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Thursday, July 31, 2008

7th Street Fashion Show & Block Party

Opposite day!


George : Why did it all turn out like this for me? I had so much promise. I was personable, I was bright. Oh, maybe not academically speaking, but ... I was perceptive. I always know when someone's uncomfortable at a party. It became very clear to me sitting out there today, that every decision I've ever made, in my entire life, has been wrong. My life is the opposite of everything I want it to be. Every instinct I have, in every of life, be it something to wear, something to eat ... It's all been wrong.

Waitress : Tuna on toast, coleslaw, cup of coffee.

George : Yeah. No, no, no, wait a minute, I always have tuna on toast. Nothing's ever worked out for me with tuna on toast. I want the complete opposite of on toast. Chicken salad, on rye, untoasted ... and a cup of tea.

Elaine : Well, there's no telling what can happen from this...

George : Yeah, I should do the opposite, I should.

Jerry : If every instinct you have is wrong, then the opposite would have to be right.

George : Yes, I will do the opposite. I used to sit here and do nothing, and regret it for the rest of the day, so now I will do the opposite, and I will do something!

Tomorrow should be opposite day in the stock market. The unemployment rate should go up and we should lose at least 150,000 jobs, courtesy of the adjustment of the fictious jobs that the BLS always assumes are created in their birth/death model that they now will belatedly acknowledge that these jobs didn't exist.

So how do you play opposite day?

By buying an employment stock. Monster Worldwide (MNST 17.74).

Why? The chart looks horrible. So do the opposite. It's at a yearly low. So do the opposite. The economy is losing jobs. So buy the company that advertises jobs. It's opposite day!

And I just like the perverse idea of buying a stock that deals with employment on the day we get bad employment numbers!

Monster has $4.44 a share in cash. Net of cash, the stock is selling at 9X earnings. Does anybody think this franchise is worth more than that?

They just reported earnings of .40 for the quarter, beating estimates by .03 cents, and they also settled their legal disputes, by shelling out $47 million. The company has been cleaned up and scrubbed. Now it just needs the economy to turn around. And if anyone wants to acquire the company, you won't have this dispute hanging over the buyer's head. And unlike Wall Street, there are people that consider these businesses to have an enterprise value.

And if you want a shirt like the one I'm wearing, you can pick up some environmentally and eco friendly clothing this weekend at the 7th Street Fashion Show. Check the post above.

Maybe some of you hedge funds can spread some of that free money you're making on some unique clothing, instead of rigging the contemporary art market!

China to Be World's Top Manufacturer of Green Energy Technology


Aug. 1 (Bloomberg) -- China, the world's biggest greenhouse- gas emitter, is poised to lead world production of solar cells, wind power turbines and low-carbon energy technology.

China is already the world's largest renewable-energy producer as measured by installed generating capacity, according to a report today from the Climate Group, a coalition of companies and governments that support solutions to global warming. The country is also the world's top manufacturer of solar cells and will be the leading exporter of wind turbines by 2009.

China's position as a renewable-energy consumer and manufacturer runs counter to its ranking as one of the world's biggest polluters and the country's rapid expansion of coal-fired power generation. About 75 percent of China's electricity comes from coal, said Changhua Wu, China director for the Climate Group, who is based in Beijing.

``They have to do clean energy because they can't just do more and more dirty energy,'' said Michael Liebreich, chief executive officer of London-based New Energy Finance Ltd., which provides research to clean-energy investors. ``We're seeing China as being a Number 1, 2 or 3 player in lots of different sectors in this industry.''

Favre flying to the Packers


Aircraft Cessna Citation 1SP (twin-jet) (C501/L)
Origin Hattiesburg-Laurel Rgnl (KPIB)
Destination Austin Straubel Intl (KGRB)
Route 4429 08807
Date Thursday, Jul 31, 2008
Duration 2 hours 36 minutes

Departure 05:25PM CDT 05:25PM CDT
Arrival 08:01PM CDT 08:01PM CDT
Speed 320 kts
Altitude 37000 feet
http://flightaware.com/live/flight/N70NB/history/20080731/2225Z/KPIB/KGRB

The "circus" arrives in Green Bay tonight!

Market trots out the three bears

Yesterday before the close Meredith Whitney's interview on CNBC was bandied about.


This morning it was Pimco's McCulley.

And today, in the final half hour, it was "the accident waiting to happen," Mr. Greenspan.

I said this morning to go and buy bonds and flip them into the unemployment numbers tomorrow.

And without the fantasy jobs by the BLS in the birth-death jobs in tomorrow's number, expect that rate to go higher again. You'd have to be a buyer of bonds today, and flip them on the number tomorrow.
http://aaronandmoses.blogspot.com/2008/07/unemployment-rate.html

It will be a heck of a trade.

But let's look at what Greenspan said. He said that we were in a "once in a century" crisis. He then said that the odds of a recession were 50/50. Huh? Did anyone catch that?

We've had 21 recessions in the last hundred years. So we get a recession every 5 years, yet the odds of a recession are only 50/50 in this "once in a century" crisis?
http://www.cnbc.com/id/20510977/

Forget what the bears say. This game is played to make money. So tomorrow, you buy stocks on the sloppy job numbers, and you sell the bonds you bought today.

How tough is that?

Garmin at 36?

What this company isn't even worth that?

I'll take the other side of the trade of the sellers in this number!

AKS in play

AK Steel has been entertaining sale talks with multiple parties, sources familiar with the situation told dealReporter. The company is interested in an all-cash transaction, and has informally been on the block for a couple of months, according to two sources with knowledge of discussions.
http://www.ft.com/cms/s/2/180f4ec6-5f1c-11dd-91c0-000077b07658,dwp_uuid=e8477cc4-c820-11db-b0dc-000b5df10621.html

Why doesn't someone take a look at Allegheny Technologies (ATI 48.40)? It would have to be in a few weeks though. The insiders just bought a huge slug of stock!
http://aaronandmoses.blogspot.com/2008/07/ati-insiders-buy.html

GDP 4th quarter revised to negative -.2%

So who believes the 1.9% Q2 number, when you're losing 44,000 jobs a week?

Tout service picks up OSIP

08:16 EDT OSI Pharma-OSIP: Moving up on ImClone
OSI Pharma's (OSIP) Tarceva is a competitor to ImClone's Erbitux. On news of BMY's offer to buy IMCL, the shares are up +3.08% in the early going. Resistance levels to watch as potential upside objectives are at $52.00, 52.95, $54.00, $54.98, $56.25, $57.13, $59.00. Support is at $50.94 based on current pre-market price. It would be bearish if this level were broken to the downside. :theflyonthewall.com


Boy that was a tough call to make. But if you want a free report on OSIP to make you courageous try this link:
http://www.reveredata.com/reports/store/freereport/mna/4366_7697

BMY bids $60 for IMCL

Stock trades to $64! Carl wins big, and the shorts lose large!

When is someone going to take over OSI Pharmaceuticals (OSIP 49.96)? This number should be on the block next! A merger is in their DNA!

Tough day for the shorts!

Unemployment "rate"

The number of Americans who have seen their full-time jobs chopped to part time because of weak business has swelled to more than 3.7 million — the largest figure since the government began tracking such data more than half a century ago.

The loss of pay has become a primary source of pain for millions of American families, reinforcing the downturn gripping the economy. Paychecks are shrinking just as home prices plunge and gas prices soar, furthering the austerity across the nation.
http://www.nytimes.com/2008/07/31/business/economy/31jobs.html?_r=1&hp&oref=slogin

Of course these workers aren't counted. They are in the "U-6" numbers. The marginally attached workers, and those employed part time for economic reasons. That rate is 9.9%. And without the fantasy jobs by the BLS in the birth-death jobs in tomorrow's number, expect that rate to go higher again. You'd have to be a buyer of bonds today, and flip them on the number tomorrow.

Or you could just complain that the government statisticians lies while having a beer on the couch.

Daytrading funds need a locate

"If the Securities and Exchange Commission expands its clampdown on short-selling, it is widely expected to slam hedge funds like Stephen Cohen's SAC Capital and James Simon's Renaissance Technologies, which profit from fast-and-furious trading, experts predicted.

That's because under the long-accepted rules of the short-selling game, these hedge funds, which often trade through sophisticated computer programs, have been able to skip the process of borrowing the shares needed to cap off their short positions.

But that luxury is now being challenged by the SEC's mandate requiring investors who short 19 financial stocks, including Fannie Mae and Freddie Mac, to borrow the shares they short before they bet against the stock whose price they predict will fall.

Previously, short sellers could rely on a broker's promise that the shares could be delivered, if need be, within a few days.

"The guys who do the rapid trading stuff, they're shorting without having to borrow because they know they're going to close out by the end of the day," said one hedge fund manager. "Those are the people who are going to be most impacted by this."

Under the new rules, "if a prime broker does not have it physically pre-borrowed, those trading opportunities may be gone," said well-known short trader Jim Chanos, speaking on behalf of his organization, which is lobbying against the SEC's rules.

Among those most likely to be affected are day-trading shops like SAC, Renaissance and Ken Griffin's Citadel Investment Group, which trade shares so quickly they rarely need the shares to be delivered."
http://www.nypost.com/seven/07312008/business/shorts_are_in_a_bind_122388.htm

Prudential remains the rock

As least you were forewarned!

American International Group (AIG 25.07) and Prudential Insurance (PRU 61.67) are the derivative play on BAC's earnings.

