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81 Responses to “Wrap – Week Ended 08/05/11”
Roubini cracking jokes about US downgrade all morning on twitter.
BSJ – hear ya on that, he’s joking about catching just downgraded AA+ bass on a lake that’s on the border with Canada. Not often that I wish someone would choke on a fish bone but there you have it.
I was musing earlier that Fitch and Moody’s still have the US on review and that with the S&P downgrade, rates could rise to a point that offsets a big chunk of the deficit savings congress just agreed to. A 100 bp rise in yields means $100 to $150 B per year in added interest costs. So I could see the others now follow with cuts themselves as it probably just got more expensive to be the U.S.
Re: 4 Lets say I tell you a hundred times not to text while driving. While you are driving you happen to get into an accident because you were texting.
Now am I going to laugh and make jokes or say I told you so? No. Even though I predict what would happen if you texted while driving, I am not going to take any pleasure in my prediction coming true. Roubini should show some class. I guess he did not learn class while growing up in Turkey.
US debt should be less than AA+ already. It is clearly not AAA. I am back from vacation and will put together a post of my thoughts from the past 3 weeks on Monday or Tuesday. None of the events that occured while I was away are surprising in the least.
I’m not arguing about whether or not it should have been cut, if the rating agencies were actually on the ball they would have done it awhile back, like when the slope of debt to GDP got completely out of whack. I just don’t care for the stopped clock Roubini types who are rejoicing at the cut today because they have been ineffectually short for so long and can now right another book about the end of the world. I think this is a blip in time and has little, if anything to do with the fundamentals of the oil markets. I don’t think it alone sends us spiraling back into recession. Monday may suck at the end of the day or it may not but I do believe that oil will be higher by the end of this quarter and next and will average a higher price still in 2012. My companies produce oil, more of it each quarter actually, and for that I say thank you.
Homework…What I noticed..
Only during the biggest down week during the 2008 crash was there higher S&P Futures volume than we had in last week’s wipe out.Friday’s volume was the highest on record for the S&P E mini.The Rate of Change in the VIX was higher on Friday than at anytime during or since the 2008 crash. Closing 10 day tick metrics were lower than at anytime in my data base. Breadth measures both long and short term hit extremes similar to or in excess of the most negative breadth/demand of 2008 and the flash crash and panic of 2010.
The earlier similar panic extremes in volume, fear, breadth and closing action did allow for significant short term bounces but also required further attempts at lows on less extreme selling before the market could make intermediate headway to the upside.
Friday’s trading reaffirmed the significance of the 1195 level and the acceptance level below at 1167.
1195 acted as a pivot for trading during the very volatile Friday session and ultimately held as weak support. Acceptance below was rejected as too low for now. 1155 is the next significant support level below current major acceptance and if broken IMHO represents the rejection of the last major area of support before I’d have to entertain the probability of another down-leg. Above 1195 any further rally attempts will likely find significant resistance at
at 1217, 1236 and finally at 1251.
Friday’s early move down to the 82 area looked like exhaustion to me from a number of different price and volume angles. Acceptance area at 83 was rejected swiftly as too low.
Trading closed at 87 resistance. Intra day buying pressure on Friday suggested a return major acceptance above at 90 is the most likely short term scenario. In addition 95 has been the most dominant acceptance area for the past 12 months. http://www.charthub.com/images/2011/08/06/Crude_Composite_3
I agree that downgrade was long overdue but just wonder about timing after a brutal week in the mkts, why now-seemed like it was more political than financial.
Geithner is toast.
I must confess that after the hammering I’ve taken last week, I’m more than a little nervous-gave back almost all 2011 gains-had hedges but took them off too early-shorts, options, and hedges do not seem to work well with me-mulling going to cash because I was there in 1987 (crushed), 2000 (crushed), 2008 (partially crushed) and I do not want a three or four peat-preservation of capital is now my motto-having said all cash, I KNOW that the mkts coule and would reverse up on a dime-they are hugely oversold but they can stay oversold for awhile. Credit mkts do not look healthy either, adding to the uncertainty.
Thanks Z, Zorg for your steady voices during this carnage.
choices…….Thanks for the kind words. I try to keep things on the side of probabilities but I too am concerned by the number and severity of the unprecedented events currently unfolding. IMO, there’s a real risk that they may quickly overwhelm any bounce probabilities that I see
and the market will continue to crash lower blowing through any number of lines I draw on the chart. I don’t know what’s next. Never do.
