Monday, June 29, 2009

Larry Levin - the Visible and Invisible Hand is Everywhere

Wow, amazing to see such frank talk from an experienced trader on C(heerleader)NBC. I've always liked Larry for his frank talk, and of course Rick Santelli is one of the few reasons to watch CNBC...

Only a 6 minute video but for "disclosures" about what apparently quite a few experienced people who live, breathe, and exist within the market for many years believe is happening under the surface start around the 2 minute market.

....with so many "experienced" types who are not full time bears noticing the same "strange" things we've been noting, it is just hard to believe all this smoke is imaginary. Or perhaps they are all imagining things while they stroll along grassy knolls. Funny I never heard such conspiracy theories during 2002 - 2003...I wonder what changed. Perhaps more of our rallies back then happened at times other than pre market or post 3:30 PM. [May 27, 2009: Daniel Shaffer Notices the "Invisible Hand" aka Plunge Protection Team] [Jul 14, 2008: Our Gospel is Spreading - Jim Cramer References "The Hand"] [Jan 9, 2008: An Amazing Blunt Commentary on the Plunge Protection Team]

As I said in the previous entry, at least China is upfront about it...

Hat tip to a reader over at ZeroHedge for the catch....

Discover Financial (DFS) Surges on Analyst Upgrade

I've been taking a serious look at Discover Financial (DFS) the past 7-8 days as it seemed poised to break out of a recent range. Why buy a credit card company in these times? Why not - squiggly line analysis is all that matters to the computers. Profitability? Not in 2009 ... about a $1 loss estimated. 2010? Nah - not so much there either. But DFS is dirt cheap on 2012 earnings... and again, the computers have taken a liking to her and what HAL9000 likes we must chase into.

The stock has been under the 200 day moving average for a few months, after a false breakout in early May. Finally, Thursday it broke above the 200 day, which is typically when I'd jump in. Then Friday it broke right back below that key level, which is typically when I smack myself in the forehead. But an analyst came to the rescue with a positive note and $14 price target. Boo and Yah. Volume is nothing to get excited about - but we can say that about many stocks. So I'm seriously considering the stock here since I have a huge cash hoard and since green shoots abound for the US consumer and his propensity to pay back debt, what better place than credit cards, an area we've been bearish on for nearly 2 years. When stocks have nothing to do with earnings, we can buy at any price. Mmmmm.... Kool Aid.

Much like the banks who we lauded last quarter for great profitability (as long as you exclude that minor thing called a balance sheet) we can do the same for the credit card companies. Just ignore all the previous bad loans and look at current profitability - the Federal Reserve will come in with taxpayer backed dollars in case things ever get bad, and remember the Fed has created an environment where 4 year olds can run banks, borrowing at nearly nothing and lending at 5, 10, 15, 20%. Magic. It's good to be a financial co. in Cramerica!

Let's see what all the excitement is about today.
  • On the strength of some of its assets and the demographics of its credit portfolio, Discover Financial Services was upgraded by an analyst on Monday. Keefe, Bruyette & Woods Inc. analyst Sanjay Sakhrani upgraded his rating on Discover to "Outperform" from "Market Perform." He also increased his price target to $14 from $11.
  • In a research note, Sakhrani said if the company were to simply go into runoff -- a situation where it books no new business and lets outstanding balances be paid off -- and it liquidated its other divisions, its value would be more than its current share price.
  • Though credit quality is likely to continue to deteriorate into 2010, Sakhrani said those risks have been factored into his earnings estimates. Also, the credit-card lender's portfolio has less exposure to some of the hardest hit areas of the country, such as California and Florida. That means Discover's credit performance is likely to be better than other lenders. Its portfolio is also a bit older and had less growth during recent years, Sakhrani noted. The worst-performing loans across nearly all loan types were those originated during the past couple of years leading up to the recession. (but don't worry about all those prime loans about to go bad as unemployment continues to rise, followed by a period of jobless recovery)
  • Sakhrani also noted the strength of Discover's credit card and debit-card networks, which would be attractive assets to other financial institutions should the lender consider any deals when the economy starts to rebound. The company's networks are probably worth about a combined $1.5 billion, Sakhrani wrote in the note. The networks could be attractive for a bank that already issues cards, but wants to build a network. It could also be attractive for another firm looking to just cash in on the flow of transactions being completed through the network, Sakhrani said. (on that one I can agree because there is an oligarchy in the credit / debit transaction system - that said, it's not exactly a new catalyst and you'd think an interested party would of swooped in when the stock was 50% lower)
No position but squiggly line analysis says this is a strong consideration to buy on breakout

Bookkeeping: Limit Sell Hits on Allegiant Travel (ALGT)

As I went through positions a few weeks ago Allegiant Travel (ALGT) is one that had me torn; dirt cheap but in a death spiral as the "long oil / short airlines" trade was wrecking havoc, even with the best operators. With the stock in the mid $30s ($35-$36) I put in a limit order to sell at $38 as the 200 day moving average was just above (currently @ $38.70 or so) which is where the stock jumped to today intraday. I feel more comfortable being long stocks over their long term moving average so what I like to do in situation like this is lighten up (in case the stock just turns back down) and then if we "jump the gulf" over the moving average I'll pay up a bit to get my position back.

I will post a chart later but there was a quite large volume surge Friday which I assume led "technical trader" types into the name today. It's moved intraday from the $33s to $38s since Friday morning. Who is to know why the sudden move after weeks of pounding.

Today's sale takes us down from a 2.1% stake to about 1%, but pending the movement in the coming hours or days. Remember, we are in mark up season and we're doing a most excellent job of it yet again. Might be able to get to recent highs in the S&P 940s by end of day tomorrow if we work in unison.

Long Allegiant Travel in fund; no personal position

China Business News: $170B of Bank Loans Funneled into Stock Market

I had read a similar piece to today's story in Bloomberg around March and had emailed it around to a few folks, but did not post it on the blog. This is the first time I've seen an actual number attached to it and its staggering when you account for how big the Chinese economy, stimulus, and stock market is. 1 of every 5 dollars of stimulus is being pushed into the stock market. And let me be clear, I don't believe this is the only country where a mad rush of easy money thrown in all directions is "somehow" finding itself funneled into the stock market. Ahem. But when you have endless money trees and lumberjacks a plenty, feel free to bless stock market participants with largess born of future generations. It's all good.

At least in China's case they actually have the money in house instead of needing to borrow it for "mirage like" gains. Can't say that for another country where this is happening...

p.s. which country is a more open and relatively transparent system of disclosure? ....with government economists being forthright with what is happening with actual statistics and data? And which is not? Sorry, I sometimes get confused.

