Sunday, February 19, 2012

Left Behind, Chasing Armageddon

Rapture Sky

The current market environment is rather strange right now.

Based on mainstream news and online media, widespread fear and uncertainty seem to be at all-time highs, yet the stock market is exhibiting extreme complacency, and appears well on its way toward retesting its all-time historic highs.

How can that be?

What is driving these markets higher? All I can think of is that the US equity market is currently dancing to the tune of bullish contrarian strategies in the face of a fundamentally dire backdrop to which EVERYONE (including the general public) is most keenly aware.

For the time being, this contrarian effect in concert with a whole lot of interventionist help from the most powerful central banks on the planet is sealing the bullish deal.

Argh you say, you don’t want to go near any of these markets with a ten-foot pole. It’s all rigged, and everything will crash again sooner or later.

We can’t really blame you for feeling that way. Such an outcome is certainly possible if not likely – but from where say might the Dow crash from – 14K, 18K, 20K, or even higher?

Miserable Bear

In addition, if the markets do turn down, wouldn’t you like to know when it is most prudent to short the new downtrends? Regardless of whether we get another bullish crack-up boom or a devastating market decline, do you really want to be left that far behind, again?

Seriously, setting aside the absurdity, hubris, and folly in taking stabs on calling entries and exits at absolute tops and bottoms, our empirically proven trading strategies are fully capable of recognizing when a major bottom or top has clearly reversed course and has begun trending in a new direction.

Granted, sometimes we have to pay the premium in getting head-faked and whipsawed regardless of which side of the market we are on, but overall, that is a small price to pay when one compares it to feeling completely left behind.

The inevitable head-fake/whipsaw premium is also a very reasonable price to pay for long-term success and staying power, and it assures that we will never take too big a hit or get train wrecked beyond repair.

Ch-Ch-Changes – Turn, and Face the Strain

Sure, times are changing, but change is constant. At times, change is imperceptible, and at times, it appears much more pronounced.

As we move into the balance of 2012, and reflect on what has taken place over the past three years, change and paradigm shifts of significance certainly feel much more intense than typical.

1988 Rapture Book

How many times throughout history has humankind been compelled to believe that a catastrophe or that the end of the world was imminent? If you answered, countless times, you would be correct.

However, this time, you may find yourself believing that this time it really is different, and what we are about to experience is the real McCoy – Armageddon by any other name.

Hell, with the Mayan calendar locked and loaded amid its well-publicized countdown to doomsday slated for December 21, 2012, given the current state of rising global unrest, wars, debt, imbalances, corruption and the like, everything is most assuredly going to collapse into a global state of anarchy.

Hmm, I guess just about anything is possible, however it really does matter what the mathematical odds are when such reasonable logic and fundamentals are pitted against a financial system that is much like the Universe, sharing in common with it a highly ordered but randomly violent complex system that was created from nothing.

Think back to 1995, which marked eight years following the largest single-day catastrophic wipeout amid the infamous world-ending Crash of ’87, when the Dow was trading near 5700.

At the START of the BULL in 1995

What happened to all of the obedient disciples buying into the cult of Robert Prechter’s pronouncement of an impending bearish RAPTURE way back in 1995?

His compellingly brilliant and dogmatic proclamations that the world was at the “Crest of a Mega-Bearish Tidal Wave” in 1995 was supposed to have saved each of those souls who believed. What happened?

That is exactly right; they were all “Left Behind.” They watched in horror as the Dow threw over that famous rising wedge, pulled back a smidgeon, and then took off like a rocket and never looked back.

Stranded Bear

Trust me; I was one of those initially left behind, and it stung like a bitch.

Timing is Everything

Sorry, but the bear markets of 2002 and 2008 provide absolutely no redemption for such a profound dogmatic error.

Why not, simply because at the absolute print lows associated with both of these bear markets, prices remained more than 20% higher than they were at the time Mr. Prechter staunchly held to his Crest of the Tidal Wave end-of-the-world thesis. Timing matters.

Hey, don’t get me wrong – I respect Mr. Prechter and consider him a brilliant analyst and marketer.

It’s just that you cannot effectively trade, forecast, or invest effectively if you dogmatize or become married to a thesis even though it may be based upon a highly logical, compelling set of fundamental arguments in concert with a host of meaningful technical reasons as to why you must remain a staunch, committed and unwavering believer.

Lessons of the Past

Ancient Bear

I first began to pay attention to financial markets following the crash of ’87.

By 1991, I had a laser focus on the financial sphere studying and absorbing reams of Elliott Wave & Dow Theory, Gann, Pring, Murphy, CANSLIM, Buffett, etc. You name it, I devoured it cover-to-cover, inside out, frontwards and backwards.

After putting all of that knowledge to work, I still lost my initial trading stake of 10K in about 12-months time.

Though completely devastated, I never gave up, and by the time the Dow hit 7500, I retained what proved useful, abandoned all of my false gods and market religions, cast all dogma and bias aside, and began developing my own strategies, techniques, and unique way of charting and navigating the markets.

Since then, I have naturally recovered all of those initial losses and have decisively outperformed the S&P benchmark without any trouble at all.

I have since made it my mission to help as many individuals and entities avoid the common mistakes that I once made.

For long-term investors not keen on “trading” or becoming emotionally paralyzed by the noise and fervor of day-to-day news and the dire /grandiose proclamations of things to come, I have created the Guardian Revere Long-Term Trend Monitor, which is about as simple and EFFECTIVE as it gets in terms of timing the markets over the long haul.

My goal is to share with integrity what I firmly believe to be extremely valuable insights and quantified strategies and methods that I have acquired throughout my 21-years of devotion toward mastering the extremely elusive craft of trading, market timing, charting, and forecasting.

