Tuesday, January 3, 2012

2012 Outlooks: Morgan Stanley, Bridgewater, Ron Conway, World Ending...

2012 outlooks

Morgan Stanley's 2012 Forecast: S&P Will Close Year At 1,167, Sees Consensus As Too Optimistic (ZeroHedge)

Bridgewater Takes Grim View of 2012 (WSJ)

Where angels will tread: "Ron Conway, special adviser to SV Angel, points to areas where start-ups will create the next billion-dollar companies." (The Economist)

Guest Post: War Imminent in Straits of Hormuz? $200 a Barrel Oil?

Strait of Hormuz (U.S. Navy Imagery/Flickr)
Guest post by John C.K. Daly of Oilprice.com

War Imminent in Straits of Hormuz? $200 a Barrel Oil?

The pieces and policies for potential conflict in the Persian Gulf are seemingly drawing inexorably together.

Since 24 December the Iranian Navy has been holding its ten-day Velayat 90 naval exercises, covering an area in the Arabian Sea stretching from east of the Strait of Hormuz entrance to the Persian Gulf to the Gulf of Aden. The day the maneuvers opened Iranian Navy Commander Rear Admiral Habibollah Sayyari told a press conference that the exercises were intended to show "Iran's military prowess and defense capabilities in international waters, convey a message of peace and friendship to regional countries, and test the newest military equipment." The exercise is Iran's first naval training drill since May 2010, when the country held its Velayat 89 naval maneuvers in the same area. Velayat 90 is the largest naval exercise the country has ever held.

Monday, January 2, 2012

Sears Holdings is Back at $31, Where's the Value? Price/Book at 0.44 (SHLD)

Former Kmart HQ (Troy, MI) sold to BlackRock in 2005
To close off 2011 with a bang, Sears Holdings Corp. (SHLD), which owns Kmart and Sears, and majority owned by hedge fund manager and Sears Holdings chairman Edward Lampert (ESL Investments/RBS Partners), announced on 12/27/2011 that holiday sales were weak so they plan to close 100-120 marginally performing stores and record a non-cash charge of $1.6-$2.4 billion. They released a list of 79 stores closing and I found an interactive map as well.

I was watching SHLD's price action on 12/21/2011 and it looked terrible on the chart (made a new low, can ESL buy Sears CDS?). When the big news hit on 12/27, SHLD closed at $31.78 on Friday, down 27%. It is retesting the 2008/2009 lows and back at 2003/2004 levels, when Kmart (KMRT) emerged from bankruptcy in 2003. Kmart acquired Sears (S) in November 2004 for $11 billion (or eventually $12.3 billion in 2005) to form Sears Holdings Corp (SHLD). Out of bankruptcy, Kmart was a nice real estate play for Lampert since Kmart owned real estate recorded at low historic book values, and real estate was about to go parabolic.

BusinessWeek: The Next Warren Buffett? 11/22/2004:

"And he pushed for Kmart to sell 68 stores to Home Depot Inc. (HD ) and Sears to raise a total of $846.9 million. That's nearly as much as the $879 million value placed on all of Kmart's real estate -- 1,513 stores, 16 distribution centers, and the fixtures -- in bankruptcy proceedings."

While I'm at it, check out the chart of SHLD's price/book ratio going back to 2003 courtesy of ycharts. It is at 0.44 as of 12/30/2011. Since October 2004, SHLD's price/book ratio has been in a range between 0.38 (11/2008) and 2.31 (10/2006). What is 0.44 trying to say here? Is there still hidden real estate value or major equity erosion ahead.


Sears Holdings Corporation Price / Book Value Chart



After Sears was acquired, the combined company went from being a cash, tax credit, retail synergy, real estate backstop play to which magical retail company will Lampert acquire in May 2007. SHLD peaked out in April 2007, and the company decided to buy back shares.

Thursday, December 29, 2011

Solar Breakthrough: Cheap Quantum Dot Solar Paint - Guest Post

Image source: Notre Dame
Guest post by John C.K. Daly of Oilprice.com

Solar Breakthrough: Cheap Quantum Dot Solar Paint

Researchers have reduced the preparation time of quantum dot solar cells to less than an hour by changing the form to a one-coat quantum dot solar paint.

How?

