Tuesday, September 29, 2009

Notice to Email Subscribers - Change of Delivery Time

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I've made a change to the email subscription services for those of you who utilize that rather than a RSS feed or just showing up to the site. The default setting was to deliver postings from the previous day in 1 email, between the times of 7 AM and 9 AM EST. I have changed that to a 5 PM to 7 PM EST delivery, I assume this is "same day delivery" ("what can Mark do for you?"). I think this makes a lot more sense for a market / stock oriented website.

Hopefully the first delivery arrives tonight.


Bookkeeping: Closing Capital One Financial (COF) Short

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I am still eyeing that gap at $24 in Capital One (COF) but at this point it appears it will take an act of God to get the stock market down ;) I am going to scurry off with my 16% loss on the last 1.1% of this position (suffered similar losses on other parts of the position along the way). If you notice I am posting the exact same chart in many stocks today - companies have pulled back to 20 or 50 day moving averages but have been bouncing. Essentially almost all stocks move with the greater markets nowadays - so as the indexes bounce, almost everything runs up with it.

The stock has not really gone anywhere for the past 6 weeks but we took most of our damage on this one early in the position. (early August with cost basis just above $30)


I'd be more interested in shorting on a break below say $33.50 but for now "gap filling" is only working selectively in a market that is up 8 out of every 10 days. I am going to be looking for new names to fill the short side of the ledger, but its slim pickings looking for really bad charts as so many stocks are over every major key moving average.

On the fundamental side of the ledger, the Fed is handing money to all financial institutions at nearly nothing with the game plan of huge profits on current loans offsetting grandfathered losses that are coming from old loans. Savers will be crushed (as will your currency) until the banking system can recapitalize itself, and there is nothing you can do about it. All these type of companies benefit from this world where the Fed, a private institution whose job is to support the banks, dictates our world.

No position

Buy the Dip, and Remarkable Reversals

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I can't recall a time when we've had the exact same pattern play out so many times in a row; and when the markets reverse the move is in such straight up fashion. In the past 2 months alone, we appear to be working on reversal #3... the first two I've highlighted:

  1. In mid August, the reversal brought on a just under 6% move in 4 sessions
  2. In early September, the reversal brought on a just over 5% move in 5 sessions (and that move continued to blossom into a 8.5% gain in 10 sessions)

In and of themselves the raw % gains are not spectacular but considering each time the market was correcting (in shallow fashion) and to be followed immediately with a spike rather than any sort of consolidation period is the remarkable part. There is no resting in this market - the shallow correction is immediately followed by rapid fire ascents.

Is this the 3rd such occurrence in just 60 days? Is it really just that easy? I don't know but until a pattern is broken, the denizens of Wall Street will continue to play it. So I won't be betting against it until bears show an ounce of moxie - by going against pattern you will only be correct one time. And wrong each other time. We are in day 2 of this reversal and the interesting thing is if this continues through tomorrow, days 4 and 5 are chock full of market moving data. And over S&P 1080 is yet another "double top" breakout possibility - the last few of which we've made a lot of money in a short period of time as computers rush in to buy on this technical condition.

Seems too obvious to keep working, but obvious has been the new normal. At some point the lemmings will get trapped doing the obvious, but I've been saying that (wrongly) for many months.

E-House Holdings (EJ) in Investors Business Daily

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This article is a bit dated as it comes from August but it's a good summary of Chinese real estate company E-House Holdings (EJ). The risk with this company right now as I see it, is it is in many ways a direct play on how the Chinese are pulling the strings on loan growth. [Aug 12, 2009: E-House Holdings (EJ) Benefitting from China Housing Bubble 2.0] I have no idea of their future plans but for now they seem to have pulled back from an "enormous" loan growth rate in the 1st half of 2009, and ratched it back to something more akin to "huge" loan growth rate. But all things being equal I'd rather own the Century 21 of China over the Century 21 of Bubblemerica.

I bought a little more of this name today with the stock down nearly 5%, with the same strategy laid out in the piece right before this - keep riding the horse until it breaks the 50 day moving average at which point I'll stop out a good amount of the position. Of concern is the latest high is lower than the "spike high" of early August that came immediately after earnings. But nothing yells sell at this point. EJ is trading at roughly 23x 2009 estimates so not cheap on an absolute basis but relative to its growth rate its not outrageous.


E-House (China) Holdings Limited ("E-House") (NYSE: EJ - News) is a leading real estate services company in China. Since its inception in 2000, E-House has experienced rapid growth and is China's largest real estate agency and consulting services company with a presence in more than 30 cities. In addition to its national presence, E-House offers a wide range of services to the real estate industry through its various business segments including primary sales agency, secondary brokerage, consulting and information services, advertising and investment management.

Here is the Investors Business Daily piece - as always I enjoy their articles for providing a nice overview of a business.
  • Following last year's slump, China's housing market got kicking again in the spring. And so did E-House (China) Holdings (NYSE:EJ - News), one of the country's largest residential real estate brokerage firms.
  • The company also operates a real estate database and consulting service. That business is in the early stages of getting spun off as a separate, U.S.-listed company in combination with the real estate unit of Chinese Web portal Sina (NasdaqGS:SINA - News).
  • Developers often outsource sales functions to real estate services firms such as E-House, which employs more than 3,500 sales professionals. Though it's a leading player in and around its base in Shanghai, E-House has expanded to many other cities in China.
  • As buyers returned to the market, E-House's business picked up. In the second quarter, it sold 183% more in total square meters than in the prior year's Q2, for a total of 1 million square meters, or 328 million square feet.
  • If units averaged 500 square feet, that would come to around 656,000 units. The value of new homes sold jumped 172% to $3 billion.
  • Good thing there's volume and rising prices because sales commissions are much lower than in the U.S. -- under 2%. E-House commissions rose from 1.19% in the first quarter to 1.38% in the second quarter.
  • E-House's revenue grew 48% to $63.5 million, and profit climbed 71% to 24 cents per American depositary receipt, or $19.3 million in net income. In 2008, profit had dropped 20% from 2007, the market peak. E-House's management said on Aug. 12 it was one of the earliest and biggest beneficiaries in the market rebound.
  • With a strong pipeline from developers who've hired E-House to sell new units, the company forecast even greater growth in the third quarter, a 98% to 103% jump in revenue from the year-ago period to $78 million to $80 million.
  • The firm says it's the exclusive sales agent for more than 40 projects across China. Many of its rivals are local or regional outfits -- or developers who opt to sell their own units.
  • E-House's biggest client, analysts say, is developer Evergrande Real Estate Group, which is preparing a $1 billion public offering in Hong Kong.
  • The firm, founded in 2000, also sells existing homes, a much smaller part of its overall business. That business took in $5.7 million of the $63.5 million in second-quarter revenue vs. $41.2 million from primary new developments.
  • Its real estate consulting and information services division posted $13.7 million in second-quarter revenue, up 23% from the prior year.
  • Sell-through rates topped 70%, up from 30% to 40% in the second half of 2008. Backlog for 2010 and 2011 has doubled in recent months.
*********************

This part regarding the portal/proposed IPO was new to me...
  • A key part of that division is E-House's proprietary real estate database and analysis system, called China Real Estate Information Circle System, or CRIC for short. In February, E-House joined with Sina to build an online real estate portal in China. E-House licenses CRIC to the new venture. Sina is the majority owner.
  • Their ties deepened more recently when the two agreed to merge E-House's real estate information and consulting business and Sina's online real estate ad business in a separate firm named CRIC.
  • Under terms of the proposed IPO on a U.S. exchange, E-House will be the majority shareholder and Sina the second-largest shareholder.
  • Analyst Keung said of the proposed IPO: "It's a chance to further leverage the business." He estimates the venture will add $30 million to $40 million in revenue next year and help E-House's bottom line.
**************************

Should sound familiar...
  • The government eased lending policies late last year to get buyers back in the market after the global recession slowed China's economy and demand for new homes. Government actions, including a $586 billion stimulus package, worked, as did price cuts by developers. Demand spiked. And prices started rising, some say, too fast.
  • "Prices are definitely up, but still below the peak in many cities," said analyst Paul Keung of Oppenheimer & Co. in a phone call from China. "We're probably in the middle of a long secular growth trend in the sector, but it will have cycles."
  • "The pace (of China's housing market) in the second half will continue to grow, just at a slower rate," Keung said. "We're going from 50% growth to 30%, not 50% to zero."
Long E-House Holdings in fund; no personal position

Wyndham Worldwide (WYN) and Sector Upgraded by Goldman Sachs

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It seems Goldman Sachs is running around upgrading just about every sector and every stock nowadays... today's candidates are the lodging stocks; the biggest % beneficiary thus far is our holding Wyndham Worldwide (WYN). This has been a star performer for us; just bounced off support yesterday and rocketed back up... a move over $16.50 should bring in the computers (and momentum based human traders). With something like this, simply placing a stop a few % below the 50 day moving average and adjusting it weekly is the sensible game plan.

Still very cheap at 10x this year's earnings, considering many other companies of similar ilk are trading for 2-3x that.
  • A Goldman Sachs analyst boosted the price targets of some lodging companies Tuesday, citing slowing supply growth and an uptick in demand. Many lodging operators saw declining demand during the recession as consumers looked to trim costs and held back on booking trips or took shorter vacations. Supply growth also began to wane during the economic downturn, as hotels looked for ways to reduce expenses and avoid oversupply.
  • Signs of an economic recovery on the horizon bodes well for the industry, according to analyst Steven Kent. "As we go further out in time we expect increased economic activity to ultimately result in more travel, which will boost occupancy and rate thereafter," he wrote in a client note.
  • Kent increased Marriott International Inc.'s price target to $33 from $27.79 and lifted Starwood Hotels & Resorts Worldwide Inc. to $43 from $35. He raised the price target of Choice Hotels International Inc. to $36 from $32. Among the other price target increases included those for Gaylord Entertainment Co., Orient-Express Hotels Ltd., Interval Leisure Group Inc., Host Hotels & Resorts Inc. and Wyndham Worldwide Corp.
[Jul 29, 2009: Wyndham Worldwide Solid: RevPAR Far Above Industry]
[May 1, 2009: Bookkeeping - Creating New Position in Wyndham Worldwide]
[May 1, 2009: A Stroll Through the Hotel Space]

EDIT 1:30 PM - looks like I made an error today, when trying to punch in a stop loss order instead I put in a limit order to sell, and hence have dropped out of a good 75% of the position. So we'll rebuy what we sold today north of $16 on a breakout over $16.50 or on a pullback. *smack self in head*

Long Wyndham Worldwide in fund; no personal position

NYT: Out from India's Alleys, Gold Loans Gain Respect

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Interesting article in the New York Times, intersects two interesting subjects - gold and India. We can file this one under "what is old is new again" - gold standard anyone?
  • Indians own more gold than the citizens of any other country. They use the glittering metal as ornaments to flaunt family wealth, as a source of retirement savings and as insurance against calamities.
  • But lately, gold has become something else: collateral, and the basis of one of the country’s fastest-growing businesses, gold loans. While pawning the family jewels would be a sign of distress in the West, trading gold for cash increasingly is viewed in India as the equivalent of taking out a home equity loan to expand a business or simply to buy things. “This is the rural credit card,” said V. P. Nandakumar, chairman of the Manappuram Group, one of the country’s biggest gold loan companies. “This is the only way really that someone gets an instant loan within three minutes.”
  • But loans against gold are also a measure of how immature — and restricted — India’s credit markets are. Most Indians, especially those working in the informal economy, which accounts for 92 percent of the country’s 400 million workers, have few choices when they need to borrow money: they lack other collateral or have no documents to prove their incomes.
  • It is now “a lot more palatable for banks to give loans against gold jewelry,” said Viren H. Mehta, a national director at Ernst & Young India.
  • Pawnbrokers and money lenders have long operated in India’s back alleys, making loans against jewelry to families in distress, at interest rates of 30 percent or more. But gold loans made by banks and finance companies are different. Rates are lower — 14 to 30 percent — and their businesses are regulated.
  • There are no publicly available aggregate data about gold loans, but finance companies that specialize in them are growing fast. Manappuram, a pioneer in the business, made $730 million in gold loans last year — up from $397 million a year earlier. Muthoot Finance, a privately held firm, says its lending is growing at 60 percent a year.
  • By contrast, total outstanding bank loans to the private sector increased 16 percent last year, year over year, and have been essentially flat so far this year.
  • Though the financial system here has become more inclusive, it still doesn’t reach many people. More Indians, for instance, own gold than own stocks or mutual funds.
  • Even though gold loans have become more popular, many are still embarrassed about using them. Many customers still view gold loans “as a desperate loan, a loan of the last resort,” said George Alexander Muthoot, the managing director of the Muthoot Group. “We’ve been trying to change that perception into a smart loan product.”
  • Mr. Muthoot and his rivals are confident that they have just begun to mine the market. He estimates that just 600 tons of the 15,000 tons of gold Indians own has been borrowed against so far. “There is another 14,000 tons of gold waiting to be tapped,” he said. “It’s just lying there.”
So of course you are wondering about default, since the closest thing to this in America are pawn shops where defaults are relatively high. Not so much in India thus far. (need that gold for the dowry) ;)
  • Gold loans, so far at least, have very low defaults — companies say fewer than 1 percent of borrowers fail to repay. Most jewelry is reclaimed in less than four months.
  • When borrowers don’t repay, their gold can be easily sold for more than the value of the loan. Still, the lenders do have some risk: for instance, the price of gold, which recently surged past $1,000 a troy ounce, could fall more sharply than some lenders are prepared for.
Anecdotal example of how it works:
  • ... for borrowers like Vishwanathan C. R. Pai, a rickshaw repairman, gold loans are an essential financial tool. He frequently hands over his family’s jewelry at Muthoot Finance to pay operating expenses for his business. He often borrows 10,000 to 25,000 rupees ($200 to $500) to buy spare parts, repaying the loans when customers pay him.
  • He pays 15 to 18 percent interest.
  • Mr. Pai said he couldn’t get a business loan from banks because they wanted documentation of his income. But his customers, who earn as little as $100 a month, don’t do checks and invoices. “It is very easy here, there are no formalities,” Mr. Pai, 29, said about borrowing at Muthoot.
  • Mr. Pai laughed when asked what would happen if he couldn’t reclaim the necklace he had recently pledged. “I have to get it back,” he said, “otherwise my wife won’t let me back in the house.”

