Stimulus Watch: HSBC China Manufacturing PMI Falls to 48.4

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Source: MarkitEconomics
The HSBC China Manufacturing PMI hit 48.4 in May, down from 49.3 in April (under 50 = contraction). Chinese manufacturing growth has been trending down for over two years now, and now it's officially contracting. I think traders are waiting to use fiscal stimulus or lower rates as a positive catalyst, but Chinese markets are being affected by the euro zone crisis and Grexit risk. Here is more info on the PMI:

"After adjusting for seasonal factors, the HSBC Purchasing Managers’ Index™ (PMI™) – a composite indicator designed to give a single-figure snapshot of operating conditions in the manufacturing economy – registered 48.4 in May, down slightly from 49.3 in April, signalling a seventh successive month-on-month worsening of Chinese manufacturing sector operating conditions."

Here is what Hongbin Qu, HSBC's Chief Economist - China had to say about the PMI data:

Total Household Debt is Still Way Above 2003 Levels (NY Fed Report)

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Source: NY Fed
The New York Fed released its quarterly report on household debt and credit ending on March 31, 2012, and it looks like households have been deleveraging since the credit bubble burst, but total household debt is still 58.8% above 2003 levels. It looks like student loans are picking up the slack, which makes sense given that jobs were destroyed during the financial crisis (still at 8.1% unemployment). But, there still needs to be a return on investment (1, 2).

Total household debt ended Q1 2012 at $11.44 trillion, up 58.8% from $7.2 trillion in Q1 2003, and student loan debt ended Q1 2012 at $904 billion, up 275% from $241 billion in Q1 2003. So, are U.S. households done deleveraging? Or is this just the beginning? Here's another factoid from the report:

"Since the peak in household debt in 2008Q3, student loan debt has increased by $293 billion, while other forms of debt fell a combined $1.53 trillion."

Flame Virus Could Shut Down a Stock Exchange or Trading Floor (ReutersTV)

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Whoa, is this risk priced into P/Es?

"This program seems to be mostly all about espionage, but it had the ability to delete files. And when you are able to delete, you're able to destruct, you're able to cause a lot damage. Imagine the ability to knock down a stock exchange. Or the ability to knock down a trading floor. It's enough to be able to go inside to basically cause a dysfunctionality. We would probably see in the next 12 to 18 months, we would see some adaptation from this taken into the commercial world." -Udi Mokady, President and CEO of Cyber-Ark Software

Fed's Rosengren: "Further Monetary Policy Accommodation is Both Appropriate and Necessary"

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Eric Rosengren's Speech Slides (Boston Fed)
Boston Fed President Eric Rosengren is pessimistic about economic growth and believes the Fed should remain accommodative. Read his full speech with charts here. Also, check out this slide comparing the peaks and troughs of employment in 1980, 1991, 2001 and 2008. After the great recession ended, we are still well below peak employment, while all of the other years have given back their employment losses by now.

Here are Eric Rosengren's economic forecasts and views on monetary policy from the speech:

Madrid Stock Exchange Index vs. Spain 10Y Note Yield, Bankia Was In Penny Land (Charts)

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Yesterday, the Madrid Stock Exchange General Index (MADX) hit a new low of 616, and the Spanish 10-year government bond yield hit an intraday high of 6.70%, which is essentially testing the 11/25/2011 crisis high of 6.729% pre-LTRO. The sovereign debt crisis, banking crisis (Spanish banks are sitting on an estimated $150 - 180 billion of bad loans), 50% youth unemployment, austerity measures, and Greek exit/euro contagion risk are not helping to boost Spain's economy or its tax base. Maybe taxes from internet gambling and a "EuroVegas" will save Spain. Look at the inverse relationship between MADX and the Spanish 10-year government bond yield.

Madrid Stock Exchange Index vs. 
Spanish 10-year Government Bond Yield (

Mobile Ad eCPMs Are Less Than Desktop Ad eCPMs (Mary Meeker's Internet Trends, 2012 D10 Conference)

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Mary Meeker, an Internet analyst and partner at KPCB (Kleiner Perkins Caufield Byers), did a presentation on Internet trends at the 2012 AllThingsD D10 Conference. I embedded her full presentation below via Scribd. It is interesting that advertising effective CPMs (cost per 1,000 impressions) are higher on the desktop Internet than mobile Internet, even with mobile traffic growing so rapidly. According to her slides, as of May 2012, global mobile traffic was 10% of total global internet traffic, up from 4% in December 2010.

Source: Mary Meeker's Internet Trends D10 Conference 5/30/2012 (KPCB)

If interested, here's a chart showing the trend of internet advertising revenues in 1996. In January of 1996, internet ad revenues were less than $10 million.

