidding Practices Involving Investment of Municipal Bond Proceeds


UBS to Pay $160 Million to Settle Charges

Washington, D.C., May 4, 2011 — The Securities and Exchange Commission today charged UBS Financial Services Inc. (UBS) with fraudulently rigging at least 100 municipal bond reinvestment transactions in 36 states and generating millions of dollars in ill-gotten gains.

To settle the SEC’s charges, UBS has agreed to pay $47.2 million that will be returned to the affected municipalities. UBS and its affiliates also agreed to pay $113 million to settle parallel cases brought by other federal and state authorities.

When investors purchase municipal securities, the municipalities generally temporarily invest the proceeds of the sales in reinvestment products before the money is used for the intended purposes. Under relevant IRS regulations, the proceeds of tax-exempt municipal securities must generally be invested at fair market value. The most common way of establishing fair market value is through a competitive bidding process in which bidding agents search for the appropriate investment vehicle for a municipality.

The SEC alleges that during the 2000 to 2004 time period, UBS’s fraudulent practices and misrepresentations undermined the competitive bidding process and affected the prices that municipalities paid for the reinvestment products being bid on by the provider of the products. Its fraudulent conduct at the time also jeopardized the tax-exempt status of billions of dollars in municipal securities because the supposed competitive bidding process that establishes the fair market value of the investment was corrupted. The business unit involved in the misconduct closed in 2008 and its employees are no longer with the company.

Wednesday, May 4, 2011

How Social Media Is Changing Investing (Milken Institute Panel)

I'm about to watch this right now. Social media is definitely changing the investment and trading game. This panel features @JonNajarian (OptionMonster) and @SellPuts (MerlinOne Trading Partners) who I follow daily on Twitter. It also features Scott Burns of Morningstar, Tom Lydon of ETF Trends and Chris Albinso of Panorama Capital. No rep from StockTwits? I've been on Twitter for over two years now and the wealth of actionable information is unbelievable. You have to filter through it though. Engaging in conversations and monitoring live streaming conversations on Twitter can both improve your analysis and gauge sentiment very well.

Tuesday, May 3, 2011

Conversation Between George Soros and Paul Volcker at Bretton Woods Conference (INET Video, 4/10/2011)

George Soros, Chairman of Soros Fund Management, and Paul Volcker, former Chairman of the Federal Reserve, had a conversation at INET's 2011 Bretton Woods Conference on April 10, 2011. Below I embedded the full video courtesy of the Institute for New Economic Thinking ( Soros did a speech on his theory of reflexivity at an INET conference last year in the UK.

Doug Kass Is Short SPDRs With Call Options As Hedge (CNBC 4/28/2011), SPY Chart Inflection Point

Doug Kass was on CNBC's Fast Money last week (4/28/2011) and said he was shorting SPDRs ($SPY) with out-of-the-money call options as a hedge. Is that what the out-of-the-money XLI June $40 calls were doing last week? Or was the action betting on a test of the 2007 high ($42) before June expiration (6/17/2011). 200,000 contracts were opened in two days. XLI is the industrials ETF.

With the recent rapid sell off in the U.S. Dollar, Kass mentioned that a currency problem was "one of the forces behind the 1987 crash". He believes high gas prices and depreciating home values are not helping the consumer.

If I remember correctly, Doug Kass was on Kudlow in late 2006 and early 2007 warning about a recession coming due to housing. I found a Kudlow and Company clip from 11/27/2006 featuring Doug Kass and embedded it below. He was in the same camp as Gary Shilling (see pt. 1) during that time period, and Shilling is also bearish today! Read: Gary Shilling – Five Things that can Derail the Recovery (Advisor Perspectives h/t PragCap). Are we repeating 2007?

SLV Puts Rally On Volatility; Testing Trend Line, 20DMA (SLV, VXSLV Charts)

Silver continued its sell off on Monday and $SLV puts were loving the volatility. On April 25, 2011, a SLV October $41-$33 put spread caught my eye that traded 10,000 contracts on each strike. I'm not sure if it was a backspread or vertical debit spread, but a debit spread made sense as a six month hedge or trade imo.

From the snapshot of the option chain: 10,000 October $41 puts last traded at $3.00 and 10,000 October $33 puts last traded at $1.05. If it was a debit spread, the trader paid $1.95 to put on the trade. With decent timing, SLV volatility spiked on a sell off and the SLV Oct $41 put closed at $4.45 today. Not bad! SLV closed at $42.83. On another note, remember 100,000 July $25 puts traded a few weeks ago? Interesting trade.