 

Wisdom for the Future 

Polar Bears Hanging OutElliott Wave Technology has made many improvements and upgrades over the past eight years, and if you have yet to see our most recent product upgrades in action, you will soon be in for a treat.

For starters, we have a brand new website and delivery platform.

In addition to our first-in-class charting and forecasting services, we have added a full spectrum solution, the Chart-Cast Pilot, which based upon our proprietary and EMPIRICALLY PROVEN trading strategies, relays and tracks actual trades and performance metrics in three different timeframes.

In order to get a broad, in-depth sampling for precisely what each of our solutions offers, you can click on the “get samples” links within any of our solutions pages. 

You can also check us out at the Elliott Wave Technology YouTube channel . I trust you will find that our record of forecasting and navigating these markets remains second-to-none.

For a more current update, if not already attached, readers may email us to acquire complementary copies of our latest Feb-17 issues of the Near Term Outlook, and Chart-Cast Pilot publications.

We trust that this will earn your loyal confidence. We urge you to come back and join us as we continue nailing the shit out of these markets, while at the same time, making certain that we avoid all serious danger and undue risk.

I hope that you have enjoyed this communication and the accompanying files. I will gladly answer any questions you may have, and look forward to welcoming you back to the mission.

Until next time,

Trade Better / Invest Smarter

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Thursday, February 16, 2012

Central Banks Flooded The World In Liquidity Last Night

Central Banks Collectively Inflate

There are those who have been waiting to buy undilutable precious metals in response to a headline announcement from the Fed that it is starting to buy up hundreds of billions of Treasury's or MBS.

By  Tyler Durden – Thu Feb 16, 2012   2:00 AM   ZeroHedge

This is understandable - after all that is precisely the trigger that the headline scanning robots which account for 90% of market action in the past year are programmed to do. And the worst thing that one can do is put on the right trade at the wrong time. Yet it may come as a surprise to some, that while the world was waiting, and waiting, and waiting, for Bernanke to hit the Print button, virtually every other central bank was quietly unleashing it own mini tsunami of liquidity. In fact, as Morgan Stanley puts it, "the Great Monetary Easing Part 2 is in full swing."

But wait, there's more: in an Austrian world, where fundamentals don't matter and only how much additional nominal fiat is created is relevant, it is sheer idiocy to assume that the printers will stop here... or anywhere for that matter. They simply can't, now that the marginal utility of every dollars is sub 1.00 relative to GDP creation.

This means that by the time the Global Weimar is in full swing, we will see much, much more easing. Sure enough, MS anticipates an unprecedented additional round of easing in the months ahead. So for those waiting to buy gold et al at the same time as DE Shaw's correlation quants do, the time will be long gone. Because slowly everyone is realizing that it is not the Fed that is the marginal creator of fake money. It is everyone.

Behold, the Great Monetary Easing part 2:

The great monetary easing

MS Summary:

The Great Monetary Easing Part 2 is in full swing – and begets inflation risks. Global monetary policy interconnectedness, the impact of central bank easing on commodity prices, and the possibility of an improved outlook for the real economy could mean a return of the Global Inflation Merry-Go-Round:

1) Super-expansionary monetary policy in the major developed economies, particularly the US, a) contributes to commodity inflation and b) is imported by EM central banks through (US dollar) soft and hard pegs.

2) Price pressures rise in EM due to domestic overheating and higher commodity prices. Inflation is then re-exported to DM through more expensive goods exports.

3) More expensive imports from EM and dearer commodities raise inflation in DM. In turn, DM central banks initiate the next round by maintaining – or increasing – monetary accommodation.

2013 might yet look like 2011 on the inflation front.

...and Detail:

The Great Monetary Easing (Part 2), is in full swing … In response to a slowing global economy and further downside risks emanating from the possibility of an escalating Eurozone debt crisis, central banks all over the world – and across the DM-EM divide – have been deploying their arsenal for a while now, and should continue to do so. The result is aggressive monetary easing on a global scale – what we have dubbed the Great Monetary Easing, part 2 (GME 2 - see Sunday Start: What Next in the Global Economy, January 22, 2012); this follows on from GME1 in 2009-10. The GME2 is now in full swing. Last week, the Bank of England announced a further GBP 50bn of gilts purchases, to take place over the next 3 months. On Tuesday, the Bank of Japan upped the target of its Asset Purchase Program by 50%, from JPY 20trn to JPY 30trn, with the increment concentrated exclusively on JGB purchases. We think Sweden’s Riksbank will pick up the baton from the Bank of Japan on Thursday and cut the repo rate by 25 basis points.

Half the world's central banks have reqliuified in the past few months!

Out of a total of 33 central banks under our coverage, 16 have eased policy in various ways since 4Q11; 7 out of 10 DM central banks and 9 out of 23 EM central banks. Many of these central banks will ease further, on our forecasts, while the central banks of Poland, Korea, Malaysia and Mexico, which have not cut so far, will also join in (and the National Bank of Hungary will likely reverse its 100 basis points of hikes over the course of the year).

What is surprising, is that the primary beneficiary of these hundreds of billions in excess liquidity from around the world, has so far been the US, where courtesy of the biggest equity market, the reflexive flaw that the stock market is the economy has led to what some have noted is decoupling, when in reality it is merely outperformance of the US stock market, where the bulk of global liquidity has concentrated. And now, like in 2011, that liquidity is starting to spill over again: gas just hit $3.52, and rising ever faster, which just happens to be the most direct, implicit tax on US consumer. And it is now detracting from growth. 

Finally, another way of visualizing the global central banks' balance sheets.

