If this video is correct gold may be about to take a rocket ship higher. It is hard to know if this is simply a camera being pointed at one small subset of the Chinese or if this is really spreading throughout the China population. The video also says China has surpassed South Africa as the biggest miner for gold. The video also mentions that George Soros thinks gold may be the ultimate bubble. I agree but I think that comment was taken out of context. Soros has been buying gold like crazy. I don't think you can even think of gold as a bubble until it passes 5,000 per ounce.
Monday, May 31, 2010
Bank of Spain - Reduce Leverage
From the Spanish publication ABC.ES. This is translated into English from Spanish so wording may look funny.
The Bank of Spain considers that non-financial companies should take steps to reduce its debt, since debt levels are higher than those of European companies, and stresses that efforts should be greater in the housing sector, which reached reach a size "excessive" during the expansionary phase of the economy, reports Ep.
and
The watchdog's report recalled that the average 5% reduction in the salaries of public employees, the suspension of pension increases in 2011, the disappearance of the birth or adoption assistance and reduction of public investment will lead to state spending cut 5,000 million in 2010 to 10,000 millions in 2011.
This is what needs to happen worldwide BUT I think it is to late. Definitely could have been done during the recession in 2001. Possibly could have been done in 2008 letting the government balance sheet control the collapse rather than preventing the collapse but now the government is planning on cutting spending, the government is planning on reducing deficits and overall leverage, asking the private sector to cut deficits hence cutting spending, and asking the private sector to reduce leverage. Spain and the world is in a death trap. Governments have very little flexibility in padding the deleverging because they used all their ammunition a couple of years ago trying to prevent what needed to occur. It is a death trap.
From a markets perspective the question is whether Spain is where Greece was in February of this year and the markets can ignore it or is Spain where Greece was a month ago about to cause another major leg down in worldwide equity markets.
Spain has sovereign debt problems like Greece but not nearly as bad. The problem is Spain has huge private debt issues. The private sector is very overleveraged just like the United States was in 2007 into 2008 (and still so). In 2008 the U.S. government had room on its balance sheet to keep the private sector afloat. Spain doesn't have that room because they already have sovereign debt issues.
Spain is a major domino in the process of falling. Within months if not weeks.
The Bank of Spain considers that non-financial companies should take steps to reduce its debt, since debt levels are higher than those of European companies, and stresses that efforts should be greater in the housing sector, which reached reach a size "excessive" during the expansionary phase of the economy, reports Ep.
and
The watchdog's report recalled that the average 5% reduction in the salaries of public employees, the suspension of pension increases in 2011, the disappearance of the birth or adoption assistance and reduction of public investment will lead to state spending cut 5,000 million in 2010 to 10,000 millions in 2011.
This is what needs to happen worldwide BUT I think it is to late. Definitely could have been done during the recession in 2001. Possibly could have been done in 2008 letting the government balance sheet control the collapse rather than preventing the collapse but now the government is planning on cutting spending, the government is planning on reducing deficits and overall leverage, asking the private sector to cut deficits hence cutting spending, and asking the private sector to reduce leverage. Spain and the world is in a death trap. Governments have very little flexibility in padding the deleverging because they used all their ammunition a couple of years ago trying to prevent what needed to occur. It is a death trap.
From a markets perspective the question is whether Spain is where Greece was in February of this year and the markets can ignore it or is Spain where Greece was a month ago about to cause another major leg down in worldwide equity markets.
Spain has sovereign debt problems like Greece but not nearly as bad. The problem is Spain has huge private debt issues. The private sector is very overleveraged just like the United States was in 2007 into 2008 (and still so). In 2008 the U.S. government had room on its balance sheet to keep the private sector afloat. Spain doesn't have that room because they already have sovereign debt issues.
Spain is a major domino in the process of falling. Within months if not weeks.
Friday, May 28, 2010
Spain Losses AAA Rating
Spain etf losses 2% in minutes on Fitch downgrade causing Spain to lose AAA rating.
U.S. markets tank on the news.
All eyes on Spain. This sets up very bearishly the rest of the day and going into the weekend.
And I thought it was going to be a slow day.
U.S. markets tank on the news.
