Bob Prechter Explains 'Triple Top' Forming in U.S. Stock Market (Video)

Bob Prechter, founder of Elliott Wave International, sees a 12 year head and shoulders top forming in the Dow. Disagree? Please comment your thoughts. Will QE3-4-5-6-7 provide a backstop?

Courtesy of Elliott Wave International

Bob Prechter Explains 'Triple Top' Forming in U.S. Stock Market (Video)

This excerpt from the special video issue of the August Elliott Wave Theorist brings you Bob Prechter’s analysis of the triple top that has been forming in the U.S. stock market over the past 12 years. Watch as Bob himself explains what this pattern means for you and the markets.

Momentum Analysis Using MACD By Elliott Wave International (Video)

Courtesy of Elliott Wave International

Momentum Analysis Using MACD

Learn more about using Momentum analysis to make Elliott wave trading decisions in this video by EWI European Interest Rate Analyst Bill Fox. Find more lessons on technical indicators in EWI's newest free report. See the information below.

BIS: $601 Trillion OTC Derivatives Are Outstanding (Notional Value As Of December 2010)

Source: http://www.bis.org/statistics/otcder/dt1920a.pdf 
Here's a fun fact. According to the Bank for International Settlements, at the end of 2010 the total notional amount of over-the-counter (OTC) derivatives outstanding stood at $601 trillion! The gross market value stood at at 21.1 trillion.

"The notional amount (or notional principal amount or notional value) on a financial instrument is the nominal or face amount that is used to calculate payments made on that instrument. This amount generally does not change hands and is thus referred to as notional." (wikipedia)

Of this amount there were $465 trillion interest rate contracts ($364 trillion interest rate swaps, $51 trillion forward rate agreements, $49 trillion interest rate options), $57 trillion foreign exchange contracts ($28 trillion forwards and forex swaps, $19 trillion currency swaps, $10 trillion options), $29.8 trillion credit default swaps ($18.1 trillion single-name instruments and 11.7 trillion multi-name instruments, $7.4 trillion index products), $5.6 trillion equity-linked contracts ($1.8 trillion forwards and swaps, $3.8 trillion options) and $39 trillion unallocated (????). Is it just me, or does this have black swan written all over it. Hopefully I'm wrong.

Trader Loses UBS $2 Billion On Unauthorized Trades (No Client Positions Affected)

Source: Twicepix on Flickr
This came out of nowhere.
"Zurich/Basel, September 15, 2011, 08:54 AM Media Release 
UBS has discovered a loss due to unauthorized trading by a trader in its Investment Bank. The matter is still being investigated, but UBS's current estimate of the loss on the trades is in the range of USD 2 billion. It is possible that this could lead UBS to report a loss for the third quarter of 2011. No client positions were affected."  
Source: UBS

UBSN on the Swiss Stock Exchange is down 5.85% right now on this news, and it is down 44% in 1-year. It hit a low of 9.88 today, which is somewhat close to the capitulation low of 8.55 on 3/10/2009. I found more articles on the situation: ETFs under the spotlight as shadow falls across UBS's Delta One operation (Telegraph), The curse of Delta One strikes UBS (FT Alphaville), UBS rogue trader – GrĂ¼bel memo (FT Alphaville) UBS rogue trade – the wider costs (FT Alphaville). Here is related news from 11/6/2009 when it happened with client money. Risk management problems?
"The Financial Services Authority (FSA) has fined UBS £8 million ($13.2 million) for weak controls that allowed staff in its private bank to make thousands of unauthorised trades with clients’ money and then hide the losses. It is the third-largest fine awarded by the FSA." (timesonline.co.uk

*Update: UBSN closed down 10.75% at 9.75. Kweku Adoboli, of UBS's Delta One division, which trades and makes markets in "synthetic assets" and derivatives for clients, has been arrested. Mis-hedging against Swiss franc exposure and volatility could have been responsible for the $2 billion loss, according to eFinancialNews. The Swiss National Bank recently pegged EUR/CHF at 1.20 to halt runaway appreciation in the Swiss Franc during the Eurozone crisis.
"Several market participants told Financial News this morning that Adoboli may have mis-hedged his exposure to the Swiss franc and attempted to hide it from his team when the market moved against him by overcompensating with a hedge in the opposite direction. Any short position on Swiss franc volatility would have suffered after volatilities rose again earlier this week." (continue reading at efinancialnews)

