Friday, July 31, 2009
Morning Update
Price action after the GDP report has turned my daily MACD down on the Naz100 and the SP... not yet on the R2K futures. All three futures contracts are trading below their daily pivots. There is a Bradley turn date for 8/1 so this could have come in already. I am sure the bulls would like to see 1000 on the SP for month end so they could mount a rally attempt. As long as the MACD stays negative I may try to feed the ducks.
China's Exit Strategy - Barrons.com
China's Exit Strategy - Barrons.com
Randal Forsyth has some interesting things to say about Chinese lending and growth and its impact on the world for the last few months. It appears the easy credit is coming to an end.
Randal Forsyth has some interesting things to say about Chinese lending and growth and its impact on the world for the last few months. It appears the easy credit is coming to an end.
Thursday, July 30, 2009
Shell
From the UK Telegraph....
Shell will also cut its budget for exploration and production in the next half by 10pc from $28bn per year, though it will still be higher than most other oil majors at the reduced level. BP last week said it would keep its capital spending at about $20bn. Mr Voser said he could see no sign that demand for oil was improving, causing the biggest glut of supply for the last 20 years.
He also expressed concern about Shell's "very uncertain" future in Nigeria after attacks by rebel fighters that have more than halved its output in the African country since 2005. Despite the downbeat news, Shell's shares slipped just 3p to close at £15.94, as its profits on a current cost of supplies basis, a key measure for Shell, were better than expected at $2.3bn. Revenue fell 51pc to £63.9bn for the quarter to the end of June, tracking the depressed price of oil at around $60 per barrel.
Simon Henry, finance director of Shell, said that in the likely event of deflation the company would consider freezing its dividend, which was increased by 5pc to 42 cents for the second quarter. Analysts said that the safety of the dividend is likely to depend on how successfully Shell's savings can bring down costs, while demand for oil is still low.
"We expect the company to ultimately cut several thousand of its 102,000 employees, and believe additional cost gains from the restructuring could be in excess of $2bn," said Gordon Gray, an analyst at Collins Stewart.
Me again... the amount of companies with substantially lowered revenues is high. Don't believe this was a good earnings season... it wasn't.
Shell will also cut its budget for exploration and production in the next half by 10pc from $28bn per year, though it will still be higher than most other oil majors at the reduced level. BP last week said it would keep its capital spending at about $20bn. Mr Voser said he could see no sign that demand for oil was improving, causing the biggest glut of supply for the last 20 years.
He also expressed concern about Shell's "very uncertain" future in Nigeria after attacks by rebel fighters that have more than halved its output in the African country since 2005. Despite the downbeat news, Shell's shares slipped just 3p to close at £15.94, as its profits on a current cost of supplies basis, a key measure for Shell, were better than expected at $2.3bn. Revenue fell 51pc to £63.9bn for the quarter to the end of June, tracking the depressed price of oil at around $60 per barrel.
Simon Henry, finance director of Shell, said that in the likely event of deflation the company would consider freezing its dividend, which was increased by 5pc to 42 cents for the second quarter. Analysts said that the safety of the dividend is likely to depend on how successfully Shell's savings can bring down costs, while demand for oil is still low.
"We expect the company to ultimately cut several thousand of its 102,000 employees, and believe additional cost gains from the restructuring could be in excess of $2bn," said Gordon Gray, an analyst at Collins Stewart.
Me again... the amount of companies with substantially lowered revenues is high. Don't believe this was a good earnings season... it wasn't.
Stock Indices
I have always found a weekly divergence between price and the Chaikin Osc (a volume oscillator) to be worth following. The SP, Naz 100, and the R2K are all showing this divergence.
Once my daily MACD turns negative, it may be worth pursuing. Also, notice in the SP500, the plunger day (a 10 day high with a close below the middle of the daily range) today, and the OB condition exemplified by momentum oscillators as well as a count of closes above the previous days high.
Remember that this has been about month end (which still has a day to go), however, the NFP number looms for next Friday.
Remember that this has been about month end (which still has a day to go), however, the NFP number looms for next Friday.
We are also diverging on the McClellan Osc on the dailies. That usually doesn't work out so well.
Wednesday, July 29, 2009
Closing comments
Wow. Even with the dollar up and crappy breadth... it just doesn't matter. They got them higher on the close. Looks like month end awaits. Pump and dump baby; pump and dump.
The Dollar
The Dollar is having a good day today. In this world of correlations... that suggest downside for stocks and commodities.
Stock market update
The indices are chopping around their daily pivots, but starting to spend some time below them. Breadth isn't terrible, buts its negative no doubt. With ESU9 below 970 here and crude and gold cracking hard... looks like we could see afternoon weakness. Taking out 976 would negate this.
SentimentTrader posted this chart this a.m.
Debt
I wrote the below in a recent letter to partners.. (sorry about the formatting... I can't figure out why it does this.)
In order to counteract the massive contraction in consumption and business investment around
the world, governments and central banks are increasing their participation in asset markets and economies in a dramatic fashion. Here in the U.S., if one adds up all the aid and bailout money committed, both directly or through guarantees, the figure is well above our annual GDP!
All of this intervention and spending has slowed the rate of decline that global economies were
locked in, but it has done nothing to address the real structural problems many developed
economies face. Also, increased government participation throughout history has brought
inefficiency and lowered productivity.
We seem to be taking these extraordinary steps, in large part, to protect bank bondholders.