$35 Billion More in Handouts / Bailouts Headed to Local Housing

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While I am all for a 1st world country (especially the richest country on Earth*) providing shelter even for its worst off citizens, I don't really understand why being a renter has become a near crime in America.

*excluding debt

I am just going to post the programs as they come one after the other to keep them in the public conscience. Feel free to call your local Congress(wo)man and ask if you can contribute directly to these programs via direct with holding out of your paycheck, or if you have to waste time sending the money first to D.C. I am all for efficiency so I believe each reader with a house should knock on doors of local apartments and just hand out a few hundred bucks to each tenant. Why mess with the middle man (D.C.)? In fact, just shovel it under the door without bothering to knock - you can hit far more apartments in one evening. Your fellow "future homeowner" will react in glee ... I mean anonymous handouts of money via the mailbox is what the entire US economy is now about.

Again I have a very easy solution to ending this - have those who want this money go door to door to their neighbors to ask for cash directly ... whether they want to buy that shiny new car, or shiny new (or existing) home. Having to actually ask those neighbors (face to face) to break open their child's piggy banks might actually make the "consumers" of said "free money" think about where the money is coming from. I am all for supporting people in time of need when it comes to food or things of that nature.... but really, turning countless more Americans from renters into homeowners, is that now a birthright?

Just put it on the tab Ben! Time to chop down more money trees!

Via WSJ
  • The Obama administration is close to committing as much as $35 billion to help beleaguered state and local housing agencies continue to provide mortgages to low- and moderate-income families, according to administration officials. (again, it is one thing to help people retain a form of shelter - it is a whole different animal to steal from one generation to get a the current generation into homes)
  • The move would further cement the government's role in propping up the housing market even as some lawmakers push to curb spending at a time of rising debt. (speaking of cement, I believe that's the perfect word for what we are putting on our future generation's ankles - in 15-20 years we can drop them off the boat directly into the ocean and our work here will be done)
  • The effort, which could be announced as early as this week, is aimed at relieving pressure on government-operated housing finance agencies, which have been struggling to find funding amid the downturn. These agencies, or HFAs, are a small part of the housing market but are critical to many first-time and low-income home buyers, who can get lower-rate mortgages through an HFA than they could through a private-sector lender. Rates are typically 0.5 to one percentage point lower than commercial lenders. (HFA... FHA... tomato... potato)
  • Some state HFAs guarantee loans while others originate mortgages. The agencies also develop affordable multifamily housing or provide financing to developers of such housing.
So again, all these government programs that subsidize rates (or directly handout money which has been the latest evolution) - serve to drive up prices of homes. ABOVE where they would be in a non subsidized market. So what happens next? As people cannot afford the new subsidized prices, more and more government programs are necessary to chase the elevated home prices because people cannot afford them... do you see the circular nature of all this? If not, just look at our university system....
  • The program could be in place for as long as three years, and would involve the administration essentially buying the debt that these housing agencies rely on for financing.
  • The Treasury Department, along with government-controlled mortgage giants Fannie Mae and Freddie Mac, is expected to buy as much as $20 billion of new housing bonds issued by the state agencies.
  • It will also provide $15 billion in additional funding, as needed, to help the agencies continue to use a type of cheap, short-term financing.
Why not - last I checked the government is here to provide military, pass laws, and be a landlord.

Of course nothing can go wrong here....
  • If the housing agencies default on their debt obligations, taxpayers could lose out. The Treasury plans to charge fees to agencies that want to sell new long-term bonds to the government based on their individual risk factors, to help reduce the risk of default and protect taxpayers.
Details, details. Just do it ... put another notch on the IOU bill. And when this program serves to drive up the prices of low income housing - well that's when the next program to "help" will be announced. Which will in turn drive prices even further, at which time the next program will be announced.

********************************

Not sure if "The Atlantic" is considered "left" or "right" but I agree with their assessment: however the author is one of "those people"... yes you know. I don't want to the say the word publicly. It's shameful... ok, I will. He is... a... a... renter. (boo hiss)

Hmm... this sounds vaguely familiar. The government subsidizing the mortgage market making credit artificially easy -- oh yeah! That was one of the reasons why the mortgage market overheated, and we fell into a deep financial crisis. Have we learned nothing?

Mortgages should only be provided to individuals with solid credit, income that can support their mortgage payments and a sufficient down payment.

Now don't get me wrong: some low- to moderate-income individuals may, very well, fit into that mold. But if they do, then they don't need subsidized mortgages. They should be able to acquire financing the good old fashioned way: through a bank willing to bear the risk. Anyone who can't pass through reasonable underwriting criteria for obtaining a mortgage shouldn't be given one. I know "rent" had become one of the dirtiest four-letter words in America during the past decade, but it's really not immoral to require those who cannot afford homes to rent instead. I rent and don't feel like society has wronged me as a result.

What's so bad about their renting until the market is willing to take the risk on their mortgage instead of the government?



Cue the music! Dooo doo doo do do do doo do.




ETFs Challenge Mutual Funds' Supremacy (Slowly)

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If you have been a reader for any sustained period of time, you know my views on the growing dominance of ETF & computer based trading. Rather than buying individual stocks, much of the "fast" institutional money sweeps into ETFs and hence individual stock analysis has become a lot less relevant as every stock within an ETF gets bought or sold, if that is the flavor of the day. This is especially true in the commodity space - hence why almost always all the coal stocks move en masse, or all the natural gas stocks, or all the gold stocks. We see the same phenomenon in other sectors (financials, technology, et al) - and I think those who are ignoring this trend are not understanding the changing the landscape.

