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| EUR/USD via FXstreet.com |
July Crude Oil -2.78% at 97.32
June E-mini S&P -1.09% at 1313.25
Gold spot -0.04%% at 1508.72
Silver spot -0.97% at 34.69
US Dollar Index (NYBOT) +0.60% at 76.30
Monday, May 23, 2011
EUR/USD Breaks 1.40; Resumes Downtrend From 2007 (Big Red Candle)
July Crude Oil -2.78% at 97.32
June E-mini S&P -1.09% at 1313.25
Gold spot -0.04%% at 1508.72
Silver spot -0.97% at 34.69
US Dollar Index (NYBOT) +0.60% at 76.30
Macro Reads (Housing, Cash, QE), Eurozone and LinkedIn IPO Wars - 5/22/2011
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| Robert Shiller's Housing Index (The Big Picture, 4/13/2011) |
Farmland best bet in gloomy outlook, says Yale's Shiller (InvestmentNews) - *Robert Shiller gave his outlook on the housing market during a Fox Business segment on 5/19/2011. I embedded the video after the jump.
Once bullish, contrarian Jim Grant (of Interest Rate Observer) likes cash now (AP)
To Eat and Survive in LA: On Track for a Million Food Stamp Users by Gregor Macdonald (Gregor.us)
Housing in North America: Peak Oil’s Primary Victim by Gregor Macdonald (Gregor.us)
Richard Koo (Nomura Research Institute) Explains Why An Unwind Of QE2, With Nothing To Replace It, Could Lead To The Biggest Depression Yet (Zero Hedge)
Eurozone action
Massive blow for Spain's ruling party clouds Euro outlook; S&P cut outlook for Italy to "negative" from "stable" (FXStreet)
European Stocks Sink as Debt Concern Deepens; Commerzbank, Santander Slide (Bloomberg)
S&P’s Italy Warning May Fan Contagion as Greece Cuts (Bloomberg)
LinkedIn IPO Wars
The LinkedIn IPO debate (Felix Salmon)
Primitive Underwriting for Web 2.0 Deals (LinkedIn should have done a Dutch Auction) (ReformedBroker)
Was LinkedIn Scammed? by Joe Nocera (New York Times)
Even The "Smart" Arguments Justifying LinkedIn's IPO Pop Are Bogus (Business Insider)
Two replies by blogger The Epicurean Dealmaker, a pseudonymous investment banker: "Jane You Ignorant Slut" and "Dan You Pompous Ass" (? lol).
Why Linkedin Didnt Use An Auction & Why Their Bankers Didn’t Screw-Up by The_Analyst (Stone Street Advisors)
Thursday, May 19, 2011
LinkedIn Financials, Key Metrics, Valuation; Hit $122 High ($11.5 Billion Valuation) After $45 IPO (LNKD)
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| $LNKD (LinkedIn Intraday Chart) - FreeStockCharts.com |
LinkedIn could start their own electronic staffing agency. How about taking it one step further; someone starts a professional social-networking site where users actually work for potential employers from their computer at home as unpaid TeleInterns™ or temp-to-hire TeleTemps™. Remember my post yesterday on telepresence hologram technology using Cisco/Musion Systems? Multiple TeleTemps™ could work in your office as holograms from their computers at home.
LinkedIn is growing significantly. From the prospectus:
Quarterly Adjusted EBITDA Trend "We have achieved significant growth as our network has scaled and as we have expanded our product offerings. From 2009 to 2010, net revenue increased $123.0 million, or 102%, net income increased $19.4 million, or 487%, and adjusted EBITDA increased $33.3 million, or 227%. In the three months ended March 31, 2011, net revenue increased $49.2 million, or 110%, net income increased $0.3 million, or 14%, and adjusted EBITDA increased $4.2 million, or 46%, over the three months ended March 31, 2010. See “Adjusted EBITDA” below for a definition of adjusted EBITDA and a reconciliation of adjusted EBITDA to net income (loss)."
LinkedIn Quarterly Revenue Trend
As of March 31, 2011, LNKD's price/sales ratio as of today's close ($94.25 per share or $8.9 billion market cap) was 30 using $292 million trailing 12 month revenues (see numbers above). You can breakout earnings as well. The price/sales ratio seems pretty steep; however, if sales keep rising exponentially it could easily fill the gap. Read Henry Blodget's post showing different revenue, net income and EBITDA projections for 2011, 2012, 2013 and 2014.