Maybe this is why in one of Bill Gross’ latest letters he advises the Obama Administration,
“Policy makers should not focus entirely one off bailouts of large estate developers,
municipalities, or even credit card issuers like they have with Citi, BofA, and AIG. Rather they
should recognize that supporting critical asset prices such as municipal bonds, CMBS, and even
investment grade corporate bonds is a necessary step towards eventual economic revival.” Really Bill? Would that work for you and your business?
All we have done so far is shift bad debt from private balance sheets to public balance sheets (and the balance sheets of our children). The debt is still bad and it is still mis-marked, if it is marked at all. (Recently, Wells Fargo reportedly sold $600 million of mostly non-performing sub prime loans to a hedge fund for 35 cents on the dollar. That mark does not bode well for taxpayers getting their money back…)
As I hammered on last quarter, we have a debt problem. So far we have done nothing to even
address that fundamental problem let alone come close to solving it. As Her Munchau so
eloquently points out, the authorities keep kicking the can down the road hoping for a recovery
to help make the loans payers again. The problem is, asset values have declined precipitously,
but debt levels remain the same.
Total credit market debt as a percentage of GDP in this country is at all time highs of close to
370%. (in the U.k. its even worse at 519% GDP!) Domestic non-financial debt as a percent of GDP is 240% of GDP and at an all time high. Financial debt outstanding remains at 120% of GDP.
Many of these debts are not performing. In January, Goldman Sachs estimates that banks would
see just over $2 trillion in losses on its book. Roubini projected over $3.5 trillion. T2 Partners
projected just over $3.7 trillion in March, while the IMF came out in April with a $2.6 trillion loss
for big banks. So far banks have taken $1.3 trillion in writedowns. (Glance back up at that recent
35 cent trade on some loans out of Wells Fargo.)
As I mentioned in last quarters letter, we are currently facing a giant wave of option arm recasts
starting in the second half of this year, that increases into late 2010. Indeed, the WSJ recently
reported that for a third straight month, option adjustable rate mortgages are generating
proportionally more delinquencies and foreclosures than subprime mortgages. According to
CoreLogic, 36.9% of option arms were at least 60 days past due with 19% in foreclosure; while
33.9% of subprime loans were delinquent with 14.5 in foreclosure.
T2 Partners broke down the problem of negative equity in a recent report. The report shows 73% of option arm loans are underwater, 50% of subprime loans, 45% of AltA, and 25% of prime
mortgages were underwater. Historical delinquency rates were around 1% for prime mortgages;
they are now at 4.5%. Almost 10% of all mortgages are in some stage of delinquency or default….
And the unemployment rate keeps climbing putting more and more pressure on these numbers.
Commercial Real Estate is really starting to roll over now. Vacancy rates are climbing; rents are
declining. Moody’s recently estimated CRE prices have fallen about 16% in two months!
Sadly (or is it terrifyingly) European banks are in worse shape than ours. They are, arguably,
more levered than even our investment banks were (think Lehman or Bear Stearns). John
Mauldin writes, “Eurozone banks are already reeling from losses from US subprime-related
problems. They are now getting ready to deal with even deeper losses from their own lending
portfolios. If the losses were just 5% of the portfolio (an optimistic assumption), it would be 20%
of Eurozone GDP. But each country is responsible for its own banks. While it is thought Germany
will be able to handle its problems, the prognostication for Austria and Italy is not so sanguine.
Italy is already running a massive deficit, and has no central bank to monetize its debt. The same goes for Portugal, Spain, Greece, and Ireland. 5% loan losses in Ireland would be 40% of GDP, the equivalent for my fellow US citizens of about $5 trillion. Where does Europe find a few trillion dollars?
U.K. banks responded to a recent CBI survey, showing that the value of nonperforming loans, or
bad debt, increased at the fastest rate since the survey began in 1989. The respondents projected a similar rise for the next quarter.
Toxic assets are still a problem. I believe banks are going to see another wave of big writedowns
and will need to raise more capital. I am not sure they will be able to get it this time.
We also face many years of private sector deleveraging , which will not bring about a return to
recent consumption patterns.
Consumer credit as a percentage of disposable income is starting to roll over (which corresponds
with the recent savings rate data which has shown a solid increase), but remains at around 23%
of income versus its average from 1959 to 1994 of 17.5%. Interestingly, consumer credit’s rate of
growth on an annual basis has been negative for three months now. This has only occurred 3
other times in the history of the series. It will be interesting to see if it remains in a contracting
mode. If it does, it may be a good signal that we have indeed made a secular change in this
country as far as consumption and savings go. One data point that suggests we may have made a
secular change is nominal retail sales. On a year over year basis, it has never gone negative…
until this recession. Does this suggest that the consumer may see a permanent adjustment?
In order to counteract the massive contraction in consumption and business investment around
the world, governments and central banks are increasing their participation in asset markets and economies in a dramatic fashion. Here in the U.S., if one adds up all the aid and bailout money committed, both directly or through guarantees, the figure is well above our annual GDP!
All of this intervention and spending has slowed the rate of decline that global economies were
locked in, but it has done nothing to address the real structural problems many developed
economies face. Also, increased government participation throughout history has brought
inefficiency and lowered productivity.
We seem to be taking these extraordinary steps, in large part, to protect bank bondholders.
Maybe this is why in one of Bill Gross’ latest letters he advises the Obama Administration,
“Policy makers should not focus entirely one off bailouts of large estate developers,
municipalities, or even credit card issuers like they have with Citi, BofA, and AIG. Rather they
should recognize that supporting critical asset prices such as municipal bonds, CMBS, and even
investment grade corporate bonds is a necessary step towards eventual economic revival.” Really Bill? Would that work for you and your business?
