The Ongoing MF Global DISASTER
by ilene - December 30th, 2011 10:12 pm
Courtesy of Karl Denninger, The Market Ticker
A warning to those who think that this story being off the front page means it’s over.
It’s not.
I am getting repeated reports that farmers and other producers are turning increasingly to direct deals with the users of their products,eschewing the futures markets entirely.
These are not speculators. These are the people who grow the corn, wheat, soybeans and other products you wish to buy in "processed" form.
This is exactly what I warned might happen, and it appears that it is.
It is an extremely dangerous trend for consumer price stability and in fact for the stability of our nation’s economy in general.
Futures markets in various forms are not new constructs. They literally date to the East India Tea Company with spice contracts. They are necessary lubricants for price stability and the even functioning of markets.
Some very ordinary transactions that we have all become accustomed to are at risk of disappearing entirely. Among them are airline tickets at a known price for travel six months from now. Reasonably-stable prices for a box of cereal are another example (corn has traded from 572 to 799 in the last year; a forty percentrange over the last 12 months; soy and wheat have seen similar moves); indeed, virtually every food item in your store, from orange juice to bacon (pork bellies) is hedged off in these markets!
The move to direct transactions means that the reasonable stability we have enjoyed in these transactions, or even the ability to enter into them at all over a horizon of more than a month or two, is at risk of disappearing!
I warned when this story first broke that the danger was much more severe than being reported and that in fact the financial media was downplaying the importance of this fiasco. It was (and is) my expectation that if there is another event of this sort the entire futures market structure for hedging these prices would be likely to collapse.
But now the cracks are becoming evident around the edges anyway.
The producers don’t have to put up with this crap and they are beginning to vote with their feet.
The unwillingness of the government, from Obama and Eric Holder on down, to demand that these funds be returned to the segregated client accounts immediately irrespective of who holds them and irrespective of how, with sorting out who goes to prison for the actions behind…
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DiggS&P 500 Snapshot: A 2011 Loss of 0.003%
by Chart School - December 30th, 2011 7:35 pm
Courtesy of Doug Short.
Yesterday the S&P 500 closed with a year-to-date gain of 0.43%, and, in my daily update, I said I would “be surprised to see the index slip back into the red for 2011 close. Calendar year returns have a symbolic value that, barring a war or natural disaster, will probably motivate enough year-end buying to keep us in the green.”
Well, I was wrong.
My preferred benchmark index closed the year with a loss of 0.003%. It was exactly 0.03 points from break even.
From an intermediate perspective, the index is 85.9% above the March 2009 closing low and 19.6% below the nominal all-time high of October 2007.
Below are two charts of the index, with and without the 50 and 200-day moving averages.
For a better sense of how these declines figure into a larger historical context, here’s a long-term view of secular bull and bear markets in the S&P Composite since 1871.
For a bit of international flavor, here’s a chart series that includes an overlay of the S&P 500, the Dow Crash of 1929 and Great Depression, and the so-called L-shaped “recovery” of the Nikkei 225. I update these weekly.
These charts are not intended as a forecast but rather as a way to study the current market in relation to historic market cycles.
Moving Averages: Month-End Update
by Chart School - December 30th, 2011 7:35 pm
Courtesy of Doug Short.
Valid until the market close on January 31, 2012
The S&P 500 closed December with a gain of 0.85% from the November close. The index signals remain unchanged from last month. See the specifics here.
The Ivy Portfolio
The table below shows the current 10-month simple moving average (SMA) signal for each of the five ETFs featured in The Ivy Portfolio. I’ve also included a table of 12-month SMAs for the same ETFs for this popular alternative strategy.
Backtesting Moving Averages
Over the past few years I’ve used Excel to track the performance of various moving-average timing strategies. But now I use the backtesting tools available on the ETFReplay.com website. Anyone who is interested in market timing with ETFs should have a look at this website. Here are the two tools I most frequently use:
- Backtest an Individual ETF
- Backtest an ETF Portfolio
(requires a paid subscription)
Background on Moving Averages
Buying and selling based on a moving average of monthly closes can be an effective strategy for managing the risk of severe loss from major bear markets. In essence, when the monthly close of the index is above the moving average value, you hold the index. When the index closes below, you move to cash. The disadvantage is that it never gets you out at the precise top or back in at the very bottom. Also, it can produce the occasional whipsaw (short-term buy or sell signal), such as we’ve experienced this summer.
