This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

Well, not apart from these:

In this corner, we have S&P (”Sluts and Pimps”) reaffirming the AAA ratings on the monolines:
S&P Affirms MBIA, Ambac

Since the beleaguered bond insurance industry was thrust to the foreground of the credit crisis, MBIA has sold $1.6 billion of stock and $1 billion in bonds, fortifying a $17 billion cushion the company has available to pay claims.

S&P said raising this money “is a strong statement of management’s ability to address the concerns relating to the capital adequacy of the company.” Based in Armonk, N.Y., MBIA insures $670 billion in debt.

So they have $17 billion saved to pay up to $670 billion in potential claims? Just a 2.5% default rate will bankrupt the “AAA” MBIA. Now THAT’s a strong financial position…

And in the other corner, we have MBIA (”More Bullshit, Insanity and Asshattery”) itself cutting their dividend and suspending new insurance on credit derivatives:
MBIA Eliminates Quarterly Dividend

MBIA Inc., a bond insurer fighting to hang on to its top-notch rating, said Monday it is eliminating its quarterly dividend in a move expected to save the company $174 million a year.

The company also said it will stop ensuring new derivative credit contracts, and suspended the writing of new structured finance business for the next six months.

$174 million per year! That’ll put a dent in that $670 billion. Stopping new and existing lines of business will also help, too. If your business actually does better when you don’t do anything, you might be in a crappy business (or you’re just doing it wrong…)

MBIA has been scrambling to raise cash to mollify ratings agencies that are threatening to downgrade its financial strength rating because of exposure to risky mortgage debt.

One of those agencies, Standard and Poor’s, Monday afternoon affirmed its “AAA” rating on MBIA and Ambac Financial Group Inc., another bond insurer fighting to stave off a downgrade.

MBIA has already sold $1.6 billion in stock and $1 billion in bonds to fortify its cushion of capital used to pay claims. But as the canceled dividend shows, the company appears willing to take further steps to maintain its top-notch rating.

“MBIA will continue to take reasonable and prudent actions such as this dividend elimination in an effort to retain and strengthen our Triple-A ratings,” Brown said in a statement.

This would be laughable if it wasn’t so incredibly disingenuous. God bless America, where you can stand up and say with a straight face that a bankrupt company with more exposure than the red light district in Amsterdam has a better credit rating than New York City and their $17 billion in debt, ironically also affirmed by “Sluts and Pimps”.

Unbelievable.

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

Bernanke is now between the “rock” of recession and the “hard place” of the soft dollar, with economic growth slowing and core inflation at 0.3% and rising. The Fed historically wants a core inflation at +0.2%, giving an annual rate of +2.4%, which is considered “price stability”. A rate of +0.3% puts us in the +3.7% annual rate zone, well above the Fed’s comfort level.

Should this trend continue, this is a worst-case scenario of slowing growth and rising inflation. In that case, there’s nothing left for the Beard to do but pray (but those puppy-dog eyes will not get you anywhere):

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

I’m putting on my “robe and economist hat” here. The estimate of January Retail Sales just came out at +0.3%, compared to a consensus estimate of -0.3%. Because of this, futures are up sharply this morning, and the terrible, terrible recession of the first two weeks of January, 2008, is but a distant memory (remember how bad that recession was? Now we can look back and laugh…)

Anyway, traders just see the number, see it was a huge bullish upset, and then buybuybuy. I looked at the actual statement, and found this wording in the opening text (emphasis mine):

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for January, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $382.9 billion, an increase of 0.3 percent (±0.5%)* from the previous month and 3.9 percent (±0.7%) above January 2007.

Basically, they look at the sales revenue and see if it’s higher than previous months / years. These numbers do NOT take into account changes in prices! With inflation numbers ex-food and energy nearing 0.2 to 0.3%, retail sales barely broke even on a real basis. But just eyeballing the data, it seems that everything dropped or stayed basically the same from the December estimate except:

*Motor Vehicles & Parts Dealers
*Food and Beverage Stores
*Pharmacies and Drug Stores
*Gasoline Stations
*Nonstore Retailers (think Amazon.com) was a smaller player

Gasoline was a big hitter in both a percent change and actual dollar value in the estimate. So basically, if sales were up at all, it’s because people spent more on gas, food (not restaurants as that dropped, but grocery stores) and drugs. Arguably, they spent more, but could have purchased less due to neglecting price changes as stated above. Further, these categories are necessities, and I wouldn’t hang my hat on these leading the way out of a recession. These are defensive purchases, and the discretionary items (like electronics, sporting goods/hobby stores, department stores etc.) are flat or worse.

So buybuybuy! Load up the truck on retailers! The number was up! :p I’m not going to call the recession over just yet. The consumer is still taking blows to the head, and the reported number is not what it seems to be.

