Got out of GDX at 5% loss.

Next week, its gonna be another bummer week. I am observing many negative divergence on the SPY and EEM. The question is how big of a bet one should speculate on. I got shit upon pretty badly last time around when i thought the market is gonna tank. it never did.

Notice that the MACD histogram is weakening and a Head and Shoulders looks to be forming.

Same for the QQQQ. Lets see if it holds 35 next week. RSI looks to be weakening and it hasn’t been less than 50 for sometime. Things might get ugly here.

I truely do not know what to think of the emerging markets ETF. Recent actions have shown that it does not tend to weaken even if the US market does.

Its more interesting for the gold stock etf. There is a strong resistence at $39. Recent action retested twice but was unable to break up. I have a small open position in this one. I think  the resulting move could be very violent to the up or downside.

Perhaps the instrument of choice would be the SDS.

Looking good. To decide.

I still cannot fathom the weakness in natural gas. We thought we have a bottom when prices started to move up. Sadly it wasn’t to be. But such a low price point presents a good opportunity for long term investors and traders.

Open trading positions

• GDX
• Lyxor Asia ETF

I chance upon this article with DOW down big yesterday night and its abit nostalgic given that i would be saying my goodbyes to one of my favorite club’s best players:Cristiano Ronaldo. Ronaldo will be going to Real Madrid in a 80 mil pound transfer. Its a mind boggling sum really.

What is more mind boggling is the way Real Madrid is snapping up big players as if their debts are not big enough. All together the big signings are:

1. Ronaldo 80 mil
2. Kaka 56 mil
3. Benzema 30 mil

with more link to them. To quote my chelsea friend’s word: Now we know why we are in a recession, it all went to madrid!

The issue of escalating compensation and rising ticket prices in professional sports has been around for years. But next month it could reach a boiling point when 21-year-old Stephen Strasburg, the No. 1 pick in this year’s Major League Baseball draft, signs for at least $15 million. And that’s just a bonus before salary is even discussed.

The blogosphere and radio call-in shows are already buzzing, with people saying things like “Man, the [Washington] Nationals” — or whatever team ends up signing Mr. Strasburg — “are sure going to have to raise prices to pay for this guy. You’ll be lucky to afford a beer when you go out to the ballpark to see him pitch.”

Well, if you can’t afford to buy a beer at the ballpark then it didn’t do the team much good to sign the player, did it? Sportswriters and radio guys delight in reminding fans that every time a team acquires an expensive player the cost of everything goes up. But that’s just not the way economics works.

It certainly seems as if the prices of peanuts and Cracker Jack go up after they sign that new guy or build that new ballpark (always with a large chunk of taxpayer money). But that isn’t because the owners of sports team are greedy. They are greedy, but that’s not the point.

The point is that prices go up because the owners think that’s what you’re willing to pay. If you are willing to pay, the price stays high. If you aren’t — or at least if enough of you aren’t — then the price will come back down. It’s that simple.

The athletes and their agents don’t determine the price of tickets, souvenirs and food. Not even the owners determine them. Well, they sort of do when it comes to the food. The hamburger joint across the street from the park probably charges half of what you pay at the game, but that’s because the ball club has a monopoly. In general, though, you are the ones who set the prices for T-shirts and baseball hats.

It may take a while but eventually, if baseball management has overpriced its commodities, consumers — that’s you, the fans — will show them their error and the prices will come down. If you are willing to pay their prices that means they set the right prices after all.

Baseball analyst Bill James once wrote: “One of the unwritten laws of economics is that it is impossible, truly impossible, to prevent the values of society from manifesting themselves in dollars and cents. This is, ultimately, the reason why athletes are paid so much money.” The reason, Mr. James argued, that ballplayers make so much and medical researchers so relatively little is that, “[W]e are, as a nation, far more interested in having good baseball teams than we are in finding a cure for cancer.” He might have added that the principle applies as well to pop icons and movie stars.

It isn’t some vague indefinable “they” who pays the players. It really isn’t even the owners. It’s you, or rather, it’s us. If we put our money where our mouths are and support cancer, AIDS or Down syndrome research and then buy our tickets with what’s left over, athletes and rock stars will actually be paid what we pretend they should be paid.

The fault lies not in our All-Stars, but in ourselves.

Source: WallStreet Journal

“We are living through major changes in the world,” said Faber, the publisher of the Gloom, Boom and Doom report. Emerging markets such as China are becoming more significant to the global economy, and “I don’t think this will be reversed,” he said today at an AsianInvestor magazine forum in Seoul.

