Too Big to Flail

Too Big To Flail - January 31, 2011 - The Streets of Cairo

2011-01-31T08:27:00.001-04:00

‘I was bruised and battered and I couldn’t tell what I felt, I was unrecognizable to myself, I saw my reflection in a window, I didn't know my own face, Oh brother are you gonna leave me, Wasting away, On the streets of Philadelphia’ (Bruce Springsteen – 1993)

‘The Streets of Philadelphia’, it really should have been ‘The Streets of Cairo’ or maybe I should’ve gone with ‘Winds of Change by The Scorpions. What’s transpiring in Egypt or Northern Africa for that matter is extraordinary. Regimes that have been in place for 25+ years are all of a sudden being challenged by the people on a large scale. Not only in Tunisia and Egypt, but also in Syria, Yemen and even in Libya, on a smaller scale, people are taking to the streets, demanding their freedom, their dignity and above all affordable food. It’s extraordinary because no one could have predicted the swiftness or tenacity with which it all takes place, but it is by no means unprecedented. Rewind 20 odd years and here in Europe we experienced the same with the break-up of Russia and the demise of the dictators of Eastern Europe.

It took the Tunisians a couple of weeks to get rid of their once fearless leader and see him fly off in his private airplane, filled with gold (if he had ridden into the sunset through the desert on a horse with a couple of gold-bars it would have been a scene straight out of a medieval Hollywood blockbuster, but, this is, regrettably, fact and not fiction). The Egyptian protests have gone into day 7 now and even though thousands are defying the curfew, they have far from succeeded in chasing away President Mubarak. It shows that it’s really helpful to be backed by the U.S. Government. The biggest question is whether the protests will actually work and if so, what will be the implications for the region.

Let’s assume the ‘million man march’ scheduled for tomorrow is the final straw that breaks Mubarak’s proverbial back then a new government will have to be formed. Mohammed El-Baradei, the former International Atomic Agency chief and a prominent political opposition figure in Egypt, has already announced that he is willing to form a new government with the other opposition parties such as the Muslim Brotherhood. As good as it may sound that a new structured government will be formed (or at least an attempt will be made) within the weeks following Mubarak’s dismissal, the chances for a lasting new government are actually not that big. As history has taught us, the transition from a dictatorial form of government to one of democracy has often been met with violence. It’s just that, a transitional government. If we look at the analogy with Eastern Europe and the former U.S.S.R., most former republics are now ruled by a dictator, there’s a decade long war raging in Chechnya, the economic turn-around in most of Eastern Europe never took place and the former Republic of Yugoslavia went through a major civil war.

My girlfriend, who studied Political Science, told me on Saturday: ‘With Democracy comes responsibility’ and that is more than true. For us living in the West democracy is something so obvious, we often forget we have responsibilities, instead we rely on the government to take care of us. So how can we expect people that have been living in poverty, in fear, people who have been suppressed all their lives, who have never known democracy, how can we expect them to start to take responsibility out of the blue? For all their good intentions, it just doesn’t work that way. It will get better, but they have to take baby steps, they have to restrain themselves and not think they will achieve tomorrow all that they have been denied for so long, that, in itself, will be the biggest task ahead.

The fall of Mubarak will have implications for the entire region. Seeing as he has been a prominent moderate voice in the Arabic community (the main reason why he is backed by the U.S.) for over 30 years, his resignation will no doubt have a big impact.

It will instill fear in other regimes, and most countries in the Middle East are just that: non-democratic governments, and fill the hearts of the people with courage and belief that they too can make a change. Already Moammar al-Qadhafi in Libya (wedged between Tunisia and Egypt) has announced emergency measures in the hope he will keep the people off the streets. Protest demonstrations, albeit really small, were held in Yemen and Syria and so it seems to be spreading to the east bit by bit.

The crucial question is: will the unrest reach Saudi Arabia? Besides their vast oil reserves, Saudi Arabia plays an important geo-political role in the region as they are the biggest U.S. allies, the U.S. has a large military presence there and the Saudis are an opposing voice to Iran. There already have been protests in the past, but so far the security forces of the Kingdom have been able to control them. It’s my understanding that the people are comparatively wealthy (compared to the rest of the region) so their impetus to revolt is much lower. That being said, I don’t believe Saudi Arabia will become a problem anytime soon.

Although Egypt has already been marked by some in the financial markets as a ‘Black Swan’ event, they seem to be ignoring it for the most part. Last Friday there was a mild sell off on the European and U.S. markets (1% - 2% down) but there is little to no spillover effect today. It seems strange on the surface, since there could be some major geo-political shifts as a consequence of what’s happening right now, it could affect the price of Oil in a structural way, but for now people seem unwilling to gamble on such an extreme outcome. Apparently the inflow of ‘cheap -FED-money’ is still more important than tens of thousands of protestors on the streets of Cairo, than regimes being toppled. Obviously the FED can keep printing money longer than the protestors can stay in Taharir-Square. Business as usual. There has to be a POMO somewhere we can front-run.

Happy Hunting & Let’s Be Careful out there!!!

TBTF January 26, 2011 - State of the Union

2011-01-26T21:53:00.000-04:00

‘He shall from time to time give to Congress information of the State of the Union and recommend to their Consideration such measures as he shall judge necessary and expedient.’ (Article II, Section 3 of the U.S. Constitution)

So today I did not start off with a song but with that all important sentence in the U.S. Constitution that led to what we call today: ‘The State of the Union’

Yesterday, Tuesday January 25, President Obama delivered his State of the Union for 2011. As expected the state of the economy took center stage, but there was also emphasis on clean energy and more important education.

Some key statements from the speech (full transcript & video):

“Over the next 10 years, nearly half of all new jobs will require education that goes beyond a high school degree. And yet, as many as a quarter of our students aren’t even finishing high school.”

“The future is ours to win. But to get there, we can’t just stand still. As Robert Kennedy told us, ‘The future is not a gift. It is an achievement.’”

“But if we want to win the future – if we want innovation to produce jobs in America and not overseas – then we also have to win the race to educate our kids.”

"We are living with a legacy of deficit-spending that began almost a decade ago. And in the wake of the financial crisis, some of that was necessary to keep credit flowing, save jobs, and put money in people's pockets."

"But now that the worst of the recession is over, we have to confront the fact that our government spends more than it takes in. That is not sustainable.

"We need to get behind this innovation. And to help pay for it, I'm asking Congress to eliminate the billions in taxpayer dollars we currently give to oil companies. I don't know if you've noticed, but they're doing just fine on their own. So instead of subsidizing yesterday's energy, let's invest in tomorrows."

"Now it's our turn. We know what it takes to compete for the jobs and industries of our time. We need to out-innovate, out-educate, and out-build the rest of the world. We have to make America the best place on Earth to do business. We need to take responsibility for our deficit, and reform our government. That's how our people will prosper. That's how we'll win the future."

"To help businesses sell more products abroad, we set a goal of doubling our exports by 2014 - because the more we export, the more jobs we create at home. Already, our exports are up. Recently, we signed agreements with India and China that will support more than 250,000 jobs in the United States."

"We will put more Americans to work repairing crumbling roads and bridges. We will make sure this is fully paid for, attract private investment, and pick projects based on what's best for the economy, not politicians."

To be honest, it felt like more of the same. Not many new economic policies announced, no new stance with regards to India or China and certainly no ground breaking fiscal reforms to bring the budget deficit under control. As to how he is going to try and change the state of the American educational system, no concrete plans there either. Unfortunately ‘it’s the economy, stupid’ has been replaced by ‘it’s education, stupid’. In a report out last month the U.S. now ranks 25^th in math, 17^th in science and 14^th in reading out of 34 countries as compiled by the OECD. Without a skilled workforce there will be no sustainable economic growth, perhaps it’s time for a new approach, re-build the economy from the ground up and start with the education system.

So much for the ‘We can’t win the future if we stand still’ – quote. I guess it’s hard to start running when you have become complacent and have been standing still for so long already.

So that was yesterday, today across the street Mr. Ben Bernanke and his open market committee members voted on monetary policy. Guess what, they don’t like change either and decided to leave interest rates on hold (for an extended period of time) and QE2 in place.

Some key points from the statement (full text):

“The economic recovery is continuing, though at a rate that has been insufficient to bring about a significant improvement in labor market conditions. Growth in household spending picked up late last year, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit.”

“Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate.”

“In particular, the Committee is maintaining its existing policy of reinvesting principal payments from its securities holdings and intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011.”

In other words: anemic economic growth, no job growth and no inflation whatsoever. No inflation, it must be good to be Ben Bernanke and to live in a bubble. At least he let go of his fear of deflation.

The one thing that was different about this statement was the fact that it was a unanimous decision. Where Mr. Hoenig dissented on each and every occasion last year, his successor (Philly Fed president and arch-hawk) Mr. Plosser decided to sit this one out and vote for instead of against Mr. Bernanke. It will be interesting to see if and when he starts voicing his opposing views.

With Obama saying nothing new and Bernanke being stuck in last year’s groove, is there nothing for to the markets to take their cue from you might ask.

Actually there’s an event coming that holds some predictive value and therefore might cause some upheaval in the next week and a half. It’s Super Bowl time. I won’t get into the Super Bowl indicator right now, because I want to devote next week’s blog exclusively to the Super Bowl and the predictive value of the Super Bowl indicator.

The markets today did next to nothing. The Dow Jones hovered around the 12.000 mark all day long, the S&P 500 could not break 1.300 and the Nasdaq flat lined just before lunchtime and could not be revived over the remainder of the session.

Dow 11.985 (+ 0.07%) S&P 500 1.296 (+ 0.42%) Nasdaq 2.739 (+ 0.74%) WTI $87.30 EURUSD 1.3680 Gold $ 1.346

I would like to end my blog with an interesting ‘statistic’ (I say statistic, but these are in fact the lives of real people) tweeted yesterday by Nicole Lapin (CNBC):

‘99ers hit a new milestone- 1.4 million people have been of work for 99 weeks (the limit for unemployment benefits)’

Oh, and the other milestones we're looking at -- 12k on Dow, 1300 on S&P...Thanks, Helicopter Ben - but your job was also, um, JOBS!

Enough said !

Happy Hunting & Let’s Be Careful out there!!!

TBTF January 23, 2011 - Back To Life, Back To Reality

2011-01-23T15:30:00.000-04:00

‘Back to life, Back to reality, Back to the here and now, I live on top of the block, No more room for trouble or fuss, Need a change, a positive change look, Look it’s me writing on the wall’ (Soul II Soul – 1989)

It’s been a long time since my last blog, much too long. But I am back, I am back to stay. I will however, change the format. I will blog bi-weekly and do day to day updates via twitter @toobigtoflail and facebook.

So what has happened in the world of finance and geo-politics since the last time I wrote this blog:

China has been dominating the market headlines as of late, lending a helping hand to Europe while tightening their monetary policies because of inflationary pressures. Rates in the United States have gone up even though the FED is monetizing all the debt that the Treasury department issues weekly, Republicans took over the House of Representatives and threatening to NOT raise the debt ceiling. And oh yes, a government in Tunisia has been toppled after social unrest broke out because of ever higher food prices. There is much to talk about, so let’s get started.

Inflation

Inflation in most of the developed world has been subdued. The latest CPI numbers in the U.S. put inflation (including Food & Energy) at a modest 1.5% (YoY) while the CPI in the Euro zone came in at a benign 2.0% (YoY). Nothing to worry about you would say, well in China the CPI came in at 4.5% (YoY) and in Tunisia food prices shot up so high there was a public uprising which eventually chased the President out of the country. Apparently the inflation numbers in the ‘modernized’ world always undershoot the real inflation as experienced by day-to-day purchases. I guess our bureaus of statistics are cleverer in manipulating the facts.

Let’s take a look at agricultural prices (S&P Agricultural Index):

As you can see from this graph, prices advanced by 36%, from Jan 1st 2010 to last Friday, with Wheat +38% YoY and Corn +44% YoY leading the way.

The same can be seen when we look at oil prices +17% YoY and Heating Oil + 20.5%

In countries where people don’t spend most of their disposable on luxury items as IPads, Ferraris or Apartments, but where they barely have enough money to put food on the table or heat their homes (if they are not re-possessed), the impact of skyrocketing food and energy prices are undeniable and cannot magically disappear by tweaking the basket of goods used to measure inflation. And those are the countries where the public uprising appears first, but let’s be clear about it, for a lot of people in the U.S. (and to a lesser degree in Europe) rising food and oil prices do matter, so I wouldn’t be surprised if it is just a matter of time until we see demonstrations in the Western World as well, no amount of statistical manipulation can prevent that.