Good News and Bad News For U.S. Housing (March-April 2012)

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The S&P Case-Shiller Home Price Index fell at the end of March to a new post-crisis low, but the rate of decline is slowing as you can see in chart #1. However, how does even a 0.5% increase in home prices year-over-year help the $1.2 trillion of negative equity outstanding and the 1.4 million vacant foreclosed homes on the market as a result of the systemic mortgage fraud and housing bubbles.

"New York, May 29, 2012 – Data through March 2012, released today by S&P Indices for its S&P/CaseShiller Home Price Indices, the leading measure of U.S. home prices, showed that all three headline composites ended the first quarter of 2012 at new post-crisis lows. The national composite fell by 2.0% in the first quarter of 2012 and was down 1.9% versus the first quarter of 2011. The 10- and 20-City Composites posted respective annual returns of -2.8% and -2.6% in March 2012. Month-over-month, their changes were minimal; average home prices in the 10-City Composite fell by 0.1% compared to February and the 20-City remained basically unchanged in March over February. However, with these latest data, all three composites still posted their lowest levels since the housing crisis began in mid-2006.

In addition to the three composites, five cities - Atlanta, Chicago, Las Vegas, New York and Portland - also saw average home prices hit new lows. This is an improvement over the nine cities reported last month." (source: S&P)

Chicago Fed Midwest Manufacturing Index Increased 2.4% in April to 94.2, Up From 67.9 in June 2009 (Chart)

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Midwest manufacturing growth has been on fire since 2009. The trend looks good on the chart, but how high can the index go? According to the Chicago Fed's chart, both the U.S and Midwest manufacturing indexes are near their peaks in 2007/2008. Read the full report with more charts here (

"The Chicago Fed Midwest Manufacturing Index (CFMMI) increased 2.4% in April, to a seasonally adjusted level of 94.2 (2007 = 100). Revised data show the index was down 0.3% in March. The Federal Reserve Board’s industrial production index for manufacturing (IPMFG) increased 0.6% in April. Regional output rose 12.0% in April from a year earlier, and national output increased 5.8%.

Production in three of the four regional sectors increased in April:

• Regional auto sector production rose 7.6%;
• Regional steel sector output increased 0.7%;
• Regional machinery sector production moved up 0.6%; and
• Regional resource sector output decreased 0.1%"

The CFMMI hit a low of 67.9 in June 2009 before reflation took hold. Look at the data here.

FB is Getting GRPN'd, Now Below $30

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Below are $FB trend lines to watch for potential upside breakouts, and the area to watch for downside risk. When do we see social media consolidation and big moves by Microsoft and Yahoo in this space?

EUR/USD is at 1.2478, Nonstop Decline since 1.30 Breakdown

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The euro's descent continues...

This Bankia news is interesting:

Rajoy Backtracks on Spain Plan to Use Bonds to Rescue Bankia (SFGate)
BFA-bankia seeks to raise up to 55 bln euros in debt over 5 yrs (Reuters)
Spain to go to market to fund banks, regions (Reuters)
Bankia parent group BFA posts 2011 loss of 3.3 billion euros (Chicago Tribune)
Spain May Use Its Debt Instead Of Cash For Bankia Group (Bloomberg)
Spain's Bankia to seek €19bn in state funds (Irish Times)

Watch the Munk Debates on Europe's Experiment (features Niall Ferguson)

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This year's MunkDebate on Europe's (failed?) experiment is live below featuring Niall Ferguson, Jospeh Joffee, Peter Mandelson, and Daniel Cohn-Bendit. Hopefully the debates will be archived below. I embedded last year's Munk debate between David Rosenberg and Paul Krugman here. Or watch the debates at

Germany, Eurozone Flash Manufacturing PMI's Near 3-Year Low, EURUSD Now Rallying (1.2570)

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Markit's Flash Eurozone and Germany PMI numbers for May didn't look so hot. Some PMI's were at 35 month lows. EUR/USD hit a low of 1.251 yesterday after the PMI releases (now at 1.2570), and I'm sure the sell off was related to Greek exit fears and ECB printing risk. The Guardian's Business Blog covered the EU summit yesterday in a live post, which included outlooks on the euro by Capital Economics and Citigroup.

"Capital Economics said this afternoon that it is sticking with its forecast that the euro will slide to $1.10 by the end of this year, but feels there's a growing risk it could fall further, faster."

"Indeed, a research note just released by Citi estimates that the euro will fall to the brink of parity with the US dollar at $1.01."