"Prosperity". It's everywhere. (just don't look under the hood at the nexus of said green shoots)
  • Chinese new bank loans worth about an estimated 1.16 trillion yuan ($170 billion) were invested in the stock market in the first five months of this year, China Business News reported, citing a government economist.
  • That’s 20 percent of the 5.8 trillion yuan loans banks extended in the period, the Shanghai-based newspaper said, citing Wei Jianing, a deputy director at the macro-economics department of the Development and Research Center under China’s State Council.
  • Record lending after the central bank scrapped loan quotas in November last year is helping the economy to revive after the weakest growth in almost a decade.
  • About 2.4 trillion yuan worth of bank loans were invested in projects in that quarter, Cheng said, leaving a further 2.18 trillion yuan in new loans of the total. “Where did it go? It’s undeniable that a portion of the lending may have flowed into stock and real estate markets and triggered the rebound in these two markets,” the former official said at a financial forum in Ningbo city in eastern China.
  • A further 30 percent of the loans may have been used for discounted bill financing, or short-term credits used to fund working capital needs, according to the report. These funds may help form a financial bubble, the newspaper cited Wei as saying, adding this is the economist’s personal view. (the Chinese are learning from the masters of bubbles - Alan Greenspan must be proud his groundbreaking work is being copied the world over)
We predicted just this thing early in the year... in fact as far back as February before their "new bull market" began.
  1. [May 27, 2009: How is China Spending their Stimulus Money; and How many Loans will go Bad?]
  2. [Feb 16 2009: Is China Pulling an Alan Greenspan?]

This also says a lot of about the nature of the commodity "boom" and what is really the cause.

That said, it is what it is - and if governments are insistent on creating dislocations in price, there is really no fighting it. As Jim Rogers says, this is one of the few times he is not hedging (shorting) anything due to the massive flood of money from the heavens.

Even Handed Story on Riverbed Technology (RVBD) on CBSMarketwatch

There is a nice writeup on Riverbed Technology (RVBD) this morning on CBSMarketwatch which quite fairly sums up my views as well; pro and con. This is one of the current "untouchables" and until it breaks the trend, the computers will continue to purchase it... it appears. I still have my stop loss at just under $22 because many times when these uptrends break, it can get ugly fast.
  • Unlike many other companies that sell high-tech products to corporations, Riverbed Technology Inc. has managed to defy much of the downturn with steady sales growth over the last year.
  • Investors have rewarded the company's performance by snapping up its stock, which has more than doubled so far this year and neared the $25 level last week to hit its highest level in nearly 18 months.
  • That run-up has left Wall Street divided on the stock. Riverbed now trades at a notable premium to other peers in corporate networking gear market.
  • "Expectations are reaching a high point, although fundamentals remain solid," Ryan Hutchinson, technology gear analyst for Lazard Capital Markets, wrote in a note to clients on June 25 -- the day the stock hit a high of $24.80. Hutchinson said he believes Riverbed deserves "a significant premium" to its peer group, but that "expectations for a beat and raise quarter are likely priced in." He nevertheless upped his price target on the stock to $26 from $17. Riverbed is slated to make its next quarterly earnings report on July 23.
  • At their current level, Riverbed shares command a large premium over peers in the networking space. Riverbed trades about 35 times estimated earnings for the next four quarters compared to an average valuation in the low teens for many of its peers.
  • Founded in 2002, San Francisco-based Riverbed makes hardware and software designed to allow businesses to make more efficient use of their wide-area networks, or WANs. The company's main products are its Steelhead appliances and RiOS software. Riverbed has benefited from corporations' efforts to save money by maximizing use of their existing networks before buying expensive gear to expand them. Sales have been on a steady pace of growth since the company went public in late 2006. In its most recent period, revenue grew 21% from the same period last year to hit $88.2 million. Earnings jumped to $974,000 - up 53% from the same period last year.
  • "Riverbed is a leading pure-play vendor in the fertile wide-area data services (WDS) space, offering organizations a comprehensive solution that broadly addresses the interrelated root causes of poor performance of wide-area distributed computing," Daniel Ives of FBR Capital Markets wrote in a June 23 report, in which he initiated coverage of the company.
  • But despite that he considers Riverbed "the clear technological leader" in its segment, Ives started the company with a market perform, or neutral, rating. He thinks growing competition and the tough economy could limit the company's upside. Ives set a $22 price target on the stock -- slightly below the $23 median price target among other analysts. Wall Street is split on the stock, with ten analysts rating the shares as a buy while 14 maintain neutral views.
Long Riverbed Technology in fund and personal account

1930s? 2000s? Headlines Pretty Much the Same

The New York Times highlighted this newish blog titled "News from 1930s". Essentially it tracks "this date" in 1930, and the top headlines in the Wall Street Journal. Of course as you know, after a rebound from an initial economic shock based on overleverage (among many other things) - the "green shoots" of recovery petered out... leading to a Great Depression. These headlines were before that happened. Being a curious sort I had to check out the main business and political headlines.

Just replace a few names (one President for another), one Fed head for another, and you see nothing has really changed. :) Well one thing - this week in 1930, Goldman Sachs (GS) was hitting an all time low - not so much now. What it shows me is ideological dogma is a permanent condition, humankind is eternally optimistic - even if naive, and humans - at least of the American kind - learn little from history. The resemblances in some of these are almost verbatim to what is being said, (or better put, is being "sold") today.

