Could War Flare Again Between Iraq and Kuwait? - Guest Post

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

Could War Flare Again Between Iraq and Kuwait?

According to Iraqi Council of Representatives Oil and Energy Committee member Furat al-Sharei, the 10 oil fields that spread across the Iraqi-Kuwaiti frontier are still waiting to have a line drawn through them to delineate the border, more than eight years after a coalition led by U.S. forces toppled the regime of Iraqi President Saddam Hussein.

According to al-Sharei, the two countries must first collaborate in developing legislation for equitably sharing the fields before oil extraction can begin, noting, "The problem of the common fields can be resolved by developing legal mechanisms."

While Iraq and Kuwait are now at peace, many of the border issues that led to conflict two decades ago remain, which no amount of diplomatic bonhomie can completely paper over.

U.S. Biofuel Camelina Production Set to Soar - Guest Post

Camelina Fuel (U.S. Navy/Wikimedia)
Guest post by John C.K. Daly of Oilprice.com

U.S. Biofuel Camelina Production Set to Soar

The U.S. biofuel industry has long been stymied by the lack of USDA federal crop insurance, leaving only the most adventurous farmers willing to plant renewable energy crops.

Biofuel sources currently under development include algae, jatropha and camelina. Of the three, camelina is increasingly emerging as the frontrunner in attracting initial investment worldwide, as global demand for aviation fuel for passenger flights is now more than 40 billion gallons annually.

Camelina has a number of advantages over its competitors, including using far less water, thus allowing it to be grown on marginal land, thereby not taking food acreage out of production.

Furthermore camelina has a relatively short growing season of 80 to 100 days, requires no special equipment to harvest, and the silage remaining after processing can be fed to livestock and poultry, with the added side benefit of increasing their omega-3 production.

Jon Corzine's Testimony During MF Global Bankruptcy Hearing, Has No Idea Where Missing Money Is

Source: C-Span (click for hearing video)
Watch the full MF Global bankruptcy hearing with former CEO Jon Corzine at C-Span. I embedded his full statement below (via the House Agriculture Committee). He talked about MF Global's investment in RTM's (repo-to-maturity transactions) involving European sovereign debt, the weeks leading up to its bankruptcy filing, and the missing $1.2 billion. He has no idea where the money is. Sound financial system we have.

"The Unreconciled Accounts

Obviously on the forefront of everyone’s mind – including mine – are the varying reports that customer accounts have not been reconciled. I was stunned when I was told on Sunday, October 30, 2011, that MF Global could not account for many hundreds of millions of dollars of client money. I remain deeply concerned about the impact that the unreconciled and frozen funds have had on MF Global’s customers and others.

As the chief executive officer of MF Global, I ultimately had overall responsibility for the firm. I did not, however, generally involve myself in the mechanics of the clearing and settlement of trades, or in the movement of cash and collateral. Nor was I an expert on the complicated rules and regulations governing the various different operating businesses that comprised MF Global. I had little expertise or experience in those operational aspects of the business.

Official EU Council Statement, French Banks Downgraded, Soros Buys European Debt (via MFG), Euro Update

Source: European Council (Flickr)
If you want to read the offical EU Council statement, here's a link to the official document. PragCap broke it apart and explained it in a post ("No Bazooka"). EUR/USD is currently at 1.33233, down a little bit from my previous post on the ECB and EU draft a few hours ago. Below is the part on stabilization tools at the end. EUR/USD is now at 1.33155... Articles to read.

*Moody's Downgrades Three French Banks (Reuters)
*Moody's downgrades Société Générale's long-term ratings to A1 (Moody's)
*Moody's downgrades Credit Agricole SA's long-term ratings to Aa3, concluding review (Moody's)
*Moody's downgrades BNP Paribas's long-term ratings to Aa3, concluding review (Moody's)
*Eurozone to forge ahead as UK blocks treaty change (France24)
*EU States to Send IMF $267 Billion in New Crisis Fight (Bloomberg)
*CDOs To Buy European Bank Stocks And Other Silly Ideas (DealBreaker)
*Wells Fargo to pay $148M fine for Wachovia misdeeds (CNN Money)
*Shadow banking and the seven collateral miners (FT Alphaville)
*Corzine's Loss May Be Soros's Gain - "Investor George Soros's family fund bought about $2 billion of European bonds formerly owned by MF Global Holdings Ltd." (WSJ)

"Strengthening the stabilisation tools

11. Longer term reforms such as the ones set out above must be combined with immediate action to forcefully address current market tensions.

