EUR/USD Bears Predict 1.0-1.20, Rallying Towards Downtrend In Meantime

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I decided to securitize all of the bearish views I found on the euro (EUR/USD) recently in this post. Are there any die-hard EUR/USD bulls anywhere? It makes sense given that there's a risk of a "
euro quake" in the next few months as the EU, ECB, and everyone else, try to engineer a soft landing for the Eurozone sovereign debt and banking crisis. Since December of 2011, currency strategists, economists, traders, and a currency hedge fund manager, had targets on EUR/USD between 0.90 and 1.20. Right now at 4:34am EST, EUR/USD is trading at 1.27923 after hitting a low of 1.26663 early yesterday morning. A nice squeeze is taking place, and it is back trading in the intermediate descending channel that formed on Thursday (which was pierced on Fri). Look how short large speculators are in Euro FX futures (h/t GM). EUR/USD is trying to figure out which channel to trade in as large chunks of European sovereign debt mature in the next few months (1, 2). As noted in my previous post, if EUR/USD wants to test support in the "death channel", it would be around 1.14 in January and 1.08-1.10 in February.

Euro at inflection point in two channels (EUR/USD) 1/6/2012

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EUR/USD broke support and then sold off to test (and actually form) a new channel support level (yellow line). You can see on the daily chart that it just bounced off that level. It is positioning for the U.S. employment report. EUR/USD is testing resistance in the steep white descending channel ("death channel") and support in the yellow descending channel just formed. The weekly chart shows a clearer view of what's been happening. If the euro can catch a bid here, a key resistance level to watch is 1.2873, or the January 2011 low. If EUR/USD can successfully destroy that downtrend line, it could rally up to that red ceiling and possibly to the yellow channel resistance level at some point. If it continues to slide, 1.2587 and 1.1875 are the next floors to watch. I say death channel because if the euro wants to test channel support, it is around 1.14 in January and 1.08-1.10 in February (see the third chart).

Judgment Day Near For European Sovereign Debt, Euro

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Euros (source: aranjuez on flickr)
There's a huge chunk of European sovereign debt principal and interest due in the next few months (and year). has a table of the
debt payment schedule for Greece, Italy, Spain and Portugal. There could be a hard Greek default in Q1.

*WSJ: Greek PM Says Country Faces Risk Of Disorderly Default In March (WSJ)
*ECB's Knot: Euro May Collapse If Greece Pushed Out (Dow Jones Newswires)
*EU Crisis Road Map: Key Milestones Ahead (WSJ)
*Spain, Italy Debt Insurance Costs Rise On Euro-Zone Worries (Dow Jones Newswires)
*French Debt Costs Rise at Bond Sale as AAA Decision Looms (BusinessWeek)
*France Likely to Lose AAA Rating: UBS European Economist (CNBC Video)
*Zero Hedge: The Can Kicking Is Ending, Key Upcoming Dates For Europe's Patient Zero (Zero Hedge)
*Collapse of euro will hit EU, global financial system: Soros (BusinessLine)
*Greece: If we can’t finalise second bailout, we’ll have to leave the euro (
*Banking sector trembles as UniCredit shares plunge (Reuters)
*High ECB reserves are not evidence of bank "hoarding" (Alea)
*Japan buys 300 mln euros of EFSF bonds -MOF official (Reuters) - where's China?
*Germany is Biggest Obstacle to Emergency Fund: Knot (Bloomberg)
*Slowing Inflation May Give ECB Room to Maneuver on Interest Rates: Economy (Bloomberg)

New Low For The Euro, EUR/USD Hit 1.2837 (Chart)

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According to ZH, Unicredit was halted down -7.9%, Deutsche Bank was down 5%, and the 10-year Italian bond yield was above 7% again. And then I saw EUR/USD drop to 1.2837, a new low. Check out the chart.


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

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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.

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

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EUR/USD courtesy of
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.

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

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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).

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

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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 (, 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...

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

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*Political Update*

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

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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 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:

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

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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.

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

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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.

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

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GLRE (Greenlight Re) -
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

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

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

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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." (

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)

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

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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)

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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:

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

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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)." (

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.

Watch the MF Global Hearings, Info on Re-Hypothecation

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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

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

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Img: Shanghai Index intraday (Bloomberg)
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)

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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

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.