The "New" Normal- 12/14/09

"Greed is Good."

--Gekko



I'm not sure how I feel about BAC, C, and WFC all paying back the U.S. Treasury within a week's time frame. Does anyone remember how much trouble the US Gov gave GS, JPM, and MS about repaying Tarp? Stress Tests anyone?



Either the U.S. gov needs the liquidity or the media doesn't care about "Taxpayer money" anymore. Though, one cannot make the argument that BAC, WFC, and C are "healthy" institutions. "Healthy" banks don't egregiously need to dilute their shareholders. Milton Friedman anyone? Sheila Bair and Meredith Whitney would agree.





Patrick M. Ambrus

Analyze Capital LLC

Managing Partner

ambrus.anlzgroup@gmail.com

Dress For Success- 12/14/09

"I don't throw darts at a board. I bet on sure things. Read Sun-tzu, The Art of War. Every battle is won before it is ever fought. "

--Gekko



Econ Data for the week. I left out housing starts as well as energy numbers. I will blog on them if I have time later.







Tuesday:



PPI

Producer Price Index comes in tomorrow morning at 8:30. I am particularly interested in seeing the finished goods data. This should give investors enough information to gauge overall growth in the economy. Also, if numbers come in better then expected we can look for a continuing trend in CPI. Hence, putting pressure on the Fed to raise rates. However, that probably will not happen any time soon. Just wishful thinking. Look for Dollar strength if the numbers are good.





Via Bloomberg:

Market Consensus Before Announcement

The producer price index increased 0.3 percent in October after dropping 0.6 percent the month before. The rise in the latest month was led a 1.6 percent boost in energy and a 1.6 percent gain also for food. But at the core level, the PPI rate unexpectedly dropped 0.6 percent, following a 0.1 percent dip in September. The fall at the core level was due mainly to declines in prices for light trucks and passenger cars. Looking ahead, there is still upward pressure on the headline figure from higher oil prices. Imported petroleum prices were up 6.2 percent in November. Also, seasonally adjusted spot prices for West Texas Intermediate increased 6.9 percent for the month.



Industrial Production

If the numbers show economic growth look for this to spur a sell off in Treasuries.



Bloomberg:



Market Consensus Before Announcement Industrial production in October edged up only 0.1 percent, following a 0.6 percent boost the prior month. However, the manufacturing component declined 0.1 percent, following a 0.8 percent jump in September. Overall capacity utilization in October continued its rise from the historical low set in June, posting a gain to 70.7 percent from 70.5 percent in September. Looking ahead, earlier-released manufacturing indicators mostly suggest improvement in industrial production for November. From the employment situation, production worker hours in manufacturing were up 0.4 percent for the month. Key manufacturing surveys were in positive territory for November-including ISM, Philly Fed, and Empire State.







Wednesday:



CPI

Any inflation on the horizon? This number coupled with bullish PPI could re-fuel the St. Nick rally.



Bloomberg:



Market Consensus Before Announcement The consumer price index in October firmed to a 0.3 percent boost after rising 0.2 percent the month before. Core CPI inflation was unchanged with a 0.2 percent increase. Boosting the headline number was a 1.5 percent jump in energy prices. Food price inflation was restrained in October with a 0.1 percent rise. Looking ahead, there is still upward pressure on the headline figure from higher oil prices. Imported petroleum prices were up 6.2 percent in November. Also, seasonally adjusted spot prices for West Texas Intermediate increased 6.9 percent for the month.



Fed Decision

I want to know when Bernanke plans to wind down QE or if there is even a plan in place for this. Specifically I want clarity Mortgage backed asset purchases program. How will the Dollar react? Does the FOMC support recent USD strength?





Thursday:



Initial Jobless Claims

Will we see 5/6 positive weeks or a second consecutive week of losses?



Bloomberg:



Market Consensus Before Announcement Initial jobless claims for the December 5 week ended five weeks of improvement, rising 17,000 to 474,000 for the highest level since mid-November. But the four-week average improved, dropping 7,750 to 473,750. Continuing claims in data for the November 28 week fell very sharply, down 303,000 to 5.157 million. The drop in continuing claims reflects an uncertain mix of new hiring and the expiration of benefits.







Patrick M. Ambrus

Analyze Capital LLC

Managing Partner

ambrus.anlzgroup@gmail.com

Hunger For More- 12/11/09

"Well, ladies and gentlemen we're not here to indulge in fantasy but in political and economic reality. America, America has become a second-rate power. Its trade deficit and its fiscal deficit are at nightmare proportions."

--Gordon Gekko

IEA Oil Market Report Highlights:

• Forecast global oil demand is virtually unchanged for 2009 at 84.9 mb/d but is revised up by 130 kb/d to 86.3 mb/d in 2010. Yearly growth (‐1.4 mb/d and +1.5 mb/d, respectively) remains driven by non‐ OECD countries, but OECD prospects have slightly improved.

