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WEEKLY FINANCIALS RISK MONITOR: NOW POSITIVE ON A SHORT-TERM BASIS

Financial Risk Monitor Summary (Across 3 Durations):

  • Short-term (WoW): Positive / 6 of 10 improved / 1 of 10 worsened / 3 of 10 unchanged
  • Intermediate-term (MoM): Negative / 0 of 10 improved / 7 of 10 worsened / 3 of 10 unchanged
  • Long-term (150 DMA): Negative / 0 of 10 improved / 6 of 10 worsened / 3 of 10 unchanged / 1 of 10 n/a

WEEKLY FINANCIALS RISK MONITOR: NOW POSITIVE ON A SHORT-TERM BASIS - summary

 

1. US Financials CDS Monitor – Swaps tightened across domestic financials last week, widening for just 3 of the 28 reference entities and tightening for the other 25.

Tightened the most vs last week: PRU, MBI, AGO

Widened the most vs last week: XL, AON, MMC

Tightened the most vs last month/widened the least: SLM, PMI, JPM

Widened the most vs last month: CB, TRV, MBI

 

WEEKLY FINANCIALS RISK MONITOR: NOW POSITIVE ON A SHORT-TERM BASIS - us cds

 

2. European Financials CDS Monitor – In Europe, banks swaps tightened significantly following the Irish bailout.  Swaps tightened for 37 of the 39 reference entities.

 

WEEKLY FINANCIALS RISK MONITOR: NOW POSITIVE ON A SHORT-TERM BASIS - euro cds

 

3. Sovereign CDS – Sovereign CDS fell 39 bps on average last week, as swaps responded favorably to the bailout.

 

WEEKLY FINANCIALS RISK MONITOR: NOW POSITIVE ON A SHORT-TERM BASIS - sov cds

 

4. High Yield (YTM) Monitor – High Yield rates fell slightly last week, closing at 8.23 on Friday.  

 

WEEKLY FINANCIALS RISK MONITOR: NOW POSITIVE ON A SHORT-TERM BASIS - high yield

 

5. Leveraged Loan Index Monitor – After sinking since early November, the Leveraged Loan Index reversed course and rose 1.3 points versus last week.   

 

WEEKLY FINANCIALS RISK MONITOR: NOW POSITIVE ON A SHORT-TERM BASIS - Lev loan

 

6. TED Spread Monitor – The TED spread increased sharply into the end of the week, rising 3 points by Friday to close at 17.2.

 

WEEKLY FINANCIALS RISK MONITOR: NOW POSITIVE ON A SHORT-TERM BASIS - TED spread

 

7. Journal of Commerce Commodity Price Index – Last week, the index rose 7.5 points, closing at 21.9 on Friday.

 

WEEKLY FINANCIALS RISK MONITOR: NOW POSITIVE ON A SHORT-TERM BASIS - JOC

 

8. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds.  Last week yields fell, ending the week 21 bps below last week’s close.

 

WEEKLY FINANCIALS RISK MONITOR: NOW POSITIVE ON A SHORT-TERM BASIS - greek bonds

 

9. Markit MCDX Index Monitor – The Markit MCDX is a measure of municipal credit default swaps.  We believe this index is a useful indicator of pressure in state and local governments.  Markit publishes index values daily on four 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. Our index is the average of their four indices.  Spreads closed the week at 173 bps, 8 bps lower than last week.     

 

WEEKLY FINANCIALS RISK MONITOR: NOW POSITIVE ON A SHORT-TERM BASIS - MCDX

 

10. Baltic Dry Index – The Baltic Dry Index measures international shipping rates of dry bulk cargo, mostly commodities used for industrial production.  Higher demand for such goods, as manifested in higher shipping rates, indicates economic expansion.  Last week the index was close to flat, falling 0.2 points at 217.  

 

WEEKLY FINANCIALS RISK MONITOR: NOW POSITIVE ON A SHORT-TERM BASIS - Baltic Dry

 

11. XLF Macro Quantitative Setup – Our Macro team sees the setup in the XLF as follows: 0.33% upside to TRADE resistance, 2.2% downside to TRADE support. This implies 6 to 1 downside to upside ratio near-term. We generally look to see 2 to 1 upside/downside ratios to be long and 2 to 1 downside ratios to be short.

 

WEEKLY FINANCIALS RISK MONITOR: NOW POSITIVE ON A SHORT-TERM BASIS - XLF

 

 

Joshua Steiner, CFA

 

Allison Kaptur


THE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - December 6, 2010

 

As we look at today’s set up for the S&P 500, the range is 30 points or -2.1% downside to 1199 and 0.35% upside to 1229.  Equity futures are trading below fair value following Friday's late recovery sparked by a leak of Fed Chairman Bernanke's interview for 60 Minutes which went out overnight. Bernanke said the Fed could purchase Treasuries beyond the scheduled $600B on the back of slow normalization of the US unemployment rate suggesting QE3 is a possibility.

