Archive for
December, 2009
by Zero Hedge - December 31st, 2009 12:59 am
Courtesy of Econophile
From The Daily Capitalist
This has been a phenomenal year for the economy. There have been major, fundamental changes that will affect our lives for many years to come. I don’t see these changes as a good thing for the short or long term.
These changes are generational in that they don’t occur often and they will radically impact the economy and our well-being for decades. I thought of doing a decade review because it explains so much of why we are where we are today. But so much happened this year that I’m glad the year is over.
1. The Triumph of Keynesian Economics.
Liberals, Progressives, and Democrats were eagerly waiting for an economic crash so they could clip capitalism’s wings. They got their wish.
When the crash happened, most people, including most Conservatives, scratched their heads and said, “Yup, it’s capitalism. Bad, but necessary system. Got to control it even more.” They ran to the Keynesian-New Deal play book.
Very few economists stood against this proposition and when the Democrats acted, it was right out of the Keynesian playbook: keep interest rates low, flood the economy with credit, pass spending bills to implement fiscal stimulus, and adopt more stringent rules to regulate financial institutions.
This is a result of 70 years of Keynesian economics education in America and the rest of the world. Paul Samuelson, who just died, was the father of the Neo-Keynesian econometrics movement in academia, and he and his fellow Keynesians are mostly responsible for this.
My fellow free market Austrian theory economists lost their seat at the policy table, and in fact have been banished to the back room. We need to do something about this. Our well being rides on it.
2. The Failure of Keynesian Economics.
The only problem with Keynesian theory and its policy applications is that it doesn’t work.
I am not unaware that many commentators and economists are pointing to recent “Green Shoots” as proof that Keynesian policies work, but it doesn’t. By their own admission, at least according to Paul Krugman and many other Keynesians, the fiscal stimulus has been insufficient to bring about a lasting recovery. Krugman worries about a second collapse when the stimulus runs out. He’s right.
What we are seeing in the economy that is labeled “recovery” comes from two things:
a. The temporary effect…
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by Zero Hedge - December 31st, 2009 12:43 am
Courtesy of George Washington
In support of Huffington Post’s call for people to move our money from the giant banks to community banks and credit unions:
- Here is a site which lets you find local credit unions
- Here is a site which rates the safety of banks, thrifts and credit unions
- And here is another site which rates the safety of credit unions
As USA Today pointed out in August 2008:
Credit unions are regulated by the National Credit Union Administration, or NCUA, or by state agencies. The NCUA oversees the safety and soundness of all credit unions.
If you want to check up on your credit union, make sure it’s federally insured by the NCUA and look at its finances, you can do that any time. Go to the NCUA’s website at www.ncua.gov, click on the “Credit Union Data” link on the left-hand side of the page below where it says Data and Services. Next, click on the Find a Credit Union link, type in the credit union’s name and click the Find button.
You can then choose to view the Financial Performance Report or the official regulatory document, called the 5300 report. This report will tell you how well capitalized the credit union is and even let you see how many of the loans are going bad.
What about your asset protection? Credit unions are backed by the NCUA, through the NCU Share Insurance Fund, which is backed by the U.S. government. Individual accounts are backed up to $100,000, with additional coverage up to $250,000 for certain retirement accounts. Joint accounts may qualify for coverage of up to $200,000.
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by Phil - December 30th, 2009 11:38 pm
OK, I got a new toy today so I’m going to put up some charts!
Rather than my usual spreadsheets, I thought a visual representation of what I think is going on would be appropriate. So far this week, we have failed to break my levels, which were predicted by our own 5% rule way back in July. I don’t have a drawing tool for the 5% rule but I’ll try to give you an idea of what I see when I look at a chart, now that I can capture them for you.