As you can see in the long-term chart of EUR/USD, it recently broke through support and followed a downtrend to lower levels. The 1-year descending trading channel shows you the overall trend, so there is definitely downside risk to 1.19-1.20 support. But that doesn't mean EUR/USD can't bounce and possibly hit the new ceiling or downtrend line from May 1 (*rallying towards there right now I see at 4:00am NY). With Greek exit risk on everyone's mind, the markets will be watching opinion polls leading up to Greece's national election on June 17. If the "anti-bailout" party SYRIZA wins (Greek anti-bailout left has four-point lead - poll), and Greece reneges on the austerity plan required for EU/IMF bailout money, Greece could leave the euro zone and start printing Drachmas. If the crisis turns into complete chaos, there is a possibility that the ECB could start a massive quantitative easing program to support eurozone sovereign debt, which could pave the way for euro bonds and a European fiscal union.

Prevent OTC Credit Default Swap Blowups; Put CDS on an Exchange!

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When JPMorgan announced a few weeks ago that its chief investment office lost $2 billion+ on large complex "synthetic credit" positions (and possibly a few more billion as they unwind trades), Tim Backshall, founding partner of Capital Context, told CNBC's Rick Santelli that credit derivative blowups at too-big-to-fail banks would be prevented if credit default swaps were put on an exchange. Simple as that.

Rick Santelli (CNBC): How could we correct this rather quickly, you have an idea?

Tim Backshall (Capital Context): "Well, it would be very simple, and coming from a credit guy it's a little bit odd to say. The bottom line is you could put so much of the credit derivative market on an exchange within a few days. It already trades electronically for the most liquid indices. Of course there are complex and ad hoc, or OTC positions that would be very hard to do, but they can be managed in a different way." (not from an official transcript)

The Euro's Descent Continues, Broke January Support, It's Getting Serious

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EUR/USD broke through January support today on fears that Greece will exit the euro and banks and the Greek economy won't be able to handle the conversion to Drachmas. Or maybe the euro broke down against the dollar on speculation that the ECB will just print euros and lower rates to backstop the euro crisis. It looks like Greece has 46 hours to figure everything out. EUR/USD is now at 1.2557.

Wharton's Siegel Sees Euro at Parity With U.S. Dollar in Six Months, ECB Backstops Banks, Likes Equities (5/22)

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On Bloomberg TV yesterday, Wharton finance professor Jeremy Siegel was not fazed about Greece leaving the euro, European bank runs, or the U.S. fiscal cliff on January 1, 2013 (tax increases and spending cuts). He believes the ECB will lower rates and print euros to backstop all of the European banks and to support European exports. As a result, European stock markets will rally and the euro will be at parity with the U.S. dollar in six months.

Regarding the U.S. fiscal cliff, he thinks President Obama could temporarily extend the tax cuts, which would boost the U.S. stock market. Siegel sees the Dow at 15,000 by the end of 2013. He didn't mention China risks.

JGB Watch: Fitch Downgrades Japan, Sees Debt/GDP at 239% in 2012 (10-year JGB Yield at 0.855%)

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Today, Fitch downgraded Japan's credit rating to 'A+' from 'AA' and had a negative outlook. Fitch said, "Japan's gross general government debt is projected to hit 239% of GDP by end-2012, by far the highest for any Fitch-rated sovereign". I'm reading a bunch of articles on Japan's fiscal situation. More bearish than bullish. Last year, on August 24, 2011, Moody's downgraded Japan to 'Aa3' from 'Aa2' with a stable outlook. S&P hasn't pulled the trigger yet, but on November 24, 2011, S&P's director of sovereign ratings in Singapore said Japan "may be close to a downgrade".

10-year JGBs (Japanese government bonds) currently yield 0.855%, the second lowest yield on the planet (Switzerland's 10-year bonds yield 0.67%). It recently hit a low of 0.815%, which pierced through the September 2011 low of .82% and hit level not seen since 2003. The yield could try again to break through that multi-year downtrend at some point, but will 0.82% hold in the near-term? When does the secular bear market officially begin in JGBs? Or does a black swan event send the whole JGB curve to 0%. Read the full Fitch release below.

Hugh Hendry's Trading Ideas at the Milken Conference (Video, May 1, 2012)

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Hugh Hendry, co-founder and CIO of Eclectica Asset Management, in a panel discussion at the Milken Conference on May 1, gave his outlook on the euro, U.S. dollar, German market, and when we'll witness the "most profound market clearing moment." Here are a few notable quotes from the video (embedded below).

"Germany has operational leverage (Siemens): "Income within Europe is shifting. It's being redistributed. It's being redistributed from the financial creditors, think the banks. And let's keep it local like Germany. The trade really, is you want to be short the financial sector and you want be long the export sector. Because I think we all agree that where we're heading for is probably euro parity with the dollar if not going below that, which is a profound economic advantage to what are already super competitive businesses. And of course that only happens if we get more financial anarchy, and of course that's going to help your short position."

