CFPB: Total Student Debt Tops $1 Trillion, Tuition CPI Chart vs. Wage Growth, Housing CPI, Medical, All (FRED)

Oh man, remember when the New York Fed upgraded the total outstanding student loan balance to $870 billion with a delinquency rate of 10%, and noted how the delinquency rate excluding loans deferred until after graduation was at 21%? I just read at the Consumer Financial Protection Bureau's blog (via WSJ) that it "hit the trillion dollar mark several months ago". From the CFPB release, Too Big to Fail: Student debt hits a trillion:

"Our initial findings on the size of the private student loan market are sobering. When we add in the outstanding debt in the federal student loan program, it appears that outstanding student loan debt hit the trillion dollar mark several months ago – much larger than estimates from other recent reports. It seems that this market is too big to fail.

Unlike other consumer credit products, student debt keeps growing at a steady clip. Students borrowed $117 billion in just federal student loans last year. And students continue to borrow private student loans, which lack the income-based repayment and deferment options of federal student loans. If current trends continue, there will be consequences not just for young people, but for all of us."

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Quadrocopters Can Play Ping Pong, But Will Not Deliver You Tacos (Yet)

Source: TacoCopter.com

In non-financial fraud and destruction news, you first saw how quadrotors could fly in formation through obstacles. Well, now the video below (h/t tip Good.is) shows quadrocopters, built by the Institute for Dynamic Systems and Control in Zurich, playing ping pong in flight. But, there's another quadrotor in the news that I think I'd use tomorrow if I could. According to PC Magazine, the site TacoCopter.com, which claims they will soon be able to deliver you tacos from a quadrocopter in SF, is a hoax. But, if quadrocopters can fly in formation through obstacles and play ping pong, how hard is it to deliver a taco? Use google maps and a camera? Look what the app looks like. I don't buy it, I think the hoax is a hoax. Now I'm hearing that it would be impossible to get a commercial FAA permit for this.

In other interesting robot news (h/t PC World), the Q.bo robot can map out its environment in real-time in 3D. In conclusion, if you're a food delivery associate or waiter/waitress, keep an eye on your potential competitors.

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The House Memo on MF Global's $200 Million Transfer From a Segregated Customer Account

I embedded the House memo after the jump.

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Renting Out Foreclosed Homes Is The New Hot Trend, Bank of America's "Mortgage to Lease" Program

Courtesy of Richard Elzey - Flickr

Bank of America released some interesting news for homeowners facing foreclosure. It said 1,000 customers will be "invited to participate" in their new "Mortgage to Lease" program, which will allow homeowners to avoid foreclosure by converting their home into a rental. Renting out foreclosed homes is the hot trend these days. From Bank of America (full press release below):

"Pilot participants will transfer title to their properties to the bank and have their outstanding mortgage debt forgiven. In exchange, they may lease their home for up to three years at or below the current market rental rate. The rental payment will be less than the existing mortgage payment, and the customer will be relieved from certain other homeowner financial obligations, including property taxes and hazard insurance.

Initially, Bank of America will retain ownership of the properties, working with property management companies to oversee the rental properties. Properties in the pilot program will be transitioned to investor ownership. If the Mortgage to Lease program proves viable, it may lead to a broader program, potentially involving selected real estate investors who would purchase properties that meet their predetermined specifications and keep the previous homeowners in place as tenants.

Insight: The Wall Street gold rush in foreclosed homes (Reuters):

"The Federal Housing Finance Agency, which regulates Fannie and Freddie Mac, expects it will receive a considerable number of bids in April for the initial round of 2,500 Fannie-owned homes in cities like Atlanta, Chicago, Los Angeles and Phoenix."

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Will Graphene Touchscreens Revolutionize Mobile Technology? (Videos)

Wow, forget the iPad. Are thin, bendable, foldable, graphene sheets the future of mobile technology and telecom? In the second video, Samsung even showed an example of holograms popping out of the sheet. It looked like a game, but imagine communicating with someone or watching a basketball game. Apple products are too heavy, this would be amazing. Watch the videos after the jump.

