Gee, what have I been saying now for over two years?
Jan. 19 (Bloomberg) — The U.S. Treasury Department has failed to win agreements to get struggling borrowers’ home- equity debt reworked, among the biggest roadblocks to reducing foreclosures that may reach a record 3 million this year.
None of the lenders holding a combined $1.05 trillion in the debt has signed contracts requiring participation in the second-mortgage modification plan announced eight months ago. The largest banks remain “committed” to joining, Meg Reilly, a department spokeswoman, said in an e-mail.
Amusing. My view as expressed somewhat-recently on this issue can be found here:
They are sitting on over a trillion of dollars of this paper (about $1.1 trillion to be exact) and several hundred billion is severely impaired or even worthless. Wells Fargo, just as one example, has (as of its last 10Q) $106 billion of second lines outstanding on balance sheet, and God only knows how much in SPVs (Wells is known to have significant off-sheet exposure “inherited” from Wachovia.) Let me put this in perspective for everyone.
Uh huh.
RealtryTrac says that three million foreclosures are likely this year and that as much as 23% of all mortgages are currently in negative equity – that is, any second line is severely impaired on that property and may be worthless.
All the BS and games has not changed a thing. The big banks all claim to be “committed” to working with the Treasury on these programs, but the fact of the matter is that if they are forced to recognize reality they are insolvent.
But the conundrum is that in order to normalize the economy and lending environment we must stop playing games with home prices. House prices must contract to where average Americans can afford to buy them without using exotic and tricky loans.
HAMP fails to do it – as Mark Hanson Advisers has noted there is no fix in the HAMP program as total DTIs – that is, total amount of debt service as a percentage of GROSS income – remains solidly in the unsustainable area.
As far back as the first few Tickers, dating to April of 2007, I wrote on the fact that sustainable loans are written on a 28/36 basis – that is, 28% DTI for housing expenses and a total debt-to-gross-income ratio (DTI) of no higher than 36%.
Treasury’s HAMP is still resulting in DTIs, on average, of 55% and while this is an improvement over the impossible-to-service 72.2% a 55% DTI is still impossible to service if there is even the smallest challenge in the borrower’s life.
Remember, these DTIs are computed on gross income – that is, before both state and federal income and other taxes. Further, it is widely agreed and understood that tax rates are at generational lows and as such the tax bite will only increase in years to come.
The bottom line? The banks are still insolvent, Treasury is still lying, the banks are still refusing to recognize losses that have already happened and all of this together will prevent any meaningful recovery the broader economy from taking hold.
We should have forced all of these banks through insolvency in 2007 and gotten it over with. We still can and should. The institutions that wrote these loans were radically irresponsible and protecting them from the consequences of their idiocy has provided only a temporary respite from the underlying reality – the amount of debt in the marketplace exceeds the ability of those who earn incomes to service it.
Until we face reality any alleged “recovery” is a chimera created by ever-increasing allowance of and reliance on fraudulent accounting, not fundamental improvement.
by Tyler Durden
Treasury International Capital data provides an interesting glimpse into foreigners’ bond purchasing habits: since the beginning of Quantitative Easing (April TIC data) through October 31 (the last publicly available data point for TIC), foreigners have bought a total of $236 billion in Treasury securities, which includes Bills, Bonds, Notes, TIPS and Cash Management Bills (from total holdings of $3.262 trillion in April to $3.498 trillion in October). What is known is that in April total marketable debt consisted of $1.988 Trillion in Bills, $3.822 Trillion in Notes and Bonds and $530 Billion in TIPS, for a total of $6.34 trillion. By October, this number had shot up to $4.5 trillion in Notes and Bonds, $567 Billion in TIPS, while Bills had been reduced to $1.85 trillion for a total of $6.925 trillion.
Zero Hedge has gone through every single Bill, Bond and Note TreasuryDirect auction and compiled the data for Indirect Bid auction take down numbers. We observe that the gross take down for Indirect bidders for Bonds and Notes amounts to a substantial $577 billion in the April-October period, and estimating redemptions of $162 billion, implies foreigners purchased a net amount of $414 billion in Bonds and Notes (we exclude TIPS as the number is largely nominal for the purpose of this exercise). Yet as we pointed out, TIC indicates that the total number of UST holdings only went up by $233 billion, implying foreigners (aka Indirect Bidders) were net sellers of $181 Billion in Treasury Bills. And this occurred at a time when there was still some modicum of yield on the short-end of the curve. With Bill yields now at record lows, and a record steep yield curve as a result, will foreigners ever step in to fill a void which apparently has been filled exclusively by Primary Dealers and the Federal Reserve in the attempt to keep the curve at record steepness? If yields continue being so low that only domestic banks, which benefit from the steep curve, are buying the short-end, this leaves a major question mark for the future.
