by Zero Hedge - September 25th, 2011 11:35 pm
Submitted by thetechnicaltake.
After last week’s selling pressure, investor sentiment remains ugly and bearish. This is expected. Nonetheless, prices on the SP500 still remain above our “line in the sand” at 1133.65. This level was tested and so far has held. This sets up a low risk entry for those looking to go long. But understand this is bear market, and capital should be protected vigorously. A weekly close below this key level, while sentiment is bearish, could possibly lead to a waterfall decline (see: “Put Your Hard Hats On”).
For those looking for absolutes, the question as always is which way will the market go, and in the absence of a crystal ball, I don’t think anyone knows. However, there must be some clues out there, and surveying the investing landscape, there are a lot of assets and sectors of the market being taken to the woodshed and shot. Commodities hammered. Emerging markets bludgeoned (for 12% last week). Copper crushed (for 16% this week alone). China slammed. Financials killed. There is a message in all of this selling - isn’t there? Regardless, the major indices still remain above support albeit barely. I guess it ain’t over until it is over. Maybe this is the kind of despair we need to see before the market turns around – is this hopeful thinking too?
In summary, it is ugly but with prices still above support, there is hope.
The “Dumb Money” indicator (see figure 1) looks for extremes in the data from 4 different groups of investors who historically have been wrong on the market: 1) Investors Intelligence; 2) MarketVane; 3) American Association of Individual Investors; and 4) the put call ratio. This indicator shows extreme bearish sentiment, and this is a bull signal.
Figure 1. “Dumb Money”/ weekly
Figure 2 is a weekly chart of the SP500 with the InsiderScore “entire market” value in the lower panel. From the InsiderScore weekly report: “Sentiment remained Neutral as the number of buyers fell -8% week-over-week and the number of sellers increased 29%. Buyers were still in the lead, outpacing sellers 6-to-5, but there was an obvious lack of conviction on both sides of the trade. As was the case the prior week, no sector or industry flashed a…
by Zero Hedge - September 25th, 2011 11:29 pm
Submitted by Tyler Durden.
Against a background of 30%-plus falls in bank share prices around the world and growing fears of a severe blow to the European bank sector in the event of a sovereign debt default, Deutsche Bank has produced a lengthy tome that answers ‘everything you wanted to know about the global banking sector but were afraid to ask’. A compendium of charts and tables, summarized effectively by ‘Danger Maps’ designed to highlight countries which face greater (or lesser) stresses for their banking systems is further extended into a country-by-country breakdown for developed and emerging markets. While their findings may not line up perfectly with our more global contagion perspective, they do create a systematic framework for judging relative investment opportunities that sees Japan, Australia, Hong Kong, and the Nordics as the least risky; US and UK about average on macro scores; while unsurprisingly (with the exception of Germany) the Eurozone countries have the highest danger scores. Transmission channels are discussed and they make a critical point on bank valuations that earnings estimates are extremely sensitive now to bad debt charges and credit quality assumptions.
While using prior crises as a basis for projection may be a faulty premise, the Deutsche team has done a good job of outlining how key drivers, factors, themes will impact/create winners and losers.
And the Danger Maps (for both developed and emerging nations) are as follows – higher number indicates more risk – which in turn is factored into their name-by-name modeling of financials.
The full document is below but the more focused Credit Strategy article this week indicates Deutsche’s view (which remains similar to ours) from a trading perspective, that:
The primary market shutdown has meant that banks are not able to fund long term and given the refinancing needs for Q4 2011 (c.€183 bn) and the next 3 years (€1.5 trn until 2013) we expect term funding to remain stressed unless markets reopen and function normally. And the consequence of this challenge could be deleveraging by banks which is a negative for economic growth. We highlight the redemption schedule on a month by month basis and by security type along with the banks with the biggest redemptions inside the article.
The lack of long term funding
by Zero Hedge - September 25th, 2011 10:44 pm
Submitted by RickAckerman.
With deflation tightening its choke-hold on the global economy, we thought we’d drop in on our supposed nemesis, Gonzalo Lira, to see how he was coping in these very un-hyperinflationary times. To his credit, the erstwhile arch-inflationist, bending to reality, has acknowledged forthrightly that deflation rules the economic and financial worlds right now. “Yields are low, unemployment up, CPI numbers are down (and under some metrics, negative) – in short, everything screams ‘deflation.’ ” He wrote those words a month ago in an essay entitled How Hyperinflation Will Happen, and although we are obliged to point out below certain dangers in relying too heavily on the scenario he describes, readers should trust, as we do, that he has gotten the big picture right. For, as he asserts, economic recovery is no longer remotely possible for the U.S. Nor is it a case of double-dipping into recession, as most economists and the mainstream media would have it. In fact, as Lira flatly declares, we never emerged from the first recession. The inevitable result, he says – and we must unfortunately concur — is that an epic financial panic centered on the dollar’s collapse is coming, and it will push the U.S. from intractable recession into full-blown Depression.
