Dr. Doom and the Money Honey

After the end of a dismal Friday, dismal week, and dismal February for the markets, the Money Honey somehow extracted some good news from Dr. Doom.

In the video below, Maria Bartiromo asked Nouriel Roubini if there were any sectors or bright spots at all in the economy.

Roubini responded, "Restructuring firms and makers of anti-depressants."

I love how Dr. Doom toys with CNBC.

Portfolio Changes

Sold the remaining 200 shares of my 3X-Short Russell 2000 ETF (TZA) at $81.39 from a cost basis of $71.48, for a gain of 13.9%.

Sold 500 shares of my 3X-Short Financials ETF (FAZ) at $63.06 from a cost basis of $56.20 for a gain of 12.2%. I'm still holding onto 220 shares into next week.

One Stop Shopping - Annotated Charts for China, Russell 2000, S&P 500, and the Financials

Toad the Wet Sprocket

Since I'm seeing Toad play at Webster Hall tonight, why not mark the occasion with some video reminiscences.

My introduction to the band, their video for "One Little Girl":



Glen Phillips and Chris Thile playing "Windmills":



"Rings" is one of my favorite Toad songs, off their final record, Coil. The climbing arpeggios during the chorus always get me. The homemade video below isn't the point of the post; I just wanted to highlight the song.



And a little number that I used to sing back in college. (Hadn't seen the video before today. Didn't miss much by waiting this long to view it.)

Portfolio Changes

Bought more shares of FAZ throughout the afternoon after missing out on the opportunity to sell in the AM for a 10-15% one-day profit.

Picked up shares at an average price of $55.92, making the overall cost basis of my Fozzie position at $56.20

Today's range: $50.01-$64.50. Today's purchase range: $50.96-$59.01. Nice and volatile.

Since I'll probably be trading in and out of FAZ for the foreseeable future, I'm going to stop plucking images of Fozzie from the interwebs. I don't want this blog perceived as turning into a plushy/Muppet fetish site.

California (All the Way)

Portfolio Changes

Click on the picture above for an annotated chart of XLF with two Fibonacci retracements added.

If that's too much for you, here's what I wrote on the chart:

XLF popped today. It almost retraced 38.2% from its recent low of $6.85 using the recent February high of $10.09. The 38.2% retracement from the late-January high of $10.51 is $8.25. Using this data, I thought it prudent to initiate a position in FAZ late this afternoon at $56.93.

XLF closed at $8.05 after Bernanke downplayed the federal government's desire to "nationalize" banks. He used the term "public/private partnership" and the market liked it.

The financials were also extraordinarily oversold, so Fozzie is back in the portfolio on today's pop.

Swervedriver

I missed out on Swervedriver during the Shoegaze era. Their first two records, Raise and Mezcal Head, were recently remastered and re-released. It's about time I rectified the situation and filled this musical gap.

Here's the official video for their single off of Raise, Son of Mustang Ford:



And here's a solid live clip from their recent tour:

Teenage Fanclub

Back in '91 when Spin Magazine rated Bandwagonesque the album-of-the-year, ahead of Nirvana's Nevermind and Pearl Jam's Ten, I thought Teenage Fanclub's straightforward power pop was a bit too straight.

I was wrong.

Here's a recent version of "Star Sign" from Bandwagonesque, but with 100% more banjo:



And this is one of my favorites off of their 2005 record, Man Made:



Here's Juliana Hatfield covering "Cells", also off of Man Made:

Playing with Fibonacci Retracements and XLF

Portfolio Changes

Again, Fozzie (FAZ) overstayed his welcome, just like last time. I invited him back into the portfolio, thinking I would swing trade the disintegrating financial sector. That didn't work out quite as expected, as shown in the following charts of XLF and FAZ:





I didn't get a chance to swing trade, but I did lock in some nice profits today.

