Friday, December 31, 2010


As briefly as possible I want to transition from 2010 to 2011.  I will keep this year-end review separate from the outlook for 2011 because I want to make this post shorter and more manageable.  I know I can ramble and go down a few bunny trails so I'll just reflect on what I thought might happen and evaluate how we did.

In the Outlook from the Mountain Top for 2010 I made quite a few projections ranging from where gold and oil might trade to world geopolitical events to domestic policy outcomes. In total there are about 16 or 17 concrete ideas we can evaluate in the post found here - OUTLOOK FROM THE MOUNTAIN TOP FOR 2010.

In total, I believe that I was 8 out of 14.  Some of the projections I will concede that I was wrong because I laid down hard and fast numbers, but were directionally correct (3 of them) - but..... I don't want to give myself credit cause a miss is a miss (remember, I'm old school where not every kid gets a trophy just for playing...only winners get trophies). 

So, let's look at the major issues.

INTEREST RATES - (MISS) - timing was off, but it is coming!
Complete miss here - Interest rates on the 10 year treasury started the year at 3.85%.  As our Federal Reserve invoked the power of QE I we saw the power of their printing press and the ability to use those proceeds to impact the bond market.  10 year treasury rates dropped throughout the year to a low of 2.41% as of October 6th.  Interestingly though, since October 6, rates have jumped to a rate of 3.38%.  So, as I look at this projection, it appears as though I under estimated the appetite of the FED to attempt to become the bond market by buying the amount of bonds they have (they almost own $1 Trillion of treasuries and MBS) and also under estimated the insanity of the Federal Reserve to take on this kind of interest rate risk.  Consider that if interest rates move 1 basis point against the FED (up) they will lose $2 billion in a market to market of their position.  Thank goodness that the government doesn't make anyone mark to market!

Since 10/6 the market seems to have decided that it will call the FED's bluff and see exactly how much and how deep their commitment is to purchase this trash.  The 2 month move in yields isn't troublesome yet in a historical perspective, but I would be worrying if I were Uncle Ben if rates get over 2010's 3.85%.

I'll write more in the next post about 2011 to discuss exactly why rates are doing what they are doing and how this actually may be part of the Fed's plan rather than what many have described as Uncle Ben fiddling as the US burns.

I nailed this one.  Housing has double dipped and is a mess and getting more messy.  If interest rates go any higher you can forget about the promised housing recovery.  In my book, it is done.

Yes, this too was correct and we'll see many more as emerging countries cannot deal with the pressure that the US is putting on them.  By attempting to devalue ourselves andcreating inflation here, we are exporting deflation there and these countries absolutely need to keep a relative position to us in trade.  They will want to combat that and they have done it by cutting the value of their currency.  Now other emerging countries are attempting to stifle rampant inflation like India and China by raising interest rates.

Yes, these are a disaster and they have been the dumping ground for all the bank trash.  This is a ticking time bomb that will deliver a massive body blow to the budget and economy of the US.  The good old banks got us again.  Good thing the taxpayer has a bottomless pocket to absorb all of these losses.  Thanks CONgress.

Yes, and it isn't through.  The Euro's decline is a symptom of the sickness in the Eurozone.  We will continue to see this plummet.

Lending actually has picked up.  This is a miss.

Because I projected a year-end level of $1,200 on gold, this is a miss.  Directionally this is correct, but I didn't anticipate that gold would really become that ANTI-CURRENCY thing that it has become.  When people do not want to risk holding any paper or anything, they have bought gold and it has now become its own asset class.  Each time we see a tremor in Europe that reveals that Greece, Italy, Spain, or some other country is on the ropes, gold launches higher.  In my estimation we will not see an abatement to this trend as there is no fix to the Eurozone crisis unless leaders there man up and kick these countries out of the EU and force bond holders to eat losses.  Of course they don't want to do that because that will cause all of their banks to implode.  So back up the truck and buy more physical on any pullback.

I projected that stocks would be up around 5% this year, they pounded out returns of near 12%.  Clearly my understatement of the Fed's approach to QE was a major factor in missing here.