Central Banks Balance Sheets

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Wednesday, February 15, 2012

Stocks Fall Amid Greece Concerns, Apple Pullback

Stocks Decline Greece Concerns - Apple Pullback

U.S. stocks fell amid concern Greece was moving closer to default as Apple (AAPL) Inc. pared gains and Deere & Co. sank after forecasting slower demand from farmers.

By  Rita Nazareth – Wed Feb 15, 2012   1:53 PM Bloomberg

Apple rose 0.1 percent, trimming a 3.3 percent rally, amid reports that the company has pulled its iPad from Amazon.com Inc. in China. Deere & Co., the largest maker of agricultural equipment, fell 3.5 percent after lowering its forecast for U.S. farmer revenue. Comcast Corp. (CMCSA), the largest U.S. cable company, rallied 5.1 percent after authorizing a $6.5 billion buyback as profit jumped 26 percent.

The Standard & Poor’s 500 Index lost 0.3 percent to 1,346.96 at 1:50 p.m. New York time, reversing an earlier gain of as much as 0.4 percent. The Dow Jones Industrial Average fell 84.51 points, or 0.7 percent, to 12,793.77 today.

“It was the perfect storm waiting to happen,” Peter Sorrentino, a fund manager who helps oversee $14.5 billion at Huntington Asset Advisors in Cincinnati, said in a phone interview. “Too many people were positive on Apple. All it takes is a person to yell the emperor has no clothes and people head for the exits,” he said. “Plus, there’s not a real strong case that this market was poised dramatically higher. People just keep trying to delay the Greece situation.”

Global equities rallied as China pledged to invest in Europe’s bailout funds and sustain its holdings of euro assets. Stocks pared gains as Reuters reported that euro area finance officials are investigating delaying parts or all of the second bailout while still avoiding a disorderly default.

 

Patent Dispute

Stocks reversed gains as Apple, the nation’s biggest company by market value, tumbled as much as 1.5 percent. Marbridge Consulting said the company asked Amazon China and other websites to stop selling the iPad amid a patent dispute.

Production at U.S. factories increased in January, reflecting gains in demand for U.S.-made automobiles and business equipment that may keep manufacturing at the forefront of the expansion. The Federal Reserve today releases minutes of its last meeting when policy makers decided to extend the central bank’s pledge to keep borrowing costs low until at least late 2014.

The S&P 500 yesterday closed about 1 percent away from its peak nine months ago of 1,363.61, which was the highest level since June 2008. The index has risen 7.1 percent this year as the U.S. economy showed signs of accelerating and European leaders moved closer to a solution on the region’s debt crisis.

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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U.S. Stocks Rise as China Says It Will Get More Involved in Europe Rescue

China-Euro alliance

U.S. stocks advanced, following yesterday’s decline in the benchmark Standard & Poor’s 500 Index, after China said it will get more involved in a solution for Europe’s sovereign debt crisis.

By  Rita Nazareth – Wed Feb 15, 2012   9:31 AM Bloomberg

The S&P 500 added 0.2 percent to 1,353.23 at 9:31 a.m. New York time.

“The key feature is a much more hopeful prospect for the euro zone and a deal in the making for Greece,” said Mike Lenhoff, chief strategist at Brewin Dolphin Securities Ltd. in London. “That’s why the S&P 500 is a smidgen away from a high of nine months ago. And to some extent, it’s cheered on by the position China’s taken.”

Global equities rallied as China pledged to invest in Europe’s bailout funds and sustain its holdings of euro assets. Stock futures pared gains amid concern that officials in Europe and Greece were moving further apart as they try to negotiate a bailout to help the nation avoid default.

In the U.S., output at factories rose 0.7 percent in January after a revised 1.5 percent gain in December that was the largest in five years, figures from the Federal Reserve showed today in Washington. A 2.5 percent decline in utility output caused total industrial production to be little changed, less than forecast. Manufacturing in the New York region expanded in February at the fastest pace since June 2010, according to a separate report.

The S&P 500 yesterday closed about 1 percent away from its peak nine months ago of 1,363.61, which was the highest level since June 2008. The index has risen 7.4 percent this year as the U.S. economy showed signs of accelerating and European leaders moved closer to a solution on the region’s debt crisis.

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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Greek conservative takes bailout pledge to the wire

Greek Bailout Pledge

(Reuters) - Greek conservative leader Antonis Samaras will send a letter of commitment to the terms of an EU/IMF bailout deal within the day, a party source said on Wednesday, with the country's bankruptcy rescue hanging in the balance.

By Dina Kyriakidou – ATHENS | Wed Feb 15, 2012  9:01 AM  Reuters

Euro zone finance ministers had cancelled face-to-face talks on the 130-billion-euro ($170 billion) deal on Wednesday, saying they had yet to receive written pledges from Greek political party leaders to stick to punishing spending cuts, or clarification of all the savings.

"The letter will be dispatched within the day," a New Democracy party source told Reuters on condition of anonymity. Doubt has focused on Samaras, Greece's likely next prime minister and a strong critic of the austerity measures.

Ministers of the Eurogroup downgraded the Brussels meeting -- originally planned for 1700 GMT -- to a conference call.

Greece needs the funds by next month to avoid a messy bankruptcy.

The Eurogroup is next due to meet on Monday, but Greece has said it must initiate a debt swap deal with private sector bondholders by Friday if it is to meet a March 20 for 14.5 billion euros in debt repayments.

The Eurogroup had asked Greece to clarify how it would fill a 325-million-euro gap in budget cuts promised for 2012 and to persuade all party leaders to sign a commitment to implement austerity measures after an election expected in April.

"It's true we are asking the Greeks for some extremely painful sacrifices and I understand their anger, but Greece has made many errors in its past," French Foreign Minister Alain Juppe told France Info radio on Wednesday.

