Nov. 27, 2007—House Financial Services Committee Chairman Barney Frank, D-Mass., has set a hearing for Dec. 6 to address H.R. 4178, the Emergency Mortgage Loan Modification Act, which was introduced recently by Rep. Mike Castle, R-Del.
H.R. 4178 would create a safe-harbor from legal liability for mortgage servicers that modify "at-risk" mortgage loans. This window, which would be set for six months, could help struggling homeowners avoid falling delinquent or into foreclosure by encouraging servicers to modify the terms of their loans.
This bill is the latest attempt to help calm the trouble in the subprime housing market. Recently, the House passed another bill, H.R. 3915, the Mortgage Reform and Anti-Predatory Lending Act of 2007. In a recent announcement regarding H.R. 4178, Castle maintains that the bill would help thousands of homeowners facing foreclosure in the immediate future.
http://www.nafcu.org/Template.cfm?Section=News&template=/contentManagement/contentDisplay.cfm&contentID=28679
Friday, November 30, 2007
Buy Countrywide now!
Sunday night I had this to say about Freddie Mac:
So we know FRE took conservative marks, and that a $5 billion preferred offering should be done this week, and the stock, at 26.47 doesn't reflect this upside....So why buy FRE? Let's look to Goldman, who downgraded FRE to see why...The beauty of Goldman is how they manage clients and their own money. So Goldman downgraded FRE. Big deal. At these prices the preferred will be a home run. And six months from now we'll hear how Goldman saved Freddie. Sort of like heating your house by throwing your furniture in the fireplace. I'd vote against their downgrade. And buy the stock
http://aaronandmoses.blogspot.com/2007/11/freddies-q3-transcript.html
The stock was at 26.47. It closed today at 35.07, a 33% move in a week. Did you miss that move? Then buy Countrywide (CFC 10.82) right now. It should trade at 14 next week.
And you'll get another 33% move in a week.
So we know FRE took conservative marks, and that a $5 billion preferred offering should be done this week, and the stock, at 26.47 doesn't reflect this upside....So why buy FRE? Let's look to Goldman, who downgraded FRE to see why...The beauty of Goldman is how they manage clients and their own money. So Goldman downgraded FRE. Big deal. At these prices the preferred will be a home run. And six months from now we'll hear how Goldman saved Freddie. Sort of like heating your house by throwing your furniture in the fireplace. I'd vote against their downgrade. And buy the stock
http://aaronandmoses.blogspot.com/2007/11/freddies-q3-transcript.html
The stock was at 26.47. It closed today at 35.07, a 33% move in a week. Did you miss that move? Then buy Countrywide (CFC 10.82) right now. It should trade at 14 next week.
And you'll get another 33% move in a week.
Hedge fund games
Some will ask, why are the hedge funds so concerned about keeping prices down? Because they engage in mark to myth accounting also, but they only do that at the end of the quarter.
Let me explain.
The swap positions, and shorting of the ABX, sub-primes, and derivative position values are not clearly defined. In a scary market, their marks won't be challenged. And that's nice if you are a short, and up huge.
You take the mark, book the profit on the phantom trade, when you could never cover your position at that price. And you take the 20% incentive fee. Nice work if you can get it.
Let me give you an example. Did you notice how Ambac Financial (ABK 27.73) traded today? That's the insurer, on Wednesday that William Ackman of Pershing Capital said he would personally make $400 million on if it goes bankrupt. The stock hit 30 today, and is still up over $4. Anyone calculate the value of that swap?
Now amplify that by all the "smart" hedge funds that are short. And now you know why the financials ramp, and they ramp huge.
Let me explain.
The swap positions, and shorting of the ABX, sub-primes, and derivative position values are not clearly defined. In a scary market, their marks won't be challenged. And that's nice if you are a short, and up huge.
You take the mark, book the profit on the phantom trade, when you could never cover your position at that price. And you take the 20% incentive fee. Nice work if you can get it.
Let me give you an example. Did you notice how Ambac Financial (ABK 27.73) traded today? That's the insurer, on Wednesday that William Ackman of Pershing Capital said he would personally make $400 million on if it goes bankrupt. The stock hit 30 today, and is still up over $4. Anyone calculate the value of that swap?
Now amplify that by all the "smart" hedge funds that are short. And now you know why the financials ramp, and they ramp huge.
Market in a tizzy over "bailout"
Why do people "care" so much about extending the teaser rates on mortgages? It's because of the lost profit opportunity that a housing collapse would give to the bears. So they show their outrage. But let's look at the shenanigans in today's market.
We had a big gap opening, and then a small sell-off in the NASDAQ numbers. Big deal. The catalyst was a Piper analyst lowering estimates on Research in Motion (RIMM 113), down 9 points on the day. He's the same analyst that bumped numbers last week from 3.15 to 3.30; now his "channel checks" indicate he should tweak his numbers to 3.26 from 3.30.
Goldman Sachs jumped in and put a sell call on some tech and material stocks. Puzzled by this? You shouldn't be. Goldman downgraded the financials last week, and now they are screaming higher. Anyone remember that? Or does anyone remember the $2 trillion contraction in lending that was supposed to take place from the sub-prime and balance sheet fallout?
Next week no-one will remember Goldman's call.
Except for those that sold.
Don't sweat the background noise, just use the pullback to buy the financials if you haven't taken a position in them yet. It will take forever and a day for the shorts to cover, and they won't. They'll cling to the hope that things will get worse. They screamed Armageddon; it got priced into the stocks, now they're hoping they can cover lower?
It won't happen.
Wamu (WM) is giving buyers another chance to pick it up here at 19.28. Fannie Mae, (FNM 35.92) which has already bounced 8 points from where I advertised it last week will have a 40 handle by Tuesday and Freddie Mac, (FRE 32.81) which has moved 7 points since I advertised it last week, has another quick 5 points in it, and in a hurry, and CIT group (CIT 26.46) should print 30+ by Tuesday, and all of these stocks should gap higher on Monday.
The analysts are still pushing their spreadsheets and nonsense to the gullible, because Wall Street is not positioned for this rally.
And now, you get a V-ramp rally in the financials, like we had in the market.
We had a big gap opening, and then a small sell-off in the NASDAQ numbers. Big deal. The catalyst was a Piper analyst lowering estimates on Research in Motion (RIMM 113), down 9 points on the day. He's the same analyst that bumped numbers last week from 3.15 to 3.30; now his "channel checks" indicate he should tweak his numbers to 3.26 from 3.30.
Goldman Sachs jumped in and put a sell call on some tech and material stocks. Puzzled by this? You shouldn't be. Goldman downgraded the financials last week, and now they are screaming higher. Anyone remember that? Or does anyone remember the $2 trillion contraction in lending that was supposed to take place from the sub-prime and balance sheet fallout?
Next week no-one will remember Goldman's call.
Except for those that sold.
Don't sweat the background noise, just use the pullback to buy the financials if you haven't taken a position in them yet. It will take forever and a day for the shorts to cover, and they won't. They'll cling to the hope that things will get worse. They screamed Armageddon; it got priced into the stocks, now they're hoping they can cover lower?
It won't happen.
Wamu (WM) is giving buyers another chance to pick it up here at 19.28. Fannie Mae, (FNM 35.92) which has already bounced 8 points from where I advertised it last week will have a 40 handle by Tuesday and Freddie Mac, (FRE 32.81) which has moved 7 points since I advertised it last week, has another quick 5 points in it, and in a hurry, and CIT group (CIT 26.46) should print 30+ by Tuesday, and all of these stocks should gap higher on Monday.
The analysts are still pushing their spreadsheets and nonsense to the gullible, because Wall Street is not positioned for this rally.
And now, you get a V-ramp rally in the financials, like we had in the market.
The Bear's foundation crumbles
hysteria: unmanageable fear, the lose of self-control by overwhelming fear.
Where did the hysterical bears go? They didn't go anywhere! They just switched topics to be hysterical about! How ironic is that? They tried their best to inject fear and loathing into the market, and some probably believed their own hype. But now the bears are hysterical. Hysterical about their bets on housing Armageddon!
Whoops! I don't think the bears expected this! Oil prices down, with bigger interest rate cuts coming from the Fed. Housing and financials were the bear's argument. They're gone. The Fed, by aggressively cutting solves these problems, and by holding the rates on mortgage resets, that inventory is kept off the market. Which means a hysterical scramble by the bears in covering the shorts they've laid out on the financials, and the mortgage insurers.
And the shorting in these stocks is off the charts. Maybe that's why I've been recommending them when they were playing these games. Use rumor and innuendo, with a mixture of yellow journalism that even Hearst would of been proud of to hustle these stocks down.
That game is over. It's time to pick up the pieces. And it will take time for many of these shorts to recognize the folly of holding their positions. But the market will not give them time. It's giving the bears a V shaped rally. So they buy the futures, and the ETF's and then try and bring in some of their names.
And it will happen at much higher levels.
And Mr. Ackman's bet? It had a shelf life of two days. Like Ms. Whitney's call that Citigroup "would 100% cut their dividend." Or Goldman's cut of Freddie Mac or Fannie Mae. I'm only harping on these calls because I want to expose the nonsense that happens in the market at turning points.
So the next time, when they trot these highly paid shills out, you will understand it's just a highly paid shill's opinion.
That was wrong.
Where did the hysterical bears go? They didn't go anywhere! They just switched topics to be hysterical about! How ironic is that? They tried their best to inject fear and loathing into the market, and some probably believed their own hype. But now the bears are hysterical. Hysterical about their bets on housing Armageddon!
Whoops! I don't think the bears expected this! Oil prices down, with bigger interest rate cuts coming from the Fed. Housing and financials were the bear's argument. They're gone. The Fed, by aggressively cutting solves these problems, and by holding the rates on mortgage resets, that inventory is kept off the market. Which means a hysterical scramble by the bears in covering the shorts they've laid out on the financials, and the mortgage insurers.
And the shorting in these stocks is off the charts. Maybe that's why I've been recommending them when they were playing these games. Use rumor and innuendo, with a mixture of yellow journalism that even Hearst would of been proud of to hustle these stocks down.
That game is over. It's time to pick up the pieces. And it will take time for many of these shorts to recognize the folly of holding their positions. But the market will not give them time. It's giving the bears a V shaped rally. So they buy the futures, and the ETF's and then try and bring in some of their names.
And it will happen at much higher levels.
And Mr. Ackman's bet? It had a shelf life of two days. Like Ms. Whitney's call that Citigroup "would 100% cut their dividend." Or Goldman's cut of Freddie Mac or Fannie Mae. I'm only harping on these calls because I want to expose the nonsense that happens in the market at turning points.
So the next time, when they trot these highly paid shills out, you will understand it's just a highly paid shill's opinion.
That was wrong.
Hype: A definition
Hype: an ingenious or questionable claim, method, used in promotion, or publicity to intensify the effect.
And that is what has happened in sub-prime and asset backed. "Everyone" knows "somebody" that has real estate problems. So take that common knowledge, and distort it to your advantage. Short the banks, buy your swaps, and spread innuendo about the banks and brokerages who were careless in their inventory. And that's the recipe given by the short and underinvested hedge funds in the market. The brokerage firms, who have gagged on, and then written down their own inventory are also complicit, as "they" know somebody else in the industry with the same pricing problems. So they react recklessly in their downgrades, which are at best misleading and superficial. If you follow these pied pipers you won't make any money. You'll lose it.
The government's bully pulpit of moral suasion will be used to keep people in their homes, without an increase in interest rate resets. These homes, are not coming on the market. You will be led to believe by some commentators that every home bought after 2005 is a liability on a bank's balnce sheet. That is just stupid. If you want to be stupid, you can believe that, and invest that way. You had billionaire William Ackman tell the world, how smart he was, and how he would profit by the demise of the mortgage insurers. Follow him, if you want to follow another pied piper. He's wrong. Why did Citadel invest in E*Trade? Did he have magnanimous intentions, or did he want to profit at their misfortune?
Wall Street uses their capital to prey on the weak, and it operates best in the fields that are most opaque. We are led to believe that these securities are so complex that no-one can understand them, or price them. What hogwash. The buyers don't want transparency, because they wouldn't be able to buy this merchandise at such low prices if they had a price discovery mechanism. And a mark-down is easier than an actual sale. But it will cause the stock to go down, and they'll sell a preferred for capital at rates and conversions that guarantee wonderful profits to the buyers. And the buyers will be lauded for "saving" the system. Like protesters who "save" the earth.
Is pricing in housing at a bottom? Do you know anybody buying a home? Most don't. They are worried and fearful. Fearful of what? Making a deal at a discounted rate? Citadel was able to buy E*Trade's portfolio because E*Trade was fearful of the unknown. Would clients leave? Would our HELOC portfolio blow up? So sell it a big discount. Housing buyers can buy at a big discount now. But few do. But are the big owners of housing inventory, the banks, being less aggressive on pricing because they see the coming rate cuts? They are, but it's at the smallest of margins, as is the slowing foreclosure rate. But this anecdote, will be dismissed by those who preach doom, gloom and Armageddon, which last I looked, only happens after the 1000 year reign of the Messiah when the lions lie down with the lambs. The bears on this market have such blinders on they'd probably miss that too!
Investing, like home buying is about price. The lows on this market were Monday. Get used to it. You won't see those prices again. But the economy won't rebound for probably another six months. But the stocks will, as they have already discounted this news. It's the same in housing. We'll probably start getting a recovery in the South, and the rest of the nation will start to thaw out in the Spring selling season, but the lowest prices can be attained now, when there is so much uncertainty about the future. Today's homeowners are looking for a buyer. But that buyer, will make money at these discounted prices, because of the anxiety of the homeowners unknowns. Which means all this hugely discounted paper that Wall street is screaming to sell, is in fact a buy.
But most people find it easier just to believe the hype.
And that is what has happened in sub-prime and asset backed. "Everyone" knows "somebody" that has real estate problems. So take that common knowledge, and distort it to your advantage. Short the banks, buy your swaps, and spread innuendo about the banks and brokerages who were careless in their inventory. And that's the recipe given by the short and underinvested hedge funds in the market. The brokerage firms, who have gagged on, and then written down their own inventory are also complicit, as "they" know somebody else in the industry with the same pricing problems. So they react recklessly in their downgrades, which are at best misleading and superficial. If you follow these pied pipers you won't make any money. You'll lose it.
The government's bully pulpit of moral suasion will be used to keep people in their homes, without an increase in interest rate resets. These homes, are not coming on the market. You will be led to believe by some commentators that every home bought after 2005 is a liability on a bank's balnce sheet. That is just stupid. If you want to be stupid, you can believe that, and invest that way. You had billionaire William Ackman tell the world, how smart he was, and how he would profit by the demise of the mortgage insurers. Follow him, if you want to follow another pied piper. He's wrong. Why did Citadel invest in E*Trade? Did he have magnanimous intentions, or did he want to profit at their misfortune?
Wall Street uses their capital to prey on the weak, and it operates best in the fields that are most opaque. We are led to believe that these securities are so complex that no-one can understand them, or price them. What hogwash. The buyers don't want transparency, because they wouldn't be able to buy this merchandise at such low prices if they had a price discovery mechanism. And a mark-down is easier than an actual sale. But it will cause the stock to go down, and they'll sell a preferred for capital at rates and conversions that guarantee wonderful profits to the buyers. And the buyers will be lauded for "saving" the system. Like protesters who "save" the earth.
Is pricing in housing at a bottom? Do you know anybody buying a home? Most don't. They are worried and fearful. Fearful of what? Making a deal at a discounted rate? Citadel was able to buy E*Trade's portfolio because E*Trade was fearful of the unknown. Would clients leave? Would our HELOC portfolio blow up? So sell it a big discount. Housing buyers can buy at a big discount now. But few do. But are the big owners of housing inventory, the banks, being less aggressive on pricing because they see the coming rate cuts? They are, but it's at the smallest of margins, as is the slowing foreclosure rate. But this anecdote, will be dismissed by those who preach doom, gloom and Armageddon, which last I looked, only happens after the 1000 year reign of the Messiah when the lions lie down with the lambs. The bears on this market have such blinders on they'd probably miss that too!
Investing, like home buying is about price. The lows on this market were Monday. Get used to it. You won't see those prices again. But the economy won't rebound for probably another six months. But the stocks will, as they have already discounted this news. It's the same in housing. We'll probably start getting a recovery in the South, and the rest of the nation will start to thaw out in the Spring selling season, but the lowest prices can be attained now, when there is so much uncertainty about the future. Today's homeowners are looking for a buyer. But that buyer, will make money at these discounted prices, because of the anxiety of the homeowners unknowns. Which means all this hugely discounted paper that Wall street is screaming to sell, is in fact a buy.
But most people find it easier just to believe the hype.
Thursday, November 29, 2007
"Fed will remain exceptionally alert and flexible"
Bernanke's speech tonight indicates that the December 11 cut will be a minimum of 50 basis points. I now say that it is between a 50 or a 75 basis point cut, because 75 basis points is exceptional, while 50 basis points is flexible.
At least in my dictionary.
At least in my dictionary.
Sears and Ackman
I'd assume Pershing Square is going to get even a bit more publicity the next few days. Yesterday William Ackman announced on CNBC that he would donate his future share of his bet winnings against the mortgage insurers to charity. I'd like to see a ton of money go to The Robin Hood Foundation, but the merry men at Pershing would be better off picking up more shares of Sears, than picking on the mortgage insurers.
Intellectually their argument is sound, except for one caveat. What happens if housing prices stabilize and start going up? Mr. Ackman assumes that by next June, Ambac Financial (ABK 23.41) will be broke. So how is it, that a billionaire can give money to the Pershing Square Foundation and be lauded? His bet only pays off if the poor and sub-prime are displaced, and home values continue their spiral downwards, affecting millions more than his contribution to the charities would benefit. I want the other side.
ABK's stock price looks to me like it has hit a double bottom. Mortgage assets are long tail, and hedge funds are notoriously fickle and short term orientated. Mr. Ackman's firm, which picked up 5 million shares of Sears last quarter at about $140 a share has stated that Sears assets are worth well in excess of $200 a share. I wouldn't be surprised if he picked up more shares of Sears at 104. He also owns a slug of Target and has been agitating for changes there.
He owns Sears and guess it's worth $220 or so. He wants Target to change. Personally, I've never had a bad retail experience at Target. It looks like to me he publicly defends his positions. But why own retail if housing is going to hell in a handbasket? Does that make sense? Neither does his bet, or the publicity surrounding it.
But then, again I liked the Sermon on the Mount:
"So when you give to the poor, do not sound a trumpet before you, as the hypocrites do in the synagogues and in the streets, so that they may be honored by men. Truly I say to you, they have their reward in full. But when you give to the poor, do not let your left hand know what your right hand is doing."
Intellectually their argument is sound, except for one caveat. What happens if housing prices stabilize and start going up? Mr. Ackman assumes that by next June, Ambac Financial (ABK 23.41) will be broke. So how is it, that a billionaire can give money to the Pershing Square Foundation and be lauded? His bet only pays off if the poor and sub-prime are displaced, and home values continue their spiral downwards, affecting millions more than his contribution to the charities would benefit. I want the other side.
ABK's stock price looks to me like it has hit a double bottom. Mortgage assets are long tail, and hedge funds are notoriously fickle and short term orientated. Mr. Ackman's firm, which picked up 5 million shares of Sears last quarter at about $140 a share has stated that Sears assets are worth well in excess of $200 a share. I wouldn't be surprised if he picked up more shares of Sears at 104. He also owns a slug of Target and has been agitating for changes there.
He owns Sears and guess it's worth $220 or so. He wants Target to change. Personally, I've never had a bad retail experience at Target. It looks like to me he publicly defends his positions. But why own retail if housing is going to hell in a handbasket? Does that make sense? Neither does his bet, or the publicity surrounding it.
But then, again I liked the Sermon on the Mount:
"So when you give to the poor, do not sound a trumpet before you, as the hypocrites do in the synagogues and in the streets, so that they may be honored by men. Truly I say to you, they have their reward in full. But when you give to the poor, do not let your left hand know what your right hand is doing."
ETFC worth a shot here
At $4.81, it's down from the $6.97 pre-market high, and the $6.04 high in today's market. Buy it and flip it in pre-market tomorrow.
It's your daily manna.
It's your daily manna.
Tomorrow's news today
Last night I had this to say about FCX:
FCX (93.91) which I've been pounding the table with, was accumulated all day today at 91, and it finally ran an hour before the close up $4.63 on the day. Today was designed to frustrate the holder of FCX stock. When the market ramps, the traders go with the stock that is moving. Tomorrow it will be easy. The stock should trade above 99, with a seven point range on the stock. If it opens down, grab it; it should be easy money.
http://aaronandmoses.blogspot.com/2007/11/freeport-ready-to-rock.html
Will it follow the script? It was down to 92.26, and traded up to 98.17. I just need another point on the upside. And if FCX ramps, then so should ACH. The weakness in commodity prices was a function of recessionary fears and NYMEX lowering the spot month position limits on copper futures to 350 from 400 contracts.
Now I think ACH goes to 62, and it does it by Tuesday. You have the bears pressing the market attempting to contain it at these levels. Bernanke speaks tonight, and he'll be supportive of lower rates. And that should help the overseas market, which in turn will help ours tomorrow. And ACH, should be a beneficiary of a non-recessionary viewpoint.
At least that's how I see it.
But then, some of you may not want tomorrow's paper today.
FCX (93.91) which I've been pounding the table with, was accumulated all day today at 91, and it finally ran an hour before the close up $4.63 on the day. Today was designed to frustrate the holder of FCX stock. When the market ramps, the traders go with the stock that is moving. Tomorrow it will be easy. The stock should trade above 99, with a seven point range on the stock. If it opens down, grab it; it should be easy money.
http://aaronandmoses.blogspot.com/2007/11/freeport-ready-to-rock.html
Will it follow the script? It was down to 92.26, and traded up to 98.17. I just need another point on the upside. And if FCX ramps, then so should ACH. The weakness in commodity prices was a function of recessionary fears and NYMEX lowering the spot month position limits on copper futures to 350 from 400 contracts.
Now I think ACH goes to 62, and it does it by Tuesday. You have the bears pressing the market attempting to contain it at these levels. Bernanke speaks tonight, and he'll be supportive of lower rates. And that should help the overseas market, which in turn will help ours tomorrow. And ACH, should be a beneficiary of a non-recessionary viewpoint.
At least that's how I see it.
But then, some of you may not want tomorrow's paper today.
Florida State Investment Pool
Florida halted withdrawals from their state-run investment pools after $10 billion was yanked by local governments, or about 40% of assets.
In credit land, everyone is still jumpy. Look for the bears to run with this.
In credit land, everyone is still jumpy. Look for the bears to run with this.
Weeee for the Wii
Nintendo (NTDOY) sold 650,000 Wii's last week, and 650,000 Wii's in the US the last two weeks.
Aluminum Co. of China
ACH (55.75) looks ready to move. China looks like it bottomed yesterday. Knowing that the Fed will cut will start to put the recession comments on hold. Just a few days ago China blamed the US for it's weakness. The US market rallied, and I think China rallies from here, and the volatility premium on the calls on ACH have come out significantly.
Sears buyback
Sears spent $900 million buying back 6.7 million shares at an average price of $131.72 for the quarter. So you get it $30 cheaper than what Eddie Lambert did the buyback.
Sears bombs earning
I didn't think that was going to happen. But at 101, where it's trading at pre-market, I'm a buyer.
E*Trade gets $2.5 Billion
Citadel antes up the coin, and E*Trade's (EFTC 5.28) CEO Mitch Caplan is gone. Remember the analysts saying E*Trade was toxic? Jim Cramer had this to say about E*trade yesterday:Purchased HELOC, home equity loans bought, is the most dangerous kind of business, one that Wells Fargo which prides itself on rigorous lending, should never have participated inThis is also the paper that E*trade has in abundance. In fact purchased HELOC is what I think will make it so E*Trade has an awfully hard time surviving.
It took just a day for E*trade to survive.
But don't miss this big picture. This distressed debt was purchased because Citadel thinks it is at a bottom. So go buy Washington Mutual (WM 18.31) and CITI group (26.24). These stocks were also panned by Cramer-but if they had the same "stuff" as E*Trade, then they'll get a reprieve also. (I'm not saying they have the same assets. I'm saying you have to think like Wall Street, so you can trade off of what they are thinking.) And at these prices, the news is already reflected in their prices.
And they can thank the sovereign oil money "threat" from making Citadel to act so quickly.
So when the bears come out today with the "Bridgewater" report, dismiss it. Ignore it. Remember how Wall Street works. If they thought these financials were over-priced why put out a report? Unless you already are short. Which they are. And they need them to come in. Which they are not.
So position yourself to make money, and disregard Wall Street's "agenda."
Wednesday, November 28, 2007
More hysterics in WaMu short land
Yesterday it was Meredith Whitney of CIBC and her nonsense saying there was a 100% chance that Citi would cut it's dividend. I neglected to mention Herb Greenberg of CBS MarketWatch and CNBC contributor. Here's what he said:
Wells Fargo just took a $1.4 billion charge on $11.9 billion of home equity exposure. That’s a 12% cumulative loss rate! If you used that as a read across for Washington Mutual’s $59 billion home equity book it would imply a charge of $7 billion!! Total reserves are $1.9 billion.... While it may appear that this is an apples to oranges comparison, Wells is considered a much higher quality home-equity lender. These numbers used by the analyst assume that much of Wamu’s home equity portfolio could be comparable to the $11.9 billion that Wells Fargo identified as its “highest risk” loans.
Now yesterday, WFC traded down to 28.55 in the after-hours when they reported their loss. It closed today at 30.72. Now let's take a look at the facts. Here's WFC's press release:
While the $11.9 billion of loans in this liquidating portfolio constituted only about 3% of Wells Fargo's total loans outstanding as of September 30, 2007, the loans represent the highest risk in the Company's $83.4 billion National Home Equity Group portfolio.
So WFC had a $1.4 billion charge-off out of $83.4 billion of loans, and the loans with the highest risk were segregated. So the charge-off rate is 1.67%. (1.4/83.4) Washington Mutual has a $59 billion home equity portfolio. A 1.67% charge off would be $985 million, ($59 billion x 1.67%) and WM has reserves of $1.9 billion, double the expected charge-off.
But Mr. Greenberg and Ms. Whitney are interested in publicity, ratings, and viewers; in their dictionary hysteria and disinformation is called moxie. You can call it what you want. I'll just call it as I see it. And here's how you can make some money off of it.
Buy Washington Mutual (WM 18.31). There are 63 million shares short, and they are desperate enough to spread false information. This stock was at 36 five weeks ago. Now you want to yell fire in a crowded theatre?
I highlighted the nonsense with Fannie Mae and Freddie Mac. Do you think their agenda is any different with WaMu? If you don't want to buy the stock, pick up some cheap call options.
Before someone decides to buy the company and put the shorts, and their hysterics to bed.
Wells Fargo just took a $1.4 billion charge on $11.9 billion of home equity exposure. That’s a 12% cumulative loss rate! If you used that as a read across for Washington Mutual’s $59 billion home equity book it would imply a charge of $7 billion!! Total reserves are $1.9 billion.... While it may appear that this is an apples to oranges comparison, Wells is considered a much higher quality home-equity lender. These numbers used by the analyst assume that much of Wamu’s home equity portfolio could be comparable to the $11.9 billion that Wells Fargo identified as its “highest risk” loans.
Now yesterday, WFC traded down to 28.55 in the after-hours when they reported their loss. It closed today at 30.72. Now let's take a look at the facts. Here's WFC's press release:
While the $11.9 billion of loans in this liquidating portfolio constituted only about 3% of Wells Fargo's total loans outstanding as of September 30, 2007, the loans represent the highest risk in the Company's $83.4 billion National Home Equity Group portfolio.
So WFC had a $1.4 billion charge-off out of $83.4 billion of loans, and the loans with the highest risk were segregated. So the charge-off rate is 1.67%. (1.4/83.4) Washington Mutual has a $59 billion home equity portfolio. A 1.67% charge off would be $985 million, ($59 billion x 1.67%) and WM has reserves of $1.9 billion, double the expected charge-off.
But Mr. Greenberg and Ms. Whitney are interested in publicity, ratings, and viewers; in their dictionary hysteria and disinformation is called moxie. You can call it what you want. I'll just call it as I see it. And here's how you can make some money off of it.
Buy Washington Mutual (WM 18.31). There are 63 million shares short, and they are desperate enough to spread false information. This stock was at 36 five weeks ago. Now you want to yell fire in a crowded theatre?
I highlighted the nonsense with Fannie Mae and Freddie Mac. Do you think their agenda is any different with WaMu? If you don't want to buy the stock, pick up some cheap call options.
Before someone decides to buy the company and put the shorts, and their hysterics to bed.
BIDU 367 up $26! As advertised!
It's easy to shoot your mouth off when we've had a big day, but the surgeons on BIDU did their best to frustrate holders. Not here. Monday I had this to say:
BIDU at 323 is up $14 today, while Google has added 60 points since November option expiration. China looks poised to bounce, so it may be time for traders to start flipping BIDU again.
You had 44 points, I hope you got some of it. Now the smaller cap Chinese stocks are set to move, as the market has sufficiently frustrated those holders, who have an average attention span of a three year old child.
BIDU at 323 is up $14 today, while Google has added 60 points since November option expiration. China looks poised to bounce, so it may be time for traders to start flipping BIDU again.
You had 44 points, I hope you got some of it. Now the smaller cap Chinese stocks are set to move, as the market has sufficiently frustrated those holders, who have an average attention span of a three year old child.
Freeport ready to rock!
FCX (93.91) which I've been pounding the table with, was accumulated all day today at 91, and it finally ran an hour before the close up $4.63 on the day. Today was designed to frustrate the holder of FCX stock. When the market ramps, the traders go with the stock that is moving. Tomorrow it will be easy. The stock should trade above 99, with a seven point range on the stock. If it opens down, grab it; it should be easy money.
