Archive for 2011

Et tu, Commodities?

Courtesy of The Automatic Earth 

Detroit Publishing Co. Apocalypse Then April 18, 1906 
"Looking up Market Street from near Ferry", San Francisco in the aftermath of the earthquake and fire

Stoneleigh: Our most consistent theme here at The Automatic Earth has been the developing deflationary environment and the knock-on effects that will follow as a result. Now that the rally from March 2009 appears to be well and truly over, it is time to revisit aspects of the bigger picture, in order for people to prepare for a full-blown liquidity crunch. October 2007-March 2009 was merely a taster. 

As we have explained before, inflation and deflation are monetary phenomena – respectively an increase and decrease in the supply of money plus credit relative to available goods and services – and are major drivers of price movements. They are not the only price drivers, to be sure, but they are usually the most significant. People generally focus on nominal prices, when understanding price drivers is far more important. A focus merely on nominal price also obscures what is happening to affordability – the comparison between price and purchasing power. 

We have lived through some 30 years of inflationary times, since the financial liberalization of the early 1980s under Reagan and Thatcher initiated the era of globalization. Money freed from capital controls was free to look for opportunities worldwide, and the resulting global economic boom greatly increased trade, resource consumption, financial interconnectedness and the multiplier effect for monetary expansion.  

The increased purchasing power that resulted, largely for the better off, found its way into asset markets around the world, allowing people to bid up prices. This created a psychological ‘wealth effect’, which spawned an orgy of consumption through borrowing against rising nominal assets values. This in turn led to greater monetary expansion, since money is lent into existence. Fractional reserve banking, securitization, the enormous expansion of the shadow banking system and many other factors acted as engines of monetary expansion. 

This spiral of positive feedback started slowly, but gradually morphed into a global mania of epic proportions. Caution was thrown to the wind, debt expanded exponentially, risk multiplied, wealth concentration increased with higher returns to capital and consumption became almost frenetic where increasing purchasing power supported it. At the…
continue reading





As Stock And Sector Correlation Hits Fresh 20 Year Highs, Here Is Who Is Benefiting

Courtesy of Zero Hedge

There was a time when being short was a bad idea. Not anymore. As David Kostin’ summarizes in his latest weekly chart packet, the level of 3 month S&P and sector correlation is now at a 20 year high, an environment which never leads to good outcomes for long-only whales, and which has led to sizable outperformance for hedge funds due to their recent loading up on short positions. To wit: "S&P 500 three-month correlation is 0.73, the highest in at least the past 20 years, and up from just 0.44 at the start of August. Sector correlation is similarly high, with all major S&P sectors experiencing realized correlation above their 95th percentile since the late 1980s. While it is difficult to specify a cause for higher correlation, a spike in S&P futures and ETF trading volumes and parallel reduction in open interest held by institutional and levered funds as reported by the Commodities and Futures Trading Corporation (CFTC) indicate significant de-risking in August."

What does that mean for recent performance? Nothing good if one is a mutual fund: "Elevated correlation is generally considered a poor environment for long-only fundamental investors. In highly correlated sell offs the market does not discriminate based on company fundamentals, reducing the value of stock picking. Recent performance trends support that case." As a result hedge fund LPs are doing ok: "The typical hedge fund has generated a 2011 YTD return of -1% through August 19 compared with a -10% decline for the S&P 500 and an -11% return for the average large-cap core mutual fund." Alas, if the hedge fund in question is Paulson & Co., this average statistic is very misleading.

Some more:

The 2011 hedge fund return story has two chapters. Hedge funds trailed during the first-half, posting flat returns on average with a 550 bp standard deviation while the S&P 500 rose 6% and mutual funds advanced 5%. However, the correction has pushed the S&P 500 3Q-to-date return to -15% as of August 19, while the typical hedge fund returned -2%. The distribution is wide as about 10% of funds returned 10% or more and 10% were down at least 10%.

What are hedgies holding?

