Sunday, September 30, 2012

Iran's Stock Market (TEPIX) vs. Economy, What's Really Going On?

M. Ahmadinejad (Wikipedia)
According to Reuters, AFP, and Bloomberg articles I've read recently (see below), it appears that Iran's economy is in bad shape, or even in a crisis because of international sanctions. Iran is suffering from high unemployment, high inflation, and its currency (the rial) just made a new low priced in the U.S. Dollar. But have you seen a chart of the Tehran Stock Exchange Index (TEPIX) since 2007? It tripled in 5 years, and it just broke out of a 1.5 year sideways channel. See the chart below.

First, the news.

Iran's rial currency dives to historic low (Reuters, 9/29/2012) - "The Iranian rial slumped on Saturday to a historic low against the U.S. dollar, according to Iranian media and currency tracking websites." (9/29/2012)

Iran's rial dives 6 percent to new record low (AFP/Ahram Online, 9/30/2012)
"New plunge suggests Iranian families are rushing to convert money into dollars and precious metals"

Hussman: "Valuations Remain Rich, Investor Sentiment Overcrowded"

Here's a market update from John Hussman, founder of Hussman Funds. In his weekly market comment titled "Leap of Faith," he believes that the market is overvalued and "overcrowded." He's been on that side of the trade for a while now (hedged), and he's sticking with it. He even quoted Zero Hedge in his post, which is interesting.

via: HussmanFunds
"In the context of historical evidence and outcomes, present market conditions give us no choice but to remain highly defensive. Valuations remain rich on the basis of normalized earnings (which are better correlated with subsequent returns than numerous popular alternatives based on forward operating earnings, the Fed Model and the like). Investor sentiment is overcrowded on the bullish side even as corporate insiders are liquidating at a rate of eight shares sold for every share purchased – a surge that Investors Intelligence describes as a “panic.” Market conditions remain steeply overbought on an intermediate and long-term basis, with the S&P 500 still near its upper Bollinger bands (two standard deviations above the 20-period moving average) on weekly and monthly resolutions. We continue to observe wide divergences in market action, from century-old criteria such as the weakness in transports versus industrials (which suggests an unwanted buildup of inventories) to more subtle divergences and signs of exhaustion in market internals."

Continue reading: http://hussmanfunds.com/wmc/wmc121001.htm

I thought that John Hussman's views on profit margins on July 30 were also interesting.

Saturday, September 29, 2012

US Student Loan Default Rate Hits 13.4% (FY 2010 3-Year Cohort Default Rate)

Student loan default rates were released by the U.S. Department of Education on Friday, and they are at levels not seen since the mid-1990s.

Ed.gov reported that the FY 2010 official 2-year cohort default rate hit 9.1%, up from 8.8% for FY 2009. And the FY 2009 official 3-year cohort default rate hit 13.4% (the first official 3-year cohort default rate), which was "a slight decrease from the trial three-year rate of 13.8 percent for the FY 2008 cohort." Total student debt outstanding broke above $1 trillion at the beginning of the year.

Thursday, September 27, 2012

Fitch: US Fiscal Cliff Would Cut Global Growth Rate By 50% In 2013

source: wikimedia commons
The fiscal cliff poses a threat to asset markets if there is tightening.

Source: Fitch Ratings:

US Fiscal Cliff Biggest Near-Term Threat to World Economy

The US fiscal cliff represents the single biggest near-term threat to a global economic recovery. While it is not our base case, the dramatic fiscal tightening implied by the fiscal cliff could tip the US and possibly the global economy into recession. At the very least it would be likely to halve the rate of global growth in 2013.

Under current law US tax increases and spending cuts worth USD600bn, equivalent to 4% of GDP, will take effect in fiscal 2013. With most of the measures scheduled to take effect at the beginning of calendar 2013, the fiscal contraction would be equivalent to more than USD800bn (5% of GDP) on an annualised basis, according to the Congressional Budget Office. The scale and speed of this fiscal tightening would be likely to push the US economy into an unnecessary and avoidable recession. We therefore think the cuts will be pared back to a more manageable 1.5% of GDP (see our Special Report, “US Fiscal Outlook – Mired in Uncertainty”, published in July 2012, for more detail).

