Monday, October 17, 2011

Gundlach's Views on Mortgage Credit, PrimeX and the Bear Market Rally in Stocks (CNBC)

On 10/13/2011, Jeffrey Gundlach, co-founder, CEO and CIO of DoubleLine Capital with $17 billion under management (Total Return Bond Fund DBLTX is up 8.75% YTD), shared his views on the "quiet crash" in mortgage credit, the technical move in PrimeX, and the bear market rally in stocks.
"What hasn't shared in the rally at all is mortgage credit, which has been in kind of a quiet crash for the past 6-months to a year. In the sub-prime world, the ABX Index has dropped by over 35% in the past year. And now in the past week even, the PrimeX market, which nobody really knows much about, it was rally designed to be the prime sibling of the ABX sub-prime index, it's been persistently weak." 
"The prices have been a little bit weak since the later part of September on the mortgage assets because of some large selling. There were some large blocks that were selling out of some hedge funds. The PrimeX index has been persistently overvalued. It really trades about 10-12 points higher in price than where real cash bonds trade in the market. Basically, there are two reasons for that. The first is the PrimeX has a higher interest coupon that it pays and that's worth about a handful of few points right there, and then people can leverage it. Leverage is very hard to get in the cash bond market because people still have a hangover effect from the 2008 disaster in financing. So, you can leverage up these synthetic indices, and for that reason... It's kind of weird isn't it? People pay more because they can leverage it, so they're overpaying for something and leveraging it. I always feel like leveraging an overvalued asset seems like a uniquely bad idea.
PrimeX Index courtesy of Markit (see prices and charts)
ABX Index courtesy of Markit (see prices and charts)

Now, PrimeX is tiny, the float is only $11 billion. Back in late 2008, the subprime index was more than 10x that size. So it's very susceptible to technicals. So when the selling came in late September out of the hedge funds, it started to hit the PrimeX market..."

"So it's probably something of a weak spell here as there is this technical problem, and let's face it, the fundamentals in housing just aren't that good. You have..."

Btw, the interview was interrupted with footage of Raj Rajaratnam walking out of a courthouse after his sentencing.

Links: Kyle Bass, Jim Rogers, Volatility Exchange, TRX-II, Kinder Morgan Buys El Paso for $38B

I've tweeted most of these links already, but here's a quasi-post/linkfest.
  • Kinder Morgan (KMI) to Buy El Paso (EP) for $38 Billion (includes assumption of debt outstanding at El Paso Corporation and debt outstanding at El Paso Pipeline Partners, L.P. (NYSE: EPB) - BusinessWire
gold cast bar
source: flickr
  • Hedge fund manager Kyle Bass, of Hayman Capital, who timed the subprime mortgage crash right (via credit default swaps) and banked coin, was featured in Michael Lewis's new book "Boomerang: Travels in the New Third World", and it appears Bass is bullish on gold and guns and has a fort ready for battle. Ultimate risk management. "Kyle Bass had purchased what amounted to a fort: a forty-thousand-square-foot ranch house on thousands of acres in the middle of nowhere, with its own water supply, and an arsenal of automatic weapons and sniper rifles and small explosives to equip a battalion" (h/t ZH). What about a high voltage fence?

    Michael Lewis provided a lengthy excerpt from his book at TODAY Books, where he mentions Bass's sovereign CDS bets (Greece and France). Bass thinks there will be a "cluster of sovereign defaults" and is hedging against currency debasement. He also said to buy put options on Japanese government bonds at the Delivering Alpha conference.
  • "Bored With The Blowout In PrimeX? Looking For The Next "Big One"" - Zero Hedge [Markit's TRX-II is a synthetic total return swap index referencing CMBS]  - read post on PrimeX
  • US to Experience Stagflation Worse Than 1970s: Jim Rogers - CNBC
  • Here is more information on the VolX Indices and VolContract Futures (VolX pdfVolContract Futures charts). You can trade the realized volatility of an underlying asset, index, or instrument intra-day via 1-Month 3-Month, and 12-Month VolContract futures. When comparing VolContract futures to implied volatility instruments, this was an interesting explanation from their FAQ"VolContract futures give the market participant exposure to both implied-like pricing and realized pricing all in one instrument. In other words, the contracts have perception of the future risk and the reality of actual risk embedded within their structure. Instruments on implied volatility can only address the perception of risk – and they can capture that only through options pricing."

Saturday, October 15, 2011

PrimeX Index Shows Weakness In Prime RMBS Market, Three Indexes Below Par (Charts)

PrimeX.FRM.2 via Markit
It's starting to get interesting again in MBS CDS land (the most interesting indexes in the world). Markit's synthetic CDS (credit default swap) indexes "referencing" buckets of residential mortgage-backed securities have been falling in value since February (ABX, PrimeX). Credit fund managers (or speculative hedge funds) can trade RMBS without actually buying or selling the securities (synthetically) via credit default swaps (RMBS insurance contracts). It's really trading "exposure" on RMBS. Listen to Goldman Sachs' CFO David Viniar explain to Senator Carl Levin that GS's mortgage desk had synthetic positions on to offset cash long positions. There needs to be a synthetic credit trading show on CNBC (boo-yah!²).

I remember Jeff Gundlach, founder of DoubleLine Capital, alerted CNBC viewers in May that the ABX index, which references subprime RMBS, dropped 20% in 3 months (link has chart). Remember when ABX.HE.AA.07-2 went from a high of 97 to a low of 3.75? It currently trades at 6.23. Crazy times, and we still haven't recovered from the housing and mortgage crash.

Now the action is in Markit's PrimeX CDS index, which references a basket of non-agency prime RMBS issued between 2005 and 2007, and backed by jumbo mortgages that couldn't be financed by GSE's (Fannie Mae and Freddie Mac). There are four PrimeX indexes; two that reference fixed-rate loan securitizations and two that reference hybrid-ARM securitizations (PRIMEX.FRM.1, PRIMEX.FRM.2, PRIMEX.ARM.1, PRIMEX.ARM.2). Here are closing prices on 10/14/2011 via Markit's website.

For more info, I found a guide: Pricing ABX index for Newbies

Buying the PrimeX index allows someone to "synthetically" gain short exposure to non-agency prime MBS and selling PrimeX allows someone to "synthetically" gain long exposure to non-agency prime MBS. If you're reading this and have no idea what I'm talking about, read the description at Markit or read their presentation from early 2010 on the PrimeX indices. You can see 7-month charts of CDS indexes on their website for free. I found an article from 2006 at that explains why the ABX Index (ABCDS) was introduced ("Synthetic ABS is hot property"). Interesting stuff.