Data analysis
Zero Hedge, using TreasuryDirect data, calculated monthly Indirect take downs beginning in April through the end of October (the last date for which TIC provides total foreign holdings). The monthly auction data for all Bonds and Notes (excl. Bills, CMBs and TIPS) is as follows:
Out of a total $1.215 trillion in Bonds and Notes auctioned off in April-October, Indirects were responsible for taking down $576 billion. The average indirect take down of any given auction is 47.5%, implying that indirect bidders, aka foreigners, are responsible for nearly half of the end demand for any given Bond/Note auction.
Next, using Daily Treasury Statement data for Treasury redemptions, we calculated that in the April thru October period, $342 billion in Notes and Bonds matured/redeemed by the Treasury. We estimate the amount of Indirect redemptions using the same ratio of take down at about 47.5%, to reach a number of $162 billion. Netting out this redemption amount from the total indirect take down of $576 billion, we obtain an estimate for Indirect Purchases net of redemptions in the 7 month period of $414 billion. Net Indirect Bidder activity for April thru October is seen on the following chart:
Using comparable TreasuryDirect data for Bills and Cash Management Bills (CMBs) we obtained the following breakdown of gross purchases for Indirect and Total buying take downs. Notably, the average take down ratio over the 7 month period is noticeably lower at 38.5%. Already, the demand interest is markedly lower by 900 basis points (and this ignores any redemption netting).
Likewise, to estimate Net Indirect take downs, we determined the total amount of Bill redemptions using DTS data, and allocated a portion to indirects using the same process as above: using the take down ratio of 38.5% in reverse. The conclusion: Indirects took down $1.367 trillion in Bills while redeeming $1.523 trillion, for a net negative balance of $156 billion.
Combined, these two data sets yield the following observations for Net Indirect Treasury Activity in the April – October period:
The cumulative sum of all monthly net data results in $257 billion. As a reminder, according to TIC, the total change in all foreign holdings in the comparable time period was $236 billion. We are confident that if we had refined our redemption assumptions, the two data series would overlap.
In summary, while Indirect Bidders have continued to express an interest in US Treasury holdings, the duration profile of their portfolio has shifted dramatically, with a rotation of nearly $260 billion from short bonds into the dated side of the curve. This is how the comparison between the TreasuryDirect primary data and the TIC data looks graphically.
Conclusions
The record steep yield curve is having the desired impact of pushing Indirect Bidders away from the short end of the curve, and, contrary to conventional wisdom, is forcing foreigners to buy further down, or rather, right, the curve. This begs the question: with foreigners so obviously shunning the Bill space, who is it that provides the massive take down interest each and every Bill auction to allow short rates to be in a record tight range? The answer is obviously Primary Dealers, and the broader banker community, which courtesy of Q.E., are the only ones who are able to take advantage of the record curve steepness, and load up on cash at close to zero rates and subsequently lend it out or leverage this new capital via traditional fractional reserve mechanisms.
In very much the same way that near zero money market rates are expected to push retail investors out of safe cash-equivalent investments, so the record steepness is increasingly forcing ever more foreign lenders to go to the right of the curve in order to collect yield.
The question remains: with still a record high ratio of Bills to all other marketable government securities, will the government be able to push enough investors out of the relative safety of the short end into riskiness of “higher” yielding bonds, especially with increasing speculation that inflation may finally be around the corner. If this recent trend of shifting away from Bills into Bonds and Notes by Indirects is any indication, then inflation fears are indeed significantly overdone. Yet if in fact the Fed succeeds in stirring up the money multiplier hornet’s nest, and banks finally do turn on the small and middle-business lending spigot, and inflation does intensify, the rush out of Bills will be taken up by everyone, not just Indirect, which would, in our opinion, result in a substantially overall flattening of the curve. This in turn would force all those asset managers who are positioned comfortably in expectation of further record steepening, to rush through the exits and cover their positions, thus create a feedback loop which could potentially cause a near flat curve at some point in the future. In the meantime, the risk of this occurring is minor, and with the 2s30s still at record steepness of around 375, we anticipate that ever more momentum chasers will continue jumping on the most popular trade of the year until such time as the spirit of Volkswagen rears its ugly head once again.
Last Thursday, Intel (INTC) reported blowout earnings, the stock rose after hours, and everything was looking good for the bulls.
But on Friday morning, JPMorgan (JPM) reported decent (though mixed) earnings, and the stock market sagged, with even Intel ending in the red.
Clearly, worries over the financial system trump signs of a real economic rebound.
And so after US losses, Asian markets are picking up the baton and trending lower in early action. Japan is taking the brunt of things, down about 1.3%. The broader MSCI Asia Pacific index is off a bit less than 1%.
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Whether you are trading stocks, ETFs or futures, technical analysis is the preferred choice for short term traders. Technical analysis in short is the study of price and volume movements on charts. It can be used for studying charts in any time frame whether you are a 1 minute chartist or a long term investor using monthly charts.