As of October 2010 43.2 mln people in the US were using the Supplemental Nutrition Assistance Program, also known as Food Stamps. This is up from 37.6 mln a year earlier, an increase of almost 15% which is almost 11% of all Americans. I say that’s a fairly high percentage to say the least.

I can imagine the leadership in China is worried about the food and energy inflation. The social and economic inequality between is so huge between many of their regions (most of the wealth is concentrated in the South East) that even though their per capita income was up 13% in 2010 (2010 data from the IMF and 2009 data from the World Bank, so the 13% might not be completely true, but is probably a good guesstimate) something tells me most Chinese did not get a 13% rise in their paycheck but they were however exposed to sky rocketing food prices, making the economic inequality even bigger. After what happened in Tiananmen Square 21 years ago, I don’t think President Hu Jintao is particularly fond of a public uprising in the Chinese heartland, so he is doing whatever he can to stop the inflation from rising further which means slamming on the economic breaks. In the mean time the FED keeps flooding the world with cheap money to get the U.S. economy back on its feet (or at least stop it from sliding further), which of course works contrary to what the Chinese are trying to achieve.

And this is precisely why Geo-politics is so much fun.

Financial Markets

What do the various financial markets make of all this:

While the U.S. and European markets have been rising on an almost daily basis since the FED hinted at a new quantitative easing program, the Shanghai stock market has been falling ever since China started their monetary tightening campaign, trading down over 10% since the beginning of November.

Shanghai:

S&P:

DAX:

What is really interesting has been the fact that the equity markets kept being strong, while interest rates in the U.S. started to move up during the last month of 2010. Some of the move can be explained by the fear that the now Republican Congress voiced concerns over raising the debt ceiling. The treasury secretary, Mr. Timothy Geithner, had asked congress to vote yes to raising the debt ceiling, as this magical number of $ 14.3 trillion will most likely be reached by April 1st, maybe even sooner. If the ceiling is not raised, the U.S. can do nothing but start to default on its debt, thereby forcing credit agencies to cut their triple-A rating.

Also not helping was the sell-off in municipal bonds when it became clear President Obama would not extend the Build America Bonds program, which was part of the recovery act, in exchange for republican support of an extension of the ‘Bush tax cuts’. Meaning it will be harder for cities and states to raise much needed capital.

U.S. 10 Year Rate:

Europe

Europe is still having problems of its own. In December Ireland was ‘forced’ to accept financial support from the EFSF. My guess is they came begging for money, but to keep up appearances it was decided to have them accept the money reluctantly.

2 down, 4 to go.....

I say 4, since not only Portugal, Spain and Italy are slowly getting into more and more trouble, but Belgium was also suddenly thrown to the wolves. General elections were held more than 7 months ago in Belgium and they are still unable to form a new government. Not very surprisingly, since the party that won the elections is pro the segregation of Flanders from Wallonia (i.e. the Dutch speaking from the French speaking part). For now it proves that a government is not always necessary, since the country still exists, but bondholders are getting more and more restless.

Portugal and Spain were given a new lifeline as China vouched they would keep on buying their debt, as does the ECB on a daily basis. Even with the Chinese guarantee, both Portugal, Spain and the ECB thought it wise to introduce a new way to raise money, a private offering. It’s a simple way to keep alive the Ponzi scheme that is the Mediterranean part of Europe. How does it work?

Spain’s treasury needs 4 billion euro. What can they do? They can auction the debt in a public auction, but then the outside world knows the exact participation rate of direct and indirect bidders, i.e. how eagerly investors want Spanish debt. They can also issue the debt through a private auction, where they call up Santander, Banco Popular and Banco Bilbao Vizcaya, force them to take the entire 4 bln euro issue at a reasonable rate. Why would these banks do this? Because they can turn around, call Jean Claude Trichet, deposit those bonds as collateral and get more liquid instruments in return.

But wait, isn’t this exactly what the FED is doing every single day with their POMO’s? Well yes it is, but here in Europe we don’t call it printing money or monetizing, because our central bank is not allowed to do that.

Long story short, Portugal managed to raise about 2.5 billion euro in their last public offering (at least for the time being), Spain just around 4 billion euro and a sigh of relief was felt throughout Europe. I guess it wasn’t so much the relief that they raised the cash as much as it was the relief of nothing having to endure the global panic that would have ensued if they hadn’t been able to raise a measly 7 billion euro combined.

Well, I guess there is always next time.

That’s all for today, I will write the next blog Wednesday evening and will use twitter and facebook for updates during the week.

Happy Hunting & Let’s Be Careful out there!!!

TBTF November 9, 2010 - PIIGS

2010-11-09T09:04:00.000-04:00

‘It’s finally here, It’s finally here, Oh, Oh, Oh, They Called me Pig, When I was a baby, I was so happy, I played with my friends in the mud’ (Weezer – 2008).

With QE2 out in the open the debt market seems to have shifted it’s attention back to the perils in Europe’s peripheral countries, the so called PIIGS. PIIGS stands for Portugal, Ireland, Italy, Greece and Spain (the acronym obviously not ordered by economic weakness). Back in the spring of this year when Greece almost collapsed under the weight of their immense budget deficit the EU had to come to their rescue. Yields on the 10 year Greek bonds had passed 12% while the yield on the shorter 2 year maturity had even surpassed 18%! The EU and IMF put together a hefty 600 billion Euro rescue package which brought back some relative calm to the markets.

With the unveiling of a renewed stimulus package in the US, rates in the PIIGS shot up again. Probably on the one hand because a weakening of the $ will mean less economic growth in the already fragile export-driven euro zone, while on the other hand Spain is exhibiting weaker than expected growth, Portugal and Ireland are having troubles getting their budget for 2011 in order, while strikes against pension and other budgetary reforms broke out all over Europe.

Germany in the mean time reiterated their stance to ‘not bail out’ anymore countries should they come begging for money. According to Markel and Schaeubele, it is time for bondholders to take a haircut, in other words: the buck stops here, partial default of euro countries is now an option. Germany can’t and won’t shoulder any more of the financial problems created by lax fiscal policies and corruption in the outer euro zone countries.

An illustration of how bad the situation on the European debt markets is right now can be seen from the following graphs displaying the spread between PIGS 10 year yield and Germany’s 10 year long bond yield:

As you can see yields in Greece and Spain have almost reached pre-spring-crisis levels, while the situation in Portugal and Ireland (the 2 countries that are having trouble with their budgets for the coming year) has dramatically deteriorated, with yield at new all-euro-time highs.

On the shorter end of the yield curve the movement has also been on the upside, with the spread on Irish-German bonds reaching a new all time high:

Both the Irish and the Portuguese can stay away from the capital markets until Q2 2011, but then they will have to start raising fresh money at some point.

Budget deadline in Ireland is December 7^th. Something new to look forward to!

In the mean time ….

Happy Hunting & Let’s Be Careful out there!!!

TBTF November 8, 2010 - Rise, Rise, Rise

2010-11-07T18:41:00.000-04:00

‘Rise, Rise, Rise, Keep on risin’ Rise, Rise, Rise, Yeaheaheaheah’ (Soul Providers – 2007).

Over the weekend Bernanke defended the Fed’s expansion of record stimulus at a conference in Jekyll Island, Georgia, as he has done over the past 4 days, ever since the announcement of QE2. Instead of commenting on the supposed merits of the program Bernanke should take his cue from Ex-Fed President Gary Stern, who eloquently described what must be the prevailing opinion amongst the Fed policy committee members:

“I would have voted in favor of it mainly because I think it’s worth a try and might have marginally positive effect on the rate of growth of the economy and unemployment”

In other words, why not, if it doesn’t help it won’t hurt. And that is exactly where I strongly disagree with the Fed at the moment, in my view it will hurt because it will spark uncontrollable inflation. Bernanke actually made some comment on inflation during a panel discussion:

“I have rejected any notion that we are going to raise inflation to a super-normal level in order to have effect on the economy…, our credibility must be maintained, it’s critical for us to maintain inflation at an appropriate level. Our purpose is to provide additional stimulus to help the economy recover and to avoid potentially additional disinflation which I think we all agree would be a worse outcome”

Obviously Mr. Bernanke doesn’t see inflation as a problem, he probably feels he can always raise interest rates to contain inflation, inflation that is as of yet nowhere to be seen according to the Fed Chairman.

I disagree with him on both points. If inflation starts to become a problem he could very well be able to raise interest rates, for that to be a possibility it means all his stimulus must have worked, economic growth will have to be at or above average levels and unemployment must be down, for if not he will stop any economic recovery in its tracks. The federal deficit will also have to be brought down to sustainable levels, else a raise in real-interest rates will only aggravate the financial burden this administration is transferring upon the shoulders of the next generation. So, even though Ben might be convinced inflation won’t become a problem I don’t share his optimistic view.

The one thing Mr. fed and I will be disagreeing on even more is the gauge for inflation. According to him inflation is too low at the moment and there are no signs that inflation will rise to his target of 1.8% - 2% in the near future. I will make the bold statement right here and now that inflation is already here, it’s not going anywhere and it will get worse, much worse. How can we have such different views on inflation you might ask, I can explain it very easy, Mr. Bernanke looks at the Core-CPI and I say that the core-CPI is not a real measure of real-inflation, but an easily manipulated index devised to make the lives of Central Bankers easier.

What exactly is the CPI and how does it measure inflation. On the website of the Bureau of Labor Statistics, the government agency that calculates the inflation gauge, we can find that the CPI is the “Change in prices paid by urban consumers for a representative basket of goods and services”. So far, so good.

The goods and services in the CPI index are categorized in the following 8 groups:

1. Food and Beverages

2. Housing

3. Apparel

4. Transportation

5. Medical Care

6. Recreation

7. Education and Communications

8. Consumer Expenditure

These 8 groups are then each assigned a weight within the Consumer Price Index and this is where the first interesting observation can be made. The group with the highest weight is Housing 42% of the CPI (within the Housing group Fuels and Utilities in and around the home makes up for 5% of the 42), next come Food & Beverages 15%, New and Used Motor Vehicles 6% and Motor Fuel 4.5%

As you can see, Housing, which has seen prices slide or stabilize in the last 2 years has an almost 40% impact (if you take out heating oil and electricity) on the CPI. Used Motor Vehicles, a big ticket item, not something consumer go out and by again and again each month weighs for 6%. So, almost 50% of the CPI is made up by items that do not change much in value in normal economic times, and have certainly not been going up in the last 2 years.

Volatile goods like Fuel and Food & Beverages make up for only 20% of the index and this is what people have to buy week in week out, year in year out.

So it seems there is a mismatch in what the CPI says the prevailing Inflation-Rate is and what people feel in their wallet. The $1.500 in rent or mortgage payments is not what make inflation, it’s what you can do with the money that is left after you paid for the roof over your head. Can we still get food on the table, can we fill up our car this week or are we going to have to take public transportation to go to work.

To make matters even worse, central bankers and politicians around the world don’t use the CPI as the measure of inflation, but the Core-CPI, the CPI number excluding Food and Energy because these components are too volatile. So when gas doubles at the pump it’s not real inflation for the theorists among us, but it hurts in my pocket anyway, it hurts a lot.

I can understand that politicians and central bankers cannot adjust their chosen policies anytime someone corners the Wheat- or Oil markets, but if and when commodities have been rising steadily but surely over a prolonged period of time it seems rigid and wrong to hold on to the perception that inflation can be measured by Core-CPI. And this exactly what has been happening ever since QE1, QE-lite and now QE2 have been announced. Raw goods have been rising in price steadily, they have had an impact on the Producer Price Index (+4% YoY in September and expected to be up 4.6% in October versus 1 year ago), but because we are still in a recession (that’s a disagreement I have with Mr. Bernanke that will have to wait until another time) producers haven’t been able to pass those elevated prices on to consumer, just yet.

The following graph shows just how much prices of basic raw materials have risen since March 2009 (when QE1 was announced), through the latest round of QE. It takes not much imagination to see that this huge run up in raw goods will raise inflation numbers sooner rather than later. We can only hope the good Dr. Bernanke won’t be stuck in his simplistic view of inflation, as measured by the CPI-ex Food & Energy, or the man in the street will be victim of ‘Zimbabwian-esque inflation, before the Fed chairman acknowledges inflation has crept up past the 1.8% - 2% target and will proudly announce his master-plan has worked and QE15 will begin to be unwound.

Happy Hunting & Let’s Be Careful out there!!!

TBTF November 4, 2010 - Nothing left to say

2010-11-03T19:12:00.000-04:00

‘When there’s nothing left to say, And the conversation is over, The silence just gets in the way’ (Staind – 2008).

