Tuesday, August 30, 2011

EURUSD Sells Off Sharply At Resistance, ECB Could End Rate Hikes (Links/Charts)

EURUSD couldn't break above the 7/26 high (1.45358) this morning and sold off sharply. It testing the first uptrend line on the chart. I'm not sure what the exact catalyst was, but this could be it: "Euro Weakens as Trichet Spurs Bets Interest Rate Rises Over; Franc Gains" (Bloomberg.com). Read more articles after the charts.


EUR/USD (courtesy of FreeStockCharts.com)



Euro-Zone Economic Sentiment Slumps -European Commission (NASDAQ)

EU Seeks Action on Greek Deal (Finland is demanding collateral for Greece's second bailout) (WSJ)

FOREX: Euro retreats from day's high, stung by econ risks (Reuters)

European Banking Authority (EBA) chief Andrea Enria says inject EFSF capital directly into banks  (Welt.de, Financial Times Germany translate)

Futures Drop Before Data, Fed Minutes (WSJ)

Jakobsen Says ECB May Enact QE to Help Bank Funding (Bloomberg Video)

European Banks Need Bigger Greek-Bond Writedowns, IASB Says (Bloomberg)

FOREX: Euro at Risk as Debt Fears Return, US Dollar May Rebound (Daily FX)

Richard SulĂ­k (SaS): Slovakia resists Greece rescue (Welt.de, translate) 8/27/2011


Monday, August 29, 2011

Corn ETF Breaks Out On Lower Yield Projections (USDA, Pro Farmer Tour), Corn Future Near June Highs

Illinois Corn (courtesy of Randy Wick on Flickr)
Have you noticed that the Teucrium Corn Fund ETF (CORN:NYSE), which invests in corn futures, broke out recently? I noticed the setup when I was writing about Adecoagro (NYSE:AGRO) on 8/20/2011, a South American farm company that owns over 283 thousand hectares of farmland and majority owned by Soros Fund Management. When equities were crashing this month, corn was being propped up by lower yield projections. On August 11, the USDA (Google doc) lowered its national corn yield projection to 153 bushels per acre (12.914 billion bushels):

USDA Corn Projections (8/11)
"U.S. feed grain supplies for 2011/12 are projected lower this month with sharp drops in forecast corn and sorghum production. Corn production for 2011/12 is forecast 556 million bushels lower with a reduction in harvested area and lower expected yields. The national average yield is forecast at 153.0 bushels per acre, down 5.7 bushels from last month’s projection as unusually high temperatures and below average precipitation during July across much of the Corn Belt sharply reduced yield prospects." (click here for the latest report at USDA)

And then on 8/26/2011 (last Friday), the 2011 Pro Farmer Tour estimated that corn yields would be even lower at 147.9 bushels per acre (12.484 billion bushels).

"Pro Farmer pegs 2011 U.S. corn crop at 12.484 billion bushels; average yield 147.9 bu. per acre +/- 1% = 146.45 bu. to 149.4 bu. per acre; 12.36 billion to 12.61 billion bushels."
"NOTE: Pro Farmer editors believe USDA will eventually lower harvested acres for both corn and soybeans, but USDA’s Aug. 1 harvested acreages were used in making these estimates...." (continue reading at Agweb.com/profarmer)

So that explains the strength in corn recently. Below are charts of the Corn ETF and future (ZC), and then links to articles. You can see how the Corn ETF broke out earlier this month and ZC is close to testing the June high. Also, the U.S. Dollar is testing June, July and August support. If it rolls over here it could test the May lows (72.70). Will the euro zone debt crisis ever affect the Euro? EUR/USD is currently trading at 1.45.

Sunday, August 28, 2011

Live Coverage of Hurricane Irene (WCBS-TV New York, NASA Image)

Watch live coverage of Hurricane Irene courtesy of WCBS-TV New York on Ustream (after the jump).

Hurricane Irene Makes Landfall in North Carolina (NASA Goddard Space Flight Center on Flickr)


Saturday, August 27, 2011

Bernanke's Jackson Hole Speech Text; No QE3 But Reiterated Low Rates, Policy Tools (8/26/2011)

Bernanke didn't mention QE3, but reiterated that "economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013"; and "the Federal Reserve has a range of tools that could be used to provide additional monetary stimulus. We discussed the relative merits and costs of such tools at our August meeting. We will continue to consider those and other pertinent issues, including of course economic and financial developments, at our meeting in September." The S&P 500 and gold both closed higher on Friday.

"Chairman Ben S. Bernanke
At the Federal Reserve Bank of Kansas City Economic Symposium, Jackson Hole, Wyoming

August 26, 2011

The Near- and Longer-Term Prospects for the U.S. Economy

Good morning. As always, thanks are due to the Federal Reserve Bank of Kansas City for organizing this conference. This year's topic, long-term economic growth, is indeed pertinent--as has so often been the case at this symposium in past years. In particular, the financial crisis and the subsequent slow recovery have caused some to question whether the United States, notwithstanding its long-term record of vigorous economic growth, might not now be facing a prolonged period of stagnation, regardless of its public policy choices. Might not the very slow pace of economic expansion of the past few years, not only in the United States but also in a number of other advanced economies, morph into something far more long-lasting?

I can certainly appreciate these concerns and am fully aware of the challenges that we face in restoring economic and financial conditions conducive to healthy growth, some of which I will comment on today. With respect to longer-run prospects, however, my own view is more optimistic. As I will discuss, although important problems certainly exist, the growth fundamentals of the United States do not appear to have been permanently altered by the shocks of the past four years. It may take some time, but we can reasonably expect to see a return to growth rates and employment levels consistent with those underlying fundamentals. In the interim, however, the challenges for U.S. economic policymakers are twofold: first, to help our economy further recover from the crisis and the ensuing recession, and second, to do so in a way that will allow the economy to realize its longer-term growth potential. Economic policies should be evaluated in light of both of those objectives.

Friday, August 26, 2011

EUR/USD Action Before Bernanke's Jackson Hole Speech, GDP Report

EUR/USD is testing the upper-bound of the descending channel. It is currently fighting the first near-term trend line.