The ETF is testing an important trend line and the 20 day moving average. If you look at the weekly chart there is a 2-year ascending channel that could catch SLV if it breaks down. Spot silver is currently trading at $44.83. See a live 24 hour chart of silver spot here. Check out SLV and VXSLV charts after the jump.

Monday, May 2, 2011

Silver Comex Futures Getting Knocked Down Again (5/2/2011)

Here we go again with silver. The Silver Comex July Future (SIN11) fell 12% at the low (48.19 to 42.20)! It is now down 8%. Remember spot silver lost 9% on April 25 after all of those puts traded? Clearly silver volatility was ready to erupt. I've been watching the silver ETF ($SLV) and will provide an update tomorrow. Below are charts of Spot Silver in $USD (intraday) and the Silver July 2011 Future (4 months and 1-year chart).

Overnight, the silver future pierced through its 20-day moving average and uptrend line from January, but was able to rally back above those levels. It is now testing 4/26-4/27 resistance. That was a bloody candle. Keep an eye on that trend line. As stated in my previous post, protecting against downside volatility made sense when looking at the chart. I provided links to articles on silver after the charts.

Sunday, May 1, 2011

Osama Bin Laden Is Dead, Obama Addresses The Nation (Video/Text)

5/1/2011: President Obama is making a statement tonight at 10:30 eastern time. Osama Bin Laden has been killed and his body is in U.S. custody (President Obama). Read or watch Obama's statement after the jump via

Seth Meyers, Obama White House Correspondents' Dinner Videos, And Obama's Birth Certificate

Watch Seth Meyers and President Obama speak at the 2011 White House Correspondents' Dinner. It was funny. I embedded CSPAN videos and Obama's long form birth certificate for your enjoyment.

Saturday, April 30, 2011

Federal Reserve Press Conference Video, Economic Projections, FOMC Statement (4/27/2011)

I embedded the full Federal Reserve press conference video with Fed chairman, Ben Bernanke, after the jump. I also linked to the Q&A transcript and 4/27/2011 FOMC statement. First, check out the Fed's projections on inflation, GDP growth and unemployment from 2011-2013. As you can see from the table below, the Fed lowered their GDP and unemployment projections, and raised inflation projections, since the January FOMC Minutes release.

Thursday, April 28, 2011

Big Option Activity In Industrials ETF (June $40 XLI Calls) - Charts

XLI near 2007 high (freestockcharts)
XLI, the industrial sector ETF, is in play. I saw this on my ISE widget first (98,181 calls and 3,033 puts were opened by customers on the International Securities Exchange as of 1:30 PM EST 4/28/2011). As of 2:30pm, 108,395 June $40 calls traded with 288 contracts open. The call option was last trading at $0.37 (+0.13).

XLI ISE Put/Call Ratio (ISE)
The ETF is trading at $38.47. Technically speaking, the calls could be betting on a confirmed breakout above $38 and a trend line continuation. When looking at the monthly chart, I see that the 2007 high was $42. If XLI tests $42 by June 17, 2011, the trader will make a killing if it was 100% long exposure. Who knows. It could be part of a net short position or a large hedge. Look at the trend line from the March 2009 low. XLI better not break that!

For more information on this trade read "Industrials Call Trades Jump Before Caterpillar Report" at See more snapshots below.

Wednesday, April 27, 2011

Richard Koo: Fiscal Stimulus Required To Keep U.S. From Following Japan (Deflation) Until Private Sector Recovers

Richard Koo (BloombergTV)
Richard Koo, chief economist at the Nomura Research Institute in Tokyo, was interviewed on Bloomberg TV yesterday (4/26/2011). He thinks Federal Reserve policies (0% rates; QE2) are not doing much for the U.S. economy, but says the economy needs government stimulus to keep GDP from collapsing. If fiscal stimulus is pulled before the private sector recovers due to political pressure, Mr. Koo believes there is a risk that the U.S. could follow the same path as Japan (deflation). Watch the Bloomberg video after the jump. The text below is not from an official transcript.

"When the private sector is deleveraging and government deleverages too, the whole thing collapses. That's what happened during the great depression. We made the same mistake in Japan in 1997 and 2001, and I see Europeans making the same mistake right now. And if the U.S. congress makes a move towards fiscal consolidation, the U.S. will be making the same mistake next year; and I don't want to see that happen."

