US & Canada Archives - Page 102 of 175

June 1, 2013

SCHIFF: The Great Reflation | Business Insider

Peter Schiff writes:

The truth is that most buyers cannot afford today’s prices without the combination of government guarantees and artificially low mortgage rates. The Federal Reserve has been conducting an unprecedented experiment in economic manipulation. By holding interest rates near zero and by actively buying more than $40 billion monthly of mortgage-backed securities and $45 billion of Treasury bonds, the Fed has engineered the lowest mortgage rates in generations.

May 30, 2013

Central Banks’ Central Bank Warns About Rehypothecation Threats | Zero Hedge

Tyler Durden writes:

…….none other than the TBAC warned that the US is suddenly facing a $10+ trillion high quality collateral shortage in the next decade. As we have also explained, this is a major problem for the Fed which at current rates of QEeing, will monetize all Treasury duration exposure in roughly 5 years – at that point there will be virtually no collateral left and the Fed will be finally out of both tools and ammo.

I suspect that fiscal deficits will add sufficient new Treasury bonds to the pile, so that the Fed never has to run out of decent collateral.

May 30, 2013

Forex: Aussie, Yen and Euro find support

The Aussie Dollar broke support at $0.96 against the greenback before retracing, the long tail indicating buying pressure. Expect a weak bear rally to test resistance at parity before another decline breaches primary support, offering a target of $0.90*.

Aussie Dollar/USD

* Target calculation: 0.96 – ( 1.02 – 0.96 ) = 0.90

The euro has so far respected primary support at $1.27. Breakout above resistance at $1.30 would suggest a primary up-trend; confirmed if the euro follows through above $1.32. Breach of support is unlikely, but would offer a target of $1.20/$1.22*.

Euro/USD

* Target calculation: 1.27 – ( 1.32 – 1.27 ) = 1.22

The greenback retreated sharply against the yen as Japanese investors repatriate offshore bond and stock investments — see Mrs Watanabe Brings Home the Bacon. But the longer term trend is unchanged. Respect of support at ¥100 would signal a fresh primary advance. Breach of the long-term declining trendline indicates the 30-year secular bear trend is over. Long-term target for the advance is the 2007 high at ¥125*.

USD/JPY

* Target calculation: 100 – ( 100 – 75 ) = 125

May 30, 2013

Gold: Two elephants in a lifeboat

There are currently two players destabilizing global financial markets — like elephants in a lifeboat. One is the Bank of Japan, with markets uncertain as to how massive expansion of the monetary base will play out. The second is the Fed, where hints of a taper were enough to send the market into a panic, forcing the Fed to tone down its rhetoric. Emphasis now is on marginal rather than sizable decreases in QE.

Gold broke resistance at $1400, respecting primary support at $1320 and headed for another test of $1500. Uncertainty is high with the metal as likely to break resistance at $1500, signaling a primary up-trend, as to break primary support, which would offer a target of $1200*.

Spot Gold

* Target calculation: 1350 – ( 1500 – 1350 ) = 1200

Treasury Yields

Ten-year treasury yields broke resistance at 2.10%, signaling a primary up-trend. First, expect retracement to test the new support level at 2.00/2.05 percent. Breach of that level would warn of another test of primary support at 1.60%. I do not believe that rising yields indicate a resurgence of inflation expectations, but rather anticipation of the Fed taper of quantitative easing. No one wants to be left holding bonds when yields start rising.

Dollar Index

Crude Oil

Brent Crude is headed for another test of resistance at $106/barrel. Respect would indicate a down-swing to $92*, while failure would signal reversal to an up-trend. Nymex WTI respected resistance at $98 and is expected to re-test resistance at $85/barrel. A classic pair trade, the spread between the two is likely to narrow as the European economy under-performs.

Brent Crude and Nymex Crude

Commodities

Commodity prices continue to fall, with the Dow Jones/UBS Commodity Index headed for primary support at 125/126. But signs of a base forming on the Shanghai Composite Index are likely to lift commodity prices. A Shanghai breakout above 2500 or penetration of the declining trendline would indicate a test of 150 for $DUBS.

Dow Jones UBS Commodities Index

May 28, 2013

Congress Still Puts Out For Wall Street | Robert Scheer – Truthdig

Robert Scheer quotes Democrat Jim Hines on the corrupt relationship between Wall Street and Capitol Hill:

“I won’t dispute for one second the problems of a system that demands immense amount of fund-raisers by its legislators,” Jim Himes, a Democrat from Connecticut who supported the bankers’ recent bills and conveniently heads fundraising for House Democrats, conceded to the Times. Himes, who worked for Goldman Sachs before pretending to represent the people’s interest as an elected representative, is one of the top beneficiaries of Wall Street payoffs but claims to be distressed by the corruption that is his way of life. As he told the Times, “It’s appalling, it’s disgusting, it’s wasteful and it opens the possibility of conflicts of interest and corruption. It’s unfortunately the world we live in.”

May 27, 2013

Charter schools study shows better outcomes with less public funds

Charter schools receive less funding than equivalent public schools, but in many cases are achieving improved outcomes for disadvantaged kids. Ray Fisman writes:

Minnesota’s charter school law allowed educators and other concerned individuals to apply to the state for permission to operate a government-funded school outside of the public education system. In order to obtain and keep their licenses, these new schools needed to show they were serving their students effectively, based on goals laid out in the school’s “charter.” City Academy, America’s first charter school, opened in St. Paul the following year. Its mission was to get high-school dropouts on track to vocational careers, and it is still operating today.

