Wednesday, June 30, 2010

Bill Gross - "Bond Markets Priced for a Depression"

I have had some issues with Bill Gross over the years though there is no denying he is a great investor. Mainly I felt like he was one of the prominent voices last year cheering on the spending that I felt would make the mess worse just a little ways down the road. Well he has seen the light. Very good monthly outlook from Pimcos Bill Gross.

Starts out with a doozy of a first sentence.

Global financial market returns stand at the threshold of mediocrity. With bonds priced not for recession but near depression, most major global bond indices now yield less than 3%, surely a forerunner of returns to come.

and he is right here (how many times have I said this over the past 2 years?)

It is this lack of global aggregate demand – resulting from too much debt in parts of the global economy and not enough in others – that is the essence of the problem

The entire thing is very good.

Tuesday, June 29, 2010

Pure Speculation

I don't do this very often but am going to throw out what I think is the most likely outcome over the next couple of days. This is pure speculation and probably wrong so take it for what its worth.

There are all kinds of cross currents going on related to horrible Asian economic data, European bank woes, and end of quarter. We have 1040 sitting as major resistance which we have bounced off 2 or 3 times.

Remember back in 2008. The 1040 than was 1200. We bounced off of it July and than bounced and bounced off of it again in September. Finally broke it and got alot of people short very quickly. Than we bounced again all the way up to like 1270 getting people slammed. Finally we broke it and plummet ted again.

So my speculation for whatever it is worth. We will break 1040 today with a close below it. Tomorrow morning we will go down somewhere between 1010 and 1030 before a big rally into Wednesday afternoon and Thursday morning possibly back above 1040 before kissing it goodbye for the final time.

Alot of money managers are wanting to raise cash at this point going into quarter end. The sell orders are lined up and eventually all who will have wanted to sell would have sold. The selling finishes tomorrow morning and volume dries up pushing the indexes up into Thursday morning at least.

Purely speculative conjecture. I woulnd't bet a 10 dollar bill at one to one odds that I was right but it is what is in my mind right now. That is why I have this blog. To put my thoughts in front of me so I can muse about them.

Monday, June 28, 2010

Hussman - Another Recession on Tap

More and more money is moving to the viewpoint that a new recession (if it hasn't already started yet) is not only possible but likely. The latest is John Hussman whose comments I have posted from time to time.

His weekly commentary found here starts out pretty bleak:

Based on evidence that has always and only been observed during or immediately prior to U.S. recessions, the U.S. economy appears headed into a second leg of an unusually challenging downturn.

Yep, the data has definitely started rolling over and the forward looking data is flashing danger signs.

A few weeks ago, I noted that our recession warning composite was on the brink of a signal that has always and only occurred during or immediately prior to U.S. recessions, the last signal being the warning I reported in the November 12, 2007 weekly comment Expecting A Recession. While the set of criteria I noted then would still require a decline in the ISM Purchasing Managers Index to 54 or less to complete a recession warning, what prompts my immediate concern is that the growth rate of the ECRI Weekly Leading Index has now declined to -6.9%. The WLI growth rate has historically demonstrated a strong correlation with the ISM Purchasing Managers Index, with the correlation being highest at a lead time of 13 weeks.

He than goes and talks about what you could possibly expect from the markets. The problem is (and it is a good problem) for the United States the data sets are very limited because we haven't gone through any major sovereign debt crises. He quotes the widely quoted book This Time is Different by Kenneth Rogoff and Carmen Reinhart. All stuff I have talked about before.

Reinhart and Rogoff observe that following systemic banking crises, the duration of housing price declines has averaged roughly six years, while the downturn in equity prices has averaged about 3.4 years. On average, unemployment rises for almost 5 years. If we mark the beginning of this crisis in early 2008 with the collapse of Bear Stearns, it seems rather hopeful to view the March 2009 market low as a durable "V" bottom for the stock market, and to expect a sustained economic expansion to happily pick up where last year's massive dose of "stimulus" spending now trails off. The average adjustment periods following major credit strains would place a stock market low closer to mid-2011, a peak in unemployment near the end of 2012 and a trough in housing perhaps by 2014

This is how I have felt for months!!!

In recent months, I have finessed this issue by encouraging investors to carefully examine their risk exposures. I'm not sure that finesse is helpful any longer. The probabilities are becoming too high to use gentle wording. Though I usually confine my views to statements about probability and "average" behavior, this becomes fruitless when every outcome associated with the data is negative, with no counterexamples.

