The Central Scrutinizer

2011-02-15T16:54:00.000-08:00

MERS declared illegal. How will this impact the Foreclosure market, as well as current home sales?

Those who are reading this blog know that I have been discussing the mortgage mess that has been caused by the Mortgage Electronic Registration System (MERS). It was designed to circumvent existing legal recording requirements for transfer of deed and debt note information. Effectively, without MERS the entire Mortgage Securitization industry is out of business. And existing mortgages registered via MERS (over 1/2 half of all mortgages) are now legally suspect.

MERS Declared Illegal

The banking industry has been fighting tooth and nail to maintain the current MERS system, knowing that they are legally "on the hook" for all of those mortgage notes that were originated, sold, traded, and transferred. It anything was done improperly in the origination of these loans, they face massive "put backs" of Mortgage Backed Securities (MBS) on to their balance sheets.

The Mortgage crisis is not over, IMO. We might have just passed through the eye of the storm and are getting ready to be financially pummeled as we pass through the other side.

But in the meantime, this ruling is going to be appealed so that could take another year or so to be accepted, or rejected. There's a lot at stake riding on this ruling. It's going to become very political.

Scrutinizer

2011-01-04T18:32:00.000-08:00

The Crux of the Foreclosure Debacle

Florida Foreclosure Report

Foreclosures take place against the Mortgage, not the note.

Read slide 90 especially where it states that the homeowner might face a secondary lawsuit by the actual noteholder

Scrutinizer

2010-12-25T14:35:00.000-08:00

Watch that 30 year bond yield.

Signaling bond sell-off, or equities selling off. It's going to be hard for the Fed to manage either.

US 30 year bond at top of 15 year channel.

Edit: that link apparently has expired. So here's the Yahoo chart for the 30 year bond:

30 year bond chart

Scrutinizer

2010-12-18T12:00:00.000-08:00

Income In-Equality: The Reason for the Recession?

Now.. I'm not a socialist, so I don't normally align myself with schemes aimed at governmental re-distribution of wealth. What I DO SUBSCRIBE TO is the belief that economic OPPORTUNITY must be made available to the greatest number of people as possible in order to preserve price competition. And that means the greatest economic driver in any economy must be a strong small business sector and middle class which sustains the demand curve in any economy.

For that reason, this article struck me as germane. It asserts that the "rich" have effectively siphoned off economic wealth from the middle class to the point where there is no more purchasing power. And they also, logically, assert that the rich are able to manipulate government officials to pay heed to their needs, and not the needs of "Main Street".

Extreme Inequality helped cause the Great Depression and the current economic crisis

I think we all can recognize that these Wall St. bailouts have essentially done very little for "Main Street USA". We have a unemployment rate FAR HIGHER than what is being recorded (only actual people drawing unemployment are counted in the statistics). Big banks received TARP money, and are now able to borrow from the Fed at nearly 0%, and then loan it back out to the taxpayer financed US Treasury at over 3%. THAT was the reason we had a Trillion dollar stimulus. It created a place to "park" all of that borrowed Fed liquidity, not to make low-interest loans available to the humble masses, most of whom are already up to the necks in debt.

Now I can recognize the need for Governmental intervention into the economy for the purpose of fostering employment. But those projects must be aimed at obtaining an ROI for the US taxpayer. Whether it be re-training people to work in new technologies that enhance productivity and create wealth, or long-neglected infrastructure that will sustain enhanced economic growth, the majority of it must be directed towards projects that create value (short, or long term) for the US Taxpayer.

What are our options? Obviously energy independence that matches or is less than the economic cost of foreign energy.

Renewed efforts towards space exploration and exploiting the resources available there?

Material Sciences.. Carbon Nanotubes.. etc..

Bio-Science.. and health care innovations (17% of the US GDP is health care related and that's TOO MUCH..)

Aqua-culture?

All of these make sense to me.. But what doesn't make sense is just putting people on unemployment for years and claiming they are "creating jobs" by such extensions. You want to create jobs.. then put people to work and obtain an ROI for the taxpayers.

Scrutinizer

2010-12-14T21:11:00.000-08:00

Market Reaching Critical Inflection Point?

From Marty Chenard's "StockTiming.com website. He is asserting that the Institutional Index of "core holdings" has reached a double top and if the market fails to push higher, we're due for a major correction off a double top.

Marty also mentions that yields on 30 year T-bills and mortgages has climbed precipitously, suggesting that the Fed risks permitting yields getting out of control. So what's the solution for making bond yields come back into line??.. Generate a decline in the equity markets that drives capital into the "safe haven" of government debt. This is how it works.. huge sums of money slushes from equities to debt on a regular basis. It would appear we're getting due to see that happen again.

Today's very poor retail sales for Best Buy certainly didn't help matters either. It was off 15% on poor earnings. And if BBY can't produce good earnings (given all the gadgets it sells), it doesn't bode well for the rest of the sector.

It's a scary thing to be short this liquidity driven market, funded by QE2, but I'm almost getting tempted to give it a try. It's also "quadruple witching" this Friday, but the CNBC article tells us not to worry.. Well.. when CNBC tells us not to worry, the Contrarian in me tells me we should worry.

Another thing.. JP Morgan was caught red-handed in a massive short position in Silver. It's rumoured that they controlled about 40% of the market via swaps and other derivative positions. So just the other day they announced that they were unwinding that position in Silver.

Why is this important? Because if JPM has stopped trying to hold down the silver market, some speculators assert that that it lifts the resistance to further silver (and gold) upside.

But what if JPM merely sold off it's exposure to other institutions, thereby keeping that pressure on the silver market? Then any decline in the price of silver will correlate to upside pressure on the Dollar (and downside pressure on almost all commodities).

And the prevailing theory is if the USD rises, it will be bad for equity markets as well, especially for those companies dependent upon overseas sales for profits. Now.. most of the "core holdings" discussed above are international companies that are vulnerable to movements in the dollar.

So I concur with Marty Chenard.. we're at an inflection point in the markets. And we're certainly long overdue for a correction.

The rest of the week, and next, should provide some general trend guidance of future market direction..

Scrutinizer

2010-12-10T08:40:00.000-08:00

ARMS (Trin) is at levels not seen since 1956

Zerohedge noted that the ARMS index has ascended to highs not seen since 1956, primarily due to QE2 and the Fed financing the buying of Equities (they lend cheap money to Wall St/Banks) who then buy the stock market.

ARMS index at post-1956 highs

This can, and likely will, continue until the Fed drains the liquidity.. Recent drops in the bond market suggest a movement of capital from bonds into equities. This is something the Fed desires, IMO, but they want to control the velocity of such movements in order to prevent a wholesale sell-off in the bond market, forcing them to raise rates before they are ready.

Now.. those who have been following my blog (you lonely sod, you!!), you may recall that back in June the creator of the ARMS index, Richard ARMS, was flashing a raging buy signal for the markets and he was proven absolutely correct (I wish I had paid more attention.. sigh):

ARMS post from June, 2010

So it will be interesting to see what he has to say now. What seems clear is that the US markets are getting very frothy with all this added liquidity.

But we also should bear in mind that I believe that the Fed has recognized that sinister "Mother of all H&S" formations I mentioned in a post back in May. That formation will not be nullified until we reach 14K on the DOW. So it remains in effect until that point, and a "double-top" is also nullified by new highs.

IMO, this is the whole purpose of QE2.. Pump up the markets until such negative technicals are neutralized. Of course, this means inducing inflationary pressures through a weak USD.

The question is whether events overseas, both in Europe and Asia, will thwart the Fed's best efforts to accomplish their goals.

Scrutinizer

2010-11-28T21:51:00.000-08:00

Ireland's Banking Crisis: The REAL Story of Who Bankrupted It's Banks..

Very interesting analysis and commentary of the Irish Banking Crisis and how it impacts other European Banks, as well as many Global Corporations who have been attracted by Ireland's low tax rates and loose financial regulatory standards.

Who Bankrupted Ireland?

In sum.. it's argued, convincingly IMO, that the Private Banks are attempting to wrangle a public bailout and place the financial burden and austerity upon the Irish people. And the more the state (taxpayers) are tapped for that bailout, the more it permits private corporate capital to engage in transferring their money out of Ireland.

Scrutinizer

2010-11-18T21:48:00.000-08:00

The Druze of Golan

Michael Totten has written up a VERY INFORMATIVE article on the Druze of the Golan Heights in Israel. It's also a good primer for some of the more complicated aspects of the Arab-Israeli conflict and the position of various minorities in the region.

Towers of the Sun: The Druze on the Golan Heights

Highly recommend reading it..

Scrutinizer

2010-11-18T20:15:00.000-08:00

Global Warming.. It's about Economics

And now we know what the real agenda of the IPCC and Global Warming community truly is:

Climate policy is about redistributing the world's wealth.

Scrutinizer

2010-11-07T21:35:00.001-08:00

Japan on the brink of a Sovereign Debt Default?

Kyle Bass continues to make the case that Japan is just a few years away from a debt default. I think the case is compelling, although it's possible that Tokyo may stave it off for a few years more.

Sovereign Debt Default in Japan?

It should send a message to US politicians and American investors regarding our own situation.

Scrutinizer

2010-10-27T12:52:00.000-07:00

Why "MortgageGate" is destined to become a criminal investigation

Washington's Blog (bookmarked to the left) has a great piece on how extensive this Mortgage fraud had become and how it's being revealed to be actual criminality, not just a "mistake". Please follow the links contained within each article for further depth.

Mortgage Fraud perpetrated against investors

And this piece from Zerohedge:Fraudclosure Update: The Crowd Is Getting Restless

The bottom line is that the Foreclosure Fraud being revealed right and left is only the tip of the iceberg. The fact is that the same elements that bring those foreclosures under suspicion are the same elements that make the entire loan origination process invalid.

In most cases it involves separating the mortgage note from the deed holder.

In other cases, it involves actually destroying the physical note (thereby destroying the obligation) and then selling it to multiple parties electronically (counterfeiting).

(Edit: 30 Oct, 2010) Foreclosure mess even worse in non-judicial states.

So what does this mean? It simply means that the banks defrauded their investors, as well as their insurers. It means that, sooner or later, the banks will be paying through the teeth to settle these claims in order to avoid criminal and civil fraud charges.

And with Fannie and Freddie, as government owned entities, possessing subpoena power to obtain the actual mortgage note files (something that private investor/insurer litigants lack) this process will be expedited and VERY PUBLIC. The closest thing to this power lies within the Monoline insurers and their contractual rights to review violations of "representations and warranties".

Furthermore, as John Mauldin stated in his last letter, the European banks are rounding up a Posse to come after the TBTF "banksta's".

And apparently the biggest mutual fund holder of US government debt, Bill Gross, is also buying Mortgage Backed Securities hand over fist in anticipation of "put backs" to the banks. (buy them at pennies on the dollars and put them back to the banks at near face value).

Gross rails against Fed, and apparently buys MBS

I still stand by my belief that Monoline Mortgage insurers are a likely safe harbor in the storm that is approaching. (ABK, AGO, MBI, RDN, PMI, MTG) (note: I am currently long ABK).

I would also consider building small speculative positions in the regional banks, most of which are not subject to putbacks, and also hold their mortgage notes on their books. I kind of like Washington Federal S&L (WFSL), but don't currently hold any. But my mother banks there and they are awesome.

Scrutinizer

2010-10-23T10:45:00.000-07:00

More On "Mortgagegate"

This is probably one of the most definitive interviews I've yet seen on the looming problem of Mortgage Backed Securities, as well as Foreclosure and Origination Fraud:

Everything you need to know about the foreclosure

And here's another one to watch, from the Kudlow Report:

Whalen and Ritzholtz interview

Big Problem for Banks: Due Process

Scrutinizer

2010-10-21T20:47:00.000-07:00

Fannie and Freddie on the Mortgage Fraud Warpath.. Wall St. Banks and Mortgage Securitization approaching a "come to Jesus moment"?

Fannie Mae and Freddie Mac, which were effectively nationalized by the Federal Government are looking for loan files held by mortgage trusts as they look to "put back" many of the bad loans they were sold by the big Wall St. banks:

Some analysts say Fannie and Freddie, which touted their unparalleled mortgage-market expertise, could be hard-pressed to argue that they didn't know what they were buying.

But the subpoenas could help Fannie and Freddie access loan files for the mortgages backing their bonds and to demonstrate that the loans didn't conform to underwriting guidelines.

The loan files "are really the Holy Grail here," says David Grais, a New York securities lawyer who represents the Federal Home Loan Banks of San Francisco and Seattle, which have sued Wall Street firms to buy back soured mortgage securities.

Difficulty obtaining those loan files is one reason why there have been so few efforts by investors to force repurchases so far. Investors need to access the loan files to determine if there has been a specific violation of certain contracts, but they can't petition trustees for loan pools to take action without first identifying that breach.

Fannie and Freddie seek illusive mortgage loan files

It's also why these investors are looking to the legal discovery being conducted by the monoline insurers.

But one might ask, why do they care, so long as the investors are being paid by the monoline insurers? Well.. if the monolines are able to prove that "chain of title" was not properly followed, and the mortgage loans fail "reps and warranties", it will bring into the question whether any bonds backed by securitized mortages in those trusts are worth the electronic paper they are recorded on.

CitiBank presentation on 3 scenarios for resolving the Mortgage/Foreclosure mess:

I found this one paragraph to be particularly disturbing, since we know the US Treasury is hunting for revenue and the very process by which these mortgages were securitized may constitute serious tax implications.

To qualify as a REMIC under the IRS code and enjoy the beneficial tax
treatment, the trust (1) must be passive and (2) cannot acquire any new assets
90 days following the trust’s creation.

If, as described above, mortgage documents were never correctly passed
through to the trust when it was established, then the trust may not actually
own the underlying mortgages it purports to own. Although it is possible that
this issue could be remedied by some legal maneuvering, doing so could
violate the REMIC status since the trust would be acquiring assets long after
the aforementioned 90 day period has expired. Such a violation in turn could
trigger a sizeable tax burden for investors. Our speaker indicated that there are
a handful of open questions on this front and that this is a legal gray area.

Citi Mortgage presentation

Here's some more interesting reading to further explain the problem:

Bank Of America foreclosure problems

Since it can be legally argued that the "chain of title" never actually passed to these trusts to begin with, trying to "fix" that chain may lead to violating the trust's tax exempt status.

Therefore, from the investor's point of view, they MUST press for the banks to buy back these suspect loans because resolving these foreclosure inconsistencies in "chain of title" leaves them vulnerable to massive tax liabilities.

Capice'?? Indeed this is an unholy can of worms that has been opened.

And once again, I suggest watching the monoline insurers like ABK, MBI, RDN, PMI, and MTG. They are demonstrating increasing strength and could act as a "Put" on another financial crisis.

Scrutinizer

2010-10-17T01:16:00.000-07:00

John Mauldin's latest letter on "The Subprime Debacle: Act 2"

This is simply a MUST READ, and very frightening article discussing the problems with the entire Mortgage Backed Securitization process. Read it, then RE-READ IT!!:

The Subprime Debacle: Act 2

I reiterate.. the only "safe" place, IMO, to invest and hide from this issue is cash, possibly physical gold (can't believe I'm saying that), or the monoline insurers who stand to "get off the hook" for billions in insurance claims and liabilities pending against them.

I may also initiate a position in FAZ, the ultra-bear financial ETF.

There's also a possible "silver lining" to this mess. With 60% of American homes now registered under the MERS system, it's likely they will find it increasingly difficult to obtain title insurance to facilitate a sale. That means the remaining 40% of American homes, owned outright, or where the chain of title has not been violated, could see growing appreciation.

And given that the majority of mortgage loans that WERE NOT securitized, were issued by regional banks and savings and loan institutions, they may find the value of those homes increasing, thereby taking pressure off the regional banks who played by the rules and keep the mortgages on their balance sheets.

EDIT: 17 Oct, 2010 Letter from the Association of Financial Guaranty Insurers (AFGI) to the CEO of Bank of America (symbol:BAC), Brian Moynihan, regarding violations of "Representations and Warranties" by BAC in the loans that the Monolines insured. In the letter it's stated that some $10-20 Billion of these loans need to be repurchased by BOA and put back on their balance sheet.

AFGI letter to BAC

The heat is rising on the big banks to make good on their obligations to insurers and investors.

It will be interesting to see if BAC blinks, or attempts to further delay the inevitable.

Scrutinizer

2010-10-14T19:10:00.000-07:00

Wanna make some Money?: Monoline insurers were top performers today!!

I don't normally make many stock recommendations, but I'm fairly confident we're starting to see the signs of a major recovery in the Monoline Insurers (symbols: ABK, MBI, RDN, PMI, MTG and a few others).

As we've been discussing, the evidence of mortgage fraud is front and center on the business and national news media. We've discussed the political ramifications, as politicians are forced to address the issue in order to appease their constituency, most of whom are living in houses that are underwater.

Now.. I'm going to post two links that provide a VERY SOUND fundamental analysis of MBI's position and how it could find itself having it's credit status restored.. It's also important to bear in mind that MBI and ABK are two of the largest issuers of municipal bond insurance. They back the governmental issuances of many local and state debt offerings. If they are unable to provide effective insurance for those municipal debts, it increases the cost of new issuances (or makes them completely untenable). It also increases the cost of Credit Default Swaps, making that debt appear to be less stable.

So it's important for an economic recovery to fully succeed that the financial surety industry recover as well, even if it means at the cost of pummeling the TBTF (Too Big Too Fail) Banks on Wall St.

Here's the first presentation on MBI:

MBI: Why The Bond Insurers May Be The Huge Winners From The Brewing Mortgage-Bond Scandal

Click on the 44 slide presentation towards the bottom of the page.

Also, there was a very negative call on Bank of America today.. Here's the link for that presentation:

Mortgage Repurchase: BAC's hidden liability

Now.. for the purpose of disclosure, I'm long both ABK and RDN. But ABK and MBI are the major players in this realm and have the most upside potential.

ABK crossed over $1/share in Afterhours trading.. It's on the brink of flipping it's weekly Parabolic SAR to an uptrend if it crosses above 1.10 tomorrow. That could trigger a major short squeeze, given that Friday is options expiration and there are 54 million shares short in ABK.

ABK, back in July, 2007, just as the sub-prime crisis was beginning to unfold, was a $95/share stock, so one can just imagine the potential for price appreciation if they can commute many of their liabilities, unlock capital reserves they had to set aside for expected losses, and commence writing new surety business again.

Just last year, in Oct, 2009, the stock went from below $1/share to $3 within just a few weeks on rumours of commutations (as I recall).

I missed that train (and probably a good thing since it plummeted afterward), but I've got my ticket for this ride.. And it's just possible that this ride is going to be for real, and the start of a significant recovery in its share price.

Scrutinizer

2010-10-14T06:30:00.000-07:00

HOW MAIN STREET HAS DESTROYED WALL STREET

Over and over, when discussing the level of defaults and foreclosures, I hear people ranting and raving against those people who bought homes they couldn't afford. And, of course, the "banksters" love to make themselves out as the victims of borrower fraud.

But here's the other side of this. The banks, and Congress by encouraging home ownership for everyone, skewed the demand curve to it's extremes. Then the Mortgage Banksters opened up the spigots to include liar loans, no-interest loans, and ARMS.. But most importantly, they started financing illegal aliens, even going so far as to assist them in obtaining FICO scores that would meet the loan requirements. How they did this was by "renting" scores from other individuals by being added as "authorized users", but not being given access to the actual credit line. Of course, the borrower paid for this service.. ;0)

FICO piggy-backing

So every individual family that COULD afford to purchase a home honestly (meeting basic lending standards and downpayment) were forced to compete against the sub-prime borrowers in the housing market. And of couse, when the sub-prime borrowers default, or are just abandoned (in the case of many illegal aliens), then everyone's home values fall.

So the other side of this is Main Street. And the next time you hear someone complain about how unqualified borrowers are at fault, read this to them:

How Main Street destroyed Wall Street

In sum, home prices should have risen according to the traditional standard based upon the credit worthiness of the borrower. Instead, the banksters turned the mortgage market into a huge real estate stock market, through the (illegal?) securitization process. Take a contract debt instrument, package it into a security, and sell it to an investor.

What exactly is a Mortgage? Isnt' it a debt contract, backed by collateral in the form of a house? Isn't that what all debt is (unless unsecured).. a contract between borrower and lender. And now we're turning contracts into stocks, to be bought and sold furiously, and for those with the wherewithal, destroyed by using Naked Credit Default Swaps??

This is implicitly why Glass-Steagal should be re-implemented. It's one thing to have a market for determining the value of asset prices, including real estate and stocks. But to have a actual debt contracts turned into securities undermines the foundation of our entire economy.

In sum, debt is debt.. a contract between borrower and lender. It's value should be dependent upon its performing status.

An asset, hard, paper, or commodity, should be valued according to market price discovery processes.

Scrutinizer

2010-10-12T19:36:00.000-07:00

Recent stock market rally.. What if it was priced in Euros?

The recent S&P advance priced in Euros

It's clear that the only reason the US stock market has climbed is because the US Dollar has fallen against other currencies.

So for those who believe this rally is credible, you'd better watch the US dollar. When it turns upward, it's likely all those gains in the S&P are going to start being erased.

Scrutinizer

2010-10-11T23:04:00.000-07:00

Mortgage Fraud: MERS on very shaky legal ground

This is the best explanation I've yet heard regarding the controversy over the legitimacy of MERS and the ENTIRE mortgage securitization process. In sum, the mortgage banks wanted to circumvent paying the recording fees to each individual county where titles and deeds recording who actually owns a piece of property were maintained. MERS attempted to replace that structure, without legal authority. A tidbit that should make it worth your reading the remainder of the link:

Because the new system cut out payment of county recording fees it was significantly cheaper for intermediary mortgage companies and the investment banks that packaged mortgage securities. Acting on the impulse to maximize profits by avoiding payment of fees to county governments much of the national residential mortgage market shifted to the new proxy recording system in only a few years. Now about 60% of the nation’s residential mortgages are recorded in the name of MERS, Inc. rather than the bank, trust, or company that actually has a meaningful economic interest in the repayment of the debt.15 For the first time in the nation’s history, there is no longer an authoritative, public record of who owns land in each county.

MERS illegality explained

As the reader can see, the case is very compelling that 60% of the existing mortgages may have been fraudulently originated and then illegally conveyed into the securitization process.

And here's another good article on the problem:

Primer on Foreclosure Crisis

And I have to agree with Denininger in that only an RTC style program is going to resolve this. Waiting to undertake this process is only delaying the inevitable pain. And that pain will only grow more intense as more and more legal findings are brought forth.

EDIT: Oct 12, 2010

And one of the few credible reporters for CNBC, Diana Olick, is even hopping on the bandwagon..

Foreclosure Fraud: It's Worse Than You Think

However, I have to ask why it's taken the "News" Media over a year to finally cover this issue? Why is it newsworthy NOW, but not back in 2008, or even earlier??

This isn't new stuff.. Denininger has been covering this issue for well over a year.

And the Monolines have been suing Wall St. banks over their fraudulent originations for over a year.. But NOW it's "news"??

EDIT: Oct 13th JP Morgan (JPM) stops using MERS mortgage registration system:

JPM admits "OOPSIE DAISY"!!

And more amplification on exactly what MERS is (and what it isn't) from Washington's Blog:

MERS role in foreclosure mess

Again, it's amazing the amount of political momentum that is gathering over this issue despite the fact that it's been a well-known fact that has been discussed for well over a year.

Scrutinizer

2010-10-08T19:30:00.000-07:00

"Biggest fraud in the history of the capital markets"

Karl Denninger has been covering "Foreclosuregate" for some time now and it appears that his analysis has been spot on with regard to the consequences.

He makes a clear case for this with the following description of how the MBS creation process actually occurred:

No, what happened then (and still does today) is that these MBS are sold first and filled after!

That is, a pension fund calls up Vampire Squid Bank and says "I need $100 million of MBS that pay a 5% coupon."

Vampire Squid Bank takes the $100 million dollars and then proceeds to securitize loans.

But in doing so it took the $100 million on a prospective pooling and servicing agreement in which they agreed to provide loans of a certain credit quality and specification to the buyer.

So it's much worse than "we didn't know." It's "we took the money, then we build the security and didn't look, even though we told you we would."

biggest fraud

Capice?!! The Pension funds, or any other investor (Chinese, European.. etc) placed an order for a MBS structure paying a certain dividend. Then the Investment Bank (Goldman, Bears.. etc) packaged a bunch of mortgage notes together, got them rated by the Rating Agencies, then took that investment rating and obtained insurance from the Mortgage insurers (Ambac sym=ABK, Radian=RDN, PMI=PMI,) and others.

Ambac was the #2 mortgage insurer out there and it has been literally wiped out (put in "run-off" status) by this mortgage fraud. However, on the Sept 29th, they sued Bank of America=BAC for $16 Billion, alleging that 97% of some 6300 mortgages that Ambac analyzed violated origination standards (also known as Representations and Warranties). So, they and the other mortgage insurers (also known as Monolines) have had to pay the mortgage payments to the originators, which then gets paid to the security holders, leaving the banks off the hook for the swindle they perpetrated.

So.. the question is whether Denininger is correct and a Resolution Trust (RTC) structure is going to be required to finally resolve this mess and make those who were victimized (including the mortgage insurers and security holders) whole again. It strikes me that it will require this ultimately. But obviously the banks, and the politicians who receive their campaign donations, are trying to put this off as long as possible.

I have noticed that there is a lot of market activity in the Mortgage Insurer (Monoline) sector over recent days. I'm not sure if the perception is that these companies are finally going to receive their day in court. I definitely believe were victimized by the fraudulent ratings and "representations and warranties" that were presented to them when they insured these MBS entities. I will admit that back in 2008 I lost a lot of money betting on ABK, under this same premise, but that was at much higher stock prices. But I've always felt they had a solid case for denying payment of claims against these fraudulent MBS. The problem was that they needed a legal finding to justify doing so.

The fraud that was perpetrated on the Monolines is, IMO, like a person going to obtain vehicle insurance and lying about all the DUIs and Reckless Driving citations they've received. If you lied when you applied for your insurance, it's a clear cause for denial of claim should you get in an accident. You've lied in your personal "representations and warranties" related to your driving record.

Now supposedly the insurer is supposed to verify your driving record, but in the case of the Mortgage and MBS insurers, they heavily rely upon the Ratings Agencies (RAs) (Moody's, S&P, Fitch.. etc). Well.. the RAs were PAID by the investment banks (IBs), so they obviously didn't scrutinize these securities very closely.. Would have been bad for business if they didn't give the rating the IBs wanted. It was a very incestuous conflict of interest, which has been well covered in the news. But now one has taken the issue this far into the political arena, as we're currently seeing.

NOW, it would appear, that the issue is finally reaching a political head and Obama has "officially" vetoed that sneaky little notarization bill that the bankers wanted so much:

Obama's "pocket" veto with memorandum of disapproval

Obama knows this is a political hot potato. Banks don't vote.. They just pump money into the political system. And those who do vote have a lot of reasons to hate the banks at the moment, especially if they are getting foreclosed on. But they also hate the banks because they were forcing qualified home buyers to compete with sub-prime borrowers and even illegal aliens (it's true!!) to buy a home. Those unqualified borrowers resulted in a tremendous "false" demand that drove home prices up. So now, when the sub-primers default and the illegals bail out back to Mexico (or change their names) those who were qualified homebuyers find the prices on their homes plummeting back to earth.

Now.. I know.. no one forced them to buy that house. They could have continued to rent, as I have opted to do (but I just like my freedom to wander to another location.. ;0). But you know how much pressure husbands are under from their wives.. That damn "nesting instinct" that drives a woman to have a home of their own and few marriages survive defying it.

However, I've talked with a number of folks who have decided to undergo a "strategic default", bank their cash, and attempt to recover at some point in the future.

And as I saw on the Daily Show last night, even the Mortgage Banker's Association in Washington, DC has defaulted on their $79 million loan on their previous building (This is pretty damn funny, but probably not for those are undergoing a foreclosure):

MBA defaults on their offices

Good for the Goose.. Good for the Gander?

Really hard to have much sympathy for a Mortgage Banker when they can't even maintain the payments on their own "home".

Thus, if many Americans happen to have watched that, and start tuning into the Congressional hearings on Foreclosure and Mortgage Fraud next month, they may be even less inclined to continue making payments on a mortgage that is severely under water.

This is going to be interesting to watch.

My question is whether being an investor in the severely beaten down Monoline insurers is the sign of a potential recovery in the sector, or merely a short-term speculation. Some of these companies, if they can get out from under their obligations on these Fraudulent MBS insurance contracts, have a TON OF MONEY stashed away in reserve for paying claims. They could actually surge tremendously over the next year or two, if the courts see things their way, or the Government comes in and performs the "Mother of all RTC" programs.

Scrutinizer

2010-10-06T22:49:00.000-07:00

Fed chief FINALLY tells it like it is

US on the brink of disaster

Bernanke Speech link

Edit 10 Oct, 2010

MERS has released a PR stating their side of the issue:

MERS PR

Here's more detail on exactly what the role MERS plays in the securitization and foreclosure process:

MERS

Scrutinizer

2010-10-06T17:14:00.000-07:00

More on the MERS mortgage/foreclosure fraud

The following statement by a California Judge in this case sums up what has happened to most people's mortgages:

"Lenders passed around the deed to Vargas’ house as if it were a whiskey bottle at a frat party."