And if you are short these numbers, and you don't know why that is, you haven't been doing your homework!

You have can still cover these numbers at these prices, and consider it a gift. Or you can wait until they report and get crushed!

http://aaronandmoses.blogspot.com/2008/07/noose-tightens.html

Today anyone short Prudential (PRU 66.68) will get crushed. The company beat numbers, earning $2.02 versus estimates of $1.84 and PRU upped estimates for the year to $7.5-$7.80 versus $7.45 estimates. The conference call is at 11:00 today. Maybe the bears can ask them how they avoided the sub-prime mess!

The stock is still cheap. As advertised!

Wednesday, July 30, 2008

FASB delays the OBSI rule

Banks have been given a one-year reprieve by US accounting standard-setters from having to take up to $5,000bn (£2,520bn) of debt assets on their balance sheets, easing short-term fears that they would be forced to raise large amounts of new capital quickly.

The Financial Accounting Standards Board voted to delay until January 2010 rules that would force banks to consolidate more off-balance sheet vehicles directly in their accounts.

Robert Herz, FASB chairman, said that the move was made reluctantly after a staff recommendation for a delay because there might not be enough time for all companies to adjust to the significant up-heaval.

He said: “It does pain me to allow something that has been abused by certain folks, to let that go on for another year”

http://www.ft.com/cms/s/0/71f44a4a-5e7c-11dd-b354-000077b07658.html

Citigroup caused a mini panic when their analysts said banks would have to take these assets on their balance sheets. Here was the story back in June:

Accounting changes could force US banks to take thousands of billions of dollars back on to their balance sheets in the coming months in a move that is likely to curb further their lending and could push them into new capital raisings, analysts have warned.

Analysts at Citigroup said a planned tightening of the rules regarding off-balance sheet vehicles would force banks to reconsider arrangements and could result in up to $5,000bn of assets coming back on to the books.

The off-balance sheet vehicles have been used by financial institutions to keep some assets off their balance sheets, thereby avoiding the need to hold regulatory capital against them.

Birgit Specht, head of securitisation analysis at Citigroup, said: "We think it is very likely that these vehicles will come back on balance sheet.

"This will not affect liquidity because [they] are funded, but it will affect debt-to-equity ratios [at banks] and so significantly impact banks' ability to lend."

Ms Specht told a seminar at a conference on asset-backed securities in Cannes that the uncertainty about what might change was making banks uneasy about their investments. "Banks are not investing [in assets] right now because of funding issues and regulatory uncertainty."

http://www.ft.com/cms/s/0/33cab6b4-31d1-11dd-b77c-0000779fd2ac.html

OBSI (Off balance sheet items) are assets that banks have, that they own, that they pretend they don't. They do this by setting up QSPE (Qualified Special Purpose Entities) or VIE (Variable Interest Entities) or SPE (Special Purpose Entities).

Why is this done?

Because you don't know the value of the assets, or the parent companies obligation behind them. If this would be passed, it would give investors a real idea of the health of the financial institution. And right now, that wouldn't "be a good thing!" You can read about the FASB rule in the link below.
http://www.fasb.org/project/transfers_of_financial_assets.shtml

So postpone it a year when the assets are hopefully worth more!

The Fed's toxic paper from Bear Stearns (now JP Morgan) supposedly hasn't fallen a penny, but Merrill Lynch's toxic assets are worth just .22 cents on the dollar. And if we could actually see the assets on Maiden Lane LLC, we would know that the Fed was lying.

It's the same with the banks. They can't take the light!

Today, the Fed sponsored more alphabet soup. It extended the PDCF (Primary Dealer Credit Facility) and the TSLF (Term Securities Lending Facility) until January 30, 2009. It also extended the TAF (Term Auction Facility) paper's term from 28 days to 84.

I'm sure these will be extended also. So did you expect anything else with FASB Statement 140?

It's all just alphabet soup with different letters!

But don't let this news get you bearish. You now you have an opponent that can't be whispered down!

The bears have lost their "marbles"

I still can't believe the pundits and their bearishness. Nobody wants to believe the bear market is over.

It's gone.

Toast.

Finished.

Last week, I went to see the "The Wonderful Wizard of Oz" with my daughter at a local playhouse.

In the play, my daughter found the witch of the west really scary. But afterwards, in the light, we took pictures of her with my daughter.

She wasn't so scary then.

It was the same with Meredith Whitney on CNBC today. She's just not scary anymore.

How could she be?

Merrill Lynch raised capital, and anyone that bought the stock made money. What's wrong with making money?

She had her day in the sun. She saved a lot of people a lot of money, and also made a lot of money for the shorts. Markets can change quickly. And it isn't pretty when you overstay your welcome in the sun. Just ask Angelo Mozilla.

Before we went to the play, my daughter was doing gymnastics, and somehow she accidentally swallowed a small blue marble.

So the next couple of days, we did a "poop" check, until we found it.

It really was kind of fun. Especially when you are looking at things thru the eyes of a six year old.

It reminded me of this market. There are some people, who have such a bearish predisposition, that they can't find anything positive, or right with this world.

Maybe they don't like blue marbles.

But a lot of people do.

It's the same with the market.

You let some people make some money, and they'll start looking at things a little differently.

Today some traders sold the financials off right before the bell just because Meredith was going to be interviewed on CNBC.

What for?

She's all wet!

Oil rallies $5 bucks, and the Dow rallies 186

Wait-Wasn't this not supposed to happen?

The oil rally means we aren't heading into a "depression." The market, has the shorts cornered, so all news will be looked at with the glass half full.

Today we had Meredith Whitney on CNBC after the close, still warning us after the horses have already left the barn, even after the barn has already been burnt down.

If she would look a little closer, she'll see that the barn is being rebuilt!

She thought Wachovia would have to raise money. But the stock's at 17, not 8, when she hammered it at the bottom in the financial stocks on July 15. I disagreed! The story is in the link below. This article should be reread!
http://aaronandmoses.blogspot.com/2008/07/bernanke-and-bush-capitulate.html

The lows are in. July 15th was the bottom. And you had the story here. On the day! On the above link!

Reread it if you still cling to your bearish thesis.

The bear is over. As advertised!

The Visa play tomorrow

Here's the playbook on Visa.

Visa beat numbers, and the stock rallies in the afterhours, to 82, and now has sold off to 78. The calls were "pumped" for earnings. Hopefully tomorrow morning, they'll hit the stock and the calls will be crushed.

That's when you pick them up, as they'll move the stock later in the day.

On April 29th, when Visa reported, the stock traded down 4 1/2 points to 71, and the May 85 calls were given away at .25. The stock reversed off the low and closed at the high of the day at $80.88.

I banged the calls out for 5 two days later.

I think you may have another shot tomorrow.

If the stock comes in, take a shot on the calls when they crush the premium. They won't be as cheap, as the stock won't come in as it did in April, but the bears will try.

Make some "manna" from the bears attempt at manipulation to scare the bulls!

That's your Visa play!

Trinity beats numbers, trades up 2 1/2

As advertised!

Free money for the early morning readers!

Trinity reports today
Trinity (TRN 35.25) usually beat by 8-10% or so, and the stock gets a lift after earnings, especially when they talk about their "wind" program.It's also a stock that Cramer likes, and any push can move it. You'll hear how you get the "wind" business for free..etc.So short the puts, or go long this number for a "manna" trade.
Posted by Palmoni at 7:36 AM
http://aaronandmoses.blogspot.com/2008/07/trinity-reports-today.html

Judge Judy



That will be the expression on the bear's faces!

Garmin misses numbers

And the stock trades down to 38ish.

At 10X earnings, and a debt free balance sheet, it's worth a trade here.

Banks and CDO pricing

Why does Merrill's CDO sale make such headlines? In the NY Times we have this:

The fire sale raises a troubling question for the nation’s battered financial industry: Have other banks with similar investments overestimated their values?

Still, Merrill’s price of 22 cents on the dollar was held up as the new measuring stick on Tuesday, as analysts whipped out predictions for Merrill’s peers. Several focused on Citigroup, a bank with large exposure to C.D.O.’s.

An analyst from Deutsche Bank said the new marks might cost Citigroup up to $8 billion. An analyst from Merrill Lynch said the write-down at Citigroup would probably be closer to $6 billion. And at Ladenburg Thalmann, an analyst said the marks would be much smaller. Citigroup declined to comment.

Citigroup’s chief financial officer said on the company’s second-quarter earnings call that many of the bank’s C.D.O.’s were created before 2006. Those assets are valued at 61 cents on the dollar, for now. Other mortgage assets at Citigroup known as mezzanine C.D.O.’s and high-grade C.D.O.’s are already marked closer to Merrill’s 22-cent level.

An analyst from Deutsche Bank said the new marks might cost Citigroup up to $8 billion. An analyst from Merrill Lynch said the write-down at Citigroup would probably be closer to $6 billion. And at Ladenburg Thalmann, an analyst said the marks would be much smaller. Citigroup declined to comment.

http://www.nytimes.com/2008/07/30/business/30merrill.html?_r=1&ref=business&oref=slogin

So a fire sale is the new measuring stick? Boy that is completely FASB!

Look how the bears chimed in with their "what if" scenarios.

