Bill Cara’s Blog for July 16, 2010 [See post-close report]

// http://digbysblog.blogspot.com/2010/07/ratigans-ri...

WOW! Dylan is toast. I can't for the life of me seeing him endure. But he is now my HERO, and hope that he can stay on the air. FAT Chance of that happening. Jeff must be hearing it over at GE from the boys at HB&B.

Our iFlow FX and bond indicators show the US dollar is the strongest net sold currency across developed markets, while there has been a pick-up in net inflows into US Treasuries – this is consistent with the greenback’s accelerated losses since the release of the FOMC meeting minutes on Wednesday afternoon and the sharp decline in US Treasury yields that has seen the 10-year dip back below 3.00%. As we pointed out in yesterday’s Asian Morning Briefing, the lowering of US growth forecasts for 2010 by Fed policymakers amid the spate of recent economic data showing slower activity, weaker price pressures, muted consumer spending, credit contraction and lingering high unemployment has led market participants to scale back expectations of any imminent removal of the extraordinarily easy monetary conditions presently in place. This weakening of the rate-support argument for the US dollar has been weighing on the currency of late. At the same time, risk appetite in general has been on a slightly higher level in recent weeks compared to earlier this year – as we have been pointing out, our iFlow indicators have shown portfolio managers continuing to deploy still excess cash levels into more productive assets in recent months, the most popular destinations being emerging market bonds and Asian equities. At the same time, the slew of positive surprises on recent bond auctions by Spain, Greece, Portugal et al has alleviated, to some extent for now, the doom and gloom surrounding the outlook for peripheral Eurozone debt markets. This has further reduced the demand for US dollars as a safe haven, and buoyed the Euro, as evidenced by our iFlow FX indicators showing strong and steady inflows into the single currency in the past two weeks that has taken EUR/USD to above 1.29 this morning from levels close to 1.22 just at the beginning of July. Elsewhere amongst G-10 currencies, we are also seeing net buying of the Swedish krona, Norwegian krone, Swiss franc, New Zealand dollar and Canadian dollar. Interestingly, the Australian dollar stands out as being net sold, likely due to its proximity and close links to China, where the latest economic data released overnight also suggest slower growth in 2010H2.

Bill, are you related?
http://www.bloomberg.com/news/2010-07-15/nokia-boa...

"greater than $600"

From Everbank's Daily Pfennig: . . . "did you know that in the Health Care Bill, there's a report at numismaster.com that says... starting on January 1st in 2012, U.S. federal law will require coin and bullion dealers to report to the Internal Revenue Service all gold and silver coin purchases and sales greater than $600. Apparently this little jewel was an add-on to the national health care legislation..."

It appears some legislators are looking to repeal this, but it can get lost in the shuffle.

I found this video as frustrating as O'Reilly, Beck or any others who never let a guest finish a sentence. I turned it off half way through the first try, but came back with gritted teeth to hear it all.

I have stopped viewing nearly all TV news and commentary, political or economic.

I'm in agreement with each of these guys on most of the issues, but...

They would do better to simply state their own views and forget about having anyone else (pro or con) on their shows.

I feel such ranting only weakens the case and bolsters the opposition.

State the case, support the points with reliable data sources, legal precedence and/or Constitutional backing and let the listener decide.

Seamus,

Sounds a lot like the push for gun owner registration.

We need a lobbyist group to match the NRA or it will be pretty easy to confiscate gold once again.

Different wrinkle, haven’t heard this one before.

FWIW, just an observation.

A realtor I know in a resort town reports losing a number of home sales recently. Many of these are second homes for well heeled individuals and couples.

Buyers and sellers had agreed upon a price, but the appraisals come in too low. And the deal fails.

Many banks are using outside appraisers as too cozy relationships in the past added to the housing bubble problem of recent years.

Yes, housing faces headwinds with unemployment, much needed tighter loan requirements, huge inventory, etc. etc.

But, is it possible this preventive measure can add to the delay of a small housing recovery?

BC - Brunswick initiated with a Neutral at Longbow (pre-open)

GILD - Gilead Downgraded to Market Perform from Outperform at Bernstein.
Bernstein downgraded Gilead citing lack of positive newsflow and potential risks from the IAS meeting in Vienna next week. Target to $42 from $59.

touch with over 350 spx co's to report next 2 weeks.

Catch of the Day posted early today per request of some room members, log will be added after trading day is over as always:

http://tradinglog.realitytrader.com/2010/07/july-1...