Principals are able to operate outside the constraints of the public education system and are assessed on results.

…..While they’re funded with public money, they generally operate outside of collective bargaining agreements (only about one-tenth of charter schools are unionized) and other constraints that often prevent principals in public schools from innovating for the good of their students (so the argument goes). In exchange for this freedom, they generally get less funding than public schools (though they’re free to look for private donations, and many do) and have to prove that they are making good on the promises set out in their charters, which often means showing that they improve their students’ performance on statewide standardized tests.

The program has been so successful that there are now almost 6000 charter schools nationwide. Fisman reports on a study of enrolments at six Boston charter schools between 2002 and 2008:

“….Getting into a charter school doubled the likelihood of enrolling in Advanced Placement classes (the effects are much bigger for math and science than for English) and also doubled the chances that a student will score high enough on standardized tests to be eligible for state-financed college scholarships. While charter school students aren’t more likely to take the SAT, the ones who do perform better, mainly due to higher math scores. The upshot of this improvement in college readiness is that, upon graduation, while charter and public school students are just as likely to go on to post-secondary education, charter students enroll at four-year colleges at much higher rates. A four-year college degree has historically meant a better job with a higher salary……. a ticket to a better life for many students.”

He warns that “Not every charter school is right for every kid” but they do highlight the benefits of a decentralized education system where schools are assessed on outcomes rather than conformity to a program. Other studies have shown that increased public funding does not improve education outcomes. Ever wondered why bureaucrats continue to promote this as a solution?

May 22, 2013

China hints at bottom while S&P 500 reverses

10-Year Treasury yields are testing resistance at 2.05/2.10%. Breakout above 2.10% would signal a primary up-trend and possible test of 4.00% in the next few years. Only breakout above 4.00%, however, would end the 31-year secular bear-trend.

10-Year Treasury Yields

The S&P 500 completed a key reversal (or outside reversal), indicating selling pressure. Expect a test of the lower trend channel at 1600.

S&P 500 Index
There is no great movement in the VIX and this so far looks like a normal retracement. A June quarter-end below 1500 looks unlikely, but would present a long-term bear signal.

S&P 500 Index

The UK’s FTSE 100 Index is headed for a test of its year 2000 high at 7000. Expect a correction or consolidation below this level. Breakout remains doubtful but would signal a long-term primary advance.

Penetration of its descending trendline indicates correction on the Shanghai Composite Index has ended and we can expect another test of resistance at 2500. Breakout above 2500 would complete an inverted head and shoulders reversal (as indicated by orange + green arrows), signaling a primary up-trend. That would be good news for Australia’s beleaguered resources stocks.

Shanghai Composite Index

As traders we follow the trend, but in times like this it is important to remain vigilant.

May 22, 2013

Market Insight: Central bankers turn deaf ear on balance sheets – FT.com

John Plender at FT observes:

The sheer size of the move in US Treasuries is striking. From the beginning of May to the end of last week, yields on the 30-year Treasury bond rose by nearly 40 basis points while the 10-year yield rose around 30bp. That is a measure of the market’s sensitivity to assumptions about an exit from the era of central bank balance sheet expansion. It is also an indication of how far we are from a return to normality.

May 20, 2013

VIX low S&P 500 high

The VIX CBOE Volatility Index is below 15%, indicating investor confidence.
VIX
But the risk premium on Baa-grade bonds (Moody’s lowest investment grade, compared to the 10-year Treasury yield) remains elevated. Corporate bond investors are still wary.
Baa Risk Premium
10-Year Treasury yields are headed for a test of resistance at 2.00%/2.10%. There is no sign of inflationary pressure, so outflow from Treasuries is more likely indicative of their extremely overbought position — with yields near record lows — and suggestions from FOMC minutes that quantitative easing may be scaled back later in the year. Breakout above 2.10% would signal a primary up-trend with an initial target of 2.40%.
10-Year Treasury Yields
The S&P 500 is advancing strongly. 6-Monthly Twiggs Money Flow rising strongly indicates a healthy primary up-trend. The index is overdue for a correction, but this is likely to be mild.

S&P 500 Index

* Target calculation: 1475 + ( 1475 – 1350 ) = 1600

Nasdaq 100 also signals a healthy up-trend, advancing towards a target of 3400*.
Nasdaq 100 Index

* Target calculation: 2900 + ( 2900 – 2500 ) = 3400

Bellwether transport stock Fedex respected support at $90. Recovery above $100 would confirm the primary up-trend is intact. A bullish sign for the economy.
Fedex

Follow the trend but keep an eye on risk measures like the VIX and Baa risk premium. These are uncertain times.

May 19, 2013

Can two senators end ‘too big to fail’? | The Big Picture

Barry Ritholz writes:

The idea that two senators from opposite sides of the ideological spectrum can find common ground to attack a problem with a simple solution is novel in the Senate these days. If Brown and Vitter manage to end the subsidies to banks deemed “too big to fail,” they will have accomplished more than “merely” preventing the next financial crisis. They will have helped to create a blueprint for how to get things done in an era of partisan strife.

Read more about the progress of the Brown-Vitter (TBTF) bill at Can two senators end ‘too big to fail’? | The Big Picture.