The MSCI Emerging Markets Index has jumped 35 percent since the end of March, headed for a record quarter after inflows from investors surged and stimulus plans from China to Brazil bolstered confidence. That compares with a 21 percent increase in the developed-market MSCI World Index.

“I agree that emerging markets’ fundamentals are improving, as some leading indicators show,” said Christian Jin, a global- equity fund manager at HI Asset Management Co. in Seoul, which oversees the equivalent of $7.6 billion in assets. “The developed nations are still saddled with the problems in their financial sectors and housing markets caused by subprime.”

No developed markets rank among this year’s 10 best performers out of 89 global indexes, according to data compiled by Bloomberg. Peru and China have led gains.

Still, emerging-market stock funds lost $1.87 billion in the week ended June 24, the first week of net outflows since early March, on concern that a rebound in exports will be delayed, EPFR Global said on June 25. Funds in Latin America and Asia excluding Japan showed the biggest outflows, according to the U.S.-based research company.

U.S. ‘Not Particularly Cheap’

Among regions, investors should buy shares of Asian nations including Japan on any declines, while U.S. stocks are “not particularly cheap” in real terms, Faber said.

Global economic growth is unlikely to recover to the levels before the U.S. mortgage-market slump, Faber said.

The World Bank said June 22 the global recession this year will be deeper than it predicted in March and warned that a flight of capital from developing nations will swell the ranks of the poor and the unemployed.

The world economy will contract 2.9 percent, compared with a previous forecast of a 1.7 percent decline, the Washington- based lender said in a report. Growth will be 2 percent next year, down from a 2.3 percent prediction, the bank said.

“This unusual condition of all asset prices going up at the same time, or all economies booming, will not be coming back anytime soon,” Faber said.

He also recommended investments related to commodities, such as farmland, or the tourism industry.

Faber told investors to abandon U.S. stocks a week before 1987’s so-called Black Monday crash. He advised buying gold at the start of its eight-year rally, when it traded for less than $300 an ounce. The metal recently climbed above $940 in Singapore trading.

Source: Bloomberg

It turns out that in these tough times, people aren’t very willing to spend on pay per view sex views.

“A lot of companies have been bouncing checks,” performer Annie Cruz said. “Some people have quit the business. A lot of companies have cut back shooting. There are a lot of girls who have not worked in a month.”

Cruz has seen her work schedule drop from 25 days a month to as few as five. “You would think porn would do better in times like this,” the exasperated 24-year-old San Franciscan said.

But i think what hit them harder ain’t this but in basic economic supply and demand and substitution, the prescence of many tube sites act as “free” alternative to such adult entertainment.

Piracy is also cutting into profits with the proliferation of “tube sites” — the YouTubes of porn where copyrighted video clips are frequently illegally uploaded. “We are being devastated by this,” said Dick Webber, who operates a Silicon Valley-based Web site and who, like the actors, goes by a stage name.

“The Internet is both a help and a hindrance,” said longtime porn performer and producer Dave Cummings, who expects his next movie, “Knee Pad Nymphos Volume 10,” to fall victim to online thieves. “I’m convinced the first day it’s out it will be a popular video to be stolen.”

Many at the conference talked of altering business plans to provide content, such as live Webcams, that can’t be ripped off. “There is no incentive for a surfer to subscribe to a site unless you have some offering that is unique and can’t be replicated on a tube site,” Webber said.

Source: Mercury News

[Read full article here >> ]

From Guy M Lerner’s blog the dump money indicator for the week seems to show exteme bullishness. This typically is not a good sign. We can’t tell much from the smart money since it is more neutral. By all means it could still rally for weeks.

The “Dumb Money” indicator is shown in figure 1. The “Dumb Money” indicator looks for extremes in the data from 4 different groups of investors who historically have been wrong on the market: 1) Investor Intelligence; 2) Market Vane; 3) American Association of Individual Investors; and 4) the put call ratio.

Figure 1. “Dumb Money” Indicator/ weekly

The “Smart Money” indicator is shown in figure 2. The “smart money” indicator is a composite of the following data: 1) public to specialist short ratio; 2) specialist short to total short ratio; 3) SP100 option traders. The “smart money” is neutral.

Figure 2. “Smart Money” Indicator/ weekly

Today the market ended another day in light volume. As such trading in such a market requires you to be very nimble but the risk is larger than the returns. I have only 1 stock out trading this week which is Straits Asia.

Here is another analysis of whether we are in a bull phase or bear phase. John Mauldin had an article out which talks about periods of high PE generally means that going forward returns are likely to be low.