All we have done so far is shift bad debt from private balance sheets to public balance sheets (and the balance sheets of our children). The debt is still bad and it is still mis-marked, if it is marked at all. (Recently, Wells Fargo reportedly sold $600 million of mostly non-performing sub prime loans to a hedge fund for 35 cents on the dollar. That mark does not bode well for taxpayers getting their money back…)
As I hammered on last quarter, we have a debt problem. So far we have done nothing to even
address that fundamental problem let alone come close to solving it. As Her Munchau so
eloquently points out, the authorities keep kicking the can down the road hoping for a recovery
to help make the loans payers again. The problem is, asset values have declined precipitously,
but debt levels remain the same.
Total credit market debt as a percentage of GDP in this country is at all time highs of close to
370%. (in the U.k. its even worse at 519% GDP!) Domestic non-financial debt as a percent of GDP is 240% of GDP and at an all time high. Financial debt outstanding remains at 120% of GDP.
Many of these debts are not performing. In January, Goldman Sachs estimates that banks would
see just over $2 trillion in losses on its book. Roubini projected over $3.5 trillion. T2 Partners
projected just over $3.7 trillion in March, while the IMF came out in April with a $2.6 trillion loss
for big banks. So far banks have taken $1.3 trillion in writedowns. (Glance back up at that recent
35 cent trade on some loans out of Wells Fargo.)
As I mentioned in last quarters letter, we are currently facing a giant wave of option arm recasts
starting in the second half of this year, that increases into late 2010. Indeed, the WSJ recently
reported that for a third straight month, option adjustable rate mortgages are generating
proportionally more delinquencies and foreclosures than subprime mortgages. According to
CoreLogic, 36.9% of option arms were at least 60 days past due with 19% in foreclosure; while
33.9% of subprime loans were delinquent with 14.5 in foreclosure.
T2 Partners broke down the problem of negative equity in a recent report. The report shows 73% of option arm loans are underwater, 50% of subprime loans, 45% of AltA, and 25% of prime
mortgages were underwater. Historical delinquency rates were around 1% for prime mortgages;
they are now at 4.5%. Almost 10% of all mortgages are in some stage of delinquency or default….
And the unemployment rate keeps climbing putting more and more pressure on these numbers.
Commercial Real Estate is really starting to roll over now. Vacancy rates are climbing; rents are
declining. Moody’s recently estimated CRE prices have fallen about 16% in two months!
Sadly (or is it terrifyingly) European banks are in worse shape than ours. They are, arguably,
more levered than even our investment banks were (think Lehman or Bear Stearns). John
Mauldin writes, “Eurozone banks are already reeling from losses from US subprime-related
problems. They are now getting ready to deal with even deeper losses from their own lending
portfolios. If the losses were just 5% of the portfolio (an optimistic assumption), it would be 20%
of Eurozone GDP. But each country is responsible for its own banks. While it is thought Germany
will be able to handle its problems, the prognostication for Austria and Italy is not so sanguine.
Italy is already running a massive deficit, and has no central bank to monetize its debt. The same goes for Portugal, Spain, Greece, and Ireland. 5% loan losses in Ireland would be 40% of GDP, the equivalent for my fellow US citizens of about $5 trillion. Where does Europe find a few trillion dollars?
U.K. banks responded to a recent CBI survey, showing that the value of nonperforming loans, or
bad debt, increased at the fastest rate since the survey began in 1989. The respondents projected a similar rise for the next quarter.
Toxic assets are still a problem. I believe banks are going to see another wave of big writedowns
and will need to raise more capital. I am not sure they will be able to get it this time.
We also face many years of private sector deleveraging , which will not bring about a return to
recent consumption patterns.
Consumer credit as a percentage of disposable income is starting to roll over (which corresponds
with the recent savings rate data which has shown a solid increase), but remains at around 23%
of income versus its average from 1959 to 1994 of 17.5%. Interestingly, consumer credit’s rate of
growth on an annual basis has been negative for three months now. This has only occurred 3
other times in the history of the series. It will be interesting to see if it remains in a contracting
mode. If it does, it may be a good signal that we have indeed made a secular change in this
country as far as consumption and savings go. One data point that suggests we may have made a
secular change is nominal retail sales. On a year over year basis, it has never gone negative…
until this recession. Does this suggest that the consumer may see a permanent adjustment?
European Credit Markets_Duetsche Bank
This was posted on Seeking Alpha and I think it is a good data point on what may be happening/deteriorating over there... I am going to go dig up one of John Mauldin's letters where he discusses European banks and post that as well.
Bottom line: I don't think we have fully made it through the credit crisis yet. I think banks are going to turn into black holes again... and this time they may nor be able to raise the needed capital.
The take away from the Deutsche Bank earnings release seems to be the much larger than expected bolstering of loan loss reserves. The company increased its provisions for credit losses to 1 billion euro, up nearly 700% from the level last year of 135 million euro. The total amount of cushion against soured loans was 36% greater than the consensus analysts estimates for the reserve of 634 million. This projects a couple of things to the market that are scaring investors. First, this suggests that the credit situation in Europe may be more risky than the analysts had thought with the bank’s drastic increase in reserves. The bank reported that problem loans doubled in this quarter from a year ago, tallying more than 8 billion euros in loan amount. Secondly, the bank is sending a cautious signal rather than an aggressive one, as the company is storing more capital away for a rainy day instead of actively trying to place in a venture with growth potential.
