2-Year Greek Bond Yields 50%, 10-Year Treasury Yields 1.93% (Both At Records)

2-year Greek Government Bonds yield 50% which is a record high. Is it pricing in a default? The cost of insurance on 5Y Greek debt is testing the July highs at 2,500 bps (Greek 5Y CDS). The 10-year U.S. Treasury Note yield is at 1.93% which is a record low. See my previous post on 8/15/2011: "10 Year Treasury Note Yield Near 1941, 2008 Lows (1.95%, 2.04%)". Investors are rushing into Treasury bonds as a safe haven to hedge against recessions and euro-zone default risk, unless there's a war coming somewhere. This UBS report at Zero Hedge probably has the answers: "Bring Out Your Dead - UBS Quantifies Costs Of Euro Break Up, Warns Of Collapse Of Banking System And Civil War". Watch gold and the U.S. Dollar. Is China going to save the euro-zone and European banks?

3-year chart of 2-year GGB Yield (courtesy of Bloomberg.com)

 

Intraday chart of 10-year UST Yield (Courtesy of Bloomberg)

Unseemly Scrabble for Libya's Post-Gaddafi Oil Assets Underway - Guest Post

Source: L.C.Nøttaasen on Flickr

Guest post by OilPrice.com

Unseemly Scrabble for Libya's Post-Gaddafi Oil Assets Underway

While NATO members, led by France, piously proclaimed at the onset of their military offensive in Libya that their concerns were solely humanitarian, a covert tussle to gain a commanding lead in developing the country's energy riches in light of Colonel Gaddafi's departure is well underway.

The Libyan economy depends primarily upon revenues from the oil sector, which contribute about 95 percent of export earnings, 25 percent of GDP, and 80 percent of government revenue.

Prior to the outbreak of conflict, Libya was exporting about 1.3-1.4 million barrels per day from production estimated at roughly 1.79 million barrels per day, of which approximately 280,000 barrels per day were indigenously consumed. But analysts believe that with reconstruction Libya could soon be exporting 1.6 million barrels per day of high-quality, light crude.

But current production is the proverbial mere drop in the bucket. Libya has the largest proven oil reserves in Africa with 42 billion barrels of oil and over 1.3 trillion cubic meters of natural gas. Causing oil company executives from Houston to Beijing to drool on their Gucci loafers, only 25 percent of Libya's territory has been explored to date for hydrocarbons.

Libya is already Europe's single largest oil supplier, the second largest oil producer in Africa and the continent's fourth largest natural gas supplier and already dominates the Southern Mediterranean's petroleum sector. According to the Libyan National Oil Corporation (NOC), more than 50 international oil companies are already present in the Libyan market.

So, peering into Libya's future, who's actually ahead?

Continue reading >>

Hussman: Under Extreme Secular Undervaluation S&P Hits 400

John Hussman

John Hussman, of Hussman Funds, had an interesting Weekly Market Comment out last week (there's a new one out tonight) that included a range of S&P targets based historical "prospective returns". He also thinks there's a possiblity that the S&P could revert back its secular valuation lows, with the potential of overshooting. He's not alone, Felix Zulauf sees the S&P reverting back to book value. In this case, Hussman values the S&P 500 between 600 and 1000 based on the historical prospective returns listed below; but under extreme secular undervaluation and/or macroeconomic conditions, he thinks the S&P could hit 400!

"Historically, the typical bull-bear market cycle has produced a range of 10-year prospective returns in a band between about 7.5% and 13%. That band presently corresponds to a range for the S&P 500 index between 600 and 1000. A 10% prospective return is right in the middle, at about 800 on the S&P. Once you recognize that profit margins are in fact cyclical, that range is about right, as uncomfortable as it may be to contemplate. Jeremy Grantham of GMO estimates that fair value is "no higher than 950." A tighter norm for prospective return between 9-11% maps to an S&P 500 between 750 and 850.

