Monday, November 30, 2009

30 Global Financial Institutions To Have Living Wills In Case They Go Bust

The Financial Times reports today that 30 global financial institutions are under the scope for detail scrutiny. It seems these are the "too big" to fail now. The Financial Stability Board is trying to preempt systemic risks from spreading around the world.

In addition, global financial institutions to have "Living Wills", in other words, what to do in case they go bust.

Here is the list:


-Bank of America Merrill Lynch
-Goldman Sachs
-JPMorgan Chase
-Morgan Stanley
-Royal Bank of Canada
UK groups
-Royal Bank of Scotland
-Standard Chartered
-Credit Suisse
-BNP Paribas
-Société Générale
-Mitsubishi UFJ
-Sumitomo Mitsui
-Banca Intesa
-Deutsche Bank

-Swiss Re

Bnet has very pertinent comments:

"What is eye-opening however is the disproportionate global imbalance of the list. The only Asian banks on the list are the big four Japanese megabanks, while there are not as many American banks as you might expect either: just 5. On the other hand, European banks account for a total of 9 banks; if you include British banks as well, then the number rises to 13. Given that all the insurers bar one on the list are European too, that means that a whopping 63 percent of firms on the FSB’s problem list are located in the Eurozone.
That’s a worrying trend, and it also backs up pretty well the massive speculation on credit default swaps in the region recently,"

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Max Keiser: Phase II of the Economic Crisis Is Just Starting With Dubai

Max Keiser says this is the beginning of Phase II of the global economic crisis starts with Dubai's default.

"Dubai jitters have gone away for the West as Abu Dhabi has now had to step in. I’d say that it was a clever move by Sheikh Mohammad to dump that bad news in such a way as it caused such international panic as to force the emir of Abu Dhabi to dig into his deep pockets."

- Eastern Europe has yet to be revealed losses.

- Through the transfer of RBS to the people, the citizens in the UK now own billions of Dubai debt, defunct real estate deals.

- It looks like only another $60B, but these are yet another 60B that will cut into the bone of the banks. Phase I was only superficial. Credit crisis not half ay through.

Watch interview:

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Sunday, November 29, 2009

S&P500 Report For Week of November 30: Top 25 Oversold and Top 18 Overbought Companies

The average RSI7 of all the companies in the S&P500 is 45.99, neither overbought, nor oversold.
Here are the top 25 most oversold stocks, with RSI7 shown:

SVU, 18.23824966
YHOO, 18.97021831
RHI, 21.2174818
HSY, 21.76205877
GS, 22.33396075
PBI, 22.54630787
JEC, 23.21197302
LUK, 23.27331471
LM, 23.59391513
FII, 23.66909768
THC, 23.84765999
MMC, 24.29211097
MFE, 24.40866491
TLAB, 25.31330987
TROW, 25.64224452
TSN, 25.73040908
JNS, 25.79878444
NYX, 26.07415811
MS, 26.14109732
DYN, 26.15590747
SUN, 26.752746
VLO, 26.89167504
AIG, 27.15683879
LEN, 27.33208371
WFMI, 27.65914459

It is interesting to see GS and AIG in that list.

There are 18 companies that overbought:

T, 70.63686681
WMT, 71.90010729
TMO, 72.22590056
MRK, 73.77653883
BMY, 73.98689527
RTN, 74.62717125
COV, 74.92391188
RAI, 75.69441186
AZO, 75.69460914
ADI, 75.70107992
DTV, 76.54544003
DUK, 76.92585868
MDT, 81.19501718
SJM, 81.67594608
BNI, 81.85183628
FTR, 81.88422344
CPB, 81.9933467
CTL, 82.73321024

You can receive technical analysis and alerts of these stocks by entering the symbols in the Technical Trend Analysis Tool, (powered by INO).

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Saturday, November 28, 2009

Top Overbought and Oversold ETFs For Short-Term and Long Term; Overbought/Oversold Ratio is 4.08

We calculated the RSI values of all 776 ETFs on the market. Here are the most overbought and oversold ETFs for both short-term (RSI-D), and long-term (RSI-M). What we notice is that there are a lot more overbought ETFs than oversold ones in both time horizons. Details below.

Top Oversold Short-Term (ordered by RSI-D):

(please click to enlarge)

Top Overbought Short-Term:

Note that there are too many overbought ETFs in the short term so we raised the cutoff RSI level to 75. There are 12 oversold ETFs, and 40 overbought (RSI over 70), ratio of 3.33.

The most overbought ETF is SHY, 1-3y treasury bonds, with an RSI of 90.08.

Top Oversold Long-Term (ordered by RSI-M):

Top Overbought Long-Term:

Note that again in the long term there are a lof more overbought ETFs than oversold ones. There are 23 oversold ETFs and 94 overbought (ratio of 4.08).

The most overbought ETF shown is PVI, with an RSI of 94.56, which is stratospheric. However, this ETF is designed to track the performance of a pool of short-term, tax-exempt, variable-rate demand obligations (VRDOs) issued by municipalities in the United States and its price barely moves and causes an impractical RSI. The most overbought ETF is then MBB, with an RSI of 90.55, another bond fund, Barclays Capital U.S. MBS Index.

You may receive technical analysis and alerts of these stocks, sent automatically to you, by entering the symbols in the Technical Trend Analysis Tool, (powered by INO).

As always, for information only, please do your own due dilligence.

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Friday, November 27, 2009

Straddles For the Dubai Crash: Profit Either Way With Gold, USD, Oil, Stocks, and Brazil

Here are the current straddles for the general stock market (our favorite IWM), gold (AUY) and oil (UCO):

Here are straddles for Brazil (EWZ), USD (UUP), and Gold (GLD):

Computed with StraddlesCalc tool. The tool shows the maximum move required to achieve a profitable positions. Because there are still 21 days to expiration, the chances of the actual move needed being smaller is quite high.