First of all, let’s look at the S&P, which the analysts are ga-ga over as they make a 50% retracement of the March dive:
Notice the 50% mark is right about our 1,127 watch zone but we didn’t get 1,127 from that spot, we calculated 1,127 as it was a 30% move off the real floor of 867, which is our 5% rule drop. The 5% rule sensibly tells us to throw out spikes and, while it’s hard to think of a 3-month, 200-point drop as a spike, in the grand scheme of things it still is. Here’s how the same Fibonacci series looks if we take 867 as a bottom, rather than 666:
Not quite as impressive a recovery is it? Do you see how the adjusted chart makes far more sense on the way down – with support at the 61.8% line, then at the 50% line and then clearly at 0. The big difference is, in my view of the action, it has been an easy slog to make the effectively dead-cat bounce back to 38.2%. This recent action proves nothing as we have yet to test 1,135, which should provide heavier resistance. It’s going to be a long time before we do a "life cross" (where the 50 wma moves above the 200 wma) so that 1,220 mark is going to weigh very heavily in the future as well, probably all the way into August before the S&P is ready to make a real move up (assuming we don’t fall down in between).
Running the same series on the Dow, we get this:
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Of course the problem with the Dow is that the Dow we have now is NOT the same Dow that fell last year. We jettisoned GM and C for CSCO and TRV – a very good trade…
Tags: DOW, Nasdaq, NYSE, Russell, S&P
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by ilene - December 30th, 2009 10:48 pm
Here’s two posts (article plus update) by The Shocked Investor on Sovereign Debt Defaults.
A week ago we posted the list of countries [below] at risk of default or with very poor credit ratings. It turns out that concerns are seriously growing worldwide about sovereign debt.
The Financial Times reports today that following the disasters in Greece and Dubai indeed sovereign debt risk is emerging as a serious concern for senior bankers, risk consultants and auditors: "Bankers at some large institutions are discussing whether they need to make provisions for sovereign risks in the same way they now set aside reserves to cover losses from corporate or emerging market risks".
This all has to do not only with the seemingly isolated financial disasters (Greece, Dubai, although one can add Hungary, Ireland, Iceland, Japan, the U.K, and even the U.S, and several others – are these really isolated?), but with the loose monetary policy employed by some countries. Moody’s has warned that debt could be sold off in 2010 if central banks do not implement successful exit strategies from these loose monetary policies.
"Control Risks, a risk consultancy, has seen a big increase in mandates from insurance companies and other financial institutions seeking to understand the part politics plays in sovereign default risk".
A survey showed lower risks for eurozone countries given the likelihood of support by other member states, however, countries such as Kazakhstan, Ukraine, the Seychelles and Eritrea – are vulnerable to downgrades and default.
So we have money printing pushing markets up, and debts and disasters in the making. This is why I like straddes so much. Anything can happen.
Here is a great follow-up on our article on sovereign debt risk. The Wall Street Journal has a map of the risks in Europe:
[Chart: Euro Zone Grapples With Debt Crisis, WSJ]
Says the WSJ article: "After two years of crashing banking systems and economic recession, the euro zone enters 2010 with a full-blown debt crisis. The European Commission warns that public finances in half of the 16 euro-zone nations are at high risk of becoming unsustainable".
"Half of the 16 euro-zone countries are deemed to be at
…
Tags: Dubai, Eritrea, Greece, Iceland, Ireland, japan, Kazakhstan, money printing, Sovereign Debt Defaults, the Seychelles, the U.K., Ukraine
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by Zero Hedge - December 30th, 2009 10:39 pm
Courtesy of Leo Kolivakis
Submitted by Leo Kolivakis, publisher of Pension Pulse.
A couple of days ago, Jack Dean of Pension Tsunami posted a link to an article by Arleen Jacobius of Pensions & Investments, How CalPERS strategy backfired (hat tip, Bill Tufts):
Behind CalPERS’ staggering real estate losses lies a strategy that took on too much risk and lacked adequate oversight.
Once the fund’s star asset class, the real estate portfolio of the $201.1 billion California Public Employees’ Retirement System lost nearly half its value during the one-year period ended Sept. 30. The fund’s real estate consultant, Pension Consulting Alliance Inc., predicts losses will continue for at least another year.
At the heart of the problem is a freewheeling approach that took on massive leverage, gave enormous discretion to staff and experienced poor timing with its investments.
The decision-making process and risk management need to be much more rigorous, acknowledged Joseph A. Dear, who joined CalPERS as chief investment officer earlier this year. The control over leverage was not as robust as it needs to be, he added. The system will focus more on income-producing, less risky core investments in the future, he said.