Just wondered how long it will be from the signing of the bill to when the new laws will actually be implemented. My guess is they will spin it out for as long as possible.

I see the gold move today as part of a general sigh of relief that the euro is not going to dissolve, and so the people in euro-land who bought gold as a fear impulse are dumping it now. This is my best guess anyway.

To me this is a little like the trough between two waves - between panic in euro-land, and panic about US money printing and/or sovereign debt issues, gold drops in the meantime because nobody is currently in panic mode.

Once QE2 starts up, we might see a bit more panic regarding the buck. And even before that, if treasuries start to drop seriously, we might see a pickup in gold as well.

One note on that from the TIC report today:

"China was a seller of U.S. Treasuries in May with their holding dipping $32.5 billion to $867.7 billion or 21.5 percent of all foreign holders. Japan sold $8.8 billion to bring their share down to 19.8%."

Of course I was expecting some serious bearish treasury action after the end of QE1 in April, but exactly the opposite occurred, so what do I know?

supposedly there's speculation that his fund is being forced to liquidate positions because of their massive holdings in BAC, C, and GLD, and this is adding to the pressure on gold:

"Buyers and sellers had agreed upon a price, but the appraisals come in too low. And the deal fails."

"Not too surprising — zillow.com gives estimates for property, but what I've seen is far too high and not close to what actual selling prices have been in my city."

And foreclosures are still on the rise. One of my neighbors quit making his mortgage payments back about January when his monthly payment went up over 30%. I don't know what kind of loan he had but he was clearly upside down. He finally just walked away from his home but his lender hasn't done much about it so people like me are stuck with mowing his lawn for the time being. What's amazing is that he was advised by his financial advisor to just leave the house behind and go buy another one. This is exactly what he did. He bought a bank repo in another neighborhood (using a family member's name) for a fraction of what he paid for the first home. I know this is likely a somewhat extreme case but this guy is not alone since a large number of "homeowners" are still making payments each month on homes that are worth much less than they originally paid for them. The housing problems in the United States will be around for many years.

"He finally just walked away from his home but his lender hasn't done much about it so people like me are stuck with mowing his lawn for the time being."

He probably should have sated there. Last year my next door neighbor's cousin stopped paying on her mortgage in Feb. and received a letter in July, but when had still not had any action instituted when my neighbor left town late last year.

I see this as something can honestly claim in his next TV bit — stabilization of both the housing market and the job market. No one can sell his house and therefore cannot move to where a job may be.

So much for his accomplishments — other than that everything he's done is downer.

Last night I saw (on the crawl) he was claiming the Financial Regulation Bill, "Will prevent the need to ever bail out the financials again." Today I read that Chris Dodd (one of the causes of the mess) said, "We won't know if the reform worked until the next crisis."

If they're going to try to snow us they should "organize their community" propaganda better.

I see that the Junior gold portofolio is up. Thank you Bill.

Seamus,

HVCC, the 2009 Home Valuation Code of Conduct was established to codify values down to a the conservative safety margin that will protect the agency, the lender (in a declining market) and the appraiser's license and relationship with the AMC (appraisal management company i.e., firewall). New wrinkles in the Financial Services bill will heap more limits on who can charge what and effectively kill any housing market steam. Who (and what) will be left?

Oil down 2.5%
Gold and silver stocks down 3%
Tech stocks down 4.5%
SPY down 3%

I have noticed most stocks trade in about a 20% range.
Generally speaking that range is declining with lower highs and lower lows.

Weather you are a bull or a bear there is weakness out there.
Beware!
Hope you are ok TOF
Time for some summer fun!

I'm not sure what this means, but I thought it was interesting.. VIX starts out at 25.77, all the way to a high of 28.16, and then within the last 30 minutes or so, VIX drops from 27.58 to 26.24 at close. This seems extremely unusual, but I don't know what this suggests for Monday...

"HVCC, the 2009 Home Valuation Code of Conduct was established to codify values down to a the conservative safety margin that will protect the agency, the lender (in a declining market) and the appraiser's license and relationship with the AMC (appraisal management company i.e., firewall). New wrinkles in the Financial Services bill will heap more limits on who can charge what and effectively kill any housing market steam. Who (and what) will be left?" - loannetter

All that just to stop the righteous mortgage broker from shopping the value and 'allow' the gullible borrower to leverage heavily into a grossly overbuilt, oversupplied, overpriced, and doomed housing market? Just wait for Congress to dissolve Fred and Fan. How will the community and regional banks cope without the specious standards of a secondary market dictating all those standards?! AMCs, HVCC, FIRREA, USPAP are all there in a feeble attempt to corral this free-for-all housing securitization mess. Just thinking that trillions of dollars lost and perhaps the game's up. The days of high volume fee-based churn of the average Joe's paycheck are over. Kaput. Done. No more. Joe lost his job.

