Bill Cara's Blog for Nov 30, 2011

Accumulation Zone: Monthly 12, Weekly 7, Daily 4
Distribution Zone: Monthly 5, Weekly 0, Daily 1

Good morning.

07:00 MBA Mortgage Index (-11.7%)
07:30 Challenger Job Cuts (-12.8%)
08:15 ADP Employment Change
08:30 Productivity-Rev.
08:30 Unit Labor Costs
09:45 Chicago PMI
10:00 Pending Home Sales
10:30 Crude Inventories
14:00 Fed's Beige Book

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There are NO Cara 100 Changes to report at this time.

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"If stupidity got us into this mess, then why can't it get us out?"
- Will Rogers

Market showing all the signs of being a crack addict. Are swap lines the printing of money? Why is it pumping the ozzie dollar? 3 cent gain in minutes is pretty impressive. nuts might be the right word.

Congratulations to Divyan Shah (a strategist at Thomson Reuters) for predicting this two weeks ago.

We continue to believe that the environment is once again rife for another boost to the liquidity wheels to help grease the money market wheels. Unlike 2008 we already have swap lines in place and precautionary liquidity from central banks. However, the problem is the cost of the liquidity is too high and thus there is a high chance that the fees being charged for dollar swap lines will be lowered from 100bps over OIS to around 50bps over OIS. The rewidening of the 3mth EUR currency basis swap back to the highs of this year suggesting that such an action from the Fed cannot be ruled out.

Here's the link.
http://on.ft.com/snvifw

Central banks move to ease European dollar crunch
http://on.ft.com/ua8Vc1

The question is, did German bonds start yielding less than zero because of a sudden dollar liquidity crunch in the market? And to what degree is this connected to margin calls on depreciating euro-denominated collateral pledged in return for dollar funding?

Credit crunch or collateral crunch?
http://on.ft.com/sKIyOM

http://www.federalreserve.gov/newsevents/press/mon...

First impressions may be oversimplified; time will show what really transpires.

First impression is, playing for time. Liquidity is fine but major underlying problem is not a lack of liquidity; it's indebtedness and possible insolvency. Lack of liquidity comes as a consequence when lenders start doubting the borrower's ability to pay back. So this move simply replaces "natural" lender with artificial one. This lets the former out and transfers risk to the latter. Whether the time they just bought is enough to resolve real problem, may take many months to see.

Meanwhile, market sighs with relief (no immediate collapse, let's squeeze shorts) and postpones its worries till the time when situation becomes more clear. Remember the definition of the genuine news? That's what we see in action today.

My first impression is that they have played to obtain maximum advantage in squeezing the shorts. They waited for many players to position themselves short because 1202-1205 was supposed to be formidable perhaps even impenetrable resistance. Then they lobbed grenades and breached the resistance.

They have no solution. They are not just playing for time. They are playing for increased insider profits. Their primary concern is self enrichment. After reading the newly disclosed information on the Paulson and Bernanke dealings in the last crisis I can't believe they are genuinely concerned about anything but their own personal enrichment at the expense of everyone else.

swaps, anyone have ideas how they will effect the Euro or TLT?

http://www.federalreserve.gov/monetarypolicy/bst_s...

If the gas gauge points to empty, breaking the glass and turning the needle to full doesn't make it so.

The system is so broken now.

ANR, sold out on short cover rip at 23.30.

Just curious. Is today a good day to go back to cash and take the gains you have?

The consensus seems to be that this is continued can kicking without a real solution from the politicians on the major structural failures that are occurring in the debt-financed world of western civilization.

If had to have placed a bet on the big shoe to drop prior to today, it would've been to say that the Chinese buy up a ton of Italian & Spanish debt. This is what they do with the US. Europe is their biggest export market and they need to sustain their junkies. The fact that this coordinated effort only tangentially involved China, is a tell.

I'm thinking about selling some of my S&P Index fund today and putting it back to cash (maybe as much as 10%). I still wouldn't touch any bonds/fixed income here. I agree with Jim Rogers on gold...I think its going to be a painfully slow grind higher, but nothing to get too excited about.

For the last hour a number of stocks I monitor on the TSX: SVM, UXG, PVG,
RMX, SLW have not traded. Not sure what to make of this, some usually have way more volume. Bid/Ask does not change. Anyone else notice this?
Cheers.

Squish, the TSE is having problems processing orders for any symbols beginning M through Z- this I found out from Qtrade about 45 minutes ago.