David Stockman's Core Criticism of Fed Policy (Interview on Capital Account)

Below is Former Reagan Budget Director David Stockman's interview with Lauren Lyster on RT's Capital Account on 9/21/2012. Quoted below is David Stockman's core criticism of Fed policy.

David Stockman: This Market Isn't Real; FNMA MBS Spread Update

In an interview with Casey Research in July, former Reagan Budget Director and Congressman David Stockman made interesting points about how the Federal Reserve is mispricing the whole market. And this interview was conducted before QE3 was announced on September 13 (see Fannie Mae MBS activity below). I embedded the video of the interview below. But first are David Stockman's thoughts (via the transcript) on how asset classes and bank lending would react to a crisis in the Treasury bond market.

David: Because Greece is a $300 billion economy. Tiny. A rounding error in the great scheme of things. It's – last time I checked – about eight and a half months' worth of Walmart sales. Okay? That's a little different than when you have the $15 trillion heartland of the world economy, and the $11 trillion Treasury market which is at the center of the whole global financial system buckle and falter. That's the risk you're taking if you say, "MaƱana. Kick the can; let's just wait for something good to happen."

Tuesday, September 25, 2012

President Obama's United Nations Speech (Video, Text)

Below is President Obama's speech to the United Nations General Assembly on 9/25/2012.

Anti-Austerity Protesters "Occupy Congress" In Madrid, Spain (9/25/2012)

Watch a live video stream of the protests in Madrid, Spain at http://www.rtve.es/noticias/directo2/. Below are pics from the video. People are protesting against new austerity measures as Spain suffers from a severe deleveraging cycle and an unemployment rate above 20%. In order for Spain to get bank and sovereign debt bailouts, it is being forced to reduce its deficit with tax hikes and spending cuts.

Data from August 16 and August 20: (1) Spain Has Serious Economic Issues, Deleveraging and Austerity (Trends and $EWP); and (2) Delinquent Loans in Spanish Bank Portfolios Break Records in June (Charts). Also, France's economic contraction accelerated in September. So it is getting interesante.

Eurozone's Double Dip Hard Landing In Effect; France's Contraction Accelerates

Source: Markit
On 9/20/2012, after Markit/HSBC released the preliminary China PMI numbers for September which showed economic activity contracting but at a slower pace, Markit released the preliminary Eurozone PMI numbers, and they were double dipping. The Flash Eurozone PMI Composite Output Index dropped to 45.9 in September from 46.3 in August, a 39-month low.

The Eurozone Flash Manufacturing PMI was at 46.0 in September, up from 45.1 in August. But a number below 50 still means activity is contracting.

Sunday, September 23, 2012

Inverse head and shoulders pattern predicted 9% move in S&P 500 ($SPY Charts)

June 19 inverse head and shoulders w/breakout
It turns out technical analysis still works. The inverse head and shoulders pattern and breakout on June 19, 2012 predicted the 3-month 9% move in the S&P. The market was correctly pricing in positive market catalysts out of the Fed, ECB, EU summits, and German Constitutional Court. I remember posting the chart of $SPY on Flickr, but didn't take it seriously. The head and shoulders pattern is a simple technical pattern used by traders to aid in spotting potential reversals (read more at stockcharts.com: 1, 2).

However, since the bear market ended in March 2009, the Federal Reserve's quantitative easing programs were able to backstop bearish setups entirely (see June 2009, August/September 2010, and hedge fund manager David Tepper on CNBC), which in turn lowered interest rates, raised asset prices, and boosted the economy as a result (maybe not employment). QE2, the Federal Reserve put, was enacted in 2010, and now the Fed just announced QE3. So that's why I wasn't entirely convinced that a new cyclical bear market had begun in June. The pattern seems to be that the S&P 500 and other "risk" assets sell-off when quantitative easing programs end or fiscal stimulus fades (fiscal cliff?).

