Monday, June 14, 2010

Morning Update/ Market Thread 6/14

Good Morning,

Equity futures are higher this morning; no excuse needed other than its Monday, of course, and the algos are all now well programmed to ramp Friday afternoon in advance. Too bad my Word processor can’t get ahead of my typing like that!

The Dollar is down with the Euro up. As you can see, the Euro has reentered its channel, that’s a bullish development. Robert Prechture believes we have completed this wave up in the dollar, seeing 5 waves up from the bottom:

Bonds are down sharply this morning, but remember that the short end showed money pouring into it on Friday. That relationship smacks of distribution in equities to me. Oil is higher, and gold is down slightly.

Friday's advance was on significantly lower volume, again advances come only on low volume relative to the selling. We are, however, now advancing through the downtrend line, and that could mean that a meaningful retrace is in the works. Overhead resistance is at SPX 1,100, and the 200dma is at 1,109.

There are no noteworthy economic reports today, but the rest of the week will be busy with CPI, PPI, “leading indicators,” etc. Friday is quadruple witching which means that we can probably expect a volatile week. One indicator to watch is the Thursday prior to opex… I know this sounds weird, but about 70% of the time the week of options expiration will be in the opposite direction of the previous Thursday close. Thursday was up, that would mean down overall for the week – and it’s typical for that direction change to come early in the week. Another interesting point is that last month the Intrinsic Value skew on options went way expensive on options as market makers were betting there would be a down move into options expiration, and they were right again, big time. Well, this past week the IV skew was even further off, with puts being far more expensive than calls. Will the market makers be right again?

The geopolitical world environment is just turning plain weird. The U.S.’s hands are in most of it, of course, stirring the pot in one way or the other. Here, the N.Y. Times explains the “vast riches” that the U.S. has discovered in Afghanistan…
U.S. Identifies Vast Riches of Minerals in Afghanistan

WASHINGTON — The United States has discovered nearly $1 trillion in untapped mineral deposits in Afghanistan, far beyond any previously known reserves and enough to fundamentally alter the Afghan economy and perhaps the Afghan war itself, according to senior American government officials.

The previously unknown deposits — including huge veins of iron, copper, cobalt, gold and critical industrial metals like lithium — are so big and include so many minerals that are essential to modern industry that Afghanistan could eventually be transformed into one of the most important mining centers in the world, the United States officials believe.

An internal Pentagon memo, for example, states that Afghanistan could become the “Saudi Arabia of lithium,” a key raw material in the manufacture of batteries for laptops and BlackBerrys.

The vast scale of Afghanistan’s mineral wealth was discovered by a small team of Pentagon officials and American geologists. The Afghan government and President Hamid Karzai were recently briefed, American officials said.

While it could take many years to develop a mining industry, the potential is so great that officials and executives in the industry believe it could attract heavy investment even before mines are profitable, providing the possibility of jobs that could distract from generations of war.

“There is stunning potential here,” Gen. David H. Petraeus, commander of the United States Central Command, said in an interview on Saturday. “There are a lot of ifs, of course, but I think potentially it is hugely significant.”

The value of the newly discovered mineral deposits dwarfs the size of Afghanistan’s existing war-bedraggled economy, which is based largely on opium production and narcotics trafficking as well as aid from the United States and other industrialized countries. Afghanistan’s gross domestic product is only about $12 billion.

“This will become the backbone of the Afghan economy,” said Jalil Jumriany, an adviser to the Afghan minister of mines.
There are just so many angles that could be played from this, I don’t even know where to begin... Do they think they are going to have Halliburton put the Afghanis to work digging mines? That’s the future for Afghanistan? We have U.S. Generals now who are experts on economies? Well, you have to give them an ‘A’ for creativity and stick-to-itiveness. Now our nation’s longest running war in history, we are still clueless as to what “victory” looks like or why the hell we are still there (besides the obvious feeding of the military industrial complex and bankrupting of our nation, of course).

Remember the recent DEBT tensions in Kyrgyzstan? Well now we have violent riots and no one is connecting the central banker’s debt to the tragedy occurring there over the weekend – sad pictures at the following link, just be warned that by looking at those pictures your eye (and brain) will shift your focus from the central banker debt:
Armed ethnic clashes rage in Kyrgyzstan; thousands flee

(CNN) -- Tens of thousands of Uzbeks are fleeing ethnic violence in southern Kyrgyzstan amid what one aid official described Sunday as a "humanitarian catastrophe," according to the International Committee of the Red Cross.

At least 114 people have been killed in the clashes and another 1,458 have been wounded, Kyrgyzstan's national news agency AKI press reported. Earlier Sunday, the government put the figures at nearly 100 people dead and more than 700 hospitalized since fighting broke out Thursday night.

According to one report, the death toll is much higher. Officials in Osh, the city most affected by the violence, said at least 500 ethnic Uzbeks have been killed, according to Ferghana.Ru, an independent news agency.

An estimated 80,000 refugees have fled across the Kyrgyz border into neighboring Uzbekistan, according to ICRC spokeswoman Anna Nelson.
It’s amazing how debt tensions always turn into “ethnic violence.” Don’t look now, but there go another four missiles from a drone in Pakistan, “ethnic violence” to follow… in other news, shares of defense contractor Halliburton (HAL) gap higher despite their involvement in the Gulf oil spill disaster – Cramer recommends ‘Buy, Buy!’