Using technical analysis in my opinion really opens the door for a trader to lower his/her overall risk when investing money. I always like to know if the investments I am watching are trading near a critical price level (support or resistance). During these times you can take positions that have very clear entry and exit points for trading. Also it puts the odds in your favor when a position is entered in the same direction of the underlying trend.
Price action is how we make money in the market, so I strictly follow price and volume when trading as they are the least lagging indicator on what the market it doing.
I have put together a few charts using commodity ETFs to show you what I am seeing in the market and what we should expect to see in the coming days.
GLD ETF Trader – Daily Trend Chart
The gold trading chart below shows two different types of trends. The initial timeframe of the chart illustrates what I call a Normal Trend. This is a series of higher highs and lows.
This type of trend allows an investment to continue profitably for a very long period of time. For example a daily chart like the one below can continue to trend like this for 6-8 months. The reason for this is because price appreciation is increasing at a rate which investors are comfortable with. Also, the pullbacks cleanse the investment vehicle of weak traders every few weeks allowing fresh money to enter at higher price.
Now if you look at the later timeframe of this rally we observe a rally phase I call an Extended Rally. An extended rally is when price appreciates without any pullbacks.
You can make a fortune with this trend very quickly, but you must realize that reversals are fast and sharp. And that, we observe, is how GLD performed in December. While some call December’s price drop a pullback, I call it a technical breakdown. The sharp price reversal and heavy volume associated with this type of move generally provides excellent short term momentum trades. A lot of damage is done to the investment on a heavy volume breakdown taking weeks for a recovering to occur.
Normal trend rally, extended rally, predictably fast and sharp technical breakdown followed by weeks of recovery.
DIA Exchange Traded Fund – Daily Trend Trading
The DIA exchange traded fund shows a very similar chart as gold above. First we have a nice Normal Trend that then evolved into an Extended Trend. The trend for the DIA index fund is not nearly as steep at the gold chart, so it could trend a little longer. But once the price breaks down, everyone is going to be selling out to lock in gains and cut losses before new positions are entered.
I have several tools and stats I use for helping me in timing turning points. Some are great short term indicators only predicting 1-2 days out like following small cap stocks, or gold stocks in relation to the broad index, and others are long term things like cycles, volume analysis, market internals and the volatility index.
My point here is to keep everyone alert and ready to take profits if we see things start to roll over. Friday there was BIG selling volume across the board – so don’t blink now.
Silver & Gold ETF Trading – Daily Charts
Below is the chart of the silver ETF SLV and I overlaid the GLD gold fund in green so you can see how they move in sync. The blue boxes on the chart show the pattern that I think is forming and what to expect in the coming days.
From looking at gold in both other currencies and with respect to gold stocks which have been underperforming, I feel we are going to see lower prices still. At the moment I am neutral on silver and gold for the short term time frame (daily & 60 minute charts).
USO Crude Oil Fund – Daily Trend Chart
Oil has slid lower the past 5 sessions and is now nearing a support level. This has me looking for an oversold bounce with the potential to rally much higher. I am keeping an eye on this for any possible low risk setup.
UNG Natural Gas Fund – Daily Trading Chart
While UNG is not a great intermediate and long term fund to invest in, I do find it trades very nicely for intraday and short swing trades. I am neutral on natural gas for the time being. It could go either way from here and I’m not willing to take on a 50/50 probability trade. Let’s wait for something exciting to form.
Commodity Trading Conclusion:
In short, gold and silver have been underperforming the market recently which is not what we want to see. They have led the market higher all year but are now taking a breather.
The way I see gold, silver, oil and natural gas is that they are trading below their recent highs and still have more room to fall before landing on a solid support level.
The stock market is now over extended and looks ready for a sharp correction. If this happens we will see commodities drop and test lower prices also.
There is not much we can do right now other than protect our current long positions by tightening our stops. Depending on the strength of the breakdown, there could be a great opportunity for short term traders (60 minute chart traders) to make some quick money. I expect a sell off which will last 3-5 days at the least.
If you would like to receive my Free Technical Trading Newsletter for ETFS and Futures please visit my website: www.TheGoldAndOilGuy.com
Chris Vermeulen
Joe Weisenthal of Clusterstock
EPS of $.74 per share blew past estimates of $.61 per share. But revenue of $25.2 billion may be a bit light.
Analysts had been looking for $26.8 billion.
The stock is currently drifting lower by less than a buck on the news.
Here’s Jamie Dimon’s commentary on the numbers:
“We are gratified that we generated earnings of $3.3 billion for the fourth quarter and nearly $12 billion for the year. Though these results showed improvement, we acknowledge that they fell short of both an adequate return on capital and the firm’s earnings potential. We benefited from the diversity of our leading franchises, as demonstrated by the continued earnings strength of our Investment Bank, Commercial Banking, Asset Management and Retail Banking franchises. We are proud that, throughout these tumultuous times, we never stopped investing in the fundamental growth drivers of our consumer businesses – such as checking and credit card accounts in our Retail Banking and Card Services franchises – and have developed new products and services to meet the needs of consumers and small businesses. While we are seeing some stability in delinquencies, consumer credit costs remain high, and weak employment and home prices persist. Accordingly, we remain cautious.”
