Wednesday, February 29, 2012

Brazil ETF Volatility Index Options and Futures (EWZ, VXEWZ, VXEW)

CBOE Holdings is rolling out futures and options on the CBOE Brazil ETF Volatility Index (VXEWZ). The volatility index measures the implied volatility, or expected move, in the iShares MSCI Brazil Index Fund (Brazil ETF) from its option prices. It's similar to the way the CBOE Volatility Index (VIX) measures the S&P 500's implied volatility percentage, but the VIX uses S&P 500 Index options not SPY options (the S&P ETF). There are options and futures on the CBOE Volatility Index that trade as well. I've covered them on my blog over the years, as well as the VIX futures curve and VIX implied volatility. When will we see futures and options on the Brazil ETF Volatility Index VIX, and a Brazil ETF Volatility Index VIX Short-Term Futures ETN? Ha. Of all places, I found the CBOE Brazil ETF Volatility Index chart at the St. Louis Fed's FRED database.

image source: St. Louis Fed

From CBOE:

Tuesday, February 28, 2012

Goldman Sachs, Wells Fargo Receive Wells Notices From SEC Relating to Subprime MBS Offerings

Source: woodleywonderworks
Here we go again... The SEC sent Wells notices to Goldman Sachs and Wells Fargo over subprime MBS offerings. How long did lawsuits last after the Savings and Loan crisis in the early 1990s? Here's an interesting article from February 2008: "Study: Subprime Mortgage Lawsuits Outpacing Savings & Loan Crisis" (Insurance Journal).

From Goldman's 10K (page 203):

10Y EFSF-German, French-German Spreads Rising; S&P Lowers EFSF Outlook

Live source: Thomson Reuters
On February 14, when Moody's affirmed its stable outlook and Aaa rating on EFSF debt, I told you to watch this Thomson Reuters chart (updates daily here) with the 10-year EFSF-German bund yield spread and 10-year French-German bund yield spread. Since then, it looks like the EFSF-German yield spread broke through a downtrend line and the French-German yield spread is now testing downtrend resistance. I'm not sure if the chart is linear or logarithmic, but check out the chart with trend lines to see what is happening. On January 17, S&P downgraded France and the EFSF's credit rating to 'AA+' from 'AAA' and lowered France and Austria's outlook to negative, which was the precursor to yesterday's action.

S&P: If Bond Holders Don't Accept Exchange Offer, Greece Faces Imminent Payment Default

1-year GGB yield (source: Bloomberg.com)
After Fitch downgraded Greece to 'C' from 'CCC, and said the planned debt exchange between the Greek government and private sector involvement (PSI) would constitute a "Restricted Default", Standard & Poor's just downgraded Greece to SD or "Selected Default". Everything is riding on the debt exchange, which amounts to a 53.5% loss for PSI bond holders. The S&P analyst mentioned what would happen to Greece if the debt exchange failed to occur.

"If a sufficient number of bondholders do not accept the exchange offer, we believe that Greece would face an imminent outright payment default. This is because of its lack of access to market funding and the likely unavailability of additional official financing. The revised financial assistance program provided by most of the eurozone governments and the Stand-By Credit Arrangement with the International Monetary Fund are predicated on a successful exchange offer."

In other news, The 1-year Greek bond yield hit a high of 821% yesterday (see the intraday chart). Will it hit 1,000%? If interested, below is the full S&P release (source: Standard & Poor's).

Monday, February 27, 2012

EUR/USD Moving On LTRO, Greek Bailout, Eurozone Rescue Package

A lot is going on in Europe...

1) The G20 is working on a $2 trillion rescue package for the eurozone;
2) An IMF 'firewall' fund could include Japan and China (Zhou);
3) The German parliament is voting on the Greek bailout package;
4) The ECB's next 3-year LTRO offering is scheduled for Wednesday (long-term refinancing operation);
5) This could be the last LTRO: "ECB Won’t Commit to Further LTRO, Asmussen Tells Handelsblatt".

EUR/USD is close to testing the 200 day moving average and resistance in the trading channel. It is currently down 0.17% at 1.34274.

