Mishkin: Fed Buying Treasuries is A Risky Move

Former Fed governor Frederic Mishkin was on CNBC today saying that the the Fed's Reserve's decision last month to step up its buying of Treasury securities may cause inflation as well as a several other political and economic troubles.

He says that the Fed's decision to use receipts from maturing mortgage-backed securities to buy more Treasuries is one of the most important decisions the Fed has made in a very long time, and that it comes with several risks.

"When you hold a lot of long-term debt on your balance sheet, you're now exposed to a lot of interest rate risks," "All of a sudden you could be booking losses. Think about the screams in Congress about all of this."

9 minute video:

Beige Book Reports Widespread Signs of Deceleration: Stocks Tumble

The Beige Book was released today at 2PM, causing stocks to tumble because of some very negative outlooks, summarized right at the beginning:

"Reports from the twelve Federal Reserve Districts suggested continued growth in national economic activity during the reporting period of mid-July through the end of August, but with widespread signs of a deceleration compared with preceding periods. Economic growth at a modest pace was the most common characterization of overall conditions, as provided by the five western Districts of St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco. The reports from Boston and Cleveland also pointed to positive developments or net improvements compared with the previous reporting period. However, the remaining Districts of New York, Philadelphia, Richmond, Atlanta, and Chicago all highlighted mixed conditions or deceleration in overall economic activity."


Beige Book Sept

Canada Raises Interest Rates Again But Says "Unusual Activity"

The Bank of Canada has just raised interest rates again by 0.25%, bringing the rate to 1.0%.

The Bank cites "unusual activity" in the global economy, as well as mentioned emerging economies doing well. Emerging markets to the rescue!

Oil Contango Doubles: Oil To Rise = U.S. Dollar to Drop

The spinners are at work. Bloomberg reports today that oil contango for March 2011 has doubled: the price difference doubled to $5.76 a barrel last month from $2.60 at the end of July.

Bloomberg calls this a "price advantage, or contango", in a reference as what you could make if you could buy and hold crude until march 2011. That might work for people who have oil tankers parked in their driveways.

However, they say that this is because "traders are showing increasing confidence that U.S. economic growth will rebound next year".

We might take exception to that. Could it be instead because the USD will drop due to further QE, thus making commodities, which are priced in USDs, rise? Perhaps it is a good idea to stock up on them - if you are in the U.S.

Yen Drops Slightly Overnight

The Yen has dropped slightly overnight. BoJ must be hard at work, in another futile temporary attempt. Overnight chart of the action:



Contrary to popular opinion, the Yen did not reach an all-time yesterday, but it was very close, please see yesterday's post. It did reach, however, another 15-year high.

The Markets Are Rarely Wrong: Flat GDP For Years to Come; Be Opportunistic

(Side note: This is my post number 1,700). The honour of this post goes to Ross Healy, who appeared on BNN yesterday. A great analysis of the markets, simple, straightforward, and silly things like low forward P/Es.

Stock market has not adjusted to the reality that GDPs and the economy will be flat. Investors need to be opportunistic. For example, while Apple explodes, RIMM implodes.

Among his comments: The market is rarely wrong, it smells things out. Do not buy CSCO, RIMM, etc. Stocks all breaking lower.

Watch video

Housing Boom is Over: Short Canada

The Bank of Canada will announce interest rates at tomorrow's meeting.

Rosenberg's say that there "based on how the economy and inflation have been moving vis-à-vis the Bank’s latest forecasts, not to mention the heightened uncertainty south of the border, that there is not enough rationale for another tightening".

According to him also, the U.S. inventory cycle played "a minor role in Canada’s economic revival out of recession" and that "close to 100% of the rebound in GDP came via the direct and indirect effects of the housing boom".

know that the housing boom in Canada is over, and "will likely have profound influences over the Canadian economic outlook, especially since export prospects are clouded by the weakening demand trend south of the border".

"Consider that from the nearby peaks, right when the Bank of Canada embarked in its rate-hiking cycle, we have seen...

• Existing home sales decline 36%;
• Single-family housing starts plunge 29% ;
• Residential building permits slide 15% ;
• Home prices drop 5%.

"You don’t have to do much more than study what happened to the U.S. economy three years ago to understand that the housing sector... leads. "

Following this logic, one should short Canada.

