Chart Update
As we have been writing over the past weeks regarding the market about to take a downturn, let’s quickly review some charts.
We still carry a negative bias long term, but the SPX is reaching some short term support levels. We are not suggesting going all in long. We are closing out some shorts here, and expect a bounce to occur soon.
Obviously the big psychological level is 1300, so watch it carefully. Also note the Gold reversing today.
Essential charts below.
Moodys finds out about Spanish banks
In an expected move, Moodys downgrades 16 Spanish banks. The Trader has been writing about the rotten Spanish banking sector for a year at this stage. The rating agencies are realizing the shape of the Spanish banks now. Whatever you think, cheap Spanish properties are slowly hitting the market. By Moody´s.
Madrid, May 17, 2012 — Moody’s Investors Service has today downgraded by one to three notches the long-term debt and deposit ratings for 16 Spanish banks and Santander UK PLC, a UK-domiciled subsidiary of Banco Santander (Spain) SA. The rating downgrades primarily reflect the concurrent downgrades of most of these banks’ standalone credit assessments, and in five cases also Moody’s assessment that the Spanish government’s ability to provide support to the banks has reduced.
Moody’s Investors Service has today downgraded by one to three notches the long-term debt and deposit ratings for 16 Spanish banks and Santander UK PLC, a UK-domiciled subsidiary of Banco Santander (Spain) SA. The rating downgrades primarily reflect the concurrent downgrades of most of these banks’ standalone credit assessments, and in five cases also Moody’s assessment that the Spanish government’s ability to provide support to the banks has reduced.
The debt and deposit ratings declined by one notch for five banks, by two notches for three banks and by three notches for nine banks. The short-term ratings for 13 banks have also been downgraded between one and two notches, triggered by the long-term ratings changes.
LET’S PUT ALL THIS APPLE LOVE IN PERSPECTIVE
Just because this time is so different, here is a piece we put out earlier this year by one of our readers. Many love Apple, but recently the number of people hating it is increasing by the day. By Macro Trader.
While I know AAPL is popular, many unpopular industries like airlines, banks, dry shippers and solar companies have provided much better returns recently, but they go unloved. Now I know, AAPL has had a huge multi-year run. But as great as that is, it pales in comparison to the astronomic runs of Dell and EMC in the 90s.
Dell was a 250 bagger, and EMC a 300 bagger, low to high, so the AAPL has had a 170 bagger, nice, but still room to run before it catches EMC’s run.
LET’S FACE IT, TECHNOLOGY IS FICKLE.
In 2000 CSCO and MSFT traded that largest market cap title, both over $500B at the time. MSFT is down 40% and CSCO is down 70%, and this is 12 years later.
Hubris?
Since JPM revealed the 2 billion loss, media has speculated about the trades involved, the risk, who managed it and much more.Piece by Businessweek on JPM’s Dimon.
Jamie Dimon has the silver mane and piercing, gray-blue eyes of a chief executive officer from central casting, but he talks like one of his own charged-up traders. His blunt words tumble out in a New York hurry. Unlike other financial chieftains, the CEO of JPMorgan Chase (JPM) seems to relish using those words to berate the lawmakers and regulators that hold his bank’s fate in their hands. “Jamie has taken on this mantle of defending this entire industry,” Michael Driscoll, who worked for Dimon as a trader at the Smith Barney brokerage, told Bloomberg News earlier this year. “He’s combative by nature. And like a lot of these alpha dogs, when he’s backed into a corner, he’s going to bark back.”
Words like comeuppance, schadenfreude, and even Dimonfreude have been laid on liberally since May 10, when Dimon blamed a $2 billion trading loss in JPMorgan’s London office on a hedging strategy that he confessed was “flawed, complex, poorly reviewed, poorly executed, and poorly managed.” (Otherwise, fine.) On NBC’s Meet the Press, he said, “We know we were sloppy. We know we were stupid.” The loss has probably grown as hedge funds attack the bank’s exposed flank.
Anyone who thought Dimon might retreat—say, by giving an inch to regulators who want to tighten rules against risky proprietary trading—doesn’t know the man. On May 15, facing shareholders at JPMorgan’s annual meeting in Tampa, Dimon promised in his brisk style that “all corrective action will be taken.” He made no move, however, to mute his criticism of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was written to regulate the kind of high-risk behavior that caused the 2008 financial crisis. Nor did he give up any of his triumvirate of titles—chairman, CEO, and president—or forgo any of his 2011 pay, which came to $23 million in salary and bonuses. And he kept his prized seat on the board of directors of the Federal Reserve Bank of New York, despite calls from the likes of former New York Governor Eliot Spitzer for him to resign. (full reading here).
From Idiosyncratic to Idiotsyncratic
Some bulletpoints by Peter Tchir of TF Advisors.
The idiosyncratic risk is really coming from two sources and the fact that at the margin they collide is adding to the confusion and the volatility in the market.
Right now the problems in Europe are directly tied to Greece. Spain and Italy continue to have problems, and nothing is close to being resolved, but the real next catalyst in Europe is Greece. All this talk of a “Grexit” seems somewhere between premature and dangerous. I think Greece is likely to leave at some point, but several things have to happen before it can leave without causing a tidal wave of destruction across Europe and the global economies:
- Determine what will happen to the money owed to the ECB and the IMF. They too need to be redenominated at the very least, and possibly defaulted on in order for the new Greece to have a chance. What does that do for the reputations of those two institutions? How will the ECB make up for the loss? Will the IMF firewall remain intact after losses? Real issues that cannot be dismissed, and addressing some worst case, rather than best case reactions needs to be dealt with.
