VIX vs. market

VIX vs. S&P500

Although the market is at the same levels it was in early December, the VIX is 60% lower. (Source: Zero Hedge)

What do you think this means ? Is the market getting too complacent ?

Financials ??? and is economy improving ???

First week of US Q2 earnings reports was good enough to drive global stock indexes surprisingly high and fast.
Financial sector announcements reveals a far more disturbing picture, for none of the heralded profits reflected results from any kind of predictable ongoing operations.

Goldman Sachs’ (GS) profits were primarily from high risk trading operations, which by nature can vary dramatically, especially with the recent theft of proprietary short term trading software. This business model is perhaps reckless but understandable, given that GS knows it can always hit the taxpayers to cover losses, but is worrisome for the markets, never mind American taxpayers.

Strong results from JPMorgan Chase (JPM), Bank of America (BAC), and Citigroup (C) came from one-time capital gains from asset sales, not sustainable operations. While JPM did have strong results from its commercial banking and asset management business, it noted declines in other key areas of operations and increasing defaults and credit risk. The rest showed profits mostly due to capital gains, not sustainable ongoing operations, and also noted rising default rates and risks of much more to come. Indeed Citigroup shows a loss if you factor out its sale of Smith Barney to Morgan Stanley (MS).

Consider that current conditions are relatively good compared to what’s coming. To give the banks a chance to earn more than they lose, Washington has thus far:

-Allowed banks to borrow for next to nothing, lend out at far higher rates
-Allowed banks to overvalue assets
-Keep consumer interest rates relatively low in order to encourage spending and fee-generating mortgage refinancing
How careful will the big banks be in lending this money, knowing that if the past is any guide, any bad loans will be offloaded onto the taxpayers? There will be plenty more bad loans. Loan losses can only grow as unemployment rises, even if the rate of job losses declines. Bank stress test worse case scenarios were for 8.9% unemployment in 2009, and it’s already at 9.5% and rising.

Looking beyond earnings, at numbers that are harder to manipulate, we see a similar picture

-The Port of Long Beach shows container shipments down nearly 30% annually.
-Freight railroad car loadings are down 25% annually, as reflected in CSX’s report.
-Tax receipts, both personal and corporate, have plummeted.

While economic data this past week was secondary to earnings, it too showed mixed results at best, with both core retail sales and industrial production weak, which does not bode well for the coming GDP estimates.

In sum, it appears that this past week’s rally should be viewed with at least as much suspicion as relief, especially with stocks already so close to their 2009 highs, with no more real evidence of recovery than we had before the rally.

Not a good week. The rally has wiped out some of my gains

Too far too fast. This is the technically important area of the chart. A move just above 945 would get a lot of folks excited about “new highs”. About 950 (with appropriate stops entered) may turn out to be the perfect selling opportunity.

Buy another DOG or for those of you who want leverage look at buying DXD ( PROSHARES ULTRASHRT DOW30)

PORTFOLIO UPDATE July 2

Since Inception (or when the Blind Squirrel started this blog)
the Benchmarks are as follows:

Dow is down about 500 points or -5.6%
Nasdaq is down about 60 points or -3.2%
TSX (Toronto) is down about 400 points or -3.7%

The Blind Squirrel is basically unchanged or +0.48%

Get a 'Dog' !

The last two week's candlestick pattern is a Bearish Engulfing Pattern (subject to confirmation). This is a bearish reversal pattern that marks a potential change in trend.