In that case, we should buy and hold when PE reaches attractive valuations, something close to 7-10 times PE. Are we there yet definately not.

I have taken extracts from the article here. Basicallly, inflation volatility will result in people placing higher discounts factor during valuation. That would bring PE down to attractive levels.

What does this mean to the investors? Although we may have enter a bull phase, if inflation volatility is rising then it might not be worth while to be in equities compare to other inflation hedges.

[Read full article here >>]

The data line up as you would expect, considering the relationship between inflation variability and valuation. Periods of low volatility often coincide with higher levels of valuation, and that sort of low economic variability can help to generate stock market bubbles. The plot that is second from the top shows the range of valuations when economic variability is slightly below the median. In this setting, the typical range of multiples is between 14 and 19; the 99 percentile is about 26. For above-average volatility (the two bottom plots) the typical valuation multiples are between about 10 times and 15 times the 10-year average of trailing real earnings. The highest multiple typically seen during these periods is about 20. For a reference point, the P/E on 10-year trailing earnings is currently about 16.

Currently, the level of the volatility of inflation is still low compared with the historical range. Present conditions would fall into the 2 nd plot from the top in the graph above. At about 900, the S&P 500 is roughly at the midpoint of normal valuations for this level of inflation volatility. Using the current level of inflation variability as the only measure of investment conditions, S&P levels between 800 and 1100 would represent typical range of variation. A return to 2007 highs would represent bubble valuations in the 99 th percentile.

Alternatively, if the next few years include both the effects and the reversal of the recent emergency fiscal and monetary stimulus – call it the Great Unwinding –inflation volatility could move above average, leading to more moderate valuations for the S&P. The 25 th and 75 th percentile for the two bottom plots in the graph above would then suggest a level for the S&P 500 of about 575 and 850. An extreme in the 99 th percentile would be about 1150 on the index.

Investors may regain their exuberance and lack of risk aversion during the next couple of years, but it seems unlikely. The 2003-2007 cyclical bull market will very likely go down in the books as an outlier. It’s extremely rare for investors to push stock prices back up to near bubble levels immediately following a prior bubble. The recent bull market, coming on the heels of the technology and dot-com crash, was a rare occurrence where leverage, easy credit, a housing market bubble, record profit margins, and inflated earnings (in hindsight), created an atmosphere where investors were once again willing to bid stock prices to (ultimately unrewarding) long-term levels.

Secular Bear Markets and the Volatility of Inflation

It’s not only the level of volatility and uncertainty in the economy that matters to investors, but also the trend and the persistence in this uncertainty. Shrinking amounts of volatility in the economy creates an environment where investors are willing to pay higher and higher multiples for stocks, while growing uncertainty brings lower and lower multiples. And while there are cyclical gyrations in the volatility of inflation and economic performance, there are also secular trends. These secular trends in the volatility of inflation closely overlap secular stock bull and bear markets. (Secular markets are often defined by their primary trend – up or down - even if over shorter periods they move counter to that trend.)

These secular trends can be seen in the first set of graphs below, which show the three secular bull markets of last century which occurred from 1918 – 1929, 1950 – 1963, and from 1982 – 2000. The blue lines (scaled on the left axis) in each of the graphs denote the S&P 500 P/E Ratio. The red lines (scaled on the right axis) track the volatility of inflation during each period. The black dotted lines show the linear trend of the volatility of inflation.

The graphs show that secular bull markets are fueled by economic volatility that trends persistently lower. While there are shorter term gyrations in the volatility of inflation during these periods, in all three, the longer-term trend was lower. The uncertainty faced by investors declined noticeably during each secular bull market, and the end of each bull market usually coincided with a few years of very low economic volatility which helped the markets move into steeply overvalued territory in each case. When that trend in economic volatility abruptly changed, the secular bull markets came to an end.

You can see the aftermath in the next set of graphs, which show the same interaction of market valuation and the volatility of inflation, but in this case during the three secular bear markets of last century, and the secular bear market beginning in 2000.

The graphs show that secular bear markets have consistently coincided with rising levels of inflation volatility. In each case the level of economic volatility grinded higher throughout the secular bear market. Increasing economic volatility is what helps chaperone multiples from overvalued territory to deeply undervalued territory. It’s the uncertainty of the stability in the growth rate of the economy and the uncertainty of the price trend that discourages investors. Piles of behavioral finance research show that investors overweight recent trends in their decisions. As uncertainty climbs, investors push multiples lower and lower assuming this uncertainty will be perpetual, eventually pricing stocks at generational lows.