All eyes on Spain. This sets up very bearishly the rest of the day and going into the weekend.
And I thought it was going to be a slow day.
Shocking Interview With Matt Simmons on BP Oil Spill
I am not an expert on the BP spill by any stretch of the imagination but I found this to be a shocking interview with Matt Simmons. Mr. Simmons is a fairly famous name in the oil industry. He has been a peak oil guy and not accurate with that call so far but his knowledge of the industry is both deep and wide. I found this video, on MSNBC no less, amazing. Whether he is right or not, I don't know. Let's hope he isn't.
Stock Market Drop
9:50 a.m. and the stock market just had a 40 point drop. It is very simple. EWP, STD, and BBVA. Spain is rolling over and specifically the banks.
Thursday, May 27, 2010
Holiday Weekend
Looks like the rally option was the direction the market took. Was putting it at 50/50 so not surprised. I was not shorting into the close today though I sort of wish I was. We hit the 1100 to 1110 area I was looking for but thought going into the holiday weekend that there was a very good chance the market will be up tomorrow and possibly open up on Tuesday. Tomorrow would normally be a very quite day with a bias to the upside. You have the bond market shutting down early and traders who will not want to be short going into a long weekend. That scenario still probably holds but comments from the French Europe's Minister reported in the Financial Times could put a damper earlier than I thought.
In reference to the Eurozone 440 billion euro debt guarantee he said:
“It is an enormous change,” Mr Lellouche said. “It explains some of the reticence. It is expressly forbidden in the treaties by the famous no bail-out clause. De facto, we have changed the treaty,” he added.
Because we are going into a holiday I don't know if this comment will be front and center but those words seem to me like a bombshell. It is incredible that this would find it's way to print. In the Financial Times no less! Not only has German politicians used tremendous political capital to get what they already have but there are a couple of lawsuits working there way through German courts saying this whole thing is unconstitutional. Here you have the French minister basically making their case.
In all these things the question is always to ask what is going on behind the scenes. Not the headlines. Why the interview, why the word choice, why now? Germany seems to already be laying the ground to evict Greece from the EU (Germany's short selling ban), is this a move by France to start doing the same thing?
Anyway, that throws open how we trade tomorrow.
In general I think we have topped or are close to doing so with a move up to the 1010area very possible. I think the extreme scenario is a rally to the 1040 but that is lower on the probability scale.
Normally I would say we would be up tomorrow and at least open up on Tuesday. I would normally have no problem not adding short exposure tomorrow. However, things are not normal and the problem is everything relies on what happens in Europe. It is possible you walk in on Tuesday and news over the weekend sent Europe crashing down on Monday and is crashing again on Tuesday and the U.S. opens down 3% plus. I don't see that as a huge probability but it is possible.
I said yesterday there were three things to watch. Euro at 1.2150. The S&P at 1055. And the three Spanish etfs. Well the Euro moved up and well away from the 1.2150, S&P gapt open and never looked back, and Spain rallied hard. Of those Spain was what drove the other two.
I think that story continues. Spain is most important. I think you can move the 1055 up to 1080. If we start breaking the 1080 area, the likelihood is that is very bearish.
It is very tricky but I think the risk lies to the downside not the upside at this point. I got my rally and the last few days removed the extreme oversold nature. In fact one measurement, the NYMO, is less oversold than when the market was at 1173. Anyway, at this point it is timing. I could very easily see another day or week of sideways action that grinds higher but those words in the Financial Times drop that probability in my mind and raises the probability that we are done rallying.
In reference to the Eurozone 440 billion euro debt guarantee he said:
“It is an enormous change,” Mr Lellouche said. “It explains some of the reticence. It is expressly forbidden in the treaties by the famous no bail-out clause. De facto, we have changed the treaty,” he added.
Because we are going into a holiday I don't know if this comment will be front and center but those words seem to me like a bombshell. It is incredible that this would find it's way to print. In the Financial Times no less! Not only has German politicians used tremendous political capital to get what they already have but there are a couple of lawsuits working there way through German courts saying this whole thing is unconstitutional. Here you have the French minister basically making their case.