I suggested that there would be an attack on Iran, and there was one, yet it wasn't the type of physical attack that I suspected.  Because I missed it, I'll call this an official miss, but it wasn't.  In recent months we have learned that someone (Israel is suspected) uploaded a virus into the nuclear systems computers at several sites globally.  What is amazing though is that this virus seems to have been extremely targeted.  It looked for specific types of equipment and operations components and had the capability to turn on and off specific processes that would damage components.  This sophisticated attack seems to have delayed and destroyed the capabilities of Iran to push forward in its campaign to develop nuclear "power".... errr weapons by 1 or 2 years.  If you want more information on this compelling attack simply google Stuxnet.  While I completely support this, it is very scary to think that a government or group of cyber programmers could do this.  Clearly this means that our electrical grid and anything else in the United States is subject to the same attack.  I am not naive enough to believe that this same technology won't be used by another government or terrorist group in the future.

When I project that oil would hit $100 a barrel it was at $72.00.  Today we closed around $92.00  Again, because I put a specific level I'll call that a miss, but directionally it was dead on and would have been a great gain if you went in that direction.  Energy will be one of the big winners in 2011.

All three of my projections hit home here.

Yes, our national security apparatus continues to erode personal liberties in the name of protecting us.  Government does not self-limit and continues to desire to grab and obtain more of an individual's right to success and failure.

There you have it.  Decent, but missed on a few.  The year was volatile and was one that in my opinion is a set up to a really difficult year in 2011.  Most of the CNBC gurus are projecting a great 2011 and I just don't see how it happens.  There are storms brewing and each of these guys continue to act like we can pretend that the storms won't actually come ashore.  The year will be marked by how Europe and it's bankers... (the FED and IMF) handle the problems in Spain, Portugal, and the other broke countries.  Additionally, the emerging markets trades that have been so supported here on this blog will become trickier as higher commodity prices will suppress growth in those countries and will possibly crush domestic US consumerism. 

Unfortunately, this is a time when those that are awake are asking where the leaders are, but in the US we don't have any that are worth their salt.  The US is led by an economic captain that is super clever, absolutely insane, or acting on behalf of those that have interests that are not in line with the US and its citizens.  Our political captain is an amateur that is driven by big ideas that have no real value or substance outside of dope smoking academic dream worlds.  We see this in his approach to health care, economics, energy policy, and foreign policy.

In summary, 2010 was sort of like a dream year where it defies logic and reality and simply progresses on a path of inertia fueled by the Fed's electronic printing presses.  2011 seems to me to be the year when reality shakes us from our dream-like state and unfortunately reveals that we have real issues that should have been dealt with previously.  America once was a country that was made up of rugged individuals that had a moral compass and would rather do the right thing than the quick and easy thing.  I am afraid that while many of us are still cut from that cloth a substantial portion of us have become soft and more concerned with today than tomorrow.  The need for instant gratification and the belief that someone in government can solve problems and should solve them has transformed many into something less than the proud Americans we once were.  It is without a doubt that even if a majority of US citizens are independent and strong we have elected leadership that doesn't adhere to our same principles.

Thanks for making 2010 a great year.  May your family be blessed.  Email me with questions or post comments, I relish knowing that someone actually reads this thing!  On that note, I'm excited to see that the blog is getting around 1700 visits a month now.  This isn't much compared to many of the big blogs I read like Slope of Hope and Mish's site, but 1700 is a ton as we started this thing with zero readership!

I'll post the 2011 Outlook soon.

Friday, December 24, 2010


Ok, I want to apologize now if you sent Goatmug and the kids one of these, but as I am sitting here on Christmas Eve it is important for me to simply vent.

Yesterday I opened the mail and found to my pleasure a stack of cards wishing my family well during the Christmas season.  Believe it not, this is one of my favorite things to do in November and December.  I get excited to see family pictures of friends and clients and see how they are changing, how much their kids have grown, and the cool locations they choose as a background for the photos.  My heart was warmed by getting to see at least 10 of these yesterday. 

