Friday, November 28, 2008
Crude oil prices have dropped today in anticipation of disagreement and turmoil at the OPEC meeting Saturday. What a timely tumble!
Click here for a story in the Washington Post on OPEC's inner conflicts.
Tradestation has just released the newest version of their software. It has a great new feature called a Scanner that allows me to enter a very diverse list of criteria, including volume, price, indicators, etc., and the software will scan at programmed intervals for those criteria. I haven't installed the new software yet, but will install it and play with it over the weekend. It looks like a great new feature that will save me a lot of time!
Traders in treasuries must have gone on vacation en masse today also. Volume is so thin that the tick chart is lagging severely behind even the shortest time interval charts.
However, I have had good results today so far trading the Eurodollar futures! They are very liquid, probably because many European trading desks are unaffected by the Thanksgiving Holiday.
Shorting the Euro currency futures has also been a good trade. The US Dollar has shown some solid strength today, after showing considerable weakness over the past few days. I trade what the market tells me to trade.
From Arlan Suderman, Market Analyst at Farm Futures:
"Low Volume Trade is Expected Today
"Overnight trade was very thin, suggesting that today’s market should see even fewer traders than Wednesday.
"Wednesday’s trade was thin and choppy as many traders skipped out of town early for Thanksgiving. Overnight trade was very thin, suggesting that today’s market should see even fewer traders than Wednesday, with the closing bell ringing at Noon central time. As a result, we may see a few traders try to play a few games within recent trading ranges, but traders generally don’t like to extend things too far under these conditions.
"The dollar pushed higher overnight and crude oil prices slid lower, causing early gains to evaporate in the grain and oilseed markets."
For his entire commentary, click here.
Needless to say, I won't touch grains today.
It is typical to see thin volume on the days before and after a holiday, and especially the Friday following Thanksgiving. I am watching the charts carefully today, and if they appear to be unusually erratic -- a hallmark of thin volume -- I may decide to sit on the sidelines today.
Thursday, November 27, 2008
A few short excerpts from John Mauldin's latest newsletter:
"The economic news just continues to be bad. New unemployment claims were over 529,000 on a seasonally adjusted basis. The "real" number was 606,877 lost jobs. New home sales were off by another 5% and down 40% from a year ago, as builders slash inventories. The Chicago Purchasing Manager index came in at 33.8, the weakest number since the serious recession of 1982. The national number due next Monday will be just as ugly, as durable goods were down far more than expected, by a negative 6.2%."
"And while the stock market may enjoy a serious rally over the next few months, we are not out of the woods. The fire is still raging and we are witnessing ever-more aggressive attempts to get the fire of the credit and housing crisis under control."
"The Fed is going to have some room to pump up the money supply without seeing inflation rise precipitously. I think this is the first of what will be several large injections, as they will keep it up until the economy begins to recover..."
I'll let you read Mauldin's newletter for the really cool stuff about the Millenium Wave.
Click here to read the whole thing.
Wednesday, November 26, 2008
"Purchases dropped 5.3 percent to an annual pace of 433,000, lower than forecast and the fewest since January 1991, the Commerce Department said today in Washington. The median sales price decreased to a four-year low. Other Commerce reports today showed consumer and business spending tumbled last month."
Here is the entire Bloomberg story.
Volume for futures trading is light today in anticipation of the Thanksgiving Holiday. Liquidity is particularly poor for grains and eurodollar contracts today. Tomorrow, a few contracts will still be trading, notably currencies and energies. Due to poor volumes, trading can be particularly erratic on the days surrounding holidays.
Major homebuilders have indicated that 47% of all new real estate contracts don't reach completion of the transaction. This is the highest ever reported. It indicates that for every 2 contracts to purchase a new home, nearly 1 in 2 of those will never actually purchase the home.
In a report released this morning, famed analyst Meredith Whitney is saying the the TARP funds injected into America's banks are likely to be used up in write-downs ($44 billion in the 4th Quarter alone) and reserve requirements rather than lending.
Here's the Bloomberg article.
More bad loans to come, apparently! Were the taxpayer bailouts premature? Does this mean all those funds injected into the banks were wasted, if all they did was provide the banks with funds to write off more bad debt? And does it mean the taxpayers will be on the hook to pay all those bad debts -- with interest -- now that that debt has been transferred to the Federal balance sheet? Sure looks that way!