The Wall Street Journal posted a story about how the ETF growth is potentially going to reach a point of surpassing mutual funds. I think eventually this could happen but it really is 2 different audiences - most passive investors, aside from buying a broad index ETF are not going to be interested in 90% of the ETF products out there; they are geared more to the active trader or someone who wants specific niches. The other issue with ETFs are so many products - if you look at the volume on many ETFs they trade less than many small cap stocks. How many home builder ETF stocks do we need in a space with a dozen builders? How many coal ETFs will we need? etc. Last, some of the sub niches in the ETF world are way over the top - for example did you ever hear of WSI? I hope not - it was the FocusShares ISE-Revere Wal-Mart Supplier Index Fund (WSI). Thankfully it was taken behind the barn and shot. Many others are of similar ilk. That said, there is a case for many mutual funds to be blindfolded and handed a cigarette as well...

I continue to believe the "long only", "cash is trash", "always bet the markets go up" "buy and hold forever" model of mutual funds will continue to be challenged in the years to come. An industry with reached great heights in a once in a lifetime bull of 83-99 has not fared well since, and would not of fared well before 1983. [Feb 5, 2009: Mutual Funds Have Tough Decade]
  • Exchange-traded funds pose a growing threat to the entrenched supremacy of mutual funds as more investors are drawn to these low-cost, passively managed vehicles, analysts say.
  • "Mutual funds have a 69-year head start on ETFs and it is unlikely that ETFs will become bigger in terms of net assets anytime in the near to medium term," he wrote. "However, ETFs will increase their share of investment dollars as more investors find them to be an attractive option."
  • Assets in U.S.-listed ETFs climbed to an all-time high of $607 billion at the end of August, according to research from Barclays Global Investors. There were more than 700 ETFs, not including exchange-traded notes, their close siblings. (much like in the mutual fund world I'd assume that 10% of those ETFs - or 70 - own 80%+ of the assets; way too much "me too" product in both industries)
  • Based on a "conservative" growth rate of 20% compounded annually, Stier said ETF assets will top $1 trillion by mid-2011. The U.S. mutual-fund business controls roughly $10 trillion.
  • Brad Hintz, an analyst at Bernstein Research, in a Sept. 23 research note said the growth of passive index products in general and ETFs in particular represent "a threat to traditional asset managers." He expects investors will focus even more on fees with a sluggish outlook for stock and bond returns after the financial crisis. Tax efficiency is another selling point for ETFs.
  • Deloitte's Stier, in an interview, said financial advisers and investors have also been drawn to ETFs' transparency during the market turmoil of the past year. ETFs are baskets of securities, such as equities or bonds, that trade on exchanges like individual stocks. Their holdings are disclosed throughout the trading day. (catch 22 for fund managers - the industry is rife with lagged transparency, BUT how open do you want to be if you have a good strategy that you don't want to be copied?)
  • ETFs have exploded in popularity since they first hit the U.S. market in the early 1990s, although the business has experienced growing pains and been accused of fostering a "bubble" mentality in terms of product launches.
  • Although there are dozens of ETF managers, the industry is really dominated by three players: State Street Global Advisors, Vanguard Group and Barclays Global Investors, which is being acquired by investment manager BlackRock Inc. (BLK).
  • There has been a strong first-mover advantage in ETFs, with most of the assets concentrated in a handful of huge funds such as SPDR S&P 500 ETF (SPY), iShares MSCI Emerging Markets Index Fund (EEM), SPDR Gold Trust (GLD) and PowerShares QQQ Trust (QQQQ).
  • In early September, 10 ETFs accounted for more than 60% of the daily trading volume, according to Morgan Stanley, while 120 ETFs had less than $10 million in assets.
  • Yet dozens of ETFs have closed due to lack of interest and some firms have been forced out of the business, which has experienced some hiccups lately. Regulators have been turning up the heat on leveraged and inverse ETFs on fears investors may not understand these complex funds.
  • Meanwhile, some commodity ETFs and ETNs have been roiled by expectations the U.S. Commodity Futures Trading Commission may crack down on the size of their positions in derivatives markets. (maybe if the regulators did not unleash every Tom, Dick, and Harry ETF into the marketplace before studying how they'd actually work, we'd have less of these issues - but I suppose that would take work)
And here is where the true bread is buttered in the asset management business; now dominated by just a handful of mutual fund families.
  • Efforts to break into the huge retirement-plan market are another wild card for the business, which is trying to make ETFs more "friendly" to the 401(k) industry, Stier said. As more traditional asset managers enter the ETF business, they could use their influence and relationships to bring ETFs to more retirement plans.
[Apr 17, 2009: Decade of Losses, Forces Investors in their 30s to Start Over]
[Oct 7, 2008: 2000s Stock Market Worse than 1930s]
[Mar 26, 2008 - WSJ: Stocks Tarnished by Lost Decade]

Monday, September 28, 2009

Sequenom (SQNM) Fires CEO Harry Stylli after Investigation, CFO Resigned Friday

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The drama never ceases at Sequenom (SQNM); tonight there appears to be a purging of upper management after investigations into what went wrong with the company's Down Syndrome's test. [Apr 29, 2009: Sequenom Bombshell] After *that* revelation (and stock plunge from $15 to $3s) speculators have returned to the name (along with many other $1-$2-$3 type of stocks in the healthcare field) [Jun 9, 2009: Sequenom Up 55% Since Noon] ... it's all fun and games until someone loses an eye. Or the stock drops 50% in after hours as it has done (again).


As for myself, I have no idea what Sequenom does or does not have at this point - no one does; not even the company.... the same view I held once the last drama unfolded.

We are no longer relying on, and the public should no longer rely on, any of our previously announced test data and results for our noninvasive prenatal test for [Down's Syndrome]," Sequenom said in a regulatory filing.


But as you know, fundamentals mean little nowadays - as long as a piece of paper is trading, it can be gamed for profit. (AIG, Lehman Brothers) One can make a lot of money in this market buying just about anything and just partying with Ben Bernanke's flood of money, but much of the party is rooted in things that have little to do with fundamentals. And I'm sure as I look at Sequenom trading just over $3 in after hours, the speculators will be back soon enough driving the stock up for no good reason other than money is free and our Fed chairman is happy to provide the punch. After all the stock gained 100% in 6 months on nothing more than "hope".

Since the stock was up 3% today, I suppose the resignation of the CFO last Friday did not get leaked. Either he was told about the coming canning of his boss and resigned out of protest, or the stink is a lot bigger than it looks on the surface (and that's a lot of stink). CFO's don't resign due to test results manipulated by a few lower level employees.

