The Maverick Trader

Markets Hinting QE3.

2012-08-29T20:16:00.001+05:30

Markets including inflation sensitive gold has been rising since last month. Chairman Ben S. Bernanke will speak in Jackson Hole, Wyoming, on Aug 31 and there are expectations that some kind of stimulus package will be announced. For some perspective we have added a chart below showing correlation between SPX index and XAU (gold). There was a strong negative correlation between SPX and gold during 2008/2009 as gold is considered a safe haven during market turmoil. But the correlation became positive after 2008/2009 as FED increased it assets exponentially (represented by Green line).The recent surge in Gold and SPX suggests investors are anticipating another round of stimulus.

Dutch Fin Min: Greek Bondholders May Have To Shoulder Bigger Burden

2012-01-17T23:26:00.002+05:30

AMSTERDAM -(Dow Jones)- Dutch Finance Minister Jan Kees de Jager said Tuesday the private sector may have to shoulder a bigger burden to make Greece's debt load sustainable.
De Jager, who made his remarks in an interview on Dutch television, said private creditors may have to take a bigger write-down on their holdings of Greek government debt than the 50% haircut agreed in October. He also said they may have to accept a lower coupon, or interest payment, on the new bonds that Athens plans to offer in exchange for the haircut.
Read More.

Eight Questions: Nick Lardy, ‘Sustaining China’s Economic Growth’.

2012-01-16T12:37:00.001+05:30

Nicholas Lardy published his first book on China’s economy in 1978, when the country’s market-driven makeover was still in its infancy. A little more than three decades later, with some worried that the China thrill-ride may finally be coming to an end, Mr. Lardy steps with a new book, “Sustaining China’s Economic Growth after the Global Financial Crisis,” that takes a detailed look at the causes and remedies of the imbalances in the world’s second largest economy.

China Real Time Report caught up with Mr. Lardy, currently a senior fellow at the Peterson Institute of International Economics, to get his thoughts on where China’s economy is heading and what it means for the U.S. Edited excerpts below:

How would you rate China’s response to the global financial crisis?

The success of China’s stimulus is reflected in the numbers: China’s growth rate ticked down only slightly in 2009 to 9.2 percent while the rest of the world suffered its sharpest decline in output in 60 years.READ MORE

S&P 500 at 1300.

2012-01-06T08:18:00.001+05:30

We think market is ready to take on 1292 and possibly 1300 as soon as tomorrow.Technically we are in a overbought zone,but better then expected job report tomorrow can take market to 1300 level.We are waiting patiently and will short the market at 1300 levels.

Japan Got ‘Bargain’ in Debt Splurge, Economist Says.

2012-01-06T08:09:00.001+05:30

The government of Japan owes creditors something like a quadrillion yen, and public debt has ballooned over the past two decades to 200% of gross domestic product.

Horrible policy, right?

Actually, Japan got a “tremendous bargain,” contends Nomura Research Institute economist Richard Koo in a new paper.

Investor Sentiment: Are These the Makings of a Sustainable Rally?

2012-01-03T12:51:00.000+05:30

www.thetechnicaltake.com

We start the new year like we ended the old year: with a mixed sentiment picture. The Rydex market timer is extremely bullish, and this is a bear signal. The “dumb money” indicator is neutral and company insiders are as well. Overall, my interpretation is bearish. Sustainable price moves usually start when there are too many bears, and it is short covering that is the fuel that sparks a price rise. After the short covering subsides, sustainable price moves are typically heralded by having too many bulls willing to chase prices higher. Neither of these extreme conditions are currently present, and it is difficult to see the market embark on a sustainable price move in their absence. Lower prices would bring out more bears and this would be a precursor to a tradeble, sustainable rally. Higher prices should be supported by increasing number of bulls, and this would be a signal that a sustainablerally, that everyone so desperately wants, is unfolding. As stated above, I am betting that we will see lower prices before higher as there are few bears (i.e., no short covering) and as the time for the bulls to have taken the reigns of this market have long since past.

The “Dumb Money” indicator (see figure 1) looks for extremes in the data from 4 different groups of investors who historically have been wrong on the market: 1) Investors Intelligence; 2) MarketVane; 3) American Association of Individual Investors; and 4) the put call ratio. This indicator shows neutral sentiment.