Watching USD/JPY, Tokyo Nikkei Stock Index For Confirmed Breakouts

Source: tamakisono on Flickr
USD/JPY (Dollar/Japanese Yen) is currently trading at 81.04, up 11.8% from 76.02 on February 1. Nice move. Additional easing and an inflation target was announced by the Bank of Japan on February 13. From Dow Jones Newswires at Nasdaq.com:

"The central bank's policy board said it will boost the size of its asset purchase program--the main tool for credit easing amid near zero interest rates- -to Y65 trillion from Y55 trillion, by increasing purchases of Japanese government bonds."

As you can see in the chart below, USD/JPY pierced through a major downtrend line from 2007-8, but it still needs confirmation. Now it is down 0.27% at 80.90. It also looks like the Nikkei 225 stock index pierced through the downtrend line from 2007 on Friday (2/24), but it is close to testing the 200 week moving average resistance level.

Friday, February 24, 2012

Greek Bond Yield Hit 750%, Debt Exchange Equals Default (Fitch)

On 2/22/2012, Fitch Ratings downgraded Greece to 'C' from 'CCC' and said the planned "distressed debt exchange" between the Greek government and private sector bond holders (PSI or 'private sector involvement'), who will take a 53.5% nominal loss on the bonds, would "constitute a rating default". See the full text after the jump. Greece's 1-year government bond yield closed at 750% on 2/22 and its 5Y credit default swap spread closed at 12,700 basis points. Look at the 3-year charts below, courtesy of Bloomberg.com. Remember when Greece's 10-year bond yield was at 6.85% on January 31, 2010? It is now at 34.36%. And on that day Greece's 5Y CDS was trading at 399 basis points (linked to a Zero Hedge chart)! Now the question is whether Greek CDS holders get paid out or not. Is Portugal next?

Thursday, February 23, 2012

S&P 500 Trends From 1982-2012, Potential Scenarios Going Forward ($SPX)

Here is a look at trend lines on the S&P 500 chart during the secular bull market from 1982 to 2000 (or 2007?), and the secular bear market that we're in today. Here are potential scenarios for the S&P going forward.

1) If the current uptrend line breaks from the October 2011 low, that could be a confirmation that the S&P 500 is in for another 2008 type event, and could retest the 2009 low (666). The long-term trend line from the low in 1974 hits between 600-666 from July 2012 to April 2014. So that could provide some support if there's a retest. However, if you look further out from the low in 1842, it could hit the long-term uptrend at 500! This is way out of the money downside speculation I'm talking about here if reflationary policies by the Federal Reserve (QE), ECB (LTRO) and/or China fail, and there's a flight to safe haven assets like U.S. Treasuries, cash and gold, for whatever doomsday scenario you can think of.

Tuesday, February 21, 2012

Eurogroup Statement on €130B Greek Bailout, PSI Exchange (EUR/USD Charts)

The euro (EUR/USD) initially spiked, but reversed sharply at 1.33 (now key resistance), after an agreement was reached by the "Eurogroup" (Eurozone Finance Ministers) and Greek government to provide Greece with a €130 billion bailout package in exchange for fiscal consolidation, which would lower Greece's Debt/GDP ratio to 120.5% by 2020. The ECB will also "forgo profits" on its Greek bonds to help lower the debt ratio. But, to receive the bailout cash, private Greek bond holders (PSI) must agree to a debt exchange that would take a 53.5% nominal loss. This would prevent a disorderly default for Greece in March. Analysis by the IMF, ECB and European Commission believes the 120.5% Debt/GDP target could be hard to achieve.

Reuters"Greece will need additional relief if it is to cut its debts to 120 percent of GDP by 2020 and if it doesn't follow through on structural reforms and other measures, its debt could hit 160 percent by 2020, a confidential analysis conducted by the IMF, European Central Bank and European Commission shows."