“We’re inclined toward investment vehicles where we have control,” Mr. Dear said. “This does not rule out fund investing,” he added.
“Hindsight suggests that a large number of CalPERS’ real estate investments were extraordinarily ill-timed and inadequately underwritten,” said Stuart Gabriel, professor of finance and director, UCLA Ziman Center for Real Estate in Los Angeles. Mr. Gabriel is not connected with CalPERS.
In recognition of the portfolio’s problems, the CalPERS board has imposed new limits on staff’s independent investment authority, system officials are revamping its $13.5 billion portfolio and they might ax some of the fund’s roughly 70 external real estate managers. (Already, MacFarlane Partners has resigned its account after a nearly $1 billion failed land deal.)
What went wrong?
Just more than two years ago, CalPERS’ real estate portfolio was valued at $20.1 billion and staff estimated it would grow to $30 billion over the next five years.
What went awry? In the first half of this decade, when the real estate market was soaring, CalPERS began
…
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by ilene - December 30th, 2009 9:55 pm
Courtesy of Mish
Barney Frank introduced H. R. 4173 purportedly "To provide for financial regulatory reform, to protect consumers and investors, to enhance Federal understanding of insurance issues, to regulate the over-the-counter derivatives markets, and for other purposes."
The bill is 1,279 pages long. I did not read it in entirety but Bloomberg columnist David Reilly did. It is amazing the things Barney Frank buried in a bill that is supposed to protect consumers. The bill does nothing for consumers, but does allocate $4 trillion to fighting the next financial crisis.
Please consider Bankers Get $4 Trillion Gift From Barney Frank: David Reilly.
To close out 2009, I decided to do something I bet no member of Congress has done — actually read from cover to cover one of the pieces of sweeping legislation bouncing around Capitol Hill.
Hunkering down by the fire, I snuggled up with H.R. 4173, the financial-reform legislation passed earlier this month by the House of Representatives. I quickly discovered why members of Congress rarely read legislation like this. At 1,279 pages, the “Wall Street Reform and Consumer Protection Act” is a real slog.
Here are some of the nuggets I gleaned from days spent reading Frank’s handiwork:
For all its heft, the bill doesn’t once mention the words “too-big-to-fail,” the main issue confronting the financial system.
Instead, it supports the biggest banks. It authorizes Federal Reserve banks to provide as much as $4 trillion in emergency funding the next time Wall Street crashes. So much for “no-more-bailouts” talk. That is more than twice what the Fed pumped into markets this time around. The size of the fund makes the bribes in the Senate’s health-care bill look minuscule.
Oh, hold on, the Federal Reserve and Treasury Secretary can’t authorize these funds unless “there is at least a 99 percent likelihood that all funds and interest will be paid back.” Too bad the same models used to foresee the housing meltdown probably will be used to predict this likelihood as well.
The bill also allows regulators to “prohibit any incentive-based payment arrangement.” In other words, banker bonuses are still in play.
The bill isn’t all bad, though. It creates a new Consumer Financial Protection Agency, the brainchild of Elizabeth
…
Tags: Bankers Get $4 Trillion, Barney Frank, consumers, David Reilly, emergency funding, financial regulatory reform, H. R. 4173, Mish, over-the-counter derivatives markets, Wall Street crashes
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by ilene - December 30th, 2009 8:54 pm
Courtesy of Vincent Fernando at Clusterstock/The Business Insider
According the Energy Information Administration’s (EIA) latest energy outlook, while world energy consumption is expected to grow in 2010, it will only be adding 1.1 million barrels of consumption and will remain below its past peak consumption.
This tepid demand growth will butt against production increases for many non-OPEC oil producers, which means that OPEC will be under substantial pressure to limit its output, and obviously will.
Yet this will require massive discipline for the member nations given that OPEC’s surplus crude oil production capacity will actually rise in 2010, after a huge increase in surplus capacity during 2009. 2010 will see the worst OPEC overcapacity situation since 2002, as shown below.