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HSBC China Flash PMI Hits 4-Month Low (48.1), AUD/USD Falls to 1.0370

Articles on the Chinese economy and HSBC Flash PMI (and some news on Japan):

HSBC Flash China Manufacturing PMI: "New order book weakness contributes to renewed decline in manufacturing output." 48.1 vs. 49.6 in February (full press release at MarketEconomics.com)

"Commenting on the Flash China Manufacturing PMI survey, Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said:

“Weakening domestic demand continued to weigh on growth, as indicated by a slowdown in new orders which came in at a four-month low. External demand remained in contraction territory, but the decline was at a slower pace, implying that there are no improvements in the demand outlook. More worryingly, employment recorded a new low since March 2009, suggesting slowing manufacturing production was hindering enterprises' hiring desire. The soft-patch in manufacturing was in line with the recent downside surprise in industrial production growth. Growth momentum could slow down further amid a combination of sluggish export new orders and softening domestic demand. This calls for further easing steps from the Beijing authority.”"

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David Tice: S&P Falls To $1,000, Gold Rises To $2,500, Likes Silver Even More (Video)

Img: FoxBusiness.com

Here's some doom and gloom for your morning. In an interview with Fox Business on 3/20, David Tice, president of Tice Capital, and founder/former manager of the Prudent Bear Fund (acquired by Federated Investors), said the S&P will fall to $1,000 in the next 18 months, and gold will rise to $2,500 as central banks (Fed, ECB and... BoJ?) "destroy their currencies." Keep an eye on the long term chart of gold. He said he liked silver more than gold, and sees big problems ahead when interest rates rise.

"It's really irresponsible how short our duration is of our government debt. The administration is going out and borrowing at 80 basis points for paper under 2 years. And when rates do go up, and rates are going to go up, our fiscal deficit is going to explode."

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Goldman's Oppenheimer Says Buy Stocks Relative To Bonds (SPX/USB Since 1993)

courtesy of stockcharts.com

Read Peter Oppenheimer's report at Zero Hedge, and watch Matt Nesto and Jeff Macke's reaction at Breakout. To take the other side, Business Insider posted that SocGen's Albert Edwards expects "new lows on bond yields by Q3 and this equity rally to turn to dust – just as it did in 2011." To build on this, I thought I'd chart out the S&P 500 (SPX), the 30-year Treasury bond price ($USB), and SPX/USB ratio since 1992.

Looking at this strictly as a ratio call, you'd essentially be taking the other side of the 30-year bull market in bonds relative to stocks trading sideways or breaking out from here. Look how SPX/USB rose in tandem with the S&P during the 1990's while the 30-year bond chopped around. You'd want to see the same trajectory in the ratio, but going forward it could be the result of bonds getting killed. It's all about timing the breakdown though.

Einhorn on Equities That Trade Like Options, "Levered Stubs" (Punch Taverns Call)

Source: Reuters Blogs

First, some background on what happened between GreenLight Capital and Punch Taverns. David Einhorn's hedge fund GreenLight Capital was recently fined £7.2 million by the U.K Financial Services Authority for trading off inside information that was disclosed during a (non-wall crossed) conference call with former Punch Taverns (PUB.LSE) CEO, its CFO, and Punch's Merrill Lynch broker Andrew Osborne in 2009, who was also fined (read the full transcript at fsa.gov.uk (pdf), and read Greenlight Capital's response to the fine).

At the time, Punch wanted to raise capital to repay £220 million of convertible bonds, and have "10% headroom" on covenant ratios attached to securitization vehicles. For more info on how pub securitization works, read this paper by Fitch Ratings (2003). Osborne mentioned in the call that Punch would need to issue £350 million, which would dilute Einhorn's 13.3% position in the company significantly. So, Einhorn dumped his shares after the call, avoided a £5.8 million loss when the stock tanked, and was fined for insider dealing. So that happened. But the whole point of this post is to show you what Einhorn said during the conference call.

