Bill Cara's Blog for Dec 8, 2011

Accumulation Zone: Monthly 8, Weekly 1, Daily 0
Distribution Zone: Monthly 7, Weekly 1, Daily 20

ECB INTEREST RATE DECISION
Actual: 1.00% Cons.: 1.25% Previous: 1.25%

http://www.fx360.com/calendar/

A few sessions ago I noted the double bounce in weekly time frames of a number of banks and XLF. Take a look at JPM in monthly. Third positive stochastics crossover about to take place in as many years.

Note support at 61.8% fib retracement of the 02-08 rally. A very clear downtrend line of resistance about to be broken if equities resolves themselves to the upside in the coming sessions.

Breathe in, breath out...

JMO

First, to conduct two longer-term refinancing operations (LTROs) with a maturity of 36 months and the option of early repayment after one year. The operations will be conducted as fixed rate tender procedures with full allotment. The rate in these operations will be fixed at the average rate of the main refinancing operations over the life of the respective operation. Interest will be paid when the respective operation matures. The first operation will be allotted on 21 December 2011 and will replace the 12-month LTRO announced on 6 October 2011.

Second, to increase collateral availability by reducing the rating threshold for certain asset-backed securities (ABS). In addition to the ABS that are already eligible for Eurosystem operations, ABS having a second best rating of at least “single A” in the Eurosystem harmonised credit scale at issuance, and at all times subsequently, and the underlying assets of which comprise residential mortgages and loans to small and medium-sized enterprises, will be eligible for use as collateral in Eurosystem credit operations.

Moreover, national central banks will be allowed, as a temporary solution, to accept as collateral additional performing credit claims (namely bank loans) that satisfy specific eligibility criteria. The responsibility entailed in the acceptance of such credit claims will be borne by the national central bank authorising their use. These measures will take effect as soon as the relevant legal acts have been published.

Third, to reduce the reserve ratio, which is currently 2%, to 1%. This will free up collateral and support money market activity. As a consequence of the full allotment policy applied in the ECB’s main refinancing operations and the way banks are using this option, the system of reserve requirements is not needed to the same extent as under normal circumstances to steer money market conditions. This measure will take effect as of the maintenance period starting on 18 January 2012.

http://www.ecb.int/press/pressconf/2011/html/is111...

"LOL I don't have 25k and can't daytrade, yet this fool can steal hundreds of millions, deal in billions without a license, and get off scot-free."

I share your outrage, along with others, about Corzine. However, it's not a given he will "get off scot-free."

Most crimes are here's the crime (be it robbery, assault, theft), who did it?

In fraud, it's a little different.

It's more like here's the body, where's the crime?

An investigation will have to unravel the evidence of what happened, where's the money, etc. It takes more time to put the blocks in place to build a criminal financial fraud case.

The media can put out all types of information about missing money, alleged statements and even write opinions without concerrn of putting it all together in a legal criminal prosecution requiring subpoenas, interviews and a trail of digital evidence and document review.

Don't get me wrong, I'd like to see him sent off to prison now. Maybe "tar and feathers" is more approriate.

We'll see how it turns out, but unfortunately, we'll have to wait.

the too much debt malady please?

in US dollar and bonds. They didn't confirm the spike in $SPX in the last weak.

Thanks!
I see you have everything covered.

is the golden arches.

MCD (McDonalds) up because of performance or flight to safety?

Good chart and keen observations Les. Thank you. Looks like JPM did a lot of breathing out 2000- 2003 and again in 2005.
Will low Stoch stay low, go up or bob for apples?

Would it be better the government continue to stick their nose in the economy and spend money they don't have? They should have cut spending a long time ago, however if they choose to continue to pump money into the economy, money that's part of other countries wallets which have now closed, no solution would be found. Its the first step, to stop spending, in order to stop accumulating debt.

I just hope the United States stops spendings, their debt is getting way too high. At least its not too late for them, yet. Obama is the wrong leader for their time, they need a Republican who would encourage business investment, not government spending.

