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DiggOn August 23 I was On the Edge with Max Keiser in a pair of videos discussing deflation and the state of the US economy.
Part One
Part Two
The Oxen Report: Shanghai Composite’s 7% Slip Moving American Markets
by David Ristau - August 31st, 2009 8:13 am
The big news on the day is the Shanghai Composite out of China that fell over 6.7% on Monday, bringing down the rest of Asia with it. Even Japan’s Nikkei index closed in the red despite Japan’s announcement that they had seen growth of nearly 2% in factory production in July. The Chinese market is becoming a very powerful leading force in the markets, setting the tone of each day with its major swings up and down.
In effect, the American markets are looking a bit red. Mondays are always slow for news and data, so investors look elsewhere, like China, for direction. One Chinese analyst noted that there was no direct piece of news or data that caused the drop, but investors are worried about the economy and are panic selling. The worries over the recovery in America have started to crop up as last week we saw a number of neutral to red days.
Futures are already down as of 7:30 AM. The Dow is down nearly 55 points, the Nasdaq has dropped almost 6 points, and the S&P 500 has skated down nearly 6 points. It is a broad range selloff that appears to be affecting each and every sector. The major sectors hit in China were the financials and energy service companies, so we should definitely watch those for extra volatility today.
Europe followed China down its bearish path, with almost all the major European indices dropping at least 0.5% to 1%. England’s FTSE 100 was actually trading up, however, around 1%.
There are very few stories today in the market, which really makes me worry about the market’s ability to stop any major selling off. I am afraid we are going to see this market move down in major swings today because there will not be anything for buyers to get in on for the day. The box office weekend was pretty lousy with The Final Destination taking home the top spot with under $30 million. In second was Inglorious Basterds and in third was The Weinstein Company’s Halloween II. The 
movie made only $17 million, but that was greater than its only $15 million budget.
In other news, BJ Services Inc. has announced that they will be bought out by Baker Hughes, another oil services company. The deal is worth $5.5 billion and it will help Baker Hughes as…
Mish Videos – On the Edge with Max Keiser
by ilene - August 31st, 2009 1:26 am
Mish Videos – On the Edge with Max Keiser
Courtesy of Mish
A Massive Chart Dump – P2 Analysis Wrap-Up
by Chart School - August 30th, 2009 9:40 pm
A Massive Chart Dump – P2 Analysis Wrap-Up
Courtesy of Binve at Market Thoughts and Analysis
…. And by "Chart Dump", I don’t mean all these charts belong in the toilet 
So like I said on Friday, I wish Primary 2 was done, I *want* Primary 2 to be done. I just don’t think it is done. But I do think it is very close to being done, next week looks very likely for the top.
But the whole point of this post is to look at a whole host of indices, sectors, asset classes, and sentiment indicators to show that there are some very substantial divergences taking place. Some of the "leader indices" show that they have already potentially topped (are not making higher highs with the broader markets). The Dollar and the VIX may have already bottomed. Volume is drying up (or at least substantially declining) in most of the indicies. In short a lot of the signs that we expect to see with Primary Wave 2 have occurred, and things are more or less "on track" for a large trend change in equities.
The other reason for this massive update this weekend is that our first born child is due any day now, and my blogging and chart updates will drop off dramatically next month. binve’s life is about to get a lot more interesting.
This post contains a lot of charts that I show often, but every chart is completely updated with new annotations and analysis. I believe it is a useful post and tells the picture of the markets from a macro view. Enjoy!
The Primary Wave 2 Checklist
There are several signals that we should see that help to let us know we are at the end of Primary Wave 2. There are some characteristics that Elliott (and then Frost and Prechter later) put forth that would describe some of the technical, fundamental and sentiment aspects of Wave 2. Here are some of those (modified to be bullish, as this Wave 2 is bullish):
From EWP: “Second Waves often retrace so much of Wave one that most of the losses endured are gained back by the time it ends. At this point investors are thoroughly convinced that the bull market is here to stay. Second waves typically end on very low volume…
Now much too big to fail
by ilene - August 30th, 2009 4:17 pm
Now much too big to fail
Courtesy of Tim Iacono at The Mess That Greenspan Made
A report by David Cho in today’s Washington Post tells of the great advances now being made in restoring the banking sector and financial markets to their pre-2008 glory.
Banks ‘Too Big to Fail’ Have Grown Even Bigger
When the credit crisis struck last year, federal regulators pumped tens of billions of dollars into the nation’s leading financial institutions because the
Today, the biggest of those banks are even bigger.
The crisis may be turning out very well for many of the behemoths that dominate U.S. finance. A series of federally arranged mergers safely landed troubled banks on the decks of more stable firms. And it allowed the survivors to emerge from the turmoil with strengthened market positions, giving them even greater control over consumer lending and more potential to profit.
J.P. Morgan Chase, an amalgam of some of Wall
Now that’s a sweet deal – boost your market share in originating what are essentially "no-risk" loans because, either wards of the state Fannie Mae and FreddieMac will buy the loans or you’ll get bailed out if things again go awry.