Einhorn, one of the top value fund managers out there, who publicly releases extensive research at times (recently GreenLight and T2 Partners went publicly short St. Joe Co. and defeated the Fairholme Fund), gave his views on how to manage Punch Taverns' capital structure during the call, and explained how highly levered equities "trading at less than 50% of the face value of debt" are essentially "options on the debt-side of the capital structure", which was interesting. The blog Distressed Debt Investing had an interesting post on this as well. He mentioned that Einhorn made a successful investment in a "Levered Stub Basket" at the end of 2008, which ended up making 227%. I actually found GreenLight's year-end 2009 letter that mentioned this (courtesy of DealBreaker):

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On the Dow falling to 6,000, Charles Biderman's recent Video

Market crashing on 10/9/2008, features bailout squad

Remember in 2010 when Robert Prechter called for the Dow to hit 1,000 in the next 5-6 years? Or in 2010-2011 when Charles Nenner called for the Dow to hit 5,000 in the next few years? Well, there are still bears out there. Charles Biderman, founder of TrimTabs Investment Research, a firm that specializes in market liquidity flows, told his viewers on 3/13 that he sees the Dow falling to 6,000 when the Fed stops propping up the market with liquidity (or when "the Fed fix stops working"). And it's not just about the Fed, Biderman thinks the cyclically adjusted price/earnings ratio, or Shiller P/E, should be lower to reflect lower income growth and historical comparables. Another interesting thing he said was income growth and P/E expansion, since 1904, have been led by technological breakthroughs in communications, which he says is currently lacking. I somewhat agree. When will we see household holographic communications take off, or household humanoid Watson-bots? Or a crazy energy breakthrough that hits the masses? That should do it. I embedded Biderman's Youtube video below (originally saw it on Zero Hedge - hat tip). If you can't watch the video, you can read the transcript at TrimTab's blog at the link below.

Biderman’s Daily Edge 3/13/2012: Stocks Could Drop More Than 50% When Fed Fix Ends (TrimTab blog post with video):

"Historically stock prices sold at a 10 PE when income growth was 3% or less and with the Dow at 13,000 the PE is 23 today using Robert Shillers 10 year earnings PE.

Historically there have been three major bull markets since 1900 each lasting 24 to 25 years. During each bull run income growth averaged over 5% after inflation; and as a result of that rapid income growth the price to earnings ratio, or PE, grew rapidly.

On the other hand, during the 1930’s bear market and from 1967 to 1982 when stocks did nothing, income growth averaged 3% net of inflation or less. During those low growth times, the PE dropped to 10 or less."

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30-Year U.S. Treasury Bond Got Killed This Week ($USB)

30y Treasury Bond Price (stockcharts.com)

After the Fed's FOMC statement was released, which said it plans to keep rates at 0-0.25% through late 2014, continue its "operation twist" policy with maturing Treasury securities, and reinvest agency debt into MBS, 30-year Treasury bonds got smoked (or it was related to something else). Check out the chart of the 30-year Treasury bond price ($USB). It broke through floor support and then pierced through the 200 day moving average, closing at 136.62. Other levels to watch are 136.44 (the August 2010 peak) and 134.85 (the October 2011 low). The relative strength index (RSI) looks weak, and the MACD is below zero and trending down. Something to watch going forward. Have the bond vigilantes finally arrived?

Fiscal policy news:
U.S. Budget Deficit Revised Upward to $1.2 Trillion for 2012 (Bloomberg, 3/13/2012)

Related posts on on bond vigilantes:
David Stockman: Vicious Sell-Off In Bond Market Could Force Action on Budget Deficit, Debt (5/25/2011)
Niall Ferguson: Treasury Bond Vigilantes Coming, Default Or Inflation Choice For US (7/7/2010)

Gold In Sacks! Financial Links for 3/14/2012

I found GS street propaganda, ha

Interesting news out today (and some GS street propaganda).