William Tanona, Goldman Sachs analyst, said that if Citi were to write down its $22.7bn of CDOs to the levels implied by the Merrill deal, it would have to take a $16.2bn writedown. Citi said this month that it valued its CDOs at about 61 cents on the dollar. Citi declined to comment. However, people close to the company said that the bulk of its CDOs dated to years prior to 2005 – before the onset of the housing crisis. As a result, they said that Citi was comfortable valuing them at current levels.
http://www.ft.com/cms/s/0/b38320c8-5d99-11dd-8129-000077b07658.html

Here's a question. If we know a buyer wants to pay 22 cents on the dollar for Merrill's most toxic CDO's, and we know that Merrill has lost more money than anyone, why would anyone think that Merrill was getting the better price than the buyer?

They weren't.

And if these structure squared ABS CDO's were so complicated, how is that we can have estimates of their value, when the people estimating their value don't know what they own?

They can't.

But at 22 cents on the dollar, what is the upside for those that are short? There isn't any. And since these markets are so thin, what will the short covering cause?

Higher prices on even the most toxic junk.

At least the most over-hyped CEO on the face of the planet is good for something.

John Thain gave us the bottom in pricing!

Trinity reports today

Trinity (TRN 35.25) usually beat by 8-10% or so, and the stock gets a lift after earnings, especially when they talk about their "wind" program.

It's also a stock that Cramer likes, and any push can move it. You'll hear how you get the "wind" business for free..etc.

So short the puts, or go long this number for a "manna" trade.

BASF to buy WR Grace?

Der Chemiekonzern BASF forciert die Suche nach Übernahmezielen und hat dabei stark die USA im Blick. So prüft er beispielsweise konkret eine Übernahme des Wettbewerbers Grace mit 3,1 Mrd. $ Jahresumsatz.
http://www.ftd.de/unternehmen/industrie/:Übernahmepläne_BASF_stellt_Masterplan_für_Zukäufe_auf/392022.html

Translated:

Chemicals group BASF pushed the search for acquisition targets and has much the U.S. in view. To examine it, for example, specifically a takeover of competitor Grace with $ 3.1 billion annual sales.

(click below for a translated link)
http://translate.google.com/translate?u=http%3A%2F%2Fwww.ftd.de%2Funternehmen%2Findustrie%2F%3A%25DCbernahmepl%25E4ne_BASF_stellt_Masterplan_f%25FCr_Zuk%25E4ufe_auf%2F392022.html&hl=en&ie=UTF8&sl=de&tl=en

Tuesday, July 29, 2008

Real buying vs reel selling

Last week, we were told that the rally in the financials was just a "short squeeze." Remember this nonsense story that was bandied about after the stocks pulled back and we were told that the shorts had exhausted themselves?
http://aaronandmoses.blogspot.com/2008/07/false-story-being-pinged-about.html

So why did BAC jump jump $4.22 to $32.22 today? Or WFC jump $2.53 to $30.46. Or JPM jump $3.09 to $40.75? Or C jump $1.02 to $18.45? Was it just because these were the companies that got behind Paulson's covered bond plan?

Or was it because the buying was real.

And because the selling of the shares is just reel. As in Hollywood. Fake shares, shorted shares, non deliverable shares. Not real life, but reel life. Wall Street's reel movie without real shares!

No one says it's a problem, because it's a multiple trillion dollar problem. And it's a bet going against the naysayers and the bears. That's why it's not a problem, because it is such a problem.
http://aaronandmoses.blogspot.com/2008/07/glimpse-at-shortsellers.html

There is $666 billion short on the NYSE alone.
http://aaronandmoses.blogspot.com/2008/07/666-billion-short-bet.html

The shorts have had their way with the stocks.
http://aaronandmoses.blogspot.com/2008/07/short-interest.html

And now it's the bulls turn.

The bears will argue that there is nothing good going on in the economy, housing can't rebound, and there is nothing new in technology, blah blah blah...

How about the free money available in the stock market, courtesy of the shorts who bet on Armageddon?

Tomorrow, I think we'll have an expansion of the short selling rules, and the market will take some more out of the hides of the bears.

And maybe the shorts should learn a lesson from Mother Merrill. Yesterday, I thought you could pick up that number at 25.
http://aaronandmoses.blogspot.com/2008/07/mother-merrill.html

I suppose I was the only one on the street that didn't know about the CDO sale and capital raise, until after it happened. Ever think that was why the shorts were so aggresive in pounding the financials with their reel shares?

But think about this. Merrill Lynch fell from the 80's to 22, because they burned thru $47 billion of losses. But they are still in the game.

What is going to happen to the shorts when they try and cover their multi-trillion dollar bet?

Will they still be in the game?

We know how this movie ends.

We'll get back to real prices, which will be at levels that will end this reel selling, and it will put them out of the game.

Really!

Citigroup retests

Citigroup, (18.48) gave all the retest you are going to get, and should now head to 22, with a nice candle to get the chartists giddy.

ATI Insiders buy

Chairman picked up 50,000 shares yesterday at 46.56, and CFO picked up 10,000 shares at 46.51.
http://www.form4oracle.com/company?cik=0001018963&ticker=ati

Depression era clothing?

The duds say it all - and it's depressing.

Taking a cue from the grim economy, this fall's fashions at Banana Republic, Gap and H&M are featuring a distinctly Depression-era trend of cloche hats, pencil skirts, conductor caps and baggy, vintage-style dresses.

One of the most popular styles appears to hark back to the impish, newsboy getup of the 1930s: baggy trousers, caps, pinstriped vests, oxford lace-up shoes and utilitarian handbags.

http://www.nypost.com/seven/07282008/news/regionalnews/a_touch_of_crash_121893.htm

Doesn't this stuff normally happen at bottoms in the stock market?

Oh that's right.

It's different this time!

yeh, right!

Walkaway-front page on MSN?

Some people believe that walking away from a mortgage is immoral...

But again, there's no evidence these borrowers are merrily skipping away from their biggest debts. What's far more likely is that they're facing huge increases in their monthly payments that they simply can't manage. Rather than continue to throw good money after bad, they're giving up.

And that's not necessarily immoral. It may just be realistic.

http://articles.moneycentral.msn.com/Banking/HomeFinancing/WhenToWalkAwayFromAMortgage.aspx?page=2

Come on. We have walkaway's now being recommended on MSN? We have a huge writeoff and raise at Merrill Lynch? Worries at AIG? More writedowns at Citigroup. More handwringing?

And you bears are still looking for more? You already got it.

Cover your shorts here. Good gosh, you hit a home run, and now you want to measure it?

This was the retest of the bottom, that we had last week.

Get on board!

Morgan Stanley

Is a trade here at 35.5. If Merrill doesn't go down after their writedown and raise, what would you do if you were a short?

You'd cover!

AIG and CDO's

I suppose I should be breathless because we are warned that AIG's exposure to CDO's is the same as Merrill, and thus they need to write down their exposure to .22 cents on the dollar also.

Cramer had the bearish story:

Here's a company that touted all of its super senior paper as top-notch triple-de-dipple AAA, and said it was insured and underwritten wisely. Billions of the stuff. I think that if AIG had to take the face value and mark it down by five-sixths, it would lead to some really big restatements.

Of course, AIG is still opaque. I am getting my assurances from the December meeting where we found out that everything was tip-top. Who the heck knows what they really have, how much of it they have, how much of it has bogus insurance and how much can be sold?

http://www.thestreet.com/p/rmoney/jimcramerblog/10430826_2.html

Is this information new? Of course not.

So it's in the stock and at 24, you have a trade.

The Contempory Art bubble

Need to get bullish? Hirst's formaldehyde bull is supposedly going to sell for $25 million, at the Sotheby auction, "Beautiful Inside my Head Forever."

Take the bull market in stocks out of formaldehyde and put the oil market in it, along with the $175 -$200 super spike predictors.

And take Moses' Golden Calf over Hirst!

US Steel blows earnings away

And trades at 155 in the pre-market. 20 points in three days! I'll take it. As advertised!
http://aaronandmoses.blogspot.com/2008/07/steels-on-sale.html

Now let Mr. Market reprice ATI upwards!

Hedge funds on the Hunt

So says the WSJ:

Hedge funds, viewing the carnage caused by the credit crisis, are starting to weigh opportunities in the battered financial sector.

It is another sign for bullish investors that better times are ahead. But those expecting hedge-fund managers to ride to the rescue likely will be disappointed.

Debt-trading specialists already have a combined $100 billion that they are getting ready to put to work, according to participants in the market. Now, a growing number of hedge funds are raising more money from investors to buy beaten-up debt products or to purchase stakes in struggling financial companies.

John Paulson's Paulson & Co. is the latest to cause a stir, with plans to launch a fund late this year to make equity investments in financial companies. When a bear like Mr. Paulson senses bargains, it could be a sign that the worst is over.
http://online.wsj.com/article/SB121729431329391909.html

Merrill's writedown

MER unloaded $31 billion face of senior CDO's for .22 cents on the dollar. Does anybody think that this transaction was done in a vacuum?

Stock prices indicate that it wasn't.

So the financials should rally on this news.

Meredith Whitney says that this is a good thing. That must make the bears cringe.

And it will also make other holders of the same securities to take a long hard look at their marks. Citigroup valued the same at .53 cents on the dollar.

And the biggest winner of all of this is .53 cent stock SCA! (The stock that Goldman Sachs said had a value of zero).

SCA will be given a long hard look at today, as the assumptions made by the shorts and bears are wrong, judging by the value of the contracts written up, and the payments/settlements made, prodded by and at the behest of the Insurance Commissioner of NY.
http://online.wsj.com/article/SB121729687755992121.html?mod=hps_us_whats_news

This number could move 500%.