Global Deflationary Macro Links (May 21, 2012)

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Ray Dalio's World (Barron's)
Hedge Funds Rebuild Euro Bear Bets On Greek Exit Banks Weigh (Bloomberg)
The anatomy of the eurozone bank run (Financial Times)
Treasury Yield Close To Record Low On Europe Debt Crisis (Bloomberg)
Wen Growth Pledge Spurs Speculation Of China Stimulus (Bloomberg)
Chinese buyers default on coal shipments -traders (Reuters)
Latest data raises red flags likely to burst China’s bubble: SocGen's Albert Edwards (The Globe and Mail)
Insight: China pays high price to spare state firm from bankruptcy (Reuters)
Analysis: China's towering metal stockpiles cast economic shadow (Reuters)
Morgan Stanley cuts India’s growth forecast to 6.3 percent (FirstPost/Reuters)
Rising US recession risk poses the real threat to Europe (The Telegraph)
Greek euro exit could throw UK 'into long-term recession' (Guardian)
UK: Recession prompts rise in calls to mental health lines (BBC)
Food Stamp Use Picks Up Again, In Los Angeles County (
New college graduates earning less than a decade ago (Los Angeles Times)
OUTLIER? - Tide Turning In Japan Deflation Fight, BOJ’s Top Economist Says (Bloomberg)

Deflated  (Robert Couse-Baker via Flickr)

Highlights From Jamie Dimon's Call on JPM's $2 Billion+ Trading Loss on Synthetic Credit Positions

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Listen to JPMorgan Chase's CEO Jamie Dimon explain how JPM's chief investment office in London lost $2 billion on synthetic credit exposure in only six weeks (and perhaps up to $5 billion as JPM unwinds its positions). Or now it could be $6 to $7 billion? Seriously?

"The number being bandied about now is closer to a range of $6 billion to $7 billion, according to several people working on trading desks that specialize in the derivatives JPMorgan Chase (JPM, Fortune 500) used to make its trades and from two sources with knowledge of the bank's positions." (CNN Money)

Huge wrong way "re-hedges" on the synthetic credit default swap index CDX.NA.IG.9, put on by the 'London Whale', were supposedly responsible for some of the losses. But the rest of the complex trade that blew up appears to be a mystery. The JPM Whale Watching Tour at FT Alphaville is trying to figure it out. And here's the original Bloomberg piece from April 6 that set everything off with CDX.NA.IG.9 (JPMorgan Trader’s Positions Said To Distort Credit Indexes). It is interesting that as of 12/31/2011, the total notional value of OTC credit derivatives held at JPMorgan Chase stood at $5.7 trillion.

Listen to highlights from the May 10 conference call below.

How Facebook Managed To Stay Above Its $38 IPO Price (Update)

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Watch this amazing explanation by on how Facebook managed to stay above its $38 IPO price on its first day of trading. Watch high frequency traders scalp $FB between $38 and $38.05 for five minutes straight with a large mystery buyer at the IPO price. I put up charts as well. So, when do all bonds and credit default swaps start trading at these bid/ask spreads? Update: Facebook Banker Morgan Stanley Bought A Humongous Amount Of Stock To Try To Support Price (Bloomberg at Business Insider)

Facebook's $38 IPO Price Values Company at $104 Billion (26x Sales)

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Source: Facebook Form-S1
As a reminder, Facebook starts trading today under the ticker symbol $FB on the NASDAQ. The IPO price was set at $38, which values the company at $104.2 billion and 26x sales. LinkedIn (LNKD) currently trades at 15.57x sales, Tencent Holdings Ltd (700:HK) at 11.64x sales, Baidu (BIDU) at 15.88x sales, and Google (GOOG) at 5.04x sales. Those were the high flyers. Are there better comparables I'm missing? Read Facebook's S-1 filing to see its financial statements and trends in user metrics. To your right are charts showing Facebook's quarterly revenue trends since Q1 2010.

Here's a interesting metric to monitor. Bloomberg's Cory Johnson (video below) showed that Facebook's revenue-growth-per-daily-active-user trend year-over-year fell in Q4 2011 and Q1 2012 to 3% and 0%, respectively. So, it's clear why Zuck is hanging out in China, buying companies like Instagram, and trying to diversify revenue streams (credits, app store, coupons, etc). The stock will be fun to watch. Are VXFB futures coming out soon? I also posted Zuckerberg's letter to investors and embedded an interesting interview with Zuck in 2005. Biiiiig day today.

EURUSD is now testing the January low (1.262) on Greek exit, European bank worries

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EUR/USD is currently trading at 1.26442 and finally testing the January 13 low of 1.26244. Nice downside move after breaking support. It could bounce at the January low and test that downtrend line for a potential upside trade, but EUR/USD is still trading in a descending channel. January support is an important level to hold, in my opinion. If 1.26 breaks, 1.20 to parity is next (second chart). I'd be very bullish on the euro (EUR/USD) if it managed to break above 1.30 (ceiling resistance) and through that downtrend line from September 2011. The euro is worried about the possibility of Greece leaving the European Monetary Union (Economic and Monetary Union) and credit risk rising at European banks.

