Archive - May 2009

Some volumetric observations: the chart below demonstrates a "cumulative volume divergence from average" histogram. Recently, on up days, the volume has been significantly below average, and yet accelerates above average on down days. Another observation: on down days, the VWAP for the SPY is the magical barrier that simply refuses to be breached. Today for example, the ramp into the close occurred despite that the volume pushing the SPY higher was again below average toward the end of the day.

Some very fitting words from Mike Cembalest of JPM, putting the Green Shoots theory, and the irrational exuberance of the past 2 months, in perspective (highlights added).

Ah, the 3:30 PM Volume Spike. Like a well wound Patek Philippe. 2.1 million SPYs traded to the dot.

Ah, the 3:30 PM Volume Spike. Like a well wound Patek Philippe. 2.1 million SPYs traded to the dot.

Ah, the 3:30 PM Volume Spike. Like a well wound Patek Philippe. 2.1 million SPYs traded to the dot.

I am happy to report that up to this point, over 1,400 signatories have endorsed the Fed Transparency petition.

Importantly, earlier Rep. Raul Grijalva (D-AZ) has signed on to cosponsor H.R. 1207. Rep. Grijalva brings the total of Democratic cosponsors to 30. There are 136 Republican House members already cosponsoring the bill, and 218 votes are needed in the House for passage.

California is on its own. At least that is the conclusion based on Tm Geithner's earlier statement that TARP cash can not be used to bail out the Golden (or any other) state.

The spread between the 10 Yr UST and the 30 Year current coupon mortgage index has collapsed to the tightest level in 2009. If the selloff in 10 Year bonds continues for another 68 bps (at this rate that would be achieved in about 3 hours), it will be cheaper to finance a mortgage compliments of bankrupt Fannie and Freddie, than to issue US Sovereign debt.

In a research piece titled "REITs Cutting Residential Rents, Setting Stage for Further CPI Disinflation" Goldman Sachs analysts conclude that based on recent declining rent trends from residential REITs, the impact on price levels in the housing market (especially in major metropolitan centers where rent are only just now starting to unravel) will get progressively adverse, but will also feed ongoing general asset deflationary pressures, and by implication, added weakness to REIT cash flow. From Goldman:

Not only is the stock market getting hammered, but 10 Years today, and especially in the last 20 minutes have gotten the biggest beat down in months. Only the dollar is barely holding on to the green, and that is just because people are shocked, SHOCKED, that the UK may not actually be a AAA-rated credit. And the 2s10s.... fugghedaboutit - everyone is piling in short durations.

And so it begins. Rep. Alan Grayson has distributed the letter below to all Democrats in the House and will use it to generate Democratic co-sponsorship for the HR1207 Bill, aka The Federal Reserve Transparency Act, allowing the GAO to audit the Federal Reserve, and also require a Fed report to Congress by the end of 2010.

The sovereign downgrade monster is back on the rampage. Earlier today, S&P fired a blank shell straight at the heart of the usurper formerly known as the developed world, when it put UK's credit outlook on negative. The premise: debt/GDP will soon pass 100%. In that case the US should be afraid, very afraid with some estimates for the comparable ratio in the United Printing Presses of America at over 370% (including the kitchen sink).

• UAE ditched plans to join the proposed Gulf Cooperation Council monetary union.
• Oil drops below $62 in Asia as big rally pauses.
• Singapore economy shrinks 14.6 percent in 1Q.
• World markets fall after Fed sees deeper slowdown.
• Advance Auto beats by $0.10, posts Q1 EPS of $1.02 as revs rise 10.3% to $1.68B.
• AnnTaylor Stores swung to a Q1 loss of $2.3M; revs down 28% to $426.7M.
• Britain’s debt outlook lowered to negative.
• BJ's Wholesale Club's Q1 net rises 41% to $24.3M; revs up 0.2% at $2.26B.
• Cable & Wireless full-year
  

• Continuing jobless claims hit new record high at 6.7 million (AP)
• U.K.
  

Looking at the supercycle of how many ounces of gold it costs to buy the S&P, and projecting into the future, indicates that hedging by being short the index and long gold should pay off very handsomely... at some point in the 2015-2017 period. Chart 2 superimposes the current cycle with the past cycle - similarities?