Below are straddles for EWC, which allow an investor to profit regardless of direction, as long as the underlying moves the encessary amount:



Computed with StraddlesCalc.

Please do your own due diligence.

Rosenberg: It's a Depression

From David Rosenberg's report today:

Big Troubles Ahead: Yen Hits 15-Year High, Nears 60-Year High

Big troubles ahead, and not just for Japan. In spite of all the talks last week coming from ther Bank of Japan, the Japanese Yen today has just hit a 15-year high, and... is within half a cent of a 60 year high.





Here's the same chart, inverting the USD with the Yen:




What happened to Japan after 1990 is well known. First stimulus measures were imposed in 1993...

What is more troublesome is that in the U.S. baby boomers are now starting to retire, and with it, a whole less consumption.The U.S. Startts in a much worse position than Japan.

Yen historical prices:

European Stress Tests a Sham: Really?

The Wall Street Journal reports today that the European stress tests were a a sham. As a result, the USD is rising and correspondingly markets are tanjing

Exactly which part of that report is news? Maybe they shoud be reading this blog!

"Europe's recent 'stress tests' of the strength of major banks understated some lenders' holdings of potentially risky government debt, a Wall Street Journal analysis shows.
As part of the tests, 91 of Europe's largest banks were required to reveal how much government debt from European countries they held on their balance sheets. Regulators said the figures showed banks' total holdings of that debt as of March 31. "

Boggles the mind what this is all about.

The Giant Machine That Will Rescue the 33 Miners in Chile

This video shows the giant Strata 950 machine that will drill a 700m deep, 66cm wide hole to rescue the 33 miners trapped in Copiapo, Chile (commentary in Spanish). The machine weighs 40 tons and was transported from a Codelco site by 7 trucks, in a 10h trip.

The Top 30 Stocks in The S&P 500, To Buy and To Sell

We computed the relative strength values of all 500 stocks in the S&P500 index.

Readers know how well the average of the three time frames work, short term (days), mid term (weeks), and long term (months). Considering the three together, there is 1 stock that are oversold, while there are 63 that are overbought.

Clearly the index is more overbought than oversold, but it is not a striking difference (it has been worse).

So which are the best stocks to buy or sell?

Top 30 Most Oversold:

The best are ESRX and WY.

Top 30 Most Overbought:



The worst are RX and CRM (MIL appears to be an old symbol)


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).

The Top 20 ETFs for September, To Buy and To Sell

We computed the relative strength values of all ETFs that trade in the the U.S. and then analyzed the results in terms of average daily periods and long term periods.

Average Periods Analysis.

These are the top 20 most oversold considering short term, mid term, and long term:



Note that there are only two ETFs with an average RSI value below 30 SDP and TLL.

ETFs are clearly overbought.

Long Term Analysis

Top 20 Oversold:

Considering only long term periods, there are 8 oversold ETFs. The most oversold are IAU and PST, TBT, the latter two being short bonds (indicating that bonds are overbought).

Top 20 Overbought:



Actually there are 44 overbought. Worst offenders: URE, CIU, and ECH (Chile!, please see our recent posts on Chilean stocks)

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).

PBR, Petrobras: Largest Global Share Offer Ever

Petrobras, PBR (click for alerts) on the NYSE, reported in the preliminary prospectus of the global offer of shares that the total distribution can reach R$ 126.7B, or USD $73B, considering the exercise of the maximum amounts of shares and excluding the deduction of commissions and expenses, based on the prices as of September 1.

At that time, the price per common share at BMF & BOVESPA was R$ 31.25 and preferred to R$ 27.03 in addition to price U.S.$ 35.07 per ADS representing ON and U.S $ 31.12 /PN in the NYSE.

Note that we track all Latin American ADRs live here, PBR included.

This would be the largest stock offering in history, surpassing Nippon Telegraph and Telephone, which raised $ 36.8B. Another major recent stock offering was the first conducted by the Agricultural Bank of China, which raised $ 22.1 billion.

Without the extra lots, the offer would be R$ 110.3B (USD $63.6B)

Petrobras does not distinguish how much the additional supplementary and contains lots of common or preferred shares. The government left open the class of papers, saying that the offer may be increased by up to 10% of the original amount in additional lot and up to 5% in additional common shares and/or preferred shares.