Other comparables: Goldman Sachs's recent investment in Facebook (FBOOK) valued at 25x sales, Google (GOOG) trades at 5.5x sales, Yahoo (YHOO) at 3.5x sales, Salesforce (CRM) at 10.9x sales, OpenTable (OPEN) at 19.29x sales, China's Baidu (BIDU) at 33x sales, China's Renren (RENN) at 70x sales, Monster Worldwide at 1.9x sales, and Apple (AAPL) at 3.6x sales. How do you value this?
Interesting earnings comparable for Facebook (TheStreet.com):
"Using LinkedIn's current valuation as a comparable metric-- 600 times its 2010 earnings of $15.4 million -- Facebook would be worth around $360 billion in the public markets. The company reportedly earned $600 million in net income"
Eric Jackson of IronFire Capital Thinks LinkedIn IPO is Overvalued
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| Source: LinkedIn Press Center |
Wednesday, May 18, 2011
Technical Views On The Market (Louise Yamada, Jeff Macke and S&P Charts) 5/18/2011
Jeff Macke and Louise Yamada (Louise Yamada Technical Research Advisors) gave technical views on the market yesterday (5/17/2011) on Breakout (Yahoo Finance).
I threw up some lines as well on the S&P 500. You can see the uptrend line from August 2010, $1344 resistance level from February 2011 and an ascending channel which started in March 2011. The second chart shows a descending channel from the beginning of May. At this point there needs to be confirmation, but there is a possibility the market could breakdown here. So the S&P is at an inflection point and waiting for a downside catalyst for volatility. I remember on 4/28/2011 on CNBC Doug Kass said he was short SPDRS ($SPY) with out-of-the-money calls as a hedge. On May 9 he wrote an article titled "Kass: Sell The Rallies". Follow him on Twitter for updates. It probably makes sense to hedge either direction right now. Even SAC Capital's Steve Cohen said he sees a market pause. SAC Capital actively manages $14 billion. Also GMO's Jeremy Grantham said to lighten up on risk. The volatility index closed at 16.23 today (see $VIX vs. $SPX chart below). I'm going to watch currencies (EUR/USD, USDX and UUP) and commodities.
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| My chart below shows SPX trend |
I threw up some lines as well on the S&P 500. You can see the uptrend line from August 2010, $1344 resistance level from February 2011 and an ascending channel which started in March 2011. The second chart shows a descending channel from the beginning of May. At this point there needs to be confirmation, but there is a possibility the market could breakdown here. So the S&P is at an inflection point and waiting for a downside catalyst for volatility. I remember on 4/28/2011 on CNBC Doug Kass said he was short SPDRS ($SPY) with out-of-the-money calls as a hedge. On May 9 he wrote an article titled "Kass: Sell The Rallies". Follow him on Twitter for updates. It probably makes sense to hedge either direction right now. Even SAC Capital's Steve Cohen said he sees a market pause. SAC Capital actively manages $14 billion. Also GMO's Jeremy Grantham said to lighten up on risk. The volatility index closed at 16.23 today (see $VIX vs. $SPX chart below). I'm going to watch currencies (EUR/USD, USDX and UUP) and commodities.
LinkedIn's $45 IPO Values LNKD at $4.25 billion; List of 10% Owners (SEC)
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| LinkedIn Corp. Ownership (SEC) |
"Mountain View, Calif. — May 18, 2011 — LinkedIn Corporation, the world’s largest professional network on the Internet, today announced the pricing of its initial public offering of 7,840,000 shares of common stock at a price to the public of $45.00 per share. A total of 4,827,804 shares are being offered by LinkedIn Corporation, and a total of 3,012,196 shares are being offered by selling stockholders. In addition, LinkedIn Corporation has granted the underwriters a 30-day option to purchase up to an additional 1,176,000 shares to cover over-allotments, if any. LinkedIn will not receive any proceeds from the sale of shares by the selling stockholders."
Tuesday, May 17, 2011
The Joy of Natural Gas, It's Here Aplenty - Guest Post
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| Source: NGSA.org |
The Joy of Natural Gas, It's Here Aplenty
Tired of high gasoline pump prices? Wondering why, with our fearsome energy hunger, all the energy seems to be in the Middle East?
That was yesterday's story.
Almost overnight -- well, in a few short years -- the energy picture has been changing in the US. We are not energy beggars anymore. We have energy bounty -- and that does not include the energy from wind and sun, or the controversial energy from the atom.