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

Oh, if I had just gone to work in the car business! I’d be banking coin right now. $140,000 if you have 10 or more years of experience and want to forego all future benefits (like anyone in their right mind would count on them!). Um, yes, please!?

GM’s annual loss last year was a record $38.7 billion. If they had just paid all 74,000 UAW workers the $140,000 payout and quit making cars at the beginning of last year, they would have saved $28.3 billion dollars!

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

In this article, it is stated:

More than 30 percent of U.S. homeowners who bought in the last two years owe more on their mortgage than their house is currently worth, a housing market research company said on Tuesday.

The housing market peaked in most U.S. markets in the last two years. Of home buyers in 2006, 39 percent of those with a median 10 percent down payment now have negative home equity similar to 30 percent of those who purchased in 2007, said online company Zillow in its quarterly home value report.

If Zillow, who are notoriously known for hyper-inflating house values says that homeowners are underwater, then things are bad out there! Like I say, Johnny-on-the-spot gets the money, Johnny-come-lately gets the shaft. If you got into and out of the housing “Musical Chairs” game while the music was still going, you made out like a bandit. Sucks to be you if you’re one of the people scrambling to find a chair now.

Look for more people to just walk away from this game in 2008.

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

A look back in history today, as we see Jesse Livermore in a verbal pugilistic match with John Pierpont Jr. over the market conditions of the day in 1907:

Livermore banked $3,000,000 that day when he covered his shorts (and I don’t mean breeches).

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This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

The Beard has a subtle message for the banks:

The amazing Michael Shedlock over at Mish’s Global Economic Analysis recently posted an article about leveraged buyouts and the effect of the current credit situation. Among many insights, he quotes an article from Financial Times that says:

Ironically, the Federal Reserve’s dramatic 1.25 percentage point cut in interest rates in January contributed to Harrah’s problem, because loans are floating rate and with benchmarks such as Libor dropping, returns to investors fall proportionately.

It seems that Bernanke agrees with the Fly’s sentiments. The Fed is clearly trying to save the economy from recession, and hang everyone else. The banks are getting no free ride here.

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

The focus for the USD is now on relative growth prospects, rather than borrowing costs. So says Bo Nielsen over at Bloomberg. Contrast this with the shills over that DailyFX, who say the EURUSD could crack 1.5000 in the next week. But of course many of the pundits are hedging their bets by writing that as of this week a dollar rally looks very possible. From what I see, they could be right. A look at the majors reveals a mixed picture, with some patterns shaping up for technical reversals. Orders, for the brokers that make this information public, are predominantly net short on the retail side. In terms of daily and weekly ranges, the picture is decidedly mixed with pressure still firmly on the USD. Simply put, the relative outlook for the USD is improving, in the context of significant risk for a break above 1.5000.

EURUSD has printed a bearish outside day at Friday’s close, suggesting a double or triple top on the daily charts, depending on how you look at it. This is by no means a reversal. Daily reversal patterns often failed at psychological price points in the past, where demand (read: greed and/or panic) overrode technical and fundamental considerations. There seems to be a similar fever pitch for the fall of 1.5000 to what we saw with 1.3000 in December of 2004. (The first test failed in January 2004, printing a double top and performing to spec.) Technically, it wouldn’t violate the fundamentals too much for 1.5000 to crack this time around — fundamentally derived values are very elastic in the spot markets. Supporting the argument for a move to the upside is the consolidation in the 1.4300 to 1.4950 range, suggesting a possible bullish pennant or flag on the daily chart. If the pattern is true, my next target for this pair would be just below 1.6000. A failed pattern would suggest a target of 1.3650.

The hourlies suggest, for the moment, ranging action with a probable retracement to the 1.46 handle. There are a few levels of support on the way, so it could be a grind lower. My bias for swing trades is to look for short plays from 1.4890/1.4900 on Monday with strong intraday confirmation. I my even consider selling a rally below 1.4850. This is what my model is telling me, at any rate, and any decision will depend on the technical picture at Monday’s London session open. If I see a range developing, I would consider small longs starting at 1.4750, with my mood improving for longs toward the 1.46 handle. A true swing play would again be a long trade at 1.4450, but I would reduce size to accommodate the necessary wide protective stop. I don’t expect an opportunity at this price point for several days, however.

The idea behind these trades is to exploit average daily excursions, keeping size small and reducing risk by aggressively adjusting protective stops, taking partial profits or closing trades at the first reasonable signal. These are considerations for the hourly charts only. On the daily charts, my bets are long between 1.44 and 1.45, targeting 1.48 and possibly higher, depending on respective interest rate and macroeconomic outlooks for the base- and countercurrency as they unfold.

I have a few discretionary trades already planned in the event new highs are established. They basically involve trading any clean pullbacks of breaks above at round number support, or where obvious areas of stop clusters have been wiped clean. Possible areas could be 1.4975/1.4980, 1.5000, and 1.5020/1.5025. I am not at all sure this pair will crack 1.5, but if it does, it makes sense to take the risk and trade long at intraday value.