Bottom line: I don't think we have fully made it through the credit crisis yet. I think banks are going to turn into black holes again... and this time they may nor be able to raise the needed capital.
The take away from the Deutsche Bank earnings release seems to be the much larger than expected bolstering of loan loss reserves. The company increased its provisions for credit losses to 1 billion euro, up nearly 700% from the level last year of 135 million euro. The total amount of cushion against soured loans was 36% greater than the consensus analysts estimates for the reserve of 634 million. This projects a couple of things to the market that are scaring investors. First, this suggests that the credit situation in Europe may be more risky than the analysts had thought with the bank’s drastic increase in reserves. The bank reported that problem loans doubled in this quarter from a year ago, tallying more than 8 billion euros in loan amount. Secondly, the bank is sending a cautious signal rather than an aggressive one, as the company is storing more capital away for a rainy day instead of actively trying to place in a venture with growth potential.
Health Care
I am going to post this again since Obama is constantly out there selling this abomination. Please get involved with your House Reps and your Senators. I am not saying we don't need to rework the health care system and insurance... but I am saying this bill would be a disaster.
http://www.financialsense.com/fsn/presentations/2009/0724.html
http://www.financialsense.com/fsn/presentations/2009/0724.html
China banks (continued)
See yesterday's post as well...
HONG KONG (MarketWatch) -- Chinese shares closed sharply lower Wednesday as the benchmark Shanghai Composite Index fell 5% to close at 3,266.43 on disappointing Chinese corporate profits, and falling commodity prices and fears of possible central bank moves to tighten lending.
The loss erased most of the gains made over the previous five sessions, and marked the Shanghai index's biggest percentage drop since Nov. 18, when it tumbled 6.3%. Daily volume hit a record 302.81 billion yuan ($44.3 billion).
As the drop in Shanghai become more pronounced in the afternoon, other Asian markets including Hong Kong and Mumbai fell, with the Hang Seng Index ending down 2.4%. The Sensex had recently given up 1.3% in afternoon trading.
Francis Lun, general manager at Fulbright Securities, said the Chinese markets tumbled from "an unattainable level because of hot money, and there are fears the central government will act to cool the markets."
HONG KONG (MarketWatch) -- Chinese shares closed sharply lower Wednesday as the benchmark Shanghai Composite Index fell 5% to close at 3,266.43 on disappointing Chinese corporate profits, and falling commodity prices and fears of possible central bank moves to tighten lending.
The loss erased most of the gains made over the previous five sessions, and marked the Shanghai index's biggest percentage drop since Nov. 18, when it tumbled 6.3%. Daily volume hit a record 302.81 billion yuan ($44.3 billion).
As the drop in Shanghai become more pronounced in the afternoon, other Asian markets including Hong Kong and Mumbai fell, with the Hang Seng Index ending down 2.4%. The Sensex had recently given up 1.3% in afternoon trading.
Francis Lun, general manager at Fulbright Securities, said the Chinese markets tumbled from "an unattainable level because of hot money, and there are fears the central government will act to cool the markets."
Durables
Year-on-year, overall new orders for durable goods slipped to down 26.8 percent in June from down 23.9 percent the previous month. Excluding transportation, new durables orders edged down to minus 24.1 percent from down 23.0 percent in May.
Ugly. Don't listen to the bull chatter on inventories. Inventories to sales is still high. Look at this quarters earnings reports... revenues are cratering.
Ugly. Don't listen to the bull chatter on inventories. Inventories to sales is still high. Look at this quarters earnings reports... revenues are cratering.
Stock short term outlook
The last few days of July are usually positive. All the elliot wavers are pointing to triangles forming in the indices, which would imply one more thrust up. Plus we have month end to look forward to where markets usually get marked up. The high volume trading in the SP futures is right around 970-975, which is where we are right now. The daily pivot on the Sept. Contract is 973.33. A 15 minute close above this level may be a signal that the final thrust could be beginning. Continued trade below 970 though, would be a sign of weakness, and cautionary. Next Friday (August 7th) is the NFP report, and that number could be really ugly as the BLS sometimes takes birth death jobs away in an adjustment... and that birth death model is WAAYYYYY off (ergo, they could take away a lot of fictitious jobs they have been adding to make the number look better than it really is).
Bottom line: Although we are big time overbought on the dailies already, the hard trade may be buying it into month end. Trading and holding below 970 on the spoos would be a sign that the market may have exhausted itself already however.
CMBS_ Realpoint Report
Click on the June report. Some interesting charts and text showing the increasing problems in the CMBS markets.
Here is a Bloomberg article too.
http://www.bloomberg.com/apps/news?pid=20601087&sid=ahnhliCgZtHQ
This market is full of problems.
Here is a Bloomberg article too.
http://www.bloomberg.com/apps/news?pid=20601087&sid=ahnhliCgZtHQ
This market is full of problems.
Tuesday, July 28, 2009
Gold
Gold took a pretty big beating today. Technically, it appears to be an interesting signal. There was a big expansion in volume and the market traded through its second daily support zone, and well as its 3 day pivot range. Typically, although there may be a bounce from such a dramatic one way move, the move set in motion lasts at least a couple days. I wonder if it doesn't last longer.
