Archive - May 2010

David Kostin: The sinking of the titanic is orderly. Do not panic. The S&P will still close at 1,250. And if you are a client and have listened to us, our bad: "Our overweight recommendations (Energy, Materials, Info Tech) have generated -38 bp of alpha while our underweight positions (Health Care, Consumer Staples, Utilities, Telecom) have generated +12 bp of alpha." In other words we have lost you money on both your longs and your shorts.

Dr. Doom sees stock market to sell off another 20% in the next few months. This time, I will not argue with the man.

A few days ago Tim Geithner said that any risk from Europe is isolated on the continent and there is no risk of it spreading to the US. Following a near 10% drop in the S&P we yet again have confirmation that the Treasury Secretary is a pathological liar or an idiot, or just so confused by analyzing the ever-increasing gobs of negatve data that his brain has officially switched off, we are not sure which, although either case would make him ineligible to practice the role of US Treasurer (unless to the list of permitted exemptions which currently only lists tax "avoidance", one adds lunacy). And while we await a clinical diagnosis on the SecTres' pathologies, we offer this analysis on how European contagion will come to the US from Goldman's Andrew Tilton, which, for what it's worth, is one of the better ones written on the topic.

Courtesy of Economic Policy Journal we now know that the majority of American states are currently insolvent, and that the US Treasury has been conducting a shadow bailout of at least 32 US states. Over 60% of Americans receiving state unemployment benefits are getting these directly from the US government, as 32 states have now borrowed $37.8 billion from Uncle Sam to fund unemployment insurance. The states in most dire condition, are, not unexpectedly, the unholy trifecta of California ($6.9 billion borrowed), Michigan ($3.9 billion), and New York ($3.2 billion). With this form of shadow bailout occurring, one can only wonder how many other shadow programs are currently in operation to fund states under the table with federal money.The full list of America's 32 insolvent states is below, sorted in order of bankruptedness.

Your one-stop summary of all events of relevance and market technicals in the prior week.

Oil prices were lower again on Friday, despite an unchanged euro market and a decent rally in equities. Although a substantial part of the rally came later in the day in equities, the DJIA still ended up 125.38 points, at 10,193.39. There was support just above the 10,000 level. Oil prices were lower less on equities on Friday than on fears of a weakening economy and on heavy supplies available in oil markets right now. Distillate stocks dropped in the latest report, but they had been near their highest levels since 1989, coming into the week. Gasoline inventories are still near their highest levels in more than two decades, and crude oil stocks are abundant, with record levels at Cushing, Oklahoma, the Nymex hub.

Total US debt just hit $12,987,823,000,000, $13 billion from lucky $13 trillion. As next week the US Treasury is auctioning off another gross $140+ billion in Bonds, we will pass this totally irrelevant resistance level on May 25, when Timmy issues another $42 billion of 2 Year Notes. The next important support level of $14 trillion will be surpassed around the time the Democrats get destroyed in the mid-term elections, while the statutory debt limit of $14.3 trillion will likely have to be raised in January 2011 by a new Republican majority, an action which will promptly reduce popular republican support following their election victory, thus starting the pointless D->R->D->R etc cycle all over again. Also, at approximately that time headlines that US debt is now 100% of GDP will take the US bond vigilantes out of hibernation and will send US interest rates soaring, assisted by Ben Bernanke's most recent announcement that the Fed will be "forced" to purchase another $1.5 trillion in treasuries and mortgages. Stepping away from the Ouija board, we also notice that so far in April, the Treasury has rolled another unsustainable amount of Treasuries: $397 billion, of which $$359 billion is in Bills.

Not just because you want to talk with that cute hippie chick about something you think she's interested in ...

The companies who make microgeneration possible will make BEAUCOUP bucks. And please remember that the whole partisan left-versus-right show is a false dichotomy.

Are people who don't want to rely on rubbing two sticks together to obtain all of their energy needs "conservatives"?
Are people who don't want their livelihood as fishermen trashed "liberals"?

Are people who want energy security - so that oil-rich countries can't blackmail us - "conservatives"?

Are people who don't want to drink life-shortening, virility-neutering mud in their water "liberals"?

The CFTC's just released Commitment of Traders report indicates that Non-Commercial, speculative net positions in the Euro declined just marginally from -113,890 to -107,143 for the week ended May 18, Tuesday. With central banks throwing everything at shorts, up to and including the tungsten-plated kitchen sink, the response is surprisingly muted. However, with the major wave of SNB/ECB initiated forced short covering beginning on Thursday, and driving the EURUSD up by 300 pips from 1.21 in one day, we expect the short number to decline substantially. If it does not, "speculators" can tap themselves on the back for pulling off a feat bigger than even George Soros ever achieved- taking on all central banks and not wavering. If that is indeed the case, we salute them. On the other hand, Soros replicants are certainly on fire in the GBP: the cable saw a new record number of shorts in the past week, which increased by -4,557 to -76,745.

From Jim Cramer

Longs and shorts

5/21/2010 4:03 PM EDT

Frequently people say, "you never complain when the market's higher and you get this action". I want to make it clear to everyone that I thought the last 15 minutes up was outrageous and shows how broken everything is. Just ridiculous... And should be investigated.

The first constatation looking at the EW count is that the downside moves are not complete. We finished this morning pre-open wave 3 for the S&P future and the Dax and subsequently bounced. I had given intraday sell level at 1,080/1,088 in the S&P, for the now this has held or close enough. It seems there could be a possibility to make an excess up to 1,093 on Monday but the top of this bounce could well be in already. People who sold the rebound should target 1,013/1,017 on the downside. This would coincide with both the wave 5 downside extension and the C = A if we assume that since the tops we are simply doing an ABC correction before resuming the bull trend. It is not my view, but I do think we wil bounce once we get to 1,013/1,017, possibly to retest the 200-dma. For now we focus on staying short with a stop on a daily close above the 200-dma. We see a similar price action for the Dax. We may rally a little bit more up to 5,880 but after that we should go test 5,600/5,510 at the minimum. - Nic Lenoir

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 21/05/10

Once again, we get to see just how broken our stock market is, one which takes no prisoners, and will trample over everyone and everything as the Primary Dealers use your own money against you to shake every single person out. A 130 point move in the Dow in the matter of minutes on no volume is about all you need to know to lose all confidence in stocks, and call up TD Ameritrade and close your account (you won't be allowed to trade when the market is crashing anyway). Good thing we had a fake rumor in the morning to prevent an all out rout into Friday with the Dow looking to open well into 9000. Additionally, with credit not moving, and obviously not buying this move, there is nobody left who can claim the market is anything even remotely resembling orderly, efficient or fair. SkyNet is again rising.

As everyone is focusing on Europe's impoverished white swans begging for the Fed's FX swans in some Brussels gutter, the grey one is preparing to let rip. Eyjafjallajokull's far bigger cousin, which has always erupted whenever Eyjafjallajokull went active, and whose seismic readings many have been keeping an eye on, has now recorded 5 earthquakes in the past 5 days, with 2 in a 3 hour span today alone. Should Katla blow, Jim O'Neill will be forced to seriously reevaluate the risk factors section in his recent upcoming report: "Why only idiots bet on red in Europe. And oh yes, BRIC, BRIC, BRIC."

There is a lot of “noise” being tossed out by the politicos and their preferred pundits about how the U.S. economy is on the mend. Thus it is important to try and separate fact from fiction about where things really stand.