As to how we might prepare for this, Lira has his ideas and we have ours. Possessing physical bullion in any form, as he would doubtless agree, will be a part of the solution no matter what. Where we part company, however, is on the crucial question of whether any of us will be able to respond defensively, let alone advantageously, once the avalanche has begun. While Lira talks about shifting assets from paper to real goods as hyperinflation plays out, our fear is that the dollar’s complete destruction will occur so swiftly – think May 2010’s flash crash, but on a global scale – that there will be no chance for anyone to liquidate intangibles (to whom?) in order to replace them with real goods. For all we know, the world’s bourses will be shuttered for a week or longer, diverting angry mobs to branch banks that, as the mobs will discover, hold precious little cash in their vaults. Under the circumstances, it’s possible investors will have no opportunity to get money out of banks, or…
by Chart School - September 25th, 2011 10:35 pm
Courtesy of Doug Short.
Note from dshort: On Thursday of last week the 10-year yield hit an all-time closing low of 1.72. It rose 12 basis points to close the week at 1.84. The 56 economists who participated in the WSJ monthly survey back in January had an average 2011 year-end forecast of 3.97 for the 10-year note see chart. The September forecasts were much lower, averaging 2.37 (see update). The yield trend since the publication of the September suggests that we’ll see further downward revisions next month.
Let’s have a look at a long-term perspective on Treasury yields. The chart below shows the 10-Year Constant Maturity yield since 1962 along with the Federal Funds Rate (FFR) and inflation. The range has been astonishing. The stagflation that set in after the 1973 Oil Embargo was finally ended after Paul Volcker raised the FFR to 20.06%.
Now let’s overlay the S&P 500 to see historical pattern of equities versus treasuries. This is a nominal chart, which significantly distorted the real value of both yields and equity prices.
Here’s the same chart with the S&P 500 adjusted for inflation and the annualized inflation rate subtracted from the yields. The impact of stagflation becomes much clearer. We can better understand the severity of the decline in equities from the mid-1960s to the bottom in 1982. And we can also see why high yields can be deceptive in periods of double-digit inflation.
The most interesting series in the charts is the FFR red line. We can see how the Fed has used rate to control inflation, accelerate growth and, when needed, apply the brakes. Unfortunately, the FFR has been virtually zero since December 2008, so it is no longer available as a tool to stimulate the economy. Incidentally, I annotated the top chart with the tenures of the last three Fed chairmen so we can see who was managing the various FFR cycles since the summer of 1979.
The next chart is based on daily data and adds some additional Treasuries for a close look at yields since 2007.
I update the long-term charts each weekend and the last chart more frequently, depending on yield volatility.
by Chart School - September 25th, 2011 9:35 pm
Courtesy of Doug Short.
It’s time again for the weekend update of our “Real” Mega-Bears, an inflation-adjusted overlay of three secular bear markets. It aligns the current S&P 500 from the top of the Tech Bubble in March 2000, the Dow in of 1929, and the Nikkei 225 from its 1989 bubble high.
The chart below is consistent with my preference for real (inflation-adjusted) analysis of long-term market behavior. The nominal all-time high in the index occurred in October 2007, but when we adjust for inflation, the “real” all-time high for the S&P 500 occurred in March 2000.
Here is the nominal version to help clarify the impact of inflation and deflation, which varied significantly across these three markets.
See also my alternate version, which charts the comparison from the 2007 nominal all-time high in the S&P 500. This series also includes the Nasdaq from the 2000 Tech Bubble peak.
by ilene - September 25th, 2011 8:58 pm
Courtesy of www.econmatters.com.
Crude oil tanked to its lowest in more than six weeks, amid a broad selloff in other commodities and equities with investors increasing fear of another global recession after the U.S. Federal Reserve warned of “significant downside risks” to the U.S. economy on Thursday, Sept. 22. Oil prices plunged $5.00 a barrel on that day, and as of Friday, Sept. 23, WTI sank to $79.96 a barrel, while the ever relentless Brent also retreated to $103.97.
Market expectation is that crude oil prices are expected to continue to fall in the coming week on concern economic growth will slow in the U.S. and China, according to a Bloomberg survey. However, Financial Times noted a diverging expectation between the financial and physical traders:
“The crude oil market is witnessing a titanic battle: some macroeconomic hedge funds are betting on a drop in prices yet most physical traders are placing wagers that prices will rise.”
Reuters also reported in mid September that lower production and disruptions to North Sea, plus the loss of Libyan crude exports have “combined to produce an extraordinary backwardation across European crude markets.” Backwardation refers to the market condition where the price of a futures contract is trading lower than the spot price, which typically reflects a tight supply market for immediate purchases and deliveries.
A similar split is also observed in the gasoline and diesel product markets. Bloomberg cited a report from API (American Petroleum Institute) that distillate fuel deliveries, which include diesel and heating oil, hit record highs, rising 11% year-over-year to 4.15 million b/d for the August month, while motor gasoline deliveries fell to a 10-year low. (See Charts Below). Overall, year-to-date product consumption averaged 19.1 million a day, down 0.3% from a year ago.
|Chart Source: EIA|
|Chart Source: EIA|
by Insider Scoop - September 25th, 2011 8:10 pm
Courtesy of Benzinga.