Note: You may receive technical analysis and alerts of these stocks, sent automatically to you, by entering the symbols in the Technical Trend Analysis Tool, (powered by INO).

Not advice. Options are very dangerous and may cause 100% loss. Please do your own due dilligence.

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Thursday, November 26, 2009

The Impact of Dubai Default Has Much More Widespread Consequences, and Opportunities

Re. Dubai, Will They Sink?

Until yesterday, 'Dubai' seemed to evoke an economic miracle. The best known of the six monarchies that formed the United Arab Emirates in the early 70s, Dubai appeared to be the best of several worlds. A small country (83 sq. kilometers), with few people (4.7M) and rich in oil, Dubai seemed destined to be another of the Arab dictatorships in which a minority enjoys the petrodollars and mass of the population lives in misery stalls. This script, however, was not true. The Emirates not only reached a high standard of living but also achieved something rare for an Arab country. Its economy reduced dependence on oil. The pharaonic constructions are not royal palaces, but hotels and headquarters of banks. More than bricks and concrete, Dubai managed to establish itself as a regional financial center, while offering a favorable environment for business and an open Islamic society.

Thus the strong impact of the news that circulated this morning, that the holding company Dubai World was trying to postpone the payment of U.S. $ 59 billion in debt. With about $ 80 billion in assets, Dubai World is the investment vehicle of the government of the emirate that allows international investors to participate, for example, in construction of hotels, resorts and marinas on the shores of the Persian Gulf. It was thought that the reserves in hard currency of Dubai made its economy as robust as their hotels. To finance these buildings require much capital, big money even for a country rich in oil. This resulted in the the heavy indebtedness of Dubai World, which funded some of the most sumptuous hotels in the world through the issuance of securities in the international market. The company survided well through the worst of the crisis thanks to its abundant reserves in hard currency and the recent recovery in oil prices. However, the downturn has drained resources and diverted investments from emerging countries, which proved to be cumbersome for the Dubai World.

The effects on the Brazilian Real and on the Euro have been much more significant than on the USDX, which is a basket of currencies. This will present tremendous opportunity today, where markets are open, and perhaps still tomorrow AM. In particular, Brazil is not significantly exposed to Dubai. Unless there is a widespread crash, this may well be another temporary blip on the currency, much like the 2% IOF imposed last month.

Effects on Brazilian Real (charts from INO tools, which works intra-day today):

(please click to enlarge)

Effects on USDX:

(Impact on USDX today, to 2:30PM, click to enlarge)

Effects on the Euro:

The Euro is part of the USDX basket, thus the smaller influence there.


The sudden default of a participant in the financial market taken as unshakable shows that the risks of crisis are still far from over. It came late but it happened, the devaluation of the real estate market, and the downturn buckled Dubai World. New cases may occur, and, especially, can be generated under the current conditions.

It has been discussed at length how the packages of government aid pumped trillions of dollars in a global economy without demand. One of the negative side effects of these policies is the ability to raise money cheaply to finance any initiative. In a recent article, Bill Gross, director of the American fund Pimco, the world's largest, noted that some funds are offering a net yield of 0.01% per annum. In this step, an investor would take 6,932 years to double its capital, says Gross. Few have so much patience or live so long - not even Methuselah who lived to be 1,000 years old - which stimulates the search for risk. With money plentiful and cheap, there is an increase of the possibility of generation of new bubbles. The low interest rates in major economies may exacerbate uncontrollable outbreaks of leverage, with unpredictable consequences. In other words, we must be attentive to the lessons that Dubai can teach us.

EDIT Friday November 27, Please see the new straddles as potential plays post-Dubai.

Impact on Brazil

The impact on Brazil will be small. In addition to the two economies are not highly connected, Brazilian investors have not discovered the Islamic market. Instead, the incursions of Brazilian banks in the Middle East are much more to get money than to invest. Still, it is essential to talk about Dubai.

Partial information obtained from Brazil, where markets are open. (EDIT: Parts of this text appeared one day later at a Brazilian newspaper].

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Dubai: Will They Sink?

Will they sink? It would be the largest sovereign default since Argentina.

Money does not grow on trees, the same principle applies to the banks, the stock markets, and all the phony economic prosperity that happened in the mid 2000s - created out of nonexistent money. Sooner or later reality catches up.

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H1N1: D225G Mutation And The Resistance to Tamiflu

Here is the current ROI of H1N1-related companies:

We track these companies live in our one our tracking sites.

Ilene, from Phil's Stock World has written a very nice article about the D225G Mutation on the H1N1 virus, in which she interviews Dr. Henry Niman, President of Recombinomics. Dr. Niman has researched the evolution of the virus. Here it is:

Flu News: What is the significance of D225G?
By Ilene

With the current rush of news about the swine flu virus morphing into more aggressive lung-shredding and tamiflu-resistant mutants, there is some confusion as to why these changes are being seen in people in "hotspots" around the world, with no clear connection to each other.

Officials at the WHO and CDC suggest that the same mutations are arising
in multiple locations but this doesn't quite make sense. To better understand how changes in the swine flu virus may be occurring, I contacted Dr. Henry L. Niman, founder and president of Recombinomics. Dr. Niman has been an active researcher in the evolution of flu virus. His latest thoughts on the ongoing progression of the flu pandemic may be found at his website, Recombinomics.

