All day and every day, some of the stock market's best and
brightest traders and money managers share their ideas, insights,
and analysis in real-time on Minyanville's Buzz & Banter.
Here is a small sampling of this week's activity in the Buzz.
Is the Home Price Increase From New Mortgages?
We'll be doing some work over the coming days to figure out where
the real gain in household net worth is coming from, but I came up
with what I think is a very cool and telling chart about the
drivers behind the boom in real estate.
Lately, there has been a number of articles about how bids are
heating up for homes and anecdotally that has been the case for
about 9 months now. Also, a large number of articles have pointed
towards private equity as the marginal buyer for homes. Below is a
chart that hopefully puts that idea to bed.
On the top panel is real-estate loans as a percentage of total bank
credit (residential only) vs the S&P/Case-Shiller unadjusted
home price index. The second panel has the bank credit and
real-estate loans broken down.
So this translates into a decline of $288.5b in real estate loans
while overall bank credit has risen by $805.5b, and recently home
prices have risen. The large driver behind bank credit has not been
consumer loans or new mortgages, but commercial & industrial
(C&I) loans, which have taken off after bottoming in the 1Q
Admittedly, there are a few holes in this chart. Home purchases
could be done through all cash payments or through non-commercial
bank loans (small, but possible). Private equity firms could be
using non-bank credit lines, also small, but possible. Lastly, it's
also good to look at home prices in the context of remaining home
The second chart shows existing homes on the market, which reached
a 14-year bottom in the first quarter, suggesting distressed
sellers may have been taken out of the market.
Bottom line, I think we'd be wary to point towards the individual
home buyer as the driver of gains in the real-estate market over
the last few years. More so, it's been private equity or corporate
buyers, as referenced by the large decline in inventory. The
takeaway is that we're extended, but at the same time have a lot
more upside, because the individual buyer has yet to stop renting
and return to the market.
Click to enlarge
Click to enlarge
My old ugly/expensive friend
Biogen Idec Inc.
is getting rejected by the old uptrend. This is one of my favorite
trades and I think we can easily see the 50 break down on this one
now. I am now shorting this stock again with a target of around 200
Click to enlarge
Credit for Everyone!
The credit markets have been a little shaky lately to say the
least, particularly in the junk world where things seem to go
topsy-turvy every couple of days. And then there's what may be a
real unwind of the long Treasury trade as rates continue to creep
So I think now is an interesting time to see advances in credit
1. The industry just cleared its first single-name CDS, with ICE
clearing a trade brokered through Barclays for Citadel. This is
being hailed as an important development as it will allow portfolio
margin netting, and increase liquidity while reducing systemic
2. Last week, ProShares
to register 8 different CDS-based
3. ICE is launching CDS index futures on June 17, another example
of OTC products being moved on to normal exchanges that should
bring wider credit-market participation.
Now, the folks behind all these initiatives are making a big deal
out of how they're all good for the market, and how they'll help
folks comply with Dodd-Frank and increase market liquidity and help
people manager risk.
They may have the best of intentions, but I'm not sure that greater
availability of these types of products is necessarily a good
Like with leveraged and other exotic ETFs we'll see an increased
number of people masquerading as macro mavens, trading arcane
products that they barely understand.
And secondly, the timing just feels weird -- all this stuff is
coming to market exactly when credit appears to be under stress
after a long bull run.
Good morning. Given how equity futures are trading it's no great
shocker that the credit/credit derivatives complex is a mess this
morning. PIIGS bonds and CDS are ripping higher; 2-year swaps are
gaining a footing in the 19bps handle; even CDS of large US
financials are somewhat wider. And the elephant in the room is the
long end of Treasuries. At 139-10 the 30-year is now firmly below
weekly TDST Level Down (139-30), and the next and last stop before
things could get unruly is the weekly TD Prop Exhaustion Down
target at 138-13.