There is a lot going on with the USD and the EUR. I could write about the COT report. I could write more about interest rate outlooks at 3 months, six months and one year. I could write more about production, consumption and international capital flows. I could also write more about bond yields, commodities and the futures markets. And of course there are the options plays to consider in tandem with volatility studies. All of these can assist with identifying spot prices at which trade opportunities may be found, on both long term and intraday charts.

My gut tells me this pair will be choppy throughout the week as fresh data is released. Of course, whenever I say this, the pair moves cleanly. So take what I have to say with a grain of salt. I’m sticking to my models, while being fully aware of significant event risks playing out and with more to come. I’m keeping bets small.

I’ve got my eye on other charts – and there are some beauties out there, but time constraints limit me from more posting more write-ups. Tomorrow, I may write something up on the USDJPY and it’s crosses, or the EURGBP, or the GBPUSD.

Gav: Take a look at the EURAUD daily chart. (I’m sure you’ve been watching it.) Could be an interesting fade play if price bounces back up into the busted pattern.

TLT

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This is my first post for MtM and I hope it will not be my last. I have a very different style than everyone here and my process is a bit on the rudimentary side. That said, I love currencies and I hope Richard and the gang think this information is interesting enough that they’ll keep me around. And I hope to get a lot more discussion here than if I were to post it on my pathetic excuse for a blog.

I am throwing up this chart of EURUSD to show how much backing and filling there is compared to other pairs in what should otherwise be a clear trend for the week. This pair is also a very good barometer of what spot market players think of the USD in relation to the rest of the board. (Just my opinion.)

I suspect that Monday was about establishing early positions ahead of an anticipated rate cut. (Much like the previous Friday, some would say.) Some pundits were saying 0.50 and some were saying 0.25, but behind that was a notion the Fed funds rate would reach 3.0 – if not by Wednesday, then at the next meeting. Off the cuff forecasts from FX traders predicted EURUSD would crack 1.5 later in the week. Interest rate outlooks for other currencies may have clouded the picture, however. (More to follow on that later.)

The consolidation seen on Tuesday is a common occurrence before a rate announcement, as I’m sure everyone knows. This happens even when there are major macro surprises. There was, in fact, significant data released on the day. A new low was recorded in new home sales for December and for 2007 – a 12-year low, as it turned out. There was also a US durable goods surprise to the upside amidst mixed economic data from the EZ.

Wednesday proved to be very volatile as somewhat suggestive (but mixed) inflation and production data again coaxed players into positions before the rate announcement. At this point, everyone was waiting to see whether the cut would be 0.25 or 0.50. There was absolutely no doubt in anybody’s mind that there would be a cut. The bias was for the latter.

Thursday’s rejection of 1.49 was probably due to two main factors. The first, of course, was profit taking at the end of the NY trading session. The second, related in part to the first, is something that often happens after a very volatile day – with no new long orders coming in due to the mixed data that day, institutional and prop traders come in to take advantage of the path of least resistance in thinner markets. This sets up a “see-saw” type of action that some prefer to call chop. It can last for several hours or even days, depending on what is occupying the minds of traders. This time around, it was the upcoming NFP in a decidedly USD-bearish context.

Freaky Friday did not fail to impress, as the downward NFP surprise delivered another victory to doomsters. There was plenty of price action for the pros to pick off manic gamblers as well. It was a feeding frenzy, as can plainly be seen on the charts. It wasn’t the ugliest day for the fish by any stretch, but it was bad.

Let’s talk about Friday a bit more, because there are some good lessons in the price action. The initial NFP figure of -17K was well below the forecast of 70K. This, combined with lower hourly earnings and a decrease of only one tenth of a point in unemployment (not, I would argue, statistically significant), was enough to compel hundreds of thousands of nervous little clicks all across the retail and institutional trading universe. All those itchy fingers pushed price through stops to Friday’s high of 1.4956 bid.

Then the revisions come out – a whopping 64K to the upside for November and almost as much to the downside in October. Seems the NFP report apparatchiks are producing a lot of large monthly revisions these past few years. The November revision was key here and it became clear to USD shorts that a bear trap had been set, but only after it caught just about everyone on the long side by surprise. (I’m sure it caught a few on the short side by surprise as well.) EUR longs were liquidated, creating a short side cascade. By the time the day was over, price had closed near the day’s lows.

So Friday shaped up to be a bearish outside day for the EURUSD and, as if that weren’t enough to cast a bit of a pall on long positions, there is the specter of a triple top forming – although it has a ways to go on the dailies before I would come out and call it that. Upward pressure should continue to keep the pair buoyant in the near term and I would not be surprised to see another run on 1.5 very soon.

