Archive for 2009

European Banks Face Devastating Exposure to Emerging Markets

Grateful Dead on the international financial ruin.

Driving that train, high on cocaine,
Casey Jones you better watch your speed.
Trouble ahead, trouble behind,
And you know that notion just crossed my mind.

Trouble with you is the trouble with me,
Got two good eyes but you still dont see.
Come round the bend, you know its the end,
The fireman screams and the engine just gleams…

European Banks Face Devastating Exposure to Emerging Markets

LondonCourtesy of Jesse’s Café Américain

This view from the City of London is interesting, given the devastation that permeates their own surrounding landscape. The Anglo-Americans seem to be throwing down the gauntlet. What now, Monsieur Trichet?

The European banking system is certainly a mess, and if there was a case to be made for pursuing the ‘Swedish option’ of nationalizing the banks in a crisis of their own making this is it.

One sentence in this was especially eye-catching.

"We are nearing the point where the IMF may have to print money for the world, using arcane powers to issue Special Drawing Rights."

Problem -> Reaction -> Solution.

There always seem to be some arcane powers ready to solve the unexpected crisis.

UK Telegraph
Failure to save East Europe will lead to worldwide meltdown
By Ambrose Evans-Pritchard

If mishandled by the world policy establishment, this debacle is big enough to shatter the fragile banking systems of Western Europe and set off round two of our financial Götterdämmerung.

Austria’s finance minister Josef Pröll made frantic efforts last week to put together a €150bn rescue for the ex-Soviet bloc. Well he might. His banks have lent €230bn to the region, equal to 70pc of Austria’s GDP.

"A failure rate of 10pc would lead to the collapse of the Austrian financial sector," reported Der Standard in Vienna. Unfortunately, that is about to happen.

The European Bank for Reconstruction and Development (EBRD) says bad debts will top 10pc and may reach 20pc. The Vienna press said Bank Austria and its Italian owner Unicredit face a "monetary

continue reading

America vs. the Oligarchs

Very interesting, an intriging expose questioning who’s in charge?  (The video‘s well worth watching too!)

America vs. the Oligarchs 

Courtesy of Jesse’s Café Américain

Bill Moyers has an interview with former IMF Chief Economist and MIT professor Simon Johnson that puts forth the notion that there is a small group of financial oligarchs essentially holding the country hostage.

Simon Johnson’s premise is that the big Wall Street banks represent an oligarchy that is exerting undue influence and control on our government and the economy. They are turning this crisis to their advantage, and circumventing the democratic process.

What we are seeing looks to Simon Johnson like a financial coup d’etat.

Now is the time to break up the big money center banks. Now is the time to reinstate Glass-Steagall. We must demand the reforms for which we elected the Obama Administration.

Watch this interview. Think about it. Let other people know. Write your congressmen.

And be prepared to act on a larger scale in a peaceful way to get the point across that we value our liberty and we will stand for justice. We are not optimistic that the government will do the right thing without more prodding and significant support from the public.

"I think I’m signaling something a little bit shocking to Americans, and to myself, actually. Which is the situation we find ourselves in at this moment, this week, is very strongly reminiscent of the situations we’ve seen many times in other places.

But they’re places we don’t like to think of ourselves as being similar to. They’re emerging markets. It’s Russia or Indonesia or a Thailand type situation, or Korea. That’s not comfortable. America is different. America is special. America is rich. And, yet, we’ve somehow find ourselves in the grip of the same sort of crisis and the same sort of oligarchs…

But, exactly what you said, it’s a small group with a lot of power. A lot of wealth. They don’t necessarily – they’re not necessarily always the names, the household names that spring to mind, in this kind of context. But they are the people who could pull the strings. Who have the influence. Who call the shots…

…the signs that I see this week, the body language, the

continue reading

Weak Weekly Wrap-Up

Another disappointing week!

Once again it was only what we expected so no big deal as we went into last weekend ready for the bear if the stimulus plan failed to give us a boost.  Even so, finishing back near the November lows is downright depressing.  On Friday, the 6th I said the energy sector could be a drag on the markets and the dollar bouncing back could exert additional downward pressure and you can see from these charts, we got our dollar bounce AND the energy sector was a serious underperformer and, unfortunately, acting like a weight around the neck of the broader indexes.  We've been discussing this for weeks – The XLE alone is now 14% of the S&P.  Coupled with the OIH group makes over 20% of the market then energy sector, which dropped a combined 7% last week, accounting for over 1.5% of the total market drop

The financials are still 10.23% of the S&P as of Friday but they started the week at 11.25% and knocked a full point off the markets in just 5 days as they fell 10% for the week.  Healthcare (XLV, 16%), which we've been playing for a few weeks now, actually outperformed the indexes last week as has technology (XLK, 21%), which we play through the Qs and has quietly crept up to become the new leaser of the S&P by a pretty good gap.  THIS, people, is the rotation we have been playing for.  I did not sugar-coat it – I said it would be painful but it is what we wanted – the end of the endless moving about of shiny bits of metal and worthless pieces of paper that siphoned money away from the many to the very, very few and left us with nothing but a bubble economy, sucking jobs and capital out of real industries that we are supposed to build an economy on.

