The Most Important Links For Nov 30, 2012

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Source: NY Fed
Decrease in Overall Debt Balance Continues Despite Rise in Non-Real Estate Debt - "The increase was due to a boost in student loans ($42 billion), auto loans ($18 billion) and credit card balances ($2 billion)" (New York Federal Reserve, see chart)

Italy Unemployment Rose to Highest in 13 Years in October (Bloomberg)

Will Italy Need a Bailout in 2013? (Citigroup thinks so) (CNBC)

Hedge Funds May Hold Back Greek Bond Plan, Nomura Says (Bloomberg)

Boehner and Obama Protect the S&P 500's 200 Day Moving Average

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Watch their press conferences below (video/text). The S&P 500 ($SPX) closed at $1,409.93, +0.79%, and the 30-year Treasury Yield closed at 2.78%, -0.43%.

S&P 500 Large Cap Index (

30-year Treasury Bond Yield index (

Thomas Lee Says Fiscal Cliff Deal + Mutual Fund Capitulation = $SPX Rallies Into Year-End

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Source: Bloomberg TV via Thomas Lee
Thomas Lee, chief U.S. equity strategist at JPMorgan, expects the S&P to hit 1,430 by year end, up 1.7% from today's close (1,406). He believes a fiscal cliff deal is in the works, which could gap the market higher, and mutual fund capitulation is signaling a market low. Here is the chart he provided on Bloomberg TV today ("30 day beta of funds Benchmarked to SPX"). He said,

"what we saw was that on November 26, [mutual fund] market exposure fell to the lowest level, really I think you might have to go back to 2006 to find it lower. Which means there was a capitulation on mutual funds on the market, which really was a good basis to establish a low."

During the segment, Adam Johnson, Trish Regan, and Thomas Lee also talked about the volatility skew and term structure. Basically, you can see what traders are thinking in the options market by comparing call and put implied volatilities (the prices of options) or IV overall at different strikes and maturities (expiration months). Watch the video for more details. Let's see if JPM's U.S. equity strategy team can overpower the Distressed Volatility market poll. But, if there is no fiscal cliff deal, Thomas Lee, and even 3x-permabull Jeremy Siegel, both see a reactive sell-off. By the way, in Greece news, "Eurozone, IMF clinch deal on Greek loan and debt" (

Chicago Fed National Activity Index Fell in October, Macro Links (Nov 26, 2012)

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According to the Chicago Fed National Activity Index, economic growth slowed in October:

CFNAI 3-Month Moving Avg
"Led by declines in production-related indicators, the Chicago Fed National Activity Index (CFNAI) decreased to –0.56 in October from 0.00 in September. All four broad categories of indicators that make up the index decreased from September, and only two made positive contributions to the index in October.

The index’s three-month moving average, CFNAI-MA3, decreased from –0.36 in September to –0.56 in October—its eighth consecutive reading below zero. October’s CFNAI-MA3 suggests that growth in national economic activity was below its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year."

The most important macro links:

Bernanke: Federal Reserve's Tools Can't Offset Fiscal Tightening; U.S. Hits Debt Ceiling In Early 2013 (QE4 Possible)

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With the fiscal cliff (automatic tax hikes and spending cuts) arriving on January 1, 2013, Federal Reserve Chairman Ben Bernanke, in a speech given at the Economic Club of New York on November 20, 2012 (1:12 in the video), wanted to remind everyone that monetary policy can't offset fiscal tightening. He said, "I don't think the Fed has the tools to offset that. And that's why it is important for Congress to address these fiscal issues soon and in a bipartisan way."

Jeremy Siegel: Dow Hits 15,000-17,000 In 2013 (CNBC)

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(via CNBC)
Jeremy Siegel, Professor of Finance at Wharton, thinks "any sort of a deal that extends tax rates, even slightly higher than they are now into the future, will buy you 500 to 1,000 points on the Dow very quickly. So, yeah, I mean you know clearly it's going to be a nervous market until... But there is going to be some sort of deal, and that's going to set the market up. And then next year I think is going to exceed everyone's expectations." But, he said "if we do not get something done, I see another 5, maybe 10%" downside from here.