Monday, July 28, 2008

Merrill raises more capital

Now we know why the stock didn't bounce!

Merrill is raising $8.5 billion, and Temasek holdings, who did the first raise at $48 gets shares at the lower price with a $2.5 billion dividend payout, to forget about the reset provision in their original capital raise.

The super senior CDO's, Merrill sold at 22 cents on the dollar, to Lone Star funds, financing 75% of the purchase price. At the price it dumped them, it looks like Merrill Lynch underestimated the cost of the "kitchen sink" by $4.4 billion from 30 days ago!

Merrill Lynch also cut deals with the monolines, and satisfied their lawsuit with XL and SCA.

So Merrill has now lost money on home mortgages, home equity lines, and now they've lost $4.4 billion on the kitchen sink!

Thank goodness it wasn't gold plated!

But this should make Meredith Whitney happy. On the last conference call, she asked Merrill Lynch why they just don't find a bid, sell things and start over.

Today Merrill did.

Give the FDIC a bazooka


I went in to Wachovia bank, and I saw three older couples maneuvering their money around so they would be under the FDIC limit.

So "bazooka" the FDIC.

They burned thru $8 billion the last few weeks, so jack up the amount that they insure. Put it to $500K. At least it will help psychology. Does $100K really do anything anyway?

The banks don't even keep reserves for saving deposits. You're just lending your money to the bank when you deposit it there. So let them back it up.

The FDIC has a "list" of problem banks. Supposedly they have less than $30 billion in assets. There is $2.73 trillion of un-insured deposits in our banking system. If you spook these people, where will all this money go?

And if the FDIC is so sure about what is, and what isn't a problem bank, then keep the 100K insurance only for those "problem" banks.

Any chance of that happening?

Look what happened in Vegas today, when John McCain's son resigned from Silver State Bancorp.

Silver State Bancorp, the Henderson-based holding company for the similarly named bank, reported that Andrew McCain, son of Republican presidential candidate John McCain, resigned today from the boards of directors of the bank and bank holding company.

The company cited “personal reasons” for McCain’s resignation, and a Silver State spokesman declined further comment.

Sheila Bair of the FDIC, last week said the "blogs were a little bit out of control." So look at Silver State Bancorp's asset profile above, courtesy of http://globaleconomicanalysis.blogspot.com/.

What chance does that bank now have of making it?

Blame the bloggers!

Paterson gets fiscal religion

ALBANY - Gov. Paterson, convinced the state faces its worst fiscal crisis since the mid-1970s, will deliver the grim news in an unprecedented special address to New Yorkers as soon as tomorrow night, The Post has learned.

He may also call a special session of the Legislature to propose reducing some of the record-high levels of spending that were approved as part of the state's new budget in April.
"The situation is worse than anyone realizes," said a source close to Paterson.
http://www.nypost.com/seven/07282008/news/regionalnews/that_70s_woe_in_rerun_121880.htm

Mother Merrill

MER at 25.08 is down almost 10 points in three days. Looks like a trade here.

Russia dumps $50 Billion of GSE paper

They want hard assets!

Russia dumped $50 billion of mortgage bonds and now owns just $50 billion worth. Two weeks ago, they said this:

MOSCOW, Jul 14, 2008 (Dow Jones Commodities News via Comtex) -- The Russian Finance Ministry reiterated Monday that it doesn't see a threat in holding parts of its gold and foreign-exchange reserves in debt of U.S. mortgage companies, including Fannie Mae (FNM) and Freddie Mac (FRE).

"We don't see a reason to change anything because the rating of the debt of those agencies hasn't changed," Deputy Finance Minister Dmitry Pankin told journalists, adding that the debt obligations are backed by the U.S. government.
http://www.marketwatch.com/news/story/dj-russia-reiterates-confidence-100b/story.aspx?guid=%7BA33015AE-65F2-4900-83DE-AB3E96E2541A%7D

Russia learned from Wall Street. Tout them, while you dump them. Now you know where PIMCO got their inventory from!

The "terror" card

Just in on ABC news:

U.S. Headed for 'Heightened Alert' Stage
Exclusive: Major Events on the Horizon Prompt a Surge in Anti-Terror Efforts

Government officials have been quietly stepping up counterterror efforts out of a growing concern that al Qaeda or similar organizations might try to capitalize on the spate of extremely high-profile events in the coming months, sources tell ABC News.

This is what the Department of Homeland Security is quietly declaring a Period of Heightened Alert, or POHA, a time frame when terrorists may have more incentive to attack.

According to drafts of government memos described to ABC News, the period would run roughly from this August through July 2009.

http://abcnews.go.com/TheLaw/story?id=5420514&page=1

How about from August until the election?

"We're saying no to almost everybody"

Banks struggling to recover from multibillion-dollar losses on real estate are curtailing loans to American businesses, depriving even healthy companies of money for expansion and hiring.

The scarcity of credit has intensified the strains on the economy by withholding capital from many companies, just as joblessness grows and consumers pull back from spending in the face of high gas prices, plummeting home values and mounting debt.

“The second half of the year is shot,” said Michael T. Darda, chief economist at the trading firm MKM Partners in Greenwich, Conn., who was until recently optimistic that the economy would continue expanding. “Access to capital and credit is essential to growth. If that access is restrained or blocked, the economic system takes a hit.”

Companies that rely on credit are now delaying and canceling expansion plans as they struggle to secure finance.

Drew Greenblatt, president of Marlin Steel Wire Products, figured it would be easy to get a $300,000 bank loan to finance a new robot for his factory in Baltimore. His company, which makes parts for makers of home appliances, is growing and profitable, he said. His expansion would add three new jobs to an economy hungry for work.

But when Mr. Greenblatt called the local branch of Wachovia — the same bank that had been aggressively marketing loans to him for years — he was distressed by the response.

“The exact words were, ‘We’re saying no to almost everybody,’ ” Mr. Greenblatt recalled.
http://www.nytimes.com/2008/07/28/business/economy/28credit.html?ref=business

Hedge fund woes for July

Hedge funds may post their worst month in at least five years after bets on financial stocks falling and on crude oil rising backfired.

Hedge Fund Research Inc.'s Global Hedge Fund Index of more than 55 funds slid 3.2 percent through July 24, heading for the biggest monthly drop since the measure started in 2003.

Wagers on a decline in financial stocks and homebuilders, one of the most popular, soured after Fannie Mae and Freddie Mac shares more than doubled in the six trading days to July 23. Bullish bets on crude oil turned to a loss as oil slid 15 percent from a record $145.29 a barrel on July 3 after doubling in a year.

``You have to believe that everyone had the same trade on,'' said Paul Meader, co-managing director of Corazon Capital Management, a Guernsey, Channel Islands-based manager with about $1.2 billion, mostly invested in hedge funds. ``There will be a lot of people hurting and licking their wounds with a tough July to report to their clients.''

Short selling of Fannie Mae and Freddie Mac jumped in the first two weeks of July as the stocks fell on concern that shareholders would be wiped out even if the government bailed out the entities. Instead, the shares doubled in six trading days, catching out investors who shorted the stock, selling borrowed shares in anticipation of buying them back at a cheaper price.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a_9IKPcAlqfQ&refer=home

All the "smart" money is leaning the same way!

Not so smart!

Allegheny Technologies

Remember "smart" and "specialty" and "high performance"steels and alloys? Or how about stocks that were "80" going to "120?" Or was that only when ATI was at the door of 120?

Now it's at 45! Good grief. We've heard the bearish story. High gas prices and credit won't allow another plane to be sold again, and demand for their metals will then be blah blah blah....

Last I looked, oil and fuel prices are coming down, and this number is sitting at a three year low.

But most need at least two reasons to buy a stock. I just gave you one. The second?

The Pac Man defense!

Sunday, July 27, 2008

Tuesday's surprise: Expand "naked" short rules

"Wall Street executives expect the Securities and Exchange Commission to extend the temporary limits it has placed on short-selling and expand them to cover additional stocks beyond the 19 financial companies it targeted two weeks ago.

The limits are set to expire Tuesday, and executives, lobbyists and hedge-fund representatives of the Managed Funds Association, the biggest hedge-fund industry group, have been talking throughout the weekend, trying to come up with possible approaches to asking the SEC to reconsider expanding the rules, according to people familiar with the talks.

A call with regulators on Friday gave the funds group "a fair degree of certainty" that the SEC intends to seek an extension of the emergency period, these people said. Regulators said an extension could be for as short as 60 days and could involve insurance, housing-industry and a broader range of financial stocks, according to these people. SEC Chairman Christopher Cox indicated last week the rules might be extended to all stocks...

The SEC is also working to make short-selling rules permanent. The SEC staff is expected to narrow down the options and recommend them to the four SEC commissioners, which could happen as soon as Monday. The rules wouldn't be finalized until later this year. "

http://online.wsj.com/article/SB121720268943988515.html?mod=hps_us_whats_news

We have bearish pros leaning bullish, and an administration that wants to make it difficult to short. And if you rumour a stock down, you face a subpoena. In Lehman Brothers, the Fed is now checking into four rumours!

In subpoenas recently sent to dozens of hedge funds and others, the SEC asks the investment funds for transcripts of phone calls, messages and payroll documents that mention or include the Federal Reserve's lending facility, Barclays PLC, hedge fund SAC Capital Advisors and bond-fund house Pacific Investment Management Co., or Pimco, according to people familiar with the matter. The investigation is in its early stages.
http://online.wsj.com/article/SB121720520948988699.html?mod=hps_us_whats_news

What would you do? Remember, this isn't a religious exercise, it's about money. The consequences are only your bottom line.