Than he just lays it out there.

Put bluntly, I believe that the economy is again turning lower, and that there is a reasonable likelihood that the U.S. stock market will ultimately violate its March 2009 lows before the current adjustment cycle is complete.....Moreover, from a valuation standpoint, a further market trough would not even be "out of sample" in post-war data. Based on our standard valuation methods, the S&P 500 Index would have to drop to about 500 to match historical post-war points of secular undervaluation, such as June 1950, September 1974, and July 1982. We do not have to contemplate outcomes such as April 1932 (when the S&P 500 dropped to just 2.8 times its pre-Depression earnings peak) to allow for the possibility of further market difficulty in the coming years. Even strictly post-war data is sufficient to establish that the lows we observed in March 2009 did not represent anything close to generational undervaluation.

There is much more from his latest weekly update. It talks about inflation and deflation and gives warning to investors about gold. The very things I have talked about over and over the last several months. He brings up the point that the governments are running out of room.

Anyway very interesting read. I strongly believe the S&P 500 will be below 800 by the end of this year and put 50/50 odds that the market will have broken its March 2009 lows by the end of this year. As we have seen already (and this is the pregame show) when the markets begins unraveling this time it will do so very very quickly. We already have a much weaker system with much fewer options.

The next few days will be very interesting as we go into quarter end and start a new quarter. The next couple of weeks could be bloody. The question is if the markets can hold it together through Wednesday or not.

Thursday, June 24, 2010

A Shuffling in the World

There has been an amazing shift in the world in the last three months. The idea that one can spend, borrow, and print money to reach prosperity is slowing losing clout while basic common sense of balanced budgets is starting to gain traction. Understanding what this means and doesn't mean is very important. For over two decades our world has moved full speed heading for a cliff. In many ways we have gone over the cliff. Europe is trying to pull back from the cliff now but they may have already gone over and trying to make an impossible climb back up. This effort is admirable but could be fruitless. While I support this new wave of enthusiasm for common sense, there is a distinct probability it is to late.

The new growing sense by government leaders that what has been created is not sustainable and the Keynesian effort to reflate out of the problems has failed is a tectonic shift. You now have open mockery by European leaders at what the United States has done and the road they have traveled. The new path being taken is one of austerity and an effort to balance world government budgets. This is admirable but I have said many times before that doing the right thing will cause massive human suffering and a large depressionary type outcome. The hope is that 2020 will be a good year. Not 2012.

This road should have started being traveled in 1998. Every year builds up a debt to the piper. This debt owed is human suffering. The longer it goes the higher the eventual human suffering will be. The growth in this debt is exponential. At some point the market (the piper) won't allow the debt to grow any higher. Could the world governments possibly buy another month or year? It is possible. Currently Europe is trying to start to pay off the debt. They are isolating the United States heading into the G-20 this weekend who still doesn't want to pay the debt.

What this means for asset prices is extremely bearish. What it means for society is extremely troubling.

The equity markets seem to be at a breaking point. The rally to the 1140 area came up short and at this point it seems like one should be shorting and asking questions later. Financial stress in financial markets is showing up world wide and economic data is plunging off a cliff at worst and rolling over at best.

If the new European viewpoint takes hold it will probably mean a major shift in how asset markets react. Of top importance is gold. I am becoming moderately bearish on gold. This is a short term thought (1 to 12 months) but what Europe is moving towards is full deflation. This could spell trouble for gold in the short term. Gold does well in deflation (i.e. the Great Depression) and severe inflation (1970s). Most investors do not realize how well gold does during deflation. The reason is deflation puts stress on sovereign nations and the currencies backing those nations. Even if gold goes down I am still a buyer but there is a growing risk that gold could drop 20 to 30% over the next twelve months. Like I said I am keeping and buying more gold regardless.

The other MAJOR shift that is occurring is that I think currency correlations are going to start breaking down. For 2 years if the Euro went down, basically the US stock market went up and vice verse. Even more relevant was the Euro / Japanesse cross. This correlation has been strong but is not necessarily a must. It was a risk trade signal. If the Euro went down the European stock markets went down. The same can happen in the United States. That correlation isn't a market rule. Europe is taking actions to protect their currency. While this will ultimately fail I think it is distinctly possible that the Euro still has some more rally left in it. 1.30 seems very possible to me. I won't bet on it but the reason I bring it up is that I don't necessarily think the U.S. markets will rally hard if that occurs like they have previosly. Another important point in all this is European "states" started having troubles first but their budgetary problems are just as big as U.S. state budgetary problems. This is inherrently dollar negative and U.S. economy negative. So despite being dollar negative it is also deflationary and U.S. equity market negative.