Tuesday, April 26, 2011

Spot Silver in USD/oz Lost 9% Last Night (49.30-44.72), Bounced Back - Chart

Last night (4/25), Spot Silver in USD/oz hit an intraday high of $49.30 and an intraday low of $44.72 (-9.2%). It has since bounced back to $45.59. SLV's run looked exhausted on the chart and needed downside protection (imho), at least in the short term. Yesterday I saw an interesting SLV put spread that traded in October out-of-the-money. There are a few events coming up that could increase silver volatility: Bernanke's press conference on Wednesday, the debt limit vote and end of QE2. Inflation reads, margin hikes and China FX reserve diversification could also affect silver trading. In the next few days I'll go over SLV in more detail with charts, recent option trades, implied volatility, articles and embedded videos. Watch the price of spot silver live below courtesy of Kitco (refresh browser).


[Most Recent Quotes from]

Jeremy Grantham: "Days of Abundant Resources and Falling Prices Are Over Forever"

GMO Commodity Index (Source: GMO April 2011 Letter)
Jeremy Grantham's April 2011 Quarterly Letter is available at Here is the summary.
"Time to Wake Up:  Days of Abundant Resources and Falling Prices Are Over Forever

Jeremy Grantham

Summary of the Summary
The world is using up its natural resources at an alarming rate, and this has caused a permanent shift in their value. We all need to adjust our behavior to this new environment. It would help if we did it quickly.

  • Until about 1800, our species had no safety margin and lived, like other animals, up to the limit of the food supply, ebbing and flowing in population.
  • From about 1800 on the use of hydrocarbons allowed for an explosion in energy use, in food supply, and, through the creation of surpluses, a dramatic increase in wealth and scientific progress.
  • Since 1800, the population has surged from 800 million to 7 billion, on its way to an estimated 8 billion, at minimum.
  • The rise in population, the ten-fold increase in wealth in developed countries, and the current explosive growth in developing countries have eaten rapidly into our finite resources of hydrocarbons and metals, fertilizer, available land, and water.
  • Now, despite a massive increase in fertilizer use, the growth in crop yields per acre has declined from 3.5% in the 1960s to 1.2% today.  There is little productive new land to bring on and, as people get richer, they eat more grain-intensive meat.  Because the population continues to grow at over 1%, there is little safety margin.
  • The problems of compounding growth in the face of finite resources are not easily understood by optimistic, short-term-oriented, and relatively innumerate humans (especially the political variety).
  • The fact is that no compound growth is sustainable.  If we maintain our desperate focus on growth, we will run out of everything and crash.  We must substitute qualitative growth for quantitative growth.
  • But Mrs. Market is helping, and right now she is sending us the Mother of all price signals.  The prices of all important commodities except oil declined for 100 years until 2002, by an average of 70%.  From 2002 until now, this entire decline was erased by a bigger price surge than occurred during World War II.
  • Statistically, most commodities are now so far away from their former downward trend that it makes it very probable that the old trend has changed – that there is in fact a Paradigm Shift – perhaps the most important economic event since the Industrial Revolution.
  • Climate change is associated with weather instability, but the last year was exceptionally bad.  Near term it will surely get less bad.
  • Excellent long-term investment opportunities in resources and resource efficiency are compromised by the high chance of an improvement in weather next year and by the possibility that China may stumble.
  • From now on, price pressure and shortages of resources will be a permanent feature of our lives.  This will increasingly slow down the growth rate of the developed and developing world and put a severe burden on poor countries.
  • We all need to develop serious resource plans, particularly energy policies.  There is little time to waste."