Fitch Downgrades Greece to 'CCC' on Grexit Risk, Moody's Downgrades 16 Spanish Banks

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Greek Drachmas (Wikipedia)
The market's reaction today: S&P 500: 1304.86, -1.51%, Gold (Spot): 1,570.90, +2.17%, and 10-year Treasury Note Yield 1.70%, -3.57%. Chart update coming up.

"Fitch Takes Negative Rating Actions on Greece
17 May 2012 1:30 PM (EDT)

Link to Fitch Ratings' Report: Fitch Takes Negative Rating Actions on Greece

Fitch Ratings-London-17 May 2012: Fitch Ratings has downgraded Greece's Long-term foreign and local currency Issuer Default Ratings (IDRs) to 'CCC' from 'B-'. The Short-term foreign currency IDR has also been downgraded to 'C' from 'B'. At the same time, the agency has revised the Country Ceiling to 'B-'.

The downgrade of Greece's sovereign ratings reflects the heightened risk that Greece may not be able to sustain its membership of Economic and Monetary Union (EMU). The strong showing of 'anti-austerity' parties in the 6 May parliamentary elections and subsequent failure to form a government underscores the lack of public and political support for the EU-IMF EUR173bn programme.

In the event that the new general elections scheduled for 17 June fail to produce a government with a mandate to continue with the EU-IMF programme of fiscal austerity and structural reform, an exit of Greece from EMU would be probable. A Greek exit would likely result in widespread default on private sector as well as sovereign euro-denominated obligations, despite a moderate sovereign debt service burden following the restructuring of Greek government bonds in March.

Alerts: Spain's Bankia Tanks, ECB Stops Lending to Some Greek Banks, Moody's to Downgrade 21 Spanish Banks

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Bankia -23.5% (source: Yahoo Finance)
Breaking Links for May 17, 2012:

*Bankia customers pull out over 1 billion euros: report (Reuters)
*Bankia Shares Dive on Deposit Concerns (WSJ)
*Bankia Shares Plummet On Concerns About Deposit Drain (Dow Jones Newswires)
*Moody's to downgrade 21 Spanish banks: report (AFP)
*Spain beset by bank crisis, recession, bond pressure (Reuters)
*Exclusive: ECB stops operations with some Greek banks (Reuters)
*ECB Stops Loans to Some Greek Banks as Draghi Talks Exit (Bloomberg)
*ECB move on Greek banks hits euro confidence (Reuters)
*TREASURIES-Bonds firm on ECB/Greece banks news, FOMC minutes (Reuters)
*UK PM: Core of Euro Zone, ECB Must Do More To Solve Crisis (Dow Jones Newswires)
*SocGen: If Greece Leaves The Euro, Get Ready For A Whoosh Out Of Spanish And Italian Banks (Business Insider)
*Former ECB Member: Anyone Who Thinks A Greek Exit Won't Cause A Major Crisis Has No Clue What They're Talking about (Business Insider)

*JPMorgan’s Trading Loss Is Said to Rise at Least 50% (so, the loss will total $3 billion) (NYT)
*Coffee May Help Drinkers Live Longer, U.S. Study Suggests (Bloomberg)

Housing Update: XHB, ITB vs. SPY, DIA, QQQ, IYT, XLF (Charts)

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House Attack, Vienna (via weburbanist)
Even though KB Home (KBH), Hovnanian (HOV), and other levered housing stubs have been under pressure as of late (or for years now), the homebuilding and construction ETF's XHB and ITB have been holding up quite well during the recent market selloff. I put up charts of XHB and ITB, and XHB and ITB versus SPY, DIA, QQQ, IYT, and XLF.

ITB (black line) and XHB (blue line) haven't followed the severity of the selloff. It seems like the homebuilding ETFs have been pricing in less-bad housing data and the possibility that homes will become a "non-depreciating asset" in the next few years. ITB is still down 75% from its 2005 peak. Home prices continue to make new lows, albeit at a slower rate, while foreclosure inventory remains near historic highs and the unemployment rate is at  8.1 8.4%, in real terms. The new REO-to-rental (real estate owned-to-rental) programs at the TBTF banks and GSEs could help support prices, but "Goldman Sachs sees three huge obstacles to the program's success." On a final note, on Pandora Radio today I heard two ads on house flipping, and I noticed that Vanilla Ice is deep in the game.

Now to the charts. How does the gap close between ITB and the rest of the market? Is housing in its own world?