Sold 305 shares of FAZ at $83.98, from a cost basis of $61.38, for a gain of 36.8%

I also sold off 200 shares of my 3X bear Russell 2000 ETF, TZA, at $75.055, from a cost basis of $71.48, for a gain of 5.0%

Bye, Fozzie. Thanks for the gains. I bet I'll see you soon. Don't forget to say hello to your other pig friend.

Neko Case

The Gray Lady featured the red-haired lady, Neko Case, in the Magazine this weekend:

Meat, wolfing, lionized, cyclones, species, tornadoes, survival. A suitable lexicon, because despite the appeal to a broader audience in her new lyrics and arrangements, Case remains, in person and in her music, at least for now, to some degree a feral outsider.

I first read and heard about Neko Case in the pages of No Depression back in the 90's. I prefer her pop-oriented work with the New Pornos over her torch-y country albums. Her past solo work can be a bit too adagio, with her voice driving the songs, but over plodding beats.

But there's no doubt she's a striking performer with stories to tell.


New Pornographers - Challengers


Maow - Ms. Lefevre



Neko Case - Behind the House (live in Austin)

Charting China - The Big Picture, Andy Tabbo, and FXI/FXP

Over at Barry Ritholtz' Big Picture, Andy Tabbo is a regular commenter who offers up insightful analysis from a technical perspective. This comment discussing FXI, the China Xinhua 25 ETF, caught my attention, since I currently hold a significant position in FXP, the ultra-short China ETF:

Andy Tabbo Says:
February 13th, 2009 at 3:36 pm

ben22: Just charted the FXI.

I was just charting that puppy. You realize it’s in a perfect downtrend channel right? I can draw almost a perfect 6 pt down trend line on that guy. It might break out of that channel and scream higher, but I’m loathe to say this “the trend is your friend.”

In terms of Wave Principle..there’s a lot of elements to that chart that are similar to the SP500, which I guess is predictable.

FWIW.

Tabbo mentions a perfect downtrend channel. So I paused reading the comments and loaded up a weekly chart of FXI. I believe I've also spotted the aforementioned downtrend channel, and marked it accordingly in purple:

But I also worked up a quick-and-dirty daily chart of FXI, and spotted a triangle formation, marking it in green:



So will FXI resolve the triangle formation by breaking down lower, maintaining its longer-term downward trend channel on the weekly chart? That's what I think, and I back up that assertion with my continued position in FXP.

Other commenters that followed Tabbo's post (namely, I-Man and karen) think FXI is due to breakout to the positive. But they seem to have looked at the short-term daily chart, probably for just the past three months. Methinks they only noticed the bottom part of the triangle formation, i.e. a clear uptrend.

Tabbo returns to the fray, supporting the view that the longer-term trend that has yet to be broken:

Andy Tabbo Says:
February 13th, 2009 at 4:34 pm

karen, karen, karen….

C’mon sweetheart.

FXI. From 10/31/07 it’s very easy to see a DRAMATIC LONG TERM DOWNTREND. On a closing basis, the downtrend line touches on:

5/5/8
7/23/8
7/30/8
8/27/8
1/6/9
2/6/9

Compared to the SHALLOW pathetic uptrend line you’re referencing, I don’t think there’s any doubt which trend takes precedent here. We will break out of that powerful downtrend someday, but as far as I can see it has not yet done so.

In terms of Wave Principle, it’s a really perfect unfolding five wave move so far. I won’t get into the gory details, but similar to the SP500, it really looks like big Fourth Wave concluded at $32 on 1/6/2009. The Fifth Wave targets $17.50. The model I’m looking at right now is extremely bearish and it requires some strong moves lower, so any kind of good move higher would make rethink it. Certainly any break of the downtrend line from 10/31/2007 would make take another look.

Tabbo later continues with a fundamental thesis for China's troubles, and a trading setup:

Andy Tabbo Says:
February 13th, 2009 at 6:40 pm

O’ Mistress.