"It (the bailout) must be concluded because if Greece went bankrupt and left the euro zone, the chaos would be even worse for the Greek people and very bad news for the euro zone."

The cabinet of Prime Minister Lucas Papademos discussed the gap in the 3.3-billion-euro austerity program late into Tuesday evening. But there was no official clarification of where the savings would come from.

ACCELERATING CONTRACTION

Samaras has criticized the punishing new cuts in wages, pensions and jobs adopted by parliament early on Monday as rioters wrecked buildings across central Athens.

He voted for the bill, and expelled a quarter of his deputies who did not. But he says the cuts could plunge the country, already in its fifth year of recession, into an even bigger slump.

When parliament debated the austerity package on Sunday Samaras indicated that he would try to renegotiate the terms of the bailout, increasing doubt in the minds of European leaders.

"The timeline to 20 March is getting tighter, but Europe is still more likely than not to rescue Greece from disorderly default," Christian Schulz, senior economist at Berenberg bank, said in a note.

Some EU leaders have suggested Athens should leave the euro zone currency union.

The EU and IMF want Greece to account for every cent of budget cuts before they approve the rescue, which includes a bond swap, cutting the real value of private sector investors' bond holdings by some 70 percent.

But Greece's downward economic spiral has accelerated. Data on Tuesday showed that the economy shrank by seven percent in the fourth quarter of last year, even more than the five percent contraction of the third quarter.

Greece is well on its way to suffering one of the biggest slumps of modern history. Gross domestic product has contracted 16 percent from its peak and the austerity will make that worse.

Papademos has said that failure to back the bailout would consign Greece to economic catastrophe.

But with many Greeks suffering huge cuts in their living standards and young people burning and wrecking almost 100 Athens buildings in one night on Sunday, some people believe the catastrophe is already under way.

"On the current path - which is not sustainable in my view - we may very well see Greek GDP go down 25-30 percent, which would be historically unprecedented. It's a disastrous crisis for them," said Uri Dadush, at the Carnegie Endowment think tank in Washington.

That would put Greece in the same league as the United States, where the economy shrank 29 percent during the Great Depression.

($1 = 0.7616 euros)

(Additional reporting by Renee Maltezou in Athens, Alan Wheatley and Scott Barber in London, Aileen Wang in Beijing; Writing by matt Robinson)

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Monday, February 13, 2012

Stocks, Commodities Rise After Greece Approves Austerity Plan for Bailout

Stock Rise on Greek Bailout

Global stocks rose, rebounding from the biggest loss of the year, and commodities climbed after Greek lawmakers approved austerity plans to secure rescue funds. Treasuries climbed, while the euro reversed early gains.

By Stephen Kirkland and Rita Nazareth - Feb 13, 2012 4:41 PM  Bloomberg

The MSCI All-Country World Index (MXWD) added 0.8 percent at 4:30 p.m. in New York after slumping 1.2 percent on Feb. 10. The Standard & Poor’s 500 Index climbed 0.7 percent to 1,351.77. The euro was little changed at $1.3194, erasing a gain of as much as 0.7 percent. The S&P GSCI index increased 1 percent as 13 of 24 commodities advanced. Yields on 10-year Treasuries dropped one basis point to 1.98 percent.

The S&P 500 climbed to within 1 percent of a three-year high reached in April. Passage of the austerity bill puts the spotlight on a Feb. 15 meeting of euro-area finance ministers who must decide whether to approve the second bailout. Rioters protesting the measures battled police and set fire to buildings in downtown Athens. Italy met its target at an auction today, selling 12 billion euros ($16 billion) of bills as borrowing costs fell.

“We still think you should buy stocks,” Laszlo Birinyi, president of Birinyi Associates Inc. in Westport, Connecticut, said in a Bloomberg Television interview in London today. “It’s a continuation of the bull market and we’re encouraged by what we are seeing in Europe. I look at the markets, I find they are strong. There’s real buying going on. This is not short-covering or a temporary or transitory thing.”

Rally Resumed

The S&P 500 climbed for the fourth time in five days and rebounded from its first weekly loss of the year. The index, which is up 23 percent from last year’s low in October, trades for about 14 times its companies’ reported earnings and has been stuck below its five-decade average valuation of 16.4 since May 2010, the longest stretch since a 13-year span beginning in 1973, data compiled by Bloomberg show.

Financial, technology and industrial companies contributed the most to the advance in the S&P 500 as nine of 10 industry groups gained. Caterpillar Inc., United Technologies Corp. and Chevron Corp. rose more than 1 percent for the top gains in the Dow Jones Industrial Average, which increased 72.81 points to 12,874.04. Chesapeake Energy Corp. rose 2.4 percent after the natural-gas driller said it’s targeting as much as $12 billion in asset sales and joint ventures this year.

Apple Inc. (AAPL) advanced 1.9 percent to exceed $500 a share for the first time, as a two-week gain spurred by the iPhone maker’s first-quarter earnings report approached 20 percent.

‘Key Stocks’

“Apple is one of the key stocks in the whole market and it’s really driving things right now,” said Steve Kilcullen, head of flow derivatives sales for the Americas at Nomura Holdings Inc. in New York. “No one expected this move we’re seeing after they crushed earnings.”

More than 50 companies in the index are scheduled to report results in the coming week, data compiled by Bloomberg show, including Deere & Co. and Comcast Corp. Per-share profits have topped analyst estimates at 70 percent of the 331 companies that released results since Jan. 9, data compiled by Bloomberg show. Earnings-per-share have increased 3.9 percent for the group on 7 percent sales growth.