Hedge funds are most overweight Consumer Discretionary, Info Tech and Materials. During


continue reading





Weekly Market Commentary: Markets Oversold But In No-Mans Land

Courtesy of Declan Fallon

Markets are caught in an unusual state. From the perspective of breadth they are still oversold, but on a support/resistance basis they are caught in a bit of a no-mans land (with the exception of the Nasdaq 100).

The Nasdaq is oversold technically but not close to a weekly support zone to make it attractive to long term buyers, despite the defense of an early August swing low on the daily time frame. Weekly buying volume was light and below prior weekly selling.

The Nasdaq 100 is best positioned to lead markets higher. A thick band of support runs from 2,130 up to 2,217, as marked by 2007 reaction highs. The index isn’t yet oversold but it wouldn’t take much selling to push it there.

Where bulls hold the cards on the weekly time frame is in market breadth. Nasdaq Bullish Percents were little changed on the week but are well within market bottom territory. Even if a market bottom is not in play it’s likely not far away (at least a decent trading low).

The Percentage of Nasdaq Stocks above the 50-day MA remains below 10% for a third week in a row. Last time it traded below 10% was in October 2008 and a major reaction low emerged soon after.

The Russell 2000 was one of the indices smack bang in the middle of weekly support and resistance. Stochastics [39,1] are oversold and this is usually enough to mark a decent bottom.

Likewise, the S&P sits in a similar predicament, although its broader underperformance is a larger concern. It remains a long way from challenging 2007 highs. However, stochastics [39,1] are oversold.

The big plus for the S&P is the Percentage of S&P Stocks above the 50-day MA made an all-time low. It only climbed above the 10%


continue reading





PIMCO Missed the Trade of the Year in the Treasury Market

Courtesy of www.econmatters.com.

By EconMatters

PIMCO who specializes in Bonds, having the largest bond fund in the world could not have been more wrong about an asset class, which is surprising considering their experience in this sector. Bill Gross`s official declaration that his firm was shorting the US Treasury Market on April 11th of this year to the day marked the literal double bottom in price/high in yield for the year, and it has been one heck of a one-way trade in the opposite direction ever since.

Major Move – Trend Traders Dream

On April 11th the 10-Year Treasury was yielding 3.57% and on August 19th it reached a low yield of 2.06% that is a 151 basis point move in a little more than four months. Somebody at PIMCO is going to be receiving the lower end of their discretionary bonus range at the end of the year that`s for sure. But how could they make this mistake in the first place?

“Sell in May, and Go Away” – Pattern Recognition?

We, at EconMatters, used last year as a template and forecast the exact opposite trade around the same time in April as Bill Gross was going short the Treasury Market. We stated in one of several pieces on the subject our hypothesis for the summer:

“If we look back at last year for guidance, we remember that the Greek and European crisis was known for months, the selloff only occurred when conditions were optimal. As in, the Fed removing stimulus from asset prices, limited upside gains versus substantial downside correction losses.

Then all of the sudden we had a crisis on our hands, only differentiated by the fact that Sellers stepped into the market, and all the sudden, bad news was everywhere. It is only bad news in market terms if buyers decide to sell, and just like in 2010, the above reasons serve as likely catalysts for similar selling this year around this time. Think along the lines of a 20-25% correction in most asset classes over the next 4 to 5 months.

Just think how much better your portfolio would look if you locked in your profits last April, parked your money in a money market fund, waited


continue reading





Capital Flight Proves Confidence in European Interbank System has Collapsed

Courtesy of Mish

Capital flight from European banks has now reached such a state that for one undisclosed bank needed emergency funding last week for a mere $5 million. Previously, the ECB stepped in to provide $500 million in emergency liquidity measures to non-disclosed banks. 

As money flees Europe, it lands in US banks that do not know what to do with it. Capital flight has led to negative interest rates in the US. 
 