Here's more on Delta One trading desks at the Financial Times.
"Many Delta One desks also specialise in providing swap execution services to so-called synthetic ETFs, meaning they provide the over-the-counter derivative which allows the ETF to track its underlying asset. “Delta One desks are essentially huge trading counterparties which means they take on a lot of risk for a huge amount of business,”" (continue reading at FT.com)

World Bank President Robert Zoellick's Speech, CNBC Interview (9/14/2011)

World Bank President Robert Zoellick  (worldbank Flickr)
Robert Zoellick, President of the World Bank Group, delivered a speech yesterday ("Beyond Aid") at George Washington University and appeared on CNBC's Kudlow & Company, see below.
"The global economy has entered a new danger zone with little running room as European countries resist difficult truths about the common responsibilities of a common currency. Japan has resisted structural economic and social reforms that could retool its sputtering economic model. The United States is facing record peacetime deficits, with no agreed approach in sight for cutting the drivers of debt. The lesson of 2008 and earlier crises is that the later you act, the more you have to do, and the more painful it becomes. It is not responsible for the Eurozone to pledge fealty to a monetary union without facing up to either a fiscal union that would make monetary union workable or accepting the consequences for uncompetitive, debt-burdened members. It is not responsible for the United States to falter in facing fundamental issues such as unsustainable growth in entitlement spending, the need for a pro-growth tax system, and a stalled trade policy. Unless Europe, Japan, and the United States can also face up to responsibilities they will drag down not only themselves but the global economy." [continue reading]

In different words, on CNBC's Kudlow & Company, Zoellick said:

Links: S&P Target, CRE, Soros, Ackman, Hong Kong Dollar, French Banks, European Debt

Commercial Real Estate Verses Bonds (Charts: 10-year treasury, AAA, BAA corporate bond yields vs. Core Cap Rate and cap rate spreads vs. bond yields ) - CREconsole <-interesting chart comparable
Hong Kong Dollar (Wikipedia)

Ackman Bets Hong Kong Dollar to Appreciate - Bloomberg

The Ackman Trade: Reactions - NetNet

Goldman Cuts 2011 S&P Price Target From 1400 To 1250 - Zero Hedge

Markets Would Rally if Greece Defaults, Blain Says - Bloomberg Video

Risk of second recession rising in developed economies - Reuters

China Willing to Buy Bonds From Crisis Nations: Zhang - Bloomberg

China Safe From Defaults: Merchants Bank President - Bloomberg

Does the Euro Have a Future? by George Soros (on a "common European Treasury") - New York Review of Books

Goldman: EU Debt Woes Raising Risk to Commodities Outlook - Reuters at CNBC

World Bank chief says world economy in danger zone (Robert Zoellick) - Reuters

Julian Robertston on CNBC: Greece Will Default "Macro Is So Bad Everywhere " - PragCap

Moody's downgrades Credit Agricole SA’s long-term ratings to Aa2 on Greek exposures, ratings remain on review to consider impact of funding challenges on Credit Profile - Moody's

Moody's downgrades Societe Generale long-term ratings to Aa3 on normalised systemic support, Outlook negative, BFSR remains on review to consider impact of funding challenges on credit profile - Moody's

Limits to Keynesianism - Gregor.us

China, Japan Indexes Are Down Tonight (Hang Seng, Shanghai, Shenzhen, Nikkei)

Asian stock indexes are down tonight: Shanghai Index -0.76%, Shenzhen Index -0.79%, Nikkei 225 -1.06% (Tokyo), Hang Seng -1.34% (Hong Kong). Chinese stock indexes (and ETFs) are testing important support levels. I will chart them out specifically in a few hours. China's CDS (credit default swap) is up 28% in a month, and it appears that there's an inverse relationship between FXI (iShares FTSE China 25 ETF) and the China 5Y CDS. China news: "China Stocks Retreat to July 2010 Low; Anhui Conch Drops on Housing Sales", "World Must ’Get House in Order,’ Not Rely on China: Premier Wen".


Source: Bloomberg.com

Full Video of CNN Tea Party Republican Debate

Watch the CNN videos after the jump. The Republican presidential candidates are Michele Bachmann, Herman Cain, Newt Gingrich, Jon Huntsman, Ron Paul, Rick Perry, Mitt Romney and Rick Santorum. Legalize and tax "alternative medicine"!

