Bill Cara’s Blog for June 15, 2010 [See post-close report]

vision of European analysts for Euro diverging from those of the politicians, and not for the better:

"Carlos Ocampa, Spain's treasury secretary, said smaller Spanish banks are struggling to roll over debts but denied that the country is seeking outside help. "The rumour is false," he said." (no such candor there :)

http://www.telegraph.co.uk/finance/financetopics/f...

bookmarked the TED spread for daily watch:

http://www.bloomberg.com/apps/cbuilder?ticker1=.TE...

Good morning.

AMZN - Amazon.com coverage transferred with a Buy at ThinkEquity. Target $154

CELG - Cowen upgraded Celgene to Neutral from Underperform. The firm cites improved fundamentals and valuation for the upgrade.

NE - Noble Corporation downgraded to Outperform from Strong Buy at CLSA. The firm cites the impact from the Gulf of Mexico disaster and lower sector multiples for the downgrade.

More details here.

http://bit.ly/cnIXt6

The price action seems at odds with opinion.
http://stockcharts.com/h-sc/ui?s=STD&p=D&b=5&g=0&i...

Questions:

If it took 32 years for us to see this video who has been hiding it?

What are the chances of anything being done with this technology?

My guess is we will see the Tucker and the dirigible come back first.

Thank you Bill for the link to thestar.com's article: it was priceless. Talk about the blind leading the blind. How can we ever expect capital markets to have transparency and no conflicts of interest when governments can't even coordinate discussions among themselves?

Do you think that BBY's lackluster numbers this morning are today's albatross?

"AUSTRALIANS are diving into negatively geared property even as the Reserve Bank signals that another interest rate rise could be only weeks away.

Figures from the Bureau of Statistics show that while lending to buy homes in which to live fell a seasonally adjusted 10 per cent in the first four months of the year, lending to property investors rose 11 per cent. In the past year lending to investors rose 30 per cent nationwide, and 20 per cent in NSW."

http://www.smh.com.au/business/investors-ignore-si...

real house owners are calling "time out". Can't end well this...

C, F, BAC and GE at the top.

http://tinyurl.com/39k9zvq

To my amazement, level-headed, fairly informed and unbiased piece. First time I see that when it comes to reporting on what HFT is, how it came to be and how it works. Thanks for posting.

1120 looks like crossing the atlantic in a canoe today ......
1140?

From James Turk over at Kitco ...

http://www.kitco.com/ind/Turk/turk_jun142010.html

Either the Fed uses Quantitative Easing to infinity as Sinclair says or it's all going down in an flash. To maintain political power, my bet is more QE at least until the midterm election and likely beyond that point to avoid default on all levels of gov't.

Above and beyond the QE, the impetus for a big crash will be the inevitable failure of the euro. Without the euro in the mirror, the dollar will fold. Sinclair points out that this will be a currency event. Get your popcorn. That's my thesis and I'm stickin' to it.

Perhaps this dovetails with Bill's near term views regarding a pullback in the S&P unless Bernanke announces another hideous bailout for someone other than myself, not that I'm asking for one as a business owner for the past 20 years.

Cheers.

in APRIL AND MAY (not even now, so let's guess how much it has increased?) and amounts that are disproportionate to its size:

http://www.ft.com/cms/s/0/7b57f290-78a5-11df-a312-...

My guess is that the ECB doesn't have enough money to plug all the leaks if, and as it probably will, continues.

While discussing market turning up during nothing but bad news:

[13:45] {Threei} My problem with all this stuff is,
we are getting enormous amount of news developments of mind-boggling scale.
Look at this situation from the point of view of charts/news:
we retreated a bit from the top,
not very much, but considerable
and at this period we got:
- biggest enironmental disaster with consequences yet to be estimated
- real perspective of whole continent's union collapse
all this within what, two months?
Such thing as volcano cutting the continent off the rest of the world actually became merely a blip on a radar!
So, here is what I am afraid might be happening:
the speed and scope of these developments exceeds the ability of market participants to grasp the events, thus, we get some sloppy and hard-to-read reactions presently - with real reaction being delayed.
[13:50] {Threei} The danger for us is (if this indeed the case):
we can take muted reaction as dismissal of a bad news
and get overly bullish
while real reaction is yet to come.
Trader's traditional read is, go long when bad news is dismissed,
and that might turn to be a big mistake if this theory of mine turns true.
Just a theory... don't take it as a gospel, rather as a warning of possible unexpected turn.

I don't know TOF... rationalization of holding onto losing position is a very slippery slope. We like to think that we can analyze it all and predict what happens next...

My take on the present moment is a bit different. It's as follows:

- Technical invalidation of the short position took place;
- technical upturn is almost complete;
- considering my musings one post earlier, I will be more reserved on a long side than I would have been under "normal" conditions (whatever normal is these days), and will be more careful and ready to retreat if anything goes sour;
- I also allow for a "not here nor there" scenario where the market just spikes up and down aimlessly for a while, not making up its mind, digesting this enormous influx of large scale news in a very short time.