Duration U.S. Japan Germany UK
3-Month -.01 0.10 0.97 0.51
6-Month 0.02 0.11 0.56 0.59
12-Month 0.08 0.12 0.59 0.53
2-Year 0.19 0.14 063 0.59
3-Year 0.32 0.17 0.67 0.75
5-Year 0.93 0.34 1.20 1.36
7-Year 1.52 0.59 1.63 1.84
10-Year 2.18 1.04 2.14 2.49
30-Year 3.55 2.01 2.98 3.75

Swelling US Deposits as Money Flees Europe 

For a look at European Bank funding needs please see 8 Trillion Euros in Borrow-Short Lend-Long Madness at European Banks; Circuit-Breaker Silliness; Dash for Cash Sends Short-Term Rates Negative Again 

"Lehman-Like" Credit Crunch Hits EU 

For discussion of the European credit crunch and $500 million in emergency liquidity measures to undisclosed banks, please see"Lehman-Like" Credit Crunch Hits EU; ECB Will Not Disclose Affected Banks; Euro-Style Anxiety Spreads to U.S. 

$5 Million in Emergency Funding 

$5 million is a trivial amount. That a bank would need it is not. 

Jean-Pierre Chevallier writing on Business économiste monétariste behavioriste discusses the stetup in his latest post ECB: no more bets! More…

The situation is out of control in the euro zone, as I have been writing it for a while… 

The interbank market does not work because euro-zone banks managers have lost confidence in other banks. So they keep their cash in US$ rather than lending it to other banks that need it as they would in normal times: ECB had loaned $5 million to a bank on August, 25. 

ECB had previously loaned $500 million (USD) on August 17. This caused a flash-crash in U.S. markets. 

The problem is serious.

Chevallier notes that the paltry amount of money involved "shows that the interbank system is completely blocked". 

Trust in European banks is shot, and by hiding the banks needing emergency liquidity funding, distrust spreads to all banks in the system. Then again, why shouldn’t distrust spread? 

The entire global financial system is bankrupt. Loans have been made that cannot and will not be paid back. 

Mike "Mish" Shedlock 





Greece 1-Yr Rate 60%; Finland Retains Collateral Demand; Multiple Veto Points; ECB “Litmus Test” Coming Up; Germany Accuses ECB of Treaty Violations

Courtesy of Mish

Once again the bond markets have spoken, and once again the message is the same: default. Greek two-year bonds are near 44%, having touched as high as 46%. The interest rate on 1-year Greek government debt is a stunning 59.8%. 

Greek 1-Year Government Bonds

 

Greek 2-Year Government Bonds 

 

44% a year, for two years or whopping 60% for one year, unless of course there is a default. 

Not only does the bond market say Greece will default, but the implied haircuts are huge given those interest rates. 

Greece Not Saved 

Supposedly "Greece was Saved" on that blue circle when yet another bailout (throwing more good money after bad) was approved. 

The deal unraveled for numerous reasons but demands by Finland for collateral are at or near the top of the list. Austria, Slovakia, and the Netherlands now want collateral as well. 

Under great pressure from Germany, the EU, and IMF, Finland allegedly dropped those demands. It was a lie. Finland did not drop demands for collateral, and that shows you the effect of multiple veto points where such decisions must be unanimous or they fall apart. 

17 Veto Points 

Please consider A Small Country — Finland — Casts Doubt on Aid for Greece 

Finland is just one of 17 euro zone countries whose parliamentary approval is needed for the expanded bailout fund and whose domestic politics could upset the process. The case of Finland points to a bigger governance problem in Europe, said James Savage, a professor at the University of Virginia who has published a book on European monetary union. 

“You have all these multiple veto points, so they can’t come to a reasonable conclusion, at least not easily,” Mr. Savage said. “You have increasingly less efficient decisions that are being made.” 