Here's the link from a year ago:

But Vargas, hero, citizen and family man, has been sucker-punched along with millions of other American homeowners, taxpayers and the nation’s entire economy by the mortgage-lending debacle.

A series of loans from some of America’s largest mortgage lenders cost him nearly $200,000 in less than two years and destroyed financial security it took a lifetime to build. Documents reviewed by msnbc.com show that loans sold to Vargas by mortgage brokers on behalf of the lenders were loaded with features that federal officials say are the hallmarks of predatory lending.

Lenders passed around the deed to Vargas’ house as if it were a whiskey bottle at a frat party. Ultimately, he wound up in foreclosure proceedings. And, finally, bankruptcy court.

Vargas’ story is the Cliff Notes version of what has happened to the larger American economy. It is a story of greed, lax lending standards, lack of government oversight and the fantasy that real estate prices will always rise.

Mortgage Deeds and Whiskey bottles

I also just read today that Ambac, previously the #2 provider of Mortgage insurance (PMI) has sued Bank Of America for $16 Billion:

ABK sues BAC for $16 billion over countrywide mortgage fraud

BAC bought out Countrywide and at that point assumed their liabilities. ABK is alledging that...

... 97 percent of 6,533 loans it reviewed across 12 securitizations sponsored by Countrywide didn’t conform to the lender’s underwriting guidelines, according to the complaint filed yesterday in New York state Supreme Court. Many of the loans were made to borrowers with limited or no ability to meet their payment obligations, Ambac said.

97%!!!!! of all the loans that ABK insured for BAC/Countrywide were violations of "warranties and representations".

It's evident that the financial crisis is not over. We have some SERIOUS PROBLEMS still remaining with the entire system that will likely take years to unravel (with, or without, congressional intervention).

Edit Oct 7th And it would appear that this congressional intervention has, in part, arrived. Much of the controversy over this foreclosure fraud was that documents were being presented with notarized signatures that were not accepted by other states. I also understand that some documents were electronically signed and notarized, which is contrary to the whole notary process (actually witnessing the signing of the documents). Well, Congress has QUICKLY passed the following bill and now Obama is sitting on it for signature. One has to wonder if he's wondering what the repercussions to his political career will be if he does:

n other words, with one simple signature Obama has the capacity to prevent tens of billions in damages to banks from legal fees, MBS deficiency claims, unwound sales, and to formally make what started this whole mess: Court Fraud perpetrated by banks, a legal act, and to finally trample over the constitution. Will Obama do it? Potentially - the banking lobby certainly has enough power over him and his superiors, the members of the FOMC. On the other hand, the populist revolt that will surely follow the enactment of such a law will certainly end any dreams of a second term, and potentially of a completed first one. The drama is now on: will Obama openly side on behalf of the bankers (without a "blame the republicans" fall back this time) or of the foreclosure "victims" (granted, the bulk of whom are deadbeat homeowners who should never have owned a home to begin with). We doubt a decision will be reached before the midterms, although quite a bit now hangs in the balance.

Obama's quandary

Yet, the market continues to climb on the back of a declining US dollar. The USD is down over 10% since May (input UUP, which is the "bullish dollar ETF" in the following link). But be sure to look at the weekly DOW chart first to make the comparison between it's performance and the UUP:

DOW Weekly Chart

Scrutinizer

2010-10-04T16:31:00.001-07:00

Shades of 1937

Tell me this isn't downright SPOOKY!!

1937 compared to current market

The Prediction?

Scrutinizer

2010-10-01T00:13:00.000-07:00

Lord, Have MERScy

Note: Stay tuned for additional updates on this post as more information becomes available.

Ever since 2008, there has been a growing controversy with regard to entire Foreclosure process. It involves a bizarre financial entity called MERS (Mortgage Electronic Registration System). It's well worth doing further research on this complex legal entity, but suffice to say that it was created to manage the transfer of mortgage note ownership within various Mortgage Backed Securities (MBS). Apparnetly mortgage notes get bought and sold on a regular basis from one MBS to another and MERS is supposed to track the re-assignment. As of current date, apparently 60% of all US mortgages are registered in the MERS system.

But when it comes to foreclosure, it's important that the actual note holder be represented as the debt holder in question. But if these notes are bought and sold constantly, it's difficult to identify who actually holds those notes at the time of foreclosure. And if you can't identify who actually holds the note, legally you can't foreclose. At least, that the argument that is being debated in various courts. There are very specific laws related to foreclosure and I don't pretend to be an expert in any of it. But the fact that legal authorities, including the Kansas Supreme Court, have stepped in to question how MERS has been utilized is good enough for me.

So, that said, here are few links that are worth reviewing. The first one deals with the apparent fact that MERS has no employees. Therefore, the agents they assign at various banks have no one to report to. This very fact calls into question the legitimacy of MERS, which apparently lacks any duly authorized personnel to oversee foreclosures:

There's no life at MERS

And quite a little cottage industry is rising up to contest MERS:

Foreclosure Defense Nationwide

More on MERS..

And Bloomberg had this article the other day that bares reading:

Foreclosure Flaws may delay US recovery

Zerohedge is piping in on this issue as well:

Representative Alan Grayson has a nice synopsis of MERS:

Foreclosure Fraud Crisis

Q2 Foreclosure sales about to be reversed?

(Edit Oct 5th) Link to Zerohedge article suggesting that the MBS market may collapse over this foreclosure fraud issue. Title insurers are starting to halt coverage for foreclosed homes, out of doubt about who actually holds the title. No title, no sale.:

Title insurers terminating title insurance for foreclosures

If banks are engaging in foreclosure fraud, it could add impetus to the questioning of the entire MERS system and leave banks on the hook for the entire mortgage loan amount.

And if the banks on the hook to the MBS holders, it's going to get VERY UGLY!! So ugly that it's going to require Federal (Congressional or Executive order) action to resolve it.

That's not a good scenario for the US financial system. And it's becoming increasingly clear to me that this is going to take a major political initiative to resolve, with consequential uncertainty in the markets. But it's going to take something that supercedes the current foreclosure and bankruptcy courts.

Take some time and Google MERS and study up on the subject and legal questions. You'll be amazed!!

Scrutinizer

2010-09-26T21:46:00.000-07:00

Recession is officially "over"

Much of the recent market gains seems to be due to an economic report stating that the recession is officially over and ended in June, 2009. Well.. it might be official, but for the millions of Americans living on food stamps and other government assistance it sure feels like we're still in one.. So is the market just going up as a response to a declining US Dollar, or in response to a rising gold price (indicating inflation and price recovery)? Or are just pumped up on an economic "sugar high" from that stimulus that increased our national debt by over 10%, a stimulus that may lead to a major hangover.

Please review the following and ask yourself if we're out of recession:

The following are 15 shocking poverty statistics that are skyrocketing as the American middle class continues to be slowly wiped out....

#1 Approximately 45 million Americans were living in poverty in 2009.

#2 According to the Associated Press, experts believe that 2009 saw the largest single year increase in the U.S. poverty rate since the U.S. government began calculating poverty figures back in 1959.

#3 The U.S. poverty rate is now the third worst among the developed nations tracked by the Organization for Economic Cooperation and Development.

#4 According to the U.S. Department of Agriculture, on a year-over-year basis, household participation in the food stamp program has increased 20.28%.

#5 The number of Americans on food stamps surpassed 41 million for the first time ever in June.

#6 As of June, the number of Americans on food stamps had set a new all-time record for 19 consecutive months.

#7 One out of every six Americans is now being served by at least one government anti-poverty program.

#8 More than 50 million Americans are now on Medicaid, the U.S. government health care program designed principally to help the poor.

#9 One out of every seven mortgages in the United States was either delinquent or in foreclosure during the first quarter of 2010.

#10 Nearly 10 million Americans now receive unemployment insurance, which is almost four times as many as were receiving it in 2007.

#11 The number of Americans receiving long-term unemployment benefits has risen over 60 percent in just the past year.

#12 According to one recent survey, 28% of all U.S. households have at least one member that is looking for a full-time job.

#13 Nationwide, bankruptcy filings rose 20 percent in the 12 month period ending June 30th.

#14 More than 25 percent of all Americans now have a credit score below 599.

#15 One out of every five children in the United States is now living in poverty.

The Middle Class Recession

So am I buying into this economic recovery scenario? Not yet.

My view of the market action of late is that we're in a short-squeeze scenario. With everyone being so negative, including myself, it shook a lot of people out of the markets, while others were going short. And short interest is a terrific level, so short-covering could fuel a significant rally if buying interest continues:

NYSE Short Interest Remains Near Record

Personally, considering the lack of volume being seen, it's not a sustainable rally. But it can go on for a few more weeks, or completely collapse tomorrow. It's very vulnerable to "event risk".

Be nimble and look for longer term trends.

Scrutinizer

2010-09-25T23:56:00.000-07:00

CSO's.. The "Mother" of all Derivatives"

If you thought Credit Default Swaps were bad, here's a discussion of the CDS monster that Wall Street has created.. the CSO (Collateralized Synthetic Obligation)..

To visualize a CSO, imagine a bunch of CDS contracts put into a basket (much like Mortgage notes were combined into CDO's (Collateralized Debt Obligations).. NOW imagine multiple "baskets" of these CSOs into another "basket" and called a CSO (squared) and you have a recipe for disaster.

Matt Taibbi of Rolling Stone has written an excellent article on CSOs and how a bankruptcy of British Petroleum could have ignited another Financial Meltdown. It's a must-read:

BP's Shock Waves

Btw, I'm on the sidelines in this market.. We're seeing the potential for a reverse H&S formation taking the markets higher, but the lack of volume really has me spooked. If I trade it, I won't be holding any position overnight.

For those of you who had the guts to hold, or buy at sub- DOW 10K, I applaud your guts...

Just make sure you know where to find the exit.

Scrutinizer

2010-09-15T21:06:00.000-07:00

Should the public be permitted to videotape Police as objective witnesses?

Police continue to harass citizens who record them.

I have only a few words on this matter. YES.. And cops conducting raids, or activities with a high likelihood of physical contact and/or use of force, should be required to wear a head mounted camera.

I know that SpecOps folks wear them for their missions (although for classified afteraction review and intel gathering), so there is no reason that SWAT personnel shouldn't be required to wear them when they are in a position where their actions might be called into question.

This can serve as a tool for protecting BOTH the public and the police force.

Scrutinizer

2010-09-12T15:59:00.000-07:00

Market Crosscurrents: Is the Russell 2000 (RUT) intermediate chart indicating more market upside?

A lot of traders, including Christian at PSA, rely primarily on daily charts for determining market direction and overbought and oversold conditions.

However, I try and incorporate weekly and monthly charts into my analysis in order to look for hidden trends that are longer term.

I like to use the RUT as a leading indicator for the S&P and DOW as Small Caps generally lead the overall markets into, and out of, recession.

Now.. looking at the daily RUT, it would appear to be overbought. But we've seen in previous cases where that Stochastic will hover above 80 for some time before finally succumbing to gravity and returning to oversold conditions.

NOW.. if we look at the WEEKLY RUT, we'll see that it bounced off of the 20 level on it's Stochastic and reversed upward.

This is also a chart that distinctly indicates the value of Bollinger Bands in determining trading ranges for equities. We can see that the RUT has consistently remained within it's weekly Bollinger Band envelopes (minus the May 6th "Flash Crash"). This COULD give the RUT the potential of seeing 700 over the next few months before reversing off a WEEKLY overbought condition.

But let's look at the Monthly RUT chart to see if there are any confirmations that would support a further move to the upside.

As we can see, the monthly RUT chart is DRAMATICALLY OVERSOLD and looking to bounce off that 20 level on it's Stochastic, where it has bounced twice previously at it's previous March, 2009 low. Furthermore, we can see that the MACD has been struggling to go positive and it's histogram appears to be leveling out, rather than descending. So this month will be critical to determine the future direction of that histogram and whether the MACD returns to negative, or continues it's positive path.

What's LACKING in that monthly chart is a "hammer" on the candlesticks, unless one counts the hammer that was put in back in April. But I'm not sure that hammer is still valid given what has occurred since the "Flash Crash".

This is NOT a recommendation to go long the markets, as I still see the fundamentals deteriorating, which could undermine the technical analysis. But it does represent something that should be considered if the next pull back on the daily chart is at a higher level than previously, or results in a strong hammer bounce on the daily.

Scrutinizer

2010-09-05T22:16:00.000-07:00

Mutual Funds: All in?

Despite all the hoopla over the past few days, Mutual Funds are at the lowest cash levels in 5 years of data that Decisionpoint has been charting. Usually when Mutual Funds are short on cash, it's an indicator of a market top as they are at risk of redemptions from investors..

Mutual Fund cash levels at 5 year lows.

Decisionpoint chart

Edit: Sep 8th

Don't know how I missed this article, but Zerohedge reports that we're seeing the 17th STRAIGHT WEEK of investor redemptions from Mutual Funds. So I thought it definitely pertained to this posting and worth the edit.

Scrutinizer

2010-08-29T20:41:00.000-07:00

Counter-Trend Rally underway

We formed a very strong "Hammer" on the major index candlesticks on Friday. And tonight we're seeing Japan up 3% on word they are going to intervene to keep the Yen from appreciating.

But it's evident that the Nikkei's move tonight is bringing it smack dab into formidable resistance:

Nikkei chart

We can see that previous rallies have stalled at the 60 day MA, which is currently about 9500 for the Nikkei. So it will require confirmation tomorrow to see if the rally is sustainable.

Also, intervening against a continuing rise in the Yen means that Japan will have to buy US Dollars. And a strong US dollar may have a negative impact on Big Cap US stocks. But from the futures we're seeing, it's probably the US markets will also rally. However, I believe that rally will be unsustainable.

To see how interconnected the global markets are (especially the Currency markets), it's wise to review what some folks, who are much smarter than I, are saying.

Kyle bass made a fortune predicting the sub-prime mortgage meltdown and positioning himself to take advantage of it. His "street cred" is unimpeachable and he presents his views in clear, concise, and impeccably logical manner.

Deep Thoughts: Kyle Bass' take on Japan and the world.

Additional comments on Bass' views.

Interesting CNBC interview with Kyle Bass (starts 50 seconds into the clip).

Video link to CNBC interview

S&P 500 Chart possibilities

When Kyle Bass says he sees no reason to be in US equities, I think wise investors have to take note. And when he says he sees global GDP declining to -4%, that had better wake some people up.

But in between there will be these kinds of counter-trend rallies and the nimble can still take advantage of them for profit, while long-term retail investors can use them to sell into.

Scrutinizer

2010-08-25T22:35:00.000-07:00

Counter-trend Rally possible, but how far will it take the markets?

Every bear market move to the downside has a bear market rally. Some opine that the 83% upside since the March, 2009 low had been nothing but a bear market counter-trend rally and now the original downtrend is continuing. I tend to agree with this opinion.

So it's not a surprise that we might get a minor counter-trend rally after the recent declines. But it's going to need to be more powerful to reverse the triple decline of the major moving averages.

As we can see, there's a possibility of the S&P 500 moving back up to 1080 before it comes into maximum resistance at the 20, 50 and 200 Day MA. But that last move downward left a bunch of people who had been buying the S&P for 3 weeks and were stuck in their positions after that one day plummet. Now they are hoping for a rally to bail them out, so there's expectation of major selling at the 1060 range.

S&P 500 Daily

The Russell 2000 is also coming into a similar band of resistance. It's also lined up nicely with it's downward channel, so if it manages to move higher tomorrow, it will break that down channel and rally up to 620.

Russell 2000 daily

Ron at Chart Pattern Trader has some good comments on using Moving Averages, especially when they are all in alignment in the same direction.

MA alignments

Now.. what's amazing is that we had lousy data today, but the market fell, then rallied to close positive. Some are taking that as a sign of selling fatigue and that's a distinct possibility. It could also be that a short squeeze was forced by jacking the futures, in order to give the longs a final chance to distribute at higher prices before the final plunge to lower lows (breaking the neckline of the Head & Shoulders formation that I've been discussing and which seems to be gaining acceptance by market technicians.

Tomorrow and Friday will be telling indications as we get the jobs report and on Friday, revised GDP. If jobs data is better than last week's 500K new unemployment filings, it might provide a short-term impetus for continuing the rally. Obviously many are hoping that last week was an aberration caused by Census workers being laid off. If tomorrow proves otherwise, it could create that impetus that takes us below the neckline.

What I'm wondering is whether these extended unemployment benefits which were passed will require folks to re-apply, therefore adding to unemployment claims. I believe that's the case and that could drive unemployment numbers up substantially as folks who had fallen off the UE rolls, reenter and get counted along with the newly unemployed.

In sum, it's about jobs, jobs, jobs.. which equal consumer demand, which impacts economic performance and housing. And it's about preserving job skills, which decline during long periods of playing Xbox and thumb twiddling.

And along those lines, here's something I read that I feel justifies being re-posted here:

Uncle Scam

Anyone reading that has to be amazed that we have much economic and jobs growth at all.

Best of luck through the remainder of this week!!

Scrutinizer

2010-08-24T19:54:00.000-07:00

Market telling us: "May You Catch A Thousand Falling Knives"

I really hate to have such a negative attitude towards the market. However, (apparently) like so many other investors, the STILL UNEXPLAINED "Flash Crash convinced me that this market was hopelessly rigged by a Financial equivalent of "Skynet" (ala, "Terminator"), with it's High Frequency Trading "black box" computers, and those financial WMDs known as Credit Default Swaps, that it just doesn't make sense to anything but daytrade, primarily on the short side (betting the market goes down).

And now.. it seems that the predictions we've been hearing are coming true. As the US economy is forcibly weaned off the misspent, multi-trillion dollar government stimulus, we're coming down like a Heroin addict forced to go "cold turkey" in an unpadded cell.

Today "news" was the horrible existing home sales data, fully 30% beneath expectations, as well as hitting a 15 year low. Combine that with a 12 month supply of foreclosed and REO properties over-hanging the market, and it's little wonder there's little incentive for people to buy during what is normally the height of the summer buying season. Folks fully expect home values to come down even more. I know this personally, as I'm in the market for some investment property to deploy capital from my father's estate, since CDs are paying a pathetic return. But buying property only to see it decline in value by a further 10-20% means that it takes at least a couple of years of rental profit to break even.

Things may get much worse as we move into fall and winter, never a good time to sell houses given inclement weather issues.

And tomorrow we get durable goods and NEW home sales, neither of which should be positive given today's numbers. Durable goods are generally items that people either utilize credit to obtain since they often amortize them over the period of use. Household consumer durables, such as appliances, also make up this data, and if fewer homes are being sold and built, fewer appliances are being purchased.

And ultimately, we have the revised GDP data from last quarter, which has already been revised downward once. Expectations are for another downward revision, which calls into question the value of the original data and whether it was "spiked" to create the impression of greater growth than actually occurred. It also calls into question the value of governmental stimulus, since we jacked up the US national debt by approx 10%, yet obtained even less GDP growth than the perceived 3%. That's like taking a $1000 cash advance on your credit card, and putting a couple of hundred bucks into you pocket and calling it "income". I understand the rational for a stimulus, but it was incompetently misspent and failed to achieve an return on investment (ROI) for the US taxpayer. Little wonder there's very little enthusiasm for a repeat.

Btw, again here's the link I use for the week's economic data reports. It's worth bookmarking if you're invested in this market.

As for videos tonight, Chart Pattern Trader has a very good video that all readers should watch.

And of course, Christian at PSA is telling us all to stay short as further selling is to be expected. He makes a compelling case for this via the divergences he's seeing in the Stochastics and price action. Always believe the Stochastics and RSI over actual market price.

I'm currently long TZA and VXX (VIX ETF).. I was stupid and chased TZA today as I sold out my position overnight and it ran up hard overnight, so I'm a bit underwater, but I think the market action will make me profitable in coming days.

I just don't see any reason to go long here, until we reach some level of identifiable support and then only for a bounce.

And btw, if you didn't read this article from my previous post, it's worth posting again. It discusses proposed accounting changes regarding corporate lease accounting. This could have a MAJOR IMPACT on future earnings for S&P companies, forcing a downward revision on book values and increasing liabilities.

I also need to do an post on how FASB "mark to market" accounting played a role in crashing the Securitized Mortgage markets. It's almost as if there is a concerted effort by the FASB to pull the rug out from under the current Corporate accounting rules. Makes one wonder if those original changes were meant to set corporate accounting up for a future fall by permitting them to take what should be consider liabilities, off their books.. only to make them add them again at some future date.

Oh.. and btw, here's a GREAT INTERVIEW with Former Fed Governor Mishkin, who apparently wrote a glowing report about Iceland just months before that country's financial system collapsed. Turned out he failed to mention he was paid $124,000 to write that report by the Icelandic Chamber of Commerce. This represents a clear (and all too common) conflict of interest. And it's very similar to the arrangement the Ratings Agencies had with the Investment Banks when they were paid to give AAA ratings to toxic sub-prime mortgage securities.

It's really amusing to watch him fumble over the interviewers very pointed questions. I really loved the part where he claimed that the title change was a "typo"...LOL!!

He should be investigated and fined/arrested, for failing to disclose such a glaring conflict of interest.

It's crap like this that undermines investor confidence in the public markets and is causing them to boycott them.

Have a good one!!

Scrutinizer

2010-08-21T07:00:00.000-07:00

Selloff to continue?

Been busy the past few days and haven't had the time to keep this blog up to date. But I hope any followers are checking the links I have to the left for some insight into current and future market directions.

And I'm off again this weekend on a new apartment hunt, so the best I can do at the moment is offer some links of interest.

First off, Christian at PSA is informing us of his belief that we currently have 6 confirmation sell signals on the market. I think he makes a compelling case, especially with regard to the divergence between the stochastics/RSI and current market price levels. Something's gotta give and it appears that it's to the downside.

Secondly, Chart Pattern Trader suggests we've seen the end of the summer rally and goes on to discuss Grand Supercycle Trends with Elliot Waves. I don't use EW analysis since it's not conducive to trading, but does provide a good "20/20" hindsight analysis of longer term future trends, once the pattern is clearly established.

And sometimes I receive these free pattern analysis videos from Ino.com. I'll post this one as I thought it was rather intersting as "thought fodder" on market direction:

How A Japanese Chart Formation Could DOOM the DOW

And Richard Russell, Dow Theory GURU since the 1950's is telling his subscribers that the stock market is falling apart:

The stock market is crumbling

Clearly corporations are hunkering down in anticipation of another financial crisis. It's one reason that has been cited for why they are raising so much cash based upon the belief that banks may not be liquid enough to finance their operations.

But are corporations as liquid and cash flush as many assert? Zerohedge had an interesting column citing an Economist article that is discussing current accounting rule changes related to how corporations use lease arrangements to make their balance sheet appear stronger than it actually is. If this accounting change goes into effect in December, it could have the same catastrophic (but necessary) impact on stock valuations as "Mark to Market" accounting did with the banking and mortgage sectors back in 2007 (just before the big crash).

Also, there's been a lot of talk about the "Hindenburg Omen" which, as the theory suggest, sets up a series of conditions that predict an impending market crash (as if the several we've already isn't enough). Zerohedge points out that we now have the 2nd confirmation. Here's a link to the first confirmation.

If I get the chance, I'll update this post with more information as I sift through it. So check back..

Scrutinizer

2010-08-15T21:32:00.000-07:00

Tony Robbins and Goldman Sachs give you their opinions on the economy..

GS trading desk predicting "meaningful decline" in stocks

Fed manipulating stock market?

And this is something everyone of you need to watch. Someone posted this link to a video blog by Tony Robbins (y'know.. the motivational speaker/mentor). Now Tony Robbins obviously has access to some MAJOR financial heavy hitters, given his providing services to many of them, as well as their managing his portfolios and assets.

Tony Robbins: 7 things you should consider about the economy

I was amazed when I heard him mention Credit Default Swaps!!! He specifically mentioned them, rather than just alluding to them indirectly. That caused me to definitely "trigger" on the rest of his comments as derived from credible sources.

Now.. he obviously can't give investment advice. But he CAN pass on some of the information that has been told TO HIM by his financial uber-brain buddies.

I don't normally follow Tony Robbins, but something in his conscience must have motivated him to share what he has learned.

Get short on any rallies, and if you're really bold, get Ultra-Short via the ultra-bear ETFs.

And if your suffering paralysis by analysis, just go cash, pay off debt, and save money (and make sure you have a personal emergency stash that's not in a bank, but well hidden).

Scrutinizer

2010-08-12T20:18:00.000-07:00

Friday the 13th: Part VIIII

Not much time for an extensive post tonight. But let it be recognized that tomorrow is Friday the 13th and I have a gut feeling that there won't be many folks willing to buy and hold these markets based upon that superstition. Just a hunch I have, but it also appears we're in a continuation pattern on the charts, suggesting more downside tomorrow, with a possible reversal and relief rally on Monday.

It's ALSO "Cardinal Climax", which is the very rare alignment of a number of planets. Those who apply astrology to market sentiment (I'm not one of them, but there are many who do) have been suggesting major turmoil during this period.

Cardinal Climax

Query "Cardinal Climax" and you'll find a plethora of astrological sites explaining it.

Other than that, I'll let some other folks give their opinions on market dynamics for tomorrow:

PSA August 12th chart video

Chart Pattern Trader's take

August 13th chart reading (it may only be available on the 12th through 13th)

It's also hard to say what kind of candlesticks we've put in today. I've voting for a continuation tomorrow and more downside based upon what I see as a "on neck" continuation pattern on the SPY (S&P 500 Spyder ETF):

SPX daily

SPY Daily

On Neck Continuation pattern

Folks should also recognize that the past two weeks of market upside was wiped out in two days. That's NOT a very positive sign of underlying market strength. And now, all of those people who were buying over the past two weeks are currently underwater and will be looking to get even and get out.

So.. tomorrow we have Consumer Price Index information at 8:30 AM followed by Retail Sales. Both are considered market moving events. If you don't have this website bookmarked, you shouldn't be trading stocks.. ;0)

Economic Calendar

Any bad news tomorrow morning and we could have a violent sell-off.

That's all I have right now..

Scrutinizer

2010-08-06T21:53:00.000-07:00

Credit Default Swaps: How To Blow Up A Financial System

Most folks on "Main Street" have heard the news about how Congress is attempting to regulate dangerous Derivatives, which are a financial instrument that derives its value from the price of an underlying asset. They know that abusive derivatives trading contributed to the financial crisis of 2008. They know that derivatives abuses brought down AIG, requiring the US government to loan them billions to remain liquid.

But most have never heard of Credit Default Swaps. If they have heard them discussed on the evening news, it's doubtful they actually understand what they are or how they have contributed to the financial mess the world finds itself in. And most do not realize that it was rampant CDS writing (selling CDS contracts) by 159 rogue traders at AIG, that resulted in bringing that huge insurance company to bankruptcy requiring the US taxpayer to bail them out and save the global financial system. CDS remain one of the most under-reported, mis-understood, financial instruments currently in existence.

The grievous problem of Credit Default Swaps is an issue I've been meaning to address for some time now. But it's a complex subject so I've held off until I had the time to properly address it. Rolling Stone is reporting on how the FINREG legislation, which was supposed to make these CDS transactions transparent, was effectively gutted and allowed Wall Street to resume "business as usual". Matt Taibbi, of Rolling Stone Magazine, has previously published a series of articles investigating Goldman Sachs and their involvement in the financial crisis of 2008

Wall Street's Big Win

But before you read that, here's some background on what a Credit Default Swap actually is.

Essentially, a CDS is unregulated financial "insurance" (though CDS traders go to great lengths to assert that it is NOT insurance). Two parties enter into a PRIVATE contract (not transparent to the market) buying and selling protection against the default of some underlying asset. HOWEVER, unlike typical regulated insurance, the two parties don't have to actually have an insurable interest in the underlying asset. These entities are known as "counter-parties" to that CDS contract.

Wikipedia gives a good explanation:

"A holder of a bond may “buy protection” to hedge its risk of default. In this way, a CDS is similar to credit insurance, although CDS are not similar to or subject to regulations governing casualty or life insurance. Also, investors can buy and sell protection without owning any debt of the reference entity. These “naked credit default swaps” allow traders to speculate on debt issues and the creditworthiness of reference entities. Credit default swaps can be used to create synthetic long and short positions in the reference entity.[4] Naked CDS constitute most of the market in CDS.[5][6] In addition, credit default swaps can also be used in capital structure arbitrage."

Edit: August 22, 2010: Here is an excellent article discussing the problems with developing a transparent clearing market for CDS derivatives, as well as CCP (central counter-parties) capital requirements and risks of oligopolistic (monopolistic) control over derivatives clearing.

The Sausage Marking begins..

CDS positions LACKING any insurable interest, are called "Naked CDS". They are essentially private BETS (eg: gambling) between two parties on whether an asset (that neither actually own) will default.

Now.. put that in terms that apply to each of in our daily lives. Imagine I'm able to purchase insurance on YOUR HOUSE, OR CAR, from a counter-party that will pay off if your house burns down. I don't own your house, nor am I a lender to you. But I'm able to purchase a "financial interest" in seeing your house burn down, or for your car to be stolen.