Figure 1. “Dumb Money”/ weekly

Figure 2 is a weekly chart of the SP500 with the InsiderScore “entire market” value in the lower panel. From the InsiderScore weekly report: “Sentiment remained in Neutral territory this past week. Sellers did show a bit more conviction than buyers, but with the year closing there was, no doubt, some tax-related selling. Volume fell from a week earlier, the result of the holiday and end-of-quarter lock-ups coming into play.”

Figure 2. InsiderScore “Entire Market” value/ weekly

Figure 3 is a weekly chart of the SP500. The indicator in the lower panel measures all the assets in the Rydex bullish oriented equity funds divided by the sum of assets in the bullish oriented equity funds plus the assets in the bearish oriented equity funds. When the indicator is green, the value is low and there is fear in the market; this is where market bottoms are forged. When the indicator is red, there is complacency in the market. There are too many bulls and this is when market advances stall. Currently, the value of the indicator is 59.84%. Values less than 50% are associated with market bottoms. Values greater than 58% are associated with market tops.

Figure 3. Rydex Total Bull v. Total Bear/ weekly

Bridgewater Takes Grim View of 2012.

2012-01-03T04:03:00.000+05:30

Bridgewater Associates has made big money for investors in recent years by staying bearish on much of the global economy. As the new year rings in, the hedge fund firm has no plans to change that gloomy view.

Robert Prince, co-chief investment officer at Bridgewater, and his managers at the world's biggest hedge fund firm are preparing for at least a decade of slow growth and high unemployment for the big developed economies. Mr. Prince describes those economies—the U.S. and Europe, in particular—as "zombies" and says they will remain that way until they work through their mountains of debt.

I Now Have 2 Million Reasons to Be Bullish on Gold.

2011-12-31T12:49:00.000+05:30

If there’s been one overriding theme I’ve stressed from when I turned bullish on gold at just over $300 in the spring of 2003, it’s that the financial industry and most of those who report about it and the markets hate gold. I said it’s foolhardy to expect there ever to be a universally bullish view for gold, and that we should appreciate that there will always be forces whose desire is for gold’s price to be suppressed, lower than where it would be in a free market. Ironically, those who support such price suppression are the ones who call people like me and the good people at GATA tin-foil hat wearers, fanatics, or worse.
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New Asian Union Means The Fall Of The Dollar.

2011-12-31T02:48:00.003+05:30

One of the most frustrating issues to haunt the halls of alternative economic analysis is the threat of misrepresentative terminology. For instance, when the U.S. government decided to back the private Federal Reserve in lowering the interest rates on lending windows to European banks last month, they did not call this a bailout, even though that’s exactly what it was. They did not call it quantitative easing, or fiat printing, or a hyperinflationary landmine; rarely does bureaucracy ever apply honest terminology to their subversive activities. False terminology is the bane of every objective analyst, because in order for them to educate and awaken those who are unaware of the truth, they must first battle through the daunting muck of the general public’s horrifically improper perceptions and vocabulary.

China and India Really Are Cheap Labor in Manufacturing.

2011-12-31T02:33:00.001+05:30

Everybody has heard the reason manufacturing goes to China and services jobs are offshore outsourced to India is cheap labor. Well, there appears to be more than a grain of truth to this claim. The BLS maintains an international labor comparison statistics site. Manufacturing labor costs in China and India are 4% of the United States for 2009.
Read More

French CEO About Ratings Agencies: ‘We Have To Shoot All These Guys’.

2011-12-31T02:28:00.000+05:30

“We have to shoot all these guys that come to give us lessons,” he said. “I believe that’s the real combat of our society. We, the actors in the real economy, must regroup so that we won’t be eaten up by these guys.”
Read More

Von Greyerz - Gold Will Trade $3,000 - $5,000 in 2012.

2011-12-31T02:25:00.001+05:30

This is just an early indication of what will happen in the next few years. People will have no money, people will be hungry, and therefore they will fight to get money, they will fight to get food. Sadly, we will have, in most countries, in European as well as the US, we will have serious social unrest. How far that will go is impossible to tell, but I am concerned.
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Are Commodities Topping Out?

2011-12-31T02:21:00.000+05:30

Commodities have been on a tear for years as investors bet on permanent growth of developing economies and dwindling supplies. A global recession could change the picture, at least temporarily.

The past several years have seen a growing backlash against "paper" investments as more and more investors consider hard assets to be a safe haven against the implications of central bank money printing. But as the global economy visibly slows, this question arises in many minds: Are commodities, which have been on a tear since the March 2009 bottom, finally topping out?
Read More.