Officials from European Finance Ministries spent much of Friday in long- distance negotiations about the collateral issue but did not reach an agreement. Conflicting reports about the negotiations have fed market confusion. The news media in Germany and other countries reported Friday that Finland had dropped its demands, but


continue reading





Paul Woolley: “The Market Has Become Dangerous For Humanity…It Isn’t Reaching Equilibrium, It Is Falling Into Chaos”

Courtesy of Zero Hedge

For anyone who is still confused why the tail-wags-dog reverse relationship of the stock market as a leading indicator to the economy, and to western civilization in general, can be a problem for said civilization (not to mention the former) once the current iteration of central planning loses control over everything, as it always does, here is an interview between German daily Spiegel and Paul Woolley, a one time fund manager, and currently head of the LSE’s center for Capital Market Dysfunctionality (sometimes affectionately known as the Princeton Economics department) who explains why things are on the edge of a precipice. His message for anyone who thought that Irene may have been a risk: you ain’t seen nothing yet. "The developments in recent weeks have made it quite clear that the markets don’t function properly. Things are spinning out of control and are potentially dangerous for society. Only a fraternity of academic high priests connected to the finance markets is still speaking of efficient markets. Still each market participant is pursuing their own selfish interests. The market isn’t reaching equilibrium — it’s falling into chaos."

From Der Spiegel:

Financial markets are inefficient and growing to the point of overwhelming the economy, according to Paul Woolley, an expert on market dysfunctionality. In an interview with SPIEGEL he explains why it’s up to investors to stop dangerous trends and hold financial institutions accountable.

SPIEGEL: Mr. Woolley, you were fund manager for many years, but went on to found a research institute at the London School of Economics to study why financial markets repeatedly go haywire. Now speculators are once again betting against the euro, and share prices for big companies are falling by 20 percent in a day only to shoot back up again. What is going on?

Woolley: The developments in recent weeks have made it quite clear that the markets don’t function properly. Things are spinning out of control and are potentially dangerous for society. Only a fraternity of academic high priests connected to the finance markets is still speaking of efficient markets. Still each market participant is pursuing their own selfish interests. The market isn’t reaching equilibrium — it’s falling into chaos.

SPIEGEL: You’ve compared the finance…
continue reading





Storm Pennants Are Flying In Stocks and the Dollar

Courtesy of Charles Hugh Smith, Of Two Minds

If we look only at charts and ignore the "news," we see storm pennants are flying in both the stock market and the U.S. dollar.

The stock market is wearing a T-shirt that reads, "I broke a downtrend and all I got was this lousy pennant." Having just returned from nine glorious days camping in Washington State, I have no idea what "news" has effected the markets ("news" in quotes because the news is managed for its PR effect--the real news is what has been suppressed lest it undermine the Status Quo’s carefully cultivated propaganda campaign), and so I have marked up the chart of the Dow Jones Industrial Average (DJIA) and the U.S. dollar without the "benefit" of the news flow.

What pops out is a big fat pennant in both charts. Pennants can be continuation patterns--mere way points in a continuing up or down trend--or they can indicate points of trend reversals.

The key feature of a pennant is the compression of price into a narrowing channel, as the relative indecision of buyers and sellers alike causes price to fluctuate less and less.

At the apex of the pennant (note the triangle shape), the irresolution is resolved, usually in a big way up or down.

If we look at the indicators in the chart of the Dow Industrials (Indoos), we note that the oversold conditions have been worked off, and a very bullish divergence in the MACD indicator (and a positive cross in MACD) has yielded up a meager pennant rather than a clear breakout or trend reversal.

Even if you discount the "death cross" of the 50-day moving average (MA) dropping below the 200-day MA, a declining 50-day MA does not suggest a Bullish resolution to the pennant.

That intersection of the 50-day and 200-day MAs offers up a tempting target for market Bulls. What should worry Bulls is that these positive moves in the indicators have yielded up such modest results--a pennant that is a week or two away from a potentially major break up or down.

As for the dollar, the pennant may well be a sign of strength, as the Federal Reserve has been trying mightily to push the USD to a new low while propping up the euro at 1.44.