JCP and SHLD
I touted these as two cheap retail stocks Sunday night:
Look at JCPenney (JCP 41.30) and Sears (SHLD 112.58). Both stocks are within two points of their yearly low, and at these levels, all the bad news is already priced into the stocks. JCP can tack on 10, and SHLD can add 20 points by Christmas.
SHLD hit a high of 118.24,and closed at 116.20 and JCP closed at 43.53. But think about this. Sears reports earnings tomorrow. Estimates are near .36-50 cents, and Eddie keeps things close to the vest, so Wall Street will be kept guessing. But SHLD has been trying to buy Restoration Hardware. Would Eddie be buying them if earnings were going to be in the toilet?
And Sears, which owns K-Mart whose average customer has a slightly lower income level, is the part of Sears that Wall Street has had a beef with. JCPenney has been revamped, but it is grouped at the Sears "category" by Wall Street. That's why they were mentioned together. If Sears earnings are good, it will pop along with JCP.
Look at JCPenney (JCP 41.30) and Sears (SHLD 112.58). Both stocks are within two points of their yearly low, and at these levels, all the bad news is already priced into the stocks. JCP can tack on 10, and SHLD can add 20 points by Christmas.
SHLD hit a high of 118.24,and closed at 116.20 and JCP closed at 43.53. But think about this. Sears reports earnings tomorrow. Estimates are near .36-50 cents, and Eddie keeps things close to the vest, so Wall Street will be kept guessing. But SHLD has been trying to buy Restoration Hardware. Would Eddie be buying them if earnings were going to be in the toilet?
And Sears, which owns K-Mart whose average customer has a slightly lower income level, is the part of Sears that Wall Street has had a beef with. JCPenney has been revamped, but it is grouped at the Sears "category" by Wall Street. That's why they were mentioned together. If Sears earnings are good, it will pop along with JCP.
Where are the Citigroup sellers?
Yesterday I was surprised by the mysterious low prints in C at 30.33 after they got the $7.5 billion. We all know the story, as I went on and on about it but what happened today? It closed at 32.35 up $2.03. Where did the sellers go?
They were covering their shorts! Which is why I said this:
Citigroup should not be trading at 30.33 premarket. Take some stock from the bears that are sacrificing shares at these levels, in an attempt to "game" the news. You have a free point off of their shenanigans.
It should of given you the "free" money yesterday. Instead it gave you a couple of points today, when the shorts decided to eat their young.
They were covering their shorts! Which is why I said this:
Citigroup should not be trading at 30.33 premarket. Take some stock from the bears that are sacrificing shares at these levels, in an attempt to "game" the news. You have a free point off of their shenanigans.
It should of given you the "free" money yesterday. Instead it gave you a couple of points today, when the shorts decided to eat their young.
Buy the cable stocks
ComCast (CMSCA 19.85) has bottomed right here. Look for someone to say that with lower gas prices, Joe Sixpack will get his cable turned back on. And then look for EchoStar (Dish 42.72) to heat up on takeover rumors again by AT&T. AT&T's ardor will be re-ignited with the strength of the stock market, and with the FCC backing off of the cable companies, look for an analyst to use that for an excuse to upgrade CMSCA.
An explanation
I just had to pretend I was working at CIBC and be very self -promotional. Maybe I could cover Citigroup? The point is, this has been a difficult market, and only in a difficult, very heavily shorted market, can analyst opinions have such a pronounced effect on stock prices. So I had to advertise the nonsense that Wall Street spews and how you can make money off of it.
The action today should alert market players to the amount of pessimism and shorting that is out there. Hedge funds have a very low exposure to stocks, and Wall Street has it's hands full of mortgage inventory, so they are thin on stock exposure. So the market ramps, and ramps hard.
Now you know why Wall Street was so hysterical about the financials. They needed stock prices lower. But this news isn't after the fact. I wrote about it here.
Reread my story on FRE. And then, let's see if Goldman was being just a bit disingenuous.
http://aaronandmoses.blogspot.com/2007/11/freddies-q3-transcript.html
The beauty of Goldman is how they manage clients and their own money. So Goldman downgraded FRE. Big deal. At these prices the preferred will be a home run. And six months from now we'll hear how Goldman saved Freddie. Sort of like heating your house by throwing your furniture in the fireplace.
I'd vote against their downgrade. And buy the stock.
Remember Goldman's downgrades of C and FNM?
http://aaronandmoses.blogspot.com/2007/11/fnm-as-advertised.html
But Goldman Sachs is doing their best to panic financial holders. Downgrading the financials at the bottom like C and FNM, and yelling fire in the crowded sub-prime theater. Buy them, when Goldman screams. They are the ones that need to cover their shorts.
Maybe their trading agenda is different from the reality facing the marketplace. It might be getting a tad crowded, especially since Paulson, one of the largest shorts is looking to go long. And if you don't know what his track record is, you shouldn't be listening to the drivel that the brokerage firms are spouting.
Did you listen to their drivel? Or did you get sucked in by their agenda? Now I also mentioned Paulson. And I wasn't talking about Treasury Secretary Hank. But Paulson Credit Opportunities Fund.
http://www.1440wallstreet.com/index.php/site/comments/
paulson_credit_opportunities_fund_up_690_ytd/
Paulson’s Credit Opportunities fund has made a gross return of 690% and a net return, after fees, of 551% for the first 10 months of the year, according to a source close to the firm. The firm’s Credit Opportunities II fund has made a gross return of 410% and a net 328%. Paulson’s assets under management have mushroomed from $6 billion in January to nearly $28 billion, and the firm is close to cracking the top 10 in hedge fund land, at least in AUM. It is hard to see their performance being much better. I am assuming they are number one, a remarkable feat for such a large fund.
The action today should alert market players to the amount of pessimism and shorting that is out there. Hedge funds have a very low exposure to stocks, and Wall Street has it's hands full of mortgage inventory, so they are thin on stock exposure. So the market ramps, and ramps hard.
Now you know why Wall Street was so hysterical about the financials. They needed stock prices lower. But this news isn't after the fact. I wrote about it here.
Reread my story on FRE. And then, let's see if Goldman was being just a bit disingenuous.
http://aaronandmoses.blogspot.com/2007/11/freddies-q3-transcript.html
The beauty of Goldman is how they manage clients and their own money. So Goldman downgraded FRE. Big deal. At these prices the preferred will be a home run. And six months from now we'll hear how Goldman saved Freddie. Sort of like heating your house by throwing your furniture in the fireplace.
I'd vote against their downgrade. And buy the stock.
Remember Goldman's downgrades of C and FNM?
http://aaronandmoses.blogspot.com/2007/11/fnm-as-advertised.html
But Goldman Sachs is doing their best to panic financial holders. Downgrading the financials at the bottom like C and FNM, and yelling fire in the crowded sub-prime theater. Buy them, when Goldman screams. They are the ones that need to cover their shorts.
Maybe their trading agenda is different from the reality facing the marketplace. It might be getting a tad crowded, especially since Paulson, one of the largest shorts is looking to go long. And if you don't know what his track record is, you shouldn't be listening to the drivel that the brokerage firms are spouting.
Did you listen to their drivel? Or did you get sucked in by their agenda? Now I also mentioned Paulson. And I wasn't talking about Treasury Secretary Hank. But Paulson Credit Opportunities Fund.
http://www.1440wallstreet.com/index.php/site/comments/
paulson_credit_opportunities_fund_up_690_ytd/
Paulson’s Credit Opportunities fund has made a gross return of 690% and a net return, after fees, of 551% for the first 10 months of the year, according to a source close to the firm. The firm’s Credit Opportunities II fund has made a gross return of 410% and a net 328%. Paulson’s assets under management have mushroomed from $6 billion in January to nearly $28 billion, and the firm is close to cracking the top 10 in hedge fund land, at least in AUM. It is hard to see their performance being much better. I am assuming they are number one, a remarkable feat for such a large fund.
The elephants move the market, and you need to know what the elephants are doing. And the elephants that were short, want to bring in their bets.
WFR ramps! As advertised!
Monday I advertised MEMC:
http://aaronandmoses.blogspot.com/2007/11/memc-is-ready-to-move.html
WFR (67.85), is now ready to move higher as a play on solar. Should go to 72-73 this week.
As advertised!
http://aaronandmoses.blogspot.com/2007/11/memc-is-ready-to-move.html
WFR (67.85), is now ready to move higher as a play on solar. Should go to 72-73 this week.
As advertised!
AIG ramps! As advertised!
Freddie Ramps! As advertised
Freddie Mac traded down to 25.5 late yesterday on the news of the dividendend cut an dthe preferred. What's the stock doing today. Up 4 dollars!
http://aaronandmoses.blogspot.com/2007/11/fre-options-are-worth-shot.html
Freddie Mac (FRE 26) options are a good spec at these levels. FNM is starting to bounce, and speculators will play a bounce in FRE with options. The stock was already downgraded by Goldman Sachs today and it seems to have found cautious buyers at these levels.
http://aaronandmoses.blogspot.com/2007/11/fre-options-are-worth-shot.html
Freddie Mac (FRE 26) options are a good spec at these levels. FNM is starting to bounce, and speculators will play a bounce in FRE with options. The stock was already downgraded by Goldman Sachs today and it seems to have found cautious buyers at these levels.
Kohn's comments
The Fed gave the blink that the market wanted. Increased turbulence... tightening in households... business investment and housing worse... markets have taken back some of the easing with the deterioration in credit conditions...no moral hazard... policy needs to be nimble, and pragmatic...
So the Fed eases.
Maybe now we can mothball some of these publicity seeking bears, who want attention more than they want to be right.
So the Fed eases.
Maybe now we can mothball some of these publicity seeking bears, who want attention more than they want to be right.
Buy CSCO and MSFT
Cisco (CSCO 27.49) and Microsoft (MSFT 33.06) were sources of funds for those who needed cash raised and in a hurry. That pressure is now over, and outsized gains can be made in both these numbers, from these levels, right now.
Sovereign wealth "put" and the Fed
When private equity was trolling the market looking for stocks, it emboldened buyers. Now the bears have to contend with the sovereign wealth funds cash checkbook. And the bears don't have enough powder for that.
Yesterday, when Citigroup got their $7.5 billion of cash, the naysayers came out in full force. They trotted out Meredith Whitney of CIBC again, who said there was a "100% chance" the Citigroup would cut it's dividend. Oh. And that's analysis? That isn't research. That is an opinion with nothing value-added to it.
We also had "analysts" worried about the 11% rate that Citi paid. C closed at 30.32, and their dividend is 2.16, or 7.12%. According to The Daily Telegraph, 60% of the coupon is tax deductible. Why didn't anyone consider C's real cost of the funding? Because the bears weren't ready for the market to turn, and they weren't prepared for this news.
In today's WSJ, we see that BofA had some overtures with Citigroup about getting hitched. Now the bears have "headline" risk. Late yesterday, when Wells Fargo announced a $1.4 billion write-off in home equity loans, some clown sold the stock down to 28.55. This morning, it's almost a point higher. What happened to the bears "headline" risk?
This morning there was some intervention in the currency markets, as the dollar blasted quickly, activating those who buy stock programs that hit when our dollar strengthens. Then Kohn of the Fed came out and hinted that the Fed was going to cut the discount rate. Where's the bears Plosser now?
The bears, right now, are like "Oz" behind the curtain. And that's why they are huffing and puffing so much, because they haven't covered their shorts. And the markets are losing the depth that allows them to cover without it moving.
So the markets now have the Fed and sovereign wealth funds behind their back. And get prepared for another snap-back V-shaped rally.
Because that is what the least amount of people is prepared for.
Unless you read this blog.
Yesterday, when Citigroup got their $7.5 billion of cash, the naysayers came out in full force. They trotted out Meredith Whitney of CIBC again, who said there was a "100% chance" the Citigroup would cut it's dividend. Oh. And that's analysis? That isn't research. That is an opinion with nothing value-added to it.
We also had "analysts" worried about the 11% rate that Citi paid. C closed at 30.32, and their dividend is 2.16, or 7.12%. According to The Daily Telegraph, 60% of the coupon is tax deductible. Why didn't anyone consider C's real cost of the funding? Because the bears weren't ready for the market to turn, and they weren't prepared for this news.
In today's WSJ, we see that BofA had some overtures with Citigroup about getting hitched. Now the bears have "headline" risk. Late yesterday, when Wells Fargo announced a $1.4 billion write-off in home equity loans, some clown sold the stock down to 28.55. This morning, it's almost a point higher. What happened to the bears "headline" risk?
This morning there was some intervention in the currency markets, as the dollar blasted quickly, activating those who buy stock programs that hit when our dollar strengthens. Then Kohn of the Fed came out and hinted that the Fed was going to cut the discount rate. Where's the bears Plosser now?
The bears, right now, are like "Oz" behind the curtain. And that's why they are huffing and puffing so much, because they haven't covered their shorts. And the markets are losing the depth that allows them to cover without it moving.
So the markets now have the Fed and sovereign wealth funds behind their back. And get prepared for another snap-back V-shaped rally.
Because that is what the least amount of people is prepared for.
Unless you read this blog.
Fedspeak
Non-voting member, Charles Plosser of the Fed had this to say today: "The rise in oil prices and the simultaneous increases in a broader basket of commodity prices suggest that significant inflationary pressures exist in the economy and thus the Fed must be very vigilant."
Which means he has no idea what he is talking about.
He didn't mention the deflation in home prices. Or that the quickest source of credit comes from sovereign wealth funds.
Ever watch Ronco products hawked on late night TV? The chicken broiler? "Just set it and forget it." That's the message of the Fed. When you hear this blabber, switch the channel.
"Set it and forget it."
Which means he has no idea what he is talking about.
He didn't mention the deflation in home prices. Or that the quickest source of credit comes from sovereign wealth funds.
Ever watch Ronco products hawked on late night TV? The chicken broiler? "Just set it and forget it." That's the message of the Fed. When you hear this blabber, switch the channel.
"Set it and forget it."
Tuesday, November 27, 2007
Is AIG next?
When Erin Burnett of CNBC was overseas, she was told that there was "three" Dow deals being contemplated. One down today. Sunday I advertised AIG at 53.20. I'm advertising it again today at 54.49. I think this news gets picked up by Jim Cramer's Mad Money next.
Freddie cuts dividend-Buy CIT!
Freddie cuts their dividend in half to .25, and is raising $6 billion in a preferred at a rate of 8.25%. The stock bottoms on this news. So buy CIT Group (CIT 24.47). What's that logic?
Citigroup paid 11% for $7.5 billion of cash, Freddie's paying 8.25% for $6 billion while CIT raised $2 billion today, at a rate of 7.875%. If CIT pays a lower rate, than C or government sponsored Freddie, then, the thinking goes, bond buyers probably know more than stock "players" who want stock investors to believe that CIT is in worse shape than it is.
CIT was up $4.62 on Friday, and was down $4.72 on Monday. Today it was up .73 cents. By the end of this week, you should be able to make a quick 11% on CIT.