You are going into politics. I am trying to explain how the best, and yes obvious, first step is for Europe to stop government spending. I think we all know the past U.S. republic presidents were incompetent to say the least. Do you expect a democrat to stay out of the economy and lower government spending?

"Would it be better the government continue to stick their nose in the economy and spend money they don't have? "

Did I imply it would be better, in any way, shape or form? I thought I was advocating just the opposite for years here.

The new fiscal structure and discipline needed to save the Euro and the
sovereigns is facing an inherent conflict. How do you assure that the profligate members live up to the budget guidelines? Will the German-inspired committee in Brussels “propose” that they make corrections or will they “impose” new guidelines or restrictions?

This presents enormous problems and dims the chance for referenda necessary for treaty changes that are needed. These concerns are ingrained and historic as noted in a Bloomberg review.

In 1989, France’s Francois Mitterrand and Britain’s Margaret Thatcher maneuvered to block German reunification. Their concerns that the expanded nation would prove an irresistible force are now coming to pass.

As Europe’s financial crisis intensifies after two years and with 1.1 trillion euros ($1.5 trillion) of short- and longterm euro-area government debt due in 2012, German Chancellor Angela Merkel has forced French President Nicolas Sarkozy into retreat and left U.K. Premier David Cameron on the sidelines.

Berlin’s dominance has shaken the Franco-German equilibrium at the heart of the post-World War II balance of power. Debt contagion and slumping growth have driven French borrowing costs to a euro-era record against Germany. The result may be a remade political map with even Poland, invaded by Adolf Hitler in 1939, calling for a stronger German role.

“We are an unwilling leader,” Wolfgang Ischinger, a former German ambassador to Britain and the U.S. and now chairman of the Munich Security Conference, said in an interview. “We have been trying for 50 years not to lead. Germany will have to grow up now. It’s new and there will be a learning curve and mistakes will be made.”

Merkel is heading into a European Union summit starting tonight in Brussels with a debt-crisis blueprint that emphasizes German priorities of more forceful policing of budgets and moves toward a fiscal union with a minimal role for the European Central Bank. Sarkozy backed it and won concessions to water down some German demands, while giving up France’s aim to bring the ECB to the forefront of the fight.

It is hard to see how this will come together.

Hat tip: Cashin

PS: Kyle thanks

Bill writes: "Eighteen months later, the most popular US Treasury Bond for traders, the 20-year TLT, had soared +49% while the S&P 500 benchmark equity index had plunged -41%. I refer to these results as ‘proof of concept’."

"My subsequent Trade of the Century call was only half right. Gold did soar but Bonds did not fall (yet). The issue I failed to recognize for a while was that central banks decided to take control of the credit markets (mortgages and bonds), by driving down interest rates to unsustainable levels. That game is over. Central banks can no longer buy all the sovereign debt being issued by governments that no longer have the capacity to service it."

"What will happen now is a reversal. In 2012-2013, Bond prices will fall and yields will rise in order to attract the private sector to assume their traditional role as risk taker. Gold prices will rise further."

"I see this as a good thing; however, the process will be a difficult one for the banks and others that are holding bonds."
_________________________________________________________________________

Like many others I have been watching the TLT intently and agree that there is only so far the bond bubble can be inflated. The chart likewise looks a bit parabolic (but has come down a hair off of $125) and these things never end well. My question is, how to time it and what possible issues could get in the way or delay the TOG.

Recently, it has been the flight to safety from Euro problems that has held up the TLT and $USD. What else could obstruct the trade?

Would the USD and TLT be a flight to safety if China were to become Europe with 1.3 billion flies in the ointment?

China worries me.

http://www.businessinsider.com/chanos-crash-timing...

http://the-diplomat.com/2011/12/08/if-china%E2%80%...

http://the-diplomat.com/2011/08/09/the-danger-to-c...

http://the-diplomat.com/2011/07/05/china%E2%80%99s...