Friday, September 21, 2012

Links to Market Research, Videos (9/20-9/23/2012)

  • JP Morgan's Tom Lee Makes A Monster Case For A Market 'Melt-Up' Between Now And The Election (Business Insider)
  • Deutsche Bank: Western Economies Are Screwed, And Investors Face A 'Disturbing Paradox' (Business Insider)
  • Gary Shilling: Here's Why There's No Housing Recovery And Prices Will Collapse Another 20% (Business Insider)
  • Why Jim Chanos Is Still Short China's H-Shares (CNBC Video)
  • *Chris Whalen: QE3, Deflation and the Money Illusion (Zero Hedge, 9/18)
  • *The Fed Has Another $3.9 Trillion In QE To Go (At Least) (Zero Hedge, 9/23)

*added on 9/23/2012

Thursday, September 20, 2012

$IYT Unchanged Since June 2008; $SPY, $DIA, $XHB, $IWM, $QQQ Are Up 19-47% (Chart)

Check out this chart comparing the performance of $SPY (S&P 500), $DIA (Dow), $QQQ (Nasdaq 100), $IWM (small caps), $XHB (housing) and $IYT (transports). Since June 20, 2008, $XHB and $QQQ are up over 40%; $SPY, $DIA and $IWM are up over 20%; and IYT is down 0.59%. U.S. equity indexes are trying to effectively price in a weak global economy, which is mainly being driven by the economic slowdowns in Europe and China, and deleveraging and a possible new recession in the U.S. But, they are also pricing in the massive stimulus efforts by central banks globally. It is interesting that U.S. equity indexes, excluding the transportation index, are being driven by the Federal Reserve's QE3 (or QE-infinity) program and not reacting to global trade weakness, which is being priced in via IYT.

Finally something interesting is happening in the market. This is a follow up to my previous post: $SPY, $IYT Decouple as FedEx Lowers Estimates.

$SPY, $IYT Decouple as FedEx Lowers Estimates

SPY decouples from IYT, 2y chart (source: FreeStockCharts.com) 9/18/2012

FedEx lowered its earnings and GDP estimates on Tuesday in its Q1 earnings release, which caused $FDX and $IYT, the Dow Jones Transportation Index ETF, to sell-off.

I thought that the earnings call was important so I quoted parts of the transcript courtesy of SeekingAlpha. They explained how customers shifted away from premium services because of the weak economy, and how the effects from China's "slower exports" on China's economy, via weak Eurozone economies (Italy, Spain) and the U.S., are being "underestimated."

The most interesting part about all of this is that $DIA and $SPY (the Dow and S&P 500 Index ETFs) have decoupled from $IYT by the most I have seen this year. See charts below.

September HSBC Flash China Manufacturing PMI Still Contracting But Above August Level

The HSBC Flash China Manufacturing PMI (Purchasing Managers' Index) hit 47.8 in September, which was above the 47.6 level in August. But, a PMI number below 50 still means manufacturing activity is contracting in China. Markets in Asia are selling off on the news. The Shanghai Composite is down 1.10% at 2,045 and Japan's Nikkei 225 is down 1.44% at 9,099.

From Markit Economics:

Tuesday, September 18, 2012

Pew Research Analyzes the Lost Decade of the Middle Class; Every Income Bracket Got Hit Between 2000-2010, Never Happened Before On Chart (Video)

The Pew Research Center has a video on Youtube that analyzes the lost decade of the middle class. They said, "from 2000 to 2010, middle income households saw their median annual income drop by 5% in inflation adjusted dollars. During the same decade, middle income families saw their median wealth decline by 28%." Another chart going back to 1950 showed how the average annual change in mean family income for every income bracket declined between 2000-2010, which never occurred before on the chart. Watch the video after the jump or read the full report here. Bloomberg TV covered the net worth chart today.

S&P Revises Outlook on New Jersey GO Debt to Negative, Has Second Highest Rate of Seriously Delinquent Home Loans In Nation

Source: flickr
New Jersey had a bad day today. First, a Bloomberg article mentioned that New Jersey has the second highest rate of seriously delinquent home loans in the nation.