This is not the end of capitalism – this IS capitalism.  Survival of the fittest, of the companies that actually provide goods and services people want, triumphing over the middlemen who seek to tack on commissions and fees to every possible step in the transactions which they add nothing to.  Of course a fee is deserved…
continue reading

Cumulative Bank Failures Over Time

Amidst a growing number of bank failures, Mish predicts there will be hundreds more.

Cumulative Bank Failures Over Time

Courtesy of Mish 

The FDIC has a report called the Failed Bank List. Here is a partial listing that shows the most recent 20 bank failures.

click on chart for sharper image

"Fish Gone Bad" sent me the following chart showing cumulative bank failures over time.

While a logarithmic chart might be better, and perhaps will be necessary in a short period of time, the chart does depict what is happening.

Looking at the period of no bank failures in the above chart reminded me of something.

$VIX: The Calm Before The Storm

click on chart for sharper image

While not calling for the $VIX to do anything in particular other than not head back below 10 for years, it is a near certainty that bank failures are going to soar. There are easily hundreds banks that are insolvent right now. The only question is how long the FDIC continues to hide that fact.

Mike "Mish" Shedlock


Sunday Morning Coffee

What is the fair value of the market, and perhaps more importantly, does it matter? Random Roger shares his thoughts on Barry Ritholtz’s fair value argument.

Sunday Morning Coffee

Courtesy of Roger at Random Roger’s Big Picture

Barry Ritholtz has a post up spelling out a simple argument for fair value for the S&P 500 being at 440. There has been a little bit of chatter about this in one or two other places as well.

Fair value is not a simple concept. The math is simple; whatever number you want to use for earnings and then whatever multiple you think is correct.

Where it gets a little more complicated is that fair value doesn’t usually end coinciding with any sort of stopping point in either direction nor is their any sort of indication of how long stocks might stay above or below fair value.

If Barry is right there is nothing to say that stocks go anywhere near that low or conversely that a massive decline would somehow stop at 440. Maybe I have this wrong but I can’t recall a time where a fair value number has been a primary factor for the market. There is utility in knowing whether the market is relatively expensive or inexpensive. Generically speaking if the market is expensive the risk of a decline might be a little higher.

The current state of the market however is not generic. The market has had a massive decline and has been stumbling along the bottom for several months now. Based on the market action thus far the days of massive declines could be behind us until the next cycle. Now factor in the fundamentals and the never ending bad news and uncertainty and going down a lot more is certainly possible.

I continue to believe the low is in, give or take a few percent, that there will be more ups and downs but no violation to the downside and I also think we still have a massive bear market rally in here soon as well. I’ve been whistling this tune for a while as some may know. But since I first piped up on this idea the news has continued to get worse yet the market is churning around the same range as opposed to following the news lower. This

continue reading

Wall Street Can’t Count

And neither can I, sorry.  H/T to Barry Ritholtz for finding. – Ilene

Wall Street Can’t Count

By Robert X Cringely, at I, Cringely

This post first ran on January 29th on my mortgage blog.  It got some traction there and a few mentions in the press so, lazy bastard that I am, I’m reproducing it here in a slightly improved form that corrects my own math error.

Take a look at this chart that someone sent to me a couple days ago.  I’m making it big so you can see as much detail as possible.  Have a look and then come back, okay?

Pretty scary, eh?  It’s a chart showing the deterioration of major bank market caps since 2007.  Prepared by someone at JP Morgan based on data from Bloomberg, this chart flashed across Wall Street and the financial world a few days ago, filling thousands of e-mail in boxes.  Putting a face on the current banking crisis it really brought home to many people on Wall Street the critical position the financial industry finds itself in.

Too bad the chart is wrong.

It’s a simple error, really.  The bubbles are two-dimensional so they imply that the way to see change is by comparing AREAS of the bubbles.  But if you look at the numbers themselves you can see that’s not the case…

And who was that someone? Me!  A nobody.  Or at least someone unimportant enough not to be asking for a Federal bailout….