I’m closely watching the current acceptance area and if the market rejects it and moves lower then I will take a hit and protect my capital from even more serious damage.
thanks for the words of wisdom. it almost seems that starting from the Nasdaq crash in 2000, we can’t sustain any meaningful moves in the marets, yet
i don’t believe we are seeing a destruction in the economy as some may claim.
I’ve read in the past that market cycles last around 15 years. we had a bull run from 1982-2000. we are now 11 years into a bearish cycle.
Long term i believe this country will come back in a big way. Once we get rid of the monster overhang of foreclosure properties, and real estate prices start to stabilize, there should be a better tone to the way people feel about investing in real estate. Once again home ownership should become a topic of discussion at the dinner table for many Americans. Its sad that the American dream of owning your own home has slowly eroded, yet i don’t believe that this will last forever. Many real estate pros are saying that rents have gone up because there is a demand for rentals as people just can’t qualify for mortgage loans with stringent requirements. This phenomenon will certainly lead folks back thinking that owning is the way to go, especially given the lower prices and the attractive mortage rates (on Friday it was reported that rates are now the lowest dating back to the Civil War). Why is no one talking about the fact that its cheaper to buy an existing property than it is to build one? With the prices of materials such as lumber, copper, steel and aluminum significantly higher, building a new home has become a proposition that almost makes no sense.
As with all market inconsistencies, this too i believe will eventually get resolved once capital re-deploys into cheap real estate.
In a time where uncertainty and anxiety runs across all facets of our lives, it feels almost as if the US gov’t is detached from the rest of society. The latest political debt resolution vote was almost comical. And then they get on national TV and trash talk as if it was some sort of high school debate. Unfortunately, our representatives fail to connect to the real issues that concern the average citizen. I remember the days when Ronald Reagan would speak. People would rush home to listen to his inpsiring speeches. We need leadership and unfortunately we don’t have anyone to step up to the plate and start making changes that will give people assurances that things will be ok. We have been in a major market correction now for almost 2 weeks and not one gov’t official has commented on it. People, i believe, just don’t trust the people running this country. There is a need for change where our elected officials start to realize that the people of this country don’t really care about bringing democracy to Afghanistan anymore. Some fundemental changes need to occur, and once we have someone at the helm that begins to address these issues we are going to continue to thrive as a nation. I’m not up to speed whether Paul Ryan is going to be in the mix for the next presidental election, but i will tell you that i like his proactive approach to tackling major issues. Maybe 2012 will be the beginning of a new age for this country.
Looking at the strong corporate earnings in the last quarter, its almost incredible that we are down 15% in the Dow from last quarter. It almost seems that there is a disconnect between American corporate health and the health of the country. My only explanation is that the people running the corporations are smarter than the people running our country.
An excerpt from Paul Ryan’s recent speech. Maybe someone gets it?
There are those who say modern society is too complicated for the average man or woman to deal with. This is a long-standing argument, but we heard it more frequently after the mortgage credit collapse and financial meltdown in 2008. They say we need more experts and technocrats making more of our economic decisions for us. And they argue for less “political interference” with the enlightened bureaucrats … by which they mean less objection by the people to the overregulation of society.
If we choose to have a federal government that tries to solve every problem, then as long as society keeps growing more complex, government must keep on growing right along with it. The rule of law by the people must be reduced and the arbitrary discretion of experts expanded. . .
If the average American can’t handle complexity in his or her own life, and only government experts can … then government must direct the average American about how to live his or her life. Freedom becomes a diminishing good.
But there’s a major flaw in this “progressive’” argument, and it’s this. It assumes there must be someone or some few who do have all the knowledge and information. We just have to find, train, and hire them to run the government’s agencies.
Friedrich Hayek called this collectivism’s “fatal conceit.” The idea that a few bureaucrats know what’s best for all of society, or possess more information about human wants and needs than millions of free individuals interacting in a free market is both false and arrogant. It has guided collectivists for two centuries down the road to serfdom — and the road is littered with their wrecked utopias. The plan always fails!
Choices and Brodway – no problem, re calming or words of wisdom, although depending on you time horizon I’m not sure how wise they have been. Didn’t really expect an 11 day, 11% S&P correction or I would have taken my own thinking on hedging from 3 weeks ago to heart and put a put play in play. I don’t play coulda woulda shouda though and I still like all my names and will have a little piece on oil thoughts, that are not affected a US credit downgrade, in the post tomorrow.