Top News: Greg Smith, a former UK Goldman Sachs executive in U.S./LatAm equity derivative sales in Europe, resigned from Goldman and wrote a negative op-ed in the New York Times about the firm. Below are a bunch of articles on it, and this week I found some GS street propaganda (perfect timing). They just hired a new PR guy, which is interesting: Goldman Hires a New P.R. Chief. Why doesn't Goldman hire a social media firm, and start blogging, tweeting, facebooking, cross posting research, etc? I see the Federal Reserve just registered a Twitter account.

Why I Am Leaving Goldman Sachs (NYT)

"What are three quick ways to become a leader? a) Execute on the firm’s “axes,” which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit. b) “Hunt Elephants.” In English: get your clients — some of whom are sophisticated, and some of whom aren’t — to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them. c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym."

"I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients"

Dang! But, if you've been reading Zero Hedge for the past 3 years, or watched the congressional hearings during the financial crisis (videos: 1, 2 and 3), this is old news. Here is everything you need to know about GS:

Goldman's response in an employee memo: We Were Disappointed to Read Assertions (WSJ)

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European, U.S. Leveraged Loan Market Analysis For March 2012 (LCD Videos)

Leveraged Loan Market Update

LCD (Leveraged Commentary & Data), a unit of S&P, uploaded video analysis on the European and U.S. leveraged loan markets for February 2012, and showed charts of the:

S&P/LSTA Leveraged Loan Index;
U.S. and European LCD Flow Name Composite (15 largest, most liquid names);
U.S. Volume of New Institutional Loans;
U.S. Average New-Issue Loan Clearing Yield;
U.S. Amend-to-Extend, High-Yield Bond Take-out Volume ($billions);
U.S. Opportunistic Deal Flow (Repricings, Dividends);
U.S. Leveraged Loan Default Rate;
European HY Bond Flow Name Prices;
ELLI Multi-currency Loan Return (monthly);
European New-issue: Loans vs. HY Bonds;
ELLI Default Rates - European Leveraged Loans.

And then they provided upcoming trends. Keep an eye on these trends in the illiquid institutional credit markets.

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FOMC Statement, Stress Test Results and JP Morgan Increases Dividend

FOMC Meeting (Wikipedia)

In its latest statement, the Federal Reserve's Federal Open Market Committee (FOMC) said the economy was growing, the unemployment rate was declining, and there was low inflation. But the Fed is sticking with accommodative policy by keeping its "target range for the federal funds rate at 0 to 0.25 percent", and "maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction." 

Right now gold and Treasury bonds are crashing, while the S&P is rallying hard. This could have been pricing in JP Morgan's dividend hike or the results of the Fed's bank stress tests. "The bank said in a statement that the Federal Reserve has informed the company that it did not object to its plans to distribute capital." (Reuters/Yahoo). Citigroup, Ally Financial, MetLife, and SunTrust all failed (Reuters/CNBC).

Read the FOMC statement here or below.

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StockTouch App Review (Interactive Stock Market Heat Map For iPad, iPhone)

There's an interesting app available for the iPad and iPhone called StockTouch. It's an interactive stock market heat map that allows you to analyze sector performance, or specific stock performance, on an intraday to 5-year basis. They sent me the app for free to review (full disclosure), so here it goes. I mainly look at charts, but I think this interactive heat map is a valuable tool for market analysis, and could be even better with a few updates and additional markets.

When you open up the app, there are nine squares labeled as a sector (consumer goods, services, healthcare, energy, technology, financial, industrial goods, materials or utilities), and then each sector has a hundred stocks. So a total of nine hundred stocks and nine sectors can be monitored at once. You can then zoom in on the specific sector or stock. There's an option for U.S. stocks or global stocks.

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Sal Khan Is Revolutionizing Education (60 Minutes), What About The $870 Billion Student Loan Balance

Millions of people around the world are using the Khan Academy for free online education. Salman Khan, founder of Khan Academy and former hedge fund analyst, uploads video lectures from his computer in a tiny office, and you can only hear his voice and see him drawing from a digital pad. It turns out that Bill Gates is a big fan of Khan Academy and his kids use it. And Eric Schmidt, executive chairman of Google, thinks Khan Academy could take off and revolutionize education (from elementary school to advanced college courses).