EUR/USD 5-Month Chart (freestockcharts.com)

EUR/USD Longer Term (freestockcharts.com)
News:
  • Dollar Falls Before Bernanke Speech, U.S. Economic Growth Data (BusinessWeek)
  • Europe stocks fall but short sell ban boosts banks (Reuters)
  • Finland Committed to Greek Demands as Talks Over Collateral Model Continue (Bloomberg)
  • Pace of Euro-Zone Lending Slows (WSJ)
  • KBC Market Research: Currency markets spooked by 'wild' rumours - (FX Street)
  • Greek CDS rises, Finnish collateral threat persists (Reuters)
  • Tomorrow's "Other" Event - A Sub-1% GDP Report (Zero Hedge)
  • Bernanke: will he or won’t he? (Financial Times)
  • Bernanke Scholar Advises Bernanke Fed Chief (Bloomberg)
  • German Bunds steady as markets focus on Bernanke (Reuters)
  • Spain growth slows, recession fears loom (Reuters)

Investor Interest in U.S. Biofuel Production Set to Soar - Guest Post

Source: U.S. Navy (Algae/Camelina fuel)
Guest post by OilPrice.com

Investor Interest in U.S. Biofuel Production Set to Soar

On 16 August President Obama announced that the U.S. Departments of Agriculture, Energy and Navy will invest up to $510 million by 2014 in partnership with the private sector to produce advanced "drop-in" aviation and maritime biofuels for military and commercial use. This builds on a directive Obama issued five months ago as part of his "Blueprint for A Secure Energy Future," his administration's policy for reducing U.S. dependence on foreign oil imports, which now cost more than $300 billion.

The plan envisages the three federal departments to invest a total of up to $510 million, which will require substantial cost sharing from private industry, with projected matching funds of least one to one.

President Obama declared, "Biofuels are an important part of reducing America's dependence on foreign oil and creating jobs here at home. But supporting biofuels cannot be the role of government alone. That's why we're partnering with the private sector to speed development of next-generation biofuels that will help us continue to take steps towards energy independence and strengthen communities across our country."

Thursday, August 25, 2011

European Bank Credit Default Swaps (RBS CDS Spread) Make New Highs Even After Bailouts!

Royal Bank of Scotland 5Y CDS (bloomberg.com)
UPDATE: I found charts of European Bank CDSs (bond insurance premiums) online at Bloomberg.com.

Royal Bank of Scotland 5Y CDS
Lloyds TSB Bank PLC Bank 5Y CDS
BNP Paribas SA 5Y CDS
UBS AG 5Y CDS
UniCredit SpA 5Y CDS
Societe Generale SA 5Y CDS
Banco Santander SA 5Y CDS
Credit Agricole 5Y CDS
ING Groep NV 5Y CDS
Banco Popolare SC 5Y CDS
Commerzbank AG 5Y CDS
Bank of Ireland 5Y CDS
Deutsche Bank 5Y CDS

Two and a half years later, after taxpayers bailed out all of these banks, their credit default swap spreads are at record "wides" again! Read these articles at The Telegraph and PragCap: "Cost of insuring RBS debt reaches historic high" (Telegraph 8/24, Bloomberg chart), Market crash 'could hit within weeks', warn bankers" (Telegraph, 8/24), "CDS Market To Euro Banks – This Is Worse Than 2008" (Prag Cap, 8/22 with Danske Bank chart of Barclays, Credit Agricole, Societe Generale, Unicredit, Banco Santander, BNP Paribas CDS). With Royal Bank of Scotland's CDS making new highs, why the hell was its stock (RBS:NYSE) up 7.37% yesterday? Here are charts of RBS's stock and 5Y CDS. Its stock looks like Bank of America, no?

Royal Bank of Scotland Stock (stockcharts.com)
Europe Financials Debt Insurance Costs Rise To Record Highs (Dow Jones, 8/24/2011)

"Investors are worried that during times of quickly deteriorating asset prices, high volatility, and rising risks to the economic recovery, banks could be left with too little capital and a potential lack of support since governments are constrained by high indebtedness," UniCredit credit strategist Christian Weber said."

Wednesday, August 24, 2011

Steve Jobs Resigns as CEO of Apple (Resignation Letter), Tim Cook Named CEO (Press Release)

Steve Jobs for Fortune magazine
Courtesy of tsevis on Flickr (for Fortune)
Big news for Apple fans and shareholders: Steve Jobs resigned as Apple's CEO and Tim Cook (COO) is taking over. Below is his resignation letter and Apple's press release. I also embedded a video of Steve Jobs' 2005 Stanford commencement speech, which I thought was interesting. E-mini Nasdaq is down 1% tonight.

"Letter from Steve Jobs

To the Apple Board of Directors and the Apple Community:

I have always said if there ever came a day when I could no longer meet my duties and expectations as Apple’s CEO, I would be the first to let you know. Unfortunately, that day has come.

I hereby resign as CEO of Apple. I would like to serve, if the Board sees fit, as Chairman of the Board, director and Apple employee.

As far as my successor goes, I strongly recommend that we execute our succession plan and name Tim Cook as CEO of Apple.

I believe Apple’s brightest and most innovative days are ahead of it. And I look forward to watching and contributing to its success in a new role.

I have made some of the best friends of my life at Apple, and I thank you all for the many years of being able to work alongside you.

Steve"

Apple's press release naming Tim Cook as CEO and Jobs' 2005 commencement speech.

Gold ETF is Testing Resistance On Two Trend Lines (GLD, GLD/SPY, USD, UUP Charts) 8/23/2011

I'm watching GLD again after its two month parabolic move and 20 day spike in SPY terms. Gold (XAU/USD) hit 1,910 on Monday and then fell to 1,820 yesterday. From July 1 to August 22, gold moved parabolically from 1,500 to 1,900 (+26%). Is it exhausted yet using DeMark indicators? I bet gold sees volatile swings soon. Let's see 7% days. I put trend lines and channels on GLD, GLD/SPY, $USD and UUP charts using multiple time frames below. GLD is trading at uptrend resistance levels on two trend lines, one from 2006 and the other from 2009. If GLD moves vertically here through resistance, it will be in a whole new world. The overall trend is up until GLD breaks major uptrend lines. Gold has been in a bull market for 11 years. Get ready for crazy moves in gold, the U.S. Dollar and equities on Friday when Bernanke gives his Jackson Hole speech. The US Dollar ETF is testing an important downtrend and floor support level. A catalyst will determine its fate very soon. Charts are courtesy of StockCharts.com.

