Archive for November, 2011

Today’s Forecast: Ominous Darkening

3 | By Shah Gilani

Dear Reader,

The problem I have with providing “insight” into the market is that the deeper I look, the darker it gets.

Right now I can’t see through to the other side. It’s just that murky everywhere.

Not only did the S&P 500 fall 56.98 points (or 4.7%) last week, but it broke important support at 1160, ending Friday at 1158.67. The benchmark also broke its 50-day moving average back on Monday.

Cumulative breadth (advancing issues minus declining issues) has been tanking.

And speaking of slip-sliding away, third-quarter GDP growth here in the U.S. was revised down to 2% from the previously reported (make that estimated) 2.5%.

Downward pressure was evident across the globe, in terms of GDP growth expectations, sovereign creditworthiness, and stock markets.

In fact, I can’t find any equity benchmark anywhere in the world that rose last week. That’s because there wasn’t one.

What there was a lot of last week – and what there will continue to be a lot more of – is mounting fear that the European Union is about to become unglued. The Eurozone is already being held together with nothing more than Band-Aids and hope, but increasingly those Band-Aids are falling off.

What that means for us…

Let’s Throw Them All Out

2 | By Shah Gilani

Happy Thanksgiving, America!

If you’re not feeling very “happy,” remember, no matter how bad things are, they could always get worse (and we may be going there). So, whatever you have now, be thankful for that.

Speaking of thanks and of things getting worse, here’s a shout out to the so-called “Super Committee:”

Thanks for nothing!

What a bunch of losers.

Hmmm, speaking of losing… I wonder if anyone on the Supercilious Committee shorted the market before their announcement that they had nothing to announce. Hey, maybe they waited until the end of the day on Monday – when it was already known that they had sold America short – to break the news, so they could add to their shorts as stocks broke support levels.

No “maybe” about, it in my book.

Oh, you don’t think they would do that – short the market? You think that would be unethical? You think that would be illegal? You think that’s insider trading?

It’s not any of those things, according to Congress.

If you’re about to sit down to your big Thanksgiving dinner and are scared you’ll eat too much, don’t worry. You’re about to lose your appetite, and probably get sick, too.

Don’t say I didn’t warn you…

Honesty is the Best Policy…

4 | By Shah Gilani

“Can I be honest with you?”

I hate it when people ask me that. As if I’m going to respond, “No, lie to me.”

But the truth is, it’s usually a preface that suggests we’re not going to want to hear what we’re about to be told.

So… can I be honest with you?

I have no idea what’s going to happen in stock markets or bond markets this week.

We are at a critical juncture for both stocks and bonds, and this week might be huge.

More truth after the break…

Dangerous Liaisons and Dirty Laundry

4 | By Shah Gilani

Have you seen the six-month price chart for the Dow Jones Industrials Average, the S&P 500, the NASDAQ Composite, the U.K. FTSE 100, the German Xetra (DAX), the Hong Kong Hang Seng Index, the French CAC 40, the Milan FTSE MIB, the Australian S&P ASX 200, or the Shanghai Composite Index?

I’ll make it easy for you.

If you haven’t seen any of them lately, check out one of them – any one.

It doesn’t matter which one, because – really frighteningly – they all look remarkably alike.

Talk about dangerous liaisons!

Full story here…

This Hangover Just Isn’t Going Away

2 | By Shah Gilani

After once again teetering on the precipice of European implosion on Wednesday, events on Thursday, Friday, and Saturday proved once and for all that we’re out of the woods.

Remember that Alka-Seltzer commercial?

Plop, plop, fizz, fizz, oh what a relief it is…

Maybe you don’t remember it, but if you’ve ever had a hangover (be honest, now), and you tried Alka-Seltzer, you know that dull pain tends to linger, no matter what remedy you apply.

So, was I just kidding about being out of the woods?

Have you been drinking? Of course I’m kidding.

The “hangover” of European sovereign debt isn’t going away any time soon.

On Wednesday, global markets swooned. Why? Because investors summarily dumped Italy’s 10-year bonds, causing their yield (interest rate) to soar intraday to just over 7.6%.

The scary thing about that for everybody was that once they started rising above the 7% line-in-the-sand yield, Greece, Ireland, and then Portugal all had to be bailed out.

And it’s getting even scarier…

The Canary in the Coalmine, and Why JPMorgan’s Hands Are Filthy

0 | By Shah Gilani

What a fun day that was yesterday.

No, I’m not talking about Jefferson County, Alabama, filing for bankruptcy… that’s not fun or funny, as you’ll come to learn shortly.

I’m talking about global stock markets and bond markets.

Wow, what fun! Can you imagine being short stocks and having one heck of a day yesterday? I can.

Can you have imagined that Italy’s interest rates would have soared the way they did? I can. And you could too, if you read what I wrote on Monday about how the CDS market was broken and what that would do to Italian bond rates.

Look, I’m not the kind of guy to say I told you so, but if I was, I’d sure be saying it now.