The American Dream of home ownership will morph into a longing to live a credit free, debt free existence. Pandora's box is open. Consumption of crap - including cookie cutter McMansions in a bankrupt community with cardboard shingles, plastic siding, and CHINESE drywall - is over.

Cheers.

The attached table shows the weighting of the top 10 stocks on the Nasdaq 100, with AAPL having a weight of 20.1%, versus second place MSFT at 4.5%, even though their market caps are similar.

I remember in 2000, Nortel held 35% of the weight in the TSX - that did not end well.

http://www.zerohedge.com/article/apple-representin...

July 16 (Reuters) - - A measure of future U.S.
economic growth was unchanged in the latest week, a research
group said on Friday.
The Economic Cycle Research Institute, a New York-based
independent forecasting group, said its Weekly Leading Index
stood at 120.6 for the week ended July 9, unchanged from the
previous week, which was originally reported as 121.5. The index was last below 120.6 in the week of July 24,
2009, when it measured 120.3, according to ECRI. The index's annualized growth rate fell to minus 9.8
percent from minus 9.1 percent the previous week, originally
reported as minus 8.3 percent.

According to this Zero Hedge article, drawing on some David Rosenberg commentary, this pretty much assures that a double dip recession is underway.

http://www.zerohedge.com/article/ecri-plunges-98-r...

A hypothesis (from Greek) consists either of a suggested explanation for a phenomenon or of a reasoned proposal suggesting a possible correlation between multiple phenomena. The term derives from the Greek, hypotithenai meaning "to put under" or "to suppose."
The scientific method requires that one can test a scientific hypothesis. Scientists generally base such hypotheses ON PREVIOUS OBSERVATIONS OR ON EXTENSIONS OF SCIENTIFIC THEORIES. Even though the words "hypothesis" and "theory" are often used synonymously in common and informal usage, a scientific hypothesis is not the same as a scientific theory.
Now to the main story: http://bit.ly/9NdIyG

So for those who watch the VIX more closely than me, at end of day on opex does the VIX routinely just drop the way it did today? If this behavior is unusual, it may mean something...

EDIT: this got me curious as to how the VIX is calculated. Below is a link to a CBOE website that goes into a great deal of detail on the subject. Boiled down, it is based on aggregated prices ("option strips") of near term (30 days) options on the SPX, no more than 8 days prior to expiration - effectively there's a roll at T-8. As far as I can tell, there's no reason VIX should just fade at the end of day on opex. Here is a taste:

"The option strips whose prices are used to calculate VIX are portfolios of out-of-the-money SPX puts and calls, with moneyness referenced to the first strike K0 below the forward price F0 of the S&P 500. For example if the date-T1 forward price of the S&P 500 is 1011, and the date-T2 forward price is 1016, then the T1 (T2) strip contains puts at strikes at and below 1010 (1015) and calls at strikes at and above 1010 (1015). Each strip includes 2K/K2 calls or puts, where K is the average of the strike intervals adjacent to the strike K. The price of the option strip is adjusted to compensate for the difference between the forward price of the S&P 500 and a listed strike."

http://cfe.cboe.com/education/vixprimer/About.aspx

I concur, this is important. China's trade surplus is positive again, so theoretically they should be doing something with their dollars. Clearly they aren't buying treasuries. Perhaps buying euros at 119? Greek debt? (Yeah probably not)

http://ronsen.blogspot.com/2010/07/saturday-mornin...

- Monday's Trade Universe
- GLD
- EWZ at a critical juncture
- "It's coming"
- link to ZeroHedge credit summary

2nd,

glad to hear this approach works for you. Some comments:

The indexes have pretty much gone nowhere over the past nine sessions. Whereas trading small positions with (very) short time frames has netted an average of $300 a day

That's the idea of lowering a timeframe... absence of a trend on weekly doesn't mean there is no one on daily... or hourly, or minute. Market can open and close at the same number remaining useless for a swing trader, while making intraday roundtrip that a day trader can exploit.

...but I'm only risking 5-10k on each trade

Actually, you are not. Risk is not the whole amount of money deployed for a trade; it's amount of money you are setting as your max acceptable loss. That's the whole idea if risk/reward ratios.