Finally, while I certainly would not expect it in the absence of extreme macroeconomic upheaval, major secular undervaluation as we observed in 1950, 1974 and 1982 would presently map to about 400 on the S&P 500. When you think of "once in a generation" valuations and "secular bear market lows" - that number, not anything near present levels, should be what crosses your mind. I am well aware that even discussing numbers like these, given the present mindset of investors, is likely to be dismissed as utterly ridiculous. Frankly, I would rather risk the ridicule of those who pay lip-service to research, cash flows, fundamentals, and value than to pretend these outcomes are impossible, when the historical record (and even the experience of the past decade) strongly indicates otherwise." (continue reading at HussmanFunds.com)

Links: Euro Crisis, Post Office Crisis, Employment Crisis, Banks Sued By US, China Services PMI

LaSalle Street Chicago (Flickr)

Crisisfest for 9/5/2011

The worst of the euro crisis is yet to come (Financial Times)

HSBC China Services PMI (Markit Economics)

"August data pointed to another marginal expansion of Chinese private sector activity, with the headline seasonally adjusted HSBC Composite Output Index recording 50.4. The index was unchanged on July’s 28-month low, and much lower than the long-run trend for the series"

Postal Service Is Nearing Default as Losses Mount (New York Times)

"the agency is so low on cash that it will not be able to make a $5.5 billion payment due this month and may have to shut down entirely this winter unless Congress takes emergency action to stabilize its finances."

ABN Amro Complains About Interbank Liquidity Crunch, As CEO Says End Of Euro Would Make 1930s Seem Like "A Trifle" (Zero Hedge)

Senior IMF Official - "I Expect A Hard Greek Default This Year" - Chart of 3-month USD LIBORs (Zero Hedge)

Here It Is: Presenting Goldman's "The World Is Ending So Let's All Profit" Report (Zero Hedge)

SPY, SPX, and ES_F — charts do not get much clearer or uglier than these (Peter Brandt)

Another Historic, Incredibly Boring Bond Market Event! (10-year yield below 2%, 1950 level) (WSJ Market Beat Blog)

ECB's Coene says crisis heading to 2008/9 level: report (International Business Times)

BofA, JPMorgan Among 17 Banks Sued by U.S. for $196 Billion (Bloomberg)

FHFA Sues 17 Firms to Recover Losses to Fannie Mae and Freddie Mac (FHFA Statement)

"Ally Financial Inc. f/k/a GMAC, LLC, Bank of America Corporation, Barclays Bank PLC, Citigroup, Inc., Countrywide Financial Corporation, Credit Suisse Holdings (USA), Inc., Deutsche Bank AG, First Horizon National Corporation, General Electric Company, Goldman Sachs & Co., HSBC North America Holdings, Inc., JPMorgan Chase & Co., Merrill Lynch & Co. / First Franklin Financial Corp., Morgan Stanley, Nomura Holding America Inc., The Royal Bank of Scotland Group PLC, Société Général.."

David Rosenberg on the employment report, recession and Fed (Bloomberg Video)

El-Erian Calls U.S. Employment Report ‘Grim and Scary’ (Bloomberg Video),

Non-Farm Payroll Report (BLS.gov)

"Nonfarm payroll employment was unchanged (0) in August, and the unemployment rate held at 9.1 percent. Employment in most major industries changed little. Health care continued to add jobs; a decline in information employment reflected a strike. Government employment continued to trend down."

California Employment at Record Low (Bloomberg)

Unemployed face tough competition: underemployed (AP)

Nouriel Roubini Sees 60% chance of Recession Next Year (Bloomberg Video/ Baltimore Sun Blog)

European Bank Exposure to Sovereign Debt Dragging Down EUR/USD

EURUSD is at 1.43125, down 0.38% at 3:25am (eastern). It is continuing its descent from Tuesday after breaking through the initial uptrend line. It is now testing the second one as you can see. To be long EUR/USD I need to see a confirmed breakout above 1.453. Until then, a break below the second trend line (around 1.430) could be a decent short to test the major uptrend line from 2010. There are fears that European banks have to take large writedowns on their holdings of Greek, Italian, Irish, Spanish and Portuguese sovereign debt, and a contagion effect could make it even worse. Read the FT article for details. The ECB and European governments think their estimates are BS since they're not factoring in the rise in German debt. The market will decide... Will China step in here?

"IMF and eurozone clash over estimates" (Financial Times)

"International Monetary Fund staff have provoked a fierce dispute with eurozone authorities by circulating estimates showing serious damage to European banks’ balance sheets from their holdings of troubled eurozone sovereign debt."