Some snippets from the past week
  • Washington officials will be looking carefully at whether the record-low 2.5% discount rate will revive business. So far easy money hasn't affected the credit picture much, with demand for commercial credit continuing down. However, the lower rates and longer duration now in effect should give a fairer test. Also hoped that easy credit together with lower commodity prices will encourage businesses to restock.
  • Col. Ayres, VP Cleveland Trust, predicts an abrupt recovery in stock and commodity prices by Labor Day due to current consumption exceeding production. Distinguishes between two types of depression, “V”-shaped and “U”-shaped.
  • Current speculative sentiment is bearish, but the conditions are there for a strong bull market in the future.
  • Conservative observers warn clients against buying into the rally, advise those long the market to sell when market turns weak again. One experienced observer criticizes the excess of optimistic market talk, says market won't improve until fundamental business conditions do.
  • Market observers see some hopeful signs: buying support is now coming out for stocks when they approach recent lows, and volume has been low in response to bear operations. Anticipate a possible quiet period rather than strong rally - this is typical of the end of bear markets.
  • Congressional subcommittee praises strategy of accelerating public works projects to moderate unemployment in business slowdowns, emphasizes good psychological effect of doing this quickly.
  • Census indicates New York City contains “300,000 unemployed and 100,000 drifters.”
  • Senator Glass is heading a subcommittee considering extensive changes to banking regulations. Among the changes considered are restricting speculative loans by banks to brokers and stock exchange members, removing the Secretary of the Treasury as a member of the Federal Reserve Board because of undue influence, making it easier for banks to expand nationwide, etc. Anticipated the committee will have meetings all of next year's session and submit recommendations December 1931. (oh boy, oh boy - if only he saw what the powers that be would do within 70 years)
  • J. Westerfield of the NY Stock Exchange lectures civics clubs of Yonkers on the causes of the current business recession. Says the effort to attribute it to any single cause is superficial; criticizes sanguine statements of “new era” economists that “the vast amount of reliable statistical information had practically abolished the old-time evils of large inventories and overproduction.” Concludes that an illusion grew popular that “paper profits in ... quoted values for real estate, commodities, securities, and other forms of property increased fortunes and thereby spending power.” (wow! literally could be ripped from the headlines the past decade)
  • One broker's opinion: “When this economic and market readjustment has been completed, it will merely be represented by a small curve downward in our steadily mounting curve of prosperity, consumption, production and efficiency ...”
  • Congress will adjourn in about a week - this might help market sentiment. (hah!)
  • Central Trust of Illinois says economy seems to be recently improving from end of 1929 and first months of 1930. Employment and imports seem to be trending up recently...... Union Trust of Cleveland also says the long-term outlook is improving and some indicators are pointing up. Philip Wagoner, president of Underwood (office equipment) is also seeing good month-to-month improvement. (I guess the term "2nd derivative improvement" was not quite so en vogue back then)
  • Survey of Illinois Manufacturers Association finds slow but sure recovery in business, expects improvement in second half of 1930 with profits for year as large as 1928, and further improvement in 1931.
And just for kicks....
  • Technicolor is target of bear attacks amid rumors of lost contracts and competitive color film processes. Stock has declined from $70 to $25 over a period of weeks. Company denies rumors, says full capacity is sold out well into 1931, current year earnings estimated at $5.
[May 25, 2009: Louise Yamada - 2000s Uncanny Resemblance to 1930s]

Sunday, June 28, 2009

Bookkeeping: Weekly Changes to Fund Positions Year 2, Week 47

Year 2, Week 47 Major Position Changes

To see historic weekly fund changes click here OR the label at the bottom of this entry entitled 'fund positions'.

Cash: 69.9% (vs 50.2% last week)
30 long bias: 28.6% (vs 42.0% last week)
6 short bias: 1.5% (vs 7.8% last week)

36 positions (vs 38 last week)

Weekly thoughts
First to our 2 charts, simple versus exponential....

On the Exponential moving averages, after a large drop Monday that every so slightly broke the 50 day moving average, we rebounded a bit the next two days and then a huge upward move Thursday took us back to where we ended a week ago Friday. We remain below the 200 day moving average which has now dropped from mid S&P 940s to 940.

On the Simple moving average, a ton of cross currents. The swoon Monday had us close below the 200 day moving average Monday. That should of been a bearish signal which pointed to more downside - but of course it was not to be. Tuesday a "golden cross" happened where the 50 day moving average crossed over the 200 day, and this seemed to signal to the computers that it was time to buy. Hence despite a bevy of not so good news Thursday we surged... the not so important 20 day moving average is the only light resistance ahead.

As we have been for weeks, we are stuck with 2 stories depending on what sort of technical analysis methodology you employ. Since the fundamental news remains "neutral" even through the rosiest of glasses it appears we are stuck with charts as we have been for a long time. I reviewed the economic news Thursday and I saw nothing that should of created a move up like that... but once this market begins to run it seems to feed on itself.

While there is a lot of gyration and "hot money" chasing from one theme to another the greater index is really not doing one iota the past 2 months. It's a lot of churning and "themes of the day" and "knee jerk reactions of the week", but no progress has been made. We are stuck in the box again.

There is something here for both sides - bears can claim we are making no progress and the market is tired, bulls can claim we are consolidating one of the biggest moves in history without giving too much back. I am ambivalent to both claims and frankly a bit bored of the market. We have news, everyone piles into a few themes that day based on 1 economic report. Then the next day we have the complete opposite news, and everyone piles out and goes into a new group of stocks. Just this week, one global forecasting group had a negative view on 2010 prospects, sending the markets swooning Monday, then the only pocket of good news I could find Thursday was another global forecasting group had better things to say about 2010, and like lemmings everyone ran back the other way. It is nonsensical but that's what we have. I don't think there is much to "read" into this market now; the volume is low and its just computers trading amongst themselves for most of the daily volume. Program trading now >40% of all volume... yawn.

Until we get out of this box, I find it relatively useless to be involved very heavily. I anticipate computers rushing into the market with guns abalzin' over S&P 950, and computers screeching for the exit below S&P 880. Until then traders and computers will buy the dips, sell the rips and we'll be stuck in the range, while everyone overanalyzes what the "market is telling us". I have a very high cash position and I've made one small adjustment on the short side ... since its impossible to tell the "theme of the week" (reflation? consumer? healthcare? banks?) I've bought some out of the money index puts as a hedge... about 2% of the portfolio ($20K). Right now they are S&P 850s... if we have any big bang effect between now and the 3rd week of July it will provide some oomph; otherwise they will expire worthless in 3 weeks. Along with a massive cash position (the largest I've had) I am just stalking and waiting while "trading around".

"Reflation" has taken a break for 2 whole weeks now, so I expect traders to make a go of it as "hot money" has been hanging in technology, healthcare and it appears of late "consumer discretionary" on its 89th rally attempt since late 2007. I find that simply amazing based on all the economic data coming out, on how hampered the US consumer is - but this is the playbook and people keep running back to it. Pavlov dog style.

We have a short week coming up but it is action packed - 2 more days before month and in this case quarter end... from my observations institutional money does not "mark up" on the last day of the quarter since even the SEC might catch it while not reading Harry Markapolos letters; it is usually in the 2-4 days ahead of time. So Monday will probably be the last run up on gaseous reasons, although Thursday was an impressive display and may be the main one of this quarter end. Economic data comes hot and heavy this week and as always, we'll knee jerk react to each one since 1 data point changes the course of history.
  1. Case-Schiller housing comes Tuesday; for housing bulls this has been one number that has really not been showing "2nd derivative" improvement, so after this number comes out look for folks to peel back any number of 29 layers to find any hope in layer 26-29.
  2. Wednesday is really packed - ISM manufacturing; a very volatile number that used to matter more i.e. 20 years ago when we made stuff here. Now mfg is below 15% of the economy and falling like a rock. But we can still react like lemmings to the data. ADP monthly employment is here - remember if its bad its "backwards looking" and "a lagging indicator" - if its good, its a sign of recovery. You know the drill - buy stocks. There is more home data that day, as well as June auto sales - after a run rate of 16M+ cars sold a year, we dipped to a 9M run rate in the depths of the recession; expect to hear shouts of glee as we "recover" to 10M. Perhaps tears of joy as well - I mean the government has now allowed 0% financing again via their 2 government arms of auto making, to credit as low as FICO 620. In other words, almost anyone can get a car again - and government is subsidizing it via GMAC! Wait! Where have I heard that before - free money to almost anyone? Hmmm... But never mind the details - just be joyous that with terms at the level almost anyone can buy a car, that sale rates at 40% below peak years is now a "2nd derivative improvement". Who is subsidizing these 0% loans? You are. Just a repeat of what government is doing in the housing market.
  3. Since Friday we are off, the monthly jobs report will be Thursday. See everything I said about the ADP report in point 2. Bad = backwards looking and not useful info. Good = see, I told you the economy is back, stimulus is working, Uncle Ben has saved us, et al. We'll chuckle at each other as we look at the birth death model and see how the US has created anywhere from 150,000 - 200,000 jobs YET again this past month in businesses too small to count. We'll cheer the new government and healthcare / education (quasi government) jobs, while finding glimmers of hope in other data. We'll buy stocks. We'll chop money trees. Rinse. Wash. Repeat.
And that's about it; just like any other week for many months in a row. Any news will be good news or told as such. Words such as "backwards looking" (isn't all data?) or "already in the market" will be displayed if anything negative dares emerge. Don't worry about the market really falling, the "insistent bid" saves us whenever a key technical moving average is about to be broken, and away we go... prosperity awaits, at least for speculators.