Paulson & Co., run by billionaire John Paulson, started buying the ABX Index in 2006 and ended up making his firm billions of dollars when the subprime mortgage market crashed (and CDS spiked). When ABX indexes first dipped below par in 2007, some say that was the initial catalyst that fueled the financial crisis. When the PrimeX index was first announced, Bloomberg noted:
"Wells Fargo & Co. analyst Glenn Schultz suggested investors consider selling jumbo-mortgage securities because PrimeX trading could drive down their prices, as happened with subprime bonds and the ABX indexes he had called “Frankenstein’s monster.”

"Analysts such as Schultz said that in 2007 and 2008, more investors wanted to use the indexes to short subprime notes than take the opposite bets because the banks and asset managers already owned enough housing debt, allowing them to tumble."

As of Friday's close, three of the four PrimeX indexes have dipped below par. Look at the charts below. FT's Tracy Alloway talked about this risk in a video on 10/10/2011 and Zero Hedge had a post on 10/7/2011 with multiple follow-ups thereafter. FT Alphaville has been all over it as well, see the PrimeX linkfest below.

I was searching for an ETF with non-agency Prime MBS, and all I found was an Invesco PowerShares index that didn't exist yet: "The PowerShares Prime Non-Agency RMBS Opportunity Fund will seek to provide total return by investing, under normal market conditions, at least 80% of its assets in non-agency mortgage-backed securities collateralized by pools of Prime residential mortgage loan" (pdf, 1/28/2009).

On October 5, Fitch Ratings, in a press release promoting their report, said that 1 in 3 U.S. prime mortgage loan borrowers were underwater.
"Recent analysis by Fitch shows that more than a third of all prime borrowers in private-label securitizations are currently in a negative equity position, or as it is commonly referred to, 'underwater', on their mortgages.

Live Video: Occupy Wall Street Protesters Invade Times Square

Watch live video of the protests below via The protesters are in Times Square (New York City) and it looks like thousands of people are there. How does this movement evolve? Wow.

Thursday, October 13, 2011

S&P Downgrades Spain; Fitch Downgrades UBS and Places Banks on Negative Watch

Coke bank
Coke Bank via Flickr
Fitch placed a bunch of U.S. and European banks on "rating watch negative" today (10/13/2011) and also downgraded UBS to A from A+. Keep an eye on bank and sovereign credit ratings to see if downgrade contagion affects the markets. There are worries about bank trading revenues, european sovereign debt exposure (S&P just downgraded Spain to AA- on economic growth and bank risks) and... will banks be affected by prime mortgage portfolios? Here are links to the press releases (they require free log-in, I forgot).

S&P: Long-Term Rating On Spain Lowered To 'AA-' On Economic Growth And Banking Sector Risks; Outlook Negative

Fitch Downgrades UBS AG to 'A' on Diminishing Government Support; Outlook Stable

Fitch Places Goldman Sachs' Ratings on Rating Watch Negative

Fitch Places Major French Banks on Rating Watch Negative (BNP Paribas, Credit Agricole, Societe Generale, Banque Federative du Credit Mutuel)

Fitch Places Deutsche Bank on Rating Watch Negative

Fitch Places Bank of America's 'a-' Viability Rating on Rating Watch Negative

Fitch Places Morgan Stanley's Ratings on Rating Watch Negative

Fitch Places Credit Suisse AG on Rating Watch Negative

Fitch Places Two Nordic Banks on Rating Watch Negative (OP-Pohjola Group and Danske Bank)

Fitch Places Rabobank's IDR and VR on Rating Watch Negative

Tuesday, October 11, 2011

China CDS Breakout Predicted FXI Breakdown, Sovereign CDS Info (Charts)

According to Bloomberg, China's 5Y CDS rate (credit default swap) closed at 167 basis points yesterday, which is $167,000 to insure $10 million of Chinese government bonds per year. It peaked out at 201 basis points on October 3, 2011. On August 10, I posted that China 5Y CDS broke out to early 2009 levels at 113 basis points and said it looked exactly like the inverse of FXI (iShares FTSE China 25 Equity Index), which was testing 2010 support at $35.

China 5Y CDS vs. FXI (source:

I don't trade credit default swaps, but charting out CDS is a great way to measure market risk because speculative trading, or hedging, default risk in the CDS market is essentially controlled by large financial institutions, banks and their clients (hedge funds) in over-the-counter trades (off-exchange bilateral contracts). CDSs are also used to correlate with other assets (there are Saudi Arabia CDSs but no underlying debt!). So technically, liquid or not, China 5Y CDS looked like a decent setup for a potential breakout when it was testing ceiling resistance in that two year sideways channel. And it eventually took off, see below. Did someone ride China 5Y CDS from 100 to 200 and sell the contract for a quick double? "The net value of outstanding credit default swaps on Chinese sovereign debt" is $8.3 billion, according to FT.

China 5Y CDS (source: Bloomberg)

Sunday, October 9, 2011

ECRI's Achuthan Explains New US Recession, Contagion Among Leading Indicators

If you missed it, on September 30, 2011, ECRI (Economic Cycle Research Institute) publicly announced that the U.S. economy was tipping into recession. Lakshman Achuthan, co-founder of ECRI, hit the media HARD after that. He was interviewed on WSJ NewsHub, The Daily Ticker, CNN, Bloomberg TV, CNBC Squawk Box and Bloomberg Surveillance. I embedded the Bloomberg and Daily Ticker interviews below. He thinks it will get a lot worse from here as "contagion among the forward looking indicators" spreads like a wildfire. And most importantly, he said he wouldn't be surprised if the unemployment rate hit double digits.

ECRI Weekly Leading Index going back to 2005 (Source: ECRI)

Interesting points Achuthan made during his interviews.
  • During recessions you get in a vicious cycle of "lower sales, lower production, lower employment, lower income, and back to lower sales."
  • Sees deadly combination of contagion in non-financial services, manufacturing and exports.
  • Government spending will go up as tax receipts go down.
  • Recessions kill inflation.
  • We're in an era of more frequent recessions and bear markets, which elevates the equity risk premium and lowers government bond yields (like in Japan).
  • 1799-1929 90% of expansions were 3 years or less, 1970-1981 2/3 expansions were 3 years or less.
  • If there's an exogenous shock like the Lehman bankruptcy, but in Europe, recession could overshoot.

