Stock Market Is Not Physics: Part IV
by ilene - December 30th, 2011 2:52 pm
Stock Market Is Not Physics: Part IV
By Elliott Wave International
The following series is excerpted from two classic issues of Robert Prechter’s Elliott Wave Theorist. Although originally published in 2004, the valuable series has been re-released in the Independent Investor eBook, along with over 100 pages of other reports that challenge conventional economic thinking.
Here is Part IV of the series. Click these links to read Part I, Part II, and Part III. Or you can download your free copy of the Independent Investor eBook here.
Another Example of Rationalization, Ripped from the Headlines
Almost every day brings another example of rationalization in defense of the idea that news moves markets. The stock market rallied for half an hour on the morning of April 20, peaked at 10:00 a.m., and sold off for the rest of the day. Almost every newspaper and wire service claims that the market sold off because "Greenspan told Congress that the nation’s banking system is well prepared to deal with rising rates, which the market interpreted as a new signal the Fed will tighten its policy sooner rather than later."3 Is this explanation plausible?
Point #1: Greenspan began speaking around 2:30, but the market had already peaked at 10:00.
Point #2: Greenspan said something favorable about the banking system, not unfavorable about rates. A caption in The Wall Street Journal reads, "Greenspan smiles, markets don’t."4 The real story here is that the market went down despite his upbeat comments, not because of them.
Point #3: Greenspan’s speech was not the only news available. Most of the other news that day was good as well. As the AP reported, profits of corporations were good and "most economists don’t expect the Fed to raise rates at its next meeting." So if news were causal, then on balance the market should have risen.
Point #4: The Fed’s interest rate changes lag the market’s interest rate changes. Interest rates had moved higher for months. Even if Greenspan had stated (which he didn’t) that the Fed would raise its Federal Funds rate immediately, it would have been no surprise.
Point #5: Greenspan said nothing that people didn’t already know, so while the fact of the speech was news, there was no news in
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DiggBarclays Accused of Criminal fraud for Golden Key in Geneva
by Zero Hedge - December 30th, 2011 2:46 pm
Courtesy of ZeroHedge. View original post here.
Submitted by EB.
Submitted by Teri Buhl
A criminal complaint has been filed against Barclays in Geneva, Switzerland this week for its role in a $1.4 billion structured investment vehicle (SIV) called Golden Key. The Barclays arranged and structured SIV blew up in spectacular fashion in 2007 and a French asset management firm, Oddo, tried to sue the British bank for fraud in a New York court but got the motion tossed, in 2009, on a technicality. So now one independent investor from Geneva has foregone the US court system and filed his own criminal complaint against the bank and the collateral manager they hand picked — Avendis Capital a Swiss asset management company.
Golden Key was considered a SIV-lite, meaning it would raise an amount of capital, borrow money in the short-term commercial paper debt market, and then invest all of this money in higher interest rate bearing instruments such as, mortgage-backed securities, in its strategy for high returns. Investors in Golden Key originally sued, in 2008, because they believed BarCap was sitting on a bucket of rmbs they needed to off-load and the bank arranged for the SIV-Lites to expand their size by increasing their borrowings and use these borrowing to take the toxic securities off Barclays’ hands. The idea was collateral managers like, Avendis, were buddy-buddy with BarCap executives who were in charge of selling and creating the SIV, and would basically let BarCap pick the collateral for the SIV.
This is a method we’ve seen before in CDO fraud cases brought against Goldman and Merrill Lynch. But in the Barclays suit they didn’t have any hard evidence like emails from Avendis and Barclays’ executive, Kelsey Burr, detailing their cozy relationship or plan to screw investors in the name of saving Barclays’ balance sheet. Well now they do.