If you’re a big bank, what’s not to like about that?
It seems that the lines between the U.S. Government, the Federal Reserve, and the nation’s largest banks are becoming even more irreparably blurred.
A year after the near-collapse of the financial system last September, the federal response has redefined how Americans get mortgages, student loans and other kinds of credit and has made a national spectacle of executive pay. But no consequence of the crisis alarms top regulators more than having banks that were already
…
US Equity Markets Look Dangerously Wobbly As Insiders Sell In Record Numbers
by ilene - August 30th, 2009 4:03 pm
More coffee and thoughts on the market and insider selling at Jesse’s Café Américain.
US Equity Markets Look Dangerously Wobbly As Insiders Sell In Record Numbers
"Investors Intelligence’s latest survey of advisory services showed an impressive 51% bullish and a meager 19% bearish…the spread hasn’t been that wide since November 2007." Alan Abelson, Barrons, Aug. 29, 2009
Next week we move into September, the riskiest month of the year for financial markets, with the federals escalating preparations for a flu pandemic, while Congress considers legislation providing a ‘kill switch’ on the Internet for President Obama to use in the event of ‘an emergency.’ There are widespread rumours of a bank holiday lasting one week after a market meltdown begins in the US, during which the banks would be restructured.
Risky times indeed, and those in the best position to know what is happening behind the scenes are hitting the exits in record numbers right now.
As TrimTabs reports in the attached news release, insider selling is reaching record levels, even as more speculators borrow to go long stocks. There are some obvious bubbles already formed in certain insolvent financial stocks like AIG, with disinformation rampant in the Wall Street demimonde.
The Obama Economics and Regulatory Team, in conjunction with the Federal Reserve, have accomplished no serious reform of the fiancial system. They have enabled the type of market inefficiency, soft fraud and price manipulation that is undermining global confidence in the integrity of US markets and financial products. And they have advanced a proposal to consolidate a huge amount of regulatory power under the Federal Reserve, a private banking agency that was at the root of our unfolding financial crisis.
The time has passed when Obama could have pointed to the past mistakes of his predecessors as the fault for our problems. Thanks to Tim Geithner, Barney Frank, and Larry Summers he now owns the financial crisis, and the coverups, policy errors, scandals, conflicts of interest and bailouts that have occurred since he has taken office. His reappointment of Ben Bernanke as Federal Reserve chairman most surely tied a bow on his ownership package for the crisis, which is in danger of becoming his ‘financial New Orleans.’
Wall Street pigs out on public money while the nation suffers. This is not change, this is the same old thing.
Sunday Reading
by Zero Hedge - August 30th, 2009 3:56 pm
Courtesy of Tyler Durden
- Japan democrats win landslide in historic election (Reuters)
- As Germany’s Angela Merkel poised next on the chopping block (Bloomberg)
- Must read: REITs racing to bankruptcy (Contrarian Profits)
- Alan Abelson: Sometimes a great nation (Barron’s)
- World stocks controlled by a select few (Global Research)
- Russia’s perspective on America: The new bourbons (Pravda)
- Reuters picks up on Barney Frank endorsing HR 1207 story, first reported on Zero Hedge (Reuters) – might be just a little tougher to back out now…
- Lehman claims could reach $100 billion, as the company’s stock skyrockets (Reuters)
- Halting recovery divides America in two (WSJ)
- Rakoff pokes further at attorney client privilege in bonus case (AmLawDaily)
- The dollar carry trade: cheaper to borrow in USD then JPY (Debts of a Nation)
- CHF1 trillion of Switzerland’s CHF2.8 trillion of foreign money is untaxed “black money” (Swiss Review)
- China Investment Corp fuelling stock market bubble by investing in hedge funds (Bloomberg)
- More SEC stupidity: regulator designated questionable rating agencies (Dow Jones)
- China’s SOE may terminate commodities contracts (Caijing)
- AIG shares look overpriced (Reuters), talk about an understatement
- Fighting alcoholism in Russia absolutely impossible, Medvedev says (Pravda)
- Wall Street betrayal seen in $4.8 billion company debt losses (Bloomberg)
- The Zell of the brawl (Breakingviews)
Pace of Insider Sales Continues to Escalate
by Insider Scoop - August 30th, 2009 3:34 pm
Ockham Research comments on the ongoing insider selling of shares while the rally persists. Insiders are becoming increasingly bearish. – Ilene
Pace of Insider Sales Continues to Escalate
Courtesy of Ockham Research, The Razor’s Edge
At Ockham, we continue to be interested insider trading activity as an indicator of sentiment. Of course, we understand that insiders do not know what the future holds more presciently than the rest of us, but we think it is safe to assume that there are few investors more knowledgeable about any particular stock. The trend in insider trading activity suggests that corporate managers believe that their company’s stocks are getting out ahead of themselves.