To sum up, data from the EZ was mixed, with the only growth-worthy indicators being the PMI figures across Europe. In the US, data was mixed as well although on the whole it was decidedly bearish. Technically, the EURUSD trend remains long, although its strength has to be in question at this point. There are few prospects for growth on either side of the equation and the rate outlooks are not too different.

Tomorrow I’ll take a look at EURUSD going into next week, as well as some other pairs, and try to identify possible areas of opportunity.

One more thing. There are probably errors in this analysis. And the rest is just my opinion. Please take pity on me and point these errors out.

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

In my prior post called “The Worst It’s Ever Been?“, I compared the current market environment with three prior market crashes (1929, 1961, and 1987) in the Dow Jones Industrial Average. This was all sparked by a chart that Barry Ritholtz posted on The Big Picture. On the prior post, Bill Rempel left a comment asking “What’s your assessment of the four-year period BEFORE each date?”

Good question! I found a great site called Measuring Worth that has historical closing data for the DJIA going back to 1885(!) among other cool datasets. I was able to take the crash data I plotted yesterday, and append four years worth of data to the front of each set. (One note: I erroneously referred to the y-axis of each chart previously as “% Decline from Peak”, where what I was really showing was “% of Peak Value”. You knew what I meant, though :P )

Here’s the first extended chart, showing % of Peak Value vs. Trading Days. The legend gives the starting year of the dataset:

For a slight adjustment we ratio each time series into equal parts as I did previously:

From this chart, two things are evident to me. First, 1929 and 1987 both had quite a run-up going into the crash, while 1961 and 2007 have a much more moderate advance prior to the peak. These first two seem like bubble bursts in every sense, with a fast, dramatic crash ending a spectacular and ever-accelerating rise. The latter two seem to behave more like secular bear markets, with not a lot to show for 4.5 years of time one way or the other, with rallies and even declines taking quite a bit of time to form.

From this analysis, I would expect our current market environment to behave in future more like a 1961 and less like a ‘29 or ‘87. Any continued decline should be moderate, and I would stick to the 70% of peak number that I referred to earlier as a downside target for the Dow. Further, I would also expect the current market to decline more slowly and steadily rather than over only a couple of days. Now that we know the big weekend sell-off was caused by “Le Societe Genius-ale” and their fall guy (Rogue Trader my @$$), I would lean even harder in the direction of “slow and steady bear market” instead of a true market crash for the future. Caveat: Should more sub-prime, credit-default swap or other financial atom bombs drop, we could be in for more market fireworks. Heck, even The Beard arguably lost his head during the big sell-off as SG liquidated their position! People are jittery, and should they all decide to run for the exits, then all historical bets could be off. Should be fun times ahead in any case!

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

Barry Ritholtz from The Big Picture recently posted a chart of three prior stock market crashes in the S&P compared with our current market environment. There were some comments about the charts not being to any kind of scale to each other. I wanted to analyze a bit more. Of course this is all moot, thanks to the Beard Power unleashed last week, but indulge my study for the pure academia ;)

Unfortunately, being the cheapskate I am, I didn’t have access to free data for the S&P past 1950. So I took historical data for the Dow Jones Industrial Average from Yahoo Finance instead. I tried to isolate the data that was used in the Big Picture post. My charts of the Dow are above the charts Barry posted of the S&P:

Source: Bronson Capital Markets and http://bigpicture.typepad.com/

As you can see, I think I match the time periods in question pretty well. I then plotted them all on the same chart on a basis of percent correction from the peak vs. trading days after the peak:

To non-dimensionalize the time factor, I plotted the data against a ratio of start-to-finish time. For 2007, I assumed that if the current correction is indeed a crash it will follow the 1961 and 1987 time ratios fairly well:

The data from the 1929 crash really went on for a long time compared to the other crashes. When you isolate it to the first trading year after the peak, and ignore the protracted bear market through 1933, you get a more congruent picture:

Still, the data is not similar in that the 1929 data contains a large rally before the ultimate resumption of the killer bear market. I decided to truncate the 1929 data after the first higher low (at 79 trading days or 12/23/1929) as the 1961 and 1987 datasets seem to have been truncated. This would mark the end of the crash and the beginning of a new upward trend phase. The curves then collapse in a very satisfactory way:

Should this time prove to be a true crash, we can expect (according to historical average) to hit around a 70% decline from Dow 14,000 putting us near Dow 9,800. To stay on target for a similar timeframe, it would have to come sometime in the first two weeks of February. We’ll see if it all pans out and my assumptions are correct. It should be an interesting few weeks either way!

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

Fade the Beard and get shaved. Behold:

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

I really like Renko bars, still. And yet, I’m still too lazy to try to trick Tradestation into refreshing the data in realtime. Go figure.

Watch this post's video on Youtube

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