Based on CDS, Greece's Default Probability is 97.64% (CMA)

According to CMA's Sovereign Risk Monitor (see it free), Greece has the highest default probability percentage at 97.64%. Greece's 5Y credit default swap mid spread is at 7318.25, with Portugal right behind it at 1308.51 (default probability 63.75%). You can see Ireland, Italy and Spain are further down the list. Membership in the highest default probability club hasn't changed much since June 2010 (minus Dubai, Iraq, Illinois and California), but spreads and the CPD% have increased substantially for the PIIGS.

Read these articles for more info:

Greece Default Risk Jumps to 98% as Euro Crisis Deepens (Bloomberg)
Greece – The First of the Dominoes? (Pragmatic Capitalism)

Source: CMA Datavision

Fed Minutes on Additional Policy Tools; Bernanke's Speech at Economic Club of Minnesota (9/8/2011)

FOMC Meeting (Philadelphia Fed)
Fed Watch: Ben Bernanke, Chairman of the Federal Reserve, gave his outlook for U.S. economic growth, inflation and monetary policy during a speech at the Economic Club of Minnesota on 9/8/2011. I quoted the portion on monetary policy and provided an excerpt from the FOMC Minutes on 8/9/2011 (released 8/30/2011), which discussed additional tools the Fed could use to "promote a stronger economic recovery in a context of price stability."

Some Fed participants believe "providing additional stimulus at this time would risk boosting inflation without providing a significant gain in output or employment." The next Federal Open Market Committee meeting is on September 21-22. Also read the transcript of Ben Bernanke's Jackson Hole Speech, which was delivered on 8/26/2011. What are the odds of QE3?

Chairman Ben S. Bernanke at the Economic Club of Minnesota Luncheon, Minneapolis, Minnesota (September 8, 2011) - Source
"Monetary Policy

BNP Paribas Is Down 12% On Possible Moody's Downgrade, EURUSD Bounced Off 1.34986

Source: Google Finance
Large European banks, BNP Paribas (BNP), Societe Generale (GLE), Credit Agricole (ACA), Deutsche Bank (DBK) and UniCredit (UCG), are down 8-13% today with traders pricing in possible credit rating downgrades by Moody's and Greece's ongoing debt crisis. Greece needs to meet its budget goals to receive the next bailout tranche from the EU/IMF, or it will run out of cash in mid-October (Deputy Finance Minister). However, it appears that French banks will not be affected by a Greek default (Noyer Says French Banks Can Contend With Any Greek Problem, French banks can weather Greece default: SocGen CEO Frederic Oudea). Do they hold Portuguese, Irish, Italian and Spanish debt? To be sure, I'd monitor European bank credit default swaps or default insurance premiums. I see SocGen is planning to sell off $4 billion euros worth of assets by 2013. EUR/USD hit a low of 1.34986 and bounced back hard to 1.36252. I'll be monitoring la situation.

EUR/WTF! Traders Nervous Over Greece (Euro/US Dollar At 1.35719)

EUR/USD is still selling off pretty hard. See the linkfest in my previous post for news on Greece and European banks. I'm not sure where support is for the pair, but it's starting to price in an important catalyst ahead. Hopefully it is clean.





Charts are courtesy of freestockcharts.com

Links: Greece Default Risk, French Banks, Jim Rogers (CNBC), China's Empty City, ECB

Linkfest for 9/11/2011 (R.I.P to the innocent lives lost during the 9/11/2011 attacks). Market Update: EUR/USD is at 1.35870 -0.49%, Japan's Nikkei Index is down 1.9% at 8,572, Hong Kong's Hang Seng Index is down 3% at 19,270, and the E-mini S&P September 2011 Future is down 1% at 1,146.

Germany May be Ready to Surrender Over Greece (Bloomberg)

Greek ‘Orderly’ Default Can’t Be Ruled Out, Roesler Tells Welt (Bloomberg)

Greece Announces New Tax As Unrest Flares (DJ @ Nasdaq)

Moody's May Downgrade Top French Banks (WSJ)

Goldman's Complete Economic Outlook From Now Through 2012 (Business Insider)

China's empty city of Ordos (Al Jazeera English Video + embedded after the jump)

The Party is Over (iBankCoin)

Jim Rogers (on CNBC) Explains Why He Is Short Stocks, Long Commodities, And Wants Europe To Fail (Zero Hedge)

China official: Swiss intervention won't work (Market Watch)

The investor’s dilemma: Earnings, valuation and what to do now (Barry Ritholtz @ Washington Post)

Europe Banks Valued at Post-Lehman Low (Bloomberg)