Titanium dioxide (TiO2) nanoparticles are coated with cadmium sulfide (CdS) or cadmium selenide (CdSe.) The composite nanoparticles, when mixed with a solvent, form a paste that can be applied as one-step paint to a transparent conducting material, which creates electricity when exposed to light.

Although the paint form is currently about five times less efficient than the highest recorded efficiency for the multifilm form, the researchers predict that its efficiency can be improved, which could lead to a simple and economically viable way to prepare solar cells.

EUR/USD Testing January 2011 Low (High 1.28s)

EUR/USD courtesy of freestockcharts.com
EUR/USD Update: After approaching the 1.28738 January 2011 support level on 12/18, EUR/USD just about hit that level tonight. EUR/USD broke 1.29 and hit a low of 1.28877 before bouncing to 1.29200. You can see that EUR/USD is still in a steep downtrend, as it has been since Oct (or really May). BUT, if the Euro can base out here and rip through that trend line, it could re-test the 10/4 low 1.31460, like it tried a few days ago before bear flagging around trend resistance and breaking down. It could then rally on up to that next downtrend line that hits around 1.36-1.38 in early 2012. It depends on the eurozone sovereign debt catalyst, or ECB/Fed actions if positive for the euro. If not, bye bye to 1.25-1.18. In another post I'm going to embed videos with analysts and a hedge fund manager that believe the Euro is going lower, or possibly to parity. Click the chart for a larger view.

Tuesday, December 27, 2011

Japanese Tsunami Filmed By Driver In Floating Car (Craziest Moment of 2011)

As 2011 comes to a close, I have to say the Japanese tsunami was the craziest thing to happen this year. Tom Anderson on G+ just put up a video of a driver filming the Japanese tsunami as it hit his street. His car started floating around.

Monday, December 26, 2011

Satyajit Das Explains How We Got Into This Financial Mess (INET Video)

Satyajit Das (INET)
For those of you who still care about why the financial system collapsed in 2008, which required trillions of dollars by the Treasury and Fed to bail it out. Satyajit Das, an author and derivatives expert, who's been in the business for 34 years, was interviewed by Robert Johnson of INET (Institute for New Economic Thinking) on how we got into this financial mess, and the challenges the global financial system faces going forward.

Margin Call!
Das said it all started in the late 1980s when old-school bankers like himself were replaced by business school trained bankers and derivative traders that religiously relied on models and financial theory to manage risk (see video #1). He also mentioned that profit margins were so great back then that making mistakes (losses) didn't even matter.

In the end, Das said leveraged bets using other peoples money; complex derivatives; mis-priced clustered risk; churning structured products to maintain profitability; repackaging risk throughout the system (counterparty risk); and the incentive to churn for bonuses, ultimately destroyed the financial system in 2008 when risk management failed. Interesting interview (h/t naked capitalism).

Saturday, December 24, 2011

Discussion With Eric Schmidt at Salesforce Dreamforce Conference (Video)

Image source: Youtube
I found an interesting discussion with Eric Schmidt, executive chairman and former CEO of Google, at the Salesforce Dreamforce conference on September 1, 2011. Here are forward looking thoughts from Eric Schmidt on the mobile industry.

"What I do know is that the next generation of these leaders will be something involving mobile, local and social, which are the terms we use today for the way people live and work. So we've exhausted, right, the legacy if you will of the Xerox..."

Friday, December 23, 2011

Marc Faber Is Convinced The Derivatives Market Will Cease to Exist (Video)

Img: Youtube/ReutersVideo
Marc Faber, author of the Gloom Boom & Doom Report, told Reuters on December 8 that he believes "one day the whole derivatives market will cease to exist." Wow, I was wondering if the derivatives market would ever collapse. It came close in 2008 before the bank bailouts. According to the Bank for International Settlements (BIS.org), at the end of June 2011, the total notional amount of OTC (over-the-counter) derivatives outstanding was $707 trillion, and the total gross market value was $19.5 trillion. He also expects a global market collapse at some point...