The Geneva investor, Philippe Rebourg of Coficap, just happen to get a hold of some damaging internal Barclays comunication, which are now evidence in his criminal complaint. You see in some European countries citizens can file their own criminal complaints when the local D.A. or…
Friday Humor: Unspinning The “€100 Bill” Or How The European Bailout REALLY ‘Works’
by Zero Hedge - December 30th, 2011 2:44 pm
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
By now everyone has heard the parable explaining how the entire European bailout, courtesy of near-infinite fractional reserve banking, can be taken care of using one €100 bill. Or so the yet again flawed economist thinking went. Unfortunately, this was just a parable, and a massively flawed one at that. As the below interaction between a ZH reader and his broker elucidates, here is what this idealized story would look like in the real world, that as we explained before, is drowning in about $21.2 trillion in excess debt.
BROKER’S EMAIL:
It is a slow day in a little Greek village. The rain is beating down and the streets are deserted. Times are tough, everybody is in debt, and everybody lives on credit. On this particular day a rich German tourist is driving through the village, stops at the local hotel and lays a €100 note on the desk, telling the hotel owner he wants to inspect the rooms upstairs in order to pick one to spend the night. The owner gives him some keys and, as soon as the visitor has walked upstairs, the hotelier grabs the €100 note and runs next door to pay his debt to the butcher. The butcher takes the €100 note and runs down the street to repay his debt to the pig farmer. The pig farmer takes the €100 note and heads off to pay his bill at the supplier of feed and fuel. The guy at the Farmers’ Co-op takes the €100 note and runs to pay his drinks bill at the taverna. The publican slips the money along to the local prostitute drinking at the bar, who has also been facing hard times and has had to offer him “services” on credit. The hooker then rushes to the hotel and pays off her room bill to the hotel owner with the €100 note. The hotel proprietor then places the €100 note back on the counter so the rich traveler will not suspect anything. At that moment the traveler comes down the stairs, picks up the €100 note, states that the rooms are not satisfactory, pockets the money, and leaves town.
No one produced anything. No one earned anything. However, the whole village is now out of debt and looking to the future with a…
Weekly Bull/Bear Recap: December 26-30, 2011
by Zero Hedge - December 30th, 2011 2:38 pm
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
Submitted by Rodrigo Serrano of Rational Capitalist Speculator,
Bull
+ U.S. manufacturing continues to show signs of steady growth. The economy isn’t headed towards recession. The Chicago ISM reports that its PMI report fell a smidgen, from a 7-month high to 62.5. Order Backlogs are at their strongest level since April and will keep activity elevated in the region. Meanwhile, the Richmond Manufacturing Index indicates stabilization, particularly in New Orders. Need more evidence? Take a look at the most recent ATA Truck Tonnage Index (released Dec. 21), and Rail Traffic Report.
+ The Housing Market is the gift that keeps on giving. Pending Home Sales rise a better than expected 7.3% MoM vs. expectations of a 1.5% rise. The metric is at its highest level in more than a year. This increased activity is occurring during the historically weak winter season. Housing demand has clearly stabilized and a steadily growing construction sector will produce the jobs needed to breathe new vigor into the recovery (i.e. a positive feedback loop). The Spider Homebuilding ETF (XHB) is hovering near 5-month highs and has broken above its 200-day moving average.
+ Demand for Italian paper improves. 6-month bills are issued to strong demand. The issue yields 3.25%, down from double that rate in late November. 10-yr BTPs price at a yield of 6.98%, which is much lower than the 7.56% level an issue priced in late November. U.S. stocks markets took the results in stride. Italy has clearly moved back from the precipice. Monti confirms this view.
+ U.S. consumer confidence continues its firm recovery. The Conference Board reports that its survey of consumer confidence rose nearly 10 points, continuing a remarkable 2-month 23.6 increase. The report cites an improving job market. These results mirror recent improvement in Gallup’s poll of consumer confidence and last week’s University of Michigan’s survey result. Meanwhile, the National Restaurant Association reports that its Performance Index rose to 100.6; “Restaurant operators reported their strongest net positive same-store sales results in more than four years, while customer traffic levels also grew in November.” Hotels finish 2011 in strong fashion.
