Hugh Hendry watch -- 5 part YouTube series from earlier this year

I find this episode of Hendry publicity a little different as he discusses his trading style and aspriations of what he wishes he could be as an investor. If you cannot watch the entire series I suggest you at least watch episodes 4 and 5. Realizing you don't know the future and how having too much knowledge can be detrimental really struck home with me.  If you study a company too much you can fall in love with the security, even as it goes down, down, down, and .... down.  Someday I may gather up enough courage to relate my failures in this category.












Thanks to Zerohedge

Mr. Bond (Market) is not impressed

Do I look impressed?

Even before the Greek referendum drama of the last 24 hours the bond market was not impressed with the latest Euro crisis 'solution'.

With Portugal, Ireland and Greece all tipping over the edge the next domino to watch is Italy.

Last week's news of a 50% 'voluntary' haircut for some Greek debt vaulted world equity and currency markets higher in a massive relief and short covering rally.  Mr. Bond market was not so impressed.

While both the absolute and relative yield of Italy's 10 year bond did fall a bit late last week on the news of the news of a new solution to the Greek debt situation announced Thursday morning by Friday afternoon Italian yields were creeping upwards again.

Germany - Italy spread

The German/Italian 10 year spread has blown out to new highs

Italy 10 year

Very close to breaking recent highs

The news of a Greek referendum on the latest round of negotiations shocked the markets and drove almost every risk asset downward with only the dollar and US Treasuries rallying. Italian yields are not looking good from a technical perspective and if they break 7% it could be the final domino to fall before the real euro crisis starts.  I'll be watching these metrics closely.

Linkage roundup

Some reading material for you from my twitter stream:


RT @edwardnh: Why the latest eurozone bail-out is destined to fail within weeks - Telegraph http://t.co/sgj8HQcn
RT @credittrader: GReader: The Global Moral Hazard Dawns: Merkel Says "It Must Be Prevented That Others Come Seeking A Haircut" As... http://t.co/Tjd22kbQ
RT @theanalyst_hk: $$ Jim Chanos: Not Impressed By The Europeans, And Still Shorting #China http://t.co/OvdXeWIr #economy #europe
RT @JackHBarnes: Chart of the Day: North Dakota Annual Oil Production: http://t.co/lUWOqWst -- need to do more research myself on shale oil
Transfer payments over time in US http://t.co/sxiw6sF8
RT @zerohedge: And Now, For Some Semblance Of Sanity, Here Is One Hour Of Hugh Hendry http://t.co/5A5Jwgxu -- separate post on this soon(tm)
CITI: Failure To Trigger Greek CDS Could Cause The Whole Euro Bailout To Fall Apart http://t.co/TLDjUF7L -- be careful what you wish for
Meanwhile in China a swan finally takes flight... http://t.co/Z8w40PKd -- Condo prices are falling hard.
RT @AlephBlog: Fannie Squeezing Banks Makes 4% Mortgage a Mirage, Hinders Housing Rebound http://t.co/BKikceRX Higher lending standards fight lower rates
RT @AlephBlog: Money managers and commodities, the case against http://t.co/ynsn1qT3 Graph shows $$ managers drove commodity prices http://t.co/eNKE3nFA
RT @andrewyorks: *EU LEADERS CALL FOR BANKS TO HAVE 9% CORE CAPITAL LEVEL ok move that dial on the upper left to 9 http://t.co/WHLMk6Dm -- should be interesting when taking haircuts on Greek debt.
Skyscraper taller than any in London or Tokyo opens in Chinese village of 2000. http://t.co/IvHoRw4j #thiswillnotendwell
Underground bank lending in China - NPR - http://t.co/677IPKYK
RT @historysquared: $$ The cash commodity trading firms that account for 1 trillion in annual revenue 50% of all transactions http://t.co/TqTvhHM1
RT @ftasia: Iron ore plummets to 15-month low: As Chinese steel mills cut production, the price of iron ore dropped 7.2 per ... http://t.co/RVfC48zy
Blackberry outage made roads safer. http://t.co/agSNxNGX

Linkage roundup

Some reading material for you from my twitter stream:


RT @zerohedge: "It was grim. The worst mood I have ever seen, a complete mess," said one eurozone finance minister. http://t.co/NnHreVRK


RT @TBPInvictus: My fave homemade chart on labor market slack and why inflation's a long way off: http://t.co/BKBGjFeO #FRED


RT @FactSet: What do yield curves tell us about the outlook for the world #economy? We take a look: http://t.co/r4ucgUfl -- Inverted Yield Curves are bad....


RT @simonsinek: Blow Up Your Business Before Someone Else Does http://t.co/rqdZ8GEW 


TED spread going the wrong way -- http://t.co/6vmUhc60


RT @EpicureanDeal: This Switchblade drone is scary as hell: http://t.co/buFmf6BF Long-distance, remote-controlled , tightly targeted antipersonnel munitions.