So Wall Street will convert.

Bearish pros leaning bullish?

Everyone knows the story of David Einhorn and his bearish bets on Lehman. He won't tell anyone if he covered, or if he is still short. But he did tell this to the FT:

David Einhorn, the hedge fund manager whose Greenlight Capital invests about $6bn, is eyeing investments in distressed debt but is waiting for prices to fall further.

We’re not there yet,” Mr Einhorn said in a video interview with the Financial Times. “We have not yet begun purchasing distressed debt.”

http://www.ft.com/cms/s/0/44241740-5c0f-11dd-9e99-000077b07658.html

Last week it was John Paulson, who personally made $3.7 billion last year after he bet that mortgage bonds would blow up. he's looking to start a new fund to invest in banks.

John Paulson, who recorded what was thought to be the single biggest profit in the history of the hedge fund industry last year by betting on a financial collapse, is planning a new fund to provide capital to cash-strapped banks.

Mr Paulson’s New York-based Paulson & Co plans to open a new hedge fund by the end of the year to buy into financial institutions raising cash, although the plans have not yet been finalised. Investors said they expected to see documentation for the new fund next month, assuming it went ahead.

The move suggests Mr Paulson is preparing to call the bottom of the market for financials, a shift likely to be closely watched by other investors. Mr Paulson was the flag-carrier last year for a group of hedge funds that made enormous profits – estimated by investors at more than $12bn for Paulson’s funds – by shorting, or betting against, subprime mortgages.
http://www.ft.com/cms/s/0/488558bc-58f9-11dd-a093-000077b07658.html

You can get bearish by the headlines, or you can use the headlines as an opportunity.

These guys see an opportunity, and they've been the most vocal of the bears.

But Wall Street wants you to believe that the rally in the financials was just a "short squeeze."

It makes sense of course. Wall Street missed the entire collapse, why wouldn't they miss the entire recovery?

Nocera of NY Times on Steve Jobs health

On Thursday afternoon, several hours after I’d gotten my final “Steve’s health is a private matter” — and much to my amazement — Mr. Jobs called me. “This is Steve Jobs,” he began. “You think I’m an arrogant [expletive] who thinks he’s above the law, and I think you’re a slime bucket who gets most of his facts wrong.” After that rather arresting opening, he went on to say that he would give me some details about his recent health problems, but only if I would agree to keep them off the record. I tried to argue him out of it, but he said he wouldn’t talk if I insisted on an on-the-record conversation. So I agreed.

Because the conversation was off the record, I cannot disclose what Mr. Jobs told me. Suffice it to say that I didn’t hear anything that contradicted the reporting that John Markoff and I did this week. While his health problems amounted to a good deal more than “a common bug,” they weren’t life-threatening and he doesn’t have a recurrence of cancer. After he hung up the phone, it occurred to me that I had just been handed, by Mr. Jobs himself, the very information he was refusing to share with the shareholders who have entrusted him with their money.

You would think he’d want them to know before me. But apparently not.
http://www.nytimes.com/2008/07/26/business/26nocera.html?pagewanted=2&sq=apple&st=cse&adxnnl=1&scp=2&adxnnlx=1217203356-W5JhHYkf5kNoa/YXkgjRNQ

"Problem" Banks? No problem!

The FDIC has a list of "problem" banks, at at the end of last quarter, (March 30) 90 banks were on this list with $26.3 billion of assets, or about $342 million in average assets each.
http://www4.fdic.gov/qbp/2008mar/qbp.pdf

The previous quarter, there was 76 banks on the list, with $22.2 billion of assts or $292 million in average assets each.

A bit more than $3.6 billion of assets went out the door with First National and First Heritage. If you lumped those off the 90, you have 88 banks with $22.7 billion of assets or about $257 million in assets each.

It just tells you the FDIC is woefully understaffed, and doesn't understand when a problem is a problem.

And it just tells you that the larger banks, with larger deposits, are more adept at concealing problems, because they have more to lose.

The FDIC didn't have IndyMac on their list of problem banks, and anyone with a pulse could tell you it was a problem. IndyMac had over $20 billion in assets-who would want that on the list? It would skew their statistics!

Instead the community banks are the problem because they have retail deposits, of which banks have to pay a higher deposit. Translation: They don't get the spread. Their net interest margin is lower.

So all this talk of higher short term rates is just ridiculous. It would affect the biggest banks first, because their rates, unlike the community banks with a retail deposit base, get affected immediately.

Merrill Lynch has already written off more than double the entire assets of all the FDIC's problem loans. So how can we then have such a credit crunch if the problem resides in just $22 billion of bank's assets?

Because we know there is problem in bigger banks. Because the FDIC says there is no problem.

So that's where the problem reigns!

Saturday, July 26, 2008

SemGroup tags Merrill Lynch

Is there anything that doesn't singe Merrill Lynch? SemGroup, which declared bankruptcy after they lost $3.2 billion trading oil, dinged Merrill Lynch for $55,000,000.
http://www.reuters.com/article/bondsNews/idUSN2550339420080725

Here's a list of the top 30 creditors. (This list doesn't include the Hooter's restaurants and the massage clinics!)
http://www.tulsaworld.com//webextra/content/sem1.PDF

Fed's take down two more banks

First National of Nevada $3.4 billion in assets
First Heritage NA of California $234 million in assets

The FDIC said it would cost them $862 million, or about 24% of the total assets of the above banks.
http://www.msnbc.msn.com/id/25857049

The FDIC had $53 billion before IndyMac's failure. Add the $7 billion for IndyMac's failure and this, and now the FDIC has about $45 billion.

The Telegraph: The worst in 300 years

Britain's economy shrank in May and June as the worst housing market slump in decades took its toll on the UK, it has emerged.

It is the most conclusive sign yet that the longest run of sustained economic growth since the early days of the Industrial Revolution over three centuries ago is over.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/07/26/cngdp126.xml

It's good to see hyperbole and a penchant for exaggeration exists overseas also.

Obama overseas

From the LA Times:

In stop after stop across the Middle East and Europe, Obama was embraced as the man whose promise of change meant a change from Bush: on Iraq, Mideast peace, the treatment of terrorism suspects, climate change, alliance relations and more.
The tour has brought into focus how world leaders already are positioning themselves for a new American president.

Obama's debut appearance on the international stage was the most vivid demonstration yet that the world is moving beyond the Bush era, even while the White House works frantically in its last six months to salvage what it can of its foreign policy agenda.

The trip had to come as a jolt for administration officials, said Wayne White, a senior State Department intelligence official in Bush's first term. "I'm sure it was a bit rattling for the administration to see someone treated with such deference," he said.

http://www.latimes.com/news/nationworld/nation/la-na-bush26-2008jul26,0,3038926.story

And from the Times Online columnist Gerard Baker:

And it came to pass, in the eighth year of the reign of the evil Bush the Younger (The Ignorant), when the whole land from the Arabian desert to the shores of the Great Lakes had been laid barren, that a Child appeared in the wilderness.

The Child was blessed in looks and intellect. Scion of a simple family, offspring of a miraculous union, grandson of a typical white person and an African peasant. And yea, as he grew, the Child walked in the path of righteousness, with only the occasional detour into the odd weed and a little blow.

When he was twelve years old, they found him in the temple in the City of Chicago, arguing the finer points of community organisation with the Prophet Jeremiah and the Elders. And the Elders were astonished at what they heard and said among themselves: “Verily, who is this Child that he opens our hearts and minds to the audacity of hope?”

In the great Battles of Caucus and Primary he smote the conniving Hillary, wife of the deposed King Bill the Priapic and their barbarian hordes of Working Class Whites.

And so it was, in the fullness of time, before the harvest month of the appointed year, the Child ventured forth - for the first time - to bring the light unto all the world.

He travelled fleet of foot and light of camel, with a small retinue that consisted only of his loyal disciples from the tribe of the Media. He ventured first to the land of the Hindu Kush, where the

Taleban had harboured the viper of al-Qaeda in their bosom, raining terror on all the world.

And the Child spake and the tribes of Nato immediately loosed the Caveats that had previously bound them. And in the great battle that ensued the forces of the light were triumphant. For as long as the Child stood with his arms raised aloft, the enemy suffered great blows and the threat of terror was no more.

From there he went forth to Mesopotamia where he was received by the great ruler al-Maliki, and al-Maliki spake unto him and blessed his Sixteen Month Troop Withdrawal Plan even as the imperial warrior Petraeus tried to destroy it.

And lo, in Mesopotamia, a miracle occurred. Even though the Great Surge of Armour that the evil Bush had ordered had been a terrible mistake, a waste of vital military resources and doomed to end in disaster, the Child's very presence suddenly brought forth a great victory for the forces of the light...

http://www.timesonline.co.uk/tol/comment/columnists/gerard_baker/article4392846.ece

Two differing viewpoints. Now that's what makes a market!

Barron's on shorting

In SEC Chairman Christopher Cox's op-ed piece in The Wall Street Journal last week, McCullough writes, "he spilled the beans as to why naked shorting has been forbidden in that select litany of names. According to Mr. Cox, the list 'applies to precisely those financial firms that the Fed has designated as eligible for access to its liquidity facilities -- and for which the taxpayer could be on the hook.'