- Will Greece have the natural resources stockpiled to survive the immediate after effects? I see the risk of spiking energy costs as being one of the biggest risks. If the Drachma trades poorly against the Euro, and the Euro trades poorly against the dollar, how are people and businesses going to be able to afford items that need to be imported. For all the bizarre ways in which the bailout has been done so far, Greece has the luxury of not being forced into an immediate devaluation, so has time to prepare for some of the obvious risks.
- Portugal, Spain and Italy. I don’t see anything in place that would stop these countries from being immediately dragged down. Currency controls and a force redenomination in Greece will scare people in these countries. Capital flight at all levels will become a big issue. Trade in Europe could grind to a halt. How will contracts with Greek companies be dealt with. People will assume the worst in other countries and there is a real risk that trade dries up because even short term credit becomes completely unavailable. The ECB is likely to have to take unprecedented actions such as guaranteeing repo lines, and even settlement risk.
- The EFSF incubates contagion. Now maybe the EU will realize what many of us have being saying all along. The EFSF (and ESM) ensures that contagion will spread. If the EFSF is to be a source of money for anyone (notwithstanding its own losses on Greek loans), they will either be relying on Spanish and Italian guarantees, adding to the misery in those two countries, or, far worse, those countries will become “stepping out” members as well.
- Target2? Bank debt? Bank debt guaranteed by Greek central bank? So many other questions, so few of which have been addressed.
The Fabled Greek Mega-Bailout
Guest post by Azizonomics.
In a truly eyebrow-raising CNBC interview, Matthew Lynn alleges that Europe shall be saved! (As if by the grace of God!).
With Europe on the brink yet again Germany will act.
The Greeks can’t carry on with the austerity being imposed on them. No country can be expected to endure annualized falls in GDP of 7 percent or more,” he said, “and 50 percent youth unemployment for years on end.
On Tuesday we learned that the Greek economy shrank by another 6.2 percent in the latest quarter. It simply isn’t acceptable” Lynn said.
But Germany and the rest of the EU could come up with a Marshall Aid-style package for Greece. Very little of the bail-out money so far has gone to the Greeks. It has all gone to the bankers.
Forget talk of a ‘Grexit’. There will be a mega-bail-out—a ‘Grashall Plan’—instead.
And when it happens, the markets will rally on the news.
Who else would publish this? (That’s a redundant question — who else, besides J.P. Morgan and maybe a few government agencies, wouldn’t have fired Jim Cramer after what he said about Bear Stearns?)
Remember the Greek election?
No comments.
Courtesy Scott Barber.
Time for another Fed Twist?
Guest post by Doug Short.
We’re well into our sixth month since the latest Federal Reserve intervention, Operation Twist, was officially announced on September 21. We’ve now seen several bouts of aggressive Fed attempts to manage the economy following the collapse of the two Bear Stearns hedge funds in mid-2007 about three month before the all-time high in the S&P 500.
Initially the Fed Funds Rate (FFR) underwent a series of cuts, and with the collapse of Bear Stearns, the Fed launched a veritable alphabet soup of tactical strategies intended to stave off economic disaster: PDCF, TALF, TARP, etc. But shortly after the Lehman bankruptcy filing, the Fed really swung into high gear. The FFR fell off a cliff and soon bounced in the lower half of the 0 to 0.25% ZIRP (Zero Interest Rate Policy). The thud to the FFR bottom coincided with the first of two rounds of quantitative easing in an effort to promote increased lending and liquidity.
If a picture is worth a thousand words, this chart needs little additional explanation — except perhaps for those who are puzzled by the Jackson Hole callout. The reference is to Chairman Bernanke’s speech at the Fed’s 2010 annual symposium in Jackson Hole, Wyoming. Bernanke strongly hinted about the forthcoming Federal Reserve intervention that was subsequently initiated in November of 2010, namely, the second round of quantitative easing, aka QE2.
Is Spain’s biggest problem Spain?
The Trader has written timely pieces on the imploding Spanish economy. Here is an authentic piece from one of our readers, living in Spain as an expat. Courtesy Anna Billqvist.
Spain is now suffering severe cut packages, in order to save money, but very few ideas that will get us back on feet. The Spanish people feel that there is very little we can do. Perhaps we need something different, a change of mentality.
Why not try quality rather than quantity at work? Who says we need to work more hours to achieve better results? What if we organize ourselves and use our time more efficiently? Written procedures, so that things can be done even if the key person is not there. More confidence between boss and employee, so they feel that they work together towards the same goal, instead of continously suspecting that they are being used by the other. Nine-to-five working hours, not the split working days that we are used to; loosing time driving to work and back twice a day, coming home at nine in the evening and totally dependent on nannies and family if we have children. That would make us more productive at work and at home.
Police fight black economy – by fining teachers who put up notes for private lessons and arresting africans selling illegal CDs. Meanwhile prostitution sales reach 50 million euros each day. Young people from poorer countries are exploited and abused, brothel owners call themselves hotel owners and claim that they only rent rooms to prostitutes. Nobody cares, because judges, lawyers and politicians are among the customers.
Eurozone crisis explained
The Eurozone crisis continues, despite some countries celebrating holidays. The Greek situation is reaching absurdity, and the blame game is about to start. The ECB has been throwing good capital after bad capital. On the other side of the Med, we are getting reports that people are withdrawing massive amounts of cash from Bankia. The stock is getting creamed, down some 10% today. What is going on in Europe?
The Eurozone crisis video for dummies below, a breakdown of the European debt situation, starting with Greece and consuming the entire continent.
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