Good commentary by GaveKal on the current european situation. http://t.co/9zYX6Wgj


RT @BreakingNews: Biographer says Steve Jobs refused early and potentially life-saving surgery on his pancreatic cancer - @CBSNews http://t.co/YFX7AJOo


RT @NicTrades: FT: French banks curbing credit lines for commodities trading http://t.co/62sZhIkB -- What do you think will happen to all the base metals when Greece goes POP!  ??


#copper getting crushed today. Will it completely break down or bounce off the bottom again? http://t.co/2h0LKT31 -- looks like it bounced.


Italian bond yields going wrong direction. http://t.co/6TP2ixgp


RT @lessig: Ben Smith is brilliant: An Occupy Wall Street/Tea Party Venn diagram http://t.co/AWNNhlBg #rootstrikers #tpp

Ray Dalio on the challenges in front of us

Ray Dalio of Bridgewater Associates has recently appeared on the Charlie Rose show as well as written a piece for the Financial Times. I think he does a good job of describing how we got here (continually borrowing money to improve our standard of living) and the tenuous situation we find ourselves in (Greece, falling home prices, etc.)

From FT.com

We are in the midst of a deleveraging, we are nearly out of ammunition and we are at each other’s throats. Being in a deleveraging and nearly out of ammunition is a very difficult position to be in. But, being at each other’s throats is our biggest problem.
Our character and our political and social systems are now being tested in ways that have typically been tested in past deleveragings. In deleveragings bad economic conditions typically lead to emotional reactions, social and political fragmentation, poor decision-making and increased conflict. When this occurs in democracies, the checks and balance system, which is intended to yield the best decisions for the whole, can stand in the way of thoughtful leadership and lead to ineffective “mob” rule. This dynamic can lead to a self-reinforcing downward spiral.

The video goes into a little more detail of his philosophy of knowing what you don't know and being willing to have your ideas and conclusions challenged throughout the corporate structure.  I suggest you read both the article and watch the interview.

Thanks to The Intrigued Trader and Also Sprach Analyst

Linkage roundup

Some reading material for you from my twitter stream:

RT @pdacosta: World's first malaria vaccine works in major trial http://t.co/XLq02ns1

Custody of your assets is ALWAYS important, no matter what... http://t.co/ynICJv56

RT @planetmoney: New podcast: The price of default. Argentina's default in 2001 offers a cautionary tale for Greece. | http://t.co/levA26eW

RT @niubi: China reveals size of copper inventory - http://t.co/qUyGrZgW http://t.co/LdEoxqtr huge news $$


RT @NicTrades: Japan 'offers 10,000 free trips to foreigners' in an attempt to boost tourism - Telegraph http://t.co/9nJb9dxo


Paging radioactive swan, paging radioactive swan... http://t.co/jRDpJ4Ug


From @ProfSteveKeen We are still screwed and the Doctors have no clue what's wrong http://t.co/G55dEaCJ HT @stacyherbert


Worried about radiation? There's an app for that. http://t.co/3zSl9mut


Prehistoric kids left marks in caves. http://t.co/0uyyp620

You don't buy the last bounce, especially when Mars Attacks

I don't usually comment on the price of the equity markets but considering what I'm seeing I thought I'd bend one of my self imposed guidelines. Remember you are hearing this from someone who does not see any positive forces influencing the market right now.

The markets have been pretty much stuck in a rut since early August and seems to be driven by the constant stream of contradictory rumors coming out of Europe. Will they save Greece? (no, they can't) Will the European banks be nationalized?  (no idea, but I'm not hanging out to find out)  Meanwhile China's negative real rate maneuver and excessive credit creation is coming back to haunt them.  And America is slowing down.

Stuck in a rut for the last two months.

Here are some of the indicators I look at to assess financial market risk and as you can see all of them are going the wrong way.

Ted Spread

Notice how the TED (Treasury - Eurodollar spread, an indicator of banking stress) peaked and started healing before the market bottomed in early July 2010; showing a positive divergence.

Emerging market bond spreads, dollar denominated

The spread for emerging market bonds also shot up before the correction in 2010 and also showed a similar positive divergence. Right now spreads continue to widen.

My own proprietary indicators are not showing any sort of improvement either, again the opposite of 2010.

Note how in 2010 risk stopped going up.

Compare to 2011 where the RiskMeter keeps going up. 

Do I think the market is going to crash? I can't answer that question.  If the European situation looks like it can be truly resolved we could get a serious rally. I'm waiting to see what my fundamental indicators of market health tell me before I get back into the stock market.

Right now they are saying wait.

Remember, no matter what happens there's someone out there who'll be trying to convince you to buy stocks right now.

Video scene from Mars Attacks

Additional Reading:

http://www.businesscycle.com/news_events/event_details/1476/4 - He's been calling for a slowdown for a while and he just upgraded to calling for a recession this week.

Humble Student of the Market - Germany engaging in expensive can kicking. We may get a bounce but it does not fix the fact Greece has too much debt. Who owns it is immaterial.