12. The European Financial Stability Facility (EFSF) leveraging will be rapidly deployed, through the two concrete options agreed upon by the Eurogroup on 29 November. We welcome the readiness of the ECB to act as an agent for the EFSF in its market operations.

13. We agree on an acceleration of the entry into force of the European Stability Mechanism (ESM) treaty. The Treaty will enter into force as soon as Member States representing 90 of the capital commitments have ratified it. Our common objective is for the ESM to enter into force in July 2012.

14. Concerning financial resources, we agree on the following:

ECB Disappoints Market, EUR/USD Testing Trend Lines, EU Statement Draft Released

Courtesy of EUR/USD (FreeStockCharts.com)
EUR/USD is at 1.33523, -0.40%, and testing important trend lines today after ECB President Mario Draghi disappointed markets by not announcing plans to buy European government bonds (read analyst reactions at Reuters). The ECB lowered its key interest rates by 25 basis points. For real-time news on what's really going on in Europe, I suggest you follow the money. Here are the ECB's statements on fiscal policy (ECB release).
"Turning to fiscal policies, all euro area governments urgently need to do their utmost to support fiscal sustainability in the euro area as a whole. A new fiscal compact, comprising a fundamental restatement of the fiscal rules together with the fiscal commitments that euro area governments have made, is the most important precondition for restoring the normal functioning of financial markets. Policy-makers need to correct excessive deficits and move to balanced budgets in the coming years by specifying and implementing the necessary adjustment measures. This will support public confidence in the soundness of policy actions and thus strengthen overall economic sentiment.

Watch EUR/USD During the ECB Meeting (Chart)

EUR/USD is currently trading at 1.34025, -0.02%. It is currently testing a near-term downtrend line, and check out the perfect trend line below it. Articles to read: ECB to cut rates as focus on bond buys intensifies (Reuters); ECB May Dig Deeper Into Crisis Toolbox (Bloomberg). Will they cut the rate by 25 basis points or 50 basis points? See key ECB interest rates here. Watch EUR/USD trade live in the quote widget on my sidebar (notes: 11/25/2011 low is 1.32121, 10/4/2011 low is 1.31460). Click the chart for a larger view.


Source: FreeStockCharts.com

Robert Shiller: Home Prices Back at 2003 Levels, Could Overshoot to Downside (Charts, Video)

Robert Shiller, Yale professor and co-founder of the S&P/Case-Shiller Home Price Index, was featured on Reuters TV on 11/30/2011 after the September housing data was released. Guess what people, "Detroit has now recorded three consecutive months of positive annual rates." Below are charts from the S&P/Case-Shiller press release.


New York, November 29, 2011 – Data through September 2011, released today by S&P Indices for its S&P/Case-Shiller

Home Price Indices, the leading measure of U.S. home prices, show that nationally home prices did not register a significant change in the third quarter of 2011, with the U.S. National Home Price Index up by only 0.1% from its second quarter level. The national index posted an annual decline of 3.9%, an improvement over the 5.8% decline posted in the second quarter. Nationally, home prices are back to their first quarter of 2003 levels.

As of September 2011, the annual rate of change in 14 of the 20 MSAs and both Composites, covered by S&P/Case Shiller Home Price Indices, improved versus August. Atlanta, Las Vegas, Los Angeles, San Francisco, Seattle and Tampa recorded lower annual declines in September compared to August. Detroit and Washington DC were the only two MSAs to post positive annual rates of +3.7% and +1.0% respectively. Detroit has now recorded three consecutive months of positive annual rates."

Source: S&P/Case-Shiller Home Price Index Press Release

Source: S&P/Case-Shiller Home Price Index Press Release


During the Reuters TV interview, Shiller said "this was definitely a surprise on the downside, and "I don't see any reason to predict a recovery now". He thinks that high unemployment is weighing on the housing market right now, and is worried that home prices could overshoot to the downside.
"At best we can hope it that it doesn't overshoot. We are back down to normal levels for home prices, but after a crisis they could overshoot and become cheap overall."

I also found a Standard & Poor's interview with Robert Shiller and Karl Case that was conducted on 10/25/2011.

Mexico - Rising Natural Gas Superstate? - Guest Post

Source: Gobierno Federal (Flickr)
Guest post by John C.K. Daly of Oilprice.com

Mexico - Rising Natural Gas Superstate?