Citigroup paid 11% for $7.5 billion of cash, Freddie's paying 8.25% for $6 billion while CIT raised $2 billion today, at a rate of 7.875%. If CIT pays a lower rate, than C or government sponsored Freddie, then, the thinking goes, bond buyers probably know more than stock "players" who want stock investors to believe that CIT is in worse shape than it is.
CIT was up $4.62 on Friday, and was down $4.72 on Monday. Today it was up .73 cents. By the end of this week, you should be able to make a quick 11% on CIT.
Citigroup pre-market prints?
Anyone that says that this infusion of cash for Citigroup isn't a game changer have been drinking to much of the bear's Kool-Aid. Citigroup should not be trading at 30.33 premarket.Take some stock from the bears that are sacrificing shares at these levels, in an attempt to "game" the news.
You have a free point off of their shenanigans.
Cramer's 10 stocks that can't go under
C, WM, PMI, MTG, MBI, ABK, CFC, RDN, FRE and FNM. The bears beg to differ, but it's a good list to cover shorts or to buy.
Meredith responds on Citigroup
"When we downgraded Citigroup shares at the beginning of the month, we stated that it needed to raise equity, sell assets and cut its dividend in order to shore up its capital base,'' Whitney wrote in a note to clients. "Now that it has raised $7.5 billion in equity, we wait for Citigroup to sell assets and cut its dividend."
Cut it's dividend? Now that's an opinion meant just for headlines.
Cut it's dividend? Now that's an opinion meant just for headlines.
Bulls get "moxie" while the bears lose theirs!
It took Citigroup a week (C 29.83) to get $7.5 billion of cash from Abu Dubai, who would rather invest in stocks than in Uncle Sam's cash!Since Citigroup got bailed out, Wall Street will turn their attention to Fannie and Freddie Mac, which also are too big to fail. They'll buy these stocks because they're next to get bailed out. Now you know why I advertised them this weekend.
And Meredith Whitney, the CIBC analyst? She'll have to be content to wrestle with her husband, JLB. The match is over with Citigroup. Her famous quote was, "No one had the moxie to put in print what I put in print."
Abu Dubai thanks her for her "moxie." They got Citigroup at a great price. And Bernanke, once again, got some time. And tonight?
The shorts lost theirs.
Citigroup gets $7.5 billion!
Abu Dabai invests $7.5 billion into Citigroup at a conversion price between $31.83 and $37.84!
Market should rock tomorrow on this news!
Market should rock tomorrow on this news!
Where is the Fed?
Let's look at reality:
Well, let him tweak some more. The collateral damage of his tweaking is wrecking havoc on the markets. The bonds are already telling us we need a Fed funds rate 200 basis points lower than it is now, and Bernanke's "rough patch" is decidedly different than Greenspan's "soft patch."
At least his tweaking is getting us where we need to go, and in a hurry!
So why be bullish?
Because eventually, Bernanke and his minions will get it.
- US Housing is in a deep recession.
- Commercial real estate is heading into a recession.
- If we marked to market the assets that banks have on and off their balance sheets to the prices that the market is currently quoting them, then by that definition, much of the banking system would be technically insolvent.
- HSBC put $45 billion of SIV assets on their balance sheet, and the two bank sponsored SIV are where Fidelity has invested a billion of customer's money market funds.
- CFC has used the FHLB of Atlanta for $51 billion of funding, and now BofA's $2 billion preferred investment at $18, is worth a billion less if converted into stock, and that Treasury was instrumental in originally putting this deal together.
- The Fed is tweaking percentages and adjusting size and terms for money market operations.
- Fannie and Freddie have fallen off a cliff.
- The LIBOR rate won't stay down.
- No-one wants to price anything asset backed.
- No-one even wants to look at the derivatives market!
- Citigroup is trading as though their CDO's are as transparent as their dealing of structured products was to Japan's wealthy!
Well, let him tweak some more. The collateral damage of his tweaking is wrecking havoc on the markets. The bonds are already telling us we need a Fed funds rate 200 basis points lower than it is now, and Bernanke's "rough patch" is decidedly different than Greenspan's "soft patch."
At least his tweaking is getting us where we need to go, and in a hurry!
So why be bullish?
Because eventually, Bernanke and his minions will get it.
Monday, November 26, 2007
MEMC is ready to move
WFR (67.85), is now ready to move higher as a play on solar. Should go to 72-73 this week.
Multiple expansion for high fliers
The credit contagion is bringing rates down, which is bringing up the multiples that funds will pay on AAPL, RIMM, BIDU, ISRG, GRMN and MA. They need growth, and they will pay for it. Especially since it's Other People's Money!
Baidu to bounce?
BIDU at 323 is up $14 today, while Google has added 60 points since November option expiration. China looks poised to bounce, so it may be time for traders to start flipping BIDU again.
Buy retail stocks at wholesale
You'll probably hear how Black Friday is just electronics, and it won't make Christmas, but the retail stocks are already pricing in a recession. Last week Target (TGT 57.17) missed numbers and the stock traded down to 51. It'll probably print 59 Monday.
Look at JCPenney (JCP 41.30) and Sears (SHLD 112.58). Both stocks are within two points of their yearly low, and at these levels, all the bad news is already priced into the stocks. JCP can tack on 10, and SHLD can add 20 points by Christmas.
Which means you don't need another reason to buy the stocks.
But if you can't buy either of these stocks at these prices, you really shouldn't be in this market. They are compelling values at these prices, and they need to be bought now. The typical Wall Streeter shops at Nordstrom, Target, Best Buy and Costco, so these are overlooked.
If you can't stomach buying at yearly lows then go buy where you shop, and take down some call options on JCP and SHLD. The whisper circuit will eventually tout some type of restructuring or spin-off because the game is to move the prices of the pieces of paper.
And at these prices you can game the stocks.
Look at JCPenney (JCP 41.30) and Sears (SHLD 112.58). Both stocks are within two points of their yearly low, and at these levels, all the bad news is already priced into the stocks. JCP can tack on 10, and SHLD can add 20 points by Christmas.
Which means you don't need another reason to buy the stocks.
But if you can't buy either of these stocks at these prices, you really shouldn't be in this market. They are compelling values at these prices, and they need to be bought now. The typical Wall Streeter shops at Nordstrom, Target, Best Buy and Costco, so these are overlooked.
If you can't stomach buying at yearly lows then go buy where you shop, and take down some call options on JCP and SHLD. The whisper circuit will eventually tout some type of restructuring or spin-off because the game is to move the prices of the pieces of paper.
And at these prices you can game the stocks.
Sunday, November 25, 2007
Freddie's Q3 transcript
Here's an interesting conversation between Freddie's CFO, Buddy Piszel, and BofA's Bob Lacoursie on the Q3 Conference call:
Robert Lacoursiere - Banc of America Securities
Freddie's immediate future looks bleak, but the government has its back.
So we know FRE took conservative marks, and that a $5 billion preferred offering should be done this week, and the stock, at 26.47 doesn't reflect this upside. You may ask, "What about the prices that the ABX indexes reflect? Where are these losses?" Sorry, but those are the wrong questions!
Benjamin Graham said that the stock market is not a voting mechanism but a weighing mechanism over the long term. Buffett paraphrased this as a voting machine in the short run, and a weighing machine in the long run. But what happens when nobody shows up to vote?
You mark the mortgages to zero. Trading is about money. If you are prepared to buy something, you need to know what price someone will buy it from you. But if you don't know what makes up the bonds, CDO's or asset backed securities you bid at the price where the risk disappears.
So why buy FRE? Let's look to Goldman, who downgraded FRE to see why.
Goldman raised $20 billion for a corporate debt/mezzanine financing fund, $2.6 billion in Liberty Harbor for crummie credit, and $1.8 billion in GS Liquidity Partners for investing in leveraged loans on bank's books. Somebody wants this paper. Maybe they can get it if Goldman keeps downgrading the financial stocks.
It looks to me that Goldman's analysts seem to be using the voting machine, while the funds they manage would are using the weighing machine. In Q3 Goldman had $7.5 billion of principal business, $2.1 billion in investment banking and $1.2 billion in securities services. So what you see is what you get.
The beauty of Goldman is how they manage clients and their own money. So Goldman downgraded FRE. Big deal. At these prices the preferred will be a home run. And six months from now we'll hear how Goldman saved Freddie. Sort of like heating your house by throwing your furniture in the fireplace.
I'd vote against their downgrade. And buy the stock.
Robert Lacoursiere - Banc of America Securities
That is precise, I am just wondering why you have to rely on those quotes when there is no market, why can't you do a Level III approach and put your own assumptions like other institutions do?
Patti Cook
This is -- you want to take it Buddy?
Buddy Piszel
We have been there in the past and the feedback that we've received from our auditors is the market is a more reliable source of pricing and accordingly even in 10 markets, that should be our first line of defense whether it contradicts or models or not. Since we've made this change, we've only look to the market wherever possible, and we've always been able to get market prices. So, whether we like them or not, they are out there and if they are out we are using them to measure because the accounting literally says that you're supposed to use that what some one would pay you to take the obligation off your hands and if there is a market price out there, that is an indicator of the price that you would have to pay to have it taken off your hands.
Robert Lacoursiere - Banc of America Securities
If I could just bother you with one follow-up: if they are quoting, if these institutions are quoting you those prices, are they not obligated to reflect those valuations on their own positions on their own books?
Buddy Piszel
That's an interesting question, but we are not going go there.
Here's my point. Barron's this weekend had an article about FRE, and one line encapsulates the entire FRE case. Here it is:Freddie's immediate future looks bleak, but the government has its back.
So we know FRE took conservative marks, and that a $5 billion preferred offering should be done this week, and the stock, at 26.47 doesn't reflect this upside. You may ask, "What about the prices that the ABX indexes reflect? Where are these losses?" Sorry, but those are the wrong questions!
Benjamin Graham said that the stock market is not a voting mechanism but a weighing mechanism over the long term. Buffett paraphrased this as a voting machine in the short run, and a weighing machine in the long run. But what happens when nobody shows up to vote?
You mark the mortgages to zero. Trading is about money. If you are prepared to buy something, you need to know what price someone will buy it from you. But if you don't know what makes up the bonds, CDO's or asset backed securities you bid at the price where the risk disappears.
So why buy FRE? Let's look to Goldman, who downgraded FRE to see why.
Goldman raised $20 billion for a corporate debt/mezzanine financing fund, $2.6 billion in Liberty Harbor for crummie credit, and $1.8 billion in GS Liquidity Partners for investing in leveraged loans on bank's books. Somebody wants this paper. Maybe they can get it if Goldman keeps downgrading the financial stocks.
It looks to me that Goldman's analysts seem to be using the voting machine, while the funds they manage would are using the weighing machine. In Q3 Goldman had $7.5 billion of principal business, $2.1 billion in investment banking and $1.2 billion in securities services. So what you see is what you get.
The beauty of Goldman is how they manage clients and their own money. So Goldman downgraded FRE. Big deal. At these prices the preferred will be a home run. And six months from now we'll hear how Goldman saved Freddie. Sort of like heating your house by throwing your furniture in the fireplace.
I'd vote against their downgrade. And buy the stock.
Pick up AIG
It looks like AIG (53.20) is going to pick up a few pieces of UK's Northern Rock, with Virgin's Richard Branson doing the heavy lifting with a few other investors. AIG has been smacked down from it's highs, and it should rally to 57ish quickly.
I think this will change psychology on the stock. How does a small deal change market perceptions? Did Northern Rock go to J.C. Flowers or Cerberus? That's the answer. Private equity is no longer first pick. Throw in an agitating Hank Greenberg, and Starr International's stake, and you have a stock poised to bounce.
And it can bounce hard.
I think this will change psychology on the stock. How does a small deal change market perceptions? Did Northern Rock go to J.C. Flowers or Cerberus? That's the answer. Private equity is no longer first pick. Throw in an agitating Hank Greenberg, and Starr International's stake, and you have a stock poised to bounce.
And it can bounce hard.
Saturday, November 24, 2007
FNM-As advertised!
Wednesday morning, I said Fannie Mae at 27.97 could move to 32-33. It closed today at 32.20. It took a day. Why the move? It's simply Wall Street's dishonestness.
FNM doesn't have the losses that Wall Street is estimating. In some cases, they are overestimated by a factor of 10. Over Thanksgiving, cooler heads probably decided to do some research. Throw in the news of the Super SIV fund, ECB money market injections and Europe's non-trading of covered bonds, mortgage insurance bailouts, and ResCap's buying back of bonds, and the market was poised to ramp, even without an intermeeting cut by the Fed, who is now poised to move 50 basis points December 11. And you want to stay short?
But Goldman Sachs is doing their best to panic financial holders. Downgrading the financials at the bottom like C and FNM, and yelling fire in the crowded sub-prime theater. Buy them, when Goldman screams. They are the ones that need to cover their shorts.
Maybe their trading agenda is different from the reality facing the marketplace. It might be getting a tad crowded, especially since Paulson, one of the largest shorts is looking to go long. And if you don't know what his track record is, you shouldn't be listening to the drivel that the brokerage firms are spouting.
The firms, who have bet against sub-prime need sellers so they can cover. So yell "fire' in the crowded theater. And get the fools to sell, at prices, only fools would sell at.
FNM doesn't have the losses that Wall Street is estimating. In some cases, they are overestimated by a factor of 10. Over Thanksgiving, cooler heads probably decided to do some research. Throw in the news of the Super SIV fund, ECB money market injections and Europe's non-trading of covered bonds, mortgage insurance bailouts, and ResCap's buying back of bonds, and the market was poised to ramp, even without an intermeeting cut by the Fed, who is now poised to move 50 basis points December 11. And you want to stay short?
But Goldman Sachs is doing their best to panic financial holders. Downgrading the financials at the bottom like C and FNM, and yelling fire in the crowded sub-prime theater. Buy them, when Goldman screams. They are the ones that need to cover their shorts.
Maybe their trading agenda is different from the reality facing the marketplace. It might be getting a tad crowded, especially since Paulson, one of the largest shorts is looking to go long. And if you don't know what his track record is, you shouldn't be listening to the drivel that the brokerage firms are spouting.
The firms, who have bet against sub-prime need sellers so they can cover. So yell "fire' in the crowded theater. And get the fools to sell, at prices, only fools would sell at.
Thursday, November 22, 2007
Thanksgiving help for the market
CIFG services is getting a $1.5 billion dollar injection of cash, and it's AAA rating will be preserved, and its parent, Natixis, stock price moved up 17% on the news. Before the money was put in, they had discussions with the rating agencies. What's the point of insuring your bond if you don't have a AAA rating?
But here's the way to make money on this news. Mortgage and bond insurers Ambac (ABK 24.14) and MGIC (MTG 19.72) , whose counterparty risk was downgraded by S&P Wednesday, will now have a working model with the rating agencies on how to preserve their credit ratings. Without the ratings they're toast. But the biggest play could be bond insurer PMI Group (PMI 10.19)!
PMI owns 42% of FGIC. Market players may mistakenly think PMI's FGIC got the cash infusion. FGIC and CIFG are just a dyslexia twist away from being the same. (Don't think this doesn't happen. And the huge short base in this stock can cause crazy reactions.) Blackstone and Cypress Group each own 23% of FGIC. And they've already had discussions with the rating agencies about putting at least $200 million into PMI. So it's a buy as this news will soon hit.