Tuesday, August 23, 2011

Recap of Today's BofA Drama; BAC Blames Henry Blodget For Stock Sell Off

Source: Flickr
Today was somewhat interesting for Bank of America, BAC analysts and financial bloggers. Below is Bank of America's press release (via WSJ's Market Beat) blaming today's stock sell off on Henry Blodget's blog post. Bank of America should explain why its credit default swap spreads (insurance premiums on its bonds that trade over-the-counter) are near record highs.

"Mr. Blodget is making “exaggerated and unwarranted claims,” which is what the SEC stated publicly when he was permanently banned from the securities industry in 2003.

The sovereign exposure is off by a factor of 10.

The commercial real estate figures are off by a factor of four.

The mortgage analysis was provided by a hedge fund that has acknowledged it will benefit if our stock price declines.

The blogger’s recommendations on goodwill accounting would be prohibited by generally acceptable accounting practices.

Traditional bank valuation relies upon tangible book value per share, which excludes by definition 100 percent of goodwill and other intangibles. As of June 30, our tangible book value per share was $12.65."

These posts supposedly moved BAC today. Did they move BAC's credit default swaps as well? (lol)

Bank of America CDS Back at 2009 Highs (XLF, BAC, C, WFC, BAC CDS, Clog Index Charts)

BAC 5Y CDS (source: Bloomberg)
The banks that were bailed out in 2008/2009 are now under pressure again. Is Bernanke going to save the day on Friday during his Jackson Hole speech? Bank of America ($BAC) and its 5Y credit default swaps are leading the way back to early 2009 levels. BAC is trying to unload its stake in China Construction Bank Corp to raise capital (BofA to maintain stake of at least 5% in CCB: China Daily, Bloomberg).

The end of QE2, global economic slowdown, recent equity crashes, euro zone sovereign debt and banking crises, falling ABX and CMBX prices / rising premiums (credit default swap indexes insuring pools of subprime residential and commercial mortgage securitizations from 2005-2008) and the recent sunspot cycle correction are probably all responsible for the volatility recently (why sunspots). I want to show you charts of XLF, BAC, BAC CDS, C, WFC and the Financial Clog Index. See the CMBX Index and more at Zero hedge (links below). S&P, Dow and Nasdaq futures are up big tonight, while gold and the dollar are down. The next big moves will probably be Gold (going parabolic), EUR/USD (triangle squeeze coming) and DXY (testing floor support, downtrend). Those charts deserve a separate post. Traders are placing bets on whether the Fed continues to support the stock market and economy (Bloomberg).

XLF (Financials Select SPDR) broke through a 2-year channel. It looks ugly... Will the Fed backstop channel support?

Monday, August 22, 2011

Felix Zulauf Sees S&P Bottoming at 500 (Book Value), Bullish On Gold (Price/Book Ratio Chart)

Felix Zulauf, founder of hedge fund Zulauf Asset Management, was interviewed by McAlvany Weekly Commentary on July 6 and had interesting views on the market. Listen to the full 53 minute interview here or read the full transcript ("Felix Zulauf: Marching Full Speed into Calamity"). Zulauf thinks the S&P bottoms at book value, or about 500, during the secular bear market, and believes gold is the best hedge against an "inflationary depression" as central banks keep printing money to prop up the system. He also discusses the euro zone sovereign debt crisis and the possible end-game. During a Barron's roundtable discussion on 8/13/2011 (see below), Zulauf gave his short term views on the market (hat tip PragCap). I also put up a chart of the S&P 500 price/book ratio.

Quotes from the McAlvany interview:

"But even during the 1970s and early 1980s, the last major secular lows in the stock market, we were trading slightly below book value at maybe 90% of book value or something like that. I did expect the stock market to decline into a secular low to around a book value of slightly below that. Book value is roughly 500 or a little bit over 500, depending on how you define it.

Sunday, August 21, 2011

Libyan Opposition Forces Now In Control of Tripoli (Al Jazeera English Video Clips)

According to Al Jazeera English, Tripoli is now in the hands of the opposition, but there are still pro-Gaddafi "sleeper cells". Muammar Gaddafi, and his sons Saif and Mohammed, have been detained by rebel forces (Update: Saif escaped! See below). Gaddafi's 40 year regime could be over. Watch the the events unfold live in Tripoli's Green Square, Benghazi's Freedom Square and Misrata on Al Jazeera English. I embedded video clips below. Also monitor the Twitter conversation on Gaddafi.

South American Farmland Co. Adecoagro is Soros' Largest Holding As of 6/30/2011

AGRO vs. CORN, CCI Index, S&P GSCI Commodities Index (StockCharts)
I've been tracking Adecoagro (NYSE:AGRO) since it went public in January and it is Soros Fund Management's largest holding as of 6/30/2011, worth $264.4 million (13F SEC Filing). The fund sold 2.62% of its shares during Q2, so we'll see if Soros dumped it or added to his position after June 30 (See AGRO's institutional holdings at nasdaq). The stock is down 26% from its post IPO high of $13.5 smackers. Is this action pricing in future food price declines from a global recession (if that's what markets are pricing in) and monetary tightening in China?

AGRO fell in tandem with the World Bank Food Index, S&P GSCI Commodities Index and Reuters-CRB CCI Commodities Index after the World Bank Food Index peaked in February 2011. The CORN ETF, on the other hand, is testing the June highs which is interesting. The recent USDA corp production report was bullish for corn, read more at AgJournal. In the World Bank report, China, Ethiopia, Guatemala and Vietnam saw huge food price moves. Ethiopian food prices are up 45% year-over-year and its currency depreciated against the Dollar. So, back to the original topic of this post. Adecoagro is a huge agricultural commodities play if the ag boom continues.

Thursday, August 18, 2011

Philadelphia Fed Manufacturing Index Falls To -30.7, Lowest Since March 2009

The diffusion index of the Philadelphia Fed Business Outlook Survey fell to -30.7 in August from 3.2 in July. Read the report here in pdf form. The survey covers eastern Pennsylvania, southern New Jersey and Delaware. During the past few weeks the S&P has been trying to price in this economic weakness. It is currently down 4.91% today. Here's an interactive historical chart of the index. It hit a high of 43.4 in March; nice volatility.