Americans looking south of the Rio Grande tend to forget, if they ever knew, that Mexico is, according to the U.S. Energy Information Administration, now America's second largest source of imports. Of the United States' total crude oil imports averaging 9,033 thousand barrels per day (tbpd), Mexico is the second largest source of imports, at 1,319 tbpd, exceeded only by Canada with 2,666 tbpd.

But now, Mexico's future seems even brighter. According to U.S. Energy Information Administration Executive Director Maria van der Hoeven, Mexico's significant untapped natural gas reserves, if properly developed, could eventually provide Mexico with energy independence.

On 29 November in Washington, presenting the most recent EIA report on Mexico van der Hoeven stated, "Mexico is sitting on very large natural gas fields that could allow it to end gas imports and could give it energy independence.

Grantham's S&P Chart Showing Projected Overshoot to Downside (2011-2021)

Source: GMO Capital Q3 2011 Letter
Jeremy Grantham's Q3 2011 letter is out, and it includes a must see projected S&P chart (going out to 2021) that might put the long only, buy-and-hold crowd in a tizzy. His projection is based on the average overcorrection of "10 great (pre-Greenspan) equity bubbles". If the projection is right, the S&P is currently topping out and will base out around 800 in the coming years. The bottom in 2013 looks too clean on the chart, in my opinion.

Grantham's explanation of the chart:
"Historians would notice that all major equity bubbles (like those in the U.S. in 1929 and 1965 and in Japan in 1989) broke way below trend line values and stayed there for years. Greenspan, neurotic about slight economic declines while at the same time coasting on Volcker’s good work, introduced an era of effective overstimulation of markets that resulted in 20 years of overpriced markets and abnormally high profit margins. In this, Greenspan has been aided by Bernanke, his acolyte, who has continued his dangerous policy. The first of the two great bubbles that broke on their watch did not reach trend at all in 2002, and the second, in 2009 – known by us as the first truly global bubble – took only three months to recover to trend. This pattern is unique. Now, with wounded balance sheets, perhaps the arsenal is empty and the next bust may well be like the old days. GMO has looked at the 10 biggest bubbles of the pre-2000 era and has calculated that it typically takes 14 years to recover to the old trend. An important point here is that almost no current investors have experienced this more typical 1970’s-type market setback. When one of these old fashioned but typical declines occurs, professional investors, conditioned by our more recent ephemeral bear markets, will have a permanent built-in expectation of an imminent recovery that will not come. For the record, Exhibit 1 shows what the S&P 500 might look like from today if it followed the average fl ight path of the 10 burst bubbles described above. Not very pretty"

Grantham is the co-founder of GMO Capital, which manages $93 billion in client assets (hnw, institutional). Read his views on commodities as well: Jeremy Grantham: "Days of Abundant Resources and Falling Prices Are Over Forever".

Hat tip Zero Hedge

DeMark: S&P Rallies to 1,330-1345 in December, Overall Trend Still Down (Video, SPX Chart)

S&P 500 Index (not future) - StockCharts
Tom DeMark, creator of the DeMark Indicators (exhaustion indicators) that large hedge fund traders use on charts to time the market, was featured on Bloomberg TV yesterday, and said he expects S&P futures to hit between 1,330-1345 by December 21, but the overall trend is still down.

In the chart below, the S&P 500 Index (cash, not future) is testing the 200 day moving average resistance level (1,264.23). It closed at 1,258.47 on Tuesday. If the S&P breaks above that level, it could squeeze shorts, break through that downtrend line from July, and proceed to test the October high (1,293). But if the overall trend is down, that would mean it's just a false breakout. We shall see. Get ready for the ECB meeting on December 8, EU summit on December 8-9, and Fed (FOMC) meeting on December 13.

Old School Video of Tom DeMark Talking About "Trading the Nines" (1990s)

I found this old school video clip of Tom DeMark, founder of Market Studies and creator of the DeMark Indicators, talking about "trading the nines" on charts on a screen in the 1990s. It must have been related to his book at the time, The New Science Of Technical Analysis, which was published in 1994. You can see a poster in the back. Large hedge fund traders use his technical indicators on charts to time the market at exhaustion points.

Australia Going Solar - Gonna Cost Ya, Mate - Guest Post

Img: Wikimedia Commons
Guest post by John C.K. Daly of Oilprice.com

Australia Going Solar - Gonna Cost Ya, Mate

Green activists, take note - for Australia fully to embrace solar power, Canberra would have to spend $100 billion, with photovoltaic cells to generate the electricity covering an area twice the size of Sydney in order to replace Australia's indigenous inexpensive coal-fired power plants with renewable energy sources.