Now we have plenty of the most versatile of the hydrocarbons -- more versatile than coal, and oil. It is natural gas; and it is going to change the face of America remarkably quickly, whether it is used to make electricity for electric cars or is burned directly in cars.
Natural gas is the new oil, maybe the new gold, and certainly the most exciting energy development in a long time.
Indeed, it is a Cinderella story: a hopeless orphan who is now the belle of the ball.
Originally, natural gas was found in conjunction with oil and was regarded as something of a nuisance. It was mostly cursed and "flared" or burned at the well; and it is still flared when there is no way of moving it to market, either in a pipe or as a liquid. Cities favored a low-grade gas made from coal for lamps and heating because coal could be transported by rail.
The Future: Holographic TelePresence Video Technology (Videos)
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| Cisco Conference (Source: Musion Systems Vimeo) |
Video #1: "Cisco On-Stage Holographic TelePresence Experience" MusionSystems (2007)
Video #2: "Musion TelePresence Launch - Berlin" (2009)
Video #3: "ImmersiveTech Summit 2010 Howard Lichtman Telepresence"
Bill Gross Explains PIMCO's Negative "Government-Related" Exposure, QE3 Will Be Policy Language
As of 4/30/2011, the PIMCO Total Return Fund increased "net cash and equivalents" to 37% from 31% on 3/31/2011; decreased "mortgage" exposure to 24% from 28%; decreased "investment grade credit" to 17% from 18%; increased "emerging markets" to 11% from 10%; remained unchanged on "non-US developed"; decreased "high-yield credit" to 5% from 6%; remained unchanged on "municipal" securities, and decreased "government-related" exposure to -4% from -3%.
Bill Gross on PIMCO's negative "government-related" exposure using swaps, and the end of QE2:
"That to some extent speaks to a durational statement, to the extent that you're selling swaps and basically reducing the duration of your portfolio."
"We simply suggest that since the Fed has been purchasing 70% to 75% of all the Treasuries that have been offered over the past year to year and half, that it's a legitimate question of who will buy them and at what yield. We simply think that treasury yields have been artificially repressed not only by QE1 and QE2 but by the policy rate."
"The Federal Reserve of New York has estimated perhaps 50 to 100 basis points of under-yielding, over-priced valuation from these programs in combination."
"We think 10-year treasuries will be higher in yield. Now they're around 3.18%; we suspect still that 4% is a beginning level of attraction going forward."
Language will dominate Fed policy after QE2 (June 30):
"If the Fed continues to suggest that unemployment is a priority and inflation is contained, then you can expect Fed funds to stay at twenty-five basis points, and that's a very significant anchor for 2s, 5s and even for 10s. So follow the policy language going forward. Expect QE2 to end and that QE3 probably will take the form of language instead of actual purchases going forward."
Monday, May 16, 2011
Eric Sprott On The Silver Raid; Still Sees $100 Silver (Keiser Report Video)
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| Silver ETF Plunge ($SLV) |
Eric Sprott, who runs Sprott Asset Management, is active in silver and gold, and created the Sprott Physical Silver Trust (PSLV) which trades on the NYSE. He was on CNBC in May 2010 telling you to buy silver which was a great call. A few months later Mr. Sprott gave a presentation at the Casey Research Gold & Resource Research Summit and said "between the ETFs, you and us, there is no (physical) silver left."
Before the major sell off, Sprott sold PSLV units at a premium to NAV, but said he reinvested the proceeds back into silver (spot) or shares. He believes the silver sell off was a "raid" and related to the paper markets, margin increases and the commercial shorts. Zero Hedge explained the details today in a post. Eric Sprott is still very bullish on silver and thinks it could hit $100 an ounce. Watch the video below courtesy of Keiser Report.
Steve Cohen at SALT, Paulson at UBS Conf, Whitney Tilson, John Taylor, Jim Rogers, Druckenmiller (5/15/2011)
Guru/hedge fund link fest (5/8/2011 to 5/15/2011)
*Billionaire hedge fund manager Steve Cohen, who runs $14 billion hedge fund SAC Capital, spoke at the SALT Conference (SkyBridge Alternatives) last week in Las Vegas. From the transcript courtesy of Deal Breaker, Mr. Cohen sees a market pause ("maybe people are worried about a growth scare") but thinks the second half of 2011 will be "decent". He believes the energy sector is "interesting" and the "commodities sell-off provides a nice entry point". He said he's more worried about 2012 as some of the government stimulus wears off. And regarding the budget deficit, Cohen said the bond market could force government action. This is the first time Distressed Volatility has seen Steve Cohen give market calls. When is your blog starting up Mr. Cohen?
