Hewison: Has the S&P 500 Broken Final Support?

Tuesday, November 3rd, 2009

The S&P has been making very interesting moves and in this highly technical video Adam Hewison shows his thoughts on the S&P and its something you’ll want to see.

Title : Has the S&P broken final support?

Title : Has the S&P broken final support?

In Hewison’s last video on the S&P 500 (10/27),he indicated that this market may have topped out for the year. Today’s action puts in place a weekly “Trade Triangle” which indicates that a temporary or a permanent top is now in place for this market.

In this latest video, Hewison shares some of the ideas that may potentially come into play for this market. Not only are there some downside targets in mind, but also see a pattern that could evolve in the next several weeks which will confirm we’ve made a serious high in this market.

As usual, we’re impressed by Hewison’s trading know-how, and it always makes for food for thought.

Tags: Amp, Downside, Food For Thought, S Trading, Shares, Targets, Trade Triangle
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Hank Paulson’s Secret Meeting with Goldman in Russia

Tuesday, November 3rd, 2009

Felix Salmon shares a juicy morsel from New York Times columnist, Andrew Ross Sorkin’s latest book, Too Big To Fail. It details then Treasury Secretary Hank Paulson’s secret meeting (up) with Goldman Sachs’ board of directors who happened to be in Russia at the same time.

Here is an excerpt from Sorkin’s book, courtesy of Salmon:

When Paulson learned that Goldman’s board would be in Moscow at the same time as him, he had [Treasury chief of staff] Jim Wilkinson organize a meeting with them. Nothing formal, purely social — for old times’ sake.

For fuck’s sake! Wilkinson thought. He and Treasury had had enough trouble trying to fend off all the Goldman Sachs conspiracy theories constantly being bandied about in Washington and on Wall Street. A private meeting with its board? In Moscow?

For the nearly two years that Paulson had been Treasury secretary he had not met privately with the board of any company, except for briefly dropping by a cocktail party that Larry Fink’s BlackRock was holding for its directors at the Emirates Palace Hotel in Abu Dhabi in June.

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Anxious about the prospect of such a meeting, Wilkinson called to get approval from Treasury’s general counsel. Bob Hoyt, who wasn’t enamored of the “optics” of such a meeting, said that as long as it remained a “social event,” it wouldn’t run afoul of the ethics guidelines.

Still, Wilkinson had told [Goldman chief of staff John] Rogers, “Let’s keep this quiet,” as the two coordinated the details. They agreed that Goldman’s directors would join him in his hotel suite following their dinner with Gorbachev. Paulson would not record the “social event” on his official calendar…

“Come on in,” a buoyant Paulson said as he greeted everyone, shaking hands and giving bear hugs to some.

For the next hour, Paulson regaled his old friends with stories about his time in Treasury and his prognostications about the economy. They questioned him about the possibility of another bank blowing up, like Lehman, and he talked about the need for the government to have the power to wind down troubled firms, offering a preview of his upcoming speech.

How on earth did Paulson think this was OK?

Read the whole article here.

Tags: Andrew Ross Sorkin, Bear Hugs, Bob Hoyt, Cocktail Party, Conspiracy Theories, Emirates Palace Hotel, Emirates Palace Hotel In Abu Dhabi, Giving Bear, Gold, Goldman Sachs, Hank Paulson, Jim Wilkinson, John Rogers, Juicy Morsel, Larry Fink, New York Times Columnist, Secret Meeting, Times Sake, Treasury Chief, Treasury Secretary, York Times Columnist
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Matt Taibbi: Wall Street’s Naked Swindle

Tuesday, November 3rd, 2009

In his latest feature, Matt Taibbi, who earlier this year authored of the brilliant “Giant Squid” article about Goldman Sachs, lights up another fire under Wall Street and regulators, about massive [conspiratorial] naked short selling activities designed to bring down Goldman Sachs. Taibbi’s investigative style is eye-opening, and this is a must-read.

Here are the opening paragraphs:

On Tuesday, March 11th, 2008, somebody - nobody knows who - made one of the craziest bets Wall Street has ever seen. The mystery figure spent $1.7 million on a series of options, gambling that shares in the venerable investment bank Bear Stearns would lose more than half their value in nine days or less. It was madness - “like buying 1.7 million lottery tickets,” according to one financial analyst.