German DAX Composite Down 20.62% Since Beginning Of August (Chart)

The DAX is down 3.38% this morning. I can't believe it lost 23% in eleven days. A 20% price decline is considered a bear market.

German DAX Composite (StockCharts.com)
Related:

Morgan Stanley “Dangerously Close to Recession” – Lowers GDP Estimates (HedgeAnalyst)

German Bund Yield Slides to 11-Month Low Amid Concern Growth is Faltering (Bloomberg)

Germany's discouraging GDP data adds to fears (Bloomberg News/Deleware Online)

German Slowdown Sapped Euro-Zone Growth in Second Quarter (Spiegel)

It’s a Technical Mess All Over the World: Yamada (Breakout Video)

EUR/USD Formed New Channel, Waiting For Big Catalyst (Technical Update, Articles)

EUR/USD is waiting for a big catalyst that will force it out of a symmetrical triangle. Yesterday, EUR/USD spiked to 1.45173 after piercing through the 8/15 high (1.44772), but since then it retraced a bit and is currently trading at 1.44105 (where it's been for months). The top yesterday formed a new descending channel, and if you connect the recent downtrend with the major uptrend from June 2010/January 2011, you have a symmetrical triangle inflection point. The two recent highs, 1.45173 and 1.45358, are now important resistance levels to break if EUR/USD wants to proceed to 1.50 and beyond.

EUR/USD - FreeStockCharts.com 8/18/2011

Euro zone news:

Finns Set Greek Collateral Trend as Austria, Dutch, Slovaks Follow Demands - Bloomberg

German Finance Minister, Wolfgang Schaeuble: No need to further strengthen the EFSF - Capital.gr (translated)

"Morgan Stanley cuts 2011 Eurozone GDP forecast to 1.7% from prev. forecast of 2%, sees material risks of outright recession" - Ran Squawk

S&P Confirms France's AAA Rating, Stable Outlook - WSJ

Markets give eurozone plan cool reception - Financial Times

Debt Crisis Could Leave Eurozone With No Triple-A Sovereigns - Euromoney

ECB’s Nowotny Says Italy Not Greece, Too Early for Euro Bonds - Bloomberg

George Soros interviewed at Der Spiegel: #1: 'You Need This Dirty Word, Euro Bonds, #2: 'You Can Count on China To Back the Euro'

Chavez is Nationalizing Venezuelan Gold, Rusoro Mining Chart, China Forecasts Cut (Links)

Rusoro Mining (RML) Courtesy of StockCharts.com
Chavez is nationalizing Venezuela's gold sector. According to Reuters, TSX listed Rusoro Mining Ltd. (RML.V), which is run by Russia's Agapov family, is the "only large gold miner operating in Venezuela and produced about 100,000 ounces of gold in Venezuela last year. The company said export limits by the Government hurt its ability to finance attractive mining projects. Rusoro's stock closed at $0.125 per share today, down 93% in 4 years.

Venezuela news:

  • Chavez to nationalize Venezuelan gold industry (Reuters)
  • Chavez Emptying Bank of England Vault as Venezuela Brings Back Gold Hoard (Bloomberg)
  • As Chavez Pulls Venezuela's Gold From JP Morgan, Is The Great Scramble For Physical Starting? CME Group metal depository statistics table - (Zero Hedge
  • Venezuela Plans to Move Reserve Funds (WSJ)
  • Venezuela moves reserves to BRIC nations (Reuters)
  • Venezuela expects $4 bln loan from Russia - Chavez (Reuters)
  • Pension scandal shakes up Venezuelan oil giant PDVSA - (Reuters)
China analysis:

  • China Forecasts Cut by Morgan Stanley, Deutsche (Bloomberg)
  • Bad Debt at China Banks Growing: Jain (Bloomberg)
  • Local Govt Loan Risks 'Under Control': CBRC - (China Daily)

Wednesday, August 17, 2011

Technical Views From Louise Yamada and Tom DeMark (8/16/2011)

Source: Flickr
Technical Analysis: Louise Yamada, founder of Louise Yamada Technical Research Advisors, believes a new cyclical bear market has been confirmed. Watch her three interviews on Breakout (Yahoo Finance).
  1. Market in Death Cross Mode: Stay on the Sidelines
  2. It’s a Technical Mess All Over the World: Yamada
  3. Gold, Oil & the Dollar: Correlation Breakdown Is Concerning
"We've finished the bull market, the cyclical bull, and we're in a new cyclical bear. Most of the global markets are down 20% or more. The New York Stock Exchange, the Russell 2000 are already at the bear market 20% threshold. And having in place our three momentum sell signals on a monthly basis for most of the markets except the U.S. at this point, suggests that we're in a cyclical bear market."

Tom DeMark, founder of Market Studies, thinks the S&P makes a new low during this sell-off and then breaks above the April high. Overall though DeMark said the "trend is down." Peter Lee, Chief Technical Analyst at UBS, also sees one more high in the S&P before it completes its cyclical bull run. Interesting.

DeMark Says Stock Rally May Begin in Weeks, Europe Banks 'Buys' (SFGate/Bloomberg)

"We're at the point right now where the next trip down will probably generate a buy signal," said DeMark, founder of Market Studies LLC. "Everything we follow is indicating the Dow Jones and the S&P should make a minor new recovery high, and probably the Nasdaq, too." (read article at SF Gate)

Prechter: Wave 3 is Broader and Stronger, Deflation Gaining Upper Hand Again

Robert Prechter, founder of Elliott Wave International, hasn't really changed his views since last year. Did QE2 backstop wave 3? The S&P is actually right back where it was before QE2 started. During his CNBC interview he said, "if the decline of 2007-2009 was the first wave down, under the Elliott Wave model the second decline, which we call the third wave, is usually a lot broader and a lot stronger, so that's why I was trying to position people for a really dramatic turn to the downside, and probably one that's going to last a while" (through 2016). He also said "deflation is gaining the upper hand again" and to stay in cash or short rallies. He thinks we are in the early stages of a depression, but sees one of the greatest buying opportunities ahead. I embedded the video from Elliott Wave's site after the jump (w/ EW's news feed).