In all these things the question is always to ask what is going on behind the scenes. Not the headlines. Why the interview, why the word choice, why now? Germany seems to already be laying the ground to evict Greece from the EU (Germany's short selling ban), is this a move by France to start doing the same thing?
Anyway, that throws open how we trade tomorrow.
In general I think we have topped or are close to doing so with a move up to the 1010area very possible. I think the extreme scenario is a rally to the 1040 but that is lower on the probability scale.
Normally I would say we would be up tomorrow and at least open up on Tuesday. I would normally have no problem not adding short exposure tomorrow. However, things are not normal and the problem is everything relies on what happens in Europe. It is possible you walk in on Tuesday and news over the weekend sent Europe crashing down on Monday and is crashing again on Tuesday and the U.S. opens down 3% plus. I don't see that as a huge probability but it is possible.
I said yesterday there were three things to watch. Euro at 1.2150. The S&P at 1055. And the three Spanish etfs. Well the Euro moved up and well away from the 1.2150, S&P gapt open and never looked back, and Spain rallied hard. Of those Spain was what drove the other two.
I think that story continues. Spain is most important. I think you can move the 1055 up to 1080. If we start breaking the 1080 area, the likelihood is that is very bearish.
It is very tricky but I think the risk lies to the downside not the upside at this point. I got my rally and the last few days removed the extreme oversold nature. In fact one measurement, the NYMO, is less oversold than when the market was at 1173. Anyway, at this point it is timing. I could very easily see another day or week of sideways action that grinds higher but those words in the Financial Times drop that probability in my mind and raises the probability that we are done rallying.
David Einhorn - "Are you worried about passing our debt on to future generations? Well, you need not worry."
Many of you have probably seen the op-ed piece in the New York Times by David Einhorn, another great investor. Well if you haven't, read below.
From the NYT
Are you worried that we are passing our debt on to future generations? Well, you need not worry.
Before this recession it appeared that absent action, the government’s long-term commitments would become a problem in a few decades. I believe the government response to the recession has created budgetary stress sufficient to bring about the crisis much sooner. Our generation — not our grandchildren’s — will have to deal with the consequences.
and
A good percentage of the structural increase in the deficit is because last year’s “stimulus” was not stimulus in the traditional sense. Rather than a one-time injection of spending to replace a cyclical reduction in private demand, the vast majority of the stimulus has been a permanent increase in the base level of government spending — including spending on federal jobs. How different is the government today from what General Motors was a decade ago? Government employees are expensive and difficult to fire. Bloomberg News reported that from the last peak businesses have let go 8.5 million people, or 7.4 percent of the work force, while local governments have cut only 141,000 workers, or less than 1 percent.
Public sector jobs used to offer greater job security but lower pay. Not anymore. In 2008, according to the Cato Institute, the average federal civilian salary with benefits was $119,982, compared with $59,909 for the average private sector worker; the disparity has grown enormously over the last decade.
The entire op-ed is a great example of critical thinking. Highly recommend you take the time to read to the entire thing.
From the NYT
Are you worried that we are passing our debt on to future generations? Well, you need not worry.
Before this recession it appeared that absent action, the government’s long-term commitments would become a problem in a few decades. I believe the government response to the recession has created budgetary stress sufficient to bring about the crisis much sooner. Our generation — not our grandchildren’s — will have to deal with the consequences.
and
A good percentage of the structural increase in the deficit is because last year’s “stimulus” was not stimulus in the traditional sense. Rather than a one-time injection of spending to replace a cyclical reduction in private demand, the vast majority of the stimulus has been a permanent increase in the base level of government spending — including spending on federal jobs. How different is the government today from what General Motors was a decade ago? Government employees are expensive and difficult to fire. Bloomberg News reported that from the last peak businesses have let go 8.5 million people, or 7.4 percent of the work force, while local governments have cut only 141,000 workers, or less than 1 percent.
Public sector jobs used to offer greater job security but lower pay. Not anymore. In 2008, according to the Cato Institute, the average federal civilian salary with benefits was $119,982, compared with $59,909 for the average private sector worker; the disparity has grown enormously over the last decade.