But what’s even crazier is that the bet paid.

At the close of business that afternoon, Bear Stearns was trading at $62.97. At that point, whoever made the gamble owned the right to sell huge bundles of Bear stock, at $30 and $25, on or before March 20th. In order for the bet to pay, Bear would have to fall harder and faster than any Wall Street brokerage in history.

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The very next day, March 12th, Bear went into free fall. By the end of the week, the firm had lost virtually all of its cash and was clinging to promises of state aid; by the weekend, it was being knocked to its knees by the Fed and the Treasury, and forced at the barrel of a shotgun to sell itself to JPMorgan Chase (which had been given $29 billion in public money to marry its hunchbacked new bride) at the humiliating price of … $2 a share. Whoever bought those options on March 11th woke up on the morning of March 17th having made 159 times his money, or roughly $270 million. This trader was either the luckiest guy in the world, the smartest son of a bitch ever or…

Read the whole article here.

Tags: Bear Stearns, Bets, Brokerage, Financial Analyst, Giant Squid, Gold, Goldman Sachs, Investment Bank, Jpmorgan Chase, Luckiest Guy In The World, Matt Taibbi, Mystery Figure, Nine Days, Paragraphs, Public Money, Regulators, Shotgun, Son Of A Bitch, Squid, Swindle, Wall Street
Posted in Gold, Markets | 1 Comment »

David Rosenberg: Canada and Australia in the China Context

Tuesday, November 3rd, 2009

In today’s ‘Breakfast with Dave’ newsletter, David Rosenberg shares some interesting facts about key differences between Canada and Australia in the context of China’s growth, as well as an update on commodities and markets.

After yesterday’s wild ride in the U.S. equity market (and inability to hang on to the immediate post-ISM surge), investors are continuing to lock in profits today. Stock markets are down practically everywhere - by -1.6% in Asia (though Japan was closed for a holiday) and -2.0% currently in Europe. U.S. futures, at the time of this writing, are down sharply.

Commodities are off as well although gold has managed to hold onto most of its gain posted after the news came out that India’s central bank purchased 200 metric tons of the yellow metal from the IMF. The dollar has broken out this morning - to the upside - and the DXY index has actually firmed above its 50-day moving average. French officials came out today, by the way, and suggested that the recession in fact may not be over.

… the Reserve Bank of Australia hiked rates 25bps yet again, to 3.5% (this time it was expected by 18 of the 22 economists who follow Australia and the other four were thinking 50bps). The fact that the Aussie dollar has pared its gains after the rate hike is akin to the U.S. stock market doing likewise yesterday after the ISM came out. It is called the “sell the fact” syndrome, which is different than buy “green shoot hope” from March to September.

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While every country cut rates in tandem during the crisis, central banks will be marching to the tune of their own drum when it comes to tightening and so it would likely be a huge mistake to compare Australia to anyone else - especially given the massive fiscal stimulus there and the enormous link (especially compared to Canada) the country has to the accelerating growth being posted in China right now. Remember - only 3% of Canadian exports go to China; 75% head for the U.S.A. By way of comparison, 24% of Australian outbound shipments are destined for the hot Chinese economy while only 6% go to the U.S.A. In other words, relative to Canada, Australia enjoys 8x the Chinese exposure and has only 1/12th of the orientation to the much softer U.S. consumer market.

Tags: Aussie Dollar, Bank Of Australia, Canada, Canadian Exports, Central Banks, China, Commodities, David Rosenberg, Dxy Index, Emerging Markets, Fiscal Stimulus, French Officials, Gold, Imf, India, Interesting Facts, Ism, Metric Tons, Rate Hike, Recession, Reserve Bank Of Australia, S Central, Stock Markets, U S Stock Market, Wild Ride
Posted in Commodities, Emerging Markets, Gold, India, Markets | No Comments »

David Colander: US Economic Models are Flawed

Tuesday, November 3rd, 2009

This is a guest contribution by Damien Hoffman, editor of the very popular Wall St Cheat Sheet blog.