Wednesday has come and gone and there is nothing left to say. Everything is out in the open. The market knows what it wanted to know, got what it wanted to get and can go back to sleep….

Tuesday we had mid-term elections in the US. As expected, the Republicans took over the House of Representatives while they gained in the Senate, but did not get a majority. So Obama will have to govern the last 2 years of his Presidency (I never thought he would be a 2-term President and now his chances are even slimmer) with a Republican Congress. This means he will have to move to the right to get anything done. So he will probably extend the Bush Tax-cuts, be less strict with new financial regulation, run a tighter fiscal budget and perhaps make changes to Medicare. All of this can be explained favorable for equities. We will know more in the coming weeks.

Yesterday was the most anticipated FED-meeting in the history of the FED, it was like the moment Neil Armstrong set foot on the moon, when the Berlin Wall came tumbling down, a landmark moment and we can tell our grandchildren that we were there! We were there when Mr. Ben drove the last nail in the coffin of the once ‘almighty’ Greenback.

What did he deliver to the markets? (FED statement, statement regarding purchases of Treasury Securities):

· Further purchase of $600 billion of longer-term Treasury securities by the end of Q2 2011, about $75 billion per month

· Reinvestment of principal payments, a total of about $250 billion to $300 billion over the same period, about $35 billion per month

· Taken together this will amount to a total of between $850 billion and $900 billion or roughly $110 billion per month

· Assets purchased will have an average duration of between 5 and 6 years

· The current per issue-limit of 35% will be temporarily relaxed

· The program will be adjusted as needed to best foster maximum employment and price stability

There is actually not much news in there. By announcing a headline number of $600 billion, Bernanke gave the markets just about what was expected on the low side of QE2 and by re-investing principal payments he satisfies those who were looking for $1 trillion (so I guess only Goldman Sachs was disappointed today). All in all it seems it is just a little more than the markets expected, but not much. As a result equities rallied just a bit, Gold came back from it’s lows, but still closed in the red, the Oil rally continued, the Euro and Yen strengthened against the $, volatility got hammered and the yield curve steepened, with the 30yr losing ground while the shorter end of the curve strengthened somewhat. So it seems for the first 115 minutes of trading Bernanke got just what he expected.

Will he still be so satisfied with himself 6 months down the road, only time will tell!

So what can we say about the markets in the near term, apart from the obvious fact that they will be underpinned by 1 trillion freshly printed dollars. Let’s take a look at some charts:

The S&P, after having rallied 150 points from sep 1^st, has 17 more points to go before it sets new highs for the year, which were set back in April. Should they break this resistance, 1.300 will be the next level. If they fail to take out new highs, 1.140 is the first support zone.

Gold has been in an uptrend since the beginning of 2009, when QE1 was first suggested. It is trading right in the middle of it’s trading band, with $1.325 as a short term support and $1.250 being the lower end of the range. As long as the $ keeps sliding versus most major currencies Gold has room to go up and it will.

The DAX has already been making highs for the year and is rapidly approaching the 7.000 mark which could be psychological resistance. Remember, 8.100 is the all-time high for the German Index. It’s hard to believe we are trading just 18% below those levels.

So far this year Germany has been outperforming most other European indexes this year. It might be because of the composition of the DAX but I think it’s more a safe haven play then anything else. Just as people want to be invested in Bunds they favor the DAX over, for example, the CAC.

All in all, QE2 should underpin equities and commodities well into next year, we have some room to continue going higher, but we are nearing resistance levels and if the economy does not start to show signs of growth it will be difficult to break through these barriers, as far as I can tell.

After the markets digested the outcome of the elections and Ben’s renewed liquidity boost equities managed to eke out a gain:

Dow +0.24% SP500 +0.37% Nasdaq +0.27% EUR$ 1.412 WTI 84.9 Gold $1348.5

Financials were the strongest sector +1% as hopes for less strong regulation and the hopes of a steeping of the yield curve attracted fresh money. Basic Materials ended the day softer -0.38% as commodities were subject to profit taking in the wake of the QE2 announcement.

Now that QE2 has been established there is a chance investors will actually start looking tat corporate earnings and economic data again. In Europe the financial sector is starting to report Q3 numbers, but the next highlight of the week will be the Non-Farm Payrolls report on Friday. Yesterdays ADP showed unexpected growth in the number of jobs, which might bode well for Fridays numbers. Then again, the correlation between ADP and NPF is statistically not relevant.

For now, I go back to sleep….

Happy Hunting & Let’s Be Careful out there!!!

TBTF November 2nd, 2010 - Wake me up before you go go

2010-11-01T21:39:00.000-04:00

‘Wake me up before you go go, Don’t leave me hanging on like a yo yo, Wake me up before you go go, I don’t want to miss it when you hit that high’ (Wham! – 1984).

Is it Wednesday yet? Please someone wake me up when it’s time. I can’t take this anymore… If the most important news of the day comes courtesy of E-Online: Kim Kardashian's Latest Non-Hookup: LeBron James! Then we know we are in trouble.

What headlines did we take for granted today, while we are in a FED-watch induced coma:

· U.S. Treasury forecasts $700 billion gross borrowing need by end of March 2011, To bust debt ceiling in Q1 2011

· Iceland on watch for new volcanic eruption

· Ireland may have just one month to stave off bailout danger

· General Motors IPO said to seek $10.6 billion to cut U.S., Canada stakes

· Oil rises second day on Chinese manufacturing, U.S. stimulus speculation

Wake me up when it is Wednesday….

The upside to having so much free time (as there’s no trading to be done) is that I can think. Granted, it doesn’t always lead to something sensible, as was the case with today’s mental exercise. I dubbed it the ‘I am Ben and I have a plan’ mental gymnastics event of the day:

Will Ben know, by now, what he is going to do come Wednesday?

I imagine him walking around the house, talking to his dog Lewis (no idea if he has one, but hey…these are my thoughts), asking him for advice about the wording of the accompanying text of his QE2 announcement. He wanders over to his next door neighbor, Mr. Jamie D., while chatting about the weather he slips in a question about the ideal duration of QE2. Next he goes to the bakery on the corner where the owner Mr. Lloyd B. tells him he should buy 3 loafs of bread instead of 1, because you can never have enough bread!!! He hesitates a bit, but decides Lloyd is usually right and buys 3 big loafs of bread. Walking back home he almost gets run over by a skateboarder. It’s the nasty kid from 3 houses down, Tyler D. who shouts at him he should be more careful, “Carrying around all that bread is blocking your view of the sidewalk, it just might be your downfall”, Kids these days….. When he gets home he retires to his bedroom but he is afraid to go to sleep. He has been having these nightmares lately, about growing economies, shrinking economies, deflation, run-away inflation, jobs, jobs and even less jobs and no matter what, he can’t seem to get a handle on things while he’s asleep. It’s better to stay awake; at least he’s in charge of the world in his waking hours. He turns on his bedside lamp, opens up his 1^st edition of ‘The General Theory of Employment, Interest and Money’ and reassures himself everything will be ok. Ben has a plan, Ben has a plan, Ben has a plan, Ben should have a plan by now…..

Wake me up when it’s Wednesday….

Mid-term elections 2 days away, QE2 3 days!

Happy Hunting & Let’s Be Careful out there!!!

TBTF November 1st, 2010 - Forever Autumn

2010-10-31T20:05:00.001-04:00

‘The summer sun is fading as the year grows old, and darker days are drawing near, the winter winds will be much colder, now you’re not here’ (Justin Hayward & Jeff Wayne – 1974).

Here in Europe we said goodbye to summer(time) 2010 and stepped into autumn. More rain, more wind, lower temperatures, a lit fireplace and since the clock went back one hour over the weekend, it will be dark one hour earlier than last week as well. Darkness is descending over Europe, and I’m not only talking about the nearing economic depression. It also implies that the time difference between Europe and the US East Coast is only 5 hours this week, so QE2 will be announced at 19:15, not the usual 20:15, this Wednesday (unless Bernanke comes to his senses…..yeah right!).

It was also Halloween weekend and this started off with quite a scare. For a brief moment the mid-term elections and QE2 were pushed to the background by Friday’s news that 2 bombs were found inside printer cartridges on planes from the middle-east en route to Chicago. One bomb was intercepted in Dubai, while the other was caught in London. No one knows as of yet if those 2 bombs were the only ones bound for the US, let’s hope they were. On the markets there was NO reaction at all, the S&P traded in a tight 6-point trading range all day. Apparently terrorist threats have become part of our everyday lives, which is scary in itself, or maybe QE2 is believed to be anti-terroristic as well. We choose to believe everything fairy tale Bernanke tells us anyway.

So here we are, 2 ½ trading days before what will be a game-changing event: QE2. The chance that there will be QE2 of some magnitude is 99.9%, so the bigger question is: what will happen after it has been announced, in 3 months, 6 months or even 2 years down the road.

The answer is: NOBODY knows. The only thing that is clear is that the risks, introduced in the economy, are growing as a result of monetary easing and it’s not clear if the FED can counter those risks in the future. It’s a tightrope that Bernanke is walking and the risk of falling off a cliff left or right is extremely high.

On the one hand QE2 might achieve nothing which almost certainly means the US will follow down the path of Japan, where the economy has not been growing in the last 15 years. On the other it might introduce inflation, a lot of inflation, but inflation itself will not stimulate the economy, the mechanism that takes care of that is the ‘velocity of money’. This has been hit hard by the deleveraging in the economy, on the banking side as well as on the consumer side. Introducing more liquidity (as if there is a liquidity shortage at the moment) won’t increase the velocity of money if on the other side de-leveraging still continues. But it does have an inflationary impact through a lower dollar. If this is the case, higher inflation without a higher velocity of money and therefore a still sluggish economy, then what can the FED do to stop inflation from spiking higher and higher? They won’t be able to do what they always do: raise rates, they will drive the economy into a deep depression if those measures are taken. So we will have runaway inflation with no means to hold it back, not a pretty picture at all.

Gonzalo Lira, on his blog this weekend, calls for a steadily increasing CPI averaging 30% by the end of 2012 culminating in the collapse of the $ and the US economy. Just in time for the end of the world, as predicted by The Mayans. Goodbye money, goodbye earth. Maybe that’s why Bernanke is not looking for a real solution to these problems at hand, we won’t last long enough anyway. (Don’t go throw away all your hard-earned cash just yet, because some scientist figured out that the Mayan calendar doesn’t stop in 2012, but in December 2208, good thing I did not go see that movie after all.)

The markets ended the week just like they had been trading all along, unchanged. October 22^nd the S&P500 closed at 1.183,08 while this Friday it closed at 1.183,26 A whopping gain of 0.18 points! The VIX however closed 2.4 points higher as more and more market participants are trying to insure themselves against a lower than expected QE2 announcement and trade-war tensions keep building.

Dow +0.04% SP500 -0.04% Nasdaq +0.00% EUR$ 1.392 WTI $1.4 Gold $1360

Treasuries ended higher, sending yields on the 10yr lower to 2.60%

We have a lot of economic data this week, ranging from ISM to Non Farm Payrolls, but Wednesday’s FED meeting will be the most watched event of the week.

Mid-term elections 2 days away, QE2 3 days!

Happy Hunting & Let’s Be Careful out there!!!

TBTF October 29, 2010 - Just ask the lonely

2010-10-28T21:09:00.003-04:00

Too Big to Flail

October 29, 2010

‘Just ask the lonely, When you feel that need, To make it all alone, Remember no one is thinking of, Going alone, Just ask the lonely…’ (Four Tops – 1965).

Today it became clear that the FED is not thinking of ‘going alone’, so they asked their Primary Dealers just how much QE2 they expect, what they think the impact will be on yields in the next six months. According to Merrill’s Harley Bassman ‘Four dealers are predicting a $1 trillion+ buy program with a smattering of $900 billion and $600 billion votes tossed in’. I guess it could always be worse, since no dealer went as high as $2 trillion or $4 trillion. The ultimate question is: Is the FED trying to communicate something, or are they really lost and don’t they have any clue themselves as to how big the amount of their “wonder medicine” should be and what impact it will have on rates. Let’s face it, nobody knows, not even the almighty POMO-front-running Primary Dealers of this world.