On the monthly chart, Gold has been a mess... a huge wide swing consolidation. It could really break either way. Lord knows, there are a lot of bulls right now. (Fundamentally, and over the long term) I am one of them. But this sentiment high has made me nervous for a while now. Not to mention Gold has lagged (relatively of course) the recent run up in 'risk' assets even while the dollar has been weak. It has taken out its June lows, turning the monthly chart down.
Now we have had a little rally, but today looks like it is a legitimate turn lower. How far it goes, I don't know. Maybe the market just keeps chopping around in this wide range and stays above 900. However, there are a lot of longs... and I doubt they are all strong ones. If we take out today's lows, we will trade through the 20 day average. After that, there are the July lows around 907 and then the 200 day average around 884.
Disclosure: Currently not short Gold futures... but looking at any bounce as an opportunity.
On the monthly chart, Gold has been a mess... a huge wide swing consolidation. It could really break either way. Lord knows, there are a lot of bulls right now. (Fundamentally, and over the long term) I am one of them. But this sentiment high has made me nervous for a while now. Not to mention Gold has lagged (relatively of course) the recent run up in 'risk' assets even while the dollar has been weak. It has taken out its June lows, turning the monthly chart down.
Now we have had a little rally, but today looks like it is a legitimate turn lower. How far it goes, I don't know. Maybe the market just keeps chopping around in this wide range and stays above 900. However, there are a lot of longs... and I doubt they are all strong ones. If we take out today's lows, we will trade through the 20 day average. After that, there are the July lows around 907 and then the 200 day average around 884.
Disclosure: Currently not short Gold futures... but looking at any bounce as an opportunity.
Dylan Ratigan, Eliot Spitzer Take On The Fed In Skit (VIDEO)
Dylan Ratigan, Eliot Spitzer Take On The Fed In Skit (VIDEO)
Great skit Dylan! I must admit you have a new fan... I used to not like you so much. Obviously something you saw in 2008 really pissed you off and changed you somewhat. And you are right about the banks... more specifically the bank bondholders. Why we continue to put this country at massive risk to save a bunch of people who bought bank debt (and should have done credit analysis like they are paid to do) is beyond me. Especially after the Obama administration threw bankruptcy law and the auto bondholders under the bus.
Makes me sick. Get involved and write, email, call your Congressmen. Let them know that you know what has gone on. They only get away with it because they think we are ignorant.
Great skit Dylan! I must admit you have a new fan... I used to not like you so much. Obviously something you saw in 2008 really pissed you off and changed you somewhat. And you are right about the banks... more specifically the bank bondholders. Why we continue to put this country at massive risk to save a bunch of people who bought bank debt (and should have done credit analysis like they are paid to do) is beyond me. Especially after the Obama administration threw bankruptcy law and the auto bondholders under the bus.
Makes me sick. Get involved and write, email, call your Congressmen. Let them know that you know what has gone on. They only get away with it because they think we are ignorant.
Chinese Banks
from the FT...
Chinese regulators on Monday ordered banks to ensure unprecedented volumes of new loans go into the real economy and are not diverted into equity or real estate markets where officials say that asset bubbles areforming. The new policy requires banks to monitor how loans are spent, after warnings that they ignored basic lending standards in the first half as they rushed to extend Rmb7,370bn in new loans, more than twice the amount lent in the same period a year earlier.
also see..
http://finance.yahoo.com/tech-ticker/article/291000/China's-New-'Great-Wall'-Built-on-Easy-Money-Speculation-and-Toxic-Debt
Chinese regulators on Monday ordered banks to ensure unprecedented volumes of new loans go into the real economy and are not diverted into equity or real estate markets where officials say that asset bubbles areforming. The new policy requires banks to monitor how loans are spent, after warnings that they ignored basic lending standards in the first half as they rushed to extend Rmb7,370bn in new loans, more than twice the amount lent in the same period a year earlier.
also see..
http://finance.yahoo.com/tech-ticker/article/291000/China's-New-'Great-Wall'-Built-on-Easy-Money-Speculation-and-Toxic-Debt
Multiple Question
What sort of multiple would one use with record low capacity utilization, double digit unemployment, and record government participation in markets / economy? Does that sound like a high, or even steady, growth environment?
Just asking.
Just asking.
Technicals this a.m.
At this point we are trading below the pivot point on all 4 stock futures. Will we open below them? Everyone knows this market is massively overbought. I would be much more excited about the prospect of a substantial turndown, were it not for month end in a few days.
Gold is acting pretty weak. Have the last few days been consolidation... or is it rolling over? We have opened below the daily pivot and are trading below the 3 day pivot range. Price has diverged from its volume oscillator since July 20th high.
Crude is also below its pivot (the correlations are relentless). The Aussie Dollar is not confirming, but maybe we get a little setback today.
Gold is acting pretty weak. Have the last few days been consolidation... or is it rolling over? We have opened below the daily pivot and are trading below the 3 day pivot range. Price has diverged from its volume oscillator since July 20th high.
Crude is also below its pivot (the correlations are relentless). The Aussie Dollar is not confirming, but maybe we get a little setback today.
Monday, July 27, 2009
Closing comments
All stock emini futures closed above their pivots and their 3 day pivot ranges. Still no sign of price weakness. We are about to go into the last few days of the month and that is usually associated with some upward bias. I wouldn't think it possible to just motor on from here, but maybe that means we will. Volume is lacking, we have been straight up, price action is unnatural.... yada, yada, yada.
The Yen is making some interesting intra-day bottoming attempts, but did not close above its pivot. It is in an area of substantial moving average support on the daily chart.