Naked CDS are like buying Fire Insurance on your neighbor's house

And even if I don't burn your house down in an act of direct arson, or sabotage your car, I can make you look like an incredibly poor credit risk by manipulated the cost of insuring your house. Supply and Demand for CDS would dictate the price of the insurance premium you pay to insure your own home. Therefore, if you have a thousand people demanding to buy insurance on your home, it would create the impression (to your insurer and bank) that you were ready to default at any moment, or that you were running a Meth lab in your home. Therefore, your insurance premiums would rise, and the perceived market value of your actual home, or just the mortgage note, would decline dramatically. All because a bunch of speculators have "ganged up" on you to make you look like trailer park trash to your creditors and insurers.

Thus, it's little wonder that participants in the CDS markets do not want them classified as insurance, let alone regulated as such. Because Insurance REQUIRES an insurable interest.

And, IN FACT, insurance was originally sold in a very similar manner to CDS. One didn't have to have an insurable interest to buy life insurance on another person. In effect, insurance PRIOR TO REGULATORY REFORM AND REQUIREMENTS was just a form of speculative gambling. Only by passing laws and regulations were these "surety bets" morphed into the actual insurance industry as we know it today.

But still the defenders of CDS parse words and split semantical "hairs" to keep them from being classified as insurance and requiring insurable interest in any CDS contract:

Repeat after me: CDS are not insurance

But the concept of such contracts not requiring insurable interest is nothing new.. Lloyds of London, once (or still are) the preeminent insurance entity, used to sell insurance on cargo ships to individuals lacking an insurable interest. It resulted in such an increase in insurance fraud (in the form of "accidental" sinkings, if not outright contracted piracy) that it resulted in Parliament passing the Maritime Insurance Act of 1746:

Maritime Insurance Act of 1746 Page 182

Legal Basis of Insurance: Insurable Interest

What's the bottom line about CDS?

Here's what the average investor has to think about. If powerful financial entities can purchase "insurance" via CDS on assets they do not hold, then they have every interest in seeing those assets devalue and default. At a personal level, if I wanted to force you and everyone on your block to sell your property to me so I could build a mall, all I would need to do is make financially intolerable for you to maintain your home insurance and mortgage. If you default on your mortgage, I own your house, as well as the property underneath it.

If I want to own your business or take you out as a competitor in the marketplace, I can round up a "cabal" of Naked CDS holders to devastate your perceived credit worthiness and make it untenable for you to issue debt for business expansion.

Now.. let's take this to the Sovereign debt level, what if I want to make your country's debt appear to be junk status? I get a bunch of my hedge fund buddies to buy CDS on your country's sovereign debt and force up the cost for you to insure and roll over that debt in the markets. This is what has happened with Greece and many of the other smaller, debt ridden states in Europe. As CDS premiums rise, so does the interest rate the market demands to roll over that debt. The only means by which a default can be prevented is for other nations (and their taxpayers) to front them money to "re-insure" that debt to prevent default.

Are you seeing the problem? To prevent sovereign collapse of their debt, taxpayers are put on the hook and money is "extorted" from them to prevent an even more grievous failure of the financial system. To prevent the collapse of both US and European banks considered "too big to fail", the US taxpayer was "blackmailed" into saving AIG and other banks via TARP. And then the Europeans were required to bail out Greece and (potentially) the other PIIGS at European TAXPAYER expense.

European CDS WMDs targeting Spain?

Now.. we have to ask ourselves, as common investors, why would we want to purchase ANY CORPORATE STOCK, OR DEBT, when such unregulated speculative FINANCIAL WEAPONS OF MASS DESTRUCTION are available to ATTACK the global equity and debt markets?

It's hard to imagine a better financial "tool" for transferring wealth from the masses (eg: taxpayers) to the few by destroying the value of their assets, whether equity or debt instruments.

It's also a fantastic tool for "supra-national" entities, or even sovereign countries, to conduct economic warfare to weaken their opponents and rivals, as well as sovereign states.

Heck, even China is now apparently being targeted by CDS speculators:

China CDS speculation rising.

This is why I've basically given up owning stocks for the long-term. I trade ultra-bull and ultra-bear ETFs and try to bank cash every day. And since Ultra-Bear ETFs are essentially CDS contracts on the underlying index, I recognize that, failing to "beat them", I've been required to join them... But I don't like the fact that I'm making money betting on the destruction of the US equity and financial markets, but right now that seems to be the only recourse left to me in an environment where our elected representatives are UNWILLING to regulate the CDS markets.

But destroy them they will, unless sovereign governments and their citizens DEMAND that they be regulated on a global basis, or outright banned as legally unenforceable contracts.

Scrutinizer

More reading on CDS and their financial impact:

Dissecting a Strange Financial Creature

CDS: Useful Risk Management Tool or Financial WMD?

Credit Default Swaps and Financial WMDs

CDS: The Monster that ate Wall St.

2010-08-04T23:20:00.000-07:00

Pride Cometh Before The Fall?

Markets appear to be in a Rising Wedge formation during this period.

Rising Wedge Pattern

S&P daily chart

This is similar to the pattern that was observable (to the astute Technician.. ;0) back in April before the May "flash crash":

S&P 500 Rising Wedge during April, 2010

Also, I came across this link to a MUST READ Economic outlook that is predicting a recession in late 2010, early 2011. There are a lot of charts and discussion, but it should be understandable to even the layman out there.

The Future Recession In An Ongoing Depression (click on the embedded article for full screen viewing)

The primary crux of Pal's analysis is that the only economic growth we've had in the past year has been due to spending over a Trillion Dollars in government stimulus. Factor out that stimulus and it's evident that we're still in a recession/depression. It has NOT resulted in providing a buffer for GDP growth until the private market recovers.. The private market is still hunkering down, if not contracting, and they continue to lay off workers, therefore reducing consumer demand.

Now.. does that mean the market can't go higher? Again, I'm being VERY TACTICAL in my trading, and not yet betting on the "strategic turn" where I go all in and don't worry so much about trading, but more on riding the overall trend. It's coming, as all the fundamental data seems to indicate, but I don't want to be predicting the turn, but ready to be reactive when it finally manifests itself in a clear manner.

I see Christian from PSA is stepping out on a limb in predicting a sell-off prior to the Friday Unemployment report. The poor guy is STRATEGICALLY correct, but as for timing his swing-trade, he's obviously suffering a lot of pain.

Sell-off before Employment report?

I'm looking more at the SPX weekly chart with 100 Week MA for signs of ultimate direction to the market. It's going to lead every other US index.

Watch that MACD indicator.. If it continues upward in coming weeks, it's a powerful predictor of future price action.

Finally, I'm watching some of the currency turmoil we're seeing. The Yen is near a 15 year high against the USD and that is not a situation that can long continue without dramatic impacts on Japan's ability to export. Furthermore, the Euro has had a tremendous run since it's previous low of 1.18 against the USD. Part of what has apparently driven the US stock markets has been the decline of the USD.. Same can be said for oil and commodity prices, most of which are valued in USDs. The USD declines, the relative value of the stock and commodities markets appreciates. Watch for a reversal of this trend.

I often look at UUP, which is the USD bullish fund.. Plug it into the chart above and play around with it. Also, look at the VIX (VXX).. There is a new ETF that is the inverse to the VIX (XXV) that is going to be interesting to watch. The lower the VIX goes, the higher goes the equity markets.

That's all I have tonight.. Probably won't be trading tomorrow.. Got other obligations.

Scrutinizer

2010-08-03T23:46:00.000-07:00

Signs of Impending Market Crash

I came across the link to this EXCELLENT SUMMATION of all the warning signs indicating another market crash. It's very readable to the layman, as well as the Technician.

Warning signs of impending market crash

Also, I get these emails from Stocktiming.com from time to time and they often include free charts. I'm currently contemplating a test subscription and will provide my review in a future post whether it's worth the money.

Anyhoo.. Marty Chenard brings up a VERY IMPORTANT point that helps us to analyze why the markets have performed they way they have. It has to do with "liquidity" in the financial system.

Do we have enough Liquidity in the system?

What's apparently from that chart is that the Fed was adding cash liquidity to the system at a breakneck past from March, 2009 up until April, 2010. They would drain ever larger amounts of liquidity, then ramp it up.. then drain even more.. Like weaning an Meth addict off a 12 month bender.. You can't do too much, without giving them a temporary fix.. but then you give them less and less.

However, just before the "Flash Crash" the Fed drained a ton of liquidity with the result that the market crashed. We've been fluctuating in "contraction" territory ever since then. But Chenard is telling us we're currently close to neutral and there are indications that the Fed is going to expand the money supply again based upon lagging economic data concerns.

No good "bringing down" the patient from his "addiction" if the result is that the patient dies as a result.

I don't know where Chenard gets his data on liquidity, but it does seem to show definitive correlations to market performance..

Can it be that easy? And doesn't that suggest that all market moves are "manipulated" by the supply of money in the system?

I'll have to do more reading on the subject and report back.

But in the meantime, be sure and read that article on "Warning Signs"..

And for your viewing pleasure, here's PSA's latest video on "exhaustion gaps".. It's a good lesson for aspiring Technicians to remember.

Exhaustian Gaps = Bear Market

Scrutinizer

2010-08-02T15:13:00.000-07:00

Some Market Thoughts..

My apologies, beforehand, for any haste I show in putting this post together.

The Dow was up over 200 points today on the lowest ISM number since we "emerged" from the recession, but one that came in within estimates and still reflect positive economic growth.

Poor Christian, at PSA, failed to see the possibility of this low-volume uptrend being able to continue, despite his many short calls.. But this rally one can't be ignored, even though it's built upon flawed fundamentals and market technicals. It happened before during the period between January and April, and it appears to be happening again, potentially setting up for an October crash, which seems to be a favorite period for crashes.

Bulls can't win, Bears can't lose..

I actually agree with Christian, but I'm not as adamant about believing the crash is around the corner now. There are some financial "forces" at work that are hell-bent upon avoiding succumbing to bearish market readings.

And here is a look at global markets from Colin Twiggs who offers a free subscription to his excellent Technical Analysis insights:

Consolidation in a Bear Market

All of this economic data can be spun any number of ways, but the analyst must remember that it's based upon numbers that still include, BUT NOW ABSENT, government stimulus. And as the ECRI numbers (see below) indicate, we're ALREADY at a level where every other previous instance has resulted in recession. And any future data will reflect an economy not "juiced up" by government stimulus.

So I'm still not sold on a recovery, nor the resumption of a bull market.. No.. Not YET... This next two quarters will be the determining factor and we'll have to watch the weekly economic data before we're able to determine where we are.

But just because I'm not "sold" on recovery, not until I see the S&P 500 trading above 1250 which would quell fear of the Head and Shoulders, and set the index to revisit previous highs, AND we see positive trending economic and employment data. But it's hard to visualize such an event naturally occurring for the foreseeable future. And it's even more difficult to understand how this market has been climbing, on pathetic volume, and in the face of proven market indicators that suggest it's due for a 20% retracement and consolidation from it's March, 2009 lows. Even experienced market professionals are being whipsawed by this market action and it's undermining the public confidence in the equity markets.

But don't let it be thought that I want the market to continue crashing, or to live through another depression. I don't. I have NO INTEREST in seeing us slide into an economic hell. I only want to identify when it happens and protect myself, and my friends and family, from its effects.

And that's why I remain a short-term trader, buying and selling both ultra-bullish and ultra-bearish ETFs until we see some actual market and economic direction we can believe in. And many other investors are just selling out completely and hoarding cash. We've also seen hedge funds de-leveraging and standing on the sidelines waiting for direction.

But one thing that is paramount in avoiding recession, at least in the eyes of the Federal Reserve and Treasury dept, is that if consumers are not spending, a recession is nearly guaranteed. The velocity of money in the economy must be restored, as well as halting the de-leveraging consumer and debt defaults. If the "wind" (money) flowing through the economic "windsock" tapers off, then the economy will, like an actual windsock, sag and decline.

Now, I think there is significant evidence that would suggest that the value and direction of the stock market is critical to impacting the psychology of the average consumer, especially if their 401Ks have basically "flat-lined" for the past 12 years.

So.. is it possible that the Fed has been either directly buying, or facilitating the purchase by banks/institutions, of equities and equity futures, in order to ward off the insidious Head & Shoulders formation that I've been discussing and restore investor confidence, and therefore, consumer confidence?

Actually, this is not a new thought.. There was some commentary back in March from the CEO of Trimtabs, a VERY REPUTABLE firm that tracks all kinds of market data suggesting that the markets are being rigged by the Fed (or someone):

Who's buying the market?

It's frightening (to me) when such a reputable firm starts to question the independence of the markets from Fed/Gov't interference. And recall that this was BEFORE the "flash crash" of May 6th when investor money REALLY started flowing out of the markets.

Here's another article that discusses the global banking systems increases in Money supply over the past year. And it suggests that this is, in good part, reason for why the stock markets haven't crashed.

Money Supply expanding?

But that's also called a HUGE "moral hazard", if not a huge violation of the concept of "Free Markets" which could quickly ignite major inflation if people start believing the Fed and other Central Banks are effectively putting a floor under equity prices.

There's also another possibility, for which I have absolutely no evidence, but could explain why the Fed would be tempted to take the unprecedented step of intervening in our equity markets. Could it ALSO be that our markets have been under attack by foreign sources/governments via Credit Default Swaps? Could it also be that these "supra-national financial forces", only holding loyalty to profit, also attacked European based financial interests via our own CDS attacks against European debt? This is a theory that I've been trying to accumulate evidence for ever since I finally understood the destructive nature of CDS as a financial instrument.

Since CDS make perfect financial "weapons" due to their nature as "private contracts" not transparent to the rest of the markets, their use can be perceived as a national security threat. And such an attack could necessitate an active defense of our financial system and equity markets until such instruments are fully regulated and controlled (supposedly via "FINREG").

Here's another article comparing the housing bubbles in other parts of the world compared to the US. We weren't the worst, but given what the US is enduring, it will be not be very pretty as these other bubbles get popped.

Global Housing bubble choking World banking system

And Mish had some discussion of the under-reported (didn't see it on any business news websites or broadcast) ECRI data that's indicating we're set for another recession. Remember "double-dip" is essentially the same as a Depression.. They just don't want to call it that until the history books are written.

ECRI data is negative, practically guarateeing another recession

So.. the bottom line is that while the economic data doesn't support a higher stock market price at this time, it's likely we're going to get it for the foreseeable future because the "powers that be" refuse to let the markets fall.

The question is how long they can keep up this charade without publicly revealing their hand?

That's all for now..

Scrutinizer

2010-07-28T07:15:00.000-07:00

The Market: All Bull and No Bear?

Market short interest is at an 2 year low and I find that VERY INTERESTING in it's ramifications.

For weeks I've been referring to the negative fundamental and technical picture of both the economy and markets, especially with regard to the H&S technical formation portending a dramatic fall in the indices. YET, there seems to be very little confidence amongst the bears in taking advantage of that scenario.

Within that link it refers to Barton Biggs, but what it did not state is that he JUST mentioned this week that he is 75% LONG. Now, Mr. Biggs is NO FOOL. He runs a multi-billion dollar hedge fund, Traxis Partners. He's made some good calls in the past, receiving considerable praise. But he missed the recession in 2008 and lost 10% based upon that call.

But given that within the past two weeks he's made a MAJOR change in his market outlook, going from being a seller to a buyer, that's a serious shift in sentiment that cannot be ignored. What is it that he sees that the rest of the market doesn't?

We've received nothing but continuing bad economic news. Yes.. corporate profits have been decent, but the market is a forward predictor of economic activity and should be following the negative data we're seeing. Consumer Confidence is at a near all-time low, while Durable Goods data came in negative -1%, when it was expected to be positive. We don't have anymore government stimulus.

So if there is a major lack of short interest, WHAT IS DRIVING THIS MARKET UPWARD?? It certainly isn't a "short squeeze", which is normally the "fuel" for a major market upside reversal. The short positions just aren't out there. And it's not "smart money", because the volume doesn't reflect major commitments on their part (as Christian from Perfect Stock Alerts contends that it's all "retail" buying). Or is "smart money" actually involved? That's where Mr. Biggs' opinion is so important.. Barton Biggs IS SMART MONEY, although admittedly sometimes wrong. But he could also just be "talking his book" and looking to sell his long holdings post-earnings and possibly ready for a market downturn.

So with those negative technical and economic data, why isn't everyone, and their grandmothers, short this market? And what is driving this market upward? There has been constant rumours over a "Plunge Protection Team" (President's Working Group on Markets) efforts to avoid market crashes. Could it be that this "entity" has been coordinating the "HFT computers" and "black boxes" to prevent that H&S formation from shaving 20% off the markets?

Could it be that "smart money" recognizes that the "fix is in" and are unwilling to bet against it? So they have no choice but to "go long".

Were I the President of the USA, recognizing that I don't want to go down in history as the President who ushered in the second "Great Depression", I would probably authorize possible means to keep those markets from going down, especially when it was apparent there is no further appetite for another trillion dollar (wasted) stimulus.

All I can say is that we're currently looking at serious "gap-ups" in the market that need to be filled. But as we saw last spring, it could take 5 months (January to May "Flash Crash") to fill those gaps and that could result in serious pain for anyone foolish enough to go bearish..

But THEN AGAIN, without the existence of those short positions, it's hard to quantify exactly what is going to continue fueling this rally.

Hopefully, the "PPT" will be able to stave off a major market crash (I certainly don't want one), instead putting us in a long-term, range bound, trader's market (which I would love) until economic data is stronger.

Scrutinizer

2010-07-23T09:36:00.001-07:00

Run Forrest, RUN!!!

Market action during last week was fast and furious, with major gaps to the upside likely due to short covering, Human and HFT (computer) trading. But, as you might recall from a previous post, the retail investor is heading for the safety of bonds and cash in a big way and market volume remains light. But the S&P closed above 1100, which was an important level of resistance that stood in its way and that cannot be ignored.

But the importance of this is that the market is attempting to nullify the Head & Shoulders formation, by creating an INVERSE Head & Shoulders, which could drive the S&P and DOW to break through the April, 2010 highs. It's also possible that, in a best scenario, it puts the markets into a wide trading range, similar to what has been seen in Japan, or during the '70's.

Now, Christian at PSA is warning Bulls not to believe this rally. But since I'm a day and short-term swing trader, we cannot ignore such a rally, which could take us up 600 Dow points from here. I'll confess I felt considerable pain in my TZA position before finally throwing in the towel and taking my licks.. Now I'm looking for direction and "hit and run" opportunities.

Christian brings up extremely valid points regarding the European "stress test", which I believe was financial "propaganda" to divert attention from the potential for sovereign debt default. But good propaganda is good propaganda and can mask the facts for awhile. He also mentioned North Korea, which has ALWAYS been a problem that could erupt at any minute. But those are bearish arguments that won't impact the markets until they impact the market.. ;0) And in between, being short this market is going to negatively impact your trading account.... lol!!

We're also entering a Full Moon phase, for those who follow the Moon Phase Trading System (MPTS) , and that has often led to market turns. In fact, this major rally BEGAN back on June, 26th, during the last Full Moon. You'll notice also in that link that the VIX is under massive pressure, now falling under it's 200 Day MA. And since the VIX is a strong INVERSE indicator of market direction (the lower the VIX, the stronger the markets), until we see it get back above the 200 DMA, this market is going to get stronger.

Bears BEWARE!!

But the KEY INDICATOR I think we need to watch is the S&P 100 Week MA. 1100 put the S&P 500 above that 100 Week MA and that's SIGNIFICANT. If the S&P can manage to drag that 100 WMA back above the 200 Week MA at 1150, it's "game over" for the bear case for a couple of months. Another indicator is that the Russell 2000 (RUT) has already achieved this (which is why I probably felt so much pain last week.. ;0) (insert RUT in that chart link).

Right now I'm starting to get less bearish in the face of extraordinary manipulation that is clearly going on in the markets from the High Frequency Trading platforms. I don't believe we're going to get much good economic news in coming months, but a savvy trader learns over time that "the market is always right", especially when money is involved.. ;0) The trend is your friend and that trend seems to be getting even more bullish and the shorts are getting scared.

How long will this trend last? It might end at 1150 on the S&P, which could prove to be a key reversal point. And that's why I included discussion of the RUT. If the small cap Russell 2000 can break that 100 WMA resistance, it stands to reason that the DOW and S&P will do the same.

Bear Case

Edit: I'll be accumulating some stuff to support the bear case. Right now it primarily revolves around the FOREX market response to the European "stress test". Bloomberg is reporting that the Euro is falling in response to lack of confidence that the tests were stringent enough. This is an argument, I might add, has a lot of credibility since they didn't count sovereign debt held to maturity, much of it from the PIIGS (Portugal, Italy, Ireland, Greece, and Spain). The whole purpose of the stress test was to put to rest the opinion that some of these PIIGS might be at a point where they will need to default on their debt because they lack the economic growth to pay for it.

So how does a falling Euro affect the US? Cheaper Euro, Stronger Dollar.. they can sell more stuff to us than we can to them and that impacts US export profits. And as we saw from the previous crisis in the Euro, it led to global market sell-offs, so it's an "event risk" that can't be ignored and which could QUICKLY derail the bullish scenarios I mentioned above.

Euro falls on stress test concerns

And for those who watch the stars, supposedly Aug 1st will result in the "Cardinal Climax", which is series of 5 planet alignments that is apparently very rare.

And don't scoff!! There are a large number of market technicians who use Moon Phase Trading Systems and planetary alignments to confirm other indicators. And since stock market is based upon "herd mentality", if people believe something will come to pass (like that H&S formation I keep referring to), then it will. If you doubt the veracity of this, think about the origin of the word "Lunacy".. Yep.. it came from the observed propensity of people to act strangely during a full moon.

More on "Cardinal Climax"

That's all I have for now.. I may add/edit this post later this weekend.

Scrutinizer

2010-07-22T11:09:00.001-07:00

Retail Investors CONTINUE TO RUN from this market, yet the computers drive the market higher!!

Mutual Fund outflows continue for 11th week

As I posted on 7 July, it had appeared that outflows were declining, but that's no longer the case.

ICI reports that the week ended July 14 saw another massive outflow from domestic equity mutual funds of $3.2 billion, bringing the July total to $7.3 billion, and year-to-date equity outflows to a stunning $37.5 billion.

It would seem that outflows are INCREASING as that $7.3 billion is a BIG CHUNK of the past 7 months of data.

How can we have a "bull market" when money continue to flow out of it and 10 year Treasury Bond yields are still under 3%?

It's another reason the "little guy" hasn't trusted the market since the May 6th "flash crash"

Scrutinizer

2010-07-22T05:50:00.001-07:00

China's Real-Estate Ponzi scheme, revisted

Mish did a pretty good write up on China's "Shark Loan" Ponzi scheme yesterday. Essentially is suggests that a great deal of China's internal economic growth has been fueled by a scheme where people take out Home Equity Loans against houses that have ballooned in value over recent years. They then loan that money back out to "Shark Loan" entities at higher rates of interest.

Much of this relies upon China's "shame" based culture, where severe loss of face (and maybe limbs/digits.. ;0) is incurred when a loan is not repaid.

This also corresponds when one of Mish's articles discussing the pressure Chinese men feel in buying their own homes. It seems that Chinese women won't date a man who doesn't have the "nest" already lined up for their future spouse. What incredible pressure these poorly paid men must be feeling in a country where men already outnumber women.

Chinese gold diggers say "show me the house"

Be sure to check back later.. I may add to this post.

Aug 2nd, 2010 EDIT:

Interesting new reports of growing civil unrest in some Chinese cities over the collapse of Real Estate Ponzi Schemes:

Chinese gov't fear civil unrest over collapsed Ponzi schemes

Scrutinizer

2010-07-20T10:31:00.001-07:00

Why the developed world's worst performing economy has such a strong currency

A good friend of mine, who lives in Japan, was commenting on how the Yen had appreciated against the USD in recent months.

No yearning for Yen?

Thought it was very interesting that the "curse" of not having a widely held currency equates to strengthening of such. While the US and Europe are waging "currency wars", with China trying to disentangle itself from the USD peg), the Yen is reacting to internal dynamics. A stronger currency often translates into a lower equity market (the value of each gets priced in stronger currency and therefore "deflates").

Here's another article from ZeroHedge that discusses Japan's mounting national debt and what it means for Western investors, as well as Japanese savers.

Japan: Land of the Rising Debt

As for today's market action, it was a complete "whipsaw" that shocked even myself. I'm seeing a lot of chatter tonight amongst bulls and bears about what the significance of today's action means for the rest of the week and thereafter.

Here's an interesting discussion that I thought put it into perspective, given the lack of volume to suggest a new bullish phase:

Rally at highs sets up reversal

And, of course, Christian from PSA remains bearish on the overall trend of the markets, and especially makes a point about the light volume. But he does admit that we may be looking at a short-term bounce (which he says we should short):

It's just a bounce, stay short

And Daryl Guppy gives us an interesting read on the currency fluctuations in the USD, which likely had a lot to do with today's rally. He believes the recent sharp downward move is nearing a bottom (which likely means the Euro is nearing a top) and that could put pressure on the US equity markets.

USD finding support @ .82

Now.. I'm extrapolating the stock market possibilities from Daryl's comments.

Now.. put on your tinfoil hats and get ready for some true "Rod Serling" material:

TZ theme

I have a follower, and participant on the Yahoo TZA thread you has posted this incredibly interesting chart that compares the market movements of the current S&P 500 to that of May, 1936. It's DOWNRIGHT UNCANNY how closely it's followed that period:

S&P 500, today and "yesteryear"

Now I have NO EXPLANATION for this occurrence, which would make any Conspiracy Theorist literally drool over the irony. It's almost like someone's plug in the 1936 market program into the High Frequency Trading computers to create a near perfect emulation. Now I don't seriously recommend that anyone use this as a trading guide, but it certainly is one of those "things that make you go hmmm... "... ;0)

Hang tough traders.. Tomorrow will be an interesting day.. Watch China and Europe for clues.

Scrutinizer

2010-07-17T09:09:00.001-07:00

SP 500 Technical Chart review (revisited)

Thought I might include portions of a post I placed today on the TZA thread because I think it clearly explains what the market is facing right now.

Pay particular attention to the SPX Weekly chart with 100 Week MA and the MACD indicator, current and past and how the market has reacted after the Weekly MACD has gone negative on the weekly chart.

*********************
We'll also need to look for a reverse H&S formation developing, as it did at the previous March, 2009 low.

For the SPX to avoid forming a reverse H&S reversal pattern, we need it to break previous lows.

SP 500 weekly chart w/100 week MA

As you can see from the above weekly chart, the SPX got rejected EXACTLY at the 100 Week MA with a shooting star candlestick (inverted hammer). That's not good.

Candlestick charting reference

It also put in the 3rd upside prong of a revised downward channel for Technicians to draw channel lines through.

And if you look at that chart from that 10 year perspective, it resembles a HUGE BEAR FLAG.

Bear Flag chart formation

But most importantly, look at the Weekly MACD. It's negative.. So backtest the chart and look for previous instances where the market has suddenly rallied to the upside and pulled that weekly MACD back to the positive WITHOUT A MAJOR PLUNGE OCCURRING FIRST..

Can't find any? Neither could I.

Look again.. Use "All data" as Time period.

Still can't find any? Neither could I.

It's clear that when the SPX Weekly MACD breaks to the negative, it has ALWAYS plunged to clear oversold conditions PRIOR to any recovery.

EDIT: I just reviewed this article from DecisionPoint.com (see my link list). They have issued a long-term sell signal on the markets:

DecisionPoint issues long-term sell signal

4-Year Cycle Ambiguity

Stay long this market at your own financial risk. Go to cash and wait for the "Smart/Big Money" to come back in and support the markets as they did in March, 2009.

Or if you're patient enough and can handle the volatility of the inverse market ETFs, buy a position in them to profit from the market turmoil.

Scrutinizer

2010-07-16T21:56:00.001-07:00

Federal Reserve minutes warn US economy won't recover for 5 more years

Here's one of these little tidbits that most Americans don't read in an American newspaper, or hear being uttered from our President's (or any banker's) mouth on Sunday Morning talk shows.

The Fed minutes warned of "significant downside risks" and a possible slide into deflation, an admission that zero interest rates, $1.75 trillion of QE, and a fiscal deficit above 10pc of GDP have so far failed to lift the economy out of a structural slump.

"The Committee would need to consider whether further policy stimulus might become appropriate if the outlook were to worsen appreciably," it said. The economy might not regain its "longer-run path" until 2016.

"The Fed is throwing in the towel," said Gabriel Stein, of Lombard Street Research. "They are preparing to start QE again. This was predictable because the M3 broad money supply has been contracting for months."

Fed admits economy likely won't recover until 2016

Regular readers of this blog will recall that I posted a chart on M3 money supply declining at a rate not seen since the Great Depression. They would have been forewarned that this is a clear sign of de-leveraging, including folks getting "debt free" and others defaulting on their credit cards and mortgages.