Soros: US Markets See Recession Ahead, Not Shorting Euro (China Has Interest)

George Soros - World Economic Forum on Flickr
In a long interview with Spiegel on Monday, George Soros, chairman of Soros Fund Management, said the creation of euro bonds would save the euro zone, but "if the euro were to break up, it would cause a banking crisis that would be totally outside the control of the financial authorities" and cause a great depression. However, Soros is not shorting the euro because he sees China as the "mystery buyer" (the China put?).

At the end of last June, EUR/USD and equities rallied after Chinese Premier Wen Jiabao said China would continue to buy European government debt and support the euro (Bloomberg). I see EUR/USD as the next big trade once it gets forced out of the symmetrical triangle. Soros also said U.S. markets are predicting a double dip recession ahead... Read the full interview at Spiegel

Tuesday, August 16, 2011

10 Year Treasury Note Yield Near 1941, 2008 Lows (1.95%, 2.04%)

The 10 Year Treasury Note Yield hit a low of 2.09% on August 10, 2011, which is 5 basis points above the low made in December 2008 (2.04%) and 14 basis points above the 1941 low of 1.95% (Robert Shiller's data pre-1953). The yield closed at 2.28% today. Mutlpl.com has the historical chart going back to 1881. The site also has the S&P 500 P/E ratio, dividend yield, earnings, inflation rate and more. A 10Y yield below 2% would be interesting to see.

Historical chart of 10 Year Treasury Note Yield (source table at multpl.com)


$TNX - 10 year Treasury Note Yield (2008, 2011 lows) - StockCharts.com

Monday, August 15, 2011

Linkfest For 8/15/2011

  • Google (GOOG) to Acquire Motorola Mobility (MMI) for $12.5 Billion or $40/share (12,000 patents) - Google
  • Supercharging Android: Google to Acquire Motorola Mobility - Google Blog
  • ECB buys €22bn in eurozone bonds - FT.com
  • Berlin braces against calls for common 'eurobonds' - Deutsche Welle
  • World Bank's Zoellick Sees 'New Danger Zone' in Global Economy - SF Gate
  • Mutual Fund Brokers Hurt By Lack Of ‘Cash On Hand’ During Down Economy - Inquisitr
  • Zulauf: Own Gold, Treasuries, No Debt & Get Out Of Equities - Pragmatic Capitalism
  • Next Week's Market Charts That Matter (Goldman Sachs) - Zero Hedge
  • Hong Kong Recession Risk is Global Warning: Forecaster - Bloomberg
  • H.K. Apartment Sellers Cut Asking Prices - Bloomberg
  • Singapore Prime Minister: Global Recession Is 'A Possibility' - WSJ
  • Fannie Mae and Freddie Mac's fire sales are crippling metro Detroit communities - Detroit Free Press
  • London House Prices Plunge on Financial Turmoil - Bloomberg
  • Japan's Economy Shrinks but Beats Expectations - WSJ
  • George Soros: Three steps to resolving the eurozone crisis - FT.com
  • Italian unions threaten strike over new austerity - AP
  • Sterling No Refuge as King Eyes Stimulus - Bloomberg
  • Satyajit Das: The Real Debt Crisis is in Europe – Part 1 – “Solvency But Not In Our Time” - Naked Capitalism
  • Denial In Germany & France Only Increases The Risks In Europe - Pragmatic Capitalism
  • German government no longer rules out euro bonds - report - Reuters (?)
  • Warren Buffett: Stop Coddling the Super-Rich - NYT
  • ECB is euroland's last hope as bail-out machinery fails to resolve crisis - Telegraph
  • Eurobonds needed "fast," says German export group - Reuters
  • Are You Ready To Not Fight The Fed…… Again? - The Macro Trader

Secular P/E Ratio Bears vs. S&P Earnings Yield-Treasury Spread Bull

A look at the bear market and 
monthly MA's from my previous post
Comstock Partners continues to believe we're in a secular bear market in their latest post titled "Lengthy Bullet Points on our Bear Case Regardless of Interim Rallys(8/4/2011):

"Although many on Wall Street believe the market is currently undervalued we disagree. The market expected the S&P 500 to earn $108 in early May of 2008 but due to the bursting of the bubble the earnings came in at $50 for operating earnings (excludes write-offs) and $15 for reported earnings (GAAP). The analysts that are using $100 this year and more next year for the S&P 500 and a P/E of 15 to magically come up with 1500 on the index are guilty of faulty reasoning. We believe we will trade at below 10 times depressed earnings which should take us down to the lows of 2009 or below. It is clear to us that there will have to be a global slowdown in the second half of this year and next. The reasoning for the slowdown is again the debt, but not just the sovereign debt, the private debt is even worse than the public debt." continue reading

John Hussman of Hussman Funds believes this as well. From tonight's note, "Two One-Way Lanes on the Highway to Hell":

Sunday, August 14, 2011

Ukraine to Cut Gazprom's Umbilical Cord? - Guest Post

Source: Photobucket
Guest post by OilPrice.com

Ukraine to Cut Gazprom's umbilical cord?

Sometimes it's not easy being Russia's neighbor - just ask Ukraine. Ever since the 1991 implosion of the USSR, Ukraine's relations with Russia have appeared between coldly formal and outright hostility, with a major irritant being the increasingly high prices Gazprom charges for natural gas.

Gazprom in turn needs access to Ukraine's pipeline network in order to reach its profitable European customers. Faced with this symbiotic relationship, Kiev has been assiduously looking for ways to break out of its dependency on Russian energy imports, and now it looks as if this may in fact be coming true.

The head of Ukraine's state geology and subsurface resource service Gosgeonedr Eduard Stavitsky said, "Today, the state fund of subsurface resources is about 1.1 trillion cubic meters of gas and about 130-150 million tons of oil with gas condensate. In from seven to ten years, Ukraine will be able to fully supply itself with gas and oil, excluding the purchase of imported energy resources."

Friday, August 12, 2011

Links: Gundlach, Prechter, Nenner, Koo, Whitney, Grantham (Deflation Theme)

The theme of this linkfest is deflation. The chart is of the 30-year Treasury bond yield since 1997. Is the U.S. turning into Japan?