As I opened two of the cards though I was disturbed by the message of the greeting.  Emblazoned at the top was "HAPPY EVERYTHING".  Personally, I am a pretty happy guy as I'm a glass half full optimist (unless looking at business plans and small business projections for sales-they are always too optimistic).  I'm not sure if I need someone to wish me to have a happy everything..... whatever that is.  The Goat has a deep faith in Jesus Christ and as you know believes that Christ is my Savior.  Given that, you can imagine that I feel strongly that the Christmas Season is really about the birth of risen Lord!

So, in this age of "everyone is offended", am I offended?  No, Goat is simply just struck by the notion that we as a people and nation have become so sensitive to the overwhelming potential to offend others that we go out of our way to neuter anything special or unique in our own lives, faith, or identity.  In fact, we are so cognizant of the fact that others might be offended that we censor and eradicate any outward signs of our very own lives, faith, or identities.
Now, I understand the motivations behind both of the people that sent the cards yesterday.  In the first instance, the lady is a realtor and she is a very business savvy lady.  Clearly her objective is to keep us in our minds and say hello, but since she sends that card to hundreds of folks, her strategy is to simply say "Happy Everything" to appeal to everyone.  In my mind she frankly does the opposite.  By appealing to everyone she appeals to no one.

Have you ever seen the movie the Incredibles?  In the movie, the bad guy named Syndrome has a great quote.  He is lecturing our super hero and says, "When everyone is special, no one will be".  And in the case of the cards, I think the realtor is so bland and unoffensive, she becomes unspecial.

The second card I received was sent by a family of non-practicing Jews.  I know that they are sending these cards and attempting not to offend anyone.  But I personally would relish a card from them that proclaimed Happy Hanukkah, not because I'm Jewish, but it would suggest that they were truly ones that identified their faith as a core part of who they were and wanted to share a unique blessing with others.  This special blessing is more meaningful as it were to come from them and would be a message that was truly special.

My family did also receive a neat text message from some old friends that happen to be Turkish Muslims.  Guess what they sent in the text?  You got it, "Merry Christmas".  Can you believe that, one of the folks from one of these "minority groups" sent me a text telling me to have a Merry holiday and actually named it Christmas!  I think that is the pure genius of their simple note.  These people understand that this time is important to me and my family, therefore they sent me a message "in my language".  Were they offended sending it?  Absolutely not.  Am I offended when I speak with my Jewish clients about Yom Kippur, or Hanukkah, what about my Arab clients when I ask about their fasting in Ramadan?  No, I acknowledge their faith and celebrate that unique part of them that makes them different.  My clients love it that I have an understanding of their beliefs and have an interest in them.

So ultimately my point here is that we Christians are entitled to hold dear our beliefs, traditions, and holidays AND express them.  We have the right to proclaim our blessings and wishes just as every Jew, Muslim, Buddhist, or Atheist has to their own holidays.  Many of our original 13 colonies were founded on the basis of the need to celebrate the expressions of our colonists' own religion without the tyranny of those that would suppress it.  While there are forces in the United States that attempt to deny our public expressions of faith (ACLU, etc) while championing the rights of Muslims to pray and express everywhere, the biggest culprit is our own cowing to the loud demands of others to limit the outward signs of our beliefs.  Unlike the colonists that suffered from kings that demanded a certain faith, it isn't a tyrant that is suppressing our religious beliefs it is our own fear of offending that causes us to omit the expression of our faith and our proclamation of it.  Ultimately the eradication of the public expression will lead to the obliteration of the observance and belief in faith in all but the most devout believers.

So as I am off to church to celebrate the birth of Jesus, I wish you a Merry Christmas and I sincerely wish that you fully appreciate the love of the Father who gave His only Son for us as a sacrifice to atone for our sins.  I pray that if you don't have revelation of this love that you ask Him for it.  I have confidence that you will receive it!



Friday, December 17, 2010


As a young goat I wanted to do many things in life such as the following;

Climb Mt Everest (Not yet)
Fly in a military jet and take the controls (Check)
Manage a billions dollars in a portfolio (Check)
Go to the Air Force Academy (No Political Connections)
Be related to Bruce Lee (Not a chance according to

I've only achieved two of the preceding five life goals.  Of the remaining three here is the outlook for completion; 
Unfortunately the same situation exists as when I applied in high school for the Air Force Academy - I still don't know any Senators.  I still hold on to the goal of climbing Everest, but I've watched those shows on the Discovery Channel about 10 times and I'm not sure if the high chance of literally freezing to death and/or going blind is worth the ability to say I did it.  Finally, alas, I don't think that I have any Asian relatives so that probably won't happen. 

Having reflected on these items, very few of my readers know that Goatmug is a huge fan of mixed martial arts (hence the need to be related to Bruce Lee).  Last evening there was an incredible fight that made me wish I was young again to have the ability to train as a mixed martial arts fighter.  Anthony Pettis showed me how cool it would be to be a real life ninja!  This fight was amazing and was tied two rounds each.  Each man had looked dominant and each man was also very much outmatched at times.  The battle was a toss up going into the last minute of action.  At the end of the contest where it is very much even, fighters often take the easy road and refrain from taking risks and allow others (judges) to decide the victor.  Anthony Pettis decided to use a different approach and attempted to seize the moment and the championship in a breath-taking display of athleticism and creativity.  Somehow Ben Henderson survives the fight and remained conscious.  Check out what the Goat would do if he was young again.

By the way, I've often wondered where the love of boxing and MMA came from and I think it was from all the experiences growing up watching boxing with my step-father.  He took me to many fights and we watched hundreds on television (before HBO came along).  The most memorable fight I went to was when some of the members of the 1984 Olympic Boxing Team came to my home town and fought.  I specifically remember Pernell Whitaker fought.  What a great experience!  Remember, that team also had Evander Holyfield and Tyrell Biggs.

Be Careful!


Monday, December 13, 2010


The NFLX short I highlighted the other day just keeps getting better.  While I have a tendency to make quick profits and run, I saw this interview this morning where Daniel Ernst of Hudson Square Research simply has a view of NFLX that many don't.  His price target for the firm is $75.

During the interview he highlights three of his reasons for hating the stock - and none of them include the higher cost of responsibility for paying for the heavy weight data they are forcing through the internet pipes.  He gets more leeway than normal for a bear on CNBC, I wish he spoke faster so he could have been able to share his 4th reason for hating the movie vendor.

I'm am now officially out of this position for a very big and wonderful gain in just a few days.  As usual, if you are foolish enough to buy a stock (or short it) based on something some blogger writes, you are nuts!  This information is educational and for your entertainment, not so you can blow up your accounts!  As a trader I have made lots of money and lost a heck of a lot too over the years.  If you don't understand risk and know how to control losses you don't need to purchase anything in this rigged stock market (or bond market for that matter).  There is a pretty good chance at $179 and perhaps $165 that NFLX bounces hard.  If that happens, I'll be tempted to reshort, but until then it feels good to have profits in the account.




Former head of the OMB under Ronald Reagan speaks his mind on Squeezeplay.  I cannot embed the interview but it is well worth hearing a realist share his perspective.  While I'm sure this guy is a Republican, he blasts both sides here and is quite dour in his outlook given the USA's fiscal irresponsibility.



Wednesday, December 8, 2010



More than 42.9 million people now are receiving assistance from the Federal Government's Foodstamp/SNAP programs. 
The September 2010 data released this week shows that 42,911,042 are accepting help from Uncle Sam.  At a cost of $5.74 Billion we are feeding many that don't have an alternative. 

This month's number is a 1.23% increase from August, a 10.1% increase year to date, and a 15.4% increase from last year at this time.  Assuming we have 307,000,000 US citizens we are nearing 14% of the population on foodstamps.  Of course all of these recipients aren't US citizens, I'm sure there are one or two illegals from England, Ireland, or Australia in there.

I guess the economic recovery didn't come in September after all?

Be careful!