Good luck

I have been watching this as well. If you look at the volume of the interlisted stocks today there is generally a huge difference between the US listed volume(+) and the Canadian listed volume(-)for each stock. I think that it has to do with the big jump in the exchange rate of the Canadian$ vs the US$ today. It is educational to go back a few days and look at the volumes on the Canadian Exchanges during the US Thanksgiving Holidays. It is surprising how much the Canadian volume dries up during those days as this serves as a testament to the force of the US traders on the Canadian stock exchanges.

will not have staying power. good luck everyone.

normxyz,

"Not necessarily the greatest of news. When all of the CBs act "in concert," you can be sure they are fearful of the apocalypse on the horizon!"

Yeah. Wouldn't you like to know what the individual CB members are doing today? And who they are telling?

Wait a second — there goes my phone ;-)

Grym

Anyone get the S shocked out of themselves on that 0.0836 tick on Pinetree?
My screen showed me down 94%!!!

Ah, but all is well now. Amazing. That makes the flash crash look like child's play. I wish I had a stink bid in for a gazillion shares at .085 or so.....

Another knowledgeable considered opinion:
"This shows European crisis is far greater than anyone is willing to admit. We could have been days away from full blown crisis a la 2008"

Maybe a good reason to keep an eye on CSCO and JNPR.

http://www.bloomberg.com/news/2011-11-30/obama-inv...

From Felix Salmon: http://blogs.reuters.com/felix-salmon/2011/11/14/e...

"What is true is that Europe is in the middle of a textbook liquidity crisis. Banks are not lending to each other — and the ECB isn’t stepping in to solve the problem. This is a serious structural issue with the way that the European monetary system was constructed: the ECB is tasked only with guarding inflation, and not with ensuring the health of the banking system. Individual national central banks are meant to do that. But they can’t print money — only the ECB can. So when there’s a [Euro - normxyz] liquidity crisis, no one’s able to step in and solve it."

Guaranteed it was them. Same old story...leverage ratios and counterparty risk. The banksters have learned absolutely nothing since Lehman. Rosy is great. My ears perk up anytime he speaks.

The European socialist way of life is simply unsustainable. The Eurozone, outside of Germany, simply doesn't produce enough goods and services to sustain the social welfare system for an aging population with low growth. Their tax systems are oppressive and squelch entrepeneurism. As soon as anyone with a bright idea can, they go to the US...but soon they may go to Canada, Australia, Brazil or Israel instead.

I still believe that the major US Banks have been unfairly destroyed in the recent Euro-carnage. Facebook is going to IPO with a $100B market cap, but BAC sits today with a market cap of about half that. US Big financials are cheap for the brave.

I have a GTC bid for 3k limit 1.43 AON for PNPFF that wasn't filled. Anyone know how that can happen?

The BNN link with Rosenberg: http://www.bnn.ca/Shows/Headline.aspx

€200B in senior unsecured debt maturing this month that Euro banks need to rollover. It ain't chump change.

As I observed before, the declaration of swap lines between various CB's came but days before the meltdown in October 2008. They'd wanna be pulling something out of the hat right about now.

JimG is right. It's that little known phrase identifying a little something called "Due Process of LAW".

IOW, a blanket ruling and enforcement solely on the word of one party infringes on the rights of various entities without individual due process.

I know it might be a lot of individual cases, but tough luck. You can't have a single company running all over the place just pointing and shutting down.
You have to take them to court individually and provide your evidence.

"Innocent until proven guilty" is supposed to mean something in the United States of America.
Besides, if I want a fake bag, watch, movie, software or whatever, I can fly to Asia and get all I want.

We will have to agree to disagree on this. To me it's just another case of caring about rights of perpetrator more than victim's. Victim in this case btw is not just that darn corporation - it's all of us, in more ways than one. From the text of original document I see the due process in place. Having counterfeit goods on one's website or shelf makes one guilty, no? How is he innocent of this? And it's not like he is sent to jail with no trial - it's merely the process of selling fake crap that is being shut down. I still fail to see what's wrong with this.

Ability to buy fake crap elsewhere has nothing to do with this. We are talking about US actions within US jurisdiction. One can go to many countries and buy a fake movie or stolen software for $1 a disk - doesn't mean we should allow them sold here, does it?

Nebish

You said: The European socialist way of life is simply unsustainable. The Eurozone, outside of Germany, simply doesn't produce enough goods and services to sustain the social welfare system for an aging population with low growth.

I'd reply...

The American way of life is unsustainable. The United States simply doesn't produce enough goods and services to sustain the social welfare system for an aging population with low growth.

Looks like life is about to change for the worse for many across the globe. After the last 140 years of blinding growth and invention, and dramatic increases in standards of living, the money has ended up in the hands of a few.... human nature I guess. This group has borrowed, spent or leveraged money they did not have or could pay back if bets went sour. Now they are in trouble. Large declines in livings standards will appear in the western economies for a significant numbers of citizens.

With wealth in the hands of a few, can global resources and labor produce enough wealth to support $7Billion people? Global corporations have attacked labor through technological implementation and global wage arbitrage.
Can productivity grow to such a level to support the legions no longer needed to perform average labor?