We have noted the fact that insiders have become increasingly bearish over the last few months, and each time the extent to which the sellers have outnumbered the buyers continues to rise. Today, a press release from TrimTabs Investment Research shows that insiders are selling at a pace not yet seen; insider selling is 30.6x greater than insider buying! This is the highest ratio on record since TrimTabs began tracking this data in 2004. Furthermore, their data reveals that insiders have sold a record $105.2 billion worth of stock in just the last four months.
Thus far, the bearishness of insiders over the last four months has led to some missed gains thanks to the continued rally. However, instead of regaining their faith in this market, insiders are digging in their heals on the bearish side of trades. Readers can come to their own conclusions about the implications of such a strong and defined trend, but the CEO of TrimTabs certainly has an opinion.
“The best-informed market participants are sending a clear signal that the party on Wall Street is going to end soon…
Investors who think the U.S. economy is recovering are going to get a big shock this fall. Companies and corporate insiders are signaling that the economy is in much worse shape than conventional wisdom believes.”– Charles Biderman CEO of TrimTabs Investment Research.
Oil And Treasuries Paint A Divergent Inflation Picture, Yet Is It Even Relevant?
by Zero Hedge - August 30th, 2009 3:21 pm
Courtesy of Tyler Durden
While the capital markets debate has recently shifted to a discussion of who is right: whether equities, surging higher in expectation of something close to Zimbabwean hyperinflation, or the bond market, where yields have been declining, indicating the much more rational credit world is seeing deflation as the norm for a long time, a different perspective of this divergence can be witnessed by comparing treasury curve flattening versus commodity price movements.
The chart below demonstrates the highly correlated performance between the price of oil and the steepness of the Treasury curve as indicated by the 2s10s since the March lows. Yet an odd recent divergence is that the 2s10s has tightened considerably even as oil has continued to attain new highs. One argument here is that oil is driven exclusively by the dollar (devaluation) trend, which in turn is impacting all medium and high beta assets (the dash for trash being a great example).
The preliminary conclusion is that bonds are reflecting a deflationary environment while commodities and stocks are betting on inflation.
As risk has returned with a vengeance and alpha is being chased across asset classes with little to no discrimination, in effect converting the market into one big alpha trampoline, the only remaining rationality seems to be evident in bonds.
Yet even that conclusion could be premature.
As Zero Hedge has pointed out, it is likely that the Treasury market has been gamed via various machinations by the Fed to i) encourage direct bidder interest and ii) to encourage indirect bidders to swap out of agency holdings into Treasuries, (in the same time blurring the distinction between direct and indirect bidders) while equities have been manipulated via three relatively simple schemes including i) massive rolling short squeezes and stock recalls across critical stock classes (financials and REITs being two key examples), ii) HFT strategies designed to encourage momentum chasing in the failure of all other quant factors, and the displacement of traditional market neutral funds, while masking for liquidity provisioning and iii) collapsing stock market volume, with bid interest represented by bankrupt companies due to straggling (and struggling) money managers who are now literally betting the farm on the worst of the worst just to generate a little market outperformance (while traditional L/S 170/70 hedge funds like RenTec’s RIEF have been getting…
More on the Massive Trading Volumes in Troubled Financial Stocks
by ilene - August 30th, 2009 1:55 pm
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Growing evidence, number trails and a culture of greed support a connection between high frequency program trading and market manipulation and, by all appearances, the pumping up of stocks of troubled financial companies… – Ilene
More on the Massive Trading Volumes in Troubled Financial Stocks
By Brett Steenbarger at TraderFeed
This story began with simple reader inquiries concerning a stock market indicator called TRIN and their perceptions that TRIN was "broken". For the uninitiated, TRIN assesses the proportion of stock exchange volume that is going to advancing stocks to the volume attributable to declining issues. When TRIN is below 1.0, it means that volume is relatively concentrated in rising shares; above 1.0 means that volume is concentrated in declining stocks.
TRIN appeared to be broken because we were getting huge swings in its values from moment to moment in the market. It would swing wildly, sometimes going far above 1.0 and sometimes far below. I pointed out that, from a purely mathematical vantage point, this could only occur if a disproportionate share of NYSE volume was occurring in one or a handful of stocks.
Further inquiry revealed that this was, indeed, the case: I found that, not only were the trading volumes of such stocks as C, AIG, FNM, and FRE elevated, as noted the by Big Picture blog, but that their composite volumes (their volumes traded across all exchanges) exceeded that of all other NYSE stock trading! Indeed, I discovered that the 20-day TRIN was at its lowest level since 2000 because volume was highly concentrated in rising stocks. This was not just unusually heavy volume; it was unusually heavy to the buy side.
Since this volume was directional--all of these stocks had made spectacular percentage gains--and because the highly unusual activity was unique to troubled financial firms (not stable companies such as GS and JPM), I surmised that something might be afoot: a systematic attempt to bolster the shares of taxpayer supported companies that--for political reasons--could not return to the bailout well. Why such an attempt? Perhaps to reimburse the largest shareholder of the institutions and position these companies to raise capital on their own. They certainly weren’t going to raise their own capital as languishing two-dollar zombie…
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