“In the fourth quarter, we further strengthened our credit reserves to nearly $33 billion, or 5.5% of total loans. Our earnings generated additional capital, and we ended 2009 with a very strong Tier 1 Capital ratio of 11.1% and a Tier 1 Common ratio of 8.8%. We remain confident that this capital and reserve strength, combined with our significant earnings power, will allow us to meet the uncertainties that lie ahead and still continue investing in our businesses and serving our clients and shareholders over the long term.”
Here, meanwhile, is further color on consumer lending, which is still looking very ugly:
Consumer Lending reported a net loss of $1.4 billion, compared with a net loss of $416 million in the prior year. The decrease was driven by lower net revenue, a higher provision for credit losses and higher noninterest expense.
Net revenue was $3.1 billion, down by $1.0 billion, or 24%, from the prior year. The decrease was driven by lower mortgage fees and related income and lower loan balances, partially offset by wider loan spreads. Mortgage fees and related income decreased due to lower mortgage production revenue and lower net mortgage servicing revenue. Mortgage production revenue was negative $192 million, compared with positive $62 million in the prior year, as an increase in reserves for the repurchase of previously-sold loans was largely offset by wider margins on new originations and the absence of markdowns of the mortgage warehouse in the prior year. Operating revenue, which represents loan servicing revenue net of other changes in fair value of the MSR asset, was $564 million, up by $41 million. MSR risk management results were $109 million, compared with $1.4 billion in the prior year.
The provision for credit losses was $4.0 billion, compared with $3.3 billion in the prior year. The provision reflected an increase in the allowance for loan losses of $1.5 billion in the current quarter, resulting in an allowance for loan losses to ending loans retained1 of 5.04%, compared with 3.16% in the prior year (see Retail Financial Services discussion of the provision for credit losses, above, for further detail).
Noninterest expense was $1.7 billion, up by $215 million, or 14%, from the prior year, reflecting higher servicing and default-related expense.
See the full presentation and listen to the conference call here — >
Here’s the transcript of Tim Geithner’s interview on CNBC with John Harwood. In it he discusses banker greed, the AIG memos (he maintains he had nothing to do with them), and whether the new bank tax is punitive. We’ve highlighted the key parts
—
JOHN HARWOOD, host: Mr. Secretary, thanks so much for joining us.
Secretary TIMOTHY GEITHNER: Absolutely.
HARWOOD: The president, in laying out this financial crisis responsibility fee today, talked about massive profits and obscene bonuses being paid to Wall Street executives. Is that an indication that there’s a good bit of politics in this initiative by the administration at a time when you guys are under a lot of pressure?
Sec. GEITHNER: I don’t think so. You know, there’s a legal obligation in the law that authorized the financial rescue that says the president is obligated to propose to the Congress a way to make sure that the costs of the crisis don’t add to our debt and deficits in the future. And we thought it was economically sensible, fair, good policy, legally necessary to propose now how to make sure that the costs of this are not born by people who were innocent victims of all the–all the wreckage.
HARWOOD: Jamie Dimon said you shouldn’t have tax policy that punishes individual firms.
Sec. GEITHNER: This policy is not designed to punish. It’s designed to meet the simple, practical, legal obligation, and we’re doing it in a way, I think, it makes economic sense because we’re doing it in a way that is, in effect, a tax on leverage, it’s a tax on risk in some ways, and it’s borne by the people that benefitted most from the crisis. That seems fair.
HARWOOD: Do you have any concern that this tax will have any damaging effect on the economy, on lending? And if not, why not make it higher, since we’ve got a rather large budget deficit right now?
Sec. GEITHNER: Let me start with the second. The ultimate costs of solving this financial crisis are going to be dramatically lower than anybody thought was possible. But a financial crisis like this caused a lot of damage, there’s still going to be some cost. But the legal obligation is to make sure we cover that cost. So, conservative estimates, the cost of the crisis may be in the range of $100 million, slightly higher. So this is designed to make sure we cover those costs. That’s why we did–that’s why we did the size this way.
HARWOOD: Well, what about the deficit?
Sec. GEITHNER: Yeah. On the…
HARWOOD: Well, you could make it higher and in addition to repaying the TARP, making taxpayers whole, you could narrow the deficit.
Sec. GEITHNER: You could, again. But, again, this was designed to meet that simple, legal test, economic test. It’s a sensible way. Now, it’s designed very carefully to avoid any risk that this does damage to lending to recovery. And of course that’s the most important thing we do now. And I don’t think this has any risk of that.