As you can see I am highly complacent, which in the old days meant the market was about to snap down sharply but these are the new days. I am waiting to be an eager buyer once we stroll over S&P 950. Until then, it's just a bit boring.

Updated Position Sheet

Cash: 69.9% (v 50.2% last week)
Long: 28.6% (v 42.0%)
Short: 1.5% (v 7.8%)

This data is updated weekly and can be found on 'Performance/Portfolio' menu tab on the website. As always the total gain/loss (both dollars and percentages) only apply to the open portion of the position; it is does not apply to portions of the position sold earlier.

(click to enlarge)



Saturday, June 27, 2009

NYT: As Plants Close, Teenagers Focus More on College

An interesting story in the New York Times; while I am all for college education the reality is in any economy this large and diverse some proportion of people naturally don't go that route. Further, we are churning out so many kids in the liberal arts - who log many tens of thousands of debt for said educatiuon ... only to be launched into the "real world" with a not so applicable degree and the type of work and pay that does not justify wasting time at college. Bottom line: the US has only so many jobs that require higher education - as we get rid of so many of those that once did not, we have to ask where will we funnel the future workers? It's very simple and easy to say "as the rest of the world prospers it will create a new innovative knowledge based economy where we can only do jobs of the highest order and leave the "making stuff" to more downtrodden economies." It's not quite so pretty in the actual real time simulation called "life".
  • Call them Generation R — Generation Recession — the millions of teenagers and twenty-somethings struggling to carve out a future for themselves when the nation’s economy is in its worst shape in decades. Many are settling for second choices or pursuing low-cost detours because the recession has wiped out hoped-for jobs.
  • In the tight-knit, middle-class communities surrounding Dayton, many members of the class of ’09 knew exactly what they would do when they grew up. They would get a good-paying job at the General Motors factory or at one of the Delphi auto parts plants, get married and start families. But the deep recession and the downsizing of American manufacturing have bulldozed those plans, leaving many of these young people confused and rudderless, with some contemplating a path that might be new to their families: college.
  • Far beyond Dayton — where the huge, shuttered G.M. plant not long ago employed 4,000 people — millions of young Americans are facing the reality that manufacturing will no longer serve as a conveyor belt to the middle class.

  • “In the ’60s and ’70s you could get a good job at Delco, NCR, Frigidaire, Inland, Dayton Press, the Standard Register, Chrysler,” said David Hicks, Moraine’s city manager. “They came with good benefits and good pay.”

So without real dynamic private job growth that does not require bubbles by the Federal Reserve (tech boom, real estate boom, high finance boom) - what do you do? I've been saying it for 2 years, momma send your kids to be a government worker. This will continue to work until some day tax rates are so high to pay for these government jobs that people will realize its just shuffling money from the left hand to the right to create "prosperity". If we could not, as a country, borrow up to our eyeballs this would already be apparent since we'd face the same dilemna the states are now facing. But until that day of reckoning comes? More government jobs!

  • Brandon Abney, a newly minted high school graduate, would have loved to work at the G.M. truck plant in Moraine, a neighboring suburb, but it closed last December. So he is enrolling in an 18-month college program to become a firefighter.
  • Nick Salyers would like to follow in the footsteps of his grandfather, whose 36-year career at a Delco auto parts plant (before it became Delphi) enabled him to buy a spacious house and raise five children. But with that factory closed and his mother and father laid off in recent plant closings, he has chosen a career in the military. “I needed something secure,” he said. “No matter what happens, I’ll always have a job in the Army. I don’t have to worry about getting laid off. I don’t have to experience what my parents experienced.”


  • DezaraĆ© Austin, of the class of ’09, moved in with a friend after her father lost his job at G.M. and left the state in search of employment. With the job market offering high school grads little beyond $7.50-an-hour fast-food and supermarket jobs, she is enrolling in community college to become a physician assistant.

  • Fred Gehron, the principal of West Carrollton High School, remembers what happened when he graduated from high school in 1966 and told his parents he wanted to go to college. “I remember them rolling their eyes,” he said. “My father asked, ‘Are you sure that’s necessary? Why not get a job at the steel mill where your brother works?’ ”

  • The G.M. plant’s basic wage was $28 an hour when it closed. “For the laid-off guys, the highest-paying job I’ve heard anyone find was $13 an hour,” Mr. Alsept said. The brightest spot in Dayton’s economy is Wright-Patterson Air Force Base.

  • Since the recession began, enrollment at Sinclair (College) has jumped 14 percent, largely because many laid-off workers have returned to school and because the uninviting job market has pushed many high school grads into college.

  • Said Todd Salyers, “My father always told us, ‘As long as you put in an honest day’s pay and are an honest person, you’d be O.K.’ That’s not even close to being right anymore.”

Please don't worry Todd, the Federal Reserve is hard at work creating a new and massive bubble that will make the past few look like child's candy. Once this avalanche of paper currency finds a home, and the velocity of money picks up - we'll have jobs galore in some sector that makes little sense. We'll all sing along how the US economy is dynamic and flexible, while ignoring the fact this precept for the past 15 years has been based on easy money policies of pushing money into the economy at ungoldy rates to create imbalances in one sector or another. This is now a national policy and we call it "prosperity"... we'll sigh deeply in relief, high five each other as the bubble of 2012-2014 takes place, and then wonder how we got into another crash in 2015-2017. We'll ask why we keep repeating this pattern, apparently too dumb to see the exact same pattern play out over and over, and figure out the root causes. We'll shrug our shoulders, have a few Congressional hearings, do a few song and dances, and then? Well, we'll start it all over again in 2018. Because money trees allow you to wave your hands and tell the peasants it's all working out great!