In this day of correlation, it is all one trade... you either have it on, are flat, or are short. Going into month end goosing, it becomes really tough after the run-up we have had. Fundamentally, I still like the short side. But I must admit... I think I will wait and watch for a little weakness and some defined risk.
The Yen is making some interesting intra-day bottoming attempts, but did not close above its pivot. It is in an area of substantial moving average support on the daily chart.
In this day of correlation, it is all one trade... you either have it on, are flat, or are short. Going into month end goosing, it becomes really tough after the run-up we have had. Fundamentally, I still like the short side. But I must admit... I think I will wait and watch for a little weakness and some defined risk.
Stock trading volume slowdown
http://www.bloomberg.com/apps/news?pid=20601109&sid=aW7WhLt3wHqk
The CHART OF THE DAY shows 84 percent as many shares changed hands daily on the New York Stock Exchange between May 1 and July 20, compared with the average from Jan. 1 to April 30. That’s the steepest slowdown since at least 1989, according to data compiled by Harrison, New York-based research firm Bespoke Investment Group LLC.
The CHART OF THE DAY shows 84 percent as many shares changed hands daily on the New York Stock Exchange between May 1 and July 20, compared with the average from Jan. 1 to April 30. That’s the steepest slowdown since at least 1989, according to data compiled by Harrison, New York-based research firm Bespoke Investment Group LLC.
New Home Sales
Calculated Risk always does a great job on the real estate markets. There is a link under BlogRoll. For more interesting facts on the residential real estate market see:
http://www.fieldcheckgroup.com/2009/07/19/7-19-mortgage-default-crisis-brutal-past-two-months/
Sobering numbers.
http://www.fieldcheckgroup.com/2009/07/19/7-19-mortgage-default-crisis-brutal-past-two-months/
Sobering numbers.
Commercial Real Estate... one oncoming train
http://www.mybudget360.com/atlas-vacant-the-commercial-real-estate-bust-gearing-up-for-a-3-trillion-headache-increase-in-vacancy-rates-and-higher-defaults/
This hurricane should break full force about the same time the option arm recasts start up. Banks are going to be black holes again.
This hurricane should break full force about the same time the option arm recasts start up. Banks are going to be black holes again.
Another depression like print
http://www.telegraph.co.uk/finance/financetopics/recession/5901961/British-economic-collapse-rivals-Great-Depression.html
These markets are pricing in a return to bubble margins and bubble earnings. In my finest English I say, "It just ain't gonna happen."
(Not mention we have huge government involvement in markets and economies, too. Throughout history that hasn't exactly panned out too well.)
These markets are pricing in a return to bubble margins and bubble earnings. In my finest English I say, "It just ain't gonna happen."
(Not mention we have huge government involvement in markets and economies, too. Throughout history that hasn't exactly panned out too well.)
European Credit Card Defaults
http://www.ft.com/cms/s/02db48fa-7a11-11de-b86f-00144feabdc0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F02db48fa-7a11-11de-b86f-00144feabdc0.html&_i_referer=http%3A%2F%2Fftalphaville.ft.com%2Fblog%2F2009%2F07%2F27%2F63791%2Feurope-braced-for-cr
Debt writeoffs/restructuring are going to be a big theme going forward.
Debt writeoffs/restructuring are going to be a big theme going forward.
Green Shoots
The following is taken from a recent letter to my limited partners:
The stock market and financial media has been obsessed with ‘green shoots’ for several months.
This obnoxious term can be traced back to Abby Cohen on CNBC Squawk Box one morning, I
believe. Then Ben picked it up in a testimony to Congress; and we have been cursed with it from
then on. Anyway, I thought it would be helpful to look for some actual green shoots since what
passes for green shoots in the media is a monthly statistic compared to the previous month that
was heavily revised lower, or earnings that beat downwardly revised guidance from 2 weeks
ago.
A very good coincident indicator of the economy which one can look at on a high frequency basis
are the transport companies and sector. The airlines are reporting twice the decline in traffic that they experienced after 9/11. The Association of American Railroads (AAR) reports: “U.S. rail carload traffic in May 2009 fell 24.7 percent”, the worst y/y % decline of the recession.
Bloomberg recently reported that diesel supplies, “the fuel that powers heavy trucks used to
move goods across the U.S., rose to the highest in at least 16 years this month, as manufacturing
inventories climbed, signaling a need for fewer deliveries.”
U.S. diesel stockpiles rose 28 percent in the past six months, tracking an increase in the ratio of
manufacturers’ inventories to sales. “Inventories are bloated,” said Tavio Headley, an economist with the American Truckers Association in Arlington, Virginia. “Businesses are not taking many new deliveries, and that has a huge effect on tonnage volumes. The significant drop in tonnage volumes is also having a huge impact on domestic diesel demand.”
Diesel supplies rose 2.18 million barrels, or 2 percent, to 111.6 million barrels in the week ended
June 19, according to the Energy Department. That’s the highest level in data going back to 1993.
Manufacturers’ inventory-to-sales ratio rose to 1.45 in April from 1.21 in July 2008, according to the U.S. Census Bereau The ATA’s For-Hire Truck Tonnage Index contracted 11 percent in May from a year earlier.
That’s a “historically large” decline, according to a report last week from the group, the largest
U.S. trade association for the trucking industry.” Bob Costello, the American Truckers Association chief economist reports, ““While most key economic indicators are decreasing at a slower rate, the year-over-year contractions in truck tonnage accelerated because businesses are right-sizing their inventories, which means fewer truck shipments…The absolute dollar value of inventories has fallen, but sales have decreased as much or more, which means that inventories are still too high for the current level of sales. Until this correction is complete, freight will be tough for motor carriers”.