Sunday, December 5, 2010




Last weeks' rail data continues to show overall strength in rail shipping compared to 2009 and 2008 . There are new "red" levels however that may be signs of slowing, but as usual I'll watch and not get too worried or excited.  Autos do pop out as an issue especially since the volumes are just so poor.  I heard over the last week that at least one of the automakers (GM) was going back to their old games of stuffing tons of inventory on the books of the dealer lots and this was allowing them to make it look like production was strong and sales great.  Think about it, wouldn't you do anything and everything you could to enhance your numbers going into an IPO?  As that surge has hit, perhaps that is a reason for the slowdown in auto shipments.

2010 has been a much stronger year for rail shipping as you can see in the 4 week rolling average comparisons.  We also see that the 4th quarter is one that will lead to a decline in volumes. 
AUTOS - I'm just believing the stuff I hear on CNBC that suggests that everything is better in the world, but I am shocked to see that the auto shipment data below is highlighting an early "cooling" in the auto space.  Obviously there is a seasonal component to this, but it looks to have come a bit early compared to last year (and 2008 too).  


No real changes here.  We'll see some data later on in the post that still continues to show scrap prices that are increasing.

As many of you know I've been wanting to find a good index for tracking of trucking metrics.  I've found one here I believe where much of the work is done for us.  Ceridian in connection with UCLA produces real time data on the pumping of diesel fuel for inter-state commerce trucking.  They put those figures into an index level we can track. 

The key reason that I want to track this metric is that I believe that much of the improvement in rail shipping is a result of a purposeful attempt by truckers to use intermodal shipping to become more efficient.  In the beginning stages of the recovery we heard often that the increase in rail traffic was simply due to the fact that the economy was getting so much better.  I started to doubt this because I was seeing more and more traffic on a rail crossing near my home that contained more and more JB HUNT tractor trailer containers.  Yes, I've seen this before, but not in these volumes. 

My thought was simply that JB HUNT was making smart business decisions to avoid paying drivers and shipping those containers across the country.  This all makes sense as long as fuel costs are high and rail shipping rates are low.  I'll continue to monitor these levels and post them monthly.

Here is the key takeaway.  The October data shows the first 3 month decline in activity since the recession levels of January of 2009.  WE SHOULD NOT BE SEEING A DECLINE IN OCTOBER, IT SHOULD BE THE STRONGEST MONTH OF THE YEAR in anticipation of the holiday retail sales season.  This is an indication that the first quarter industrial productivity and other metrics will be lower than expected!

Finally, while I spend a ton of time looking for these data sources, my friend Carzz at sent me the link and I appreciate it.  If you find an indicator you think is worthwhile, send me an email.

Property prices in September did rebound on the MIT/Moody's National Transaction Index for Commercial Real Estate.  While I'm very giddy that we continue to maintain a base here, I simply am awestruck by the magnitude of this drop.

NAR AVERAGE HOME PRICE - home sale prices rebounded a few hundred dollars in the latest report from our friends at NAR showing October prices.  As I've mentioned quite a few times it is so distressing to see how negative the impact the government's program of the housing stimulus was on buyers.  In June and July of this year home prices rocketed up to an average of $230,000 per home as the tax incentives were being doled out.  Now, just a few months later we see that home prices have fallen to right at $219,000 or a shocking $11,000 decline from the artificially high watermark.  So the take away from the entire program is that buyers received $6,000 or $8,000 in "credits" in order to buy a home that was overpriced by at least $10,000 while the taxpayer ultimately provided those "credits".  What a great stimulus.  What a disaster.  And we believe that any ideas to get this economy going by these clowns are going to work?

Clearly the only winners in this debacle were the mortgage companies, banks, realtors, appraisers, and inspectors.  Guess what, these were the same winners from the last round of real estate fraud we just endured in 2003-2007.  We won't learn.


The Employment Index for November was released and we continue to see a decline in job offerings on the web.  This "leading" indicator should be worrisome as it is a reversal of the employment picture that we need to keep the economy afloat.  The is the second monthly decline since the September high of 138.

The weekly leading indicators report from ECRI shows a tick up in again as we are in the area of the index at 125 where we were in May of this year.  The WLI is indicating that improvements are coming.