Monday, April 25, 2011

China Has 64 Million Vacant Apartments, Shanghai Property Index Near Inflection Point, Andy Xie On Inflation

10y Shanghai Property Index (000006.SS) - Yahoo Finance
If you missed it, SBS Dateline Australia did a story on China's property market last month (March 20, 2011). It was mainly about China's ghost cities, vacant malls and 60 million vacant apartments. Is this considered GDP growth to nowhere? Watch the segment below or at

Even though China is a command economy, at some point there has to be a real estate correction. Right? At the moment, the Chinese government is most concerned about its economy overheating and inflation. China's central bank is trying to fade inflationary pressures and real estate speculation by increasing bank reserve ratios, downpayment requirements, interest rates and letting the Yuan rise [Reads: "China’s Stocks Cap Weekly Decline on Inflation; Yuan Advances" (Bloomberg), "Yuan forwards touch 3-year high on inflationary pressure" (Financial Post), "China's March housing inflation slows, tightening in place" (Reuters), "China Increases Down-Payment Requirement for Second Homes" (WSJ)]. By the way, what is up with these "shark loan" auctions?
4y Shanghai Properties Index

Andy Xie, an independent economist and former Asia-Pacific economist at Morgan Stanley, thinks the PBOC is behind the curve on inflation and that China is headed towards stagflation. From his recent article in Caixin Online:

"at this point, China’s monetary-policy makers are too far behind the curve. Inflation is entering crisis territory, as consumer prices for many products and services rise at double-digit rates. Signs of panic have appeared along with hoarding which, when it spreads, could trigger a social crisis."
Mr. Xie thinks the PBOC should raise rates by 300 basis points!

"To change course, policy tightening must shift away from credit rationing and toward market mechanisms. Moreover, the interest rate must be lifted out of the negative column: It should be raised at least three percentage points to allay public fears. These changes are needed as soon as possible."

Recently, inflationary pressures, due to rising fuel costs and port fees, caused truckers in China to go on strike. Read: "Truckers In China Protest Rising Fuel Costs (Oil, Gasoline Price Charts)" and "Strike reinforces China’s fear of inflation" (, 4/24/2011). Also check out this post at Also Sprach Analyst: "China Is Ageing, And The Rich Are Fleeing". *ASA just tweeted this, "Hong Kong assets have ‘peaked’: analyst" (MarketWatch).

Sunday, April 24, 2011

S&P Revises US Sovereign Debt Outlook to Negative, AAA/A-1+ Rating Affirmed (Text, Related Indicators and Articles)

NYSE (Source: Wikimedia)
If you haven't read this by now, Standard & Poor's revised their outlook on U.S. sovereign debt (Treasuries) to "negative", and they "believe there is at least a one-in-three likelihood that we could lower our long-term rating on the U.S. within two years". Below is the full media release via StandardandPoors.

U.S. Indicators to watch:

US Dollar Trade Weighted Index (St. Louis Fed); Spot Dollar Index - DXY (Bloomberg); U.S. Treasury Yields (St. Louis Fed); Spot Gold - XAU/USD ( and the US Treasury 5Y Credit Default Swap in Euros - ZCTO CDS EUR 5Y (Bloomberg). I couldn't find 10Y CDS online anywhere.

Related articles, blog posts and counterpoints:

“But S&P are intelligent men.” (UBS note) - Stone Street Advisors; Credit Suisse: America Is Not Broke (Household Net Worth/Government Debt; Household Net Worth + Government debt/GDP) Charts - Pragmatic Capitalism; China Proposes To Cut Two Thirds Of Its $3 Trillion In USD Holdings - Zero Hedge.

'AAA/A-1+' Rating On United States of America Affirmed; Outlook Revised To Negative

Publication date: 18-Apr-2011 09:01:33 EST

  • We have affirmed our 'AAA/A-1+' sovereign credit ratings on the United States of America.
  • The economy of the U.S. is flexible and highly diversified, the country's effective monetary policies have supported output growth while containing inflationary pressures, and a consistent global preference for the U.S. dollar over all other currencies gives the country unique external liquidity.
  • Because the U.S. has, relative to its 'AAA' peers, what we consider to be very large budget deficits and rising government indebtedness and the path to addressing these is not clear to us, we have revised our outlook on the long-term rating to negative from stable.
  • We believe there is a material risk that U.S. policymakers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013; if an agreement is not reached and meaningful implementation is not begun by then, this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer 'AAA' sovereigns.

Saturday, April 23, 2011

Truckers In China Protest Rising Fuel Costs (Oil, Gasoline Price Charts)

Have you seen the charts of oil and gasoline recently? Protests do not surprise me.