"So there you have it. Under the guise of not wanting to further burden the taxpayer, they put together that very telling list of [primary dealers] and [government sponsored enterprises]. Of course, they don't give a fig about the taxpayer." The real aim was to avoid wasting the Fed's powder on institutions targeted by evil short sellers, McCullough comments.

In any case, the myriad woes of the credit system strongly suggests that the stirring stock market rally led by the financials in the wake of the Fannie-Freddie bailout and the crackdown on short-selling was mainly the product of short-covering.

Not exactly an original notion, but one well-supported by the data. Bespoke Investment Group points out that banks were the most heavily shorted group among the Standard & Poor's 1500 index in the latest short-interest numbers through July 15 -- the day the financials made their lows. Short interest hit 19.6% of an average bank stock's float; no doubt much of that has been bought back in the subsequent week. Last Thursday's wicked selloff suggested that's likely played out.
http://online.barrons.com/article/SB121702614341886209.html?mod=b_hps_9_0001_b_this_weeks_magazine_home_left

Bought back? Only if they re-shorted higher. We'll see when the short interest figures come out. I don't know one bear on banks that now has become a bull because of Cox's proposal.

Just like I couldn't find one bear that became a bull because of the Fed's alphabet soup.

But I do know bears, who would grudgingly accept the thesis that lower gasoline prices could help out the consumer.

And since oil, which "we will never see $100 a barrel in this lifetime" will probably have a 9 handle on it, before the Olympics are over, means we will grudgingly have some converts.

Hamptons: The town is broke?!?

The town of East Hampton, playground of the rich and pampered, is broke.

How broke? Well, the town is likely to end the year with a $12 million deficit - and in recent weeks, it had only $900 in its bank account and barely made its payroll.

The dire straits have raised the specter of a property-tax hike...

The town of East Hampton consists of six municipalities - including East Hampton village, Amagansett and Montauk - and Sag Harbor, which it shares with the town of Southampton.

It's the summer and weekend playground of P. Diddy, Jerry Seinfeld, Ron Perelman, Steven Spielberg, Julian Schnabel and Candice Bergen, where homes rarely sell for under $1 million.

With a tax base like that, it's a surprise the town is in trouble.

For example, Seinfeld paid nearly $190,000 in property taxes in 2006, according to records.
http://www.nypost.com/seven/07252008/news/regionalnews/leat_hampton_is_going_broke_121464.htm

Friday, July 25, 2008

False story being pinged about

11:52 AM Short positions in all 19 financial companies covered by emergency SEC rule fell 85% since July 14. Fannie/Freddie down 98%. (Reuters)
http://seekingalpha.com/

Rev Shark commented:

If there is any doubt that much of the recent rally in financials was due to a short-squeeze, a report from Reuters that short positions in the 19 financial companies covered by the SEC emergency rule fell by 85% should remove any doubt. That doesn't bode particularly well for continued upside in banks since there no longer are any shorts to take profits on weakness. Banks are lagging today and I expect the group isn't going to do much going forward.
http://www.thestreet.com/p/rmoney/revsharkblog/10430393.html

Only problem is that it's not true!

Here's the story:

NEW YORK, July 22 (Reuters) - Short sells dropped dramatically in shares of the 19 financial firms targeted by U.S. regulators' emergency short-selling rule this week, a market data company said on Tuesday.

Short sells dropped 90 percent in shares of mortgage finance companies Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz), and declined 70 percent in shares of the other 17 financial firms affected by the rule, S3 Matching Technologies said, citing a review of data from its clients.
http://www.reuters.com/article/rbssFinancialServices%20-%20Diversified/idUSN2233071920080722

Short activity dropped in their data, not short positions.

Never think that a bear would manipulate a story to help their position would you?

That's the "internet" economy, and Wall Street.

People forget to think.

Short Interest

Leaning on stocks? Check out the shares short on June 30, and then on July 15.

BAC went from 101 million to 134 million. 33 million shares shorted in two weeks.

Wachovia went from 235 million to 260 million. 25 million shares shorted in two weeks.

Lehman went from 70 million to 85 million. 15 million shares shorted in two weeks.

Those are shares that were "reported." Forget the volume that these stocks trade. 90% is just algorithm day-trading. Unless you believe that half of all the shareholders in BAC flushed out of their stock the last few weeks, (2.2 billion shares traded) and that the entire shareholder base of Wachovia traded hands in just 14 trading days.

That's why you get these 80% moves in these stocks.

Shorts have an agenda, and so do the bulls.

They just don't call their program "the Hammer" and let the CFTC throw charges at you!

Remember how Lehman Brothers traded on July 14th? The stock "hammer" came in at the close and knocked the stock down a buck and change in the closing minutes. You had 500 million shares trading hands in the two days before and after the "hammer" hit the close. The stock was almost cut in half on the shorting, and then moved almost 70% in the days after when the covering started.

That's the market we are in. Big positions, with big agendas!

Forget long term-you just need a day or two to have your move.

And stock ideas are like the "manna" in the wilderness.

It's not any good after a couple of days.

Be quick to buy, and quick to sell, because the moves have to be fast.

Especially if your playing "fast and loose" with the rules!

Because you need to be in and out of your trade and then have your money moved to Liechtenstein!

Steel's on sale


The WSJ had this to say about Cleveland Cliff's:

Cleveland-Cliffs Inc. forgot to get just one thing before unveiling its $10 billion deal for Alpha Natural Resources Inc. -- Phil Falcone's permission.

As a result, the Cleveland iron-ore producer may have inadvertently put itself into play.

Within two days of the deal's July 16 announcement, Harbinger Capital, Mr. Falcone's hedge fund and Cleveland-Cliffs' largest shareholder, said it opposed the move, leaving the transaction in doubt. With a 16% stake in Cliffs, Mr. Falcone effectively has enough power to block any transaction.

Behind the scenes, the Harbinger chief has begun pushing for Cleveland-Cliffs to take advantage of the global steel boom and put itself up for sale. Mr. Falcone reckons Cleveland-Cliffs could fetch as much as $130 a share, or about $14 billion, according to a person close to Harbinger. Harbinger hired Moelis & Co., a mergers-and-acquisitions boutique, as its adviser.
http://online.wsj.com/article/SB121694791560783219.html?mod=hpp_us_whats_news

There are rumors about mergers, but the journal has the wrong company. It's not Cleveland Cliff's, it's US Steel (X 136.02)!

You have earnings on Tuesday, and the weekend for rumors.

Thursday, July 24, 2008

The "hedgie" playbook

Was to short the financials, and go back in the oils.

The oils look to have hit a spot where they can bounce. And the financials, hit a place where they could be sold.

And quick! That was the playbook, and the S&P Financials fell almost 7% today.

The supposed catalyst was Bill Gross of Pimco and his August letter concerning housing:
http://www.ft.com/cms/s/0/d17ed9de-5978-11dd-90f8-000077b07658.html

Yet housing, unlike other asset classes, carries with it an aura more like a bad dream than a fairy tale. Unlike the frog that when kissed turns into a handsome prince, housing can morph a froglike economy into something resembling Godzilla. That is because it is the most levered asset class and the one held by more “investor” citizens than any other. U.S. homes are market valued at over 20 trillion dollars with nearly half of the value supported by mortgage finance of one sort or another. At first blush that appears to be reasonably levered, but at the margin, homes purchased in 2004 and beyond are now at risk of turning upside down – negative equity – and there are some 25 million or so of those. The “upsidedownness” in many cases results in foreclosures, or outright abandonment and most certainly serves as an example of what not to do for millions of twenty-somethings or new citizens choosing between homeownership and renting. The dominoes fall month-by-month, forcing prices ever lower as shown in Chart 1 provided by Case-Shiller. An asset deflation in turn becomes a debt deflation, as subprimes, alt-As, and finally prime mortgages surrender to the seemingly inevitable tide. PIMCO estimates a total of 5 trillion dollars of mortgage loans are in risky asset categories and that nearly 1 trillion dollars of cumulative losses will finally mark the gravestone of this housing bubble. The problem with writing off 1 trillion dollars from the finance industry’s cumulative balance sheet is that if not matched by capital raising, it necessitates a sale of assets, a reduction in lending or both that in turn begins to affect economic growth, creating what Mohamed El-Erian fears as a “negative feedback loop.”
http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2008/Investment+Outlook+Bill+Gross+Mooooooo+August+2008.htm

I suppose that letter would do the trick!

Shorts press their bets

Now that the Fed owns $400 billion of questionable paper,it looks like the Government wants to get serious about shortselling, with this two-pronged approach.

This seemed to be overlooked today, just like the the first time Chris Cox gave testimony saying that you couldn't short the banks and GSE's.

WASHINGTON -(Dow Jones)- Securities and Exchange Commission Chairman Christopher Cox said U.S. regulators intend to extend restrictions on short- sales to the entire market.

"That's our intent," Cox said in response to questions at a House Financial Services Committee hearing on Thursday.

Cox told reporters after the hearing that the SEC staff also is discussing changes that would require disclosure of significant short positions, similar to requirements to divulge big long position in stocks. Cox raised that possibility in an op-ed published Thursday by The Wall Street Journal.

http://money.cnn.com/news/newsfeeds/articles/djf500/200807241703DOWJONESDJONLINE000879_FORTUNE5.htm

The Energy selloff

Has put Chesapeake(CHK 48) and Petrobras (PBR 53.81) at prices where they can now bounce.

These moves are just breathtaking!

