The Shanghai composite closed down over 6% today, and down 21.8% for August to close at 2668. China giveth, China taketh away!
Barron's this weekend had a story on AQR Capital Management, who manages about $20 billion for institutions. You only need to read two paragraphs of that story to understand their approach to today's markets: You employ about 200 people. But none of them do fundamental research and follow companies like General Electric or Nestlé, right?
Asness: It's actually just me and David and one really big computer . This comes up all the time. We don't have analysts who cover each of the individual companies. We don't visit companies. A lot of what we do is asset-allocation work. To the extent that we visit countries, it's usually called vacation.
And then, you need to read two sentences to understand their approach of emerging markets:
How do your models view the emerging markets now?
Asness: We are shorting most of the BRIC markets [Brazil, Russia, India, China] against some of the boring emerging markets like Taiwan and Korea. The BRICs are expensive. We do also look at momentum. China is just too expensive to overcome the positive momentum. --------
Everyone underinvested, hopes that the cracks in China could presage a crack in momentum. That's why traders are nervous about today's market. The so called "trash momentum" stocks, FNM, FRE, AIG and C were endlessly bashed this weekend, because they are a proxy on the animal spirits of the speculator.
Supposedly, the bear thesis is, that the only thing holding this market up is momentum. And that's because the bears know how the quants trade. You don't need an algorithm to tell you what they are doing; you just need to read Barron's!
Which is why we had such a concerted effort to crack the momentum; because if we crack the momentum, then you can crack these traders algorithms! Who needs Sergey?
Remember when JC Flowers walked away from Sallie Mae, and then it was annouced he wouldn't have to pay the $900 million break-up fee? He also was the advisor who spent a few days looking over Merrill's books and tell Ken Lewis they were good.
He and a few other multi-billionares bought IndyMac; and they got the loans at fire sale prices. Now he's letting his investors in on that transaction to milk the taxpayer without the 2 and 20 fees. Why? Because he now down about 70% on his $7 billion second fund and he's looking to placate investors:
Flowers' $7 billion second fund is down between 60% and 70%, according to estimates from knowledgeable sources. (Flowers declines to say.) And some of his biggest bets, such as Hypo and HSH, are unlikely ever to make his investors whole.
JC Flowers then bought First National Bank in Cainesville, Missouri, and renamed it "Flowers National Bank."
Now you know why private equity wants to buy banks. They can screw the taxpayer with the deals they make with Uncle Sam, and hope Sam's largress offsets their uglier investments!
And when your down 70% on $7 billion, that's some offsetting to do!
The www.fool.com had a story Friday titled "The Next Million-Dollar Penny Stock" and it gave five examples of stocks that returned between 260% and 1044% over the last five years.
And then they came up with this story:
Because of their adjacent locations in the prolific Red Lake mining district of Ontario, Canada, I believe Goldcorp (NYSE: GG) and Rubicon Minerals make for a logical pairing. Rubicon has uncovered bonanza-grade ores at Red Lake. Since Goldcorp founder and former CEO Rob McEwen owns nearly a quarter of Rubicon shares, I presume I'm not the first to ponder such a pairing.
And then they had this to say:
Basically, I think Rubicon's resource will wind up being a lot more than 3 million ounces. Deposits at Red Lake wind up growing consistently over time for the most part. My own back of the envelope calcs tell me Rubicon probably has 5 million ounces or more in their F2 property which would support a price in the $5 plus range in the next two years as the resource becomes more clearly delineated.
I'll give the www.fool.com their Rubicon. They think RBY is a buy because it will be a $5 number in two years? A 66% return? If you want a gold play, I'll take Minatura (MGOL 8.80) with it's $110 million market cap. At least then you have a shot of a 5 bagger or maybe even a 10 bagger in two years.
MGOL is located next to some of the most prolific gold bearing properties in Colombia. The CEO owns about 80% of the stock, but people can't get a handle on the company, because they did a reverse merger into a shell. In probably six weeks or so, MGOL's audits and a 43-101 will be done on some of their properties, and I believe that one of the properties will show 5 million ounces of gold alone.
In SEC filings last week, you can see that MGOL sold $2 million worth of stock, to facilitate the audits and the geological work. I believe that was just a deposit, until they finish vending in the properties of the three companies that are merging into Minatura.
The founders of the three companies that are merging into MGOL, will be officers and directors of MGOL, so the finalization of the mergers should be a formality. Upon the merger's completion, MGOL will have over a million acres worth of claims and titles, and in a couple of months, you'll have the audits and the results of the geological surveys.
I have a public document that was given in an investor presentation, that shows their own geological results, and the average concentration of gold was over 3x that of an adjacent, prolific property that Mineros SA owns. Their partner is AngloGold, a $14 billion dollar company, whose largest shareholder just so happens to be John Paulson. That property is next to the Nechi river in Colombia, which, I believe has the fifth largest placer gold deposit in the world.
Coincidentally, we all know that John Paulson has been a big buyer of Bank of America and Citigroup, two stocks that I've been touting on this blog. At least I'm investing in the same area geologically as he is!
In a few months, after the audits, and the completion of the mergers, you'll probably hear about the story that I'm telling you now. And then the story won't end with, "Moneypenny, won't you ever believe me?"
I'd figured I'd give you the heads up first.
Or you could just read www.fool.com and buy what they like, and read about 5 or 10 baggers, only after they happen!
The world's most expensive sheep was just sold--Deveronvale Perfection, for £231,000, and now he's going to spend the rest of his life breeding.
So that was the world's most expensive sheep?
I thought the world's most expensive sheep were the ones on Wall Street listening to the bears! After all, they're costing them the most!
You know what these pigeons remind me of who listen to these seers proclaiming doom? Like those folks who are buying birds from the Chinese. As in racing birds. As in pigeons!
Last week, we heard about the Chinese "Mafia" killing pigeons, and cutting off their legs, so they could take the identifying bands from birds legs in Belgium, and put these bands on their knock off pigeons bred in Asia.
They can't breed their own racers, so they knock off someone else's birds to get the band. Because in China, the band is the pedigree.
A pedigree without a bloodline! Isn't that rich?