This may sound like common sense to investors and traders, but most people - including policy makers - do not readily accept the flawed nature of economic models.

Thank goodness we have professor David Colander testifying to Congress in order to enlighten an otherwise dim room. Colander’s work at Middlebury College focuses on the incentives and work-product of economists. His work has become increasingly more important as economists have heavily influenced policy making in recent years.

In addition to exposing a few absurd underlying economic presuppositions such as “individuals behave with rational self-interest,” Colander is helping shift incentives for professional economists away from publishing toward engaging in more useful studies. Based on these noble efforts to save us all from flawed economic models screwing up our daily lives, we are proud to award David Colander our third Medal of Honor for Excellent Service in addition to Josh Rosner and Chris Whalen …

“Most people assume economists are searching for truth.  In reality, economists are searching to achieve certain institutional goals like getting tenure, publishing articles, or doing a whole variety of things which may be related to truth.”

Damien Hoffman: David, what type of economics do you research and teach?

David: I’m called the “Court Jester of economics.”  I’m the person who says what everybody knows, but appropriate people know better than to say.

I’m an economist watcher.  I look at the incentives economists face, then understand and interpret economics through those incentives.  So, I look at the economics of economics of economists [laughs].

Most people assume economists are searching for truth.  In reality, economists are searching to achieve certain institutional goals like getting tenure, publishing articles, or doing a whole variety of things which may be related to truth.  Therefore, there’s all kinds of incentive compatibility problems.  What’s happened in pure macro theory I have considered a travesty for a long time and have written about it for the last 20 years.

Damien: How did this travesty arise?

David: The models are useful and were useful at some point, but they quickly lost their usefulness.  In order to make them manageable they had to use so many assumptions that they deviated so far from reality and ultimately stopped shedding light on reality.

Over time, we should have considered much more complicated non-linear dynamic models and a whole variety of new models - but economists didn’t do that.  They kept dotting I’s and crossing T’s on a very restrictive equilibrium model which assumed away many of the most important elements that cause fluctuations and lead to the interesting effects that we see in the real macro economy.

Damien: How did this all lead to you testifying to Congress?

David: The Congressional Committee heard of that work and invited me for that reason.

Damien: When you testified and said the models are too rigid in the face of unpredictable human behavior constantly changing in real time, was that too scary for legislators whose role in society is to increase order and reduce chaos?

David: I hope not because that’s reality.  If reality is too scary, maybe some people think we have to hide it.  I don’t consider that especially scary at all.  It’s just a statement of common sense and the reality of what we know.

As opposed to moving on after discovering problems with the models, economists continued looking at the same model. Perhaps they did so to avoid the scary dimensions that would have all kinds of results happening.

Joseph Schumpeter once said when talking about these models that, “Most of the non-linear dynamic models that I favor have multiple equilibrium.” And, he said, “You have to assume away all these multiple equilibria if economics is going to have any chance of being a science.” I consider that absolutely wrong.  You have to deal with the fact that there are multiple equilibria if economics is going to have any chance of being a science.

Damien: Over the past 20 years, economists have slowly altered their image as more of a hard science when in fact it’s a social science.  How do we return to understanding an economist’s role in providing information instead of elevating them to a high priest of finance?

David: There are many different roles for economists.  There’s some roles for highly mathematical economists who analyze and study systems.  There’s some roles for people who understand the institutions.  The problem is that economics has forgotten those advantages and gives people incentives to work only on fairly esoteric problems rather than practical problems.  That has to do with the nature of incentives in academia.

Damien: How did you suggest Congress deal with these incentive issues?

David: The only way to change anything within the system is to change the incentive structure of the people who are operating there.  That’s a basic economic insight. The way to achieve progress isn’t through regulation and telling people what to do.  The way to do it is to change the incentives they face so their incentives match what you want them to do.  Currently, the incentives in academia are for publishing articles written for other economists.  And all economists compete in the same dimension.

My emphasis has been there should be multiple dimensions of competition - multiple types of outlets for economic research.  And, they should be equally rewarded.  Economists need more cross-disciplinary input from outside.  I suggest having a variety of people on the reviewing committee such as physicists, mathematicians, politicians, and business people.