Now the mortgage insurers have bought themselves some time, as ResCap did yesterday. If the Fed cuts quickly, the lifeline becomes a life preserver, tied to a dinghy.
I assumed the Fed would cut tomorrow. With the self imposed trading suspension amongst banks in Europe until Monday of mortgage debt "covered bonds" and a shortened trading day Friday, a cut would of been very effective to change psychology.
With this news, the Fed has bought themselves some time.
And I have to finish stuffing the turkey.
But here's the way to make money on this news. Mortgage and bond insurers Ambac (ABK 24.14) and MGIC (MTG 19.72) , whose counterparty risk was downgraded by S&P Wednesday, will now have a working model with the rating agencies on how to preserve their credit ratings. Without the ratings they're toast. But the biggest play could be bond insurer PMI Group (PMI 10.19)!
PMI owns 42% of FGIC. Market players may mistakenly think PMI's FGIC got the cash infusion. FGIC and CIFG are just a dyslexia twist away from being the same. (Don't think this doesn't happen. And the huge short base in this stock can cause crazy reactions.) Blackstone and Cypress Group each own 23% of FGIC. And they've already had discussions with the rating agencies about putting at least $200 million into PMI. So it's a buy as this news will soon hit.
Now the mortgage insurers have bought themselves some time, as ResCap did yesterday. If the Fed cuts quickly, the lifeline becomes a life preserver, tied to a dinghy.
I assumed the Fed would cut tomorrow. With the self imposed trading suspension amongst banks in Europe until Monday of mortgage debt "covered bonds" and a shortened trading day Friday, a cut would of been very effective to change psychology.
With this news, the Fed has bought themselves some time.
And I have to finish stuffing the turkey.
ResCap recovers
GMAC's mortgage unit ResCap bonds were trading as if a pending bankruptcy announcement was imminent. Today ResCap offered to buy back $750 million of bonds at a premium to where they were trading, but at 83 or 76 cents on the dollar.
ResCap, as of Sept 30, had a tangible net worth of $6.2 billion, but they are required by debt covenants to maintain a net worth of $5.4 billion, and by purchasing these bonds at a discount, it increases their tangible net worth. They've bought themselves time, and if they could acquire Northern Rock at a distressed price, ResCap would be in a position to profit when housing turns.
One of the bear's thesis for a mortgage meltdown has now been averted.
ResCap, as of Sept 30, had a tangible net worth of $6.2 billion, but they are required by debt covenants to maintain a net worth of $5.4 billion, and by purchasing these bonds at a discount, it increases their tangible net worth. They've bought themselves time, and if they could acquire Northern Rock at a distressed price, ResCap would be in a position to profit when housing turns.
One of the bear's thesis for a mortgage meltdown has now been averted.
Wednesday, November 21, 2007
CSCO and MSFT
Trade as though they are a source of funds for the capital constrained. The Naz high fliers like AAPL, GOOG, FSLR and RIMM are seeing action by the players that want to dance, and the capital constrained on these names are those that have shorted these numbers.
So they ramp, while the others lag.
So they ramp, while the others lag.
Who's buying Lennar?
Lennar (LEN 15.23) is being accumulated at these levels. I know NASDAQ stocks are way more exciting, but I wouldn't be surprised that someone would be floating rumors that this may possibly be in play. I know it sounds outrageous, but I just report what the blocks of stock seem to be saying.
And they are saying you can buy LEN here.
And they are saying you can buy LEN here.
FRE options are worth a shot
Freddie Mac (FRE 26) options are a good spec at these levels. FNM is starting to bounce, and speculators will play a bounce in FRE with options. The stock was already downgraded by Goldman Sachs today and it seems to have found cautious buyers at these levels.
The ten year has a three handle, the two year is at 3.14%, and at some level, those playing with other people's money will try and make a stand.
And they should get help from the Fed.
The ten year has a three handle, the two year is at 3.14%, and at some level, those playing with other people's money will try and make a stand.
And they should get help from the Fed.
Anyone buy FCX at 88-89?
They gave the stock away this morning. Don't lose your head when the market loses theirs.
ACA's ripples
ACA Capital Holdings (1.10) will be the debacle du jour today. Here's the problem. They provide credit protection in derivatives and structured finance. But they have losses on their insured credit swaps of $1.7 billion dollars. It's "unrealized" though. If they get downgraded below A- by S&P, they have to post collateral (pay off the swaps). Their insurance? ACA Financial Guaranty Insurance policy, and they don't have the money. They're well over a billion short.
So here's what ACA had to say in their latest 10Q:
Absent a downgrade or other requirements to post collateral, ACA Financial Guaranty and the Company are currently adequately capitalized to operate their businesses and meet their financial obligations. While the Company recorded a substantial unrealized mark to market loss in the third quarter resulting in a net loss, no defaults that resulted in cash payments under the agreements have occurred and, in the Company’s estimation, are not certain to occur or imminent.
Are these swaps marked to market by all parties? And it's not much of a stretch to see this contagion affecting the AAA insurers next.
The market's operating on internet time, while the Fed is taking the pony express. So with all due respect to Al Gore, I give the august Fed lyrics from Melissa Etheridge's song, I Need to Wake Up. If they can't see the problems, they'll hear about them.
Have I been sleeping?
I’ve been so still
Afraid of crumbling
Have I been careless?
Dismissing all the distant rumblings
Take me where I am supposed to be
To comprehend the things that I can’t see
Cause I need to move
I need to wake up
I need to change
I need to shake up
I need to speak out
Something’s got to break up
I’ve been asleep
And I need to wake up
Now
So here's what ACA had to say in their latest 10Q:
Absent a downgrade or other requirements to post collateral, ACA Financial Guaranty and the Company are currently adequately capitalized to operate their businesses and meet their financial obligations. While the Company recorded a substantial unrealized mark to market loss in the third quarter resulting in a net loss, no defaults that resulted in cash payments under the agreements have occurred and, in the Company’s estimation, are not certain to occur or imminent.
Are these swaps marked to market by all parties? And it's not much of a stretch to see this contagion affecting the AAA insurers next.
The market's operating on internet time, while the Fed is taking the pony express. So with all due respect to Al Gore, I give the august Fed lyrics from Melissa Etheridge's song, I Need to Wake Up. If they can't see the problems, they'll hear about them.
Have I been sleeping?
I’ve been so still
Afraid of crumbling
Have I been careless?
Dismissing all the distant rumblings
Take me where I am supposed to be
To comprehend the things that I can’t see
Cause I need to move
I need to wake up
I need to change
I need to shake up
I need to speak out
Something’s got to break up
I’ve been asleep
And I need to wake up
Now
What's in your off-balance sheet?
Capital One (COF 50.74) announced a $700 million cash acquisition of debit card company NetSpend in August, and then abruptly called it off last night. COF probably decided they had better conserve the cash to help absorb losses.
Which means the insiders at Capital One are recognizing more problems that they are about to face than they are letting the market know.
They've already transferred billions of mortgages to loans held for investments from available to sale. (When you can't sell them, it's an investment.)
What's in your wallet?
Which means the insiders at Capital One are recognizing more problems that they are about to face than they are letting the market know.
They've already transferred billions of mortgages to loans held for investments from available to sale. (When you can't sell them, it's an investment.)
What's in your wallet?
Buy Freeport-McMoran now!
Sunday night, before the turmoil started in the market, I said the following:
Apple (AAPL 166.39) should trade to 174, Google (GOOG 633.63) has 20 quick points, Research in Motion (RIMM 107.57) reversed off it's lows Friday and can add 10, and Intuitive Surgical (ISRG 280.65) should trade above 300. On the big board, Freeport-McMoran (FCX 100.04) was pinned at 100, it can take on 7 points by Tuesday.
Today AAPL traded a smidge less than 172, RIMM a hair less than 116, ISRG seven cents less than 298, and GOOG traded up 26 points. But FCX traded down 7 points, and I advertised it up 7. So buy the one that didn't move. And if you need a reason, here's three.
1) The braindead Fed will be forced to cut rates now. The credit and housing markets are imploding on themselves. A cut will cause perceptions to change on the economy, and a cut will assure that global growth will continue. Today gold skyrocketed $25, and oil was up $4 a barrell. Those markets are already pricing in easier money.
2) The stock is almost 30 points off it's high in a month. Copper prices will rebound and gold has already. The stock "looks" good on the chart, and natural resource stocks are in play.
3) BHP Billiton offered $150 billion for Rio Tinto. Rio talked last week about a Pac-Man defense whereby they would make a bid for BHP. That's ridiculous. But Rio could make an overture to acquire FCX. That would juice the stock, and pump the options. That's a Pac-Man defense that the market could find plausible. Atticus capital, the previous quarter, had been selling COP and deploying those funds into FCX, and has a swap arrangement to pick up more shares. They've also changed their filing status from "passive" to "activist" investor, which simply means they're trying to hustle up a buyer for FCX. Look for the rumors to start now.
So get out of the shadows, don't be bashful, and buy this pokey stock as it's recovery will be speedy. And if you know what that means, you probably were playing Pac-Man in the 80's like I was.
But I liked Space Invaders better.
Apple (AAPL 166.39) should trade to 174, Google (GOOG 633.63) has 20 quick points, Research in Motion (RIMM 107.57) reversed off it's lows Friday and can add 10, and Intuitive Surgical (ISRG 280.65) should trade above 300. On the big board, Freeport-McMoran (FCX 100.04) was pinned at 100, it can take on 7 points by Tuesday.
Today AAPL traded a smidge less than 172, RIMM a hair less than 116, ISRG seven cents less than 298, and GOOG traded up 26 points. But FCX traded down 7 points, and I advertised it up 7. So buy the one that didn't move. And if you need a reason, here's three.
1) The braindead Fed will be forced to cut rates now. The credit and housing markets are imploding on themselves. A cut will cause perceptions to change on the economy, and a cut will assure that global growth will continue. Today gold skyrocketed $25, and oil was up $4 a barrell. Those markets are already pricing in easier money.
2) The stock is almost 30 points off it's high in a month. Copper prices will rebound and gold has already. The stock "looks" good on the chart, and natural resource stocks are in play.
3) BHP Billiton offered $150 billion for Rio Tinto. Rio talked last week about a Pac-Man defense whereby they would make a bid for BHP. That's ridiculous. But Rio could make an overture to acquire FCX. That would juice the stock, and pump the options. That's a Pac-Man defense that the market could find plausible. Atticus capital, the previous quarter, had been selling COP and deploying those funds into FCX, and has a swap arrangement to pick up more shares. They've also changed their filing status from "passive" to "activist" investor, which simply means they're trying to hustle up a buyer for FCX. Look for the rumors to start now.
So get out of the shadows, don't be bashful, and buy this pokey stock as it's recovery will be speedy. And if you know what that means, you probably were playing Pac-Man in the 80's like I was.
But I liked Space Invaders better.
Tuesday, November 20, 2007
What's in Capital One's wallet?
It better be a rate cut and soon, or those reading the SEC filings will soon be whispering more dire things for Capital One.
Fed to cut Friday?
Looks like it to me. In August, I said the Fed would cut the discount rate inter-meeting a week earlier than they did. So to keep with my timing I suspected they would cut rates last Friday. So if I'm off by a week like last time they should cut on Black Friday.
When Bernanke spoke before Congress, his idea to stave off the mortgage crisis was to have Fannie and Freddie Mac take larger mortgages. That was his ace in his back pocket. Now Fannie and Freddie have to raise capital. Anyone think that idea is going to pass now?
When Bernanke spoke before Congress the time before last, he said sub-prime was "well contained." It's been contained all right. Contained to every bank and mortgage company worldwide, even to Goldman Sachs if you count their credit-default swaps and the counterparty risk on the other side.
So Bernanke's cards now are only interest rates. So Bernanke cuts, and he does it this week.
When Bernanke spoke before Congress, his idea to stave off the mortgage crisis was to have Fannie and Freddie Mac take larger mortgages. That was his ace in his back pocket. Now Fannie and Freddie have to raise capital. Anyone think that idea is going to pass now?
When Bernanke spoke before Congress the time before last, he said sub-prime was "well contained." It's been contained all right. Contained to every bank and mortgage company worldwide, even to Goldman Sachs if you count their credit-default swaps and the counterparty risk on the other side.
So Bernanke's cards now are only interest rates. So Bernanke cuts, and he does it this week.
Freddie Mac looking to raise more capital
An $8 billion write down, quarterly losses, and dividend cuts as housing hits FRE hard. They need to raise capital to increase their mandatory surplus.
So Freddie Mac hired Goldman Sachs to help them.
Yesterday, Goldman slammed Citigroup, and today Freddie is down almost $5 points pre-market on capital concerns.
Obviously, Goldman wasn't hired by Freddie Mac this morning.
Maybe that's why Goldman was so bearish on Citigroup yesterday.
But then I'd be conspiratorial. And only a blog would write something like that.
So Freddie Mac hired Goldman Sachs to help them.
Yesterday, Goldman slammed Citigroup, and today Freddie is down almost $5 points pre-market on capital concerns.
Obviously, Goldman wasn't hired by Freddie Mac this morning.
Maybe that's why Goldman was so bearish on Citigroup yesterday.
But then I'd be conspiratorial. And only a blog would write something like that.
Goldman's alpha fund down 37%
This fund used to be $10 billion, and now it's being whittled down from redemptions and losses to about $4 billion. With 6.5 leverage, over $37 billion has been taken out of the market with the shrinkage of this fund.
Goldman didn't have a fly on their earnings when they reported, but their largest fund is down 37%.
Interesting, isn't it?
Goldman didn't have a fly on their earnings when they reported, but their largest fund is down 37%.
Interesting, isn't it?
Asia reverses and the Fed's on deck
Asia bourses across the board were down 1-3% percent, but they reversed and closed up an average of 3% off their lows. And now the market is "waiting" for what the Fed governors had to say about the economy in their latest FOMC minutes.The Fed is trying to play chicken with the market. They did it in August and blinked. They'll do it again. The market knows it, and so do the currency players, and so does the bond market, as they've pushed the two year down to 3.17% percent, and even the 30 year is yielding less than the Fed funds rate. Meanwhile the jokers on the Fed are worried about inflation, while house prices are in a deflationary death spiral. Tight money won't affect the price of oil. If the Fed wanted oil prices down, they should jawbone the CME to raise margin requirements, instead of keeping short rates at a level that is toxic to the economy.
A normal yield curve would indicate that the Fed funds rate should be around 3%, so all the bluster by the Fed is just nonsense and it is recognized by the market as just that. Nonsense.
So let's look at those who run bonds and didn't get involved with sub-prime. Here's what Paul McCulley of PIMCO, the largest bond house in the world, had to say in his December Global Central Bank Focus:
Essentially, my thesis is that overnight money, carrying zero price risk, zero credit risk and zero liquidity risk should not yield a real, after-tax return. A 50-basis-point real rate in the context of a 2% inflation rate – my definition of ‘effective price stability’ – would translate to a zero real rate on money: a 2 ½% nominal rate, with 50 basis points going to Uncle Sam for taxes (assuming an average marginal tax rate of about 20% in this country) and 200 basis points making the holder of money whole for inflation....