"The state passed Nevada in the second quarter in the rate of homeowners with seriously delinquent loans -- those 90 days late or in foreclosure -- according to the Mortgage Bankers Association. Only Florida had a higher rate of serious delinquencies, and that fell 1.2 percentage points from a year earlier to 17.5 percent of mortgages. In comparison, New Jersey’s rose 1.3 percentage points to 12.7 percent."

And then S&P revised its outlook on New Jersey's general obligation debt to 'negative' from 'stable'. Read the full S&P report here. I'm not sure where you can find New Jersey's credit default swap quote or its default probability percentage for free on the web. But, according to sovereign credit default swap rates at CMA (top ten list is free), Illinois has the highest default probability in the U.S, and then California. I wonder where New Jersey is on the list.

Monday, September 17, 2012

Elliott Wave: Apple's iPhone, Germany, the Fed: Why It's All Irrelevant to the Market's Trend (Guest Post)

Guest post syndicated by Elliott Wave International (an affiliate partner). I have Elliott Wave's news feed on my sidebar. This post brings up an interesting point. Will the Fed/Government be able to backstop the next cyclical bear market? Or will the downside catalyst be related to monetary or fiscal tightening.

Apple's iPhone, Germany, the Fed: Why It's All Irrelevant to the Market's Trend
R.N. Elliott's other major insight: News events do not impact market price patterns
September 14, 2012

By Elliott Wave International

A lot of people know that R.N. Elliott discovered the Wave Principle.

Yet few are aware that Elliott made another observation during his years of studying the stock market.

As the Wave Principle forecasts the different phases or segments of a cycle, the experienced student will find that current news or happenings, or even decrees or acts of government, seem to have but little effect, if any, upon the course of the cycle. It is true that sometimes unexpected news or sudden events, particularly those of a highly emotional nature, may extend or curtail the length of travel between corrections, but the number of waves or underlying rhythmic regularity of the market remains constant [emphasis added].

R.N. Elliott, R.N. Elliott's Masterworks, pp. 158-159

What a stunning insight: Even major news does not alter the market's main wave pattern! This seems to defy logic because most people believe that news and events are the very things that drive the stock market.

Consumer Credit Trends For July, Revolving and Non-Revolving (Charts)

The 5-year chart below shows the year-over-year percent change in total consumer credit, revolving credit (credit cards), and non-revolving (student loans and auto loans) ending July 2012. The chart goes back to the peak of the bull market in 2007. I know it's backward looking information, but look how the charts are starting to roll over again after the nice rebound.

ECRI's Achuthan Says U.S. Economy In Recession Right Now, Expect Data Revisions (9/13/2012, BloombergTV)

source: Bloomberg.com
Lakshman Achuthan, COO of ECRI (Economic Cycle Research Institute), told Tom Keene and Sara Eisen on Bloomberg TV on September 13 that the U.S. economy is currently in a recession. Watch the full interview below courtesy of Bloomberg TV. Below are quotes of interesting points he made during the interview and the video.

"To be clear, we do believe that we are currently in a recession." - Lakshman Achuthan

Lakshman Achuthan on cyclical bull markets vs. recessions in the past.

Chart: Newspaper Advertising Revenue Reverts Back to 1950 Levels

The chart below courtesy of Statista, the Newspaper Association of America, and the Carpe Diem blog, shows how newspaper advertising revenue (and print and online advertising revenue), adjusted for inflation, crashed back to a level not seen since 1950 in just a decade. Filling the gap. And it is because of blogging software. Henry Blodget at Business Insider wrote, "journalism professor Jay Rosen of NYU observes that the peak year was the one in which blogging software first appeared."

Here is more from Statista with data from Carpe Diem (Prof. Mark Perry's blog).