*China moves to defuse Shanghai trucker protests (AP)
*Update: Shanghai offers fee cuts to defuse drivers' strike at port (Reuters)
Chinese Trucks Idle as Protests Continue (Wall Street Journal)
Chinese Truck Drivers Block Road Over Gas Prices (NPR)
Third day of Shanghai strike threatens China exports (Reuters)
Q+A-What is behind the Shanghai truckers strike? (Reuters)
Fuel price strike rattles Beijing (Financial Times)
First Person Account From Inside The China Protests (Zero Hedge)
Truck drivers go on strike at Shanghai ports (AFP)
Related: High crude prices threaten China's oil price controls (WantChinaTimes)
Related: Oil Price Rise Fueled by Investment Funds (VOANews)
Related: Obama blames oil speculators for rising prices! (Reuters)
Related: Oil prices to ease in H2 as disruption fears wane (MoneyControl)
Related: Goldman Sachs tells investors to take profits from oil, cotton and copper (Telegraph)

NYMEX Unleaded Gasoline (

West Texas Intermediate Crude Oil (

Brent Crude Oil (

Thursday, April 21, 2011

Buffett's Letter on Muni Insurance; Berkshire Insured Detroit Revenue Bonds After FGIC

BHAC/FGIC Collaboration (MSRB)
After a post I did a few days ago on Detroit's 2011-12 budget, I found out that Berkshire Hathaway's AAA rated subsidiary, Berkshire Hathaway Assurance Corporation, insured $767 million Detroit revenue bonds on a second-to-pay basis. These bonds were re-marketed and converted into fixed rates in 2008. Berkshire insured $385 million Detroit water revenue bonds (official statement at and $382 million Detroit sewage disposal revenue bonds, but only if bond insurer FGIC failed to pay. Principal and interest payments are backed "solely" by net revenues of pledged assets (water and sewage funds), not by taxes like general obligation bonds.

At that time the large muni bond insurers, Ambac, MBIA and FGIC, were being downgraded as losses mounted on toxic credits they insured (MBS). As a result, Buffett wanted to leverage his AAA rating and grab share in the muni insurance market. Issuers wanted Berkshire's guarantee because it lowered interest payments. Berkshire eventually "pulled out of municipal bond insurance" when he thought he wasn't being compensated for the risk (GuruFocus). Read Buffett's 2008 investment letter below for more details. It is interesting that Financial Guaranty Insurance Co.'s parent company, FGIC Corp., filed for bankruptcy in August 2010 and its insurance company had its muni bond insurance reinsured by a division of MBIA in early 2009. Counterparties squared.

"The majority of FGIC Co.-insured bonds were reinsured in January 2009 by National Public Finance Guarantee Corp., the investment-grade, muni-only insurer owned by MBIA Inc." (Bond Buyer)

From Bloomberg on May 1, 2008 on the Detroit bond deal:

"May 1 (Bloomberg) -- Detroit sold about $383 million of bonds carrying insurance from Berkshire Hathaway Assurance Corp., marking the first foray by Warren Buffett's four-month- old guarantor into the primary market for U.S. municipal debt."

"Detroit sold Berkshire-backed bonds at yields ranging from 2 percent on debt due in July to 4.75 percent on bonds set to mature in 2027. The largest single series of bonds -- $136 million of debt paying a 5.75 percent rate and due in 2031 -- were priced to yield 4.67 percent, 13 basis points less than Municipal Market Advisors' index of top-rated debt at similar maturities. A basis point is 0.01 percentage point."

More information from The Bond Buyer (4/30/2008):

"As the finance team crafted the transaction, they met with several monoline bond insurers with the hope of leaving the FGIC policy in place and bringing in a secondary insurer for additional protection. Officials considered Financial Security Assurance - which insures a remaining piece of the water and sewer bonds - but the insurer backed off because of its heavy coverage of much of the city's outstanding debt.

Only Berkshire Hathaway was interested in acting as a secondary insurer with FGIC, according to a source. "They didn't have the same idea about FGIC being in place on the bonds as the other insurers had," he said. "The Berkshire insurance really gilds the lily [on the bonds]." It will mark the first time that BHAC will act as insurer on a primary market transaction, officials said."

Credit ratings in the news:
Fitch Drops $4.6 Billion of Detroit Water and Sewer Bonds (BondBuyer, April 1, 2011)
Detroit Water and Sewer Revenue Bonds Are Downgraded by Moody’s (BusinessWeek, December 20, 2010)

Since Berkshire Hathaway was directly involved in analyzing municipal credits before the market and economy collapsed in 2008, Warren Buffett is probably a decent source for analyzing municipal credit risk. In Buffett's 2008 letter, he warned about the potential risks involved in insuring muni credits. Read the full portion about tax-exempt bond insurance after the jump.