No wonder we’re in a global financial crisis.

Full article here.


Here’s a more accurate chart (but no promises) posted by Rene Korda in Barry’s comments section.  Click on chart for a larger image. 



GM Go Boom?

Karl Denninger at The Market Ticker discusses the UAW halting negotiations with GM,.. what are they thinking? 

GM Go Boom?

continue reading

Big Numbers

Here’s a report from Michael Panzner at Financial Armageddon on our federal government’s obligations exceeding the world GDP. Jerome Corsi asks, paraphrasing, are you terrified yet? 

Big Numbers

Courtesy of Michael Panzner at Financial Armageddon

There’s no question that we’re talking big numbers — with plenty of zeros — when it comes to efforts to "rescue" the U.S. economy. But it didn’t take the latest wave of profligacy to prove that Washington has a serious spending problem. That fact was obvious to anyone who was familiar with the all-in cost of the government’s retirement safety net. In "Federal Obligations Exceed World GDP," WorldNetDaily’s Jerome R. Corsi covers the issue in frightening detail.

Does $65.5 trillion terrify anyone yet?

As the Obama administration pushes through Congress its $800 billion deficit-spending economic stimulus plan, the American public is largely unaware that the true deficit of the federal government already is measured in trillions of dollars, and in fact its $65.5 trillion in total obligations exceeds the gross domestic product of the world.

The total U.S. obligations, including Social Security and Medicare benefits to be paid in the future, effectively have placed the U.S. government in bankruptcy, even before new continuing social welfare obligation embedded in the massive spending plan are taken into account.

The real 2008 federal budget deficit was $5.1 trillion, not the $455 billion previously reported by the Congressional Budget Office, according to the "2008 Financial Report of the United States Government" as released by the U.S. Department of Treasury.

The difference between the $455 billion "official" budget deficit numbers and the $5.1 trillion budget deficit cited by "2008 Financial Report of the United States Government" is that the official budget deficit is calculated on a cash basis, where all tax receipts, including Social Security tax receipts, are used to pay government liabilities as they occur.

But the numbers in the 2008 report are calculated on a GAAP basis ("Generally Accepted Accounting Practices") that include year-for-year changes in the net present value of unfunded liabilities in social insurance programs such as Social Security and Medicare.

Under cash accounting, the government makes no provision for future Social Security and Medicare benefits in the year in which those benefits

continue reading

Asia’s Export Economies In Free Fall

Mish to Obama and Geithner – be careful what you ask for.

Asia’s Export Economies In Free Fall; Protectionism On The Rise

Courtesy of Mish 

Inquiring minds are looking into details of Asia’s Export Economies.

Staggering falls in exports across Asia have shocked economic analysts and ended all claims that the global slump may be nearing its bottom. The IMF’s growth forecast for Asia this year is just 2.7 percent—less than a third of the 9 percent growth rate of 2007. The prediction is a full percentage point less than during the 1997-98 Asian financial crisis.

IMA Asia analyst Richard Martin commented in the Australian: "It’s a bit like watching a train wreck in slow motion. North Asia is suffering the biggest collapse in demand since World War II." Westpac bank’s Richard Franulovich said that the "speed of the decline embedded in the latest Asia data is on par with the collapse in the US during the 1930s Depression."

Asia Export Economy Details

  • Japanese exports fell 35 percent in December from a year earlier. Industrial production plunged a record 9.6 percent, month on month, in December. 
  • Chinese exports declined for the third consecutive month in January, falling 17.5 percent from a year earlier, after a 2.8 percent decline in December. Imports plunged even further—43.1 percent, twice as much as December’s 21.3 percent year-on-year drop.
  • More than 20 million Chinese migrant workers have lost their jobs so far, with some analysts warning of 50 million more job losses if the economy deteriorates further. 
  • India exports fell 24 percent in January. According to official data, one million Indian workers in the export sector have lost their jobs since September. Another half a million workers are expected to lose their jobs by March.
  • New Delhi’s public debt stands at 75 percent of its GDP, compared to just 18.5 percent in China, leaving less room for large stimulus packages. 
  • South Korea’s exports, the main driving force of the economy, plunged 32.8 percent in January. Finance minister Yoon Jeung-hyun warned on Tuesday that the fourth largest economy in Asia would shrink by about 2 percent this year. Credit Suisse has projected as much as a 7 percent contraction. 
  • Taiwan, the sixth largest Asian economy, saw its exports fall

continue reading

Why Fair Value For The S&P 500 Is Not 440

Chad Brand takes issue with Barry Ritholtz’s valuation of the S&P 500. Both viewpoints appear to incorporate assumptions about the future which influence their present case argument.