My Dad used to race pigeons. And even if they had the Belgium pedigree, he had to look the birds in the eye, check out their wings, hold them in his hand and check them out before he would use them.
Why doesn't someone do that with the bears research? Because they've just got the band, and not the balls.
They have the Chinese pedigree.
A dressed up, gussied up story without the blood!
Charles Darwin also fell in love with pigeons. Now we know he already named the cockroach. But you probably don't know that the pooping pigeon was his inspiration for The Origin of Species. He was the first Chinese pigeon fancier. He didn't want to hear about the Messiah bloodline, or the cross. So he dressed up and gussied up a story without the blood!
After all, wasn't this in Darwin's biography: "When he talked about the 'hidden hand' of natural selection thereafter, he almost always visualized a pigeon breeder picking a favored bird out of one cage and putting it with another bird, also chosen for favorable attributes. He could not help but anthropomorphise natural selection into a mating ceremony deftly engineered by a wise, all-seeing and sensible English gentleman."
Has anyone read Superdove---How the Pigeon Took Manhattan? It's a great book on pigeons. But it will also tell you about the Palmetto Pigeon Plant in South Carolina, the largest pigeon operation in the US.
They do business in "squab." Selling pigeons as food.
Why have they been so successful is selling squab?
Because the largest market for squab in found in this country's Chinatowns!
So when are the bears going to start eating their own cooking!?
Linus Wilson, Assistant Professor of Finance at Louisiana at Lafayette has a new paper estimating that JPMorgan made 4483 million off of the Madoff fraud. The author's premise and conclusion:
"JP Morgan Chase allegedly had deposits from Bernard L. Madoff totaling $5.5 billion at one point in 2008. The Chase account was supposedly where most of the funds in his Ponzi scheme were deposited. Any large deposit can be a considerable source of profit to a bank. Assuming that the deposits returned the bank’s net interest margin and grew at a random geometric rate, this paper estimates that JP Morgan Chase generated $483 million in after-tax profits from this very large account over the course of sixteen years...
This paper has attempted to estimate the value of the Bernie Madoff Investment Securities’ (BMIS) bank accounts to JP Morgan Chase’s shareholders. This is the first paper to attempt to estimate the profits to JP Morgan Chase generated from Mr. Madoff’s deposits, which reached a balance of $5.5 billion in 2008. Because we only know the peak balance in 2008, this is a somewhat speculative task. In the author’s most preferred model which uses the Monte Carlo simulations of the geometric growth model, he estimates that after-tax shareholder value increased by $483 million due to Mr. Madoff’s very large bank account...
With the Madoff estate insufficient to satisfy creditor’s demands, JP Morgan Chase may be the target of more litigation. It seems that not all profits are worth harvesting. ---------
Remember when JP Morgan sold the bank's stake in Madoff but they didn't tell any of the bank's customers? They used this for a reason: "We did not have the right to disclose our concerns!"
Chase representatives from the commercial banking side met with Madoff. They wanted to discuss his cash flows and to know what percentage of his portfolio was leveraged, or invested using borrowed money -- and with whom he traded options contracts. The simple math was just as many others had concluded: the options market was too small to handle the size and capacity Madoff was claiming to manage in his supposed options strategy. Moreover, it was implausible that Madoff could be generating substantial positive returns when the S&P 500 index was down 30%.
Madoff wouldn't provide Chase with any of the key information, so managers from Chase's London office, along with colleagues in New York, decided they would go through the back door.
PARCESEPE'S TRADING DESK HAD PEOPLE who regularly traded with Madoff, and they knew the number of trades executed through Madoff. On its trading side, JPMorgan learned that Madoff's trades with Bear Stearns -- by then a part of Chase, and now Madoff's largest counterparty -- could not possibly sustain a portfolio returning 10% to 12% a year on what the bank knew from the deposit side had to exceed at least $7 billion. The Chase team had access to Madoff's account records, which showed huge cash positions until the middle of 2008, when the stock market went into free fall. It was obvious: Madoff was a fraud.
In September 2008, JPMorgan Chase quietly liquidated its entire $250 million position in the Sentry Fund, even though it remained liable on the derivatives it had sold to the wealthy clients. At the time, the Fairfield Sentry investment notes were showing a 5% gain for the year. The bank had concluded Madoff was a phony, and the only way to protect itself was to liquidate anything connected with Madoff.
Not only that, but by September 2008 Chase may have known that if Madoff's hedge fund was a fraud, he was likely diverting his advisory-side funds. Still, Chase continued accepting wires and checks from Madoff's latest round of investors. Throughout the fall of 2008, according to one lawsuit filed against Chase (MLSMK Investments Co. v. JPMorgan Chase & Co. et al., SDNY 2009), the bank "continued to work in partnership with Madoff despite being privy to information that the fraud was collapsing and therefore consuming more and more of the victim proceeds."
A JPMorgan Chase spokeswoman, Kristin Lemkau, told the New York Times the bank withdrew from the Madoff-linked funds after "a wide-ranging review of our hedge-fund exposure." Lemkau acknowledged, however, that the bank also "became concerned about the lack of transparency to some questions we posed as part of our review." Investors weren't told because, under sales agreements, the issues did not meet the threshold necessary to permit the bank to restructure the notes, she said. Under those circumstances, she told the paper, "we did not have the right to disclose our concerns."
Now it appears that JP Morgan profited on the Madoff fraud by almost $500 million.
Remember how bankers always assure the public they never had any exposure? Just like Goldman Sach is never not hedged? Remember what Jamie Dimon, of JP Morgan first said about the Madoff scheme? He said there exposure to Madoff "was pretty close to zero."
In January, almost eight months ago, this blog had a different viewpoint on JPMorgan: First we had this story from the NY Times: JPMorgan Chase says that its potential losses related to Bernard L. Madoff, the man accused of engineering an immense global Ponzi scheme, are “pretty close to zero.” But what some angry European investors want to know is when the bank cut its exposure to Mr. Madoff — and why. And then we had this reaction from this blog:
How is it possible that JP Morgan can say their losses are pretty close to zero? If JP Morgan withdrew money just months before an entity imploded, JP Morgan has to give that money back. That is known as "fraudulent conveyance." So now we know how JP Morgan calculates losses that the bank will eventually have to eat. $250 million of losses on the bank's book, is "close to zero." So what does that mean for the hundreds of billions of prime jumbo mortgages that are their books where JP Morgan is acknowledging those losses?