Via AP:
  • Sequenom Inc. on Monday forced out four executives and three other employees, including its president and CEO and the executive in charge of research and development, after an investigation into the mishandling of test results for its Down syndrome blood test.
  • Shares of the company plunged on the news, losing $2.86, or 50 percent, to $2.82 in aftermarket trading. The stock shed about three-quarters of its value after the mishandled testing was disclosed, and finished at $5.69 on Monday.
  • The company said it terminated the employment of Harry Stylli and Elizabeth Dragon, who had been senior vice president for research and development. The terminations are effective immediately, and Stylli was asked to resign from the board of directors.
  • The genetic analysis test maker said Chief Financial Officer Paul Hawran resigned on Friday, as did one other unnamed executive. The moves followed an investigation by a committee of independent directors.
  • Stylli had been Sequenom's president and CEO since June 2005, while Dragon joined the company in May 2006. Hawran became CFO in April 2007.
  • "While each of these officers and employees has denied wrongdoing, the special committee's investigation has raised serious concerns, resulting in a loss of confidence by the independent members of the company's board of directors in the personnel involved," the company said in a statement.
  • Sequenom said Harry Hixson Jr., 71, a member of its own board and a former president and chief operating officer of Amgen Inc., will take over as interim CEO.
  • On April 29, Sequenom said study data and results for the SEQureDx Down test could not be relied on due to "employee mishandling." SEQureDx appeared to be a promising test that was faster, cheaper, less invasive and less risky than other methods, like amniocentesis. Its results in preliminary studies were close to perfect.


[Jun 2, 2009: CBSMarketwatch - Can Sequenom Make it Back into Investors Good Graces?]
[Mar 19, 2009:TheStreet.com - Sequenom Mulls Change to Down Syndrome Test]
[Feb 12, 2009: Sequenom Misses [Again] on Earnings]
[Feb 10, 2009: Sequenom on Front Page of Toronto Globe & Mail]
[Feb 4, 2009: Sequenom Restates Results]
[Jan 29, 2009: Sequenom Results Good]
[Jan 14, 2009: Some Muss and Fuss over at Sequenom]
[Dec 31, 2008: Sequenom Continues to Pick up Recognition]
[Dec 18, 2008: Sequenom in Investors Business Daily]
[Oct 30, 2008: Sequenom Misses But We Don't Really Care]
[Oct 7, 2008: Sequenom Down 8% on "Competition" Threat]
[Sep 23, 2008: Sequenom - All Systems Go on Down Syndrome's Test]
[Aug 13, 2008: Beginning Stake in Sequenom]

No position

ZeroHedge Gets Massive Write up In New York Magazine

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I'm still working my way through this epic piece in New York Magazine about our financial blogosphere brothers (and sisters) in arms Zerohedge. I used to email the original "Tyler Durden" before he (it?) became so popular, although apparently there is now a whole outfit of 30 some people so whomever I was emailing in January/February 2009 is not the same person I'd be emailing today at that address. The magazine piece is quite an interesting back story - how much is accurate or not, who knows. But from a guy (group of guys) who used to cross promote with our lowly blog to help get each other exposure [Feb 19, 2009 - Guest Post: ZeroHedge - Some More Bad News for Dry Bulk Shippers] the growth at ZeroHedge has been explosive. To put it in perspective we had way more traffic than they did back in February!

You can follow the link in the first sentence of this post for the full story

The nothing-can-be-believed chaos of the financial crisis created a golden opportunity for a blog run by a mysterious ex hedge funder with a dodgy past and conspiracy theories to burn.



ZeroHedge responds here:

Yet another amusing media interlude. Zero Hedge appreciates the gossip pages' attempt at profiling our zany cause. Even if, as the case may be, these particular gossip pages are in fact owned by the very same Establishment that our "conspiratorial" disclosures attempt to represent for the motivated and deeply embedded wealth redistribution enterprise it is.


I for one am all for their cause whatever the background of the founder(s); as most things in America, media has become concentrated in just a few dominant hands ("too big to tell the truth!")- outside voices that are willing to expose the dirt beneath seem to be a mostly lost cause in mainstream media. I'm a big believer where there is a lot of smoke, there is fire... and judging by what authorities seem to "catch" (many times years after the fact) you can only imagine what is going on that never sees the light of day. Perhaps with government assistance...

Allegedly.

*********************************************

On a side note - it is neat to see a lot of names well known in the financial blogosphere cited more in the mainstream....

Wall Street’s Digital Underground
A few of the more prominent financial bloggers.


Illustrations by Matthew Woodson

The Amiable Skeptic
Barry Ritholtz was a pioneer when he launched the Big Picture in 2003 using the beta version of blogging software, Word Press. He’s a levelheaded bear with a knack for seeing through the statistical fog of economic data, and wrote a well-received book, Bailout Nation.



The Cranky Bull
John Hempton of Bronte Capital covers the ins and outs of Wall Street and Washington—from Australia. A professional money manager, he started out bearish but went bullish last spring, prompting the ridicule of his blogging cousins, whom he dismisses as “perma-bears.”



The Crisis Queen
Naked Capitalism’s Yves Smith had worked at Goldman Sachs before she started blogging in 2006, distinguishing herself with a facility for deconstructing complicated economics. She is writing a book called Econned, about the flawed ideas that led to the crash.



The Equal-Opportunity Debunker
Felix Salmon had a stint blogging for famously bearish NYU economist Nouriel Roubini before he moved to Reuters. A serial skeptic of skeptics, he famously launched an assult on Ben Stein’s conflicts of interest as a columnist for the Times, which led to Stein’s departure.



The Money Gossip
Bess Levin’s posts at Dealbreaker, the de facto “Page Six” of Wall Street, are as much about snark as finance, but her devoted following inside mainstream Wall Street firms has enabled her to beat The Wall Street Journal on a story or two.


