Friday, October 19, 2012

Another Stock Crash Like 1987’s Is Inevitable

by Mark Hulbert
Market Watch

CHAPEL HILL, N.C. (MarketWatch) — Prepare yourself for another stock market crash as big as the free fall in October 1987.
That’s a daunting prospect indeed, since at current levels such a decline would mean the Dow Jones Industrial Average would plunge by more than 3,000 points in a single trading session.
And we’re kidding ourselves if we think that market regulatory reforms such as circuit breakers will be able to prevent it.
These sobering truths are what emerge from a fascinating line of recent academic research into the frequency of market crashes. Recognizing them is perhaps the best way for us to respect this week’s 25th anniversary of the Oct. 19, 1987 Crash, when the Dow plunged 22.6%.
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Chart of the Day: Deutsche Mark Silver During Weimar Hyperinflation

Chart source: BullionMark / by The Doc / October 16, 2012
In January of 1919, one ounce of silver was worth approximately 12 Deutsche Marks.  By the end of 1923, one ounce of silver was worth 543,750,000,000 Deutsche marks.  Unfortunately, the similarities to the years immediately preceding the Weimar hyperinflation are uncanny to our current fiscal and debt crisis.
For a visual picture of what will happen to the dollar value of silver during a hyperinflation, we present a chart of Deutsche Mark silver from 1919-1923…

Chart Of The Day: Spanish Bad Loans Hit New Parabolic Record

from Zero Hedge:
It just refuses to get any better in Spain, whose banks are now aggressively marking down real estate to something resembling fair value. Last month we reported that Spanish bad loans jumped by the most ever, rising by over 1% to just under 10%. Today, last month’s number was revised even higher to 10.1%. But the worst news is that the August bad loan total just hit a fresh record of €178.6 billion, or 10.5% of the total €1,698.7 billion in bank loans. Making things worse is that the primary bank funding lifeline – deposits – continues to flow out. That both Spain, and its banking sector are utterly insolvent, is clear to anyone but Oliver Wyman and those who have bought SPGBs (although granted the latter are merely hoping for a quick flip). And the ECB of course. Indicatively, as a % of GDP, this would be equivalent to roughly $2.7 trillion in US bank loans going sour (for more on the collapse of Spanish banking, and the laughable stress test whose worst case has already become the baseline, read here). The chart summarizing this staggering statistic is below.
Read More @ Zero

The Corn Conundrum

Last Thursday the USDA released their latest Supply & Demand report showing corn ending stocks down 114M bushels to 619M. This is largely due to the September 1st quarterly grain stocks figures being lower than expected & reducing the beginning stocks by 193M.  The corn markets responded by rallying to finish up over 35 cents in the nearby contracts and appeared poised to reassert themselves ‘north' of $8.00. Fast-forward to today and while December '12 corn (ZC Z2) contract finished the day up 15 ¼ cents to $7.60 ¾ , corn prices remain nearly $1.00 off their highs basically in the same place they were heading into the report. Why?

A big reason has been the extremely poor pace of exports as US corn has continually shown its lack of ability to be competitive on the global markets. Twice this month, we have heard reports of cheaper South American corn being shipped into the Carolinas rather than originating corn domestically. Japan, a regular buyer of US corn, instead turned to the Ukraine to fill its tender for 250 TMT corn for November and December shipment. Simply put, US corn is just overpriced at these levels relative to the alternatives and the funds have been willing sellers on rallies as their appetite for speculative buying wanes.

Additionally, the high corn prices have put ethanol producers in a bind. Just a few weeks ago we heard reports of yet another 115 MGPY ethanol plant in Fairmont, Minnesota that was shutting down until the price of corn comes down. With cash basis remaining firm as operations attempt to originate grain, spot-market producers of ethanol remain solidly in the red. In each of the last two weeks, the difference between the price of corn and the value of the co-products (ethanol and DDGS) in Iowa was just $1.34 and reflects a negative margin of 52 cents per bushel. Last year at this time, when the grind was in full swing, margins for ethanol producers were solidly in the black at a robust $2.88. (more)

Financial Slavery in a Dying Economy: Average Student Loan Debt Nears $27,000

by Blake Ellis, CNN Money:
Thanks to rising tuition and a tough job market, college seniors graduated with an average of nearly $27,000 in student loan debt last year.
Two-thirds of the class of 2011 held student loans upon graduation, and the average borrower owed $26,600, according to a report from the Institute for College Access & Success’ Project on Student Debt. That’s up 5% from 2010 and is the highest level of debt in the seven years the report has been published.
The increase comes at a time when unemployment has remained stubbornly high for college graduates — it was at 8.8% for 2011. Those without a college degree are more than twice as likely to end up without jobs, however. The unemployment rate for recent high school graduates was 19.1% last year.
Read More @

Silver Wheaton Corp. (NYSE: SLW)

Silver Wheaton Corp., a mining company, together with its subsidiaries, operates as a silver streaming company worldwide. The company has 14 long-term silver purchase agreements and 2 long-term precious metal purchase agreements whereby it acquires silver and gold production from the counterparties located in Mexico, the United States, Greece, Sweden, PerĂº, Chile, Argentina, and Portugal. Silver Wheaton Corp. is headquartered in Vancouver, Canada.

Please take a look at the 1-year chart of SLW (Silver Wheaton, Corp.) below with my added notations:

1-year chart of SLW (Silver Wheaton, Corp.)

SLW hit a high of $40 in February and sold off consistently until May. Since then, the stock has rallied back up to the $40 resistance (red) and appears to have formed a cup (blue) and handle (purple) pattern. The volume decrease (green) during the formation of the handle is consistent with a true cup and handle. SLW would confirm the pattern by breaking up through the $40 resistance, and if it does, the stock should be moving higher from there. To add validity to any breakout, the break should occur on heavier volume than usual.

Keep in mind that simple is usually better. Had I never pointed out this cup and handle pattern, one would still think this stock is moving higher simply if it broke through the $40 resistance level.

Ford Stock Could Be Revving Up Soon

Ford Motor Co. (NYSE:F) — Analysts expected the second largest U.S. automaker to increase revenues this year chiefly from operations in the United States, China, and most European countries. But due to weakness in the first half of the year resulting from the return of competition from Japanese cars and worsening European and South American markets, earnings for this year are expected to fall to $1.23, down from $4.94 a year ago.

But a fresh lineup of cars and trucks for 2013, along with rising global vehicle demand, are expected to result in earnings of $1.47 next year. The mean price target of the 16 analysts that cover Ford is $13.93.

Technically, the stock appears to be forming a bottom with a breakout between $10.75 and $11. Supporting the positive opinion is a new buy signal from the MACD indicator. Buy Ford at the market.
Trade of the Day – Ford Motor Co. (NYSE:F)
Click to Enlarge