For a little background, the D222G mutation or D225G mutation (same mutation, different numbering system) was found in three cases in Norway ("Norway" mutation), and in other countries, including Brazil, China, Japan, Mexico, Ukraine, the United States, and more recently Hong Kong. The change in a single nucleotide results in an amino acid change in the virus's receptor binding protein. This has the effect of allowing the virus to bind receptors in the lung tissue, rather than the more usual binding to cells in the upper airways. Theoretically, this may confer greater virulence to the virus, potentially leading to more severe disease as the infection invades deeper in the respiratory tract. This change was also seen in the 1918 flu pandemic, in some (but not all) cases.


The name of Dr. Niman’s company "Recombinomics" is taken from the word "recombine" or "recombination" - the driver of rapid molecular evolution and the emergence of infectious agents. Recombination* is a mechanism whereby small bits of genetic information pass between viruses so that a virus may quickly acquire a genetic change that evolved previously over the years in other viruses. Recombination is similar to reassortment, but with less genetic material being exchanged.

Sporadic mutations do not usually lead to successful adaptive changes - often they have no effect or prove to be non-adaptive, with the mutation failing to be further replicated. In contrast, recombination allows viruses to quickly alter their characteristics by acquiring genetic material that already exists in the viral reservoir (i.e., the pool of viruses circulating in a population). This genetic material has already survived the trial and error period of natural selection. The viral reservoir consists of wild-type viruses (the predominant viruses) and a low levels of variants carrying a variety of different sequences (genetic “polymorphisms”).

Dr. Niman explained that recombination is not the favored theory regarding how the flu viruses evolve. Nevertheless, Dr. Niman’s theory has led to accurate predictions about the swine flu’s course during this pandemic. CDC and WHO officials may be slow to understand the changes we are seeing in the swine flu virus, but as this disease progresses, the consensus view on how viruses evolve may also change.

My questions to Dr. Niman about recombination may have prompted him to write the following article explaining how the D225G marker, which is a genetic change that enables the virus to invade and replicate in the lungs, may begin to appear in many geographical locations at once. The process of recombination explains this phenomenon better than the competing theory of sporadic mutation, which assumes that these genetic changes are occurring independently as copy errors in multiple places at the same time.

Spontaneous Mutation Media Myth

The mutations appear to occur sporadically and spontaneously. To date, no links between the small number of patients infected with the mutated virus have been found and the mutation does not appear to spread.

The above comment from the WHO briefing on D225G (aka D222G) in Norway describes how the "mutations appear". However, this appearance is based on an outdated view of influenza evolution, which maintains that all newly acquired drift "mutations" are based on copy errors. For D225G, this would require the same copy error to occur again and again on multiple [genetic] backgrounds, which simply is not reality based.

Although the "random mutation" explanation is one of the basic tenets of the WHO and CDC view of influenza evolution, this explanation is only viable in the absence of data. Extensive influenza sequence data moved this hypothesis into the indefensible category years ago, but it remains at the core of WHO explanations of drift variants, such as the comments above.The "random mutation" and failure to spread would require each detection to be an independent event. Thus, in Norway, the same copy error would have been made in each of the three patients with D225G. Similarly, the same error would be required for each of the four fatal cases in Ukraine. Moreover, the same error would be made in the vaccine target. As the number of sequences with D225G increases, the likelihood that the same error happens again and again, among a very small number of differences… becomes untenable... For D225G, the change was present in one of the earliest isolates [viral material isolated from a sick patient] in the United States. It could jump from one [genetic] background [virus] to another via recombination between sequences that are closely related. As a result, the new acquisitions lead to a new single nucleotide polymorphism, which looked like a point mutation, but was really recombination between closely related sequences.[D225G] moves from one genetic background [virus] to another via recombination. A new spontaneous mutation is not required for each isolate [viruses isolated from a patient] and the same sequence in a given area is just due to clonal expansion [growth] of an isolate....Thus, the movement of the same polymorphism via recombination is common. It explains the sudden appearance of the same marker on multiple genetic backgrounds, and forms a basis for predicting changes.

However, the reliance on a "random mutation" produces "surprise after surprise" among influenza "experts" and creates "appearances" such as spontaneous mutations and lack of transmission which are not based on reality.

The D225G Marker

According to Dr. Niman, the most likely explanation for the concurrent emergence of the D225G variant in multiple regions is that the "strain" of swine flu virus circulating is not a homogeneous strain but consists of a predominant (wild-type) strain with a variety of less common variants, including viruses with the D225G genetic marker and viruses that have the genetic sequences conferring tamiflu resistance. Dr. Niman believes viruses with the D225G marker are not adequately represented in the flu database because this variant is not easily detected in nasopharyngeal swabs. However, there is enough of the D225G variant in the viral reservoir to act as "donor sequences" so the D225G change can jump from one virus to another, leading to its detection in many locations around the same time. The reason detection increases is that the viral reservoir, along with numbers of D225G variants, expands as flu season progresses. As the viral reservoir grows (more viruses, greater numbers of people infected), greater numbers of D225G viruses begin to show up in more and more flu cases.

The background presence of the D225G mutation in the H1N1 virus strain explains why cases with the mutation are found throughout the world and why these mutations have been found in mild as well as severe cases. The presence of virus with the D225G marker should not be seen as an all-or-nothing phenomenon. Theoretically, if a D225G subclone takes hold in the lungs and expands, it can cause a more severe flu. While the D225G marker may increase the virulence of the virus, the receptor binding profile is only one of a number of factors influencing the severity and outcome of an infection. Other factors include the viral load (how much virus a patient is exposed to), the patient's immune system (does the patient have antibodies against the virus?), and other characteristics of the infecting viruses (e.g., how transmissible is the virus?).