Meanwhile back in the United Bankrupt States:

Obama Presses for Aid to Cities and States

From Jackie Calmes and Sheryl Gay Stolberg at the NY Times:

President Obama on Saturday implored Congress to provide more aid to states and cities to blunt “the devastating economic impact of budget cuts” by local governments that imperil the jobs of teachers, the police, firefighters and other public employees.

In a letter to Democratic and Republican Congressional leaders, Mr. Obama said the “mounting employment crisis” in the states “could set back the pace of our economic recovery.” ... education secretary, Arne Duncan, has said that without federal aid, up to 300,000 fewer teachers would be in classrooms this fall ...

The WaPo quotes Obama as writing there will be "massive layoffs of teachers, police and firefighters" without the additional funds.
And Hell and Brimfire damnation will befell you all, least you fail to support more bailouts, more debt, and higher taxes across the land.

Sound familiar? That, my friends, is a classic central banker blackmail gambit. Who do you think is pulling those strings? Note that it’s always education and teachers that are used as hostages in order to tug at your heart strings (BOOM! Oh, don’t worry about that, it was just another dozen or so million dollar rockets going off in Pakistan. CRASH! And don’t worry about the billion dollars of arms we are “stockpiling” in Israel for their new JIT (Just-In-Time) weapons on demand program – BOOM! BANG! Damn, how about that ethnic violence and those damn TERRORISTS, yeah, good thing we’re fighting them over there!).

Of course the FINANCIAL TERRORISTS are over here, they are the breeders of and feeders of the violence around the globe.

And in something usually reserved for both the Sunday Funnies and Enron, the governor of New York decided to borrow money to fund the state’s underfunded retirement plan… and guess where they are borrowing the money from?
State Plan Makes Fund Both Borrower and Lender

Gov. David A. Paterson and legislative leaders have tentatively agreed to allow the state and municipalities to borrow nearly $6 billion to help them make their required annual payments to the state pension fund.

And, in classic budgetary sleight-of-hand, they will borrow the money to make the payments to the pension fund — from the same pension fund.

As word of the plan spread, some denounced it as a shell game and a blatant effort by state leaders to avoid making difficult decisions, like cutting government spending or reducing pension benefits.

“It’s a classic Albany example of kicking the can down the road,” said Harry Wilson, the Republican candidate for comptroller, who holds an M.B.A. from Harvard.

Under the plan, the state and municipalities would borrow the money to reduce their pension contributions for the next three years, in exchange for higher payments over the following decade. They would begin repaying what they borrowed, with interest, in 2013.

But Mr. Paterson and other state officials hope the stock market will have rebounded to such a degree by that time that the state’s overall pension contribution burden will have been reduced.

Another oddity of the plan is that the pension fund, which assumes its assets will earn 8 percent a year, would accept interest payments from the state that would probably be 4.5 percent to 5.5 percent.

This week, Mr. Paterson called borrowing “a last resort,” but added, “I have never said I wouldn’t borrow.”
Sick and twisted – but hey, at least he’s not holding teachers and children hostage… yet.

Oh, yes, we’re all saved! It’s a good thing we gave into Hank Paulson’s blackmail and tossed TRILLIONS at Fannie and Freddie, that sure saved us…
U.S. Home Foreclosures Climb 44% to Record in May

June 10 (Bloomberg) -- U.S. home foreclosures reached a record for the second consecutive month in May, with increases in every state, as lenders stepped up property seizures, according to RealtyTrac Inc.

Bank repossessions climbed 44 percent from May 2009 to 93,777, the Irvine, California-based data company said today in a statement. Foreclosure filings, including default and auction notices, rose about 1 percent to 322,920. One out of every 400 U.S. households received a filing.

“We’re nowhere near out of the woods,” Rick Sharga, RealtyTrac’s senior vice president for marketing, said in a telephone interview. “We’re likely to set a quarterly record for home seizures if June is anything like May.”

Lenders are completing the “inevitable progression” of taking properties from homeowners who stopped paying, Sharga said. He predicted last month that another 5 million delinquent mortgages will end in foreclosure in addition to properties that had already been repossessed.

Almost 3.1 million properties have been seized by banks since April 2005, Daren Blomquist, RealtyTrac’s marketing communications manager, said in an interview today.

“The second quarter won’t be the peak,” Sharga said. “I’m not even sure 2010 will be.”

The previous record for seizures was 92,432 in April. Last month was the first in which every state had an increase in repossessions from a year earlier, according to RealtyTrac.
Oh yeah, we exited recession all right, gee, I wonder if we’ll see a “double-dip?” BANG, BOOM! Did I mention that we must work hard to fight them over there?

Oh, wait, somebody is fighting them over there…
Iraq Central Bank attacks leave 15 dead

Explosive attacks and exchanges of fire at the compound of the Iraq Central Bank in Baghdad have killed at least 15 people and injured more than 40 others.

Those behind the attacks on Sunday triggered eight explosions and took hostages, prompting a siege at the bank's whereabouts, AFP reported.

Bank workers comprised most of the casualties, said one defense official.

It is yet to unclear whether the assailants had meant to empty the vault, destroy the building or target the employees.
Doh! It would seem the Iraqis have figured out where the real power is. BADA BOOM!

Boston – Feelin’ Satisfied: