U.S. stock index futures were lower on Monday. Crude
oil, gold, and silver were also falling.
Today's
Economic Calendar
News For Thought
SEC: Rotten to the core? According to
CNBC.com: "Spencer Barasch, former head of enforcement for the U.S.
Securities and Exchange Commission in Fort Worth, Texas, is being
probed by the U.S. Attorney's Office and Federal Bureau of
Investigation, SEC enforcement director Robert Khuzami and SEC
Inspector General David Kotz told lawmakers on Friday." CNBC reporter
Scott Cohn, who has covered high profile securities cases for some
time, including the Stanford case, further adds: "The criminal probe
follows SEC internal findings that Barasch made numerous requests after
he left the SEC to represent Stanford and was turned down each time.
Barasch persisted in his requests even though he directly dealt with
Stanford matters while at the SEC and was partly responsible for
ignoring repeated red flags SEC examiners raised about Stanford as
early as 1997, Kotz found in a 2010 report. He later eventually did
provide some legal counsel to Stanford in 2006, the report found."
Shameless hedge fund cynics: "Raj will run." Hedge
fund managers and traders bet that convicted hedge fund manager and
insider trader Raj Rajaratnam "will attempt to flee before he is
jailed," according to CNBC. Common advice given to Raj, via the network
and "off the record" was to buy a "modest" sized boat and just stay on
the sea traveling while tapping into your offshore billions. Another
person suggested moving to Vietnam since there is "no extradition
treaty." Said the latter: "No extradition treaty. I've looked into it."
Executive job prospects should expect to be tested.
According to The Wall Street Journal: "Management assessments such as
simulations and personality tests are booming again as companies
scramble to find the best leaders for the job." |
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Hedge funds pulled $17 billion from the
commodity markets druing the recent week, based on data by the CFTC
released on Friday. Yet, it's still not certain what the effect will be
on the markets, given the current crosscurrents and the tug of war
between weather, geopolitics, and extraordinary events all around the
world.
The net effect is that 10% of the "speculative" contracts in the
commodity markets have evaporated, with a wide crossection of selling
involved. For example, copper suffered the largest decline in
speculative activity as the overall number of bullish active contracts
dropped by 6247, while the number of contracts betting that copper
would drop below $4 dropped by 2619. The drop in bullish contracts
marks a 59% reduction in that subsection of bets, which is a
significant amount, and makes us wonder if that isn't some sort of
capitulation signal, ie. a prelude to some kind of bounce.
Silver contracts also fell significantly during the period with net
long positions falling 25%. Corn futures also saw a large exit from the
bullish camp with a drop of 25,009 bullish contracts. In corn, the more
significant sign may be the fact that only some 1800 bearish contracts
were bought, and that the number of bullish contracts remains quite
large large, numbering over 300,000. The total amount of money pulled
out of the oil market during the period was an impressive $6.5 billion,
or nearly one third of the total pulled out by speculators/hedge
funds/managed accounts. According to Reuters, open interest in oil
futures remains high, and more important, a large number of investors
"covered" their short positions during the period marked by the CFTC
data.
The CFTC data is important because it encompasses the activity that
took place from May 5, the day of the so called "Flash Crash" in oil,
to May 12, which includes the second bout of selling that took place on
May 11. It doesn't include data from the 12th and the 13th, though,
which were days in which commodity prices tended to stabilize somewhat.
Chart Courtesy of StockCharts.com
Again, much of the action in commodities can be handicapped based on
the relationship between the CRB Index (CRB) and U.S. Treasury Bond
prices. The heavy selling in commodities in the last two weeks, may,
and we say this with some trepidation, may mark the end of the selling,
at least in the near term. That's what the CRB chart seems to be
saying, with the index looking as if it's found support above 335. Bond
prices continue to form what looks to be a stable up trend, which is
likely to put extra pressure on heavy hitters such as Pimco which are
short bonds. To be sure, being short bonds makes sense, with the Fed
printing money like there is no tomorrow. The problem with being short
bonds is that the Fed is printing money and buying bonds with the money
that it prints. That's what's making bond prices rise. And the Fed has
no intention of letting bond prices fall until it's ready for that
event. So what we're seeing is a tug of war between the Fed and the
short sellers.
Conclusion
Readers who follow this column closely have surely noted that we are
writing almost exclusively about the market now. This is not by
accident. To be sure, there are important stories ongoing that during
more sedate markets would have gotten our attention and our ink.
It's not that we're not following events. It's that the market is in
our opinion, overwhelming events. More specifically, the action in the
markets seems to be summarizing the disorderly nature of world events
and forming its own twisted and volatile version of things.
This is fairly rare, as markets often B.S. their way through global
events. Not so right now, especially commodities. We are indeed living
in the proverbial "interesting times."
Important Notice
To Subscribers
Another day, another scandal makes the news. This time allegations of
sexual misconduct have led to the arrest of a prominent international
political feature, IMF Chief Dominic Strauss Kahn. To be sure, Mr.
Strauss Khan is innocent until proven guilty. Yet, he's not the first
politician who has found himself in a similar circumstance of late. In
other words, it's a sign of the times.
We don't believe that anything that we are seeing is an accident. There
are major reasons for what's happening. Indeed, we are in the midst of
something big, as a major macro trend is gathering steam.
Corruption is being exposed at all levels on a regular basis. Fraud is
everywhere. Nothing is what it seems to be. Even the L.A. Dodgers, one
of baseball's most hallowed franchises has been cooking its books. It's
as if we are living in the midst of a bad movie.
And that's because the world is entering a critical period similar to
other important transitions in history, such as The French Revolution,
the fall of the Berlin Wall, and the periods that preceded the World
Wars. To read more about the evolution of the Social Cycle, the central
force of today's world, and to get a grip on real CHANGE that lies
ahead, read "The New Golden Age".
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Market Moves |
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United States Short Oil ETF (NYSE:
DNO) Likely To Be Tested
Shares of the United States Short Oil
ETF (NYSE: DNO) are likely to move higher in the early going on Monday.
Chart Courtesy of StockCharts.com
Crude oil seems headed for some weakness on Monday. Of course, it's
very early in the day as we write. And things can change. But the fact
is that the Obama administration has given in to demands for more
drilling in the U.S., both on and offshore.
And yes, none of that oil will make gasoline prices fall today. But the
concept is clear. It's election season and this election may hinge on
little more than jobs and gasoline prices. So Mr. Obama will do
everything possible to give the people what they want, or at least make
it seem as if that's what he's doing.
The issues in Europe continue to weigh on the markets. The arrest of
IMF Chief Strauss Khan may stall progress on E.U. bailouts. In fact
Greece is not likely to succeed in its bid for meeting criteria of its
bailout. And the continuing tightening of monetary policy in China is
another worry for traders.
Hedge funds bailed out of commodities in the last couple of weeks. This
is another pillar that has been removed from higher oil prices, or at
least their rapid ascent. On the other side, it's uncertain as to what
effect the Mississipi river's flooding will have on the economy, both
on the agricultural side as well as on the oil refining side.
And that may be what keeps things from unraveling faster for crude. The
bottom line is that we are now in a trading range between $90 and $110.
$100 is now short term resistance. $92 is very important support.
A failure for crude today could set the stage for more selling in the
next few days. Look for what OIH does with regard to the 150-156 area
in the next couple of days.
DNO, as of now, seems to be a sensible way to hedge both long stock
portfolios and any long energy positions. Dr. Duarte owns shares in
DNO.
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