By Greg Michalowski, greenfaucet.com

Numerous Federal Reserve communications have indicated that reverse repurchase agreements are a tool that could be used to support a reduction in monetary accommodation at the appropriate time. Over the past year, the Federal Reserve Bank of New York has been working internally and with market participants on operational aspects of reverse repos to ensure that this tool will be ready when and if the Federal Open Market Committee decides they should be used. This work is a matter of prudent advance planning by the Federal Reserve, and no inference should be drawn about the timing of monetary policy tightening.

Repos and reverse repos have been in the Federal Reserve's toolkit for years, and the Federal Reserve has conducted both as recently as December 2008. The focus of recent work has been to expand our existing capability to conduct reverse repos with Primary Dealers to include "triparty" settlement.1 This has involved working with the triparty clearing banks and Primary Dealers to implement the necessary changes and updates. We have recently begun testing this capability with all involved parties and systems, and it is likely that the Federal Reserve will engage in additional tests in the future. No actual operations have been conducted as part of these tests.

Recent Federal Reserve communications have also raised the possibility of expanding the set of counterparties the Desk might employ for conducting reverse repos beyond the Primary Dealers. The Federal Reserve noted that they continue to study this issue, and no decisions have been made regarding the types of firms that may be included. We will engage market participants on this subject as appropriate going forward.

By Ray Barros, greenfaucet.com

I make no secret that one of my passions is to leave a legacy. Few have heard of Bernard Baruch - in my view of the best traders of any era; many more have heard of W D Gann - not because he was a better trader but because Gann attempted to pass his ideas on.

Over the years, I finally hit on a format that seemed to offer the best chance to fulfill a dream. It was a two-fold program:

1. An inexpensive course that taught the foundations of success (Habits of Success [HOS]) and
2. A one-on-one mentor course.

The first provided the means which followed would lead to success, and the other one attempted by weekly meetings and personal tuition to ensure the student followed the course. Both have drawbacks. The first suffers the same drawback facing all seminars and webinars: the students are not taught to apply the material in any structured way. The second took too long - 2 to 3 years.

The end result the usual trader education model is like that of the Army Air Corp in 1934 where flyers burnt and crashed, traders burn and crash.

I believe that my application of Coyle's model (See A Quiet Revolution in Learning and The Talent Code Revisited) will play same role for traders as the Link Simulator did for novice flyers.

The current results of the program show that most of those who had taken my Habits of Success webinar in 2009 gone out and traded, they would have lost money. Either because they tried to trade without learning the material or because they misunderstood what I was saying.

Let me give you an example of what I mean.

The trading strategy taught at HOS is a simple one. It has one essential element and two main ones. It also has what I call warnings of a possible change in trend. The exercise for this week called for the students to identify the trend - that's all, nothing else.

There are 5 HOS students.

Of the 5:

1. One got it almost 100% correct - a small error on the warnings.
2. Three were totally lost. They did not know where to start - even though I thought I had laid out a clear checklist at the webinar.
3. One introduced two or three indicators of his own. Only problem is he failed to give me the answer to my question: ‘what is the trend?".

Now let me stress that the 5 are among the most passionate students I have encountered. The commitment is there but the learning was not. Now think about this - how true is it of you? If you are struggling the probability is you have not learnt to succeed.

By Michael Pento, greenfaucet.com

You may not believe it buy I would like to be more optimistic about the future of the USA. But it's hard to stay hopeful when our most esteemed Ivy League institutions have professors like Niall Ferguson at the top of the lecture hall. The Harvard professor appeared on the Kudlow Report last night and actually said the following: "There's no inflation risk, you know they [The Fed] can let the dollar go down another 20% or more with very little inflation risk"

Brian Westbury, to his credit, immediately stomped on the words of the professor by explaining that the falling dollar is the very definition of inflation.

