Friday, April 30, 2010
Thursday, April 29, 2010
S&P500 violated the uptrend channel on Tuesday April 26th, big institutions managed to squeeze the shorts and pushed the S&P500 back to the channel. I don't know if channel is going to hold this time or not? today action was a classic short squeeze. Indicators sending mix signals at this point I'm not sure whether rally has any legs or not? We have to wait to see what is going to play out with in next 3 trading days.
Wednesday, April 28, 2010
Delay, Delay ! when you screw up, you could not have any other strategy beside killing time.
Lloyd Blankfein did his best to kill the time. surprise, surprise!
TheNewYorkTimes interview with Lloyd Blankfein:
The New York Times interview with Golman CEO was before publication fraud charges. I want to get your attention toward the difference in attitude.
Tuesday, April 27, 2010
Monday, April 26, 2010
I give 5% chance for channel breakout to the upside. S&P should move lower to 1202 and bounce back up, I think there is 60% chance that we move lower and then shoot higher. If S&P500 break the channel and close below 1200, bulls are in trouble. I give about 35% chance of violation the uptrend channel. I have noticed many analysts talking about this channel recently, that is usually not a good sign. You should become a contrarian when things are getting too obvious. We well know Wall Street has a tendency to surprise average investors.
Saturday, April 24, 2010
Friday, April 23, 2010
$174 is do or die for Goldman, I have a hard time to imagine GS could recover the damage anytime soon. It could cause them to break down to smaller entities.
Prime +90day delinquency map:
I went in detail over foreclouser and delinquency in my April 8th article click here . Please note that darker red indicates the situation worsened compare with last year.
Option ARM Tsunami Is On The Way
Tuesday, April 20, 2010
Current Value: 7.88
Greece 10 year government bond broke out the 7.40 resistance , it is going to shoot up to 9 soon. They have no other options beside grabbing their bowl and beg IMF to bail them out. I don't see any possibility of Greece defaulting on its debt.
This is what happens to a country whose government is gullible enough to consult with Goldman Sachs and expect a fox to guard the hen house. Greek government used derivatives to manipulate their debt to GDP for over a decade and now they are facing crisis. They should of think a head before counting on Goldman Sachs advises. It is fascinating to me that they did not learn their listen and continue their cosy relation with Goldman, note that Goldman Sachs is the principal financial adviser on debt issuance for Greece.
S&P500 violated the up trend channel for a couple hours but big institutions managed to push the S&P500 back to the channel. Note if S&P500 gets above 1202 and closed above it, we should expect to rally more in coming days. On the other hand if it moves below 1190 bears should become active and push the S&P to ~1150 level. At this point I give 30% chance that S&P breaks the channel to the down side. If S&P close above 1202 there is 40% chance that it is going to rally higher to ~1212. If S&P reaches 1212 there is a 10% chance of pull back.
Monday, April 19, 2010
Sunday, April 18, 2010
Saturday, April 17, 2010
Friday, April 16, 2010
Thursday, April 15, 2010
In the past 7 months Shanghai composite index is in the consolidation phase. If it gets above 3472 I'd give 45% chance of continuation of rally and 30% chance of rolling over at 3472. NOte if Shanghai could stay above 3472 for a couple weeks it marks the next leg higher. On the other hand if it drops to 3000 there is a 10% chance of short squeeze. I need to mention that if Shanghai breaks 3000 and stays below it for a couple days there is a 15% chance that it tanks deeply on very high volume which could mark the double dip recession.
I got many emails from my readers who asked if this is a good time to go short. I'm on the side line at this point. It's too risky to go short, I would wait to see the conformation before press the Buy/Sell button. I would wait to see if bulls could hold the S&P500 above 1206 level or not, before I jump in any conclusion. Today and tomorrow will be very volatile, be careful. Today action was a good example of early short who got crushed and had to cover their short positions.
Wednesday, April 14, 2010
Tuesday, April 13, 2010
If you go back to 80's data you will see only 27% of total unemployed were out of job for 27 weeks and Over, but table above shows a staggering number. Unemployed who are out of job for 27 weeks and Over is 44.1% of total unemployed. Since 1948 this is a highest data, a record of 6.31 million workers who have been unemployed for more than 27 weeks. Being out of job for a long time make it hard for them to get hire again.
As you see in table above the percent unemployed who are out of job for 27 weeks and Over is increasing. Job market has shown some signs of improvement,or in better word it is no longer falling of the cliff, it is going side way. As an analyst I do not see a bright future for the U.S. job market. It takes years for job market to improve.
Monday, April 12, 2010
Greece 10-Year Bond Technical Analysis Chart: Greece 10-Year bond made the fifth wave (V), therefore it should rollover soon. From technical stand point, if Greece 10-Year Bond gets above 7.40 it would be a very bad signal.
Do not pay attention to Greece crisis. Greece economy is so small that it does not mean a thing to the world economy. Probobly IMF end up bailing them out. Greece crisis a regional problem not a global issue, but Wall Street could use it as an excuse to move the market. You need to become nervous if Spain losses +AA credit ratting to AA and eventually become +BB.
Here some economics facts about Greece:
GDP: $341 billion (2009 est.)
country comparison to the world: 34
$347.9 billion (2008 est.)
$338 billion (2007 est.)
GDP (official exchange rate):
$342.2 billion (2009 est.)
GDP - real growth rate:
-2% (2009 est.)
country comparison to the world: 143
2% (2008 est.)
4% (2007 est.)
GDP - per capita (PPP): $32,100 (2009 est.)
country comparison to the world: 43
$32,400 (2008 est.)
$31,600 (2007 est.)
note: data are in 2009 US dollars
Friday, April 9, 2010
LIBOR-OIS 3M (USD SWAP) Chart:
I got many requests for LIBOR chart, I will post them every fridays.