EIA: Through the forecast period, OPEC surplus crude oil production capacity should remain in excess of 4 million bbl/d, versus an average of 2.8 million bbl/d seen over the 1998-2008 period.
See Also:
Tags: Commodities, Economy, Energy, International, Markets, Oil, OPEC
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by ilene - December 30th, 2009 8:39 pm
Zero Hedge on High Frequency Trading, financial reform legislation (HHR 4173), bailouts and bonuses, and Joe Saluzzi. – Ilene
Courtesy of Tyler Durden
Zero Hedge has been a little quiet on the topic of HFT lately, not because we have come to peace with the threat that HFT presents to equity markets (we have not), and if HFT lobbyists are successful, CDS is next, or because we have realized that no matter what, Mary Schapiro will never, ever do the right thing and take a preemptive action instead of always doing damage control after the fact, until such time as the broader population finally realizes just how worthless the organization of the ex-Finra multi-millionairess is and forces its closure (please Judge Rakoff, do anything you can to accelerate this), but because we have been fascinated by the parallel farce that is the financial reform legislation which is nothing but yet another massive form of bailout for the big banks. We recommend our readers read David Reilly’s terrific overview of HR 4173: poor David is likely one of the 2 people in the entire world who read the entire 1,279 pages of mostly useless drivel. Some of its key points highlighted by Reilly are the following:
-- For all its heft, the bill doesn’t once mention the words “too-big-to-fail,” the main issue confronting the financial system. Admitting you have a problem, as any 12- stepper knows, is the crucial first step toward recovery.
-- Instead, it supports the biggest banks. It authorizes Federal Reserve banks to provide as much as $4 trillion in emergency funding the next time Wall Street crashes. So much for “no-more-bailouts” talk. That is more than twice what the Fed pumped into markets this time around. The size of the fund makes the bribes in the Senate’s health-care bill look minuscule.
-- Oh, hold on, the Federal Reserve and Treasury Secretary can’t authorize these funds unless “there is at least a 99 percent likelihood that all funds and interest will be paid back.” Too bad the same models used to foresee the housing meltdown probably will be used to predict this likelihood as well.
More Bailouts
…
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by Zero Hedge - December 30th, 2009 8:11 pm
Courtesy of Bruce Krasting
The US Treasury Department’s Christmas Eve announcement confirming massive new support for the Agencies had the following as the last sentence:
“Recent announcements on the tightening of underwriting standards by Fannie Mae, Freddie Mac, and the Federal Housing Administration, demonstrate a commitment to prudent housing finance policy that enables a transition to an environment where the private market is able to provide a larger source of mortgage finance.”
I believe that this is a very mistaken assumption by Treasury. Take them at their word on this regarding the tightening of standards. I can confirm that all of the Agencies have “independently” (Every thing is coordinated in D.C.) announced that they are tightening standards. It is impossible to quantify that promise at this point. I believe there is some teeth to this.
However there is no connection to the actions by the Agencies and an increase in lending by the “private market”. That is not going to happen. Does Treasury really believe that Citi Bank and Wells Fargo are going to be making cheap mortgage loans to those who have just been ‘red lined’ by the new tighter standards? If private lenders are to be involved it will be on terms more stringent than those new standards being set by the Agencies. The pricing will be much higher as well. Bank of America will not be making sub-standard/mispriced mortgages any time soon.
If you take these two pieces together you would have to assume that as a consequence there will be a significant contraction in the availability of mortgage credit. Its impact should be being felt right about now. We will find out if this is a factor in two to three months when the backward looking housing numbers are released. I would like to know the answer to this question earlier.
I know that there are many out there who are involved with mortgages and real estate. In order to get a reasonable handle on this we need regional input. People who actually have their boots on this ground. So I ask these questions to people who might directly or indirectly know the answers:
Has there been a tightening of standards? Are mortgages more difficult to obtain in the last 30 days?