Thursday, December 22, 2011

Statements by Boehner, Reid, Obama on Payroll Tax Cut Deal, Unemployment Insurance (Boehner Video)

*Political Update*

Robert Prechter: Yield on S&P Should Be Double, Price/Book Ratio Cut In Half (CNBC Video)

Robert Prechter, founder and CEO of Elliott Wave International (see their news feed on the sidebar), thinks the S&P 500 is overvalued, we are in a "bear market rally", and we're in the "late stages of the 1930s depression". He expects a deflationary scenario in the next 4-5 years (so will the Fed pull the trigger on QE3?). Watch the CNBC video after the jump (from 12/14/2011). If interested, I put up yearly chart of the S&P 500 dividend yield going back to 1881. At multpl.com they have historical charts and tables of the inflation rate, 10-year Treasury bond yield and S&P 500 P/E ratio (via Yale Prof. Robert Shiller's database). I did a post comparing the secular lows of the S&P cyclically adjusted P/E ratio (CAPE) to the 10-year yield a few months ago here: Hussman: Under Extreme Secular Undervaluation S&P Hits 400. For a historical chart of the S&P 500 Price/Book ratio (as of 1/28/2011), see this post: Felix Zulauf Sees S&P Bottoming at 500 (Book Value), Bullish On Gold (Price/Book Ratio Chart).

Robert Prechter on CNBC:

Wednesday, December 21, 2011

Bonds Are Making a Comeback on the NYSE, Reverting Back to the 1940s (Video)

Img: NYSE Bonds (Youtube)
Good news. Corporate bonds are making a comeback on the NYSE, and shifting away from the OTC market. "NYSE Bonds allows customers to see live executable prices in real-time". Next up, leveraged loans and covered mortgage bonds? In a weird turn of events back in the 1940s, corporate bonds and municipal bonds disappeared from the NYSE and started trading OTC (over-the-counter) via dealers. This paper tries to figure out why.

Tuesday, December 20, 2011

UN: Fiscal Austerity and Deleveraging Threaten a Global Recession

Img: December 2011 UNCTAD Policy Brief
In UNCTAD's December Policy Brief (United Nations Conference on Trade and Development), they warned that deleveraging and fiscal austerity could push the world back into recession. Read the full report here or the article at un.org. This isn't a new issue. Many hedge fund managers (Ray Dalio) and economists are concerned that mis-management of the private and public sector debt deleveraging cycle could risk an economic crisis (and social tensions). The chart shows government revenues and expenditure and fiscal balance of developed economies from 1997-2010 as a percentage of current GDP (weighted average).

Monday, December 19, 2011

Iraq: An Army of Soldiers to be Replaced by an Army of Businessmen - Guest Post

Guest post by James Burgess of Oilprice.com

Iraq: An Army of Soldiers to be Replaced by an Army of Businessmen

After nearly nine years, all US Forces are mandated to withdraw from Iraqi territory by 31 December 2011 under the terms of a bilateral agreement signed in 2008. Now the job facing the war-torn country is to re-build its economy. On Tuesday, prime minister Nouri al-Maliki gave a presentation to more than 400 executives representing a wide range of industries including petroleum, engineering and construction, commercial aviation, architecture, maritime cargo and financial services; the leaders of American commerce and industry, to proclaim Iraq's "limitless" opportunities "open for business" to American investors. He said that, "It is not now the generals but the businessmen and the corporations that are at the forefront" of Iraq's future.

Startling the Global Community, Canada Withdraws from the Kyoto Convention - Guest Post

Participation in Kyoto Protocol (Wikipedia)
Guest post by John C.K. Daly of OilPrice.com

Startling the Global Community, Canada Withdraws from the Kyoto Convention

Canada has announced its intention to withdraw from the Kyoto treaty on greenhouse gas emissions (GGE), sandbagging the other signatories to the convention. The Kyoto protocol, initially adopted in Kyoto, Japan in 1997, was designed to combat global warming with the agreement allowing countries like China and India take voluntary, but non-binding steps to reduce their greenhouse gas carbon emissions.

International condemnation was swift.

China's Foreign Ministry spokesman Liu Weimin said at a news briefing, "It is regrettable and flies in the face of the efforts of the international community for Canada to leave the Kyoto Protocol at a time when the Durban meeting, as everyone knows, made important progress by securing a second phase of commitment to the Protocol. We also hope that Canada will face up to its due responsibilities and duties, and continue abiding by its commitments, and take a positive, constructive attitude towards participating in international cooperation to respond to climate change."