Isn't that rich? JP Morgan develops notes from it's derivative division that allows investors to triple their bets on Madoff, then later, JP Morgan gets squeamish, and yanks their money, but they don't tell any of the investors that they are no longer investing with them.
Why? What prevented this patron bank of virtue from not telling their clients that Madoff was a fraud. Why would JP Morgan leave their clients holding the bag?
JP Morgan wanted the fees!!
And was JP Morgan nervous about Madoff? They had access to other Madoff accounts.
And how did JP Morgan prevent others from selling?
They discounted the "quoted" prices of the notes by 12%, so those investors would stay in with Madoff and lose their money! ------------------
I suppose when that was written eight months ago, some folks wouldn't believe that Jamie Dimon, the nation's banker, was just another banker hungry for fees, and was willing to sacrifice clients in the pursuit of them.
Why would that be such a strange concept? Isn't that, my friends, how Jamie Dimon does business? He took the good assets of Bear Sterns and stuck the bad ones up the taxpayers ass, and then, Mr. Dimon did the same with Washington Mutual, while getting the blessing on both of these transactions by Ben Bernanke and Hank Paulson.
And now, we see he did the same with Madoff; but this time, he pocketed the profits at the bank, and told the Madoff investors to go and screw themselves. Except he didn't use those words. In fact he didn't use any. Because, "we did not have the right to disclose our concerns."
Well, what did you expect? That he wouldn't screw investors just because he didn't get the blessings of Treasury or Bernanke? Why else were those folks thick as thieves?
After all, isn't Jamie Dimon the face of the nation's bank?
Ted Kennedy has gone home now, guided by his faith and by the light of those he has loved and lost. At last he is with them once more, leaving those of us who grieve his passing with the memories he gave, the good he did, the dream he kept alive, and a single, enduring image – the image of a man on a boat; white mane tousled; smiling broadly as he sails into the wind, ready for what storms may come, carrying on toward some new and wondrous place just beyond the horizon. May God Bless Ted Kennedy, and may he rest in eternal peace.
----------------- IN FOOTBALL, A HUDDLE TRADITIONALLY CONSISTS of the players forming a circle around the quarterback, their bodies leaning forward, their heads bent toward him and their butts pointing at the rest of the world. In investing, thanks to an inspired notion of that pacesetting paragon, Goldman Sachs, a huddle consists of the play-caller (i.e., one of its analysts) barking out stock tips to an assembled group of big-buck clients, their bodies leaning forward, their heads bent toward him and their butts pointed at Goldie's lesser clients, who are excluded from the exercise.
This variation of sacred pigskin procedure was disclosed last week by The Wall Street Journal. Not surprisingly, it provoked a rumble of serious displeasure, not least among those lesser clients, whose numbers run into the thousands. But please don't jump to a hasty conclusion.
Far from being unfair in limiting the opportunity to trade on the tips to an exclusive group of 50 or so deserving clients (what makes them deserving, of course, is that they generate the fattest commissions), a spokesman for the firm explained, the purpose was to prevent its less generously endowed clients from suffering information overload. That sort of thoughtfulness, we don't have to tell you -- but since we're a journalist we will, anyway -- is rare as hen's teeth in any business. Is it any wonder that Goldman's the leader of the pack?
In one sense, of course, "trading tips" to buy or sell can be self-fulfilling prophecies, since the response to them all by itself is likely to cause a blip or a dip in a stock. The impact, to be sure, may be exceedingly brief (no longer than it takes you to read this sentence, assuming you're not a speed reader). But, by definition, trading tips are tailor-made for hit and run devotees, whose idea of a long-term investment is something you hold for one whole session.
We don't want to seem to be picking on Goldman. For one thing, the pickings are temptingly easy and, more to the point, the competition does just about everything Goldman does, including the problematic stuff, but Goldie does it better.
Slipping info to privileged customers, moreover, is standard Street practice that dates back in the annals of the stock market to those distant days when the famed Buttonwood tree was a wee sapling. And Goldman's huddle approach has this to be said for it: It's nowhere near as furtive as the usual sotto voce phone calls from broker to favored investors (if that sounds like damning with faint praise, we suppose that's because it is).
What makes the huddle worthy of note is that it's another sign that things are hurtling back to normalcy in the citadel of capitalism, or at least what passed for normalcy in the buggy markets during the height of the dot-com frenzy and, more recently, in the 2007 run-up to the crash heard around the world. ---------------------------------------
How does Wall Street work though, when the stock is moving contrary to their wants? Then the information huddle is blasted to the world. Now I won't really go into details on the short side, but we know that AIG has 24 million shares sold short, and according to the story floating around on the street, there is only 27 million shares of "independent" AIG shares to trade. That number isn't right either, but that's the story they're reading.
We've heard Bob Pisani tell the world that AIG was effectively worthless. So has every tout on CNBC. So did Charlie Gasparino in a rant on Thursday. And so did Janet Tavakoli of Structured Finance.
How long has she been touting disaster since the march lows? How about every other week! She has the bears playbook!
When the stock was $2 or $3, AIG was just a call option on the company surviving. Why has Wall Street gone so sour on AIG? AIG is still in that ballpark--It just had a 20-1 reverse split. So why all the commotion? Because the Wall Street boys club is short this name, and they are short much more than the 24 million shares they say they are!
And they are crying to everybody that will listen, and who will run the story!
So Barron's, which bashed Harmon's last week with a fluff piece, comes out and tries again with AIG. Doesn't anybody find the irony of that at least a bit disingenuous?
We'll spare you a long litany filled with chapter and verse on the resurrection of unbridled speculation. But we'd remiss if we didn't single out, AIG the goliath of insurers felled by its own excesses when the credit markets froze up. Its stock, which was going for pennies early this year, had a reverse split of 1-for-20 in July and so far this fading month has rocketed nearly 300%....What's lacking in this uplifting story is any solid basis for the explosive rise in the stock.
