The damage control to the Fukushima explosion reported earlier is coming fast and furious. According to CNN, “the explosion at an earthquake-damaged nuclear plant was not caused by damage to the nuclear reactor but by a pumping system that failed as crews tried to bring the reactor’s temperature down, Chief Cabinet Secretary Yukio Edano said Saturday. The next step for workers at the Fukushima Daiichi plant will be to flood the reactor containment structure with sea water to bring the reactor’s temperature down to safe levels, he said. The effort is expected to take two days.” While the government is trying to play down the threat from the explosion, it has nonetheless double the evacuation zone radius from 10 to 20 kilometers: “Radiation levels have fallen since the explosion and there is no immediate danger, Edano said. But authorities were nevertheless expanding the evacuation to include a radius of 20 kilometers (about 12.5 miles) around the plant. The evacuation previously reached out to 10 kilometers.” Next steps are to flood the reactor with salt water. NHK reports: “The TEPCO Fukushima Daiichi nuclear power plant in Fukushima Prefecture is believed to be exploded, and in order to prevent corruption, the containment vessel will be filled with sea water to cool containers and vehicles used by the SDF pump I. According to the Ministry of Defense, work will begin at 8:00 pm, and that it expected to end around 1:00 am on March 13 (or roughly 11 am Eastern).” And while containment efforts peak, the radiation level is reported to be in the range of 1015 microsieverts / hr. In the meantime, confusion in Japan is pervasive as up to a million people are without power. And while we hope the outcome of the Fukushima situation will be prompt and favorable, the economic devastation to the country will be pervasive for weeks to come.
Radiation levels have fallen since the explosion and there is no immediate danger, Edano said. But authorities were nevertheless expanding the evacuation to include a radius of 20 kilometers (about 12.5 miles) around the plant. The evacuation previously reached out to 10 kilometers.
The explosion about 3:30 p.m. Saturday sent white smoke rising above the plant a day after a massive
Note from dshort: I retired this chart series last summer in deference to my prefered inflation-adjusted series that aligns the S&P 500 2000 high with the Nikkei peak in 1989. However, I continue to receive requests for this version, despite the “V” shape of the the recovery since the March 2009 low.
This chart series overlays the current S&P 500 with the L-shaped “recoveries” after the Dow Crash of 1929, the Nikkei 225 after Japan’s 1989 bubble, and the post Tech Bubble NASDAQ. Click the chart below for a larger version and use the links to see various comparisons.
I’ve also included an updated two-decade inflation-adjusted chart, which gives us a fascinating visualization of the impact of inflation on long-term market prices. The higher the rate of inflation during a bear market, the greater the real decline. Compare, for example, the peak of the Dow rally in year seven with the same peak in the two-decade nominal chart. The difference is the result of deflation during the Great Depression.
It’s rather stunning to see the real (inflation-adjusted) decline of the Nikkei, two decades years after its crash. The recent lows rival the traumatic Dow bottom in 1932, less than 3 years after its peak.
These charts remind us that bear markets can last a long time. And it’s not necessary to go back to the Great Depression for an example.
See also my preferred version, which puts the start of the current secular bear in 2000 with the popping of the Tech Bubble. In inflation-adjusted terms, the S&P 500 reached its all-time high in March 2000. Although the nominal high in October 2007 was higher, the “real” high was not.
Note: These charts are not intended as a forecast but rather as a way to study the today’s market in relation to historic market cycles.
It’s time again for the weekend update of our “Real” Mega-Bears, an inflation-adjusted overlay of three secular bear markets. It aligns the current S&P 500 from the top of the Tech Bubble in March 2000, the Dow in of 1929, and the Nikkei 225 from its 1989 bubble high.
This chart is consistent with my preference for real (inflation-adjusted) analysis of long-term market behavior. The nominal all-time high in the index occurred in October 2007, but when we adjust for inflation, the “real” all-time high for the S&P 500 occurred in March 2000.
Here is a nominal version to help clarify the impact of inflation and deflation, which varied significantly across these three markets.
Note: These charts are not intended as a forecast but rather as a way to study the today’s market in relation to historic market cycles.
