The Most Important Links For Nov 30, 2012

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)

US Power Grid Vulnerable to Just About Everything - Guest Post

Power transmission lines
Source: Oran Viriyincy on Flickr
Guest post by Jen Alic of Oilprice.com

US Power Grid Vulnerable to Just About Everything

As Washington hunts ill-defined al-Qaeda groups in the Middle East and Africa, and concerns itself with Iran's eventual nuclear potential, it has a much more pressing problem at home: Its energy grid is vulnerable to anyone with basic weapons and know-how.

Forget about cyber warfare and highly organized terrorist attacks, a lack of basic physical security on the US power grid means that anyone with a gun—like disgruntled Michigan Militia types, for instance--could do serious damage.

For the past two months, the US Federal Energy Regulatory Commission (FERC) has been tasked with creating a security strategy for the electric grid and hydrocarbon facilities through its newly created Office of Energy Infrastructure Security. So far, it's not good news.

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

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 (stockcharts.com)

30-year Treasury Bond Yield index (stockcharts.com)

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

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" (ekathimerini.com).

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

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)

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."

Shale Gas Will be the Next Bubble to Pop – An Interview with Arthur Berman - Guest Post

Eagle Ford Shale (via Wikipedia)
Guest post submitted by James Stafford of OilPrice.com

Shale Gas Will be the Next Bubble to Pop – An Interview with Arthur Berman

The "shale revolution" has been grabbing a great deal of headlines for some time now. A favourite topic of investors, sector commentators and analysts – many of whom claim we are about to enter a new energy era with cheap and abundant shale gas leading the charge. But on closer examination the incredible claims and figures behind many of the plays just don't add up. To help us to look past the hype and take a critical look at whether shale really is the golden goose many believe it to be or just another over-hyped bubble that is about to pop, we were fortunate to speak with energy expert Arthur Berman.

Arthur is a geological consultant with thirty-four years of experience in petroleum exploration and production. He is currently consulting for several E&P companies and capital groups in the energy sector. He frequently gives keynote addresses for investment conferences and is interviewed about energy topics on television, radio, and national print and web publications including CNBC, CNN, Platt's Energy Week, BNN, Bloomberg, Platt's, Financial Times, and New York Times. You can find out more about Arthur by visiting his website: http://petroleumtruthreport.blogspot.com/

In the interview Arthur talks about:

· Why shale gas will be the next bubble to pop
· Why Japan can't afford to abandon nuclear power
· Why the United States shouldn't turn its back on Canada's tar sands
· Why renewables won't make a meaningful impact for many years
· Why the shale boom will not have a big impact on foreign policy
· Why Romney and Obama know next to nothing about fossil fuel energy

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

(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)

Voters in the Distressed Volatility market election (courtesy of polldaddy.com) 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

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:

High Risk Investing - The New Trend in Energy: Interview with Andrew McCarthy, CEO of Emperor Oil - Guest Post

Guest post submitted by James Stafford of OilPrice.com

High Risk Investing - The New Trend in Energy: Interview with Andrew McCarthy

Risk perception isn't what it used to be. Ask the swelling ranks of Canadian junior oil and gas companies braving high-risk venues like Sudan, Iraq and even Yemen.

Technological advances and the shale revolution are making risk easier to digest. And political risk is no longer limited to developing countries. Plus, risk is increasingly relative: Ask anyone who's been caught up in the politics of the Keystone pipeline.

Sudan is a case in point. While instability and a very fragile peace with South Sudan remains a threat, there is also growing optimism. The philosophy is this: Sudan and South Sudan will come to terms for the sake of economic growth, and oil will get them there. The prize: An estimated 5 billion barrels of oil.

In an exclusive interview with Oilprice.com publisher James Stafford, Emperor Oil CEO Andrew McCarthy reveals:

• Why investors are hitting up high-risk regions
• Why Africa is more opportunity than risk
• How political risk is no longer limited to developing countries
• Why Shale WILL live up to the hype
• Why conventional oil is still a great investment
• And why human ingenuity will prevail

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

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

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)

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)

The S&P 500 closed at 1377.51 today, down 1.22%, and pierced through the 200-day moving average (1380.71 via stockcharts.com). 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)

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)

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.

source: stockcharts.com

Articles to read:

Watch Live Election Coverage via WSJ (8PM ET)

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

Is Pakistan's Paranoia Pushing it Into a Nuclear War with India? - Guest Post

Short Range Surface to Surface Multi Tube Missile
Hatf IX (NASR) (Source: ISPR.gov.pk)
Guest post by Felix Imonti for OilPrice.com (image added separately)

Is Pakistan's Paranoia Pushing it Into a Nuclear War with India?

The possibility of a nuclear war between Pakistan and India grows every day. If the Pakistanis do not bring under control the terrorist groups in the country and resolve the conflicts with India, it is not a matter of if it will happen, but when.

There have been few achievements to celebrate in the sixty-five year history of Pakistan and that has made the success of the nuclear program central to the national identity. This is especially true for the military that receives a quarter of the budget and is the only strong national institution.

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

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)

source: StockCharts.com
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.