Yesterday's new corporate issuance was again minimal as it's
becoming apparent that buyers are taking a hiatus as they
wait for higher rates
It's the day before "judgment day" as the German Constitutional
Court will hold hearingstomorrow on the legality of the European
Central Bank's "outright monetary transactions" (OMT) program. The
OMT is a program designed to give the European Central Bank (ECB)
the ability to purchase government bonds as a "backstop" against
higher interest rates. Surprisingly, the ECB has yet to actually
engage in OMT. Despite that, it is none other than the ECB's
President, Mario Draghi, who states, "OMT has brought stability,
not only to the markets in Europe, but also to the markets
worldwide." Still, while our markets are currently not paying much
attention to the Euro Zone, I think there should be concern over
what damage said hearings might do. Indeed, in past missives I have
targeted June 11/12th as a potential "pivot point" for some
downside action that I thought would be contained leading to higher
highs into the end of the quarter. Accordingly, this week shapes up
as an important week to see if we will extend higher into the first
part of July, or if we will "fail" into quarter's end leading to
this year's first meaningful decline. As of yesterday, the jury
One arena where the jury remains "in" is household net worth, which
rose by $3 trillion in 1Q13 to a record $70.3 trillion. Obviously
that increase reflects the rise in the value of financial, and real
estate, assets. Yet, those gains are NOT evenly distributed among
participants. Such uneven distributions seem to be getting
attention from the Federal Reserve. Moreover, the Fed governors
seem surprised long-term interest rates have risen so rapidly. That
rise is not justified by the economic outlook. Inflation is
trending low. With the improving near-term federal budget outlook,
the Treasury is borrowing less than expected. None of this suggests
upward pressure on L-T interest rates. Yet, yesterday the 10-year
T'note tagged another new reaction high of 2.231% as its yield
broke out to the upside in the charts (see chart). The result left
(INDEXSP:.INX) (SPX/1642.81) in a sideways session, but it could
have sent the SPX back to the downside if this was the start of the
decline I have been expecting to commence in mid-July.
Nevertheless, there are more energy signals targeting a retreat in
prices perhaps until the end of this week, but the "tea leaves" are
confusing since the SPX has had a massive upside move. This
morning, however, it is not Germany that is spooking markets, but
Japan as the Bank of Japan decided not to follow up on its $1.4
trillion stimulus program leaving the yen sharply higher and world
markets sharply lower. The support zone for the SPX lies between
~1608 (its 50-DMA) and last Thursday's intraday low ~1598.
Click to enlarge
It All Comes Down to Prepayment Speeds on Mortgage Pools
There is a lot of chatter about convexity hedging from the mortgage
market, much of it wrong.
It is on a pool or portfolio basis, not individual mortgages.
As rates rise, the speed of prepayment slows. So if at 2% you're
expected a certain pace of prepayments (or refinancings), then at
2.5% you expect less prepayment. It is the lower prepayment
assumptions that effectively extend the pool/portfolio.
For the mortgage investors trying to maintain it as a spread
product, they have to hedge and extend the duration of the hedge.
Yield investors may reclassify the maturity bucket, forcing them to
rebalance other yield product holdings (selling longer bonds to
possibly buy shorter-dated bonds)
There are many other factors that affect prepayment speed
assumptions, but rates are the one people are focused on.
One thing to remember is that this convexity goes both ways.
Wednesday, June 12
S&P e-mini Update
S&P e-mini holds the critical 1620.75 level so far. If that
should break, we would get a quick run to confluence of the June 6
naked VPOC and weekly S1 at 1608 (see chart below). Bulls regain
control on a close above 1639. Upper resistance is at 1645.50. For
now, we are chopping around the grey zone between 1620.75 and 1639.
Sentiment has finally gotten a bit negative, with equity put call
jumping up to the highest level since April at 0.81. This could
help bulls mount a rally at some point.
Click to enlarge
breaks, and some sell-stops kick in; I've used this move to peel
out of another 10% exposure, which reduces my
SPDR S&P 500 ETF
(NYSEARCA:SPY) short to 50% of a full position (I came in with 60%,
added 10% on the opening lift, punted that overage into the dip,
and now I'm 10% "out" on the session, which sounds about right
given we're 20 handles lower than where risk was added yesterday,
Market breadth is 2.5:1 negative and the banks are (again)
under-performing to the downside, so we'll see how the tape
acts/reacts once the sell-stops clear. I still sense S&P 1600
as an intuitive first stop but I've been wrong before, hence the
disciplined process of "trading around" a bias with a defined risk
Yearning for Yen?
Keep an eye on USD/JPY as the strengthening continues in the
Japanese currency, which currently attempting a breakout above
resistance. Anecdotal reports target the unwinding of carry trades
by hedge funds, most of which are thought to be European. After
Europe closed today, the Japanese Yen surged once again, perhaps
suggesting major money center treasury departments had been
pressuring the currency on behalf of their clientele.
This trade was put on and added to in massive amounts over the
previous weeks and will take some time to fully unwind should
strengthening continue (which is likely due to near-record level
speculative short positioning). A look at the chart says another
nasty 2% - 3% move could be taking shape. I am short USD/JPY at 96
and looking to cover between 92-93. Keep in mind that USD/YEN has
been trading eerily in tandem with both the S&P and
Dow Jones Industrial Average
(INDEXDJX:.DJI). Good luck out there!
