Some more color on today’s Shiller figures, and don’t forget the Long Term Chart at the bottom….
Data through July 2011, released today by S&P Indices for its S&P/Case-Shiller1 Home Price Indices, the leading measure of U.S. home prices, showed a fourth consecutive month of increases for the 10- and 20-City Composites, with both up 0.9% in July over June. Seventeen of the 20 MSAs and both Composites posted positive monthly increases; Las Vegas and Phoenix were down over the month and Denver was unchanged. On an annual basis, Detroit and Washington DC were the two MSA that posted positive rates of change, up 1.2% and 0.3%, respectively. The remaining 18 MSAs and the 10- and 20- City Composites were down in July 2011 versus the same month last year. After three consecutive double-digit annual declines, Minneapolis improved marginally to a decline of 9.1%, which is still the worst of the 20 cities.
Full report here.
Markets selling off as FT reports on the Split over Greek bail out terms. The market reached a “perfect” intra day top, after having surged big for two days now. Let’s see if today marks an abrupt reversal, as many bears forcefully had to close out the new “smart” longs they put on. As we said many times before, this is greed and fear at its most. Below the SPX channel, still holding both ways.
With the mega squeeze the market put in for the past days, we are approaching short term resistance. If you picked um some “dirt cheap” stuff at the bottom, don’t be too greedy…The IV Skew Divergence by Macro Story, is once again showing some disturbing patterns, and suggests the market should turn lower shortly.
Guest Post by Macro Story;
Once again we see divergence between the SPX and the implied volatility skew. In other words Monday’s rally did not quite pass the “smell test.” In fact in really stunk.
IV Skew VS SPX
Notice the divergence once again which does not support Monday’s rally. One data point is not enough to completely throw water on the “rally” but we have seen this before and it has resulted in the SPX correcting. Something to keep an eye on. Additionally with markets up so much the VIX at such elevated levels should have been down more than 5% on Monday.
Remember Argentina and when it Defaulted? What are the similarities, and what choices does Greece have? Below from Athens News;
ARGENTINA defaulted on almost $100 billion euros of external debt in December 2001, the largest such sovereign default at the time. The reasons that led to this were multiple and went back 30-40 years.
The Argentinian peso had been pegged to the US dollar for 11 years and in the efforts to defend the peg, the country’s foreign reserves were depleted. As the crisis unfolded, there was a massive exit of capital from the country by both foreign investors and domestic depositors. Eventually, the government put a limit on withdrawals. It led to riots, but people still lost their money.
After ceasing all payments on foreign debt, Argentina was shut out by the capital markets. There was an agreed debt exchange with a 76 percent haircut in 2005. However, a large number of creditors refused to participate, arguing that Argentina was asset-rich and they were entitled to their money.
Full article here.
The “smart” shorts, who shorted the Stoxx 50 on Friday, are out 12% in two days. That’s pretty bad annualized….This brutal move on the upside, the trader wrote about, is killing all shorts. The extreme moves are magnified by the many short gammas out there. We are just waiting for Biggs to turn bullish soon….Below Stoxx 50 index 3 day chart (and no, it is not an Internet company in 2000)
Piece on Long Term Investing, from DShort.
History has demonstratrated time and again that markets oscillate from very cheap to very expensive over many years. Further, we know that long periods of poor returns follow expensive markets, while long periods of rich returns follow cheap markets. These relationships can be capture quantitatively with fairly simple statistical models that offer surprisingly accurate forecasts about how the future is likely to unfold. Stories may be entertaining and intellectually compelling, but numbers don’t lie.
With this study we wanted to achieve two important objectives:
- To discover which measures of stock valuations carry meaningful information about future returns.
- To create a multi-factor model using the best indicators to forecast future stock market returns over horizons from 5 to 30 years.
Source: Vitaly Katsenelson (2011)
Conclusion; For the next 15 years however, we can say with some confidence that our best estimate of annualized returns is 1.43%, with an optimistic upside estimate of 5.4%.