Thursday, April 8, 2010
Source:First American Corelogic
I'd like to get your Attention to increasing in number of home short sells. It is obvious if this trend continues what effects could have on prices in near future. I was a critique of $8000 tax rebate and called it waist of money, figure above is the prove, that I was right to call it "useless". Please note that $8000 tax rebate could not do much to help the housing market the increase in short-selling is the prove of that. If we had the real recovery in housing market we should not witness increasing the short-selling. To me is laughable when analysts say "housing market hit the bottom". We need to face the reality; there is a direct relation between household income, unemployment and home value. It is insane to think by giving away $8000 to home buyers we could slow down the foreclosure rate. Baling out the insolvent institutions and forcing FASB to relax the mark-to-market accounting rules have helped the Wall Street, but it won't stop the foreclosures. They just kicked the can down the road. Their home loan modification was a big joke, There were 168,708 delinquent loans permanently modified under HAMP(Home Affordable Modification Program) as of the end of February, according to a Treasury Department report March 12Th. Problem is the percent decrease in mortgage rates were not big enough to stop the home owners from re-defaulting. The re-default rate of loans modified in the Q1 of 2009 was over 51.5% by the end of the same year. Some sources reported much higher numbers a total of +71% re-default rates.
The reason banks don't want to modify loans would be very simple, anytime a banker modifies a loan he has to report it as loss, but if banker leave it as it is, he doesn't need to report it as loss, thanks to change in "Mark-to-market" accounting rules. Therefore they are not going to actively participate in loan modifications. Government addressed the symptoms, but what about the causes? When are we going to do something real for home owners? I start to wander if Congressman Barney Frank and his bodies in the Financial Services Committee have ever passed the Econ-101!
Table above shows contributions to Congressman Barney Frank the head of Financial Services Committee received back in 2007-2008 at the same time the U.S. economy was teetering on the edge of collapse. I think if taxpayers could lobby congress and spend as much as financial industry does, they might do something for us too.
Mortgage %90+Days Delinquent Map:
Source:The Federal Reserve Bank
Technically When a house is +90days delinquent, it is consider as future foreclosure.
Prime ARMs Map:
Source:The Federal Reserve Bank
Prime ARMs Resetting in Next 12 Months Map:
When these mortgages reset there will be many home owner who have to walk away from their homes and more foreclosured houses will hit the already weaken housing market. Please note these are homeowners with good credit who speculate on housing market and bite off more than they could chew. When the 1-2% teaser rates reset to a much higher rates, it makes more sense to walk away instead of negotiating with lenders to modify the loan. Because decreasing the prices prevent them from refinance their loans therefore they have no other options besides short selling or foreclosed their homes.
As I mentioned in my previous articles I expect Option ARM Tsunami to hit the U.S. housing market by mid 2010 and 2011. The eye of the storm should arrive by August 2011. As a contrarian analyst I believe it will be the fundamental reason for the double dip recession. I'm not bullish but charts are opposing my fundamental analysis. Technical analysis always have the upper hand in short and intermediate terms, but fundamentals always have the last word. Technicals look bullish and point for continuation of this rally. We should wait and see when big institutions are going to press the sell buttons. Meanwhile enjoy the bull ride.
Option ARM Tsunami Is On The Way
Sunday, April 4, 2010
To read the complete article click hereYahoo News
This rally has the characteristics of bull markets. Since April 2009 market staid over bought and except 2-3 days indicators never shown oversold condition. We experienced a huge bounce of extremely oversold market, but after +76% rally I have a hard time to find anything cheap. Companies have to come with door bust earning to justify these gains, they fired employees and closed facilities and now is time to see real top line growth. They must show decent revenue growth. Q1 will be a good indicator for many analysts including me to see if this rally has some leg or it was just a humongous bear market rally? We shall find out soon.
Recently I have noticed most of rallies has happened over night in Futures market and S&P500 usually gaps higher and not much happening during the day. To me it is nothing more than market manipulation with big institutions who got cheap money from "Mr.Bernanke & Co.". Due to high leverage in Futures market it is not hard to move a futures market. All is needed is 50-53 billion dollars. As a contrarian analyst, I’m suspicious a small number of institutions are involved and when market start to roll over there won't be many buyers.
Stock market is a different animal than real economy. The big institutions run the show, compare with real economy that every one of us play a roll in it. Speculation and greed cause the market to move. Market could roll over before the real economy shows the first symptoms of weakness or as we seen in 2007 it could continue to move higher despite weakness in real economy, but in the long run we have to come back to the basics. Fundamentals always have the last word as we seen in 2007 despite many analysts call for Dow Jones 15000 and S&P 1700 we entered into the second biggest bear market ever. S&P should of rolled over in August of 2007 when it broke 1495 levels, but big institutions could manipulate the market for a couple months despite the first warning signs of weakness in housing market stated with decrease in residential permits in 2006 and it followed in 2007 by huge jump in loan charge-offs, under performing the home-builders or increasing foreclosures, they ignored them all, but in the it came back to bite them. They succeed to manipulate the market and sent the S&P500 higher, but in the end the had to face the reality.
"Source Philly fed"
Many companies became history and many others like City group, Goldman Sachs, BOA or AIG who should be long gone, with the generous helps of Bernanke and Henry Paulson and his successor Timothy Geithner could continue to live by sucking the taxpayer’s blood. It would be interesting to watch what are they going to do when the Option ARM tsunami hit them by 2nd half of 2010 and second and third quarter of 2011?
Question is what is next? What tricks Bernanke could pull out of his hat? or in a better word is there and tricks left?
Option ARM Tsunami Is On The Way