The entire op-ed is a great example of critical thinking. Highly recommend you take the time to read to the entire thing.
Professor Jeffrey Sachs Schooled by Hugh Hendry
This video only sort of scratches the surface of why I love Hugh Hendry. Unfortunately, his insight is limited by having to share time with two others. What the video does display is another example of full ignorance of our academia. I don't know what rock Jeffrey Sachs just crawled out from under but he has definitely not been living in the real world. I was discussing Greece (as were many others) last summer. This didn't come from no where and neither will the collapse from Europe no matter what rock you want to hide behind. To claim this is a 10 week story is preposterous!!!!! That is like claiming America started in 1994. Forget the American revolution, the Civil War, the Great Depression, Neil Armstrong walking on the moon. We are not connected to what happened before at all.
Greece just woke up one day and had a crises.
Enjoye the video and weep for our intellectual elite that continue to steer us towards disaster.
Greece just woke up one day and had a crises.
Enjoye the video and weep for our intellectual elite that continue to steer us towards disaster.
Wednesday, May 26, 2010
Confusion Abounds
Interesting day in the markets. Very bearish close. Going into the close I was thinking this looked awful but unsure at the current point. There are several things that should guide investors on whether there is more selling to come or we still have some rebounding to do.
There are three things I am watching very closely. The S&P 500 level of 1055 ish, the Euro level of 1.2150, and Spain. The tail I think is Spain. The dog is the other two. The tail will wag the dog.
If your in the stock market you need EWP, STD, and BBVA on your trading screens. The markets followed them tick for tick today. Spain seems to me to be about to unravel. Whether that is days or weeks I am not sure but Spanish banks appear to be having severe funding problems. The United States had this also of course and the United States backed the financial system. Whether you agree with this or not (entirely different discussion) it was an option the United States had because it had balance sheet flexibility. Spain does not have that same flexibility. Spain has sovereign debt issues but that is a much smaller problem compared to the other Euro nations. Its bigger problem is the private debt, similar to the U.S. in 2008. So Spain's problem is it has a sliver of Greece with sovereign balance sheet inflexibility and U.S. like overindulgent consumers. BBVA has been having trouble raising $1 billion in commercial paper. This has been heavily weighing on the Spanish markets and could spread.
Anyway, if that doesn't develop overnight, than i think we bounce tomorrow and have more rally to go. The current information seems priced in. The problem is future information will probably deteriorate. If it gets worse than I think you will see the U.S. markets fall apart.
In general we had a massive rally though it doesn't feel like it. We went from 1040 to 1090 or a 4.8% move from top to bottom. The duration seems quick for it to be all over and done with.
Anyway I am watching 1055. That was the low last Friday and acted as resistance several times yesterday before finally getting through it. If we have a legitimate break of 1055 I think we go to 1040 for the second time and don't think it will hold.
Resumption of heavy selling tomorrow I put at 50%. In otherwords I really have no idea. I still think there is a decent chance we get up to 1100 to 1120 but I think Spain controls that destiny.
There are three things I am watching very closely. The S&P 500 level of 1055 ish, the Euro level of 1.2150, and Spain. The tail I think is Spain. The dog is the other two. The tail will wag the dog.
If your in the stock market you need EWP, STD, and BBVA on your trading screens. The markets followed them tick for tick today. Spain seems to me to be about to unravel. Whether that is days or weeks I am not sure but Spanish banks appear to be having severe funding problems. The United States had this also of course and the United States backed the financial system. Whether you agree with this or not (entirely different discussion) it was an option the United States had because it had balance sheet flexibility. Spain does not have that same flexibility. Spain has sovereign debt issues but that is a much smaller problem compared to the other Euro nations. Its bigger problem is the private debt, similar to the U.S. in 2008. So Spain's problem is it has a sliver of Greece with sovereign balance sheet inflexibility and U.S. like overindulgent consumers. BBVA has been having trouble raising $1 billion in commercial paper. This has been heavily weighing on the Spanish markets and could spread.
Anyway, if that doesn't develop overnight, than i think we bounce tomorrow and have more rally to go. The current information seems priced in. The problem is future information will probably deteriorate. If it gets worse than I think you will see the U.S. markets fall apart.