Says who? Barron's? How do they know? If the markets are healing themselves, who is to say what AIG's portfolio will be worth. The price of the stock, when it was $2 or $3, didn't reflect the value of a call option on AIG, because you had hundreds of millions of shares short, and a few hundred million more shorted illegally, that drove the price of the stock down further. The position that the Government has in AIG is moot. It's on paper, but it ain't trading.
So the shorts, priced down AIG, with naked shorts and more shorts, to reflect the reality of Uncle Sam's 80% piece, but since the piece didn't trade, and it isn't coming to market, why does that assumption work? It doesn't work, when others want that piece of paper. Especially when you can trade it and make the juice on it each day! And now that AIG did a reverse split, all those bets have to be unwound, because they can't hold their position into the increasing ramp of AIG, because the higher it goes, the more underwater is their position. And their bet is excaberated by every Tom, Dick and Harry who laid out shorts illegally, who can't make the margin call.
Didn't these folks learn from Volkswagen?
And it doesn't matter if you have these shills touting it down, with as many reasons that they can up, whether they are elegantly or not.
You can't stay solvent long enough for your bet to work! That bet will only work, after it has already made those betting on AIG's insolvency, insolvent first!
And the beauty of this, and the wonderful irony of it all, is that the "dreaded" Barron's story on AIG is now out. As Charlie Gasparino says "What do ya got?" "What do I got?" "Ya got nothing!"
Barron's, with their little piece on Goldman's huddle, versus the piece below, shows how far they have already fallen in investigative reporting. They have nothing on Goldman's "huddle" in their piece. "What do ya got? Ya got nothing!"
And now, Barron's who decries the Goldman Sachs "huddle" participates in Wall Street's latest "huddle" by dissing and decrying AIG, and yet, they aren't even sharp enough to realize it!
But that's all they can come up with on AIG? It's as bad as their call on Goldman's "huddle."
Does Stevie Cohen need some inside information from Goldman? It looks like it.
SAC, the biggest payer of commisions on the Street, is right in Goldman's huddle. ---------- Earlier this week, the Wall Street Journal published what should have been a fairly explosive story implicating Goldman Sachs and its favored hedge fund clients in yet more market miscreancy. Predictably, though, this story did not have what journalists call “legs.” No other mainstream media outlets picked it up. There was no outrage. And there is, of course, no indication that anyone in the government plans to do anything about it.
So allow me to do my small part by reprinting the relevant passage:
“Goldman Sachs Group Inc. research analyst Marc Irizarry’s published rating on mutual-fund manager Janus Capital Group Inc. was a lackluster ‘neutral’ in early April 2008. But at an internal meeting that month, the analyst told dozens of Goldman’s traders the stock was likely to head higher, company documents show.
“The next day, research-department employees at Goldman called about 50 favored clients of the big securities firm with the same tip, including hedge-fund companies Citadel Investment Group and SAC Capital Advisors, the documents indicate. Readers of Mr. Irizarry’s research didn’t find out he was bullish until his written report was issued six days later, after Janus shares had jumped 5.8%.”
The story goes on to suggest that this is standard operating procedure at Goldman. Every week, Goldman analysts exchange stock tips with each other at a gathering the firm calls the “trading huddle.” After the huddle, the tips are conveyed to as few as six, and no more than 60 preferred clients – presumably all high paying hedge funds, such as the above-mentioned SAC Capital.
The Journal quotes Goldman spokesman Edward Canaday as saying that the tips are nothing more than “market color” and are “always consistent with the fundamental analysis” in published reports. As for the retail investors who might benefit from this “market color,” they are out of luck. Goldman’s spokesman says, “We are not in the business of serving thousands of retail customers.”
No, of course, Goldman is not in the business of serving retail customers. Goldman is in the business of serving SAC Capital, which is known to pay more and higher commissions than any firm on Wall Street (a model pioneered by Michael Steinhardt). And, apparently, one of Goldman’s services is to give SAC Capital advance notice of the contents of its research reports, so that SAC Capital can trade on that inside information, effectively transferring money from the accounts of average investors into the bank account of Steve Cohen, whom BusinessWeek magazine has called “the most powerful trader on Wall Street.”
For those who do not know, Steve Cohen is the proprietor of SAC Capital. He spent his formative years as the top trader for Gruntal & Company, a brokerage that stood firmly on “The Shabby Side of the Street” – as Fortune magazine described it. Gruntal was staffed largely by criminals, some with ties to the Mafia. In the 1990s, Gruntal’s management was implicated in what was then the biggest case of embezzlement in the history of Wall Street.
During his time at Gruntal, Cohen was investigated by the SEC for trading on inside information provided to him by Michael Milken, the most famous – and most destructive – financial criminal the world has ever known. Today, Cohen maintains close business relationships with Milken’s cronies and with former Gruntal managers, such as Howard Silverman, who somehow avoided prosecution, and now operates a “dark pool” platform that allows Cohen to process trades without public scrutiny.
Cohen is no doubt a mathematical whiz (after all, he’s a hedge fund manager). But, with some effort, I have cracked his trading strategy. I’m sure this strategy has some algorithmic expression, but for the sake of simplicity, let us just call it, “cheating.”
First, it was trading on inside information from Michael Milken. Then, a few years ago, it emerged in swornaffidavits that SAC was authoring, and trading ahead of, the so-called “independent” financial research published by an outfit called Gradient Analytics. The SEC’s staff launched an official investigation of Gradient, and began to probe its relationship with Cohen, but ultimately SEC leadership intervened, and the matter was dropped.
This tends to happen — the SEC’s leadership intervenes when its staffers step on the toes of powerful hedge fund managers.
Last December, Deep Capture reporter Judd Bagley broke the news that SAC Capital and Kynikos Associates received advanced copies of reports published by Morgan Keegan, another “independent” financial research shop. It is clear that SAC Capital and Kynikos traded ahead of these reports, which is trading on material, non-public information. The SEC is supposedly investigating Kynikos, but don’t expect any resolution to that case, or any action against Steve Cohen, who is, after all, “the most powerful trader on Wall Street.”