... using only intuitive set-ups for now

Sorry... no such thing :) It's either intuitive entry (effectively, trading on what you think market is going to do, or setup - structured trade based on observable, studied and tested pattern. It includes certain elements (trigger, stop etc) and provides clear instructions what to do when, leaving little to no room for second-guessing or even thinking at all. All the thinking is done in advance while one is designing a trading approach; during action it's all about execution with discipline.

Appreciate the dozen or so 'opinionless trading' hints you've dropped my way over the years

You are very welcome. Again, glad it works for you. Simple change from "opinion" to "working assumption" in traders' terminology and approach would do a lot of good to their performance. Combatant confidence is proven wrong consistently; unsure ones allowing for multiple scenarios and staying flexible remain open-minded and able to follow the market clues.

SAFE buys Treasuries through banks based in London and Hong Kong. These won't show up as China's holdings.

ALOHA!!

I was out in the greenhouse this morning running the water and thinking ...

I can read all day about "stops" in trading. Both hard stops and mental ones. The idea is to preserve "wealth" so that you minimize overall risk and do not end up jumping off a bridge or moving to a homeless shelter because you lost everything. After all who wants to hold onto a "losing position" long term and suffer the mental anguish and torture as you watch your position drop to $0? But there were those who held ENRON to the very end and did not sell.

Yet where are these same "stops" in the voting booth?

"Why is Warren Buffet now touting books on past European monetary collapses?" - kaimu

Warren invests OPM via his truly massive insurance cash 'float' from General Re, the Central Bank of Insurance (reinsurance) with it flowing into Berkshire Hathaway. So, his investing acumen was impressive early but what gives him creed is the growth of money under management flowing from General Re. The sheer size of money under management gives him the ultimate insider's advantage like a Russian Oligarch. The Sage from Omaha works under different resources than you and me and therefore his advice should be taken with a grain of salt.

He's talking his book regarding 'When the Money Dies' and the euro because He wouldn't imply the USD was going down and knows if the euro goes, so goes the buck. He's heavily committed to U.S. assets.

The example of his silver dump illustrates he's only human ... even with insider info and questionable ethics. Once he got in bed with GS, it became obvious. He's quoted all over warning about those derivitives he owns. Heck, he separated from his wife and lived with his mistriss for decades until the wife died in California last year.

Hi Ross

Thanks for CORN, I have traded DBA, but not recently. I also am an old Don Coxe fan listening to his public broadcast site in the past. That URL stopped working for me in May, do you have a working URL (if it is a public or free site). Thanks.

Guest Post: The Dangers of a Failed Presidency
July 15th, 2010 by Michael Krieger
If moderation is a fault then indifference is a crime.

-Jack Kerouac
Virtue is persecuted more by the wicked than it is loved by the good.
-Buddha

Having fallen from the eternal, the Evil One’s desires are endless, insatiable. Having fallen from pure Being, he is driven by the desire to possess, to fill his emptiness. But the problem is insoluble, always. He is compelled to have and to hold, to possess and consume, and nothing else. All he takes, he destroys. Certainly he rules the material, as he is called the Prince of this World in the gospels – but only of the things of this world.
-Denis de Rougemont

edit:
sorry, that was not the dot com part, my bad.

Thanks Seamus,

Those grain ETF's , along with SGG and DBA, have taken off in July and I did not notice. Will be more alert now. I know about the volatility. My first loss as a young speculator was in commodities. That was 45 years ago. Have not been into them since. Its a different stage now with ETF's.

I live in central Illinois corn country and we had the wettest June on record. Newspaper report stated that it was bad for corn due to not laying down roots. July so far has dried up and is hotter the way corn likes it. Subject to change at any time. Heard on this blog that grain in Canada was also suffering from too much moisture.

VTRAF for US market.

http://www.screencast.com/users/Telestar3d/folders...

Have often enjoyed something similar in clear Missouri Ozark streams but in canoe. Great.

loannetter,

I'm envious. Before we changed our R&R location to Ocean City, MD, a large gang of friends used to do a 6 mile float down the Susquehanna River in upstate PA.

We had beer and food rafts among the many truck tubes in our army. Some of us would fish and we'd make a stop at a field that was rich with Indian arrowheads and artifacts.

I sure miss those days.

Best,
BH

I found this on another blog, but wanted to make sure i shared.

http://bit.ly/aYxFdG

Current market volatility, and more importantly, Friday's most recent price action in the S&P 500 is worrisome. The S&P 500 index, which closed at 1064.88 on Friday, was rejected early in the trading day at the 50 DMA (1090) as well as the downtrend line drawn from the April 2010 highs. What's worse is that this decline happened on stronger than normal volume.