Supporting the suggestion that viruses with the D225G marker are more virulent than the wild-type virus is the finding of D225G sequences in isolates from the 1918 Spanish flu pandemic. There is also evidence that this marker may have become more common in the Ukraine, where the swine flu seems to be particularly severe. Nevertheless, further evidence is needed to draw conclusions. Research is needed to answer questions such as what proportion of flu isolates contain the D225G marker? Is the D225G variant more prevalent in countries such as Ukraine where the flu seems to be more aggressive--is the increased severity of the flu in fact due to the presence of the D225G genetic change? Is the ratio of wild-type virus to D225G virus different in different geographical regions? Does this ratio differ in mild vs. severe cases? Are viruses with the D225 marker found in lung tissue of patients with mild flues? Is the ratio of D225G variant to the wild-type variant changing?

Answers to these questions will greatly add to our understanding of the mechanisms by which flu viruses change their genetics to become more (or less) virulent and develop resistance to anti-viral agents. Solving the mystery of how the flu virus so quickly evolves may help us stay one step ahead with our yearly flu vaccines, anticipating changes, rather than chasing them. Hopefully, Dr. Niman will continue to make predictions and present evidence for his theory that the flu virus is able to change so quickly because it recombines with other flu viruses, exchanging small bits of genetic information with its viral neighbors. In time, perhaps the WHO and CDC will pay attention.

For more detailed discussions, see:
Identification of hemagglutinin structural domain and polymorphisms which may modulate swine H1N1 interactions with human receptor

A silent change appearing at the same time on multiple backgrounds:

A paper on tamiflu resistance (H274Y):

Detailed description of D225G, made 9 days BEFORE the Ukraine sequences were released: More on D225G, before the sequences were released Here is the Oct 22, 2005 prediction on S227N

*Note on definitions of recombination and reassortment: Flu Trackers blog. As Dr. Niman uses the term "recombination," the genetic material does not undergo a reciprocal exchange, but rather, a double infection in the same cell results in the potential for a sequence in one virus to be replaced during copying with a sequence from another virus. - Ilene
Dr. Henry Niman earned a PhD in biochemistry at the University of Southern California in 1978. His dissertation focused on feline retroviral expression in tumors in domestic cats. Working on his post-doctorate at the Scripps Clinic and Research Foundation, Dr. Niman developed monoclonal antibody technology. He later accepted a staff position at Scripps, and subsequently had a joint appointment as an Instructor in Surgery at Harvard/Massachusetts General Hospital and as a Research Associate at the Shriner's Burn Center across the street from Mass General. (These were research positions - he did not teach or do surgery.)
In 1982, Dr. Niman developed the flu monoclonal antibody, which is widely used throughout the pharmaceutical, biotech, and research industries. He also produced a broad panel of monoclonal antibodies against synthetic peptides of oncogenes and growth factors. The technology developed by Dr. Niman was used to form ProgenX, a cancer diagnostic company that became Ligand Pharmaceuticals. More recently, he became interested in infectious diseases. He founded Recombinomics and has been studying viral evolution.
As a coincidence, I also discovered that Dr. Niman and I worked in the same pathology/biochemistry lab at the University of Southern California in Los Angeles, separated only by about ten years.

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Marc Faber: Economy Will Go Bust, Commodities To Rise Sharply, Eventually War

In an interview with Business Intelligence Middle East, Marc Faber said that eventually some time in the future there will be a bust and then the whole credit expansion will end. Governments will continue printing money, which in time will lead to a very high inflation, at that point the economy will no longer respond to continued stimulus.

What is even more scary, and something we have written here a few times, is that it may all end in war. Our reasons are the high prices of commodities and people going hungry. His reasons are that wars will be invested as a distrction for the masses. The enemy? Invented.

He also says there is less transparency today. "The government's balance sheet is expanding, and the abuses that have led to the one cause of the crisis have continued".

"the average family will be hurt by that, and then in order to distract the attention of the people, the governments will go to war".

Of course he says that during war times, commodities go up sharply. Therefore people should be invested in physical assets, not paper assets.


“Will it go US$2,000, US$200,000 or US$2 trillion? I don’t know,” he said. “But if you have money printing in the world, then the price will over time rise. It will go up more for things that you just can’t increase the supply, and the supply of precious metals is very limited.”

S&P 500

“I don’t think the S&P will drop below 800 or 900, and eventually will go higher in nominal terms, but not necessary in real terms,”

The Fed

"I repeat what I have said in the past," Faber said. “No decent citizen should trust the Federal Reserve for one second. It’s very important that everyone own some gold because the government will make the dollar (in the long term) useless."

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Wednesday, November 25, 2009

Brazilian Broker Launches Rio2016 Fund: Companies That Will Profit From The Olympics

Petra, a Brazilian brokerage and asset management firm, will launch in the coming months an equity fund focused on the Olympics in 2016. The fund - which will probably be named "Rio 2016" - will invest in securities of companies that should benefit from the investments to be made to Rio de Janeiro to host the Games.

The stock portfolio is not yet defined, but should include roles such as airlines, car rentals, logistics (ALL and Log In are the highest rated) and steel, said Ricardo Binelli, director of Petra.

"Builders which have land in Rio as Cyrela, Brascan and Gafisa, can also win," he says. "It is true that, ultimately, almost all businesses benefit indirectly from the Games - for example, the consumption of food is growing, because there are more tourists etc.. But there are sectors where the benefits are more evident," he said.

To Binelli, it is not too early to start investing in shares of these companies. "Business begins long before the event itself, with the visits of businessmen and sponsors to the country, for example," he says. But he considers that the bulk of the valuation is expected in a few years. "We have looked at putting a minimum holding period to emphasize the long term character."