Links: Euro, UK Bank, Sovereign Downgrades, Dexia, Proton, Paulson Advantage, ECRI

wall of banks
Wall of Banks (Dystopos on Flickr, click)
Weekend links on bank bailouts, credit downgrades and other economic concerns

Belgium to Buy Dexia’s Consumer Lending Unit for $5.4B - Bloomberg
"The Belgian federal government will pay 4 billion euros ($5.4 billion) for the division and guarantee 60 percent of a so-called bad bank to be set up for Dexia’s troubled assets, Finance Minister Didier Reynders said at a press conference today in Brussels." (continue reading)

Merkel, Sarkozy Pledge Bank Recapitalization - Bloomberg

Moody's places Belgium's Aa1 ratings on review for possible downgrade - Moody's

ECRI Recession Watch: Growth Index Declines Further (Weekly Leading Index) -

BNP, Socgen deny reported plan to raise $9.4 billion - Reuters

U.S. Bank Exposure to European Debt Crisis Could Be $640 Billion, Per Congressional Paper - WSJ

Greece activates rescue fund to save Proton Bank - Reuters

Paulson’s Main Fund (Paulson Advantage Plus) Said to Lose 47% in 2011 Through September - BusinessWeek

FYI: I found Paulson & Co. mutual fund quotes, via BNP Paribas Japan and Lyxor, denominated in yen focusing on european equities and debt. Links go to

Moody's downgrades 12 UK financial institutions, concluding review of systemic support - Moody's
"The rating actions include a one-notch downgrade of Lloyds TSB Bank plc (to A1 from Aa3), Santander UK plc (to A1 from Aa3), Co-Operative Bank plc (to A3 from A2), a two-notch downgrade of RBS plc (to A2 from Aa3) and Nationwide Building Society (to A2 from Aa3); and downgrades of one to five notches of 7 smaller building societies."

Weale Says Bank of England Can Increase Asset Purchases Plan - Bloomberg

Moody's takes rating actions on Portuguese banks; outlook negative - Moody's

Friday, October 7, 2011

Armenia's Aging Metsamor Nuclear Power Plant Alarms Caucasian Neighbors - Guest Post

Metsamor Nuclear Plant, Armenia
Source: SusanAstray on Flickr
Guest post by

Armenia's Aging Metsamor Nuclear Power Plant Alarms Caucasian Neighbors

The USSR might have imploded two decades ago, but debris from its headlong industrialization drive litter the post-Soviet landscape, and nothing more unsettles the population of the fifteen new nations carved out of the Soviet Union than its nuclear legacy.

The poster child for Caucasian nuclear concerns is Armenia's aging Metsamor nuclear power plant, which provides nearly 40 percent of the country's electricity.

The facility has not only alarmed neighboring Georgia, Turkey and Azerbaijan but begun to receive international notice as well - on 11 April National Geographic ran a story entitled "Is Armenia's Nuclear Plant the World's Most Dangerous?"

Metsamor, 20 miles west of the capital Erevan and 10 miles from the Turkish border, encapsulates the dilemma facing many energy-poor nations heavily dependent on nuclear power - unlike Germany, they do not have the cash or alternatives needed to shutter such facilities and consequently, keep them running while crossing their fingers.

Metsamor, which began operations in 1976, contains two VVER-400 V230 376 megawatt nuclear reactors generating about 2 million kilowatt hours of energy annually. Many environmentalists regard it as an accident waiting to happen. The Armenian government closed Metsamor's Unit 1 in February 1989 and Unit 2 the next month following a massive December 1988 earthquake which killed more than 25,000, left much of northern Armenia in ruins and caused more than $4 billion in damage.

Gary Shilling: S&P Hits 800, 30-Year Treasury Bond Yield Retests 2.5% (Video, 9/28/2011)

30-year US Treasury Yield (
Gary Shilling, who runs A. Gary Shilling & Co, told Bloomberg TV on 9/28/2011 that the global economic slowdown and deflationary forces will send the 30-year Treasury bond yield to 2.5%, where it bottomed on 12/18/2008 after Lehman went bankrupt. He also believes the S&P trades down to 800 when S&P EPS (earnings per share) falls to $80 with a 10 multiple (P/E ratio). On 10/3/2011, three business days after this interview, the U.S. 30-year Treasury bond yield hit a low of 2.71%. Will it double bottom at 2.5% or blow through that level and hit 2%, where Japanese 30-year government bond yields are at (1.91%!). He says beware of a hard landing in China hitting agricultural and industrial commodities (they are already taking a beating). Watch the video below.

Two Ways To Gain Exposure To Financials With Less Risk - Guest Post

Source: Flickr (yuan2003)
Guest post by JBL

Do you own financial stocks or are you thinking about buying financial stocks because they have been hit so hard this year???

Here are 2 ways to gain some exposure to financials with less risk than just buying your favorite bank’s stock outright.

The first is a dispersion trade of sorts where you would sell the XLF, which is the S&P Financial Sector ETF, and buy a basket of 5-10 financial stocks that you think are healthy companies. The idea being that we all know the financial sector is not healthy, interest rates are at record lows limiting banks earning potential, and investment banks (most of which get more than 50% of their revenue from trading operations) have had to cut back trading operations due to Dodd Frank. So by getting short the sector as a whole and going long what you believe to be the healthiest banks aka the banks that will outperform this year, you create a long/short trade that at worst should break even over the course of the next year, and that seems like a pretty good floor considering the market's current performance.

The second idea, using Morgan Stanley (MS) as an example, which closed today October 6th 2011 at $15.18. 100 shares of Morgan would cost $1518.00. Now rather than use my $1518 to buy stock in a company that according to the company's credit default swaps (CDS) has significant risk of going bust, I would rather sell a put option on MS. Personally I would sell the 13 put expiring Nov 19, 2011, which closed today around $1.05. This means that if at expiry MS was trading at or below 13, I would have to buy 100 shares for $13.00, but I would have collected $1.05 per share in option premium lowering my entry price to $11.95. If MS were to close above $13.00 I would collect the full $105 in premium, and my $1518 is now $1623 for a 6.9% return over just a 40 day period. You could potentially collect between 4%-8% per month. If you averaged 4% per month that would earn you about $700 on the year for almost a 50% return. For this to happen, MS would have to never trade through your strike at expiry, however if you did end up getting exercised on your short put options you could turn around and sell a call option (covered call strategy), an example being the 18 Call expiring Nov 19 that trades for about 60 cents or 4% of the stock price. No trade is a guaranteed winner, but over time a proper option writing strategy should outperform a buy and hold strategy. See the CBOE white papers on the Buy Write Index (BXM) and Put Write Index (PUT) for more information on how these strategies could help your portfolio.