Anyway, there have been a couple of major shifts in the way the world is operating in the last few months. These changes may give 2020 a chance of being a good year but in the next couple of years it is very bearish for asset prices.

Tuesday, June 22, 2010

Bridgewater Associates Principles by Ray Dalio

Been busy so haven't commented much on the market action. Last couple of days have been really interesting. Big reversal yesterday with DOW bouncing off the 50 day moving average. Today we broke back down below resistance below 1110 than the 200 day moving average and than the 1100 area. Tomorrow the Fed meeting decision is released. That is typically bullish. We shall see. World news again has become fairly bearish. The U.S. existing home sales number was a shocker even for me. It was bad bad bad. I have not jumped on adding to short exposure (still plenty short). Still nervous about the Euro though it has been selling some off recently. I think that correlation is going to weaken soon but I don't want to be the one betting on it. I am watching that 1185 area. Breaking that could mean this rally stage is over. I had been watching 1140. We got up to 1132 area yesterday. Close enough. So on watch for major deterioration but with the Fed meeting tomorrow I wouldn't want to short in front of it. We shall see.

Here is the full PDF of Bridgewater Associates Principles by Ray Dalio for those who are interested.

Thanks goes to John

Monday, June 21, 2010

A Ray Dalio Profile

One of the most admired investment firms / hedge funds in the world has to be Bridgewater. The founder of Bridgewater is now billionaire Ray Dalio. The WSJ had a profile of him in the weekend edition. I like Ray because he thinks in terms of natures models. He is very bearish and for someone like Bridgewater did not do very well in 2009. There was a recent interview in Barrons however where he reiterated his bearish views.

From the WSJ

WESTPORT, Conn.—The euro was plummeting. The stock market was gyrating. And Ray Dalio, president of one of the world's largest hedge funds, took a moment to talk about mosquitoes.

"Man will never be able to build a flying device like a mosquito," mused Mr. Dalio, the 60-year-old founder of Bridgewater Associates. "I look at nature's complexity and think, man has the intelligence of mold growing on an apple."

Mr. Dalio, his staffers readily admit, is an unusual boss. His firm runs on a set of 295 principles that Mr. Dalio devised and distributed to all employees. The 83-page treatise, which draws lessons from the natural world, advises employees on how to achieve fulfillment at work and in life.


Mr. Dalio is among a handful of philosopher-investors known not only for moneymaking prowess but also for their distinctive take on life.....Mr. Dalio's basic philosophy is what he calls "hyper-realism," a notion that brutal honesty, no matter how uncomfortable, yields the best results. Principle No. 8: "There is nothing to fear from truth....Being truthful is essential to being an independent thinker and obtaining greater understanding of what is right."


Principal No. 11: "Never say anything about a person you wouldn't say to him directly. If you do, you are a slimy weasel."

The entire thing is a good read.

Greed Back In Favor

Last week started feeling like March of this year all over again. Or the fall of 2009. It is getting absurd. The economic data was not good. Jobless claims, regional manufacturing surveys, Fed Ex warning on earnings, ECRI, building permits, and housing starts. All misses, all showing signs of rolling over. It didn't matter. The market grinds higher. Doesn't matter what the data is, volume disappears and the market goes up.

Now Asia is screaming and US futures are screaming higher on the news that China will supposedly will devalue the Chinese yuan against the U.S. dollar. Let's see, US futures are screaming higher, China stock market is screaming higher, Japan stock market is screaming higher, everyone is screaming higher on this news. HOW DOES THAT MAKES SENSE???? Currencies are a zero sum game. It CANT be good for EVERYONE!!

Well we are quickly approaching that 1140 area that I have been talking about. Why? Because the Euro is going up? I don't know. That correlation hasn't broken for over 2 years. Why is the Euro going up? I thought we would see such a bounce and mentioned it on this blog several times but I don't know why it is really going up besides the fact that it ran out of sellers. Bond spreads in Europe continued to widen last week. Nothing has made sense for over a year. Up or down the market is broken. No one really should be playing it. Just insane.