HARWOOD: You know Wall Street very well. Let me ask you a question that I think a lot of Americans ask when they hear the president talk about obscene bonuses, and this is something that we’ve been discussing for some time. Is there something morally corrupt about Wall Street institutions and the people in them?
Sec. GEITHNER: I tell you, I believe personally that what you’re seeing happen across the financial system, what you saw happen that caused the crisis, even what you see now happening, is just causing a huger damage to basic trust and confidence of Americans in the fairness of our system. It’s just very hard for people to understand with unemployment at 10 percent, you know, with millions of Americans–this is the United States of America–with millions of Americans on food stamps, worst recession in almost a generation, that you could see compensation practice produce such huge returns to people who were at the center of this mess. It is unexplicable. People cannot understand why it is fair. And…
HARWOOD: But you understand because you know this culture. Why is it happening?
Sec. GEITHNER: I don’t–I don’t–I don’t understand it, really. I really don’t understand it. And I think–but what it underscores is why it is so important to make sure that we put in place tougher rules, the kind of reforms that’ll make sure that we can wake up in the morning and tell the American people that we have done what is necessary to protect them from the risk of this happening again.
HARWOOD: Is it pure greed?
Sec. GEITHNER: John, it’s a complicated thing. I don’t–I don’t know how to explain it. I can’t explain it, I don’t understand it, and I think it’s very important for those people running these firms, for their boards of directors, for their shareholders, to work very hard to try to earn back some basic sense of trust and confidence of the American people. I think it’s very important to do that. And I think, as part of that, they need to not just make sure they’re making loans again to businesses and communities, helping solve the housing crisis, but they are working to support a package of strong reforms in the financial system that’ll be better for the country as a whole.
HARWOOD: As you know, you’ve been asked to testify before Congress about some memos that came out, Congressman Issa released regarding AIG and advice the New York Fed gave to not disclose the full repayments to some counterparties of AIG. Now, I know you’ve said that you–or your spokesmen have said that you were not involved in those memos. But did you agree with the advice in the memos? Was it sound advice?
Sec. GEITHNER: You know, I haven’t looked at those memos, actually. I wasn’t involved in that decision. But I do think the Fed–the Fed did disclose all that information subsequently. I think they made the right thing disclosing it. It’s important for the American people to see all that information. But you know, John, what this is about is is a deep sense of anger and frustration that the government thought it was necessary to come in and prevent AIG from failing. That was a hugely consequential decision, a very offensive decision to most people. Deeply offensive to me, too. But it was necessary to do. And we did it in a way that I believe was not just least cost to the taxpayer, best deal for the taxpayer, but helped avoid much, much more damage than would have happened without that. If we could have done it differently, we would have done it differently. But this was the best way to do it.
HARWOOD: You still believe it was the right thing to pay counterparties 100 cents for the dollar?
Sec. GEITHNER: Oh, absolutely. Again, the way–this is a tragic failure in the system, and we had no effective legal means to step in and prevent default without doing what you said, helping this firm meet all its legal obligations. That’s why at a centerpiece of the president’s reform proposals is to give the government the tools to unwind, dismember, break up, sell these institutions without the taxpayer being put in the position of having to absorb their losses. That’s the basic–one of the most important reasons why we have to get reform in place. We had no choice at the time other than to do this. And I’m, personally, very confident it was the right thing to do, and we did it in the best way possible for the American people.
HARWOOD: Will you testify before that committee of Congress that has invited you, and will you testify before the Truth Commission looking into the causes of the crisis? And what do you…
Sec. GEITHNER: Yes.
HARWOOD: …hope to learn from that commission?
Sec. GEITHNER: Yes and yes. In fact, I spoke to Chairman Towns last week. I told him I would be happy to come testify. Of course, we worked very closely with him and his colleagues to make sure they had the full information. What–the role they’re playing in our system is a very important role, and I respect and honor that. The Financial Crisis Inquiry Commission is also doing a very important thing. You know, I think a test of any serious country is you ought to be able to step back and take a cold, hard, independent look at what caused this, what were the failures in policy across–that caused this, because to do that, to fix the system, you have to go through that process. So I think what they’re doing is very important. I’ve met with the commission twice already, and I very much look forward to the chance to meet in public hearing with them in talks of the cause of this.
HARWOOD: What do you want to discover through that commission? What do you think you don’t understand about the crisis already?
Sec. GEITHNER: Personally, I feel like I have a good sense of what the principal failures were. But you know, you want to make sure you look at these through a second set of eyes, independent eyes. You want a range of perspectives to bring to bear, and that’s one thing a commission can do. And I–again, I think it’s a very helpful process.
HARWOOD: Will you have any mistakes to admit to, invested in?
Sec. GEITHNER: Oh, I–I’ll tell you, I’ve said this before and I think it’s important for people to understand. I think there were systematic failures by people making policy. I think in–across the board. The Fed, as well, made policy failures in that case. And even though I was part of, at the New York Fed, doing a whole range of important things that helped made the system stronger, less vulnerable to this, we did not do enough, were not able to do enough, did not move soon enough. And that’s why I personally feel such a strong obligation to make sure we’re working to put in place financial reforms that’ll fix these problems.