I am very difficult to satisify. I’m very much looking for a bottom, and when I see one I will start screaming from the rooftops to start buying, rest assured. However, some serious economists have concluded that China is the MOST similar to the U.S. in 1929 - 32, due to it’s huge reliance on exports and it’s massive reserves. The U.S. now is more similar to Europe in the Great Depression. We’re debtors and can monetize our debts if necessary. China’s reserves are going to DWINDLE rapidly and they will not be able to change the habits of the population so quickly, to go from savers to consumers.

So, yeah, I can see a full 75-80% decline in the FXI. It’ll be a nice setup down at $17 bucks…it’ll be a “new low” that gets most other technicians all bear’d….you’ll have tons of RSI divergence and be setup for a massive snapback rally.

These discussions are another excellent reason to read The Big Picture blog--Ritholtz has attracted a solid set of commenters who add surprising value to the discussion. The initial post (about the S&P fairly valued at 440) is mere kindling for more illuminating intellectual fodder.

And yes, I'll be keeping my eye on the downward trend channel on the FXI weekly chart, as well as looking to unload some shares in FXP if FXI approaches the high teens.

New York Times Uses the N-Word

Steve Lohr at the Gray Lady takes up the N-word, advocating a Darwinian thinning of the herd, the 'nationalization' of the weakest banks.

Don't slice 'em up like sashimi. Serve 'em up like meatballs in a nice cream sauce with a side of lingonberries. What I mean is, restructure the insolvent banking system Swedish-style, avoiding the Japanese mistakes:

The Treasury program leans heavily on a sketchy public-private investment fund to buy up the troubled mortgage-backed securities held by the banks. Instead, the experts say, the government needs to plunge in, weed out the weakest banks, pour capital into the surviving banks and sell off the bad assets.

It is the basic blueprint that has proved successful, they say, in resolving major financial crises in recent years.

Japan endured a lost decade of economic stagnation in the 1990s before it adopted such measures from 2001 to 2003.

The Swedish government took tough steps in 1992 and Washington did so in 1987 to 1989 to overcome the savings and loan crisis.

“The historical record shows that you have to do it eventually,” said Adam S. Posen, a senior fellow at the Peterson Institute for International Economics. “Putting it off only brings more troubles and higher costs in the long run.”

Then Lohr quotes Dr. Doom, Nouriel Roubini:

Nouriel Roubini, a professor of economics at the Stern School of Business at New York University, has been both pessimistic and prescient about the gathering credit problems. In a new report, Mr. Roubini estimates that total losses on loans by American financial firms and the fall in the market value of the assets they hold will reach $3.6 trillion, up from his previous estimate of $2 trillion.

Of the total, he calculates that American banks face half that risk, or $1.8 trillion, with the rest borne by other financial institutions in the United States and abroad.

“The United States banking system is effectively insolvent,” Mr. Roubini said.

Where's the Fantastic Four when you need them to beat back Dr. Doom?

Lohr performs his journalistic duty and offers up the opposing argument, before raising the spectre of mortgage-backed securities and their mysterious prices:

“Our analysis shows that the banks have varying degrees of solvency and does not reveal that any institution is insolvent,” said Scott Talbott, senior vice president of government affairs at the Financial Services Roundtable, a trade group whose members include the largest banks.

Edward L. Yingling, president of the American Bankers Association, called claims of technical insolvency “speculation by people who have no specific knowledge of bank assets.”
...

Yet, as Mr. Posen and other economists note, there are crucial issues of timing and market psychology that surround the discussion of bank solvency. If one assumes that current conditions reflect a temporary panic, then the value of the banks’ distressed assets could well recover over time. If not, many banks may be permanently impaired.

“We won’t know what the losses are on these mortgage-backed securities, and we won’t until the housing market stabilizes,” said Richard Portes, an economist at the London Business School.

I guess I suggest you read the entire Times piece.