Maersk Line Shipping, which moves about 20% of China’s container goods, has reduced its head
count by 24% and will be cutting more soon. The shipping company says rates are at 1990 levels
and the oversupply of container ship capacity won’t level out until 2015. Their volumes fell 14%
year over year in the first quarter.
The amount of excess capacity in the economy is absolutely huge and is not decreasing (which
would be occurring if there were ‘green shoots’). The rate of capacity utilization for total industry
declined in June to 68.0 percent, a level 12.9 percentage points below its average for 1972-2008.
Prior to the current recession, the low over the history of this series, which begins in 1967, was
70.9 percent in December 1982. It will take years to work this capacity off.
Japan’s exports were off 41% year over year in May.
Reported revenues for many companies reporting in the second quarter are coming in below
estimates and are running 20%, 30%, even 40% off year over year.
Hours worked in May fell 6.9% from a year earlier, dropping to 33 hours a week. This is the
antithesis of a green shoot!
Unemployment is usually considered a lagging indicator. But with the structural issue of debt
and debt servicing that we currently have in place, there are many analyst who feel that it may
not be so lagging this time around. The unemployment rate is already higher than the worst case
scenario presented to banks in the laughable ‘stress test’ of a few months ago. David Rosenberg
writes, "At no time in the 1990 or 2001 recessions did we ever come close to seeing such a
detonating jobs figure. We have lost a record nine million full-time jobs this cycle."
The overwhelming evidence continues to suggest this is not a typical post WWII recession.
Beware those promoting ‘green shoots.’
The stock market and financial media has been obsessed with ‘green shoots’ for several months.
This obnoxious term can be traced back to Abby Cohen on CNBC Squawk Box one morning, I
believe. Then Ben picked it up in a testimony to Congress; and we have been cursed with it from
then on. Anyway, I thought it would be helpful to look for some actual green shoots since what
passes for green shoots in the media is a monthly statistic compared to the previous month that
was heavily revised lower, or earnings that beat downwardly revised guidance from 2 weeks
ago.
A very good coincident indicator of the economy which one can look at on a high frequency basis
are the transport companies and sector. The airlines are reporting twice the decline in traffic that they experienced after 9/11. The Association of American Railroads (AAR) reports: “U.S. rail carload traffic in May 2009 fell 24.7 percent”, the worst y/y % decline of the recession.
Bloomberg recently reported that diesel supplies, “the fuel that powers heavy trucks used to
move goods across the U.S., rose to the highest in at least 16 years this month, as manufacturing
inventories climbed, signaling a need for fewer deliveries.”
U.S. diesel stockpiles rose 28 percent in the past six months, tracking an increase in the ratio of
manufacturers’ inventories to sales. “Inventories are bloated,” said Tavio Headley, an economist with the American Truckers Association in Arlington, Virginia. “Businesses are not taking many new deliveries, and that has a huge effect on tonnage volumes. The significant drop in tonnage volumes is also having a huge impact on domestic diesel demand.”
Diesel supplies rose 2.18 million barrels, or 2 percent, to 111.6 million barrels in the week ended
June 19, according to the Energy Department. That’s the highest level in data going back to 1993.
Manufacturers’ inventory-to-sales ratio rose to 1.45 in April from 1.21 in July 2008, according to the U.S. Census Bereau The ATA’s For-Hire Truck Tonnage Index contracted 11 percent in May from a year earlier.
That’s a “historically large” decline, according to a report last week from the group, the largest
U.S. trade association for the trucking industry.” Bob Costello, the American Truckers Association chief economist reports, ““While most key economic indicators are decreasing at a slower rate, the year-over-year contractions in truck tonnage accelerated because businesses are right-sizing their inventories, which means fewer truck shipments…The absolute dollar value of inventories has fallen, but sales have decreased as much or more, which means that inventories are still too high for the current level of sales. Until this correction is complete, freight will be tough for motor carriers”.
Maersk Line Shipping, which moves about 20% of China’s container goods, has reduced its head
count by 24% and will be cutting more soon. The shipping company says rates are at 1990 levels
and the oversupply of container ship capacity won’t level out until 2015. Their volumes fell 14%
year over year in the first quarter.
The amount of excess capacity in the economy is absolutely huge and is not decreasing (which
would be occurring if there were ‘green shoots’). The rate of capacity utilization for total industry
declined in June to 68.0 percent, a level 12.9 percentage points below its average for 1972-2008.
Prior to the current recession, the low over the history of this series, which begins in 1967, was
70.9 percent in December 1982. It will take years to work this capacity off.
Japan’s exports were off 41% year over year in May.
Reported revenues for many companies reporting in the second quarter are coming in below
estimates and are running 20%, 30%, even 40% off year over year.
Hours worked in May fell 6.9% from a year earlier, dropping to 33 hours a week. This is the
antithesis of a green shoot!
Unemployment is usually considered a lagging indicator. But with the structural issue of debt
and debt servicing that we currently have in place, there are many analyst who feel that it may
not be so lagging this time around. The unemployment rate is already higher than the worst case
scenario presented to banks in the laughable ‘stress test’ of a few months ago. David Rosenberg
writes, "At no time in the 1990 or 2001 recessions did we ever come close to seeing such a
detonating jobs figure. We have lost a record nine million full-time jobs this cycle."