Thursday, October 6, 2011

30-Year Fixed Rate Mortgage Hits Record Low, 3.94% (Freddie Mac)

30-Year Fixed Rate Mortgage Average - St. Louis Fed
According to Freddie Mac's Primary Mortgage Market Survey®, the 30-year fixed mortgage rate hit a new record low today at 3.94%. You can find a chart of the 30-Year Fixed Rate Mortgage, which starts in 1976, at the St. Louis Fed's FRED database. The trend remains down as you can see, and the Fed's new Operation Twist policy, where they sell $400 billion of the short end of the Treasury curve to buy the long end, will try to bring the rate down even further to spark more home buying / mortgage originations.

With market, economic and deflation risk recently, there has been demand for Treasury debt. I see the 10-year Treasury Note Price is testing the 50 day moving average, watch to see if that support level sticks. Bob Janjuah of Nomura has a target of 1.25-1.5% on the 10-year note. The market is trying to figure out how deep this slowdown is versus the chance of QE3 (more asset purchases by the Fed). What do you think, housing bottoms (or clears) when 30-year mortgages are 1.5% with 120% loan-to-value ratios and no documentation (hehe)?

Tom DeMark: S&P 500 Generated A Daily 13 Signal On Tuesday (Video)

Source: Bloomberg
Tom DeMark, founder of Market Studies and creator of the widely followed DeMark Indicators, was featured on Bloomberg TV yesterday and explained what his indicators were saying about the S&P 500 and commodities (including gold and oil). He said the sharp rallies off of the recent lows in the S&P (1074.77) could be a concern, but it all depends on today's trading. He thinks it could just be short covering.

"Typically, when markets have three up-closes and do move that quickly, that's a sign of a termination of a short term move. And instead of looking forward and expecting the market to move higher, the market could have a very sharp decline. So we're looking closely at tomorrow and Friday morning" (jobs report).
"What typically happens if you see three up-closes off a low, you'll see a vacuum in the market, and that vacuum will accent the decline even more than the upside."

I don't follow his indicators on a daily basis (requires subscription), but it appears that when his indicators generate daily, weekly and monthly 13 signals, like they did in February, it confirms that the trend is severely exhausted and money can be made fading it. DeMark said the S&P 500 generated a "13 that coincided with a daily low" on Tuesday. Watch the Bloomberg video after the jump. Interesting technical analysis.

"At the May 2 high, when the market doubled the move from the March 2009 low, there was a confluence of daily, monthly and weekly indications from our market model. They all produced what is called the sequential and combo 13s, and that told us to aggressively go short. What we've experienced yesterday with the S&P average, as well as other markets, was a 13 that coincided with a daily low. So we're really going against the trend right now."

Bernanke's U.S. Economic Outlook, Monetary Policy Testimony (With Video, 10/4/2011)

On 10/4/2011, Fed Chairman Ben Bernanke, in his testimony before the Joint Economic Committee, explained why the economy, new home construction and job growth are weak, how the Fed is reacting, and also the fiscal challenges facing the U.S. He said,"recent indicators, including new claims for unemployment insurance and surveys of hiring plans, point to the likelihood of more sluggish job growth in the period ahead." After the testiony transcript I embedded the full C-SPAN video of the hearing.
"Chairman Ben S. Bernanke
Economic Outlook and Recent Monetary Policy Actions
Before the Joint Economic Committee, U.S. Congress, Washington, D.C.
October 4, 2011

Chairman Casey, Vice Chairman Brady, and other members of the Committee, I appreciate this opportunity to discuss the economic outlook and recent monetary policy actions.

It has been three years since the beginning of the most intense phase of the financial crisis in the late summer and fall of 2008, and more than two years since the economic recovery began in June 2009. There have been some positive developments: The functioning of financial markets and the banking system in the United States has improved significantly. Manufacturing production in the United States has risen nearly 15 percent since its trough, driven substantially by growth in exports; indeed, the U.S. trade deficit has been notably lower recently than it was before the crisis, reflecting in part the improved competitiveness of U.S. goods and services. Business investment in equipment and software has continued to expand, and productivity gains in some industries have been impressive. Nevertheless, it is clear that, overall, the recovery from the crisis has been much less robust than we had hoped. Recent revisions of government economic data show the recession as having been even deeper, and the recovery weaker, than previously estimated; indeed, by the second quarter of this year--the latest quarter for which official estimates are available--aggregate output in the United States still had not returned to the level that it had attained before the crisis. Slow economic growth has in turn led to slow rates of increase in jobs and household incomes.

Wednesday, October 5, 2011

RIP Steve Jobs, Watch His 2005 Stanford Commencement Speech

R.I.P Steve Jobs. Dvol's back office is currently run on a Mac. Thanks for the revolutionary  products Mr. Jobs. Apple saved from an evil Dell Inspiron 600m a few years ago. Watch his 2005 Stanford commencement speech below (must see).

Steve Jobs for Fortune magazine
Source: Tsevis on Flickr (click)

Bob Janjuah: Single Digit P/E Drives S&P to 700-900 in 2012

In Bob Janjuah's recent report, which is available at Zero Hedge, he predicts single digit P/Es will drive the S&P to 700-900 in 2012. However, he sees the possibility of a "counter-trend risk rally" between November 2011 and early 2012. He also thinks the 10-year Treasury yield will hit between 1.25-1.50%. It is currently at 1.85%. Janjuah is the co-head of cross asset strategy at Nomura.
"It is for these reasons that my secular view remains bearish. In or within a year from now I expect global equities to be 25% to 30% lower. My S&P 500 target for the low in 2012 remains 800/900, and I think an 'undershoot' into the 700s is entirely possible.