Potash levers up and raises guidance

We purchased 7.5 million shares for cancellation in the second quarter, in addition to the 3.4 million shares repurchased in the first quarter. By the end of the second quarter, we had purchased approximately 10.9 million shares under the repurchase program at a cost of approximately $2 billion. We temporarily increased available and outstanding borrowings under our short-term credit facilities to accommodate accelerated buying in the second quarter...

With higher expected overall gross margin, which will be partially offset by increased royalties, provincial mining and corporate income taxes, and assuming parity between the Canadian and US dollar, PotashCorp is raising full-year net income guidance from $9.50-$10.50 per share to $12.00-$13.00 per share. We expect third-quarter net income to be in the range of $3.25-$3.75 per share.
http://biz.yahoo.com/prnews/080724/to274.html?.v=71

The stock looks to gap higher on earnings.

Sell it.

Wednesday, July 23, 2008

Congress to Curb Oil Speculation

July 23 (Bloomberg) -- Congress may outlaw elements of oil futures trading that lawmakers found distorted demand and contributed to the 69 percent surge in prices in the past year.

U.S. legislators are considering limits on the number of oil contracts an investor can hold and may increase disclosure requirements. Speculators such as Goldman Sachs Group Inc. use the practices to bet on price swings, which may drive up prices, though they have no intention of taking delivery of underlying goods, lawmakers say.

Proposals being debated this week in the Senate would bring prices more in line with demand, proponents say. Excluding the effect of speculation, oil would be around $80 a barrel, 38 percent lower than yesterday's price, according to Jesus Reyes Heroles, the chief executive officer of Petroleos Mexicanos. Critics say restrictions may interfere with the functioning of a $4 trillion annual market for crude oil.

http://www.bloomberg.com/apps/news?pid=20601109&sid=aI3KfJ0v2akE&refer=home

Remember a couple of weeks ago, when we heard that we may never see oil at "100 a barrel in our lifetime again?"

Anyone remember Digital Equipment, when it was at 140 a share in 1987? Didn't they say the same thing?

Already every pundit is lining up to sell the financials. What an original idea! Short them for the two points they can pull back.

The financials will rally early because no one has the locate for all the shorts, except the early riser hedge funds. So every hedge fund has the same playbook. Pick up the SKF, on the early morning financial rally, at around 111, and play it as the financials reverse.

You could get a reversal, but not a decent one, as the animal spirits will probably be gunning the NASDAQ names.

But the onus is on the bears to prove that this rally isn't real. I don't think they are up to the task.

Those thinking the easy money is to be made by shorting the financials here, for a trade longer than a couple of days, will probably be mistaken.

I think they hit oil again. And that will blunt any attack that the bears can mount.

That's the hedgie's playbook for tomorrow.

Not mine. I need more than 5% in a trade to get excited in this market!

Self serving pundits

Last week, the Financial Times had this to say by one of their pundits:

I have spent 25 years of my career at exchanges, and most of those at an energy derivatives exchange (with which I have no present connection). For several months, I have watched the growing frequency and vigour with which government and business leaders have focused on the role of speculators in driving energy prices sharply higher around the world. As a market professional, having in past years been responsible for regulation of energy derivatives, and called upon to testify as an expert in energy derivative matters before governmental committees and by the US Department of Justice, I am extremely sceptical that speculators are behind high energy prices. My reason for writing is driven by my concern that in hunting the monster in the closet, we will end up adopting legislation and new regulations that will harm our public markets, which are essentially the work of my life.
http://www.ft.com/cms/s/0/e3a56ecc-5340-11dd-8dd2-000077b07658.html

In today's WSJ we have this story:

The collapse this week of SemGroup LP, a little known private oil-marketing firm, may have played a role in crude oil's 14% drop over the past 10 days.

The Tulsa, Okla., company filed for Chapter 11 bankruptcy protection Tuesday, citing among other financial woes a loss of at least $2.4 billion in crude-oil futures. Changes in its hedging strategies coincided with big moves in oil recently.

The company had taken out short positions, or bets that crude prices would fall, as a hedging strategy for oil it intended to move through a subsidiary's pipelines and sell to refiners, according to an affidavit filed in Delaware bankruptcy court by Terrence Ronan, SemGroup's senior vice president, finance. Then, when oil prices rose, SemGroup moved to "cover" its short positions by taking out equivalent long positions, or bets that oil prices would rise...

One theory making the rounds in the market is that as SemGroup's long positions snowballed, so did the oil rally. SemGroup's rapid exit from the market removed a force for upward momentum when the market, under siege from negative U.S. economic indicators, needed it most.

http://online.wsj.com/article/SB121685645708379013.html?mod=hps_us_whats_news

Nah, it isn't speculators! It's the 87 million barrels of crude we use, and the 85 million barrels of crude that is produced..blah blah blah...

Everything reduced to a soundbite.

And Senator McCain came out with one today. He said that oil dropped because Bush said we need to start drilling!
http://www.msnbc.msn.com/id/25816555/

I could say oil dropped because Bush finally quit filling the SPR!

Whatever. I just guess speculators have holy hands!

AIG rocks and rolls!

Anyone pick up the cheap calls on AIG? Yesterday I said this:

And the options on AIG are still cheap, especially going into earnings. The August 30's are a bit more than a buck, and the August 32's are at .50. The stock doesn't have any resistance until 34. AIG said they didn't need any more capital after they sold 197 million shares at 38 on May 16 and I'm sure some of those underwater buyers would part with their shares at a 10% loss. So I'm saying 34ish is short term resistance though the chart indicates higher.
http://aaronandmoses.blogspot.com/2008/07/derivative-plays-on-bac.html

What happened today? They jammed the premium on the calls. The 30's closed at 2.37 and the 32's closed at 1.37. They opened at $1.16 and at .51 cents. 100% and 150% on your money in a day, and looking to go higher.

Free money if you wanted it!

STI rocks and rolls!

SunTrust Banks popped and the August 40 calls, closed at 5.3, up from a buck when I mentioned it.

The quarterly results would already of been known. The way to play Tuesday's earnings is the August 40 call. Almost 5,000 traded Friday, and they closed at a buck.
http://aaronandmoses.blogspot.com/2008/07/barrons-buy-banks.html

500% if you wanted it. I also picked up the August 45 calls yesterday at .20 cents, and kicked them out today for 1200% gain.

Free money if you wanted it!

Make 300% on Pfizer?

Everyone hates Pfizer (PFE 19.07). But they reported good earnings today, beating estimates by a penny, and PFE said they expect adjusted earnings of $2.35-$2.45 for 2008.

Net out their debt and Pfizer has $2 a share of cash, a AAA rating, and a dividend rate of almost 7%.

No one thinks the stock can move. Last week, no one thought the financials could move, and no one thought oil would go down, and no one thought managed care would move.

I guess "no-one" was wrong!

I think Big Pharma, and the health stocks are going to be re-priced upwards by the market.

The September 20 calls on PFE are just .33. PFE may be boring, but if it moves a couple points, you make 300% on your money.

Takeover touted for MGM?

"With the stock trading at such a discount, notwithstanding the rally in the past few days to 30 a share, there is a strong likelihood that a buyout offer for MGM at about 50 a share will surface," says Stuart Shikiar, president of Shikiar Capital Management, which owns shares. Kerkorian, he notes, is now 91 and may be looking for a profitable exit from the stock. Given that Dubai paid a lot more for its stake, it may be thinking of doing a deal with MGM and Kerkorian for a buyout, says Shikiar. He figures that excluding the shares now held by Kerkorian and Dubai, the number of shares in public hands totals 125 million. At $50 a share, the amount needed to take MGM private, estimates Shikiar, is $6.2 billion.

With MGM's cash flow of $2.3 billion, a deal to take the company private at $6.2 billion is definitely attractive and doable, he says. MGM posted revenues of $7.7 billion and net income of $1.4 billion, or $4.70 a share, in 2007. Of late, the company has been busy buying back stock. In the fourth quarter of 2007, it repurchased some 7 million shares at $90 each, followed by another purchase of 15 million shares in the first quarter of 2008 at $80 a piece. It repurchased another 7 million shares subsequently at an average cost of $72. And in May it bought back 20 million additional shares, at $61 each.

Who would go after MGM? Shikiar believes Dubai World, probably in partnership with some Asian investors and U.S. private equity groups, may decide to pursue MGM in a nonhostile manner. Dubai has struck a standstill agreement with MGM to limit its stake to 20%. So any deal will have to be mutually agreed on between Dubai and MGM's board. Foreign investors are limited to a 15% ownership in U.S. casinos, notes Shikiar, which means that Dubai and other foreign investors will have to team with U.S. private equity groups or investors to swing a deal.
http://www.businessweek.com/investor/content/jul2008/pi20080722_613012.htm?campaign_id=yhoo

The Sandisk play

Sandisk (SNDK 14.57) traded 24 million shares today, after 48 million shares yesterday. The Sept 15 calls closed at $1.15. It's a cheap way to play the recovery in flash.

And with the amount of cash on SNDK's balance sheet, it's also a cheap enough stock that someone could start a buyout rumour.

And with the strength tonight in BIDU, AMZN and QCOM, NASDAQ shorts may be getting nervous.

There's 20 million of them in SNDK.

The call is worth the price of admission.

Potash reports tomorrow

And if the earnings are good? SELL it. And if the CEO says good things? SELL it. And if they say pricing is still tight? SELL it. And if he says this is a multi-year run in fertilizer? SELL it. And if another Wall Street shill comes out with another $340 target on Potash? SELL it.