Tuesday, November 25, 2008
Cisco Systems, the bellweather technology company that overwhelmingly dominates its sector, has announced that it will temporarily close its shop for a few days at the end of the year to save money. I suppose this means that all its employees will lose their salaries during that period of time also. Wow, now that's an innovative approach to cost-cutting!
Despite the latest bailouts announced today by the U.S. Government, stocks have now slid into negative territory for the day. Over the past year, I have noticed that when government bailouts are announced, strong rallies have occurred. However, within 1-2 days, the markets reverse once again and move lower. This phenomenon appears to be manifesting itself once again today.
With almost daily announcements of new Federal bailouts and new additions to the national debt, the global financial markets are showing increasing concerns for the value and safety of the U.S. dollar. This chart shows that the rise of the Dollar has ended, and extreme stress is showing that the greenback may be on the edge of a new leg down. This should worry all Americans, because if it occurs, the prices of commodities will begin a fresh trend to the upside at the worst possible time for the economy.
A political analyst from Russia says that "The dollar is not secured by anything. The country's foreign debt has grown like an avalanche, even though in the early 1980s there was no debt. By 1998, when I first made my prediction, it had exceeded $2 trillion. Now it is more than 11 trillion. This is a pyramid that can only collapse." Igor Panarin also added that the U.S. economy "is already collapsing. Due to the financial crisis, three of the largest and oldest five banks on Wall Street have already ceased to exist, and two are barely surviving. Their losses are the biggest in history. Now what we will see is a change in the regulatory system on a global financial scale." Panarin also predicts that the United States will break up into 6 smaller countries and that Russia and China will emerge as the world's great powers, both economically and militarily.
As if the subprime mortgage market wasn't frightening enough, this morning Moody's has downgraded tranches of prime mortgage debt, based upon rising default rates. Prime mortgages are the ones that 90% of working Americans have securing their home loans. These are supposed to be the good loans! Moody's downgraded $10 trillion of prime mortgages from Aaa to Caa3 today because default rates have risen to 3%. This is surprising, especially in light of the fact that these tranches were created with the estimation that they would never rise to default rates above 1%.
Real estate prices declined during October by 16.6%, according to the latest figures from the Case-Shiller real estate index. Prices declined in all cities where prices were measured for the sixth consecutive month, and was a record decline for the history of the index. The picture above is worth a thousand words.
The Fed has announced this morning that they will begin buying even more toxic debt, including student loans, auto loans, and credit card debt. The Federal Reserve has now committed $800 billion more to the credit markets.
This can not end well, in my opinion. We should all prepare for chaos, and the time is coming that it will no longer be contained to Wall Street and the financial markets. The Mother of all Bubbles is going to blow up, and I believe it is going to happen sooner rather than later. Market mayhem is coming!
Here is the Bloomberg story.
In April this year, famed investor/commodity guru Jim Rogers accurately predicted that the U.S. Dollar would rise temporarily. Now, however, he is predicting that the greenback will be devalued as policymakers seek to weaken it to artificially make the U.S. more competitive. He says that the Dollar is "going to lose its status as the world's reserve currency,'' he told Bloomberg yesterday. "It will be devalued and it will go down a lot. These guys in Washington, they want to debase the currency.'' Rogers has a good track record with his predictions, and he puts his money where his mouth is.
Here is the Bloomberg story.
It now appears that in order to try to shore up the economy, the Federal government is now paying premium prices for toxic debt. Private investors that were willing to buy these troubled assets are withdrawing offers because the government is so willing to pay a higher-than-market price for the same debt in the hopes that they will increase in value sometime down the road. This is a fine prescription for saddling the American taxpayer with crushing debt and monstrous losses in the future as more and more of these instruments continue to lose value. The government is betting against private capital that they can make them increase in value despite the views to the contrary of the finest minds in private industry. This is risky at best because our government is betting that these bad loans have greater value than the price that private distressed debt experts believe they are worth. History suggests that the government will be wrong and that the American People will pay a much heavier price for the indulgent overconfidence of government beaurocrats. Not only is the government over-paying for this debt now, but the American People will pay for it again at some point in the future. So this is what the Plunge Protection Team really looks like?
Monday, November 24, 2008
From Bloomberg this evening:
"The U.S. government is prepared to provide more than $7.76 trillion on behalf of American taxpayers after guaranteeing $306 billion of Citigroup Inc. debt yesterday."
Here is the full Bloomberg story.
Now this is looking ugly! Are the chickens now beginning home to roost for profligate spending and irresponsible fiscal and monetary policy? As the Dollar drops, commodity prices (ie., inflation) will start to pick up steam again.