Daniel Mudd, the former CEO of Fannie Mae got a Wells notice from the SEC on Friday. I have been waiting years for this to happen. There is a good reason this action is so late in coming. This case could open the door for culpability of the Federal Government in the collapse of the US mortgage agencies.
The Wells notice is a very significant ratchet up of this story. Prosecution is not assured, but a big investigation is certain.
Mudd, who is now the CEO of buyout firm Fortress Investment Group, commented on the bad news from the SEC in predictable fashion. He denied everything: (Bloomberg)
“I could not disagree more with this turn of events. The disclosures and procedures that are the subject of the SEC investigation were accurate and complete. These disclosures were previewed by federal regulators, and have been issued in the same form since the company went into government conservatorship.”
I have always believed that Mudd is dirty. He had ample foreknowledge that the wheels were coming off at Fannie (and the entire mortgage market). If he argues that he did not, he will just look dumb. When he spoke to Bloomberg he was reading from a script prepared by big-shot lawyers. Again his words:
These disclosures were previewed by federal regulators.
Mudd and his lawyers are spot on with this comment. It is a shot across the bow of the SEC. If Mudd had used real words in his statement he would have said:
“We prepared statements and sent them to our regulator, OFHEO. They reviewed them and agreed with them. Fannie has letters from OFHEO that says we were clean. Don’t blame me for the blowup. Blame our regulator!”
OFHEO (Office Of Federal Housing Enterprise Oversight) was run by James Lockhart. I don’t think he is responsible for the collapse of the GSE’s. But I have always been convinced that he covered up the problems from the day he took over as the head of OFHEO. OFHEO did fail as a regulator. There can be no doubt about that at this point.
We had a super-busy day on Friday and it’s a great example of exactly why we play this hyper-aggressive virtual portfolio the way we do – with balanced positions on both sides, taking advantages of moves in either direction – not just to cash out winners, but to press our losing bets on the theory that our ranges will continue to hold. They will, of course, break one day – and that’s why we keep such a close eye on our watch levels but, as long as they remain range-bound – it’s just a little gold mine that we can tap over and over and over again.
We caught the downturn on the dime on Wednesday and yesterday it was crazy from the first minute – so much so that I had to send a 7:15 am Alert to Members regarding the earthquake in Japan, an update on the "Day of Rage" (as we expected, a big nothing) and how the Wall Street Journal was once again ripping off my headlines.
On the whole, we got the spike low and then the ridiculous run-up we had expected for Friday – the Japanese quake was just the "reason" de jure for the bots. Although I sincerely hope I do not have to remind our Members of Rule #1 (as we only have two rules) – I did send out another Alert at 9:34 saying: "$25KP Moves. I do not have time to check prices – take money and run on FAZ short calls, USO long puts and EDZ of course. More to follow." - as there was not a second to waste if we were going to sell into this particular excitement.
At 9:40 I was already flipping bullish and we added the DIA March $120 calls at $1.03 in the $25KP and then, by 9:59, we had a slew of adjustments to make, which I will detail below. I did not have time to mention it in the morning, so I will mention it now – one of the only times it is acceptable to put in market orders is when you are selling into the excitement. If you have 3 positions to dump out of before the market turns and 7 other positions to look over to decide what to do with them – you’d better execute those sells but that…
Following a report earlier that the Uranium at the Fukushima Power Plant may have melted, we sadly bring you this video of the explosion at Reactor one of the nuclear site.
A before and after picture, showing the loss of Reactor 1
From BBC:
There has been an explosion at a Japanese nuclear power plant that was hit by Friday’s devastating earthquake.
Pictures show a blast at the Fukushima plant and initial reports say several workers were injured.
Nuclear expert, Malcolm Grimston told the BBC that nuclear materials may have been able to escape .
And as predicted by Zero Hedge first yesterday, the power plant has just announced that there is indeed a meltdown at the plant.
The core at Fukushima No. 1 nuclear power plant’s No. 1 reactor may be partially melting, the nuclear safety agency said Saturday.
Radioactive substance cesium was detected around the reactor, it said.