The basic reason is that a weakening dollar is the primary engine of U.S. corporate…
continue reading






Field Of Economic Dreams

Courtesy of Zero Hedge

By Tony Pallotta from MacroStory.com

Field Of Economic Dreams

"If you build it he will come." – Field Of Dreams

"We built it and he did not show." – US economic reality

The consumer driven recession has begun. Keeping it very simple of the four GDP components (consumer, fixed investment, government and net trade) the consumer has simply rolled over. In Q1 2011 the consumer contributed 1.46% to the 0.4% total GDP. In other words if it was not for consumer growth or even if .5% of that growth was removed the economy contracted in Q1 2011.

Fast forward to Q2 where the consumer component is now 0.3%. In other words the trend of the consumer is deteriorating. Representing roughly 70% of total GDP the consumer is the economy. Confidence drives the consumer, the consumer drives demand and demand drives the economy.

Well judging by the epic fall in University Of Michigan Sentiment, now at multi year lows the economy is in serious trouble. To get a sense of the economic reality facing the US look at the historic correlation between sentiment and real GDP.

As confidence falls so do sales. Who is going to spend money when they are concerned about their job or their ability to provide for their family? Beyond non-discretionary items like food and energy they will cut back on discretionary purchases.

As demand falls in the economy so do inventory levels. Rather than invest in expanding inventory, retailers will simply focus on lowering inventory by depleting shelves. Why have twenty of item A when ten will suffice. The result, the inventory build cycle ends as it is currently.

Companies looking to expand, add capacity, maybe add more retail locations, open a new restaurant whatever will be more risk averse and shelve plans for expansion. The result fixed investment falls.

The negative feedback loop begins. Companies facing falling sales will lay off staff, which in affect further lowers their sales. Faced with higher unemployment the consumer budget is restrained further. They begin to…
continue reading





 
 
 

Zero Hedge

Enemy Of The People?

Courtesy of ZeroHedge. View original post here.

Via The Zman blog,

There has never been a time when normal people did not know the media was biased and biased in a predictable direction. For every non-liberal in the media, there were at least ten liberals. The ratio was probably higher, but then, as now, some lefties liked to pretend they were independents or some third option.

The media used to invest a lot of time denying they had a bias and an agenda, but the only people who believed them were on the Left, which had the odd effect of confirming they had a bias and an agenda.

...



more from Tyler

Phil's Favorites

A 2019 Earnings Recession?

 

A 2019 Earnings Recession?

Courtesy of 

Shout to Leigh!

On the new Talk Your Book – Josh Brown is joined by Leigh Drogen of Estimize, one of the leading providers of crowdsourced financial and economic data to talk about the trend in corporate profits that could potentially lead to an earnings recession later this year.

What is the thing that Leigh is seeing in the data that Wall Street isn’t yet picking up on? What segment of the stock market is most at risk? Why is the crowd smarter than the narrow consensus of Wall Street analysts?

Check out Estimize ...



more from Ilene

ValueWalk

D.E. Shaw Investment Calls For Leadership Change At EQT

By ActivistInsight. Originally published at ValueWalk.

Elliott Management has offered to acquire QEP Resources for approximately $2.1 billion, contending the oil and gas explorer’s turnaround efforts have done little to lift the company’s share price. The company responded and said that a thorough review of the proposition is imperative in order to properly act in the best interests of shareholders, “taking into account the company’s other alternatives and current market conditions.” The news came only a month after Travelport Worldwide agreed to sell itself to Siris Capital Group and Elliott’s private equity arm Evergreen Coast Capital for $4.4 billion in cash and two months after Athenahealth was bought by Veritas and Evergreen for $5.7 bi...



more from ValueWalk

Kimble Charting Solutions

Gold & Silver Testing Important Breakout Levels!

Courtesy of Chris Kimble.