If it seems that nobody much cares that Goldman has been providing such tips to SAC Capital and others, some of the blame must go to the Wall Street Journal, which is a “respectable” publication with a reputation for “balance,” and therefore refrains from saying much of anything at all. The Journal’s story about Goldman could have been the sort of investigative blockbuster that would spur the government to action, but it is so politely worded and so “balanced” that it is possible to read the thing and think that Goldman did nothing wrong.
The Journal reports that “Canaday [the Goldman spokesman] says that analysts are told that any comment at a meeting that could result in a change in a rating, earnings estimate or stock-price target ‘must be published and disseminated broadly to all clients.’ He adds, however, that it is rare that tips arising from the meetings reach that threshold. He says ratings changes after the meets also are rare.”
Elsewhere in the story, the Journal provides two vivid examples that show Canady’s statement to be blatantly false, and yet nowhere does the Journal state (even politely) that Canady spends his days issuing mealy-mouthed platitudes to cover up Goldman’s improprieties. And nowhere is it noted that Goldman’s spokesmen regularly describe the bank’s critics as “conspiracy theorists” or people “who just don’t understand how the markets work,” the implicit threat being that any journalist who asks too many questions will be made to look foolish.
The Journal story states that Goldman provided a “tip” to SAC Capital. It states that this “tip” was articulated in published research report six days later, after the stock had gained more than 5%. But not once does the story state the obvious: that SAC Capital was given advance notice of the contents of Goldman research – a clear violation of law. And, of course, nowhere in the story are we reminded that this is serial behavior. Nowhere are we given any reason to be particularly pissed off.
So what we have is a significant addition to a long list of atrocities, in a story that will, unfortunately, be forgotten.
At the bottom of this market, I advertised 1040 on the S&P, for a target this year, and I've been touting new all time highs in the market for next year, but let's first try and get through this year first.
All this week, we've heard about the market getting set to roll-over, and the coming correction. We already had the correction, when we pulled back to 980. The test, in this upside down world, of 666, was S&P 999. We went through it for a day, and then rallied.
At these levels, we still aren't even approaching fair value. And we know that the average correction since the March bottom, has been, 5.6%. So that means, the next correction has to be greater than 5.6% to shake the bulls conviction.
But you can't shake em here. Today proved that! The bears are eunuchs!
And we can't correct at the levels we are at now, because there are too many portfolio managers that are under-invested, and are afraid of losing their jobs. So let's assume the next correction is about 8-9%. At what level do you think we have to be at the S&P for that to happen?
How about higher!
If we can't break 999, doesn't that mean we have to go at least to 1090? But why would that stop the market? How about all the Johnny come latelys that have only now gotten invested? Do you think they have any plans to sell, since only now have they gotten a position? Doesn't that mean we are going to 1120?
If we are consolidating at the 1020-1040 level on the S&P, then it means this is the new level of support. Now we heard the chimps on Wall Street tell us to "sell in May and go away." That worked well. 17% in their face.
How about those that warn us that September and October are the cruelest months?
They will be cruel months, but not for the bulls. Why don't you ask the folks that shorted C, or AIG how they are doing? And then, ask the analyst at Citigroup, who, on July 9, said that AIG, at around 10.59, had a 70% chance of going to zero!
How will their fall be?
In the words of Julian Robinson, "It will be a doozy!"
And if Papa John can pay $275,000 for his Camaro, ($250K for the car, $25K for the finder's fee) don't think that some of these Wall Street boys won't start spending some money again.
Especially with the free money that the street is throwing at traders!
Now what's also rather enlightening, is the most popular financial site on the web, and also one of the most inaccurate on the stock market, Zero Hedge, had this post today, using almost biblical terminology:
Here was the chart: Now, even in sarcasm, the bears are starting to recognize upside. And you know what is so funny about that? The other bears, find solace in that fact, because now it means that the market will come down!
How idiotic is that?
All that is, is just a false sense of smugness and superiority of the bears still not dealing with their grief.
Back in 1935, Ab Jenkins teamed up with the President of Auburn, Roy Faulkner, because they wanted to break the speed record of 112.92 mph. Harry Crumb's Auburn wouldn't do it! The car they made to beat the record was the "Mormon Meteor."
The "Mormon Meteor" was the 1935 Duesenberg that won Best in Show at the 2007 Pebble Beach Concourse. It sold for $4.45 million or 16.18 x Papa John's car. A decimal point away from the golden ratio.
So in this "doosy" of the market, and in honor of Zero Hedge, and since the Duesenberg beat the previous speed record of 112.92 mph, I'll use that as my S&P target but throw in a zero for Tyler Durden, at Zero Hedge! And move it a decimal point.
Cerberus Capital Management's investors overwhelmingly want out of the firm's core hedge funds, asking for the return of more than $5.5 billion, or almost 71% of the fund assets, according to people familiar with the matter.
"We have been surprised by this response," Cerberus chief Stephen Feinberg and co-founder William Richter wrote in a letter delivered to clients late Thursday.
They were surprised???? Is he kidding me?
We know how Feinberg has screwed the companies/investors/workers that he bought into. That story was here.
TOKYO (Reuters) - Japan's financial regulator is examining ties between Aozora Bank and top shareholder Cerberus Capital Management to see if the U.S. private equity firm has put pressure on the bank to finance deals, the Financial Times said on Monday.
Aozora, which owes the Japanese government almost 180 billion yen ($1.8 billion) following a bailout in the 1990s, has been hurt by soured U.S. mortgage investments, including some arranged by Cerberus.
The bank's shares have lost more than a third of their value since it listed in 2006, although Cerberus is still investing -- with a plan to raise its stake to 46 percent.
A spokesman for Aozora, Tsutomu Jimbo, declined to comment on the report, as did the head of the regulatory Financial Services Agency.
"I cannot comment on individual cases ... but as a rule, banks and their major shareholders are expected to keep at arm's length from each other in their businesses," FSA Commissioner Takafumi Sato said at a regular briefing.
"If a company or an investment fund becomes a major shareholder, they are expected to maintain the independence of the bank's management..."
Now what did our Government learn from this, that Cerberus investors have already learned? After all, aren't investors in Cerberus fleeing?
