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Friday, June 5, 2009

Bday Excuses

It's Mrs. Ninja's bday. So no posts today. Must do cool stuff for her...

Although, the markets reaction so far to the non-farm data is definately interesting. Seems that the 9.5% unemployment rate trumps a better than expected job loss number...

Thursday, June 4, 2009

Green Shoots: Can't Water Them With Expensive Oil

FN: Oil (WTIC) has rallied from a low of $35.13 to a recent high of $69.05, or 96.6%. The thieves over at Goldman came out pumping oil...

Goldman Raises Year-End Crude Forecast by 31% to $85 (Update2): " Goldman Sachs Group Inc. raised its forecast for U.S. benchmark oil by 31 percent to $85 a barrel for the end of 2009 and predicted further gains next year as demand recovers and supplies shrink.

“As the financial crisis eases, an energy shortage lies ahead,” Goldman analysts Jeffrey Currie in London and David Greely in New York said in a report e-mailed today. The bank set a 12-month price target of $90 a barrel for West Texas Intermediate crude, up from $70, and introduced a forecast of $95 for the end of 2010.

Oil posted its biggest monthly gain in a decade in May, and traded above $69 a barrel for the first time since November on speculation a global economic recovery will trigger a rebound in demand. A decline in the value of the dollar has also drawn investors to crude and other commodities as an inflation hedge.

The rally has been driven by the “unwinding of pricing dislocations caused by the credit crisis,” Goldman said in the report dated June 3. It’s a “prologue,” to a price recovery in the second half of the year as the global economy stabilizes and crude inventories decline, the bank said."

FN: Inventories are continue to bump up along 19 year highs and demand continues to drop. So fundamentals are not driving this rally. That leaves a declining US dollar and speculators armed with cheap Fed bailout money. It is truly ironic that oil at these levels is actually a pretty hefty tax on a fragile world economy. A move even higher would be even worse.

Forget about "green shoots", you can't water them with expensive oil.

Couple high oil prices with rising yields and you've got one hell of a mess. Recovery? Meh. I doubt it.

US Dollar, Bounce Time

FN: The US dollar, as measured by the USD Dollar Index (USD), looks set to hammer out a Double Bottom around the 78 - 79 area. As the equity markets rallied and volatility (VIX) dropped, the safe haven bid dissipated. Investors sold dollars and treasuries to pile in to risky assets. This coupled with concerns over Obama's monster deficit spending plan put downward pressure on the dollar. HOWEVER, and this is really important, the rest of the world and the rest of the world's MAJOR currencies are far worse off.

With the first cracks appearing in Eastern Europe that safe haven bid should come back, especially since it is becoming more and more likely that this Bear Market rally in equities has run its course.

Eastern Europe: Latvia Causes First Cracks

FN: We have passed thru the eye of the hurricane and the calm is about to be shattered. The first tremors of instability in Eastern Europe have revealed a few cracks in the Western European banking system...

It all began when a bond auction in Latvia went "no bid". Basically it couldn't have been any worse. Latvia failed to sell about 50 million lati ($99.9 million U.S.) in Treasury bills at auction yesterday after receiving (really) no bids. Apparently there aren't enough lati to go around and this has driven the overnight lending rate (kind of like LIBOR) to a record 16.4%. This is bad. Very bad. Because it means the country can't fund itself.

The original Bloomberg article was entitled: Latvia Fails in Treasury Bill Auction, Gets No Bids (Update2)

This morning the same damn article was titled: Sweden Can Handle Possible Bank Collapse in Baltics (Update1): "Sweden’s government can handle a possible bank collapse, or nationalization, sparked by the economic collapse in the Baltic states, Finance Minister Anders Borg said.

For Sweden, this means that there is a significant risk of loan losses at the banks,” Borg told Swedish television broadcaster SVT in an interview last night, following a failed Latvian Treasury bill auction for 50 million lati ($100 million). Still, Sweden can weather the fallout of loan losses in the Baltics, he added.