Candlestick weekly chart for DJII posted SELL-IF signal. The BUY recommendation made on 03.20.2009, when the index value was 7,225.3 . Since then DJIND has gained 17.26%

Buy DOG-NYSE @ $66.80

DOG, ProShares Short Dow30 seeks daily investment results, before fees and expenses, that correspond to the inverse (opposite) of the daily performance of the Dow Jones Industrial AverageSM Index.

natural gas in storage

Injection of 94 BCF; Below the expectation for a 100 BCF Injection

For the week ending Friday, June 19, 2009, total natural gas in storage increased 94 BCF to 2,651 BCF from 2,443 BCF a week ago. The storage level is now 631 BCF (31.2%) higher than this time last year and 482 BCF (22.2%) above the five year average. The east region had a net injection of 70 BCF. Total gas in storage in that region is at 1,234 BCF, which is 10.3% higher than the five year average. The west region reported a net injection of 12 BCF, increasing gas in storage to 420 BCF (32.1% higher than the five year average). The producing region reported a net injection of 12 BCF, with gas in storage at 997 BCF (36.2% above the five year average).

-M

The Chinese are coming .....

Sinopec agrees to buy Addax for $8-billion

China's biggest oil products company, Sinopec, has agreed to buy Toronto-listed Addax Petroleum Corp. [AXC-T] for $52.50 a share, valuing the company at more than $8-billion.

The price was somewhat higher than expected. Earlier this week, the shares were trading at about $45 a share as investors took the view that the company was fully valued. The offer represents a 47 per cent premium to the closing price on June 5, the day before Addax announced it was in discussions with potential buyers.

relationship between coal and nat gas prices

The relationship between coal and nat gas prices is more important than that between oil and gas prices in north America, as both are important fuels in the generation of electricity. Nat gas is particularly important as a peaking fuel, kicking on when demand is high for cooling in the summer. The low price of natural gas has caused quite a bit of coal-to-gas base load switching in recent months – more than expected. This should be helpful for nat gas storage. That said, if natural gas prices rise too much coal will take back market share, affectively capping natural gas prices. Moreover, in the current weak economic environment coal is quite plentiful. The electric power sector has historically high stocks of coal.

Electric Power Sector Coal Stocks



Coal production is coming off in response to high inventories and soft demand but prices are likely to remain weak in the near-term .

U.S. Monthly Coal Production





-M

Larger than expected decrease in crude oil inventories offset by larger than expected increase in gasoline and distillate inventories. Impact looks

The U.S. Department of Energy reported a 3.9 MMB decrease in crude stocks over the prior week, greater than analyst expectations for a 1.0 MMB decrease. Crude oil inventories decreased by 2.2 MMB at PADD 5 (West Coast) week-over-week. Crude oil stocks are now 1% above the five-year high on an absolute basis and are 4% above the five-year high on a days of supply basis. Gasoline stocks increased by 3.9 MMB over the prior week, greater than analyst expectations for a 1.0 MMB increase. Gasoline stocks are now 3% below the five-year high on an absolute basis and are at the five-year high on a days of supply basis. Refinery utilization increased by 1.2% week-over-week, greater than analyst expectations for 0.1% increase. Refinery utilization is now 2% below the five-year low. Distillate stocks increased by 2.1 MMB over the prior week, greater than analyst expectations for a 0.9 MMB increase week-over-week. Distillate stocks are now 20% above the five-year high on an absolute basis and are 29% above the five-year high on a days of supply basis. -M

The Federal Reserve is now the “printing press”. The end of independence at the Federal Reserve.

For most of that chart, the Federal Reserve monetized very little U.S. government debt. Then, in January of 2009 it began to monetize debt at an explosive rate. Did something change at that time?

Since then, the Federal Reserve has monetized on the order of $700 billion. Now while percentages are more important than absolute numbers, that value is more than the combined GDP of Poland and Ireland. It is about 2/3 the size of the Canadian economy. The change that arrived in January was that the Federal Reserve was to create more money in a shorter period of time than has ever been done in history.

That blue line has some important meaning for Gold investors. With the Obama Regime likely to run deficits of $2-3 trillion for the next few years, that blue line will continue to rise. The Federal Reserve is now the “printing press” for an out of control government. That blue path of debt monetization puts a long term floor under the price of $Gold. If ever an argument existed for long term ownership of $Gold, it now certainly exists with the end of independence at the Federal Reserve.