"Insuring tax-exempts, therefore, has the look today of a dangerous business – one with similarities, in fact, to the insuring of natural catastrophes. In both cases, a string of loss-free years can be followed by a devastating experience that more than wipes out all earlier profits. We will try, therefore, to proceed carefully in this business, eschewing many classes of bonds that other monolines regularly embrace."

Wednesday, April 20, 2011

Video: Facebook Townhall With President Obama, Mark Zuckerberg (4/20/2011)

Watch the video after the jump courtesy of facebookguests on Livestream. Parts 1 and 2 are archived below. Zuckerberg just asked him about the debt.

St. Joe (JOE) May $24 Call Volume; BlackRock, Fidelity Magellan Own a Huge Chunk of Shares

JOE May 24 Call (
St. Joe (JOE:NYSE) saw 1,120 May $24 call options trade with 131 open yesterday. It looks like 653 calls traded on the International Securities Exchange (ISE) at 0.91 and the rest traded on the AMEX. JOE has been trading in a sideways channel for 3 years now and is now testing the 200 day moving average. With institutions and mutual funds loading up on the company, you have to wonder if there will be a major short squeeze or a deal led by Fairholme's Bruce Berkowitz, even though the company is only worth $7-10 per share! David Einhorn, hedge fund manager at Greenlight Capital, is, or was, short $JOE shares and released a detailed research report explaining why. On February 8, 2011, St. Joe announced that it was "exploring financial and strategic alternatives to enhance shareholder value".
JOE 3yr chart -
"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." (source)

Look at all of these institutions loading up. Joe Ownership via Fidelity Magellan (FMAGX) disclosed that it owned 7.4% of the company in a March 31, 2011 13G filing (Fidelity owned 11.4% in total), BlackRock owned 17.69% of JOE in total (13G filing), Fairholme Fund (FAIRX) owned 28.86% (13D filing), T-Rowe owned 11.2% (13G filing) and the Janus Contrarian Fund owned 8.8% of JOE (13D filing). Janus Capital Management owned 13.2% of JOE in total.

Monday, April 18, 2011

Michael Burry's Vanderbilt University Lecture (Video)

Source: Youtube via Vanderbilt
Dr. Michael Burry, who made billions of dollars shorting tranches of subprime mortgage backed securities via credit default swaps (before John Paulson's big short), gave a lecture at Vanderbilt University on 4/5/2011. In June of 2005, Burry used Deutsche Bank to buy his first credit default swap contract (a credit derivative that insures against losses on subprime MBS tranches). In early 2010, Dr. Burry was featured in Michael Lewis's book "The Big Short" and was on 60 Minutes. He also dissed the Federal Reserve, Ben Bernanke and Alan Greenspan in a New York Times oped last year ("I Saw the Crisis Coming. Why Didn’t the Fed?"). He remains very critical of the Federal Reserve and regulators since they failed to foresee the financial crisis (and shut down the financial crack houses before they became a systemic risk). If you can't watch the video, the blog Distressed Debt Investing transcribed the speech. Remember, Michael Burry was a former neurology resident, turned value investor, who was the first hedge fund manager (and credit trader at a big bank?) to buy credit default swaps. Burry placed his first CDS trade six months before the ABX indices were created (1/2006), which Paulson & Co printed money on. I'm listening to his FCIC interview right now and will transcribe the key points. It is hilarious. The mortgage-securitization-CDS engine remains, to this day, the biggest financial joke I have ever seen.

Sunday, April 17, 2011

Detroit's 2011-2012 Budget, $200M Savings Needed (Mayor Dave Bing)

Detroit, Michigan - Source: Wikimedia
I'm following the financial situation in Detroit, as I have been for a while now. Not only is the City of Detroit a distressed municipality, there is also the possibility that the State of Michigan could intervene if there's a financial emergency. I linked to the the budget documents, FY 2010 Comprehensive Annual Financial Report and articles after the jump. I'm trying to find yields and recent trades on Detroit muni bonds through TRACE/MSRB databases on This is from Mayor Dave Bing's budget address:

"Good morning Honorable City Council. My budget presentation today marks the next step on the City of Detroitʼs path back to financial stability. We face challenges unlike any the city has ever seen, challenges that demand bold action and a business approach that this administration is prepared to take. We do not have the luxury of waiting for someone else to solve our problems.