President Barack Obama sent Congress a $3.8 trillion budget plan today with stimulus spending and tax increases for the wealthiest Americans, spelling out election-year priorities that are certain to draw Republican opposition. Obama is proposing more money for jobs, highways and bridges, schools, student aid and manufacturing research as well as higher taxes for corporations, banks and oil, natural gas and coal companies.

The U.S. dollar weakened against 12 of 16 major peers and the Dollar Index, which tracks the U.S. currency against those of six trading partners, dropped 0.2 percent. The New Zealand dollar surged 0.9 percent against the greenback, while the Australian dollar advanced 0.6 percent.

European Stocks

The Stoxx Europe 600 Index rallied 0.7 percent as almost three stocks gained for every one that fell. Cable & Wireless Worldwide Plc (CW/)surged 45 percent after Vodafone Group Plc, the world’s largest mobile-phone company, said it’s in early stages of evaluating a potential offer for the company.

The extra yield investors demand to hold Italian 10-year bonds instead of benchmark German bunds fell three basis points to 367 basis points. Italy sold 365-day bills priced to yield 2.23 percent, down from 2.735 percent last month. Germany auctioned 3.01 billion euros of six-month debt.

The cost of insuring against default on European government bonds fell for the first time in four days. The Markit iTraxx SovX Western Europe Index of credit-default swaps on 15 governments declined 0.8 basis point to 328.

Oil Embargo

Oil in New York climbed 2.3 percent to a one-month high of $100.91 a barrel. Overseas Shipholding Group Inc., the largest U.S. crude-tanker owner, said on Feb. 10 that the pool in which its ships operate will no longer go to Iran after the European Union agreed to an oil embargo. Natural gas declined 1.9 percent for the biggest drop among 24 commodities in the S&P GSCI Index.

The MSCI Emerging Markets Index (MXEF) added 1 percent, following a 1.8 percent slide on Feb. 10, the biggest drop since November.

The Tel Aviv Stock Exchange’s benchmark TA-25 Index was down 0.1 percent after Israeli embassy personnel came under attack in India, leaving four people injured, and an attempt to blow up an Israeli car in Georgia was thwarted. Prime Minister Benjamin Netanyahu blamed both incidents on Iran.

Russia’s Micex Index (MICEX) jumped 2.3 percent as oil producers rose. Erste Group Bank AG helped lead the Czech PX Index (PX) 2 percent higher. Benchmark indexes Hungary, Poland, South Africa and Turkey gained at least 0.9 percent. The Hang Seng China Enterprises Index (HSCEI) of Chinese companies listed in Hong Kong climbed 0.6 percent.

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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Greek Bailout

Greek Bailout

European finance chiefs get the second chance in a week to pull Greece back from the brink of collapse after lawmakers in Athens approved the austerity measures demanded for a financial lifeline.

Bloomberg | 02/12/2012

Greece “will be saved in one way or another,” German Finance Minister Wolfgang told newspaper Welt am Sonntag yesterday, though the country must “do its homework.”

Euro-area finance ministers will convene in Brussels on Feb. 15 for an extraordinary meeting called after they declined to ratify the 130 billion-euro ($172 billion) package in a special session on Feb. 9. Frustrated after two years of missed budget targets, the European authorities demanded Greek officials put their verbal commitments into law.

The Greek parliament passed the legislation in the early morning hours today as rioters battled police and set fire to buildings in downtown Athens. Still, Schaeuble told German lawmakers on Feb. 10 that Greece was set to miss deficit goals, suggesting that the measures may fall short.

“I’m really wondering now whether so much damage has been done that this marriage no longer can be rescued,” Erik Nielsen, chief global economist at UniCredit SpA (UCG) in London, wrote in a note to clients. He predicted that the measures would be approved and that Greece will be able to make a 14.5 billion- euro bond payment on March 20.

Euro Gains

Global stocks and the euro rose after the vote in Athens. The euro gained 0.5 percent to $1.3262 at 10:21 a.m. in Berlin, edging back up toward a two-month high against the U.S. dollar that it lost on Feb. 10 after the finance ministers’ decision.

European finance ministers ended their meeting last week with Luxembourg’s Jean-Claude Juncker saying Greece must turn budget cuts into law, flesh out 325 million euros in reductions and have major party leaders sign up to the program so they don’t retreat after elections as soon as April.

Chancellor Angela Merkel plans to ask German lawmakers to vote on the next bailout on Feb. 27, pending the terms for securing aid being met by Greece. Other euro governments including the Netherlands and Finland have yet to schedule a date for parliamentary votes.

Schaeuble told legislators that current plans would leave Greece’s debt as high as 136 percent of GDP by 2020, according to two people in the meeting. That compares with the 120 percent foreseen in the second bailout, down from about 160 percent last year. Schaeuble was briefing on estimates from the so-called troika of international creditor assessing Greece’s program.

Awaiting Troika

Germany, as the largest contributor to euro-area bailouts, wants to see the latest report on Greece’s record of implementing measures compiled by the troika of the European Commission, European Central Bank and International Monetary Fund before a majority can be mustered in parliament, Economy Minister Philipp Roesler said today on ARD television.

The Greek vote “was a necessary condition but implementation of these measures is what counts,” Roesler said. “We’re waiting for the troika report on what progress Greece has made.”

More than two years after the debt crisis emerged in Greece, European leaders face international pressure to do more to tackle the source of contagion that threatens to drag down the global economy. Group of 20 nations have signaled they won’t reach a consensus on crisis aid for Europe via the International Monetary Fund at a Feb. 24-26 meeting of G-20 finance chiefs until Europe increases the size of its firewall.