I posted the following link on June 1st, 2010:

M3 collapsing at 1930's rate

We must all recall that debt equates to money supply. The money we deposit into our banks accounts are actually loans to that bank. They turn around and re-lend it to other borrowers at a 9:1 ratio. Simplistically stated, they loan out up to $9 for every $1 in deposits, betting that the majority of those extra loans will not default. So.. for every $1 in your account, $9 more dollars are added to the money supply.

However, when loans start defaulting, or consumer demand for borrowing diminishes (either due to lack of creditworthiness, or just lack of demand), those banks have to pay interest on deposits with less interest revenue from the remaining loans they have extended. And when loans default, they have to write them off and pay out from remaining interest revenue.

All of this results in the destruction of money supply, and usually price deflation due to ebbing consumer demand. Additionally, there is a "velocity" of monetary transactions factor that is often not considered. It's determined by the number of times a $1 exchanges hands in a business transaction. The slower the velocity of transactions, the lower goes the Gross Domestic Product of the Economy. People saving too much out of fear of, or expectation of future declining prices decreases our GDP. Banks worried that collateral will depreciate below loan value will either require more collateral, or refuse to loan.

Think of the economy and money supply as a wind sock that has to have a constant flow of air through to remain pointed in a horizontal direction. If the wind ebbs, the windsock will go limp..

That's why that Consumer Confidence Number is so danged important. If the consumer is not buying, they aren't taking out loans (decreasing money supply), or spending cash (decreasing velocity). Supply and demand dictate that both must remain in balance. Reduce demand and excess will need to be liquidated at discount prices. The TRUE problem will be when supply is reduced and pent up consumer demand then creates inflationary pressures.

But for now, we're looking at deflationary pressures as the primary threat. Deflation is FAR MORE DIFFICULT TO RESOLVE than inflation is. It's easier to reduce demand by raising rates than it is to increase demand from masses of unemployed and fearful people who've suddenly rediscovered the merits of frugality and living debt free.

I am currently debt free with $$$$ in the bank and my brokerage account.. Are you?

Scrutinizer

2010-07-16T06:57:00.001-07:00

Consumer Confidence PLUMMETS 10 points from June report

Consumer Confidence

This is a TERRIBLE REPORT!! It's down almost 10 points from the previous report, which is equivalent to falling off a cliff.

It's ALSO the lowest level for the year, and a full 3 points lower than the PREVIOUS LOW in April. In fact, it's the lowest since August, 2009!!

What will next month's report look like? I suggest it will be even lower.

And if that wasn't bad enough, ECRI economic data has ALSO PLUNGED to within .02% of previous levels that have clearly predicted a recession. That's where the fear of a "double-dip" is gaining ground.. And a DD recession is just a politically correct way of saying "DEPRESSION".

ECRI Growth to -9.8%

It's clear.. "Joe Six Pack" is feeling the pain of prolonged unemployment, loss of unemployment benefits, and increasing foreclosures. Small businesses, who make up a large percentage of the US economy, are not hiring at nearly the rates necessary to bring down unemployment. They are hampered in obtaining credit, while "Big Business" is hoarding cash.

So while we're in the midst of earnings seasons, the market is a forward projecting mechanism. It's all well and good that the last quarter may have been good for profits, but what is Corporate America going to do for an encore?

There's a reason corporations are hoarding cash and why banks are not lending. They see more economic downside in the future and they are preparing their "war chest" in order to survive and take advantage of it.

Banks are hoarding cash so they can appear to be the strongest contender for taking over any insolvent competitors that the FDIC takes down. Why extend risky loans against depreciating collateral to grow their business when they can wait for their insolvent competitors to go belly up and then take over their branch offices as well as all their depositors. They know FDIC will pick up the bad loans.

This is killing small businesss...

As for the market read... I'm short via Ultra-Bear ETFs, and will remain that way for the foreseeable future based upon this plunge in consumer confidence, as well as expectations for even worse in the next report.

And now I'm worried about another "Flash Crash" as well. This market is thinly traded and if no one but the computers are buying stock, we're in serious trouble going forward.

But Goldman Sachs would apparently disagree with me. They assert that the S&P is still going to 1300 by the end of the year. I'm not sure what fundamental data they are basing this on, but it certainly can't be on Consumer Confidence data:

S&P going to 1300?

Feds with nothing better to do than raid private entrepreneurial farms

Here's an article where the government's assault on small business impacts even the small time farmer's markets and small farmers:

Feds raid "food clubs"

Now I don't know about you, but I like raw milk. I used to work at a dairy lab owned by some family friends when I was younger and they would receive raw milk from local dairymen.. It's awesome!! And it's the way our parents, and grandparents drank raw milk prior to homogenizing, and pasteurization. Our forebears also ate free-range chickens as well as their eggs. My Aunt use to have her own hen house and the eggs were always fresh.

I find this rather shocking that Law Enforcement has the resources to conduct these raids on agricultural entrepreneurs, but can't manage to deal with illegal immigration. If some of these clubs are not in compliance with regulations, they should work with them to achieve proper compliance, not conduct these ridiculous and treating them as if they were major crimes.

Scrutinizer

2010-07-15T02:43:00.001-07:00

Markets Ready To Sound Retreat??

A couple of videos regarding the market direction for the next few days. We're clearly getting over-bought. It's just a question of what the event will be that incites the sell-off.

Dan Fitzpatrick's market read

One disturbing aspect for Dan's TA read, is that the channel he indicates as next support is lower than the previous one. That could, potentially, induce the H&S sell-off that has been so expected.

PSA market read

And this very informative article comparing now to the market crash of 1929-1930:

Daryl Guppy's market read

Scrutinizer

2010-07-14T21:40:00.001-07:00

Will 2011 Capital Gains Tax changes put a nail in the US stock market?

There has been some discussion going around about how the 2011 Capital Gains tax increases will impact market performance into the fall.

Since 2008, individuals in the two lowest tax brackets paid 0 percent long-term capital gains tax while everyone else paid 15 percent. In 2011, individuals in the lowest tax bracket will pay 10 percent while the rest will pay 20 percent.

Additionally, the article goes on to state an interesting strategy that make impact end of year trading choices and make for a nice "January Effect":

One interesting idea for buy-and-hold investors is to sell stock gains at the last possible trading day of 2010 and immediately buy it back in 2011. By doing so, investors can lock in existing gains at a lower capital gains tax rate and still keep the investment.

For example, if the cost basis is $10 and the investor sells it for $20 on the last trading day of 2010, his $10 gain will be taxed at the 2010 rate (which is zero for some lower income individuals). If he immediately buys it back on the first trading day of 2011, he now owns the stock at the new cost basis of $20 (assuming no change in price) and the $10 original gain is forever locked in at the 2010 tax rate.

Capital Gains going up in 2011

Here is a re-post of an interesting chart that was placed in a previous comment (Thanks PPP** for the chart!)

Interesting S&P prediction

Also, I looked at the VIX chart and it's seemingly showing it's ready for a renewed uptrend. Will JP Morgan's earnings tomorrow disappoint?

Daily chart.. insert VXX

I should probably repost an article that discusses JP Morgan's earnings and how it far underperforms what should be expected from a bank with a near trillion dollar balance sheet:

He suggests we not be fooled by recent earnings reports or government stats, pointing to U.S. bank earnings as especially inaccurate. JP Morgan has a balance sheet of $1 trillion and can borrow at essentially zero, he notes. So if they just go out and buy 10-year bonds at 3% they should be able to earn $30 billion a year. Yet the bank announced a profit of $3.3 billion last quarter.

"What does that tell you? It says they are losing money on everything else," Das says. "Strip out the gifts, and it's big net loss." And at big industrial concerns like General Electric, he argues, revenue growth is anemic -- so earnings growth is solely stemming from cost-cutting and layoffs.

Comment on JPM is about 1/2 way into the article

That's about 1/2 of what JPM should be receiving as an annual return were it SOLELY INVESTED in 3% T-bills. Certainly not the sign of a healthy balance sheet.

Anyway.. got some family drama going on right now.. so need to cut this short.. But speaking of "shorts", I'll be looking at re-entering one tomorrow. But again, I'm not yet convinced whether this retracement will lead to the "Big Kahuna".. But review PPP**'s chart and let's see it it prove prophetic.

Scrutinizer

2010-07-13T20:50:00.001-07:00

To Short or Not to Short, That Is The Question

First off.. Christian at Perfect Stock Alerts offers these insights:

Now is the time to short

Christian has been downright obstinate about his belief that this rally is nothing more than a short-term bear rally that is destined to break down 2200 points to the 8000 level.

Market will decline 2,200 points

Great Depression 2.0

Now, discerning viewers/readers will note that Christian was a bit early on his H&S breakdown (as was I). We have seen a very low-volume rally over the past week, but one that has added some 600 points to the DOW since we broke through "neckline" territory.

But he makes a compelling case on the DOW with that "inverted hammer" after 6 days of upside. But the REAL QUESTION is whether this shorting opportunity will merely take us back to retest the previous low, or will it break down to even lower prices. It's truly been amazing how they have been able to prop up the markets on such low volume. We had the lowest volume on the DOW in over 6 months (someone said a year.. but have to confirm).

I think we're undoubtedly looking at a retest of the previous lows, or at least 1040 on the S&P. If that fails again, I'm would suggest that it's going to confirm that we're looking at a failed Bear Market rally that continues the bear market that commenced in 2008 and bottomed in March, 2009.

So.. back to whether longs should sell tomorrow or Thursday, and whether Shorts should add to positions? Since return OF Capital is paramount over Return ON Capital, combined with the FACT that we're looking at extreme overbought conditions AND A GAP-UP from a previous low, I would suggest taking money off the table.

I'll be looking to resume my shorts tomorrow with anticipation of at least seeing the S&P revisiting 1040, or a nearly 60 point haircut for that index. After that, I'll have to assess the situation and odds of the trade continuing to new lows. But I'll be waiting for the markets reaction to the retail sales report pre-market.

Retail Sales consensus

Economic Calendar

I'm also looking at the Euro/USD as we may be seeing the Euro topping out along it's long term trendline:

EUR/USD

If you insert RSI and Stochastics into the lower indicators, and Bollinger Bands into the upper indicators, then click the "draw trendlines" box, you can draw a line from the top to the current peak.

In the past, when the Euro descends, the dollar climbs and it put downward pressure on the US equities markets.

I'll also be considering global markets in determining the best time to short. Right now it's green across the board in Asia, which is often a leading indicator of how Europe and the US will perform the following trading day.

Global Markets

And as Christian pointed out, the FTSE (London Market) appears to be reaching it's top and may prove a critical indicator for the rest of the global markets.

Also, in my choice of shorts, I'll be looking at the Real Estate and Ultra-Bear Russell 2000 ETFs (DRV, SRS, and TZA respectively), while also looking at the Ultra-bear Banking index (FAZ). BGZ (ultra-bear DOW) may also prove a leading indicator of whether we have a market top.

Ok.. that's all for tonight. Be nimble and preserve your capital.

Scrutinizer

2010-07-13T05:44:00.001-07:00

Market Rally fueled by BP?

The news seems to be encouraging in the Gulf as BP was able to place a new cap on the spewing wellhead in the gulf. Now they need to shut the valves off and determine whether pressure rises, or escapes from a broken well casing. Many experts have expected that this inner pipe well casing was breached earlier, like a leak in a garden hose, and it's eroding the sea floor around that leak. If true, this would mean the cap would not resolve the leak, but only enable them to collect more oil from the leak, while we wait for the relief well teams to intersect with the well bore.

BP caps well for good?

The question is how much the market will care about this. Will this be sufficient to bring out the buyers, as well as scare the bejeezus out of the shorts, therefore bringing the DOW back up to over 10,600, and the S&P back up over 1220 and mitigating/nullifying this Head & Shoulders formation that recently broke it's "neckline" and triggered a market sell-signal?

Or will this be the opportunity the "bag-holders", who missed the opportunity to sell earlier, are counting on to off-load their portfolios. It all hinges on the above market levels according to Darryl Guppy, a noted Technical Analyst:

Reversing the Head & Shoulders

Right now futures are up 74 points on the DOW, but it's dangerous to believe a pre-market "gap up" as they are usually sold off. I'll personally remain unconvinced we've turned this market direction around, avoiding a breakdown of the previous neckline area until we've hit those levels described by Darryl Guppy as we're currently in serious resistance areas that almost demand a retest of previous lows. Furthermore we're looking at 6 up days, which is generally near the top of most market rallies. PSA's market read from last covers this pretty well:

Low Volume Market rallies fail

We're also in earning season so it may be that this week is the one chance for the Bulls to resume control over the markets as the post-news market is historically weak through August and September as traders take vacations.

Additionally, even though THIS short term H&S formation might become neutralized, we still have that 12 year H&S formation that is going to require some MAJOR work to overcome over the remainder of the year:

Mother Of All Head & Shoulders

Finally.. here's a little tidbit that I thought summarized the sub-prime market crisis and how Federal Stimulus has facilitated placing the burden of this mess on the backs of the taxpayers. It's pretty interesting reading:

Con of the Decade

And if that article isn't bad enough, here we have the Chinese cutting our Credit Rating:

Chinese Pot calling the kettle black?

Yeah.. I know China has tremendous reserves, but the bubble that has been created in the Chinese economy has rendered the majority of their Real Estate loans to be extremely suspect.

As I finished typing this, it seems likely that the gap up in this market will sell off. The question will how far the selling momentum is carried. We'll have to look at retail sales tomorrow morning as an indicator for the status of the US consumer.

Scrutinizer

2010-07-10T08:47:00.001-07:00

Get Short?.. Or Get Shortie??

It's DECIDED.. the new Bull(sh*t) Market has arrived!!

The shorts took it in the shorts anticipating a Friday afternoon sell-off (myself included).. The longs just continued to paint the tape higher and higher attempting to trigger "buy stops" that that shorts had entered to protect their positions.

But where's the volume??!!! We can't have a TRUE Bull market without a serious volume that indicates major institutional buying and it seems the higher this market rallies, the lower the volume goes.

Here's the most recent PSA video for your entertainment and education. I think he makes a great point about this lack of volume:

July 9th PSA market read: Get Short!

That's REEKS of stealth selling, and reflects that Mutual Fund managers are fully invested, lacking cash, and selling to meet investor redemptions. Again, this has been the case ever since the "Flash Crash" of May 6th removed 10% of the Dow's market value within minutes. This apparently convinced investors that "cash/bonds are king" and led to 9 straight weeks of redemptions, which are only now decreasing in size.

Investors pull $12 Billion out of the stock market in June

And ponder this article that just came out in USAToday, which is WIDELY READ (at least at hotels... ;0)

Trading against the Computers

Pretty frightening to realize that computers can "paint the tape" (which is illegal) in such a way to make it seem that there is actually interest from retail and institutional investors. They just want to suck you in and then slam the market down, leaving the average investor foundering in losses.

But it's not just the retail investor (Joe Six Pack) that is pulling out of the markets. Even the major Hedge Funds are seeing BILLIONS in redemptions from their "smart money" clients.

John Paulson, who made $3 Billion after working with Goldman Sachs to manipulate the Sub-Prime and Credit Default Swap markets just saw $2 Billion in redemptions from his clients.

Big Money pulling out of Hedge Funds.

Now.. if John Paulson and other Hedge Fund managers can't make money in this market, DESPITE being able to go both short and long at the same time (Mutual Funds can only "Go Long", while "Hedgies" can do anything and do it secretly), what makes the average investor think they can?

It's why I day trade, or at most, swing trade.. Everyone is getting whip-sawed as we wait for the market to choose it's ultimate direction, whether higher or lower. So they sit and wait.

So we rallied 500 points on the Dow last week, but positive buying volume on Friday was the worst we've seen since April:

DOW Weekly Chart

See the positive volume spike we saw in March, 2009? THAT'S what we need to be seeing, or at least seeing INCREASING positive volume, not declining volume. It's a sign that the market is lacking conviction and that "Big Money" investors are de-leveraging, and sitting on the equity market sidelines.

Does that mean the market can't go higher? Sure it can, but it will be fed by short-sellers covering and closing out their positions, not REAL DEMAND from bullish investors.

Thus, the signs are clear this is a "Bull(sh*t) Market rally (for now).

2010-07-08T20:30:00.001-07:00

And the Rally goes on!!

The Beat Goes On!

Yeah.. I know.. it's cheeky!! But it's what came to mind when I titled this post.. ;0)

Bear Market rallies are SHARP and often powerful enough to make one believe that a new bull market is impending that will take us to new highs. Heck, even I get

But what the CNBC pundits don't discuss is that we've been in a major bear market since 2008. The 83% rally we've had since Mar, 2009 was NOT a bull market, but a bear market rally. But some bozo decided to "reset the clock" and call it a bull market.

Maybe I'm strange, but I don't consider it a bull market until I'm relatively assured that there is more upside than downside, and we're trending toward taking out previous historical market highs.

So we've had over 400 points on the DOW added in the past 3 days. We're back above 10,000, and the S&P 500 is trading over the H&S neckline for the second day. Should we be bullish? Was this really the "Mother Of All Bear Traps" and the shorts are about to get scorched? Or is this just the eye of the storm and we're about to catch it from the other side of the financial hurricane?

I wish I could answer that. I really wish I could. And if I could determine the ultimate direction of the market, I'd be charging you for this advice in a private market newsletter.. ;0)

But again.. Technical Analysis of markets is like a windsock, not a crystal ball. All I can do is provide "risk/reward" scenarios. But the guy from Perfect Stock Alerts remains bearish and demonstrates some clear logic for his case:

PSA July 8th market read

And here's a longer market take from Dan Fitzpatrick who is ALSO a very competent Market Technician:

Dan Fitzpatrick market read

I had someone IM me last night on Yahoo out of the blue, wondering what direction the market was going to take, and mentioning that he he was down 10% on TZA, and Ultra-Bear ETF inverse to the Russell 2000 smallcap index. I truly felt sorry for him, as well as not being able to indicate how much more "pain" he was likely to feel holding that ETF. They are incredibly volatile and generally not for anything but a daytrade, or in certain circumstances, a short-term swing-trade. I have also learned the painful lesson of trying a "buy and hold" tactic on these inverse ETFs and one position took several weeks to become profitable again.

So let me attempt to address the current situation on some of these ETFs. I may have some screenshots from my trading platform available to annotate to this post tomorrow, so be sure and visit this post again for update data and charts. But for now I'll rely upon Bigcharts, which isn't perfect, but adequate to get the message across.

First... TZA:

TZA on my trading platform showed some INCREDIBLE DISTRIBUTION today. A very long brown volume spike, indicating selling. But when I looked at TNA, it did not show the same kind of positive volume spike. It could possibly be due to the fact that some folks lacking trading platforms with realtime charting were unable to deal with the 1 for 5 reverse that occurred in TZA, DRV, and TYP (and other Direxion 3x Ultra-Bear ETFs). Bigcharts is having this problem and it will be at least 10 days before I can get a good chart on the hourly timeframe.

Here is a screenshot from my trading platform for July 8th, Daily Chart. This one has traditional 30, 50, and 200 Day MA lines (color identified at upper left):

Notice the Parabolic SAR trending upward (blue dotted line) and the price at appox $36.00? TZA is quite likely to hit that "tick" and cause the SAR to "flip" downward starting from 45.66. Also, if you backtest the results of when a daily SAR is "flipped", you'll note that more often than not, the price will continue to decline to the next level of support which could be around $32-33/share, where the lower Bollinger Band arm is currently located. Now I don't expect TZA to actually get down to that level. It's likely that we'll see it flip, have a quick minor sell off and then begin the grind back up to the descending SAR line. SAR lines are like "magnets" for price movements. Prices will tend to trend back to the SAR line.

Now.. the OTHER possibility is that TZA sells off to the 50 Day MA at around $36 and then soars to new highs, thereby creating an even HIGHER Parabolic SAR "reset" (which would clearly demonstrate the uptrend is resuming (and the Russell 2000 furthering it's decline).

Now.. back to that volume spike.. Do you see it? But TNA, the Ultra-Bull ETF does not reflect a major accumulation spike. So I wonder how this reverse split is creating a volume divergence and whether that will result in higher prices for the Ultra-Bull ETFs.

Now.. in the hourly chart, we're seeing the 200 HOUR MA sitting at around $37.70.. This is a MUST HOLD to avoid trending downward, and it should be good for a short term trading opportunity for $1-2 price swing up to the lower Bollinger Band at around $39. But the last candlestick on the hourly chart was NOT a "hammer", which suggests we have further selling to go in the morning (which means TNA and the RUT will likely be up).

And look at the descending Chalkin's money flow. It's declining, and it generally goes negative red when it hits the "neutral zone". That indicates we have more pain for TZA.

Bottom line.. the selloff in TZA did a hell of a lot of technical damage to the chart. And that reverse split didn't do it any good either. And when I look at the daily chart of TNA, I don't see much resistance until $40/share for that Ultra Bull ETF. Since TZA is the inverse, it will likely suffer from this advance in TNA.

BTW, did I mention that the 60 minute TZA chart indicates a "Bear Flag" formation? That's usually not bullish.

Right now I'm playing FAS and some in DRV and DRN. Banking coin, but a bit frightened to leave a position overnight (I did leave my DRN in place tonight, but I'll be restless.. ;0)

This is a trader's market. And I like being able to bank 2-3% on my positions each day and sleep peacefully.

But these ETFs are not for the weak of stomach. The odds are that if you find yourself underwater in one of them, eventually you'll get bailed out. But if the Bears lose the game and this turns into a serious short squeeze, there is nothing but pain for the Ultra-Bears lying ahead.

Scrutinizer

2010-07-07T21:51:00.001-07:00

Money continues to flow out of Stock Mutual Funds

Redemptions by retail investors from Stock (Equity) Mutual Funds continue for the ninth consecutive weekly period. However, most of that money seems to be moving into bonds and data does indicate that the outflow is decreasing in total amounts. But does that suggest that the pace of redemptions might pick up again in the future? Possibly.

Ninth Sequential Month of Mutual Fund Redemptions

ICI data link

So what is sustaining this market? Some theorize, with some merit, I would suggest, that the computers and their "black box" High Frequency Trading parameters are "kiting" the market and creating volume when the underlying lack of TRUE investor buying is far lower. This is just one more aspect that a market technician will need to assess when viewing volume related data. Fully eighty percent of all volume is related to HFT activity and we all know what happened on May 6th, 2010 when those computers were shut off.

So where are they folks getting their money to feed the computers? You're guess is as good as mine. But I suspect some major banks are lending them money, or engaging in proprietary trading with their own Black Boxes. With nearly zero interest rate loans available from the Fed, these banks can invest it in Treasuries, Corporate bonds, or in Equities. So as bond yields decrease due to retail investors outflows from equities to bonds, the black boxes start looking at equities as being reasonably valued.

So, if the theory is correct, how much longer can they borrow money to have computers trade against one another? And what happens if one, or more, of those proprietary black box systems decides to take a holiday AGAIN?

What I believe is that the average retail investor is realizing that the markets are no longer about human decision making related to proper "price discovery" in achieving the proper valuation of stocks. These decisions are being left to computer models and computers programmed to make thousands of trades a second based upon those models.

The amazing part of this is that computer based models are supposed to analyze and predict human behavior. But if human behavior is telling them that these markets are increasing rigged against them, then how do they model what seems to be a decreasing amount of retail investor interest? If investors vote with their feet and flee the equities markets, then can we not question whether those computer valuations are based upon sound analysis/programming?

Let's not forget that computer models were used to value Mortgage Backed Securities and they turned out to be utterly flawed.

Well.. let's see what tomorrow's market has in store for us. Looking good in Asia, thus far.

But we have the jobs data tomorrow morning, and the consensus is for 465,000 new jobless claims.
Anything higher than that and we'll likely see a sell-off. But if we meet or exceed consensus, the markets will likely rally further up to the 30 Day MA line at 1080 SPX, at which point the market will likely hesitate.

Scrutinizer

2010-07-07T19:24:00.000-07:00

Jobs, Jobs, Jobs!!! It ALL comes down to Jobs!!

Note: Comment on today's market rally addressed at end of this posting.

Came across this article last night, but was too tired to post it then. But IMO, it truly reflects how much this administration SCREWS the small businessman in favor of the Big Corporations who provide them all those campaign contributions and campaign money. Monopolists trying to undermine the capitalist heart of our economy.

Why unemployment is so high.

Of course, let's also recall that for the Democrats in charge of this administration and congress, the quickest way to create jobs is to put people on welfare, not back to work.

Pelosi: Welfare creates Jobs.

So we have the Initial Jobs Claims report tomorrow and that should be indicative as to whether this rally can hold or not.

Current Market Situation

Whew!! That was quite a rally we had today!! Very strong price moves, but did the volume truly reflect the price move? Not particularly. If we look at the SPY (a proxy for the S&P 500 which provides me with volume related data), we can see that volume over the past two days, while positive (black columns), was PATHETIC in relation to previous selling peaks (brown columns):

SPY Daily chart

And this evening I watched the nightly market analysis at Perfect Stock Alerts to hear Christian's. He strikes me as a savvy market technician who backs up his views with easy to understand explanations. It never hurts to confirm/challenge your own beliefs with the views of others.

Perfect Stock Alerts analysis: Read The Market Chart, Don't Chase It

NOW.. CNBS is spamming their website and network with "noted short seller" Doug Kass's declaration that the market low is in. I have to admit that I must not watch enough CNBS because I don't recall this guy's name, or the assertion that he called the previous low in March, 2009. But whatever.. He's one voice in the wilderness and the TECHNICALS DON'T LIE!! They may "fib", but they don't lie.. ;0) And neither does volume (or Relative Strength Indicators, RSI)

Of course, maybe all this volume is taking place "off-market" in the "dark pools" of capital (Hellow FINREG?!), but to capture the attention of the retail and independent market traders, you have to "show your hand" eventually and reveal that the market is under heavy accumulation.

Doug Kass goes bullish

Doug Kass, most views

Kass, interview with Jon Najarian

Could Mr. Kass be right again? It's still hard to say.. Give us a few more rally days like today and eventually we're going to get that Buy Volume spike as shorts throw in the towel and are forced to cover, adding fuel to the buying fire. But we'll need to get above 200 Day MA before I see that happening. And it's my belief that to nullify the H&S formation, we need to see 1250 on the SPX seen within a few months.

But just because Mr. Kass is calling for a bottom in the market, he's also only suggesting a 10-12% increase by YEAR END. 10% on the SPX from the 1010 bottom is only 1110 and we're half-way there based upon today's trading ALONE.

Furthermore, 10% return on the SPX still leaves it BELOW the 200 Week MA

Doesn't strike me as much of a bottom.. Nor much of a bull market rally. After all, we saw nearly 83% upside after Mr. Kass's LAST market bottom call. Now he's only settling for 10-12%... Hmmmm...

HOWEVER, let's look at something interesting.. The SPY Monthly chart IS DIFFERENT than the underlying SPX for which it's supposed to be a proxy. It's something that I hadn't looked at closely, relying upon the raw index data. But I'm finding some interesting divergences when looking at SPY data:

SPY Monthly Chart

Notice the hammer that was put in on the SPY? It's not yet evident on the SPX monthly chart (it's "all data" so you might want to decrease it to 5 years):

SPX Monthly

THAT IS INTERESTING. Because a Market Technician, looking for reversal points, looks for "Hammers", (Google "Candlesticks Hammer" for a description). And a Hammer on a Monthly chart is not to be ignored as something temporary. Of course, it requires confirmation from the following month's Candlestick indicator.

What's so interesting is why there is a hammer on the SPY, but not on the SPX? Which one should be trusted as the best reflection of the market technicals?

ALSO, something that other technicians are not paying attention to is that the Monthly Stochastics are fast approaching previous oversold conditions. Now that doesn't mean that oversold monthly stochastic can't exceed the previous iterations, but it's unlikely.

In sum.. this is going to be a trader's market.. swings in one direction or another and no major gains to be had by holding it. And that's what Mr. Kass is offering as his best case scenario that leads him to assert "This business is going to be fun again and it's going to happen sooner than most people think".

If 10% returns is "fun", I'd sure hate to know what he asserts is "boring".. ;0)

In sum.. be nimble.. watch the volume.. and look for inverted hammers on the charts for reversal points back to the downside.

And remember there's always the potential scenario where we see the mother of all short squeezes that takes us up to 1250 on the SPX.

Scrutinizer

2010-07-06T19:36:00.001-07:00

Paralysis by Analysis

Well.. the US markets finally broke a 7 day losing streak after a 171 point rally which then fizzled into negative territory before closing in the positive (barely) by about 1/2 percent. Asian and European markets seemed to be the impetus for this major pop, but it was clear that people were selling the rally, at the same time it was squeezing the shorts. I had spare cash ready so I did pretty well. However, at the end of the day I closed out my Ultra-Short positions after banking some serious percentage gains over the past several weeks in anticipation that this might be a long overdue relief rally (not a bull market, just a relief rally... ;0)

And Ultra-Short ETFs can lose a LOT OF VALUE during any significant rally, so it was better to end with cash.. Tomorrow is another day. Might even go long some of the 3x Ultra-Bull ETFs, but it won't be anything I hold overnight.