Mayor Dave Bing
• We must find savings of $200 million in this fiscal year to present a balanced budget.

• If we do nothing, our deficit which today stands at $155 million will grow to approximately $1.2 billion by Fiscal Year 2015.

• Pension and medical costs are rising at an uncontrollable and unsustainable rate. From 2008 through 2011, the City of Detroit cut $40 million from service delivery to offset the rising cost of benefits.

• Without action, benefit costs will consume a larger and larger portion of our operating funds, potentially growing to 50% by 2015.

• Since 2000, revenue is down from $1.1 billion to $753 million. Our population is down more than 200,000 according to the recent U.S. Census report.

Friday, April 15, 2011

H&R Block (HRB) Sees Put Spreads in October, January (Chart Analysis)

HRB Oct 17 Puts (Yahoo Finance)
Interesting option activity occurred in H&R Block's (HRB) out-of-the-money put options in October 2011 and January 2012. I got the alert from CBOE on Twitter. I follow their feed (@CBOE).
"H&R Block- $HRB January 12.50 and Jan 17 puts active on 36K contracts into April 18 tax deadline" (source)

It was also featured on's Unusual Option Activity Feed in detail:
"9,000 Oct 17 puts were purchased for $1.73, 9,000 Jan 12 puts were sold for $0.66, 7,500 Jan 15 puts were purchased for an average premium of $1.425 and 7,500 Jan 10 puts were sold for $0.35. Total of 33557 puts traded compared to the 10 day average volume of 3030." (courtesy of

HRB Jan 15-12.5-10
The trades look like put spreads. Find more information on the trades at WSJ and the blog Sea Change of Opportunity, which said 500k shares were bought at $17.60.

$HRB capitulated in October of last year (2010) when news dropped that HSBC wouldn't fund "refund anticipation notes" anymore due to new IRS rules. On April 7, 2011, HRB warned that the loss of clients would lower EPS by $0.05. From Reuters:
"H&R Block Inc said it would take a charge in the fourth quarter, as it lost some clients due to its inability to offer refund anticipation loans, sending its shares down 2 percent in extended trade.

The top U.S. tax preparer will incur a charge of about 5 cents a share in the quarter ending April 30."
The stock is trading inside of a 3-year descending channel which started in 2008. Since the "RAL" scare in October, HRB is up 80% off of its low. You can see the two near-term trend lines HRB must hold in order to test descending channel resistance ($18.50-19.30). The yellow circle shows where the put spreads would profit, whether as a hedge against shares or a play on downside volatility. HRB implied volatility is at 35 and historical volatility is at 24.65 on the ISE. I don't know the exact nature of these trades if they were based solely on implied volatility. Please comment if you do. Interesting trades.

More analysis (free)

Oppenheimer Discusses H&R Block (HRB) - Benzinga

Early Dip Puts Market on Notice 04-14-2011 - Xpound Blog via Benzinga

The Returns Have Already Been Filed On H&R Block by Steve Alexander - iStockAnalyst

H&R Block: The Panic's Over - Seeking Alpha

Macro, Sovereign and Sector Upgrades/Downgrades (Ending 4/15/2011)

Analyst calls - week ending 4/15/2011

*Goldman's Jan Hatzius downgraded real GDP growth to 1.75% from 2.5% (Zero Hedge)

*Goldman's Latest EURUSD Outlook (Zero Hedge)

Moody's cut Ireland's credit rating to Baa3, 1 notch above junk (AP)

Fitch affirms Ireland rating at BBB-plus (MarketWatch)

Goldman Sachs says underweight commodities (Zero Hedge)

Goldman Sachs Cuts View Of Financial Stocks (Dow Jones Newswire)

Citi's US Dollar warning, debt ceiling risks (Zero Hedge)

Goldman Sachs Expects ‘Substantial Pullback’ in Oil Market; Sees $105 Brent Crude (Bloomberg)

Joe LaVorgna (Deutsche Bank) Cuts Q2 GDP Ahead Of Everyone (Zero Hedge)

Moody's downgrades China property sector (Reuters)

Moody’s cuts China’s property outlook (MarketWatch)

Btw, Beijing March New House Prices Plunge 26.7% M/M: Press (MarketNews)

Fitch downgrades China's yuan debt outlook to negative (ChinaPost)