The financial markets appear to have been reasonably pleased today with President-Elect Barack Obama's performance in a news conference announcing his plans for economic stimulus and appointing his economic advisory team. He has passed his most important test thus far.
The Mother of all Bubbles is building. This bubble is the largest in human history, and when it pops, everyone will be affected. It will cause market mayhem and a run for the exists the likes of which has never been seen before. What is it?
"The American government bonds are the world’s last bubble and the price of commodities has to increase." Jim Rogers, famous investor and commodity guru
The Mother of All Bubbles is U.S. Government debt!
There is no such thing as bankruptcy for an entire country. There is no International Bankruptcy Court. Bankruptcy for a nation is done by monetizing the debt of that country. It is done by creating monstrous amounts of new money with the intent of inflating a nation's way out of a crisis. Sound familiar? It should! It has been done by other nations in the past, including the Roman Empire, the Weimar Republic, and in Zimbabwe today. We're in the early stages of that phenomenon now here in the United States. We have created the Mother of All Bubbles!
Food commodity prices have plunged 45-60% in the past six months. So why are food prices at the grocery store substantially higher than one year ago? Grain, dairy, meat and soft commodity prices are the lowest we have seen in two years, so why are prices at the grocery store still higher than one year ago? Gas prices have plunged over the past six months due to the lower crude oil price, but food prices have remained stubbornly high. Either wholesale food distributors are hanging onto the higher prices while their own costs drop, or the grocery store chains are gouging consumers to pad their pockets. One of these two groups -- or a combination of both -- is keeping the excess profits and taking advantage of consumers by not passing on the lower commodity prices to the people who buy their products.
While commodity prices have collapsed worldwide due to the economic weakness, gold prices over recent days have surged higher instead. Why? As the ultimate barometer of both economic uncertainty and inflation fears, the price of gold futures has surged in the past few trading sessions. What conclusions are we to draw from this? That with the Fed having incresed the money supply by 39% in 2008 alone, the financial markets are anticipating higher inflation ahead. However, I suspect that this higher inflation will likely occur only if the economy begins to rebound.
Sunday, November 23, 2008
"The U.S. government agreed to protect $306 billion of loans and securities on Citigroup Inc.‘s books against losses, as it seeks to shore up investor confidence in the bank."
(Citi was also given another $20 billion capital injection.)
Click here for the entire story.
Text from joint FDIC, Fed, Treasury statement.
One of the reasons that I have been transitioning toward longer-term trades is that liquidity in the futures markets has decreased by about 50% over the past 3-6 months. The Open Interest for crude oil has decreased by more than 50% in the past 4 months. The decrease in Open Interest for grains has been about 45% in the same period. As liquidity decreases and spreads widen, the only way to compensate, I believe, is to increase the length of time that a trade is open, permitting price trends to compensate for the decreased liquidity and widening spreads. I have also begun to concentrate more and more on futures with smaller margins.
From the Wall Street Journal:
"Since the end of the Cold War, the U.S. nuclear weapons program has suffered from neglect. Warheads are old. There's been no new warhead design since the 1980s, and the last time one was tested was 1992, when the U.S. unilaterally stopped testing. Gen. Chilton, who heads U.S. Strategic Command, has been sounding the alarm, as has Defense Secretary Robert Gates. So far few seem to be listening."
"The U.S. is alone among the five declared nuclear nations in not modernizing its arsenal. The U.K. and France are both doing so. Ditto China and Russia. "We're the only ones who aren't," Gen. Chilton says. Congress has refused to fund the Department of Energy's Reliable Replacement Warhead program beyond the concept stage and this year it cut funding even for that."
With the Democrats in control of Congress and a President-elect that has indicated that he wants to cut funding for defense, including the U.S. missile defense shield, what are the odds that the nation's nuclear deterrent will be kept viable over the next four years?
Read the rest here.
From Barrons today:
"IF THE FEDERAL RESERVE BANK WERE A COMMERCIAL LENDER, it would be a candidate for receivership, based on its capital ratios. Bank examiners generally view any lender with a ratio below 2% to be dangerously undercapitalized. The Fed's current capital ratio, or capital as a percentage of assets, is 1.9%.
The Fed has provided so many loans and emergency credits -- to banks, brokers, money funds and foreign countries -- that its balance sheet, viewed one way, is as leveraged as any hedge fund's: Its consolidated assets amount to 53 times capital."
Here is the full story (requries membership)