We can continue doing this pattern... maybe one more iteration after that. But by the 2020s I think a lot of our enablers will have moved on after looking at how we act and stop supplying us the drugs. Sort of like an adult looking at his pretentious teen. Then ... maybe... we'll be forced to look into the mirror and ask how we got here.

But until the next bubble economy is manufactured?

... healthcare, education, military, municipal....government jobs young man (and woman).

Friday, June 26, 2009

Ocwen Financial (OCN) Finally Ready to Break Out?

Ocwen Financial (OCN) has been consolidating a large move for 2 months; it finally broke over $13 today. If it can get over that spike high ($13.33) in early May it could be readying for the next leg. Still extremely cheap...

$13.25 as we speak - if it closes here it would be a higher close than the spike high close of $13.09

Long Ocwen Financial in fund; no personal position

11 Untouchables - Stocks in Most Persistent Uptrends

I am going to list some charts below of stocks that are on an incredible runs right now... basically the most '45 degree' angle like structure on the chart, without a lot of "gap ups" or "spiky" action. The market overall is really just a hodge podge mess, going nowhere for 2 months - but some action as always is happening under the surface. To clear out penny stocks or just daytrader specials, these all have at least 200K in volume on average, and a market cap over $300M.

We've already discussed Riverbed Technology (RVBD), and Palm (PALM) which also are on this list. Many of these names are so strong, they are at most pulling back to their 10 day moving average and not even within sniffing distance of their 20 day. One low risk way to play is buy the basket (preferably at the 10 day moving average or in between the 10 and 20 if possible), and place stops 2-3% below the 20 day moving average - rinse, wash, repeat on a weekly basis.

So with that... The Untouchables.

Long Starent Networks (STAR), Riverbed Technology (RVBD) in fund; long Riverbed Technology in personal account

Bloomberg: Volcker Marginalized - Major Push Back on Curbing Excess. Our Life of Financial Oligarchy Does not Change

Let me preface this piece by saying (a) it's long but hopefully educational and (b) I am not picking political sides; both major parties are complete poison to the US and really not very different at all once you strip them down to the base. With that....

Some say we romanticize Paul Volcker - the last Federal Reserve Chief who apparently has an idea that money does not grow on trees - and he is not "all that". I don't know - everything I've seen from him the past year, and much of my reading of him in the past comes from a place of common sense, yet in a very capitalistic sense. He cannot be accused of being "one of those Europeans!" (codeword for socialist) yet believes in a firm regulatory stance that is based on common sense. Back in April 2008 in [Apr 9, 2008: Paul Volcker Speaks]

In a speech on Tuesday, Paul A. Volcker, the imposing former Fed chief who felled the runaway inflation of the 1980s, chided the current chairman, Ben S. Bernanke, for toeing “the very edge” of the bank’s legal authority in orchestrating last month’s bailout of the beleaguered investment bank Bear Stearns.

“Out of perceived necessity, sweeping powers have been exercised in a manner that is neither natural nor comfortable for a central bank,” Mr. Volcker told members of the Economic Club of New York.

His remarks came on the same day that Alan Greenspan, Mr. Bernanke’s immediate predecessor as chairman, deflected criticism of his tenure in an interview with The Wall Street Journal, dismissing as “unfair” claims that his policies stoked an untenable housing bubble.

That was ironic timing indeed! Volcker continued

Indeed, Mr. Volcker also implicitly questioned Mr. Greenspan’s cheerleading of the “bright new financial system,” that “for all its talented participants, for all its rich rewards, has failed the test of the marketplace.”

Mr. Volcker also argued Tuesday that the Fed's strenuous efforts on behalf of the housing market risked looking "biased to favor particular institutions or politically sensitive constituencies," in this case the housing industry.

But the Fed has a particular duty to defend the integrity of the "fiat currency" in its charge. And exchanging dollars for "mortgage-backed securities of questionable pedigree" both raises the specter of moral hazard and potentially undermines the world's faith in the integrity of the Fed's balance sheet.

Straight talk. Something I admire... keep in mind all that was said after Bear Stearns but before all the rest of the interventions and government/Fed handouts. I really had high hopes when Volcker was included in Obama's team. Unfortunately we quickly discovered Volcker is more like the 25th man on a baseball team. Eye candy really.

We quickly found out Summers was freezing out Volcker - heck Volcker was already lost at sea by March!

Summers isn’t regularly inviting Volcker to White House meetings and hasn’t shown interest in collaborating on policy or sharing potential solutions to the economic crisis, they said.

We weren't the only ones to notice [Mar 6, 2009: Where is Paul Volcker?] By April we found out Volcker had not even met once with Obama in the past month [Apr 11, 2009: Paul Volcker Assumes Smaller than Expected Role with Obama]


The real powerhouse in this administration is Larry Summers - after his stint in the Clinton White House, off he went to Harvard where "foot in mouth" disease caused an early exit, and then off to hedge fund DE Shaw [Apr 9, 2009: Larry Summers - No Conflict of Interest; He Pinkie Swears] to learn how the markets really work from the computerized, dark pool side of things. It's almost like working at Goldman Sachs but without the very obvious connection. Oh, did I mention that for a Democrat he once sounded "GOPish!" when it came to regulation - in fact he was one of the primary cheerleaders for the deregulation of the financial industry in the 90s, including the now obvious in retrospect disaster that was the harpooning of the Glass Steagall Act (which at its heart was a bill that separated plain vanilla commercial banking from "innovative" investment banking). Along with Robert Rubin our Secretary Treasury in the mid 90s (where from? 26 years at Goldman Sachs). Rubin of course went on to preside at the Board of Citigroup (C) - collecting in excess of $100M. Whatever happened to Citi?

