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

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

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 (StockCharts.com)
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

Numbers
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.

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.

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 DistressedVolatility.com 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)

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 Moodys.com. 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 (StockCharts.com)
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 Bloomberg.com. 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 OilPrice.com

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 OilPrice.com

Turkey and Russia Spar Over Natgas Prices - Guest Post

Blue flames
Source: Flickr
Guest post by OilPrice.com

Turkey and Russia Spar Over Natgas Prices

While few people in the world have warm feelings for energy companies beyond perhaps their stockholders, Russia's state-owned natural gas monopoly Gazprom has shown an unrivalled and unique capacity to alienate is customers over the past two decades since the collapse of the USSR.

Nations unhappy with Gazprom's bludgeoning tactics include virtually all of the new nations composing the post-Soviet space and beyond. Issues range from aggressive low-balling of purchase prices for natural gas exports (Central Asia post-Soviet states) through transit countries getting screwed on both prices and transit fees (Belarus, Ukraine and China) to end consumers from Eastern and Central Europe to Asia.

Gazprom's customer base is nervously contemplating if the monopoly's obnoxious buccaneering capitalist tactics will cause further disruptions in continued supplies of natural gas if the energy giant pushes their transit neighbors too far.

One of Russia's customers has had enough of being regarded as Gazprom's milch cow, and unlike Ukraine or Belarus, Moscow may suddenly find that Turkey has both the inclination and wherewithal to fight back, and it is a fight that Gazprom would be foolish to pursue.

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 ISE.com here.


ISEE Index - All Securities (ISE)


ISEE Index - Equities Only (ISE)

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 Bloomberg.com. 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: FreeStockCharts.com

MS and BAC Since 2008 - Source: FreeStockCharts.com

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)

Russia Claims New Arctic Hydrocarbon Finds Effectively Double Nations Reserves - Guest Post

The rig at night
Guest post by OilPrice.com

Russia Claims New Arctic Hydrocarbon Finds Effectively Double Nations Reserves

Russia, currently vying for the title of world's top oil producer with Saudi Arabia, claimed that new findings in its offshore Arctic territories have effectively doubled the nation's energy reserves.

According to numerous Russian media reports, addressing a meeting of the sixth media forum of the United Russia Party on 25 September, Russian Natural Resources Minister Iury Trutnev said that the preliminary forecast is that resources in the Russian Arctic shelf are comparable to those in mainland Russia, adding, "Speaking of long-term planning, these reserves could last 100, may be 150 years, but longer is unlikely. Humanity will eventually have to look for new energy anyway. Recently, we completed 40-year talks with Norway, delineated the gray zone, and now obtained another 5 billion tons of fuel equivalent there."

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.

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 msnbc.com (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."