Market Minds

Yesterday’s WSJ had an article about Canada’s Housing market. ( Housing Rebound in Canada Spurs Talk of a New Bubble ). The article noted that “ Average home prices in Canada have risen 23% from their trough in January 2009. Home-sales volumes are up 70% over the same period . . . Canada’s housing recovery has been so rapid that some here are worrying about a bubble. ” But to call it a rebound misses the point.

It takes ever increasing amounts of money to create just a few manufacturing jobs. Here is a case in point. Please consider Chrysler pledges $550M to build Fiat 500 in Mexico . Chrysler Group LLC says it will invest $550 million to build the Fiat 500 minicar at its assembly plant near Mexico City. Chrysler CEO Sergio Marchionne says the new work at its Toluca plant will create 400 jobs.

One of the many massive distortions caused by the Fed’s miserable policies is hitting hard on senior citizens who cannot afford stock market losses but need fixed income to live on. “California Banker” writes Hey Mish During the past several weeks we’ve had a lot of seniors coming to the bank as their certificate of deposits of mature. They are very disgruntled about the rate environment in general as bank rates are much lower than a year ago. Many of these seniors are 70 and up and are using the interest to live on in retirement, so their interest income has taken a hit. I imagine most of those living off their interest will likely need to burn net worth to maintain living expense. Some are moving their deposits to banking institution that a paying a slightly higher rate, which is typically an institution that is struggling and needs the deposit

Having endured The Lunge , and now having entered The Plunge, most bears are still too scared, shell-shocked, or broke to do anything about it. Even yours truly - the bear’s bear - has been holding back to some degree, committing typically about 2/3rds of his cash at any given time to bearish positions (the remainder being in cash). I had advanced to the 90% level Friday, but the day’s pause and, later, strength, caused me to scamper down to a 50% position. I am back to the 60% level right now. I truly expected to have to buck myself up today, assuring myself to be patient while the bulls bid prices up. Such a pep talk wasn’t necessary. The Dow has lost its grip on 10,000, and there wasn’t a single area where the bulls put up a fight today, including the battered precious metals kooky zone, which was particularly hard-hit. I think we need to keep in mind that broad market movements don’t give you chance after chance after chance to get in ! I’ve flipped the NASDAQ Composite upside down, below

Treasury secretary Tim Geithner, who arguably belongs in prison for his role in the AIG bailout coverup , is back in the news again. Please consider Geithner Says U.S. Will ‘Never’ Lose Aaa Debt Rating . Treasury Secretary Timothy F. Geithner said the U.S. is in no danger of losing its Aaa debt rating even though the Obama administration has predicted a $1.6 trillion budget deficit in 2010. “Absolutely not,” Geithner said, when asked in an ABC News interview broadcast yesterday whether a downgrade is a concern.

Hey all, I’ve got mixed feelings about tomorrows tape. I’m excited because I’m going on a holiday, but I’ll be peeved if a severe decline unfolds during the session because I’ll be on a plane and unable to trade it. Stay on your toes. Although it’s not totally clear (when is it ever?), there is a very real possibility for the arse to fall right right out of the markets tomorrow. If so, it will be the famed “3rd of a 3rd” and it will be vicious. For my own sake I hope we get more bounce tomorrow

I don’t recall where this is from, but it seems appropriate today:

I imagine some of you have recognized that when you first arrive somewhere new - particularly a new country - you are able to observe far more interesting and unusual things about the culture and the surroundings than the natives there. It’s understandable, because they have become inured to their surroundings, whereas it’s much easier for a newcomer to notice things. I had a similar experience yesterday, during the handful of instances I glanced at the Super Bowl. I was mostly interested in the ads, and I started noticing a consistency among them. They seem to be playing to an audience which: + Feels oppressed by others (their girlfriends/wives/bosses) and is deeply embittered by it; + Desperately needs a way to express their inner Id - often by way of a noisy, unattractive American car; + Finds people in their underwear really, really funny In other words, it seems the target market is men endowed with the minds of twelve-year old boys (with the aforementioned oppression being delivered, at that age, by teachers and mothers).

The equity market correction over the past few weeks due to sovereign credit concerns on top of China policy tightening moves, mixed US economic data and a raised bar of earnings expectations has also gotten around to the credit markets over the past few weeks. Today, the investment grade CDS index is at 105 bps, up 4 from Friday and vs 84 bps two weeks ago. It was last at this level in late Nov in response to the news that Dubai was requesting a standstill agreement on their debt obligations. The KDP high yield index is rising to the highest level (in yield) since early Dec and is up about 60 bps in yield over the past three weeks.

Some reads to start the week: • Alan Greenspan fights back (Fortune)  Four years after leaving the Fed as the Greatest Central Banker Ever, the longest-serving chairman, the Maestro, Alan Greenspan is the designated goat. • Dorfman : Buy Stock Now to Ride Second Stage of Bull Market (Bloomberg) • The perils of economic populism (The New Yorker) • What I Learned From Hank Paulson’s Book (Real Time Economics) I don’t know about Wessell, but I learned that when the going got tough, Paulson prays. A lot. Personally, I prefer rigorous analytical thinking to prayer, but that’s because I have a bias towards rationality in the public sphere. • Water From Air Machine Providing Clean Water to Doctors, Nurses and Patients at Port-au-Prince, Haiti Hospital (Yahoo) • The State of the Internet (Focus) What are you reading?