We'll see.

Boeing and its machinist union have reached preliminary agreement to produce the updated 737 in Washington state instead of moving it to the non-unionized state of South Carolina. Boeing mentioned supply chain and parts production issues as a reason to stay. It may also get the NLRB off their back.

AMR also filed for bankruptcy this week. What will happen to all those high paying pilot pensions? Will the PBGC end up the bag holder for the AMR pension obligations? We had a friend who had a United Air pension over $110,000. He ended up with about $40,000 instead. Here's another hit to thousands of living standards.

"I think we are misunderstanding one another."

I think we do. Company produces and sells product A. It sees a website offering product A at 1/10 the price. It knows it never sold it to whoever runs that website, let alone at such price. It knows it's a counterfeit. Have you been in place of this company? I have - with no means of recourse, watching thieves profiting from theft and undermining my sales - and powerless to do anything about that. Sorry, no sympathy from me. I suspect you'd change your point of view 180 degrees should you find yourself in this situation.

There is a lot to say about the rest of the post but I think I'll bow out. As I said, it's fine to agree to disagree. I wish you never find yourself being robbed like this.

MoKat,

No argument here. The US is in deep trouble, too. If you are from Europe, then I apologize if I gave offense, but I do stand by my point that Eurpoe will crater first.

The US still has an entrepeneurial spirit (Facebook, Google, Apple) that swims laps around anything coming out of the Continent. The environment for doing business is better in the States, although perhaps less so than in years past (Sarbanes Oxley gave a temporary boost to the London IPO market).

Regardless, I concede your point that the high standard of Western Civilization is going to inevitably decline, I'm just more optimistic that we here in the States will figure something out before its too late. The US is too big to fail...a lot of peripheral Europe looks too small to survive without giving up a lot of sovereignty to Berlin.

Peace.

ballena,

I am with you on this. Nothing got fixed today. Market got injection of fresh money and went up - what else is new. We've been there.

http://goo.gl/SVDp8

I am afraid we will go from "hurt me plenty" to "ultra-violence", if the TED-spread does not break its rising trend. Anyone want to play DOOM? ;-)

(file attached)

I agree that the upward trend in 3-month LIBOR is a bit of a concern and worth keeping a close eye on. However, I am not sure where this idea that 50 basis points level being the barometer for market health came from?

I looked at a 20-year history of the spread between 3-month LIBOR and 3-month Treasury rates. Average over 20 years was 45 basis points so 50 basis points being the barometer seems a bit off?

Another thing to think about is that a modest rise in short-term treasury rates could quickly narrow that spread. Could this be in the cards as part of our operation twist?

Anyways, not trying to argue that TED spread is not a concern, just trying to give a little perspective. If this short term LIBOR locomotive doesn't slow down it will be interesting to see how the rising spread gets resolved.

" Company produces and sells product A. It sees a website offering product A at 1/10 the price. It knows it never sold it to whoever runs that website, let alone at such price. It knows it's a counterfeit. Have you been in place of this company?"

I think everyone has been ripped off, robbed or stolen from in their lifetimes.
The question is, do we encourage vigilantes or do we copyright/patent/contract and call the cops or hire a lawyer?
If everyone adopts the vigilante idea then we will have lost ALL lawfulness and we will degenerate into the wild west. Our system of laws will be lost, out Constitution and Bill or Rights will be gone and everyone will be packing heat and settling their own affairs with violence or threat of violence.

Given the choice, even though I've been PISSING MAD MYSELF, I still choose LAW AND ORDER. THAT is what separates this country and Canada (or is supposed to) from the much of the rest of the world. Violation of that key concept is what makes nearly 100% of the people on this blog absolutely NUTS. As Luggie wrote, "what we need is for the current laws to be enforced". Let me take this opportunity to completely agree with him.

OK... I know I said I'll bow out of this but: you are making it sound as if I am against law and order. Again - I read the original document, and I see due process. No vigilantes. Nowhere did I advocate wild west approach. Don't misrepresent what I say please.

I don't think this example of government overreach is a good one. I don't think the perpetrators in this particular case are being abused and should be defended.

On a side note.. can we do without capital letters? When I see these PISSING MAD and NUTS, I feel this turns into shouting match.

PS. By the way, good luck with hiring a lawyer when a server is located on a third world country territory.

Today something bothered me. Yes, I am sure each day things bother us, but this still is. I believe it is just a hand full of people who control what we see in the USA on the television screens. I saw a graphic a few days ago showing who it was. The networks are fed by the few.

Along comes a company who makes a sharp clay animation type computer generated commercial that says the United States government is passing out paper money (guess who) and just maybe gold will do better than handfuls of cash down the road.