Italy is the canary in the coalmine – not Greece. (FYI, they used to keep a canary in every coalmine, because if it died, that meant poisonous gases that humans couldn’t smell were present.)

If Italy implodes, either by its bond yields exploding, its economy sinking, or its fiscal house burning, all of Europe is going down. And America will surely follow.

While you were sleeping this morning, Italy had to offer 6.087% interest on the one-year bills it floated. That compares to the 3.57% it paid just last October 11. What smells is that Greece just floated some bills at 4.90%.

In other words, the canary (Italy, in case I lost you) is starting to teeter on its perch.

It has another €28 billion to roll over by the end of 2011, and how much it will have to offer investors to buy its paper is anybody’s guess.

There’s only one guessing game that matters in Europe right now. That is whether or not the ECB will step up and promise – à la the U.S. Federal Reserve Bank – to be lender of first and last (and in-between) resort.

The ECB has to do something bold. And it probably will.

If it does, the next guess will be, where will its backing and credibility to backstop all of Europe come from?

Will it come from the same teetering nations that’s its going to have to support? Good luck with that. Or will it come from the backing of the IMF, with a ton more commitments from the U.S. and other G20 countries? Good luck with that.

We’re going to get a relief pop this morning in the stock market. Good luck with that, too.

Until Europe is figured out – and it won’t be any time soon – stay short with tight stops, just in case there is a Santa Claus coming to a chimney near you.

Oh, and by the way, if Italy starts singing again, watch Spain, then France, they are the next canaries we’ll have to watch in the coal pit we call the European Union.

Full story here…

A Brave New (Broken) World

1 | By Shah Gilani

I said it the other day, and I’ll say it again.

The markets are broken.

It’s not that they’re not functioning on a daily basis, pricing risk and assets and performing their price discovery duties. They are doing that – or at least trying to.

Those are the little, daily things that markets do, and there are things there that are broken. (I’ll get to those things another time.) Think of those little things as the “hows” or the “mechanics” of buying and selling.

Think of the big things as the “whys” or the “psychology of investing.”

Those are the things that are broken.

Until they are fixed, or “things” change, drastically, we are in for some really wild swings in the months, quarters, and years ahead.

I’m going to point out all of these big things to you, over time. But today I’m going to point to just two.


Starting now…

The Inside Story of How Our Financial Regulators Let Us All Down

0 | By Shah Gilani

Did you hear the story about MF Global?

No, not the headlines about its bankruptcy – the real story.

If you haven’t heard it yet, it goes something like this.

MF Global became a primary dealer only eight months ago.

“Primary dealer” is an elite status. It means the firm is one of only 22 government bond dealers that trades directly with the Federal Reserve’s New York trading desk.

Only, the Federal Reserve doesn’t regulate or oversee MF Global, the Commodities Futures Trading Commission (CFTC) does – or rather is supposed to.

But, even more incongruously, the CFTC isn’t the first overseer of MF Global . It ceded that responsibility to the CME Group Inc. (Nasdaq: CME), which owns and operates the largest futures exchanges in the United States. The designated self-regulatory organization for more than 50 futures brokers, CME was supposed to be the cop on the beat.

However, the not-so-funny thing about the relationship between MF Global and the CME Group is that MF Global recently boasted on its Website that it “was the top broker by volume at CME’s metals and energy exchanges in New York and in the top three at its Chicago exchanges.”

So, is it any wonder that the CME just last week audited MF Global’s segregated customer funds and found them to be in compliance?

These are the same supposedly segregated funds which the CME is now saying may have been tampered with. According to the CME:

“It now appears that [MF Global] made subsequent transfers of customer segregated funds in a manner that may have been designed to avoid detection insofar as MF Global did not disclose or report such transfers to the CFTC or CME until early morning on Monday October 31, 2011.”

How much money are we talking about? About $633 million – or 11.6% out of a segregated fund requirement of about $5.4 billion.

Do you see what I’m driving at?

So the real story is, t he Federal Reserve, which doesn’t regulate MF Global but regulates all banks in the United States, lets a futures commission merchant with investment bank wannabe desires become an insider in its dealings. Meanwhile, a private for-profit enterprise that runs the self-regulatory apparatus that oversees its own customers steps in for a federal agency that’s supposed to be in charge of commodities, futures and derivatives markets.


And that’s only the tip of the iceberg….

What’s Challenging Democracy Today

0 | By Shah Gilani

A referendum? In Greece? Are you kidding me?

As my 16-year-old nephew Nathaniel says, “What the…?

Apparently, that’s a popular statement of surprise in his southern California surf town. The first time he said it, I was flabbergasted, thinking he was going to finish that well-worn exclamation with a bad word. But it works better his way…

What isn’t going to work is George Papandreou’s call for a referendum.

He wants the Greek people to decide if they want to tighten their belts so much that they’re willing to starve themselves to death for the sake of paying back the IMF and their European neighbors.

Why his move hurts everyone…