+ The U.S. Treasury does not label China a currency manipulator and…
ECRI Recession Call: Growth Index Virtually Unchanged for Seven Weeks
by Chart School - December 30th, 2011 2:35 pm
Courtesy of Doug Short.
The Weekly Leading Index (WLI) growth indicator of the Economic Cycle Research Institute (ECRI) posted -7.6 in its latest reading, data through December 23. The latest public data point is virtually unchanged from last week’s -7.7. The index has been hovering in a narrow range between -7.4 to -7.8 for the past seven weeks. Those of us who follow this indicator are nervously awaiting a confirmation or reversal of the trend.
Earlier this month 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 entirely.
As I’ve repeatedly emphasized, ECRI’s recession call is quite controversial in financial circles. The perma-bears are generally supportive of the forecast, while the predominantly bullish mainstream financial view ranges from skeptical to dismissive. The bullish view was supported yesterday by the latest Conference Board Leading Economic Index update. One of the Board’s economists forecast “continued growth this winter, possibly even gaining momentum by spring” (more here).
See also the fascinating article, A peek inside ECRI’s black box, by an anonymous analyst who uses “New Deal democrat” as a by-line. The article shares the mainstream skepticism of ECRI’s recession call, but it does so with an intelligent commentary and several supportive graphs.
Background
On September 30th, ECRI publicly announced that the U.S. is tipping into a recession, a call the Institute had announced to its private clients on September 21st. Here is an excerpt from the announcement:
Early last week, ECRI notified clients that the U.S. economy is indeed tipping into a new recession. And there’s nothing that policy makers can do to head it off.
ECRI’s recession call isn’t based on just one or two leading indexes, but on dozens of specialized leading indexes, including the U.S. Long Leading Index, which was the first to turn down — before the Arab Spring and Japanese earthquake — to be followed by downturns in the Weekly Leading Index and other shorter-leading indexes. In fact, the most reliable forward-looking indicators are now collectively behaving as they
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Mark Hurd Probably Deserved to get Sacked at HP
by Insider Scoop - December 30th, 2011 1:45 pm
Courtesy of Benzinga.
A number of very embarrassing details surrounding former Hewlett-Packard (NYSE: HP) CEO Mark Hurd’s resignation from the company last year have been made public in a letter sent to Hurd from his accuser’s attorney Gloria Allred. Hurd, who is now a president at Oracle (NASDAQ: ORCL), fought to keep the letter from being released, but a Delaware Supreme Court ruled yesterday that it should be unsealed as part of a shareholder lawsuit against Hewlett-Packard.
In the wake of Hurd’s departure, HP shares have performed abysmally, falling around 45%. Hurd was seen as a Silicon-Valley superstar, and the scandal and his subsequent resignation, played a significant part in the company’s poor performance in the minds of many shareholders. As a result, they have been seeking more details about the scandal to determine if the board was right in forcing him out.
The letter outlines Hurd’s conduct with Jodie Fisher, a former model and actress, who worked as an events coordinator at Hewlett-Packard. Her job was to introduce Hurd to major HP customers at business events both in the United States and abroad. Hewlett-Packard’s investigation absolved the former CEO of the sexual harassment allegations, but it did uncover expense report irregularities and determined that Hurd had violated its standards of business conduct.
On August 6, 2010, Hurd resigned from his position and settled with Foster shortly thereafter in order to keep the details of the allegations under wraps. Reports indicate that Foster was payed between $1 million and $2 million to keep quiet. The letter sent by Allred to Hurd outlines a pattern of behavior related to the executive’s sexual pursuit of Fisher. In a surreal turn, Allred recounts that Hurd first became aware of Fisher through her appearance on a reality show called “Age of Love,” which she appeared on from May to June of 2007. The attorney writes that the CEO was “quite taken with her,” referring to her client, Fisher.