Euro Approaching First Support Level to Test (1.28738) - 12/19/2011

EUR/USD is continuing its descent tonight after breaking below 1.32121/1.31460 last week. EUR/USD broke down after the EU summit statement lacked a "bazooka" and the European Central Bank (ECB) lowered rates and didn't mention plans to buy bonds. Actually, it officially broke down when Merkel rejected raising the lending limit for the ESM (European Stability Mechanism). Someone has to be trading in front of all of these releases. So now the euro is close to testing the first major support level of 1.287, or the 1/10/2011 low. EUR/USD needs to base out and break through that downtrend line from the October high on a bullish catalyst, or it risks crashing to 1.258 and possibly 1.187. If EUR/USD can break through that downtrend line, it will need to takeout the 1.315-1.32 ceiling (red line) to prove it has enough strength to hit higher trend lines (imo). It is currently trading at 1.30094.

Sunday, December 18, 2011

Greenlight Capital Re's Short Exposure to Sovereign Debt in Q3 (GLRE)

GLRE (Greenlight Re) - Stockcharts.com
Bloomberg has an interesting article on Greenlight Capital Re's short exposure to European sovereign debt. Greenlight Capital Re is a public specialty property and casualty reinsurance company. David Einhorn, who runs the hedge fund Greenight Capital, is the chairman and majority owner (17.1% via class B shares) of Greenlight Capital Re Ltd (GLRE).

"Greenlight Re reported in an Oct. 31 filing with the U.S. Securities and Exchange Commission that it sold credit swaps on sovereign debt with a face value of $294.6 million during the third quarter. The firm also sold short $153.8 million worth of non-U.S. sovereign debt, according to the filing." (continue reading at Bloomberg.com)

Interesting maneuver from synthetic to cash shorts (shorting the actual government bond rather than using a credit default swap). Read the article for more info. $GLRE went public in 2007 and got smashed by the financial crash, but is now back trading around the initial IPO pop. Definitely a stock ("risk manager") to keep an eye on. Are there any other quality public reinsurers with a market cap less than $1 billion?

Hat tip Valuewalk

Friday, December 16, 2011

This Week's Credit Ratings Downgrades, Negative Outlooks (Moody's, Fitch 12/2011)

Img: Adam_T4 (Flickr)
This week's credit ratings downgrades of sovereign debt and banks. Some Fitch releases require a login.

Moody's:

Thursday, December 15, 2011

Linkfest: Depressions, Gold/S&P Correlation, Euro Endgame

Img: onohoku (flickr)
New math: Gold + S&Ps = Death: "There has been much talk about the high correlation of markets. Well, markets that correlate together die together." (PeterBrandt)

Gold on Pace to End Longest Streak Above 200-DMA...Ever (Bespoke Investment Group)

Interesting overnight action around 1,200 in the S&P futures (HedgeAccordingly 1, 2)

The Book of Jobs by Joe Stiglitz: "The U.S. is now facing and must manage a similar shift in the “real” economy, from industry to service, or risk a tragic replay of 80 years ago." "A banking system is supposed to serve society, not the other way around." (VanityFair)

Elliott Wave's Robert Prechter on the bear market rally in equities, today's similarities to the late stages of the 1930s great depression, and why he's bullish on Treasury bonds (deflation) (CNBC video)

Niall Ferguson: Great Britain Saves Itself by Rejecting the EU (Newsweek/The Daily Beast)

UK's unemployment at highest level in 17 years (AP)

Kyle Bass (Hayman Capital) on restructuring the eurozone's debt, and the possibility of an EMU breakup (CNBC video)

Wednesday, December 14, 2011

Hussman: "We Observe Conditions That Have Produced Abrupt Crash-Like Plunges"

John Hussman, manager of the Hussman Funds, issued a warning in his most recent weekly market comment titled "Hard-Negative". He wrote, "here and now we observe conditions that have often produced abrupt crash-like plunges". I see that the S&P 500 broke through the 50 day moving average support level today. Last week the S&P failed to take out the bear market downtrend from July and its 200 day moving average. The market desperately needs a bullish catalyst from somewhere to see a year-end rally to 1,330. Hussman also thinks there is a "high probability of oncoming recession". Hopefully you're hedged in some way. Be careful out there!