Thursday, June 13
Quick Comments On Latest Short Interest Data
Short interest numbers for the NYSE have been reported for the
period of settlement date May 31. They have decreased to
13,442,785,071 from 13,489,929,546 shares (revised) for a decrease
of 47,144,475 shares. This is a drop of 1,528 advancers and 1,970
decliners, and we've seen more advancers than decliners in 44 of
the last 87 initial reporting periods.
(INDEXNASDAQ:.IXIC) had risen the last six of nine reporting
periods but not across the board over the last three months.
During this period on a trade date basis (5/10 to 5/28) the S&P
500 rose by 1.61%. The conclusion is shorts held to their positions
with some small covering in front of a pretty decent move to the
upside. The next short interest collection covers from 5/28 through
6/11, which is yesterday and the S&P 500 fell by -2.04%. It
will be interesting to see if shorts pressed the weakness.
Short interest numbers for NASDAQ are reported for the period of
settlement date May 31. Short interest numbers have decreased to
7,488,661,708 from 7,573,777,549 shares for a decrease of
85,115,841 shares or -1.12%. There were 969 increases and 1,505
decreases. In the last 87 reporting periods, the Nasdaq has seen
more advancers than decliners in 46 of the 87 last reporting
What Honey Badgers Care About
For several months now, I have been calling this the honey badger
stock market, which has completely ignored negative economic news
and concerns over deflationary pressures, which have been building
since the end of January. On Twitter last night, many were freaking
out about Japan, but I continued warning that it is risky to get
too bearish here. Why? Because what the honey badger cares about
now is the oversold nature of emerging market stocks and
Treasuries. We could be re-entering a period of rising bonds and
rising stocks, given that both have been beaten down on QE tapering
talk. Next week's Fed meeting could result in a reversal by
Bernanke and a near-term end of its Confuse and Conquer strategy.
There is no way they are willing to risk their precious wealth
effect. That's good for stocks and bonds, as it calms concerns over
the speed with which bond yields rise.
Options Trade: Cliffs Natural Resources
Please welcome Minyanville contributor Andrew Keene to the
When taking a look at the charts for
Cliffs Natural Resources Inc
), it is to be noted that the stock has been on a bearish trend for
quite sometime now, since early April to be exact. With the current
drops, CLF currently has a 9-day moving average of 18.26 and a
52-day moving average of 20.48; down from it's early of the year
mark of 38.08.
Thus far in 2013, Cliffs Natural Resources has had a very rough
year with share prices down nearly 55%. With these dropping
commodity prices and their huge load of debt obtained through
acquisitions, there has certainly been some weight put on the
With recent delays in Cliffs' huge chromite-mining project (costing
$3.3 billion) in northwestern Ontario, it leaves many wondering why
they wanted to start the project in the first place. It was far
from understandable that Cliffs would be able to restart the
project due to the low iron ore prices, pressuring its prices to go
elsewhere. According to Daniel Rohr, a Morningstar analyst, he
says, "It is hard to see why Cliffs would undertake a project of
this magnitude when its core business, the source of all its cash
flow, is withering."
Using the ATM Straddle, I can get a Measured Move Target, one to
the Upside and one to the downside, Lets Check this out.
CLF is currently trading $18.30, I am Bearish, but not extremely
Bearish. The June 18.5 Straddle is $1.30 implying the stock can
Upside: $18.50 + $1.30= $19.80
Downside: $18.50 - $1.30= $17.20
My Trade: Buying the CLF June 18-17-16 Put Butterfly for $.20 debit
- same as: Buying the June 18-17 Bear Put Spread and Selling Bull
17-16 Put Spread
Risk: $20 per 1 lot
Reward: $80 per 1 lot
Reward to Risk: 4-1
Breakeven: $16.20 and $17.80
Greeks of this Trade:
Friday, June 14, 2013
Get your FOMC statement here.... read all about it!! That would
have been your first reaction to the
yesterday that said the Fed was unlikely to make the moves the
market was implying at next Wednesday's FOMC meeting, especially
given the recent data trends. The Fed may be looking to taper or
talk down markets, but it's not due to data, that's for sure.
If there's one thing you can take away from the last three weeks of
activity in the Treasury market... the flow of purchases from the
Fed has absolutely zero effect on the movement of rates both up and
down. All about expectations.