In what is expected to be a quiet start to the week, apparent problems within the European Union as how to best to tackle the deepening sovereign debt crisis likely to dominate trading.

  • Human Genome Sciences Inc. (HGSI) and Glaxo said FDA has extended Benlysta PDUFA target date from Dec. 9 2010 to Mar. 10 and requested additional information
  • J.M. Smucker (SJM) may rise ~7% over next year as variety of food offerings, strong cash position offset rising coffee costs, Barron’s reported
  • Massey Energy (MEE) said President Baxter Phillips Jr. will succeed Don Blankenship as ceo after he retires on Dec. 31
  • Oshkosh (OSK) won $413.2m contract for 1,800 tactical vehicles for the Army National Guard, U.S. Defense Department said
  • Urban Outfitters (URBN) may not be a bargain vs peers, Barron’s reported in its “The Trader” column
  • Whirlpool (WHR) may rise to $100 or higher amid growing emerging market demand, Barron’s said

 PERFORMANCE

  • One day: Dow +0.17%, S&P +0.26%, Nasdaq +0.47%, Russell +0.69%
  • Last Week:  Dow +2.62%, S&P +2.97%, Nasdaq +2.24%, Russell +3.23%
  • Month-to-date: Dow +3.42%, S&P +3.74%, Nasdaq +3.73%, Russell +4.05%
  • Quarter-to-date: Dow +5.51%, S&P +7.32%, Nasdaq +9.41%, Russell +11.87%
  • Year-to-date: Dow +9.15%, S&P +9.83%, Nasdaq +14.2%, Russell +20.95%
  • Sector Performance (last week): Materials +6.14%, Energy +5.30%, Financials +5.27%, Industrials +4.10%, Consumer Discretionary +3.06%, Tech +2.29%, Healthcare +1.67%, Consumer Staples +1.09% and Utilities +1.34%,

 EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: 728 (-542)  
  • VOLUME: NYSE 906.80 (-18.71%)
  • VIX:  18.01 -7.12% YTD PERFORMANCE: -16.93%
  • SPX PUT/CALL RATIO: 1.31 from 1.58 -16.88%

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 17.36 0.203 (1.182%)
  • 3-MONTH T-BILL YIELD: 0.14% -0.02%  
  • YIELD CURVE: 2.54 from 2.44

COMMODITY/GROWTH EXPECTATION:

  • CRB: 316.16 +1.30% (+4.99% last week)
  • Oil: 89.19 +1.35% (+6.48% last week)
  • COPPER: 399.90 +0.50% (+6.29% last week)
  • GOLD: 1,406.28 +1.39% (+3.40% last week)

CURRENCIES:

  • EURO: 1.3414 +1.59%% (+1.30% last week)
  • DOLLAR: 79.377 -1.15% (-1.22% last week)

OVERSEAS MARKETS:

 

EUROPEAN MARKETS:

  • European markets have pared or reversed initial modest gains as the regions debt worries weighed ahead of the EuroZone Finance Ministers meeting later today.
  • Peripheral European indices led the fall, with Spain and Italy down over (1%) and debt spreads widened modestly after last week's enthusiasm over ECB bond buying waned.
  • Reports that JC Flowers had pulled away from a Spanish Bank investment also hit sentiment.
  • Declining sectors lead advancers 11-7 with banks and retailers leading the fallers.
  • Basic resources and chemicals lead gainers.
  • Major indices currently trade close to session lows.

ASIAN MARKTES:

  • Nikkei (0.11%); Hang Seng (0.36%); Shanghai Composite +0.52%
  • Most markets closed mixed.
  • China's shift in policy to "prudent" from "appropriately relaxed" is continuing to dictate trading patterns.
  •  Japan was mixed, opening by falling slightly on a stronger yen, but bargain-hunting quickly limited losses. Volume fell to the lowest since late Oct.
  • South Korea ended flat, with car-parts makers rising on the finalized trade agreement between the country and the US

Howard Penney

Managing Director

 

THE DAILY OUTLOOK - levels and trends 126

 

THE DAILY OUTLOOK - equities 126

 

THE DAILY OUTLOOK - vix 126

 

THE DAILY OUTLOOK - usd 1 126

 

THE DAILY OUTLOOK - oil 1 126

 

THE DAILY OUTLOOK - gold 1 126

 

THE DAILY OUTLOOK - copper 126


Printing Price Volatility

“If the government owns all of the printing presses, it will determine what is to be printed and what is not to be printed.”