This guy from S&P says it will be no big deal for the markets tomorrow, here’s to hoping he’s half right.
re 18 – Not sure I get his point, somewhat nutty collection of thoughts. I wrote more but read his stuff again and decided to delete it. I’m not sure he’s an opposite view on energy in terms of people using less and demand falling, I think he’s saying that will have to be the case in the future.
re 30 – 32 – thanks. I’m in ignore mode on the futures tonight. Oh I’ll note how scary they look but I continue to do what I do, prep for more earnings and what I think works going forward. My medium and long term thoughts on oil prices being higher in the 4Q and higher still next year remain unchanged.
Thank you everyone for helping me wrap my head around the market gyrations of the last week or so. I have found personally no evidence that any hedge funds had redemptions that drove the market down 500+pts. I will be looking to get some LINE because I like yield, but I keep thinking if/when inflation raises its ugly head how well MLP’s will do, since they will be hedged out a few years based on a different [lower] inflation assumption and it will take them a few years to catch up to inflation. My favorite words are “hockey stick production”.
zman I am so glad I heeded your moves of dropping gmxr. I am also using your thoughts and the current ZLT to consider adding to my current positions btu I am not considering on starting positions in things I don’t already own [I don’t own all of the stocks in the ZLT, but I do in many of them]
OT: CIGX I am wondering for what they are waiting for to do a national rollout. Are they waiting for all or some of the following; the court ruling, to build up the logistics infrastructure, or for health studies so they can do a national rollout. I have been working in tech startups for the last 8+ years and you need to strike while the iron is hot. Maybe I am just being impatient.
OT: CIGX… there is a scheduled Coming Out Party for Anantabloc at the VA Govenor’s Masion for sometime at the end of August. No firm date yet. Will let you know.
Meanwhile, we have all learned the hard way NOT to wait (or speculate) on court rulings. I can guarantee that Star is not planning any operations around a ruling by the Appeals Court.
I am zen about my investment in CIGX. I don’t like the stock price, but I’m not worried about it either. Just a matter of time.
And yes… things take way (way!) longer these days than they used to. I don’t want to say “have patience,” because we have all been patient for a long time. On the other hand, whatcha gonna say? I trust this managment team to do what is right, when it is right. And Paul Perito is a “belt and suspenders” sorta guy. Do i wish they would move faster? YOU BETCHA! Do they listen to (or care about) what outsiders (or analysts) say? Not a whit.
So there you have it. I am betting the wait will be worth it. But that is just me.
#20-thanks, Z-after first read, I thought he was projecting less demand but after your point, went back and I agree with you that it is a somewhat confused msg. I think I wasted your valuable time. The fact that he was with Oil Drum seemed at first glance to lend some credibility-wrong.
Betting we hear a lot of bellyaching from OPEC ministers this week, calls on Saudi to cut it out and get back in line, special meeting if crude approaches $80 I would say would be highly likely. We are at a level that some states like Iran will not be able to pay for all of the programs that keep the people from throwing them out.
re 62 – That’s a great question for VTZ. Seems to always be the case that they don’t keep up, maybe they don’t believe the price will stay up, maybe its rising extraction costs.
The oil global forecast from OPEC and the EIA take it to new records this year and next. And just about none of the growth comes from the U.S. itself. Silly oil traders, this slump will not last. Charts in the morning post.
Short equity long gold spreads that will need to be unwound. It’s all a massive accumulation/shaekedown. That’s about it. Wait until takeovers and earnings start rolling in in earnest.
Yes extraction costs are rising in some circumstances because in general the amount of grams per tonne is decreasing globally, but this has nothing to do with that.
This setup looks an AWFUL lot like the 100-300% rally setup we saw in 2009. My portfolio now includes less than 10% bullion (and more silver than gold) and about 60% precious metals equities and that’s my WHOLE portfolio, not just my metals piece.
The stocks are trading in many instances at the same levels they were when gold was 1024-1028 and 1224. Nothing has changed in terms of costs in that timeframe. It’s just games, that’s all.
The XAU index could appreciate 80-100% depending on what you call the baseline to be a historical ratio to gold. The HUI could appreciate 50% for the same. The equities are undervalued on ALL metrics to the point of ridiculousness.
US borrowing costs going up
Deficits unlikely to improve
US long bond won’t continue to maintain ridiculously low yields forever when treasuries are held abroad in such large quantitites
Treasury bonds as a “safe haven” is the stupidest thing I’ve ever heard for any foreign investor
S&P Futures Areas of Interest 8 AM. O/N trading took the S&P Futs down to test acceptance at 1163 and has rejected that area as too low. Volume is building above acceptance and the profile appears to be supportive of further recovery.
1195 Resistance, Friday’s close 1196.50
1186 CLVN, O/N High 1189
1163 Acceptance, O/N Low 1161.50 http://www.charthub.com/images/2011/08/08/ES_Intraday_2