Edit: It could be, that if China has issues, being one of our financiers, that we have trouble locating buyers for T's/Bonds, etc and that China's issues drive our yields higher. But initially I think there would be a flight to safety somewhere. Perhaps PM's/oil/durable vital commodities would at last be the final refuge.

Ilya said "The slowdown in China and its impact on their biggest trading partner, Japan will no doubt mark the values of commodities two or three rungs lower."

These names:

ANR
PCX
JRCC
BTU

have been decimated and many were/are hedge fund favorites. With the statement above in mind and China's large buildout of coal power plants along with the US's demand for coal to produce power; is all the bad news baked in?

Toughts anyone?

I cannot wait for Mr. Corzine, based on what I heard so far it seems incomprehensible that fraud did not occur.

The only comparison I can make in my lifetime was Nixon and price controls, but that did nothing to control costs. We still had increasing inflation and competition between government and the private sector for limited resources, which drove yields higher and higher.

So in time of crisis I expect there to be a flight to safety, but when the dust settles the overlying problem of too much government and private debt drives the demand for capital and yields higher. They can nationalize a lot of things but what do they do about the demand for capital? It's already 'nationalized' (currency) and at some point they will have to do something to fight the resulting inflation, so they are stuck between a rock and a hard place.

BTW, the ratio of men to women in China is something like 121 to 100. I suggest Chinese men find a dance partner and a couple of chairs before the music stops.

ALOHA!!

Now the share price of Silver Lake Res-SLR:ASX has exceeded that of UXG.TO and is closing in on RMX.TO and in fact there was major divergence on July 1st this year when both UXG and RMX broke support while SLR moved past resistance and to date has kept hitting new all time highs consistently since.

The facts speak for themselves ... Use any time frame you want in the chart up to 5Y and you can see that ROB POWER has underperformed.

I have made this point before that UXG isn't even close to a mine yet while SLR has four with two production centers. SLR has cash flow while neither UXG or RMX have earnings. UXG still has "burn rate" after how many years now drilling and drilling? Is it six years now? That means more future funding, dilution and forward sales. Out of all the Canadian institutionals only Sprott Asset has ventured into the ASX and hitched his wagon to SLR and even that was way after I presented on SLR back in 2009 at the CTA Nassau Conference.

LINK: http://tinyurl.com/7qgywjb

Using GLD as a proxy for gold and FCX ...
LINK: http://tinyurl.com/6rzuyjb

Only GLD is in positive territory ...

With the new Hollanaire copper discover with assays of 8%-45% copper it will not matter what the price of copper and gold does. I am not going to count my chooks before they are hatched on Hollandaire, but a seasoned and very successful management team from WMC and the BHP Biliton deal are moving ahead with the Hollandaire discovery so that says a lot coming from those guys.

Some companies and deposits are so rich that they seem to defy the effects of short term future fluctuations and machinations. Assets is what assets does!

Out of all my ASX holdings this one is my largest.

"the ratio of men to women in China is something like 121 to 100. I suggest Chinese men find a dance partner and a couple of chairs before the music stops."

We all laugh about these ratios in China & India, but they are hardly trivial in reality. The point being that these Asian economies MUST sustain hyper-growth, given the number of un-married men between the ages of 20-40. When that growth inevitably slows, you will have an angry, male, disenfranchised populace. That's never a good thing. Many of the disenfranchised males end up in the military, which is often the employer of last resort when one must feed and house oneself.

The lack of equal rights for women in the emerging world is a big issue. As these economies succumb to Western influence in order to compete globally, the role of women must correspondingly increase in order to ensure full participation. Talk about social equity...

Going back into my hole now. Peace & Happy Holidays to you & yours, Craig.

Watching Mr. Corzine's testimony on CNBC.com...

I do believe the world just witnessed Mr. Corzine admit to breaking the Sarbanes-Oxley law. As CEO, the law requires him to have effective risk controls in place and to monitor compliance. He just admitted to having zero knowledge.