If the changing standards are in fact constraining mortgage availability the…
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by Zero Hedge - December 30th, 2009 7:02 pm
Courtesy of Tyler Durden
Our friends at GATA have had enough of the Fed’s, and other Central Banks’ alleged (and with so much circumstantial evidence presented both at Zero Hedge and elsewhere, that in this case “alleged” is just a term only a lawyer could love) manipulation of gold prices, and have taken Bernanke’s monetization, manipulation and money making unlimited liability company to task (“M4 ULLC”). We are overjoyed that yet another entity has followed in the footsteps of our dear late friend Mark Pittman in taking on the one organization that represents all that is irreconcilably broken with the current economic and financial system. We wish GATA much success, and hope that ever more wronged counterparties will seek remedies from the Fed’s consistent and blatant wealth transfer from America’s Middle Class to the uber-wealthy, Wall Street-originating oligarchy.
GATA notes:
GATA today brought suit against the U.S. Federal Reserve Board, seeking a court order for disclosure of the central bank’s records of its surreptitious market intervention to suppress the monetary metal’s price.
The suit was filed in U.S. District Court for the District of Columbia and targets Fed records involving gold swaps, exchanges of gold with foreign financial institutions. In a letter dated September 17 this year to GATA’s law firm, William J. Olson P.C. of Vienna, Virginia, (http://www.lawandfreedom.com) Fed Board of Governors member Kevin M. Warsh acknowledged that the Fed has gold swap agreements with foreign banks but insisted that such documents remain secret:
http://www.gata.org/files/GATAFedResponse-09-17-2009.pdf
The lawsuit follows two years of GATA’s efforts to obtain from the Federal Reserve and the U.S. Treasury Department a candid accounting of the U.S. government’s involvement in the gold market. These efforts parallel those of U.S. Rep. Ron Paul, R-Texas, who long has been proposing legislation to audit the Fed. The Fed has wrapped in secrecy much of its massive intervention in the markets over the last year, and Paul’s legislation recently was approved by the U.S. House of Representatives.
The Fed claims that its gold swap records involve “trade secrets” exempt from disclosure under the U.S. Freedom of Information Act.
While GATA has produced many U.S. government records showing both open and surreptitious intervention in the gold market in recent decades (see http://www.gata.org/node/8052), Fed Governor Warsh’s letter is confirmation that the government is
…
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January 27th, 2012 1:40 pm
Reminder: David is available to chat with Members, comments are found below each post.
To learn more, sign up for David's
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January 27th, 2012 1:01 pm
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
Festive Friday fun:
- FITCH TAKES RATING ACTIONS ON SIX EUROZONE SOVEREIGNS
- ITALY LT IDR CUT TO A- FROM A+ BY FITCH
- SPAIN ST IDR DOWNGRADED TO F1 FROM F1+ BY FITCH
- IRELAND L-T IDR AFFIRMED BY FITCH; OUTLOOK NEGATIVE
- BELGIUM LT IDR CUT TO AA FROM AA+ BY FITCH
- SLOVENIA LT IDR CUT TO A FROM AA- BY FITCH
- CYPRUS LT IDR CUT TO BBB- FROM BBB BY FITCH, OUTLOOK NEGATIVE
And some sheer brilliance from Fitch:
- In Fitch's opinion, the eurozone crisis will on...
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January 27th, 2012 12:35 pm
Courtesy of Doug Short.
The Weekly Leading Index (WLI) growth indicator of the Economic Cycle Research Institute (ECRI) posted -6.5 in its latest reading, data through January 20. The latest public data point is a reduced contraction from last week's -7.6 (a slight downward revision from -7.5). This is the highest level (i.e., least negative) since early September. However, the underlying WLI declined fractionally from an adjusted 123.3 to 122.8 (see the third chart below).
Early last December Lakshman Achuthan, the Co-founder of ECRI, spoke with Tom Keene on Bloomberg Television's Surveillance Midday. You can watch the video on the ECRI website here, with bold heading Recession Update. The eight-minute video is well worth watching in its...
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January 27th, 2012 11:15 am
Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
Some combination of better made cars, and less Americans able to pay new car prices has conspired to push up the average age of U.S. vehicles to a new record high. Reflecting this sea change, one of the best investment g...
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January 27th, 2012 10:05 am
Courtesy of Benzinga.
Shares of battered tech company Research in Motion (NASDAQ: RIMM) are seeing much strength during Friday's trading session.