Alas, as many may be affected by fallout, we present the wind data for Asia for Saturday:
The Weekly Leading Index (WLI) of the Economic Cycle Research Institute (ECRI) continues its rise. The Growth Index is now at 6.7 based on data through March 4.
The Published Record
The published ECRI WLI growth metric has had a respectable record for forecasting recessions and rebounds therefrom. The next chart shows the correlation between the WLI, GDP and recessions.
A significant decline in the WLI has been a leading indicator for six of the seven recessions since the 1960s. It lagged one recession (1981-1982) by nine weeks. The WLI did turned negative 17 times when no recession followed, but 14 of those declines were only slightly negative (-0.1 to -2.4) and most of them reversed after relatively brief periods.
Three other three negatives were deeper declines. The Crash of 1987 took the Index negative for 68 weeks with a trough of -6.8. The Financial Crisis of 1998, which included the collapse of Long Term Capital Management, took the Index negative for 23 weeks with a trough of -4.5.
The third significant negative came near the bottom of the bear market of 2000-2002, about nine months after the brief recession of 2001. At the time, the WLI seemed to be signaling a double-dip recession, but the economy and market accelerated in tandem in the spring of 2003, and a recession was avoided.
The Latest WLI Decline
The question had been whether the WLI decline that began the the Q4 of 2009 was a leading indicator of a recession. The published index has never dropped to the -11.0 level in July 2010 without the onset of a recession. The deepest decline without a recession onset was in the Crash of 1987, when the index slipped to -6.8. The ECRI managing director correctly predicted that we would avoid a double dip. The latest GDP for Q4 of 2010, revised down slightly to 2.8, confirms the ECRI stance.
The ECRI Weekly Leading Index appears to be more sensitive to upturns than either the Philly Fed’s ADS Business Conditions Index (ADS) or the Chicago Fed’s Current Activity Index.
The University of Michigan Consumer Sentiment Index preliminary report for March came in at 68.2, down from 77.5 in February and a stunning reversal from the recent trend of improving sentiment. The Briefing.com consensus expectation had been for 76.5 and Briefing.com’s own forecast was for 78.0.
The survey’s measure of current economic conditions dropped to 83.6, from 86.9 the month before. Consumer expectations fell to 58.3 from 71.6, the lowest level since March 2009.
Consumer inflation expectation rose to 4.6 percent from 3.4 percent in February, the highest since August 2008. The 5-10-year inflation outlook rose to 3.2 percent from 2.9 percent. The increase in gasoline prices was no doubt a factor.
See the chart below for a long-term perspective on this widely watched index. Because the sentiment index has trended upward since its inception in 1978, I’ve added a linear regression to help understand the pattern of reversion to the trend. I’ve also highlighted recessions and included real GDP to help evaluate the Michigan Consumer Sentiment Index as an indicator of the broader economy.
To put today’s report into the larger historical context since its beginning in 1978, consumer sentiment is about 21% below the average reading (arithmetic mean), 20% below the geometric mean, and 22% below the regression line on the chart above. The current index level is at the 13th percentile of the 399 monthly data points in this series.
For the sake of comparison here is a chart of the Conference Board’s Consumer Confidence Index (monthly update here). The Conference Board Index is the more volatile of the two, but the general pattern and trend are remarkably similar to the Michigan Index.
And finally, the prevailing mood of the Michigan survey is also similar to the mood of small business owners, as captured by the NFIB Business Optimism Index (monthly update here).
Consumer and small business sentiment remains at or near levels associated with other recent recessions, but the trend has been one of strong improvement. We now must wonder if the latest Michigan reading foreshadows a reversal in other sentiment indicators.
The S&P 500 closed the day up 0.71% but the week down 1.28%. Today’s bounce, on weak volume, put the index back above its 50-day moving average and the symbolic 1300 level. The index is 92.8% above the March 9 2009 closing low, which puts it 16.7% below the nominal all-time high of October 2007.
For a better sense of how these declines figure into a larger historical context, here’s a long-term view of secular bull and bear markets in the S&P Composite since 1871.
For a bit of international flavor, here’s a chart series that includes an overlay of the S&P 500, the Dow Crash of 1929 and Great Depression, and the so-called L-shaped “recovery” of the Nikkei 225. I update these weekly.