Scrap metal continues to make new highs and we should be taking notice.  Our old mentor Alan Greenspan taught us quite a lot about blowing bubbles and this indicator was one of his favorites.  We must also assume that since Mr. Greenspan felt like it was an important indicator, that he must also feel strongly that it's direction must also be up and to the right to signify that there is health in the economic market.  Therefore, Mr. Greenspan and his younger protege Ben Bernanke must be giddy with the conditions they are seeing now (at least without any corrections for the declining value of the dollar).

The Coppock 14-month average indicator is still signaling bearish warnings although it has done so for quite a while.  As with every month I warn that this indicator isn't great in the short run.  To give you perspective, the Dow would need to hit 11,900 by December's close for the indicator to actually signal a buy.

The Financial Conditions Index again went positive this week as the slosh of liquidity and ever levitating assets in the markets continue their move.  The index's move above 0 reinforces the idea that we are in an expansion phase (not recessionary).  As we have seen all too many times recently the improvement is quite fragile and any shock to the system could put the recovery in doubt as signaled by the BFCI.

The spot rate for shipping bulk dry good commodities across the world is back down again.  It would really stink to be a shipper with high amounts of debt, of course there are none of those out there in the world, so carry on!  There were some good things going on with shippers like DRYS as they reported good earnings and that they had locked up shipping rates for almost 80% of their fleet for 2011.  I guess that is good news since the index rates are dropping.

The USD Index below shows that the work of the FED has been quite successful since the scare back in May of this year.  Remember in April when we were so worried that a little country like Greece could destroy Europe and the Euro?  Those days seem like forever ago don't they?  With a few clicks of the key board Uncle Ben has printed the USD into the abyss and pushed asset prices up, up, and away.  In November, we had a bit of fear return as a little country named Ireland came into the news.  Concerns over their banks and balance sheets have caused the USD to gain some traction.  Never fear though, all is well in Europe and all it has taken is a few days in December for the USD's plunge to continue.  There is no doubt that there may be a few more countries at risk in Europe, but a steadfast IMF and FED can do anything to bolster our confidence. 

Here's a very quick summary.  We've got the WLI and BFCI moving higher but those are often simply derivative metrics that show the power of liquidity provided by FED.  Trucking and employment are slowing and then we had that interesting employment report on Friday.  Despite the mixed signals, it doesn't matter, as long as USD dives, all other assets rise.  Nothing to see here folks!

The FED set the tone last month with the reaffirmation of the QE II strategy.  As bearish as you want to be you cannot avoid the coordinated global efforts of the FED and central bankers to push markets higher.  Whenever there is  a move to adopt some sort of reasonable approach to fiscal responsibility, a crisis like those in Europe seem to raise their heads and force leaders to cow to the religion of more liquidity.  Last month was one of those key months where I felt like I was finally getting back in tune with the market where I was anticipating moves down and feeling strongly that they were opportunities just to add more.  The first few days of December have validated those convictions and my purchases of commodities and emerging markets in the face of these corrections have been rewarded. 

There is no doubt that there are issues in China and other emerging countries as they try to step on the brakes to keep from overheating as inflation is clearly hitting.  Due to this it is important to watch continuously and is the reason that I have not added to my emerging markets positions in November.  In my opinion, the overall trends in the US market and commodities markets are still higher (based on a falling dollar of course) so I'll continue to beat the drum of metals, energy, and commodities.  Remember, we have at least 4 or 5 months more of QE II right? 

While the signs of contagion in Europe have been contained for a day or two we know that this problem is not solved.  I can think of a scenario where we begin to see another crisis in February and March along with an undeniable slowdown in the US from a terrible holiday season.  This is where I am looking to see the correction that has so far been non-existent and long over due.

The headlines and concerns we are reading about the Bush tax-cuts expiration are a story to watch, not because I believe they will not be passed, but in the fact that this story may be the catalyst for another downward move in the markets which will provide yet another opportunity to add to positions or reposition poorly allocated investment dollars.  If Congress does not approve the cuts by 12/31/2010, the incoming House will simply pass a measure and retroactively date them to keep them in place for at least another year or two.  The Obama Administration will hate it, but will sign the measure.