‘Critical Juncture’

The sovereign debt crisis is at a “critical juncture,” Chinese Foreign Ministry spokesperson Liu Weimin said at a briefing in Beijing today, urging Europe to move beyond contingency measures. The European Union needs to “take active measures to respond to the European debt issue,” Liu said.

In Athens yesterday, Greek Finance Minister Evangelos Venizelos yesterday urged lawmakers to “choose the bad to avoid the worst” after Greek party leaders over the weekend backed the measures to secure the 130 billion-euro package and avoid a disorderly default.

Before the final debate started, Prime Minister Lucas Papademos appealed to Greeks to support new measures, including a 22 percent reduction in the minimum wage, smaller pensions and immediate job cuts for as many as 15,000 state workers.

“We are looking the Greek people straight in the eye with full knowledge of our historical responsibility,” he said in a televised address. “The social costs that come with these measures are contained in comparison to the economic and social catastrophe that will follow if we don’t adopt them.”

Debt-Swap Deadline

Part of the rescue included a bond swap intended to slice Greece’s debt load. The swap for new 30-year bonds with an average coupon of as low as 3.6 percent would cut 100 billion euros off more than 200 billion euros of privately held debt. Venizelos said the country needs to make a formal offer to private bondholders for a debt swap by Feb. 17.

The ECB also came under pressure to extend relief. President Mario Draghi last week left open the possibility of passing up profit on Greek debt held by the central bank, though he rejected selling it to the European bailout fund at a loss.

Greece has stumbled over the last two years in meeting reform targets in return for aid, citing a deepening recession now set to worsen. Unemployment climbed to 20.9 percent in November, as industrial production falls.

Joachim Fels, chief economist at Morgan Stanley, in a note to clients repeated his assessment that policy makers shouldn’t rule out the “really, really bad scenario” of Greece leaving the monetary union.

“I’m more than unhappy with the political cliffhanger taking place in Greece over the past few weeks,” German Foreign Minister Guido Westerwelle told this week’s edition of Der Spiegel magazine.

To contact the reporter on this story: Patrick Donahue in Berlin at pdonahue1@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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Friday, February 10, 2012

How Does a Corrupt Fed & Treasury Spell Success?

VIX-ThumbIn short, V-I-X, they spell success by keeping the VIX beneath 20. To accomplish this, they must use whatever means necessary to coerce market participants’ behavior toward chasing equities ever higher. The end game is such that inevitably, everything will once again implode precisely because of this wretched game of ignorant subject and omnipotent master.

Below, I explain this interventionist fix in detail from a reprint penned on the topic back in May of 2010. At the time, after a brief respite to the 17.59 level, which marked the height of the first leg of the bailout rally, the authorities lost temporary control as the VIX surged to 34.54 and the Dow corrected to its July 2010 lows.

Fix in the VIX

From there, for the next 11-months they worked toward fixing the VIX all the way down to the 14.75 level, which marked the May highs of 2011. Thwarted by resurgence in questions surrounding existential solvency in the Euro-Zone, they lost control again, this time the VIX rocketed to an extreme level of fear in of October of 2011 at 42.96. Following a five-month decline, dragging the Dow down to a low that tested the level of the first bailout crest, we now find the Fed flirting with success once again.

As 2011 ended, with operation twist and the inference of QE3 and beyond, Vix readings steadily fell toward 20, which aided the seemingly improbable continuation of the rally off the July 2011 lows despite the clear lack of any Euro-Zone resolution.

The big-bang rally, which then launched trade in 2012, reflected this newfound control (coercing participant risk) amid an otherwise intractable financial condition permeating the globe.

Then, on January 19, ignoring all fundamentals of debt and solvency, the market instead continued decoupling, directing its focus on the hopes of another tech-boom supported by the likes of Apple and the promise of a pending Facebook IPO.

Since January 19, the VIX had remained beneath the 20 level until today. Accompanying Friday’s VIX closing at 20.79 was a sudden renewed concern over Greece and a triple digit decline in the Dow.

Relative to the corrupt Fed and Treasury, the current paradox or fly in the ointment is for them to maintain a perpetual levitation in bond prices (low interest rates) or else the Fed’s high-risk balance sheet becomes vulnerable to implosion, and US debt obligations accelerate to more unfathomable levels than they already are.

The balance now rests in juggling this twisted levitation in bond prices (low interest rates) for an extended period with egregiously maligned efforts to keep the VIX beneath 20 in order to spur a further bubble in equities, all while punishing the majority of their baffled subjects otherwise known as the 99%.

To follow the unfolding drama of the cleansing good vs. the interventionist evil, stays tuned, and keep your eyes on the VIX.

 

The Fix in (the VIX)

By Joe Russo, Elliott Wave Technology | reprint from May, 2012

To measure the ongoing success or failure of massive QE "working groups" interventions, all one needs to keep an eye on is the VIX. Readings below 20 suggest, "The FIX is in", whereas readings above 20 diminish the mission control effort to reflate monopoly-saving bubbles.

In effort to maintain control of supreme monopolies, policy makers and monetary authorities have successfully fostered an egregiously false paradigm of ever-rising paper asset values in setting policy and enacting legislation that in effect "FIXES the VIX" to extraordinarily low levels. This fuels rampant speculation, and excessive risk taking without regard for useful gains in productivity and the real economy over the medium or long-term.

Contrarians have historically viewed traditional VIX readings below 20 as excessively bearish, although as highlighted in the green timeframes in the chart below, readings beneath 20 have been quite the “norm” in recent decades.

Conversely, prolonged and/or extremely high readings toward 40 indicate a high degree of anxiety and fear. Contrarian options traders regard such high readings as bullish.