New home sales, existing home sales, durable order, jobless claims and FED meeting all this week. Of course it won't really mean anything. If we are really back to stupid time the existing home sales number will look good because those homes that met the tax credit deadline will close in May and June and so will be a lag in the data. So that data will good even as every current piece of data with no lag shows housing crashing again. So this good data will be bought with a vengeance as the market screams higher. That 1140 may be a low estimate of where a stupid market can head.

Wednesday, June 16, 2010

Thoughts From Investing Legends

News flow is very bleak today. Spain bond spreads over bunds is the widest ever and this morning brought a string of weak economic data out of U.S. (though industrial production wasn't bad) but so far the markets are ignoring it. Like I said yesterday a close below the 200 day moving average in my mind makes it 50/50 the rally is over. Without that close the odds are high we are going to at least 1140.

Two interesting articles citing two investing legends.

The first from Reuters citing George Soros thoughts on Europe.

Europe faces almost inevitable recession next year and years of stagnation as policymakers' response to the euro zone crisis causes a downward spiral, billionaire investor George Soros said on Tuesday.


European banks had bought large amounts of the sovereign bonds of weaker euro zone countries for a tiny interest rate differential, Soros said.

"That's one of the reasons why the banks are so over-leveraged and why the German and the French banks own Spanish bonds," he said.

"Now ... they have a loss on their balance sheets which is not recognized and it reduces the credibility of those banks so the banking system is in serious trouble," he said.

And this article from Australia Hearald Sun citing GMO's Jeremy Grantham thoughts on the great Australia housing bubble.

The Australian reported he said yesterday that Australia had an unmistakable housing bubble and that prices would need to come down by 42 per cent to return to the long-term trend.

"You cannot possibly miss it," he said.

"The price of housing typically trades about 3.5 times of family income and in bubble it goes to 6 or . . . 7.5 (times).

"Australia is having one now. You are at near 7.5 times family income . . . which suggests you are twice the size that you should be."

Oh I am sure many people are missing it.

Tuesday, June 15, 2010

Risk On

Well much of what I thought about blogging today Cramer covered in the previous video. Ha. Today was a bad day for news flow though you wouldn't know it by looking at markets world wide. It was risk on. Everything was up. You had poor European economic data and the U.S. data stunk it up as well. Fresh signs of potential stress in Spain but Spain rallied with everything else.

Today was also gruesome because again yesterday you had a head fake with the sell off into the close with the market just getting slapped down from the 200 day moving average. Just like last week a usual decent signal ended up being completely false as today not only did we rally but closed above technical resistance I am sure hurting bears taking yesterday as weakness. I am halfway expecting at least for tomorrow a similar thing to happen for the bulls. Would not be surprised to see a slap down tomorrow catching all the bulls off guard after breaking resistance today. The markets should be heavy with BP bad news flow again going into the open. Tonight the estimated barrels per day being released into the gulf was upped, apparently some banks are starting to pull in trading lines, and Obama was blasting the airwaves tonight. You have a bunch of economic data coming out before the market opens tomorrow also but as you saw today the market is going to trade in whatever direction it wants regardless of the data.

If we close back below the technical resistance tomorrow(200 day moving average and below 1110) I put it at 50/50 that the rally is done. The other 50/50 is that we will go to that 1140 area I have talked about numerous times. Even if we get slammed tomorrow I would be very hesitant to short unless the news flow is equally bad out of Europe. It can't be just about BP. Another interesting thing to watch tomorrow if the markets are down will be the volume. The NYSE volume was abysmal today and has been getting progressively worse as the rally has rolled on. The ES futures volume was decent which means almost the entire move today was driven by futures. The slowing volume on the NYSE is also a warning signal.

The economy is on life support, the market is on life support, and danger signs are flashing but in the interim it still seems like this market could grind higher.

Cramer Gets it Right?!?

I don't very often say this but wow...Cramer is actually right. He said it the way it is. I think the market has been broken for months so he may be late to the game but what he said is 100% right. The market is broken. Today was an endless day of bad news. It is downright ridiculous. At the end of the video I don't agree with his view on housing but he is Cramer. I don't expect Cramer being right to become the norm.

What this means for the equity markets I don't know. I mean can you get a contrarian play off of this? Remember when Cramer started going nuts about Bernanke knowing nothing. That was the beginning of a 2 year slide so I don't want to read to much into the video. Just enjoying it for what it was. Overall a very good video with alot of truth.