In the early 1980s, when most of my peers were listening to the Scorpions or Judas Priest, I was listening to Gilbert & Sullivan or Cole Porter. A fondness for older music lingers to this day. I offer below a marvelous Porter tune, which seems apropos for last month’s peak.

Hi Slopers, this is a post I just put up at my regular blog , and thought some people here might appreciate the message.  Although I am sure my geekoid status is probably more information than you want or need to know. :-)  Here on SOH, you have seen me ramble about the importance of the Chinese FXI as it led the SPX southward, the gold-silver ratio as a measure of liquidity (or lack thereof) and other things I use as indicators to try to get a leg up.  Looking at the nominal SPX chart, I do not see a whole lot of difference from the June/July event.  But this time I expect a very different eventuality after some upside relief to around the SMA 50.  Anway, the post… Why is it so critical to watch indicators like leading market ratios, sentiment, the ratio of gold to silver, money supply, etc.?  Well, one look at this nominal SPX chart provides an answer; trying to figure out the nature of a similar downturn to that of last June/July devolves into a mere guessing game if all you go by is straight technicals on the SPX daily chart. SPX dumped the neckline of a small H&S topping pattern, spent 4 days below it and then said screw this, time for hope and greed to make a triumphant return.  It was right around that point that I began to realize that my projections for the duration of Hope ‘09 might need to be expanded.  Boy, did hope and denial ever expand… right into this latest break.     But it is more complex than simply watching indicators.  The gold-silver ratio for example rose strongly in June/July (implying market downside), but broke out of its weekly downtrend line for only one week before falling back.  Current weekly GSR has now completed two full  weeks of breakout from its most recent downtrend line, has constructed a good looking MACD and formed an inverted H&S bottom pattern. Yes I know, you have to be a total geekoid get-a-lifer to be into this stuff.  Well, if you knew me in real life you would see that I am not very cool and do not display a dynamic personality.  But I am into this shit because - call me weird - I just love to make money or at the least, preserve capital and remain as detached from convention as possible.  It’s the secret recipe of succeeding in the financial markets

I’ve got to say, I’m surprised at the market’s action today. Although I covered a large number of shorts on Friday (taking my commitment from 90% to 50%), I at least didn’t go hog-wild buying into the frenzied action late in the day, which turned out to be strictly a sucker’s rally. My one long - SLV - I sold today at a small loss, and  nothing has gotten any traction today. I’ve modestly increased my short commitment up to 60% of my portfolio (no longs of any kind). It’s kind of a quiet/grind-y day, so take a moment to enjoy Orson Welles.

Just to show you how the deck is stacked against true patriots in favor of union members who have their hands in your pocket, please consider this email from “Stacked Deck” in response to Colton California Considers Disbanding Fire Department . “Stacked Deck” writes … Hi Mish I’m a big follower of your blog. I love what you are doing, please keep up the good work. It’s interesting that you say Volunteer Fire Departments are the optimal arrangement. I am a 14 year veteran of a “Volley” department in New Jersey, and I have to say the deck is severely stacked against us.

The topping pattern in EUR/JPY was a good signal in September 2008 of the plunge to come. It may well serve that purpose again here.

> The Friday afternoon equity rally occurred on hope that the EU might figure out a way to bailout Greece and anticipation of another Manic Monday rally. No Greece bailout has appeared, only the hollow G7 vow to continue applying whatever stimulus that still exists…Today – Only the hope of a Monday Mania rally remains for bulls. But the Nikkei is down 1%; so in Sunday night trading SPHs are down 0.20. 1050 on the S&P remains a key level. There is little if anything for governments and central banks to do at this point. So solons are trying to euchre the markets with verbal intervention. Bailing out PIGS is not the major issue.

Is The Market Following A Script? If you ask Elliott it is. From Our Recent Blog : “There is also a good possibility that the whole move down off the January highs traces out ABCDE (5 Waves down before all said and done). But we’ll take it a step at a time.” The S&P 500 chart below has more of a 3 waves (abc) look to it just like we talked about in advance to be on the lookout for. The only problem was it’s prime entry took place in the form of a gap and within minutes traced out the bulk of Thursday’s move. But still it’s all about trends and it’s locked in a downtrend channel. One look at last week’s action in the OTC Composite below (remember this area of the market always leads) has us seeing that of a potential 5 waves down that have taken place. Typically after a 5-waves down affair the next is a 3-waves up affair

Last week, we discussed the issue of where there was a greater chance of a bubble: Stocks or Bonds? This week, we look at a possible end to the Secular Bull Market in bonds: Charts via Ron Griess of The Chart Store See also: Taleb: ‘Every Human’ Should Short U.S. Treasuries