On the markets it seems as if everyone has gone on an extended summer holiday. Volumes have decreased dramatically the last few months and what most hoped were the summer doldrums have now turned into autumn laziness. I’m sitting here writing this blog, listening to good old Chris Botti blowing on his trumpet, feeling all lazy-rainy-Sunday-morning-y, just like I feel most days at the office. Staring at my intraday charts which flat line 30 minutes into the trading session, reminiscing about the days when volatility was accompanied by volume, when volatility was still there. At the beginning of September we would all say: wait until Labor day has come and gone, then volume will be back, then came Yom Kippur, G20 meetings, jobless data, housing starts, but volume never returned, so now we sit and wait until the Mid-Term elections and QE2 but let’s not forget Santa Claus is making an appearance at the end of December, perhaps he will bring some volume with him from the North Pole, maybe if we all write a letter

To: Santa Claus

Address: North Pole

From: Trader Dutchie

Dear Santa,

I know you have given me lots of presents in the past, almost everything I ever asked. You have always been so generous, even when I asked so much, and I forgive you for that one time when you did not get me that Silver Ferrari California, even though I still find your ‘my sleigh isn’t big enough’ excuse a little lame.

This year I write to you to ask for something non-material, something that I lost. It’s one of my favorite things and I have tried to find it all year long, but no matter how hard I look, I can’t seem to locate it anywhere. I am worried it got scared away by credit-bubbles bursting left and right. That it got thrown out to the curb together with my beloved ‘leverage’ or, and this is my worst fear, that the big bad boys from down the block, the HFT’s, have chased it away with their relentless manipulation. Maybe uncle Ben is keeping it locked down in his basement, you know how he gets when he starts to ramble about deflation and QE2, nothing sensible comes out and he locks the house for months on end. I even thought it might have gotten tired from being around me all those years, I thought it might have found another friend. But no matter who I talk to, they all say the same: NO, we haven’t seen it either.

Dear Santa, please, can you find my ‘volume’ for me, I promise to treat it like a friend, to nurture it as well as I can, to love it and never leave it. Please Santa, without it I feel so lost.

Trader Dutchie

The markets, being in the pre-event holding pattern as they are, were little changed. The risk trade seemed to be on again, even though jobless claims came in better than expected. The survey by the FED about possible QE2, seemed to strengthen the belief the FED won’t do anything to upset the markets next Wednesday and give them exactly what they are expecting. So the $ dropped against the Euro and the YEN, Gold and commodities were higher as were bonds and the equity markets were quiet.

Dow -0.11% SP500 +0.11% Nasdaq +0.16% EUR$ 1.392 WTI $82.15 Gold $1344

Consumer Services and Healthcare were the biggest gainers +0.5%, while Industrials lost a mere 0.33% to end the day as the biggest losers.

Today we have Advanced Q3 GDP (2% exp) and the Chicago Purchasing Managers Index (58 exp) as well as the final University of Michigan Confidence reading (68 exp) on the roll in the US, while in Europe we look at German Retail Sales for September (+0.5% exp) and EuroZone CPI for October (+1.8% exp).

Mid-term elections 5 days away, QE2 6 days!

Happy Hunting & Let’s Be Careful out there!!!

TBTF October 28, 2010 - Tell it like it is

2010-10-27T17:55:00.003-04:00

Too Big to Flail

October 28, 2010

‘Tell it like it is, Don’t be ashamed to let your conscience be your guide. But I know deep down inside me, I Believe you love me, Forget your foolish pride’ (Aaron Neville – 1966 but I grew up on Don Johnson’s (yes, he of Miami Vice) version – 1989).

And tell it like it is he did. If he was led by his conscious, I doubt that, much more by the smell of money, but boy did he tell it.

Who is he, you will ask? Bill Gross, Chief Investment Officer at PIMCO, the worlds biggest bond investor. And he had this to say:

Wednesday is the day when the Fed will announce a renewed commitment to Quantitative Easing – a polite form disguise for “writing checks
We are, as even some Fed Governors now publically admit, in a “liquidity trap,” where interest rates or trillions in QEII asset purchases may not stimulate borrowing or lending because consumer demand is just not there
Still, while next Wednesday’s announcement will carry our qualified endorsement, I must admit it may be similar to a Turkey looking forward to a Thanksgiving Day celebration
Check writing in the trillions is not a bondholder’s friend; it is in fact inflationary, and, if truth be told, somewhat of a Ponzi scheme
Has there ever been a Ponzi scheme so brazen? There has not. This one is so unique that it requires a new name
The Fed wants to buy, so come on, Ben Bernanke, show us your best and perhaps last moves on Wednesday next. You are doing what you have to do, and it may or may not work. But either way it will likely signify the end of a great 30-year bull market in bonds and the necessity for bond managers and, yes, equity managers to adjust to a new environment

There you have it, Bill Gross, a vigorous supporter of the FED, is expressing his doubts about the next round of quantitative easing, and not only about this round but also about the first round. He admits there is not much else Bernanke can do, but it is, in his own words “the most brazen Ponzi scheme ever” and he plans to NOT be the last one out.

He will diversify his way out, move out of Treasuries and into developing/emerging market debt, leaving only the FED and the Chinese to buy this staggering amount of US Government Guaranteed Debt. If the FED wants to buy, he will sell: “Certain Turkeys receive a Thanksgiving pardon or they just run faster than others! We intend PIMCO to be one of the chosen gobblers”

And Bill wasn’t the only one to openly question the sensibility of another round of QE, Peter Orszag (former advisor to President Obama) wrote the following op-ed in the New York Times: Sailing The Wrong Way with QE2? In which he states

“In other words, by perpetuating an artificially low 10-year government bond rate, the Fed may be delaying (even if very modestly, given the modest impact of the action on long rates) the very fiscal policy action that the nation most needs, while doing little to boost an economy whose principal problem is not high long-term interest rates.”

Harsh words indeed.

So after today we have 3 FED governors, the Chinese, the Wall Street Journal, Peter Orszag and Bill Gross vehemently against more quantitative easing. Anyone still believe in a shock-and-awe announcement next Wednesday?

As Abigail Doolittle of Peak Theories Research described in a very well written piece yesterday named QE2: The Bond Bomb? Treasury yields are already creeping up since the beginning of October and if they follow a similar path as after the QE1 announcement, QE2 could very well be the thing to bust the bond bash.

In Portugal the government and the opposition broke off budget talks, ‘agreeing to disagree’, causing yield spreads between Germany and Portugal to widen substantially which in turn had a negative impact on the euro. After Greece’s news yesterday, that GDP will fall by more than expected in 2010, this is the second piece of negative news to come out of the Eurozone. It seems not all is as stable as many had hoped.

As was the case Tuesday we had some strange decoupling within the risk-on/risk-off trade from what we have seen the last 2 ½ months. While the Euro and Yen declined versus the Dollar, Gold/Oil & other commodities fell as expected, the VIX rose, but equities tried and almost managed to rally back to unchanged. Could it be that we were collectively front-running today’s POMO? Something is afoot, that’s for sure.

Dow -0.39% SP500 -0.27% Nasdaq +0.24% EUR$ 1.377 WTI $82.50 Gold $1325.35

Technology and Financials managed to eek out a gain, while Basic Materials witnessed the most severe drop -1.15% as commodities fell across the board.

The yield on the US10yr rose by 8 bps to 2.722%, a rise of 34 bps since October 7^th.

Mid-term elections 6 days away, QE2 7 days!

Happy Hunting & Let’s Be Careful out there!!!

TBTF October 27, 2010 - 'Cause I've been away too long

2010-10-26T18:40:00.001-04:00

Too Big to Flail

October 27, 2010

‘Cause I’ve been away too long, and every day I missed you more. You look like you did before, only prettier. And every day I missed you more, and more and more and more’ (Racoon – 2005)

I’ve been away fro a few days, hence my “Too Big To Flail” has not been published, and by god, the market looked like it did before, only prettier. It seems there is no possibility for the markets to close lower, although we seem to be running out of steam on the rally. Since Sep 1^st we have had 10 down days (of which 6 were only slightly lower closings), which is a phenomenal record. I say the rally looks like it is running out of steam because Mondays price action was to the downside most of the day and yesterday made it just barely into the green, and what both days had in common was that the VIX closed higher on both instances. And that is usually a sign that volatility, i.e. down days, are on the horizon.

Is there nothing the markets need to worry about? Well, yes, enough!

Economic data that seems to be stabilizing or getting slightly better
Corporate Earnings that are not half bad
Mid-term elections in just over a week
Germany getting fed up with the rest of Europe
China talking tough on QE II
Which happens to be announced next Wednesday

Economic data in the US and Europe seems to be at least stabilizing if not improving slightly. Industrial production in Europe for one keeps beating expectations. German factories must be buzzing with activity if we are to believe these statistics, but then again everyone believed the Greeks when they said GDP would grow this year and look how that turned out so far. But, as long as we are getting better macro-economic numbers QE II has less of a chance to get implemented and seeing as the market is expecting a lot of $1, $5 and $10 bills being thrown at it, that is not a good sign.

Same goes for corporate earnings. They might be improving, from very low comparables, but at this time it is not good for the market. That is the paradox we live in nowadays, a world where the FED’s expectations game has more impact on valuations than earnings and revenue.

The mid-term elections are coming up in a week, more seats are up for grabs or heavily contested than in the last few mid-term elections and perhaps it’s because tea-party candidates are making a stronger showing than expected, but we don’t seem to hear an awful lot about it. Wall Street seems to want a house and senate in gridlock. An environment in which new regulations will be either voted out by republicans, or vetoed by Obama. And who said ‘Change it Good’?

The most interesting rhetoric came from Europe this morning, where German government officials were making threats against their European brethren. They said ‘Germany won’t back the Euro stability fund after 2013’, ‘EU needs treaty change to avoid Euro crisis’. Just like Weber versus Trichet, German politicians seem to take a stand against their European colleagues. They want to clean up this mess, while the rest of Europe wants to sweep everything under the rug and pretend nothing ever happened. Question of the day is: will Germany make good on their threats at the end of the day, or will they soften their stance in the coming weeks/months, or is this all just a way to soften the Euro. It seems everyone ‘wants’ a strong currency these days, yet does their best to be the first to really weaken it.

China is getting more and more vocal about Mr. Bernanke cranking up the printing presses next week. After threatening to lower the exports of ‘rare earth minerals’ to the US, the Chinese commerce minister yesterday said “Dollar issuance by the United States is out of control, leading to an inflation assault on China”. Of course, if they really wanted to make a statement they would just dump more treasuries on the open market than the FED can buy, but as with most politicians, they can talk the talk, but walk the walk?

QE II. The expectation of the amounts of fresh, crisp, new money to be printed next week, is reaching laughable heights. If $700 billion - $1 trillion wasn’t high enough, there are now rumors circulating of an unimaginable $2 - $3 trillion. If true, I guess DOW 36.000 will be reached before the end of the year. The above number is highly doubtful of course, since no one on this earth can possibly be happy about the sudden, but all to true, collapse of the US Dollar. Not Europe, Not Japan, Not China and Not even Ben Bernanke himself. I think the markets are setting themselves up for a fall and the risk/return on a short trade just before the announcement of the amount of QE II seems to be getting better as the days go by.

The markets ended flat as previously mentioned. Noteworthy though was the lack of correlation between the $ and the other asset classes. With the $ substantially against the Euro and the Yen we would have expected to see Gold, Oil and the markets to end in the red, but all asset classes staged a late day rally to end the day virtually unchanged. Too much of a coincidence for my taste.

Dow +0.05% S&P500 +0.00% Nasdaq +0.26% EUR$ 1.386 WTI $82.50 Gold $1340

Happy Hunting & Let’s Be Careful out there!!!

TBTF October 21, 2010 - Slip sliding away

2010-10-20T18:37:00.002-04:00

Too Big to Flail

October 21, 2010

“Slip sliding away, slip sliding away, You know the nearer your destination, the more you slip away, Whoah and I know a man, he came from my hometown, He wore his passion for his woman like a thorny crown, He said Dolores, I live in fear, My love for you is so overpowering, I’m afraid that I will disappear” (Paul Simon – 1977)

And so went the $, slip sliding away. Gone were the fears over the Chinese rate hike that strangled the markets yesterday, gone were the fears of the FED not delivering on QE II and so, back on is the risk trade, with Euro$ higher, Gold higher, stocks higher and commodities higher.

A report by the Melody Think Tank surfaced in the early hours of US trading, stating that the FED maybe on the verge of purchasing $500 billion of treasuries over the next 3 to 6 months with room for an extension of the program for an additional 6 to 12 months. This signaled to the market that the FED may still be starting QE II as early as November so a relief rally followed.

The only significant piece of economic data was the FED beige book and this gave no clear signal as to what to expect November 3rd, here’s a summary:

“Reports from the twelve Federal Reserve Districts suggest that, on balance, national economic activity continued to rise, albeit at a modest pace, during the reporting from September to early October.”