*What If the U.S. Treasury Defaults? (Stanley Druckenmiller, who ran money with George Soros) - WSJ (h/t Zero Hedge)
*Here's What John Paulson Said On Housing, Financials, Gold and the S&P at UBS's Financial Services Conference (he's bullish on the recovery, sees 40-60% upside in bank stocks and 34% upside in the S&P) Business Insider (5/10/2011)
*Currency Hedge Fund Manager John Taylor Says ‘Risk Rally’ (higher-yielding assets) Is Coming to an End (FX Concepts) - Bloomberg (5/12/2011)
*Jim Rogers Says Dollar Is Long-Term ‘Total Disaster’ (Jim is "currently long the dollar because the market consensus is for the currency to fall", "short emerging markets", and believes the 30 year bull market in U.S. bonds is coming to an end. But, like the dollar, he's not shorting because "95 percent of the market expects them to decline.") - Bloomberg (5/12/2011)
*Value Investor Whitney Tilson's May 2011 Presentation (T2 Partners), $MSFT, $BRK - Zero Hedge (5/3/2011)
*Cyclical Bulls Within Secular Bears & Their Short Duration - Pragmatic Capitalism (via John Hussman's Weekly Market Comment).
*Felix Zulauf turns bearish, expects major correction and QE3 - Credit Writedowns
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| Steve Cohen - S|A|C |
*What If the U.S. Treasury Defaults? (Stanley Druckenmiller, who ran money with George Soros) - WSJ (h/t Zero Hedge)
"Some have argued that since investors are still willing to lend to the Treasury at very low rates, the government's financial future can't really be that bad. "Complete nonsense," Mr. Druckenmiller responds. "It's not a free market. It's not a clean market." The Federal Reserve is doing much of the buying of Treasury bonds lately through its "quantitative easing" (QE) program, he points out. "The market isn't saying anything about the future. It's saying there's a phony buyer of $19 billion of Treasurys a week."
Warming to the topic, he asks, "When do you generally get action from governments? When their bond market blows up." But that isn't happening now, he says, because the Fed is "aiding and abetting" the politicians' "reckless behavior."
*Here's What John Paulson Said On Housing, Financials, Gold and the S&P at UBS's Financial Services Conference (he's bullish on the recovery, sees 40-60% upside in bank stocks and 34% upside in the S&P) Business Insider (5/10/2011)
*Currency Hedge Fund Manager John Taylor Says ‘Risk Rally’ (higher-yielding assets) Is Coming to an End (FX Concepts) - Bloomberg (5/12/2011)
*Jim Rogers Says Dollar Is Long-Term ‘Total Disaster’ (Jim is "currently long the dollar because the market consensus is for the currency to fall", "short emerging markets", and believes the 30 year bull market in U.S. bonds is coming to an end. But, like the dollar, he's not shorting because "95 percent of the market expects them to decline.") - Bloomberg (5/12/2011)
*Value Investor Whitney Tilson's May 2011 Presentation (T2 Partners), $MSFT, $BRK - Zero Hedge (5/3/2011)
*Cyclical Bulls Within Secular Bears & Their Short Duration - Pragmatic Capitalism (via John Hussman's Weekly Market Comment).
"As the guys at Nautilus Capital note, cyclical bull markets within secular bears have tended to average just 26 months, with an average gain of 85%, while cyclical bears within secular bears have averaged 19 months, with steep average losses of -39%."
*Felix Zulauf turns bearish, expects major correction and QE3 - Credit Writedowns
Sunday, May 15, 2011
George Soros Speaking at CATO On Hayek, Reflexivity (4/28/2011)
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| Reflexivity Cycle |
To your left is a diagram of a cycle driven by reflexivity (price -> perception -> fundamentals). Read "George Soros, Reflexivity and Market Reversals" by Marvin Bolt at Seeking Alpha on March 16, 2009 (around the historical market low). Here is a quote from the end of the article.