These charts are not intended as a forecast but rather as a way to study the current market in relation to historic market cycles.
Technical analyst Chris Kimble takes a long look at the S&P 500 and asks whether we’re at a major price point suggested by a resistance line that dates from the mid-1980s.
Jobless claims improve while leading indicators decline in today’s economic report card
by Wall Street Sector Selector Staff
Weekly jobless claims declined to 424,000 from last week’s 432, 000 but stubbornly stayed above the all important 400,000 level for another week.
August Leading Indicators came in at +0.3% compared to 0.5% for July, as the economy continues registering weakness.
Good news came from July Home Prices which rose to +0.8% from the previously reported +0.7%.
But the biggest economic news of the week came yesterday when the Federal Reserve said it saw “significant downside risks to the economic outlook, including strains in global financial markets.”
Global stock markets responded negatively yesterday an...
Shares of Priceline.com Incorporated (NASDAQ: PCLN) are trading higher in the after-hours following the release of its Q1 earnings results. Currently, shares are up 2.74%, trading at $548.60; they closed the regular session down 0.67 %, at $533.97.
The company said that its Q1 EPS came in at $2.66 on revenues of $809.3 million; this compares to the Street's estimate of $2.46 per share on revenues of $779.5 million. Revenues rose 38.6% year over year.
"In the 1st quarter, the Group benefited from strong growth in our global hotel business, particularly at Booking.com and Agoda," said Jeffery H. Boyd, Priceline President and Chief Executive Officer.
He added, "Room nights booked grew by 55.8% and our international gross bookings grew by 79% compared to prior year...
The damage control to the Fukushima explosion reported earlier is coming fast and furious. According to CNN, "the explosion at an earthquake-damaged nuclear plant was not caused by damage to the nuclear reactor but by a pumping system that failed as crews tried to bring the reactor's temperature down, Chief Cabinet Secretary Yukio Edano said Saturday. The next step for workers at the Fukushima Daiichi plant will be to flood the reactor containment structure with sea water to bring the reactor's temperature down to safe levels, he said. The effort is expected to take two days." While the government is trying to play down the threat from the explosion, it has nonetheless double the evacuation zone radius from 10 to 20 kilometers: "Radiation levels have fallen since the explosion and there is no immediate danger, Edano said. But authorities were nevertheless expanding the evacuation ...
Note from dshort: I retired this chart series last summer in deference to my prefered inflation-adjusted series that aligns the S&P 500 2000 high with the Nikkei peak in 1989. However, I continue to receive requests for this version, despite the "V" shape of the the recovery since the March 2009 low. This chart series overlays the current S&P 500 with the L-shaped "recoveries" after the Dow Crash of 1929, the Nikkei 225 after Japan's 1989 bubble, and the post Tech Bubble NASDAQ. Click the chart below for a larger version and use the links to see various comparisons.
Top 5 RisersStockRatingAnalysisVLOSTRONGBUYAn increasingly positive growth rate of past earnings, along with improving expectations for long term growth, make Valero a good prospect for high returns.KROSTRONGBUYKronos Worldwide has been gaining recognition from analysts as a good canditate for achieving higher than expected earnings along with higher overall projected valuation.SFIBUYiStar is one of the top candidates projected to achieve both higher than previously projected earnings in the short run and a higher earnings growth rate in the long run.AMATSTRONGBUYApplied Materials has been...
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February is now past, and the Biotech Porfolio is loaded with winners and a miss (PLX). MRK is down a bit, but I expect that trade to recover, and one could be more agressive and double down on it, or play another round at the Jan13 $30 options for roughly the same price. Below is the summary, and note the grey boxes are ones that did not fill. I am still a fan of BMRN, and like DEPO as well. Now let's look at a few others.
Table 1. PSW Biotech Plays Since January 2011
 
Our newest play is Momenta Pharmaceuticals (MNTA), who is pursuing a three-part business model which includes complex generic equivalents in partnership with the Sandoz division of Novartis, proprietary compounds, and follow-on- biologics (FOB). It seems that this company is tied up in competition/litigation wit...
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(