In general we had a massive rally though it doesn't feel like it. We went from 1040 to 1090 or a 4.8% move from top to bottom. The duration seems quick for it to be all over and done with.
Anyway I am watching 1055. That was the low last Friday and acted as resistance several times yesterday before finally getting through it. If we have a legitimate break of 1055 I think we go to 1040 for the second time and don't think it will hold.
Resumption of heavy selling tomorrow I put at 50%. In otherwords I really have no idea. I still think there is a decent chance we get up to 1100 to 1120 but I think Spain controls that destiny.
China and Agriculture
Hugh Hendry of the Eclectica Fund is one of my favorite investors/thinkers and recently came out with his May letter which can be found here. The reason I like Hugh so much is because he thinks way outside of the box, very witty, and most importantly always talks about market history that I am unfamiliar with and haven't seen anywhere else.
His latest letter talks alot about Japan and China and why he thinks China is going to go bust. All very interesting and something I generally agree with. What was really interesting was the last two pages of the letter when he starts talking about soft agriculture commodities like corn and soybeans and openly wonders if there isn't something going on secretively in China. He talks about huge droughts in China and lower fertilizer usage at the same time the government is reporting very successful agriculture years. Of course the real canary may be prices (aren't they usually?). He points to the fact that in Dalian, a port city east of Beijing, corn is selling for more than $7.50 a bushel. More than twice of that in Chicago. He thinks talks about China's history (something I had never heard anywhere else) of how they manipulate agriculture data and how it caused starvation and death after the 1950s.
Anyway, I am basically bearish on asset prices everywhere but if I was forced to buy something, agriculture would be the one area I would be interested in. The case made by Hugh makes it that much more appealing.
As a result it was interesting looking through world papers that I found this from the China Daily.
China's National Development and Reform Commission (NDRC) said Monday it will curb speculation in farm produce, prices manipulation, and supplies monopolies, and investigate criminals when severe market disruption is spotted.
The NDRC said specific definitions and punishment are currently being discussed, China Securities News reported Tuesday.
Prices hike were seen this year in rice, grain, garlic, vegetables and green beans, possibly because of the drought in Southwest China and the cold weather in Central and East. The soaring prices are also believed to have been caused in part by hoarding, market manipulation, and rumors by unscrupulous traders
Interesting. Of course this sounds like the government blaming the market for prices they don't like even when they cause it. Sound familiar? Anyway, something to think about. If you had to buy something corn at 3.70 a bushel sure looks appealing.
His latest letter talks alot about Japan and China and why he thinks China is going to go bust. All very interesting and something I generally agree with. What was really interesting was the last two pages of the letter when he starts talking about soft agriculture commodities like corn and soybeans and openly wonders if there isn't something going on secretively in China. He talks about huge droughts in China and lower fertilizer usage at the same time the government is reporting very successful agriculture years. Of course the real canary may be prices (aren't they usually?). He points to the fact that in Dalian, a port city east of Beijing, corn is selling for more than $7.50 a bushel. More than twice of that in Chicago. He thinks talks about China's history (something I had never heard anywhere else) of how they manipulate agriculture data and how it caused starvation and death after the 1950s.
Anyway, I am basically bearish on asset prices everywhere but if I was forced to buy something, agriculture would be the one area I would be interested in. The case made by Hugh makes it that much more appealing.
As a result it was interesting looking through world papers that I found this from the China Daily.
China's National Development and Reform Commission (NDRC) said Monday it will curb speculation in farm produce, prices manipulation, and supplies monopolies, and investigate criminals when severe market disruption is spotted.
The NDRC said specific definitions and punishment are currently being discussed, China Securities News reported Tuesday.
Prices hike were seen this year in rice, grain, garlic, vegetables and green beans, possibly because of the drought in Southwest China and the cold weather in Central and East. The soaring prices are also believed to have been caused in part by hoarding, market manipulation, and rumors by unscrupulous traders
Interesting. Of course this sounds like the government blaming the market for prices they don't like even when they cause it. Sound familiar? Anyway, something to think about. If you had to buy something corn at 3.70 a bushel sure looks appealing.
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