Nice, now what about the $870 billion student loan balance with a 10% delinquency rate. And when loans deferred until after graduation are removed from the balance, the delinquency rate is 21%. See more numbers after the videos (read the New York Fed report). Watch the 60 Minute videos after the jump. I also embedded Khan's TED talk from March 2011 that features Bill Gates.

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Links for March 12, 2012: Fund Managers, Strategists and Economists

Here are interesting views on the market and economy from fund managers and strategists I follow.

Man and machine: The economic ideas of the world’s most successful hedge-fund boss, Ray Dalio (Economist)

Jim Rogers Interview with Business Insider on oil, agricultural commodities, gold, and China (Business Insider)

John Hussman: Warning: A New Who's Who of Awful Times to Invest (Hussman Funds)

Yale's Robert Shiller on housing and stocks (interviewed by CNBC and Associated Press)

Gary Shilling's 6 Favored Asset Classes (Pragmatic Capitalism)

Bill Gross's March 2012 Investment Outlook (PIMCO)

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CDO Rap From Former Deutsche Bank Bond Trader

CDO graphic (FCIC)

I randomly came across this internal Deutsche Bank email from November 8, 2005, which was part of FCIC's report on the financial crisis, with former Deutsche Bank bond trader Rocky Kurita rapping about the CDO market. Deutsche Bank was a huge player in RMBS and CDOs, and Kurita was on Greg Lippmann's trading desk that built a $5 billion short position against the subprime mortgage market with credit default swaps.

The funny thing is, Kurita and Lippmann both had conversations with former hedge fund manager Michael Burry because he was originally a corporate CDS client and he purchased $60 million worth of CDS referencing six subprime mortgage bonds on May 19, 2005. Burry and Lippmann were featured in Michael Lewis' book 'The Big Short'.

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Zimbabwe - last to leave, Never Mind Turning Off the Lights - They're Already Off (Guest Post by OilPrice)

Kariba Dam, Zimbabwe (Wikimedia Commons)

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

Zimbabwe - last to leave, Never Mind Turning Off the Lights - They're Already Off

In the 32 years of his benighted rule, Zimbabwe's President Robert Gabriel Mugabe has done more damage to the country than its white-led minority government ever did.

With the exception of the smuggling of "blood diamonds" the country's economy, once the "breadbasket of Africa," resembles nothing so much as a slow motion train wreck.

One of the foundations of modern nations' economic prosperity are reliable sources of power and here too, Mugabe and his Zimbabwe African National Union cronies have managed to screw things up.

While the country has a peak electricity demand of about 2,200 megawatts, it only produces 1,200 megawatts because its installed power generation capacity cannot meet demand, which primarily comes from the Hwange Power Station (HPS) and Kariba Power Station (KPS).

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ISDA: Greek Debt Exchange With CACs Triggers Credit Event, $3.2 Billion Net CDS Exposure Affected

ISDA has declared that the Greek debt exchange with CACs (collective action clauses) is a credit event that will trigger credit default swap payments. Below are the details along with a CNBC video with ISDA's CEO. Here is ISDA's official press release: "ISDA EMEA Determinations Committee: Restructuring Credit Event Has Occurred with Respect to The Hellenic Republic". But, ISDA's Q&A document (pdf) on the credit event provides more details. Look at the chart of Greek 5Y CDS at Bloomberg.com. It is tradable insurance on Greek government bonds.

"Greek Sovereign CDS Credit Event Frequently Asked Questions (FAQ)
March 9, 2012

Why did the ISDA EMEA Determinations Committee rule that a credit event occurred?
The Determinations Committee determined that the invoking of the collective action clauses by Greece to force all holders to accept the exchange offer for existing Greek debt constituted a credit event under the 2003 ISDA Credit Derivatives Definitions."

[...]