In the case of additional receipts are included in the pool, in the form of ADS (American Depositary Shares), each ADS represents two ON or PN, as appropriate.

This setting will occur after completion of the procedure for collection of intended investments, called bookbuilding, which closes on September 23.

At the closing price yesterday, and following any exercise in full of extras lots in the same proportion of shares placed in the bid, which has 1.37 more preferred shares that, the offer would reach a gross of R$128 billion.

The additional lot may be exercised by the coordinating banks if the price of papers on the market price exceeds the supply. Also in this case, the coordinator of the offer may exercise activities to stabilize prices by buying and selling shares in the market. Morgan Stanley can do to stabilize the stock price within 30 days from the date of the notice of commencement of the offer, scheduled for September 24.

The mechanism is also provided for the price of the common and preferred shares in the form of ADS, in the international offering. Any profits from the activity of stabilization will be shared between the coordinators and Petrobras, the proportion of 60% / 40%, respectively. Any losses will be absorbed solely by the coordinators.

With data from O Estado de Sao Paulo.

This Recovery Vs. Past Recoveries In One Striking Chart

Kudos to Calculated Risk for this awesome chart:

Please click on image to enlarge.

The charts shows the number of jobs after each of past recessions. The worst of all is the bottom line, our current recession. With or without census workers, the weakness in the recovery in terms of job losses is striking.

Samsung Galaxy and Toshiba Folio Tablet PCs Take On the iPad; Offer Many Advantages

The Samsung Galaxy

Korea's Samsung and Japan's Toshiba have unveiled their tablet PCs, taking on the challenge on Apple's iPad. Both products offer several advantages over the iPad, chief of them been not forcing their users to buy apps from Apple.

• iPad: 9.56 x 7.47 in width x 0.5 inches, weighs 1.5 lbs (680 grams)
• Galaxy: 7.84 X 4.74 X 0.47 inches, weighs mere 380 grams.
• Toshiba Folio 100: 181 x 281 x 14 mm, weighs 760 grams.
  


• iPad: 9.7-inch LCD colour screen, uses iPhone's multi-touch technology
• Galaxy: 7-inch TFT LCD display, screen resolution of 1024 by 600 pixels.
• Toshiba Folio 100: 10.1-inch display, the device has a multitouch screen, resolution of 1,024 x 600 pixels.

• iPad: no camer
• Galaxy: 3.2 megapixel rear-facing camera and a 1.3 megapixel front facing camera.
• Toshiba Folio 100: 1.3 megapixel camera.
  
  


• iPad: no support for Flash.
• Galaxy: supports Adobe Flash
• Toshiba Folio 100: supports Adobe Flash

• iPad: WiFi and Bluetooth connectivity and GPS.
• Galaxy: Bluetooth, Wi-Fi and 3G cell phone networks.
• Toshiba Folio 100: WiFi and Bluetooth 2.1, 3G version soon

• iPad: may use 140,000 iPhone apps, downloaded only from Apple's AppStore. iPad doesn’t allow users to download any apps other than from the App Store.
• Galaxy: users may access to Android Market in addition to non-Market apps.
• Toshiba Folio 100: maydownload apps from Toshiba App Place.

• iPad: battery life of up to 10 hours, standby time approximately a1 month.
• Galaxy: It promises upto 7 hours of video playback.
• Toshiba Folio 100: up to 7 hours of Web browsing.

The most attractive device here appears to be the Samsung Galaxy. Time will tell.

Brazilian GDP Soars 8.9%

The Brazilian Statistics Institute just released the latest Brazilian GDP figures, showing an amazing growth of 8.9% in 1H 2010 versus 2009.

This is the best result since 1996. From June to June (12 months) the growth is now 5.1%.

In Q2 2010 the growth over Q1 of 2010 was 1.2%, also higher than estimates. Q2 2010 over Q2 2009 the figure was 8.8%.

Imports grew by 38.8%, while exports grew by 7.8%.

Brazilian ETFs are EWZ, BRF, BRAZ (midcap), BZF for currency (click to receive alerts)

Natural Gas Storage Situation is Very Different in 2010 vs 2009

Storage data was released yesterday. The following chart compares both years:



Storage is significantly lower this year.