......In retrospect, the Fed did not give a hoot about my estimate of the “neutral” short rate, driving the nominal Fed funds rate to 5 ¼%, which translated to about 3% in real terms (before taxes), depending upon your preferred inflation measure...
....Which brings us to the here and now: we are living in a debt-deflation fat tail, also known as a Minsky Moment....The shadow banking system is being turned into a shrunken shadow of itself, as my partner Bill Gross articulately explained just a few weeks ago in his monthly essay, “Shadow Dancing” Most important, from an investment perspective, a Reverse Minsky Journey will have the precise opposite, probably more violent, effect on the ‘neutral’ real Fed funds as the Forward Minsky Journey of 2004–2006. A Reverse Minsky Journey will lower it dramatically, as the implosion of the double bubbles of housing prices and the shadow banking system renders the demand for credit very interest rate inelastic to Fed easing...
...What I do know, or at least think I know, is that the slower the Fed is in lowering the Fed funds rate, the greater will be the cumulative decline in the Fed funds rate. Debt deflation is a nasty beast and will not be tamed with a gentle monetary policy response...
And that, like it or not, is what is happening in credit land. Get used to it. The credit markets are in turmoil because the Fed cut 25 basis points on Halloween instead of 50. They weren't aggressive enough in addressing the problems in the shadow area of banking. Leveraged loans, derivatives, and asset backed paper need a much lower Fed funds to function properly.
Since the Fed didn't lower the rates, the market is doing it for them. Bonds and the dollar are reflecting that the Fed funds rate will be materially lower in the future.
But stocks are not. Stock buyers apparently believe the Fed's rhetoric, whereas bonds and currency players have already dismissed it.
So buy the trade that is cheap. Buy stocks now. They're ringing the bell at the bottom.
DJIA 12958.44
S&P 500 1433.27
Nasdaq Comp. 2593.38
Goldman's Citi downgrade
Time will tell if it was prescient call (and only in Wall Street is prescient defined as changing your target from 48 to 33 after the stock has already fallen to your target price), or if it just reeks of piling on. And the ones with the most money can pile on. And Goldman, does it better than anyone. So we have to separate news from news.
Today CNBC had a fluff piece on Paris Hilton. She's a spokesperson for her perfume, Can Can and it's doing quite well. The media portrays her as a hapless bimbo, who served 23 days for violating her parole while, Mike Tyson, who was caught smoking crack, got 24 hours for felony cocaine possession and a DUI. That's news we can talk about, but it's harmless because it isn't gameable by traders. But Goldman's downgrade today on Citi? That's completely different.
That's financial news. And it affects companies and the market. When Goldman downgraded C, the stock futures promptly dropped, and it affected the psychology of the marketplace and traders. (As in what does Goldman know?) This news should have already been in the price of the stock. But Goldman's been beating the drums of bigger problems, and GS's skill is attacking when the market is weak.
Now if C is going to drop another 15 points, it's a good call. But traders normally don't advertise news unless they want the market to move in the direction they are advertising it. A perfect example today was Echostar (DISH) which was up 7 points today, and was sitting just at 48 two minutes before the bell. UBS then layed out 350,000 shares of stock, knocking it down 50 cents. Good trading? Or good information? At 3:59, the WSJ deal blog said that ATT and DISH were not immediately hooking up on a buyout. This information hit the paper at 3:59. Now you know why UBS desperately sold the stock. A half hour later, everyone knew the WSJ story, and the stock was trading a smidge under 44. A sharp trader made $1.4 million in a couple minutes. Was this advertised? No. This news didn't hit the tape until later. And that's the point. And here was the news at 3:59 pm, when it wasn't advertised by the traders!
Does Goldman need Citigroup down? We know they are still massively short subprime. Why not add some fuel to the fire while the Fed is thinking about Thanksgiving instead of conducting monetary policy that is relevant to the market today? And advertise your views for all of Wall Street to see?
At any rate, we'll soon know if it was prescient!
Today CNBC had a fluff piece on Paris Hilton. She's a spokesperson for her perfume, Can Can and it's doing quite well. The media portrays her as a hapless bimbo, who served 23 days for violating her parole while, Mike Tyson, who was caught smoking crack, got 24 hours for felony cocaine possession and a DUI. That's news we can talk about, but it's harmless because it isn't gameable by traders. But Goldman's downgrade today on Citi? That's completely different.
That's financial news. And it affects companies and the market. When Goldman downgraded C, the stock futures promptly dropped, and it affected the psychology of the marketplace and traders. (As in what does Goldman know?) This news should have already been in the price of the stock. But Goldman's been beating the drums of bigger problems, and GS's skill is attacking when the market is weak.
Now if C is going to drop another 15 points, it's a good call. But traders normally don't advertise news unless they want the market to move in the direction they are advertising it. A perfect example today was Echostar (DISH) which was up 7 points today, and was sitting just at 48 two minutes before the bell. UBS then layed out 350,000 shares of stock, knocking it down 50 cents. Good trading? Or good information? At 3:59, the WSJ deal blog said that ATT and DISH were not immediately hooking up on a buyout. This information hit the paper at 3:59. Now you know why UBS desperately sold the stock. A half hour later, everyone knew the WSJ story, and the stock was trading a smidge under 44. A sharp trader made $1.4 million in a couple minutes. Was this advertised? No. This news didn't hit the tape until later. And that's the point. And here was the news at 3:59 pm, when it wasn't advertised by the traders!
November 19, 2007, 3:59 pm
AT&T and EchoStar: Reasons to be Skeptical
Posted by Dana Cimilluca
In spite of market speculation that has driven up EchoStar shares more than 20% today, no deal between AT&T and EchoStar is imminent, people familiar with the matter tell us.
One person close to AT&T says the two sides aren’t even talking about an M&A deal at the moment. What is more, it still isn’t clear that any bankers have been hired to arrange the long-anticipated deal or that AT&T has decided to go after EchoStar and not DirecTV.
Of course, these conditions can always change at a moment’s notice. But from what we can divine so far, enthusiasts of an EchoStar acquisition may not feel much gratitude this Thanksgiving.
Does Goldman need Citigroup down? We know they are still massively short subprime. Why not add some fuel to the fire while the Fed is thinking about Thanksgiving instead of conducting monetary policy that is relevant to the market today? And advertise your views for all of Wall Street to see?
At any rate, we'll soon know if it was prescient!
Monday, November 19, 2007
Nordstrom beats estimates
JWN 30.52, is traded up over 3 dollars after beating estimates. The retail stocks have already been priced as though we are in a recession, and are now surprising on the upside. It also appears that JWN is the biggest buyer of it's own stock, and they increased their buyback by another billion to $2.5 billion, having already bought back $750 million of shares.
Last week, Walmart surprised analysts. These retail companies, though bludgeoned have been very effective at making numbers-they've been squeezing their vendors and suppliers.
A "derivative value" play on retail is Sears Holding (SHLD 114.20), which today hit the low of the year. They bought a piece of Restoration Hardware, interupting plans that the CEO and private equity had who were trying to take the company private on the cheap. It's a small bit of change for Eddie Lampert but maybe it'll remind people that at one time Berkshire Hathaway was just a textile company.
Last week, Walmart surprised analysts. These retail companies, though bludgeoned have been very effective at making numbers-they've been squeezing their vendors and suppliers.
A "derivative value" play on retail is Sears Holding (SHLD 114.20), which today hit the low of the year. They bought a piece of Restoration Hardware, interupting plans that the CEO and private equity had who were trying to take the company private on the cheap. It's a small bit of change for Eddie Lampert but maybe it'll remind people that at one time Berkshire Hathaway was just a textile company.
Commercial real estate falling
Commercial real estate lags about 1 1/2 years behind residential housing, and now a report from MIT indicates that it's now falling. Here's the commentary at MIT:
The drop in the MIT quarterly transaction-based index (TBI) may not only spell the end of a five-year rally that saw commercial property prices effectively double, but it may also signal that weakness in the housing market is spilling over into commercial real estate.
The drop in the MIT quarterly transaction-based index (TBI) may not only spell the end of a five-year rally that saw commercial property prices effectively double, but it may also signal that weakness in the housing market is spilling over into commercial real estate.
"The fall in our index is the first solid, quantitative evidence that the subprime mortgage debacle, which hit the broader capital markets in August, may be spreading to the commercial property markets," stated MIT Center for Real Estate Director David Geltner.
The TBI decline in the third quarter of 2007 marks its first quarterly downturn since the third quarter of 2003, when prices fell 2.4 percent. The last time prices fell more than in the third quarter of 2007 was in the fourth quarter of 2001 (9/11, recession), when they fell 3.9 percent.
http://web.mit.edu/newsoffice/2007/commercial-1114.htmlDryships
Dryships (DRYS) closed Friday at 89.11, and is down a couple dollars pre-market. It's a trade right here.
Goldman downgrades C to sell
and moves their target to 33. Swiss Re writes down a billion on subprime, Fannie Mae gets downgraded, and commercial real estate is starting to take a hit with increasing amounts of commercial property available. And the WSJ says the Fed is on hold??
So at the open the market takes down the late Friday rally.
So at the open the market takes down the late Friday rally.
Sunday, November 18, 2007
Buy the "pinned" stocks
Option expiration pressure kept some of the NASDAQ high fliers down, so make some money off of them this week. Apple (AAPL 166.39) should trade to 174, Google (GOOG 633.63) has 20 quick points, Research in Motion (RIMM 107.57) reversed off it's lows Friday and can add 10, and Intuitive Surgical (ISRG 280.65) should trade above 300.
On the big board, Freeport-McMoran (FCX 100.04) was pinned at 100, it can take on 7 points by Tuesday.
After the bell Hewlett Packard (HPQ 50.75) reports earnings, so that should help technology. Microsoft (MSFT 34.09) should be a direct beneficiary of a good report, and the December 35 calls at .68 should be a double.
The rest of the market should benefit from the final touches of the SIV fund, Thanksgiving seasonality and the OPEC currency basket for the dollar. The idea that OPEC isn't "abandoning" the dollar will be a relief, but ironically it's the Canadian dollar that is the currency most poised to rally against the buck, and it can add a couple cents this week.
But the biggest news this week, is the Hannah Montana concert Tuesday night in South Florida.
Or at least that's what my daughter thinks!
On the big board, Freeport-McMoran (FCX 100.04) was pinned at 100, it can take on 7 points by Tuesday.
After the bell Hewlett Packard (HPQ 50.75) reports earnings, so that should help technology. Microsoft (MSFT 34.09) should be a direct beneficiary of a good report, and the December 35 calls at .68 should be a double.
The rest of the market should benefit from the final touches of the SIV fund, Thanksgiving seasonality and the OPEC currency basket for the dollar. The idea that OPEC isn't "abandoning" the dollar will be a relief, but ironically it's the Canadian dollar that is the currency most poised to rally against the buck, and it can add a couple cents this week.
But the biggest news this week, is the Hannah Montana concert Tuesday night in South Florida.
Or at least that's what my daughter thinks!
Cheerleading in the valley
Six oot of eight of the high school cheerleaders of Ripon were suspended for having the word INDIANS #1 spelled out on their short shorts as they "flashed" the crowd while dancing to Britney Spears "One more Time." The parents are appealing, but the cheerleaders are ecstatic, as they're getting their 10 minutes of fame and publicity for a rather tame stunt. One of the cheerleaders, though, was worried about the suspension, because her grades in the college prep courses weren't so hot, especially in Shakespeare where she was studying "MacBeth."
She should quote her Shakespeare as the cheerleaders response to the vice principal, Mr. Ken Geoken who suspended them.
Lady MacBeth: My royal lord, You do not give the cheer!
She should quote her Shakespeare as the cheerleaders response to the vice principal, Mr. Ken Geoken who suspended them.
Lady MacBeth: My royal lord, You do not give the cheer!
Friday, November 16, 2007
Garmin up 16!! As advertised!!
Yesterday, I said "Grab Garmin." Let me put it out here again:
Garmin (GRMN 85.60) is down 40 points from it's high, as the market is all worked up that GRMN will make a counter-offer higher than TomTom's bid for Tele Atlas. Rational? Not! At 2:30 a.m. this morning, Garmin and TomTom reached a global settlement on all their intellectual property litigation, and this morning, Piper came out with a call saying they felt that Nokia's deal with Navteq would now close. Which means that GRMN has reached a behind the scenes deal on maps without busting their bank.
What happened today? They announced a deal with Navteq until 2015 on maps!
Garmin (GRMN 85.60) is down 40 points from it's high, as the market is all worked up that GRMN will make a counter-offer higher than TomTom's bid for Tele Atlas. Rational? Not! At 2:30 a.m. this morning, Garmin and TomTom reached a global settlement on all their intellectual property litigation, and this morning, Piper came out with a call saying they felt that Nokia's deal with Navteq would now close. Which means that GRMN has reached a behind the scenes deal on maps without busting their bank.
What happened today? They announced a deal with Navteq until 2015 on maps!
Interest rates and the Fed
The Fed funds sits at 4.5%, and the two year treasury trades at 3.37%, the CEO of Wells Fargo says housing is the worst since the great depression, and Fannie Mae, which was down another 10% yesterday, has a conference call today at 8:30 to explain their accounting? And you should be bullish?
The Fed, should have cut 50 basis points in their last meeting. They didn't. So the market did it for them. If the Fed waits until December 11 to cut again, they'll be further behind the curve. They should do a pre-emptive cut in the discount rate, like they did two months ago, on the Friday of option expiration.
The reason to be bullish is that, even bureaucrats eventually get it. The weakness and the spillover in the economy is a direct result of the weakness in housing, and the anecdote for weak housing is lower interest rates.
And rates are going lower than what the consensus currently predicts.
The Fed, should have cut 50 basis points in their last meeting. They didn't. So the market did it for them. If the Fed waits until December 11 to cut again, they'll be further behind the curve. They should do a pre-emptive cut in the discount rate, like they did two months ago, on the Friday of option expiration.
The reason to be bullish is that, even bureaucrats eventually get it. The weakness and the spillover in the economy is a direct result of the weakness in housing, and the anecdote for weak housing is lower interest rates.
And rates are going lower than what the consensus currently predicts.
I don't recall
Barry Bonds gets indicted for perjury and obstruction of justice for saying "I don't recall" when asked about steroids while the ex-attorney general of the US, Alberto Gonzalez, when asked why the US attorneys were fired, answered 64 times that he had no recollection, memory or recall in front of the Senate Judiciary hearing.
I was going to relate this to the stock market, but now I can't recall my point.
I was going to relate this to the stock market, but now I can't recall my point.
Cerberus styx it to United Rentals
Cerberus offered to pay United Rentals $100 million for walking away from the buyout or they could just renegotiate the $4 billion deal. This time, the sop was paid by Cerberus!When Charon ferried the souls over the river styx to hades he took the gold coin out of the dead person's mouth, and threw a honey cake to Cerberus, the three-headed watchdog of hell who prevented the departed souls from leaving. Thus the expression "a sop to Cerberus" which meant "an insignificant sum to prevent displeasure."