- Manufacturing activity continued to expand
- Housing markets remained weak
- Input costs rose further
- Prices of final goods were mostly stable as higher input costs were not passed on to consumers
- Retailers said consumers are slowly regaining confidence, but remain price-conscious and were largely limiting purchases to necessities and nondiscretionary items
- Sales of new vehicles were steady or rose. Used car prices rose

Mortgage/Foreclosure-mess wise, Goldman came out with a report on Bank of America, stating their estimated put-back loss for BAC is $24.9 billion (this comes to an after-tax loss of $11.6 billion). The company already lost $17.1 billion on the foreclosure issue, so they conclude BAC is actually a BUY based on these calculations.

This same Bank of America is suing the FDIC (Federal Deposit Insurance Corporation – the government institution that takes failing banks into receivership) for $1.75 billion. Bank of America is trustee for notes, issued by Taylor Bean’s Ocala Funding LLC unit, sold to Deutsche Bank and BNP Paribas. Taylor Bean ceased a majority of its operations on August 5, 2009 as federal prosecutors said a multi-billion dollar mortgage fraud took place. Bank of America said that the FDIC is legally required to cover these valid claims, and that the agency’s only explanation for denying the claims has been they have “not been proven”.

In suing, BofA, in its role as trustee, is doing exactly what a group of investors is doing to them, trying to reclaim money lost on faulty mortgages. And BofA is giving the same rebuttal as the FDIC: the claims are not valid, we do not have to pay. Isn’t it ironic, don’t you think.

US Markets ended higher, underpinned by a weaker $. The DOW ended up +1.18% S&P500 +1.05% Nasdaq +0.84% EUR$ 1.3960 WTI $82.50 Gold $1346

As commodities rallied, so did commodity related shares, Basic Materials was the biggest gaining sector +2.25% while Consumer Goods rose the least +0.69%

After hours E-Bay beat on EPS ($0.40 vs. $0.37 Exp.) and revenues ($2.249 bln vs. $2.18 bln Exp.) its stock trading up +8.5%

Today we will see the likes of CSFB (€0.97 EPS), Novartis (€1.25 EPS), Gemalto, Akzo (€1.0 EPS), Danone, Pernod Ricard, Publicis, Umicore and Nokia (€0.097 EPS) reporting, while Saint Gobain, Valeo and L’Oreal report after the close. In the US we will look at AT&T ($0.55 EPS on rev $31.247 bln), Caterpillar ($1.09 EPS on rev $10.477 bln), Eli Lilly ($1.15 EPS on rev $5.806 bln), McDonald’s ($1.25 EPS on rev $6.228 bln) and UPS ($0.88 EPS on rev $12.375 bln).

Just like autumn, earnings season is upon us in full force.

Happy Hunting & Let’s Be Careful out there!!!

TBTF October 20, 2010 - Another day, Staring out of my window

2010-10-19T17:59:00.001-04:00

Too Big To Flail

October 20, 2010

“Another day, Staring out of my window, Thinkin’ bout tomorrow, Wishing things would clear, No need to rush, I ain’t gonna worry, Any moment my sorrow, Is bound to disappear” (Buckshot Lefonque – 1997)

Oh how we equity traders wish things would clear, how do we long back for the days when all price action was simple and straightforward, when good news was good and bad news was bad, when we weren’t caught in this new paradigm. Well, it seems we might just get our wish and isn’t it true that you have to be careful what you wish for?

The worry is back, after weeks of simmering in the main stream media, today they finally got the message where this foreclosure mess will really hurt the banks: on their balance sheets. Bloomberg and CNBC earlier reported that ‘Pimco, Blackrock and the New York Fed are said to seek Bank of America mortgage putbacks’.

“Pacific Investment Management Co., BlackRock Inc. and the Federal Reserve Bank of New York are seeking to force Bank of America Corp. to repurchase soured mortgages packaged into $47 billion of bonds by its Countrywide Financial Corp. unit, people familiar with the matter said”

As this and various other blogs have been reporting over the past few weeks, faulty appraisals, invalid or incomplete loan documents or bad foreclosure procedures, can lead to so called putbacks, where bondholders will try to sell their ‘underwater’ financial instruments back to the issuing companies, not at market value, but at par. JPM Morgan put the total putback risk at between $80 billion and $145 billion:

“We estimate putback risk to be approximately $23-$35bn for agency mortgages, $40-80bn in non-agency and roughly $20-30bn for second liens and HELOCs. However, there are a number of reasons why these estimates are on the high end, including losses already taken and loss reserves established” (Click here for the full report on Scribd or scroll down to the end of this blog)

Bank of America was quick to come out with a statement saying “Not responsible for loans hurt from bad economy, Doesn’t think breached obligation as servicer”, but the fact that none others than Pimco, BlackRock and the FED are trying to get their money back in such a high-profiled way leads me to believe they are in fact responsible in some way.

Meanwhile the FED-members came out with conflicting views on QE II. Evans, Lockhart and Dudley (Chicago, Atlanta & New York) said that QE II is necessary and will need large scale buying of securities, while Fisher (Dalls) and Kocherlakota (Minneapolis) continued to express skepticism about the efficacy of further asset purchases.

Especially Fisher had some harsh remarks on the subject: (from his speech in New York)

- There is abundant liquidity in the economy

- Efficacy of further accommodation “not all that clear”

- Sees ‘moderate’ growth after third quarter

- The reality of fiscal and regulatory policy inhibiting the transmission mechanism of monetary policy is most definitely present and is vexing to monetary policy makers. It is indisputably a significant factor holding back the economic recovery

- In my darkest moments, I have begun to wonder if the monetary accommodation we have already engineered might even be working in the wrong places

And from the ensuing Q&A:

- Hoenig’s dissenting views ‘worth listening to’ (remember, Hoenig is the only Fed President that keeps voting against keeping interest rates at these extremely low levels)

So what did this all mean to the market. Conflicting FED signals, financials under pressure (even after better than expected numbers from State Street, Goldman and Bank of America) because of rising CDS prices on the back of these putback stories and technology in the dog house after Apple and IBM numbers Monday after hours, made the markets pull back over 1%. It seemed the risk trade was definitely off today as the $ advanced and Gold gave back more than 2%

Dow -1.48% S&P -1.59% Nasdaq -1.76% EUR$ 1.373 WTI $79.49 Gold $1332

On the back of the $ strength Basic Materials and Oil&Gas were the main losing sectors -2.5% While Utilities were down the least -0.66%

After hours Yahoo is trading up +1.5% after beating eps but missing on revenue.

Last but not least, it seems the trade/currency war heated up just a little more yesterday with China halting Rare Minerals exports to US and Europe according to the New York Times. China mines 95% of the world’s rare earth elements, like Rubidium, Tantalum, Beryllium and Neodymium, many of which have shot up a few 100% in price this year as they are being used in virtually anything these days, from cars to wind turbines and guided missiles.

“A few rare earth shipments to the West had been delayed by customs officials in recent weeks, industry officials said, but the new, broader restrictions on exports appear to have been imposed Monday morning. They said there had been no signal from Beijing of how long rare earth shipments intended for the West would be held at the docks by Chinese customs officials. Nor is it clear if occasional shipments are still being allowed out of the country, or if all shipments have now been suspended.”

Let’s hope this is not a presage to an escalating trade/currency war.

Happy Hunting & Let’s be careful out there !!!

Putback Risk

TBTF October 19, 2010 - Eleanor Rigby

2010-10-18T18:07:00.002-04:00

Too Big to Flail

October 19, 2010

“Eleanor Rigby picks up the rice in the church where a wedding has been, Lives in a dream, Waits at the window, wearing the face that she keeps in a jar by the door, Who is it for? All the lonely people, Where do they all come from? All the lonely people, Where do they all belong?” (Beatles – 1966)

I chose a Beatles song, as opener, today because Apple was the main news last evening. (Apple records was founded by the Beatles in 1968). The problem with choosing a Beatles song is that you can never get the perfect one. There are too many good songs, not too mention all the better and really, really good songs! I could’ve gone with Sgt. Pepper’s Lonely Hearts Club Band, I should’ve gone with Helter Skelter, I really would have liked to go with Let It Be, but in the end I decided to go with ‘Eleanor Rigby’. I loved hearing this song growing up (no, I am not that old), performed, as a cover, by Bobby Womack.

So, Apple, more anticipated these days than GE, Intel, Goldman and Google combined. They beat estimates by a wide margin, Q4 EPS $4.64, Est. $ 4.10 with revenue $20.34B vs $18.90B, 14.1 IPhones were sold vs an estimate of 11.7 mln (whisper was as high as 13 mln), but there was a dark lining to this golden cloud: there were ‘only’ 4.19 mln IPads sold vs an estimate of 4.81 mln and they gave an almost traditional conservative guidance of $4.90 eps while analysts had expected $5.03. The stock is trading down $16 or 5% after hours. Apple however, always plays down the coming quarter and then comes out and beats expectations by a wide margin.

Big Blue, also down 5% after hours after beating expectations $2.82 vs $2.75. They boosted their full year forecast to $11.40 from $11.25, but this is because of a 15c tax gain, which means they actually come in at the low end of the analyst expectation range.

The Nasdaq future is down 1.35% after hours and the S&P is lower by 0.5% All in all this is the first day that corporate figures actually have more impact than talk about the state of the economy or QE II.

Was there nothing interesting to say today in the land of Macro Economics? Well yes, Europe announced new sanction rules for high-deficit countries, that weren’t really all that new. Instead of the automatic sanctions Germany has called for it was decided that sanctions are to be politicized, much to the dismay of the ECB. No country has been penalized for over-stepping the 3% deficit limit in the 12-year the euro exists. Not even Greece, Portugal, Ireland or Spain, because there was no automatic penalty system and after the current crisis, after months of bickering, it is decided that there will never, effectively, be a penalty.

Trichet today squared off with Weber on the stimulus exit. It looks like Weber, in his quest to become the new ECB President, overstepped his boundaries and is now being reigned in by Jean Claude. This can very well be a signal that the new ECB President won’t be Weber, but a more dovish, moderate one.

How did the US Markets end:

Dow +0.73% S&P500 +0.72% Nasdaq +0.48% EUR$ 1.395 WTI $83.08 Gold $1369

Financials were the best performers after losing more than 3 straight sessions. They were helped by Citi Group’s (+$0.22) better than expected earnings +2.29%, Semi Conductors were the worst performers -0.63%

Just after the close we had another flash crash. They still occur everyday in single stocks, more often than not triggering the curbs that were implemented to prevent a market meltdown. Today’s flash crash happened in the S&P ETF called SPY(der). They traded 9.6% lower erasing $7.9 bln of the value of the ETF on volume of 7.2 mln shares (in 8 seconds!). NYSE Euronext decided to “bust” all the trades as the bad trades ‘resulted from a software release’ This market is becoming a joke with all these computer programs running afoul at will. Perhaps it would be a good idea to stop cancelling trades, so people will become more careful when they ‘upgrade’ their software.

What to expect today: Apple and IBM will probably be a drag on technology stocks in the early going (Nasdaq future down 1.5% after hours). At 11 c.e.t. the al important ZEW in

Germany

will come out. Housing Starts will be the main US focus at 14.30 c.e.t.

There are no major earnings announcements in Paris or Amsterdam, so the focus will be on Bank of America $0.16 est on $27.154 bln revenue, CocaCola $0.89 on $8.296 bln rev., Goldman $2.28 on $8.089 bln rev and Johnson & Johnson $1.15 on $15.175 bln

Happy Hunting & Let’s Be Careful out there!!!

TBTF October 18, 2010 - It's all about the money

2010-10-17T19:30:00.001-04:00

Too Big to Flail

October 18, 2010

It’s all about the money, its all about the dum dum duh dee dum dum,
I don't think it’s funny, To see us fade away It’s all about the money,
it’s all about the dum dum duh dee dum dum, and I think we got it all wrong anyway (Meja – 1998)

These days it all seems to be about the $ and Í think we got it all wrong anyway’. Every piece of economic data is looked upon ad to how it will impact the FED’s decision on QE II. If it’s QE II positive the $ drops and virtually all other asset classes go up and QE II negative means the $ rises and all other asset classes go down. Friday Art Cashin (head of floor trading NYSE for UBS) said it perfectly on a King World News interview:

”the Fed has essentially broken the market: "You used to have markets that were not particularly correlated. The asset classes now seem to be so heavily dominated and in inverse relationship to the dollar, and in direct relationship to the euro... It's frustrating having honed my skills over 50 years to be able to interpret news, and look at a piece of economic data, and try and outwit the rest of the world by figuring out how it would work, and now all you have to do is look and see how the dollar is reacting and know how everything else works. And that huge correlation is not good for people because if everything is correlated in a basket like that, it is very difficult for people to hedge and protect themselves, and therefore when assets move they tend to move altogether.”