My question is how can it be that an elite member of Harvard academia doesn't know what causes a currency to fall. Please allow me to explain. It's a skyrocketing monetary base, negative real interest rates, interest rate differentials, a chronic trade deficit and a surging budget deficit. But it's the increase in the money supply that is the progenitor of it all. If the dollar falls another 30% inflation will become intractable. It's just a shame there's very few people around that either know or care anything about inflation.

By Roger Nusbaum, greenfaucet.com

Alphaville has a post up in which they note some work from BoNY Mellon that cites the very real possibility that “certain governments are seriously deliberating the USD’s hegemony as a reserve currency and even its stability over the longer-term.”

The idea can’t be shocking at this point. There are opinions all over the place about the likelihood of this happening and what could possibly supplant the dollar. For some context I have been writing about this for years with the opinion it will be a very slow moving theme taking years to get to a point where the greenback shares the role of reserve currency (maybe the SDRs which are heavy in dollars).

You should draw your own conclusion about what, if anything will happen. One reason I think the dollar would simply share the role instead of lose it is that most of the other currencies are simply too small and the euro has problems with its biggins (Spain, France and Germany) and many of the EMU aspirants are in serious trouble like Latvia which just held a t-bill auction that drew no bids.

One way to come at this would be not to worry about what country will be the new reserve currency and simply seek out countries with fundamentals that are strong now and seem poised to stay strong for the foreseeable future. If you have been reading my stuff for a while then you know that for me the list would include Chile, Brazil, Norway, Australia, Canada and China.

Some people think China could end up being a world reserve currency. Maybe but that is a long way off, for now it is too small and there are plenty of restrictions. The yuan will become more globally relevant and probably do so at an accelerating rate but reserve currency is hard to see anytime soon.

Don't know why I did a goof on an REM song for the title, that is a band that when I hear now I wonder why the hell I ever like them.

By Roger Nusbaum, greenfaucet.com

A recurring theme in my posts has been the slow phasing out of the dollar as the world’s reserve currency. The status as reserve currency is something more people have started to worry about as even President Obama has awoken to the fact that China has the potential to play a much larger role in our economic fate than most would like.

The latest news to come is an agreement between China and Brazil for China to help finance oil exploration in Brazil in a transaction that they expect will bypass the US dollar. Previously these sorts of things were done in US dollars.

The two parties obviously feel that they do not need US dollar for this or said another way the greenback is less important than it used to be for these countries to transact business.

A few months ago I wrote a similar post about a similar arrangement between Brazil and Argentina. Additionally transactions done between Hong Kong and China also stopped using the dollar recently.

This entire theme is an incredibly slowly moving tanker. The fears of violent disruption are unfounded. As I have mentioned before there will be small stories like the one today that come out with seemingly little attention paid but cumulatively they will add up to the dollar being less important.

The implications of less dollar demand is an upward push on interest rates, a downward push on the dollar and an upward push on inflation. This should mean slower GDP growth and below “normal” stock market growth. It does not mean the end of the world, martial law or otherwise tearing of the social fabric. More like headwinds.

The is a huge part of the big picture logic for investing more into foreign assets (stocks, bonds and cash) as time goes by. This is simply investment obstacle to be overcome and fortunately we know how to overcome it; more foreign.

By TraderMark, greenfaucet.com

I don't know what's in the water over there in Europe but here I thought the US market was expensive... I guess it's all relative. p.s. I disgaree with the valuation on US stocks as there are now about 18,219 ways to measure P/E multiple. But as long as we are incorrectly measuring US and European stock valuation the same way, at least its apples to apples. There is one major difference - earnings in Europe are still forecast to grow versus those in the US - although I find that 13% growth rate quite over optimistic. But even a 0% growth rate would run circles around the U.S.. Via Bloomberg