Monday, February 20, 2012

Same Uptrend Line, Different Year (SPX)

This is interesting. Since the March 2009 low, the S&P 500 has built three of the exact same uptrend lines (slope). It's another y=mx+b algo conspiracy in the markets. Thoughts?

chart at stockcharts.com

Sunday, February 19, 2012

Links For 2/18/2012

"The Decline and Fall of the Roman Empire", Presentation by DoubleLine Capital's Jeff Gundlach - Business Insider (Slides)

Credit Suisse The Sequel: "Probability Of The Largest Disorderly Default Loss In History On March 20 Has Increased" (Greece) - Zero Hedge

JPMorgan Gets Bullish as BofA Says Yields Entice: Credit Markets:  - Bloomberg at SF Gate

JP Morgan's Thomas Lee Has 1,430 Year-End Target For S&P 500 - Bloomberg Video

Morgan Stanley: January Exhibited This Tell-Tale Sign Of A Market Top - Business Insider

China’s Housing Market in ‘Mother of All Bubbles,’ Grantham, Mayo Says - Bloomberg

Friday, February 17, 2012

How Will Increased Iranian Sanctions Affect South Africa - Guest Post

Refinery in Cape Town, South Africa (source: Wikipedia)
Guest post by John C.K. Daly of Oilprice.com

How Will Increased Iranian Sanctions Affect South Africa

The U.S. new sanctions initiative, strongly supported by Israel, to impose new sanctions against Iran, is designed to punish it for its purported covert nuclear weapons program by imposing new restrictions on Tehran.

As a result, many of Iran's oil customers are scrambling to avoid collateral damage to their economies.

The sanctions' potential fallout is now hitting South Africa, Africa's biggest economy, which receives nearly 25 percent of its needs from Iran, roughly 98,000 barrels per day (bpd), or about 4 percent of Iran's total exports.

South Africa's economy, which has been hit by fuel shortages in the past because of strikes and refinery problems, would be hard-pressed to fill any gap quickly.

Thursday, February 16, 2012

IEA: Future Sanctions Already Severely Effect Iranian Oil Exports (With Export Map) - Guest Post

Source: GDS Infographics
Guest post by Joao Peixe of OilPrice.com

IEA: Future Sanctions Already Severely Effect Iranian Oil Exports

In the IEA’s monthly Oil Market Report they have said that the European and US trade sanctions designed to impede Iran’s nuclear program could affect far more than the 600,000 barrels per day (bpd) that the EU normally imports.

Wednesday, February 15, 2012

Canadian Prime Minister Shills Alberta Oil Sands in China - Guest Post

Western Canadian Sedimentary Basin (Wikimedia)
Guest post by John John C.K. Daly of OilPrice.com

Canadian Prime Minister Shills Alberta Oil Sands in China

Canadian Conservative Prime Minister Stephen Harper is in the midst of an official visit to China.
His mission?

To convince Beijing's mandarins to buy Canada's Alberta oil sands hydrocarbon production, now that Republican Congressional overreach has effectively sidelined the Keystone XL pipeline, designed to transit the oil to U.S. Gulf of Mexico refineries, for the foreseeable future.

Harper faces an uphill struggle, as China is questioning the delays in implementing the Northern Gateway pipeline, to transit Alberta's oil to Canada's western coast for transshipment to China.

Tuesday, February 14, 2012

Chart: 10y EFSF-German Bund Yield Spread; Moody's Affirms EFSF Aaa Rating, Stable Outlook

Moody's Investors Service "affirmed its provisional (P)Aaa long-term debt rating with a continued stable outlook for the debt issuance programme of the European Financial Stability Facility (EFSF)." It mentioned that it downgraded and lowered its outlook on Euro nations that are part of the EFSF's "guarantor pool" (France has 21.8%, Italy 19.2%, Spain 12.7%, and Austria 3%). Germany guarantees 29% of the fund. I found a Thomson Reuters chart (as of 2/14/2012) of the EFSF 10-year yield - German Bund yield spread and the 10y France -German Bund yield spread. The chart is here.


Source: Thomson Reuters Datastream

Moody's Lowers Outlook on UK, France; Downgrades Italy, Spain, Portugal; EUR/USD Hit

EUR/USD - freestockcharts.com
I know European sovereign debt downgrades are pretty much priced in, but today Moody's downgraded and lowered its outlook on a few European nations. It downgraded Italy to A3 from A2, Malta to A3 from A2, Portugal to Ba3 from Ba2, Slovakia to A2 from A1, Slovenia to A2 from A1, and Spain to A3 from A1 (two notches). All have negative outlooks. Moody's also lowered its outlook on France, Austria and the United Kingdom to negative. All are rated Aaa, which is the highest credit rating.