Fairfax Financial Holdings released a 13G filing with the SEC this morning, in which they disclosed a 5.12% stake in Research in Motion.
Currently, shares of Research in motion are up over 4% at $16.85. Over the last year, Research in Motion is down over 72%.
Research In Motion Limited is a designer, manufacturer and marketer of wireless solutions for the worldwide mobile communications market. RIM provides platforms and solutions for access to information, including e-mail, voice, instant messaging, short message service.
...
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January 27th, 2012 12:00 am
Top 5 RisersStockRatingAnalysis
ASBCBUYMany analysts are expecting higher than previously expected long term growth from Associated Bancorp, and its near-term earnings outlook is also improving.
CZZSTRONGBUYThe recent earnings history for Cosan Ltd shows significant improvement while projected valuation continues to rise.
STLDBUYProjected value continues to rise for Steel Dynamics while long term increases in earnings growth are also becoming more widely expected.
PSESTRONGBUYAn increasingly attractive expected long term growth rate and a significantly higher projected valuation from just a fe...
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January 26th, 2012 6:16 pm
Courtesy of John Nyaradi.
Major markets and major index ETFs corrected slightly today after the stock market’s euphoric party yesterday Major markets suffered a slight hangover today, as the S&P 500 dropped .57%, the Dow Jones Industrial Average dropped .18%, the NASDAQ dropped .46% and the Russell 2000 Index dropped .34%, after yesterday’s crazy Fed and Tech Sector induced Wall Street Party. The NASDAQ, in particular, partied very hard, so hard in fact that the NASDAQ reached its 11 year record high.
The major market index ETFs were hungover too as the SPDR S&P 500 ETF lowered .51%, the SPDR Dow Jones Industrial ...
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January 26th, 2012 1:38 pm
Today’s tickers: DB, ATHN & LSI
...
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January 23rd, 2012 8:56 am
Reminder: OpTrader is available to chat with Members, comments are found below each post.
This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).
We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options.
Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.
To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here
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January 22nd, 2012 10:09 pm
Here is the virtual portfolio weekend update. Basically a recap of the positions and some notes about the trades. As usual, I'll post the previous week's P&L for comparison. Not the greatest of week in general!
AA Money
Only transaction last week as we bought back the AA Feb 9 puts on Tuesday for close to a 70% profit. The idea is to sell another set of put as soon as we get a chance.
Previous week P&L - $400.00
We lost some ground this week, but we'll keep on selling premium!
FAS Money
We also lost some ground in this virtual portfolio, but we have sold plenty of premium for the coming week. A little correction would go a long way to help! On Wednesday we sold the FAS Feb 72 puts (already good for 50%), on Thursday we added the Jan4 78 calls and on Friday we had to roll the Jan 78 puts to the Jan 80 puts. We were hoping for these ones to expire worthless on Friday, but a late stick killed that hope.
Previous week P&L - $4372.00...
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January 22nd, 2012 2:52 am
NEW: Elliott and Ilene are available to chat with Members regarding topics presented in SWW, comments are found below each post.
Here's the latest Stock World Weekly. We discuss the Fed's next move, and it's new policy for more QE-cating. Brief review of Sabrient's trade ideas for 2012 (already doing well) and a few new buy-writes from Phil and Pharmboy. Enjoy! (Feedback appreciated - give some life to the comment section below.)
Click this link for this weekend's newsletter, and sign in or sign up.
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January 18th, 2012 1:09 am
Reminder: Pharmboy is available to chat with Members, comments are found below each post.
Finding new and exciting Biotech companies that target novel mechanisms is like trying to find a needle in a haystack. Sure there are many companies working on cutting edge science, but investing in those companies to reap the rewards of their work is a very dangerous game. More often than not, companies fail because the mechanism does not pan out, the compound(s) do not have pharmacokinetics (get into the body or last very long in the body), or an adverse event happens that knocks years off a development timeline. In addition, the stock can be manipulated by market makers so investors don't know which way is up. I approach investing in biotechs as a long term prospect. I continue to like our current portfolio of biotech companies (join in chat for many of those plays), and we continually add/subtract shares and sell/buy options on ...
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