"We are at a unique time in history. The economy and financial markets have been driven by a variety of reflexive forces resulting in widespread destabilization. However, a fully developed parabolic stock market decline offers strong evidence that the extremes have been reached. Insights from George Soros’ theory of reflexivity, supported by examples from the past, lead us to conclude that the imminent reversal will be breathtaking. As we wrote this, the Dow had just surpassed 7,000 after testing 6,500. Indeed, the reversal might be at hand." That worked out quite well. (Continue reading at Seeking Alpha).
George Soros quotes from the transcript; watch videos after the jump:
"Hayek argued that economic agents base their decisions not on reality but their interpretation of reality and the two are never the same. That's what I called fallibility. Hayek also recognized that decisions based on imperfect understanding are bound to have unintended consequences. But Hayek and I drew diametrically different inferences from this insight. Hayek used it to extol the virtues of the invisible hand, which was the unintended consequence of economic agents perusing their self interest. I used it to demonstrate the inherent instability of financial markets.
In my theory of reflexivity I assert that the thinking of economic agents serves two functions: on the one hand, they try to understand reality that's the cognitive function. On the other, they try to make an impact on the situation and that's the participating or manipulative function. The two functions connect reality and the participants' perception of reality in opposite directions. As long as the two functions work independently they each produced determinate results. But when they operate simultaneous they interfere with each other by introducing an element of uncertainty into both the participants' understanding and the actual course of events. I call the interplay between the two functions that gives rise to the uncertainty reflexivity.
The two way connection between the cognitive and manipulative functions works as feedback loop; the feedback is either positive or negative. The positive feedback reinforces both the prevailing trend and the prevailing bias and leads to a mispricing of financial assets. Negative feedback corrects the bias. At one extreme lies equilibrium, at the other are the financial bubbles. They occur when the mispricing goes too far and becomes unsustainable and the boom is then followed by a bust. In the real world, positive and negative feedback are intermingled and the two extremes are rarely if ever reached." (read the full transcript)
Saturday, May 14, 2011
Jeremy Grantham (GMO): Lighten Up On Risk-Taking; QE3 Required To Keep Speculative Game Going
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| Source: GMO |
GMO May 2011 Quarterly Letter: "Time To Be Serious (and probably too early) Once Again"
"With these headwinds, I do not feel the same degree of confidence that I did, which was considerable, that the Fed could carry all before it until October 1 of this year. A third round of quantitative easing would very probably keep the speculative game going. But without a QE3, there seem to be too many unexpected (indeed unexpectable) special factors weighing against risk-taking in these overpriced times. I had recommended taking a little more risk than was justified by value alone in honor of Year 3, QE2, and the Fed in general. Risk now should be more reflective of an investment world that has stocks selling at 40% over fair value (about 920 on the S&P 500) and fixed income, manipulated by the Fed, also badly overpriced."
"The market may still get to, say, 1500 before October, but I doubt it, especially without a QE3, although the chance of going up a little more by October 1 is probably still better than even. And whether it will reach 1500 or not, the environment has simply become too risky to justify prudent investors hanging around, hoping to get lucky. So now is not the time to float along with the Fed, but to fight it. Investors should take a hard-nosed value approach, which at GMO means having substantial cash reserves around a base of high quality blue chips and emerging market equities, both of which have semi-respectable real imputed returns of over 4% real on our 7-year forecast. The GMO position has also taken a few more percentage points of equity risk off the table."
Wednesday, May 11, 2011
David Einhorn is Still Short St. Joe and Moody's, Buys Yahoo (Greenlight Q1 Letter)
According to David Einhorn's Q1 2011 Investment Letter (released on April 29, 2011 courtesy of DealBreaker.com), Greenlight Capital is still short Moody's (MCO) and St. Joe (JOE), and recently went long Yahoo (YHOO). And now value investor Whitney Tilson, of T2 Partners, has JOE as his largest short position. I'll get into that next. Read Einhorn's amazing report on St. Joe: "Field of Schemes: If You Build It They Won't Come". Per my proprietary valuation models, JOE is worth $7-$15 a share and Yahoo is worth $31-$33 a share. In my next post on Whitney Tilson I'll dig into the longs and shorts in JOE.
"We kept our highest conviction older ideas (including MCO and St. Joe) and our highest conviction newer ideas (including the energy-technology stocks described above)."