EUR/USD is trading lower at 1.31533, and is close to testing 10/4/2011 support again at 1.31460. The 50DMA is at 1.2998 on the chart. Since the UK is not really in the spotlight at the moment, here is the reasoning behind Moody's negative outlook.

"RATIONALE FOR NEGATIVE OUTLOOK

The primary driver underlying Moody's decision to change the outlook on the UK's Aaa rating to negative is the weaker macroeconomic environment, which will challenge the government's efforts to place its debt burden on a downward trajectory over the coming years. These challenges, reflecting the combined effect of a commodity price driven hit to real incomes, the confidence shock from the euro area and a reassessment of the lasting effects of the financial crisis on potential output, were already evident in the government's Autumn Statement. The statement announced that a further two years of austerity measures would be needed in order for the government to meet its fiscal mandate of achieving a cyclically adjusted current budget balance by the end of a rolling five-year time horizon, and to reach its target of placing net public sector debt on a declining path by fiscal year 2015-16.

Sunday, February 12, 2012

Links on the Greek Austerity Vote, Protesting

Greece Set for Crucial Vote on Austerity (WSJ)
German Leaders Maintain Pressure as Greece Debates Budget Cuts (Bloomberg)
Time Starts Running Short to Avoid a Default by Greece (WSJ)
Greece set to defy protesters and accept eurozone bailout deal (Guardian)
Live Streams From Athens And Greek Parliament (Zero Hedge)
Athens buildings burn as lawmakers weigh austerity (Reuters)
UBS Asks: Has Greece Already Been Printing 'Quasi-Drachmas'?! (Business Insider)

Saturday, February 11, 2012

Blogger's New Dynamic Views Magazine Template

Look how good Blogger's new Dynamic Magazine template looks. I just need a way to add html/java widgets to the sidebars. They have seven other dynamic versions as well. By the way, if you want to put page numbers at the bottom of your index and label pages, get the code at Abu Farhan's blog (it doesn't seem to work on date pages though).

Friday, February 10, 2012

Market Timers' McClellan and DeMark Are Cautious on the S&P

Tom McClellan, who runs the McClellan Market Report, thinks the S&P will trade "violently sideways" for the next four months. He was featured on Bloomberg TV on 2/6/2012: McClellan Says U.S. Stocks May Trade Sideways Until June. He mentioned that the Eurodollar futures commercials COT (commitment of traders) chart from last year correlates almost perfectly with the S&P 500 today. For more info on this, read his "Chart in Focus" post from 5/27/2011: Commercial Traders Foretell Market’s Movements. The correlation correctly predicted that the S&P would peak in early June and bottom out in October. This is amazing. On 2/3/2012, before his Bloomberg appearance, McClellan released a new warning: Eurodollar COT Indication Calls For Big Stock Market Top Now.

Russia Behind Bulgarian Anti-Fracking Protests? - Guest Post

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

Russia Behind Bulgarian Anti-Fracking Protests?

Pity the poor Eastern Europeans. Fifty years under the domination of their massive Soviet eastern neighbor then the collapse of Communism there two decades ago offered undreamed of opportunities to join both the European Union and NATO.

But they still remain dependent on the Russian Federation for the majority of their oil and gas needs, and the new capitalists in Moscow do not hesitate to charge the highest prices possible.

According a number of East European nations, particularly Poland and Bulgaria, are actively investigating the possibility of establishing hydraulic fracturing ("fracking") operations on their territory to develop an indigenous natural gas industry and undercut the Russian Federation's state-owned natural gas monopoly Gazprom.