* European stocks are 55 percent more expensive than shares of U.S. companies just as the price of options to protect against losses in Europe climbs. The Dow Jones Stoxx 600 Index’s biggest two-month advance in a decade pushed the gauge to 22.3 times its companies’ annual profits, compared with 14.4 times for the Standard & Poor’s 500 Index, according to data compiled by Bloomberg. While both measures have rallied more than 28 percent since March 9 on signs the global recession is easing, the gap in valuations is the widest since 2003, Bloomberg data show.
* The average price-earnings ratio for Stoxx 600 companies exceeded the S&P 500’s level for the first time since 2004 on Feb. 26 as the U.K. government extended guarantees on financial assets and analysts raised profit estimates for European companies while cutting them in the U.S. The premium has since jumped from 16 percent at the end of April.
* Earnings for Stoxx 600 companies are forecast to climb 13 percent this year, compared with a 16 percent drop in the U.S., analyst estimates compiled by Bloomberg show. European estimates “may prove to be too optimistic,” said Joost van Leenders, an Amsterdam-based strategist at Fortis Investments, which oversees about $240 billion.
* “We used to be of the opinion that the U.S. would come out of the recession first,” Taylor said. “But the U.K.’s policy response has been aggressive, and Europe is now catching up.”

Funny - every nation on Earth now is saying they will come out this "first" - last time I checked a bell curve, not everyone can be the winner.

By Michael Pento, greenfaucet.com

t is disappointing to discover that the Harvard- and M.I.T.-educated Ben Bernanke did not learn while attending school that long-term interest rates must be set by the free market. Belatedly, the Chairman of the Federal Reserve is about to learn this valuable and costly lesson because these rates cannot be manipulated lower by any central bank for a great length of time.

On March 18th, the Federal Reserve committed to buying up to $300 billion in long-term Treasuries over the ensuing six months. After that announcement, the market initially celebrated and interest rates immediately fell on the 10-year note from 3.02% to 2.51%. But less than two months later, rates have spiked up to 3.17%, 66 bps higher than the reaction low on the day of the announcement.

That jump in rates places into jeopardy the nascent recovery in the market and economy because so much of Washington's planned "healing" is predicated on halting the fall in real estate prices, which have implications for consumers' and banks' balance sheets. Thirty-year fixed mortgages, which had fallen to a recent low of 4.625%, now face the pressure of a rising 10 year note, which has a direct impact on newly-minted mortgages (as opposed to LIBOR rates which affect ARMs).

The recent rise in Treasuries has created an incredibly important standoff between Mr. Bernanke and the bond vigilantes whose clients demand a real return on their investments.

You see, rates on the long end of the curve are primarily concerned with inflation; if inflation is expected to increase, rates must eventually reflect this by moving higher. I realize that today many are mistaking the deleveraging processes seen in stocks and real estate prices as deflation but as long as the Fed continues to monetize Treasury debt, the money supply will continue to increase dramatically and deflation in the long run will be off the table.

So just how realistic is the current level of Treasuries? As noted in my commentary written in October 2008 entitled "The Debt vs. Interest Rate Conundrum", the 46 year average constant yield for the 10 year note was 7.04%. The yield rose above 3% in June of 1958 and did not drop below that rate until November of 2008! Back in 1958 the monetary base was just $38 billion and the gross Federal debt was only $279 billion (60% of GDP). Today, base money has grown to $1.7 trillion-with more than half of that amount having been added just since last Autumn- and the National debt has skyrocketed to $11.2 trillion (80% of GDP). Therefore, from both an economic and historic perspective the yield on the Ten year note is unnaturally and unsustainably low.

Some may also say that today's low rates are justified given the fact that Consumer Price Index increased just .1% for all of 2008. But when you look at the first three months of 2009, the CPI is already rising at a 2.2% annual rate; clearly, traders in the bond market are beginning to realize that deflation will not be our next major concern.

This, when you think about it, is completely justified given the tremendous increase in debt and money supply, which are the progenitors to rising inflation.

So how high will the Fed allow long-term rates to rise and how much money will they print in an attempt to stem that increase? Ben Bernanke may be surprised to learn that the more Treasuries he buys, the lower their prices will go. After all, printing money is the definition of inflation and investors simply cannot tolerate a negative return on their money for very long.