For the valuation-focused, assume S&P 500 EPS in 2012 of $90/$100, and P/Es in the 8 to 9 area – I see this kind of P/E as the new norm in the kind of world we are in." (more)

Tuesday, October 4, 2011

Moody's Downgrades Italy's Government Bond Rating to A2 With Negative Outlook

After Moody's placed Italy's Aa2 government bond rating on review for a possible downgrade on June 17, 2011, today Moody's downgraded Italy's government bonds to A2. Below is the release from Italy's 10-year government bonds were yielding 5.49% today in Euros, up from 4.81% (+68 basis points) on 6/17. Yields hit a high of 6.39% on 8/5/2011.
"Moody's downgrades Italy's government bond ratings to A2 with a negative outlook 
Frankfurt am Main, October 04, 2011 -- Moody's Investors Service has today downgraded Italy's government bond ratings to A2 with a negative outlook from Aa2, while affirming its short-term ratings at Prime-1. The rating action concludes the review for downgrade initiated by Moody's on 17 June, 2011.

The main drivers that prompted the rating downgrade are:

(1) The material increase in long-term funding risks for euro area sovereigns with high levels of public debt, such as Italy, as a result of the sustained and non-cyclical erosion of confidence in the wholesale finance environment for euro sovereigns, due to the current sovereign debt crisis.

(2) The increased downside risks to economic growth due to macroeconomic structural weaknesses and a weakening global outlook.

(3) The implementation risks and time needed to achieve the government's fiscal consolidation targets to reverse the adverse trend observed in the public debt, due to economic and political uncertainties.

Belgium's Dexia Bank (DEXB) Down 22% on Sovereign Debt Holdings and Derivatives

Dexia Stock - DEXB.EU (
Belgium bank Dexia SA (DEXB.EU) closed at $1.01, down 22 percent, with 27 million shares exchanging hands. The stock traded as low as $0.81 today. Here is a quote and chart of Dexia's CDS (credit default swap) on I'm not sure where charts are of its bonds online. The move was related to the european sovereign debt on their books. Read the articles below.

Dexia to Set Up ‘Bad Bank’ With Guarantees From France, Belgium (Bloomberg)
"Oct. 5 (Bloomberg) -- Dexia SA, Belgium’s biggest bank, plans to pool its troubled assets into a “bad bank” with Belgian and French government guarantees to protect depositors and its municipal-lending business."

Dexia, BNP Resist Greek Losses Three Times Worse Than Booked (Bloomberg)
"Dexia SA, BNP Paribas SA and Societe Generale SA are resisting pressure from regulators to accept more losses on their holdings of Greek government debt amid criticism they haven’t written down the bonds sufficiently."

Moody's reviews ratings of Dexia's main operating entities for downgrade (Moody's)
"Review affects A3 long-term ratings, D BFSRs and Prime-1 short-term ratings

Paris, October 03, 2011 -- Moody's Investors Service has today placed on review for downgrade the standalone bank financial strength ratings (BFSRs), the long-term deposit and senior debt ratings and the short-term ratings of Dexia Group's three main operating entities -- Dexia Bank Belgium (DBB), Dexia Credit Local (DCL) and Dexia Banque Internationale à Luxembourg (DBIL). The review for downgrade of Dexia's three main operating entities' BFSRs is driven by Moody's concerns about further deterioration in the liquidity position of the group in light of the worsening funding conditions in the wider market. The review of the long and short-term debt ratings is prompted by the downward pressure on the BFSRs.

China Loans Tanzania $1 Billion for Natural Gas Pipeline

Guest post by

China Loans Tanzania $1 Billion for Natural Gas Pipeline

Tanzania’s government has signed a loan agreement for more than $1 billion with the Chinese government to construct a natural gas pipeline from Mnazi Bay in Mtwara Region and Songo Songo in Kilwa district to the capital Dar es Salaam.

Tanzania’s Minister for Energy and Minerals William Ngeleja said that the loan agreement was signed in Beijing.

The loan will be used to exploit Tanzania’s southern coastal natural gas reserves, Dar es Salaam’s The Citizen newspaper reported.

Construction of the 330 mile-long natural gas pipeline will begin in November when Chinese experts will begin evaluating the project, which has an expected completion date of March 2013.

In addition to the natural gas pipeline the loan will also finance the construction of two gas processing plants.

Along with the Mnazi Bay- Dar es Salaam natural gas pipeline, Tanzania has also concluded a second agreement with China's Sichuan Hongda Group worth $3 billion, to develop the Mchuchuma coal and Liganga iron ore projects in Rudewa district in Tanzania’s Iringa region.

According to Minister Ngekeja, the natural gas pipeline loan will paid over two decades, with first payment starting seven years after the pipeline comes online.

By. Joao Peixe, Deputy Editor

Bill Gross: Bonds, Stocks, Real Estate Overvalued Due to 0% Rates, Sees Recession Risk

Bill Gross, co-founder and co-CIO of PIMCO, had an interesting investment outlook out for October titled Six Pac(k)in'. It doesn't sound good folks. Here's an excerpt.
"sovereign balance sheets resemble an overweight diabetic on the verge of a heart attack. Still, if global policymakers could focus on structural as opposed to cyclical financial solutions, New Normal growth as opposed to recession might be possible."

"almost all remedies proposed by global authorities to date have approached the problem from the standpoint of favoring capital as opposed to labor. If the banks could just be stabilized, if the “markets” could just be elevated back in the direction of peak 401(k) levels, if interest rates could just be lower so that borrowers would inevitably take the bait, then labor – job creation – would inevitably follow. It has not."

"Long-term profits cannot ultimately grow unless they are partnered with near equal benefits for labor. "

"There are no double-digit investment returns anywhere in sight for owners of financial assets. Bonds, stocks and real estate are in fact overvalued because of near zero percent interest rates and a developed world growth rate closer to 0 than the 3 – 4% historical norms. There is only a New Normal economy at best and a global recession at worst to look forward to in future years."
Continue reading at PIMCO.

ISE Sentiment Index (ISEE) Hit 4 Year Low on 9/28/2011 (All Securities)

The ISEE Index, or ISE Sentiment Index, measures opening long customer transactions in call options over put options on the International Securities Exchange (ISE). It doesn't include "market maker and firm trades", so it is considered a better measure of sentiment. Here is the calculation: ISEE = Customer Opening Long Calls/Customer Opening Long Puts x 100. A number under 100 shows more interest in puts than calls and vice versa.