For a cash equity trader like me, trading economic news has in essence become very simple: just look at whichever way the $ is going and put on the opposite trade. But there is something worrisome, even scary about all this, the market has discounted such a large sum of QE II already, what will happen when the FED comes in with exactly that number ($500 bln - $ 750 bln) or perhaps a little less. As I mentioned before, the market is calling Bernanke’s bluff, has the FED ‘broken the market’ so much, that even another old stock market saying won’t hold up under these conditions, Buy the rumor, sell the fact. Come November 3^rd, 20:15 cet, the market expects something big from the FED and what will their reaction be if it comes in equal or less than expected. My humble guess is that a few puts at these low volatility levels can turn out to be the best investment of the year.

In Europe the French banking sector has been underperforming their European peers all week last week. It is being said that their reluctance to be transparent about their current ratios under Basel III has led many to believe they are in essence undercapitalized and are in more need of fresh capital than other European banks. I came across a simple chart on ZeroHedge that might give an explanation as to why the French banks are more undercapitalized than their Euro peers

France

simply has the biggest banking sector in Europe (when measured in Liabilities) and they have not recapitalized enough as of yet.

The major indexes in the US closed mixed on Friday, as the $ strengthened versus the Euro, taking stocks down apart from the tech sector which was massively supported by a 10% gain in Google (they represent 4% of the Nasdaq) after their Q3 blowout numbers the night before.

Dow -0.29% S&P +0.20% Nasdaq +1.37% EUR$ 1.4010 WTI $81.26 Gold $1368

Technology was the strongest sector in the S&P500 +2.15% while Financials were the weakest yet again -1.61% as Foreclosure-gate keeps getting worse day by day.

It is funny to see how technical analysts are already loading up on an upcoming technical buy signal called “Golden Cross” If the S&P consolidates around 1.175 over the next week, the 50-day moving average (ma) will rise above the 200-day ma, creating the “Golden Cross” signal.

“During the past 20 years, buying the S&P 500 at the time of each Golden Crossand holding until the next death cross would have yielded a 191% profit, according to data that Spinello (Chief Technical Strategist at Jeffries Group) cited in a report today. Eight Golden Crosses happened in the period and the trade would have made money every time.” (BBG October 15, 2010)

Of course technical analysts were vehemently warning about the “Death Cross” (the opposite of the Golden Cross, i.e. a sell signal) over the summer and the anticipation of QE II made that a losing trade. I really don’t think that technical analysis works n a market that is being ‘manipulated’, although a buy signal in this environment will work 100 times out of a 100.

The coming week we will see the following economic data:

United States

: Industrial Production, Housing Starts and the Philly FED

Germany

: ZEW Survey and IFO Survey

UK: Minutes of the BOE

Happy Hunting & Let’s Be Careful out there!!!

TBTF October 15, 2010 - A little bit of Monica in my life

2010-10-14T19:16:00.003-04:00

Too Big To Flail

October 15, 2010

a little bit of Monica in my life, a little bit of Erica by my side, a little bit of Rita is all I need, a little bit of Tina is what I see, a little bit of Sandra in the sun, a little bit of Mary all night long, a little bit of Jessica here I am, a little bit of you makes me your man (Lou Bega – 1999)

It was a little bit of everything in the markets today. A little bit of QE II, as can be witnessed by the EUR$ going through 1.40 and gold ending higher, a little bit of NO QE II, as can be seen in the lower close of the major US markets (there was a rumor going around that China and the US struck a deal whereby China would revalue the Yuan in exchange for the US not implementing QE II) and a little bit of foreclosure-gate, as can be seen in the bank sector ending down significantly and US bank CDS rates shooting up.

A little bit of QE II is still a spillover effect from the release of the FED minutes and Weber still talking tough on rates and lifelines to European countries.

A little bit of no QE II, i.e. the rumor about the Chinese deal could have some truth in it. The last few treasury auctions were marked by Chinese absence. China sees the US trying to devalue their currency by printing large sums of dollars, which for them means, they are losing on their treasury holdings. If China were to revalue the Yuan substantially, it could have the same effect as another round of quantitative easing, without the printing of money. So it would be in their mutual interest to come to such a deal. However, China holding the US hostage and vice versa does not bode well for the future of the world economy.

A little bit of foreclosure gate, the lingering problems finally hit the main stream media (I guess more than half of the states shutting down foreclosure proceedings can’t be overlooked). Also some analysts started to give their 10 cents worth. I would urge all readers to go through this presentation which focuses on the possible financial ramifications for Bank of America Merrill Lynch.

So, we have possible QE from the Fed coupled with, so far, better than expected Q3 numbers and yet the market is hesitant to go much higher. I guess US markets, in particular, have been going higher since the middle of September, so a pullback is healthy. Volumes are picking up, be it from severely depressed levels, which means there are people entering the market again. Some people might argue that the market valued in Gold has been declining since the gold price is skyrocketing, but since we are not on the gold standard anymore I cannot agree. Of course you can look at market advances/declines priced in Gold, but we still have a dollar, it hasn’t failed yet, so it is more important and interesting to look at the markets valued in dollars. Once gold becomes the monetary standard again we can look at prices valued in gold, but that moment hasn’t been reached just yet.

Talking about gold, it has been on a tear lately as a result of all this QE II talk, but is it really such a straightforward interaction between gold and the US$. My first reaction is NO. There is no more gold standard, gold is not an inflation hedge and at the end of the day, gold is a commodity, not a means of payment. I haven’t seen gold being accepted in a bakery just yet. So then, why is gold being bid up as the dollar is falling? Since there is a limited supply of gold it has all the earmarks of a ‘corner able commodity’. Hedge funds jumped in last summer and they have enough capital to sustain this rally. Meanwhile gold fever has been fed by the media, like CNBC, it has been set out to be as the currency-of-last-resort. Again, for now, America still is the lender of last resort and so is the $. But only the bravest of men dare to swim against the flow of melted gold, so as long as old keeps going up, you have to be log, or at least not short. There will come a day when shorting gold will be the moneymaking trade of the year, but it doesn’t seem to be that day just yet.

Dow -0.01% S&P500 -0.36% Nasdaq -0.24% EUR$ 1.4050 WTI $83 and Gold $ 1.381

Best performing sector in the S&P was Telecommunications +0.31%, worst performers were financials as fear of more major write downs as a consequence of this foreclosure scandal, rocked the market -1.72%

After hours Google exceeded even the most optimistic estimates, earning $7.64 p/s while estimates were at $6.68. Rev came in $5.48 bln vs estimates of $5.26 bln. A clear blowout number, which we haven’t seen from Google in a long long time. After hours Google traded at $590.50, up $50 or 10% from the close. This should underpin the markets a bit when we open this morning. I have to note that it is expiration today, I have no idea where the important strikes are, but I do know that with these anemic volumes any level can be reached if it benefits the expiration.

Happy Hunting & Let’s be careful out there !!!

TBTF October 14, 2010 - Wake up Maggie I think I got something to say to you

2010-10-13T20:15:00.003-04:00

Too Big to Flail

October 14, 2010

“Wake up Maggie I think I got something to say to you, It’s late September and I really should be back at school, I know I keep you amused but I feel I’m being used, Oh Maggie I couldn’t have tried any more, You lured me away from home just to save you from being alone, You stole my heart and that’s what really hurt” (Rod Stewart – 1971)

Yesterday October 13, 2010 was the birthday of my childhood love, Margaret Thatcher, who turned 85. I must admit I had forgotten het date of birth and this ode to her should have been in yesterdays morning call, but I could not let it slip by without mentioning. Cheers Maggie!

The day after the important release of the FED-minutes the markets behaved just the way uncle Ben wants them to behave: $ down, bonds, stocks, Gold and every other risky asset up. His communications tactic has been working flawlessly for the past several weeks, such that the market has done his bidding once again without the FED having to pull it’s checkbook. We have come to a point however where Ben can’t backtrack on the expectations he has created and he probably won’t, so starting early November the FED will be buying and buying and buying, so step aside an let the markets go up and up and up. It has the makings of the year-end-rally of a lifetime. With Hedge Funds buying because they are seeking performance in the last 2 months of the year, Bernanke buying because, well because he said he will, shorts covering in panic, what can go wrong?

Well, there are some minor hiccups, but will they be big enough to derail the one thing everyone seems to want these days?

The foreclosure scandal could put a severe damper on the economy, but only if it becomes a problem for the big financial institutions (major write-offs, lawsuits and capital increases) will it have an impact on the markets (and before that happens we will be well into 2011).
Foreign participation in treasury auctions has been steadily declining, with yesterdays 10 year auction setting another example. The 2.475% yield came in as the lowest in 2010, but Bid-to-Cover (2.99) and Indirect Participation (41.5% vs 54.7% last time) have started to decline. But for now it won’t be a problem since uncle Ben will simply buy all the treasuries Geithner can put out there.
It seems the Senate, in all its wisdom, could really be backing the ‘China’ legislation put in front of it by Congress earlier this month. It was widely believed that the Senate would postpone reviewing the bill until after the mid-term elections, but now Senate Finance Chair Mr. Baucus has said that the Senate could very well follow the House in passing the China currency legislation Baucus (D-Mont) said that there is a "very real possibility" that the currency bill could pass, and said government officials that he met here -- who included Vice-Premier Wang Qishan -- took the message on board
US Domestic Equity Mutual Funds saw redemptions of $5.6 billion in the last reporting week (Oct 6, 2010), which brings the total redemption for the year to $80 billion (Investment Company Institute).

All these small hiccups are probably not big enough to derail the coming QE II induced rally in equities, but perhaps combined they can slow it down…..Nah, we can always print more money, right?

Markets were up across the board. Asia had chalked up wins, which were followed by steep gains in the European indexes (Most notably the DAX, which finally breached 6.350 to end the day at new highs for the year). In the US the DOW +0.69% S&P500 +0.71% Nasdaq +0.96% all ended higher, but off of their highs after a late round of profit taking hit the markets. EUR$ 1.395 WTI $83 and Gold $1.372 also reacted massively to the FED minutes.

What can we expect from today: Assuming the Far East has some positive spillover from the gains in the US we should see continuing strength in Europe. Volumes picked up significantly during yesterdays rally which is a sign either shorts are covering (and since short interest peaked for the year at the end of September) which will be going on for some time to come and/or long positions are being accumulated by alpha-seekers for the remainder of the year. Earnings season is upon us, so there will be plenty of news-driven trading these coming weeks. And last but not least: don’t short to early into the rally J

Happy Hunting & Let’s Be Careful out there!!!

TBTF October 13, 2010 - 7 Seconds away

2010-10-12T19:27:00.001-04:00

Too Big to Flail

October 13, 2010

“7 Seconds away Just as long as I stay I’ll be waiting It’s not a second 7 seconds away Just as long as I stay I’ll be waiting” (Neneh Cherry & Youssou N’Dour – 1994)

Today was not about seconds but ‘minutes’, FED minutes of the month September to be exact. From the wording it seems as if QE II is near. Jan Hatzius (Goldman Sachs Chief US economist had the following to say:

"BOTTOM LINE: Minutes of Sep 21 meeting confirm that FOMC was dissatisfied with the performance of the US economy even though most did not expect either renewed recession or deflation. The committee considered a range of options, focusing on Treasury purchases but including the possibility of adopting target paths for either prices or nominal GDP. Most participants appear to have thought that the status quo would justify renewed easing relatively soon, but a few thought more weakening would be required."

Granted, Goldman probably stands to gain a lot from a new QE-round, but no one can argue with the meaning of the following paragraph from the minutes:

“Many participants noted that if economic growth remained too slow to make satisfactory progress toward reducing the unemployment rate or if inflation continued to come in below levels consistent with the FOMC’s dual mandate, it would be appropriate to provide additional monetary policy accommodation”

“Meeting participants discussed several possible approaches to providing additional accommodation but focused primarily on further purchases of longer-term treasury securities and on possible steps to affect inflation expectations”

This was written before the October jobs report which came in worse than expected, so it seems QE II is a foregone conclusion and it will come in the form of renewed Treasury buying in the 7-10 year range.

Some officials said “the economic benefits of further asset purchases could be small in current circumstances”, so it seems there is some hesitancy with regard to the wisdom of printing more money, but ‘many’ will undoubtedly overrule ‘some’. Mr. Bernanke is giving a speech on monetary tools in Boston, Oct 15, he might use the speech as a platform to further massage the markets to expect more QE sooner rather than later.