In the now famous words of the great governor of Texas, Rick Perry, ... Oops.

the 200 day moving avg is acting as resistance for now.

http://www.hawaiinewsnow.com/story/16213427/watch-...

Your dollars in action.

http://bit.ly/vEGtWR

since then indices created new lows despite a small euro bounce.

worst case scenario if you ask me for increasing prices. if the Euro falls out of bed again, the down hill slide will accelerate.

laughable.

i should be ceo somewhere.

"I dont know much, but i know i didnt do anything knowingly against the law"

"I only know what is prepared for me to read"

that about sums his position. booyah

(EU) EU Summit Draft: EU leaders determined to preserve integrity of the union; Moving forward toward "new fiscal compact"; Possibility of shift toward common eurozone debt issuance in LONG term should be considered
- Confirms to bring forward introduction of permanent ESM mechanism to Jul 2012; Existing EFSF fund to remain active until mid-2013.
- Permanent stability mechanism (ESM) to have maximum lending capacity of €500B.
- Determined to bolster bailout mechanisms to address debt crisis challenges.
- Evaluating new rule to make sure that budget deficits will not go above 0.5%/GDP.
- Sanctions to be imposed automatically on violators unless opposed by qualified majority vote.

(GE) GErmany said to have rejected measure to provide the ESM with a banking license

http://www.conference-board.org/press/pressdetail....

did we witness a head fake today? Dunno...

I am getting better at not caring if it was headfake or not. whether the indices go up or down i dont care much anymore. i just want to squeeze my share of the juice from the fruit and go about my life.

1. season low in indices between the window of Dec 8-14. going back to 1950.

2. greece debt tranches of several billion begin to mature Dec 13-30.

Gold: Not touching it now. not until euro news is done and attention to USD returns. But 150 day moving avg has been tested and held too many times to annotate. I would prob buy on bounces off the 150 ma.
http://bit.ly/tOIPTA

AAPL: this is one of the last soldiers for the bull side. 200 day moving avg held. once you see that break, its prob already too late.
http://bit.ly/vP9gcT

good luck.

Hi All - For us long types it was not too much fun. Staying with the theme if the Euro goes to pot like POT did today - this is not the end of the world for my commodity heavy leanings. Heck; I even got some nice vibes from GRR, with RGX hanging in there. Happy Trading

From 24/7 Wall Street:

Shale Gas Industry to Support 870,000 Jobs by 2015
Posted: December 6, 2011 at 6:29 am

http://247wallst.com/2011/12/06/shale-gas-industry...

"The shale oil industry, still in it infancy, has created hundreds of thousand of jobs, and it will support 870,000 by 2015. That would make the sector one of the larger employers in the nation. It also would change the employment landscape in the energy industry, unexpectedly."

Globalisation has turned on its Western creators

From the Occupy Wall Street and Tea Party movements of the US to the rise of populist politics in Europe, the globalisation backlash is everywhere.

http://www.telegraph.co.uk/finance/comment/jeremy-...

By Jeremy Warner, Telegraph.UK

"A number of years ago, a story went around that sprouts were being transported from across Britain to an East Anglian airport, from where they were sent to Poland for washing and packaging before being air-freighted back again for sale in supermarkets located but a few miles from where they were grown.

"This is an extreme example of the sometimes insane supply-chain dynamics of modern-day globalisation, but it speaks loudly to widespread disillusionment with the once-unquestioned blessings of "free trade". From the Occupy Wall Street and Tea Party movements of the US to the renewed rise of populist politics in Europe, the backlash is everywhere to be seen.

"In real terms, Americans are on average no better off than they were 30 years ago; in Britain, the Institute for Fiscal Studies says that our real disposable incomes are in the midst of a 14-year freeze. Vast tracts of gainful employment in textiles, potteries, shoe-making, machine tools and many other industries have disappeared, to be replaced by… well, not very much at all outside the now languishing financial services industry and the housing market."