If you consider all above a fancy way to say "I have no faintest idea", you will be not far from truth :)

Vad - holding a losing position that is only down about 5% isn't that big of a deal to me, especially in light of the fact that it is 70% of my portfolio and the remaining 30% is up about 9% since I went long. My time horizon is typically significantly longer than yours because I don't have the time/success rate for/on shorter trades. I also have a clearly defined stop out position based on the losses I want to take and as you said, the technical upturn seems to be almost complete.

In general, I have done much better taking a longer term view than minutes on my trades. I can't time the market and don't want to get into the danger of assuming I can. As Bill pointed out a few days ago, it all comes down to time period you're looking at.

I'm going to call the move in gold today a bearish divergence. When gold goes up regardless of the move in the euro, it makes me suspicious. I'm not quite sure what it means, but I'm thinking its not bullish for equities. It certainly makes me nervous going long.

hi bill

just want to say hello. As times get crazier, you are my thermometer for reality.

i appreciate your concern and care. I also appreciate all the comments from the community here.

I am watching but not saying much except "Thank You So Much"

vb

Grym, as further proof that oddities persist, I was passed by an Edsel on the road today! Looked pretty cool. Ironic that the likes of Jack Nicholson and Kevin Costner are coming to the aid of the environment by putting their money into new technolgies for a cleaner world, while the 'experts' say it can't be done. HA!

baz22,

After all --our National Security officials are such good stewards of our resources, our environment and our ports. HA!!!!

To those interested in economic issues facing China, I recommend a June 15, 2010 article by Michael Pettis
http://tinyurl.com/2cjnhqh it will take more or less 15 minutes to read. The subject is "China: Where's the inflation" and mentions "...University of Chicago economist, Robert Aliber, came to speak at my central banking seminar at the Guanghua School of Peking University. In a fascinating discussion he explained that in fact there was another possible resolution of the imbalances caused by relatively rapid productivity growth in the tradable goods sector."

Introducing me to the term, "financial repression" - "He pointed out that if the nominal exchange rate is not allowed to rise, policymakers can still contain inflation by what economists call financial repression"

He makes this startling (to me) statement within the article "I expect that Chinese net exports will continue very strong this year, perhaps even taking into account the effect of the European crisis, which should be excluded from the number. And of course I expect US net imports, and with it US unemployment, will surge to politically unacceptable levels throughout this year and next, thanks in large part (to) the European crisis and the unwillingness of anyone else to absorb it."

and in closing states "China is faced with a difficult policy choice. It can maintain an undervalued exchange rate, it can run the risk of inflation, or it can increase the domestic costs of financial repression. How Beijing balances these separate forces will determine the pace and form of its necessary rebalancing."

As if you didn't know. Mortgage Brokers are faced with the specter of limits to our income at the hands of congress. What a shock. How come nobody limits what your Realtor or your Bank CEO or Financial Advisors can charge? I balk when Realtors suggest 'the seller pays my fee' as if it has nothing to do with the buyer's PRICE!

If the Financial Services Bill passes it's congressional mashup our fee will be limited to 3% total and that includes your underwriting, processing and escrow costs required to be paid out of that percentage. Nevermind your broker can get you a lower rate than your bank (who can hide their fees in their higher rate). Nevermind you could choose to pay me a higher fee to lower your rate or pay your costs. We will be limited to 3 points no matter the size of the loan so the net effect will be nobody will fund smaller loans or FHA loans (1% cap) or others like VA (2% cap) that require your kindly broker pay even more of your third party costs out of our broker fee.

Now if 3% sounds like a lot to you, figure that your 2005 loan was about 10 pages and no work at all to close in 15 days. These days most loan applications top 60 pages, have multiple underwriting and appraisal reviews (pointed discussions!) and take 45 days to close at minimum. About 25% of loans we work on for months don't close...unheard of a few years ago.

Hence the rise of the Mortgage Banker. I have funded most my recent loans to our direct lenders recently as a test and yes, it's easier to underwrite and have your secondary market manager secure the funds just like the banks do with less disclosure required. Why? Because it's 'the lender's money' for the milisecond it passes though our hands on the way to your final lender. Current legislation is driving most brokers right out of business. Added to the fact that FHA's asset tests are forcing mom and pops out of the game. You wanted more choice? Forget it. Lenders are becoming more vanilla and homogenous everyday. Nobody will stick their neck out and solve your problem or fund your interesting little building project. I predict a rise of new portfolio investors getting out of this crazy market. Call me if you are interested!!!

daily says short squeeze to me, coinciding with bounce in the Euro.

"Spain plays high-stakes poker game with Germany as borrowing costs surge"

An auction of Spanish debt yesterday underlined how fast the situation is deteriorating. Yields on one-year debt reached 2.45pc compared to 0.9pc as recently as April, suggesting that the markets do not view the EU's €750bn rescue shield as credible.

Francisco Gonzalez, chairman of BBVA, stunned investors earlier this week by admitting that "the majority of the Spanish companies and financial groups are shut out of the international capital markets".