Sunday, June 13, 2010

Danger Danger!!!

Despite last weeks rally the market is flashing neon danger signs. It is like standing by a frozen pond on a warm spring day and hear cracks that sound like gunshots as the ice becomes stressed. With that said, it seems like the highest probability in the short term would be higher as the tipping point hasn't quite been reached. Still, do you want to be the one to test the ice?

After getting BP'd again last week the market ended up moving legitimately higher. After Trichet started talking on Thursday the markets did begin to roll over. Germany lost over .5% in 10 minute time frame and the U.S. futures lost 5 points. Ten minutes into the speech the German constitutional courts came out and said they would not issue an injunction against the European bailout. On a dime the markets took off and never looked back. This was very under reported here in the U.S. but I think the cause of the major rally on Thursday.

In general the news was neutral out of Europe despite a few rotten tid bits. It was enough neutral that Europe rebounded nicely and the Euro moved up. I have speculated on this blog over the last two weeks that the Euro may be near at least a short near term bottom. It is a dangerous short. If Trichet actually had something fundamentally to work with I would be buying the Euro. He is doing almost everything you want if you owned the currency unlike his U.S. counter parts who would like nothing better to destroy the dollar. The problem is the very structure of the Euro is flawed so Trichet is fighting a losing battle.

Would not be surprised at all to see a multi week rally in the Euro pushing it up towards 1.30. It is a hard bet to make and for me I don't want to participate either way but with the correlation between the Euro and U.S. equity markets (if the Euro rally does develop) that would speak to some sort of equity rally continuing. How long and how far? I don't know. The 200 day moving average sits at 1108. The 50 day moving average sits at 1146 but is falling fairly quickly. I would not be shocked to see it reach and test the 50 day moving average which by the time the market makes it up there it would probably be in the 1130 to 1140 range. That is sort of jumping the gun though because it has to get over that 1100 to 1110 area first.

In general the range of outcomes are very wide and I was shrinking the portfolio Thursday into Friday because of this until some clarity emerges. If we get the move over 1100 you would want some dry powder to add to shorts.

Like I said at the beginning, the ice is razor thin. Anything could develop out of Europe. Financial reform poses a major threat here in the U.S. and economic data continues to come in weaker than expected.

So while I would expect the highest probability is a continued rally over the next week or two I can't stress enough that fundamentally your staring into a double barrelled shotgun and the risk remains to the downside.

The biggest short term signs for the bears is that last week equities left credit behind. Credit didn't rally and this divergence won't last long. Also, volume really dried up Thursday going into Friday.

Thursday, June 10, 2010

Yep BP'd Again

Looks like yesterday was nothing more than the market being BP'd. Fool you once than shame on you, fool me twice than shame on me. Well I guess shame on me. Thought there was more to yesterday's sell off than simply BP.

The Euro is screaming higher. I am not really that surprised and have mentioned the possibility a couple of times. If Trichet actually had something to legitimately work with I would have great admiration for what he is doing and be buying Euros like crazy. He is doing everything you want if you were the owner of the currency. The problem is the underlying structure of the Euro is not sustainable and so I don't think in the end Trichet will have a chance. I will probably write more on that someday but the in the short term the risk is the Euro has a very sizable rally starting now or in a few weeks. What this means for U.S. equities in not clear as the correlation has been close to one. At some point that correlation will break down but I wouldn't want to bet when that will happen.

Anyway 1070 to 1080 is what to be watched. Think the odds of breaking 1040 have dropped to close to zero. Now we will see what kind of strength we have to see if we go all the way back to 1100. Chopping and grinding chopping and grinding. A least for today we are staying in our range.

Wednesday, June 9, 2010

BP'd Again?

Alot of similarities to last Wednesday when I had the post BP'd. Market looked like death at the end of the day before with all the news on BP. Just like today.

Last Wednesday I wrote:

Part of the problem for the bears is yesterday we were going down for the wrong reasons for the drop to be actually legitimate. Yesterday it was all about BP and the oil trade. Oil companies (basically all of them) got slaughtered. This weighed on the markets until it finally drug the entire market down. The market got BP'd. It isn't about BP though. If the news is all about BP that is bullish because fundamentally BP doesn't matter to the broader market. Europe has very quietly dropped from the financial headlines. BP is everywhere. That is bullish because it is Europe and the financial system which is going ruin the system.