Point is folks - this is all connected, and the same bad actors are here. Like roaches they never really can be eradicated - its now embedded in the system; the financial oligarch system. Do you know who opposed any repeal of any part of Glass Steagall? Paul Volcker. Want to know who along with Rubin & Summers was for the harpooning of this "slowing down our financial innovation" law? Alan Greenspan. Rubin was so anxious to help out his friends back in investment banking he was pushing for the repeal not 2 months into his term as Secretary of Treasury.
  • (Feb 1995) The Clinton Administration plans to call this week for legislation that would allow commercial banks, securities firms and insurance companies to merge, forming giant financial services companies that would offer everything from checking accounts to mutual funds and life insurance, Federal officials say.
  • In a speech prepared for delivery in New York on Monday and in Congressional testimony scheduled for Wednesday, Treasury Secretary Robert E. Rubin will urge Congress to repeal the Depression-era Glass-Steagall Act, the officials said. For more than 60 years, the law has forced financial concerns to choose between owning commercial banks or owning securities companies like brokerage firms and investment banks, but not both.
  • Mr. Rubin also plans to call for broad changes in the Bank Holding Company Act of 1956, which has effectively barred most financial concerns from owning both commercial banks and insurance companies, said the Federal officials, who spoke on condition of anonymity. Mr. Rubin's speech will represent the first time that the Administration has taken a position on eliminating the legal and regulatory barriers among financial industries.
This initial push in the mid 90s failed, but Citigroup (C) was allowed to merge with Travelers (TRV) [insurance] in 1998. How was that possible? Oh, they got a waiver - heck its against the rules, but we're good - go ahead and merge. The waiver was for 2 years and they were supposed to expunge part of their business. Instead? Citigroup alone spent $100M in lobbying in 1 year (1998) to get the most important portions of Glass Steagel REALLY repealed. (if you fail at first, lobby lobby again!) Forget that divestiture stuff!! And so it was in 1999 - when Phil Gramm, Rubin, Summers, Greenspan, Goldman Sachs, Citigroup and the financial oligarch cabal got their victory. Setting us up for the biggest financial disaster in America within a decade.

If you want the dirty details the "repeal" bill passed in the House May 6, 1999. In the Senate July 1, 1999.

Robert Rubin's work was done. He resigned. July 2, 1999. (1 day after the Senate passed the bill) He went off to work for Citigroup, collecting well over $100M in compensation in the coming decade. Yes the same Robert Rubin lauded as one of our best Secretary Treasuries and a great steward for Citigroup. He's got Goldman blood in him! Must be brilliant!

And you know who was the named the next US Treasury Secretary: Larry Summers.


So yes, I'm going to be a fanboy to Volcker, the one prominent guy who vocally was against this repeal - which can be counted as one of the few root causes of our disaster today - along with espousing straight talk and common sense in many other spots. The problem is, like many things now, it doesn't matter. Political and financial power dominates and what is right is tossed on the backburner. You can believe everything above and since is all "happenstance" or "blind chance" and some firms win and some win, "randomly" - but really, if you do - I have some bridges in Florida up for sale.

Let me give credit to a handful of Senators who voted against this repeal as well: Byron Dorgan, Barbara Boxer, Barbara Mikulski, Richard Shelby, Tom Harkin, Russ Feingold and Richard Bryan. A fascinating short interview with Senator Dorgan a decade later for "calling it" back in the late 90s - almost exactly.

Meanwhile, back to Larry. He is a brilliant mind from all accounts - but very ambitious. He wants the ultimate job - the one I've called the 2nd most powerful in the world after US President. The one with almost no oversight and the power to create money from thin air - Federal Reserve Chief. Only one problem - that job is occupied. But lo and behold, you can almost hear Larry smacking his hands together in glee as Mr. Bernanke roasts on an open fire.

Oh yes ... let's not forget.... the "Administration" is pushing for more power for the Fed - even though their laissez faire policies (isn't the antithesis of a regulator laissez faire?) helped get us here. So isn't it convenient than the push to give more power to the Fed from "inside the Administration" comes with only a few quarters to go before the Fed head position comes open. Now who would be so persistent in pushing for these new powers to be given to the Fed... and with what motive? (connect the dots)

But we had one hope in this mess; even if a small one. That was Paul Volcker. But it appears for poor Paul... and by definition us... he is turning from the 25th man to the 26th man on that baseball roster. Effectively sent down to AAA.

Bloomberg: Volcker Gets Less than He Wants in Curbing Excess

This is a very long piece by Bloomberg so I'll save most of it for those who care to read about what is going on in the country in the great power grab. But I'll throw a few snippets here below.
  • Volcker, who eventually made his way to the dinner table the evening of April 27, earned a reputation for standing up to Wall Street in the 1980s when, as Fed chairman, he brought inflation down to 1 percent from 15 percent by pushing the fed funds rate up to 20 percent.
  • Now, he’s urging radical regulatory reforms that would limit how big banks can get, separate deposit taking from trading at financial institutions and force all derivatives trading onto public exchanges. His proposals go beyond what Geithner, Summers and other members of the Obama administration have advocated.
  • After the inauguration and Geithner’s confirmation, Volcker was elbowed aside, White House insiders say. His economic recovery board took weeks to get off the ground -- a delay people close to Volcker say he blames on Summers. And Volcker’s access to the president was limited.
  • If Volcker is at one end of the spectrum arguing for tougher financial rules, Summers and Geithner are at the other.
  • Summers pushed for deregulation while Treasury secretary under President Bill Clinton, advocating the repeal of the Glass- Steagall Act, which had separated investment and commercial banking for more than 60 years. Geithner was president of the Federal Reserve Bank of New York during a period when banks ratcheted up their leverage. Both men are proteges of Robert Rubin, a former Clinton Treasury secretary who served on Citigroup Inc.’s board from 1999 until this year and has been criticized for allowing the bank to pile up $544 billion of derivatives and securities before it became the recipient of more government assistance than any other bank.
  • The reform proposals presented by the Obama administration, crafted largely by Summers and Geithner, fall short of what Volcker wants.
  • Geithner, 47, and Summers, 54, have also put forward a mechanism for dismantling large banks that fail. It doesn’t include rules for preventing them from getting too big, as Volcker urged.
  • The Geithner plan allows (derivative) contracts that can’t be standardized to be traded outside the central clearinghouse. Volcker wants to discourage that by imposing capital requirements on trading parties, people familiar with his thinking say. He also wants derivatives to be traded on exchanges, where investors can see prices for themselves, which would bring down profits for the dealers who act as intermediaries.
  • “While Summers and Geithner worry about not antagonizing the banks, Volcker is the only one who can say loudly what needs to be done,” says Timur Gok, who teaches finance at Northern Illinois University in DeKalb, Illinois. “The Summers-Geithner stamp is clear in this framework because it’s not very radical. We’ll see whether Volcker’s views are heeded more in Congress.”
  • The biggest obstacle to Volcker’s reform agenda is Summers, Volcker’s friends say. While the president’s top economic adviser has softened his anti-regulatory stance from his days as Clinton’s Treasury secretary, it will be difficult for him to accept some of Volcker’s proposals, they say.
Other good calls
  • The former Fed chairman started worrying about derivatives and structured debt such as mortgage-backed bonds in the early 2000s, his grandson says. In a 2000 interview with the New York Times, Volcker said he couldn’t make sense of the financial innovation going on. “You obviously have a kind of speculative fever,” he told the paper. “It’s a kind of casino. It’s all the rage, trading certificates that have no intrinsic value.”
  • In 2005, Volcker was worried about the housing bubble, the U.S.’s growing trade deficit and banks’ increased risk taking. “Under the placid surface, there are disturbing trends,” Volcker wrote in the Washington Post. “Altogether the circumstances seem to me as dangerous and intractable as any I can remember, and I can remember quite a lot.”
  • The Obama administration initially wanted to give the Fed a larger role, people close to the discussions say. Volcker was opposed, arguing that too much weight on the institution could threaten its independence in setting monetary policy.