HARWOOD: We’ll move to a couple other economic questions. The Congress, as you know, is debating new jobs legislation. Talking about in the range of $200 billion to spend. Can we afford to spend $200 billion, given the size of our deficit, and how much impact on the unemployment rate could you make this year?
Sec. GEITHNER: I think we can. I think there’s a very good case, even though the economy is healing and we’re seeing growth now, I think there’s a very good case for making sure we support a targeted set of initiatives to help people get back to work more quickly. And so, as long as it’s well-designed, it’s going to have the maximum impact on that objective, which is creating jobs–more jobs more quickly. I think it’s the necessary and appropriate thing to do for the country, and we can afford it.
HARWOOD: And how much impact could you make on the unemployment rate? Ten percent now; some people think it’ll still be 10 percent in November.
Sec. GEITHNER: Well, again, I think what we’re going to focus on, John, is how many jobs is the American economy creating on net? Most business economists, most businesses think that we’re just a few months away now from seeing the economy start to generate jobs again for the first time, which is, again, much earlier than many people would have thought possible. And again, we’d like to have that happen sooner with more strength, as much as possible.
HARWOOD: What, in your view, is the risk of a double-dip recession? Is that gone? Do we know now that we’re not going to fall back into recession?
Sec. GEITHNER: Again, we have to work very hard to prevent that risk, reduce that risk. I think–I would say a broad consensus of people running companies now is they are more confident today, much more confident today, that you’re going to see an economy growing at a moderate pace over the next few years. We’ll just going to come out of this in a self-sustaining way. But again, we want to improve the odds of that, and I think that’s why there’s a case for targeted measures to help reinforce this process of recovery.
HARWOOD: There’s some talk that to avoid economic damage, perhaps to avoid political damage, the administration might consider a temporary extension of the Bush tax cuts on those highest incomes, which the president campaigned against.
Sec. GEITHNER: We have not…
HARWOOD: Is that under consideration?
Sec. GEITHNER: No, it’s not under consideration. That’s nothing we’ve contemplated, and I don’t think that’s a necessary act. Again, we are committed to make sure that we leave in place the tax cuts that benefit the vast majority of Americans and so that we are again doing everything we can to help heal this economy, get people back to work, repair the damage, the really extraordinary damage caused by this recession.
HARWOOD: So the administration would not go along with that if Congress suggested it?
Sec. GEITHNER: I do not think that would be good policy for the country, and I don’t think it’s a necessary thing to do.
HARWOOD: Google has said it may pull out of China in response to some attacks on its system. Google has said they believe the attacks were either launched by the government or condoned by the government. Is that also what the administration believes? And, if so, what does it say about the US/China economic relationship?
Sec. GEITHNER: Personally, I have no knowledge–I’m not aware of the basic concern underlying their judgment. And, you know, they’ll have to decide what’s important for them to do. You know, we have a lot of difficult economic problems with that–with that country, with China, and we are working very hard to make sure that we’re protecting intellectual property rights, that we’re expanding access for American firms, that we’re working with China to solve a lot of complex problems we face across the country, not just climate change and not just our national security threats in Iran and North Korea, but a broader range or other issues where we need to work together. But we’re not–we’re going to disagree on things. We’re going to have areas of tension in our relationship. And work very hard–we’re going to work very hard to make sure we’re protecting American interests in that relationship.
HARWOOD: And how concerned are you about this attack in particular and what effect it might it have on the future of the Internet?
Sec. GEITHNER: Again, that’s something, John, I haven’t spent a lot of time looking at. But I know it’s something that we’re focused on across the administration. But there are better people to speak to that issue.
HARWOOD: Let me just close with this. You know, you’ve gotten attacked constantly since you were nominated–tax issues, AIG bonuses, people say you’re too on the left, that you’re too cozy with Wall Street on the right, that you’re part of excessive intervention in the economy. How does it feel to be on the receiving end of those kind of barbs? And do you expect to be here throughout the president’s first term or might you leave after the elections, which sometimes happens in administrations?
Sec. GEITHNER: This is a challenging job. Of course, I knew it was going to be a challenging job, and it was necessarily going to come with a lot of challenge and criticism because we’re doing consequential, difficult things, and people are going to disagree with what our judgments are with what’s necessary. But, you know, my job is to make sure I’m doing everything I can to help the president solve the problems we inherited. And we are doing a very effective job of starting to repair the damage, not just at much lower cost, much lower damage to the American people, to the taxpayer, but without having the government take on unnecessary responsibilities. You know, again, we work very hard, John, to take the vast bulk of the money my predecessor was forced to put in the banking system, back, so that the government is not in the business of any long-term engagement where that is not necessary to do. So again, we’re trying to make the best judgments of what’s necessary for the country. Those are going to be unpopular to many people, people will disagree with them, but my job is to give the president the best advice possible. And it is a great privilege for me to do that.