The main reason why I'm bringing this up is because on 9/28/2011 the ISEE Index (All Securities) hit a low of 53, which wasn't even hit during the 2007-2009 recession and financial crisis. It came close on 3/10/2008 when it hit 56. The ISEE actually pierced through that level on 6/30/2011 when it hit 55. So, 53 seems like an extreme bearish read, no? It hit a high of 230 on 12/10/2010. Since that extreme bearish read, the ISEE increased to 96 on 9/29/2011 and 89 on 9/30/2011. Sometimes extreme reads are decent fades, but I'm wondering if there's a longer term sentiment read from this.

When looking at the ISEE Index (All Equities Only), the ratio hit a low of 71 on 9/28/2011, which was the lowest read since early 2008. But it didn't break below 70 and 66, which were the lows on 1/17/2008 and 3/10/2008. Somewhat interesting. Chart them out at here.

ISEE Index - All Securities (ISE)

ISEE Index - Equities Only (ISE)

Monday, October 3, 2011

BAC, MS Double Dipping to Financial Crisis Levels (Charts)

Morgan Stanley's stock (MS) closed down 7.7% at $12.47 and Bank of America (BAC) closed down 9.8% at $5.52. They are now back around the 2008/9 financial crisis levels. According to Zero Hedge, Morgan Stanley's CDS (credit default swap) spiked to 548 basis points today, a level not seen since October, 2008. You can see the delayed quote of Morgan Stanley's 5Y CDS (CMWD1U5:IND) at These banks just won't go away will they. Bank of America is now charging $5 every month to use their debit cards. Why wouldn't someone just use the online bank ING Direct for free, which I believe is owned by Capital One now. Are online banks and Google wallets about to take over the financial system? Watch the PBS Newshour video on the new fee below.

MS and BAC Intraday - Source:

MS and BAC Since 2008 - Source:

Interesting articles from today:

Market Snapshot: Financials Flop, Credit Collapses, Market Closes At 2011 Lows (Zero Hedge)

Barclays, BofA Said to Consider Selling Stakes in Archstone (BusinessWeek)

Morgan Stanley Swaps Risk May Be Misread, Wells Fargo Says (SFGate)

MS CDS Soars As Cramer Says "Morgan Stanley Is Fine" (Zero Hedge)

Morgan Stanley, Goldman Credit Risk Soars (Bloomberg)

Banks Crushed Again in Stock, Credit Markets (WSJ)

Bank Of America Debit Card Fee Leads To Legislative Response (HuffingtonPost)

Sunday, October 2, 2011

Overnight AA Asset-Backed Commercial Paper Rate Chart Back at 2009 Levels

Click for larger view,  source: Federal Reserve
The Overnight AA asset-backed commercial paper rate moved from 0.13% on 7/8/2011 to 0.46% on 9/29/2011. Decent move, and it top ticked the market as well. I'm not sure what the exact catalyst was after July 8, but when looking back on my blog, the U.S was placed on credit watch negative, nations and banks in Europe were being downgraded, Italian and Spanish bond spreads to German bunds were breaking out, and the global economy was slowing. So, I'm assuming investors demanded an extra 33 basis points on overnight AA asset-backed commercial paper to compensate for the heightened risk. You can see that the rate is back at 2009 levels.

Here is how the commercial paper interest rate indexes are calculated.

Saturday, October 1, 2011

Links: Albert Edwards, Soros, Gundlach, Morgan Stanley, Jim Chanos, ECRI

Albert Edwards on why the S&P will hit 400 (FT Alphaville)

Nomura's Bob Janjuah: "In One Year I Expect Global Equities To Be 25%/30% Lower; The S&P Will Reach Low 1000s In October" (Zero Hedge) -added 10/3/2011

George Soros: The Road from Depression (Project Syndicate)

S&P Cuts Its Outlook On The S&P 500 to 1,260 (Business Insider via Standard & Poor's)

Notes from the DoubleLine Lunch with Jeffrey Gundlach (The Reformed Broker)

Morgan Stanley's Stock Down, CDS Up on Exposure to European banks (BloombergWSJ, Zero Hedge)

Asian Stocks Could Slump Up to 40% in Worst Case Scenario: UBS Strategist (CNBC)

ECRI: U.S. Economy Tipping into Recession (Economic Cycle Research Institute)

Tim Backshall on Morgan Stanley CDS, China, And High Yield (CNBC Video at CapitalContext)

Goldman's Jim O'Neill: "Let's Worry About Everything" (Zero Hedge)

Chanos calls China syndrome (Globe and Mail)

NEIN, NEIN, NEIN, and the death of EU Fiscal Union (The Telegraph)

No Rise in Home Prices Until 2020: Bankers (CNBC)

Watch Occupy Wall Street Protests Live, 700 Protesters Arrested on Brooklyn Bridge

Wall StreetWatch the Wall Street protests live via Livestream below. If protesters really want to occupy Wall Street, they should peacefully occupy OTC trading desks like Kweku Adoboli did at UBS. That would get people's attention real fast (lol). Will there be protests during the week? I just read on (w/ video) that 700 people were arrested on the Brooklyn Bridge. Watch the live #OccupyWallStreet video and live twitter conversations after the jump.

"New York City police say about 700 protesters have been arrested after they swarmed the Brooklyn Bridge and blocked traffic lanes for several hours.
On the second week of protests by the Occupy Wall Street movement, a large group of marchers broke off from others on the bridge's pedestrian walkway and headed across the Brooklyn-bound lanes."

Friday, September 30, 2011

Will The S&P Cyclically Adjusted P/E Ratio Overshoot To The Downside? (Robert Shiller, Chart)

Shiller Cyclically Adjusted P/E Ratio (interactive chart below)
Dr. Robert Shiller, Yale economics professor and co-founder of the Case-Shiller Home Price Index, was interviewed by Aaron Task and Henry Blodget on Daily Ticker on 9/27/2011. He is still "worried" that stock valuations could overshoot to the downside. I embedded the video after the jump.

What do you think? When looking at Shiller's CAPE (cyclically-adjusted P/E ratio), is it time for the stock market to trade under its long-term average P/E multiple and overshoot like it did in the 1920s, 1930s and 1980s? Or will it happen in another decade? Shiller has data available to the public online going back to 1881. You can chart out the S&P 500, dividend, earnings, consumer price index, long-term interest rate and more in excel format. Below is an interactive chart of the cyclically-adjusted P/E ratio going back to 1881 in log scale. For more on this topic, see Shiller's recent interview on Fox Business and read John Hussman's recent note on the possibility of secular undervaluation (and where the market could trade).