This is not an insignificant figure, as Australian coal currently generates 80 percent of Australia's electrical energy output.

AAPL Chart Watch: Sitting on 50DMA, Still On Uptrend, Above 200DMA (for now!)

9-year AAPL chart (see below)
Here's a quick look at Apple's chart (AAPL) that hasn't officially broken down yet. AAPL is sitting right on the 50 day moving average today, and still holding the 200DMA and recent uptrend from 2010. Monitor this trend closely to see if it breaks down and starts a new bear market. I'm going to watch the options as well going forward. AAPL peaked out around $200 in 2008 before hitting $75 in the previous bear market. Also, if you look at the first chart, AAPL's 9-year uptrend line (support) hits today around $275-$325. The MACD and RSI indicators are interesting as well. If AAPL goes, so goes QQQ. Or, maybe it means competitors like Google or Amazon are gaining ground. See charts after the jump if on the index page.

News:
Canaccord Genuity: Kindle Fire will take 15.3% of tablet market (Fortune)
Canaccord Reiterates Buy, $560 Target on Apple (Benzinga)
JP Morgan Maintains Overweight, $525 Target on Apple (Benzinga)
UBS Analyst Maynard Um: iPhone Growth to Boom in Holiday Season, AAPL target $510 (Mac Observer)
UBS Dismisses iPad Concerns on Corning Glass Warning (Mac Observer)
Apple's best November ever saw supply chain sales spike 17% in one month (AppleInsider)
Ticonderoga Securities analyst has $666 target on Apple, sees positive supply chain (CNBC Video)
Apple: Retail Growth to Re-Accelerate, Says Barclays (Barrons)
EU in antitrust probe of Apple, e-book publishers (AP)
Acer likely to launch ultrabooks priced from US$699-799 in 2012, say sources (Digitimes)
Amazon's Kindle Fire Will 'Vaporize' Android But Leave Apple Unscathed (Reuters)
Apple loses ‘iPad’ trademark in China (Zdnet)

10Y French-German Yield Spread Spikes After S&P Places AAA Eurozone Countries On CreditWatch

10-year French-German Bond Yield Spread (Bloomberg.com)
As noted yesterday, S&P placed AAA countries in the eurozone on "CreditWatch with negative implications". The list includes the largest contributors to the EFSF, Germany at 29.07% and France at 21.83% (efsf.europa.eu - pdf). S&P is going to review what happens at the EU summit on December 8-9 (Thursday-Friday), and then decide if they should downgrade Austria, Belgium, Finland, Germany, Netherlands, and Luxembourg by up to one notch, and France by up to two notches.

According to Reuters, France "has the highest debt and deficit levels of the six AAA-rated euro zone members". Read S&P's report on France here. In the press release below, S&P explained five interrelated factors causing "systemic stresses" in the eurozone. I provided a chart of the 10-year French-German bond yield spread, which is up 7.44% at 1.00 right now.

Articles related to the downgrade: We've Just Witnessed A Major Turning Point In The Euro Crisis (BI); France: S&P warning serious but no austerity needed (Reuters); France says has more to do than others to keep its AAA (Reuters); EFSF Bailout Bonds Drop After S&P Cuts Euro-Nation Debt Outlooks (Bloomberg).

Standard & Poor's Puts Ratings On Eurozone Sovereigns On CreditWatch With Negative Implications

60 Minutes on Prosecuting Wall Street, Countrywide and Citigroup Fraud!

Img: $BAC via StockCharts, +Flickr (TheConsumerist)
On Sunday, 60 Minutes had segment on prosecuting Wall Street, and you won't believe what Eileen Foster, former executive vice president in charge of fraud investigations at Countrywide, and Richard Bowen, former senior vice president and chief underwriter in the consumer lending division at Citigroup, had to say about what actually went down inside these institutions before they were bailed out by the government. Watch the videos after the jump. I added the extra 60 Minutes video featuring Tom Forgers, senior fraud investigator for the Financial Crisis Inquiry Commission (FCIC). Read the full FCIC report here. To your right is a 5 year stock chart of Bank of America (BAC), which currently owns Countrywide.


Eileen Foster at Countrywide (read the full 60 Minutes script)


Kroft: How much fraud was there at Countrywide?