Because the FDIC is now giving the green light for "Private Equity" to buy banks. Because on Wednesday the FDIC, by a 4-1 vote said private equity, with a 10% capital-asset ratio could run a bank, backed by the FDIC!
So think about this.
If Feinberg could con Abu Dhabi, Third Point, York Capital, Eton Park, Sun Capital, the NY money center banks and a smattering of private equity folks to invest alongside him, what will the private equity folks do, with FDIC backing, and who will they bring in?
This is just another trick of Mr. Market. After all didn't we get the Doug Kass call the other day? To sell? After all, didn't he call the bottom? If the bottom is 790, on February 17, then the answer is yes!!
Here was his "Fear and Loathing" piece, on February 17, at S&P 790, where he outlined his 7 reasons to get bullish. Here are just a couple parts of it: ------------------------------------------ The fear and loathing is palpable:
It is palpable every time investors read their monthly brokerage, hedge fund and 401(k) statements.
It is palpable in the loss of wealth in our educational institutions, corporate pension plans and endowments.
It is palpable in the lost liquidity and lost confidence in the gating of some hedge fund investments.
It is palpable in the obliteration of value in private equity.
Here is a partial check list of signs that I and others are looking for (and their status in italics) as indications for a more favorable stock market:
While sentiment and valuation are not the sine qua non in determining share prices, it should be underscored that the current bear market is the second-worst in history, both in terms of price decline and the erosion in P/E multiples. This means that embedded expectations are low. While sentiment, as measured by hedge fund and mutual fund redemptions, remains acutely negative, individual, sovereign and institutional liquidity remains abundant and is growing swiftly.
On multiple fronts, equities appear to have incorporated the bad news and are undervalued both absolutely and relative to fixed income:
The risk premium, the market's earnings yield less the risk-free rate of return, is substantially above the long-term average reading.
Using reasonably conservative assumptions (most importantly, a near 50% peak-to-trough earnings decline, which is over 3x the drop in an average recession), the market has discounted 2009 S&P 500 earnings of about $47.
Valuations are low vis-Ã -vis a decelerating (and near zero) rate of inflation. Indeed, the current market multiple is consistent with a 6% rate of inflation.
Stock prices as a percentage of replacement book value stand at 1x, well below the 1.4x long-term average.
The market capitalization of U.S. stocks vs. stated GDP has dropped dramatically, to about 80%, now at the long-term average. Warren Buffett was recently interviewed in Fortune Magazine and observed that this ratio was evidence that stocks have become attractive.
The 10-year rolling annualized return of the S&P is at its lowest level in nearly 75 years, having recently broken below the levels achieved in the late 1930s and mid 1970s.
A record percentage of companies have dividend yields that are greater than the yield on the 10-year U.S. note. At 46% of the companies, that is over 4x higher than in 2002 and compares against only 5% on average over the last 30 years.
--------------------------------------------------------- At least I put in an advertisement for Doug!!
In fact, Doug Kass highlighted this video today--showing he has a sense of humor, and is already feeling squeamish about his "top" call.
So what does Mr. Market do today on the good news? It sells the news. Why? So everyone can now think that the "good news" is priced into the market!
Oh my!!! It's priced in!
Yeh, right. It isn't priced in! The bears are just priced into a corner!
But the bulls have the balls, and the bears are eunuchs, so they can't even follow through with their threats.
How about AIG? We had the whole Wall Street world telling us that this number was worthless today. It rallied 7, sold off 10, and then rallied back 5.
That's all the bears have?
They're just like the folks at AIG. They're scoreboard is all F's, but they think they should get paid.
Everyone wants a reason. So I get some calls from brokers this morning, asking me if I gan give them a reason to buy Gannett (GCI). So I go over enterprise value, book, the future of some of their businesses and the effect of the improving economy on it, and then he interjects, "No--Can you give me a reason?"
So I relented. "OK, OK---I'll give you a reason that you brokers like. Do you watch CNBC? Did you see the Obama effect on J. Crew? Jane Wells was trotting out a J. Crew sweater yesterday. That stock was 10 in March, it's now 34. How about the Kennedy effect on USA Today?"
He said, "What the heck is that?"
I said, "USA Today is pushing Kennedy Memorial products. They have a special edition, book, and a whole bunch of front page reprints. If Obama worked for J. Crew, can't Kennedy work for Gannett? How about that?"
And he said, "Now that's a reason!" And he hung up. After all, do brokers ever say bye?
All I know is that the pundits have better come up with a better word than sugar high! Wait--Now I get it. It's just the bears terminology to replace "green shoots!"
They scorned the green shoots when they were budding, so now they use "sugar high" as the next reason, when the market is living off of meat and potatoes, making the stock market still sleepy!
Wait until desert!
So let's look at the five stages of grief that the bears are going through, since they lost their bear market.
Denial! Oh my. This can't be happening to me. And then they get Angry. Remember Roubini lashing out at Cramer? Calling him a buffon? The tired outburts by the bears on CNBC? Then Bargaining. That was Meredith Whitney. She wanted to be relevant, so she made the deal with the devil, and decided to be bullish. It worked for her! The rest of the bears are still vacillating between anger and depression ala Charlie Gasbags on CNBC yesterday schooling viewers on the market.
And unlike real life grief, this can be changed easily. It's not the grief of the passing of a loved one, but for these folks it almost is. Because they love their pride. They love their smarts. They love their gravitas. They love their soapbox. And they love being bearish!
But they'll eventually find out that love wears thin, when you cost people money. Even if your intentions are well meaning and good, which is a debatable concecpt on Wall Street. After all, aren't these folks book sales and franchises built on doom?
And unfortunately, that acceptance comes too late.
Because stock market grief is good!
It makes you change!
And the change is real dollars, not just a sugar high!