Wednesday, September 28, 2011

Yale's Robert Shiller Is Worried Stocks Could Be In A Bubble (Video)

Robert Shiller, Yale economist and co-founder of the Case-Shiller Home Price Index and MacroMarkets, told Fox Business on 9/21/2011 that he thinks real home prices (inflation adjusted) could overshoot to the downside. But more importantly, since stock portfolios are 15.3% of household net worth as of Q2 2011 (which doesn't include mutual fund shares, see Fed data or the snapshot below), Shiller is worried that the stock market could be in a bubble.

If you've been following Shiller's historical stock market data, you can see that the S&P cyclically adjusted price/earnings ratio (average inflation-adjusted earnings over the past 10 years) is currently around the upper end of the 130 year range (since 1881). has charts available from Shiller's data sets. So, will stock valuations overshoot to the downside like housing? He was also asked about gold. Watch the video after the jump.

Tuesday, September 27, 2011

UBS, Morgan Stanley, BlackRock on the S&P 500 (Links, 9/26/2011)

Are Equities Cheap Right Now? No, UBS Says (Forbes)

Morgan Stanley: The Terrifying 2012 Bear Case Scenario -EPS analysis (Business Insider)

UBS' Euro Doom And Gloom Team Releases Sequel: "The Eurozone Sovereign Crisis Has Entered A More Dangerous Phase" (Zero Hedge)

BlackRock's Bob Doll Turns Increasingly Pessimistic (Pragmatic Capitalism)

Germany at war over eurozone bail-out - Germany and France could lose AAA credit rating if EFSF leveraged (The Telegraph)

ECB's Liikanen sees downside risks to economy (Reuters)

China’s Developers Facing ‘Increasingly Severe’ Credit Outlook, S&P Says (Reuters)

Not Over by a Longshot (JohnHussman)

Paul Tudor Jones on the Economy (MemphisDailyNews via Business Insider)

Video: Jim Rogers on Gold, Silver, Base Metals and Agricultural Commodities (Business Insider

Sales of new homes fall in August (LA Times)

Monday, September 26, 2011

Trader Predicts Euro, Stock Markets Will Crash; Savings Will Vanish In Next 12 Months (OMFG)

Source: Youtube
In doom and gloom news, this BBC video clip went viral today. In a somewhat convincing way, Alessio Rastani, an independent trader who runs, told BBC that he thinks the euro zone rescue plan will fail, the euro and big stock markets will crash, and "in less than 12 months, savings for millions of people is going to vanish." Why? Because governments don't rule the world, Goldman Sachs rules the world, and Goldman Sachs does not care about this rescue package. Whoa...

Soros: U.S. Already In Double Dip Recession, Two or Three Euro Countries Could Default

Source: Norway UN (Flickr)
On 9/21/2011, billionaire George Soros, founder of the Quantum Fund and Soros Fund Management, shared his views on the euro zone crisis and U.S. economy with Maria Bartiromo on CNBC. He thinks the U.S. is already in a double dip recession and "two or three of the small countries" in Europe could default.

Soros: "I think that you could have two or three of the small countries default or leave the euro provided it is prepared and done in an orderly way."

Bartiromo: "Is what's happening right now in the U.S. and Europe worse than the Lehman Brothers fallout?" Soros: "It is a more dangerous situation, and i think that the authorities, when push comes to shove, will do whatever it takes to hold the system together."

Bartiromo: "Do you think we'll see a double dip here in the U.S.?" Soros: "I think we are in it already." (video and transcript source: CNBC)

FYI: Over the weekend, The Telegraph broke news that a €2 trillion fund is being planned "to meet Italy and Spain’s financing needs in the event that the two countries were shut out of the markets. Officials are working on a way to leverage the EFSF (440 billion rescue package) through the European Central Bank to reach the target."

Multi-trillion plan to save the eurozone being prepared (Telegraph, 9/24/2011) 
The €2 trillion fund to save the euro (Telegraph, 9/25/2011)
IMF may need billions in extra funding, says Lagarde (Telegraph, 9/25/2011)
EFSF's Regling: EFSF Borrowing From ECB May Not Be Legal (WSJ, 9/24/2011)

Friday, September 23, 2011

Financial Injections for 9/23/2011

Finance - Financial injection - Finance
Source: doug88888 on Flickr
Full Text: G20 Communique after meeting in Washington (Reuters)

Greece denies reports on default scenarios (Reuters)

ECB's Knot Admits to Chance of Greece Defaulting (Reuters)

China, Japan Say Europe Must Fix Own Crisis (Bloomberg)

Japanese default insurance costs spike (Financial Times)

EU to speed recapitalisation of 16 banks (Financial Times)

ECB Ready to Act Next Month If Outlook Deteriorates (Bloomberg)

Morgan Stanley's Exposure To French Banks Is 60% Greater Than Its Market Cap... And More Than Half Its Book Value (Zero Hedge)

Ray Dalio On Diversified Uncorrelated Bets and How The Machine Works

In an interview with Bloomberg's Erik Schatzker, Ray Dalio, founder of the $122 billion hedge fund Bridgewater Associates LP, explains how his macro fund made 25% this year using diversified uncorrelated bets, and how the "machine" works.

Thursday, September 22, 2011

E-Mini S&P Future Is Down 2.83% at 1123, New Lows Coming?

The December E-mini S&P future is down 2.83% right now at 1,123 pre-open. It is clearly in the next wave down and needs to desperately find a support level. The 8/9/2011 low was 1,077. You can see the downtrend line that ES needs to break for a bullish reversal (and 1,217 retest). Is 1,000-1,100 in the cards? Not sure what's up, but proceed at your own risk!

chart snapshot courtesy of optionsxpress

Jim Chanos Is Still Short Chinese Banks, Property Developers (Bloomberg Video 9/21/2011)

Source: Bloomberg
Jim Chanos, founder of hedge fund Kynikos Associates, told Bloomberg's Carol Massar yesterday that he's still very bearish on China's property market and banking sector. He's been bearish on China for a few years now and now it's starting to move his way. The question now is, does China see a soft or hard landing? Chinese equity indices are breaking down as we speak and China's 5Y CDS (credit default swap) just made a new high. More on that in my next post. Here are a few (unofficial) quotes from the video (w/ links to related posts). Watch the Bloomberg video after the break.