Financials Chart and More Roubini

This is the chart of XLF over the last month-or-so. A cursory look shows January's collapse, followed by a narrowing triangle-formation trading range as shown by the purple trend lines. The green circles on RSI and stochastics show the financials are not yet oversold, meaning there is ample fuel for breaking out of this trading range, and resuming the downward trend.

Or perhaps I'm reading too much Roubini lately (via Henry Blodget at Clusterstock):

First, there is still some small hope and a small probability that the economy will recover sooner than expected, that expected credit losses will be smaller than expected and that the current approach of recapping the banks and somehow working out the bad assets will work in due time.

Second, taking over the banks – call is nationalization or, in a more politically correct way, "receivership" – is a radical action that requires most banks be clearly beyond pale and insolvent to be undertaken. Today Citi and Bank of America clearly look like near-insolvent and ready to be taken over but JPMorgan and Wells Fargo do not yet. But with the sharp rise in delinquencies and charge-off rates that we are experiencing now on mortgages, commercial real estate and consumer credit in a matter of six to twelve months even JPMorgan and Wells will likely look as near-insolvent (as suggested by Chris Whalen, one of the leading independent analysts of the banking system).

Thus, if the government were to take over only Citi and Bank of America today (and wipe out common and preferred shareholders and also force unsecured creditors to take a haircut) a panic may ensue for other banks and the Lehman fallout that resulted from having unsecured creditors taking losses on their bonds will be repeated again. Instead if, as likely, the current fudging strategy - of temporizing and hoping that things will improve for the economy and the banks - does not work and in 6-12 months most banks (the major four and the a good part of the remaining regional banks) all look like clearly insolvent you can then take them all over, wipe out common shareholders and preferred shareholders and even force unsecured creditors to accept losses ( in the form of a conversion of debt into equity and/or haircut on the face value of their bond claims) as the losses will be so large that not treating such unsecured creditors would be fiscally too expensive.

So, the current strategy – Plan A - may not work and the Plan B (or better Plan N for nationalization) may end up the way to go later this year. Wasting another 6-12 months to do the right thing may be a mistake but the political constrains facing the new administration – and the remaining small probability that the current strategy may by some miracle or luck work – suggest that Plan A should be first exhausted before there is a move to Plan N. Wasting another 6-12 months may risk turning a U-shaped recession into an L-shaped near depression but currently Plan N is not yet politically feasible.

Roubini and Taleb Survive the Inanity of CNBC's Power Lunch

I caught Nouriel Roubini and Nassim Taleb on CNBC's painful-even-when-muted Power Lunch. When I saw they were on, I upped the volume to hear questions about what stocks to buy for a hypothetical newborn's college account. And comments like equating Roubini's and Taleb's 'rock star status' in Davos as marking a market bottom.

Completely unserious questions and unserious comments from completely unserious people like Dennis Kneale and Michelle Caruso-Cabrera.

Their disdain for their guests and their guests' market philosophies is palpable. For example, Kneale wants Roubini to name one metric that will lead to a market turnaround. Or perhaps up to three metrics if the world has to be THAT complicated.

Roubini doesn't take the bait at first. He goes through a litany of economic problems before settling on the conclusion that the U.S. should follow Sweden's example of nationalizing its insolvent banks versus following Japan's example of pumping up zombie banks that contributed to two decades of negligible growth.

Good succinct point. Not sure that's a metric according to Kneale. And since Kneale thinks nationalization=socialism=godless un-American communism, it's probably a moot point.

Taleb talks about deleveraging the banking system (seems to be working for Canadian banks right now--they are generally leveraged 16-1 versus 26-1 in the U.S.) and eliminating debt.

Taleb then tries to ignore the terrible line of questions and just present his worldview.