  • Jeff Gundlach of DoubleLine Capital: Treasuries Could Rally Even Higher - Morningstar video at Pragmatic Capitalism

    "if you're going to address the deficit problem even incrementally, low Treasury bond yields make tremendous sense, because addressing the deficit fairly clearly leads to weaker economic growth.

    Already, we have $350 billion of fiscal drag coming our way in 2012 if policies are not changed with the sunsetting of tax cuts from the Bush era and also from the payroll tax reduction that was put in place at year-end 2010. $350 billion of fiscal drag is a lot, particularly when we're living with de minimis GDP growth to begin with, in the first half of 2011. Let's remember, the first half of 2011 GDP growth was a beneficiary of stimulus. (from Morningstar transcript)

  • "Meredith Whitney discussed how the US banking system is turning Japanese as zombie banks dominate the market" - CNBC at Pragmatic Capitalism
  • "Richard Koo (Nomura) discusses the balance sheet recession and how the U.S. is making the same mistakes as Japan (private sector de-leveraging during fiscal consolidation). - Bloomberg at Pragmatic Capitalism
  • Charles Nenner thinks gold is going to $2,500, the U.S. Dollar remains the world's reserve currency, and says own Treasury bonds not stocks during the deflationary depression - Breakout video #1, video #2

    "I don't see any idea why you should be long the market. What I see is why you should be long the bond market because as you know I've been calling for deflation. And not a recession, I think we could go into a depression during the next couple of years" (Charles Nenner in video #2)

Thursday, August 11, 2011

S&P Bounced Off 200 Month Moving Average, Could 50MMA Cross The 200MMA?

The S&P 500 is down 16% in a month and trading exactly where it was last year before Bernanke's Jackson Hole speech on QE2. The S&P crashed through the 50 month moving average (blue line) and bounced off the 200 month moving average (red). I think the 200MMA is a critical long-term support level to hold on the S&P. The S&P pierced the 200MMA in late 2008 during the financial crisis and now it's retesting that level. Other than late 2008 and early 2009, the S&P hasn't been below the 200 month moving average since the 1970s (see chart 3 below). I need more data to know exactly.

The S&P broke above the 50 month moving average during QE2, but failed a month after QE2 ended. So now the 50MMA is resistance along with the new downtrend line using the 2007 and 2011 peaks (chart 2). If you're a technical bull, are you thinking QE3 destroys these resistance levels? It would be interesting if the 50MMA crossed the 200MMA. The ultimate death cross.

Wednesday, August 10, 2011

Judgment Day Near For EUR/USD, SocGen and French CDSs Widen (AAA Rating a Risk)

EUR/USD Judgment Day
Judgment day is near for EUR/USD. It is currently down 1.25% at 1.41699 and inside an important symmetrical triangle. The pair is in a tug of war between slowing economic growth, the sovereign debt crisis in Europe and the recent downgrade of U.S.'s credit rating. France's AAA credit rating is now a worry, which is why Societe Generale (SOGN.PA) is down 14% at $22.18 and its credit default swap (cost to insure its debt) widened 24% earlier today. Also this is interesting: "French CDS Are Where Italian CDS Were In July" (chart at Business Insider). The French CDS quote is at Bloomberg.

SocGen's stock has been trending down for a while now and I don't see support until the March 2009 low ($17.40). SocGen's CEO was on CNBC earlier today, I embedded the video after the jump. More on French bank CDS action at Reuters:

EUR/USD 2 year (freestockcharts)
"BNP Paribas , Societe Generale and Credit Agricole CIB's credit default swaps widened sharply on Wednesday amid fears that France could soon lose its triple-A credit rating.

By 1510 GMT BNP Paribas' five-year CDS had widened 35 bps to 246 bps, Societe Generale's CDS was 65 bps wider at 334 bps while Credit Agricole CIB's CDS had widened 23.5 bps to 265 bps, according to Markit data." (Reuters)

John Taylor, who runs the $8 billion currency hedge fund FX Concepts, told BloombergTV on August 2 that he believes the Euro is going to 1.25 next!

CMA Adds CDS Data On Key Sovereign Debts To Its Free-of-Charge Daily Marketflash

If interested in following sovereign CDS (credit default swaps), CMA has a free product available.

CMA adds CDS data on key sovereign debts to its free-of-charge daily Marketflash

CMA Marketflash helps subscribers keep up-to-date with changes in sovereign credit risk quality

CMA, the leading source of reliable, independent OTC market data, today announced that for the rest of August it is publishing additional credit default swap (CDS) information on key sovereign debts to CMA Marketflash, its daily email sent free of charge to subscribers. This will help keep subscribers informed of changes in the quality of sovereign credit risk in the midst of increasing uncertainty following the rating downgrade of the United States credit rating and the continued volatility in European sovereign debt risk.


China's 5Y CDS Broke Out To Early 2009 Levels, FXI at 2010 Support Level (Charts/Links)

China 5Y CDS vs. FXI (see below)
China's 5-year credit default swap spread (CDS), or cost to insure its government bonds (or really credit risk that trades since China can always print Yuan), broke out to levels not seen since early 2009 this week (113 basis points on 8/8/2011). The CDS market is smarter than the rest, so I'm wondering what this means. It looks like FXI (iShares China 25 Index) and China 5Y CDS are inversely correlated, so does that mean FXI breaks through 2010 support at $35? Or will China hold on here. FXI is 50% weighted in financials. See charts below.

Why is China's sovereign credit risk rising? I remember last month Moody's released a report that said China's National Audit Office "could be understating banks' exposures to local governments" by $540 billion and said "these loans are most likely poorly documented and may pose the greatest risk of delinquency". According to The Diplomat (via Business Insider), China's Debt/GDP ratio could be much higher than reported (70-80% instead of 20%). Other than that, global economic growth is slowing, China is slowing, asset markets have been crashing globally, U.S's credit rating got downgraded (China owns $1.2 trillion of Treasurys and have a large portion of their $3.2 foreign reserves denominated in U.S. Dollars), the Dollar/Yuan peg hit new lows, PBOC has been raising rates and reserve requirements to try to curb inflation. So maybe all of this is starting to be priced in. Read all of these articles below on China's economy (and see FXI/China CDS charts).