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GAME CHANGER: Citigroup Hires IBM's Watson Computer

Source: IBM

This is big news for the financial industry and could disrupt jobs on Wall Street. IBM's Watson computer, which "is built on IBM DeepQA technology for hypothesis generation, massive evidence gathering, analysis and scoring" and "applies advanced natural language processing, information retrieval, knowledge representation and reasoning, and machine-learning technologies to open-domain question answering" (IBM's definition), was just hired by Citigroup. This is what business school grads will be competing against. From Bloomberg:

"Watson can comb 10-Ks, prospectuses, loan performances and earnings quality while also uncovering sentiment and news not in the usual metrics before offering securities portfolio recommendations. It can also monitor trading, news sources and Facebook (FB) to help a treasurer manage foreign exchange risk."

Last November, after watching the PBS documentary on Watson's Jeopardy challenge, where it defeated two champions (video below), I wrote about IBM's Watson and Boston Dynamics' PETMAN humanoid robot, which, combined, could be a Terminator. Is there a way to put Watson's brain in PETMAN's head? There would be no need for human labor at that point. Here is the official IBM/Citi press release from March 5, but, more importantly, read what Manjoj Saxena, General Manager of IBM Watson Solutions, sees Watson doing in the financial services industry going forward (bold emphasis mine).

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GM, Chrysler To Sell Natural Gas Trucks, See Price Gap Between Natural Gas, Gasoline and Oil

This could help the price gap between gasoline, oil and natural gas close if this trend really takes off. As well as lower the fuel tax on consumers.

"General Motors Co. on Monday plans to disclose it will offer bi-fuel Chevrolet Silverado and GMC Sierra 2500 pickups in the fourth quarter. The trucks will be built by GM and sent to a supplier that will retrofit them to use compressed natural-gas tanks." (read more at WSJ)

Natural Gas, Gasoline and Oil (source: stockcharts.com)

Greece's 1-year Bond Yield is at 1,006%, Debt Swap Decision Ahead

This is for the DistressedVolatility archives. View the chart/quote of the 1-year GGB yield at Bloomberg.com.

Source: Bloomberg.com

News:

Private Investors Holding About 20% of Greek Debt to Participate in Swap (Bloomberg)
Investors call on ECB to play fair in sovereign credit (Reuters)
ECB still obstacle to Greek deal (ekathimerini)
Goldman Secret Greece Loan Shows Two Sinners as Client Unravels (Bloomberg)
Venizelos Says Greece Prepared to Force Bondholders Into $140 Billion Swap (Bloomberg)
Greece Is Prepared to Force Debt Swap: Venizelos (Bloomberg Video)
Private Holders of Greek Debt Should Reject Swap Offer, DSW Says (Bloomberg)

ECRI's Achuthan Says 2012 Recession Call Still Stands (CNBC, 2/24/2012)

Source: CNBC/ECRI

ECRI's Lakshman Achuthan was on CNBC's Squawk Box on February 24 reiterating his call that the U.S. will be in a recession by mid-year 2012, despite the consensus view and haters saying otherwise. He made his original recession call in the media in early October 2011.

Achuthan mentioned that ECRI's U.S. Coincident Index (output, jobs, income and sales) was at a 21 month low, and said: "you haven't had a decline like that in the past 50 years without a recession following in short order." Below is a summary of the key points he made during the interview followed by the video.

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Historical Look At How The Last Bull Market Ended (H&S Pattern), Moved Against Negative Credit News For Years

source: bigcharts.com

I found an old chart on my computer and think it's useful because it shows how the last 5 year bull market in equities ended. I compared the weekly S&P 500, Dow and Nasdaq charts that showed the head and shoulders top and breakdown in 2007, as well as the first trend/floor support test. I'm not sure if this was a linear or log chart. I created this on 1/31/2008 at BigCharts.com about a month and a half before Bear Stearns was bailed out by the Fed and sold to JP Morgan. Update: Using the linear chart, which I think this was, I looked back at each chart specifically and at this time the S&P broke through the trend line from 2002, the Dow held it, and the Nasdaq pierced through the trend line but rallied above it (slightly). I can't tell if the Dow's RSI made a new four year low, but look how the trend in volume was increasing during sell offs, which was flashing a warning sign.