US Stresses Importance Of Hormuz

2011-12-30T23:36:00.001+05:30

-- More oil passed through Strait of Hormuz in 2011 than previous years, US officials say

-- Blocking the Strait, as Iran has threatened, could cause "substantial increases" in energy costs

-- Strait is "world's most important oil chokepoint," US officials say

Dollar Still King Of Reserve Currencies - IMF COFER Data.

2011-12-30T23:14:00.000+05:30

--Dollar stays on top with 61.7% of total allocated reserves
--Euro holdings edge lower as debt crisis bites
--Active Q3 reflects Japan, Switzerland currency moves
Read More

Insatiable US Debt and Other Jokes.

2011-12-30T23:06:00.000+05:30

We've heard that before.In 1999 there was an insatiable demand for stocks.Remember,there were 70 million baby boomers preparing for retirement.What choice did they have?They had to buy stocks,right?Wrong....stocks went down in January 2000.In real terms,they're considerably lower now ----depending on how you adjust for inflation.Then,in 2005,remember the insatiable demand for housing?More immigrants.More families getting richer.Everyone wanted to get on the housing 'escalator 'befoe it was to late

Greece Getting Worse-Doctors to strike over reforms

2011-12-30T03:47:00.002+05:30

Doctors at Greece’s main social security fund, IKA, are to go on strike from Monday until Thursday next week and have called on private doctors to do the same in response to changes in the way insured patients are treated.
Read More

US warships cross Hormuz despite Iran threats

2011-12-30T03:44:00.001+05:30

Two American warships have crossed through the Strait of Hormuz without incident despite Iranian threats to close the strategic oil route, the US Navy said Thursday.

The aircraft carrier USS John C. Stennis and the guided-missile cruiser USS Mobile Bay "conducted a pre-planned, routine transit through the Strait of Hormuz" on Tuesday, said Fifth Fleet spokeswoman Lieutenant Rebecca Rebarich.

Greece Getting Worse.

2011-12-30T03:32:00.002+05:30

All categories of state revenues headed south in the first 11 months of the year, with the biggest problem regarding revenues from income tax, followed by value-added tax and customs.
Read More.

Soros Sees Gold Prices on Brink of Bear Market

2011-12-30T03:30:00.001+05:30

Gold is poised to complete its 11th consecutive annual gain, the longest winning streak in at least nine decades, on the brink of a bear market.
Read More.

A Pickup for Housing in 2012?

2011-12-29T22:47:00.004+05:30

Residential investment made a small positive contribution to GDP in 2011, for the first time since 2005. And construction employment turned slightly positive in 2011.
Now the question is what will happen in 2012? I think some pickup is likely, but I'm not as optimistic as some other people ...
Read More.

Gold: This is What an Ex-Momentum Trade Looks Like.

2011-12-29T22:45:00.003+05:30

Momentum is mystical, no one can truly explain where it comes from, why it manifests itself the way it does, or why it seems to come and go so suddenly - capriciously, the jilted trader who bought at the top would say.

But there is nothing quite so ephemeral or tantalizingly mysterious about the aftermath of momentum. It's brutal-acting and horrid-looking, it's lower highs and lower lows, it feels like give-up and the thwarted snapback rallies on the way get more and more feeble during this hope deflation process.

Hedge Funds See Rebirth for U.S. Housing.

2011-12-29T04:27:00.000+05:30

--Funds buying up shares of homebuilders, hardware stores
--Head of New York Fed says home prices "no longer appear overvalued."
--Builders see demand coming from young people not yet in housing market
Read More.

The rise of the Speculative Culture.

2011-12-29T04:17:00.003+05:30

We’ve come a long way since the days when futures exchanges were marketplaces for negotiating formal contracts between sellers and buyers of commodities, haven’t we? Wheat Farmer A wants to lock in a price for his crop next fall while flour mill B wants to ensure it has a supply of wheat and also lock in a price. Presto, there’s the Chicago Board of Trade, and later the Butter and Egg Board, which became the Chicago Mercantile Exchange. Simple, efficient.

Nowadays, futures exchanges like the combined CBOT-CME entity—CME Group Inc.—trade so much more than commodities. And their sophistication in the form of high-speed electronic trading has far exceeded the old open-outcry trading pits. Better price discovery, more transparency, less inefficiency. Everyone should be happy.

The Endgame: Japan Makes Another Move.