Nevertheless, a chart of the S&P 500 monthly closes since 1995 shows that a 10- or 12-month simple moving average (SMA) strategy would have insured participation in most of the upside price movement while dramatically reducing losses.
The 10-month exponential moving average (EMA) is a slight variant on the simple moving average. This version mathematically increases the weighting of newer data in the 10-month sequence. Since 1995 it has produced fewer whipsaws than the equivalent simple moving average, although it was a month slower to signal a sell after these two market tops.
A look back at the 10- and 12-month moving averages in the Dow…
Guest Post: 2011 – Catch-22 Year In Review
by Zero Hedge - December 30th, 2011 6:55 pm
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
Submitted by Jim Quinn of The Burning Platform
2011 – Catch-22 Year In Review
“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” - Mark Twain
I published my predictions for 2011 on January 3, 2011 in my article 2011 – The Year of Catch-22. Humans evidently enjoy being embarrassed by how pitiful they are at predicting the future, because we continue to do it year after year. The mainstream media pundits don’t dare look back at their predictions or the predictions of the Wall Street shills that parade on CNBC and get quoted in the Wall Street Journal, eternally predicting 10% to 15% stock market gains. The multi-millionaire Wall Street strategists like the spawn of the squid, Abbey Joseph Cohen, have used all of their Ivy League brain power to predict at least a 10% stock price gain every year since 1999. The S&P 500 stood at 1,272 on January 6, 1999. As of this writing it currently stands at 1,261. ZERO appreciation over the last twelve years.
The Wall Street mantra of stocks for the long run is beginning to get a little stale. If Abbey Joseph Cohen had been right for the last twelve years, the S&P 500 would be 4,000. For this level of accuracy, she is paid millions. Her 2011 prediction of 1,500 only missed by16%. The S&P 500 began the year at 1,258 and hasn’t budged. The lowest prediction from the Wall Street shysters at the outset of the year was 1,333, with the majority between 1,400 and 1,500.
The same Wall Street clowns are now being quoted in the mainstream media predicting a 10% to 15% increase in stock prices in 2012, despite the fact we are headed back into recession, China’s property bubble has burst, and Europe teeters on the brink of dissolution. They lie on behalf of their Too Big To Tell the Truth employers by declaring stocks undervalued, when honest analysts such as Jeremy Grantham, John Hussman and Robert Shiller truthfully report that stocks are overvalued and will provide pitiful returns over the next year and the next decade.
I will take my chances with a few predictions for 2012 after reviewing my lack…
S&P 500 Snapshot: A 2011 Loss of 0.003%
by Chart School - December 30th, 2011 6:35 pm
Courtesy of Doug Short.
Yesterday the S&P 500 closed with a year-to-date gain of 0.43%, and, in my daily update, I said I would "be surprised to see the index slip back into the red for 2011 close. Calendar year returns have a symbolic value that, barring a war or natural disaster, will probably motivate enough year-end buying to keep us in the green."
Well, I was wrong.
My preferred benchmark index closed the year with a loss of 0.003%. It was exactly 0.03 points from break even.
From an intermediate perspective, the index is 85.9% above the March 2009 closing low and 19.6% below the nominal all-time high of October 2007.
Below are two charts of the index, with and without the 50 and 200-day moving averages.
For a better sense of how these declines figure into a larger historical context, here’s a long-term view of secular bull and bear markets in the S&P Composite since 1871.
For a bit of international flavor, here’s a chart series that includes an overlay of the S&P 500, the Dow Crash of 1929 and Great Depression, and the so-called L-shaped "recovery" of the Nikkei 225. I update these weekly.
These charts are not intended as a forecast but rather as a way to study the current market in relation to historic market cycles.
Stocks Stagger Into Year End (DIA, IWM, SPY,USO, GLD)
by John Nyaradi - December 30th, 2011 6:05 pm
Courtesy of John Nyaradi.
Stocks stagger into year end on last trading day of 2011.
Major U.S. stock indexes faded late on a quiet day to end the year mixed and on a weak note.
The Dow Jones Industrial Average (NYSEARCA:DIA) declined -0.6% on the day but finished 2011 with a 5.5% yearly gain.
The S&P 500 (NYSEARCA:SPY) finished down 0.4% for the day and virtually flat for 2011, closing a fraction below its 2010 close.