"Peeling the Onion on the Accounting for Greek Bonds" - (Accounting Onion Blog) *similar article, hat tip Zero Hedge

Russia and China's Energy Dispute and the Struggle for Eurasian Dominance - Guest Post

Dmitry Medvedev/Hu Jintao at ESPO Pipeline Ceremony (Kremlin/Wikimedia)

Guest Post by OilPrice.com

Russia and China's Energy Dispute and the Struggle for Eurasian Dominance

China's voracious appetite for energy from anywhere has led most oil-producing nations to attempt to feed the dragon, including Russia.

But a curious situation has developed as regards Russian oil exports to the Celestial Kingdom, underlining that the two nations, which fought for global supremacy over the Communist movement for four decades, remain at best, "frenemies."

According to Chinese customs reports, last month oil imports from Russia fell by nearly half.

Not so, Rosneft says, stating that deliveries are proceeding through the Eastern Siberia-Pacific Ocean (ESPO) oil pipeline at their normal levels.

Russia is now China's ninth largest source of oil imports, with Saudi Arabia first, Iran second and Angola third.

In trying to read the tea leaves in the contradictory statements emanating from Beijing and Rosneft, Russian analysts believe that China is sending Moscow a not so subtle signal that it can do without Russian imports.

The Eastern Siberia-Pacific Ocean oil pipeline began deliveries to China last January, at a volume of 300,000 barrels a day. Last month China imported 4.58 million barrels per day, with Russian imports making up a mere 6.5 percent of the total.

Continue reading >>

China and Biofuels - Stir-Fry or Fly? (Guest Post)

Raw trap grease converted into biodiesel fuel (usda.gov)

Guest post by OilPrice.com

China and Biofuels - Stir-Fry or Fly?

China's omnivorous global appetite for energy resources is well known.

While biofuel production is one of the rising energy stars of the 21st century, it is unlikely to become a significant source for China in the near future, as the country's arable land is devoted first and foremost to feeding the country's massive population 1.3 billion citizens, unless a feedstock can be found that grows well on marginal land.

But the issue of food may yet prove to contribute to the country's energy output by recycling a traditional component of Chinese cuisine - used cooking oil.

According to a recent article in the People's Daily, Beijing's 19 million inhabitants are seeing the grease used to fry up their dim sum and other delicacies carted off by eight licensed collectors of used cooking oil, known as "hogwash," for recycling into biofuel.

Beijing Hailianghongxin Bioenergy Ltd. President Li dong said, "We have contracts with 300 catering firms, including most McDonald's, and collect 3,000 tons each year."

Beijing Hailianghongxin Bioenergy Ltd.'s collected hogwash oil is transported to a refinery in Gu'an county in Hebei province, owned by Gu'an Zhongde Lihua Petrochemical Co, the largest hogwash-to-biodiesel processing company in Beijing, and processed into biodiesel.

Continue reading >>

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

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.

Continue reading >>

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)

Continue reading >>

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.

Continue reading >>

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."

Continue reading >>

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."

Continue reading >>

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

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.

Continue reading >>

Libya's Post Gadhaffi Future - Who gets the Oil? - Guest Post

Libyan Oil Fields, Pipelines, Refineries (Wikipedia)

Guest post by OilPrice.com

Libya's Post Gadhaffi Future - Who gets the Oil?

Muammar Gadhaffi's 42 year-old regime is in its death rattle - maybe today, maybe tomorrow, his administration that has ruled Libya with a quixotic and brutal hand is about to pass, in Trotsky's piquant phrase, "into the dustbin of history," prompting the question "what next?"

The glittering prize is Libya's 1.6 million barrels per day output of high quality crude, which accounted for about 2 percent of global oil output drawn from Africa's largest oil reserves, whose exports have been stymied since the NATO-led campaign began six months ago. Projecting into the future, analysts believe that has reserves to sustain its previous level of production for 80 years.

Who will eventually control this asset, with oil prices currently at roughly $84 a barrel, generating an income of more than $12.6 million per day?

Italy's ENI?

France's Total?

Britain's BP?

U.S. companies?