The overwhelming evidence continues to suggest this is not a typical post WWII recession.
Beware those promoting ‘green shoots.’
Rail report
http://www.aar.org/NewsAndEvents/~/media/AAR/RailTimeIndicators/Rail%20Time%20Indicators%20July%202009.ashx
I prefer year over year series to month over month. More signal and less noise. In that vein this report shows the serious hit the economy took. The rate of decline may be slowing... but that is a big difference than growing.
I prefer year over year series to month over month. More signal and less noise. In that vein this report shows the serious hit the economy took. The rate of decline may be slowing... but that is a big difference than growing.
Surging Profit Estimates Signal 26% Rally for S&P 500 (Update1) - Bloomberg.com
Surging Profit Estimates Signal 26% Rally for S&P 500 (Update1) - Bloomberg.com
I guess this is how investors/analysts justify buying every day. "Growing signs the economy has bottomed..." Really? And where would that be? I am going to post a Green Shoots missive when I get into the office.
The idea that we return to peak margins and even average multiples is a real stretch in my opinion. Revenues are down huge. (See my July 26th post on Revenues) Government is heavily involved in the economy. This is the street chumming the waters....
I guess this is how investors/analysts justify buying every day. "Growing signs the economy has bottomed..." Really? And where would that be? I am going to post a Green Shoots missive when I get into the office.
The idea that we return to peak margins and even average multiples is a real stretch in my opinion. Revenues are down huge. (See my July 26th post on Revenues) Government is heavily involved in the economy. This is the street chumming the waters....
Technicals for today
All the markets are heavily correlated right now. Its gotten pretty ridiculous. That said, there were no signs of price weakness on Friday... all closed above their daily pivots and 3 day pivot ranges. (All 4 Stock Index eminis, Crude, Copper, Aussie Dollar, Yen (reverse of others). I have noticed divergences in many 'risk' markets with their sensitive volume oscillator, but none of these have given any price confirmation to the downside. Its all overbought.... but these markets are not behaving in a manner that notices 'overbought.' There is a big short squeez on, and its as bad a one as I have seen. We'll look at things again after the close.
Hussman Funds - Weekly Market Comment: Biting A Bullet - July 27, 2009
Hussman Funds - Weekly Market Comment: Biting A Bullet - July 27, 2009
Hussman is always the first thing on my Monday reading list. This one does not disappoint.
*LEI problems
*Poor risk reward profile
*Path to recovery
Hussman is always the first thing on my Monday reading list. This one does not disappoint.
*LEI problems
*Poor risk reward profile
*Path to recovery
Sunday, July 26, 2009
Rosenberg
Always good material from Rosenberg...
http://www.zerohedge.com/sites/default/files/The%20End%20Of%20The%20End%20Of%20The%20Recession_0.pdf
http://www.zerohedge.com/sites/default/files/The%20End%20Of%20The%20End%20Of%20The%20Recession_0.pdf
Friday's Volume
Volume for this whole rally has been suspect, but Friday's volume was extremely light indeed. It was a summer Friday...so what should we expect? EXCEPT, this was only the 10th or so day straight up (depending on what index you are looking at). I must admit, this breathtaking rally has taken me by suprise. A rally I expected... this I did not! It does put fear in a bear's heart. However, Friday was a really light volume day and it lands on whatever nth day up you want to use. If one is an investor, I would not feel pressured to be 'in' here.
My sensitive volume oscillators have been showing divergence since 7/15 or 7/16 which suggest we should at least revist the highs of those days. Let it be known, fundamentally, from a valuation prospective, I think this market is way off and this rally will end badly.
My sensitive volume oscillators have been showing divergence since 7/15 or 7/16 which suggest we should at least revist the highs of those days. Let it be known, fundamentally, from a valuation prospective, I think this market is way off and this rally will end badly.
Health Care Bill Explained - Financial Sense Newshour - July 25, 2009
Health Care Bill Explained - Financial Sense Newshour - July 25, 2009
Scary stuff people. Please take the time to get involved with your House Rep and your Senator. I am not saying we do not need to get re-work the health care system... but the government is NOT the answer. This bill is certainly not the answer.
Scary stuff people. Please take the time to get involved with your House Rep and your Senator. I am not saying we do not need to get re-work the health care system... but the government is NOT the answer. This bill is certainly not the answer.
Interesting report from Sprott
http://www.sprott.com/main3.aspx?id=54
This has been posted on ZeroHedge. Its worth your time to page through if you have not. Its the real economy, stupid.
This has been posted on ZeroHedge. Its worth your time to page through if you have not. Its the real economy, stupid.
Sales Fail to Keep Pace With Profits as Economy Stays Sluggish - Bloomberg.com
Sales Fail to Keep Pace With Profits as Economy Stays Sluggish - Bloomberg.com
Completely overlooked story about this quarters earnings reports. Sales are down 20%,30%, even 40% year over year. Contrary to what CNBC is telling you... these earnings are nothing to write home about. Not mention they are beating lowered low bar guidance. Big whoop.
Completely overlooked story about this quarters earnings reports. Sales are down 20%,30%, even 40% year over year. Contrary to what CNBC is telling you... these earnings are nothing to write home about. Not mention they are beating lowered low bar guidance. Big whoop.
Market Observation - Brian Pretti 07.24.2009
Market Observation - Brian Pretti 07.24.2009
Great read as usual from Brian. Without debt restructuring we just are not going to grow!
Great read as usual from Brian. Without debt restructuring we just are not going to grow!
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