Peter Thiel and Clarium Capital Suffering from their Pessimism

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Clarium Capital is a well known "global macro" (i.e. buy/sell anything on the planet) hedge fund, run by Peter Thiel. They have a great long term record, and performed very well in 2008 (only a small loss) but 2009 has not been very kind. CBSMarketwatch reported the fund lost 8% just in the first 2 weeks of September alone, and appears to be down 15%+ for the year through mid September.
  • Clarium LP's tough 2009 got tougher in September. The hedge fund, run by PayPal co-founder Peter Thiel, lost 8% in the first 14 trading days of this month, according to an update Clarium sent to investors.
  • The hedge fund also cut leverage from 4.2 to 1 down to 1.4 to 1 between Sept. 11 and Sept. 19.
  • Clarium had already had a difficult 2009. Through Sept. 18 the fund is down 15.6% this year. Other big hedge funds that follow a similar global macro strategy, including Brevan Howard, Moore Global and Tudor BVI Global, are up more than 10% so far in 2009, through early September, according to data compiled by HSBC's private bank.
  • In February, Clarium was avoiding stocks, while betting on gains in the U.S. dollar, which the firm's Chief Economist Kevin Harrington called "implicitly a deflationary trade."
And investors seem to be fleeing (although part of this asset loss is a rough patch in the 2nd half of 2008):
  • Clarium's assets under management slumped to below $2 billion at the end of August from more than $7 billion in the middle of 2008, before the financial crisis deepened.
,,,despite great long term returns:
  • The fund is known to take big bets and generates volatile returns. It's up more than 270% since inception earlier this decade. (this is about 22% annualized since 2002, in a "lost decade" of stock returns)
Clarium's mistake? Seems to surround the old axiom - markets can remain irrational longer than you can remain solvent. The large drop in leverage the past few weeks, shows Clarium is learning this the hard way; it's also another case of another prominent investor crying uncle which a contrarian might take heart in.

This data also shows how much pressure there is in the industry - even a few bad quarters and many investors seem to flee. Which is why everything has now become so short term oriented in the capital markets.
  • In an August strategy letter to investors, Clarium Vice President Tyler McCellan sounded gloomy about the global economy and the outlook for investment. "Now that the party is over, everyone wants to invest wisely," he wrote. The problem is that "the world is suffering from both the failure of old ideas and a dearth of new ones."
As I like to say the market is not about reality in the near term, it is about the perception of reality. In time Thiel and group might certainly be proven correct (we share many of their thoughts!), as those who warned about the real estate debacle were in the middle of the decade, or those who warned of bubbles in NASDAQ stocks were in 99. Those warnings were also correct... in time, but first came epic bubbles that went much farther than anyone could imagine.

Via WSJ
  • Hedge-fund manager Peter Thiel is suffering, not because he lost money in the downturn, but because he missed the rebound. Mr. Thiel, a billionaire co-founder of online payment company PayPal and an early investor in Facebook, thinks the economy is far from recovered and has bet with the bears amid the relentless rally. His fund has seen double-digit declines as other hedge funds have racked up gains.
  • Last year, the fund was sitting on gains of more than 40% before the collapse of energy prices caught Mr. Thiel by surprise (this hit many of us who were hiding out in commodities in the first half of 2008, before that trade reversed big time)
  • For much of this year, Mr. Thiel's firm placed a series of bets against the market, in part because valuations on a range of global equity markets have looked rich, he says. As markets have climbed higher, he has been forced to scramble to trim the positions, to avoid deeper losses.
  • He has bet on the Japanese yen, purchased safe bonds, wagered on the dollar, all in the belief fear will return to the markets. He has taken other conservative steps because "a real, sustainable recovery is not possible without productivity growth."
  • "The U.S. and much of the developed world are not very competitive globally -- that would require difficult improvements in technology that I'm not seeing enough of," he says.
Notice you will hear many of the same words we use on a weekly basis, but again... in the near term the markets are nothing more than (in my eyes) a mass psychology experiment - fundamentals mean little; it's game theory and mob behavior. It took me a long while to figure that out as I like to approach things from an analytical, common sense point of view. But I switched to this new framework the last 5-6 years; hence watching "nonsense" play out is a lot more understandable. Even bemusing at times.

These 3 blurbs in the first bullet point below could literally be taken from any number of virtual pages of the website.
  • "The recovery is not real," he says. "Deep structural problems haven't been solved and it's unclear how we will create jobs and get the economy growing again -- that's long been my thesis and it still is."
  • "The government has helped stabilize the banking system, but I'm not sure we have a path toward sustainable growth," partly because consumers are dealing with debt and other issues, even as an energy crisis looms, he says. "It always feels unpatriotic to be negative. But too few people are focused on the real problems."
It's not just Clarium
  • The contrarian view puts Mr. Thiel among a group of investors with impressive track records who are holding out, unwilling to buy into the notion of the economy's rebound.
  • In London, the largest fund of John Horseman's $4 billion hedge-fund firm is down 20% this year; "it is hard to build longer-term confidence when employment prospects and job markets are shrinking," he said in a client letter.
  • "The problem is that governments do not create income or wealth, and current stimulus equates to a future tax liability. That will become a major concern in mid-2010 when the stimulus is done."
Marketfolly: Clarium Capital's August 2009 Letter - Save Now, Invest Later

Textbook Bounce Off 20 Day Moving Average

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So far a textbook bounce off a key moving average.

It appears the excitement today is about a few merger deals as the economic docket is light. I always like to stand aside in the 2-4 days ahead of a quarter end, since the Street is notorious for attempting to "mark up" its merchandise to make their performance metrics look better. This week is going to be especially interesting since the massive amount of economic data Thursday which also just so happens to be the first day of the new quarter - and Friday's labor report.

As I said in the weekly summary

So in summary nothing has really happened (YET) other than some extreme overbought conditions have been a tad relieved. A big dollar rally from here, and the entire game changes. Otherwise... business as usual.


All systems go... dollar down a bit today, any risk asset can be bought. Same old...

UK Plans to Scrap Automatic Annual Bonuses for Bankers

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Wow. America get ready for another massive wave of bankers to come to our shores. Last week we found out Canada was trying to drive all its top paid bankers out of the country with unfair practices [Sep 22: Royal Bank of Canada Set to Lose Almost all Employees to USA] and now the only country which can hold a candle to US banker pay packages, the UK is set to do the same. Remember the #1 argument of these pay packages is "if we don't pay them, they will leave the country to get paid". Unfortunately that argument is losing steam as we are running out of countries for bankers to flee to to get "fair value" for services they bring to us (such as ruining the entire financial system). Advocates will cry "we still have Asia! They'll run to Asia, please don't let it happen!" but I just read last week that the CEO of the biggest bank (by assets) in the world (China) makes just over $200K. Gosh darn it is going to be hard to advance this dogma of losing all our talent to other countries with facts like this.

On the plus side, things are looking better and better for the United States - our unfettered corporate socialism shall allow us to not only have 80% of the world's attorneys, but soon all the banking "talent" will be here too. Can't wait to see what innovations they cook up for us in the coming decade when there is only 1 country on Earth when pay is based on just throwing anything out on the street and even if you cannot find 1 sucker to buy it, the Federal Reserve will - to promote growth. I knew there was a bright side of this crisis.