1. KFW (Germany) 2. Caisse des Depots et Consignations (CDC) (France) 3. Bank Nederlands Gemeenten (BNG) (Netherlands) 4. Landwirtschaftliche Rentenbank (Germany 5. Zuercher Kantonalbank (Switzerland) 6. Rabobank Group (Netherlands) 7. Landeskreditbank Baden-Wuerttemberg-Foerderbank (Germany) 8. NRW. Bank (Germany) 9. BNP Paribas (France) 10. Royal Bank of Canada (Canada) 11. National Australia Bank (Australia) 12. Commonwealth Bank of Australia (Australia) 13. Banco Santander (Spain) 14. Toronto-Dominion Bank (Canada) 15. Australia & New Zealand Banking Group (Australia) 16. Westpac Banking Corporation (Australia) 17. ASB Bank Limited (New Zealand) 18. HSBC Holdings plc (United Kingdom) 19. Credit Agricole S.A. (France) 20. Banco Bilbao Vizcaya Argentaria (BBVA) (Spain) 21. Nordea Bank AB (publ) (Sweden) 22. Scotiabank (Canada) 23. Svenska Handelsbanken (Sweden) 24. DBS Bank (Singapore) 25. Banco Espanol de Credito S.A. (Banesto) (Spain) 26. Caisse centrale Desjardins (Canada) 27. Pohjola Bank (Finland) 28. Deutsche Bank AG (Germany) 29. Intesa Sanpaolo (Italy) 30. Caja de Ahorros y Pensiones de Barcelona (la Caixa) (Spain) 31. Bank of Montreal (Canada) 32. The Bank of New York Mellon Corporation (United States) http://www.gfmag.com/tools/bank-rankings/2341-words-50-safest-banks-2009.htm
I could use that expression to tout the action in the stocks mentioned on this blog! The pre-cursor to "As Advertised!" I touted GCI, Gannet, USA Today's parent at $7.77 last week. It closed today at 8.77, and looks like it is heading to 12 and in a hurry!
“I think what investors are focusing on and has been driving the stock over the past couple weeks is renewed optimism about a couple issues at the company. One quarter doesn’t mean a trend, but if you look at the last quarter’s numbers, to me and to a lot of investors, it appears the cratering in the business units, the exodus of employees and the difficulty placing business has subsided to an extent."
He is willing to wait as long as three years, he said, to offer stakes in two multibillion-dollar foreign units that the insurer had been racing to spin off.
"It's not a question of if, but when," Mr. Benmosche said in an interview with The Wall Street Journal at his home here. "Once the market gives us a price that I think is fair, we can go forward. ... If we sell too soon, everyone loses."
Despite the critics, it looks like Benmosche is bringing the swagger back to the Insurer that Greenberg Built. Benmosche told Reuters it was unfair that AIG employees have been blamed for the bail out.
So AIG is at 48, or $2.40, afterthe 20 for 1 reverse split.
If this stock didn't split, where would AIG be at now?
Or is Wall Street just stupid? Can I for once, get just an honest answer to this question? Or do the journalists and reporters and the touts actually believe the stuff they spew?
Let's look at Citigroup. Today we got the Paulson pump, of course chronicled on this blog.Why wouldn't I tout it? I'm long. Is it a sin to defend your position? Oh that's right. I forgot how Wall Street works. Analysts can't have positions in the stocks they pimp and pump or diss and dump! Thank G-d I'm not an analyst! I'm just a tout and a speculator. But I find a tout and a speculator an honorable profession! So let me use at least egregious terminology because I'm not dressed up in a suit, touting my views over a squawk box, pretending my viewpoints are more important than they are. After all, who touts with pictures of cleavage, butt cracks or bible verses?
Which is why I chronicled Cramer's diss of Citigroup two days ago. How is that call even reasonable? How was a .25 cent drop even a reason to sell a stock that you thought was going to 12? Which is why I mentioned that number with Harmon, which Barron's slammed, of which I vehemently argued against. Anyone who bought Harmon at Monday's close is up almost 15% in two days. What is wrong with that? Maybe that's why I touted it.
But the bearish call on Harmon was based on just foolishness. Why? Maybe because those folks had an agenda.
Now Cramer, we know, doesn't have an agenda; Cramer just can't take any pain. So today, on Stop Trading, he touted Citigroup, after he just touted the sell. So you got the pimp and pump, just two days after he gave you the diss and dump! But if you sold at the lows Tuesday, and bought at the close today it cost you at least another 10%.
But did anyone notice what Cramer touted on Stop Trading today besides Citigroup? The Fannie and Freddie preferreds. Now isn't that special. Weren't these numbers just touted here on Thursday night a week ago? The common had moves of 80%. Why else do you think I touted them? And how about the preferreds? They moved nicely also. But how about Cramer's reason for buying them?
Today Cramer touted research done by Bronte Capital on these names. What reasons did I give for touting FNM and FRE? How about this Monday on the comment section:
Well they were touted here Thursday--and FNM FRE and FNA have just about doubled since.http://aaronandmoses.blogspot.com/2009/08/fannie-and-freddie.htmlBut here's a reason with some meat on it. John Hempton, a real sharp guy, at Bronte Capital, put out a 7 part thesis on why the FNM and FRE stubs actually have value.Check it out at his site.http://brontecapital.blogspot.com/
Maybe some people don't want to be able to front run Wall Street research, or maybe, Wall Street is just reading this blog, or maybe, it's because a bit more homework gets done here before stocks get touted, and hard work, last I checked, pays off.
A cheap option play tho is ATI. The BA news may help this number and they'll figure that out tomorrow after all BA is up 4 smackers already!
You get the front runs without the Goldman huddle!
But at least I do homework. Which is something that seems to be missing on the street.
Because did anyone see Charlie Gasparino gasping about AIG today? He said there wasn't any reason for the stock to be up; and that it was just a "short squeeze." Says who? And even if it was a short squeeze, which it isn't just that---why would it end here?
Isn't that just another case of egregious hope by those on Wall Street that are short these names, and they can't take the pain? So get Gasparino to pimp a story, to try and bring these numbers in.
Because the folks on Wall Street are on the wrong side of the bull!
And that my friends, is why Wall Street research is so tainted.
Because they have another agenda.
You can be a bull, as long as they stick it to you in your *ss!
And they make it look like they are being honest in their recommendations because the analyst doesn't own any stock.
But the firm is either long or short millions of dollars of the numbers that they are pimping!
Regarding the release of the names of the institutions that received largess from the Federal Reserve, the Fed argued in court yesterday that "The institutions whose names and information would be disclosed will also suffer irreparable harm.”