Or, will China add Libyan future production to its string of acquisitions, as it is already China's eleventh largest source of imports?

Continue reading >>

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.

Continue reading >>

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)

Continue reading >>

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?

Continue reading >>

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.

Continue reading >>

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.

Continue reading >>

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.

Continue reading >>

Joint Chinese-Indian Oil Tanker Patrols Possible? - Guest Post

Varyag - China's Aircraft Carrier (Wikipedia)

Guest post by John C.K. Daly of OilPrice.com

Joint Chinese-Indian Oil Tanker Patrols Possible?

Aside from cost, the major problem for oil importing countries is getting the purchases safely home. Essentially, there are only two options - pipelines and maritime transport.

Both are vulnerable to attack and this is increasingly preoccupying Chinese leaders, especially as, according to China's Ministry of Industry and Information Technology, China's dependence on imported oil rose to 55.2 percent for the first five months of 2011, surging to 9.61 million barrels per day.

What to do to secure uninterrupted supplies of 'black gold?"

Negotiate.

In a development with significant implications for the Pentagon's professed "full spectrum dominance," (i.e., quash all military opposition) the Hindustan Times reported that Beijing is cautiously sounding out India about the possibility of joint naval patrols in the Indian Ocean to safeguard tanker traffic.

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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.

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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)
  

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).

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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

Russian Pipeline Transiting North Korea Somewhat Unlikely (Guest Post)

Russian Gas Pipelines (Wikimedia Commons)

Guest post by OilPrice.com

Russian Pipeline Transiting North Korea Somewhat Unlikely

There apparently is something about building pipelines that causes otherwise rational oilmen to indulge in reveries that would give an opium addict pause.

Two of the most recent ideas for pipelines with a less than rational basis are Nabucco (less than 25 percent of the necessary throughput committed thus far) and the Trans-Afghanistan-India-Pakistan pipeline (running through a country wracked by 32 years of civil war), with the past decade seeing NATO fruitlessly attempting pacification.

Now a third surreal energy corridor has been added, a proposed Russian-South Korean natural gas pipeline transiting Kim Jong-Il's socialist paradise on the Yalu.

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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

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":

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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."

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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)
  

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China and Rare Earths - Monopoly for Now - Guest Post

Rare Earth Oxides (Wikipedia)

Guest post by John C.K. Daly of OilPrice.com

China and Rare Earths - Monopoly for Now

First, the bad news - China's constrained rare earth supplies will be an "irreversible trend" and prices will remain at high levels, according to Zhang Zhong, general manager of Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co.

Zhang should know, as his concern is China's leading rare earths producer - the Baatou mine produces more than 95 percent of China's production, while Chinese mines currently account for 97 percent of global supplies.

The increase in global demand for rare earth metals has sent prices soaring in world markets. According to the China Nonferrous Metals Industry Association, since January rare earth metal product prices jumped 200 percent, with the prices of some of the rarer commodities rising 500-1,900 percent. Since January China's exports grew 830 percent to $1.54 billion.

Now, the good news - despite fears of Western capitalists, Beijing apparently has no immediate plans to curtail supplies.

And finally, the interesting news.

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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.

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Mongolia Energy Riches Attract Neighbors and Outside Interests - Guest Post

Tavan Tolgoi Coal Mine (source: Wikimedia Commons)

Guest post by John C.K. Daly of OilPrice.com

Mongolia Energy Riches Attract Neighbors and Outside Interests

Pity poor Mongolia, bereft of fiscal resources, caught between the ambitions of its superpower neighbors, Russia and China.

Ulaan Bator's situation is akin to interwar Poland, dexterously attempting to reconcile its foreign policy between the USSR's hammer and Nazi Germany's hard place. Who will ultimately benefit is anyone's guess, but the country's nascent energy and mineralogical riches have opened the land of Genghis Khan to a fierce bidding war those ultimate outcome is unclear at best.

The nation is essentially empty, its 2.8 million citizens producing an average population density of just over 1 person per sq. km.

That said, the country's mineralogical riches are more than impressive. More importantly for global mining interests, Mongolia was a Soviet satrapy from 1924 until the 1991 implosion of the USSR and those reserves remained offline.

Until now.

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