And here we are again. Today was largely about BP. Where we BP'd? I could be wrong but I am going to guess no. I think the probabilities set up where tomorrow we will make a run at and this time break 1040. It may not happen but the odds favor it.

First, this was a massive sell off at the end of the day which is never good. We fell 150 points to close near the lows. The market cannot catch a bid. Investors just are not interested in buying. Volume picked up as the market was selling off. This sell off looked very ugly.

Two, more rumblings out of Spain with banks supposedly cut off from the capital markets. This can't go on for long. The more ignored it today? Will it be able to continue?

Three and probably most important is that at 2:30 p.m. Central European Time Trichet and the ECB Vice President will explain the Governing Councils monetary policy decisions and answer journalist questions. So far everytime Trichet opens his mouth it has been very bad for the markets. Unlike Bernanke who is the market whipping boy Trichet almost seems to have a vendetta against the markets. I think if the markets are not down within an hour or two of this speech, than I will reverse course in thinking a 1040 break is imminent. So what time is 2:30 p.m. Central European Time? From what I can tell it is 7:30 a.m. central time here in the U.S. The risk of course is that this time Trichet does change his tune and the market spikes. You should know before the market opens. If we bounce we have no business going back above 1070 for this scenario to play out.

So what happens if we break 1040? HA!!! I have no idea. We could quickly go to 950 (over a few days or a week) we could bounce off of say 1000 to 1020, you had so much selling to get through 1040 that you have selling exhaustion and now you bounce back to 1100. Maybe it picks up steam and we are headed to the 800s by the end of June. It seems the likelihood is we have some sort of mini crash of several percentage points before coiling up for a big bounce since we it would be adding extreme oversold conditions to already oversold conditions. I have no idea though.

Europe was up today fairly strong after being down 3 days in a row. Those three days were vicious as France lost 5%. It would seem Europe would need another day or two to bounce. Maybe it bounces into the afternoon until Trichet starts talking and sells off like the U.S. did today going into the open for the United States markets?

I was shorting today as I said I would once we got above 1070. As we started selling off I started adding even more. Tomorrow if my scenario doesn't play out quickly I will look to take some of this off (go from more short to just less short). I don't think we have any business going back above 1070.

I am dealing with probabilities. This break of 1040 isn't a "call" by me but just trying to say the probabilities for tomorrow and Friday are very high. I will make the call (and this I think is the key) if we break 1048 that we will break 1040 this time. I don't think the bulls can hold it a third time.

Tuesday, June 8, 2010

China Real Estate Coming to A Screeching Halt

I have been giving alot of short term thoughts lately because when the markets go down it is alot more tradeable than when the markets go up (moves are magnified). However, lets not lose the forest among the trees. Fundamentally, things are deteriorating and that is what I am basing my investment thoughts on. These numbers out of China are just jaw dropping. Sales volume 50% from the previous month? Prices down 10% from the previous month? WOW!!

From The China Daily.

Property sales in China's major cities of Beijing, Shanghai and Shenzhen dropped in May, with house prices declining as well, the Economic Information Daily reported Tuesday, citing data from a real estate brokerage.

Sales volume of new properties in Beijing in May fell by 50 percent from the previous month to 9,639 units, while the number of properties resold hit 14,501, a decrease of 58.5 percent, according to the real estate brokerage Century 21 and

Sales volume of the city's new residential properties fell by 47.8 percent to 6,360 units in May, while the number of homes resold dropped 58.8 percent to 13,545 units.

Shanghai witnessed its secondhand home transactions dive 69 percent from April, and decrease in this sector in Shenzhen was 24.1 percent month-on-month, according to Century 21.

Meanwhile, statistics from China Index Academy show that among the 30 cities it tracks, 29 met a decline from April, and house prices fell in most of the cities, with Beijing and Shanghai declining more than 10 percent.

More Churning

It was as I speculated yesterday, the markets were to oversold to muster enough juice to get through 1040. We went down twice and amidst some heavy thrashing bounced both times. Going down the second time threw me for a loop because once we bounced I figured that was it. I was covering quite a bit at the open though looking back I obviously wish I would have done more but it gives me some room to look at adding short exposure between 1070 and 1100.

Besides some outright crash the best scenario for the bears is to bounce around here for a day or two staying below 1070 and especially 1080 working through some of the oversold conditions building up energy to really bust downward.