How Would Raising Debt Ceiling Impact U.S. Bond Market? (PBS Video featuring Jamie Dimon, Nouriel Roubini, Nomura Strategists and Ben Bernanke)

Investment Manager Outlooks

"Deja Vu All Over Again" - Jeff Gundlach's (DoubleLine Capital) Latest Set Of Contrarian Observations (report at Zero Hedge)

[Video] Bond Guru (Jeff Gundlach) Bets Against PIMCO's Bill Gross (and Conventional Wisdom) on What Happens After QE2 Ends (Trader Mark at International Business Times)

*John Paulson Cautious On U.S. Real Estate (GuruFocus) he was interviewed by Les Echos in France

Thursday, April 14, 2011

Update on Bullish Sentiment Indicators (AAII, Investors Intelligence)

Elliott Wave International has an article out titled Bullish Sentiment: Turning into a Stampede?, which addresses current market psychology and sentiment extremes. Hat tip to Business Insider and Mish.

"Keep that in mind as you read this recent market sentiment news from CNBC (4/6) about the latest Investors Intelligence survey:

"The number of investors with a bearish outlook plunged by more than a third in one week according to a widely followed investor survey released Wednesday, the largest amount of bears to throw in the towel in this poll since 2003."

The bears in that survey dropped from 23.1 percent to 15.7 percent in just one week. Apparently, the market's two-year rally has survey respondents feeling more optimistic -- not more cautious.

Many other groups also feel exceptionally bullish. The latest Elliott Wave Theorist reports that a "bullish consensus" has also crystallized among a wide range of investors and financial professionals:

Individual investors (AAII poll)—most bullish in six years
Newsletter advisors (I.I. poll 20-week average)—most bullish in seven years
Futures traders ( poll)—most bullish in four years
Mutual fund managers (% cash)—most bullish ever
Hedge fund managers (BoAML survey)—most bullish ever
Economists (news-org polls)—unanimously bullish
Top global strategists (three national year-ahead panels)—unanimously bullish
Even most 'bears' on the economy are bullish on stocks because of inflation!" 
(continue reading at

Karl Denninger, author of the Market-Ticker blog, responded to this and said there were higher bullish AAII readings in December (2010) and January, which coincided with a higher market. He's right (look at the table), but I wonder what he thinks of the "Investors Intelligence Bull/Bear Ratio" chart that dates back to April 2007. Bullishness is at or above the 2007 highs, and the market peaked in October 2007. Robert Prechter, founder of Elliott Wave International, mentioned these sentiment comparisons on The Ticker (Yahoo Finance) in late February.

Wednesday, April 13, 2011

$UUP June Call Options Active, US Dollar Trending Down (UUP, $USD, UUP/SPY Technicals - 4/13/2011)

Chart 1: DXY0 (U.S. Dollar Index) -
First off, UUP June 2011 $21 call options were active yesterday. 38,231 calls traded with 8,333 contracts open. It closed at 0.68. This morning open interest rose to 34,555. Here is more information: "Some UUP option traders expect dollar rebound" (CNBC). This activity could insuring short UUP exposure or speculating on a Dollar (UUP) rally by June expiration (6/17/2011).

The US Dollar Index (DXY) is clearly trending down. DXY (74.88) broke through a symmetrical triangle in March and is looking for support. The first support level is 74.23 or the 2009 low. If that level fails, 70.70 will be in play or the 2008 low. You can also see the yellow downtrend line DXY must break.

$UUP, the US Dollar Index ETF, broke through the 2009 and 2010 lows in mid-March. UUP needs to break above $22 resistance and take out that downtrend line to save the Dollar. It is interesting that DXY broke the symmetrical triangle right when UUP broke the lows.

The third chart is UUP/SPY(US Dollar ETF/S&P 500 ETF). The ratio is at 0.1634, which is right below May 2008 support (0.167). It will soon test the downtrend line from early 2009 and perhaps re-test 0.167 resistance. If UUP/SPY breaks above ceiling resistance and the downtrend line, it could either mean there is a flight out of risky assets (Dollar up/S&P down), or the market falls faster than the Dollar. The next few months will be interesting; QE2 is ending and the debt ceiling is in play.

The Next Housing Shock (60 Minutes Video, 4/3/2011)

Two weeks ago, 60 Minutes did a special on the ongoing foreclosure crisis, which was driven by mortgage document fraud during the housing bubble.

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. -

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."
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