Thursday, February 9, 2012

Bernanke Warns About Fiscal Challenges, Federal Debt/GDP vs. 10-Year Treasury Yield Chart

On February 2 and 7, Federal Reserve Chairman Ben Bernanke, in his testimony before the U.S. Senate and House Committees on the Budget, gave his outlook on the economy and warned about the U.S.'s "unsustainable deficits" and "structural fiscal imbalances". Read his statement below. I also added a chart of Gross Federal Debt/GDP from 1939-10/2011 versus the 10-year note yield from 1962-present. It is interesting that the 10-year yield peaked when Gross Federal Debt/GDP bottomed in the early 1980s, which was due to inflation. Related: Congressional Budget Office Sees Big Decline In Budget Deficit/GDP Between 2012-2022 (see their alternative scenario as well).


Link to chart at St. Louis Fed

"Fiscal Policy Challenges
In the remainder of my remarks, I would like to briefly discuss the fiscal challenges facing your Committee and the country. The federal budget deficit widened appreciably with the onset of the recent recession, and it has averaged around 9 percent of gross domestic product (GDP) over the past three fiscal years. This exceptional increase in the deficit has mostly reflected the automatic cyclical response of revenues and spending to a weak economy as well as the fiscal actions taken to ease the recession and aid the recovery. As the economy continues to expand and stimulus policies are phased out, the budget deficit should narrow over the next few years.

Tuesday, February 7, 2012

Confidence Game - Film About Bear Stearns' Collapse (Trailer)

There's another film coming out on the 2008 financial crisis. Confidence Game, a documentary film by Blue Chip Films (Nick Verbitsky), is about the collapse of investment bank Bear Stearns in March 2008. I watched the trailer and it looks similar to Inside Job. I'm not sure when it comes out. Watch it below (h/t Market Folly).

Monday, February 6, 2012

EUR/USD at 50DMA (2/1 Low) Waiting On Greek Debt Decision For Next Move

EUR/USD is at 1.3049 (-0.28%) and testing the 2/01/2012 low and 50DMA, according to my chart. All eyes are on a Greek catalyst or unforeseen event in the eurozone.


EUR/USD 3-month chart snapshot (chart source: optionsxpress)

Links: Greek Bailout Deadline, Explosions in Homs, Syria (Video)

Syria and Greece are in the news tonight.

Greece

Greece reaches make-or-break moment: (eKathimerini)

PM’s talks with leaders spill over deadline (eKathimerini)

Greek Leaders Agree on a Rescue Framework (Bloomberg)

Greek parties face EU bailout deadline (International Business Times)

Britain Prepares for Worst as EU Struggles (Bloomberg)

Sunday, February 5, 2012

PIMCO's Bill Gross on Treasury Yields at the Zero-Bound, Deleveraging Cycle

Bill Gross, co-founder of PIMCO and manager of the $244 billion PIMCO Total Return Fund, wrote in his February Investment Outlook ("Life - and Death Proposition") that the Fed's extended zero percent interest rate policy and short and intermediate-term Treasury yields at the zero-bound could have unintended consequences. The last paragraph pretty much sums up his growth outlook.

"Where else can one go, however? We can’t put $100 trillion of credit in a system-wide mattress, can we? Of course not, but we can move in that direction by delevering and refusing to extend maturities and duration. Recent central bank behavior, including that of the U.S. Fed, provides assurances that short and intermediate yields will not change, and therefore bond prices are not likely threatened on the downside. Still, zero-bound money may kill as opposed to create credit. Developed economies where these low yields reside may suffer accordingly. It may as well, induce inflationary distortions that give a rise to commodities and gold as store of value alternatives when there is little value left in paper.

Where does credit go when it dies? It goes back to where it came from. It delevers, it slows and inhibits economic growth, and it turns economic theory upside down, ultimately challenging the wisdom of policymakers. We’ll all be making this up as we go along for what may seem like an eternity. A 30-50 year virtuous cycle of credit expansion which has produced outsize paranormal returns for financial assets – bonds, stocks, real estate and commodities alike – is now delevering because of excessive “risk” and the “price” of money at the zero-bound. We are witnessing the death of abundance and the borning of austerity, for what may be a long, long time."

