“Bernanke Warned Congress On Wednesday That The United States Could Soon Face A Debt Crisis Like The One In Greece”
by Zero Hedge - February 26th, 2010 7:18 pm
Courtesy of George Washington
Bernanke is now joining Rosenberg, Ferguson and Faber, Edwards, Grice and many others in warning that the debt crisis rearing its head in Greece may spread to the U.S.
As the Washington Times wrote yesterday:
With uncharacteristic bluntness, Federal Reserve Chairman Ben S. Bernanke warned Congress on Wednesday that the United States could soon face a debt crisis like the one in Greece, and declared that the central bank will not help legislators by printing money to pay for the ballooning federal debt.
Recent events in Europe, where Greece and other nations with large, unsustainable deficits like the United States are having increasing trouble selling their debt to investors, show that the U.S. is vulnerable to a sudden reversal of fortunes that would force taxpayers to pay higher interest rates on the debt, Mr. Bernanke said.
“It’s not something that is 10 years away. It affects the markets currently,” he told the House Financial Services Committee. “It is possible that bond markets will become worried about the sustainability [of yearly deficits over $1 trillion], and we may find ourselves facing higher interest rates even today.”
Yes, deficits and massive debt overhangs do matter.
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DiggNet Euro Speculative Positions Hit All Time Record Of -71,623, A Massive 20% Increase In Short EUR Exposure (Commitment Of Traders)
by Zero Hedge - February 26th, 2010 6:21 pm
Courtesy of Tyler Durden
Despite expectations elsewhere that speculators may be unwind their Euro short exposure, the CFTC’s Commitments of Traders report indicated that for the week ended February 23, futures only speculative shorts hit an absolute all time record of -71, 623, an increase in net short exposure of over 12k compared to the Feb 16 position of -59,422, a massive 20% week over week increase. Another observation: the fans of the JPY are declining materially, with net longs collapsing by 12,195 positions, to just above breakeven, at 1,717. The GBP was the second most hated currency in the past week, with a net positioning of -64,647, an increase in net shorts of 5,409 weekly. The only currencies, which saw net long positions were the AUD (+11,989 to 38,992 and the CAD 4,996 to 28,421), and, of course, the dollar, whose aggregate positioning in nominal terms increased by 20%: from $8.14 billion to $10.28 billion.
Key moves represented graphically:
Charts via Morgan Stanley
The Top 1% Control 42% of the Wealth – Servitude for the Rest of US!
by Phil - February 26th, 2010 6:01 pm
Courtesty of My Budget 360:
Many Americans are not buying the recent stock market rally.
This is being reflected in multiple polls showing negative attitudes towards the economy and Wall Street. Wall Street is so disconnected from the average American that they fail to see the 27 million unemployed and underemployed Americans that now have a harder time believing the gospel of financial engineering prosperity. Americans have a reason to be dubious regarding the recovery because jobs are the main push for most Americans. A recent study shows that over 70 percent of Americans derive their monthly income from an actual W-2 job. In other words, working is the prime mover and source of their income. Yet the financial elite have very little understanding of this concept. Why? 42 percent of financial wealth is controlled by the top 1 percent. We would need to go back to the Great Depression to see such lopsided data.
Many Americans are still struggling at the depths of this recession. We have 37 million Americans on food stamps and many wait until midnight of the last day of the month so checks can clear to buy food at Wal-Mart. Do you think these people are starring at the stock market? The overall data is much worse:
Source: William Domhoff
If we break the data down further we will find that 93 percent of all financial wealth is controlled by the top 10 percent of the country. That is why these people are cheering their one cent share increase while layoffs keep on improving the bottom line. But what bottom line are we talking about here? The Wall Street crowd would like you to believe that all is now good that the stock market has rallied 60+ percent. Of course they are happy because they control most of this wealth. Yet the typical American still has negative views on the economy because they actually have to work to earn a living:
The above daily poll asks Americans about their view on the health of the economy. Only 13 percent believe the economy is good or excellent. Funny how that correlates with the top 10 percent who control 93 percent of wealth. Many Americans were sold the illusion of the bubble. They were sold on the idea that their homes were worth so much more than they really were. …
Option Bulls Buy Calls to Celebrate New Coverage of NuVasive Spinal Treatment
by Option Review - February 26th, 2010 5:49 pm
Today’s tickers: NUVA, TRE, FXE, BBY, DECK, LEN, AA, ESRX, JDSU & UNH
NUVA – NuVasive Inc. – The spinal surgery equipment maker’s shares are up sharply today by more than 32.50% to $39.38. NuVasive’s shares surged on news health insurance company, Aetna, is changing its policy to allow reimbursement for surgical spine treatment know as lateral interbody fusion. Bullish posturing in call options was observed today following the news about extended coverage for the treatment, which was previously excluded for being an experimental procedure. Plain-vanilla call buyers picked up nearly 2,000 contracts at the March $40 strike for an average premium of $1.34 apiece. Investors long the calls are prepared to pocket profits if NUVA’s shares rally above the effective breakeven point on the calls at $41.34 by expiration day next month.