"Looking at annual numbers, the outlook is even more dramatic: if nothing extraordinary happens in the last few months of this year, 2012 will be the worst year for American newspapers since 1950. Professor Mark J. Perry of the University of Michigan estimates print advertising revenues of $19 billion this year. Taking inflation into account that is a 71 percent decline from the peak in 2000 and below the level of 1950."

Start Your Monday With Live Occupy Wall Street Feeds

Watch live occupy wall street feeds below courtesy of Timcast/@Timcast and @OccupyEye. Just in case anything pops off.

Videos of Violent Anti-Japan Protests in China Over Senkaku-Diaoyu Islands Dispute; Economic Update

It is interesting to see violent protests in China. I embedded three videos from Youtube.

The HSBC Flash China Manufacturing PMI hit a 9-month low in August at 47.8. So China might be in the midst of a "hard landing". The Shanghai Stock Exchange Composite Index hit a new 3.5-year low in early September at 2,029. Since then it bounced and is now trading at 2,088. The October 2008 low to test if it breaks down is 1,664. There are China bulls out there though. Read recent research notes by U.S. Global Investors and Nomura.

Tuesday, September 11, 2012

Mark Zuckerberg at 2012 TechCrunch Disrupt Conference (Ustream)

Watch Mark Zuckerberg speak at the 2012 TechCrunch Disrupt conference courtesy of TechCrunch on Ustream. Archived videos from the conference will play on the second video when the conference is over. Zuckerberg will be interviewed by Michael Arrington, the founder of TechCrunch.

Monday, September 10, 2012

ECB Plans Unlimited, Sterilized Euro Area Sovereign Debt Purchases; Mario Draghi's Press Conference Video With Q&A

The market rallied last week when the European Central Bank announced it would buy an unlimited amount of euro zone sovereign debt on the secondary market through "Outright Monetary Transactions," to prevent the euro zone from collapsing (see Italy and Spain's status last month). However, these bond purchases would be sterilized and have strict conditions attached. The monetary transactions would compliment the 500 billion euro EU bailout fund, the European Stability Mechanism, if Germany's Constitutional Court decides to back its portion of the ESM on September 12. For reference, I embedded ECB President Mario Draghi's press conference with Q&A and put up the technical features of the OMT. Euro area government bond yields have moved down recently as a result. EUR/USD and the 10-year German Bund yield (or $BUNL) will be interesting to watch going forward. If interested, Soros is out with some opinions in the Financial Times: ‘Lead or Leave Euro’, Soros Tells Germany.

"George Soros has issued a passionate plea to the German government to lead the eurozone out of recession by boosting growth, creating a joint fiscal authority and guaranteeing common bonds, or itself leave the currency union to save the future of Europe."

Sunday, September 9, 2012

Video of Solar Flare From August 31, Sun VIX Spiked (Video via NASA)

Check out this huge solar flare (magnetic filament burst) that exploded out of the sun on August 31, 2012. These videos are from NASA's Solar Dynamics Observatory. I put up a pic of the aurora it created in the sky on September 3. Check out the video of last year's crazy solar flare and prominence eruption. So, in layman's terms, the sun's VIX (volatility index) spiked again. The sunspot cycle is supposed to peak in 2013. Prepare...

Dick Bove Thinks BofA Will Cut 30,000 Jobs, Close 600 Branches in Big Restructuring (Reuters Video)

Source: Reuters
Dick Bove, banking analyst at Rochdale Securities, told Reuters TV that he thinks Bank of America will cut 30,000 jobs over the next two years and shut down 600 branches to restructure its consumer finance business. He was on Reuters TV on September 7, 2012 sharing his views on this, see the video below. It looks like Countrywide Financial is still haunting Bank of America. Dick Bove said,

"basically you're gonna lose $10s of billions related to Countrywide, and there's just nothing you can do to stop it. You're going to lose maybe $10 billion in the State Attorney General lawsuit. You're going to lose, who knows, maybe $30 billion in this new lawsuit from the FHFA. You're going to lose $10s of billions as a result of private lawsuits. You're going to lose another set of $10s of billions related to simply the mortgages not paying back, or the home equity loans not paying, and there's just nothing you can do about it. All you can do is sit there and absorb these losses, which is one of the primary reasons that you have to restructure the company so dramatically; why you have to fire the 30,000 people, close the 600 branches, and shift the emphasis of your business away from loans toward capital market activity."