HARWOOD: What do you say to people on the left who say, Geithner’s totally in bed with Wall Street’?
Sec. GEITHNER: Yeah. I mean, it’s the first time in my life I’ve had the judgments I’ve made go through to the prism that I come from that world. It’s interesting. I think when I came into office, I think most people believed I spent my life working in an investment bank. I was in a congressional hearing, oversight hearing once, where one of the members said, `But Mr. Geithner, you’re a banker.’ I said, `Actually, I was not a banker.’ They said, `Well, but you were an investment banker.’ And I said, `No, I’ve never been an investment banker.’ They said, `Well, but you look like a banker.’ And it
is–you know, I’ve spent my life in public service. I grew up largely outside the country, so I don’t understand why that perception existed at the beginning. And I would never ever put myself, put the president, put my department in the position of having any of the judgments we made vulnerable to the perception we were going to do anything other than what we think was necessary in the broader best interests of the country.
HARWOOD: Have you ever considered, in response to these calls, resigning your job?
Sec. GEITHNER: Oh, well, that’s the judgment the president has to make. You know, as long as I have the chance to help him do this, fix these problems, I’ll be honored to do it.
HARWOOD: So no desire to leave? As far as you’re concerned, as long–everybody serves at the pleasure of the president, but as far as you’re concerned, that could be throughout the first term, not–you’re not looking to leave at the end of it?
Sec. GEITHNER: You know, John, that is his judgment to make. You know, he asked me to come here and help him solve a bunch of complicated problems. I’m working very hard to do that. We’re making a lot of progress. But, you know, this caused a lot of wreckage, a lot of damage. We’ve got a ways to go. And our job is to make sure the American people understand we’re going to keep working to help heal what is broken and put this economy on a stronger footing.
HARWOOD: Mr. Secretary, thanks for joining us.
Sec. GEITHNER: Nice to see you.
HARWOOD: Appreciate it.
Sec. GEITHNER: Thanks for having me.
The commodity futures charts and gold precious metal stocks have be trading with increased volatility as they bounce between support and resistance levels on the daily and hourly charts.
This report is focused more on technical analysis and charts so that I can show you what I feel these commodities are lining up to do.
GDX ETF – Daily Trading Chart
I posted this chart Monday afternoon to members as a short educational piece and to give warning to those where were currently in short term long positions. This chart clearly shows that when the short term trend is up and we get a black candle (Pop & Drop) the odds tell us that we should see lower prices over the next 24 – 48 hours for silver and gold.
This type of price action may look easy to trade, which it is, but only day traders and even better yet futures traders, can make the most when these setups occur. It doesn’t get anymore exciting than Trading after hours with commodity futures.
The nice thing about trading futures is that charts run around the clock 24 hours a day so you do not get price gaps that miss most of the short term low risk plays. Investment vehicles on the NYSE are limited to trading from 9:30am – 4pm and that really does cut down in the amount of low risk trade setups we get on a monthly basis.
Silver Commodity Trading Contract YI – Daily Chart
Silver has been tougher to trade than gold recently. Percentage moves are much larger with silver adding more potential risk to buyers and sellers. In addition, silver is not trending strongly like its big sister gold and this adds another level of difficulty. Profits should be taken quickly during this type of price action.
Gold Futures Trading YG Contract – Hourly Chart
Gold is my favorite and most profitable investment vehicle. I trade gold using the GLD etf and futures. Last week I wrote about this key resistance level and how I was waiting to trade until the Friday unemployment numbers were out and to see how the market reacted before putting our money to work. Over the weekend the bullish sentiment caused gold to gap above that key resistance level but has sold back down after beginning the new week.
The chart below shows that I am neutral/bearish for the next few days. Heavy selling and the small bear flag is warning me of lower prices. The natural tendency for gold is to drift higher through the night from 6pm EST – 4am EST, so we could see higher prices in the short term but what happens in the following 1-3 days will set the tone for gold.
Crude Oil Futures Trading CL – Daily Chart
Oil has pulled back the past few days and is now trading near a support level. I feel it is over sold and could bounce the second half of this week and I will keep my eye on it for members.
Natural Gas Futures Trading NG – Daily Chart
Nat gas is the most deadly commodity I know for the uneducated trader. The price swings are wild and WILL trigger you stops no matter where you put them almost. The whipsaw action always seems to form a Mega Phone pattern which means there are higher highs and lower lows during key pivot points forcing shorts to keep coving their positions and longs to keep getting stopped out as they try to protect their down side risk.
I rarely trade Natural Gas because of this. The stats I’ve heard are that almost everyone who actively trades natural gas will lose their money within 3 months. Yikes! So this is why I am so picky trading it.