CHK June Put Volume Spikes After S&P Says Chesapeake Could Breach Covenant (Update 2)

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Even after Chesapeake Energy received a $4 billion unsecured term loan (without covenants) from institutional investors to "repay borrowings under the company's existing corporate revolving credit facility", which would support billions in asset sales ($9.5-$11B is their target), S&P downgraded Chesapeake's credit rating to 'BB-', further into junk territory. But most importantly, S&P said that Chesapeake could breach the "debt to lagging-12-month EBITDA" covenant within the next three quarters. As a result, out-of-the-money put volume spiked in June.

Chesapeake Energy Increases Size of Term Loan to $4 Billion (Update 2)

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Chesapeake Energy ($CHK) plans to use the $4 billion unsecured term loan from Goldman and Jefferies (and syndicated to institutional investors) to "repay borrowings under the company's existing corporate revolving credit facility", which, according to CEO Aubrey McClendon, would provide "enhanced financial flexibility to execute our planned asset sales from a position of strength." Aubrey McClendon and CFO Dominic Dell'Osso provided additional information in a conference call with analysts on May 14 (transcript at SeekingAlpha).

CEO Aubrey McClendon on Chesapeake's planned asset sales:

"In addition to the Permian sale and Miss Lime JV, we've identified a number of other assets that are non-core to us. And we will sell enough of those in the second half of 2012 to reach our asset sales target of $9.5 billion to $11 billion for the remainder of the year."

CFO Dominic Dell'Osso on maintenance covenants in Chesapeake's revolving credit facility:

"Remember, our only maintenance covenants are in our revolving credit facility, which is a $4 billion facility secured by a relatively small subset of our $50 billion to $60 billion asset value that Aubrey referred to earlier. These covenants are 4x debt to trailing EBITDA limitation and a 70% debt-to-capitalization ratio."

EUR/USD Selling Off Hard (1.27278), Seeing if January Low Can Hold

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Ever since EURUSD broke support the other day, it's been trending towards the January low of 1.26244. Let's see if it can hold. Coming up, a video with a hedge fund manager's view on the euro.

SPY at Levels Not Seen Since January, GLD Near December 2011 Low

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Below are charts of GLD and SPY. SPY made a new multi-month low today at 133.78, a level not seen since January. GLD, currently trading at 150.59, continues to sell off and is approaching the 12/29/2011 low of 148.27. I've been watching GLD and GLD/SPY since March 1, and they are starting to look interesting again. I'll continue to post on this.

Nomura's Zhang: China GDP Growth Could Fall Below 8% Without Fiscal Stimulus (Video)

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Source: Haldini / flickr
After foreign direct investment (FDI) in China fell by 0.7% in April (-27.9% from the European Union), the sixth monthly decline in a row, Zhiwei Zhang, Nomura's Chief China Economist, told Bloomberg TV that the downside risk to economic growth in China is "becoming higher", and GDP growth could fall below 8% if the Chinese government doesn't boost infrastructure spending. He also said the PBOC (People's Bank of China) could lower lending rates further, but believes fiscal policy would be more effective than monetary policy at this point.

Yesterday the PBOC lowered the reserve requirement ratio (RRR) for banks by 50 basis points.

EURUSD Trading at 1.2866 After Breaking Support, Same News Haunts Eurozone

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After EUR/USD broke through floor support the other day in that perfect descending channel, or long-term downtrend since May 2011, tonight EUR/USD broke through 1.29 and is currently trading at 1.2866 (4:33am Eastern). The next line in the sand is the January 2012 low of 1.262. I have a post coming up on the GLD/SPY ratio, GLD, and SPY. The same risks are haunting the euro: the possibility of Greece leaving the Eurozone and causing market dislocations, insolvent banks, debt contagion spreading to Spain, Italy and Portugal, deflationary recessions in the Eurozone ex-Germany, and perhaps more easing by the ECB.

China Lowers Bank Reserve Requirement Ratio, Shanghai SE A-Share Index Unchanged

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*World edges closer to deflationary slump as money contracts in China (Telegraph)
*Yuan Declines After PBOC Weakens Fixing, Lowers Reserve Ratios (Bloomberg, w/ links to charts)
*China’s latest move to cut RRR marks to further ease policy (
*China’s monetary policy: where it stands now (Also Sprach Analyst, w/ charts)
People’s Bank of China cuts reserve requirement ratio by 50bps after ugly data (Also Sprach Analyst)
*The worst is NOT over for the China’s economy (Also Sprach Analyst w/ charts)
*China Lowers Banks’ Reserve Requirements to Support Growth (Bloomberg)
*China May Cut Reserve Ratio Further To Boost Economy - Paper (WSJ)
*China Stimulus May Limit Oil's Losses This Week: Survey (CNBC)
*Analysis: China growth risks signal need for fiscal action (Reuters)

The Shanghai Stock Exchange A-Share Index is unchanged at the moment.

Jamie Dimon on Meet The Press Talking About JPMorgan's $2 Billion Trading Loss

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Jamie Dimon (Wikipedia)
As you already know, JPMorgan's chief investment office in London, which includes trader Bruno Iksil (the "London Whale") and CIO Ina Drew, lost $2 billion on wrong way bets, credit hedges, basis trades, curve trades, or whatever they were, on the synthetic credit default swap index CDX.NA.IG.9. I'll provide more details on this trade in another post. For now, I embedded the clip of Jamie Dimon on Meet the Press this morning talking about JPM's massive trading loss.

On April 6, Bloomberg first publicized JPM trader Bruno Iksil's sized position in the CDX.NA.IG.9 index, who was said to be "distorting prices."

"The trader may have built a $100 billion position in contracts on Series 9 (IBOXUG09) of the Markit CDX North America Investment Grade Index, according to the people, who said they based their estimates on the trades and price movements they witnessed as well as their understanding of the size and structure of the markets."

California Faces $16 Billion Budget Deficit, Higher Than the $9.2 Billion Estimate in January (Governor Brown Video)

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Source: Youtube
In his address to the people of California today on YouTube, California Governor Jerry Brown said Cali now faces a $16 billion budget deficit this year, up $6.8 billion from his estimate of $9.2 billion in January. To close the gap, Governor Brown wants plan to increase income and sales tax rates to spare budget cuts to public safety and schools. At least, as of yesterday, California was not on CMA's top ten list of sovereigns most likely to default via their credit default swaps. I posted yesterday that Illinois was higher than Spain at #9 on the list. In the video, Governor Brown said:

"We are still recovering from the worst recession since the 1930s. Tax receipts are coming in lower than expected, and the Federal government and the courts have blocked us from making billions in necessary budget reductions. The result is that we are now facing a $16 billion hole, not the $9 billion we thought in January. This means that we will have to go much further and make cuts far greater than I asked for in the beginning of the year."
"That's why I'm bypassing the gridlock and asking you, the people of California, to approve a plan that avoids cuts to schools and public safety. The plan: ask high income earners to pay up to 3% more in their income taxes for 7 years, and increase sales taxes by 1/4 of 1% for 4 years."

Bloomberg has the actual numbers:

"It would temporarily raise the state sales tax, already the highest in the U.S., to 7.5 percent from 7.25 percent. It would also boost rates on income starting at $250,000. The 10.3 percent levy on those making $1 million or more would rise to 13.3 percent, the most of any state."

FYI: Illinois Has a Higher Default Probability Than Spain (CMA's CPD %)

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Using CMA Datavision's cumulative probability of default percentage, Illinois has a higher default probability than Spain (37.46% vs. 36.27%). On CMA's highest default probabilities list, Illinois is ranked #9 and Spain #10. Don't ask how they came up with the calculation. Spain's 5Y credit default swap mid spread is at 519.88 and Illinois 5Y CDS is at 221.05. Look at the chart of Spain CDS at

source: CMA Datavision

Student Debt Clock Hits $1 Trillion, Defaults Are Rising (CFPB), Moody's Downgrades Student Loan Revenue Bonds Guaranteed By Government

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Source: (real-time update below)
FinAid's student debt clock is now over $1 trillion (see below). But, according to the Consumer Financial Protection Bureau in March, the total student debt balance (federal and private) hit $1 trillion several months ago.

Chart Art: EUR/USD at 1.29361 (5/10/2012)

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EUR/USD is currently trading at 1.29348 and recently broke through the Feb/March/April support level. If EUR/USD goes below 1.00, I'm taking a trip to España for dos semanas. Make it happen ECB. Will QE4 kill the descending channel?


Best Buy Express: BBY is Near the 2008 Low ($19.94)

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Part II from my previous post on April 16: Best Buy is Closing 50 Big Box Stores In 2012, Here is Their Store Strategy BBY.

Best Buy's stock chart ($BBY) continues to look weak and is double dipping towards the 2008 low. The stock closed at $19.94 today, a level not seen since October 2008. For the long side, BBY needs to build a support level and see a positive catalyst so it can attempt to break through ceiling resistance and that downtrend line. The first chart shows where BBY is trading relative to the 2008 crisis levels; the second chart is more short-term.

Links: Greece, Euro, European Banks (5/9/2012)

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Athens (source: DoctorWho - Flickr)
EFSF Confirms Release of 5.2 Billion Euros for Greece - (Bloomberg); EFSF bailout fund approves Greek emergency payment (Reuters); Europe Delays Bailout Payment For Greece (WSJ).