Gold and Silver from a long-term perspective have created a series of lower highs over the past 8-years. Will 2019 bring a change to this trend? A big test is in play!

Gold since the lows in 2016 has created a series of higher lows, while Silver may have created a double bottom.

Gold & Silver are currently facing break attempts a (1) and (2). These falling resistance lines have disappointed metals bulls for the past few years.

The direction of Gold and Silver weeks and months from now should be highly influenced by what each does as they are attempting to break above important resistance levels.

To become a member of Kimbl...



more from Kimble C.S.

Insider Scoop

UBS Says Disney's Streaming Ambition Gives It A 'New Hope'

Courtesy of Benzinga.

Related DIS Despite Some Risks, Analysts Still Expecting Double Digit Growth From Communications Services In Q4 ...

http://www.insidercow.com/ more from Insider

Digital Currencies

Russia Prepares To Buy Up To $10 Billion In Bitcoin To Evade US Sanctions

Courtesy of Zero Hedge

While the market has been increasingly focused on the rising headwinds in the global economy in general, and China's economic slowdown in particular, while the media is obsessing over daily revelations that Trump may or may not have colluded with Russia to get elected, a far more critical, if underreported, shift has been taking place over the past year.

As we reported in June, whether due to concerns over draconian western sanctions and asset confiscations following the poisoning of former Russian military officer Sergei Skripal, or simply because it wanted to diversify away from the dollar, Russia liquidated virtually all of its Treasury holdings in the late spri...



more from Bitcoin

Chart School

Weekly Market Recap Jan 13, 2019

Courtesy of Blain.

In last week’s recap we asked:  “Has the Fed solved all the market’s problems in 1 speech?”

Thus far the market says yes!  As Guns n Roses preached – all we need is a little “patience”.  Four up days followed by a nominal down day Friday had the market following it’s normal pattern the past nearly 30 years – jumping whenever the Federal Reserve hints (or essentially says outright) it is here for the markets.   And in case you missed it the prior Friday, Chairman Powell came back out Thursday to reiterate the news – so…so… so… patient!

Fed Chairman Jerome Powell reinforced that message Thursday during a discussion at the Economic Club of Washington where he said that the central bank will be “fle...



more from Chart School

Members' Corner

Why Trump Can't Learn

 

Bill Eddy (lawyer, therapist, author) predicted Trump's failure based on his personality, which was evident years ago. This article, written in 2017, references a prescient article Bill wrote before Trump became president, in July, 2016, 5 Reasons Trump Can’t Learn. ~ Ilene 

Why Trump Can’t Learn

Donald Trump by Gage Skidmore (...



more from Our Members

Biotech

Opening Pandora's Box: Gene editing and its consequences

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

 

Opening Pandora's Box: Gene editing and its consequences

Bacteriophage viruses infecting bacterial cells , Bacterial viruses. from www.shutterstock.com

Courtesy of John Bergeron, McGill University

Today, the scientific community is aghast at the prospect of gene editing to create “designer” humans. Gene editing may be of greater consequence than climate change, or even the consequences of unleashing the energy of the atom.

...

more from Biotech

Mapping The Market

Trump: "I Won't Be Here" When It Blows Up

By Jean-Luc

Maybe we should simply try him for treason right now:

Trump on Coming Debt Crisis: ‘I Won’t Be Here’ When It Blows Up

The president thinks the balancing of the nation’s books is going to, ultimately, be a future president’s problem.

By Asawin Suebsaeng and Lachlan Markay, Daily Beast

The friction came to a head in early 2017 when senior officials offered Trump charts and graphics laying out the numbers and showing a “hockey stick” spike in the nationa...



more from M.T.M.

OpTrader

Swing trading portfolio - week of September 11th, 2017

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

Promotions

Free eBook - "My Top Strategies for 2017"

 

 

Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

Some other great content in this free eBook includes:

 

·       How 2017 Will Affect Oil, the US Dollar and the European Union

...

more from Promotions





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 >>