Those orchestrating the so-called "great moderation" have succeeded in keeping the VIX beneath the 20 level for a whopping 48% of the time over the past 24-year time horizon. Doing so was complete MADNESS. The result of such folly clearly goes long way in explaining frequent occurrences of the sheer insanity displayed throughout the financial markets in recent years.

Flawed monetary policy amongst other legislative measures has provided accommodation for inordinate levels of complacency for extended periods, and has proven to engender more frequently acute bubbles and busts. In our view, this lunacy has reached a point of no return whereby rampant speculative bubbles are the only means by which authorities can hope to sustain themselves as viable.

In our view, past periods of the so-called great moderation was nothing more than a gargantuan failure of epic proportion. Since leadership continues to double down - going ALL-IN with an endless supply of manufactured fiat credit, there is no resolution to the paradox beyond continuing to foster such policies in perpetuity. Sadly, this is where we find ourselves today.

With the exception of a very brief respite in 1990-1991, following the crash of '87, the VIX remained excessively bearish from a contrarian perspective (beneath the 20-level) for nearly eight years. That is a long time to maintain contrarian disciplines. Harshly discredited, mainstream cast aside contrarians along with their traditional measures of fear and complacency in favor of the new (sub-20) bubble paradigm.

This set of policy-induced conditions provided for a rather unhealthy and excessive 320% gain in the Dow industrials over an extremely short nine-year period. Of course, that gain eventually blew up and totally evaporated in the crash of 2000-2002.

During the dot.com bust in 2000-2002, monetary authorities went into emergency accommodation mode once again. From 2003 - 2007 they enacted more policies inciting excessive risk-taking, which kept the VIX beneath the 20-level for another four solid years.

From 2003-2007, the Dow advanced amid an "echo bubble" racking up another straight 44 months of continual daily VIX readings below 20. This encore policy-induced echo-bubble busted even harder than the first amid the crash of 2008.

It appears the only way equity markets can continue to advance, is with the full faith and backing of an implied US Government/Federal Reserve backstop of infinite accommodation and bailout provisions.

Over the last 25-years, there have been only two episodes of outright existential panic. Each surpassed typical levels of fear beyond the historically accepted 40-level. Both panic readings registered prints north of 60. The first occurred amid the crash of '87, and the second most recently amid the crash of '08. The flash-crash mini-black swan event, which had more to do with a lack of buyers and liquidity rather than computer glitches, did not even come close to reaching these existential panic zone readings.

We began to pen this article back on May 3 when the VIX chart was appearing "traditionally bearish" but "new-false-paradigm-normal" (bullish). That is to say that the VIX had returned to producing daily closes beneath the bubble zone of safety - registering consistent daily closes beneath the 20-level. Alas, a new bubble mania had apparently begun to manifest amid the persistent V-Shape bailout rally off the March 2009 low.

We rendered the 3-May chart below as this article began to take shape. Before we could finish the piece, the flash-crash of 6-May had come and gone.

Vix 2010 image-1

6-May 2010:

This mini-Black Swan event rocked the daily close on the VIX well north of its safe bubble-zone beneath 20, but nowhere near level s of fear let alone outright panic. In fact, the closing VIX on 6-May had barely reached a level of balance or equilibrium (30) between fear and complacency.

Vix 2010 image-2

Traditionally high VIX readings (40+) usually occur after an extended or sharp decline while sentiment is still quite bearish. Historically, contrarians view high readings toward the 40 level as bullish. As such, it is reasonable to conclude that markets are in a balanced state of equilibrium at VIX readings close to the 30 level.

Conflicting signals between VIX readings and market levels can also yield sentiment clues for the short term. If the market declines sharply and VIX remains unchanged or decreases in value (towards complacency), it could indicate that the decline has further to go. Contrarians might take the view that there is still not enough bearishness or panic in the market to warrant a bottom. If the market advances sharply and VIX increases in value (towards panic), it could indicate that the advance has further to go. In such an instance, contrarians might take the view that there is not enough bullishness or complacency to warrant a top.

In the mind of mainstream financial media, fixed VIX readings beneath 20 (excessively bearish and overly complacent) are "the new (bubble-permitting) normal" that ignorant cheerleaders applaud. To pursue and lobby for such policies of accommodation that foster such readings is foolish, self-destructive, and ultimately suicidal.

In closing, the only way the perpetual denial-based extend and pretend policy wins is with sustained and extended periods of VIX readings beneath the 20-level. Sustained VIX readings above 20 shall exacerbate the already terminal problems occurring at mission control.

 

Until next time…

 

Trade Better / Invest Smarter

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Friday, February 3, 2012

Elliott Wave, Technical Analysis, and Execution

Near Term Outlook GOLD

Forecasting Direction, Price, and Profit Targets

In every market and timeframe of interest, exceptional artistry in the proper interpretation of Elliott Waves in concert with an adept and impartial compliment of cold hard technical analysis provides an essential calm, clarity, and a sense of purpose that is essential in effectively laying out a roadmap, which can accurately forecast market direction, price, and specific profit targets.

Using two recent excerpts from the Near Term Outlook and one older excerpt from the Position Traders Perspective, we use the recent price action in Gold to provide an example of how we share such artistry.

Long-Term Forecasting

We have been tracking the price of Gold for decades. In October of 2010, we documented our body of work in a video entitled “IMPULSE-24kt Gold.” In it, we eluded to an outstanding upside price target we had in place for a price of $1495. One year later Gold subsequently met and surpassed that objective.

In early 2011, we presented the chart below to our Position Traders Perspective members. In it, we illustrated a minimum price and time target for our long-standing $1495 target for September of 2011. At the time, Gold had recently plummeted more than $90 an ounce from a high of $1431.90.

Beyond our minimum upside price target of $1495, we had also set a maximum time and target window for September 2011, which opened at $1463 and closed at $1935.46 on the high end.