House Speaker Boehner on the Debt Ceiling (Economic Club of New York, 5/9/2011)
The $14.29 trillion debt ceiling is officially in play and Congress has to decide whether to raise it again, and under what conditions. I'm going to post different views on the situation (next David Stockman). Below is the video and transcript of House Speaker John Boehner's remarks at the Economic Club of New York on 5/9/2011. Richard Koo, chief economist at the Nomura Research Institute, believes the U.S. could follow the path of Japan if we cut government spending and borrowing too early after the bursting of a nationwide asset bubble (see INET conference and Bloomberg TV videos). However, even Ben Bernanke, the Chairman of the Federal Reserve, has said that the U.S. must address its budget deficit and national debt. From Bernanke's speech in October 2010:
Quotes from John Boehner's address to the Economic Club of New York (read the full transcript below if you can't watch the video):
"Over the medium- and long-term, however, the story is quite different. If current policy settings are maintained, and under reasonable assumptions about economic growth, the federal budget will be on an unsustainable path in coming years, with the ratio of federal debt held by the public to national income rising at an increasing pace.2 Moreover, as the national debt grows, so will the associated interest payments, which in turn will lead to further increases in projected deficits. "
Quotes from John Boehner's address to the Economic Club of New York (read the full transcript below if you can't watch the video):
“It's true that allowing America to default would be irresponsible. But it would be more irresponsible to raise the debt ceiling without simultaneously taking dramatic steps to reduce spending and reform the budget process.
“To increase the debt limit without simultaneously addressing the drivers of our debt -- in defiance of the will of our people -- would be monumentally arrogant and massively irresponsible.
“It would send a signal to investors and entrepreneurs everywhere that America still is not serious about dealing with our spending addiction.
“It would erode confidence in our economy and reduce certainty for small businesses. And this would destroy even more American jobs.
“So let me be as clear as I can be. Without significant spending cuts and reforms to reduce our debt, there will be no debt limit increase. And the cuts should be greater than the accompanying increase in debt authority the president is given.
“We should be talking about cuts of trillions, not just billions.
Greece 5Y Credit Default Swaps At 1372; Up From 399 a Year Ago (Greece 5Y CDS Chart)
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| Greece 5Y CDS (Bloomberg) |
Recent articles:
Greece restructuring ‘only a matter of time - eFinancialNews
EU and IMF start key Athens visit as Greeks strike - Reuters
EU paymaster Merkel guarded on new aid for Greece - Reuters
Greece will need more aid (Official says Athens hopes for a new $86 billion financing package) - WSJ
Milligan Says `Ultimately' Greece Must Restructure Debt - Bloomberg Video via Washington Post
Roubini’s guide to a Greek debt restructuring - FT Alphaville
Greece taps markets after rating cut, EU mulls help - Reuters
"Greek Prime Minister George Papandreou lashed out at financial markets late on Monday, accusing them of lack of transparency and corruption.
"Profiteering, CDS, derivatives traded without any transparency are threatening to blow up whole countries," he told an anti-corruption conference." /ouch
Tuesday, May 10, 2011
S&P Downgrades Greece to B; Moody's Places Greece B1 Bonds On Review For Possible Downgrade; 2-Year Greek Bonds Yield 25%
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| Source: Wikimedia Commons |
3-month Greece Government Bond 8.06% (updated on May 9);
6-month Greece Government Bond 6.13%;
1-year Greece Government Bond 6.26%;
2-year Greece Government Bond 25.17%;
5-year Greece Government Bond 16.377%,
10-year Greece Government Bond 15.43%,
30-year Greece Government Bond 10.41%.
From Moody's Investors Service yesterday:
"Moody's places Greece's ratings on review for possible downgrade
London, 09 May 2011 -- Moody's Investors Service has today placed Greece's B1 local and foreign currency government bond ratings on review for possible downgrade.
Moody's decision to initiate this review was prompted by:
(1) revisions to fiscal metrics, most notably the significant upward revision of the 2010 general government deficit;
(2) increased uncertainty about the sustainability of Greek sovereign debt in the context of potential delays in the achievement of fiscal consolidation targets; and
(3) concerns about the probability and the implications of a delayed and weaker economic recovery.
Moody's review will focus on the factors that will drive the country's debt dynamics over the next few years.