It’s important to note that during the current secular bear market, the volatility of inflation has mostly been well contained. The cyclical bear market of 2000-2003 – although aggravated by the recession of 2001 – was mostly about valuation adjustment. Stocks moved from spectacular levels of overvaluation to moderate overvaluation, and at the recent lows, to slight undervaluation. Valuations going forward may show their typical sensitivity to economic uncertainty, and for this reason, the change in the slope of the volatility of inflation over the last two years is troublesome. The level of inflation volatility is still low, relative to the peaks reached during prior secular bear markets. If the level of inflation volatility continues to increase, it will become more difficult to argue that the secular bear market has come to an end.

The graphs above show that the secular bear markets of last century shared three characteristics. They each lasted for more than 15 years, they each ended at extremely attractive levels of valuation (generally about 7-9 times trailing 10-year earnings), and , and they each endured many years of growing volatility in output and inflation, which eventually created the mindset for investors to price stocks at attractive levels of valuation. The current secular bear market can claim none of these characteristics yet. Any increase in economic volatility during Great Unwinding of the next few years will be crucial in determining the outcome for stocks.

If this article don’t make your heart boil i dunno what will. We already can attribute a large part of this financial meltdown to banks and mortgage lenders not scrutinizing loans and just about get everyone to a loan no matter what their credit rating is.

Now that they are in a sticky situation, they do all they can to make the life of their customers miserable. Mind you, these customers are not have a good time. Many have seen them get layed off or getting big paycuts. Yet it seems like the banks only think about themselves.

Read this New York Times Article :

LOS ANGELES — Somewhere on earth, there must be a more difficult task than this: persuading American mortgage companies to lower payments for homeowners who can no longer afford their loans. But as Karina Montenegro struggles to accomplish this feat for a troubled borrower, she strains to imagine a more futile pursuit.

Ms. Montenegro, an intern at a local company that seeks loan modifications, dials Washington Mutual to check on the status of an application for a homeowner whose income has plummeted. She endures a Muzak-scored purgatory while on hold. Syrupy-voiced customer service representatives chide her for landing in the wrong department. She learns that the documents her company sent in have simply vanished — for the third time since November.

“I don’t know what happened,” says a customer service officer who identifies himself as Chris. “I don’t know if there was a glitch in the system, whether it was transferred from one call center to the other.”

Think of the documents as being part of a pile massing inside the bank, Chris suggests. “This pile is not going to be moved forward at any point in time.”

Ms. Montenegro and her colleagues suffer these sorts of excruciating exchanges all day long. It is a potent indication of the difficulties afflicting the $75 billion taxpayer-financed program created by the Obama administration in an effort to avoid foreclosure for as many as four million distressed homeowners.

Under the plan, the government offers mortgage companies $1,000 for each loan they agree to modify, then another $1,000 a year for up to three years.

Hanging in the balance is more than the fate of individual homeowners. The administration portrays its mortgage program as a crucial piece of its broader effort to restore vigor to the economy. If the effort fails, foreclosures will continue to surge and home prices will probably keep falling, sowing fresh losses in the financial system and threatening to crimp credit anew for businesses and households.

Yet in the four months since the Treasury Department announced the program, millions of new homeowners have slipped into delinquency and foreclosure. For now, progress is constrained by the limited capacities of mortgage servicing companies, said Michael S. Barr, the assistant Treasury secretary for financial institutions. He offered the first signs of the administration’s impatience with the institutions that control home loans.

“They need to do a much better job on the basic management and operational side of their firms,” Mr. Barr said. “What we’ve been pushing the servicers to do is improve their infrastructure to make sure their call centers are doing a better job. The level of training is not there yet.”

The administration still does not know how many mortgages have been modified under the program. In a recent interview, Mr. Barr estimated the number at “over 50,000,” explaining that precise figures must wait for a soon-to-be-completed tracking system.

By the end of August, the program should produce 20,000 loan modifications a week, he said.

Tom Kelly, a spokesman for JPMorgan Chase, which now owns Washington Mutual, affirmed the administration’s criticism.

“We’ve done a lot,” he said, noting that the bank has added 950 loan counselors since the beginning of the year, bringing the total to 3,500. “But we’ve got a lot more to do.”

Two days in Los Angeles — where a loan modification company allowed a reporter to listen as its agents contacted mortgage servicers provided the firm not be named — starkly illustrated the problems.