I have two updates on individual positions.

Take a look at this long-term weekly chart of VLO. The 14 day EMA just crossed over the 40 day EMA (200 day MA). This should be quite bullish. I have no position just yet, but it is compelling. As we see a strong follow through move here over $21 will have me looking for a gain to $24.00.


Followers on Twitter noted that I made a call to short NFLX right as the FCC Chairman stated that he supported the idea that distributors of content on the web should or could be made to pay for their consumption of bandwidth on the web and couldn't simply force it down the pipe and consume the infrastructure and resources of the highway providers (ISPs).  Immediately I decided to short NFLX since they provide huge packets of data and flow them downstream to end users without paying for the cost of the highways to folks like AT&T and Comcast. 

The trade was entered at $202.50 and I have a target of $179.00 and $165.00 for exit.  As always, when I have decent gains I begin to get focused on harvesting them.  At $179 I will sell (buy) half of the position back and look for a further drop to the $165 area. 



Saturday, December 4, 2010


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Judging by how the market has been trading this first week of December you might have the idea that everything in the world is great and getting even better.  Ireland seems to have been saved, remember Greece, it too must be fixed.  There can't be any issues with Portugal, Spain, or Italy can there? 

I wanted to share a quick picture of what Euribor trading thinks of the rally and the job of saving the world that the IMF, ECB, and of course the FED did last week.

First, let's look at 6 month Euribor.  We seem to have come off just a hair from stress levels.  I'll continue to watch the "recovery"

Next, here is a view of 3 month Euribor.  I am not overlooking the impact that year-end funding decisions have here.  While we are already in December it becomes increasingly tough for firms and banks to borrow over the holiday period.  As a moneymarket trader in my first years on the desk, this was the scariest time to be in a position to be without funding for the firm.  Most companies that needed funding and didn't already have it sewn up in the last weeks of the year were going to get punished as buyers of their risk would hold out for higher rates.  I don't think that the spike and recovery here is due to year end funding, but I'm sure there is some move up (slight) simply due to the time of year.

Finally, we have a snapshot of 1 week Euribor.  Everything looks pretty good here, but take a look at what happened over the last 2 days of the snapshot.  That doesn't indicate to me that everyone is comfortable that a resolution in Europe is complete.

Last as I check in on sovereign debt CDS at Markit we see that Friday's trading in CDS demonstrated that things were getting better.  For 5 Yr CDS protection we see the following (which were all improvements).

Greece - 922
Portugal - 449
Spain - 294

While all of these have shown a tightening of spreads in the last week, they all are wider on a monthly basis

Be careful!


Wednesday, December 1, 2010


With the disclosure a few moments ago that the FCC has no problem with pricing mechanisms that charge based on broadband usage this puts significant pressure on companies that provide content to end-user web surfers.  In other words, when you are at home and use Netflix to order a movie you buy that content and then funnel it done the electronic superhighway to your computer or internet tv.

The present situation is that Netflix sends that big load of data to you and it uses the infrastructure of your internet provider like AT&T, Comcast, or other ISP.  As that big bundle of data comes through, Netflix simply sends it off and the carrier absorbs the cost of delivering that to the user.  Of course as more folks begin using BluRay players and Netflix this places larger and larger infrastructure demands on your internet service provider who isn't necessarily getting more revenue for your greater use of its bandwidth.  The added volumes also impact their ability to provide great service.

The FCC ruling today means that Comcast and others probably have the ability to charge those internet content providers for the amount of data they are sending onto the ISP's highways.  Netflix is a great idea if it only costs $10 a month, how great of an idea is it if Netflix is going to cost $30 a month as they will need to pass these toll charges on to consumers.

Here is a snapshot of NFLX right now.  Shorting at $202.50 and I have a stop at $206.00.  The chart has been impressive going pretty much straight up.  All bubbles burst and this is probably the catalyst.  A drop to $163.00 is quite possible with some churning at $179.