Tuesday, August 9, 2011

FOMC Statement: Downside Risks To Economic Outlook, Low Fed Funds Rate Through Mid-2013

Federal Reserve (Source: Flickr)
Below is the full text of today's FOMC statement released by the Federal Reserve. FOMC members didn't announce QE3, but said ZIRP (zero percent interest rate policy) is expected through mid-2013.

"The Committee currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013."

They also see a "slower pace of recovery over coming quarters" and believe "downside risks to the economic outlook have increased".

David Rosenberg's Views On The Stock Market, Economy and Fed Meeting

David Rosenberg, chief market strategist and economist at Gluskin Sheff, shared his views on the market, economy and tomorrow's Fed meeting on Bloomberg TV last week (8/5/2011). Watch the clip below.

*John Mauldin posted his full "Breakfast With Dave" report at Pragmatic Capitalism which is a good read.

"As we had suggested in recent weeks, a U.S. downgrade was going to likely be more negative for the equity market than Treasuries, and that is exactly how the week is starting off. The reason is that history shows that downgrades light a fire under policymakers and the belt-tightening budget cuts ensue, taking a big chunk out of demand growth and hence profits. It is not just the United States — the problem of excessive debt is global, from China to Brazil to many parts of Europe. And let’s not forget the Canadian consumer." -David Rosenberg [continue reading]

Daily Technical Report By MIG Bank (August 8) - EUR/USD, USDX Featured

Below is a technical report on currencies and precious metals courtesy of MIG Bank, the first forex broker in Switzerland to become a Swiss bank. I presented their analysis on EUR/USD below, read the rest after the jump. Click here to read the full report on their website.

Source: MIG Bank
"EURUSD remains bearish under resistance at 1.4420.
  • Exited at 1.4205 (Breakeven). EUR/USD’s price activity remains bearish, despite a two-day reactionary bounce which failed in resistance at 1.4420. This confirms another bearish pattern, weighed down by additional failed breakouts from the major “Bermuda” triangle pattern. We prefer to open a trade setup once this pattern triggers a meaningful directional breakout.
  • Our long standing bearish view remains in play while the downtrend (from May) holds. A resumption of lower will target 1.3938 (200-DMA), where a large amount of die-hard trend followers will be watching closely for repeat support or a big squeeze lower. Only a close above 1.4580 will lead to a reassessment of this view.
  • Inversely, the US dollar index is resuming its oversold bounce from key support at 73.50-73.00. We expect this level to hold (as the last point of defence), helping launch a rebound back into 80.00 over the multi-week/month horizon."

Obama's Statement On U.S. Credit Rating Downgrade (Full Text/Video)

"THE PRESIDENT: Good afternoon, everybody. On Friday, we learned that the United States received a downgrade by one of the credit rating agencies -- not so much because they doubt our ability to pay our debt if we make good decisions, but because after witnessing a month of wrangling over raising the debt ceiling, they doubted our political system’s ability to act. The markets, on the other hand, continue to believe our credit status is AAA. In fact, Warren Buffett, who knows a thing or two about good investments, said, “If there were a quadruple-A rating, I’d give the United States that.” I, and most of the world’s investors, agree.

That doesn’t mean we don’t have a problem. The fact is, we didn’t need a rating agency to tell us that we need a balanced, long-term approach to deficit reduction. That was true last week. That was true last year. That was true the day I took office. And we didn’t need a rating agency to tell us that the gridlock in Washington over the last several months has not been constructive, to say the least. We knew from the outset that a prolonged debate over the debt ceiling -- a debate where the threat of default was used as a bargaining chip -- could do enormous damage to our economy and the world’s. That threat, coming after a string of economic disruptions in Europe, Japan and the Middle East, has now roiled the markets and dampened consumer confidence and slowed the pace of recovery.

So all of this is a legitimate source of concern. But here’s the good news: Our problems are eminently solvable.* And we know what we have to do to solve them. With respect to debt, our problem is not confidence in our credit -- the markets continue to reaffirm our credit as among the world’s safest. Our challenge is the need to tackle our deficits over the long term.


Monday, August 8, 2011

The S&P 500 Makes New Low In Gold, That Is Not Normal (SPX, VIX, VXX, GLD/SPY)

SPX:GOLD (see below)
Whether you think the S&P is undervalued or overvalued based on whatever financial metric you look at, the S&P in gold terms broke through the March 2009 low today, which is not normal. The fact that they aren't falling in tandem either is also strange. As noted in my previous post, the real value of the S&P 500 has been declining since 1999 when priced in gold. The S&P lost 6.66% today and futures are down another 2.25% overnight. Gold (XAU/USD) keeps making new highs. It is currently up 2.75% at 1,745 and broke above 1,700 last night. The VIX closed up 50% today at 48! What is this implying?

I compared the one month performance of VIX, SPX and VXX (VIX ETF) in a chart below. The VIX is up 200% in a month and a few days ago I noted that VIX futures and VXX volume made new highs. This action is interesting because the U.S. credit downgrade was expected and the ECB is buying Italian and Spanish debt (5Y Italy-German Bund spread was down 22% today). People are saying the sell off could be margin calls or a large hedge fund liquidating (BAC/Bank of America lost 20% today).

The market gave back all of its gains since QE2 started in November 2010, when the Fed started buying $600 billion worth of Treasurys to lower credit spreads, mortgage rates and boost asset markets. There is a Fed meeting tomorrow, so I'm wondering if another round of quantitative easing (QE3) is coming to save the markets? In June at a Federal Budget Committee Conference, hedge fund manager John Burbank of Passport Capital said: "I think the biggest thing is QE2 is ending and many investors assume QE3's magically right around the corner. If it's not, asset prices are going to fall. They are going to fall 10, 15, 20% and then the market can start speculating on QE3." That happened... See charts after the jump.

S&P Future Down Over 2% Pre-Open, Watch Peter Lee's Targets (1,120-1,150)

courtesy optionsxpress
Equity index futures are down more than 2% pre-open after S&P downgraded the U.S.'s credit rating to AA+ last Friday after the close. The sovereign debt crisis in Europe is also on the minds of traders (ECB news). Gold broke above 1,700 in USD and the E-Mini S&P 500 Future is currently down 2.48% at 1,168 (around 7am est).