I passingly glance at technicals and my technical friends are being very vocal that the technicals are saying to buy for a decent bounce. Makes it very tough because we are coiled up to the extent where the wrong piece of fundamental news sends us crashing down. I would say technicals over and over again had sell spots during the 2009 rally and the market just kept powering higher. Why it is easier to be a fundamental person because if you get your timing wrong but are still fundamentally right you can just sit awhile.

There isn't much economic news this week though you do have some numbers coming out Thursday with the jobless claims and Friday with retail sales and consumer sentiment. With no real economic numbers tomorrow, unless something develops out of Europe we should continue upward tomorrow I would suspect.

Monday, June 7, 2010

Grinding Lower

Alot I could write about. This past weekend the news was very bearish for equities and the world economies. The G20 ended up a disaster with no one being able to agree on anything and indication that governments were going to tighten anymore. This means less stimulus elixar moving forward. Supposedly there was heated debate in South Korea at the meeting. Than reports of a German court considering an injuction against the EU rescue package. The futures were way down over night only to bounce back with the markets actually opening up before rolling over and giving it all back.

Just like last week when we were up at 1105 and I said we really had not gone anywhere, this week we are right back to where we were two weeks ago. Around that 1140 to 1160 area. The markets really continue to go nowhere though I am sure bulls and bears are feeling huge moments of exhilarition followed by worry. We are still very oversold. In fact one could make an argument that we are even more oversold than when we were here last time a couple of weeks ago. I know that doesn't make much sense but the day was so bearish on Friday with so much selling that it put a large dent in selling potential while only getting us back to where we were two weeks ago.

The line in the sand is still 1040 for the bears. Unfortunately for the bears, I am not sure there is enough dry selling powder to power through it on the downside without first bouncing. It would take a massive selling event to break through and despite the end of the day today it doesn't necessarily look like there is massive selling available without some major news.

Ahh but major news we could get. Just from a bears perspective it is hard to bet on the timing of such news. There is alot of debt being issued in Europe this week by the likes of Belguim, France, Germany, Austria, and Spain. Problems in those bond auctions could definitely cause the next batch of selling.

On the upside I would start getting nervous if we were able to power back up above 1070 and than 1080. That is 20 to 30 points away so somewhat of a cushion where the markets could sort of move up or bounce around for a day or two.

Fundamentally, the world is being roamed by grizzlies. Deflationary pressures is back with a vengence, world credit problems is once again showing its ugly head, and governments are starting to realize they can't spend their way to prosperity.

In the short term I don't have much of an opinion though I think at least for the next day or two it favors the bulls unless some major news out of Europe once again dominates the headlines.

Saturday, June 5, 2010

A Tribute to John Wooden

Today, America lost one of its greatest minds, one of its greatest teachers, and one of its greatest heroes. I have always had an obsession with those who lived wisdom, who were truly exceptional in an understanding outside of themselves. Benjamin Franklin, Warren Buffett, Charlie Munger, and Albert Einstein would be part of this very small list. Maybe above all of them was a man named John Wooden. A truly remarkable individual who became the undisputed symbol of excellence in his field of coaching as the UCLA head basketball coach. He became known as the Wizard of Westwood. He won 620 games in 27 seasons and ten NCAA championships during his last twelve seasons including seven in a row. He had four perfect season and a record winning 88 games in a row. He was the first person to be added to the basketball hall of fame as a coach and a player and was named the Greatest Coach of All time in 2009 by The Sporting News.

But he never defined success as winning. He never discussed winning with his players. He took teaching his players about life as more important than teaching them about basketball. He was as quickly to quote Plato or Sacrotes as he was to discuss basketball strategy. He put the highest emphasis on love, faith, and family.

Rest in Peace John Wooden. You were truly an amazing individual.

To hear John Wooden speak is to get lost in another realm of wisdom, of understanding. There are many videos out there about John Wooden. Below are just a few. Here is John Wooden's official website which has many other videos of him.

John Wooden Introduction

John Wooden on Success and Life

John Wooden Love Letter

John Wooden (1910 - 2010) The Final Tribute

Friday, June 4, 2010

Europe CDS - Lights OUT

Sorry - Can't get this to format correctly. You will get the point. Look at the percentage change!!!!