Will the Federal Reserve abandon its dangerous current course and let our economy experience a painful, but much needed recession or will it persist in its belief that long-term rates are under its dominion? Unfortunately, it seems clear that instead of capitulating to the bond market's clear signals and reversing course, Bernanke will continue down this path. Indeed, if long-term rates go much higher from here-and it is pathetic to think our economy can't stand a 10-year Treasury rate of much over 3%-- don't be surprised if the Fed soon announces additional commitments to purchase even more government debt in a futile attempt to keep Treasury yields artificially low and to sustain the "recovery" now supposedly in progress. And that, unfortunately, spells disaster for both an inflationary outcome and the viability of our debt-laden and credit-dependent economy in the not-too-distant future.

The market will not be fooled by this game indefinitely, as the 10-year yield is already hinting.

By James 'Rev Shark' DePorre, greenfaucet.com

Famed market commentator and CEO of SharkInvesting.com James 'Rev Shark' DePorre, provides weekly insight on where he thinks the markets are going and how to navigate through the financial seas. In this episode, Rev discusses how the market is interpreting recent FOMC announcements. He also shares some bullish picks in a hot sector!

Click here to listen

By Ray Barros, greenfaucet.com

First off a great big thanks to Ms Ana Wang for stepping in yesterday. I contracted some sort of bug on my trip home from Singapore. Still somewhat out of sorts but much better.

Secondly, for those that would like a great primer on Austrian economics and its view of the cause of the current economic malaise and the cure, Thomas E Woods Jr. has written an easy to read book: "Meltdown". Well worth your time for an objective, free-market assessment of our situation.

Let's turn to the GBPJPY

Figure 1 is a 12-month swing chart (yearly trend) that shows that the GBP/JPY has been in a bear market since February 1980.

I want to zoom in on the price action from May 1006 to date.

The Tubbs Model would pose the question: are we in an accumulation pattern? To answer in the affirmative, the market would need to accept above 144.35; to reply in the negative, we need to see acceptance below 118.80.

The turn down at 251.14 and the failure of the market to follow-through on a break of 129.05 suggests to me that we are in a congestion range with the possibility of an eventual upside breakout on acceptance above the July 2007 highs at 251.14. A monthly bullish conviction close above the Primary Buy Zone at 144.35 would lend credence to this scenario.

So, for the moment, my strategy would be to go long.

The next step is to look for a zone.

Figure 2 show an 18-day swing (monthly trend) and a 5-day swing (weekly trend). The bar after the low on January 23 2009 triggered a Spring Buy signal (see Nature of Trends). We then saw a breakout above 141.50. By April 16, the filters I use were in place: time (Whole Point), momentum (Line Change Count) and Price (acceptance above the maximum extension).

Once the filters are confirmed, I look for a retest of the breakout zone to enter a trade. The stop would be below 138 (below the Primary Sell Zone, 138.09).

View the rest of the post including charts here:

By Tom Lydon, greenfaucet.com

Criticism directed at the 401(k) industry is gathering steam. Why? Watch this Sunday's segment about these retirement plans on "60 Minutes," for starters.

It was heartbreaking to watch some people become speechless as they opened their 401(k) statements on camera, and to see someone cry as they told of a long career with almost nothing to show for it. Other people have delayed retirement, while others have called it off entirely.

Luckily, some members of Congress are fighting the good fight and working hard for reform in this industry. Rep. George Miller, who appeared at length in the segment, has a schedule of reforms that many investors and experts would like to see implemented.

In the interview, Rep. Miller called for more fee transparency and portrayed the fund industry as aggressively opposed to this as their fee revenue would be lost. In the report, which should make every investor angry, he held up a prospectus and challenged anyone to find the dozen-plus fees investors are socked with on an annual basis. Some can be located, but many can’t. And good luck understanding the prospectus at all - it’s a rare one that’s written in plain English.