Pro Quantitative Easing		Against Quantitative Easing
Mr. Bernanke		Mr. Plosser (Philadelphia)
Mr. Dudley (NY)		Mr. Hoenig (Kansas City)
Mr. Rosengren (Boston)
Mr. Evans (Chicago)

His new found thorough communications towards the markets seem to work as the impact of the minutes were felt after their release. The $ which had been gaining ground against the EUR in the early hours of trading (after a report in the FT suggesting Ireland maybe inching closer to impair bank senior debtholders) reversed course and duly dropped leading stocks into positive territory.

The $ will most likely be under more pressure the coming weeks since the discrepancy in European and American monetary policy seems to be growing day by day. Today Herr Weber of the ECB came out with the following (FED opposing) statements:

ECB's Weber says rates could rise before the phasing out of support measures complete
ECB's Weber says bond buying programme should be phased out permanently
ECB's Weber says unwise to postpone relevant considerations on exit measures and rates end of crisis
ECB's Weber says risks from exiting too late from loose policy greater than exiting too early

Especially the last statement seems to be directed to Mr.Bernanke, highlighting the risks of sustained loose monetary policy over the benefits of such a program. The question of course is if the ECB isn’t over-estimating the power of the European economy, but they at least seem to have an understanding of the dangers of printing unlimited supplies of money.

In anticipation of a further ‘devaluation’ of the $, Goldman today raised their 12-month price target for Gold to $1.650 (from $1.365) changing their recommendation to Buy the precious metal. “We believe that a return to quantitative easing will act as a strong catalyst to carry gold prices to even higher levels”. Silver price target was raised to $27.60. They are also bullish on Corn, Copper, Platinum and WTI..

As mentioned before, the equity markets closed higher today after being rattled earlier on by

China

raising their reserve ratio requirement for 4 State Banks (for a period of only 2 months).

Dow +0.09% S&P +0.38% Nasdaq +0.65%EUR$ 1.387 WTI $81.7 Gold $1.350

In the S&P500 Financials performed best +1.2% while Utilities closed in the red by 0.32%

After the bell Intel kicked off the earnings season by reporting Q3 EPS USD 0.52 vs Exp USD 0.50 They also upped the midpoint for Q4 rev to $11.4 bln vs $11.3 bln. They see a strong PC market in 2011 and don’t expect a double dip in the economy.

Before the open today JPM will give a first glance as to how the all-mighty financials performed in the last quarter (EPS est $0.87). In Europe we will hear from ASML.

Happy Hunting & Let’s be Careful out there !!!

TBTF October 12, 2010 - The beat goes on

2010-10-11T19:09:00.001-04:00

Too Big To Flail

October 12, 2010

The beat goes on, the beat goes on, Drums keep pounding a rhythm to the brain, La de da de de, la de da de da (Sonny & Cher – 1967)

The two main themes of this play we call the US Economy are still housing or better yet foreclosures and the devaluation of the US$, also known as QE I & II.

First of all, the housing market. The subject is diverse and though it may seem to be hard to grasp, it is a lot easier to handle than let’s say your ordinary CLO or ABS. I found a Cheat Sheet to the Foreclosure Crisis on Seeking Alpha. The article covers the consumer side of this housing market foreclosure mess. Makes it easy to see that the ramifications could be such that nobody (a lot of people) knows if the house they live in is legally theirs. From that it’s easy to conclude that investors in CDO/CLO and all those exotic derivatives, that may or may not have a lot to do with mortgages, have a basis for suing the financial firms that sold them instruments on mortgages that are not valid. If ABN Amro can sue Goldman Sachs over hiding the identity of John Paulson as a counterparty, then an onslaught of law-suits can and will come forth to try and recuperate some or all of the losses that were made in the tricky 3-letter-instrument market. (For more explanations and up-to-date news see 4closurefraud) To be continued….

The one piece of ‘economic data’ everyone will be watching today is going to be the ‘Minutes of FOMC Meeting’. Will there be a clear sign that Bernanke will start QE II and crank up the printing press once more? My guess is NO: Mr. Bullard (St. Louis FED) will be against and Mr. Evans, Mr. Dudley and Ben-The-Man himself will be the advocates of another round of pump-and-pump.

The price action on the markets yesterday was a reflection of the tug-and-war within the FED. Markets went absolutely nowhere and ended the day flat.

Dow +0.04% S&P +0.01% Nasdaq +0.02% EuroUSD 1.3888 WTI $82.30 Gold $1.354

Telcos were the best performers +0.3% while Industrials lost 0.26%

We will probably see more of the same today. Technically the picture hasn’t changed in the last 2 weeks. With all this uncertainty surrounding the housing market, a potential second round of stimulus and the mid-term elections of Nov 2^nd keep investors at the sidelines, as they have been for most part of the year. Will we break the stalemate? Yes! When? Your guess is as good as mine, so let me know please….

Happy Hunting & Let’s be careful out there !!!

TBTF October 11, 2010 - Our House, in the middle of our street

2010-10-10T12:42:00.001-04:00

Too Big to Flail

October 11, 2010

“Our house, in the middle of our street, Our house, in the middle of our… Something tells you that you’ve got to get away from it” (Madness – 1982)

Just as everyone is getting more at ease with the US housing crisis, sales and prices seemed to have bottomed out the last few months, a new dangerous phenomenon is rearing its ugly head. Something that could potentially be even more dangerous to the economy than the crisis so far, something which could keep the housing market in a deadlock for many more years to come.

I am talking about the mortgage-ownership mess which is starting to cripple the foreclosure process and potentially threaten to undo millions of foreclosures in the past years and therefore undo millions of sales that have been done in the past years. Over the past months there have been reports about missing mortgage-ownership documents, falsified documents and documents which simply lack the necessary paperwork to specify who holds the title to those loans.

“Millions of U.S. mortgages have been shuttled around the global financial system - sold and resold by firms - without the documents that traditionally prove who legally owns the loans.

Now, as many of these loans have fallen into default and banks have sought to seize homes, judges around the country have increasingly ruled that lenders had no right to foreclose, because they lacked clear title.

The court decisions, should they continue to spread, could call into doubt the ownership of mortgages throughout the country, raising urgent challenges for both the real estate market and the wider financial system.

For struggling homeowners trying to avoid foreclosure, it could mean an opportunity to challenge the banks they argue have been unhelpful at best and deceptive at worst. But it also threatens to leave them in prolonged limbo, stuck in homes they still can't afford and waiting for the foreclosure process to begin anew.

For big banks, "there's a possible nightmare scenario here that no foreclosure is valid," said Nancy Bush, a banking analyst from NAB Research. If millions of foreclosures past and present were invalidated because of the way the hurried securitization process muddied the chain of ownership, banks could face lawsuits from homeowners and from investors who bought stakes in the mortgage securities - an expensive and potentially crippling proposition.

For the fragile housing market, already clogged with foreclosure cases, it could mean gridlock and confusion for years.” (Washington Post article Oct 7 2010 and Washington Post article Oct 8 2010)

If this comes to fruition it would be a disaster. A closed housing market, billions of claims versus banks and financial institutions from within the industry and consumers, new bailouts, capital increases, not something we are currently looking forward to. But I guess that is the consequence if you bailout crooked businesses and crooked business models. You can condone and prolong these bad practices, but they come back to bite you sooner rather then later.

Meanwhile the market is taking the mixed bag of economic data in stride as it rather focuses on the possible QE II (not to be confused with the ocean liner Queen Elisabeth II) by the FED. Bad economic data is being dismissed since the prevailing market wisdom is that it will lead to the FED pouring massive amounts of money into the Treasury markets (investors are already pushing up prices of the 2y Tsys as if the FED had actually already poured in between $400 - $600 bln) and good news is, well, just good news. Bernanke is playing this round of “Liars Poker” rather well.

After the initial comment that there might be further monetary easing his lieutenants have been arguing in favor and against more monetary stimulus, while Dr. Bernanke has been quiet. For now the market is doing his bidding for him, lowering market rates and pouring money into more riskier assets like equities and commodities, but I wonder what will happen if the markets call his bluff. Will he be able to be bold and decisive or will he falter under the pressure and give in to further ballooning the FED-balance sheet to heights where it will undoubtedly lead to a USD devaluation, ending in a crash in equities, bonds and commodities.

Time will tell!

For now the markets moved up this last week. The Dow ended above 11.000 for the first time since April, while the S&P closed Friday at 1.165 (+0.61%) and the Nasdaq at 2.402 (+0.77%) EuroUSD 1.3913 WTI $83 Gold $1.346,75

Within the S&P the Basic Materials sector rallied 2.11% while Telecoms closed lower by -0.23%)

The JPY yen closed at multi-year highs versus the USD. An effort by the BOJ earlier in the week to stem the rise of the YEN by unveiling a new stimulus plan obviously did not work as the carry-trade is still on.

Here in Europe we still need to break through resistance levels. The DAX is still trapped in a triangle-formation with an upward-sloping support line (now above 6.000) and a horizontal resistance line at 6.350

As long as 1.150 holds in the S&P500 index there should be sustained support for the eurozone indexes. Will there be a catalyst that helps them break yearly highs, I doubt it. Not in the near term anyway, but we can always hope for some price-action. One way or the other.

Happy Hunting & Let’s be Careful out there !!!

TBTF October 6, 2010 - It's the final countdown

2010-10-05T18:53:00.001-04:00

Too Big to Flail

October 6, 2010

It’s the final countdown, We are leaving together, It’s the final countdown, Oh, it’s the final countdown (Europe – 1986)

It looks like we are leaving, the trading range on the S&P that is, but if it’s together with Europe remains to be seen. The S&P closed markedly above its 1.150 resistance level after having failed to do so over the past 2 months. The question now for us Europeans is if the DAX will follow suit. It closed 135 points (a good 2%) below breakout levels, so I don’t see it happen quickly, not today anyway. But if macro news out of the US remains as expected or a wee bit better then we might have a fighting chance this week.

US equities rallied as a better than expected ISM report showed more expansion than expected and a substantial QE package by the BOJ left investors wondering if this is a prelude to more QE from the FED early next month. It’s funny to see how traders refused to look at all the ‘bad’ or not so good news today.

First of all there was news out of Brazil, where the finance minister, Guido Mantega, after warning that an all out currency war, between leading world economies, was on the verge of breaking out, impose fresh new capital controls on inflows of foreign capital. He doubled an already existing financial transactions tax on money entering the country to invest in fixed income instruments, from 2% to 4% The measure is designed to prevent further appreciation of the Reaal. Next thing you know there was the BOJ lowering it’s base rate to between 0 and 0.1% and unveiling a YEN 5 trillion QE program designed to stem the rise of the YEN and to get their economy going again. Gold set new all-time highs again as a new QE program by the FED would almost definitely lead to higher, much higher inflation in the US. But stocks took all of this in stride and put on their best performance since Sep 24.

Dow +1.8% S&P +2.09% Nasdaq +2.36% EuroUSD 1.383 WTI $82.80 Gold $1.340

Within the S&P all sectors were positive with Utilities being the main underperformer (+1.18%) and Basic Materials the best performer for a second day (+2.88%)

What to expect for today: as I mentioned earlier, the S&P has cleared the 1.150 hurdle on a closing basis, which should/could lead to the highs of the year reached April 26 (1.220). Will Europe participate in this rally and break its own respective resistance levels. The DAX is 2% below its own resistance at 6.350. It seems a bit much to break those levels today, especially since we were up almost 1.5% yesterday as well. A good labor market report could be a trigger to venture into new territory. It seems Europe is lagging the US markets all of a sudden, seeing as we were more in sync hovering around resistance levels last week. I suspect this can be explained by the fact that in Euro terms yesterdays rise in the market was far less than it was in USD. As you can see the two indexes have been performing equally well in euro-terms since April of 2009

Happy Hunting & Let’s be Careful out there !!!

TBTF October 5, 2010 - I'm Fa-a-a-allin'

2010-10-04T20:51:00.001-04:00

Too Big to Flail

October 5, 2010

“Oh Baby, I, I, I, I’m Fa-a-a-allin’ I’m Fa-a-allin’ Fall, Fall, Fa-a-a-allin’ (Alicia Keys – 2001)

The market was falling today and it was falling in 2001 when Alicia recorded her song, but will today’s market action be the start of a more prolonged market correction ? Some market-strategists are calling for the resumption of the bear market very soon. One of the analysts leading the ‘bear-pack’ is Soc-Gens Albert Edwards. In his latest Global Strategy note he writes about the deteriorating technical condition that will take the market down again.