Investors would do well to heed the results of robust statistical analyses of actual market history, and play to the relative odds. This analysis suggests that markets are currently expensive, and asserts a very high probability of low returns to stocks (and possibly other asset classes) in the future. Remember, any returns earned above the average are necessarily earned at someone else’s expense, so it will likely be necessary to do something radically different than everyone else to capture excess returns going forward.
Full article here.
Markets are moving very fast. Yesterday European morning we wrote of big squeeze set ups, in both metals and equities (mainly European equities). We have had a brutal squeeze to the upside since then (Squeeze Sign, Chartology). With everything having surged, even beyond our scenario, in a very fast move, we would be taking some chips off the table. Things haven’t changed fundamentally, but the extreme bearishness among inbvestors, had to create this move to the upside. We still believe the squeeze will continue, but at a “cooler” pace. With Roubini screaming Europe to go bust on a daily basis, and Barton Biggs dreaming of a ultrashort position at the bottom, we had the very much anticipated bounce. Now we need to wait for the pundits to become bullish and dreaming of being ultralong, before we start shorting the markets, once again.
SPX short term chart, soon to hit the first resistance levels.
The Squeeze scenario we outlined yesterday is still intact, although we are loosing some steam. The metals have bounced healthy from yesterday’s lows. Equities, and especially the European markets, have soared. This market is a perfect fight between greed and fear. Expect the squeeze to continue, but as we are moving fast, we are already reaching some short term resistance. Below Stoxx 50 and ES futures.
US regulators have warned Standard & Poor’s that they may file civil charges against the credit rating firm, the FT reports, alleging that it violated federal securities laws in connection with its rating of one of the structured finance instruments that was at the heart of the financial crisis. McGraw-Hill, http://ftalphaville.ft.com/thecut/2011/09/27/686331/sp-faces-sec-threat-over-its-rating-of-1-6bn-cdo/
Freddie Mac, the US government-controlled mortgage financier, used flawed procedures for determining how lenders repurchased soured loans, probably saddling taxpayers with billions of dollars in losses,http://ftalphaville.ft.com/thecut/2011/09/27/686306/freddie-under-fire-over-bad-loan-procedures/
Standard & Poor’s says Chinese property developers face tough times, Dow Jones reports. Most developers it rates could absorb a 10 per cent fall in property sales next year, but many would struggle with a fall of 30 per cent. http://ftalphaville.ft.com/thecut/2011/09/27/686261/sp-expects-more-strain-for-chinese-property-developers/
Government of Singapore Investment Corporation faces a Sfr6.7bn ($7.4bn) loss as the biggest investor of UBS, Bloomberg calculates. The sovereign wealth fund also has about $500m of unrealised losses on its Citigroup stake, http://ftalphaville.ft.com/thecut/2011/09/27/686236/singapore-faces-7-4bn-ubs-loss/
The business model of the Big Four accounting firms is under attack from the European Commission, which is pushing for tough rules that would force the firms to abandon their consultancy businesses and share audit work with smaller rivals. http://ftalphaville.ft.com/thecut/2011/09/27/686161/big-audit-firms-face-brussels-onslaught-2/
Guest Link Post by MoreLivers.
** Revisiting the Eurodebate – A Fistful of Euros
Blames the key European politicians, especially the French and the Germans and the European Commission officials, who designed the Euro and the Eurosystem, delivering rock-bottom interest rates to countries in the grip of land fever, and one that couldn’t cope with a banking crisis although it included the biggest banking system in the world.
Euro Zone Death Trip – Krugman / NYT
(Bonus for the Hitler-card): Germany’s inflation expectations at 1% for the next five years. To get any competitiveness, PIIGS must resort to massive deflation, which is hard to do. Germany should remember how Chancellor Brüning made the depression in 1930-1932 even worse by sticking to gold standard and balanced budgets, followed by you-know-what.
Europe Drifts Towards the Brink of a Cataclysm – EconoMonitor
Transcript of Press Conference on Europe – IMF
Jean-Claude Trichet: Preventing spillovers on the global economy – BIS (pdf)
Jürgen Stark: The global financial crisis and the role of monetary policy – BIS (pdf)
And much more below.