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

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:

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)

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:

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.

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: