Robert Prechter Makes a Huge Call on Treasury Bonds (Video)

CBOE 10-year Treasury Yield Index (freestockcharts.com)
On June 4, Robert Prechter, founder of Elliott Wave International, told Lauren Lyster on RT's Capital Account that he is still very bearish on the stock market, which he sees making a major secular low in the next four years. But, he also thinks Treasury bonds are in the process of topping out (yields bottoming), which is interesting because he still thinks we are headed for a deflationary depression!

In the beginning of the interview, Prechter explained why he believes credit risk will rise across all bond classes (from high yield bonds to munis). And he even thinks credit risk will eventually spread to Treasury bonds, which means he thinks credit downgrades will eventually matter and printing money won't help a solvency crisis. Right? His call makes sense that the thirty year bull market in Treasury bonds is in the process of topping out (or yields in the process of bottoming, see the chart), but what will be the catalyst that brings bond vigilantes to the Treasury bond market during a deflationary depression?

Here is Robert Prechter making the case that Treasury yields are bottoming out.

News: Fitch Downgrades Spain Again, China Cuts Rates, Fitch Warns U.S., Germany to Save Spain? (6/17/2012)

Source: aidanmorgan (flickr)
First up, Spain was downgraded to 'BBB' from 'A' by Fitch Ratings (down three levels):

Fitch Ratings-London-07 June 2012: Fitch Ratings has downgraded Spain's Long-term foreign and local currency Issuer Default Ratings (IDR) to 'BBB' from 'A'. The Short-term IDR has also been downgraded to 'F2' from 'F1'. The Outlook on the Long-term IDRs is Negative. Fitch has simultaneously affirmed the common Euro Area Country Ceiling for Spain at 'AAA'.

The downgrade of Spain's sovereign ratings by three notches reflects the following factors:

Spain's El Corte Inglés Cuts Prices on 4,500 Products By 20% (Retail)

Source: simbiosc (flickr)
With Spain in all kinds of crises right now (sovereign debt, employment, banking, economic, etc), it's interesting to see what is happening on the field. El Corte Inglés, one of Spain's largest department stores, is cutting prices on 4,500 food and drug items by 20% to compete with its rivals Carrefour and Mercadona. And because people think their products are too expensive.

This company is huge. In 2010 it had a "consolidated turnover" or revenues of 16.413 billion euros, gross operating profit (EBITDA) of 1.017 billion euros, and consolidated net profit of 319.41 million euros (datos económicos).

Telecinco.es  (translated):

For this, the distribution group cut their margins, consolidate its purchasing center and optimize its internal processes. "We've lowered our margins because we are completely sure that the customer will react and gain in volume," said the director of group purchasing power, Victor del Pozo, who has estimated that sales will grow in a "significant".

Janet Yellen: Additional Asset Purchases Possible If Recovery Slows

Janet Yellen's speech (6/6/2012) - federalreserve
In a speech yesterday, Federal Reserve Vice Chair Janet Yellen said she was in favor of "further policy accommodation" and perhaps another round of QE or Operation Twist if headwinds affect the economic recovery. The next FOMC meeting is on June 19-20, and tomorrow Fed Chairman Ben Bernanke testifies before the U.S. Joint Economic Committee at 10:00am on the U.S. economy. Question: Can QE (quantitative easing) push up the stock market even during a recession and EPS capitulation? That would be impressive.

"Conclusion
In my remarks this evening I have sought to explain why, in my view, a highly accommodative monetary policy will remain appropriate for some time to come. My views concerning the stance of monetary policy reflect the FOMC's firm commitment to the goals of maximum employment and stable prices, my appraisal of the medium term outlook (which is importantly shaped by the persistent legacy of the housing bust and ensuing financial crisis), and by my assessment of the balance of risks facing the economy. Of course, as I've emphasized, the outlook is uncertain and the Committee will need to adjust policy as appropriate as actual conditions unfold. For this reason, the FOMC's forward guidance is explicitly conditioned on its anticipation of "low rates of resource utilization and a subdued outlook for inflation over the medium run."23 If the recovery were to proceed faster than expected or if inflation pressures were to pick up materially, the FOMC could adjust policy by bringing forward the expected date of tightening. In contrast, if the Committee judges that the recovery is proceeding at an insufficient pace, we could undertake portfolio actions such as additional asset purchases or a further maturity extension program. It is for this reason that the FOMC emphasized, in its statement following the April meeting, that it would "regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability.""

Read the full speech here with slides.

Money Velocity Has Been Falling Since 2010 (GDP/M2, GDP/MZM)

Nominal GDP/MZM and Nominal GDP/M2 (source: St. louis Fed)
The velocity of money (nominal GDP/M2 or nominal GDP/MZM) has been falling since 2010, which means the boost in M2 from 8.4 trillion in January 2010 to 9.8 trillion today hasn't translated into GDP growth. M2 = M1+ savings deposits, time deposits, and retail money market funds. MZM = M2 less small-denomination time deposits plus institutional money funds (St. Louis Fed).

In other words, via the St. Louis Fed:

"velocity is a ratio of nominal GDP to a measure of the money supply. It can be thought of as the rate of turnover in the money supply--that is, the number of times one dollar is used to purchase final goods and services included in GDP."

FED WATCH: Next Meeting is on June 19-20 (Links)

*Two Fed officials cool to more easing (Reuters)
*Fed Considers More Action Amid New Recovery Doubts (WSJ)
*Evans Sees Need for 'Extremely Strong' Accommodation by Fed (Bloomberg)
*Fed's Bullard: Weak May Jobs Report Doesn't 'Substantially Alter' Outlook (Dow Jones)
*Fed's Fisher questions need for more policy action (Reuters)
*Fed(wire) to the rescue (FT Alphaville)

Other news:
*The TIPS curve has become inverted (Sober Look)
*ECB to keep pressure on governments, could signal rate cut (Reuters/CNBC.com)
*Fed's Rosengren: "Further Monetary Policy Accommodation is Appropriate and Necessary" (DistressedVolatility, 5/31/2012)

JPMorgan's Thomas Lee on When to Buy Stocks (VIX, SPX, SPY)

source: CNBC.com
On CNBC yesterday, JPMorgan's chief U.S. equity strategist Thomas Lee had positive views on the jobs report even though it missed analyst estimates, but I think his views on the market were more important. When CNBC's Simon Hobbs asked him if "now was the time to buy", Lee replied:

"I think we are getting close, Simon. I think the things we just haven't seen yet is capitulation. You know, I think we need to see the VIX (volatility index) get to that 30 to 40. We need to see the percentage of stocks trading above the 200 day drop to that 10 to 20% level. So, a real sign of a washout.

Overall he is bullish on U.S. stocks and the U.S. economy, which he's been since early 2009. Watch the CNBC video clip for more details. I also included charts of the VIX and % of NYSE stocks trading above the 200 day moving average with links.

CHK's May Volume Matches October 2008 Spike

For those watching CHK (Chesapeake Energy), I thought this was interesting.

source: freestockcharts.com

Hussman on Market Valuations (June 4, 2012)

source: Business Insider
John Hussman, who manages the Hussman Funds, is sticking with his view that the market is overvalued in his weekly note.

"Valuations have improved marginally, but the market remains dramatically higher than levels typically associated with run-of-the-mill bear market lows, not to mention secular ones.

I expect that the U.S. economy is presently entering a recession, which is global in nature. It is unlikely to respond meaningfully to monetary stimulus, which has already gone well past the point of diminishing returns, and on to the point of recklessness.

Reports of Nabucco Pipeline's Death are Exaggerated - Guest Post by OilPrice

Source: Publics.bg (flickr)
Guest post by Daniel Graeber of Oilprice.com

Reports of Nabucco Pipeline's Death are Exaggerated

The refining director at BP caused a stir last week in Berlin when he was interpreted as saying the full version of the Nabucco natural gas pipeline was no longer an option for the consortium working in the Shah Deniz natural gas field in Azerbaijan. Wire services had reported that his statements meant Nabucco was effectively dead despite years of political maneuvering. Not so, said the European Commission, and several other players involved in the 2,149-mile project. It makes sexy headlines to sink a $10 billion ship, but there are plenty of reserves to keep Nabucco at least on standby.

By mid-May, proposals for Nabucco West, a smaller version of the original proposal, and the South East Europe Pipeline were sitting on the desk of BP's offices in Azerbaijan. By next month, the BP-led consortium managing the second phase of the Shah Deniz natural gas field in the Caspian Sea is expected to pick one of them.

Raoul Pal: "2012 and 2013 Will Usher In The End" (Report)

Since Zero Hedge, Business Insider and now Glenn Beck are covering this, here is the doomsday report written by former co-manager of the GLG Global Macro Fund and Goldman Sachs alum Raoul Pal, who now writes a monthly global macro advisory newsletter at The Global Macro Investor. Zero Hedge mentioned that GLG Partners is one of the largest hedge funds in the world. Read the full report at Business Insider as a one page slide show.

"Raoul Pal expects a series of sovereign defaults, the "biggest banking crisis in world history", and asserts that we don't have many options to stop it." (Business Insider)

Here are interesting quotes from the slides:

More on Soros' Call That Germany Has 3-Months to Save Eurozone, Spain's Prime Minister's Call For Banking Union, Key Dates to Watch (Bloomberg Video)

Today, Sara Eisen of BloombergTV (h/t Pension Pulse) showed a clip of George Soros saying that Germany has a "three month window" to save the euro, and mentioned that Spain's Prime Minister Mariano Rajoy is calling for a banking union to save its banks. She also mentioned key dates to watch. Pretty much sums up what's going on. By the way, $SPY is now up 0.14% and $GLD is down 0.21%.

GLD, SPY, GLDSY React to Eurozone Crisis, Growth Slowdown (Charts)

After my quick update on GLD and SPY on March 15, it looks like SPY's breakdown was a decent signal for further downside, and GLD's support level ended up being rock solid for a bounce (for now). Of course, all of this set up GLD/SPY to break through its long-term downtrend line after a retest. The setup actually looked perfect on the GLDSY chart (Nasdaq OMX Alpha GLD vs. SPY).

There was downside risk for GLD, SPY and GLD/SPY all throughout March and April; but now with the possibility of Greece exiting the eurozone, banks going under in Europe, and the possibility of more bailouts (globally) and the Fed (*updates 6/4: primary dealer banks, Gartman) and ECB printing money, it made sense that GLD rallied (and broke out relative to SPY) in this deflationary, zero bound environment with growth slowing, in my opinion. But, can this gold rally last?

Videos of Google's Project Glass, Sergey Brin Demoing Google Glass Prototype

via Gavin Newsom Show Video (below)
I came across a Forbes article today on Google's Project Glass today (5 Ways Project Glass Could Revolutionize Google TV) and wanted to check it out further. I found interesting videos on the new tech around the web. I first embedded Google's intro video of Project Glass on Youtube, and then found a video of Google co-founder Sergey Brin demoing a Google Glass prototype on The Gavin Newsom Show. Brin took pictures from his glasses during the interview. WOW, this is really interesting technology. Brin said he hopes to get the glasses out sometime next year, but it's still just a hope. Next up, hologram tech and communication, graphene tech, teleportation, household robots, and quantum dot solar paint, and the market will rally 5 fold in 5 years (imho).

What is the Secret Plan to Save the Eurozone?

Articles I found.

Top Officials Drafting Master Plan For Euro Zone - Report (Dow Jones Newswires at Nasdaq)
Der Geheimplan für ein neues Europa/The Secret Plan for a New Europe (Welt.de)

Source: Flicker/Skley
"According to the newspaper "Welt am Sonntag" work van Rompuy, Barroso and Juncker Draghi on proposals for four areas: structural reforms, the banking union, a fiscal union and political union. So far, the work of the master plan is almost unnoticed by the public. These are the proposals that are brought together in the back rooms of the EU institutions, in itself. In the end, would create an entirely new Europe - where some of the 27 EU countries can." (Welt.de translated)

But then I read this at Bloomberg.com:

"Merkel rejected joint debt issuance in the 17-nation euro area as a solution, saying “under no circumstances” would she agree to Germany-backed euro bonds.

Now, some “come along and ask for euro bonds, saying all we need are equal interest rates and everything will turn out all right,” Merkel said in a speech to members of her Christian Democratic Union in Berlin yesterday."

World Bank's Zoellick: "Summer of 2012 Offers an Eerie Echo of 2008"

Source: Flickr
Robert Zoellick is the president of the World Bank Group. Read his full article at worldbank.org.

"Eurozone leaders may be nearing a “break the glass” moment: when one smashes the pane protecting the emergency fire alarm. While those living in the eurozone building, especially those on the executive floors, will not want to hear an alarm, they had best read the instructions. Events in Greece could trigger financial fright in Spain, Italy, and across the eurozone, pushing Europe into a danger zone.

The summer of 2012 offers an eerie echo of 2008. Markets are signalling anxieties about a major asset class. In this round, eurozone sovereign debt has replaced mortgages as the risky investment. Banks are under stress. Depositors have not yet begun to run, but they are starting to jog. The European Central Bank, like the US Federal Reserve in 2008, has sought to reassure markets by providing generous liquidity, but collateral quality is declining as the better pickings on bank balance sheets are used up."

Gloom and doom.

Soros Sees Likelihood of Euro Surviving, But Germany Has Three Months to Decide!

Source: Flickr (WorldEconForum)
George Soros gave a speech yesterday on the euro zone crisis at the Festival of Economics in Trento, Italy and had two interesting predictions for the euro's endgame: 1) the euro will survive because a breakup, at least for now, would be too devastating for the periphery countries and Germany; and, 2) Germany has three months to decide the eurozone's fate. Does Soros's fund still own $2 billion of distressed European sovereign debt? Here's more from his speech:

"It is impossible to predict the eventual outcome. As mentioned before, the gradual reordering of the financial system along national lines could make an orderly breakup of the euro possible in a few years’ time and, if it were not for the social and political dynamics, one could imagine a common market without a common currency. But the trends are clearly non-linear and an earlier breakup is bound to be disorderly. It would almost certainly lead to a collapse of the Schengen Treaty, the common market, and the European Union itself. (It should be remembered that there is an exit mechanism for the European Union but not for the euro.) Unenforceable claims and unsettled grievances would leave Europe worse off than it was at the outset when the project of a united Europe was conceived.

Groupon's Market Cap is Near Google's $6 Billion Bid (GRPN)

With 643.4 million shares outstanding (Bloomberg statistics), if GRPN falls below $9.32, Groupon's market cap will be lower than Google's $6 billion bid for the company in 2010. With insiders now allowed to sell stock, GRPN is trading at $9.63, down 9.5%.

Source: freestockcharts.com

Global Zero Bound: 2-Year German Schatz Yield Goes Negative, 10-Year Treasury Yield Hits Record Low, 10-Year JGB Yield at Nine Year Low

Yesterday, the 2-Year German Schatz yield dipped below 0% after a bad Italian bond auction, and the 10-Year Treasury Bond yield hit a record low of 1.53%. This action shows how nervous investors are about Greek exit risk, the sovereign debt and banking crisis in Spain, and contagion risk spreading throughout the euro zone and planet. We are in a zero bound world right now. The 10-year Japanese government bond yield is at 0.83%, down from 0.85% on May 22 when Fitch downgraded Japan's credit rating. They see Japan's Debt/GDP ratio at 239% by the end of 2012. Here are charts for the blog archive. It can't last forever.

2-year German Government Bond Yield (Schatz) = 0.002% (at 0.01% right now)

Source: Bloomberg.com

10-Year U.S. Treasury Yield = 1.55%

Source: Bloomberg.com


10-year Japanese Government Bond Yield = 0.816%

Source: Bloomberg.com