Archive - Jan 27, 2010

As President Obama addressed the nation, the Lords of finance were out defending the private equity industry. They stand to gain the most if financial reforms pass...

Bottom line: A "yes" vote for Chairman Bernanke raises the likelihood of defeat for every member of the Senate standing for election in 2010 and 2012. And in any event, the rising tide of popular unhappiness with Washington and Wall Street promises to remake the American political landscape in a way not seen in the post WW II era. The comfortable assumption of stability in American political life is about to be replaced by instability and change, but that is what democracy is all about.

In this 1.27.10 edition of the Fibozachi Technical Update (FTU), we present 15 technical profiles of the:

(1) S&P 500 E-mini contract (ES); (2) VIX (CBOE Volatility Index); (3) NYSE VOLD; (4) NYSE TICK; (5) US Dollar Index (DXY); (6) Crude Oil Futures (CL); (7) Gold Futures (GC); (8) Silver Futures (SI).

Guest Post by David Fiderer

The insufficiently unexamined issue regarding the timing of AIG’s downfall is the AAA pyramid scheme embedded inside of AIGFP’s CDO portfolio. The ratings agencies defined reality in the alternate universe of CDOs, where bona fide due diligence was impossible and opportunities for abusive self dealing were rife.

A discussion of the cash flows of Agency MBS and what it means to Fed policy. It might be the basis of QE 2.0 Lite. Also a side story on how Big Ben juiced the market in March/April of last year. Just another one of those things that were done to put some money on the 'Street'.

Granted, we are working from a rather small sample size, as we don't often pay attention to State of the Union speeches, but if the pre-game hints of the potential blusterfuck post-game are any indication, the latest American Apology Tour is composed entirely of domestic flights, and filled with alliteration. Like, for example, the gist of the pre-game talking points purportedly passed out by the White House yesterday:

Cramer joins the alternative apocalypse crowed, which in itself is neither surprising nor amusing. However, on the amusing front, we are not sure if we are more entertained by Cramer's comparison of the President with Goldfinger, or the of Goldman Sachs with James Bond. Either way, as the CNBC comedian says: "You CANNOT OWN THESE STOCKS RIGHT NOW" referring to Citi among others. It may very well be time to load up on Citi.

The day started with risk being sold, as Greece's bonds were under pressure, and so were european equities taking US markets with them. However, positive news on AAPL front and the Federal Reserve announcement turned the tables around. We had highlighted that we expected a rebound in S&P between 1,105 and 1,108, and it is worth noting that even with the turmoil this AM we barely made new lows, clearly showing there is a decent amount of bullish divergence. We would wait for the rebound to reach 1,108 to consider selling again, especially since we came close to channel support as well as highlighted on the daily chart. -Nic Lenoir

FOCUS: Do you consider this independence to be a great advantage? The Chairman of the Federal Reserve was appointed by the President – and the Senate is currently deciding whether Ben Bernanke can have a second term in office.

Trichet: It is of key importance that the ECB’s independence is guaranteed by an international treaty and not just by national law. National laws can be adopted, but they can also be overturned again.

Time to recalibrate all those long stock-weak dollar correlation engines.

Update: here is a first run of the data, with a focus on Goldman Sachs.

The previously top-secret Schedule A has been released and is attached. We are currently going through the data, focusing on prices, ratings, LTVs and other taxpayer critical data. Stephen Friedman saying, as we type, that revealing Schedule A will injure the taxpayer interest, as when the Fed will try to sell these CUSIPs, buyers will have an advantage. Of course, we note, these sophisticated buyers will exist only because this list was offloaded to the taxpayers in the first place.

On and someone tell those doomsayers in Congress today this info was leaked and the market did not crash... Stunning, we know.

The usual volatility on vapor volume continues, even as the euro plunges, and a sell off in near-dated bonds drives algos nuts, trying to decide whether to buy or sell stocks as signals openly conflict.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period...To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter.

The NYSE's most recent disclosure of margin debt indicates a surge in trading in margin accounts, where total debt shot up to $231 billion as of December, up $58 billion from February or 30%, and also an increase of 4.5% from November. This is an indication that "animal spirits" have surged by about the same amount as the broader market since the market lows: in other words, speculation is now rampant, and, to make things even better, is very much on margin, or leveraged. And we all know what happens when levered speculative bets turn out not quite as expected. For those who may be confused, Dow Jones provides a useful primer of how a margin call feedback loop tend to make things ugly, fast.

Sarkozy is quoted as demanding what is certainly the Fed's greatest nightmare: a return to Bretton-Woods. He furthermore notes, logically, that undervaluation of currencies counters trade, and that the financial system can not tolerate monetary dumping.