But the question remains, "What is the sop to ResCap the housing arm of GMAC owned by Cerberus?" Here's what it costs in credit default swap land. $37 million per $100 million of bonds and $500,000 a year. So the market's pricing the bonds at 60 cents on the dollar, or an imminent holiday bankruptcy.
Maybe that's the sop the Fed needs to be more aggressive in their rate cuts.
Thursday, November 15, 2007
Getting paid to break-up?
Remember when Hugh Grant used to date Elizabeth Hurley? After being caught in a not so angelic encounter with Ms. Divine Brown, in 1995, he finally split from from her but not before Hugh bought Warhol's Liz, for $3.7 million in 2001. It sold yesterday for $23.7 million, a $20 million payback on the same name.Google's Larry Page, worth $20 billion, is getting married to his long term girlfriend, Lucy Southworth on December 8th. Al Gore won't be attending because he'll be at the Nobel prize ceremony in Oslo. So the only question to ask is, "How much will she get for sharing the same name?"
Amaranth sues JPMorgan
Amaranth's collaspe was aided by JPMorgan, or so the lawsuit alleges. What took Amaranth so long? Here's what I had to say on August 10th:
But if you mark it down for him, don't you have to mark it down for yourself? That's what the SEC wants to know. Why don't they have losses when everyone else is having them? At least that's probably what the disgruntled fund said to the SEC.
Do you think I'm making this stuff up? Does anyone remember listening to JP Morgan's third quarter conference call last year crowing about the $750 million they made for buying Aramanth's energy portfolio of natural gas positions, when they had "margin calls" and were forced to liquidate? Who was their prime broker that gave Aramanth the margin call that forced the liquidation?
It was JP Morgan, who were able to buy this "distressed" merchandise and sell it two weeks later to Citadel for almost a billion dollars of profit.
It was so comical that JPMorgan would brag about this deal. Now the courts will have to decide if another investment bank took advantage of a leveraged player.
What a novel concept!
But if you mark it down for him, don't you have to mark it down for yourself? That's what the SEC wants to know. Why don't they have losses when everyone else is having them? At least that's probably what the disgruntled fund said to the SEC.
Do you think I'm making this stuff up? Does anyone remember listening to JP Morgan's third quarter conference call last year crowing about the $750 million they made for buying Aramanth's energy portfolio of natural gas positions, when they had "margin calls" and were forced to liquidate? Who was their prime broker that gave Aramanth the margin call that forced the liquidation?
It was JP Morgan, who were able to buy this "distressed" merchandise and sell it two weeks later to Citadel for almost a billion dollars of profit.
It was so comical that JPMorgan would brag about this deal. Now the courts will have to decide if another investment bank took advantage of a leveraged player.
What a novel concept!
Grab Garmin!
Garmin (GRMN 85.60) is down 40 points from it's high, as the market is all worked up that GRMN will make a counter-offer higher than TomTom's bid for Tele Atlas. Rational? Not! At 2:30 a.m. this morning, Garmin and TomTom reached a global settlement on all their intellectual property litigation, and this morning, Piper came out with a call saying they felt that Nokia's deal with Navteq would now close. Which means that GRMN has reached a behind the scenes deal on maps without busting their bank. At least that will be the Wall Street spin.
So GRMN, ramps from here.
So GRMN, ramps from here.
Wednesday, November 14, 2007
Tomorrow's rumours today
The market took a tumble after GE's "enhanced" cash fund, offered to pay all non-GE subscribers 96 cents on the dollar. "Enhanced" in financial parlance means it has the attributes of a money market, but with a higher yield, while preserving your dollar NAV.
It didn't happen.
The fund is $5 billion and 96 cents on the dollar is a 4% haircut and 4% of $5 billion is $200 million. Why didn't GE just pony up $200 million and be done with it? Bank of America injected $600 million in their money markets, so why didn't GE? The market assumed that the problem was bigger, because 1/2 of the funds assets are invested in home equity and residential mortgage securities. In this tape, you have to know what they are going to throw at you. When Citibank rumored E*Trade into bankruptcy Monday, the stock got crushed, and some E*Trade account holders puked up their holdings. Those that bought ETFC at 3 1/2 Monday, had a 6 dollar number today, while those that bought the stocks they puked up caught the bottom for Tuesday's gigantic ramp. In this "shoot first ask questions later" market you need to be prepared. So here's the other money market story on Fidelity.
Fidelity has over $300 billion in money market assets, and as of September 30, $7 billion was invested in the following eight SIV's: Asscher Finance, Beta Finance, Centauri Corp., Dorada Finance, Cullinan Finance, K2 Finance, Links Finance and Nightingale Finance.
On November 8, Moody's placed the following SIV's on review for possible downgrades. Orion Finance Corp., Carrera Capital Finance Ltd., Beta Finance Corp., Centauri Corp., Dorada Corp., Tango Finance Ltd., Asscher Finance Ltd., Cullinan Finance Ltd., White Pine Corp., Hudson-Thames Capital Ltd., Nightingale Finance Ltd., Links Finance Corp. and Premier Asset Collateralized Entity Ltd.
So 7 out of 8 of Fidelity's SIV's that they owned in their money market were put under review by Moody's for possible downgrades. That's the other story, and the shorts will run with it in various versions tomorrow.
It didn't happen.
The fund is $5 billion and 96 cents on the dollar is a 4% haircut and 4% of $5 billion is $200 million. Why didn't GE just pony up $200 million and be done with it? Bank of America injected $600 million in their money markets, so why didn't GE? The market assumed that the problem was bigger, because 1/2 of the funds assets are invested in home equity and residential mortgage securities. In this tape, you have to know what they are going to throw at you. When Citibank rumored E*Trade into bankruptcy Monday, the stock got crushed, and some E*Trade account holders puked up their holdings. Those that bought ETFC at 3 1/2 Monday, had a 6 dollar number today, while those that bought the stocks they puked up caught the bottom for Tuesday's gigantic ramp. In this "shoot first ask questions later" market you need to be prepared. So here's the other money market story on Fidelity.
Fidelity has over $300 billion in money market assets, and as of September 30, $7 billion was invested in the following eight SIV's: Asscher Finance, Beta Finance, Centauri Corp., Dorada Finance, Cullinan Finance, K2 Finance, Links Finance and Nightingale Finance.
On November 8, Moody's placed the following SIV's on review for possible downgrades. Orion Finance Corp., Carrera Capital Finance Ltd., Beta Finance Corp., Centauri Corp., Dorada Corp., Tango Finance Ltd., Asscher Finance Ltd., Cullinan Finance Ltd., White Pine Corp., Hudson-Thames Capital Ltd., Nightingale Finance Ltd., Links Finance Corp. and Premier Asset Collateralized Entity Ltd.
So 7 out of 8 of Fidelity's SIV's that they owned in their money market were put under review by Moody's for possible downgrades. That's the other story, and the shorts will run with it in various versions tomorrow.
Power Ratings
Ever check the NFL power ratings midweek? Here's a quip that was posted about the Patriots:
The Boston Globe broke down the numbers and determined that WR Randy Moss has been involved in 500 of a possible 583 offensive snaps. That's 84 percent -- or just 16 percent less than Tom Brady's success rate when he asks someone out on a date.
So what are the power stocks that the market loves? AAPL, BIDU, GOOG, RIMM and ISRG. These are the stocks the pros love to bet on, and BIDU at 341, looks like it could move much higher during this option expiration week.
The Boston Globe broke down the numbers and determined that WR Randy Moss has been involved in 500 of a possible 583 offensive snaps. That's 84 percent -- or just 16 percent less than Tom Brady's success rate when he asks someone out on a date.
So what are the power stocks that the market loves? AAPL, BIDU, GOOG, RIMM and ISRG. These are the stocks the pros love to bet on, and BIDU at 341, looks like it could move much higher during this option expiration week.
Tuesday, November 13, 2007
The E*Trade discount?
Yesterday Citigroup stock analyst Prashant Bhatia said E*Trade had a 15% chance of going belly-up. Does Citigroup have a new mark-to-model price discovery process? His call was effective, causing a run on E*Trade stock, while panicked customers dumped their portfolios to get cash.
The selling yesterday had the feel of "who is selling at these prices?" It was indiscriminate and panicky.
Now you know why.
The selling yesterday had the feel of "who is selling at these prices?" It was indiscriminate and panicky.
Now you know why.
Warren Buffett to the rescue?
The WSJ had an article about the mortgage insurers, and you only had to read one line. Here it is:
Predictions of the demise of bond insurers could be premature, particularly if they succeed in securing lifelines from a deep-pocketed insurance salesman in Omaha, Neb.
Re-insurance from Buffett would knock one of the pegs from the stool that the bears were standing on in their hysterical laced Armageddon they've envisioned for the stock market. Remember two years ago, when no-one wanted to write any hurricane insurance? Mr. Buffett stepped up to the plate. How did that bet pay off? The idea that Buffett is looking to be a lifeline to the reinsurance industry indicates that severe overpricing of risk currently exists in the marketplace and these assets are being under-valued at today's prices. Blackstone yesterday, said that sub-prime was particularly interesting at these levels.
Market players should take heed to what the smart money is now doing.
Predictions of the demise of bond insurers could be premature, particularly if they succeed in securing lifelines from a deep-pocketed insurance salesman in Omaha, Neb.
Re-insurance from Buffett would knock one of the pegs from the stool that the bears were standing on in their hysterical laced Armageddon they've envisioned for the stock market. Remember two years ago, when no-one wanted to write any hurricane insurance? Mr. Buffett stepped up to the plate. How did that bet pay off? The idea that Buffett is looking to be a lifeline to the reinsurance industry indicates that severe overpricing of risk currently exists in the marketplace and these assets are being under-valued at today's prices. Blackstone yesterday, said that sub-prime was particularly interesting at these levels.
Market players should take heed to what the smart money is now doing.
Sunday, November 11, 2007
Bailout Begins!
The $75 billion SIV will be up and running by the end of the year, sponsored by Citigroup, Bank of America and JPMorgan. They'll be looking for some cash from another 65 banks. Word is they'll now take just about anything in this SIV. The next step is for the Central Banks to intervene in the currency markets, to support the dollar.
Citigroup (C 33.10) and Washington Mutual (WM 20.51) are buys on this news. My brother, whose idea of excitement in the market is trading Berkshire Hathaway B's, Thursday sold his GLD at 83.40 and used the proceeds to buy C at 31.41, showing that the panic (ie stupidity) on Wall Street has not spread to the Midwest.
The banks are already moving assets. Look at their balance sheets. The tremendous growth in assets held for investments, from assets held for sale indicate this. The difference? Assets held for investment don't need to be written down like the assets held for sale. So move them. The bears will scream at this, and say it's accountant chicanery but they are wrong. The prices now, are not "real world" pricing, even though these prices exist at this moment in time. AAA at 75%, and AA paper at 50% that are still paying, need another look. But the short position is so great in this area, that the hedger's need this inventory. And they want the smaller banks to panic, so the larger banks have to mark down their paper. Now the banks just have to move assets to the SIV.
With the SIV in place, FASB 157, that comes into place November 15th, won't be the knockout blow that the bears thought. The rally in the financials will cause the shorts to cover. It's the same story that happened last week with the mortgage insurers.
Friday, PMI rallied $3.77 to $14.88, and MTG rallied $2.94 to $21.30 on news that insurer Old Republic had taken an 15% and 11% stake respectively. The stocks rallied despite a certain market pundit screaming that they were going out of business. That was the first step. Lock up stock and create stability in the market to engender confidence. Now look for giant buyers to step in the financials this week.
So buy them!
Citigroup (C 33.10) and Washington Mutual (WM 20.51) are buys on this news. My brother, whose idea of excitement in the market is trading Berkshire Hathaway B's, Thursday sold his GLD at 83.40 and used the proceeds to buy C at 31.41, showing that the panic (ie stupidity) on Wall Street has not spread to the Midwest.
The banks are already moving assets. Look at their balance sheets. The tremendous growth in assets held for investments, from assets held for sale indicate this. The difference? Assets held for investment don't need to be written down like the assets held for sale. So move them. The bears will scream at this, and say it's accountant chicanery but they are wrong. The prices now, are not "real world" pricing, even though these prices exist at this moment in time. AAA at 75%, and AA paper at 50% that are still paying, need another look. But the short position is so great in this area, that the hedger's need this inventory. And they want the smaller banks to panic, so the larger banks have to mark down their paper. Now the banks just have to move assets to the SIV.
With the SIV in place, FASB 157, that comes into place November 15th, won't be the knockout blow that the bears thought. The rally in the financials will cause the shorts to cover. It's the same story that happened last week with the mortgage insurers.
Friday, PMI rallied $3.77 to $14.88, and MTG rallied $2.94 to $21.30 on news that insurer Old Republic had taken an 15% and 11% stake respectively. The stocks rallied despite a certain market pundit screaming that they were going out of business. That was the first step. Lock up stock and create stability in the market to engender confidence. Now look for giant buyers to step in the financials this week.
So buy them!
Thursday, November 8, 2007
Morning action
At 3:00 am, the S&P futures were down 12, and the NASDAQ futures were down 26. They turned around when news came out that BHP Billiton approached Rio (RTP 357.50) about a bid. Or was it? That was the "official" explanation. Conspiracy folks will say the buying was by the PPT. (Plunge Protection Team-The working group on markets.) "They" looked like the buyers. The rumors and whispers have gotten so extreme, and the price dislocations so sharp in the financial stocks, that stability in that area is necessary, and a significant trading bottom should be at hand.
Compare that with the action in the solar stocks. First Solar (FSLR 167) will be up over 50!! points on huge earnings. The 175 calls were only $6 dollars yesterday. They'll be at 50 today. Solar names Trina Solar (TSL 62.43), Sun Power (SPWR 145), SunTech (STP 64.80) will get action, and even Evergreen Solar (ESLR 13.65) looks good on the charts.
Compare that with the action in the solar stocks. First Solar (FSLR 167) will be up over 50!! points on huge earnings. The 175 calls were only $6 dollars yesterday. They'll be at 50 today. Solar names Trina Solar (TSL 62.43), Sun Power (SPWR 145), SunTech (STP 64.80) will get action, and even Evergreen Solar (ESLR 13.65) looks good on the charts.
Wednesday, November 7, 2007
China wants to "diversify"
Their foreign reserves, that is. Cheng Siwei said that China wants to diversify it's foreign currency reserves. And we look to open down 200 points on this news with a dip of 25 points on the Naz.
So China, wants to have some real assets. Is that a surprise? Put a 500 euro note in your hand, and ask yourself if this is money. China wants more of them, and it's in their national interest. Now today, the entire foreign currency market is spooked. They are worried about the flow of funds away from the dollar with this move by China. And the deepest, most liquid, and largest market in the world, can't absorb this news, and the dollar gets hit again.
Now ask yourself one more question. If China can move the foreign currency markets, what happens to the stock prices when they decide to diversify their assets here? I keep talking about the NASDAQ 100. It's a non-financial index. But there is a component of the Naz that will be dramatically repriced upwards because of the trends facing the world's economy.