With statements like this I am surprised SLR has not gone much much higher... maybe tones in Australian means grams or ounces? This is not the only place this is written this way. Perhaps it means tonnes of ore?

Surprising since 165,000 tonnes have been mined in total in our history!
http://en.wikipedia.org/wiki/Gold

http://www.google.com/finance?cid=720477
During the fiscal year ended June 30, 2010 (fiscal 2010), the Company’s Daisy Milano and Daisy East mines produced 225,117 tones of gold. During fiscal 2010, the stage 1 of the Christmas Flat Project was completed producing 114,799 tones of gold.

On their website they measure it as tonnes of ore...
168,077 tonnes were milled during the period at 5.5 g/t Au for 28,242 ounces recovered
http://www.silverlakeresources.com.au/files/files/... see page 7

Leaders of the European Union’s 27 countries failed to agree to change the EU’s treaties in order to impose tighter fiscal rules on the eurozone and instead chose to create a new intergovernmental treaty which will probably have less teeth and be negotiated only among 23 members.

...Still, without agreement among all 27 countries, it remained unclear how the new fiscal rules the summit leaders promised to follow would be enforced. EU institutions – most importantly, the European Commission, which oversees and passes judgment on such rules in Brussels – legally cannot have a formal role in any agreement outside the EU treaties.

José Manuel Barroso, the Commission president, said he believed there were ways to work around such legal prohibitions...

http://www.ft.com/intl/cms/s/0/0da05152-2222-11e1-...

LOL bless Barroso for trying. Seems the UK was the stumbling block, seeking exemptions for London's financial sector. In the end they came up with nothing of substance.

Now let's see how the market reacts to this piece of news

Too extensive to repeat in full here is Brandt's continued digging into MF Global's misappropriation of client funds.

http://peterlbrandt.com/mf-global-%E2%80%93-the-co...

How are you affected by rehypothication?:

By way of background, hypothecation is when a borrower pledges collateral to secure a debt. The borrower retains ownership of the collateral but is “hypothetically” controlled by the creditor, who has a right to seize possession if the borrower defaults.

Under the U.S. Federal Reserve Board’s Regulation T and SEC Rule 15c3-3, a prime broker may re-hypothecate assets to the value of 140% of the client’s liability to the prime broker. For example, assume a customer has deposited $500 in securities and has a debt deficit of $200, resulting in net equity of $300. The broker-dealer can re-hypothecate up to $280 (140 per cent. x $200) of these assets.

But in the UK, there is absolutely no statutory limit on the amount that can be re-hypothecated. In fact, brokers are free to re-hypothecate all and even more than the assets deposited by clients. Instead it is up to clients to negotiate a limit or prohibition on re-hypothecation. On the above example a UK broker could, and frequently would, re-hypothecate 100% of the pledged securities ($500).

Keen to get in on the action,U.S.prime brokers have been making judicious use of European subsidiaries. Because re-hypothecation is so profitable for prime brokers, many prime brokerage agreements provide for aU.S.client’s assets to be transferred to the prime broker’s UK subsidiary to circumvent U.S. rehypothecation rules.

One Wall St contact of Brandt's writes:

Rehypothication is the 800lb gorilla. In 2007 I was with another fund that was the first 2.5bln casualty of the leveraged ponzi, dealers use your collateral for there own purposes then refuse to offer you liquidity on the collapse of the trade because they won’t face a brokerage counterparty as it was in 2008 or won’t face a yankee bank as is the case now. Counterparty exposure is about to blow the doors off of liquidity, CVA desks already massively flattening curves, only a matter of time before they start forcing desks to not accept certain counterparty names on novation. Good times.

Rhetorical question for investors here - Have your assets been moved to a UK subsidiary in order to fraudulently circumvent US laws for the purposes of maxing out leverage? It appears the provision was written in to MF's client agreements.