• OECD industry stocks fell by 36 mb in October to 2,735 mb, 2.5% above 2008’s level. Middle distillates accounted for over 40% of the draw, yet global products in floating storage continued to rise in October and November. End‐October forward demand cover fell to 59.4 days, 2.5 days higher than a year ago.

• Global oil supply rose by 200 kb/d in November. OPEC crude production increased by 135 kb/d to 29.1 mb/d, its highest level in a year. Largely as a result of lower non‐OPEC supply prospects for 2010, next year’s call on OPEC is raised by 0.5 mb/d to 29.0 mb/d, compared with 28.7 mb/d in 2009.

• Forecast 2009 non‐OPEC supply is raised by 125 kb/d to 51.3 mb/d as Russian gas liquids output is revised up. In addition, the end of the quietest US hurricane season since 1997 has contributed to lift this year’s outlook. By contrast, 2010 supply is revised down by 265 kb/d to 51.6 mb/d, with North American supply now lower.

• Projected global 4Q09 refinery crude throughput is revised down by 0.6 mb/d to 72.3 mb/d, due to weaker US preliminary data and higher maintenance in Asia and the Middle East. Global 1Q10 crude throughput is seen rising by 1.0 mb/d year‐on‐year to 72.7 mb/d, but OECD crude runs are expected to fall given weak refining margins.

• Crude oil futures prices traded in a higher $75‐80/bbl range in November before weakening in early December on fears that the recovery in the global economy could be shallower and slower than expected, especially in the key US market. Prices were trading at eight-week lows of around a $70‐74/bbl range at the time of writing.

• A medium‐term market update sees upward revisions for demand (largely non‐OECD Asia) outstripping those for supply (Russia, OPEC NGLs and Nigerian and Iraqi capacity). Yet higher OPEC capacity ensures similar market outlooks – tightening under the higher GDP case, but remaining comfortable under lower GDP growth or faster efficiency gains.

It looks like my colleague Alex is correct to be an oil Bull. One must also exam U.S. EIA numbers as well as OPEC numbers to get a better understanding of the numbers above. Though, this report does give a pretty good picture on the demand story. China's beak is wet I presume. If China continues to grow, they will continue to consume oil. I will look to see how domestic oil refiners are operating in order to gauge future consumption. If I like what I see I will look to enter my USO position around $70/barrel after incorporating technicals as well.

CO1 - Crude - Brief Technical Review - 12.11.0

I just want to do a brief commentary on the overall trend of Crude. I forgot to grab CL1 of the bloomberg but CO1 works just as well. Its clear via the first and second BB analysis that prices need to revisit back up to the mid to high 70's before establishing a concrete trend.

In other words: "short term bull" until price range of 75+

Relation to Equities and correlation thoughts:

If you look at the month of november CO1 traded similarly to the SPX. A flat trend developed with a range of about 75 to 80 which eventually came to a price squeeze (currently spx is experiencing a price squeeze). Interestingly enough the price squeeze with oil led to the downside (prices currently around low 70's). The break to the downside could possibly be explained by the trade data. My colleague Pat put up a excellent post <-- click here on this a few days ago. To an extent the SPX followed, as prices went from 1100+ and fell to 1090, but held at 1085 support (continuing a flat trend/side ways trading) which exhibits a limited correlation. (in other words playing the equity oil corr may not be such a good idea).

Price Behavior:

Much of this flat pricing/sideways price behavior in NOV oil trading can also be explained by seasonality factors (weaker demand: seen via trade data). Interestingly enough though, winter is yet to be in full force. Crude will probably be in the 70's range through first Quarter 2010.

Crude the past few quarters has tended to make wide higher highs on a monthly basis. Overall, the long term general trend on a quarterly basis is bullish. If Oil can maintain in the 70's range for the first quarter, establishing a new range in Q2 is quite possible when seasons change and demand picks up.


Summary:

Short Term: trade up to 75+ re-examine
Mid Term: ? to lateral
Long Term: on a quarterly basis bullish if ranges hold


----

Alexander Lê
Analyze Capital LLC
Managing Partner
email: le.alex48@gmail.com

Currency Daily Update - 12.11.09

Very Interesting open this morning. I have an open position on the EUR and it seems we are seeing Dollar up and Equities up.

Now I know this is only a intra-day, but we saw a similar dynamic back in the first week of Dec. It will be interesting to see if this will re-correct over the next few days back to Dollar down and Equities up.

If this Dollar up Equities up, keeps up perhaps markets are finally pricing in different fundamentals or we are seeing a divergence in monetary policies in the currency realm (USD relative safe heavem; flight to quality;? people pricing in early interest rakes for next year 2010?). Next week will be an interesting week.


----

Alexander Lê
Analyze Capital
Managing Parnter
Email: le.alex48@gmail.com

Anaylze Capital November Trading Game Results

As you can see most of our traders were smart and held on to cash positions (throughout the whole period....) and managed to get a return from interest.