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The Plundering of Ontario

The City Journal reports on the sorry situation of California:

"The economy is struggling, the unemployment rate is high, and many Americans are struggling to pay the bills, but one class of Americans is doing quite well: government workers. Their pay levels are soaring, they enjoy unmatched benefits, and they remain largely immune from layoffs, except for some overly publicized cutbacks around the margins".
The situation in Ontario is not much different. The provincial government publishes the list of public employees who make more than $100k/year. With the last data available, this includes a mind boggling 53,300+ employees.

These employees (only those in the list) make a combined salary of over $6.9B, plus $59M in benefits.

The top 40 and the bottom 40 people in this list are shown below (names deleted, but they are publicly available at the site above). Please click to enlarge each list (last column shows taxable benefits, which are added to their salaries):

There are over 53,300 names that go in-between those two lists above.

The lists included thousands of firefighters, police officers, and common employees of Ontario Power Generation, among many others. It seems most people there make over $100k/ year.

For some reason the list does not include people in Ottawa's OC Transpo (bus drivers), where many also make huge salaries.

In the meantime, the province's deficit has ballooned to an expected 24.7B this year, according to its own Finance minister.

This debt will never be repaid. This province is as insolvent as California. These politicians know that sooner or later this situation will explode, most likely it will be for Ontario's children to pay the price.

What a crime.

You can download the entire comma-separated file here in zip format.

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Monthly Buy And Sell Alerts For Today (Long Term Signals)

Here are the monthly (long term) buy and sell alerts for the last two days, as per INO's Market tool.

I have posted in the past the results of various backtesting runs on these monthly alerts, which have pretty good results.

You can access a free trial of the tool here.

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23% Of Homeowners Have Underwater Mortgages

The Wall St. Journal reports that 23% of U.S. homeowners owe more on their mortgages than the properties are worth. Approximately 10.7 million households has negative equity in their homes, based on data from First American CoreLogic.

The following map shows the percentage in each state (please click to enlarge):

The firm says that these properties are more likely to go into foreclosure and "get dumped into an already saturated market".

Housing prices have dropped so much that 5.3M households are tied to mortgages that are at least 20% higher than what their home is worth and over 520,000 of these borrowers have received a notice of default.

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Tuesday, November 24, 2009

Brazil Almost Bought Citibank During Crisis

Newspaper O Estado de Sao Paulo reports that the Brazilian Minister of Mines and Energy, Edison Lobao, revealed today in New York that at the height of the crisis Brazil almost bought Citibank:

"We could have bought and could have had great profit, in addition to prestige," he said. The minister said the decision not to acquire the bank was made by the government as a whole.

Mr. Lobao said that before the U.S. government had bought a third of Citi, the institution sought the Brazilian authorities. He said he did not know the "fair price" which was discussed with Brazil, but, considering the size of the country'sreserves, the country could have purchased a share of the institution.

In late July, Citigroup completed the exchange of securities of $60B that made the U.S an owner of a third of the bank. All the $ 20.3B in preferred stock and hybrid securities and equity securities issued publicly by Citi were exchanged in the offer for common shares, while the federal government shifted about $39.5B of preferred stock for new bonds.

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New Record Foreign Investments Into Brazilian Stocks in October, 100% Higher Than Previous Record

Foreign investors bought U.S. $ 14.449B of Brazilian stocks in the month of October, the highest since January 1947. The figure is a new record and almost 100% higher than the old milestone reached earlier in December 2007 (U.S. $ 7.513B).

The strong result, according to the central bank , was directly influenced by the release of shares of the Brazilian subsidiary of Banco Santander, which took place earlier this month. The net for October is comparable to that observed in the first nine months of 2009, from January to September, when the transactions totaled U.S. $17.267B.

$9.705B of the total was earmarked for the purchase of stocks traded in Brazil. The rest (U.S. $ 4.744B) was allocated in Brazilian stocks receipts (ADRs) traded on foreign markets. The result shows reversal of trend observed in October last year, the first month after the worsening global crisis, when foreigners withdrew U.S. $ 6.065B from the Brazilian stock market.

From January to October, foreign investment in Brazilian shares is U.S. $ 31.716B. They also bought the equivalent of U.S. $ 2.670B in Brazilian bond and fixed income.

On October 20, the government began to collect tax on Financial Operations (IOF) of foreign investments in fixed income and stocks. A week ago, the collection was extended to transactions with shares of Brazilian companies abroad (ADRs). The measure aims to prevent investors from acquiring shares abroad and not in Brazil as loop-hole from the IOF tax. According to the Treasury, in the first ten days of duration, this tax has already provided the government a revenue of $ 100M.

Foreign Direct Investment in Brazil totaled U.S. $ 1.563B in October, a figure lower than that recorded in September (U.S. $ 1.816B). In October 2008, the first month after the deepening crisis, the country had received $ 3.913B. From January to October 2009, the inflow of productive investment is U.S. $ 19.254B, equivalent to 1.64% of GDP. In the same period of 2008, Brazil received U.S. $ 34.768B, representing 2.63% of GDP. In the 12 months ended in October 2009, the flow of shipments to the country totaled $ 29.544B, or 2.07% of GDP.

The current account balance of payments - which records all transactions and services trade between Brazil and abroad - in October had a deficit of U.S. $ 2.911B, 26% higher than recorded in September, according to CB.

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DBV, An ETF For the New Carry-Trade: Analysis

By Seamus (guest post)

Remember the yen carry trade? It wasn’t that long ago, when Japanese investors gobbled up Uridashi Bonds. And yes, there was the mythical Mrs. Watanabe who handled the family finances. The popular tale was that Mrs. Watanabe was heavily into swapping Japanese Yen (JPY) for overseas investments, while her husband was toiling at work.