Our Federal Reserve is completely behind the eight ball. They said they wanted to get ahead of the curve. Let's see if they are right. The two year note yields 3.63%, while the Fed funds rate is at 4.5%. The Fed should of cut 50 basis points, but by cutting 25 basis points, it will extend their interest rate cuts to deeper levels. They should of used the elevator down instead of the stairs. The Forex markets see this. Housing needed more, and that's the weakness in our economy. So Bernanke & Co. by their blustering bluffing, intended to protect the dollar, paradoxically will hurt it. And the banks will have larger writeoffs because there still is price discovery problems because everyone is still afraid to trade any of this sub-prime paper, because the underlying collateral, housing continues to go down. Would they trade this paper if home prices were going up?
And I have to rant when financial commentators state that consumers have absorbed the higher oil prices. Since when? The refiners absorbed the prices! Now those days are over, and the monthly saving on the HELOC will be taken away at the pump.
So what do you do? You buy the opening gap down!
So China, wants to have some real assets. Is that a surprise? Put a 500 euro note in your hand, and ask yourself if this is money. China wants more of them, and it's in their national interest. Now today, the entire foreign currency market is spooked. They are worried about the flow of funds away from the dollar with this move by China. And the deepest, most liquid, and largest market in the world, can't absorb this news, and the dollar gets hit again.
Now ask yourself one more question. If China can move the foreign currency markets, what happens to the stock prices when they decide to diversify their assets here? I keep talking about the NASDAQ 100. It's a non-financial index. But there is a component of the Naz that will be dramatically repriced upwards because of the trends facing the world's economy.
Our Federal Reserve is completely behind the eight ball. They said they wanted to get ahead of the curve. Let's see if they are right. The two year note yields 3.63%, while the Fed funds rate is at 4.5%. The Fed should of cut 50 basis points, but by cutting 25 basis points, it will extend their interest rate cuts to deeper levels. They should of used the elevator down instead of the stairs. The Forex markets see this. Housing needed more, and that's the weakness in our economy. So Bernanke & Co. by their blustering bluffing, intended to protect the dollar, paradoxically will hurt it. And the banks will have larger writeoffs because there still is price discovery problems because everyone is still afraid to trade any of this sub-prime paper, because the underlying collateral, housing continues to go down. Would they trade this paper if home prices were going up?
And I have to rant when financial commentators state that consumers have absorbed the higher oil prices. Since when? The refiners absorbed the prices! Now those days are over, and the monthly saving on the HELOC will be taken away at the pump.
So what do you do? You buy the opening gap down!
The Dollar Dumps!
In the WSJ, we had this quote by Seiichiro Muta from the director of forex at UBS, "The euro's strength will probably continue for a while. If the euro manages to maintain its current momentum, it could even reach $1.5 within this year."
Maybe he listened to Gisele.
Maybe he listened to Gisele.
Sovereign wealth funds
I keep bringing them up, because they are playing in our market, and they are absolutely wrecking the "pros." It is almost comical. They don't want our dollars, so every other currency goes up against it. They don't want our financials, so they buy the 100 largest non-financial companies: the NASDAQ 100. Gold and silver have had solid moves, but the next move in silver will be parabolic as the paper futures get delivered.Every day we here new dire reports about US financial companies, and this works for a bit to panic US investors. Then the stocks are picked up in giant programs that move the entire market, all to the bears chagrin. The tech stocks romp, while the solar stocks ramp, and our dollar falls. But Wall Street tells us the dollar will soon rally because Gisele Bundchen wants to get paid in euros and not dollars; and what does a supermodel know?
Give me a break. That's analysis? Now take a good look at Gisele. She dates Tom Brady of the Patriots and pulls down $33 million a year. We're supposed to believe that she's the indicator that will cause our dollar to rally? That's Wall Street research? Believe it at your own peril!
Let me give you a sports analogy. Today we heard from Nutri-system spokesman, coach Don Shula, the elder statesman of football, a wonderful community leader and gentlemen, who had some great years with the Dolphins. He had this to say about the Patriots when he defended his 17-0 season:
"The Spygate thing has diminished what they've accomplished. You would hate to have that attached to your accomplishments. They've got it. Belichick was fined $500,000, the team was fined $250,00 and they lost a first-round draft choice. That tells you the seriousness or significance of what they found."
"I guess you got the same thing as putting an asterisk by Barry Bonds' home run record. I guess it will be noted that the Patriots were fined and a No.1 draft choice was taken away during that year of accomplishment. The sad thing is Tom Brady looks so good, it doesn't look like he needs any help."
Sorry, but I'll take the coach with the hoodie, and the quarterback with the supermodel girlfriend. Unless he's playing Brett and the Pack.
And I'll bet with the sovereign buyers, and not the hysterical criers of gloom on the street.
And for those that want Gisele's video version:
http://www.youtube.com/watch?v=t_esha96nTcTuesday, November 6, 2007
The hapless shorts
It is unbelievable the amount of junk, rumour and innuendo that is being spread by the short hedge fund community. The NASDAQ 100 is prepared to melt up, and it seems that none of the "professionals" are prepared for it. Why are they all so negative? It's because the pros want this market down! It's not going to happen.
Monday morning, when the DOW gapped down 130 points, and the Naz 100 gapped down at 2190, I said we would have a 3.73% move on the Naz by Friday. Tomorrow evening Cisco reports. Where will the market be then? And where will the bears be then? Monday they were thumping their chest, instead of covering their shorts!
Yesterday, Doug Kass, of SeaBreeze Partners, who's been a bear, said that the day BIDU gapped up 10 points, and reversed would probably be the end of the NASDAQ move. Well, that happened today. What happened to the market? It rocked! To be fair, Mr. Kass brought in some of his shorts on the financials, and today said that the market could make a countertrend move. He should just cover all his shorts, now, and get on board. But that might not be intellectually rewarding!
Now you know why the market was full of these rumours. The "professionals" are not long, and they're also short. Here's an example of their games.
Blue Nile (NILE 74.68) reported earnings after the close, beating estimates by .02. The stock got clocked down to 64. It then rebounded over 20!!! points. Here's a bit of what I wrote on this stock on October 15th. Look at the shares owned by institutions, versus the shares outstanding. Who's selling the fake shares?
http://aaronandmoses.blogspot.com
/2007/10/blue-nile.html
There is plenty of demand for the stock, from both shorts and longs, but Citigroup'sMahaney downgraded the stock on Friday to a sell but left his target at 88. He felt that NILE would miss revenue estimates, or be in line at best.
The only one that missed was Mark.
Today on the earnings call, Mark suggested to NILE that they would have problems with all their excess cash. He'll probably change his rating tomorrow. The time between his downgrades and upgrades, was the time for the shorts to cover, and other investors to build a position. But institutions already own more shares than the total amount of stock outstanding! And the shorts? They don't leave, until they're carried out on a stretcher.
And that they will.
(For a great primer on "fake" shares, go to the link below. "Wacky" Patty, as the shorts call Mr. Byrne isn't so wacky!)
http://www.deepcapturethemovie.com
Monday morning, when the DOW gapped down 130 points, and the Naz 100 gapped down at 2190, I said we would have a 3.73% move on the Naz by Friday. Tomorrow evening Cisco reports. Where will the market be then? And where will the bears be then? Monday they were thumping their chest, instead of covering their shorts!
Yesterday, Doug Kass, of SeaBreeze Partners, who's been a bear, said that the day BIDU gapped up 10 points, and reversed would probably be the end of the NASDAQ move. Well, that happened today. What happened to the market? It rocked! To be fair, Mr. Kass brought in some of his shorts on the financials, and today said that the market could make a countertrend move. He should just cover all his shorts, now, and get on board. But that might not be intellectually rewarding!
Now you know why the market was full of these rumours. The "professionals" are not long, and they're also short. Here's an example of their games.
Blue Nile (NILE 74.68) reported earnings after the close, beating estimates by .02. The stock got clocked down to 64. It then rebounded over 20!!! points. Here's a bit of what I wrote on this stock on October 15th. Look at the shares owned by institutions, versus the shares outstanding. Who's selling the fake shares?
http://aaronandmoses.blogspot.com
/2007/10/blue-nile.html
There is plenty of demand for the stock, from both shorts and longs, but Citigroup'sMahaney downgraded the stock on Friday to a sell but left his target at 88. He felt that NILE would miss revenue estimates, or be in line at best.
The only one that missed was Mark.
Today on the earnings call, Mark suggested to NILE that they would have problems with all their excess cash. He'll probably change his rating tomorrow. The time between his downgrades and upgrades, was the time for the shorts to cover, and other investors to build a position. But institutions already own more shares than the total amount of stock outstanding! And the shorts? They don't leave, until they're carried out on a stretcher.
And that they will.
(For a great primer on "fake" shares, go to the link below. "Wacky" Patty, as the shorts call Mr. Byrne isn't so wacky!)
http://www.deepcapturethemovie.com
Buy the ABX!
The ABX index for sub-prime at 18.55 is now at levels that shorts must cover. I'd buy ABX swaps on this until the cows come home. Why? Because it's almost at zero!
Assume that three year coupon to hold an ABX "short" is at 500 bps. What's your upside? Why do you think Wall Street is screaming at the banks to puke up their holdings and mark it to Mr. Market's price now?
It's time to get the prospectuses out and do some buying. The bond desks need to get a Christmas bonus. And the simplest way is to get your competitor, who lost his, to sell their inventory to you. Mark it up, and then sell it to the smart shorts. They need a bonus too!
Assume that three year coupon to hold an ABX "short" is at 500 bps. What's your upside? Why do you think Wall Street is screaming at the banks to puke up their holdings and mark it to Mr. Market's price now?
It's time to get the prospectuses out and do some buying. The bond desks need to get a Christmas bonus. And the simplest way is to get your competitor, who lost his, to sell their inventory to you. Mark it up, and then sell it to the smart shorts. They need a bonus too!
Alibabba IPO
Alibabba closesd up almost 300%, valuing the company close to $27 billion with a PE over 300. The WSJ mentioned Global Sources (GSOL 33.44) in the article, and the Motley Fool suggested that Alibabba go and buy them. Watch that number, as it could be in "play" today.
Now you know why I mentioned it yesterday at 32.82. I said it could quickly go to 37 on its way to 44.
Now you know my definition of quickly. It's one day.
Now you know why I mentioned it yesterday at 32.82. I said it could quickly go to 37 on its way to 44.
Now you know my definition of quickly. It's one day.
Monday, November 5, 2007
Goldman's subprime bonds
Bloomberg reported that GS subprime exposure, was facilitated by Treasury Secretary Hank Paulson, when he was at Goldman. They've whittled to $13 billion from the $37 billion of sub prime bonds that they're peddling that have a deliquency rate of 22%. I'll let the comments from Representative Miller speak for themselves.
"He should admit to having been involved in creating the problem that we have now," said Representative Brad Miller, a North Carolina Democrat, who introduced a bill Oct. 22 to make firms packaging subprime mortgages liable for bad loans in some circumstances...
Starting in March, Paulson said the damage was "largely contained" and was no risk to the larger economy. When other credit markets began to be affected, he and others began pushing for solutions. "I can't help but notice that when middle-class homeowners were losing their homes to foreclosure, he was pretty nonchalant about it," Miller said of Paulson. "But when Wall Street CEOs start seeing trouble in their absurdly complicated financial instruments built on the mortgages of middle-class homeowners, he feels their pain."
"He should admit to having been involved in creating the problem that we have now," said Representative Brad Miller, a North Carolina Democrat, who introduced a bill Oct. 22 to make firms packaging subprime mortgages liable for bad loans in some circumstances...
Starting in March, Paulson said the damage was "largely contained" and was no risk to the larger economy. When other credit markets began to be affected, he and others began pushing for solutions. "I can't help but notice that when middle-class homeowners were losing their homes to foreclosure, he was pretty nonchalant about it," Miller said of Paulson. "But when Wall Street CEOs start seeing trouble in their absurdly complicated financial instruments built on the mortgages of middle-class homeowners, he feels their pain."
Citigroup's level 3 assets
total $134.8 billion. These are the assets that are the most subjective in pricing. Look for the market to have a field day with this.
The market script
Citigroup (C 37.73) fires Chuck Prince (..ooops he resigned) and reports future losses between $8-11 billion depending on which "model" you use. Meanwhile Berkshire Hathaway, which doesn't use any models posted net income of $4.55 billion, or $2,942 a Class A share. In the year-earlier period, Berkshire reported a 373% surge in earnings to $2.77 billion, after Buffett's bet on the weather (no hurricanes) came in. This quarter he booked his bet on Petro China, showing that no matter the weather, or the investment climate, smart people make money. Citigroup and Merrill Lynch? You decide if their "model" is broken!
But if you really want action, get up early and trade Wellcare (WCG 27.37). The stock cratered from 122, when the FBI raided the building, as market players panicked selling stock while shorts piled on. They report earnings at 8:30 a.m, and won't say a word about the investigation. But the WSJ did. They alleged that there was $35 million of state federal healthcare over billing the past 5 years. That's $7 million a year. In dollar terms the market lopped off $4 billion of market value for a "parking ticket." A Cayman Island subsidiary could also have some "holdback" issues, and patients at WCG had referral fees that are at a higher reimbursement level. But the stock is down 100 points. And the market will focus on the $35 million figure, and come to this 10 second "guesstimate."
Assume the $35 million is right. Pay a fine of treble damages, and let WCG director, ex Florida Governor/Senator Graham smooth things out. Lop off $140 million, (35+105=140) and you have a company with $4-6 earnings power, 2.3 million patients (do you think they are going to switch providers?) and $33 of net cash. The stock doubles in a heartbeat, and the nimble traders get a piece of that.
Do we know any of this to be true? No. But that's how Wall Street works, and you need to play buy their rules to make money.
So that's the script for the market as I see it. It may sound outrageous, but wasn't that a song in Britney Spear's album, "In the Zone?"
But if you really want action, get up early and trade Wellcare (WCG 27.37). The stock cratered from 122, when the FBI raided the building, as market players panicked selling stock while shorts piled on. They report earnings at 8:30 a.m, and won't say a word about the investigation. But the WSJ did. They alleged that there was $35 million of state federal healthcare over billing the past 5 years. That's $7 million a year. In dollar terms the market lopped off $4 billion of market value for a "parking ticket." A Cayman Island subsidiary could also have some "holdback" issues, and patients at WCG had referral fees that are at a higher reimbursement level. But the stock is down 100 points. And the market will focus on the $35 million figure, and come to this 10 second "guesstimate."
Assume the $35 million is right. Pay a fine of treble damages, and let WCG director, ex Florida Governor/Senator Graham smooth things out. Lop off $140 million, (35+105=140) and you have a company with $4-6 earnings power, 2.3 million patients (do you think they are going to switch providers?) and $33 of net cash. The stock doubles in a heartbeat, and the nimble traders get a piece of that.
Do we know any of this to be true? No. But that's how Wall Street works, and you need to play buy their rules to make money.
So that's the script for the market as I see it. It may sound outrageous, but wasn't that a song in Britney Spear's album, "In the Zone?"
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