So how far will this rally, assuming it repeats tomorrow, take us? It had a hard time clearing the 1040 SPX level, which is the neckline of the Head & Shoulders formation. It briefly breach that 1040 number, but then fell back with only a 5.5 point gain for the SPX. I personally will be surprised if it exceeds 1100:

SPX chart with 100 week MA

More likely it will try for 1050 to 1065. But look at the "Death Cross" where the 30 and 50 Day MAs are crossing under the 200 Day MA. Those are resistance points that any rally will pound it's head against:

SPX Daily Chart

And if you go back to the previous weekly chart, you'll note that the SPX underwent a WEEKLY "Death Cross" back in 2008 that took the SPX down from 1300 to 666 (NUMBER OF THE BEAST Baby!! Now TELL ME THAT was just a coincidence.. ;0) That's a 50% haircut from the time that ALL THREE WEEKLY MOVING AVERAGES turned downward. That's important to remember, because all three of them have turned downward YET AGAIN!!

Furthermore, this is the FIRST TIME that I can track where the 100 Week MA, once having descended below the 200 Week MA FAILED TO SUBSEQUENTLY PENETRATE IT AGAIN. The rally from 2009 to now has FAILED to see that 100 Week MA rise back above the 200 Week MA.

First time in history that I can discern. Read that as UNPRECEDENTED... HISTORY MAKING.. and SCARY AS HELL...

Don't believe me.. look at the Weekly chart above I posted.. But remove all sharp objects from your immediate presence beforehand.. ;0)

Now.. for you Russell 2000 (RUT) fans, you'll note that CNBS is reporting that the RUT is the first index to hit a 20% decrease (bear market) since the April highs.

RUT enters Bear Market

This should not surprise anyone as small caps ALWAYS get sacrificed and used as a "source of funds" to support the SPX and DOW. That's why I was trading TZA, which is the 3x Ultra-Bear ETF that is the inverse of the RUT.

And from looking at the Monthly chart for the RUT, it's pretty clear where it's eventually going to find support, 510:

RUT Monthly

But the REALITY is that ALL INDICES have been in a CONTINUING BEAR MARKET since 2008. Why CNBS has CHOSEN to ignore the previous year and only counts the rally from the Mar, 2009 lows is beyond me.

The ONE THING favoring the RUT at this moment is that it has YET to see all 3 major Weekly MAs turn downward. However, that seems to be a certainty in coming weeks as the Daily MAs have turned down:

RUT Daily Chart

RUT Weekly Chart

Finally.. I've been reflecting on my market analysis and looking for any missing "clues" or hints that I might have been missing..

First off, the very nature of the 12 year, as well as this more recent Head & Shoulders, has me wondering why the SPX hasn't sold off below 1000 yet. Every market technician willing to recognize that H&S expects the SPX to hit 850 very soon. H&S formations normally resolve themselves to the downside very rapidly as they are widely recognized by Technicians as major sell signals.

But WE DO HAVE some Bullish fundamentals in the form of corporate earnings, as well as how much cash they are amassing on their balance sheets and those facts should not be ignored. The SPX currently has a P/E of about 15, while the DOW has one of about 14. That's, BY NO MEANS, out of line. But the market is a forward predictor of value and it obviously believes that with no new stimulus, it will be difficult to maintain that earnings momentum in future months.

Even some noted bears are calling this a bottom for the year:

Bear going into hibernation?

So what if this is a "Bear Trap"? A carefully laid trap that lulls the bears into thinking this is a "no-brainer" short trade all the way down to 2009 lows. A sinister trap that lets the SPX slip to just above that critical psychological support of 1000, and then comes in with a crushing amount of buying that creates the "mother of all short squeezes" and propels the indices to new highs (thereby negating that 12 year Head & Shoulders formation)??

If they are going to do it, and possess the financial wherewithal to ACTUALLY do it, and if corporate earnings in coming weeks genuinely provide GREAT NEWS to justify it, then they would need to spring their Bear Trap NOW. Do it when all the bears are piling in and no one wants to be long stocks. Such a squeeze, given the requisite rationale, could be truly devastating to the bearish case and provide a ton of buying power from short covering.

I'll only feel TRULY solid about my bearish analysis when the SPX breaks 1000. That will be the final nail in the coffin, IMO.

Scrutinizer

2010-07-04T13:38:00.001-07:00

Happy B-Day USA!!

I hope you're all having a great 4th of July!! I managed to get up to the mountains and spend some quality time amongst Mother Nature.

It's on days like this that we have to remember that this country has been strong enough to endure a multitude of financial storms, but yet emerged stronger after they have passed. That's the nature of the USA, the American people, and our culture that recognizes humanity's unalienable rights to "Life, Liberty, and the Pursuit of Happiness"..

It's time to return to a government (and economic system) that is " of the people, by the people, for the people". To recognize that both of these institutions are tools to SERVE THE PEOPLE, not control them. They are tools "to promote the general welfare, and secure the Blessings of Liberty to ourselves and our Posterity".

That said, the people must recognize the truth, understand it, and be willing to resolved the problems. And we must understand that "Big Money" in this country is not the kind of COMPETITIVE CAPITALISM we to achieve a better future. What we are seeing now is MONOPOLISTIC CAPITALISM, asserting it's control over the marketplace and stifling innovation and entrepreneurial forces within our culture and economy. It's turning out markets and financial system into casinos where "skin in the game" investing takes a backseat to derivatives, hedges, and Credit Default Swaps that provide profit when capital and assets are deflated and/or destroyed.

So remember that the challenges we face in coming months and years are temporary and they too will pass. But it will not be easy, and communities will need to come together in support of one another.

Now.. on to some reading that I found interesting.

David Tice has been a long-time bear and runs the "Prudent Bear" mutual fund. He's been bearish since I first became aware of him back in the '90s. That said, sometimes he makes some sense and brings up some good points. And maybe, like a stopped watch, maybe the course of the financial markets and his sense of bearish timing are finally coming into alignment:

Will S&P retest 666?

First of all, I found it actually ominous last year when the S&P hit the "number of the beast". Just TOO freakin' coincidental, if you ask me. Suddenly in all the panic selling the "Big Money" put in orders to buy the S&P at 666? Come on now.. ;0)

Back to Tice. He brings up critical points related to state and local budgets forcing the laying off of hundreds of thousands of employees. And this cycle of layoffs is just beginning because they were staved off by the Federal stimulus last year. It's very unlikely that the market has much appetite for another such stimulus, but as US bond rates descend back towards previous lows, that may change. Money demands a place to be "parked", and Obama's stimulus provided just that. However, as I've mentioned before, that money was utterly wasted and created few, if any, sustainable jobs.

So read those points and ponder the future. And pray it doesn't come to pass.

And if you would like to read where this country should be heading, a good start is with "The Capitalist Manifesto":

"The Capitalist Manifesto"

The Great Disconnect

Additionally, I've previously read Peruvian Economist, Hernando De Soto's work, "The Mystery of Capital":

The Mystery of Capital

In both of these works, the authors disdain monopolistic Capitalism. True Capitalism releases the individual talents of the people to innovate and prosper. But current capitalism has evidenced itself as denying common people the ability to access capital, either by excessive bureaucratic interdiction (regulations, permitting, licenses, taxes, fees) and/or through monopolist capitalists/aristocrats using legal and governmental means to protect their capitalist fiefdoms from competition.

Capitalism is flawed and it needs to be fixed so that it benefits the most people. But it's merely an economic tool to guide the process of ensuring the prosperity and economic security of our people (and people around the world).

Scrutinizer

2010-07-01T22:01:00.001-07:00

Why Nancy Pelosi MUST BE VOTED OUT in the next election

Watch this:

Pelosi.. Unemployment Creates Jobs

WashExaminer remarks..

So Nancy would have us believe that extending unemployment benefits "creates jobs"?

First off.. let's call these extended benefits what they are... Welfare. That's right.. Welfare.. Because the regular benefits were actual insurance, with premiums paid by both employers and employees. But they don't want to call it Welfare.. So they call it "extended unemployment benefits"..

Listen up Nancy.. I agree that we need to create jobs. But if you think keeping people on welfare is the way to do it, you're not playing with a full deck.

Why not just use those extended unemployment benefits to pay for a tax credit for small businesses to hire and (re)train those on the unemployment roles? At least these people would be retaining job skills instead of wallowing in self-pity, drinking beer, and playing Xbox.

But that's not the game plan.. Keep people on those "extended benefits" and guess what??.. They're more likely to vote democratic in the next election.

The government has a role in stimulating the economy and stabilizing the job market. After all, this country is about it's people. Political Parties and Corporations exist to SERVE the needs of the people. They are TOOLS for promoting opportunities for prosperity for the people.

If you want to stimulate the economy, cut taxes and cut public sector salaries to parity with the taxpayers that ultimately pay their salary and pensions. It's IMMORAL that public sector workers enjoy greater prosperity than those in the private sector.

That's what is endemically wrong with this economy. Private sector risk taking is inhibited by public sector grifters.

Don't get me wrong.. There are VALID public sector jobs, many of them very dangerous. But for God's sake, we have cops making well over $100K per year in many cities and it's bankrupting the system.

But let's just end this with the understanding that Welfare DOES NOT create jobs to any greater degree than Small Business tax credits that would cost less and KEEP THOSE PEOPLE EMPLOYED IN THE FIRST PLACE.

It's simple.. Taxpayer money spent for stimulative purposes needs to have an Return On Investment (ROI). Infrastructure.. Space Exploration... Creating the Internet, Materials and Energy Science.. etc.

We can't afford Welfare.. But WE CAN PROVIDE WORKFARE, so people retain their dignity, their work ethics, and the taxpayers get something in return.

Scrutinizer

2010-07-01T21:44:00.001-07:00

The Two Faces Of Goldman Sachs

What a great coup for ZeroHedge.. And it shows just how "two-faced" a Big Wall Street firm is when it comes to providing one set of strategies for their "special clients", which is directly opposite of what one of the Vice Presidents, and Top "Analysts" tells the retail customer on CNBS or some other media outlet:

GS Trading Report

Notice the "distribution" list?

Not for distribution to retail investors

But apparently THIS is for distribution to the "retail" J6P investor:

Abby Cohen: Here to pump (and dump) you up..

We think the recovery here in the United States is quite solid. It will not be as fast as we have seen in previous recoveries from recession, when our GDP had grown 8%, but we think we have very solid growth of about 3%, which is dramatically faster than we are seeing in many of the other developed economies.

WHO THE HELL IS "WE"??? The clients (hedge funds, and big money, and maybe even Uncle Sam) who have hired GS to sell their stock positions to a bunch of gullible retail investors, most of whom can't even pay their mortgages and credit cards off, let alone be sure they will have a job in a year.

It's certainly NOT the GS Trading affiliates.

Those guys are seeing the VERY SAME thing I've been discussing for the past month here.

And don't EVEN get me started about Goldman's complicity in the Real Estate Bubble and it's eventual demise, or their role with Credit Default Swaps. And now they want to get those Carbon Credit markets rolling so they can put the screws to America just a bit more.

Scrutinizer

2010-06-30T06:17:00.000-07:00

Chart Of The Day

The Black Swan Cometh

Btw, ADP jobs data came in especially weak. There was an estimate of 60,000 new jobs and the report only registered 13,000.

The S&P 500 is currently trading under 1040 (@1039 as I type) so apparently there may be little support for the index this morning and that may put us firmly under that critical 1040 H&S "neckline".

Also, European indices started off the morning in the green, but now have turned negative.

Additionally, the only major Asian index in the green was Singapore.

Scrutinizer

2010-06-29T23:45:00.000-07:00

Descending MA Trifecta Next?

Once in awhile I come across one of those technical indicators that constitute an epiphany in my analysis of the markets. I knew about this one, but somehow it got overshadow by all the other TA noise one hears from day to day.

It's called the MA Trifecta and pertains to what happens when 30, 50, and 200 (Day/Week/Month.. etc) Moving Averages all "roll over" into a declining trend and how reliable of a signal that is.

Descending MA Trifecta

Visit the chart link below and adjust the time frequencies to 5 year, then 10 year, inputting SPX, INDU, RUT, and QQQQ which represent the major indices.

Daily Chart Template

Now use the Weekly, All-data settings and the above symbols. Here's a weekly chart template:

Weekly INDU Chart Template

Also, note that the INDU chart shows the 50 Week MA NEVER made it above the 200 Week MA after the 2008-2009 crash. Now change the settings to "1 year, weekly" and you'll see that the all three averages are declining. That's the "Trifecta" and as you've seen from back testing in the links above, IT'S A POWERFUL INDICATOR THAT IS SELDOM WRONG about the direction of the market.

And the 100 week MA reverifies this trend:

100 Week MA chart template

The only way the MA Trifecta gets busted is normally when the shortest term (30 period) changes direction. And, as always, the longer the time frame (day, week, monthly.. etc) the stronger the signal and the longer it will take to reverse.

And btw, this also works to the upside for identifying UPTRENDS, so it's good to remind oneself and revisit the basics of Technical Analysis.

Ok.. so minus some miracle of positive event related news, it would appear that we're going to continue the downward trend in coming weeks. We have continuing follow through selling in Asia, but not to the same degree as last night. We'll have to see how Europe's markets perform, as well as the Euro and USD ratio. The Euro has resumed its previous decline and that puts upside pressure on the USD (making our goods more expensive to sell overseas).

Furthermore, we saw tremendous buying of US Treasuries, bringing the yields (interest rate they pay) down over 20% on the 10 year bond. That's a sign of panic buying and flight from equities.

Continue to watch the Perfect Stock Alerts (no affiliations between us) market videos.. They're informative, understandable, and entertaining.

Scrutinizer

2010-06-29T12:47:00.000-07:00

And The Hammer Falls: S&P 500 breaks below Head and Shoulders Neckline

As I write this, the S&P 500 (SPX) has broken the Head and Shoulders neckline at 1040. It's currently at 1038, which suggests that we're on the way to 900.

Christian at Perfectstockalerts sums it up rather nicely, and has been extremely accurate in his Technical Analysis.

If You're An Idiot, Buy Stocks

To remind you, PSA is predicting a 2100 point loss in the DOW industrials that takes us back to 8000 or so.

PSA predicts 2100 decline in Dow 30

I've tried to warn those friends of mine who are still in the market that this was likely to happen. I'm sad for those who didn't follow the signs.

Now.. to remind all of you, THIS H&S formation currently represents a H&S within a H&S. The major H&S covers a 12 year period originating from the Internet Bubble, to the Real Estate Bubble all time high in 2007, and now the Sovereign Debt Bubble.

Mother Of All Head And Shoulders, Revisited

Now.. it's POSSIBLE that we might see a rally back up to 1060 on the SPX, but the cake has been baked. If we get that rally, you're well advised to sell into it and go to bonds, cash, or for the more daring, go short through the wide variety of Ultra-Short ETFs such as BGZ, TZA, DRV, FAZ.. etc:

Bearish ETF list

But I advise you to wait for a strong rally before indulging in the Ultra-Short sector. These things are notoriously volatile and you'll find you're underwater at times before they gain strength as the market declines continue.

China: The Canary In The Coal Mine

China revisted

China's Leading Economic Indicators were revised downward today and that led to a 4% decline in the Shanghai market. Why this is considered important is that since so many goods come from China to be sold in the US and Europe, if they are producing less, then we're ordering less. Therefore, it provides an interesting signal that analysts watch for signs of future US economic health.

Of course, many also would assert that you can't really believe China's economic data due to governmental controls.

So will this market muster a rally tomorrow? Depends upon the jobs data that will come out tomorrow (from ADP) and on Thursday official Jobless claims. Both of these will come out pre-market, so they could create some additional shocks to the market.

Bloomberg Economic Calendar

Bear in mind that we're seeing a lot of pressure on local and state governments to cull their excess workforce and balance their bloated budgets.

Good luck out there. And remember that RETURN OF CAPITAL IS MORE IMPORTANT THAN RETURN ON CAPITAL.

Scrutinizer

2010-06-28T20:04:00.000-07:00

The Next "9/11" Coming To/Across A Border Near You?:

AL Qaida and Hizballah form "alliance" with Latin Dictators and Drug Cartels.

It's been long rumored (at least publicly.. ;0) that there has been an extensive Militant Islamist presence in Latin America. They have been involved in fund raising (organized crime and drug smuggling), money laundering, as well as planning and training missions for their operatives to infiltrate the US.

So today I caught this article in "Homeland Security Today" (see my favorite links) alleging that these various Islamist factions, both Sunni/Salafist and Shi'a, have been forming alliances with many of the vicious Latin gangs like MS-13:

Unholy Trinity?

If you have trouble navigating the article, just click on it and look for arrows for page turning purposes.

Anyhoo.. As I mentioned, US intelligence has long been aware that these groups have been attempting to open transport and infiltration routes into the US. And with the increasing power of Venezuela's Hugo Chavez, that country has become a favorite location for the world's terrorist groups. In 2005, Hugo Chavez appointed Arturo Cubillas Fontan, a leader of the Basque terrorist group, ETA, as Venezuela's "Deputy Director, Ministry for Land and Agriculture, presumably because of his extensive connections to the Colombian Marxist Guerilla group, FARC. And this past March, as the result of information gleaned from captured computer files of a FARC commander, it was learned that Chavez had arranged for ETA and FARC terrorists to attempt the assassination of Colombia's President Uribe:

Captured FARC documents demonstrate Chavez ties to terrorism

Hugo denies all.. Claims damning FARC computer files tampered with.

Most have heard of Chavez's relationship with Iran's government and how they feel about the US:

Chavez and Iranian relations

And more recently, if you haven't been living in a cave, you might have heard about Syria's President, Bashir Assad, making a visit to Venezuela a few days ago:

Chavez and Assad united against "Common Enemies"..

So Chavez believes the US, and the American people, are his enemies? Does that mean a state of war exists, at least unofficially, between Venezuela and the US, as well as Israel? This guy sure knows how to put a lot on his plate... ;0)

Now.. if you've read the HST article above, you've figured out that there is an extensive "cultural acclimatization" presence for Islamist militants in Latin America. They are learning the language and the culture in preparation for infiltrating these "assets" into the US. One would think that would grab major headlines, if not highlight how important the illegal immigration issue is to our National Security. If we don't know who is in our country, then how can we know if they are actually Latin Americans looking for a better life, or Islamist militants staging to commit terrorist acts against the American public?

So why am I addressing this subject today?

Well, it would seem the FBI just put the Habeus Grabbus on 10 Russian Spies from a sleeper network and it seems to be BIG NEWS even though no acts of violence seem evident in their espionage activities.

10 Russian agents arrested

Well. I agree.. it's great that we caught them.

But are we still focusing on "cold war" grudge matches, while we seemingly TOTALLY IGNORE the presence of more violently inclined Islamic Militants entering our unguarded borders and assimilating into the Latin communities? Are we not concerned that they might be financing inner city gang activity, while facilitating narcotics trafficking to destroy the minds and lives of our young people?

Still don't believe it's worth getting upset about? How about this quote from this known Al Qaida recruiter:

Islamist recruiter details use of smuggled biological weapons against US

Pretty scary, eh? This is a guy who's a friend of the Taliban leader, Mullah Omar (who's related by marriage to Usama Bin Ladin).

Therefore, I have to ask.. WHY HASN'T HE BEEN SENT OFF TO COLLECT HIS 72 VIRGINS ALREADY???!!

And why are we paying more attention to Russian spies than to people plotting to obtain and smuggle four pounds of Anthrax across the Mexican border?

We don't have our priorities straight in this country.

Scrutinizer

2010-06-27T21:54:00.000-07:00

Summer of regret, or opportunity?

We continue to await the final direction of this market. The SPX seemed to attempt a defense of 1040 last week by holding around the 1080 level, but it seemed to involve a lot of selling.

SPX daily chart

And when you input "weekly" as the time frame, you'll see that 6 out of the past 9 weeks, including last week, involved more selling than buying. This would seem to be a clear sign of major distribution (selling) into rallies. And even going back to the point where the April was made, we can see that it happened on mediocre buying pressure that was overshadowed by previous, and later, selling. That's not normal and was suggestive of a head-fake rally in April.

And pay particular attention to how many weeks passed in that move up to the April high, and how quickly it moved down (11 weeks to move from 1050 to 1217, while it took 4 weeks to move back down to 1050 FROM 1217). Any move that effectively erases the previous gains in a far shorter time is bearish. (btw, I'm not even counting the "flash crash" low, which would have wiped out all of those gains within a week).

That means that selling pressure is MUCH STRONGER than buying pressure.

Summer Rally or Summer Slump?!

Near term market scenarios

So how do we know which way the market goes? We don't. But I suggest that sometime next week we're going to get a better idea of where it's heading. If it involves an ACTUAL retest of 1040-1050, that could set us up for a summer rally. Break down below it and the SPX is heading towards 950, and then possibly 800.

Again.. I want to be bullish, but I'm not seeing any reason to be at this point. Some tremendous technical damage has been done by the 2008 crash and it's going to take time to work that out, even assuming we don't fall back into a double-dip recession (depression).

Here's some more stuff to digest regarding the ultimate direction of the market:

13 Signs The US Economy Has Hit A Brick Wall.

Why The U.S. Will Never Have A Balanced Budget Again.

And watch what going on with China, and especially the Shanghai markets. It represents actual manufacturing expectations far more than the Hang Seng (Hong Kong) market. It's been losing value consistent for weeks now, and it's down another half a percent this morning.

Shanghai index

Shanghai market chart

Very disturbing reading, wouldn't you say?

Of course, many other countries like Japan and Europe are in the very same boat. But the USD is the global reserve currency and if the investing community loses confidence in it's ability to act as a storehouse of value, we're screwed.

Scrutinizer

2010-06-25T23:35:00.000-07:00

DOUBLE DIP RECESSION (DEPRESSION?): Handwriting on the wall?

Latest ECRI economic data revisits 2007 pre-recession levels

Mish's take on the ECRI data

It's pretty damn clear, despite the refusal to admit the reality, that we've re-entered a double dip recession.

The recent unemployment data, exacerbated by the BP disaster, as well as mounting pressures to fire public (state and local) workforces will continue to decrease demand and likely create even more foreclosure risk. And as a previous post demonstrated, we had the lowest New Home Starts data since data started to be recorded (adjusted for population). The stimulus package was wasted paying benefits while providing no return in goods/services to the taxpayer (community service and/or infrastructure improvement). Additionally, bailing out TBTF banks meant they just took the money and invested it in Government debt, the interest for which comes out of taxpayer pockets.

And now we have the additional uncertainty, as well as the failure to deal with Credit Defaults Swaps, created by "FINREG" (Financial Regulatory reform). There is NO DOUBT IN MY MIND that this will add to deflationary pressures as banks come to terms with the new rules and regulations.

Don't get me wrong, we DEFINITELY NEED to regulate this financial casino we have created. Opaque derivatives trading need to be brought into the light of day. We need to limit the equally secret Credit Default Swaps markets to ONLY INSURABLE INTEREST so we don't have people trying to commit financial "arson" by buying insurance on assets they don't even own. (eventually I'll address this further in another post).

And now we have a Tropical Depression heading for the Gulf, which threatens to spew all of that oil up onto the beaches, if not picking it up and flying it inland. Let's face reality.. Two more months of 100K barrels of oil per day is going to most likely wind up impacting the keys and even finding it's way into the Gulf Stream.

And there's always the European uncertainty. But it's possible that, with this renewed interest in necessary, but deflationary, austerity measures, the US will HAVE TO follow suit. If we don't we may find our own currency under attack by the supra-national hedge funds.

I'm really looking for some good news out there.. I REALLY AM!!

If you have some... feel free to comment.

Scrutinizer

2010-06-23T09:20:00.000-07:00

WORST NEW HOMES SALES SINCE 1981.. IN FACT, IT'S EVEN WORSE!!

US New Home Sales had the biggest drop since 1981.

New Home Sales data

HOWEVER, when adjusted for population, they were actually EVEN WORSE, as a very astute comment below reflects:

Housing starts actually lower than previous 1981 decline

To repeat this person's comments:

1980 USA population: 226.5 million ( ~228 million to approximate 1981)
2010 USA population: 309.2 million

1981: .338/228 = .001482 houses/million peeps or 1.5 houses per 100,000 peeps
2010: .300/309 = .000978 houses/million peeps or 1.0 houses per 100,000 peeps

[So, adjusting for population, this low is fully 33% under the 1981 low...

So.. that housing tax credit was all well and good, but it didn't put a bottom into the home sales market. That means, in order to clear out inventory, prices will have to come down EVEN MORE. And sadly, those folks who bought homes using that tax credit MAY actually find that EVEN THEIR HOMES will soon be under water soon.

Scrutinizer

2010-06-22T06:22:00.000-07:00

China's market foretelling a Double Dip Recession?

Was perusing some of John Mauldin's postings and came across a guest article where the author posits that China is foretelling that the US is facing a potential Double Dip recession. He asserts that China's market leads the direction of US markets by at least 4 months. This would make sense as US buyers would require at least 1/2 year in "lead time" between goods manufactured in China, which would subsequently be shipped to the US for sale. Thus, China provides an interesting "Canary in the coalmine". This is all the more interesting given China's declaration over the weekend that they would show flexibility in pegging their currency to the USD. Some analysts are asserting they would not do this unless they felt confident about the stability of their economy. But other analysts suggest that China may actually find itself forced to devalue in order to improve the competitive desirability of their exports.

China: The Economic Elephant in the Room?

Figure 1 - Weekly chart of four major market indexes showing the Chinese Shanghai Shenzen Composite peaking along with the rest of them in October 2007 but bottoming well in advance of the others in spite of impressive Chinese economic numbers. So which indicator is right? Chart courtesy of GenesisFT.com.

Pay particular attention to the chart the author provides (as well as the notation below that chart that I posted above) showing the performance of the Shanghai index in comparison to the S&P500, the German DAX, and the Indian "Nifty" market.

For the past year, the Shanghai market has been in decline, having peaked in July, 2009. In comparison, the other 3 indices have continued their uptrend. The author, as I understand his comments, suggests that this would be an indicator that these three indices are due for a substantial pullback if they are resolve the divergence that exists with the Shanghai market.

The author also makes a compelling case that China is "cooking the books" and is in a SUPER-BUBBLE which, when it bursts, will have significant ramifications to global commodity prices.

The last thing the Chinese economy needs is a stronger Yuan, but they are facing tremendous political pressure from the G20 to let their currency appreciate.

Is it any wonder why Chinese officials have been so reluctant to let their currency, the renminbi, appreciate in response from demands from the U.S. and China's other trading partners? If the economy is in a bubble, the last thing it needs is a strengthening currency to exacerbate the problems.

The reader may also will recall my previous posting from Monday discussing the Ponzi Scheme that is Chinese real estate. Putting savings into a home, only to obtain a home equity loan against the appreciated value of the home, only to take the funds and RE-LOAN that money to a Loan Shark, who pays 20-150% interest (presumably charging their borrowers even more) is incredible, if true to the extent this is allegedly happening in Chinese "black markets".

Thus, in sum, if the Shanghai index is an indicator of the future for other global indices, that would suggest at least a 20% drop in the DOW and SPX.

Finally, I would offer this CNBC article by Herb Greenberg, which discusses how many Chinese companies have been engaged in reverse mergers into US corporate shells in order to gain access to US capital. Many American investors/speculators have been buying these up in the belief that the companies behind them have been properly vetted as legitimate companies. This could not be further from the truth as there are almost no mechanisms for legally requiring these Chinese companies to fully disclose, except US securities laws, which are extremely difficult to enforce against a Chinese company, even if it's stock is listed in the US.

Chinese Firms Using 'Back Door' to US Exchanges

Reverse Mergers often involve private US companies attempting to take the "fast track" to public status, avoiding the IPO phase, and the vetting that normally involves. Many of them are of extremely dubious credibility, if little more than scams and frauds, but they are accountable to US securities laws. So if the most common reverse mergers are "sketchy", having an unaccountable Chinese company go public in the US exchanges is potentially the quickest manner in which to lose your entire investment.

Most of all it's indicative of the "con-game" that China is playing against Western investors foolish enough to invest in China's bubblemania.

Scrutinizer

2010-06-21T20:36:00.000-07:00

Market Crash Warning?!!

The Chartist at Perfect Stock Alerts has been incessantly warning investors that the current market technicals are warning of a market crash. They have reiterated this warning in tonight's video:

Market Crash Warning?

It will be interesting to see if their predictions come true.

We did start off very strongly this morning, as predicted in my last post. But the market couldn't seem to hold the gains. Despite the fact that the SPX was up 12+ points over Friday's close, it gave all that back, plus an additional 4 points. That's not encouraging and smells strongly of "distribution" (selling into market strength)..

You can also see from the following chart that the market is overbought and ready to turn down.

SPX daily chart

Again.. what has to be watched in that Exponential 100 Week MA currently sitting at about 1103 on the SPX.

SPX with 100 Week MA (note: Bigcharts is not particularly accurate with it's MA plotting. I've confirmed the MA support level on my real-time trading platform).

Now mind you, there are differences in Moving Averages. I use the Exponential MA because it more heavily weights RECENT price data, as opposed to the simple MA which smooths the MA out over all available data. Exponential is supposed to react quicker to current market sentiment:

Exponential MA explained

There are a lot of different ways to use MA's. As previous readers may recall, someone turned me on to the fact that the SPX only infrequently violates it's 100 Week MA and when it does, it's usually a strong buy or sell signal (depending on if it's penetrating up or down through the MA). Over the past 6 months, the S&P has been struggling to make an upside penetration of that 100 Week MA, after the 2009 violation of it. It's been above and below it all throughout the spring, and right now the SPX is precariously close to penetrating back down (again) beneath that 100 Week MA. If it does that, one would think that it would send a powerful signal that it will be going down for a retest of Mar, 2009 lows (or at least back to July, 2009 levels @ SPX 900).