In reality, Mrs. Watanabe was a symbol for the hedge funds who borrowed JPY at virtually zero interest rate and bought a higher yielding currency like the NZD or AUD.

Well, today there’s talk of the USD carry trade as U.S. interest rates remain near zero. Basically one shorts the USD and goes long a higher yielding currency or invests in equities. So are we looking at a new Mrs. Watanabe with a name like Smith or Jones? No doubt it’s a different world.
Is there a carry trade ETF that can do this? Well, maybe “in essence,” per a source..

Let’s look at the Powershares DBV ETF, a fund that tracks the Deutsche Bank G-10 currency future Harvest index. Powershares states: “The Index is designed to exploit the tendency for currencies associated with higher interest rates to yield greater returns than currencies associated with lower interest rates.” Note the index is re-weighted quarterly.

The ten currencies in the fund are:

-United States Dollar, USD
-Euro, EUR
-Japanese Yen, JPY
-Canadian Dollar, CAD
-Swiss Franc, CHF
-British Pound, GBP
-Australian Dollar, AUD
-New Zealand Dollar, NZD
-Norwegian Krone, NOK
-Swedish Krona, SEK

What does the fund do?

It is a leveraged carry trade fund. Specifically, the fund invests on a 2:1 leveraged basis in long currency futures positions of the three different currencies which have high yielding interest rates and short currency futures positions of the three currencies which have relatively low yielding interest rates.

Now here’s the catch, per the latest Form 10Q:

“USD will not be one of the currency futures positions because USD is the Fund's home currency and, as a consequence, the Fund never can enjoy profit or suffer loss from long or short futures positions in USD.”

Interestingly, if the USD is associated with the highest or lowest interest rates, the leverage basis is 1.66:1

Of course, with the use of leverage the potential for both trading profits and losses increases.

So what currencies are the fund long and short?

Again, per the latest Form 10Q as of the close of business September 30, 2009, the fund was:



And since then, Australia and Norway have raised their rates, so no reason to believe there is any quarterly change on the long end.

What about today?

A call to the fund on November 20, 2009, disclosed the fund is currently balanced 3 long currencies (AUD, NOK, NZD) and only 2 short positions (JPY, CHF).


A representative stated the use of these three long currencies rise when the USD is weak while the other short currencies tend to strengthen when the USD is strong. Thus, with these three currency long positions versus the two currency short positions, the representative advised that currently “in essence the fund is short the USD.” So there can be differences in their rebalancing when the USD is one of the identified lowest or highest yielding currencies.

Performance :

DBV finished a negative - 28.78% for 2008. The fund was a positive + 5.96% in 2007. As of the close of the market on November 20, 2009, DBV is up @ 20% YTD. The fund has been on a steady rise since March. Note the downward path of the USD during the same time frame.

Other Facts:

The fund has made distributions in mid December the past two years.

DBV delisted from the AMEX to the NYSE ARCA as of November 24, 2008.
Powershares is owned by Invesco. The DBV ETF is managed by Deutsche Bank.


It is possible all long and short positions can all be profitable or all lose money.

A foreign investor may gain or lose depending on the performance of the USD compared to their home country currency.

One should be aware that hedge funds using highly leveraged carry trades closely monitor their positions and, on a moments’ notice of a possible fall in the value of their higher yielding assets, will reverse them.

Trading currencies can be very volatile and can result in significant losses. Please do your own diligence.

Current Interest Rates:

(Full disclosure: The author has no position in DBV)
About the author. Seamus is current Portfolio Manager and Consultant in security.
He has 30 years experience, including prior executive positions, and a strong financial investigative background.

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Top Gold, Silver and Precious Miners ETFs To Buy and To Sell Sorted By RSI

Here is the current list of RSI values for gold, silver, and precious miners ETFs, ordered by RSI7 daily values, a short term indicator of oversold and overbought conditions.

The lists has 28 ETFS. 18 are overbought! Only 4 are oversold, and they are all bear ETFs (DGZ, GLL, DZZ, ZSL).

You may receive technical analysis and alerts of these stocks, sent automatically to you, by entering the symbols in the Technical Trend Analysis Tool, (powered by INO).

Please do your own due dilligence.

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Monday, November 23, 2009

Ciena's CEO Explains the Nortel Acquisition

Gary Smith, Ciena's CEO was on BNN today explaining why they acquired Nortel's optical division.

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Best Dividend ETFs To Buy And To Sell In The U.S. And Canada

We computed the RSI values of all dividend ETFs in the U.S. and in Canada. Below is the table showing them sorted by RSI7- daily (short term)

(please click to enlarge)

There are NO dividend ETFs that are oversold in the short term. The closest are DFJ and DXJ, both on Japanese dividend stocks. Please refer to our recent posts on the state of Japan...

As for overbought, DOD and XDV.TO (Canada Select Div) lead the pack. The DOD is the "Dogs iof the Dow" (!), which tracks the Dow Jones Industrial Average Select Yield, which is the top 10 stocks with the highest indicated annual dividend yield. We are serious.

Note: You may receive technical analysis and alerts of these stocks, sent automatically to you, by entering the symbols in the Technical Trend Analysis Tool, (powered by INO).

Please do your own due dilligence.

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Due to "High Cost of Borrowing" RBC Is Raising Interest Rates

I received a letter today from Royal Bank informing me that due to "market conditions" and because "cost of borrowing have persisted high", they are raising my interest rates from prime to prime + 1.00%.

The fine print at the bottom says thast if I use the credit line, I am accepting the new rates!

Since when "costs of borrowing" has gone up?? Is this bank in serious trouble? It is the same bank that last week offered me 19.5% rate on my VISA card!