Mary Ann Bartels (BofA’s technical research analysts) is anticipating a 10-12% pullback in the Nasdaq based on the speculative positions built up in the last week of September. Apparently “Large speculators aggressively bought NDX futures last week to a net long of $3.2bln notional from $0.8bln notional previously.” A similar build-up last March was followed by a 10.2% correction in the Nasdaq.

With the US payroll data a couple of days away the market will look elsewhere for guidance and today it might very well be the BOJ all eyes are fixed on. It is believed the Bank of Japan will announce more aggressive Quantitative Easing to lower their currency versus the US Dollar (I mean they tried stimulating their economy through QE for the past 20 years and it did not work, so why would they expect a different outcome this time). Remember, the Yen is trading at an almost record high versus the USD and the Japanese ministry of Finance has already put pressure on the BOJ to act decisively. If fairytales exist and the BOJ comes with a QE-package no one in the marketplace is expecting, we could see the Yen weaken to perhaps as much as 90 versus the USD.

Today’s market action kept us within the well established trading range. I know I sound like a broken record, but what can I say, it’s kind of dull out there.

Dow -0.72% S&P -0.80% Nasdaq -1.11% EuroUSD 1.3690 WTI $81.45 Gold $1.315

Basic Materials led the S&P lower (-1.58%) while Telecoms were the best performers

(-0.06%)

What to expect today: more of the same I’m afraid. Dax & S&P are still within their trading ranges. The market could get some support from a lower Yen if the aforementioned QE materializes, but other than that I think everyone will wait patiently until the all important jobs numbers are out Friday. This will give the market some guidance as to if & when the FED will start their own version of QE-II – The Sequel. Unfortunately we all know that a sequel is seldom as good as the original and costs many times as much. And the original in this case wasn’t good to begin with in my opinion.

Happy Hunting & Let’s be Careful out there !!!

TBTF October 4, 2010 - My little China girl

2010-10-03T17:13:00.002-04:00

Too Big to Flail

October 4, 2010

“My little China girl, You shouldn’t mess with me, ill ruin everything you are, I’ll give you television, I’ll give you eyes of blue, I’ll give you men who want to rule the world” (David Bowie – 1977)

It seems as if history has caught up with this song, for the aforementioned china girl does no longer have to feel she will be ruled by western society. It seems the Chinese are the ones doing the ruling these days.

Over the weekend there were a couple of Chinese-led news stories that were really noteworthy.

First of all Chinese premier Wen Jiabao, on his tour of European capital cities, told Greek lawmakers that China will keep on buying Greek bonds when Greece returns to the capital markets next year. Nor will

China

cut their holdings of European bonds, underlining its strengthening ties with the European Union. As a token of the Chinese belief in the Greek resurrection,

China

is setting up a $5 bln fund with which the Greek can buy Chinese vessels.

Secondly a report surfaced in the Financial Times that China and France held secret talks over “heightened co-ordination of exchange rates” which might mean they are looking for a new reserve currency now that the $US is losing some of its appeal. France was quick to deny the FT report but still one has to wonder if the US, with their congressional move to label China a currency manipulator, might have pushed China a little too hard for their own good.

It is starting to feel as if China is doing a trial run on how to act when they replace the US as the new lender of last resort. Granted, it will take a while, if ever, before that happens, but it seems the Chinese are out to gain financial world dominance, just as the Japanese tried to do back in the 80’s and early 90’s. We all know how that ended up, so don’t trade in your English dictionary for a Chinese one just yet. But the

and the Europeans are giving them an awful lot of room to play with.

In the

the financial story of the weekend was the final SEC report on the flash-crash on may 6^th this year. The conclusion of the report was that a firm called Waddell & Reed Financial Inc apparently sold 75.000 S&P-mini futures to hedge a portion of it’s risk in its $75 billion investment portfolio. Triggering the major selloff which saw the Dow plunge close to 1.000 points in less than 30 minutes. The question is of course how a mere 75.000 mini futures can cause such a landslide and better yet, are we close to a ban on hedging our investment portfolios for the risk of a market meltdown is too great?

The CME, where the mini-futures are traded, published an answer to the SEC report, refuting much of their findings:

´Futures and options markets are hedging and risk transfer markets. The report references a series of bona fide hedging transactions, totaling 75,000 contracts, entered into by an institutional asset manager to hedge a portion of the risk in its $75 billion investment portfolio in response to global economic events and the fundamentally deteriorating market conditions that day. The 75,000 contracts represented 1.3% of the total E-Mini volume of 5.7 million contracts on May 6 and less than 9% of the volume during the time period in which the orders were executed. The prevailing market sentiment was evident well before these orders were placed, and the orders, as well as the manner in which they were entered, were both legitimate and consistent with market practices. These hedging orders were entered in relatively small quantities and in a manner designed to dynamically adapt to market liquidity by participating in a target percentage of 9% of the volume executed in the market.

As a result of the significant volumes traded in the market, the hedge was completed in approximately twenty minutes, with more than half of the participant's volume executed as the market rallied – not as the market declined. Additionally, the aggregate size of this participant's orders was not known to other market participants.

Additionally, the most precipitous period of market decline in the E-Mini S&P 500 futures on May 6 occurred during the 3½ minute period immediately preceding the market bottom that was established at 13:45:28. During that period, the participant hedging its portfolio represented less than 5% of the total volume of sales in the market.’

Will be continued, no doubt.

The economic data coming from the US Friday was a bit better than expected overall. Consumer Confidence and Construction spending were a bit better, while ISM came in broadly inline. The market reacted as it has done all week: NOT at all

Dow + 0.39% S&P +0.44% Nasdaq +0.09% EuroUSD 1.375 Oil $81.50 Gold $1.319

Within the S&P Basic Materials and Oil & Gas were the main winner (+1.3%), probably on the SinoPec investment in the Brazilian operations of Repsol, which some skeptics say overvalues the Brazilian oil. But then again, if you are China you can never have enough oil I guess.

Just as investors bid up oil related stocks after the aforementioned Chinese ‘intervention’ I suspect they will bid up European stocks come this morning, as China voiced their support for Greece (backed up with dollars of course). Will it be enough to break out above the DAX resistance? I doubt it, but I will probably will be long as we try.

Happy Hunting & Let’s be Careful out there !!!

TBTF October 1, 2010 - It's the same old song

2010-10-01T05:33:00.003-04:00

Too Big To Flail

October 1, 2010

It’s the same old song, But with a different meaning, Since you’ve been gone (Four Tops – 1965)

Price action on all the major exchanges was exactly just that yesterday, more of the same old same old. The DAX swung up and down, briefly touching the 6.310-6.350 resistance area before selling off into the close and the S&P briefly went above the all important 1.150 mark before settling down just a little at the end of Q3.

There was plenty of macro news to digest, not the least of which the widely anticipated downgrade of Spain by Moodys from Aaa to Aa1 and a worse than expected result at Allied Irish which means the Irish Government will have to sink billions of euros more in that bottomless pit. But as usual this won’t lead to Ireland going bankrupt or making use of the European Stability Fund, there’s absolutely nothing wrong !

Just as there is absolutely nothing wrong with Spain, or is there… A pdf alleging Spain has been lying about the severity of it’s economic downturn was doing the rounds on the internet and got even picked up by FTs Alphaville. Goldman was quick to rebuttle but true or not, it’s very clear there is a lot of mistrust in the markets as this report was important enough to have the market ignore good economic news out of Germany.

The news coming out the US was also good. Jobless claims came in at the ‘right’ side of the 450K and the Chicago PMI bounced back to a healthy 60.4 Not only the headline index was better than expected, the more important underlying ‘new orders’ and ‘production’ indexes were higher as well. The Milwaukee (we get way too much statistical data these days which diminishes their impact a little) PMI was softer.

In the end the Dow dropped 0.44% closing the month +5.05% S&P -0.31% (+5.64% m/m) Nasdaq -0.33% (+8.81% m/m) WTI $ 80 and Gold $ 1.308

Apart from technology ending down -0.6% there were no real moving sectors as money managers had to cope with the end of Q3. So we are entering the very last quarter of a very difficult year. The markets have shown a mixed return so far but are trading really close to their starting levels of the year which is remarkable seeing as we had quite some turmoil in the world. The major US indices are up between 3% & 5%, Europe ranges from -5% - +5% (if we leave the PIIGS out of it) and in the Far East the Nikkei is the loser of the year so far -11% as the yen keeps rising versus all major currencies.

What to make of the coming quarter is too hard to predict. Volumes in the equity markets have been drying up, making me think most market participants have already closed their trading books for the year or have gone on to trade on greener pastures like Gold or the Bond market. Perhaps a push through the resistance levels of the year will entice or force them to come back, more quantitative easing from the FED might make that happen but we won’t know anything more about that decision until we hear it at the November meeting or see it in the market.

In the mean time we seem to be stuck in the same trading range, it’s the same old song.

Happy Hunting & Let’s be careful out there !!!

TBTF Sep 30, 2010 - You've abandoned me

2010-09-29T20:33:00.001-04:00

Too Big to Flail

September 30, 2010

You’ve abandoned me, Love don’t live here anymore, Just a vacancy, Love don’t live here anymore (Rose Royce – 1978)

I guess yesterday we could have said: “You’ve abandoned me, QE don’t live here anymore”. At today’s 3-month refinancing auction the ECB “Only” lend 104 bln euro. An amount of between 160 – 200 bln euro was expected. This means that excess liquidity to the tune of more than 100 bln was taken out of the market (which basically is all the excess liquidity around) in one single repo-auction. As a result the short end of the interest-curve shot up. 3-month Euribor climbed to 0.886% the highest level since the beginning of the month. The euro also climbed versus the dollar. Is this really the beginning of the phasing out of the QE as some ECB members have been hinting at? It definitely seems that the money markets are getting back to normal with banks lending more to each other and not from the ECB.

The ECB auction did little to show the way or any way to equities. We did not get enough traction early on to break to new highs on the DAX which resulted in a sharp sell off, exacerbated by a news report on Reuters about Spain “Growth slows down, we need to take additional austerity measures” Sadly enough they forgot a rather important word “IF Growth slows down, we need to take additional austerity measures”, but the damage to the equity markets had already been done by then.

So we are still in a holding pattern between 6.000 and 6.350 on the DAX. In the US stocks did not move either. The broad indices were down less than 1/3^rd % by the close, building a further base from which to take out the 1.150 level (at least that’s what I still foresee).

Dow -0.21% S&P -0.26% Nasdaq -0.13% Oil unch EuroUSD 1.3626 Gold 1.310

Sectors were mixed as you can imagine with Oil & Gas being the outperforming one +0.71% and Financials losing -0.76%

After the close there was some interesting and disturbing news:

House Passes Legislation To Somehow Revalue Chinese Yuan

In a bold and stupid move the house of representatives voted 348 – 79 to accept a piece of legislation which “authorizes the Commerce Department to impose duties on imports from countries with undervalued currencies” (I guess Japan doesn’t have to worry J ) Which means that a trade-war with China is now one step closer and boy, that is precisely something that the global economy does not need right now: NO trade wars please, NO further protectionism ! This has gone one step beyond rhetoric and let’s hope that it stays just that, one step, not the beginning of a journey on a road to nowhere…..

For all those conspiracy theorists out there, one truth will be revealed December 1^st. Not who really shot president Kennedy, but what the FED did in terms of providing liquidity to the economy between December 1^st 2007 and July 20^th 2010. Who did they trade with, who got which money, at what terms and how did the repayments go. The Clearing House Association has been trying to stop this information from being made public for quite some time, but lost out in the end. It will be interesting to see why they were so dead set against making this information public and also why they thought it would be the end of the world if the public knew which banks received what liquidity from Mr. Bernanke.

What to expect today: Before we get into our offices this morning there will have been a couple of reports on the state of the Australian economy (the Aussie$ hit a new multi-year high vs the Loonie yesterday) and Housing Starts and Construction Orders for August in Japan will be made public. In Europe PPI, CPI and German Unemployment are the highlights of the economic data during the first hours of trading. Jobless Claims and the Chicago Purchasing Man Index will be the focus in NY.

It’s too early for me to assess what impact this piece of legislation on currency manipulators will have on the markets. If a trade war should result it will obviously be not good, especially since one way of retaliation by China could be NON-Participation in some future Treasury Auctions and that would be really bad.

It’s also the end of the 3^rd quarter today which means some portfolio will have to be rebalanced, some stocks will have to be inflated all for a good report card for funds in this very tough year. I don’t expect the market to begin it’s climb above resistance levels today, but the last few weeks have shown me that the least you expect something the more likely it gets and vice versa.

Happy Hunting & Let’s Be Careful out there !!!