Peter Lee, Chief Technical Analyst at UBS, warned everyone on Breakout last week that a break below 1,250 support on the S&P would hit stops and send the S&P down to 1,120-1,150. The E-mini future hit a low of 1,161 five days later. Amazing call. This chart definitely looks like a bounce is ahead, but it could hit those shoulders from 2010 at some point, which happens to be around Peter Lee's targets. In other technical news, judgment day is near for EUR/USD in the symmetrical triangle. I'm waiting to see if the Dollar or Euro breaks down.

Links: US Downgrade, Goldman Targets, Bill Gross, Hussman, Alan Greenspan - 8/8/2011

Frankfurt Exchange (Source: Flickr/orb_cz)
Bank of America: S&P May Downgrade US Again in November (CNBC Fast Money)

Goldman Hikes Its 12 Month Gold Price Target From $1,735 To $1,830 (Zero Hedge)

Goldman Puts The Sell-Off In Perspective (Pragmatic Capitalism)

Goldman Sachs slashes December target for Australian S&P/ASX 100 benchmark index (Australian)

Goldman Sachs upgrades India to market weight (DNA India)

Recession Warning, and the Proper Policy Response (John Hussman)

China official media: U.S. woes threaten global recovery (Reuters)

Yuan Jumps Most Since April on U.S. Downgrade (Reuters)

Bill Gross Tells The Truth: "S&P Finally Got It Right. They Are Enforcing Some Discipline. My Hat Is Off To Them" (Zero Hedge)

Japan rice futures jump in debut amid radiation worries (Reuters)

A.I.G. to Sue Bank of America Over Mortgage Bonds (New York Times)

Alan Greenspan talks about the U.S. Downgrade, Treasury bonds, the U.S. stock market and Italian debt on Meet The Press (video below). When asked how the market will react to the downgrade, Greenspan said:

"It's difficult to say, but the only test we have at the moment is the Israeli market which is open today, and it has tanked. The problem I have with that however is there are real significant protests within Israel at the moment, so I can't tell whether it's one or the other. But considering the momentum at which the market went down over the last week, it is very unlikely, if history is any guide, that this isn't going to take a while to bottom out. So the initial reaction in my judgment is going to be negative."

Jim Rogers: Japan Tried It This Way and Their Stock Market is Down 75%

Source: Bloomberg
On BloombergTV today, Jim Rogers, chairman of Rogers Holdings, shared his views on the U.S. credit rating downgrade and told viewers that money printing, bank bailouts and quantitative easing (QE3) by the Federal Reserve will not work to help the economy. He thinks QE3 will just bring more inflation and social unrest. He also shared his views on gold, silver, EUR/USD, commodities and the fall in equities. Watch the Bloomberg video after the jump.

"The only thing that works is to face reality. Let people who are bankrupt go bankrupt. The Japanese tried it this way, they have not let anybody go bankrupt for 20 years. You remember zombie banks, zombie companies. The Japanese stock market is 75% below where it was 21 years ago. This system doesn't work. The Americans have already had one lost decade, we're going to have two lost decades or three lost decades at the rate things are going"

Since QE2 ended on June 30, 2011, the S&P has given up almost all of its gains since Bernanke's Jackson Hole speech on QE2 (on 8/27/2011),  which sparked the Tepper rally. Many fund managers, analysts, bloggers and twitterers I follow expected this to happen.

Sunday, August 7, 2011

ECB President's Statement on Securities Markets Programme (Bond Buys), EUR/USD Reaction

EUR/USD is trying to digest the U.S. downgrade, ECB bond buying program and slower economic growth.

7 August 2011 - Statement by the President of the ECB

1. The Governing Council of the European Central Bank (ECB) welcomes the announcements made by the governments of Italy and Spain concerning new measures and reforms in the areas of fiscal and structural policies. The Governing Council considers a decisive and swift implementation by both governments as essential in order to substantially enhance the competitiveness and flexibility of their economies, and to rapidly reduce public deficits.

2. The Governing Council underlines the importance of the commitment of all Heads of State or Government to adhere strictly to the agreed fiscal targets, as reaffirmed at the euro area summit of 21 July 2011. A key element is also the enhancement of the growth potential of the economy.

3. The Governing Council considers essential the prompt implementation of all the decisions taken at the euro area summit. In this perspective, the Governing Council welcomes the joint commitment expressed by Germany and France today.

4. The Governing Council attaches decisive importance to the declaration of the Heads of State or Government of the euro area in the inflexible determination to fully honour their own individual sovereign signature as a key element in ensuring financial stability in the euro area as a whole.

5. It equally considers fundamental that governments stand ready to activate the European Financial Stability Facility (EFSF) in the secondary market, on the basis of an ECB analysis recognising the existence of exceptional financial market circumstances and risks to financial stability, once the EFSF is operational.

6. It is on the basis of the above assessments that the ECB will actively implement its Securities Markets Programme. This programme has been designed to help restoring a better transmission of our monetary policy decisions – taking account of dysfunctional market segments – and therefore to ensure price stability in the euro area.

European Central Bank
Directorate Communications
Press and Information Division
Kaiserstrasse 29, D-60311 Frankfurt am Main
Tel.: +49 69 1344 7455, Fax: +49 69 1344 7404
Internet: http://www.ecb.europa.eu"

Source: http://www.ecb.int/press/pr/date/2011/html/pr110807.en.html
Article at Reuters: ECB to buy Italian, Spanish bonds to stop contagion

Tel Aviv 100 Index Down 7% After Growth Warning, US Downgrade and Inflation Protests

The Tel Aviv 100 Index lost 7.19% today and broke through major support levels after S&P downgraded the U.S.'s credit rating. According to Bloomberg, the Bank of Israel on August 2 lowered its 2011 and 2012 economic growth forecasts and "Finance Minister Yuval Steinitz called the downgrade a “warning sign” for Israel’s economy". You can't see it on the chart, but 1,000 was an important support level to hold (the 6/30/2010 low). TA100 closed at 972 and the trend looks down for now. Also, over the weekend 250,000 Israelis protested the high cost of living. Watch the CNN video after the jump.
Tel-Aviv Index Courtesy of Bloomberg.com

More markets fell in the Middle East:
Israeli Stock Index Tumbles Most Since 2000 (Bloomberg)
Dubai Shares Drop Most Since February (Bloomberg)
Saudi Shares Plunge as U.S. Downgrade Fuels Concern Over Global Economy (Bloomberg)