Finally, a great quote from the piece

“He did a lot of things, in all his different roles serving the public, knowing that he’d be criticized. He has never flinched. He doesn’t flinch because he’s a man of utter conviction and absolute integrity.”

These are the type of people the country sorely lacks at the top in all areas - the term 'representative' no longer has the original meaning. Looking out for the greater good is something to write on Christmas cards... boiler plate language versus actions taken behind the scenes.

US Savings Rate Surges to 6.9%; Spending Up Too But Government Assisted

Our long held prediction of the American savings rate being forced upward not out of choice but necessity is happening much faster than even I anticipated. There are many flaws with how savings are measured, however, these flaws have not changed over the past few years so its apples to apples to compare savings rate "today" versus "3 years ago". In December I penned (ok, I typed) a piece [Dec 29, 2008: What Happens if America Returns to a Historical Savings Rate?] - I had written in many pieces in 2007 and 2008 that Americans would be forced into savings but I wanted to see the actual numbers and compare them to other countries as well as to the US itself in previous periods.

A lot of the focus of the punditry is when we'll recover - personally I think it's a bit of a moot point. What I'm thinking through is not when, but what the recovery will be in America. I posted many of my thoughts in [The US Economic "Recovery"] but essentially a lot of cross currents are forming which should make for a very interesting 5, 10, and indeed 20 years ahead.

Much of the current recovery thesis is based on (a) government spending replacing private enterprise and (b) coaxing Americans back to their old habits. But I'd like to ask what are "old habits?" - most of us in our 20s, 30s and 40s know one reality; our context of history is very different than one who has a longer precedent to view. So let's take a few steps back and I will give you some insight on why I think we're not going to be going back to the binge we've just left for a long time

I'd like to present the graph below which shows the historical saving rate of Americans since the 1960s. (click to enlarge)

As you can see, Americans used to save. They used to act quite near our European and Asian friends

People keep asking when Americans will go back to their old ways, as if saving 0% or 2% is our old ways. Not really - that's our most recent ways. As Uncle Ben Bernanke sits here and destroys American savers (just imagine the 65+ crowd trying to live on these CD interest rates) the master plan is to return Americans to spenders so we can kick the can down the road. But what if Americans do what is best for themselves (save) and not for the "service based economy" (spend like drunken sailors)?

A 10% savings rate? Could it be possible? What would that translate to in real dollars?

We have about a $13 Trillion economy, with about $10 Trillion in private spending. (one could quibble the exact number but it's within a degree of that and $10 T makes for a nice round number). A 10% savings rate very easily translates $1 Trillion in savings. A 8% savings rate translates to $800 Billion. Even a 5% savings rate translates to $500 Billion. All these number exceed the next stimulus plan on an annual basis - which means all the government would do is borrow from our grandchildren, layer more debt on them (that we need to eventually pay) to offset money from our "old economy model" (of the past 6-8 years) as Americans, in self preservation, move to the real "old economy model" (of the past 40 years).

If I am correct, consumer discretionary items will continue to suffer far deeper and longer than the pundits and hedge fund thesis algorithms currently posit. I do not believe these pundits and PhD programmers at hedge funds understand the median wage in America is about $30K (meaning half make less). Many declaring impending recoveries probably make this wage in a month. It is 2 Americas, and the punditry does not live on Main Street. Unfortunately the non punditry portion of 2 Americas need to drive this economy. If I am correct, my bearishness for retailers (non grocery, non essential) will last much longer than those who run up said stocks on "early cycle" thesis - as they will do repeatedly in 2009 (as they have done prematurely multiple times in 2008)

The case against me? Within 6-12 months, companies suddenly decide 6-8% wage increases are the new 3%. Or the US consumer will be back to their overspending ways and the small rebound in savings rate (2%ish) will retrace back to 0% or negative.

So what has happened since late 2008? The US Savings rate has now surged to nearly 7%. That's remarkable. Granted SOME of this is due to government handouts - so many of our economic reports are now buoyed by borrowing from the future (or China) and throwing it in the system today. So "spending" is pushed upward because government is handing out money like no tomorrow, and so is "saving". That said, I do think the underlying trend of saving is accurate - but the exact number is very debatable.
  • Households pushed their savings rate to the highest level in more than 15 years in May as a big boost in incomes from the government's stimulus program was devoted more to bolstering nest eggs than increased spending.
  • The higher savings rate is healthy in the long term, economists said. But without vigorous consumer spending, the government may have to do more to revive the economy, possibly through further tax breaks and spending. (which we don't have the money to do - more money trees to chop!)
  • The Commerce Department said Friday that consumer spending rose 0.3 percent in May, in line with expectations. But incomes jumped 1.4 percent, the biggest gain in a year and easily outpacing the 0.3 percent increase that economists expected. (we see in our monthly employment report that wage inflation is almost non-existent - so where are the income gains coming from? Government largess) The income increase reflected temporary factors relating to the $787 billion economic stimulus program that President Barack Obama pushed through Congress in February to fight the recession. That program included one-time payments to people receiving Social Security and other government pension benefits.
  • The savings rate, which was hovering near zero in early 2008, surged to 6.9 percent, the highest level since December 1993.
Here is the reality before the "green shoots" crowd screams about rising incomes.
  • The stimulus package also featured reductions in payroll tax withholding designed to get people to start spending more money and boost the economy. Those factors helped increase after-tax incomes 1.6 percent in May. However, without the special factors, after-tax incomes would have risen just 0.2 percent.

This increased savings is a great thing for America in the long term. But an awful one in the near term. This one time adjustment to get us back to a normal savings rate is a necessity, and the transition period will be very difficult since so much of our economy is built on consumption. But it shows Americans taking protective action to preserve themselves despite all the incentives from government to get them spending and back into terrible financial straits (if you don't shop, the terrorists have won!)... finally seeing the light. This, I applaud.

So here is the quandary - as I wrote above, if Americans go to a 8% savings rate that is about $800Billion out of our consumption economy. Which is about how much the stimulus plan is. So for a few years if the government wants to keep the economic engine humming its going to have to keep repeating these massive spring stimulus plans. With money we don't have.
  1. Spring 2008- Bush $200B
  2. Spring 2009 - Obama $800B
  3. Spring 2010 - Obama (it's coming folks, trust me - it's an election year and with unemployment over 10% the honeymoon with Obama will be over)
  4. Spring 2011 - We're gonna need another one if you Americans insist on acting rationally and saving 8% of your income
  5. Spring 2012 - Call the Chinese! We need more money to support this economy based on shopping
You get the picture. This is what happens when you get rid of production and transition to the new wave, finance based - shopping economy. You face a problem when your citizens don't have house ATMs and decide to start balancing their checkbooks.