And then the question is how long it will take to regain the 100 Week MA.. It could take months, or even years. Such is the suggestion latent in the video posted above.

Very frightening to think we're looking at a chart formation that was seen once before in 1929, isn't it? If investors aren't intimidated by such a comparison, they have no business being in the markets. Some folks fail to recall that the market highs seen in 1929 were not seen again until 1954. That's correct.. it required 25 years before the market was back at the level it was in 1929. Now.. maybe some of you can wait 25 years, or even 15 years, for the market to return to it's previous highs, but most Baby Boomers can't.

And all along the way down, there are people who are shorting this market, standing to profit at the expense of current investors as the markets decline and stay down. Think about it.. if you shorted the market now @ 10,000 and it follows the '29-32 course, within a few years the DOW will be at 1,000 (10% of current value).

That amounts to a loan you don't have to pay back until 20 years from now.

Again.. I hope that I'm incorrect. I truly do.. But I'm just a small fish trying to get a few scraps from a feeding frenzy of financial sharks. They pumped up all of this bad debt with sub-prime loans and derivatives, making a fortune in the process. And now they are setting themselves up profit again (using Credit Default Swaps) as that bad debt collapses and defaults, destroying the money supply at a rate not seen since the Great Depression.

A relative asked me tonight how money is destroyed and walked her through it. You deposit (loan) money to a bank and they pay you interest. Using the fractional reserve lending standards, the bank can then CREATE MONEY by extending $9 of loans for every $1 in deposits they hold. Therefore, if you deposit $1 million dollars in the bank, that bank can extend $9 Million in loans, thereby increasing the money supply by $9 million. Get it?

And if they are paying you 1-2% on your million dollars, and they are collecting interest on $9 million in loans. So they can still make a lot of money even if a few loans eventually default. And when a loan is repaid, or defaults, it destroys a percentage of that money supply.. Get it?

And if you take your money out of the bank, you've suddenly pulled the rug out from under those $9 million in loans they have outstanding forcing the bank to then borrow from the Fed, or another bank, to make up for the money you withdrew, or their $9 million in loans will be undercapitalized. That's what many banks are doing now. They are borrowing from the Federal Reserve discount window at near 0% interest and then loaning it to the US Government (via US debt from the stimulus) at 3-4%. And for those who still have money in the banks, they are taking your deposits and loaning it to the US Government, which is then taxing you to pay the interest on that government debt.

Simply put, there's just not a lot of private lending taking place. Businesses are deleveraging, paying down debt, or just defaulting on their debt obligations. All of this is CRASHING the money supply and there's not enough government stimulus that can replace the rate at which debt is being extinguished.

Shadowstats Money Supply indicators

And since the financial system, and especially the markets, are like balloons that need a constant flow of monetary "air" to keep them inflated, when there is a reduction in the "air" money flow, the balloon deflates. Simply put, visualize a windsock.. Without a flow of air, it droops. Same with the economy.

So we remain a critical inflection point in the markets and the economy. This is going to resolve within the next few weeks (days?!!) and we'll going to find out which way this market is going to go.

Scrutinizer

2010-06-20T23:11:00.000-07:00

China: Ending the Dollar "Peg"?

China announced this weekend that they would show "flexibility" with regard to pegging the value of the Chinese Yuan to the US Dollar. This peg has been in place since 2007, as financial markets demonstrated turmoil. This, of course, has become a major economic issue as the US policy makers see it as blatant currency manipulation that prevents decreasing the US trade deficit (buying more from China than we sell to them).

So overnight futures markets are taking this as some sorely needed "good news" that could propel future US economic gains. Yet, there has been no change in the exchange rate peg and China has stated publicly that it will not make any moves in permitting it's currency to appreciate, nor can anyone truly expect that they would. Some are predicting that China's currency will actually DEVALUE against the US Dollar, given their dependence upon US and European markets to sell their goods. I have a feeling the Chinese will likely keep any variation very limited so as not to stir of financial chaos as people unwind positions they've held based upon the speculation that China would not de-peg the Yuan from the dollar. And China has stated that such "flexibility" is not going to solve the financial morasse we're ALL in (including China).

Flexible yuan won't rebalance world economy

Given my previous post, and the mounting evidence of China's real estate bubble posing a MAJOR problem, it's likely Bejing might even let their Yuan devalue against more transparent currencies in order to boost the demand for their products. Additionally, China is facing mounting pressures from it's workforce for increases in their salaries. Raise salaries in China by 25% and they will eventually have to devalue their currency to maintain their export competitiveness.

So much for the fundamental picture...

So what does all this mean? Well.. if you're short (as I am to a limited degree), we're going to feel some financial pain tomorrow and possibly into most of next week.

If you're long the market, you have to ask yourself whether this is going to truly make a major difference to the data I've been reporting over the past several weeks. Does this mean a new Bull market is underway, or did you just get handed the chance of a lifetime to sell your holdings into the short-squeeze that may possibly erupt this week? When the squeeze is over, it's likely this market is going to fall hard.

Remember.. if you're long the market, the most you can lose is 100% of your investment (assuming it goes to zero). If you're short, your losses are technically "infinite" if the market never declines. And there are lot of people who are short this market, for very solid fundamental reasons, and there could be a mad scramble to cover their short positions this week. They've all been looking for 1150 on the S&P to be the top of the Right Shoulder of this H&S. SPX 1250 will definitely prove them wrong. Anything lower than that level will either be a H&S right shoulder, or a Double Top of the previous 1200 April, 2010 high.

To repeat.. for those holding stocks (longs), your signal to stay long for a new Bull Market is if the S&P reaches 1250 (11300 Dow). If the market turns down hard before getting to that point, then your sell signal is a close below 1103 on the S&P500 and definitely be out if it gets back to below 1040.

Remember Longs.. for a Head & Shoulders formation to be nullified, it HAS TO MAKE A NEW HIGH on the right shoulder that exceeds by a good percentage, the previous high evidenced by the "Head". Again, that's exceeding at least 11,300 on the DOW and 1250 on the SPX.

SPX chart with 100 Week MA

Now.. here's the kicker.. remember that 12 years DOW chart I posted a few weeks ago?

Mother of all H&S revisited

For THAT long term H&S to be nullified, we need to see the Dow get back to 14,500 level we saw in 2007.

Get ready for the E-ticket ride starting at 9:30 AM tomorrow.

Scrutinizer

2010-06-20T09:03:00.000-07:00

Chinese Real Estate: A huge Ponzi scheme?

Found this article this morning and thought it provided an interesting take on the Chinese Real Estate boom. In sum, it would appear that Chinese home owners get a loan against their home, and then loan that money out to "Shark Loan" organizations.

Chinese Real Estate one huge Ponzi scheme?

More later.. Happy Father's day!

Scrutinizer

2010-06-18T09:44:00.000-07:00

ECRI Weekly Leading Indicator falls off a cliff

Well.. the market, once again, seems to ignore tremendously bad economic news in it's climb to 1150 on the S&P 500 (which many market technicians suggest will form the peak of the right shoulder of the Head & Shoulders).

Weekly Leading Indicators falling off a cliff

WLI declines 5.7% from last weeks 3.7% + graph

Yesterday we had the Philly Fed Survey coming in significantly lower ("8") than the consensus ("20").. Market shrugged it off like it was irrelevant.

And now we have confirmation from the WLI ACCELERATING IT'S DECLINE week over week.

Yet the market rallies? I don't believe it.. And neither should you. But apparently those "Computers" which are making up 80% of the total trading volume nowadays apparently have been programmed to "buy, buy, buy"..

Even AAPL made a new high today!! They have a huge clamoring for their new phone (which doesn't even have 4g infrastructure available in most areas).. It may wind up soaring over $300, but if the rest of the market's fundamentals fail to follow suit, eventually it will be dragged down by its drowning comrades clinging to it.

This is not going to end well..

So when will it end? Here's one suggestion:

Triple Doji preceded "Black Monday"

2009 Triple Doji example

Scrutinizer

2010-06-16T20:58:00.000-07:00

DOW Industrials Bull Trap spotted?:

I'm really starting to like visiting Perfectstockalert. The guy who does their charts knows his stuff and he knows how to explain a very complex subject in a manner which people can understand. You'll see the link to their website (free) to the left on my links. You should sign up for their youtube link, as well as the website.. It will keep it free. And no.. I take no compensation, nor do I have personal contact with. I like what they are putting out and if that changes, I'll delink them.

Perfect Stock Alert

Tonight he discussed a possible Bull Trap on the Dow. This is a formation where the Bulls get sucked into buying the market thinking it's getting to a new high. But it's a shallow uptrend and on thin volume that fails to overcome the strength of the shorts. Until the shorts cover, there's nothing to propel the market higher.

The "trigger" that will initiate a short-covering spike up, or a fearful sell-off, is like to be the employment numbers tomorrow. Remember that we also have a quadruple options expiration (quadruple witching is what it's called) on Friday.

Here.. just watch for yourself and make your own mind up:

Bull Trap for the DOW?

They also covered the only ETF I currently hold a position in (and waiting to add to when I see a major shift in market direction).

TZA Ultra-Bear analysis

If the numbers don't come in good tomorrow and we start a sell-off, be prepared for SERIOUS UGLINESS in the markets.

I continue to look for rays of sunshine that might give me reason to be bullish, but their all being overshadowed by the BP oil spill. From my reading that's only likely to get worse, not better. And that potentially means that the entire shoreline of the gulf coast will likely be inundated with oil. Florida ALREADY has serious real estate issues, and Miami is on the brink of bankruptcy. Put waves of oil on it's beaches and coral reef and it will be years before it becomes a tourist location, or draws "snowbirds" in their retirement.

There have been nothing but an abundance of lies surrounding this blown oil well..

BP has lied through their teeth.

It was 5,000 barrels at first, and the big dog and pony show over "top kill", but what they didn't tell you was that it was gushing 60K-100K barrels per day and that the well casing was fractured deep into the sea floor. Capping this well would only cause that intense 7,000 psi torrent to tear into the bore hole and surrounding formation and pop out through fractures in the sea floor. So they have to let it spew and just try to contain and collect as much of the oil as they can.

The only hope for resolving the problem is the relief well, where they are trying to drill several boreholes to intersect the current one. Somewhere I read it's tantamount to shooting a dinner plate from 20 miles away. The technology is good, but do not count on any success anytime soon. They have another 20,000 feet to drill from what I'm reading. That's going to a Xmas gift the entire world will look forward to. But it means that oil is going to spew for another 6 months, at least (IMO).

If you're planning a trip to the Florida keys, or the Caribbean, I would suggest you do it very soon.

EDIT:

Philadelphia Fed Survey comes in SUBSTANTIALLY LOWER than consensus

The employment data was slightly worse than expected, but the real "bell ringer" was the Philly Index coming at a measly "8" instead of the consensus of "20":

Philly Index comes in a 8 instead of consensus of 20

The prior reading was 21, so this is a SIGNIFICANT DOWNWARD TREND and indicates the underlying weakness of business and manufacturing conditions now that the Government stimulus is coming to an end. Again.. we go from 21 to 8 within the space of a few months:

historical Philly Fed Survey

Recall that despite spending over 10% of our GDP on this stimulus, we managed to only obtain a 3% overall GDP gain. So that has the market wondering where GDP growth is going to come from without a new stimulus.

And, of course, we have BP's CEO on the hotseat today and I expect some very hard questioning about exactly how much oil is spewing forth, and the market will extrapolate the future economic and ecological damage that will result.

For now BP will remain a going concern, but I suspect that within a year or two, BP will no longer exist in it's current form. It will be acquired, or declare bankruptcy and it's assets sold off.

Scrutinizer

2010-06-14T09:20:00.001-07:00

Bearish Case con't

Better to continue this in a separate post.

More on the technical analysis of the current market:

DOW will go down 2000+ points

The technician in this video provides a COMPELLING logic to his prediction using the Relative Strength Indicator (RSI) and the divergence we're seeing in the markets. To be frank, he definitely "clicked the light" on in my head with that. Do not ignore what he's saying because it's predictable, and can be confirmed by using previous incidences of the occurrence.

Now.. Here are 50 incredible facts that seem to support the Bearish case:

50 incredible facts about the US economy

50 stats in a slide show

Scrutinizer

2010-06-13T22:04:00.000-07:00

Go to Cash, Go directly to Cash.. Do not pass Wall Street.. do not collect $200 dividends from BP!!:

Very interesting article tying in the health of Asian banks to Euro Crisis:

Asia Doom

Scrutinizer

2010-06-13T16:02:00.000-07:00

ON THE LAUNCH PAD? OR ON THE EDGE OF THE ABYSS?

It's been extremely difficult to asses the direction of the equity markets. If most of my readers are like myself, they've been torn between "going long", going to cash, or "going short" (either directly shorting, or as I've been toying with, via Ultra-Bear ETFs). It's been extremely difficult to do more than day trade these ETFs as the crosswinds of the market have whipsawed investors).

There are very reasonable cases to be made on both the bearish and bullish side, although I find the bearish case more convincing. So I thought I might review the arguments of both in this post, consolidating and/or reviewing some of the thoughts I've focused on previous posts.

The Bullish Case

The most cogent argument that the Bulls can make is that this market is extremely oversold. Normally this is an effective indicator since it follows the old Baron Von Rothschild adage "Buy when there is blood in the streets".

As I posted earlier, the Arms Index, created by Richard Arms is an indicator of "max panic", where selling outpaces buying, indicating a "flushing" of the marketplace and transfer of shares from weak hands into stronger ones. The index registered the 4th highest level in 70 years, according to Arms:

ARMs Index at 4th highest level in 70 years.

We're seeing negativity everywhere in the markets... We've had the Flash Crash of May 6th (which remains insufficiently explained, IMO) which dropped the DOW 1000 points within 10 minutes. Prominent market analysts are urging their readers to sell stocks, we have the problems in Europe, war drums beating in Korea and the Mid-East, the BP oil catastrophe, and some would suggest the sky is falling. To a contrarian investor, this represents "max fear" and therefore, max opportunity to get in at a market low.

Furthermore, we have Investor's Business Daily, and a number of major investment analysts, including Abby Joseph Cohen of Goldman Sachs, now declaring the market correction is over and a new bull market is beginning:

Dusting off Abby

IBD calls end to correction.

Another argument the bulls use is that US corporations are flush with cash and apparently ready to spend it:

Corporations ready to spend record cash holdings

So what would they spend it on? Productivity enhancing technology, new machinery, communications upgrades, including computers. The question is whether this spending, when it occurs, would lead to an increase in employment. Increasing productivity normally means there is less of a need for hiring workers.

There's also the currency argument. The Euro had been previously threatening to seek parity with the USD. That would greatly impact the competitiveness of US corporations against Europeans exports. It would also likely play havoc with currency swaps. So having the Euro transit back above the 1.20 mark is a positive sign the Bulls are lashing their hopes to.

And finally, there's the technical argument that the S&P 500 has held it's 200 Month MA at approximately 1040. A violation of that level would have likely confirmed this correction was actually a resumption of the 2008 bear market, with new lows to be seen in the future:

SPX monthly chart

In sum.. the Bulls are arguing that the negativity is so great that it's lost all sense of perspective and that creates opportunity to move the markets higher.

That's about the best I can make of the Bullish case at this time.. If there's more, I'll update with an "Edit" comment, so be sure and check in from time to time.

The Bearish Case

Lordie.. where do we begin?

Well.. here's a chart that I found very interesting. It was pointed out to me by another TA analyst on the TZA Yahoo thread:

SPX Weekly chart with 100 Week MA

If one changes the period to "all data" instead of 10 years, it will be clearly seen that there have been VERY FEW INSTANCES where the SPX violated the 100 Week MA without a major decline occurring thereafter. We saw this in 2001 and again in 2008, the first times since the SPX went "parabolic" in 1994, that the 100 Week MA was substantially violated. And each violation has resulted in "lower lows" being seen in the SPX, the last low being seen in March, 2009.

Since that time the SPX has risen roughly 83% until it fell below the 100 Week MA during the Feb correction for two weeks, and then violated it again in the days after the May 6th "Flash Crash", where it's remained for the past 3 weeks.

When I first saw this chart, it struck me as rather important and it seems to confirm the comments I made about Monthly Parabolic SARs "flipping" downward:

SPX Monthly SAR flips downward

As Carl Swenlin of DecisionPoint.com states, "Technical Analysis is a windsock, not a crystal ball." Therefore, one has to be willing to change with the prevailing winds and not seek to fight them.

When one is applying Technical Analysis to the market, it's always wise to find confirmations that support one's theories, not only technical, but fundamental.

SPX Gallery View

On the short term, there is an indication the SPX will rally this week (looking at the PPO on the daily chart indicator a reversal to the upside). However, the weekly remains decidedly bearish and the PnF chart still indicates a target of 925.

Now.. this is an interesting PnF chart. It reflects that the "Bullish Percent for the S&P 500" has reached a trend line that signals "Bear Confirmed":

DOW Bear confirmed on May 7th, 2010:

Bullish Percent DOW (INDU)

S&P 500 Bear confirmed on June 9th, 2010:

Bullish Percent SPX

Nasdaq Bear Confirmed:

Bullish Percent Nasdaq

Bullish Percent Index explained

And now.. we have Barron's telling us to "Call a Bear a Bear":

Call a bear a bear?

And this is a DEFINITE read for those making the Bearish case:

"Wall Street seems to have no concept at all that every bit of growth we've observed over the past year can be traced to government deficit spending, with zero private sector expansion when those deficits are factored out. As I noted last week, if one removes the impact of deficit spending, "the economy has recovered to the point where the year-over-year growth rate since early 2009 now matches the worst performance of any of the 50 years preceding the recent downturn." In effect, Wall Street's is seeing "legs" where the economy is in fact walking on nothing but crutches.

Similarly, it is apalling that Ben Bernanke can say with a straight face that many of the "investments" made by the Fed have been repaid "and some have even made a profit," without immediately noting that the two primary sources of these repayments have been, directly or indirectly, the U.S. Treasury, and savers who are receiving near-zero interest on bank deposit instruments.

If we fail to recognize that the "good news" reported over the past year is due not to a recovery in intrinsic economic activity, but instead to massive government intervention, we risk being blindsided as those synthetic effects gradually erode.

On that point, it is notable that the Economic Cycle Research Institute (ECRI) reported Friday that its Weekly Leading Index has slumped to the lowest level in 44 weeks, and has now gone to a negative reading."

Born on Third Base

More later....

Scrutinizer

2010-06-09T10:17:00.000-07:00

Is there a Bullish case lurking out there that we're not recognizing?

Came across this article last night regarding the Arms Index reaching an extreme:

ARMS Index at 13.22.

ARMs Index explained

Arms said:

"The value for the day on Friday was extremely high. According to the Wall Street
Journal it was 13.22. They used the following components:Advances 315, Declines
2839, Advancing volume 13,602,600, Declining volume1,621,066,016.I have gone with
this since the numbers I got from other sources were obviously completely erroneous.
Sometimes, as in 1987 particularly, there is a lot of confusion.But watching the numbers
during the day on Friday, I think the WSJ must be close.

That makes this the fourth highest reading in at least the last seventy years, which is as
far as I can go back. On the chart above I have shown the daily readings going back to
1987, with the horizontal blue line at 10.00 for reference.You will observe that the
extremes such as we saw on Friday seem to come in at bottoms.They represent a sudden
rush for the exits, such that the declining stocks are receiving ten or so times as much
volume as the up stocks.In other words, the crowd mentality has taken over and stocks
are being indiscriminately dumped.It is a sign of fear and panic, and appears, in most
cases, to be misplaced fear, at least on the short to intermediate term."

So.. Does that mean we're putting in a short term bottom with a rally towards this year's previous highs, thereby forming the "right shoulder" on H&S many have been seeing being formed, or could it lead to even higher highs, suggesting we're in a new Bull Market?

I don't know. As stated in previous posts, I remain overall bearish given M3 and that 10 years "Mother of all H&S" formations I've been seeing. But the reality is that if I can see it, then the Fed and Treasury can see the same thing and might be trying to orchestrate a global effort to break the technical "waterfall" that occurs when those right shoulders collapse below the neckline price.

DOW H&S formation.

We remain in an inflection point in the markets, with a currently bearish bias. But that doesn't mean the rallies can't come fast and sharp back up to critical resistance points. It will be interesting to see how much of that resistance can be overcome.

Which brings to "positive event risk" (for the bears). What lurks out there that could dramatically reverse this market to the upside?

The primary event that might make me turn bullish again, would be firm regulation and control over Credit Default Swaps, which are destroying the Capital markets.

Secondly, would be a concerted jobs program to spur re-hiring in the PRIVATE SECTOR (not public). We need to rebuild the demand curve in this economy and that can only come if we have more private workers than we have public ones. Because extended unemployment benefits are nothing more than a fancy term for Welfare, it would have made more sense subsidizing small business to retain, retrain, and hire workers, if only to avoid people losing job skills.

Certainly Europe stabilizing would be nice.. but I'm not counting on it.

That's about all I can perceive that would change my mind outside of the return of the Messiah.. ;0)

Scrutinizer

2010-06-08T08:22:00.000-07:00

M3 has gone negative in a BIG way.

M3 is a measure of money supply. The Fed claims they no longer track M3, but many other fundamental analysts and economists still do. Here's a Wiki link to help explain it:

Wiki page on M3 and Money Supply

M3 has gone negative this past year. The last time it did that was during the Great Depression Kind of frightening, isn't it?

M3 historical chart

The Fed can foolishly attempt to persuade us that M3 doesn't matter.. But to those who track it, it apparently does.

Russell 2000 (RUT) breaks 50 Week MA.

Mr. Bernanke says we're not going into a "double-dip" recession. I would beg to differ if the charts can be believed.

First off, let me review Parabolic SARs. Simply put, SAR means "Stop and Reverse". When the price of the equity/index penetrates one of these SARs, they "flip" either upward or downward. Flipping an SAR upward means the "dotted line" falls to the last major support level and then starts trending upward. When an equity is declining and penetrates an SAR, the "dotted line" flips up to the last high, which now becomes resistance.

Generally speaking, flipping an SAR upward generates short covering and buying. Consequently, when an SAR flips downward, it generates selling. The longer the time period used in the chart, the stronger the signal.

RUSSELL 2000 Breakdown

The Russell 2000 suffered a major breakdown today. It's last major point of support was the 50 Week Moving Average (MA) and it failed to hold:

RUT Weekly Chart

Additionally, the inverse 3x Bear ETF on the Russell (TZA) also "flipped" it's Daily SAR to an upward bias.

TZA Daily Chart

As some might recall, the TZA "flipped" it's weekly SAR a few weeks back when the RUT crossed under it's 200 WEEK MA, which indicated the index was in distribution. Flipping the TZA Daily SAR was the last bit of resistance (support?) to halting a sell off in the RUT to it's next level of support, found in the Monthly RUT chart:

RUT Monthly chart

The RUT is in serious trouble. The Monthly chart above suggests that the next level of support for the RUT is 581 which is the lower arm of the Monthly Bollinger Band. However, I believe the ultimate target is a test of the Monthly SAR, which is currently located at 487.

If that occurs, then TZA, being a 3x Ultra-Bear ETF on the RUT, could stand to appreciate considerably during this retreat in the RUT to that Monthly support line.

It's been my theory that the Small Cap indices, such as the RUT, would become a source of funds for supporting the S&P 500 and DOW 30. I think we're starting to see this come to fruition.

We can see by the "flipping" of the TZA Daily SAR, that the next point of resistance is TZA's 200 day MA (which, btw, is substantially different than the RUT's 200 Day MA, which was penetrated to the downside a few days ago. To properly reflect it's position as an inverse ETF to the Russell, both should cross their 200 Day MAs at the same time. But this hasn't happened for some time. Possibly RUT longs have been shorting TZA as an arbitrage, thereby skewing the equilibrium between the index and it's inverse ETF.

This suggests that TZA has substantial upside as it attempts to equalize to it's inverse index.

Scrutinizer

2010-06-06T23:18:00.000-07:00

BP Billion Dollar engineering at work:

Can ANYONE tell me what's wrong with this picture? :

Live feed from BP valve 5,000 feet down on that well head

Anyone notice the Duck Tape?

Scrutinizer

2010-06-04T12:17:00.000-07:00

SPX and RUT to retest previous lows: Will they hold, or is there more downside to come?

Turmoil in the Euro, which closed below 1.20 to the USD for the first time in 4 years. Hungary suggesting that debt default is not out beyond exaggeration. Continuing tensions on the Korean Peninsula. AND, OF COURSE, the lousy jobs report where only 20,000 private sector jobs were created in May.. The list goes on for reasons to sell this market.

I ran the Hourly chart on both the S&P 500 (SPX) and the Russell 2000 (RUT) and discovered that the 30 Hour Moving Average (MA) has crossed under the 50 Hour MA. The previous two instances where this occurred resulted in nearly 100 point losses on both indices before they bottomed.

SPX Hourly chart:

RUT Hourly Chart:

Follow the yellow line (30 Hour MA) as it crosses below the 50 Hour MA (blue line).

Very frightening, eh?

But it's possible that we may see a relief rally that takes us back up to that 30 Hour MA. That would likely be the time to sell or short, and look for a bottom. For the RUT, that short-term bottom may occur at RUT 570.

Scrutinizer

2010-06-03T09:54:00.000-07:00

Bilderbergers throwing a Euro "Bash"??

It seems the Illuminati (err.. Bilderbergers.. ;0) are throwing their annual bash near Barcelona this year (love that city!)

http://www.timesonline.co.uk/tol/news/world/europe/article7142478.ece

Can they save the Euro? Or are they actually behind it's demise?

I wonder how many of them are holding Credit Default Swaps on European debt, hoping the whole lot defaults and transfers considerable wealth into their coffers.

I always find it a bit humorous to read all the conspiracy theories about the Bilderbergers, Trilateral Commission, and CFR. I'm sure that these guys probably like to think they have some control over the "New World Order", but I'm sure trying to control human beings is tantamount to herding cats.

And I've no doubt that various groups are always plotting and scheming to impose their will (or profit from turmoil). But they've got a lot of competition from the Arabs, the Chinese, and of course, the Hedge Funds.

For every conspiracy there's a counter-conspiracy, IMO.

Scrutinizer

2010-06-03T06:53:00.000-07:00

SPX Monthly SAR "Flips".. Bearish signal?

The SPX Parabolic SAR has flipped downward. Previous instances where this has occurred has provided a strong signal of an significant decline in prices. The last time this occurred was in 2008.

Currently the Monthly PSAR is located at 1220, which coincides with the 50 Month Moving Average. That may provide a powerful obstruction to higher prices and signal distribution.

HOWEVER, this doesn't mean that the index won't make an attempt to bust through 1220. Should it do so, the PSAR will flip upward, at around the 200 Month MA.

One thing is clear, the SPX needs to maintain the 200 Month MA, or it's going to get VERY interesting.

And here's a bonus chart.. AAPL is knocking it's head on its Weekly PSAR. It truly needs to "flip" this if it's going to achieve new highs. Currently that "flip" point appears to be $267/share.

Also note that once they do manage to flip these SARs, we'll often see a period of consolidation to the middle of the Bollinger Band channel (the black dotted line).

Recall from a previous post that I'm watching AAPL very closely because it's the now the largest Nasdaq stock out there, having surpassed MSFT in market cap. MSFT was the darling of the markets in 2000 and when it's stock declined, it signaled the end of the Internet Bubble, which also formed the left shoulder of this 10 year Head and Shoulders formation we've been putting in place. So now I opine that AAPL represents the one stock that will indicate when the right shoulder of that Head and Shoulders has been put in place. No new high and we could quickly see a sell-off to far lower prices.

2010-06-02T22:26:00.000-07:00

Phytoplankton Declines and Rising CO2 levels: the missing link?

For a long time I've been a skeptic with regard to the effects of CO2 on our climate. CO2 levels have been higher and lower throughout Earth's history, long before mankind ever emerged as a parasite on the back of "mother earth":

500 million CO2 record

CO2 record for the past 400,000 years

Throughout those millions of years, nature has dealt with those excessive CO2 emissions that have emanated from various natural sources. Botanical life adapted to consume it until a form of equilibrium was established according to available resources. This floral bio-remediation took the form of both terrestrial plants, as well as oceanic plant life in the form of single celled phytoplankton that form the foundation of the marine food chain along with sequestering over 50% of all atmospheric CO2.

We been bombarded with warnings from folks like Al Gore, Tom Friedman, and so many others, all trying to convince us that our hydrocarbon emissions have increased CO2 levels to the point where we're on a unstoppable cycle of global warming (or is it climate change now?). It's claimed that CO2 levels are up to 30% above the known cyclical highs from previous warming periods and that ONLY man-made CO2 emissions can be responsible for that increase.

But could there be another reason that atmospheric CO2 levels have increased? Could it have something to do with the fact that phytoplankon levels have declined 20-30% over the past 30 years??