He said the country's external debt had reached €1.5 trillion or 147pc of GDP, much of it on short-term maturities. "This debt has become our most overwhelming problem, since €600bn falls due this year," he said.

http://www.telegraph.co.uk/finance/financetopics/f...

ALOHA!!

Is this America's version of a Greek tragedy?

The First Meeting of the Fiscal Commission

On Tuesday, April 27, 2010, the President’s Bipartisan Fiscal Commission held its first meeting.

LINK: http://www.fiscalcommission.gov/meetings/

It is interesting to hear Bernanke testify in the first ever meeting video around the 3:45 minute mark that the Healthcare costs are rising rapidly and have been for many years yet he offers no real reasons why such prices rise, especially now that we are in deflation mode here in the Great Depression #2 and as he says many times in his FOMC Meeting Minutes that "inflation is well contained with domestic prices stabilized".

Also notice that all testimony from the CBO on the new Obama Healthcare say the costs to implement the system will rise significantly for participants and businesses. Hummmm, I thought the idea was to cut healthcare costs ... Hello!!! One out of every 7 Americans can't afford food, so why would they buy healthcare insurance instead?

No mention of paying down the principle on the debt, just reducing annual deficits ...

The Social Security Act was signed by FDR in 1935. The first monthly check was issued in 1940. Of course ever since Social Security has been a huge political sacred cow, especially among the AARP members.

ITS NOT A LIABILITY
In July 2008 the Office of the Chief Actuary of the Social Security Administration calculated an unfunded obligation of $13.6 trillion for the Social Security program.

In the Actuarial Note explaining the calculation, the Office of the Chief Actuary wrote that "The term obligation is used in lieu of the term liability, because liability generally indicates a contractual obligation (as in the case of private pensions and insurance) that cannot be altered by the plan sponsor without the agreement of the plan participants."

ITS NOT AN INSURANCE POLICY
It has been the choice of the US Congress to call Social Security a "social insurance" program. I disagree since I have never seen any "insurance" whereby you can claim benefits without ever having paid in any premiums. This is the case when family members move to the USA from foreign countries. Also insurance usually has a limit to benefits. Social Security benefits are limitless, whereby you could collect much more than you ever paid in so long as you live a long life. Social Security to me resembles no insurance policy I have ever seen.

FUTURE VISIONS
I believe we will start to see the US Government renege on both Social Security and Medicare within the next five years. I believe the new Universal Healthcare will renege on Medicare and I believe this Fiscal Commission will recommend reneging on Social Security. Not so much in the sense of just announcing "HEY NO MORE CHECKS!", but in the sense of less and less benefits and care offered while taxation on benefits increases and COLA adjustments disappear.

RADICAL TAX REFORM
Some of the tax reforms proposed in the First Meeting video are the following:
-Eliminate all deductions except those for low incomes, so no more homeowners deductions.
-Raise tax rates by 25%.
-Create only two tax brackets.
-CBO says tax revenues must be 18% of GDP while spending must be limited to two percentage points above revenues in the long run.

There was also mention of cutting government spending and a one word mention of DEFENSE, but no elaborate details were offered except for the ideas of cutting Social Security, Medicare and raising taxes. No real details in terms of cutting government agencies and reps. I have the proposal to eliminate all but four members of Congress and rename their districts ... North South East and West. Hows that for cost cutting?

I still come back to my original reason why I moved out of California and it is mostly tied to taxation. If raising taxes was a good idea then California would now be solvent and in no need of a bailout.

It is amazing that this Fiscal Commission even exists, since the US government and its debt has not been a "clear and sustainable path" since 1835. Wait a minute didn't all these career politicians sitting on this Commission spend us into this mess in the first place? These are the original PROMISE MAKERS ... Who are these guys trying to fool? It is also amazing that this Fiscal Commission is created right before the November elections. Color me "suspicious"! These kinds of tough "fiscal talks" have been going for more than 30 years now. Why talk?

I urge every one here to watch the First Meeting video to get a feel for what our elected leaders have in store for us all. All I can say is you get what you vote for! In one word ... FAILURE!

ALOHA!!

The USA is number one!! More proof that higher taxes does not work!

U.S. Soon Could Be Number 1 in Corporate Taxes

by Scott A. Hodge

It is well known that the U.S. has the second highest corporate income tax among the major industrialized countries at more than 39 percent when the federal and average state rates are combined. Only Japan has a higher overall rate at nearly 40 percent.

That soon could change. Reuters is reporting that Japan's ruling Democratic Party will include a corporate rate cut in its platform for the upcoming upper house elections.

According to Reuters, "New Prime Minister Naoto Kan is expected to announce next week the party's pledges, which will also include steps such as consumption tax reforms...The corporate tax cut will be the key pillar of the party's growth strategy but the Democrats are not expected to state the exact figure of the planned reduction."

Should Japan cut its corporate income tax rate, the U.S. would find itself with the highest corporate tax rate in the industrialized world. The U.S. would also stand alone as one of the last remaining OECD nations to impose a world-wide tax system on corporate profits. Last year, both Japan and the United Kingdom took steps to exempt foreign earned profits from domestic taxation in order to stem the flight of capital out of their respective nations.END