My second suggestion was we need a lot more people with expertise in interpreting models - people who can understand the reasons for the modeling, why it was done, and the mathematics behind it. Then, those interpreters will spend time in asking, “Is this particular model going to be useful for a particular problem?” Currently, there’s no incentive for economists to ask these critical questions.

Damien: If economists are not focused on the efficacy of their models, what role should economists be playing as policy makers?

David: It depends on the particular economist.  The training that economists get in graduate school does not prepare them to be policy makers.  Instead, it prepares them to be article writers.  Policy makers require a much broader sense and understanding.  They need to know institutions.  They need to know politics.  They need to know a whole variety of issues.  Some economists have that ability.  Other economists don’t.

A lot of economists don’t have those skills because they’re not trained in them.  They have to learn them on their own.  So, whether they should be policy makers or not depends upon the particular characteristics of the individual economist.

Damien: How has the Federal Reserve dealt with this problem?

David: I don’t think the Fed can be condemned for causing the problem or praised for avoiding it.  They’re part of the whole overall system.  However, they’ve told me in order to recruit the top economists, they’ve had to change their incentive structure. The only thing the young people want to do is continue publishing.

I get scared when the Fed gets more worried about publications rather than policy.  In the past, the people at the Fed were promoted because they wrote good policy memos and provided good advice.  Currently, Fed employees are being promoted in the research division by how much they publish.

Damien: David, thank you very much for all your hard work.  We wish you the best in your efforts.

David: Thank you very much, Damien. I am honored you considered me for this award.

Source: The Wall St. Cheat Sheet, November 2, 2009.

Tags: Cheat Sheet, Court Jester, David Colander, Dim Room, Economic Models, Economics Of Economics, Excellent Service, Getting Tenure, Hoffman, Incentives, Institutional Goals, Medal Of Honor, Middlebury College, Noble Efforts, Presuppositions, Professional Economists, Professor David, Rosner, Self Interest, Whalen
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Economic recovery in review with Galbraith

Tuesday, November 3rd, 2009

The Dow’s up, but why are Main Street Americans still reeling from last year’s economic collapse? With Americans still facing rising unemployment, foreclosures, and declining property values, Bill Moyers discusses with renowned economist James Galbraith,  professor of economics at the University of Texas, whether we have averted the crisis and how to get help for the middle class.

Click here for the full transcript.

Source: Bill Moyers, PBS (via YouTube), October 30, 2009.

Tags: Advertisement, Bill Moyers, Bill Moyers Pbs, Dow, Economic Collapse, Economic Recovery, Economics, Foreclosures, Full Transcript, James Galbraith, Middle Class, Pbs, Property Values, Renowned Economist, Unemployment, University Of Texas, Youtube
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Jim Rogers on USD, China, and Commodities

Tuesday, November 3rd, 2009

Lindsay Whipp of the Financial Times sits down with Jim Rogers in Tokyo for a four-part interview covering the US dollar, China, commodities and crisis-related issues.

Part 1: Rogers sees brief dollar rally
He says he has increased his dollar holdings in anticipation of a rally in the US currency, but the dollar is still broadly set for a lasting decline.

Click here or on the image below to view the video clip.

Part 2: Rogers still a China bull
He says he’s not buying Chinese stocks, but sees the renminbi rising despite its effective peg to the dollar.

Click here to view the video clip.

Part 3: Rogers backs commodities for the long run.
He says he’s fully expecting another leg up in commodities, and that real assets represent the best hedge against future inflation.

Click here to view the video clip.

Part 4: Rogers on the “bigger picture”.
He says he fully expects more pain in the financial sector, with many of the problems at the heart of the crisis simply being “papered over”.

Click here to view the video clip.

Source: Lindsay Whipp, Financial Times (here, here, here and here), November 2, 2009.

Tags: Advertisement, Anticipation, Buying Stocks, China, China Crisis, Chinese Stocks, Commodities, Decline, Emerging Markets, Financial Sector, Financial Times, Heart, Image, inflation, Jim Rogers, November 2, Peg, Rally, Real Assets, Renminbi, Tokyo, Us Currency, Video Clip, Whipp
Posted in Commodities, Markets | No Comments »