Apparently, this interview was so awful that political bloggers have taken notice, like Josh Marshall at Talkingpointsmemo.com:

TPM Reader JC sent me to this interview with Nouriel Roubini and Nassim Taleb on CNBC. Here's what JC wrote: "In this clip, Nouriel Roubini and Nassim Taleb are still being treated as a circus sideshow by CNBC... They're predicting the end of finance, and offering the only clear path out of this mess that I've seen offered (with the knowledge to back it up), and CNBC keeps asking them for stock tips. It's ludicrous. Wall Street media -- CNBC at least -- doesn't realize how bad this is yet. They're stuck in a bubble where they think everything will go back to normal in a few months...."

He hits it spot on. These two guys are talking about a deep structural crisis in the world economy. And these CNBC yahoos can't stop asking for stock tips. Really surreal.

I'm watching it again now. This is a seminal piece of video. You have to see it. I'm not sure I've seen anything that captures -- albeit unintentionally -- the vast disconnect over what is happening today in the US economy.

Marshall and his TPM reader are correct. CNBC generally blows sunshine up its viewers collective asses. I admit I was surprised to hear Roubini get the chance to mention deep-U-shaped recessions versus L-shaped recessions. But there was no discussion or examination of these ideas by the CNBC talking heads.

Perhaps these topics are over the heads of the CNBC presenters? Or perhaps the network want to keep things simple and stupid? Either way, you should watch the video.

Lux Interior, R.I.P.

Which Way Will the Market Go? Continued.

Trader Mike noted the same triangle patterns emerging on the S&P charts as I did in yesterday's post. He also looks at the financials, and raises an interesting question:

The XLF has resisted following BAC to its January lows and beyond… so far. It looks like it’s ready to fail but I guess sellers aren’t willing to sell all the financials off ahead of the announcement of the gubbermint’s rescue plan (or whatever it’s called). But do we get a “sell the news” reaction once that plan’s been announced?

The gap-up in shares of XLF on the 28 of January arose out of rumors of a 'bad bank' plan supported by Sheila Bair at the FDIC. The ensuing sell-off occurred after critics questioned whether the 'bad bank' plan was the banking industry's white knight, or merely one option of many under consideration by the Obama administration.

So will we see the financials pop next week as an announcement approaches, followed by a sell-off on the news? Or will we see continued downward moves in this sector?

Considering the whipsawing volatility in the financials this morning (thanks, BAC), it looks as though noone is really sure what's going to happen.

Which Way Will the Market Go?

The two purple trend lines on the above chart of the S&P 500 are converging into a triangle pattern. Which way will the market go?

I think the market will break down, after the recent failure of the S&P to break the 850 resistance level, the rejection at the 50DMA, and after today's market turnaround.

Todd Harrison at Minyanville thinks the market is about to make a "monster move":

The question, quite naturally, is "what now" as we await the "package" from the Beltway. My gut, for what it's worth, is that this complex sees a meaty upside trade in the near-future, part of the "rally window" we discussed that exists between January 20th and when the bloom fades from the Rose Garden.
...
The trick to this trade--and by trick, I mean risk rather than edge--is the binary nature of the announcement. In other words, we'll walk in one day next week and the sector, as a whole, and the market, as a function of that price action, will be demonstrably higher or lower depending on popular perception of the package.

For my part, I've reminded myself that discipline must always trump conviction and while my gut screams higher, the mechanics of the swing will trump the results of the at-bat.

Harrison thinks the market will go higher, and like me, admits to talking his book and having positions that back up that belief.

I do agree that the Obama/Geithner announcement on their banking plan, presumably next week, will move the markets.

What this means is I'm geared up and at the ready to make portfolio adjustments as technical and fundamental/news cycle information comes.

Madchester

I've had a long-standing appreciation for shoegaze, and the bands that arose from that scene and eventually grew out of it. I spent the summer of '91 at the University of Pennsylvania. There, the Daily Pennsylvanian positively reviewed Chapterhouse's Whirlpool record, so I went to the CD store at the student union, listened to it at the counter, and picked it up. I also picked up a used copy of Lush's Gala, and lusted after the import-priced Ride EPs in the racks.