Entity 5 Yr Spread Change (%)Change(bps)

Austria 95.44 +23.33 +18.05
France 102.11 +22.19 +18.54
Germany 52.04 +18.70 +8.20
Belgium 130.33 +18.27 +20.13
Sweden 43.32 +15.89 +5.94
Spain 295.47 +15.25 +39.09
Ireland 297.60 +14.51 +37.70
Finland3 4.28 +13.87 +4.17

Horrific Jobs Number

Compared to what the market was hoping for, pricing in, counting on to save the world this is a freaking HORRIBLE jobs number. Increase of 431,000 (there were rumors of 700,000. Huge consensus miss!!. Even more important is that U.S. private sector (so ex census workers) only up 45,000.

Market will be down over 3% today. Futures TANKING!!!!!

Europe is Back ALL Over the Headlines

No more BP. Europe in the headlines is everywhere this morning as Hungary is falling apart spreading to Austria, Spain bonds are blowing out, along with cds from some of the major countries (i.e. Germany and France), and Euro approaching 1.20. We are 15 minutes from the NFP report. It doesn't matter. Futures down but holding in there compared to news flow ahead of this report. If this number does manage to get the market positive you sell it.

Wednesday, June 2, 2010


The last few days have been terribly frustrating for investors - bulls and bears I am sure. A drop yesterday that looked deathly which mauled the bulls followed by a day today that took a chunk out of bears. Today was even worse because it looked like we were rolling over I am sure catching alot of people off guard on the wrong side of the trade. It has alot of investors/traders doing the wrong thing at the wrong time.

Part of the problem for the bears is yesterday we were going down for the wrong reasons for the drop to be actually legitimate. Yesterday it was all about BP and the oil trade. Oil companies (basically all of them) got slaughtered. This weighed on the markets until it finally drug the entire market down. The market got BP'd. It isn't about BP though. If the news is all about BP that is bullish because fundamentally BP doesn't matter to the broader market. Europe has very quietly dropped from the financial headlines. BP is everywhere. That is bullish because it is Europe and the financial system which is going ruin the system. As I talked about several days ago, Spain is a major shoe to drop. Is it now or is it like Greece in February and it can be ignored for awhile?

Rumors started floating around during the day about how unbelievable the jobs numbers is going to be on Friday. Rumors ranging from 700,000 to 1,000,000. Vice President Biden and President Obama mentioned the number today also very likely adding to the probability of what an eye popping headline number it will be. Of course jobless claims have stayed above 400,000 and really over 450,000 for months now. Most of those jobs will be added census workers which will be a negative starting in July. I fully expect this to be a buy the rumor sell the news type of number. That makes tomorrow being up a high probability and even a gap up on Friday. If you get that you sell into it. Easy trade.

What the market is doing helps the bears if it doesn't get out of hand. We got way way oversold and we are working off the oversold nature with the markets going nowhere. We are right back to where we were a week ago. The danger for the bears is Europe starts quieting down and we have a month or two before this whole thing starts really turning. The world economies do seem to have peaked out and slowing but it takes time and the markets may have gotten ahead of themselves. 1105 now is the 200 day moving average. Heavy resistance around 1110 to 1115. You break that in a meaningful way and it seems 1140 to 1150 becomes likely. On the downside 1070 followed by 1040 seem to be the lines drawn in the sand.

If your trading it and we open down tomorrow for any reason I think you do lighten up on the shorts expecting a reversal rallying into Friday mornings number. If your more like me sitting tight isn't bad either seeing if 1110 ish holds.

One other note of interest. Yesterday the Prime Minister of Japan resigned. This started greatly weakening the yen because the new candidate supposedly is in favor of quantitative easing and a weaker yen. The important indicator the last month or two has been the yen/euro cross. If the yen strengthened the markets went down as derisking was occurring. Well now you have the yen weakening. I think the decline in the Euro may becoming to an end for awhile though another low towards 1.20 is decent odds. Everyone is on one side of the trade and it is the game of the ugliest pig. The Yen could be chosen as that pig for a little while. I just think you could see a move towards 1.40 for the Eur before long. This could mean one of a few things. One, the market will settle down and make a trek for 1140 as the carry trade is back in favor. Two, Japan could become a systemic issue for markets after many years of pushing off the piper. Three - the entire correlation of the Yen/Euro cross may break down.

Goldline - Stay Away

My respect for Glenn Beck has dropped alot after getting caught up with the whole Goldline thing. Cogressman Weiner has polticized it but Beck shouldn't have gotten involved the way he has. I have only passively followed the whole thing but this video by Peter Schiff does a great job explaining why goldline is the last place you want to buy gold from.