2011-12-29T03:46:00.000+05:30

www.testosteronepit.com

It’s a doozie. On December 24, the cabinet approved a draft budget for fiscal 2012 whose headline numbers were horrid enough: ¥90.3 trillion ($1.173 trillion) in outlays, ¥42.3 trillion in tax revenues, and a deficit of ¥48 trillion. 49% of the outlays are to be covered by issuing bonds, a record even for Japan. But it gets worse. Accounting shenanigans gloss over the fiasco by removing two items from the general budget: the reconstruction budget of ¥3.8 trillion and pension payments of ¥2.6 trillion. When they’re included, the deficit jumps to ¥54.4 trillion.

Fiscal 2012 Draft Budget	trillion
General budget	¥ 90.3
Reconstruction budget, left out of general budget	¥ 3.8
Pension payments left out of general budget	¥ 2.6
Total budget	¥ 96.7
Estimated tax revenue	¥ 42.3
Deficit to be funded by borrowing	¥ -54.4
Percent of budget to be funded by borrowing	56.2%

The Japanese government will have to borrow 56.2% of every yen it spends in 2012. But it gets even worse! Japan regularly passes “supplementary budgets” during the year—four of them in 2011, the last one on December 1 for ¥2 trillion. So there may be a few in 2012 as well, which could push borrowing requirements toward a dizzying 60% of outlays.

Despite the near-zero interest rate policy the Bank of Japan has been pursuing for years, interest expense on the debt—at 230% of GDP by far the highest in the developed world—will eat up ¥21.9 trillion in 2012, a stunning 51.8% of tax revenues! If yields on 10-year JGBs were to rise from 1% to 2%.... Better not think that way. Keeping yields near zero is simply a matter of survival.

Funding these deficits and rolling over the gargantuan debt has been made possible by the institutional setup and cohesive psychology of Japan Inc.: 95% of JGBs are held within Japan. Individuals directly or indirectly hold over 50%. Government-owned or controlled institutions hold over 40%. Among them: the Government Pension Investment Fund, the government-owned Post Bank, financial institutions the government can lean on, and the BoJ. Foreigners hold 5% for decorative purposes.

But two of the strengths of the Japanese economy that have supported the absurd deficit levels—a high savings rate and a large trade surplus—have collapsed. The savings rate is in the low single digits, and the trade surplus has turned into a ¥2.2 trillion ($29 billion) trade deficit in 2011 through November.

2011 Trade Balance in billion ¥

In November, imports grew 11.4% over a year ago, in part due to liquefied natural gas imports—up 21%. Since the Fukushima disaster, utilities have shut down reactor after reactor for scheduled maintenance but have not restarted them. Of the 54 reactors, only six are operating (one was shut down December 26, three more will be shut down in January). To make up for the shortage, utilities have revved up natural gas plants—though reductions in power consumption have also been implemented.

Exports dropped 4.5% from a year ago. Exports to China, Japan’s largest export market, declined 7.7% while imports grew 6.6%. Japan used to have a trade surplus with China. No more. The pace of offshoring is picking up, particularly in the auto and tech industries. While a weaker yen could slow down that trend, it would also drive up the cost of imports, including fossil fuels and raw materials—posing additional strains on the struggling economy.

The strategy for keeping it all glued together for a few more years? An increase in the unpopular consumption tax from the current 5% to 10%. Prime Minister Yoshihiko Noda proposed it in November. The opposition howled. Noda’s approval rating has dropped from 63% to 44.6% in the four months he has been in office (for the whole debacle of weak governments and revolving-door prime ministers, read.... Japan Inc. Plays By Its Own Rules). In pushing the consumption tax, he might run into a buzz saw. And if it passes, it will constrain consumption even further.

"Japan's budget-making processes and its reliance on public debt have reached their limits," Finance Minister Jun Azumi told a news conference on December 24, the winning understatement of the year. And what solutions did he propose? Well, pass the consumption tax “and somehow reverse the falling birthrates."

Reverse the falling birthrates? If that ever happened—doubtful in the current social climate—it would unleash a new wave of government expenditures (schools, healthcare, etc.) for two or three decades before it would generate a boom in productive and tax-paying members of society. But keeping the system glued together for that long would require a miracle. And for a finance minister to count on a miracle seems a bit silly.

Life goes on. A convoy of 20 supercars was speeding down the Chūgoku Expressway, entered a left-hand bend at 90–100 mph, though the posted speed limit was 50 mph. The highway was wet. And the rest was very expensive....