Over the weekend, I've been reviewing charts from the 1929-1932 time frame and comparing them to the current situation. In particular, after the initial crash which occurred in the latter half of 1929, the DJIA then rose 48% in roughly 5 months.

But the head and shoulders pattern that formed after that is what has me on guard. You can go to Yahoo Finance and pull up a chart of the DJIA from that time period. Pay particular attention to the pattern that formed from February to late May of 1930 - a clear H&S pattern.

Now compare the current chart of the S&P or Nasdaq Composite to the 1930 chart and the similarities are eerie. This doesn't mean that the market will roll over and drop in a straight line from here; but caution is certainly in order.

Maintain tight stops on any long positions and use proper hedging instruments. Things could get dicey very soon.

Just one person's opinion, as always.

loannetter- Yeah, it sounds great. I'll have to try it.

"(good idea to ask a local if there are any waterfalls.)"

Applies as well to buy-and-hold'rs floating towards Retirement while watching 'the lengthening shadows.'

2nd_ave

The financials were particularly weak on Friday, and they will likely lead any further market decline. Look at the action on Friday in Bank of America [BAC], gapping down big on huge volume and closing at $13.98 (-9.16%). Citigroup [C], gapping down and closing at 3.90 (-6.25%). Wells Fargo [WFC] gapping down and closing at $26.24 [-5.65%].

Some of the major U.S. money center banks are insolvent, imo. They have hidden their losses and to this day have refused to come clean on the true status of their balance sheets. The gig will be up soon enough. You can only hide and paper over the losses for so long.

2nd,

"(b) If the average buy-and-hold investor was able to resist selling at SPX 667, it's potentially worrisome. As with Grym's references to his diehard retired banker buddy, it makes me wonder what would happen should we retest the lows and begin to break below 667? Would that be enough to break their tenacity and cause a true panic bottom- one that might lie far below the kinds of numbers we're mentally throwing out now? Crowd behavior can get pretty intense under true pressure."

I think I know my friend well enough after nearly forty years to say that nothing can make him change his formula.

He has been following the same "balanced portfolio" strategy so long it has become a religion to him. To change now would be heresy. Well, he has dabbled with a few thousand occasionally as a distraction or experiment, but 40% Vanguard Total Bond Fund and 60% Vanguard Total Stock Fund is/was/and will be for him. Vogle is his hero and guru. The 50% drop in the stock fund in 2009 bothered him, but didn't sway his resolve and the last year has reinforced it.

I think many other buy-and-holders were 401(k) people who had trusted their money to fund managers and no longer trust anyone. My guess is these people have mostly switched to fixed income whatever they have left, or have been using it to keep their homes and feed their families.

I believe the day to day market moves lately have been the big players and government shills. They may very well exit the U.S. markets rapidly.

Things look pretty scary to me and I own only one stock (less than 4% of my total — ETP). All else is in bond funds (which I will leave at first actual rate increase) or gold.

http://i30.tinypic.com/o5s6cx.jpg

These are somewhat the boundaries i am looking for prices to be contained in, or will use to get in and out of positions on breakdown or breakout.

Here is more on a central Illinois corn report: This afternoon I took a scenic road trip travelling about 25 miles north of Peoria along the Illinois River, then across and back down. The corn was tall except in the bottom lands where it looked stunted, probably a result of the fields being too wet to plant early on.

There is an old saying in the corn belt about how corn should be "knee high by the fourth of July". That measure was surpassed years ago with the introduction of intense fertilizer usage and hybrid seeds. The vast bottom land corn I saw was not even knee high, on July 18.

I drove through northern illinois about 3 weeks ago, from Elgin area up to Cheeseland / Kenosha, and was amazed at how good the corn looked up that neck of the woods!

an informed trader ! anyway, a good read as the ' fat fight ' continues ... http://seekingalpha.com/instablog/492120-joseph-kr...

Can I downgrade moodys?

"Moody's Downgrades Ireland to Aa2 from Aa1 Because of Loss of Financial Strength (story developing)"

Thanks Telestar.

Previously I did not know that the ground zero mosque opening is planned for 9/11/11 or that it will bear the symbolic name of Cordova after the Mosque built in Spain in the course of the Islamic invasion and conquest of that country starting in the 8th century A.D.

This is clearly something different than just the building of another mosque.

I have emailed this to friends and family and I suggest that others who regard this as offensive do so too.