Here's my feelings on Potash. Read it before earnings then SELL it.
http://aaronandmoses.blogspot.com/2008/07/unwind-of-commodity-trade.html

Now before Apple reported, I said that you could just short the puts before earnings, and then buy the stock:

Why sweat it? Apple always seems to give you a chance to get in after the earnings release, and before the conference call. Some hedge fund will try muscling the stock in the thin market to make it appear that the news is bad. Pick off shares from him if you're quick and you're a bull.

And sell the premium on the way out of the money puts, to the bears buying protection before earnings who think the long lines at Apple are for those returning merchandise.
http://aaronandmoses.blogspot.com/2008/07/apples-earnings.html

It worked. They sucked out the volatility on the naked puts, and they let you pick up the stock at 148, for a 20 point move in two days.

Use the Apple lesson to play Potash. The premium on the puts and calls have been skewed tremendously. If Potash reports a good number, the volatility will be crushed on the puts. Buy them then, if the stock gaps on a good number.

And then sell the puts, when it reverses.

The fertilizer trade is over.

And that's the play in Potash tomorrow.

Baird upgrades SunTrust

They cited valuation, and noted that the company was unlikely to need to raise capital. It's not like they went out on a limb with this call. STI already monetized their Coke stake, and reported better than expected earnings.

But the stock should be able to go to 44 today, so I'll take the call, and the pain it inflicts on the shorts!

Managed care: Buy em!

Anybody notice this beauty on WellCare by S&P last week? It was downgraded to Strong Sell with a $23 target. Read it yourself:

SNPMarketScopeResearchNotes2008-07-10 14:21:29.00 WCGWELLCARE HEALTH PLANS P.Seligman S&P DOWNGRADES SHARES OF WELLCARE HEALTH PLANS TO STRONG SELL FROM HOLD We see WCG under pressure from the U.S. Senate bill that would eventually cuts payments to Medicare Advantage plans. We believe the bill will overcome a potential presidential veto. Managed care firms' MA Private Fee-for-Service plans will have to contract with providers by 2011 and we view it as difficult for WCG to build provider networks in its newer geographies. Also based on high Medicare cost trends as cited by peers, we cut our '08 EPS estimate $0.60 to $4.50. Seeing no catalyst, we sharply reduce our forward P/E from 10X to below-peer 5X and target price by $28 to $23.

No catalyst? Wellcare was raided by the Feds because of Medicare payment suspicion, and the entire restatement is about $46 million.
http://biz.yahoo.com/bw/080721/20080721006275.html?.v=1

So the market lopped off $4 billion of market value on WCG the past year, sending the stock under the amount of cash on it's balance sheet, because of these worries, and now, after 100 points have been lopped off, an analyst says he sees no catalyst.

Which is why WCG popped $7.02 yesterday to 36.25. But WellPoint (WLP 48.75) reports today. They'll beat their numbers, just like United Health (UNH 26.21) did yesterday. Aetna (AET 36.21) and Humana (HUM 40.60) can be bought also.

The panic in these stocks is over!

Here's the script that Wall Street will spin. MCO costs (Managed care costs) were miscalculated and now they are under control. When the economy recovers, more employees will be working, and thus more revenue for the companies, eventually boosting MCR's (Medical Cost Ratio's)blah blah blah....

Or you can just disregard Wall Street and read the following paragraph.

HUM moves first and fast because it is the "derivative" play on WLP's earnings. AET is next, and UNH picks up at the rear. The play on UNH is with longer dated calls as they have very little premium.

How tough is that?

Costo Warns

Factors negatively affecting our fourth quarter earnings outlook arise largely from inflation, particularly as to energy costs. They include a significantly greater-than-anticipated LIFO charge; an anticipated negative swing in year-over-year profitability in our gasoline operations; and slightly lower-than-planned merchandise profits related to holding selling price points to help drive sales and maintain the confidence of our members.
http://biz.yahoo.com/iw/080723/0418401.html

JC Penney (JCP 31.49), Kohls (KSS 42.91), Target (TGT 45.96) and Sears (SHLD 75.57) are just starting to come off of their bottoms along with Macy's (M 18.55).

If you must buy retail stocks, you should get an opportunity off the COST warning. COST will probably do what Apple did yesterday. Make it's low in the first 15 minutes, and then trend higher.

Housing package deal

WASHINGTON -- House and Senate leaders have largely hammered out a compromise deal on a mammoth housing package that would permit the government to bolster Fannie Mae and Freddie Mac in an emergency, overhaul supervision of the housing-finance giants and allow the government to insure up to $300 billion in refinanced mortgages.

The deal comes after tense negotiations and is likely to remain a source of contention when the House of Representatives votes Wednesday. The nonpartisan Congressional Budget Office said Tuesday that a temporary measure to prop up Fannie Mae and Freddie Mac could cost the government as much as $25 billion. And despite repeated White House veto threats, lawmakers plan to include a $4 billion program that would allow local governments to buy and rehabilitate foreclosed properties.

It remained unclear whether the White House would follow through on veto threats, particularly because administration officials have actively lobbied in support of major provisions.
http://online.wsj.com/article/SB121672848030473401.html?mod=hps_us_whats_news

Veto? In this election year? Is the White House "drunk"?

Tuesday, July 22, 2008

Bush: Wall Street got "Drunk"

Lambeau goes green


"Green Bay Packers home games are about to get a lot greener.

The team has signed on to use renewable energy to power Lambeau Field for home games this season. The plan includes the Aug. 3 Family Night event and any postseason action.

The renewable power – generated by wind turbines near De Pere and Fond du Lac and biogas facilities in Northeastern Wisconsin – will cost about 15 percent more than standard power, but is a step at making Lambeau Field more environmentally friendly.

“This was a conscious decision we talked long and hard about,” said Jason Wied, the team’s vice president of administration and general counsel.

The Packers expect to use about 1.2 million kilowatt hours for game day efforts this year – enough electricity to power 140 homes for a year.

The initiative, tabbed Green Team, is newest effort in the Packers’ environmental playbook but not the only option, Wied said. Recycling was part of last year’s plan and efforts will be increased this year."
http://www.greenbaypressgazette.com/apps/pbcs.dll/article?AID=/20080722/GPG01/307220031/1978

Looks like they're going green at quarterback too!

Hurricane season-Refiner's rally?

It looks like it. Hurricane Dolly looks to miss the oil rigs, so buyers who grabbed the refiners sold them off at the end of the day. But the cost of of goods sold, oil, is going down, and isn't coming back.

So I think the refiners, finally, are done going down.

Valero (VLO 35.26), Tesoro (TSO 17.75) and Western Refining (WNR 9.47) have given shorts all the money they could handle, and have given the bulls, nothing but grief and aggravation.

At some point in time, somebody will think refining is a worthwhile business.

AT these levels though, they are worth a trade.

The "derivative" plays on BAC

Were Prudential (PRU 66.62) +5.06 today (looks to go to 72) and AIG (28.14 +1.61). You had it here Monday morning: As advertised!

American International Group (AIG 25.07) and Prudential Insurance (PRU 61.67) are the derivative play on BAC's earnings.

And if you are short these numbers, and you don't know why that is, you haven't been doing your homework!

You have can still cover these numbers at these prices, and consider it a gift. Or you can wait until they report and get crushed!

http://aaronandmoses.blogspot.com/2008/07/noose-tightens.html

It looks like former AIG Chairman Greenberg's civil case against him is going to be resolved, which will be beneficial for the relationship that he has with his former company.
http://online.wsj.com/article/SB121677326854675627.html?mod=yahoo_hs&ru=yahoo

And the options on AIG are still cheap, especially going into earnings. The August 30's are a bit more than a buck, and the August 32's are at .50. The stock doesn't have any resistance until 34. AIG said they didn't need any more capital after they sold 197 million shares at 38 on May 16 and I'm sure some of those underwater buyers would part with their shares at a 10% loss. So I'm saying 34ish is short term resistance though the chart indicates higher.

And judging by the way the banks have moved after earnings, I think the volatility premium on these calls are too low.

Along with AIG's stock price.

I say it goes to the low 30's before earnings. You should then be able to sell part of your call position with the volatility pumped into them, to get the earnings play for free.

Just call it the Greenberg relief rally!

SunTrust Banks. As Advertised!

SunTrust Banks pops $5 1/2 dollars on earnings and the monetization of it's Coke stake.

At least you had it here:

Now the yields will provide enticement for buyers as the expansion of the net interest margin more than offsets loan losses.

SunTrust (STI 31.83) who said they didn't need to raise capital, and weren't going to cut their dividend, fits in that category. They also have a big asset in Coca Cola.

http://aaronandmoses.blogspot.com/2008/07/jpm-54-versus-50-estimates.html

And for emphasis here a few bucks higher:

Suntrust (STI 34.70) reports earnings on Tuesday. On the June option expiration last month, STI said it wouldn't need to raise more capital, and that the dividend was secure. The stock reversed and spiked up that day. That should of marked the bottom. Instead the shorts attacked it with more naked selling, and drove it to artificially depressed prices.

The quarterly results would already of been known. The way to play Tuesday's earnings is the August 40 call. Almost 5,000 traded Friday, and they closed at a buck. STI also has a huge stake in Coca Cola.

http://aaronandmoses.blogspot.com/2008/07/barrons-buy-banks.html

The August 40 calls closed at 2.80 today, with some room to go. As advertised!