TIPS doing great this morning across all points on the curve. This
is a major point that should be made. The whole way down TIPS led
the selloff, which is the inverse of what you'd normally expect. If
that logic, which took over for the past three weeks, is any guide,
these should be a tailwind for Treasuries if they head higher,
rather than in normal times where they would underperform. We
irrationally sold off, erasing all of the inflation expectations
built in from QE3 and QE2, and now we'll probably irrationally
revert back to the old area. Just saying. I'm not playing this
trade, but a 1.5x TIP long vs TLT short would be a good trade to
take advantage of this widening in breakeven rates over the next
With Tuesday's trend ending day in Treasuries looking solid (as
I both pointed out
, Prof Cooper
the "other side" of that move with the possible reversal of a
reversal) it's looking like we see higher prices from here. I
prefer 5's 7's or 10's on the way up (FV or TY future, IEF ETF) and
think 30's will underperform (US or WN future, TLT ETF) so a
bullish steepener with 2.5x/1 or 3x/1 positioning could be in
order. Though, I'm sure I'm not the only person on the planet
thinking about that kind of trade so keep that in mind.
Given the now confirmation of positively trending PPI data from the
month of May, this should translate into better CPI figures in
June. Additionally, I think manufacturing will turn up in June and
should be a drag on any Treasury rallies as growth expectations
I've been beating the negative repo horse a lot, and to prove that
I'm not crazy, repo fails to deliver for the 10-year in the week
ending June 5th rose to $33.5b from $468m the week prior. The
thinking was that the $21b re-opening of 10-years on Wednesday
would help the supply issue, but at the best unless we see shorts
cover or more longs added, it's not going to be until next month
that it works itself out. Also, if you are short UST's, be wary of
a Fed/Treasury notice to large holders to report position sizes now
that they've seen the market disruptions, and it should cause a
On the equity side, be aware that the
) contract started rolling yesterday from the June to September
contract. And it kind of seems like the irrationality of bonds and
stocks going up together has returned.
Closed end bond funds doing better again today and I added and
brought my credit position to full (along with a full muni
position). Not looking so much for beta gains here, but discounts
of 5%-8% to NAV and 4%-6% vs historical NAV is appetizing for me.
My time horizon for these investments is three months and then I
T-Rex In The Ointment
Bullishly, the S&P left an outside up day on Thursday as,
remarkably, the index carved out the FIRST turndown in the 3-Day
Chart in 2013.
In other words, yesterday was the first time the S&P showed 3
consecutive lower intraday lows this year.
When the index went 'into the position' early Thursday morning, it
didn't stay there long -- the ensuing rally left an outside up day.
All systems go, right?
The T-Rex in the ointment may be that now the S&P has carved
out the first Minus One/Plus Two sell setup in 2013.
This is because the 3-day chart is pointing down and the index has
2 consecutive higher daily highs (the + 2 part of the
strategy).This occurred because yesterday two-plotted, meaning the
outside day up was the first higher daily high (following the turn
down on the 3-Day Chart in the morning) and this morning shows a
higher intraday high than Thursday.
In addition, the Minus One/Plus Two sell pattern is a potential
Holy Grail sell as it is occurring on a test of the overhead 20-day
Click to enlarge
Eyes of the World
I was supposed to hit PT today at 1 p.m. -- their last appointment
on a Friday -- but I blew that off to ride the tide with ye
faithful through the end of the week. And by "blew that off," I
mean that I'll do solo PT after the market closes today; as I've
said in the past, I'm "on the program," which means PT every day,
Some top-line observations:
As go the piggies, so goes the poke; the banks were my catalyst to
add to my short SPY position this morning and they've led the tape
KBW Bank Index
-1.6% vs. S&P -.6%).
Market breadth on the big board is 16:13 (negative) while the Nazz
is 2:1 negative.
Does anyone else find it nuts that we're already bumping up against
the 4th of July?
I'm offering another 5% of my SPY December put position out there,
as a function of discipline. (I'm currently at 65%, after adding
25% this morning and peeling out of 10% into the slippage, not
including this current offer). Aaannd just got lifted on that
"The Fed only only has so many bullets and the
last one will be pointed inward?
" I wonder what will happen if Big Ben is dovish next week and the
market doesn't care? I have no edge here; just thinking out loud. I
think it's safe to assume Mr. Bernanke will be a dove.
Those trend channels are nutty, eh? Through objective eyes,
competing patterns typically resolve in the direction of the larger
pattern (in this case, higher) but I'll trade 'em in the band until
they stop working.
Goldman Sachs Group Inc
). LOD (Low of Day)
In a perfect world, I'll be IN-N-OUT on my intraday exposure as I
trade around my defined risk core. The world is far from perfect,
so we'll trade 'em as a function of time and price.
Thank you; seriously. That goes to the team (Michael, Michael &
the squad), and those of you who spend your sessions with us.
What a long strange trip it's been!