On September 6, 2011, Gold reached its current historic print high at a price of $1922.60 – just $12.86 and less than 1% from our topside target for September.

Gold Secular Trend 6mos Forecast for Sept 2011 High

Medium-Term Analysis

In just 14-sessions following its $1922.60 print-high in September of 2011, the Gold price collapsed, dropping $384 shedding nearly 20% of its value. By November, Gold had clawed its way back up toward the $1800 level, which we interpreted as a ‘b’ wave rally at minor degree, which strongly suggested there was still another shoe to drop on the downside.

In late November of 2011, our daily chart studies drew a line in the sand that outlined boundary to a sell-trigger harboring prospects for a $150 decline in the Gold price. On December 12 of last year, price breached beneath that boundary citing a price target for wave ‘c’ of (4) at a minimum downside price objective of $1550 per ounce.

Just 12-session later on December 29, from a price of $1700, Gold was slammed back down and tagged our $1550 target and then some, making its pivotal low at the $1522.60 level.

Short-Term Trading

Just 5-sessions after printing its pivotal $1522.60 low, we observed a rather telling bullish reaction. We immediately drew another line in the sand, this time a short-term buy-trigger, and presented it to our Near Term Outlook subscribers, which cited $113 dollars of upside upon a breakout above it.

Four days later on January 10, the line was crossed, electing long positions seeking an upside price target of $1742. Void of any trade drawdown by February 2, Gold hit our resting limit orders to exit and we collected $11,300 per contract as Gold sailed well beyond our $1742 target on the back of Bernanke’s recent inflationary reiterations.

NTO Gold 1742 Target 

Check Emotions at the door and Keep Your Eyes on the Charts

Sounds and looks easy enough, does it not. Well, as you probably already know, it is not as easy as it looks or sounds. You can stare at charts 24/7 and still have no solid clue as to what you are looking at or what it means.

With practice, you may improve over time but you may also find that your bias (where you emotionally want price to go) is heavily influencing what you are reading in the tealeaves through your newfound talents.

A consistent and reflexive discipline to detach and interpret price behavior impartially is essential - it’s what separates the men from the boys. It’s what we do here year in and year out. Come join us for a few sessions and see for yourself, the first three sessions are free. Your free three-day trial may take your trading game up a notch or two, and in the process, you might just conclude that it’s well worth your while to stick around and become a permanent member, you have nothing to lose.

Until next time,

Trade Better / Invest Smarter

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Thursday, February 2, 2012

Pilot Returns 1.28% in January

HS6ClipImage_4f2a1fdf

For the month of January, the benchmark S&P 500 started 2012 with a big bang, up 4.48% for the month. This is a phenomenal one-month return considering that the average yearly return for the past ten years has been just 3.52%.

Compared to the benchmark, Pilot portfolios underperformed for the month. Our broad market Portfolio was up only 0.51%. Long-term and short-term positions in Gold were our best performers in this category, while short-term trading in S&P and Crude Oil futures were our worst performers for the month.

Our individual stock portfolio fared better with a gain of 2.05%. Holdings in Apple (AAPL) brought the greatest returns, while a monthly drawdown in open profits on short positions in Netflix (NFLX) was our worst performer.

January 2012 Portfolio Returns

We have highlighted our mark-to-market results for Netflix so that we might illuminate what such drawdowns might imply. Although our mark-to-market monthly drawdown in Netflix is a sizable one, our long-term short position in the issue remains open, and as of the close on February 2, sports a 21.62% 4-month gain since we put this short on from $156.69.

Maintaining a Marking to Market discipline is essential however; sometimes it renders performance as appearing much worse than it truly is. Yes, the monthly drawdown is a real loss however; taken from unrealized profits, the core position is still in the black by over 20%.

Open Positions Stock Portfolio 2-1-2012

Take note that per the open positions displayed above, we have to a large extent mitigated the drawdown on core short positions held in Long-Term investment accounts and have taken full advantage of the bullish surge in Netflix via Mid-Level and Short-Term trading operations.

Click here for further insight as to our method of strategic diversification relative to positions in Netflix (NFLX).

Mark-to-Market Period Analysis

Mark-to-Market is another term for closing the books at certain time intervals for accurately reporting profit, loss, and performance. When we perform Mark-to-Market on a monthly basis, it means that though various positions may remain open, for periodical reporting purposes, we close the accounting books at the end of each month and thereby mark those positions to market.

Without a Mark-to-Market, it would be impossible to know where to allocate profit or losses within a given period.

For example, say that a trade that begins November 1 and closes January 31 makes 30%. The Mark-to-Market allocates the proper percentages to each month as opposed to the entire amount at the end of the three-month holding period.

History and development

The practice of mark-to-market as an accounting device first developed among traders on futures exchanges in the 20th century. It was not until the 1980’s that the practice spread to big banks and corporations far from the traditional exchange trading pits, and beginning in the 1990’s, mark-to-market accounting began to give rise to scandals.

To understand the original practice, consider that a futures trader, when taking a position, deposits money with the exchange, called a "margin.” This intends to protect the exchange against loss. At the end of every trading day, the contract is marked to its present market value.

If the trader is on the winning side of a deal, his contract has increased in value that day, and the exchange pays this profit into his account. On the other hand, if the market price of his contract has declined, the exchange charges his account that holds the deposited margin.

If the balance of these accounts falls below the deposit required to maintain the position, the trader must immediately pay additional margin into the account to maintain his position (a "margin call"). As an example, the Chicago Mercantile Exchange, taking the process one-step further, marks positions to market twice a day, at 10:00 am and 2:00 pm.

 

Until next time,

Trade Better / Invest Smarter

 

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