In addition to an array of mysterious fees, there's another problem in the industry, and that's the ease with which it exploits novice investors. Many mutual funds recommended for plan inclusion are just average, the 60 Minutes report said, and often investors who have no expertise or understanding of mutual funds are asked to make difficult choices about the very investments that could determine their futures.

Rep. Miller’s Health, Employment, Labor, and Pensions Subcommittee held a hearing on new fee-transparency legislation yesterday. The 401(k) Fair Disclosure for Retirement Security Act of 2009, will “help workers shop around for the best retirement options by requiring simple fee disclosure on the investment options contained in their employer’s 401(k) plan.

The case for getting ETFs as standard components in 401(k) plans is getting stronger, as the fees are clear and make sense. Investors need to join this fight and ask their human resource representatives to get plans with ETFs, and insist on clarity and transparency.

No one will look after your money like you will, and until the 401(k) and mutual fund industries are as gung-ho about protecting your retirement savings as you are, you would be well-served to educate yourself about these plans and be your own best advocate.

By James 'Rev Shark' DePorre, greenfaucet.com

Famed market commentator and CEO of SharkInvesting.com James 'Rev Shark' DePorre, provides weekly insight on where he thinks the markets are going and how to navigate through the financial seas. In this episode, Rev discusses the encouraging action he's seeing in small-cap and speculative stocks. Tune in as Rev Shark shares his market thoughts and empowers the individual investor. His written work can also be read daily at RealMoney.com.

click here to listen:

By Roger Nusbaum, greenfaucet.com

You know by now what credit default swaps (CDS) are. When CDS go up that means the underlying thing is perceived as being riskier and when CDS go down the underlying thing is perceived as being less risky.

Well Citigroup’s (NYSE: C) recent earnings report got a recent boost because CDS it holds on itself went up. It’s almost like it benefited from being short itself. The improved earning report could then cause the CDS to contract which could in turn then hurt the company.

The opposite appears to have happened with Morgan Stanley’s earning report it was hurt because the CDS it held on itself went down.

It has been an upside down world for financial stocks for a long time with no visibility for right side up any time soon. Every rule or modification put into effect to try to deal with the crisis results, almost immediately, in some sort of unintended consequence or even obfuscation.

It is both sickening and disappointing.

In the early part of the decade my financial exposure was one domestic bank, one British bank, one Irish bank, one Australian bank and one Canadian bank. I was lucky to sell the British bank when I did (swapped it for a Chilean bank) and was also lucky with the sale of the Irish bank which has since been nationalized. The domestic bank was Bank of America which I sold upon the news of the Merrill Lynch merger.

The Canadian bank went down a lot but I am glad I did not sell it, the Australian bank is down more but Australia does not have the same sort of financial problems (no subprime) and the Chilean bank is only down a little from where I bought it 17 months ago. Along the way I added one of the publicly traded exchanges (that purchase was about a month too early).

At some point I will buy another financial stock but I doubt it will be a domestic bank. If I wanted to start looking at banks perhaps this list of the worlds 50 safest banks might be a good place to start. I have heard good things about the banks in Singapore but there are only two Singaporean banks on the list and they are pretty far down. It might make sense to buy a publicly traded exchange from another country as sort of a financial infrastructure play. The two big credit card companies could be interesting, the collect a little fee every time their cards are used without taking credit risk. I’m not sure if there are any micro-finance stocks (you know these they make tiny loans and the repayment rates are fantastic) but this could be an area to look as well.

The most toxic of banks have had a great call option-like bounce and it may continue but if you don’t want to bet on that trend continuing then you will need to look elsewhere.

By Ray Barros, greenfaucet.com

Inflection points - critical turning points - appear to be approaching in the US Stock Market, US Dollar, Gold and to a lesser extent, 30-Year Bonds. In this and next blog or two, I'll be review the instruments.