Thursday, September 6, 2012

Ben Bernanke's 2012 Jackson Hole Speech on Additional Policy Accommodation, Fiscal Cliff

Federal Reserve at Night (source: dctim on Flickr)
You can read Federal Reserve Chairman Ben Bernanke's full 2012 Jackson Hole speech below, but here is where he talked about "additional policy accommodation" and dealing with the fiscal cliff, which didn't really spark a rally in the markets if you remember. Today the market is rallying because the ECB outlined its sterilized bond purchasing plan for euro area sovereign debt. $SPY (the S&P ETF) just made a new bull market high today at $143.73. Central Banks are running the entire market at this point. Good luck!

Bernanke on monetary policy going forward:

"As we assess the benefits and costs of alternative policy approaches, though, we must not lose sight of the daunting economic challenges that confront our nation. The stagnation of the labor market in particular is a grave concern not only because of the enormous suffering and waste of human talent it entails, but also because persistently high levels of unemployment will wreak structural damage on our economy that could last for many years.

Tuesday, September 4, 2012

Monetary Base/GDP Ratio Trends in Japan, U.S., Euro Area, and UK From 1995-2011

U.S. Adjusted Monetary Base/GDP since 1929 (St. Louis Fed)
In a speech given by Bank of Japan governor Masaaki Shirakawa at a conference sponsored by the Federal Reserve Board and International Journal of Central Banking on March 24, 2012 (Central Banking: Before, During, and After the Crisis), he presented a bar chart that compared the monetary base/nominal GDP ratio trends in Japan, the U.S., Eurozone, and the UK from 1995 to 2011. Look how Japan's monetary base/GDP ratio grew from below 10% in 1995 to about 25% in 2011, and how the U.S. grew from about 5% in 1995 to above 15% in 2011. Will the U.S. monetary base/GDP hit 25%+? To your right is a chart of the Adjusted U.S. Monetary Base/Gross Domestic Product ratio since the Great Depression.

"Capex Orders Signal Weaker Investment Activity" (UniCredit Chart)

I found an August 24 research note by Dr. Harm Bandholz, chief U.S. economist at UniCredit, that had a chart comparing the year-over-year percent change in capex orders (nondefense capital goods orders ex aircraft) versus investment activity (equipment and software) from 1996-2012. In July, capex orders fell 6.2% year-over-year (61,152 in 2012 vs. 65,197 in 2011 in millions), which was the first YoY decline since 2009. It was also a low not seen since February 2011 (59,452). Here was his outlook and the chart.

Saturday, September 1, 2012

Mysterious Domain Name Heist!

*UPDATE 9/12/2012*: I finally got my DistressedVolatility.com domain name back in my GoDaddy account after 15 days. Thank you Google Enterprises for resolving this issue as quick as possible and for keeping me in the know. And thank you @GoDaddy for responding to all of my complaints on Twitter. Keep a close eye on your domain names people.

I'm having a mysterious domain ownership issue. My DistressedVolatility.com domain name on GoDaddy expired even after I paid $10 to renew it through Google Apps (a GoDaddy partner). And I was never notified that an error occurred. I'm still waiting to hear from a specialist team at Google to figure out what happened. In the meantime, old posts with internal links beginning with 'distressedvolatility.com' are being redirected to Cing.com, a daily deals startup site like Groupon it looks like (Dealing with deal websites, SunTimes, 2/24/2012). So, to not get redirected to Cing.com, you will have to change old links on old posts to 'distressedvolatility.blogspot.com' for now. Nothing has changed with the blog layout or content. I was redirecting the 'distressedvolatility.blogspot.com' address to 'distressedvolatility.com' the whole time, which is an option on Blogger. Sorry to all who have been redirected to that site. Hopefully this gets resolved ASAP and I won't have to start up a new blog from scratch.

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