Monday, October 13, 2008

Banks closed, stocks rally

Maybe the bank that the shorts used were closed! Friday Morgan Stanley was shorted down to $6.17, rallied to $10, then after the close, Charlie Gasparino breathlessly intoned with much gravitas and concern, that the deal was going to be renegotiated. It sold down to 9 in the after-hours, by those worried about the next Lehman, even though another Lehman wouldn't or couldn't happen, when the Government is fixing the rules. Today, with assurances from our Government, the deal gets done at 25, and MUFG shows that in Japan, honor is revered, even though dishonor is revered on Wall Street.

But the key takeaway from the Morgan Stanley deal is that the days of shorting these stocks into death is over. Too many powers now have too much skin in the game. Attack Goldman, Morgan Stanley and State Street, and the government fights back.

And for all those bears thinking that the sloppy action in GE, JPM, and some of the other financials is a harbinger of things to come, you're in the wrong pasture. The hedge funds that are left need alpha, so today they sold some of the big cap financials to grab the speculative names. The numbers that didn't move today, will move tomorrow, especially on the the Treasury plan that will be revealed in the morning. Remember it's get shorty week! Open stocks down, and hold up the banks, and you'll engender confidence in the market.

All the other hedges that followed the liquidation unwind trades touted by Goldman, will be eating their young, attempting to cover these numbers. Remember all the billions set aside to buy up distressed assets on the cheap? (ie mortgage bonds, leveraged loans, and distressed bonds?) With the Government buying distressed debt, that plan has been put on the back burner. The new game, was to make the billionaire puke up his stock. We saw that in CHK. Now we see that Sumner Redstone, who plans on living forever, had margin calls and had to sell some CBS (8.74) and Viacom (VIA 21.06), which traded under 15 Friday. We saw the same action in Tesoro (TSO 10.82) which was up 25% today. They pre-announced guidance of quarterly earnings of $1.70-$1.90 versus estimates of .64. Why did they pre-announce? Because their CEO got a margin call, and he had to dump some shares, so he tried to stop the bleeding with the early earnings news! Anyone have an idea, who Bruce Smith had to sell the shares through? To quote the Vice presidential candidate with the declining popularity, "Say it ain't so, Joe!" Goldman Sachs:

Additionally, the Company announced that Bruce Smith, its Chairman, President and CEO, will file a Form 4 with the Securities and Exchange Commission reporting that Goldman Sachs sold 251,100 shares of Tesoro stock owned by him. The shares were sold in accordance with an existing margin agreement to meet a margin call. Depending on the direction of Tesoro’s common stock price, further sales may be required.

Looks like Bruce Smith didn't want to be McClendoned!

Liquidation unwind stocks can now be bought as those late to this party have to cover their shorts from those who really want to own them! The action in Cleveland Cliffs (CLF 35.83), Freeport (FXC 45.37), Mastercard (MA 173.60), US Steel (X 51.08), New York Stock Exchange (NYSE 33.31 ) and Baidu (BIDU 266.05) shows that too many hedge funds are short too many shares of Goldman's liquidation-unwind list which was passed around out to too many clients!

Let their young eat their young!

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