Welcome UK bankers - we are sorry for your persecution (like our forefathers over 300 years ago) - we welcome you to the land of freedom and bonuses where you always win - even if the country loses from your actions. It's free market corporate socialism... err, capitalism. I'll prepare the tea... and your pay package that dwarfs that of any other sector, or pay in any other country. Because that's what the "free market" (backstopped by the Federal Reserve and US taxpayer) allows. Shuffling paper around in quick fashion while adding a markup to it, is what drives the American economy so maybe you are not cherished anymore in your old country, but in America - you are a rock star.

Via AP
  • British Treasury chief Alistair Darling said Monday that automatic annual bonuses for banking executives will be outlawed in an attempt to curb excessive risk taking in the country's huge financial sector. (can you hear multi million dollar flats being put on the market as we speak?) Darling told the governing Labour Party's annual conference that new legislation to scrap the payments will be put to Parliament within weeks.
  • This week, Darling will speak to Richard Broadbent, chairman of Barclays Plc’s remuneration committee, along with Colin Buchan of Royal Bank of Scotland Group Plc, Mark Moody- Stuart of HSBC Holdings Plc and Wolfgang Berndt of Lloyds Banking Group Plc. His proposals are based on an agreement among leaders of the Group of 20 nations last week.
  • Darling said bankers in Britain will in future be offered bonuses for their performance over several years, rather than over 12 months.
Another completely unfair concept which would never pass in the "free market" of the US - this replicates the concept that Royal Bank of Canada set out last week, that is paying people for performance rather than "creating volume". Sorry politicos, bankers are not like you and I - they will chafe at being paid on performance ... it's wrong, and unfair. And they will move (just don't ask where).
  • "We won't allow greed and recklessness to ever again endanger the whole global economy and the lives of millions of people," Darling said.
Thankfully, we will. Oops - what I mean to say is Timothy Geithner and Larry Summers are looking very closely at new rules that will be watered down by lobbyists, and countless loopholes will be created to make sure nothing ever really changes, while politicos mug for the public about how "they fixed the problem" and are on "the side of the people". Ok I was correct in the first place... we will.

It gets worse from there... I assume Heathrow must already be jam packed with guys in $8000 suits.
  • He told the rally that new laws would include a claw-back provision and help to "end the reckless culture that puts short term profits over long term success."
So once again, the unfair practice of being responsible for nuclear financial bombs you set onto the world will be part of the new ethos of the United Kingdom. That's 100% socialism, I am sorry to see you go out like this Britain. Being not at all responsible for your actions might of got us here, but the last thing we want is all our bankers to move to... uhh... well... Morocco.
  • "It will mean an immediate end to automatic bank bonuses year after year, it will mean an end to immediate payouts for top management," Darling said.
  • The plans, to be included in a new Business and Financial Services Bill, will be proposed formally in the Queen's Speech in December, the annual announcement of the government's legislative program.
I am not sure how the UK legislative process works, but I can only pray that the lobbyists are 5% as effective as their American counterparts, so we can stop this persecution and continue to allow a small sliver of society to live in a parallel universe than the rest of the workforce. Let us only hope the next generation of bright minds in our country, also understand that the investment banking sector is the only one where you get paid no matter your performance - the less scientists, engineers and the like running around trying to "solve things"... the better for our future.




Bookkeeping: Weekly Changes to Fund Positions Year 3, Week 8

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Year 3, Week 8 Major Position Changes

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

Cash: 67.4% (v 73.9% last week)
24 long bias: 20.5% (v 16.5% last week)
7 short bias: 12.1% (v 9.6% last week)

31 positions (vs 30 last week)

Weekly thoughts
Some drama finally returned to the markets, as we've encountered rough waters since Fed decision afternoon. Apparently, even the slightest of hints that the punch bowl of liquidity will be taken away on some far away day was enough to make speculators worry. Considering many are only buying because "everyone else is" (pure momentum trading based on nothing but charts) [Larry Levin - Fundamentals? Pshaw] - it is not too surprising. Further, despite once in a lifetime handouts in the housing markets, seasonality still has begun to strike its head as the age old reality that home activity spikes in late spring and summer, happened yet again. Both existing home sales (the far more important number at >90% of sales) Thursday and new home sales on Friday were below expectation. We've warned seasonality would end (as it does EVERY year) and those relying on month over month growth, rather than analyzing year over year results, were blinded by green shoots.

What is remarkable from this seat is with so much government / central bank assistance to the housing market that it the data is STILL so poor year over year. Even the so called celebrated green shoot data the past 4-5 months, when analyzed with an overlay of the trillion+ dollars stolen from future generations - can be labeled nothing more than disappointing. There are only so many ways to squeeze blood from stone, and lest you think the politicians won't try try again - you will be wrong. As predicted LONG ago, this first time home buyer program won't be the end of it. Lobbyists and misguided politicians are working in hand to hand (nothing good can come of that) to recreate the success of the current program (and even bigger "success" of cash for car clunkers). I eagerly await another round of housing stimulus along with paying for the unemployed workers mortgage [Mortgage Assistance for Unemployed Gains Steam]; when you can't create jobs for your people you have to pay for the full nanny state. Like a junkie the US and its people have borrowed themselves into a corner, and to keep the mirage of prosperity going will require bigger and bigger hits of the cocaine to keep the high going. Where will the first time home buyers come from in 2010 when we drew them all in 2009? No problemo - we will do a handout to all buyers. I can only assume renters must be furious but they appear to be 2nd class citizens in United States of Handout. Without anyone in leadership willing to lead an intervention, we'll keep going until we hit the wall at 180 mph. (2008? That was hitting the wall at 120 mph - you ain't seen nothing yet kiddo)

As for markets we've come to a similar point we've hit many times in this 7 month rally - a pullback to a key support. As we mentioned in a post just over a week ago we were at a historically high 20% over the 200 day moving average which has been a near term "peak" over the course of the past 25 years. We also had posted a chart at that time of a trending channel, and we had hit the top of that channel. It took a few more days than anticipated but we've since sold off. Now it gets interesting...



As you can see even in the past few months we've pulled back to the 20 day moving average a few times; and indeed even broke through it. Each time the bears salivate believing the trend is broken and finally a more sustainable pullback is in store. But we don't even make it back to the 50 day moving average before a 180 degree reversal swoops in, and these have not been the type of reversals you can catch a few days late... they are swift and sudden.


As I've noted I want to see a move below S&P 1040, and I'll be making a short term foray into some index instruments to help offset losses in our core long positions, to try to press to 1020. I use 1020 because in early September we had a gap in the SPY ETF at 102. And at that point we'll be at the exact same spot we've been multiple times in this epic rally - broken below the first support level but no real change in character... the bulls will be sweating a bit, the bears will feel emboldened and then we see if the exact same "miracle" buying out of the blue happens where a flood of buy orders come from the heavens to rescue the bulls and signal American prosperity (cue the music Larry Summers)

I won't even bother with analyzing the NASDAQ because the entire stock (and commodity) market has simply become 1 simplistic 2nd grade level trade. If the dollar rallies, stocks / commodities go sideways or drop. If the dollar falls, buy anything - hurry!! It is pathetic it has come to this, but it is what it is.