Why Fair Value For The S&P 500 Is Not 440 

Courtesy of Chad Brand at The Peridot Capitalist

Barry Ritholtz, market veteran and blogger over at The Big Picture postulated today that fair value for the S&P 500 might be 440. He got there by taking trailing 12 month GAAP earnings of $28.75 and applying a 15 P/E ratio to them.

Personally, I expect more from Barry given how strong much of his market and economic analysis has been over the years, but there are glaring flaws in this valuation methodology. First, I don’t know very many market strategists who believe fair value on the S&P 500 should be based on the earnings produced by the index’s components in the depths of a deep recession. Most people agree that fair value should be based on an estimate of normalized earnings, not trough (or near-trough) profit levels.

Imagine you owned a Burlington Coat Factory retail store. You are ready to retire and have a business person interested in buying your store. What would your reaction be if this person took your store’s profit for the month of June, multiplied it by 12, and based his offer price on that level of projected annual profits. Clearly that figure does not give an accurate representation of how much money your store earns in a year because June is probably one of your worst months of the year for selling coats!

The same flaw exists in valuing the stock market based on current earnings. Doing so implies that earnings today represent a typical economic climate, which is clearly not the case.

The second issue with Barry’s analysis is the use of “as-reported” GAAP earnings. The reason GAAP earnings have fallen so fast is that they include non-cash charges such as asset impairments. It is common these days for companies to report cash earnings of $1 billion but a GAAP loss of $5 billion due to a $6 billion asset impairment charge. In such a case GAAP earnings (which include the non-cash charge) are understated by a whopping $6 billion. Why should asset impairments be excluded? A stock’s value is based on the present value of future…
continue reading


Zero Hedge

Desperate? - Democrats Sue RNC Over Trump's "Rigged Election" Comments Alleging "Minority Voter Intimidation"

Courtesy of ZeroHedge. View original post here.

In a move that wreaks of desperation, and certainly beneath a campaign that is apparently coasting toward a 12-point blowout victory in just over a week, the DNC has sued the RNC over efforts to "ensure ballot integrity" alleging "intimidation of minority voters."  Since when did working with "secretaries of states all over the country to ensure ballot integrity" become a crime?  And, why exactl...

more from Tyler


Reich Takes On Alan Simpson - And We Do The Fact Checking

By Advisor Perspectives. Originally published at ValueWalk.

Robert Reich, a prominent Democrat, and Alan Simpson, a distinguished Republican, engaged in a friendly debate to discuss issues that they said were not addressed during this campaign season. But on crucial subjects, both relied on out-of-date and inaccurate reasoning.

Image source: Wikimedia CommonsAlan Simpson

The debate, which took place yesterday, was a keynote presentation at the Schwab IMPACT conference, held in San Diego. It is the largest conference in the industry, attracting approximately 2,000 advisor attendees.

Reich is a political commentator, economist, professor and author. He served in the administrations of Presidents Gerald Ford and Jimmy Carter, and was Secretary of Labor under President Bill Clinton fro...

more from ValueWalk

Kimble Charting Solutions

London- 4th attempt to breakout in 16-years, results different this time?

Courtesy of Chris Kimble.

Four months ago the world seemed scared that the Brexit vote would be negative for Europe and potentially around the world. Four months later, almost the polar opposite deserves discussion.

Below updates the FTSE -100 Index on a monthly basis over the past few decades.


FTSE Index is now testing a resistance zone for the 4th time in the past 16-years at (1), as well as testing the underside of line (3) at the same time.

Monthly MACD has created a series of ...

more from Kimble C.S.

Market News

News You Can Use From Phil's Stock World


Financial Markets and Economy

Oil Companies Shift Exploration Tactics, Curb Spending (The Wall Street Journal)

In June, oil giant BP PLC announced what it deemed an “important” new discovery in Egypt.

It turned out to be a modest natural-gas find that didn’t even rank in the top 50 discoveries since 2012.

Gundlach Says ‘Look Out’ for...

more from Paul

Phil's Favorites

Now it's an avalanche


Picture via Pixabay

Courtesy of Joshua Brown, The Reformed Broker

Reuters on the last week’s fund flows:

Mutual fund investors flooded stockpickers with redemption orders during the latest week, cashing out the most money in five years, Investment Company Institute data showed on Wednesday.