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Lightning Bolt Hitting Sears Tower In Chicago

iPhoneography break: Check out this photo I took of a lightning bolt hitting Chicago's Sears tower (now Willis Tower) a few years ago. I took it with a Razr phone. Click to enlarge it.

Here's an iPhoneograph of Lakeshore Drive and the John Hancock building from the North Avenue Beach bridge (Chicago, IL).

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Economic Growth Trends Have Been Rolling Over (YoY Charts)

Below are charts showing the year-over-year percent changes in industrial production, personal income, personal consumption expenditures (PCE), gross domestic product (GDP), retail sales, and the velocity of M2 (money supply) since 1968. The charts also include recessions. As you can see they've all been rolling over, but some earlier than others. More on this in a moment. You can find this chart at the St. Louis Fed's FRED database.

IYT/WTIC, IYT/SPX See Negative Correlations (Transports vs. Oil and S&P 500)

Today is a big day because I'm introducing the 'correlation' indicator on a few charts. StockCharts.com allows you to chart out the correlation between two securities over any time period. First, I compared the two month relationship between IYT (Transportation ETF), SPY (S&P 500 ETF), DIA (Dow Industrial ETF), IWM (Small Cap ETF), QQQ (Nasdaq 100 ETF) and $WTIC (Crude Oil). At the beginning of February, IYT started to move inversely with WTIC (oil up, transports down), which made sense. During this time the other major market index ETFs either fell (IWM), drifted sideways (SPY, DIA), or rose steadily (QQQ). But then in the middle of the month, IYT completely decoupled from SPY, DIA, IWM and QQQ.

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Watch RSI on Monthly GLD/SPY Chart, Testing 20 Month Moving Average

Check this out. GLD/SPY is testing the 20 month moving average on the monthly chart and GLD/SPY's RSI (relative strength index) is at 52.20. Look at the MACD versus the exhaustive peaks as well. What's interesting is the RSI on GLD/SPY hasn't been below the key 50 level since GLD, the Gold ETF, started trading in 2004. If RSI breaks below that level and starts moving between 0 and 50, that would be new structural development for GLD's strength relative to SPY, the S&P ETF. In other words, If GLD/SPY's RSI breaks below 50, and/or the ratio technically breaks down and starts trending lower, it would mean GLD's relative strength and/or price action is underperforming SPY. They can still go up and down in tandem. GLD has outperformed SPY for years now, so in real terms the S&P hasn't done much. But there have been corrections along the way in the ratio. Anyone watching it?

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GLD, GLD/SPY Technical Update, Gold Was Dumped After Bernanke's Testimony

GLD, the SPDR Gold ETF, lost 5.31% yesterday after Fed Chairman Ben Bernanke didn't mention QE3 in his testimony to Congress (Zacks Research, Investor's Business Daily). And GLD didn't seem to care that the European Central Bank loaned 530 billion euros to 800 banks in the next LTRO (long-term refinancing operation) to protect the funding markets from a sovereign debt bomb in Europe (EuroMoney, Reuters, Zero Hedge). Check out which banks participated in the LTRO. Was the GLD move based on stability over liquidity (monetary inflation)? Decent economic data was reported as well (Reuters, Business Insider). Today the S&P closed red, but Treasury yields rose. Correlations are starting to get interesting again. Overnight, or last night, gold spot (XAU/USD) bounced off yesterday's lows.

GLD, GLD/SPY Technical Update

Now for some charts. The first chart (at the top) is an intraday 1-minute chart of GLD showing the crash. There were huge chunks of red volume spikes.

The second chart is of the daily. As you can see, the $175 ceiling is a key resistance level to break. I think a breakout would prove that GLD has enough strength to rally to the September 2011 high of $185. It failed to break above $175 twice. Above $185 is the next freedom level.  GLD is currently testing the 50 and 200 day moving averages (red/blue lines), so those need to hold for the bull case to stay intact in the short-term. The last time GLD's 50 and 200 day moving averages crossed was in mid-2008, a few months after and during a deep correction.

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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:

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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):

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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.

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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).

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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.

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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.

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