Isn't just a bit coincidental that CO2 levels have risen at a level that corresponds to observed phytoplankton declines?

If the ability of the oceans to absorb CO2 diminishes by 20%, does it not make sense that atmospheric CO2 levels would rise by the same level?

This, of course, assumes that all the necessary nutrients exist to permit phytoplankton to flourish. Anyone with a green thumb knows that it requires the proper balance of nutrients, temperature, and solar exposure, to make a garden grow. If any of these elements are lacking, plant growth is inhibited.

Many scientists have noted this decline, but have attempted to blame it on increased ocean temperatures, although I'm not sure the science upholds their theories.

Phytoplankton declines of up to 30% in several oceans

Decline in phytoplankton due to warming oceans?

Historical Decline in Phytoplankton coincided with Global COOLING.

Now.. one of the elements that's critical to ALL plant life is Iron. Without it, plants can't produce chlorophyll. Without chlorophyll, plants cannot absorb CO2, or conduct photosynthesis, by which they produce both their food and oxygen. Iron deficiency results in a condition known as Chlorosis:

Chlorosis

In numerous areas of the planet's oceans are "dead spots". Despite being rich in nutrients, they do no sustain significant quantities of phytoplankton. Dr. John Martin proposed during the 1990's that the addition of a small quantity of iron in High Nutrient, Low Chlorophyll (HNLC) areas of the ocean would produce large blooms of phytoplankton and sequester tons of CO2. In fact, the very fact that these areas ARE HNLC, but not producing phytoplankton, seems the most damning evidence against blaming warming oceans being the cause of phytoplankton declines.

John Martin and the Iron Hypothesis

Pros and Cons of Iron Fertilization

Given sufficient nutrients, there should be no limit to how much CO2 can be sequestered by botanical life forms. Plants will grow until they lack a vital element they require to sustain that growth. But since Iron is a rare element in our oceans, blown there as eroded dust from terrestrial winds, it's the one factor that limits the growth of phytoplankton.

And I'll admit that it's possible that anthropogenic emissions of CO2 from the burning of hydrocarbons has depleted oceanic deposits of Iron. But that only suggests that we have a responsibility to replenish that iron, if only because phytoplankton are also the foundation of the marine food chain. Every marine life form depend upon phytoplankton, directly or indirectly.

John Martin died many years ago, but his theories still live on. Various scientific expeditions have been launched to prove his theories, but have generated tremendous opposition from other scientists who reject the idea of "geo-engineering".

Yet.. we need Carbon Credits to "resolve" the alleged problem of "Climate Change"? We need to tax people, granting permission for them to emit a natural substance, CO2, which nature using as a vital element in the growth of botanical life on this planet?

This is crazy.. And it's dangerous because it leads us into Malthusian style thinking and population control. It's ultimately about the elite, who can afford to buy into the carbon credit scheme, controlling the masses, who cannot.

I'm just as much a conservationist as your average person.. But I'm not so stupid as to actually believe that CO2 is a "pollutant" as the EPA would like to have us believe. Too much of ANYTHING is bad. Too much oxygen would be just as bad for the existing ecosystem as too much CO2. But nature has experienced numerous periods where there was too much CO2 and plant life restored the equilibrium over time, as nutrients became available.

Scrutinizer

2010-06-02T18:27:00.000-07:00

Conspiracy Corner: Goldman Sachs, Carbon Credits, and the BP oil spill.

Ok.. I'm not generally one who is given to conspiracy theories, but I've found one that's has, even me, saying "WTF!!".

We all know how this BP oil spill on the southern coast has proven to be extremely difficult to contain. Failure after failure has been the result and now this final attempt to cut the well-head pipe has resulted in the saw getting stuck.

The environmental fallout is seen as a catastrophe that rivals Katrina in it's potential for devastating the fishing industry and sullying any number of gulf coast beaches. In an attempt to contain the spreading oil slick, they have sprayed dispersing chemicals (very toxic in their own right), and attempted to use booms and skimmers to contain and collect the slick.

But there is a conspiracy theory that is starting to go viral regarding the entire event. I'm not going to suggest that I subscribe to this theory, but it raises questions that deserve to be answered.

Let me start here.. A report that Goldman Sachs sold over 4 million shares of British Petroleum in the 1st quarter of this year:

According to regulatory filings, RawStory.com has found that Goldman Sachs sold 4,680,822 shares of BP in the first quarter of 2010. Goldman's sales were the largest of any firm during that time. Goldman would have pocketed slightly more than $266 million if their holdings were sold at the average price of BP's stock during the quarter.

If Goldman had sold these shares today, their investment would have lost 36 percent its value, or $96 million. The share sales represented 44 percent of Goldman's holdings -- meaning that Goldman's remaining holdings have still lost tens of millions in value.

Goldman Sachs big oil "spill"

How convenient!! How fortuitous for the company that had 100 STRAIGHT DAYS of trading profits (which means, for 100 days, anyone that traded against them lost). How fortuitous for a company that's banking serious cash using High Frequency Trading (recall that, reportedly, these HFT systems were turned off during the "Flash Crash" that led to a 1000 point drop in the DOW.

GS, the "Vampire Squid"?

According to a SEC filing released earlier today, Goldman Sach Group Inc.'s traders made a total of $9.74 BILLION in net revenues in Q1/2010. This number works out to a total of 76% of the company's first quarter revenues.

An even more incredible number - of the 63 trading days in Q1/2010, the traders at Goldman Sachs did not have even ONE losing day.

That's right - Goldman Sachs hit .1000 in the first quarter. This stunning result doesn't exactly help the firm remove the perception that the markets are rigged by and for Goldman Sachs.

Of the 63 trading days in Q1, Goldman Sachs reported profits of over $100 million in 35 of them. So, the traders at Goldman Sachs managed to rake in over $100 million for the firm in over half of the days in Q1/2010.

The Gold Sach Profit Machine.

Not a single losing day for GS in 1st Quarter 2010.

Ok.. so now we see the foundation of the the financial conspiracy. GS sells BP.. BP has a terrible accident that STILL DEFIES EXPLANATION, and now we find out it may be August before the spill is contained. It's a disaster!! A catastrophe!! It's ruining Obama's opinion poll numbers!!

Heck, even Thomas Friedman, is becoming hysterical, sitting in his energy gulping, Bethesda, MD mansion, declaring that the BP oil spill is Obama's "9/11":

No, the gulf oil spill is not Obama’s Katrina. It’s his 9/11 — and it is disappointing to see him making the same mistake George W. Bush made with his 9/11. Sept. 11, 2001, was one of those rare seismic events that create the possibility to energize the country to do something really important and lasting that is too hard to do in normal times."

BP disaster is Obama's 9/11.

Now what kind of "Lemonade" could Obama possibly make from this box of sour citrus?

How about shutting down all offshore drilling in the Gulf, a major political issue for the more environmentally minded liberals?

How about getting that darn "Cap & Trade" legislation passed? This BP event has the potential for re-instilling some serious "mojo" into the Carbon Tax concept re-energizing the idea that we need a Carbon tax to force us to use alternatives to hydrocarbons

Goldman Sachs is a founding member of the "Green Exchange"

Big Money to be made in trading Carbon Credits!! And with their demonstrated expertise in going for an entire quarter without a loss suggests they want to rig the Carbon markets too!!

Now.. did you listen to Obama's speech this afternoon? It was vehemently political, blaming Republicans for obstructing all manner of policy initiatives put forth by Obama's administration, including Carbon Credits:

And the time has come to aggressively accelerate that transition. The time has come, once and for all, for this nation to fully embrace a clean energy future. (Applause.) Now, that means continuing our unprecedented effort to make everything from our homes and businesses to our cars and trucks more energy-efficient. It means tapping into our natural gas reserves, and moving ahead with our plan to expand our nation’s fleet of nuclear power plants. It means rolling back billions of dollars of tax breaks to oil companies so we can prioritize investments in clean energy research and development.

But the only way the transition to clean energy will ultimately succeed is if the private sector is fully invested in this future -- if capital comes off the sidelines and the ingenuity of our entrepreneurs is unleashed. And the only way to do that is by finally putting a price on carbon pollution.

Obama June 2, 2010 speech at Carnegie Mellon

And who's to set that price for "Carbon Pollution".. Why Goldman Sachs, of course!!

So there's the financial foundation for the BP conspiracy.

But wait.. There's another tangent to this BP oil conspiracy. Some have asked the question as to why it's taken so long to FINALLY figure out a NATURAL MEANS of dispersing and eliminating these millions of barrels of Hydrocarbons spewing from ocean floor? They've spread dispersing agents, which are just as toxic as the oil itself, but ONLY NOW are we seeing commentary about using PROVEN natural microbes that feast on hydrocarbons. In fact, these microbes evolved in response to NATURE'S own little oil spills, which have occurred over the eons.

Watch this video.. as tens of thousands of other people have, and ask yourself why this technology wasn't deployed immediately?

Oil Eating Microbes could mitigate much of the damage to the Gulf oil spill

Yes indeed... Why weren't oil consuming microbes immediately deployed to consume the oil spewing from that well? Especially since these microbes would then recycle that oil back into the marine food chain, serving the purpose for which nature evolved them?

Nature has dealt with oil leakages for Billions of years and we think we can do a better job?

Scrutinizer

2010-06-02T06:21:00.000-07:00

Two items for this morning.. "“Individual investors placed a greater emphasis on return of capital last month because of the volatility in the stock markets. The movement of portfolio dollars out of equities and into bonds/bond funds and cash corresponds with the latest AAII Sentiment Survey, which showed bearish sentiment at 50.9%, the highest level of pessimism recorded since November 5, 2009. (Bearish sentiment is the expectation that stock prices will fall over the next six months.)”"

Are small investors popping smoke and leaving the stock market?

It's worth going back and reviewing this article on what likely caused the flash crash of early May:

"According to this Wikipedia article on quantitative trading strategies, HFT recently accounted for more than 70% of all trading volume on US stock exchanges. Does it matter when these firms stop trading and pull all their bids? You bet it does."

Dress Rehearsal for fully automated crash.. Flash Crash revisited

Pretty frightening prospect to know when you're buying a stock you're trading against computers who can pull the rug out from under the market for your company's shares in a split second.

It's apparent the markets are not so much about human decisions regarding "price discovery" in assessing the fair market value of a particular asset. Computers are making these decisions and they are non-emotional, calculating devices. So essentially people are just feeding money into these digital trading systems, systems that can quickly manipulate prices for a stock with the flip of a switch.

Little wonder that investors saw the "flash crash" as a sign that the market is rigged against them and have decided to seek safer havens. And certainly that decision has been influenced by the tremendous event risk I spoke of in my previous post.

Scrutinizer

2010-06-01T21:36:00.000-07:00

When will the pain end (at least for now)??

There's a sentiment indicator that some technicians utilize to help assist in determining bullish/bearish sentiment.

This is for the Dow Industrials.

$BPINDU bullish sentiment

Note that the trend line indicates that the likely potential bottom will be when bullish sentiment reaches 36%. It may go lower, it may reverse higher than that trend line.. It's just a reference and we can see that it's bottomed at previous points on the trend line.

Note... you can also pull up a Point and Figure (PnF) chart (the Grand-Daddy of all Technical Analysis) for the DOW and SPX ($indu, $spx.. and throw in the Russell 2000 for good measure, $rut)

They will show you that the SPX has a downside target of 925 on this Pnf chart:

S&P 500 PnF

And for my friend Megan, here's that Video I promised you where the Karl Deninger makes a analogy between current market conditions and 2007:

Whistling past the (Investors) Graveyard

Scrutinizer

2010-06-01T12:43:00.000-07:00

Commodities are collapsing.. Bear signal we haven't seen since fall of Lehman..

Bear Signal... Commodities show biggest drop since Lehman collapse.

Watch the RUT (Russell 2000). It's being cannibalized to prop up the larger indices so they can distribute.

As Richard Russell stated, we have a "Hard Rain" coming.

Hard Rain a'coming!!

Scrutinizer

2010-06-01T11:00:00.000-07:00

How to define "Event Risk".

Ok.. I'm motivated to write another post today because my head is reeling over what transpired overnight with Israel's boarding of that Turkish vessel filled with "humanitarian aid" for Palestinians living in Gaza.

First off.. I'm going to try and maintain my objectivity with regard to Israel's actions. I'm not Jewish, nor am I a die-hard Zionist. The only reason I support Israel is because it's the only truly democratic state (flawed as it may be) in the region. Hamas, although it was elected, can hardly be considered "democratic", nor do they permit any effective opposition. Furthermore, they have publicly stated that it's not just the elimination of Israel that they seek, but also the restoration of the Islamic Caliphate, as well as conquest of Europe and the "Two Americas"..

Don't believe me? Watch for yourself (courtesy of MEMRI):

From the Horse's mouth.. Dirka, Dirka, Jihad

It's clear that Hamas is in a perpetual state of war with Israel until they have succeeded in destroying the Jewish state. They will not make peace because it would be against their political charter and undermine their very "raison d'etre".

But politics aside, the issue at hand is how Israel should respond to attempts by so-called "humanitarian" groups attempting to assist Hamas and remove the blockade/seige.

I think Israel didn't think this through very well. Obviously fast-roping commandos onto the decks of this ship didn't turn out the way they thought it would. Now they have created an ENORMOUS problem for themselves because the 9 deaths that resulted have made their former ally, Turkey, extremely angry, possibly to the point of open hostilities.

Israel should have relied upon non-lethal means to disable the ship. The use of heavy netting, laid in front of, or bracketed by several Israeli patrol boats, would likely have fouled the ship's propellers and forced it to be towed.

And now that these groups are threatening to send another ship to break the blockade (the RV Rachel Corrie, registered in Ireland), they DEFINITELY need to get a grip on a non-lethal deterrence or interdiction technique that separates protesters from IDF personnel. The Israelis have already stated they will stop and detain this, and any other ship, that attempts to break the blockade.

However, in the process Israel has now essentially alienated any allies that it possessed, so we should not understate the level of tension right now. Egypt, which had been also blockading Gaza, has suddenly opened up those gates. It's even possible that Egyptian forces may be mobilized to establish a presence in Gaza. If this occurs, hopefully it will lead to the overthrow of Hamas (which Egypt truly despises as it is an offshoot of their own Muslim Brotherhood).

But how are the markets going to take this is the question? Who in their right mind is going to believe that a potential war between Turkey and Israel would be a reason to buy stocks, either in Europe, or the US?

North Korea

North Korea is a situation that is also factoring into global "event risk". NK is a nuclear power and therefore, presents a scenario where they could choose to create significant turmoil in the region with only the risk of economic sanctions (which already exist). There is no way the UNSC is going to vote for any military response in answer to the sinking of the S. Korean ship.

One should also remember that NK has several hundred artillery batteries within range of Seoul, S. Korea. Any outbreak of hostilities would lay the SK capital to ruins and result in a horrendous refugee problem, as well as economic tumult for the 15th largest economy in the world. It would become a war of attrition fought across the 38th parallel and via naval engagements and bombing raids.. All because no one in their right mind would be willing to risk a nuclear attack that would be the obvious response to any threat to the NK regime.

Kim Jong Il is getting old and he wants his son to assume power upon his death. But the military, it is rumoured, doesn't think Kim is being aggressive enough and it's possible they are following their own course of action with regard to war with SK. Generals derive their power from their "toys" and if they don't get to eventually use them, they can assert the current regime is not assertive enough in advancing NK's interests.

So, regardless of whether Kim actually ordered that attack on the SK ship or not, he owns the situation now and has to save face and stand firm and defiant. He will not bow to Chinese pressure, IMO. And China has no desire to see hundreds of thousands of NK refugees flooding across their border with NK.

It's also possible that Bejing has an interest in permitting a bit of turmoil to erupt in order to advance their own global political position. I don't see them exerting too much pressure on Pyongyang without obtaining some valuable concessions in return.

Thus, why would anyone want to buy stocks when such a scenario lies before them?

Europe

Then there's the problems with the EU.. I'll be short with this since it's been covered all over the internet. The Euro came within a hair's breath of breaking long-term support this morning and sparking a decline that some postulate would result in parity between the USD and Euro. (1:1). It's possible that this may happen tomorrow..

Understand this. Europe NEEDS AND MUST HAVE a lower Euro if they are to grow their way out of this debt mess in which they find themselves. They need to EXPORT BABY, EXPORT!! to generate revenues. So they are pursuing a "beggar thy neighbor" policy that has been followed by both Japan and China for years now. And all of this will be at the cost of US exports and markets. We'll buy more and sell less, thereby reigniting the long-standing problem of our trade deficits.

So don't expect Europe to get it's act together anytime soon. They want a cheaper Euro, but they have to be careful how they go about achieving it without appearing to be waging the mercantilist economic war they require.

Also remember that China owns over $600 Billion Euros worth of reserves. If the Euro falls to parity with the USD, China takes nearly a 20% haircut on that cash stockpile. That's not going to sit well with them.

Flash Crash.. Is this fixed, or just a preview? Or can the computers get switched off again and send the DOW down another 1,000 points in the blink of an eye??

I'll be honest.. I'm playing TZA, which is a Ultra-short ETF that's inverse to the Russell 2000. I figure that even if the Dow and S&P manage to stabilize in the short-term, it's going to come at the expense of the small caps. They are going to become a source of funds for propping up the large cap indices as a last gasp effort to stave off what appears to be the inevitable collapse from that 10 year H&S formation we're forming.

So that's what our markets are facing right now.. Why do you want to buy when your potential loss is upwards of 40-70% before all is said and done?

And lastly, I'll leave this to ponder.. What if you were any number of leaders of a tyrannical rogue state. And what if you had considerable assets (all of which you've exploited from your oppressed masses) squirreled away in foreign bank accounts? And what if you happened to be savvy enough to see that 10 year H&S formation and wondered, "What can I do to initiate, and therefore profit from, that collapse? Kim Jong Il has billions of dollars worth of assets in foreign accounts, all managed by his son.

Seems to me that's one hell of a motivation to create as much tension as possible short of outright war and risk to the regime.

That's all for now.. more later...

Scrutinizer

2010-06-01T08:18:00.000-07:00

Been about a year since I've blogged.. Things have been hectic and full of family crisis..

I've decided that I need to post this chart for everyone to ponder. It involved a chart formation that Technical Analysts refer to as a "Head & Shoulders" formation. It's EXTREMELY BEARISH if it resolves to the downside.

Here's the chart:

Mother of All Head & Shoulders

One must recall that while this chart covers from the 1960 to present, the most important portion to review is the past 11 years from the popping of the internet stocks, through 2008 and the popping of the real estate bubble, to present day, where "event risk" is in all the headlines. This event risk can range from the breakup of the EU to potential conflict on the Korean peninsula or mid-east.

In understanding H&S formations, there is a left shoulder (formed in 2000), the head (formed in 2007), and now the right shoulder (formed over the past 2 years).

David Singer pointed out this H&S formation and potential implications in the following chart. Pay particular attention to the potential scenarios he draws out at the bottom left of this chart. Note that he is describing a "minor" H&S potentially forming within the time range of 2008 to present, while the chart I show above is over 11 years:

Anyone got a parachute?

And another market analyst who sees the same thing and posts his opinion on the DOW, as well as many other critical charts important to future economic growth:

Even more frightening charts

Now for those who have paid attention, they will recall that in 2000 Microsoft (MSFT) was the largest cap stock in the Nasdaq and that marked the top of the "left shoulder". Right now Apple (AAPL) has surpassed MSFT's market cap for the first time and it's my belief that it will determine when (or if) that right shoulder manifests itself. I see that there was a upgrade for AAPL today that puts a target on the stock well over $300 (currently $264 as I type this). A new high in AAPL, or breaching of the Weekly Parabolic SAR at $267-268, could provide a respite to the downturn. It's a critical price level I'm watching.

Additionally, we had the "Flash Crash" where the DOW dropped 1000 points in under 15 minutes. We still have no explanation for that event. I suspect that it reflects the fact that more and more investing is computerized and when the computers shut down (especially those conducting "High Frequency Trading") it pugs the rug out from under the market. I don't see anything that prevents another repeat of such an event.

Does that make you want to go long in this market?

The implications are clear.. We're at an inflection point in the American stock markets that we haven't seen since the 1930's. If this market resolves into a H&S formation, the consequences (and price declines) will be incredibly severe. Support on this chart is not likely until DOW 3,000.

Now.. many readers might question and say.. "Hey Scrut.... Most US companies have posted better than expected earnings this past quarter.. so how can the markets go down??!!!"

Listen.. we had a Trillion $$ DIRECT STIMULUS package, almost 10% of US GDP, that has only yielded 3% economic growth. That's a 3:1 ratio of taxpayer funded debt to generate 3% economic growth.

JPM has a balance of almost $1 Trillions, yet could only obtain 3 Billion in profit:

"JP Morgan has a balance sheet of $1 trillion and can borrow at essentially zero, he notes. So if they just go out and buy 10-year bonds at 3% they should be able to earn $30 billion a year. Yet the bank announced a profit of $3.3 billion last quarter."

How to make $3 Billion on a Trillion dollar portfolio (scroll halfway down)

Furthermore, commodities are no safe haven (beware gold bugs):

Commodities Con

Richard Russell, noted student/teacher of the Dow Theory has issued a dire warning of impending collapse (and he has considerable credibility).

Hard Rain a'coming!!

What we're seeing is deflationary pressures and de-leveraging. A world gone crazy and extremely vulnerable to event risk. M3 money supply contracted at rates not seen since the 1930's.

M3 money supply contracts at 1930's pace

That's people paying off, and/or defaulting on debt. Debt that is erased equates to destruction of money supply. Destruction of money supply that exceeds creation of new money (via new interest bearing debt) is deflationary.

Most importantly, the speculation in unregulated "naked" Credit Default Swaps is creating a domino effect where asset prices are being undermined by "non-insurable interests". That's a fancy way of saying that your neighbor can speculate that your house will burn down, buy an insurance policy against such an event, and the proceed to perpetrate arson against your home in hopes they can collect on that insurance.

Why would any company, or nation for that matter, want to issue new debt under such conditions? Without regulation of the CDS markets, there is no incentive take on risk to create economic growth. That's incredibly deflationary.

Therefore I'm recommending either people move to cash, bonds, or "Bearish" ETFs (though not without their own inherent risk given that several ultra-bear ETFs were just as affected by the "Flash Crash" as the long ETFs).

Bearish ETF list

I'll try and post more often now.. We're at a very critical inflection point in our markets, IMO.. And I'm advising all my friends to get defensive until we see clear signs of a buy signal. One of the means I use to assess that is using Parabolic SARs as a TA indicator. I'll try to speak more on that in a future post.

Scrutinizer

2009-04-08T12:25:00.000-07:00

Evidence of abuse by short-sellers (Naked Short Selling):

Margin debt is down 55% since 2007:

http://suddendebt.blogspot.com/2009/04/margin-debt-again.html"

YET.. March, 2009 saw the largest increase in short interest in over 9 months!!!

http://zerohedge.blogspot.com/2009/03/early-march-saw-largest-increase-in.html"

Some short sellers claim that short selling enhances "price discovery". But since the only stock that is supposed to be available for shorting is MARGINED STOCK, please tell us again just how is short selling creating “price discovery” in the past 2 years?

This smells like fraud to me, if not outright counterfeiting of stock certificates.

Again, short selling is a legitimate means for countering excessive use of margin. When margin debt decreases, short selling should ALSO decrease to meet the available supply of shortable (margined) stock.

So we're left with only 2 conclusions. Either mmkrs/specialists are loaning out stock held in cash positions, or they are counterfeiting shares and selling them into the market.

Scrutinizer

2007-12-14T08:22:00.001-08:00

Haven't been too active on this board recently.. but I see I'm starting to get some comments, so it's time to update some of my positions...

As I mentioned in a reply to a comment from imapedestrian, I've tearfully sold out of my CCUR position, and reallocated it to GNBT based upon Technicals and the perception that they are about to go Phase III on their Ora-lyn insulin delivery system..

I do remain skeptical about GNBT's CEO, Anna Gluskin, but I think that some of their directors will provide the necessary managerial credibility. Dr. Gerald Bernstein, a former president of the American Diabetes Association, is on their BOD, and would be an excellent "face-man" for the company when it comes time to do CNBC interviews. But even if he's operating behind the scenes, that's fine with me..

Anyway.. the chart for GNBT indicates we're very close to an inflection point on a rising wedge formation, which could lead to a breakout that takes the stock almost 75% higher to the $2.50/range within the next 30-60 days.

Daily chart:

Daily chart

Note the "golden cross" of the Moving Averages on the daily chart... Very bullish, IMO, although we may have a short-term pull-back consolidation.. Volume has been very good in recent weeks and it appears accumulation is occurring.

And when we look at the monthly chart, it becomes evident that the bollinger bands are definitely pinching, a further indicator of a future major move to be expected in the stock (hopefully upward.. ;0)

Monthly chart

As for DNDN.. I also, regretfully, was forced to sell that stock at a loss, and even now, with the recent news that FINALLY Congress is pushing for an investigation into the FDA decision on Provenge, the stock is trading below where I sold it at. All of that support that had been built into the stock over the past 6 months has now turned into resistance and it's going to require substantial news to overcome it.

Thus, under $8/share, DNDN is a very speculative trading vehicle.. But as I type this, I see the stock is trading at $7.70 on heavy volume (short covering, I suspect.. ;0)

The Scrutinizer

2007-07-24T06:19:00.000-07:00

CCUR and VOD update

An interesting article on VOD development plans by major Cable companies. One of the deficiencies of the article is their failure to note CCUR's subsidiary, Everstream, and it's VOD tracking services that enable providers to track who's watching which program (very useful for targeting dynamic ad insertion to the most receptive audience). They also fail to mention that CCUR's VOD operating system software, as I understand it, is fully capable of dynamic ad insertion.

VOD's Growing Pains

VOD's Growing Pains

Come Together
(Broadcasting and Cable) _ Can cable operators, programmers, advertisers design a VOD model that works?

By Jon Hemingway

When it comes to video-on-demand (VOD), cable operators, networks and advertisers are a lot like eager summer tourists on a road trip: They know where they want to be but can't agree on how to get there.

Most TV executives agree that watching favorite primetime shows whenever you want will be a reality within the next few years'or sooner. According to a recent study by the Leichtman Research Group, the portion of U.S. digital-cable households that have used VOD grew from 25% in 2004 to 60% in 2006. And a study by PricewaterhouseCoopers (PwC) reveals that, although VOD represents a fraction of end-user spending on television distribution, the segment is by far the fastest-growing.

Viewers will spend $2.1 billion on VOD services in 2007, a 23% rise from 2006. PwC projects such spending will double by 2011, to $4.2 billion, a compound annual growth rate of 19.5%. No other service element available today will grow as fast. But cable operators and advertisers are still trying to figure out the right advertising model, as networks begin to experiment with putting popular programming on VOD. There's no big rush from programmers because the audiences'and fees'are still so small. Cable operators find themselves in need of more television programming to feed a hungry audience.

Viewers have shaped the evolution of VOD in no uncertain terms. Early deals with broadcasters to carry content on a transactional on-demand basis were scrapped when viewers balked at paying for the content. Free, ad-supported offerings became a focus. Cable operators are growing this category at a rapid rate to distinguish themselves in the eyes of the consumer. Free content represented 67% of total first-quarter orders tracked by Rentrak, which measures VOD usage.

Says Comcast VP of New Media Matthew Strauss, "[Video-on-demand] is no longer new. It is now integrated into how people watch television." Comcast, the nation's largest cable operator, has nurtured its VOD into a business that registers 250 million views a month. "That's 250 million times that viewers are not watching traditional television," he says.

Viewers have become so accustomed to VOD offerings that Time Warner Cable is reaching out to linear viewers with VOD functionality. Its Enhanced TV suite allows viewers to start at the beginning of a program if they tuned in late (Start Over function) or view programs that aired earlier in the day if they missed them (Look Back). It doesn't, however, allow the viewer to fast-forward.

Cable operators'and competing telephone companies'have not charged consumers directly for most VOD because the service has been used "as a tool for retention," says Tricia Lynch, director of Verizon FiOS TV programming, noting that it increasingly shows up on consumer checklists. Many cable operators believe that, once viewers are hooked on using free on-demand, they will gravitate toward the premium content.

Increasingly, the big broadcast networks smell opportunity. Cox Communications and Disney-ABC Television will run a trial this fall in which Cox will provide four primetime shows and other content on-demand the day after it premieres.

To lure advertisers, Cox will disable the fast-forward function on its system, and the two companies will test dynamic ad insertion. With dynamic insertion, operators can offer targeted ads to be swapped in and out of content as it is delivered. Usually, ads are inserted in advance and cannot be swapped out once the content is on the operator's network. Dynamic targeted ad insertion is the linchpin that operators hope will bring all parties, content and advertising, to the table.

"We need to make sure the next move in advertising has incentives for everybody involved," says Verizon's Lynch, whose company is testing dynamic insertion through year-end and expects to implement it in 2008.

Cable operators are still considering revenue-sharing plans and operational tolls per ad and per insertion. Advertisers are attracted to the targeting potential of dynamic ad insertion, which will give them the ability to accurately measure viewer response to advertising and address ads to viewers based on preference and behavior, far more specifically than the data relied on now.