ETFs to use: The dreadful UNG and HNU.to (click for alerts)



UPDATE 4PM:


Big spike today. Here are the 5-day charts for HNU and UNG. +10.0% and +4.80%, not bad:

Roubini: Rapid Recovery is Mission Impossible; Gold Not Such a Good Investment

“If there was a double-dip recession, increasing risk aversion, some assets are going to be preferred, and gold will be one of them,” “But in that situation, things like the dollar, the yen, the Swiss franc have more upside in a situation of rising risk aversion because they are much more liquid than the gold market.”

The comments are from Ubiquitous Economist Noriel Roubini in a interview with Bloomberg, in essence saying that the U.S. dollar, yen and Swiss franc are better investments than gold if the world economy goes back into recession.

He adds:

"I believe that gold is going to trade around current levels,” “There are two extreme events that lead to a spike in gold. One is inflation, but we have no inflation in advanced economies. If anything, there is a risk of deflation.”

“The other event in which gold prices go up is the risk of a global financial meltdown, and that tail risk has been reduced because we backstopped the financial system,”.

Roubini also forecasts a slowing U.S. economy in the second half of 2010 as “tailwinds” such as fiscal stimulus and inventory adjustment become “headwinds.”:

“We can try to prevent double-dip recession, but the idea we are going to have rapid recovery of growth to potential in advanced economies -- U.S., Europe, Japan -- is mission impossible,”

“Job creation is going to be very, very mediocre,” “It’s going to feel like a recession even if we’re not in a recession.”

He adds that the underlying problem is that debts need to be reduced and this will take time and require an extended period of slow growth.

Trillions Per Day in The Global Casino of Currencies: Brazilian Real Now Within 20 Most Traded

The Bank of International Settlements, BIS, released today its report on currencies (released once every 3 years). The Brazilian Real had the largest percentage growth in derivative contracts in recent years.

The Real can be bought as an ETF, BZF. We track all currencies live here.

Foreign exchange market in Brazil has nearly tripled since 2007, with the second highest growth among all emerging economies .

Interestingly, the new survey was published Tuesday shows how the period that coincides with the administration of President Luiz Inacio Lula da Silva, who attacked the "financial casino" in recent years, was also the time when the foreign exchange and derivatives market in Brazil became most globalized, while the currency has become an increasing target for betting and contracts.

$4T Per Day

According to the BIS, the world currency market grew 20% between 2007 and 2010, with contracts traded at around $ 4 trillion per day. Three years ago it reached $ 3.3 trillion. According to the new survey, the participation of the dollar continues to fall, a trend that has been occurring since 2001 when it peaked, controlling 90% of global foreign exchange market.

The euro and the yen had the greatest expansion. The European currency has gained 2% in ten years and today occupies 39% of all transactions.

Real Among the currencies of emerging countries, the real was a highlight, with the second highest growth in international market share, behind only the Turkish lira. The Brazilian currency, which in 2007 accounted for 0.4% of the foreign exchange market, now represent 0.7% in 2010.

Data for 2010 are the first to include not only the market of the real in Brazil, but throughout the world. The participation of 0.7% is small, especially against the dollar, with 85%. But the BIS admits that the change in expansion catches attention. The exchange market between Real dollars and went from daily contracts of U.S. $ 3 billion in 2004 to U.S. $ 5 billion in 2007 and U.S. $ 26 billion each day this year. The expansion follows a logic of real internationalization of emerging market currencies. Today, the currencies of 23 major emerging economies already account for 14% of the market, up from 12% in 2007.

Derivatives: $2.1T Per Day

The survey also shows that Brazil was the country where the derivatives market expanded the most over the past three years. At the height of the crisis, between 2008 and 2009, President Lula criticized Brazilian companies that had used the scheme to profit. Lula came to accuse them of "scoundrels" in a speech in Istanbul in May 2009. But the BIS shows that the derivatives market, which caused so much damage to Brazilian companies continues booming. Between 2004 and 2007, the volume traded daily in Brazil fell from U.S. $ 900 million to U.S. $ 100 million. But this year, reached $ 7.5 billion.

The increase in global derivatives contracts between 2007 and 2010 was 24% with a trading volume of U.S. $ 2.1 trillion per day. The Brazilian participation is limited to 0.3%, but the BIS numbers show that no other country, industrialized or emerging, has a percentage growth similar to that of Brazil.

(With news from O Estado de Sao Paulo.)