-Ludwig von Mises

 

On a flight to Calgary, Alberta yesterday I was reviewing “Economic Policy – Thoughts For Today and Tomorrow” by Austrian economist, historian, and philosopher Ludwig von Mises. His book, published by The Liberty Fund, compiles the following 6 lectures that von Mises gave in Argentina in 1959:

  1. “Capitalism”
  2. “Socialism”
  3. “Interventionism”
  4. “Inflation” 
  5. “Foreign Investment”
  6. “Politics and Ideas”

This book is only 75 pages long and sits amongst the classics in my library. The deep simplicity that von Mises achieves in explaining complex macro-economic issues is unrivalled. I highly recommend it to anyone looking for the opposing argument to Big Government Intervention.

 

In the coming weeks I’ll refer to these lectures, quoting one of the founding fathers of libertarian free-market thinking whenever the opportunity presents itself. After watching a completely politicized head of the US Federal Reserve telling stories on 60 Minutes last night, one of those opportunities is now.

 

Post Ben Bernanke’s interview, the #1 headline on Bloomberg this morning should shock anyone considering this country’s constitutional underpinnings: “Bernanke Says Fed May Take More Action To Curb Joblessness”… One man, one ideology, one power to print money…

 

Before I get into what The Ber-nank’s professional politicking for additional Quantitative Guessing (otherwise known as printing moneys) entailed, let’s take a step back and re-read what the US Federal Reserve said most recently about its go forward QG2 strategy:

 

“The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability."

 

In English, sans le Greenspan-esque obscurity, this means that the Bernanke Fed’s goals are:

  1. Fostering maximum employment
  2. Fostering price stability

Sounds nice, in theory…  but last week’s US Unemployment rate hitting a new high of 9.8% was an unmitigated train-wreck on point #1 and on point #2, never mind “price stability”… Ben Bernanke is fostering some of the highest levels of price volatility that modern markets have ever seen. How about fostering some accountability, dude.

 

Look at last week’s week-over-week percentage moves:

  1. SP500 = +2.9%
  2. CRB Commodities Index = +5.0%
  3. Oil = +6.5%
  4. Gold = +3.1%
  5. Copper = +6.1%
  6. VIX = -18.9%

Bernanke must be kidding himself, because he certainly isn’t kidding me. That VIX (Volatility) decline of -18.9% week-over-week came the week after the VIX rocketed +23.2% higher. At this point, he’s Printing Price Volatility in volatility itself!

 

Let’s go back to some of The Ber-nank’s key statements on 60 Minutes:

  1. On Growth – “we’re not very far from the level where the economy is not self sustaining…”
  2. On Employment – “it takes about 2.5% growth just to keep unemployment stable…”
  3. On Inflation – “fears of inflation are overstated…”

In response, I guess my first question is, according to who? The man’s macro-economic conclusions are littered with ideology and inaccuracy. Maybe it’s a blessing in disguise that Ben Bernanke speaks this academic dogma out loud to the world. After all, it’s better to remain a humble looking man who knows nothing about the interconnectedness of global macro markets and says nothing, than to open one’s mouth and remove all doubt.

 

Rather than take my word for it on this global Fiat Experiment gone bad, I can only hope at this point that the people of the world look at real-time market prices (price instability) and the outcomes of these Greenspan and Bernanke interventions on both the sustainability of growth and employment. The records speak for themselves.

 

As for a solution to this mess. I’ve said this before, but I’ll say it again – the first solution is to STOP – that’s it. Stop this man from doing what he is doing in perpetuating all-time highs in the price of the #1 food staple for 3 BILLION people (rice) and anything else for that matter that’s priced in the dollars that he is on a mission to debauch.

 

Finally, I’d like to submit a few passages from Ludwig von Mises 3rd lecture, called “Interventionism”:

 

“The idea of government interference as a “solution” to economic problems leads, in every country, to conditions which, at the least, are very unsatisfactory and often quite chaotic. If the government does not stop in time, it will bring on socialism.” (“Economic Policy”, page 38)

 

“Is there a remedy  against such happenings? I would say, yes, there is a remedy. And this remedy is the power of the citizens; they have to prevent the establishment of such an autocratic regime that arrogates to itself a higher wisdom than that of the average citizen. This is the fundamental difference between freedom and serfdom.” (“Economic Policy”, page 39)

 

Stop. Listen. Re-think.

 

My immediate term support and resistance levels for the SP500 are now 1199 and 1229, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Printing Price Volatility - Bernanke EL PNG


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

The Week Ahead

The Economic Data calendar for the week of the 6th of December through the 10th is full of critical releases and events.  Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.

 

The Week Ahead - cal1

The Week Ahead - cal2


Less Is A Good Thing

This note was originally published at 8am this morning, December 03, 2010. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Less Is A Good Thing.”

-Jason Fried & Heinemeier Hansson

 

At our year-end Hedgeye meeting this week, this was the most valuable take-away from the aforementioned bestselling authors of “REWORK.”

 

My immediate term support and resistance levels for the SP500 are 1197 and 1223, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer



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