John Hussman
"With the exception of extreme market conditions (see Warning- Examine All Risk Exposures, and Extreme Conditions and Typical Outcomes), I try not to wave my arms around about near-term market risks, but I think it's important to cut straight to the chase here. The present market environment warrants unusual concern, in my view. Based on a wide variety of evidence and its typical market implications over an ensemble of dozens of subsets of historical data, the expected return/risk profile of the stock market has shifted to hard-negative. This places us in a tightly defensive position. This isn't really a forecast in the sense that shifts in the evidence even over a period of a few weeks could move us to adjust our investment stance, but here and now we observe conditions that have often produced abrupt crash-like plunges. This combination of evidence includes elevated valuations, overbullish sentiment, market internals best characterized as a "whipsaw trap" on the basis of typical follow-through, heightened credit strains, and clear evidence (on reliable forward-looking indicators) of oncoming recession, among other factors." (continue reading)

Related post: Hussman: Under Extreme Secular Undervaluation S&P Hits 400 (9/5/2011).

US Dollar Breaks Out! S&P Still Below Downtrend, 200DMA (+30 Year Yield, Euro Update)

I did simple technical analysis on charts of the S&P 500 ($SPX), US Dollar Index ($USD), 30-Year Treasury Bond Yield ($TYX), and Euro Index ($XEU). View the chart museum after the jump.




S&P 500:

The S&P is having trouble battling the downtrend line from July and the 200 day moving average. It backed off again and is now testing the 50 day moving average. If the S&P can't hold the 50dma, it will probably roll over and test the October low of 1,075. A week ago, Tom DeMark, a well known market timer and creator of the DeMark Indicators, mentioned on Bloomberg TV that he thought the S&P Index (or futures) would rally to 1,330 by December 21, but the overall trend was still down. As previously mentioned in that post, if the S&P can use the 50dma as support, and a bullish catalyst spikes the S&P through that downtrend line and 200dma, $SPX could possibly reach his target. There is another flattish downtrend line (dotted) at the top of the chart that hits around 1,330, and I noticed that the downtrend line from the 2007 high (the ultimate downtrend) hits around there as well. So whether the S&P hits that trend line in the next week or year(s), the point is, there's a possibility it could breakout and exhaust at that trend resistance level. Personally, I'd rather see some technical damage first.


US Dollar Index and Euro Index:

Tuesday, December 13, 2011

FOMC Statement Kills S&P Rally, No QE3; EUR/USD Gets Merk'd

The Fed didn't announce QE3 today (which was expected I think), so traders sold the news. Maybe next time. The S&P is still holding the downtrend from July, and the US Dollar Index (DX) broke through the October and November highs today. DX is currently trading at 80.31. EUR/USD got Merk'd today before the S&P sold off (WSJ: Merkel Rejects Raising Lending Limit For ESM-Govt Lawmaker). ESM = European Stability Mechanism: "In July 2013, the ESM will assume the tasks currently fulfilled by the European Financial Stability Facility (EFSF) and the European Financial Stabilisation Mechanism (EFSM)." (ec.europa.eu).

Tom DeMark thinks the S&P hits 1330-1345 by Dec 21. What will DeMark the market to 1,330? A payroll tax cut extension? NYT: House Passes Extension of Cut to Payroll Taxes. Democrats are against it though. This is interesting: Japan Continues To Support Europe At EFSF Auction (NASDAQ). The S&P closed at 1,225 today and is barely holding on to its 50 day moving average. Below are intraday charts of SPY and EUR/USD.

India Embraces Solar Power, Says Price Will Equal Thermal Power in Five Years - Guest Post

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

India Embraces Solar Power, Says Price Will Equal Thermal Power in Five Years

Economic South Asian superpower India has firmly embraced solar power, advancing the target date by five years for selling solar-generated electricity at the same rate as electricity generated by fossil fuel plants, from 2022 to 2017.

According to government officials, the reason for moving the date forward is plummeting tariffs in the latest solar development projects, a trend that they believe is likely to continue.