What this bank does to its clients is appalling.

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Gold Versus Dow Ratio: Very Different Pictures Short-Term vs Long Term.

The DOW/Gold ratio shows two very different pictures in the short term versus the long term:

Short term 6 months:

Short term either the Dow is overbought or gold is low (!), or both.
Long term (80 years):

In the long term, the Dow is too low, or gold is too high, or both.
So, next time somebody tells you that the stock market or gold are oversold or overbought, you should think about what it really means for your investment timeframe.

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Gold Demand Much Weaker Than Expected in Q3: High Price Is Caused By Speculation

The LA Times today highlights an report from the World Gold Council showing supply and demand in Q3 09. Total global demand for gold was 800.3 tons, down 34% from the 1,205.6 tons purchased in the same quarter in 2008.

Keep in mind that the peak in demand for physical gold, was in the Q3 of 2008.

Demand in Q3 09 also was below the 1,029.8 tons bought in Q1, though 10% higher than the 724.8 tons in Q2.

The reports states that gold demand was down in every major category, including jewelry, industrial use, official coins and purchases by ETFs.

"The drop in physical demand partly reflects simple price-sensitivity: As gold goes up, some buyers back away".

The report continues on the reasons that gold is so much higher. According to Kitco's Jon Nadler: "This has been a speculative fund-driven futures rally," In other words, traders who play in the futures markets are betting on higher gold prices. But they aren’t interested in owning the actual metal.

"In the case of gold, it could work out that speculative demand in the futures market will be followed by a big revival in physical demand if more people around the globe decide that they must own the metal as a hedge against paper currencies and financial calamities.

Gold bugs are already upset, some concentrating on the jewelry aspect of the report, but not on the part that mentions who is buying the gold futures and driving up prices.

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Ciena Strikes Gold, Gold Shines, Straddles Update

Ciena has won the auction for Nortel optical unit. This was the jewel of the company - for the future. As expected, the stock is off over 6% as an immediate reaction.

Gold is getting close to $1,200. Here is an update on the straddles:

Ciena's are break even at this point. It all depends on what happens next.

Yamana is always the faithful high volatility play.

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S&P500: 34 Oversold and 30 Overbought Companies, Top 25 Report

The average RSI7 of the 500 companies in the S&P500 is 48.63. There are 34 oversold companies and 30 overbought. These are both neutral conditions.

Top 25 Most Oversold (RSI7D shown):

YHOO 20.49
SVU 20.86
JEC 21.72
PBI 22.16
VLO 22.53
ADSK 22.60
TLAB 22.97
MFE 23.06
VRSN 23.60
CHK 24.56
MMC 24.83
SUN 25.39
DHI 26.23
MUR 26.40
NBR 26.56
RRC 26.66
ZION 26.72
AYE 26.77
ERTS 26.83
NTRS 27.23
DELL 27.27
JBL 28.25
BIG 28.40
WFMI 28.46
LUK 28.47

Interesting that Yahoo is the most oversold company, Valero not far behind.

Top Most 25 Overbought:

KG 71.64
BMY 71.80
AMD 71.94
GR 72.22
RAI 72.27
BBY 72.98
FRX 73.28
COV 73.29
GIS 73.32
SLE 73.67
BDX 74.35
FHN 75.22
RTN 76.50
CTL 76.66
SJM 78.72
MON 79.33
WMT 79.51
PFE 79.70
KO 80.60
LLY 82.31
BNI 82.53
RX 82.83
MRK 85.84
CPB 86.48
DTV 88.83
CAH 90.41

Note: You may receive technical analysis and alerts of these stocks, sent automatically to you, by entering the symbols in the Technical Trend Analysis Tool, (powered by INO).

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Sunday, November 22, 2009

Deflation In The U.S: The U.S Follows the Japanese In Disastrous Path

Current global inflation rates.

The Telegraph in the U.K has an article about what is happening with deflation in the U.S. The so-called 'core inflation' for factory goods in the US fell to -0.6^ in October, "edging the country closer towards Japanese-style deflation despite massive monetary stimulus".

This is the problem: Factory gate inflation usually leads CPI by about six months. The Presidents of the Feds do not appear to agree on certain things:

The San Francisco Fed said that emergency measures prevented the U.S. from sliding into a “black hole of deflation”, insisting that it is still far too early to talk of tightening policy. “It seems probable that core inflation will move even lower over the next few years,” Janet Yellen said.

The most worrisome comment this week were from Dallas Fed's Richard Fischer, who said that the peak impact of the current fiscal blitz has already come and gone. “Several recent sources of strength are likely to wane as we head into next year. Cash-for-clunkers and the first-time-homebuyer tax credit have both shifted demand forward, increasing sales today at the expense of sales tomorrow. Neither of these programmes can be repeated with any real hope of achieving anywhere near the same effect. The more demand you steal from the future, the less future demand there is for you to steal,”

Mike Shedlock from Global Economic Analysis agrees with Mr. Fisher. He argues that the black hole is not deflation, "the black hole is fighting it like Japan did, or as the US is doing now. For the $trillions spent fighting this mess, all we have to show for it is a lousy bump in GDP at an annualized rate of 2.5%. Now, Fisher suggests (and rightfully so), that's all there is".

"Given that the US is essentially following the same idiotic path as Japan, there is every reason to believe the problem manifests itself in a similar fashion"

Please see our articles on Japan, "Will Japan default" and "The Land of the Setting Sun".

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Saturday, November 21, 2009

Personal Bankruptcies Soar 47.4%

The Office of the Superintendent of Bankruptcy issued its latest bankruptcy report covering up to the end of September, revealing that 12,305 more individuals went into bankruptcy in Canada.