The current price of NG is trading in the middle of is range. Entering a trade here is 50/50 and just not worth the risk.
Commodity Futures Trading Conclusion:
There are not too many exciting things in the market right now. We continue to watch stocks and commodities work through their patterns and cycles as we just jump in and out of the market when the timing is right. It’s like a large game of double Dutch skipping, just have to time the monitor the patterns, speed and cycles so you lower the odds of getting hit.
If you would like to receive my Free Weekly Trading Reports, please visit my website.
Chris Vermeulen
www.TheTechnicalTraders.com
The March NASDAQ 100 closed sharply higher on Wednesday and above the 10-day moving average crossing at 1878.65 as it consolidated some of this week’s decline. The high-range close sets the stage for a steady to higher opening on Thursday. Stochastics and the RSI are overbought, diverging and are turning bearish hinting that a short-term top might be in or is near. Closes below the 20-day moving average crossing at 1855.36 are needed to confirm that a short-term top has been posted. If March extends this winter’s rally, the 75% retracement level of the 2007-2008-decline on the weekly continuation chart crossing at 1947.00 is the next upside target. First resistance is Monday’s high crossing at 1900.00. Second resistance is the 75% retracement level of the 2007-2008-decline crossing at 1947.00. First support is the 20-day moving average crossing at 1855.36. Second support is Tuesday’s low crossing at 1850.00.
The March S&P 500 index closed higher on Wednesday and the high-range close sets the stage for a steady to higher opening on Thursday. However, stochastics and the RSI are overbought and are turning bearish hinting that a short-term top might be in or is near. Closes below the 20-day moving average crossing at 1121.50 are needed to confirm that a short-term top has been posted. If March extends this winter’s rally, the 62% retracement level of the 2007-2008-decline crossing at 1155.15 is the next upside target. First resistance is Monday’s high crossing at 1147.90. Second resistance is the 62% retracement level of the 2007-2008-decline crossing at 1155.15. First support is Tuesday’s low crossing at 1127.80. Second support is the 20-day moving average crossing at 1121.50.
The Dow closed higher on Wednesday as it extends this winter’s rally. The high-range close sets the stage for a steady to higher opening on Thursday. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices are possible near-term. If the Dow extends this winter’s rally, the 62% retracement level of the 2007-2008-decline crossing at 11249 is the next upside target. Closes below the 20-day moving average crossing at 10519 are needed to confirm that a short-term top has been posted. First resistance is today’s high crossing at 10687. Second resistance is the 62% retracement level of the 2007-2008-decline crossing at 11249. First support is the 10-day moving average crossing at 10,590. Second support is the 20-day moving average crossing at 10,519.
February gold closed higher on Wednesday as it consolidated some of Tuesday’s decline. The high-range close sets the stage for a steady to higher opening on Thursday. Stochastics and the RSI are overbought and are turning bearish hinting that the corrective rally off December’s low might have or is coming to an end. Closes below the 20-day moving average crossing at 1115.90 would confirm that a short-term top has been posted. If February extends this rally, the reaction high crossing at 1170.20 is the next upside target. First resistance is Monday’s high crossing at 1163.00. Second resistance is the reaction high crossing at 1170.20. First support is today’s low crossing at 1118.50. Second support is the 20-day moving average crossing at 1115.90.
March silver closed higher due to short covering on Wednesday as it consolidates some of Tuesday’s decline. The high-range close sets the stage for a steady to higher opening on Thursday. Stochastics and the RSI are overbought and are turning bearish hinting that a short-term top might be in or is near. Closes below the 20-day moving average crossing at 17.624 are needed to confirm that a short-term top has been posted. If March extends this week’s rally, December’s high crossing at 19.500 is the next upside target. First resistance is Monday’s high crossing at 18.925. Second resistance is December’s high crossing at 19.500. First support is the 10-day moving average crossing at 17.945. Second support is the 20-day moving average crossing at 17.624.
H/T Tyler Durden
Watch the Financial Crisis Inquiry Commission’s grilling of Blankfein, Dimon, Mack and Moynihan live and turbofan enginge commercial free at the FCIC’s website here.
Full panel of testimonies:
Wednesday, January 13
Panel 1
Mr. Lloyd C. Blankfein
Mr. James Dimon
Mr. John J. Mack
Mr. Brian T. Moynihan
Panel 2
Mr. Michael Mayo
Mr. J. Kyle Bass
Mr. Peter J. Solomon
Panel 3
Dr. Mark Zandi
Dr. Kenneth T. Rosen
Ms. Julia Gordon
C.R. “Rusty” Cloutier
Thursday, January 14
Panel 1
Honorable Eric H. Holder, Jr.
Honorable Lanny A. Breuer
Honorable Sheila C. Bair
Honorable Mary L. Schapiro
Panel 2
Honorable Lisa Madigan
Honorable John W. Suthers
Ms. Denise Voigt Crawford
Mr. Glenn Theobald