And here is Professor Seigel's big call: "I think we're going to definitely be over 15,000 ending 2013 on the Dow. I see a 50/50 chance, and I'm sticking with this despite this downturn in the market, 50/50 chance we will see Dow 17,000 by the end of next year." Watch the CNBC video below for the full interview.

Poll Results Are In For $SPY and $TYX Year End Targets (11/15/2012)

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Voters in the Distressed Volatility market election (courtesy of expect $SPY (the S&P 500 ETF) and the 30-Year Treasury Bond Yield to be at $119.23 and 2.41% on December 31, 2012. I averaged the results together to get the numbers. I can't embed the results in this post but they are still available on the left sidebar. You can also view bar charts of the results at polldaddy (SPY and 30yT). New market polls will be up shortly. Any suggestions?

$SPY Falls After President Obama's Remarks on Tax Hikes, Fiscal Cliff

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source: Alan Cleaver (Flickr)
The S&P 500 lost 1.4% yesterday after President Obama's press conference on the fiscal cliff. The looming threat of tax hikes on dividends and capital gains in 2013 continues to freak out investors.

According to CNN Money, if the Bush tax cuts were to expire on January 1, 2013, the tax rate on dividends would rise to 39.6%-43.4% from 15%, and the tax rate on capital gains would rise to 20%-23.8% from 15% (depending on your income bracket). That's a big jump. This includes a 3.8% tax hike on investment income for individuals making over $200,000 ($250,000 for families), which was put in place by the new health care law (via CNBC). Business Insider reported that "Goldman Sachs' equity strategy team led by David Kostin" sees both tax rates at 23.8%.

Either way, you can see why markets are selling off. President Obama wants to raise taxes on the wealthiest Americans who are major players in the market. Here are a few quotes from President Obama's press conference yesterday:

Robert Prechter is a "Few Years Less Pessimistic" With Asset Prices Below Their 2006-8 Highs (Videos)

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Reason TV's Matt Welch interviewed Robert Prechter, founder of Elliott Wave International and director of the Socionomics Institute, at FreedomFest 2012 in July. Prechter explained how waves of social mood affect the stock market and why he's still very bearish on stocks.

I think my Conquer the Cash book was probably about 4 years early because real estate didn't top out until 2006. But we saw the preliminary things. Most people extrapolate linearly, and we extrapolate according to this fractal model.

But I'm a few years less pessimistic because things have gone down. Real estate is down 45%, commodities are down 40%, stocks are down about 20-25%. So we are heading in that direction. And at some point I think we're going to see people hate stocks and say they will never buy a plot of land again for the rest of their lives. And that will be one of the greatest buying opportunities of all time, when everybody else is negative. We hope so.

$ZNGA is Trading Below Book, Around Cash, and Has a $200 Million Share Repurchase Program

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At $2.12 (a market cap of $1.61 billion), as of September 30, 2012, social gaming company Zynga ($ZNGA) had $1.352 billion in cash and short term investments (actually their Q3 earnings release said they had $1.6 billion in cash, cash equivalents and marketable securities) and a book value of $1.854 billion (via ycharts). So ZNGA has a price/book ratio of 0.868 and a price/cash ratio of 1.19. In Zynga's Q3 earnings release they also announced a cost reduction plan and a $200 million share repurchase program. Wow.

Groupon is Almost Trading at Cash and Book Value ($GRPN)

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Since GRPN (Groupon) appears to be approaching the zero bound on its balance sheet, this is my last $GRPN crash post after 1, 2, 3. On Friday, $GRPN crashed 29% to a record low of $2.76 after missing Q3 revenue estimates (Chicago Suntimes, Chicago Tribune, Bloomberg). During the third quarter, gross billings fell again sequentially (quarter over quarter), revenue was unchanged sequentially, and net income was in the red after reporting a net profit in Q2. Gross billings actually rose slightly in North America during the quarter, but continued to trend down internationally (see tables). On a positive note, its marketing expense as a percentage of revenue made a new low (see Statista's infographic) and they are reducing their headcount. So they are trying to make a profit.

At $2.76, Groupon has a market value of $1.8 billion (653.224M shares outstanding*$2.76). And as of September 30, Groupon had $1.2 billion in cash, no debt, and a book value of $799 million.