On the other hand, it is funny how the active traders all had positions in financials. The smart one was the Dark_Trader who was short throughout the whole period on financials. This initially hurt him in the beginning but paid off in the end due to his good discipline (as financials eventually tanked at the end of the month).

I however did the exact opposite, I had a strong start by longing financial and did not follow up on tight risk management when i couldn't monitor markets and got killed.

For a three week time frame I did terribly. Then again equity trading was never my strong point.

Good news is that there is a December through February ANALYZE CAPITAL LLC equity trading game! (This time around ill stick to the currency related equities!)

The game is up and currently running, if you wish to join the trading shoot me an email and ill send you an invite. The winner of this game will get a modest cash prize.

All the participants and everyone from AC gives a warm congratulations to the Dark_Trader's success.

----

Alexander Lê
Analyze Capital LLC
Managing Partner
Email: le.alex48@gmail.com

When the Money Goes, Will the Honey Stay?- 12/10/09

"Money itself isn't lost or made, it's simply transferred from one perception to another. "
-Gordan Gecko

Via Bloomberg:

Trade Report
The latest international trade report shows exports continuing an uptrend, boosting U.S. manufacturing. Imports also rose, likely reflecting inventory rebuilding for autos and cautious hope about the consumer and business investment. The overall U.S. trade deficit narrowed to $32.9 billion from a revised $35.7 billion gap in September. The deficit was smaller than the market forecast for a $36.4 billion differential. Exports advanced 2.6 percent while imports gained 0.4 percent. The improvement in the trade deficit was primarily due to a narrowing in the petroleum deficit, which came in at $17.8 billion compared to a gap of $20.5 billion the previous month. The nonpetroleum gap shrank to $25.2 billion from $25.7 billion in September.

Looks like the decline in oil prices coupled with depressed demand played a major role in the narrowing of the gap.

But apparently, U.S. businesses are a little optimistic about domestic demand for both capital equipment and consumer goods. Import gains were led by a $1.1 billion boost in capital goods ex autos, followed by a $1.0 billion rise in consumer goods imports and $0.4 billion for autos. Industrial supplies imported fell $1.8 billion, with the crude oil component falling even more-by $2.4 billion. However, some of the auto imports may be lagged effects from the surge in auto sales under the cash-for clunkers program as import auto dealers restocked.

If the consumer continues to spend we should see robust GDP growth in the 4th quarter. Though, I would be cautious to predict anything over the 3-3.5% forecast by Mr. Bernanke and Mr. Dudley of the Federal Reserve.

Initial Jobless Claims
Initial jobless claims ended five weeks of improvement, rising 17,000 in the Dec. 5 week to 474,000 for the highest level since mid-November. But the four-week average continues to improve and is right at the current level, down 7,750 to 473,750. Market News International also notes that seasonal contraction in construction, tied to heavy weather, is another offsetting factor in the latest week's rise. Continuing claims in data for the Nov. 28 week fell very sharply, down 303,000 to 5.157 million. The drop in continuing claims reflects an uncertain mix of new hirings and the expiration of benefits. The unemployment rate for insured workers continues to come down, 2 tenths lower to 3.9 percent. This rate peaked in July at 5.2 percent in a major contrast with the overall unemployment rate which, at 10.0 percent in November, hit a 10.2 percent peak in October. Today's report is a bit of a disappointment and will lend modest support to those who question whether the November jobs report, with its big improvement, will prove to be a fluke.

Claims missed analyst Consensus estimates of 460,000 for the week. This will be a very important trend to watch over the month of December leading into the Employment Situation on January 8th. Additionally, these numbers will have the potential to avalanche the Santa Clause Rally. Specifically, I will look for action from Washington as Obama looks to subsidize jobs with left over Tarp money. If this action is taken it will probably be viewed as bearish on the economy.

Natural Gas Inventories
Natural gas in storage fell 64 billion cubic feet in the Dec. 4

Nat Gas continued its volatility today and is up a whopping 7.7% at $5.28/btu on the session due to bullish supply numbers. I was able to lock in a favorable long position at the close of the trading day yesterday through the UNG. I have already taken profits today, and I will look to re-enter around $9.10.

Other News & Notes

• CIT exits Bankruptcy
• Citi looks to raise $20B through common offering to help repay $45B Tarp loan
  
• London bankers set for exile as Darling approves Bonus Tax in excess of £25,000
• U.S. Treasury will extend the Tarp until October 2010

On a a personal note, Tiger Woods is a great golfer and not a role model. Stop expecting him to live a flawless life. Everyone makes mistakes. I am sure Disney is loving ESPN's rating right about now. There is no news like Bad news...


Patrick M. Ambrus
Managing Partner
Analyze Capital LLC
ambrus.anlzgroup@gmail.com