Rio Tinto (NYSE: RIO), the world’s second-largest mining company, may be mulling a spin-off of its Australian aluminum business, according to a report in the Australian Financial Review. The company has been in talks with Macquarie Group and PricewaterhouseCoopers to discuss options for the business, the newspaper reported.
Rio Tinto said last week it may consider the sale of two non-specified assets to boost EBITDA.
Rio Tinto has three refineries, three smelters and two bauxite mines in Australia. The company is likely to hold onto the bauxite mines because of their profitability the Financial Review reported.
BHP Billiton (NYSE: BHP) is the world’s largest mining company.
by Zero Hedge - September 25th, 2011 6:55 pm
Submitted by Tyler Durden.
The man who singlehandedly took "I would recommend you panic" and made it into one of the catch phrases of the year (if not decade), and who has recently been in a self-imposed media blackout, had a rare media appearance when late last week he appeared on the BBC show The Bottom Line Evan together with Guy Berruyer, chief executive of global business software supplier Sage Group; and internet entrepreneur Brent Hoberman, founder of online interior decoration business mydeco.com.
Obviously we were mostly interested in what Hugh would say, and luckily he did say quite a lot, if nothing too shocking for those familiar with his generally cheery outlook on the world. Among the snazzy soundbites was his explanation that the UK is not in a recession, but a depression, something Zero Hedge has been saying about the entire, never mind England, for the past 2.5 years, and the proceeds to give the rational breakdown of the Greek situation, which as everyone knows is that it is purely due to political power grabbing and banker greed and financial innovation allowing the masking of reality. As for the outcome, we all know it: Greece defaults, creditors take major haircuts, speculators get blamed, etc.
Fast forward to 6:30 into the clip for the primary part of Hendry’s expostulation.
Bottomline 20110922-2100a by user5452365
And while he may not have had anything new to add to our outlook on the world, he did have some very entertaining suggestions on grooming for hedge fund managers. Watch those in the clip below.
by Chart School - September 25th, 2011 6:35 pm
Courtesy of Doug Short.
Note from dshort: After posting my weekend update of the eight world markets I track, I took a quick look at Australia’s All Ordinaries Index to see how it has been faring since my last All Ords post on September 7th. The index fell 5.94% last week and crossed below the 20% decline benchmark for a cyclical bear market on Thursday. The All Ords is currently 21.4% below its interim high, set on April 11th.
What would the S&P 500 look like without the Tech Bubble? Perhaps something resembling Australia’s All Ordinaries Index. I’ve included the S&P 500 in the background to support the idea.
I’m not a technical analyst, but the twin peaks in the S&P 500 over the last dozen years looks like a double top. On a smaller scale the shape of the All Ords since the 2009 trough also has a bit of “twin-peaks” appearance.
There are some who might view the All Ordinaries dramatic 56-month rise to the 2007 peak as a bubble. While the All Ords may indeed have become frothy, it’s no match for a couple of widely acknowledged historic bubbles.
Footnote: Why the linear regression in the top chart? I included it merely to give a sense of what a mathematically precise line through the daily closes would look like. The regression divides the closes so that they are, in simple terms, evenly divided above and below the line.
S&P Reminds Europe Of Its Toxic Catch 22, Warns EFSF Expansion Will Lead To More Sovereign Downgrades, Rendering EFSF Itself Useless
by Zero Hedge - September 25th, 2011 6:33 pm
Submitted by Tyler Durden.
Finally, little by little, the fog of toddler-like euphoria over any and every most recent European bailout plan is starting to lift, this time with the S&P finally speaking up and reminding everyone of what they already know: namely that an expansion of that now-daily deux ex machina, the EFSF, will "potentially trigger credit rating downgrades in the region, a top Standard & Poor’s official warned. David Beers, the head of S&P’s sovereign rating group, said it is still too soon to know how European policymakers will boost the European Financial Stability Facility, how effective that will be and its possible credit implications….But he said the various alternatives could have "potential credit implications in different ways," including for leading euro zone countries such as France and Germany." Get that? As Zero Hedge said back on July 21, the European bailout Catch 22 is now once again front and center, namely that any expansion in the EFSF will lead to a downgrade in one of the two Eurocore countries, France or Germany, and should France get cut from AAA (which it will), the entire burden of footing the European bailout bill will fall on Germany. And if Germany is also downgraded to AA, kiss your SPV CDO goodbye, and with it Europe. Which means that while we will hear many more threats by both and against S&P, more posturing that the EFSF will be enhanced to tens if not hundreds of trillions with virtually unlimited leverage, however idiotic those may be, the end result is just one: whether or not Germany risks a full blown government collapse by instituting the only thing that has a chance of containing the crisis – EuroBonds. Of course, shoul those come to be, the German Pirate party will very soon have an absolute majority in the German parliament… and shortly thereafter in various previously unheard of beer halls.
Some choice S&P quotes from Reuters:
"There is some recognition in the euro zone that there is no cheap, risk-free leveraging options for the EFSF any more," Beers told Reuters.
"We’re getting to a point where the guarantee approach of the sort that the EFSF highlights is running out of road." Beers said in an interview late on Saturday.
Beers declined to comment on implications of each of the