S&P 500 Pierces 200DMA at the Close ($SPX, $RUT, $INDU, $USD, 11/8/2012)

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The S&P 500 closed at 1377.51 today, down 1.22%, and pierced through the 200-day moving average (1380.71 via As noted in my post yesterday, the S&P broke through the uptrend line from the October 2011 low, so there are cracks in the foundation. But, as you can see on the chart, there were a few false breakouts at the 200dma in 2011. During that time, you could see that 200dma retests confirmed downside and upside action. I remember when the E-mini S&P Future was testing both an uptrend line and the 200dma before breaking down, so it was a much easier setup.

It looks like the Dow Jones Industrial Average and Russell 2000 Small Cap Index have already broken below their 200dmas. So S&P is lagging here. Interesting because that's exactly what Tom DeMark was saying about his indicators a few weeks ago on CNBC. Has $SPX put in its 13 top yet?

Speaker Boehner on Averting the Fiscal Cliff (Full Video/Text, 11/7/2012)

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Debt deal 2.0

Here are quotes from House Speaker John Boehner's statement on the fiscal cliff from earlier today. The full transcript and video are after the jump.

There is an alternative to going over the fiscal cliff, in whole or in part.

It involves making real changes to the financial structure of entitlement programs, and reforming our tax code to curb special-interest loopholes and deductions.

By working together and creating a fairer, simpler, cleaner tax code, we can give our country a stronger, healthier economy.

A stronger economy means more revenue, which is what the president seeks.

Because the American people expect us to find common ground, we are willing to accept some additional revenues, via tax reform.

And for that reason, in order to garner Republican support for new revenues, the president must be willing to reduce spending and shore up the entitlement programs that are the primary drivers of our debt.

For purposes of forging a bipartisan agreement that begins to solve the problem, we’re willing to accept new revenue, under the right conditions.

What matters is where the increased revenue comes from, and what type of reform comes with it.

Let the games begin...

S&P Falls After Obama Reelected; Fiscal Cliff, Eurozone Growth Risks Remain ($SPY $SPX)

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The S&P 500 sold off after President Obama was reelected. Now the main issue on everyone's mind is the U.S. fiscal cliff, which would raise taxes, cut government spending, and potentially kill economic growth if there is no deal between democrats and republicans to lighten the blow.

Today, the S&P 500 ($SPX) closed at 1394.53, down 2.37%, and broke through the uptrend line from October 2011. So there are officially cracks in the foundation. S&P 500 is now on its way to test the 200 day moving average, so see how it reacts there. Look how the S&P reacted at the 200dma since the previous debt crisis and downgrade in 2011.


Articles to read:

Watch Live Election Coverage via WSJ (8PM ET)

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Watch WSJ Digital's live election coverage at 8pm ET via Youtube.

$FXI/$SSEC Ratio Makes a New High (Nov 5, 2012)

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This post turned into a crazy ratio post, so hopefully it makes sense. The iShares FTSE China 25 Index Fund/Shanghai Stock Exchange Composite Index ratio (FXI/SSEC) hit a new six year high of 0.01804 on November 1 after piercing through the 2006 and 2008 highs of 0.0174. The ratio fell significantly after hitting those levels. So are we in for a ratio correction?

Since FXI holds a bunch of Chinese H-shares (mainland Chinese companies that trade on the Hong Kong Stock Exchange and are denominated in Hong Kong dollars), are recent currency moves related to this enormous gap between FXI and the Shanghai Stock Exchange Composite Index? As you can see in the charts below, during the past three months, the Hong Kong Dollar fell hard against the Chinese Yuan (HKD/CNY), and the U.S. Dollar fell against the Hong Kong Dollar (USD/HKD).

Tom DeMark Sees Major S&P 500 Sell Signal Near, Expects 12-17% Decline (10/25/2012)

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Tom DeMark, founder of Market Studies and creator of the DeMark Indicators, told CNBC's Fast Money on October 22 that "the overall trend of the market is definitely down and we're going to see a very long and extended decline. We've made the highs for the year." On Bloomberg TV on October 25, DeMark said the S&P would decline by "12 to 17%."

Marc Faber of the Gloom Boom & Doom report expects the S&P 500 to fall by 20%. So prepare yourselves.

But during the interviews, DeMark mentioned that the S&P 500 cash index ($SPX) didn't generate a "13" top indication yet like the Nasdaq, Russell, and S&P futures did in September and October.