The Baltic state’s failure to sell debt on market terms sparked concern amongst some investors that Latvia may be heading toward a default that would precipitate a devaluation of the lats as the government waits for the next tranche of an international bailout. The central bank today released a statement reiterating plans to maintain the lats peg until the country adopts the euro.

The failed Treasury bill auction sparked a 16 percent decline in shares of Stockholm-based Swedbank AB, the biggest bank in the Baltic states. SEB AB, the second biggest lender in the region, dropped 11 percent, while Nordea AB decreased 5.2 percent. Those declines contributed to a 3.1 percent slump in Sweden’s benchmark index."

FN: The first title and article was of course far more accurate. It was not at all clear in the first version that Sweden could handle a devaluation or default by Latvia.

The failed bond auction rippled out from Latvia hitting Sweden and Hungary... but it won't stop there. Austria's and Switzerland's banks are all heavily exposed to the region.

Sweden's Krona Trades Near Six-Week Low on Latvia Loan Concern: "The Swedish krona traded near the lowest level in six weeks against the euro on concern Latvia will devalue its currency, hurting loans in the Baltic country held by Swedish banks.

Sweden’s Riksbank this week noted a deterioration in the Baltic nations as one of the biggest risks to its banks. The krona fell 4.3 percent against the euro since June 1, when the Baltic News Service cited Latvian Justice Minister Mareks Seglins as saying the government should debate abandoning the system that keeps the lats pegged to the 16-nation currency."

Forint Falls Most in Three Months on Latvia Devaluation Concern: "The Hungarian forint fell the most in almost three months, leading declines in eastern Europe, as concern that Latvia may devalue its currency spurred investors to sell assets in the region."

Latvia Traders See 53% Devaluation, Forwards Show (Update1): "Latvia currency traders expect the lats to drop to half its value against the euro within a year as the Baltic nation struggles to cope with the effects of the global financial crisis, said Bank of America Corp.-Merrill Lynch & Co.

Forward contracts price the lats 53 percent weaker than its current spot rate of 0.7073, Benoit Anne, the London-based chief strategist for Emerging Europe, Middle East and Africa, said in a phone interview today. Forward contracts are agreements in which assets are bought and sold at current prices for future delivery."

FN: A devaluation is certain. The question is when and by how much. A 53% devaluation basically means any Latvians that have loans outstanding in other currencies will now have to pay 100% more to retire that same loan. Obviously this isn't likely to work at all and that these loans will just be defaulted instead. The problem is that the whole country is likely to default, because the government borrowed in foreign currencies...

Latvia, Lithuania, SEB CDS rise sharply-CMA: "The cost of protecting the debt of Baltic states Latvia and Lithuania and of Swedish bank SEB , seen as heavily exposed in the Baltic region, rose sharply on Thursday, CDS monitor CMA DataVision said.

Speculation about a possible devaluation in Latvia has hit regional markets in recent days, although the Latvian lat rose on Thursday on hopes the International Monetary Fund might agree to release another tranche of a previously-agreed loan.

Latvia's five-year credit default swap rose to 721.1 basis points mid-price from a close on Wednesday of 675 and a close a week ago of 602.1, CMA said.

Lithuania rose to 481.9 mid-price from 450, and SEB rose to 199.4 mid-price from 148.1.

Five-year CDS for Swedish bank Svenska Handelsbanken also rose, to 106.7 from 95 bps."

Related Posts:
Latvia: Another Government Falls
Global Protests, Riots, Violence as Economies Unravel
Hyperinflation First, Then Global War
Global Violence, Gold: But Not Yet

Wednesday, June 3, 2009

Skeptical of this Last Move Higher

On Monday markets rocketed higher, breaking out of their recent trading ranges to close above their 200 day EMAs (green lines). There are a few reasons to view this last move higher with some skepticism:

1) Volume wasn't really confidence inspiring, staying relatively low.

2) There was no Major Accumulation Day around the actual break out.

