Thursday, August 5, 2010

What's next for Crude Oil?

The massive move-up in crude oil on Monday created a new dynamic for this in-the-news market. The move to two-month highs completed one of our favorite major technical formations. In this short video, I share with you two conflicting indicators and which one I am choosing to go with. I think you'll find this video technically interesting as well as educational.

click here for video

Dollar decline, yen, oil, inflation, Fed, stimulus

ICI Reports 13th Consecutive Week of Massive Domestic Equity Outflows As Banks Start To Panic

by Tyler Durden,

What more can we say here that we have not said for 12 times in a row already. Retail investors are dunzo. The latest update from ICI shows that the week ended July 28 saw a record 13th consecutive outflow from domestic mutual funds as stocks bloody surged. Good thing the HFT algos can now essentially communicate with each other in the actual unique flow patterns of cancelled stock bids, thereby announcing to all other participants the plans of one which promptly become those of all, in the most under the radar concerted effort to "club" the market's HFT participants as one big trading force. As for retail: it is all over. We won't even chart the latest move. Figure it out: nearly $50 billion in outflows YTD as the market is well green. When the coordinated computerized front running game (of stupid carbon based lifeforms) in which one Atari machine sells to another, and repeats into infinity, while all book liquidity rebates, comes to an end and the theater is finally perceived to have been burning all along, watch out for the binary stampede. (more)

Condos that cost less than cars

by Les Christie CNN Money,

The housing bust has made owning a home a lot more affordable -- but in some places, prices are extraordinary; you can buy a nice condo for less than the cost of a new family car.

Some cities have dozens of attractive condominium listings selling for $50,000 or $25,000. There are some selling for less than a new Toyota Corolla. And these are not derelict hovels in crime-ridden communities: These homes are often in move-in condition and located in nice neighborhoods.

"Not to sound like a salesman, but there are some real bargains out there," said Kevin Berman, a broker with Bankers Realty Services in Fort Lauderdale, Fla.

The housing bust has taken down the national median home price by about 23% since 2007, according to the National Association of Realtors (NAR). But condo have fallen even further, down about 25%.

In Sacramento, Calif., condo prices have fallen 59% from what they averaged in 2007, according to NAR. Miami condo prices have plunged 65%, and in Las Vegas they are off 66%. (more)

Defending Yourself Against Deflation

by James Stewart, Wall Street Journal

The dreaded "D" word is back in circulation, and I don't mean "depression." Having skirted that potential calamity, the worry for policy makers and investors now is deflation.

On the face of it, deflation—falling prices—doesn't seem like it would be so bad. Who wouldn't welcome discounts that just keep getting better, like those sales at Filene's Basement where prices got lower the longer merchandise stayed on the racks?

Of course, who knows what it really feels like, since most of us have never experienced prolonged deflation in our lifetime.

Maybe deflation would be a nice thing for people with secure, steady incomes. But deflation erodes profits and asset values. People wait to buy expecting lower prices, reducing demand. Lower profits cause companies to cut expenses, including employees. It is a downward spiral that, if Japan's experience is any indication, is difficult to arrest. (more)

The end of volatility? Not by a long shot

Paul LaMonica, (

-- Be not afraid, investors. For now at least.

A sense of calm seems to be descending over the markets lately. Stocks surged in July and soared again on Monday, the first trading day of August.

As stocks have marched higher, an index widely cited as Wall Street's fear gauge, the CBOE Volatility Index or VIX, has steadily fallen as well. The VIX is currently hovering around 22.50, its lowest level since early May.

But anyone concluding that the drop in the VIX means that investors are no longer fearful could be in for a rude awakening. All that the VIX is telling us is that investors aren't afraid right now. It's not, however, a good measure of future investor agita.

Consider this: when the VIX was last this close to 20, it was back on Monday, May 3. Just three days after that on May 6, we were hit with the mother of all fearful market panics. The Flash Crash, as it has since come to be known, wiped out about 1000 points off the Dow in a matter of minutes before recovering a bit. (more)

Shilling: “The Economy Really Doesn’t Have Much Gas Any More”

McAlvany Weekly Commentary, August 4, 2010

Assuming the Worst is Behind Us (Dangerous at Best)

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Ferguson: Debt Burden May Destroy US Empire

By: Dan Weil

Empires can come and go very quickly, with fiscal crises often doing them in, says Harvard economic historian Niall Ferguson.

That’s bad news for the United States, because it’s running a budget deficit of about 10 percent of GDP and a debt burden of about 60 percent of GDP.

“The U.S. is on a completely unsustainable fiscal course, with no apparent political means of self-correcting,” Ferguson writes in The Australian newspaper.

And that puts the American empire at risk, he says.

“The most obvious point is that imperial falls are associated with fiscal crises: sharp imbalances between revenues and expenditures, and the mounting cost of servicing a mountain of public debt.” (more)

TED Spread Continues to Narrow

Below we highlight the movement in the TED Spread over the last 12 months. For those unfamiliar with the indicator, the TED spread measures the difference between the three-month T-bill interest rate and three-month LIBOR. When the spread is high it is indicative of a higher level of perceived risk in the credit markets as banks increase the rate at which they are willing to lend to each other.

Based on the movement in this indicator, investors are once again embracing risk. Since peaking out at 48.6 basis points (bps) back in mid June, the TED spread has now narrowed by over 40% and is now at its lowest levels since May 11th.

Why Bonds Tell a Better Story Than Stocks,

Commentary: Stocks may rise, but bonds' outlook is far better

With U.S. stocks rising convincingly over the past month, fund managers and analysts making the rounds on business TV channels are again openly day-dreaming that retail investors, safely parked in bonds over the past two years, will finally come out to play.

Dream on.

Their PR exercise is based on the idea that stock market gains are telling a good story of things to come, which therefore would reduce the need for the safety of bonds.

Unfortunately, the bond market's generally been much more accurate than stocks at predicting economic trends.

The verdict is in: As the Dow Jones Industrial Average and S&P 500 gained about 7% in July, government bonds also gained and their yields, which move inversely to prices, fell. (more)

Stocks rise on jobs, service sector growth

(AP) -- Reassuring signs on employment and growth in the service industry got the stock market back on an upward trajectory Wednesday.

Major indexes rose after payroll company ADP said private employers increased hiring last month and a service sector index rose unexpectedly in July. The Dow Jones industrial average gained 44 points.

Investors were relieved that the two reports provided no signs that the economy might be headed back into recession, even though growth might be sluggish. Traders have grappled with earnings and economic reports at odds with each other in recent weeks that provide a mixed picture about the pace of the recovery.

The latest batch of earnings were largely better than expected, continuing a trend that has been seen over the past four weeks. Broadcaster CBS Corp., video game maker Electronic Arts Inc., online travel site Inc. and Anadarko Petroleum Corp. all climbed. Whole Foods Market Inc. was one of the few to report disappointing results. (more)