Foster: From what I saw, the types of things I saw, it was-- it appeared systemic. It, it wasn't just one individual or two or three individuals, it was branches of individuals, it was regions of individuals.

Kroft: What you seem to be saying was it was just a way of doing business?

Foster: Yes.

In 2007, Foster sent a team to the Boston area to search several branch offices of Countrywide's subprime division - the division that lent to borrowers with poor credit. The investigators rummaged through the office's recycling bins and found evidence that Countrywide loan officers were forging and manipulating borrowers' income and asset statements to help them get loans they weren't qualified for and couldn't afford.


SPY Gives Back Gains After S&P Warns AAA Rated Euro Nations (Charts)

This put cold water on the rally today, which was fueled by Italy's austerity measures and Merkel/Sarkozy's budget plan for the EU today.

S&P ratings warning to top euro nations -- FT
"The US ratings agency is poised to announce later on Monday that it is putting Germany, France, the Netherlands, Austria, Finland, and Luxembourg on “creditwatch negative”, meaning there is a one-in-two chance of a downgrade within 90 days." (AAA rated)

Let's see if SPY can make another lower high. It pierced through the recent uptrend, but we'll see how equities react to the ECB's decision on rates on December 8 and the EU summit meeting on December 8-9 (Thursday-Friday). The Fed meets next Tuesday on December 13. Also, this probably isn't good for the employment number: Postal plan: Slower delivery, 28,000 jobs lost (CNN Money).


SPY intraday move after S&P warning - FreeStockCharts.com

SPY (S&P ETF) since September 2011 - FreeStockCharts.com

Links: Italian Yields Fall on Austerity, Euribor Rates Rise

Here are a few links before the U.S. market opens. European equities and U.S. index futures are up and Italian bond yields are down on Italian austerity measures. Oil is rising with "risk on" and the drama in Iran.

*Added: The End of Growth in the United States (Gregor.us).

Merkel Heads to Paris as EU Leaders Seek Debt Strategy (Bloomberg)

Italy PM Monti unveils sweeping austerity package (Reuters)

Monti Seeks Support for 30 Billion-Euro Austerity Package to Trim Italy Debt -delay retirement, tax on first homes... (Bloomberg, Video)

Italian Bond Yields Fall After Austerity Package (WSJ)

Euribor rates tick up on debt crisis tensions (Reuters) *banks' overnight deposits with the ECB hits new 2011 high

Commerzbank to Boost Capital (WSJ)

Q&A Euro crisis: everything you need to know (Telegraph)

Fed may give loans to IMF to help euro zone: paper (Reuters)

Watch the World's Fastest Flying Human Espen Fadnes at 250 km/h

Wingsuit proximity flying is the coolest sport I have ever seen. Espen Fadnes, the world's fastest flying human, was interviewed at the Goovinn Blog: http://www.goovinnblogg.se/2011/11/release-of-the-film-sense-of-flying/. I found this video originally at CBS News. Here's the description from Vimeo, watch it after the jump.
"What´s it like flying down a mountain at 250 km/h? Espen Fadnes - The World’s Fastest Flying Human Being 2010 - teamed up with Project Managers Goovinn to communicate the experience of flying. ”SENSE OF FLYING” came out of the collaboration."

Nomura's Bob Janjuah: S&P Moves 35% Lower, 90 EPS x 9 P/E = 810 (Video, SPX Chart)

S&P 500 Weekly Chart, w/ MACD (stockcharts.com)
Bob Janjuah, the co-head of cross-asset allocation strategy at Nomura International Plc, believes the S&P 500 moves 35% lower from here [9 P/E x 90 EPS = 810].  He was interviewed on BloombergTV on 12/2/2011, watch the interview below. To your right is a weekly chart of the S&P 500 going back to 2004 with trend lines. The MACD looks interesting. In addition, Janjuah believes...

*Overall equity markets will lose 20-25%;

*Greece could see a hard default in Q1 2012, which is not priced in the market;

*The risk of more countries defaulting is high, mentions Portugal;

*This will force ECB to be lender of last resort;

*U.S. sees no recession but growth below trend in 2012, between 1-1.25%;

*"China is not an unstoppable locomotive of global growth";

*Markets could see "much higher levels of volatility";

*Fiscal drag expected in Q1-Q2; sees no extensions for payroll tax holiday, unemployment benefits;

*Banking sector risks taking down governments;

*Likes non-financial large-cap corporates with strong balance sheets and the potential for special dividends and stock buybacks (due to ex-growth).