Ministry of New and Renewable Energy Joint Secretary Tarun Kapoor said, "The prices will come down further next year and will continue to fall. Earlier, our aim was that solar power will achieve grid-parity by 2022, but looking at the upbeat response from the industry, we have now reduced our target to 2017. Some big names from India have proved that a large investment will soon be possible in solar projects, as huge as 2,000 megawatts. There are other reasons as well. Internationally, the price of solar cells has come down and with improved technology, the cost of operation as a whole has been reduced, thereby increasing the efficiency."

Watch the MF Global Hearings, Info on Re-Hypothecation

You'll learn a lot about how these broker-dealers work. Also read: MF Global and the great Wall St re-hypothecation scandal (Thomson Reuters Securities Law). The videos are at C-Span.org.

MF Global Bankruptcy Investigation, Panel 1 (Investors panel, or those that lost money)
MF Global Bankruptcy Investigation, Panel 2 - Part 1Part 2 (MF Global Executives: CEO Jon Corzine, COO, CFO)
MF Global Bankruptcy Investigation, Panel 3 (w/ CME Group Chairman Terrence Duffy, Jill Sommers of CFTC...)*

Related: Jon Corzine's Testimony During MF Global Bankruptcy Hearing, Has No Idea Where Missing Money Is (12/9/2011)

Shanghai Stock Index Broke the 2010 Low, Wait For Soft Landing on the Chart

Img: Shanghai Index intraday (Bloomberg)
The Shanghai Stock Exchange Composite Index closed at 2,248.59 today, down 1.87%. Yesterday it confirmed a break below the July 2010 low (2319.73), which is now resistance. It is interesting that the Shanghai Stock Composite Index is now testing the 2001 peak (2,245) as a potential support level. If that level breaks, $SSEC could double dip to the October 2008 low (1,664.92), which would probably signal a hard landing for the economy. However, if the Chinese government enacts "pro-growth policies" to engineer a soft landing, it could engineer support levels on the chart as well.

Could the Stock Market Test a Trend Line From 1842? (Chart)

Source: Elliott Wave International
I'm revisiting this long-term chart of the Dow, or specifically "British, then American stock prices", going back to 1700 via Elliott Wave International. I want to know if the stock market will test a long-term trend line using the 1842, 1859 and 1932 lows. From this research paper: "Stock Market Crashes, Productivity Boom Busts and Recessions: Some Historical Evidence" by Michael Bordo at Rutgers University in 2003 (via Council on Foreign Relations), this is what happened between 1840-1860.
"It is not clear that productivity-induced booms and busts describe many of the crashes cum recessions before 1914. The period from 1834 to 1843 encompassed the most serious recession before the Civil War (Temin, 1969). The Jacksonian era is identified by major investment and speculation in cotton, cotton land, and canals (1834–36). The boom was followed by a stock market crash and two banking panics (1837 and 1839), sovereign debt defaults by a number of states and, as noted, by one of the most serious recessions in history. Another serious episode that ocurred in 1857 was associated with the crash of speculation in railroad stocks." (read the full research paper by Michael Bordo at CFR.org)

And you know about the 1929 stock market crash and "America's Great Depression", a book by Murray Rothbard (via Mises Institute) about the 1921-1929 inflationary boom, excessive leverage in the stock market, margin calls and the Smoot-Hawley Tariff etc.

Monday, December 12, 2011

Total Outstanding Notional Value of OTC Derivatives Tops $700 Trillion (BIS, 6/30/2011)

Total Notion Amounts Outstanding of OTC Derivatives
(Source: BIS, click for OTC FX Derivatives chart as well)
In November, the Bank for International Settlements reported that the total notional amounts outstanding of OTC derivatives stood at $707.569 trillion at the end of June 2011, up 17.7% from $601.046 trillion at the end of December 2010. Read the full report here: OTC derivatives market activity in the first half of 2011. Of this total, $441.615 trillion were interest rate swap contracts, up 21.2% from $364.377 trillion at the end of 2010. At the end of June, the total gross market value of OTC derivatives outstanding was $19.518 trillion, down from $21.296 trillion at the end of 2010.

More from BIS:

Friday, December 9, 2011

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:

Thursday, December 8, 2011

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.

Wednesday, December 7, 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.

Tuesday, December 6, 2011

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.


Monday, December 5, 2011

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)

Sunday, December 4, 2011

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).