Thankfully by Spring 2013 the housing market should have bottomed in 2011-2012 and the house ATM will be turned back on. Regulation we put in place now will have been snipped away by the lobbyists and if we are really lucky 0% mortgage teaster rates will return. Then we can start this party all over again. Yippee - "prosperity" will be back.

But my gosh, you folks running into consumer discretionary "early cycle" stocks really need to throw away the old playbook and realize this is a secular change in our history. And with the forces of globalization wracking our system (pressuring wages), while inflation is on the horizon in the decade to come... this is not a 6 month trend. This is a sea change. The US consumer is being forced to act rationale and rebuild his balance sheet. This will take many years - the market has yet to recognize it. This "recovery" is going to be very different than "the playbook". Folks, it is so bad even teenagers are acting responsibly! [Jul 5, 2008: Bloomberg: Teenagers Skip $50 Jeans in Squeeze of Gas, Job Shortage]

[May 10, 2009: NYT - Shift to Savings May be Downturn's Lasting Impact]
[Feb 2, 2009: NYT - Our Love Affair with Malls is on the Rocks]
[Sep 20, 2008: US News & World Report - The End of the Shopaholic Nation?]

Bookkeeping: Adding Back to Riverbed Technology (RVBD) on Analyst Note

Looks like there is a cautious note on Riverbed Technology (RVBD) from Oppenheimer - so we got sort of lucky here, as we (in error) sold most of the position earlier this week thinking earnings were on tap. With the stock in the $22.50s, which is the 20 day moving average I am going to swoop in and get my 0.2% stake back up to 2.5%.

Of course when (and if) momentum breaks on a stock in an uptrend you have to be ready to parachute out, but buying at the 10 day moving average has been a winning strategy for months. This is the first opportunity to buy at the 20 day since mid May.

I'll place the same stop loss I had for the past week and a half, down around $22 or just below. If this 20 day breaks it could have a date with the 50 day moving average.

Long Riverbed Technology in fund and personal account

Paul Desmond of Lowry's Research: 90% Down Days Siganling Trouble Ahead

A quick video with Paul Desmond, President of Lowry Research (oldest TA firm on the Street) ... a lot of talk about the 90% down days we have started to see the past 2 weeks. Just another opinion to mix in with your whirlwind of various views...

Thursday, June 25, 2009

Lear (LEA) Prepares to File for Bankruptcy

As we said a month ago in [Jun 4, 2009: Detroit's Woes Wound an Army of Suppliers]

I think many people do not understand the daisy chain that is the automotive industry - there are countless suppliers of various size. They have been in a "right sizing" for a decade now, decimating the ranks (we've lost about half of them as we offshore) but there are still literally thousands out there. Lost in the "headline news" of the week (green shoots mind you) was the bankruptcy of Visteon (yes last week) - which was spun off of Ford much like Delphi (in bankruptcy since 2005) was spun off of General Motors.

Metaldyne is another supplier that went bankrupt last week (a smaller supplier) and I expect a bevy more to go this summer and fall. So while I expect (government reported) unemployment to level off and even improve from the dramatic (twice in a lifetime) levels we have seen, we have a slew of folk that will be joining the ranks from this industry and I think it is being understated.

But now we'll see some good sized firms go....

Of course that did not stop speculators from running into auto suppliers a week later (who needs fundamentals when we can drive a stock up 50%?) [Jun 10, 2009: Guess the Federal Bailout, Win Money - Today's Sector: Auto Supplier's Lear (LEA) +50%, American Axle (AXL) +30% and Dana (DAN) +20%]

The only irony in watching these stocks soar is knowing people in the supplier industry and these companies themselves and realizing what shape they are in, while their stocks surge.

No matter what shape the companies are in today, as with Sequenom (SQNM) yesterday all that matters is a technical intraday breakout or a huge volume spike, and away we go... daytraders pile in. Today's winners are Lear (LEA) +50%, American Axle (AXL) +30% and Dana (DAN) +20%.

Who knows maybe Lear will spike tomorrow on the bankruptcy filing leak! Why not? Stocks are not associated with underlying fundamentals anymore, they are just 3 and 4 letter symbols to be traded in video game manner by institutional computers and retail home gamers.

These are not tiny companies, Visteon went a few weeks ago [Ford's largest supplier] (30,000 employees), and Lear with 80,000 employees. Hopefully only 10-20K need to go from Lear - wait, doesn't Walmart (WMT) need to hire 20,000 this year? Perfect - 2 birds, 1 stone. Local papers reporting the Obama team is not accepting pleas for supplier handouts because they are not banks. Err, Freudian slip. The newspaper reports the belief is the auto supply chain needs to be cut in half. Which, if American consumers are going to be saving 8-9% of their income the next half decade is probably quite true. If so, we should see a good 2000 companies of various size go under. To go along with each of these car dealerships being tossed aboard (on average 53 employees) - also a necessity considering Americans are trying the whole "saving" thing.

I'm not worried about the employment situation myself; I know in the birth / death model of the government monthly employment report many of these people will be finding jobs in "companies too small too be counted in the survey". Or in the smart phone industry. Further, as people exhaust their unemployment benefits they will drop off the continuing claims and the market can cheer continuing claims going down as another sign of green shoots. Prosperity continues across the industrial heartland. Mmmm... I can see green shoots for miles under the sand.

Thankfully this Lear is not a bank or we'd have an all night vigil waiting to hear about how much US taxpayer money would be handed out in the morning (or this weekend - Sunday night before Asian markets open; ah memories of 2008!) because Lear is "too big to fail". Clears up some TV time otherwise spent glued to CNBC tonight or Sunday night watching oligarchs walking into buildings snickering how the US taxpayer is there for them.

There is one happy big fish investor who must be thanking the stars his tender did not work out.
  • Lear had been the target of billionaire activist investor Carl Icahn, who had offered nearly $3 billion to buy the auto supplier two years ago.

  • Lear Corp., the world's second largest auto-seat maker, is preparing to file for bankruptcy as soon as next week, according to people familiar with the matter. The Southfield, Mich.-based company has been trying to negotiate an out-of-court deal with lenders, but lawyers representing the parts maker are "prepared" to put the company in bankruptcy court, one of these people said.
  • Last year the Southfield, Mich.-based company posted revenues of $13.6 billion.
  • Lear has been in talks with banks in recent days for so-called debtor-in-possession loans, the funding companies typically use to finance their stays in bankruptcy court, people familiar with the matter said. The size of the loan couldn't be learned.
  • Lear swung to a first-quarter loss of $264.8 million for as sales fell 44%. The company has reported one annual profit in its last four fiscal years.

No position

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