3) The market is extremely overbought with 88.82% of all stocks already above their 50 day moving averages, suggesting there isn't much room left to fuel this move.

4) The market is extremely overbought as measure by the RSI, suggesting there isn't much room left to fuel this move.

5) Volatility (VIX) has stopped falling, and looks to be 'basing'. This may fore shadow a decline in risky assets in the very near future.

6) The Record High Percent Index (RHNYA) sits in nose bleed territory at 95.65. Moves over 90 tend to be short lived spikes that are resolved when equities drop...

7) Financials have been lagging, not confirming this last break out as mentioned here.

8) Transports (TRAN) have not confirmed the recent price highs. Old school, hardcore Dow Theory insists that the transports must confirm. Non-confirmation is a sign of weakness.

9) Yields have been rising... and rapidly. This is not equity friendly. At all.

Really Overbought

88.82% of stocks on the NYSE are now above their 50 day moving averages. This is a truly ridiculous level for a Bear market... and it's been like this for quite some time...

Financials: Charts Say "Decision Time" Update1

This is an update to the post Financials: Charts Say "Decision Time".

Even while the broader markets broke out and up last week, financials did not. It is therefore probable that financials will break down from current levels.

Tuesday, June 2, 2009

Time To Memorize a New Song?

FN: Dammit, we have to memorize a new song? Crazy places are well... crazy.

South Korea Deploys Warship as North Readies Missiles (Update1): "Jockeying over who will succeed North Korean leader Kim Jong Il, who likely suffered a stroke last August, may be related to the nuclear weapon test and missile launches, former and current U.S. officials have said.

Kim has named his third son Kim Jong Un as his heir, the Dong-A Ilbo newspaper said, citing unidentified people familiar with the situation. North Korea notified its diplomatic offices and is teaching its people a song in praise of the anointed leader, the daily said."

Chinese Students Laugh at Geithner, Yields Rise Again

UPDATE 3-Geithner tells China its dollar assets are safe: ""Chinese assets are very safe," Geithner said in response to a question after a speech at Peking University, where he studied Chinese as a student in the 1980s.

His answer drew loud laughter from his student audience, reflecting scepticism in China about the wisdom of a developing country accumulating a vast stockpile of foreign reserves instead of spending the money to raise living standards at home."

From reader TwoPintWitty: "Geithner gets laughed at by Chinese students when he says China's money is safe... this makes me angry for so many reasons.

A) Chinese students are brighter (maybe) than the US masses...
B) They shouldn't be laughing, they should be throwing rocks at him for stealing their money..."

FN: US Treasury yields are fast approaching yields not seen since BEFORE Bernanke started cutting rates. This is not exactly going to help any economic recovery.

Monday, June 1, 2009


Markets look poised to break out. The S&P 500 is poised to take out the previous high around 930 and the declining 200 day SMA. Commodities are moving higher as well. While the markets and the charts may be telling one story, it is important to keep some perspective on economic fundamentals. The May Economic Summary in Graphs tells a far less optimisitic story...

North Korea: Something Ain't Right

FN: Like I said last week, North Korea is even crazier than usual. More missile tests. This is quite the escalation. Usually provocations are organized individually and well spaced out so "nobody does anything stupid" in sudden panic. Now in rapid succession we've seen the following:

1) Surprise nuclear test.
2) Officially rip up the 1953 Armistice.
3) Test missiles.

Something ain't right.

Gates Says ‘Some Signs’ North Korea May Test Missile (Update2): "U.S. Defense Secretary Robert Gates said North Korea may be preparing to conduct its second long- range ballistic missile test since April, following last month’s detonation of a nuclear device.

“We have seen some signs that they may be doing something with another Taepodong-2 missile,” Gates said at a press conference in Manila with Philippines Defense Secretary Gilbert Teodoro. “But at this point it’s not clear what they’re going to do.”"


Pre-market the futures are following thru on Friday's late day rip. A close above 930 would set things up for another leg higher...