TRE – Tanzanian Royalty Exploration Corp. – British Columbia, Canada-based gold mining company, Tanzanian Royalty Exploration Corp., attracted heavier than usual two-way trading traffic in put options today. The firm, which explores and acquires gold properties in Tanzania, realized a 2.30% rally in its shares during the session to $4.05. More than 25,000 in-the-money put options changed hands at the October $5 strike with the majority of the volume trading to the bid. Approximately 14,200 puts were sold for an average premium of $1.31 per contract, while 5,200 put contracts were purchased at that strike for roughly the same amount of premium. In-the-money put sellers are perhaps anticipating continued bullish movement in the price of the underlying by October expiration. Investors short the puts keep the full $1.31 premium per contract if TRE’s shares rally above $5.00 by expiration day. Put sellers stand ready to have shares of the underlying stock put to them at an effective price of $3.69 apiece in the event that the put contracts remain in-the-money through expiration day.
FXE – CurrencyShares Euro Trust – Shares of the FXE exchange-traded fund, which reflects the price of the Euro, are up 0.45% to $135.88 in afternoon trading. A decent-sized put butterfly spread on the fund indicates one investor does not expect the current rally to continue. On the contrary, the parameters of the spread benefit the trader most if shares decrease roughly 2.25% in value by April expiration. To enact the bearish butterfly play, the investor purchased 5,000 puts at the April $134 strike for a premium of $1.50 apiece [wing 1], and picked…
China Is Back As Top US Treasury Holder With $894.8 Billion, After Major Treasury Holdings Revision Takes USTs From UK And Gives To China
by Zero Hedge - February 26th, 2010 5:00 pm
Courtesy of Tyler Durden
The US Treasury has issued its annual preliminary US Holdings report for June 2009. While the data for the June 30th period is obviously stale, what is notable is that the UST’s estimates through December 2009, based on survey data, put China higher by about $140 billion compared to the previously disclosed number of $755 billion, at $894.9 billion. Alternatively, Japan which was consider the top holder of US Treasuries with $769 billion, saw its estimated holdings decline to $765.7 billion. This revision puts China back at the top with a commanding lead of nearly $140 billion. The revised Treasury report also indicates that as of June 30, the UK was the largest holder of US equities at $278 billion, Canada second at $242 billion, and the Caymans (i.e., hedge funds) third at $227 billion. Also, China was the largest combined holder of US securities of all kinds at nearly $1.5 trillion, with Japan and the UK second and third, respectively, at $1.27 trillion and $813 billion.
It should still be pointed out that Chinese UST holdings have been declining since July 2009, when they peaked at $940 billion, while both Japan and the UK saw their biggest holdings at December 31, 2009.
As for the source of the revision, see chart below:
It is obvious that as the UST added about $140 billion to each preliminary Chinese bond holding per month, it took out $125 billion from the UK (each month). This is sufficient evidence that indeed the UK has been serving as a proxy buying center for China, following the TIC revision.
Ben Bernanke Responds To Why Goldman Sachs Needs Fed VaR Exemption, And Other Questions
by Zero Hedge - February 26th, 2010 2:55 pm
Courtesy of Tyler Durden
Many moons ago, July 15, 2009 to be specific, Zero Hedge asked a rather simple question: why does Goldman need a Fed exemption for VaR calculations even though it is a Bank Holding Company. That question, and some others, prompted several members of congress, among whom Alan Grayson and Ron Paul, to shortly thereafter pass our query on to Ben Bernanke.
Ben Bernanke
Chairman
Federal Reserve System
20th Street & Constitution Avenue, NW
Washington, DC 20551Dear Chairman Bernanke:
In the fall, Goldman Sachs secured access to government funding by converting from an investment bank into an ordinary bank. Despite this shift, the CFO of the company, David Viniar, said last week that the company is continuing to operate as if it were still a high-risk investment bank: “Our model really never changed,” he noted in a quote to Bloomberg. “We’ve said very consistently that our business model remained the same.”
This statement seems accurate. Earlier this year, the Federal Reserve granted a temporary exemption to Goldman Sachs from standard bank holding company Market Risk Rules, allowing the company to continue operating as if it were an investment bank. The company and its employees have taken full advantage of its new government subsidies, and the retained ability to bet big. In its most recent quarter, Goldman Sachs earned high profits of $2.7 billion on revenues of $13.76 billion, with 78 percent of this revenue derived from high-risk trading and principal investments. It paid out much of this revenue in compensation, setting aside a record $772,858 for each employee at an annualized rate. The company’s own measurement of risk, its Value-at-Risk model, recently showed potential trading losses at $245 million a day, up from $184 million last May.
Despite its exemption from bank holding company regulations, Goldman Sachs has access to taxpayer subsidies, including FDIC-backed bonds, TARP money (since repaid), counterparty payments funneled through AIG, and an implicit backstop from the taxpayer that allowed a public equity offering in a queasy market. The only difference between Goldman Sachs today and Goldman Sachs last year is that today, the company is officially gambling with government money. This is the very definition of “heads we win, tails the taxpayers lose.”