The Nasdaq 100 (NYSEARCA:QQQ) declined 1.8% for the year while the Russell 2000 (NYSEARCA:IWM) lost -0.6% for the day and -5.5% for 2011.
In other markets, gold (NYSEARCA:GLD) gained 10% for the year and oil (NYSEARCA:USO) added 8.2%. One of the year’s top performing asset classes was U.S. Treasury Bonds (NYSEARCA:TLT) with a gain of 9.6% for 2011.
Weak End To A Volatile Year
While 2011 was one of the most volatile years on record, the widely watched S&P 500 (NYSEARCA:SPY) finished flat for the year and closed fractionally below its 200 day moving average, the widely watched demarcation line between bull and bear markets. The index was on track for a small yearly gain until late in the day when a last minute sell off put it into negative territory for the year and finish 2011 with the smallest yearly change since 1947.
chart courtesy of www.stockcharts.com
In the 1 minute chart above of the S&P 500 (NYSEARCA:SPY) we can see how the index sold off in the last hour of thin holiday trading to end the year at session lows.
Bottom line: 2011 was marked by volatility and the ongoing crisis in Europe. 2012 will quite likely have similar characteristics as the global economy faces uncertainty in Europe, slowing growth and and election year in the United States.
Disclaimer: Wall Street Sector Selector actively trades a wide range of exchange traded funds (ETFs) and positions can change at any time.
Click here to learn more about John’s book and for a free membership to Wall Street Sector Selector
Could Steel Be A Steal?
by Insider Scoop - December 30th, 2011 5:36 pm
Courtesy of Benzinga.
Sparrows Point in Baltimore County, Maryland, once housed the world’s largest steel mill. However, times have changed, and just recently RG Steel announced that it would be laying off over 700 employees at its Sparrows Point plant.
RG Steel, a private company, bought the plant last spring as part of a deal that cost the company $1.2 billion. GE Capital, a division of General Electric (NYSE: GE), loaned RG Steel $750 million to help complete the deal. The recent layoffs were precipitated by internal changes within GE Capital designed to boost the financial services company’s reserves, which has had severe negative effects on RG Steel’s liquidity.
The news of the layoffs sent shock waves throughout the steel industry. No one is sure exactly how this will affect sheet supply in the U.S. in the near-term future. That said, the U.S. steel market has been suffering from excess sheet supplies for some time. Bank of America and others have noted that RG Steel’s troubles could be a boon for other steel companies.
Below are four companies that could benefit from the partial shut down of RG Steel’s Sparrows Point plant, most of which were hit quite hard earlier in the year:
1. AK Steel Holding Corporation (NYSE: AKS) Market Cap: $910.87 million P/E: -
AK Steel is a midwest-based company that produces electrical and stainless steels, including steel for automakers. The company’s stock is down almost 50% year-to-date, but it appears that it may be poised for a rebound. Just recently, AK Steel announced a $50 per ton price increase for carbon steel products. However, if the company’s stock does see a dramatic rise, this would hurt the shares’ yields, which are currently attractive at 2.42%.
2. United States Steel Corporation (NYSE: X) Market Cap: $3.81 billion P/E: -
United States Steel is one of the world’s top steel companies, and is capable of producing over 30 million net tons of raw steel annually. Like AK Steel, United States Steel is down over 50% year-to-date. That said, the company’s stock has been on the rise over the last couple of months, a general trend in the steel market. Strong car…
S&P 500 Snapshot: A 2011 Loss of 0.003%
by Chart School - December 30th, 2011 5:35 pm
Courtesy of Doug Short.
Yesterday the S&P 500 closed with a year-to-date gain of 0.43%, and, in my daily update, I said I would "be surprised to see the index slip back into the red for 2011 close. Calendar year returns have a symbolic value that, barring a war or natural disaster, will probably motivate enough year-end buying to keep us in the green."
Well, I was wrong.
My preferred benchmark index closed the year with a loss of 0.003%. It was exactly 0.03 points from break even.
From an intermediate perspective, the index is 85.9% above the March 2009 closing low and 19.6% below the nominal all-time high of October 2007.
Below are two charts of the index, with and without the 50 and 200-day moving averages.
For a better sense of how these declines figure into a larger historical context, here’s a long-term view of secular bull and bear markets in the S&P Composite since 1871.
For a bit of international flavor, here’s a chart series that includes an overlay of the S&P 500, the Dow Crash of 1929 and Great Depression, and the so-called L-shaped "recovery" of the Nikkei 225. I update these weekly.