The company charges homeowners $3,000, typically upfront, as it seeks to persuade lenders to rewrite loan documents so as to lower monthly payments. The company says it refunds the money when it fails to secure a modification.

For Ms. Montenegro, a college student at the University of Southern California, her summer job makes for fitting symmetry. In high school, she worked as a clerk at a Washington Mutual branch in Downey, Calif., which specialized in mortgages that invited customers to make such tiny payments that their balances increased.

Many homeowners did not understand the terms: Once they owed a lot more than their house was worth, their payments spiked. Now, that day has come, and Ms. Montenegro is working the other side. She calls WaMu, as the bank is known, trying to cut deals.

Among her clients is Vladimir Vishmid, who owes $490,000 on the mortgage for his three-bedroom home in the Sherman Oaks section of Los Angeles. Mr. Vishmid’s income as a self-employed computer engineer has plummeted, making it hard for him to make his $2,542 monthly payments. He is current on his loan, he says, but behind on his car insurance and utilities.

Software on Ms. Montenegro’s computer logs the details of the three applications her company has submitted for Mr. Vishmid. Chris, the WaMu representative, is telling her to send in No. 4.

“Personally, I’d submit a new file,” Chris counsels. “I’m telling you honestly, anything over 30 days is a new submission for us.”

For Ms. Montenegro, “honestly” is one of those words marinated in so much irony that her eyes roll. Two weeks earlier, she called the bank to check on the file and was told it was being reviewed. Now, it has disappeared.

“So, if I wouldn’t have called, we wouldn’t have known?” Ms. Montenegro scolds.

“It would have just sat in the queue and nothing would have happened,” Chris says. “I wish I had a better explanation.”

In the same office, Ms. Montenegro’s colleague, Sean Milotta, has run into a problem on a loan billed by American Home Mortgage Servicing. Though the borrower appears eligible for the Obama administration plan, the company refuses to take an application because the loan is owned by an investor who is unwilling to absorb a loss.

In another office down the hall, Ramin Lavi, 27, has picked up the file of Alice Descovich, who is seeking to shave down the $708,000 she owes on a mortgage serviced by WaMu for her home in Alameda, Calif. As the interest rates reset in coming months, it will become even harder for her to make the payments, which are now $4,400 a month.

A note in the system shows that the bank confirmed receiving documents on April 29 — pay stubs, tax returns, a letter disclosing her hardship, bank statements. Since then, the company has been waiting for WaMu to review the file.

But when Mr. Lavi calls, a representative coolly discloses that the application has been rejected because one document, a proof-of-insurance form, is missing. He must start over.

“The file had been submitted properly, and you didn’t put the pieces together,” Mr. Lavi says, his body quivering with anger. “I’m not going to stand in line again for another six months.”

He demands to speak to a supervisor, but the representative says none is free. He hangs up and redials, hoping to land in a different call center. Eventually, he reaches Chase’s executive offices, where Becky takes over the call.

“We’re not taking cases now,” she says calmly.

“Why was I transferred to you?” Mr. Lavi asks. Becky does not know. He implores her to keep the file open while he faxes in the lone missing document.

“Impossible,” she says, warning of “the sheer amount of papers coming in.”

Another agent, Lee Wasser, props his feet on an adjacent desk chair as he waits on hold for more than 20 minutes to speak with GMAC Mortgage.

His clients, Dean and Nancy Piercy, owe $380,000 on the loan for their home in Shasta Lake, Calif. A logger, Mr. Piercy has lost work hours, making it hard for them keep up with their $2,048 monthly payment — soon set to rise.

Mr. Wasser has already negotiated a solution: GMAC will accept only $270,000 in repayment, allowing the couple to get a fixed rate mortgage from another bank.

But that suddenly is in disarray. The Piercys have been making their payments, but GMAC has been putting their checks aside, holding the money as “loss mitigation fees,” until their application is completed. It has notified credit bureaus that their loan is more than 90 days delinquent, which has lowered their credit score, disqualifying them for the next mortgage.

Mr. Wasser reaches GMAC’s loss mitigation department. He asks for the delinquency to be removed from their status. But that must be handled by a different department: customer service. He is transferred there, where Jessica picks up the call.

“We are not going to amend,” she says, after a strained back and forth. If Mr. Wasser wants it otherwise, he will have to talk to loss mitigation.

“I just talked to them five minutes ago,” he tells Jessica.

“No, you didn’t.”

“Are you accusing me of lying?”

Mr. Wasser asks for Jessica’s employee identification number, but the line goes dead. Jessica has apparently hung up.