Jim Chanos: "Well, the Chinese government balance sheet directly does not have a lot of debt, it's de minimis. But the fact of the matter is, the state owned enterprises and the local governments, and all the other ancillary borrowing vehicles, have lots of debt, and it's growing at a very very fast rate. And the assumption is, is the state stands behind all this debt. Well if we look at it on that basis, and Fitch and others have done so too, we see that debt in China, implicitly backed by the Chinese government, probably has gone up from somewhere about 100% of GDP to about 200% of GDP recently. And those are numbers that are staggering. Those are European kind of numbers, if not worse."

Peter Schiff's Testimony Before Congressional Committee of Oversight & Reform (9/13/2011)

Below is Peter Schiff's testimony before the Congressional Committee of Oversight & Reform with Q&A (hat tip reboilroom). Also embedded is the transcript of his testimony. He runs Euro Pacific Capital and is a hardcore Austrian economist. If you remember, he was one of the ones on CNBC and FOX that warned viewers about the pending housing crash, evaporation of home equity and negative effects from artificially low interest rates (see videos 1, 2, 3). Now that we're experiencing the aftermath of his predictions and ongoing de-leveraging, there's no doubt these are tough decisions to make. Thoughts?
"How the Government Can Create Jobs

Testimony by Peter D. Schiff

Offer to the House Sub-Committee on Government Reform and Stimulus Oversight

September 13, 2011

Mr. Chairman, Mr. Ranking member, and all distinguished members of this panel. Thank you for inviting me here today to offer my opinions as to how the government can help the American economy to recover from the worst crisis in living memory.

Despite the understandable human tendency to help others, government spending cannot be a net creator of jobs. Indeed many efforts currently under consideration by the Administration and Congress will actively destroy jobs. These initiatives must stop. While it is easy to see how a deficit-financed government program can lead to the creation of a specific job, it is much harder to see how other jobs are destroyed by the diversion of capital and resources. It is also difficult to see how the bigger budget deficits sap the economy of vitality, destroying jobs in the process.

In a free market jobs are created by profit seeking businesses with access to capital. Unfortunately Government taxes and regulation diminishes profits, and deficit spending and artificially low interest rates inhibit capital formation. As a result unemployment remains high, and will likely continue to rise until policies are reversed." (continue reading below)

After FOMC Statement, Stocks Fall, Treasury Bonds Spike (SPY, TLT, UUP, FXE 9/21/2011)

In today's FOMC statement, the Federal Reserve decided to "extend the average maturity of its holdings of securities" on its balance sheet, aka "operation twist", to "support a stronger economic recovery". With no additional asset purchases involved (QE3), the stock market and EUR/USD plunged, while Treasury bonds and the U.S. Dollar (safe havens) spiked. Also, the problems in Europe and the global economic slowdown provided additional support for that trade (imo). See the full FOMC statement after the jump.
"The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less. This program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative."

Here is a chart showing how $TLT (20+ Treasury Bond ETF), $UUP (U.S. Dollar Index ETF), $FXE (Euro Index ETF) and SPY (S&P 500 ETF) reacted to the news.


Wednesday, September 21, 2011

Moody's Downgrades Bank of America and Wells Fargo (9/21/2011)

Déjà vu.. Moody's downgraded BAC and WFC today.
Source: MoneyBlogNewz on Flickr
"Moody's downgrades Bank of America Corp. to Baa1/P-2; Bank of America N.A. to A2, P-1 affirmed

Global Credit Research - 21 Sep 2011

New York, September 21, 2011 -- Moody's Investors Service has downgraded the ratings of Bank of America Corporation's (BAC) holding company to Baa1 from A2 for long-term senior debt and to Prime-2 from Prime-1 for short-term debt. The long-term deposit ratings of Bank of America N.A. (BANA) were downgraded to A2 from Aa3, while BANA's short-term rating was affirmed at Prime-1. The actions conclude a review for downgrade announced on June 2, 2011. The outlook on the long-term senior ratings remains negative.

EUR/USD Technicals, Barclays Sees 1.33 In One Month

Euro Man (source: rockcohen on flickr)
EUR/USD and the Euro FX December Future are back where they were last night after Italy's downgrade. Ran Squawk just reported that Barclays sees EUR/USD at 1.33 in one month and 1.25 in 3 months. It is currently trading at 1.36741 and testing a steep downtrend line. If it can't break through the trend, it will probably retest the 9/12 low of around 1.35000. If that gets taken out, I don't see any support until 1.287, or the January 2011 lows.

The market is speculating on whether Greece defaults or gets its next tranche of bailout money from the IMF/EU, or establishes a fiscal union with euro bonds. If Greece or another country in the euro zone defaults, then the European banking system would be at risk of contagion. So what is going to happen? Are China and Brazil going to provide a backstop? I see Greece raised 1.65 billion euros in a 13-week Treasury bill auction yesterday. According to CMA Datavision's Sovereign Risk Monitor, Greece 5Y CDSs (at 5,639 basis points) have a default probability of 94% and Portugal 5Y CDSs (at 1,271 basis points) have a default probability of 63%. They are at the top of the list, then Ireland at 50%, Italy at 36% and Spain at 30%. See my link fest from a few hours ago for articles to read. See charts after the jump.

Links: IMF Projections, Hugh Hendry, Fitch on Greece, Chanos, Grantham, EUR/USD, China

IMF Real GDP Projections (report)
Troika makes ‘good progress’ on Greek deal (Financial Times)

Greece to default but not leave euro zone-Fitch (Reuters)

Greece Raises €1.65 billion in 13-week T-Bill Auction (WSJ)

China voices confidence in Europe after Italy downgrade (Reuters)

Brazil Says Europe Must 'Save Itself' (Reuters)

Kynikos's Jim Chanos Discusses European Debt Crisis (Bloomberg Video)

Chanos on China's Economy, Debt, Real Estate Market (Bloomberg Video)

French Bank Stocks Accelerate Losses In Afternoon Trade (WSJ) 9/20/2011

Fitch report on European banks and market turmoil (Reuters)

Grantham: ‘No market for young men’: Market veteran blasts income inequality, buys blue-chip stocks (MarketWatch)

China growth fears boost Hendry’s fund (Financial Times via London Spectator)

Barclays sees EUR/USD at 1.33 in 1 month, 1.25 in 3 months (RanSquawk)