Moody's says that a multi-notch downgrade is possible if it concludes that there is large risk that Greece's debt metrics are on an unsustainable path. In Moody's view, such conditions would materially increase the risk of debt restructuring over the short to medium term. Under such conditions, euro area policymakers have stated that future loans from the Exchange Stability Mechanism would be extended only if private creditors were to bear some of the losses. If the path of Greek debt-to-GDP were to appear unsustainable, then Greece might itself have an incentive to seek a change in the terms of its debt obligations." [continue reading at Moodys.com]
From Standard and Poor's on May 9, 2011:
"Ratings On Greece Lowered To 'B/C' From 'BB-/B' On Rising Rescheduling Risk; Remain On CreditWatch Negative
Nomura's Richard Koo Warns U.S. Could Repeat Japan's Mistakes! (INET Bretton Woods Video)
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| Source: Nomura |
He first compared the US housing market (S&P/Case Shiller Home Price Index) to Japan's housing market when they crashed 14 years apart (2006 in the U.S; 1992 in Japan). I put up a snapshot of the chart. Read his slides while watching the video: The World in Balance Sheet Recession: What-Post 2008 U.S., Europe and China Can Learn From Japan 1990-2005 (Slides).
He strongly believes that once an economy experiences a nationwide asset bubble, the Government must step in to borrow and spend until the private sector recovers (finishes deleveraging balance sheets), or risk an economic crash. So how does the story end in the the U.S.? I'm hearing either Weimar Republic style hyperinflation, Japanese deflation or 70's style stagflation. FYI, according to Clear Capital's Home Data Index, U.S. home prices dipped below the March 2009 low in April (read more).
Monday, May 9, 2011
Clear Capital: U.S. Home Prices Dip Below March 2009 Low (4/2011)
According to Clear Capital's "Home Data Index™" (HDI), U.S. home prices through April 2011 dipped below the March 2009 low. Also this can't be good, "‘Underwater’ Homeowners Rise to 28 Percent: Zillow" (Bloomberg). Read the full report at Clear Capital.
"Clear Capital® Reports National Double Dip
U.S. home prices double dip as West, South and Northeast regions fall prey to the last grip of winter.
TRUCKEE, CA – May 5, 2011 – Clear Capital (www.clearcapital.com) today released its monthly Home Data Index™ (HDI) Market Report, and reports prices have double dipped nationally 0.7 percent below prior lows experienced in March 2009. This month’s HDI Market Report provides the most current (through April 2011) and relevant analysis of how local markets performed compared to the national trend in home prices.
Report highlights include:
“The latest data through April shows a continued increase in the proportion of distressed sales that are taking hold in markets nationwide,” said Dr. Alex Villacorta, director of research and analytics at Clear Capital. “With more than one-third of national home sales being REO, market prices are being weighed down as many markets have not regained enough footing to withstand the strain of the high proportion of REO sales.
In light of the compounding effects of winter’s seasonal slowdown and increased distressed sale activity, the market now faces the true test of whether prices can rebound in the historically active spring season,” added Villacorta.
As national home prices reached new lows this past winter, hopes remain for a spring revival. Markets have entered uncharted territory, however, as this current home buying season will be the first since 2008 without any tax credit incentive. A note of caution to those looking for a strong end to 2011: The last time no incentives were in place and distressed inventories were this high, home prices fell sharply."
Read more at Clear Capital.
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| Relative Index Value (Source: Clear Capital) |
U.S. home prices double dip as West, South and Northeast regions fall prey to the last grip of winter.
TRUCKEE, CA – May 5, 2011 – Clear Capital (www.clearcapital.com) today released its monthly Home Data Index™ (HDI) Market Report, and reports prices have double dipped nationally 0.7 percent below prior lows experienced in March 2009. This month’s HDI Market Report provides the most current (through April 2011) and relevant analysis of how local markets performed compared to the national trend in home prices.
Report highlights include:
- National quarterly home prices changed -4.9%; while year-over-year national price changes reached -5.0%.
- National home prices have fallen 11.5% over the previous nine-month period, a rate of decline not experienced since 2008.
- In a sign of the continued volatility and fragility of home prices, all the major Metropolitan Statistical Areas (MSA) tracked in this month’s report showed quarter-over-quarter price declines.
- National REO saturation rate reaches 34.5%.
“The latest data through April shows a continued increase in the proportion of distressed sales that are taking hold in markets nationwide,” said Dr. Alex Villacorta, director of research and analytics at Clear Capital. “With more than one-third of national home sales being REO, market prices are being weighed down as many markets have not regained enough footing to withstand the strain of the high proportion of REO sales.
In light of the compounding effects of winter’s seasonal slowdown and increased distressed sale activity, the market now faces the true test of whether prices can rebound in the historically active spring season,” added Villacorta.