These charts are not intended as a forecast but rather as a way to study the current market in relation to historic market cycles.
MF Global: When Belief in the System Fades
by ilene - December 30th, 2011 5:24 pm
Courtesy of Charles Hugh Smith, Of Two Minds
Faith in the Status Quo is fading fast, spurred on by the long line of critical dominoes toppled by MF Global.
Longtime correspondent Harun I. recently submitted an analysis by Karl Denninger The Ongoing MF Global DISASTER (Market Ticker) and this commentary:
I have previously written on the seriousness of this subject but there still seems to be no widespread appreciation of its implications.In complex economic systems, futures markets are as important as is a stable and reliable medium of exchange.
A model of normal transactions is: A forward contract is initiated between parties. The parties then proceed to hedge their risk in the futures and commodities markets.
A forward contract is a nonstandard contract between parties. For example, a grainery may agree to deliver a specified amount of grain to a processor at a negotiated price (market today or at delivery, etc). Depending on contract specifics, both parties are now concerned that price may move against them. In the case of market price at delivery, for the selling party, the concern is falling prices. For the buying party, the concern is rising prices.
If price is negotiated at the market upon contract initiation, then for the seller the concern is rising prices and vise versa for the buyer. Why? Because of the present value of money.
The futures contract is a standardized contract that specifies quality, quantity and time. It is marked to market every day. Positions are not held directly between parties but between a party and the Clearinghouse. The Clearinghouse is there to insure performance of the futures contract, meaning, even if a party defaults on physical delivery, the monetary value of the contract will be delivered without fail.
Full Commission Merchants (FCM’s) collect and warehouse client funds and deposit client funds with the Clearinghouse as margin (performance bonds). Client funds are supposed to be sacrosanct. But for some reason it was thought to be a good idea to allow brokerages to use client funds to purchase investment grade instruments on a short term basis. The firms and the clients made money on the earned interest. This has gone on without notice or problem until the recent 100-year flood of MF Global.
The process of hedging allows parties with a legitimate business interest that wish to shed risk transfer it to those willing to take risk in expectation of
…
French Unemployment Hits 12-Year High (It’s Going to Get Much Worse)
by ilene - December 30th, 2011 5:02 pm
French Unemployment Hits 12-Year High (It’s Going to Get Much Worse); Sarkozy Outlines Jobs Plan (Mathematically It Can’t Work); Olli Rehn to Give Keynote Speech at Eurobond Seminar
Courtesy of Mish
The EU Observer reports France to hold jobs summit as unemployment hits 12-year high
A sharp rise in France’s unemployment figures is putting pressure on President Nicolas Sarkozy to deliver, with over half the French population wanting the candidates for the spring presidential election to focus their energies on maintaining jobs.
Figures released by the labour ministry this week show that the number of those unemployed hit 2.85 million in November, a 12-year high and the seventh consecutive monthly increase.
The numbers have sparked a debate in France about the nature and future of employment with Sarkozy convening a jobs summit on 18 January.
Unemployment as an issue is a number-one priority on French voters’ minds. According to a poll in La Croix newspaper, 52 percent of French people want the candidates for the April presidential elections to focus on responses that "maintain employment."
Of the main candidates in the running, socialist contender Francois Hollande is seen as proposing the best solutions to the daily problems of French citizens by 24 percent of those polled. Sarkozy comes in second with 20 percent and far-right politician Marine Le Pen in third place (16%).
While all candidates will focus on combatting unemployment and there are set to be many proposals for economic growth, their hands will be tied by France’s commitment to reduce its high budget deficit, as part of an overall plan to contain the eurozone debt crisis.
Sarkozy Outlines Jobs Plan Based on German Program (Mathematically It Can’t Work)
The Wall Street Journal Reports Sarkozy Outlines Jobs Plan
Largely inspired by measures Germany relied on to navigate the 2009 economic recession, [Sarkozy's] draft plan calls for companies to retain all staff even if they are faced with a slump in orders, and for workers to accept lower pay. As an incentive and to help pay for the move, the government would kick in for some of the lost wages and social-security contributions, according to officials at the French Labor Ministry and union leaders who were briefed on the proposed pact.
Mr. Sarkozy intends to discuss both the job-saving scheme, and the flexibility idea at a meeting with labor and employer unions on Jan. 18.
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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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