The investors pulled $16.9 billion from stock mutual funds in the seven days through Oct. 19, more than in any other week since August 2011, the trade group’s data showed.

By contrast, stock exchange-traded funds took in $2.4 billion. ETFs most...

more from Ilene

Digital Currencies

Bitcoin Soars As China Launches Crackdown On Wealth-Management Products

Courtesy of ZeroHedge. View original post here.

After trading in a tight range for much of the summer, coiled within a $100 range around the mid-$500s, over the past several weeks bitcoin has once again started to push higher, closely tracking the decline in the Chinese Yuan as shown below.

However, the most recent burst in bitcoin activity, which sent it surging by over $20 overnight, has little to do with any moves in the official Chinese currency, which recently...

more from Bitcoin

Members' Corner


Courtesy of Nattering Naybob.


Discussion of the potential impacts on equity, bond, commodity, capital and asset markets regarding the following:

  • Rising Libor and Bond Yields
  • Negative Swap Spreads, Eurodollar Curve, Repo Effects
  • Compliance, Expectations, Liquidity, Fed Action

Last Time Out

"25-54 yr old prime earners peaking at 101083 in Nov 2007; today at 97628, for a net decline of 3.5M prime earning jobs during this "recovery". No real jobs, just McJobs for McPay."

"Above note, 55yrs+ in Nov 2007 at 26376, now at 34353, for a net increase of 8 million employed. Not for sheer enjoyment and mostly out of economic necessity. The above attests to no real jobs, just McJobs for McPay and work till you die?" - 08...

more from Our Members

Chart School

Tech Hold Breakout,.but S&P Wedge Bound

Courtesy of Declan.

It was a mixed day for indices. Large Caps remain bound by wedge support/resistance, but Tech broke upside yesterday from similar wedges and held those breakout today.

There was little change for the S&P over the last couple of days. The one technical change was the MACD trigger 'buy' as other technicals stayed on the bearish side.

Meanwhile, the Nasdaq cleared wedge resistance yesterday, and was able to hang on to the breakout despite today's loss. It too enjoyed a MACD trigger 'buy', but had an On-Bal...

more from Chart School


Swing trading portfolio - week of October 24th,2016

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 ...

more from OpTrader

Mapping The Market

The Most Overlooked Trait of Investing Success

Via Jean-Luc

Good article on investing success:

The Most Overlooked Trait of Investing Success

By Morgan Housel

There is a reason no Berkshire Hathaway investor chides Buffett when the company has a bad quarter. It’s because Buffett has so thoroughly convinced his investors that it’s pointless to try to navigate around 90-day intervals. He’s done that by writing incredibly lucid letters to investors for the last 50 years, communicating in easy-to-understand language at annual meetings, and speaking on TV in ways that someone with no investing experience can grasp.

Yes, Buffett runs an amazing investment company. But he also runs an amazing investor company. One of the most underappreciated part of his s...

more from M.T.M.


Epizyme - A Waiting Game

Reminder: Pharmboy is available to chat with Members, comments are found below each post.

Epizyme was founded in 2007, and trying to create drugs to treat patient's cancer by focusing on genetically-linked differences between normal and cancer cells. Cancer areas of focus include leukemia, Non-Hodgkin's lymphoma and breast cancer.  One of the Epizme cofounders, H. Robert Horvitz, won the Nobel Prize in Medicine in 2002 for "discoveries concerning genetic regulation of organ development and programmed cell death."

Before discussing the drug targets of Epizyme, understanding epigenetics is crucial to comprehend the company's goals.  

Genetic components are the DNA sequences that are 'inherited.'  Some of these genes are stronger than others in their expression (e.g., eye color).  Yet, some genes turn on or off due to external factors (environmental), and it is und...

more from Biotech

All About Trends

Mid-Day Update

Reminder: Harlan is available to chat with Members, comments are found below each post.

Click here for the full report.

To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...

more from David


PSW is more than just stock talk!


We know you love coming here for our Stocks & Options education, strategy and trade ideas, and for Phil's daily commentary which you can't live without, but there's more! features the most important and most interesting news items from around the web, all day, every day!

News: If you missed it, you can probably find it in our Market News section. We sift through piles of news so you don't have to.   

If you are looking for non-mainstream, provocatively-narrated news and opinion pieces which promise to make you think -- we feature Zero Hedge, ...

more from Promotions

FeedTheBull - Top Stock market and Finance Sites

About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

Learn more About Phil >>

As Seen On:

About Ilene:

Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

Market Shadows >>