It is worth noting that there sometimes might be good reasons to
…
Is The ‘Friday Effect’ In Place Today?
by Chart School - February 26th, 2010 2:50 pm
Is The ‘Friday Effect’ In Place Today? (NYSE:SPY)
Courtesy of Nicholas Santiago at InTheMoneyStocks
Rarely do we see a big negative day on a Friday. We call this phenomenon the ‘Friday Effect’. Ever since the 2008 panic began the markets have held up very well during a Friday. They usually close around the flat line area up or down a little. In the past year I believe we have had less than 10 big Friday declines.
My guess is that the institutional money that can move markets does not want to scare the Asian markets that open on Sunday night in the U.S. or cause any panic to build up over the weekend. Today looks like the ‘Friday Effect’ is in play, therefore, it is likely to see a flat to slightly positive close for the last trading day of February.
Is The ‘Friday Effect’ In Place Today?
by ilene - February 26th, 2010 2:48 pm
Is The ‘Friday Effect’ In Place Today? (NYSE:SPY)
Courtesy of Nicholas Santiago at InTheMoneyStocks
Rarely do we see a big negative day on a Friday. We call this phenomenon the ‘Friday Effect’. Ever since the 2008 panic began the markets have held up very well during a Friday. They usually close around the flat line area up or down a little. In the past year I believe we have had less than 10 big Friday declines.
My guess is that the institutional money that can move markets does not want to scare the Asian markets that open on Sunday night in the U.S. or cause any panic to build up over the weekend. Today looks like the ‘Friday Effect’ is in play, therefore, it is likely to see a flat to slightly positive close for the last trading day of February.
Guest Post: Mortgage Rates – Only One Way to Go
by Zero Hedge - February 26th, 2010 2:35 pm
Courtesy of Tyler Durden
Submitted By Michael Panzner
Mortgage Rates: Only One Way to Go
There’s been plenty of speculation about what will happen to mortgage rates if and when the Federal Reserve wraps up the last of its planned purchases under the $1.25 trillion Mortgage-Backed Security (MBS) purchase program, first announced in November 2008.
While there have been some suggestions that the Fed may extend and expand the program beyond the end of next month, nothing has been said officially. Assuming it ends on March 31st as planned, the laws of supply-and-demand would seem to indicate that the MBS market is headed for a heap of trouble. Why? The Fed has been the biggest buyer of residential mortgage-backed securities by far over the past year or so.
That means yields and/or spreads on mortgage-related borrowings have only one way to go. As it happens, a quick read of the chart of the 30-year fixed-rate mortgage yield less its government bond market counterpart lends further weight to that view. That is, it looks rather bullish — which is bad for borrowers.
In fact, based on what happened following the similar technical pattern that developed in the early 1990s, we may well be on the cusp of a secular rise in the cost of mortgage-related financing costs. Another reason, perhaps, to bet against a near-term recovery in house prices.
GDP Contraction Coming In Second Quarter 2010?
by ilene - February 26th, 2010 2:34 pm
GDP Contraction Coming In Second Quarter 2010?
Courtesy of Mish
I have been speaking with Rick Davis at the Consumer Metrics Institute about leading economic indicators. Davis claims his data leads the GDP by about 17 weeks while noting that other so-called "leading indicators" are merely a reflection on the stock market and yield curve.
Davis captures his data solely from online transactions of real consumers, in real time.
Here are a four charts. The first chart shows the Consumer Conference Board LEI, not the Consumer Metrics Index.
Consumer Conference Board LEI vs. S&P 500
Davis writes:
Is the conference board LEI really leading anything or is it merely a reflection of the stock market? A look at the actual values of the LEI and the S&P 500 over the last four years confirms the indicator is really a coincident indicator for the equity markets, published once a month, three weeks in arrears.
Weighted Composite Index (WCI) vs. S&P 500
The above chart shows the Consumer Metrics Weighted Composite Index (WCI) vs. the S&P 500 Index. Watch what happens when the above data is offset by 5 months.
WCI vs. S&P 500 Shifted 5 Months
The Consumer Metrics website shows most of the WCI components advancing. However, housing and consumer spending account for roughly 60% of the index and those are contracting.
It is hard to make a case on the basis of so little data, but at least since 2006 we see evidence of actual leading.
However, the stock market does not always follow the economy nor is the stock market a leading indicator of the economy.
Please see Is the Stock Market a Leading Indicator? for a discussion.
Thus, as interesting as the above chart may be, I would not recommend using Consumer Metrics Data to project stock market movements. However, when a stock market is as lofty as this one, and a recovery is priced in that is not likely to happen, I would expect the stock market to decline if the economy tanks.
Daily Growth Index (DGI) vs. BEA GDP
The above chart shows Consumer Metrics Daily Growth Index (DGI) plotted against GDP.
According to Davis the DGI is 91-Day moving average of the WCI that corresponds to a trailing ‘quarter’, and is translated from a 100-base number into a +/- percentage. For example 99 on the WCI would roughly correspond…
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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...
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