I also spent Sunday nights from midnight until 2am watching 120 Minutes on MTV. They aired plenty of shoegaze videos back then. But MTV also successfully pushed the Madchester scene's product onto Anglophilic viewers like me. Memorable, one-great-album bands like the Stone Roses. Bands with a two decade legacy, like the Charlatans. A band inartfully pulled from the UK's Grebo scene due to their Madchester-esque penchant for baggy clothing, Ned's Atomic Dustbin. The next big thing that never quite was: The Happy Mondays. And an also-ran that I had long forgotten, the Inspiral Carpets.

And now, YouTube makes it so easy to revisit the Madchester scene, without having to suffer through a Concrete Blonde or Sisters of Mercy video.

Bob Mould Through the Years

Bob Mould interview in '85, apparently during the first Hüsker Dü tour of Britain:





Hüsker Dü - Celebrated Summer live




Hüsker Dü - Makes No Sense at All - Promo video with Bob's flying-v guitar, Greg Norton's handlebar mustache, and Grant Hart's hippie-in-a-punk-band look. And to pile on the idiosyncrasies, the video ends with an extended tribute to the Mary Tyler Moore Show.




Bob Mould - See a Little Light - This song was my introduction to his work back in '89. I soon picked up Candy Apple Grey, and scrounged up a CD copy of Zen Arcade, both at the Sound Odyssey at the Cherry Hill Mall.




Sugar - Your Favorite Thing promo video




Mid 90's, post-Sugar promo video for Egøverride




Bob live in '05 off his Circle of Friends DVD, performing Sugar's If I Can't Change Your Mind

3X ETFs - Links to Charts for the ETFs and their Underlying Indices

For quick reference, below is the current list of 3X-levered ETFs from Direxion:

Bull

BGU Large Cap Bull 3x Shares Russell 1000
TNA Small Cap Bull 3x Shares Russell 2000
ERX Energy Bull 3x Shares Russell 1000 Energy
FAS Financial Bull 3x Shares Russell 1000 Financial Services
DZK Developed Markets Bull 3X Shares MSCI EAFE Index
EDC Emerging Markets Bull 3X Shares MSCI Emerging Markets Index
TYH Technology Bull 3X Shares Russell 1000 Technology Index
MWJ Mid Cap Bull 3x Shares Russell Midcap Index

Bear

BGZ Large Cap Bear 3x Shares Russell 1000
TZA Small Cap Bear 3x Shares Russell 2000
ERY Energy Bear 3x Shares Russell 1000 Energy
FAZ Financial Bear 3x Shares Russell 1000 Financial Services
DPK Developed Markets Bear 3X Shares MSCI EAFE Index
EDZ Emerging Markets Bear 3x Shares MSCI Emerging Markets Index
TYP Technology Bear 3X Shares Russell 1000 Technology Index
MWN Mid Cap Bear 3x Shares Russell Midcap Index

And for doing proper chart analysis on the 3X-levered ETFs, below are links to Stockcharts.com chart symbols for the underlying indices for the entire Direxion lineup. If Stockcharts.com does not offer a chart of the index, I've provided a link to the inferior Google Finance chart.

Russell 1000 - $RUI
Russell 2000 - $RUT
Russell 1000 Energy - RIENG
Russell 1000 Financial Services - RIFIN
MSCI EAFE Index - $MSEAFE
MSCI Emerging Markets Index - $MSEMF
Russell 1000 Technology Index - RITEC
Russell Midcap Index - $RMC

Two Servings of Hot Chip

Over and Over



Playboy

Lyric that makes the song:

Drivin' in my Puegeot hey-ay, yay-ay
20 inch rims with the chrome now hey-ay, yay-ay
Blazin' out Yo La Tengo hey-ay, yay-ay
Drivin' round poppin' with the top down hey-ay, yay-ay

Annotated Charts for the Upcoming Week