Let's start with the S&P (basis cash).

Figure 1 is the 12-Month (yearly trend) Barros Swing on the S&P. In end 2007, we gave an Upthrust sell signal whose minimum target was met when the S&P entered the Primary Buy Zone 894 to 798. When the S&P dipped to 666 and bounced, it raised the possibility of a buy signal should we see a bullish-conviction, monthly close above 894. If the buy signal is triggered, the minimum target is the Primary Sell Zone 1576 to 1461. And, there would be a strong probability that the market would exceed 1576 but remain under the Maximum Extension 1078.

The question then becomes, what do we need to see:

* to confirm the bullish scenario or
* to reject the bullish scenario?

Before I examine that, let me make it clear that I do not rate the buy signal as auguring a high probability for a new bull market. Does the possibility exist? Of course. The market can and often does anything. But based on my studies the probability of a new long-term bull market is remote. Let's have a look at the reasons for this belief.

The 2000 high in the S&P marked the end of a long-term bull market - it marked the end because we took out the 2002 lows in March 2009. So whatever we have, we don't have a bull market for 12-month swing (i.e. we no longer have a series of higher highs and higher lows in the 12-month).

Long-term bull markets have a mean of 16 years +/- 2 years. This one began in 1982 and ended in 2000. The following bear to sideways corrections last 15 years +/- 2 years. Using this as a measuring stick, the end of the correction would be 2013 to 2015. For another method of calculating the duration of the correction. let's turn to Dow Theory.

The DJIA bull lasted 1982 to 2007, 25 years. Dow Theory states that a correction will be about a 33% correction in time and my own studies suggest it will not exceed 50%. Hence the correction will last until about 8 + 2007 = 2015.

So we can say that the US Stock Market (S&P, DJIA) will correct to around 2015. The question the becomes: what form will this correction take? Figure 2 shows the possibilities. We can either have a 1929 type correction or we can see a 1966 to 1982 type correction. The key indication of the correction's form will be whether or not we see a bull-conviction close above 894 (S&P, basis cash).

click here to read more...charts included.

By John C. Lee, greenfaucet.com

I got an e-mail regarding positions. I use the comments sections on my posts here to update them since there is no point in creating an entirely new post.

AgFeed Industries (NYSE: FEED) is my largest holding. I have not sold a single share.

Sirius (Nasdaq: SIRI), bought on 4/3 before my vacation, is up another 9%, after being up 8% yesterday. I am up 17% on SIRI.

I bought AMR (NYSE: AMR) at $5.07 yesterday. It's up 5%.

I also bought Google (Nasdaq: GOOG) before the close yesterday, at $371.35. It's also up 5%.

I am not selling anything.

* Market is forming an ascending triangle today, and an upside breakout is imminent.

By Ray Barros, greenfaucet.com

There has been a practice among less experienced traders to hold a long and short position without closing the position out. The idea is that the positions are hedged and the trader will lift one leg (usually the profitable one) and then seek to at least breakeven on the remaining open leg.

As far as I am concerned the moment you have a long and short of the same size in the same instrument you have closed out the position. When the trader purported to lift a leg, he was actually instituting a fresh position on the purported close out.

For example a trader buys and sells 1 June contract at 300. The market moves to 310 and the trader purports to lift the long leg at 310. When the market moves down to 300, he ‘closes the short leg' at 300 for no loss and a profit of $10.00 on the position.

That's the fiction. The reality is the first hedge is a close out. The sell at 310 is a new short that makes $10.00 at the 300 buy.

Well folks, on April 15 a new ruling by National Futures Association comes into effect - New Compliance Rule 2-43(b) - that effectively prohibits the practice of hedging. In short if you go long and short at the same time, you will have no position.

For those that are unaware, The NFA now regulates US brokers and the CFTC is responsible for regulating Forex trading. Between the two agencies, Forex brokers are now regulated entities in the USA. Now if only the US would provide compulsory insurance for FX brokers....!