"It all comes down to the fact that, with VOD, you have a unicast connection to the customers," says Jim Owens, solutions marketing manager for Motorola's home and networks mobility division. "In [delivery over the cable plant], you can make some distinction between service groups, ZIP codes and ad zones. But with VOD, you have a one-to-one relationship with a person that's time-specific. You have this live connection with them.

Such targeting, however, is still a ways off, cautions Owens: "It is technologically possible, but there are a lot of challenges and a lot of changes on the sales side and the systems side in how you manage the inventory and sell it."

Moreover, advertisers point out that the audience for VOD represents under 5% of total viewership. "They still need the impressions," says Maria Mandell, executive director of digital innovation, Ogilvy Interactive. "The CPMs are high at about $50, compared to $25 for online, due to limited impressions." She notes that, while advertisers have participated in some ad-insertion trials, no one is actively pitching it to the ad community.

James McQuivey, principal analyst covering media and entertainment technology at Forrester Research, says momentum toward expanding VOD has never been stronger. "It's good for the advertisers, it's good for the operators, it's good for the networks," he says. "The only one we have to wait and see on is the viewer."

While the network operators work feverishly to expand television content, they are also working to squeeze shut the window between DVD release and VOD availability. Operators are conducting day-and-date trials. "We think it's inevitable," says Bob Benya, senior VP, on-demand product management, Time Warner Cable, referring to the eventuality of day-and-date release. Time Warner Cable has been in trials with Warner Bros. Studios and Lionsgate Films. The studios, wary of cannibalizing their existing channels, are taking a cautious approach.

Warner Bros. began testing day-and-date release with Comcast last November in Denver and Pittsburgh and will extend the run through the coming November. What the studio sees in the results is a sharp spike in VOD usage of 52% versus comparable non-trial markets and a strong, 10% increase in DVD sales with just a marginal, 2%-3%, hit to rentals. In its trials with TWC in Austin, Texas, and Columbus, Ohio, the studio says, the early numbers show increases across all indexes.

IFC is finding success with a different model, simultaneous VOD and theatrical release. Launched in March of last year on Cablevision and Comcast, IFC's In Theaters proved a unique opportunity for the less commercial, or specialty, independent titles in the company's stable, allowing them greater reach than they would otherwise receive.

IFC's In Theaters introduces two films a month on-demand as they hit the big screen. The price per 24-hour viewing period can vary but averages about $5.99 per film, and the films are receiving 50,000-75,000 views a month each.

"The theatrical distribution model for specialty films was not viable anymore," says IFC President Jonathan Sehring, "We saw what a great technology VOD had become."

Cable Vendors Predict Surge
Vendors tweak old platforms for new applications

By Glen Dickson

VOD technology vendors are forecasting a surge in sales as cable operators upgrade their existing infrastructure to support more VOD content, including bandwidth-intensive high-definition fare, and new applications such as timeshifting and targeted advertising. Providing a better VOD experience generally means both adding storage capacity and expanding the number of on-demand "unicast" (i.e. delivered to a single set-top) streams that can be delivered simultaneously to subscribers.

New applications such as providing the timeshifting capabilities of a digital video recorder (DVR) through VOD, sometimes known as "network DVR," require a dramatic expansion in the number of program streams that can be ingested at one time, as operators will need to record and store the most popular shows in real-time. And delivering up-to-date and/or targeted commercials within a VOD program, a technique known as "dynamic insertion," necessitates heavy software integration between the VOD platform and existing traffic systems.

Cable operators and competitors aren't facing a full-scale swap-out of existing infrastructure, but instead incremental upgrades and expansions. As a benefit, some of the network upgrades for VOD can also be used to deliver more linear HD channels and faster high-speed data service.

This upgrade investment will be far less than the massive infrastructure buildup in the mid-90s. "On an order of magnitude, we're talking hundreds of millions" of dollars, says Ferris Baker Watts analyst Murray Arenson, who covers leading vendors SeaChange, C-COR and Concurrent.

Basil Badawlyeh, VP of on-demand strategy for C-COR, says that competition is driving cable's investment on VOD infrastructure, whether it is DirecTV's planned expansion of high-definition programming, Verizon's new fiber-optic-based television service or Amazon's plan to sell movie downloads through TiVo digital video recorders.

"The biggest catalyst is the fact that competition is heating up in a very big way," says Badawlyeh. "The other piece of this is that the type of content historically available on video-on-demand is catering to different demographics of people than what the industry was originally pushing towards."

As the content mix shifts, "broadcast on-demand" services like Time Warner Cable's Start Over, which lets viewers tuning in late to a primetime show jump back to the beginning by initiating an on-demand stream, are the biggest current driver of VOD investment.

Most VOD systems were initially designed as simply a better form of pay-per-view; that is, they were intended to deliver premium movies on a transactional basis. So most of the existing systems were designed to deliver VOD streams to about 10% of the VOD-capable homes within a given service area, sometimes less than that.

But with Start Over, Time Warner has found contention rates jumping to 40-50% as subscribers discover a more convenient way to watch the most popular shows. "The networks are being designed for a lot more concurrent stream usage," says Badawlyeh.

Concurrent, which is one of Time Warner's key vendors for Start Over, has focused on the reliability of its MediaHawk 4500 platform as more brand-name network content moves to VOD, says director of marketing Tim Dodge. "Session success rates in the low 90s used to be acceptable, now they're asking for 99.5%. VOD is really becoming a mission-critical product offering."

Storage is also being increased, says Badawlyeh.

Time Warner has doubled the storage in many systems from 2,500 to 5,000 hours and Comcast, which was an early leader in promoting "free" i.e. ad-supported VOD content from networks like NBC and CBS, is specifying VOD systems with a minimum of 4000 hours of storage.

"We see a lot of interest in much larger content libraries," adds Kip Compton, senior director/general manager of Video & Content Networking for Cisco, which entered the VOD game last year with its acquisition of Arroyo Video Networks. Compton, a former Comcast executive, says that while a 5,000-hour VOD system might have once seemed to be very robust, "we see 50,000 and 100,000-hour libraries in the not-too-distant future."

The way operators are storing on-demand video is also changing, as they move toward distributed architectures that place content on different types of storage, depending on how often content is accessed. Cisco uses varying types of storage: SATA drives for low-cost storage, SCSI drives for low-cost streaming, and some RAM (random access memory) storage to hold the most popular content.

Motorola, which entered the VOD business with its acquisition of Broadbus Technologies in Sept. 2006, thinks it has an edge in handling the explosion in VOD content through its solid-state server architecture. The company, which is supplying the servers for Time Warner Cable's Start Over deployment in San Antonio, uses dynamic random access memory (DRAM) storage for content ingest and streaming, as well as storing the most popular content. It relies on hard disk for storing the much greater volume of content that isn't accessed as frequently.

In order to serve a greater number of streams more efficiently, SeaChange has developed a new VOD server that uses flash-memory storage instead of hard disk and is designed to share high-demand content.

Another exciting prospect for VOD is expanding the amount of high-definition programming. To date, there has been very little HD content available on-demand, due both to concerns about copy protection and the relatively small number of HD-enabled homes. But with flat-panel HD sets flying off store shelves, the cable industry knows that hi-def VOD will soon be a requirement for customers. There is also the looming specter of satellite operator DirecTV, which has heavily promoted its plans to broadcast some 100 HD channels by year end.

Comcast has taken the lead in providing hi-def content through VOD, including movies from premium networks HBO and Cinemax, primetime fare from A&E, and even hi-def artwork and fine photography from Seattle-based Gallery Player. Cox has added HD movies to its on-demand library, and other operators are also expected to soon bulk up their offerings.

"The number one priority for most cable operators out there is expanding their hi-def offerings, as there is a lot of competition from satellite guys advertising 100 HD channels," says SeaChange's Phil Simpson, director of product marketing for on demand solutions. "HD VOD is a strategic opportunity for cable, but it requires more streaming capacity and more storage capacity."

With HD streams coming in at 15 megabits per second (Mbps) compared to the 3.75 Mbps required for standard-definition VOD, the bandwidth implications are pretty easy to comprehend.

Some operators will be grabbing more bandwidth by upgrading their hybrid-fiber-coax plants from 750 or 860 megahertz (MHz) to one gigahertz (GHz). Many others will rely on the relatively new transmission technique of switched digital video (SDV), which conserves network bandwidth by delivering linear program channels in unicast form, much like a VOD stream is delivered. Some operators will employ a combination of both solutions.

"The beauty of switched digital video is it really blurs the linear stuff with the nonlinear stuff, and it's totally transparent to the viewer experience," says David Price, VP of business development for Harmonic. Harmonic sells both VOD software (it acquired VOD specialist Entone Technologies last year) as well as the "EdgeQAM" devices that are used to transmit digital video and data down cable pipes.

When cable operators look for new revenues to recoup their VOD investments, targeted advertising is the hot topic. Traditionally, inserting commercials in VOD content was a time-consuming process that required re-encoding the content to insert new spots. That meant spots might be several weeks old before they aired, thus limiting their appeal to advertisers. But through the new technique of dynamic insertion, fresh spots can be spliced into compressed VOD content as it streams from the VOD server, and more importantly, targeted spots can be delivered to individual set-tops.

C-COR played an instrumental role in one of the first trials of dynamic advertising insertion with Charter Communications in St. Louis. The trial successfully delivered dynamically-inserted spots to some 250,000 digital subscribers.

SeaChange has also experienced success with a dynamic insertion trial with small Kansas-based operator Sunflower Broadband. The trial, done in partnership with Atlas, MTV Networks and Mediaedge:cia, runs on SeaChange's AdPulse software.

Harmonic's Price thinks that targeted advertising will show up alongside premium fare as well as free VOD, particularly as the windows for VOD movies get closer to the DVD window. He says that operators are mulling the idea of selling a new theatrical release on-demand for perhaps $7.99 for a commercial-free version, and $5.99 with five minutes of ads running before the movies. Says Price, "If you know a person bought 'Talladega Nights,' then you know they are interested in watching a NASCAR promotion and you know they are interested in the latest oil from Pennzoil."
In order to pursue such targeted advertising opportunities, integration between VOD and existing traffic and sales software is crucial. Compton and others point to the Society of Cable Telecommunications Engineers' DVS-629 standard as a likely interface between the VOD platform and ad decision systems.

The continued march of popular content to the on-demand platform is inevitable, says Jonathan Bokor, VP of business development for Tandberg, which provides its AdPoint on-demand advertising software to Comcast. But while most VOD advertising trials have experimented with pre-and post-roll ads, Bokor doesn't think that the basic look and feel of VOD commercials needs to be different from what people are used to in linear TV.

"I don't see why the ad breaks should be much different than when you turn on the TV today," he says. "I know it's a bit of a clean slate, and most of the high-value content hasn't been there yet. But why should there be a different ad load in on demand than in linear?"

Video-on-demand could be called child's play at the moment. Kids' programming represented 24% of total free VOD orders in the first five months of 2007, behind music and movies, according to Rentrak. TV executives believe this is the start of something big. Viewers are eager to see the primetime shows already appearing in cable systems' VOD packages. Equipment makers predict a surge in the hardware needed for storage and dynamic ad insertion. But VOD ad dollars represent a fraction of advertiser spending on TV. Can networks, advertisers and TV distributors make VOD profitable?

*********************************

I think what we can all sum up from this article is that VOD presents a TREMENDOUS opportunity for cable companies to generate ad revenue in a manner we have seen with Google and other content delivery networks via the internet.

And it's likely there will be tremendous amounts of money invested in the industry over the next several years, and the potential for some of the smaller players (like CCUR) to get bought out by the bigger players.

The Scrutinizer

2007-07-05T05:57:00.000-07:00

Trading updates:

DNDN had HUGE volume on the 3rd of July (which was a shortened trading session). Expect the same thing today. As of this writing at 9am on the 5th, over 300K shares have traded in pre-market. The driver of the recent action is a study by leading Cancer researchers that suggests immuno-therapeutic cancer treatments, like Provenge, do seem to increase patient survivability. They also stated that such treatments which rely upon using the patient's own immune system to fight the cancer, require more time to work, thus patient studies should be adjusted by the FDA to take this fact into account.

But most of all, CNBC's "Fast Money" noted the extreme call option activity in the stock:

"Fast Money" calls DNDN a potential lottery ticket

In my opinion, with over 40% of the stock float (tradeable public shares) short, this represents a tremendous potential for gains of 50-100% in this stock. The SEC is cracking down on "naked short selling" and DNDN's shares have been on the SEC's Reg SHO list for months now:

Reg SHO list

Now.. some of my other positions. QTWW experienced a significant "downdraft" as it was removed from the Russell 3000 index and their placement of $18 million in shares at 1.50. But it remains in an uptrend channel:

QTWW charts for 5 July

Rumours also seem to abound that FRPT will receive a huge multi-billion order from the military for their Cheetah MRAP vehicles, and this could provide some support for QTWW, as they have some engineering associations with FRPT.

Furthermore, it would appear that GM is planning on focusing on Fuel Cell vehicles, and that would definitely play into QTWW's benefit.

GM prioritizing alternative energy vehicles

I'm expecting a rebound in QTWW to at least $2/share as a retest of resistance. But to penetrate that price, it will require some positive news, IMO.

NOW... I wanted to update the activity in CCUR. I ran the charts today and what I'm seeing is probably one of the most bullish TA "Grand Alignments" I've ever witnessed. Every chart, hourly, daily, weekly, monthly, quarterly, has turned positive for CCUR. Now all that is required is substantial positive news, and volume and the shares could easily rally to $3-4/share short-term..

Don't believe me? Check it out for yourself:

CCUR charts for 5 July

Be sure to imput the monthly and quarterly time frames into the charts to observe long term trend.

Finally.. GNBT..

GNBT is at an inflection point. If it breaks below current price levels, it will face some difficulties short term. The stock requires news and volume in order to move higher and hopefully we'll see this sometime this week. R&R has reiterated a $6/share target, citing increased interest in Oral-Lyn as a result of GNBT's presentations at the ADA conference a few weeks ago:

GNBT charts for 5 July

I'm also starting to research and review BCON, and I'm also starting to get re-interested in MVIS (but I need to see that stock stabilize). Also, INAP is looking like it's trying to find a bottom here as well, but I expect some churning of the shares over the short term in order to rehabilitate the chart:

INAP daily chart

Happy Trading!!

The Scrutinizer

2007-06-15T10:33:00.001-07:00

Is Generex (Nadaq: GNBT) a "Sweet Buy"?

NOTE: I'll be editting this, so check back for updates every day as I collect more links and arrange my thoughts.

JUNE 18th NOTE: At the moment I'm waiting for some direction in the price of GNBT before re-entering the shares. There seems to be a "battle" going on between big block trades at the current price of 1.80-1.86. It's hard to discern if the recent short-term support is merely some MMkr propping up the stock in order to permit shorts to enter positions, or whether it represents institutional buying holding the stock up. But it's definitely overbought on the daily chart and could trend sideways to lower for the next couple of days unless we see a catalyst for a move back up. But I don't believe any pullback will be long-term, so "dipping your feet in the water" and buying a few shares wouldn't necessarily be foolish here, so long as you are aware that the price might plunge short-term (and give you a chance to back up the truck).

Been trading GNBT for the past couple of days and banked some decent coin (approx 15% over 2 days). This stock just had a TREMENDOUS spike upward, motivating by a influential 42 page analyst report asserting that he has a $6/share price target within 18 months.

GNBT Analyst recommendation

R&R Analyst Report for your reading pleasure

So what does Generex do? Well, this little Canadian Bio-Tech has a couple of things on the plate. First off, they offer a "buccal" administered insulin drug (think asthma spray-style applicator, except you don't breath it in), which has been approved in Ecuador, and is now pending serious FDA approval. Secondly, via their subsidiary, they are working on some immuno-therapies for breast cancer. Thirdly, they have been working on "Bird Flu" vaccines (which was all the rage several years ago).

Generex Website

Now.. let's start off with the daily chart for GNBT so you all can see how historically volatile this stock has been (note that for a longer time frame, you will need to enter in 2 or 5 year numbers):

1 year Daily Chart

As you can see.. this stock is given to SERIOUS volatility!!!

So.. is it a buy? Well, that depends upon your time horizon. Being a short-term day and swing trader, I like to buy low, bank my coin on a surge, and then look for a re-entry point at support (usually on the 60 minute chart):

GNBT 60 Minute Chart

That 60 minute chart, per the day of this posting, 15th June, really looks interesting if it can hold it. There is a "pinch" forming on the hourly Bollinger Bands. Now for those not versed in BBs, they are a trader's WET DREAM!! They signify that longs and shorts are facing off like two hockey teams. And when the puck (representing the price of the stock) gets thrown in amidst them, they will battle with each other to try and send it one direction or the other. And whichever way that puck goes, both sides go as well. So, if the price goes up, both sides go long.. If it goes down, both sides go short. This will continue until the next level of support/resistance is reached. And the longer the time horizon (daily, weekly) the stronger, and longer lasting, the move.

2007-06-02T08:06:00.000-07:00

Well, my trade in Dendreon (Nasdaq: DNDN) from Thursday did not go well on Friday. I bought it after it retraced from it's $13/share high, under the belief that $10 would provide psychological support as the shorts covered. Recall that some 40-50% of the stock's 83 million share float has been shorted and that's significant considering the stock was once $25/share just a few months ago. But as a result of the controversial FDA ruling, the shares plummeted.

Here's a link to the CNBC interview with Dr. Gold, DNDN CEO back in March when the FDA panel recommended approval for Provenge:

March, 2007 interview on CNBC with DNDN CEO

DNDN short interest as of May 15

The company has completed Phase III testing on its Immunotherapeutic drug for Prostrate Cancer, Provenge and has received "fast track" authority for final approval. And what is more interesting is that it's the first cancer drug that is designed to assist the bodies own immune response to target the cancer cells, rather than typical chemo-therapy that uses chemicals to destroy the cancer (and generally winds up killing other healthy cells and weakening the immune system as a result). So we're talking about some innovative bio-technology here that could have a huge impact on fighting not only prostrate cancer, but other forms as well.

But what is the company's stock worth, should their drug be approved by the FDA?:

DNDN value analysis

This gentleman from the "Seeking Alpha" website suggests that there are signs of major "corruption" within the FDA advisory panel that has been delaying approval of Provenge and this makes sense to me:

Seeking Alpha's comments on DNDN and FDA

So we're engaged in some serious market valuation "Hardball" and both the shorts and longs are lining up for a market "brawl" in coming weeks. This is going to be an interesting week to observe in the stock.

I posted this commentary on the DNDN Yahoo discussion thread yesterday and I still stand by my comments:

My Yahoo comments

But what are the charts telling us about investor psychology in the shares?:

Daily Bigchart for DNDN

But even more telling is the weekly chart:

DNDN Weekly Bigchart

Now if you'll note on that weekly chart, everytime the weekly Stochastic has turned upward, it has led to major gains in the share price. Hence, my decision to speculate on having a chance to participate in a second run-up (having missed the first one .. sigh). There's just that much money at stake that it's hard to discern what the true valuation of this stock should be based upon the potential of the drug.

But what is the status of Provenge? Is it safe? Is it effective? Well, the FDA has ALREADY ruled that Provenge is safe by a UNANIMOUS vote of 17-0, so what's the problem with approving it?

FDA minutes from March meeting of advisory council:

FDA Advisory Council minutes discussing Provenge..

Pg. 370 is where they discuss effectiveness and the controversial NO votes were cast by 3 out of 4 panel members who have a conflict of interest and had to be granted waivers

And did Dr. Scher, one of the "Nays" on the FDA advisory committee, lie about his conflict of interest, for which he had to receive a waiver to be on that FDA advisory committee? The member who went to the extraordinary measures of actually writing a letter warning against approving Provenge, here is a list of his UNDISCLOSED conflicts of interest that should have been sufficient to deny his eligibility for being on that that committee to begin with? Decide for yourself:

Dr. Scher is on the Science Advisory Board of an investment fund with over $900 million under management. Why wasn't this disclosed on his COI waiver? And why wasn't it disclosed that Novecea is one of those portfolio companies? Fine, if he had disclosed this, then it could have been adjudicated. But it NEVER came up in the COI waiver letter.

Dr. Scher on Science Advisory board of investment fund

Summation of Dr. Scher's undisclosed Conflict of Interest

FDA confirms safety of Provenge

And read this logically based letter from another DNDN shareholder, to the FDA:

Open Letter from DNDN shareholder to FDA

I can't find any fault with the logic the author displays. Clearly the drug is efficacious because 34% of the patients who took Provenge are still alive, as compared to only 11% who took the placebo. And the FDA advisory committed UNANIMOUSLY agreed that Provenge is safe, so what's the problem with temporary approval of the drug, pending final results of the IMPACT study? If it's safe, let THE PATIENT make the choice of taking it or not.. If anything, it provides HOPE...

And what's even more interesting, and something that will likely receive some news coverage on Monday, is that a Cancer patients have spontaneously banded together to lobby congress to have the FDA approve the drug NOW, and not wait. That's unheard of, from my past experience. The group, ProvengeNow will be assembling on Capital Hill at 10 AM on Monday, and since I'm near-by, I think I'll try and be in attendance as well (with Laptop in hand because the Scrutinizer is addicted to his Level 2 market data). But it will be interesting to see if any Senators step out to speak with the demonstrators, and how the FDA will respond to future calls from Senators asking:

"If this drug has been unanimously deemed safe, and 75% of you deemed it effective, why are you holding up approving it? Get off your butts and approve the drug NOW!!! I have constituents WHO VOTE and I don't want them to die before the next election!!.."

That's how politics work.

This could get interesting...

ProvengeNow assembly on the Upper Senate Park on Capital Hill

ProvengeNow's mission statement

Now one more point. DNDN has been "flying solo" throughout this development process, apparently not being willing to partner with a big pharmaceutical. There has been some rumours flying through the CBOE in Chicago (where coincidentally the ASCO convention is occuring this weekend) that DNDN will arrive at a partnering agreement in order to ensure they have the political clout to get their drug onto the market first. Some shareholders have mentioned that DNDN fired their marketing staff recently as a cost-saving measure, presumably because they would not rely upon their partner firm to market and distribute the drug. If this is the case, presumably it could prove to be a tremendous driver for the stock price and the shorts will find themselves facing a problem.

In sum, owning DNDN is a high risk venture that could provide massive returns, or (at these current valuations) some time spent in Cramer's "House of Pain". But again, looking at the charts, I'm wagering I'll be hearing that sultry voice telling me I'm in the "House of Pleasure" sometime in coming weeks.

The Scrutinizer

2007-05-31T14:37:00.001-07:00

The little company that might "own" the CDN and Music Streaming market.

There's this little company that's been struggling to get some respect in the VOD and Real Time Operating System markets. It's called Concurrent Computers (Nasdaq: CCUR). A few years back they purchased this company by the name of Everstream which specializes is audience tracking analytics for the cable industry (think automated Nielsen's Rating for on-demand content) that could assist advertisers to better target their audience for specific ad content.

Now, everyone has thought about CCUR as a VOD play.. they claim to have set the standard for VOD servers that the major cable companies will require for meeting the growing demand for VOD content. But for whatever reason, they haven't yet received much respect from the market place (probably due to the fact that they've had difficulty achieving profitability while they been restructuring and improving their product line).

Well, the old Scrutinizer must admit that he's been a "bag-holder" in this stock for almost a year now, with most of my shares under $2/share in price. I've just been laying in wait for the moment when the hidden value of this company would be recognized. I'm a firm believer that VOD, and all the advertising opportunities involved, will be the next major driver for advancing the internet (anyone remember the internet bubble back in 2000? I don't think you've seen anything yet).

Well, back to the story... It would seem that Everstream holds a series of extensive patents that pertain to both CDN and Music Streaming market places that date back to 1996, before any of these current CDN and music streaming players were even around. And furthermore, it would seem that CCUR and Everstream's lawyers believe that the BIG BOYS in the CDN field might just be violating most of them. But instead of calling in the "legal eagles" to form a IP posse (remember these guys are still a small fish in a big sea), they've opted to hold a strategic auction for these patents, with the provision that CCUR receives a license back to use them.

Read all about it here:

Concurrent Computers looks to auction off critical CDN and Music streaming patents

AND A MUST READ!!! Light Reading article related to CCUR's patents.

And view the company's recent presentation for FBR Capital Markets today:

CCUR presentation

Now what are these patents? Well.. take a look for yourself and decide if companies like AAPL, GOOG, MSFT, AKAM, INAP, and many others, might just be violating them. And while you're reviewing them, think about how much they might be worth to one of those 800 pound gorillas in the targeted ad market who is trying to lock in their "turf". I mean.. not only secure their turf, but force their competitors to license the patents from THEM!!

How humbling would that be?

So here are the patents.. You decide for yourself:

Programmed music on demand from the internet

Programmed music on demand from the internet #2

Method and system for using a communication network to supply targeted streaming advertising in interactive media

As a final note, some folks might recall that MSFT recently issued a statement that Linux providers might be violating over 230 patents held by Bill Gate's "Evil Empire". That's sent shivers (and outrage) through the Linux markets)...

Now just think what Billy "The Borg" Gates might be willing to pay for the ability to lock up music streaming and CDN delivering?

Hmmmm....

And if you still can't understand the significance of IP protections (read $$$$$$$!!!) for these markets, think about this.. MSFT recently paid $6 Billion for AdQuantive just so they could set themselves up to compete against GOOG pending acquisition of Double-Click. They both just bought themselves some "money trees", and both are looking to start plucking those $$$ bills and stuffing them into their pockets..

Were they smart buys?

Analysis of CND potential market

But one problem.. Those "money trees" happen to be growing on (Patented) land that Everstream holds the "deed" to. They staked a claim to that territory back in 1996, long before GOOG, or AdQuantive existed.

Now, if you're going to pay that kind of "bling" for CDN "Money Trees", how much are you going to be willing to pay for the deed and title to the land they are growing on? How much would you pay for patents on Music streaming?

And how much would you pay just to keep your most ferocious competitors from getting the deed to that land and taking a percentage from every dollar you pluck from your tree? Even if you think you can contest the deed, wouldn't it make sense to fork out some cash to improve your case in IP court?

Something to REALLY think about.. and given how the shares are responding over the past couple of days, I think some other folks are thinking about it too..

The Scrutinizer

2007-05-31T11:11:00.001-07:00

Ray Robinson has an article on American Thinker that I think is of importance:

Al Qai'da fracturing?

And if one reflects upon the recent article where we're seeing some of the most prominent leaders of Egyptian Jihadist groups speaking out against Al Qai'da, it seems to indicate that the strategy of putting Al Qai'da in the position of having to deliberately target fellow muslims with terrorist attacks has ellicited the desired result.

It's one thing for the "Arab street" to applaud, condone, or simply remain indifferent to attacks against infidel "Ferengi" (Persian word "Faranji" for foreigner), but when those attacks are conducted against other Muslims, then they are directly challenging the Fatwas of the existing Islamic scholarly hierarchy. And Egypt is the leading center for Sunni Islamic thought and the Grand Imam and the Grand Mufti of Egypt have taken public stances against violent Jihad, and especially Jihad that targets other muslims.

Egytian militant leaders denouncing violent Jihad

Let's all keep our fingers crossed that this trend will continue. Because, ultimately, it is up to the practioners of Islam to determine how it will interface with the rest of the world.

The Scrutinizer

2007-05-31T08:04:00.000-07:00

Bought some DNDN today around $10 on news the FDA will not require 3 years of additional testing, but merely "further information"

http://biz.yahoo.com/prnews/070531/aqth093.html?.v=6

The great financial website "Seeking Alpha" has been strongly questioning the practices of the FDA panel that sought to exclude Provenge from being considered..

http://biz.yahoo.com/seekingalpha/070529/36622_id.html?.v=1

DNDN's recent high was $25 and had plummeted to mid-single digits. On release of the news this morning, the stock had rocketed up 60% to 13 (resistance level). Missed that first move up there (that was something to behold on Level 2), but decided to buy back in at $10/share. I believe it will attempt to hold here and maybe attempt to retest $11-12/share short term.

And btw, the short position against DNDN equates to 41% of the trading float. That's a HUGE short position that someone has to cover.

Also, I bought QTWW on news that Force Protection, INC (FRPT: Nasdaq) has contracted with QTWW to build a replacement for the HUMMV (HUMMER to you civies.. ;0) FPRT has been one of the hot performers over the past year on their series of mine-resistant vehicles and given the fact that DOD will likely be replacing, and not refurbishing, existing equipment, both companies stand to do well.

The weekly chart just looks REALLY EXCITING on QTWW and combined with the fact that 7% of the stock is short, the shares could see significant upside in coming days:

http://biz.yahoo.com/prnews/070531/lath009.html?.v=101

http://bigcharts.marketwatch.com/advchart/frames/frames.asp?symb=QTWW&freq=2&compidx=aaaaa%3A0&comp=&ma=4&maval=13%2C%2B22%2C%2B50&uf=8&lf=268435456&type=4&time=9&style=320&startdate=&enddate=&size=4&lf2=32&lf3=4

(Note: See that Bollinger Band "pinch" forming on the weekly chart?

The Scrutinizer