Euro Global Poll Shows More Than 50% Predicting an Exit (Bloomberg)

"Elena Panaritis, a former Greek member of parliament for the socialist Pasok party, talks about the outlook for the nation's debt crisis and possible exit from the euro zone." (Bloomberg Video)

FX Concepts' John Taylor thinks Greece could leave the euro zone this summer. Says money runs out in June (Bloomberg Video)

Roubini: "Greece is going to be the first country that's going to restructure and exit." "By the end of the year Spain is going to lose market access." (CNBC)

Euro Will Have to Be Devalued to Save EU: Prof. Jeremy Siegel (CNBC)

In One Paragraph, Art Cashin Explains How Greece Ends Up Back On The Drachma (Business Insider)

Greek left attacks ‘barbarous’ austerity (FT)

Greece Euro-Exit Debate Goes Public - (Bloomberg)

Moody’s Bank Downgrades Risk Choking European Recovery (Bloomberg)

Beyond Greece: EU Banks May Be Next Focus of Markets (CNBC)

*CIC Stops Buying Europe Government Debt on Crisis Concern (Bloomberg)

Greece General Share Index Now Down 88.4% From November 2007 Peak (5346 to 615)

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The Greece General Share Index ($ATG) peaked out at 5346 in October 2007 and is now trading at 635 (-88.4%!). It just broke the January 2012 low as well.

Now look at the Greek General Share versus the S&P.


Greece's "Uncompromising Nationalist" Party Golden Dawn Won 7% of Greek Parliamentary Vote (Leader's Speech Video)

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It's starting to get interesting politically in the euro zone. It shouldn't come as a surprise given the severity of the sovereign debt crisis, austerity measures, bailouts, unemployment, and economic depressions in the euro zone. First, in the French election on May 6, French President Nicolas Sarkozy lost to François Hollande, the first socialist president elected in France since Francois Mitterrand in 1981 (BBC, Reuters, NYT). And in Greece's election over the weekend, the "uncompromising Nationalists" party, or neo-Nazi party (look at their flag), 'Golden Dawn' won 7% of the popular vote or 21/300 seats in the Greek parliament. I found an infographic by Thomson Reuters that broke out the Greek election.

Below I embedded videos of Nikolaos Michaloliakos, the leader of the Golden Dawn party, giving his victory speech to the media (translated into English) and answering questions on the street. I added a Russia Today video as well. If you want more info on this political party, VICE interviewed a member of Golden Dawn a few days before the election. Interesting turn of events. I also found a chart of the opinion polls going back to 2009. Look at Golden Dawn's trend line since November 2011 (black line).

The Top 5 Banks That Dominate Derivatives

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source: (see below w/ table)
The Businessweek article I previous linked to (Goldman Says Rule Curbing Counterparty Links Risks Jobs) had interesting info on the too-big-to-fail banks' derivatives exposure as of 12/31/2011 (Q1 2012 not available yet):

"As of December, five firms accounted for 96 percent of the total U.S. banking industry’s notional holdings in derivatives and 86 percent of the industry’s net current credit exposure in derivatives, according to the Office of the Comptroller of the Currency."

I looked into this further and found the OCC's Q4 2011 report on bank trading and derivatives activities. Here's more from the summary.

  • The notional amount of derivatives held by insured U.S. commercial banks fell $17 trillion, or 7%, from the third quarter of 2011, to $231 trillion. The fourth quarter decline in notionals followed a 0.6% decline during the third quarter, and marks the first time notionals have declined in consecutive quarters. Notional derivatives at year-end were 0.2% lower than at the end of 2010, the first year-over-year decline on record.
  • Derivative contracts remain concentrated in interest rate products, which comprise 81% of total derivative notional amounts. Credit derivatives, which represent 6% of total derivatives notionals, fell 6% to $14.8 trillion.

Link: Goldman Says Rule Curbing Counterparty Links Risks Jobs

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Interesting article at BloombergBusinessweek:

"Goldman Sachs Group Inc. (GS) said a proposed Federal Reserve rule seeking to limit links between banks could cut U.S. economic growth by as much as 0.4 percentage point and eliminate as many as 300,000 jobs."


Live Occupy Wall Street Feeds (May Day), Market News Links

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Herbalife down 23%!
Today was an eventful day.

Manufacturing Sector Expands In April For 33rd Consecutive Month, SPY Around April High Now

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The market is up after the Institute for Supply Management reported a better than expected PMI (manufacturing) number for April (54.8% vs. 53.4% in March).

Infographic On Suburbia's Decline

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Here's an interesting infographic on the decline of the suburbs designed by Megan Jett at ArchDaily. The sources have come to the conclusion that poverty, gas prices, and Generation-Y wanting to drive less and live in more "walkable/bike-friendly areas" are contributing to suburbia's decline. Sounds about right. So does rail save the burbs?