Subsequently, Hurd arranged for Fisher to be contracted as an events coordinator for HP. Allred argues in her letter that, “Looking at what ensued over the next two years, it is clear you had designs to make her your lover from…
Guest Post: New Asian Union Means The Fall Of The Dollar
by Zero Hedge - December 30th, 2011 1:42 pm
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
Submitted by Brandon Smith from Alt Market
New Asian Union Means The Fall Of The Dollar
One of the most frustrating issues to haunt the halls of alternative economic analysis is the threat of misrepresentative terminology. For instance, when the U.S. government decided to back the private Federal Reserve in lowering the interest rates on lending windows to European banks last month, they did not call this a bailout, even though that’s exactly what it was. They did not call it quantitative easing, or fiat printing, or a hyperinflationary landmine; rarely does bureaucracy ever apply honest terminology to their subversive activities. False terminology is the bane of every honest analyst, because in order for them to educate and awaken those who are unaware of the truth, they must first battle through the daunting muck of the general public’s horrifically improper perceptions and vocabulary.
The chain of financial events taking place over the past decade in Asia have been correspondingly mislabeled and misunderstood. What some economists see as total collapse is actually a new and decidedly prophetic (or engineered) transition. What some naively see as the “natural” progression of globalism, is actually a distinctly deliberate program of centralization meant to further the goals of world economic and political totalitarianism. Asia, and most especially China, is a Petri dish for elitist psychopaths. What we see as suffocating collectivism in this region of the world today is the exact social schematic intended for the West tomorrow. Call it whatever you will, but on the other side of the Pacific, like the eerie smile of a sinister clown, sits fabricated fate.
The genius of globalization is not in how it “works”, but in how it DOESN’T work. Globalization chains mismatched cultures together through circumstance and throws us into the deep end of the pool. If one sinks, we all sink, enslaving us with interdependency. The question one must ask, then, is if all sovereign economies are currently tied together in the same way? The answer is no, not anymore. Certain countries have moved to insulate themselves from the domino effect of debt implosion, one of the primary examples being China.
Since at least 2005, China has been taking the exact steps required to counter the brunt of a global debt collapse; not enough to make…
Wrestling with the Big Picture
by Chart School - December 30th, 2011 1:35 pm
Courtesy of Doug Short.
Advisor Perspectives welcomes guest contributions. The analysis and recommendations presented here do not necessarily represent those of Advisor Perspectives.
As we close out the year, a common tradition is to look back over the past 12 months for a sense of how the market is doing. Instead, let’s take a broader perspective and examine the big picture over the past few decades. The chart below illustrate that the Dow and S&P 500 continue to be influenced by key falling channels and resistance lines.
As we look towards the New Year and plan strategic asset allocation decisions, we would want these major resistance lines to be taken out to the upside before we consider overweighting towards equities.
All the best to everyone in 2012 and beyond.
(c) Kimble Charting Solutions
blog.kimblechartingsolutions.com
Complete European Sovereign Issuance Calendar
by Zero Hedge - December 30th, 2011 1:27 pm
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
Earlier in the week, we discussed at length the funding gaps that various European sovereign nations face as the gap between supply and coupon/redemptions can’t be assumed to be rolled away (and Europe faces EUR43.5bn of net cash-flow surplus from sovereigns into the ‘market’). In order to better comprehend the timeline, Morgan Stanley has published both the complete issuance calendar for European bonds and bills over the next five weeks as well as a breakdown of the flows that are dominated by next week and the first week of February.
Bond Calendar…Thursday 5th January seems important for the French…
Bills…
and the net flows…
and Supply vs Redemptions/Coupons…
It seems the market this week is starting to reprice for this risk in Italy and France not being able to roll so easily (and perhaps front-run that ‘cash-flow’ into US Treasuries as a haven).
German
Spanish
French
Italian
Portuguese
Japanese
Korean
Russian
Chinese
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