Source: PIMCO 

Saturday, February 4, 2012

Congressional Budget Office Sees Big Decline In Budget Deficit/GDP Between 2012-2022 (Slides)

Source: CBO.gov
A few days ago the Congressional Budget Office (CBO) released its budget and economic projections for the years 2012-2022 (pdf). I embedded the slides after the jump. The blog Pragmatic Capitalism has an interesting post on the release: "CBO: Budget Deficit To Drop “Markedly”, Threatens Economic Stability Stability." Under CBO's baseline scenario, unemployment falls, the budget deficit as a percentage of GDP declines, interest rates rise steadily, inflation stays under control, labor income rises to GDI (gross domestic income), net business fixed investment rises, and residential housing investment remains weak with the number of vacancies. Under their alternative scenario, however, they see the budget deficit/GDP percentage declining less than expected for a number of reasons.

Friday, February 3, 2012

Poland Gives Green Light to Massive Fracking Efforts - Guest Post

Guest post John C.K. Daly of OilPrice.com

Poland Gives Green Light to Massive Fracking Efforts

There is perhaps no more controversial energy source after nuclear than "hydraulic fracturing," or "fracking," of subterranean shale deposits containing pockets of natural gas.

Thursday, February 2, 2012

Video: Flying Nano Quadrotor Robots Moving In Formation!

This is a must see video. Watch flying "nano quadrotor" robots swarming around a room and moving in formation. They are like the robots in the movie Batteries Not Included. They were developed at the University of Pennsylvania's General Robotics, Automation, Sensing and Perception (GRASP) Laboratory. I found the video originally on Slashdot.

Watch Bloomberg TV Live

Watch Bloomberg TV that streams live on Bloomberg.com (or specifically Bloomberg.tv).

Applying Fibonacci to Stock Market Patterns - Guest Post by Elliott Wave International

Guest post by Elliott Wave International (I'm an affiliate partner as well)

Applying Fibonacci to Stock Market Patterns
It's easier than you might think!
February 1, 2012

By Elliott Wave International

Patterns are everywhere. We see them in the ebb and flow of the tide, the petals of a flower, or the shape of a seashell. If we look closely, we can see patterns in almost everything around us. The price movements of financial markets are also patterned, and Elliott wave analysis gives you the tools to interpret those patterns.

The Fibonacci sequence is vital to Elliott wave analysis -- as a matter of fact, R.N. Elliott wrote that the Fibonacci sequence provides the mathematical basis of the Wave Principle. Once you understand the Fibonacci sequence, it's easy to apply it to the markets you trade.

Wednesday, February 1, 2012

Watching German Bund Yields, BUNL (Bund Future ETN), EUR/USD (2/1/2012)

German government bonds (bunds) and the euro will be interesting to watch as Greece either makes a deal with Greek bond holders to take a 70% loss to reduce its debt load by 100 billion euros, which would allow the next rescue loan from the EU (mainly Germany) and International Monetary Fund (AP), or sees a disorderly default. To make things even more interesting, the European Central Bank "is planning a second round of three-year bank loans next month (LTRO), after lending 489 billion euros ($645 billion) in December" (BusinessWeek), to add more emergency liquidity to the banking system and for banks to buy distressed sovereign debt like a carry trade. Portugal is getting hit as well. On early Monday morning, Portuguese bond yields, its spreads to German bunds, and 5-year CDS rose to new highs.

Tom DeMark mentioned last week on Bloomberg TV that German bunds were exhausted to the upside and could collapse if a signal was triggered. German bunds moved up since then (yields down), but they could be setting up again. Bund bears are fighting a strong uptrend. Egan-Jones downgraded Germany's credit rating from AA to AA- on January 18. Sean Egan, co-founder of Egan-Jones, told CNBC's Fast Money and Fox Business that they downgraded Germany because its debt/gdp ratio was rising, and it will have to "absorb the cost" of supporting other eurozone countries on the brink (Greece, Portugal) through bailout funds (EFSF etc.). But, Egan mentioned that German bond yields would stay down in the short-term because it remains the safest credit in the eurozone during the sovereign debt crisis, and the ECB is pumping liquidity into the system to keep rates down (as mentioned above). It's similar to why U.S. Treasury bonds rallied after they were downgraded by S&P. Below are charts of 5 and 10-year German bund yields, BUNL (the German Bund Futures ETN), and EUR/USD. EUR/USD is trying to climb back above the recent uptrend line. It is currently at 1.31734, +0.79%.