For the crowd who is to busy to listen to the TV they add some eye candy in the form of the puppet government guys tossing cash and showing Fort Knox full of IOU's. Their pitch man is Pat Boone and he is there like all the commercial before but also now clay stuff.

No network will allow them to air it. The say it is not the content that gold is better than money down the road, but that political images can't be used in advertising.

We cartoon and lampoon them daily.

Just wondered who made that rule.

We should write down what we demand from a government. Things, like freedom of the press and speech when no one is harmed. If they have taken away our First Amendment right to communicate reasonably, as they control the airways then were we watching and what you going to due about it?

http://www.wnd.com/index.php?fa=PAGE.view&pageId=3...

In the real world today my USLV was up 9.13% compared to PSLV (2.87%) which I traded in a week or so ago.

Warning: I don't profess to know a thing about what I am doing or where the market will be in 5 minutes, but if I have the long picture right--Bam baby.

Hi All - All so predictable with the benefit of wisdom from Bill and most here. Here is Paul's take: The Fed’s latest actions in cooperating with foreign central banks to undertake liquidity swaps of dollars for foreign currencies is another reason why Congress needs enhanced power to oversee and audit the Fed. Under current law Congress cannot examine these types of agreements. Those who would argue that auditing the Fed or these agreements with central banks harms the Fed’s independence should reevaluate the Fed’s supposed independence when the Fed bails out Europe so soon after President Obama promised US assistance in resolving the Euro crisis. Deja vu

Here is the official article I refer to:

http://www.ice.gov/news/releases/1111/111128washin...

In everything I wrote I referred to it. Nothing in this one says vigilantes or wild west. The other article has too strong and obvious taste of pre-canned agenda. I don't know what in it is credible and what is spin.

Is now the time to exit or go short? TED spread first clue? Then again, Bill's weekly chart of $TNX versus EMA 8 is very close to crossing on up. Watching close tomorrow.

ALOHA!!

There are a number of lawsuits pending against the BBA(British Bankers Assoc) that maintains the LIBOR rates have been manipulated much lower than the actual inter-bank rates for many years now. If this is the case then what good is the TED SPREAD? In fact it becomes another victim of manipulation like the CPI.

What's at stake? The $360TRIL global wholesale money market is all! More detail on this topic in the next SOUND MONEY ...

Eurozone ministers appear to have little up their sleeves, hoping that the International Monetary Fund can do part of the heavy lifting. "We envisage a greater role for the IMF: that will be sufficient together with the EFSF," said Jan Kees de Jager, Holland's finance minister.

http://www.telegraph.co.uk/finance/financialcrisis...

Unfortunately for those hoping for an IMF bailout, the IMF has no more money, the US refuses to give it more money (this I can understand) and those Europrats couldn't even leverage the EFSF fund:

The stress has been rising in lockstep with Italian, Spanish, Belgian and French bond yields for two weeks, but became violent after eurozone finance ministers admitted on Tuesday night that they were unable to leverage Europe's bail-out fund much beyond €600bn (£514bn). "Conditions have changed, so it is likely to be less than €1 trillion," said Eurogroup chair Jean-Claude Juncker.

These guys are hopeless. The Fed at least has the gumption to do the bare necessities to stop the system from melting down. Feeding Europe cheap dollars also keeps Uncle Bucks role in the international system sacrosanct, parasite that the Fed is.

Is it enough? Has the Fed begun a new bailout? The market's response this last quarter is clear. DJIA monthly accepts 40MA support and tests 8MA resistance. A 1998 type move coming, or a 2008 redux? Q1 2012 will probably be the tell. See attached.

Looks like gold and silver are beginning their assault on the previous high as we near EoY, as Bill was forecasting. I'm looking for a confirmation of or break from the previous pull back & rest cycle gold took in 2008. Looking strikingly similar at the moment, as is the DJIA monthly chart I posted earlier.

If it confirms going into 2012 will keep the new powder dry and buy the dip as a new, higher base is built around $1400. Dunno yet if I want to balance out the buying with a bit of gold or just keep buying silver with an eye to the historical 16:1 ratio. See attached. JMO

The Indian economy expanded at its slowest pace in more than two years in the July-September quarter, hurt by high local borrowing costs and a deepening euro-zone crisis.

http://www.tradingeconomics.com/india/gdp-growth

You can see it in bar graph format. A repeat of 2008/9. How low it goes before pulling out?

Les,

Ron Paul is the only one I have respect for, but consider him unelectable — high pitched voice, genuinely conservative (he likes to use the Constitution as a guide ), too old, more than 30 years in Congress without evolving (going along with a major party).

Some of the other unsupported allegations seem questionable and reckless. I don't like these candidates, but no need to resort to speculation and rumor, they will prove themselves unsuited.

Grym