As national home prices reached new lows this past winter, hopes remain for a spring revival. Markets have entered uncharted territory, however, as this current home buying season will be the first since 2008 without any tax credit incentive. A note of caution to those looking for a strong end to 2011: The last time no incentives were in place and distressed inventories were this high, home prices fell sharply."
Read more at Clear Capital.
Updates: Gold, Silver, S&P, Treasuries, Munis, Greece, Housing, Fed (5/4/2011-5/9/2011)
Interview with Jim Rogers: Why Gold Can Go Higher (TheStreet.com) 5/9/2011
Deutsche Bank To Invest $1 Billion In Oil And Gold For John Paulson (ClusterStock) 5/9/2011
Kass: Sell the Rallies (TheStreet.com) 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)
Deutsche Bank To Invest $1 Billion In Oil And Gold For John Paulson (ClusterStock) 5/9/2011
Kass: Sell the Rallies (TheStreet.com) 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)
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| Source: BloombergTV |
"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?
"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?)
SPX 1475 2011 Target, 1,250 Low (FreeStockCharts)
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)
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| Jim Chanos (Source: CNBC) |
"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
It's Time for Obama to Spook the Oil Markets - Guest Post
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| Oceandesetoiles - Flickr |
It's Time for Obama to Spook the Oil Markets
The fate of the Obama presidency hangs not on a birth certificate or the red ink on the federal budget but by the hose nozzle of your local gas station.
Electoral discontent is measured by the price of a gallon of gasoline. Heading past $4 toward $5, that is a lethal trajectory for President Barack Obama.
Enter the demagogues, especially the clown-in-a-business-suit, Donald Trump. Unfettered by the gravity that goes with facts, Trump says that he would fix the oil price - now around $110 a barrel - by facing down the producers, particularly the Organization of the Petroleum Exporting Countries (OPEC). He told an interviewer on television that he would call OPEC and tell them to pump more or face the consequences. The latter, he did not specify. War? Against whom?
In a compelling book by Leah McGrath Goodman, "The Asylum: The Renegades Who Highjacked the World's Oil Market," the author lays out the ugly fact that often - in fact, as often as not - the price of oil is set not in Vienna at the headquarters of OPEC, but in downtown Manhattan at the New York Mercantile Exchange (NYMEX).
Tens of thousands of future contracts are traded in nanoseconds at the NYMEX, and the price of oil is set. This price affects not only the price which will be paid when these contracts expire and delivery takes place, but also, according to Goodman, the all-important over-the-counter market, where sellers trade more directly with buyers without government oversight.
Wednesday, May 4, 2011
SEC Charges UBS With Bid-Rigging 100 Muni Bond Reinvestment Transactions, Pays $160 Million
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| Source: SEC.gov, UBS transactions pdf |
Source: http://www.sec.gov/news/press/2011/2011-105.htm (hat tip DealBreaker).
SEC Charges UBS with Fraudulent Bidding Practices Involving Investment of Municipal Bond Proceeds
FOR IMMEDIATE RELEASE
2011-105
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.
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 (ineteconomics.org). 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
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)
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| SLV (StockCharts.com) |
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)
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 WhiteHouse.gov.
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.
Friday, April 29, 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
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| XLI near 2007 high (freestockcharts) |
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| XLI ISE Put/Call Ratio (ISE) |
For more information on this trade read "Industrials Call Trades Jump Before Caterpillar Report" at Bloomberg.com. See more snapshots below.
Tuesday, April 26, 2011
Richard Koo: Fiscal Stimulus Required To Keep U.S. From Following Japan (Deflation) Until Private Sector Recovers
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| Richard Koo (BloombergTV) |
"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."
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 www.kitco.com]](http://www.kitconet.com/charts/metals/silver/t24_ag_en_usoz_2.gif)
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| SILVER SPOT USD/OZ (source: Kitco.com) |
Monday, April 25, 2011
Jeremy Grantham: "Days of Abundant Resources and Falling Prices Are Over Forever"
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| GMO Commodity Index (Source: GMO April 2011 Letter) |
"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.
Summary
- 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."
China Has 64 Million Vacant Apartments, Shanghai Property Index Near Inflection Point, Andy Xie On Inflation
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| 10y Shanghai Property Index (000006.SS) - Yahoo Finance |
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?
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| 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" (FT.com, 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)
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| NYSE (Source: Wikimedia) |
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 (ino.com) 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.