The number of consumer bankruptcies also rose 29% from August 2009 to September 2009 (the near term trend).

Companies did slightly better falling 0.4%. "The wave of consumer bankruptcies has risen in direct proportion to the number of Canadians shunted onto the unemployment lines", said BMO Capital Markets economist Robert Kavcic.

"Unemployment and bankruptcies tend to be lagging indicators that rise even after the economy returns to growth, and as such, there's more pain ahead".

On the broader category of "insolvencies", which includes bankruptcies as well as proposals to settle debt, consumer filings rose 45.5% to 15,465 in September from a year earlier, and were 28.5% higher than in August.

Ontario (+45.3% and Quebec (+32.3%) continue to lead the country in consumer bankruptcies.
The two provinces also had the most business failures in September.

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Natural Gas: Where We Are

Natural gas storage numbers this week showed yet another injection of 20Bcf, bringing the total to 3.83Tcf. The knw maximum is 3.85Tcf. Obviously these injections will have to stop if the maximum is reached.

The following chart compares this year's storage with last year and the 5-year average channel.

Storage this year is 10% higher than last year, 6.4% higher than the maximum of the 5-year average. Note also that on the chart above, storage was already decreasing this time last year.

There are no hurricanes in the forecast:

Contrary to what the TV parade says, production continues very healthy. The spot price may collapse, UNG not necessarily since it operates on the future month contract. But going up will be very, very tough. Note that we posted UNG straddles a couple of days ago.

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Friday, November 20, 2009

How to Profit From the US Dollar, Gold, or Oil Going Up Or Down

Many analysts believe the US dollar is well overdue for a rebound. Others says it will continue to sink and gold and oil will soar. Yet others say that oil is artifically high. What is an investor to? Who do we believe?

With straddles an investor can make money regardless of market conditions, as long as the underlying stock noves, either up or down.

Here are strangles for the dollar (through UUP), gold (through Yamana), and oil (through UCO.

The tables above show the maximum move required to achieve profitability in each position. They were calculated with our StraddlesCalc tool. Actual moves can be significantly smaller since there is lots of time to expiration and there will be residual value left on the losing branch of the straddle.

Options are extremely dangerous and may cause 100% loss. This is not advice. Please do your own due diligence.

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Nortel Auction: New Ciena Straddles For December

Ciena is now down to just over $13. The Auction for the Nortel optical division should be resolved today or this weekend. Here are the updated straddles as of 1:20PM:

Options are very dangerous and may cause 100% loss. This is not advice. Please do your own due diligence.

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Monthly Buy and Sell Signals For Today

Here are the buy (green) and sell (red) monthly alerts for today, as triggered by INO's real-time tool scan. Note that there are a lot more reds than green, which matches the market today.

(please click to enlarge)

One name that I am familiar with in the list is OMC Sierra. Here is the backtesting of the alerts since 2006 (and comparison with buy and hold):

Here are the signals as provided by the tool:

(click to enlarge)

You can access the tool (free trial) through this link or you may just receive the alerts of these stocks, sent automatically to you, by entering the symbols in the Technical Trend Analysis Tool,

Please do your own due dilligence.

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Goldman Sachs Fools Jim Cramer, Who Then Recommended Intel This Week

There is a flood of these 'analysts' giving totally wrong recomendations this week.

Following the Goldman Sachs 'Buy' recomendation on Dell, Jim Cramer said on Monday that he really liked Intel: "“You don’t understand how good things are.” "The stock declined after the company’s most recent earnings report, and he thinks unnecessarily so. Intel responded so investors would know it had plenty of cash on hand in anticipation of the AMD “I really like Intel here,” Cramer said. He added that Dell’s upgrade was good for Intel, too, and Microsoft".

Take a look at what happened to Intel:

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Goldman Sachs Report Gave Dell a 'Buy' on Monday. Stock Sinks Today

On Monday November 16: (and on many other sites on the Internet): "Goldman Sachs resumes coverage on Dell Inc. (NASDAQ: DELL) and gave DELL a Buy rating at a 12-month price target of $19. The stock moved up 2% on that report, and the Dow jumped +150.

Last night Dell deeply dissapoints, announcing its results for the third quarter of the fiscal 2010 year, reporting EPS of $0.23 a share down from $0.27 reported in the prior quarter, as well as below median estimates of $0.274 a share EPS. The stock is down 7% in pre-market.

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Actively Managed ETF: Terrible Performance Versus Passive ETF

Horizon AlphaPro ETFs features a few actively managed ETFs. There is the Gartman fund, HAG, the Fiera Tactical Bond Fund, HAF, a Income Plus Fund (with no publicly available information, and the new seasonality ETF HAG.

Please take a look at the MER and the way the managers make money out of this.

Is this an ETF or a hedge fund?

The only one that has existed for a reasonable time to analyze performance is the HAX. This ETF attempts improve on the TSX60 index (which is tracked by the iShares XIU ETF). Please see the comparison chart this year:

(please click to enlarge).

The difference in ROI is quite significant:

XIU: +25.37%

HAX: 11.15%

The passive ETF's performance is 2.27 times better than the 'actively managed' ETF!

Here is the comparison for the last 6 months:

The passive ETF returns 4.78% more in 6 months, it 1.63 times better.

Or for the last 3 months:

Again, 7.20% vs 5.23% (passive is 37% better, in 3 months)

Or for the last 1 month:

The passive returns a positive 0.75%, while the 'active' loses 1.19%.

Or even for the last 5 days:

The simple XIU vastly outferforms the 'actively managed' HAX on every time period. These ETFs are 'actively' losing their isvestors lots of money.

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