Didn't the FDIC just announce that 416 banks with $300 billion of assets are basically insolvent since those banks have failed the FDIC grading system?
You can get a Call report on the FDIC's website right here.
How will the release of the names of the institutions that got taxpayer money be any more damning than that?
Or is it just that some of the institutions that got money, were supposedly the ones that were "healthy?"
Paulson also owns 35 million shares of Regions Financial (RF), and 12 million shares of Marshall and Illsley, (MI), 1.5 million shares of Sun Trust (STI) and 5 million shares of Fith Third (FITB) stocks also trumpeted on this blog.
Hedge-fund hotshot John Paulson has been quietly snapping up shares of beleaguered Citigroup in recent weeks, sources tell The Post.
Paulson was said to have acquired a roughly 2 percent stake in Citi -- below the 5 percent threshold that would require him to disclose his investment stake in a securities filing, according to one source.
Although it's unclear what the hedge-fund master's rationale is for buying shares of the nation's most troubled bank, of which Uncle Sam holds a 34 percent stake, sources think that Paulson believes Citi's assets are undervalued.
William Galvin, Massachusetts's chief financial regulator, has subpoenaed Wall Street firm Goldman Sachs Group Inc., demanding information on the firm's weekly trading huddles between its research analysts and traders.
Mr. Galvin, the Massachusetts secretary of the commonwealth, said he is concerned that the huddles, in which Goldman's research staff give verbal short-term stock tips to the firm's traders and then its clients, disadvantage some Goldman customers...
Mr. Galvin's subpoena, also reviewed by the Journal, asks for a host of internal Goldman documents related to the huddles.
It really gets wearing calling these Wall Street folks to task, who keep finding cracks in the market, so I decided to read I Corinthians 13, before I wrote this story. Two weeks ago, Doug Kass made another bearish call. Today he amplified it, and said that the market may have made a top for the year, and he gave the following ten reasons:
Cost cuts are a corporate lifeline and so is fiscal stimulus, but both have a defined and limited life.
Cost cuts (exacerbated by wage deflation) pose an enduring threat to the consumer, which is still the most significant contributor to domestic growth.
The consumer entered the current downcycle exposed and levered to the hilt, and net worths have been damaged and will need to be repaired through higher savings and lower consumption.
The credit aftershock will continue to haunt the economy.
The effect of the Fed's monetarist experiment and its impact on investing and spending still remain uncertain.
While the housing market has stabilized, its recovery will be muted, and there are few growth drivers to replace the important role taken by the real estate markets in the prior upturn.
Commercial real estate has only begun to enter a cyclical downturn.
While the public works component of public policy is a stimulant, the impact might be more muted than is generally recognized. There may be less than meets the eye as most of the current fiscal policy initiatives represent transfer payments that have a negative multiplier and create work disincentives.
Municipalities have historically provided economic stability -- no more.
Federal, state and local taxes will be rising as the deficit must eventually be funded, and high-tax health and energy bills also loom.
But remember how Wall Street works. These macro calls are like the game "Who wants to be a millionaire." You get a Phone-a-Friend, an Ask-the-Audience, a Fifty-Fifty (50:50) and then three bad calls of your own.
A week before the market bottomed, Doug Kass got bullish, calling for a generational low. In mid April though, he sold out. And he got short.
On April 17, he was adding to his shorts and his SKF long and said this "Unlike my some of my bullish brethren on RealMoolah, I see blemishes in both Citigroup and General Electric's reports" and he said this "I added to my SPDRs and PowerShares QQQ shorts and my UltraShort Financials ProShares long in premarket trading."
Because the day before Kass said this:
Doug Kass Buckle Up, Goose -- We're Going Short 4/16/2009 4:39 PM EDT In light of the fact that the S&P 500 has met my variant view expressed five weeks ago, Maverick is now engaging on the short side. I would caution getting too carried away with the market's strength -- which appears now to be the case.
I would say that Doug Kass has been way better than most on this rally, but he has used the "Who wants to be a millionaire" approach to market timing.
But since their were so few bulls at the bottom, and since Cramer needs Kass to sell subscriptions, his record is overstated.
So think about that, and his variant view of the market call today.
The stock market moves higher, yet bond yields come down.
Thus, the common thought is that the bond market is not discounting the recovery in the economy that the stock market sees in it's ebullience.
So supposedly, one or the other is wrong.
And since people want the market down, the thesis you'll hear, is that stocks are the ones that will follow bonds direction.
But they'll dress up this thesis with a ton of charts and gobblegook to "prove" their points.
Yesterday, I said that most stock guys can't take any pain, and most folks want you to get out in the first quarter, I'll give you all you need to know about the above thesis in 25 words:
The stock market is reflecting a profitable recovery for corporate America, and the bond market is currently reflecting the unwinding of some wrong way bets.
As Joe Friday said, "Just the facts ma'am" but Wall Street can't handle the simple truth!
And now PIMCO's panda bear, El-Erian is on CNBS, who just last week told us that stocks had hit a wall, and stocks were on a prolonged sugar high. Now he says this sugar high is caused by:
positive economic numbers, (but he thinks it is just an inventory cycle)
sideline liquidity (by all those who missed the rally)
Thus he says we need a continual injection of sugar.
Maybe he doesn't realize how big this sugar cube is!
But how about his injection of bearishness that has kept people out of the market, who are on the sidelines, that now need to buy? Why would the market accomadate those people that were afraid to invest?
So now these learned folks, who manage close to a trillion dollars, are reduced to talking about "Sugar highs?" And last week it was "walls?"
Next they'll be talking about "Sugar walls!"
Maybe Mr. Sugar high, needs to watch Sugarcube since he is so afraid of making money! (and keeping with my quarter thesis, the point is made in the first 25 seconds)
Wouldn't it been nice to have someone tell you that this was just plain foolish? Oh someone did. Here!
58% think the market hasn't yet bottomed! 58%!!!! But 60% say they are bullish! And these are the average prices that the bulls on the "Big Money" poll, think we'll see by year end 2009, and June 2010! Big Money ain't have a clue!!