So in summary nothing has really happened (YET) other than some extreme overbought conditions have been a tad relieved. A big dollar rally from here, and the entire game changes. Otherwise... business as usual.

I won't pretend to know if this will just be another hand slap to the face of the bears once their hopes are raised, or "the inflection point" but let's raise 2 important points. Unlike all other portions of this multi quarter rally, where bears have constantly tried to guess when the reversal comes only to have their teeth handed to them (aside from one -7% drop 3 months ago), short interest is at an extreme low. Put another way, bears have thrown in the towel with their money even if some try to fight the good fight with their words. Second, after sitting out this entire rally - mostly rolling into bonds [Sep 16, 2009: Mutual Fund Investors Cling to Safety of Bonds, Missing Stock Rally] the retail mutual fund investor has finally decided to join the stock chase the past few weeks. [Sep 22, 2009: Retail Investors Continue to Wade Deeper Into the Deeper Risk End] This was the exact same condition that had me bearish on the Chinese market with a week left in July. (a huge surge in retail brokerage accounts being opened) Shanghai proceeded to lose almost a quarter of its value in the following month. That said, Larry Summer was not (allegedly) using taxpayer money to support the Shanghai stock market so we'll see if the free market can act like it normally does when almost everyone is "in" the market (shorts eviscerated, and retail mutual fund investor finally ready to join the rally after a 55%+ move). I'd be a lot more confidant in a sell off if not for the fact our government and friends in the central bank seem to be supporting every asset market on Earth. Now we'll have to see at what point human emotion overcomes Larry's (alleged) buying power if and when some technical levels are allowed to be broken.

This is a tough place for an investor and I expect to be whipsawed a lot, as a lot of stocks I am watching have pulled back to a secondary support area (where I sometime buy) and some could soon fall back to a primary support area (where I love to buy). However, if a real sell off appears many of those purchases at primary support areas will be stopped out quickly, so I could be selling things I bought days or indeed hours earlier. I have my neck brace ready after Friday's session. For the portfolio, I punted my long term put exposure late this week, so it certainly would be ironic for some sort of selloff to begin immediately thereafter - especially after getting raked over the coals holding that insurance for 3+ months. Other than that I restarted a position in Myriad Genetics (MYGN) late in the week after it "filled a gap", and began a starter stake in Las Vegas Sands (LVS) - the latter I'd like to build a position significantly lower and as a high beta name it could be down (or up) 30% in a blink of an eye. Both these positions I am looking toward 2010 with. I also began a position in silver (with an eye to 2020!), but again if the dollar rallies precious metals will get smoked - unless the dollar rallies SO much that fear returns, in which case precious metals will rally as well. Confused yet? Good - that's why you send the money to me. I closed a laggard position in Excel Maritime Carriers (EXM) as there are better performing sectors each time the Kool Aid of recovery permeates the air; good trading stock - bad investing stock for now. Doesn't fit my time lines, more of a daytrading vehicle. My top line strategy is to buy solid names on pullbacks, hedged off with short exposure of a shorter tern nature until (unless) we see our first lower low in a long time - this would be sub S&P 990. In that scenario our longer term goal of S&P 906 would be dusted off and a change in mood would certainly be about.

Economic data is weighted to later in the week... Tuesday we have Case Shiller (not important to me but the market reacts to it). As far as I'm concerned if we are ever willing to remove the Fed's involvement in manipulating mortgage rates down, and concurrently take away "cash for clunker" homes handouts - home prices would drop another 10-15% immediately. But we have a subsidized economy (and market) - so green shootists will cling to subsidized data. Thursday is loaded with data and Friday is the monthly (un)employment report. Speaking of subsidized, after a huge boost to auto sales last month due to Cash for Clunkers, we now will see the hangover (Thursday). What is so pathetic is estimates are for an annual run rate of 8M cars sold for the month; the previous month was in excess of 13M... if you average the two you get just north of 11M. Which (lo and behold) was the run rate we were near before the wasteful cash for clunkers program. So all we did was handout $4 billion to get 750,000 cars sold and didn't change the trajectory of sales at all. Just put it on the IOU bill...

ISM manufacturing, a report that is increasingly meaning less to America also comes out that day - market participants still cling to it as if its 1967 or even 1989... hey everyone, news flash - manufacturing is roughly 12% of the US economy and falling quickly. It's just not that important anymore to the "financial innovation and services we cannot afford" economy. Pending home sales, construction spending, and the normal weekly unemployment claims round out a very busy Thursday. Volatility should be immense as we act like lemmings to each data point, and then await Friday's employment report. All I can say about that, is if enough Americans believe the green shoots to go and look for jobs our unemployment rate (while massively understated) should shoot up even if the actual number of job losses is 100 to 200K. Remember, if you are discouraged and have not looked for a job for 4 weeks in America you are no longer unemployed. So as more people read about green shoots and go looking for jobs - well the unemployment rate rises. And with our participation rate (# of people in the workforce as a % of all eligible) at multi decade lows, there are countless discouraged just waiting for hope to go back looking. Unfortunately, for most I see nothing more than pianos dropped from the 12th story level ala Wylie Coyote.



To end the weekly summary I thought I'd showcase a few of the headlines I posted last week - as you read these, and you think about the health of the US economy and what we are doing to ourselves ... well, it speaks for itself.

I can only think of one thing when I read these things....


Uhh, no not really, more like this:



Let the circus continue, and the peasants be entertained while we tax and pillage them into oblivion.

Blanche DuBois: I don't want realism. I want magic! Yes, yes, magic. I try to give that to people. I do misrepresent things. I don't tell truths. I tell what ought to be truth.

Sunday, September 27, 2009

American Debt Falls for First Time Since 1954

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A very interesting piece in the New York Times which in simple graphical form shows what I call the "subsidization economy". Core activity is putrid but the morphine provided by federal government is immense. Put another way these are the forces of deflation versus inflation playing out. Deflationary forces are swirling to the point that all debt actually fell for the first time since 1954 despite government's best efforts to unleash miles of federal government / central bank fire hoses of borrowing/spending.

Stare at the bottom half of this graphic for a good few minutes.... [click to enlarge]


  • THE United States government is borrowing money like never before. The national debt rose by more than a third over a one-year period, far more than it ever did at any time since World War II.
  • In the past, when the government became a heavy borrower, there was talk about crowding out private borrowers. But this time, interest rates have remained low and no one seems to be worried about that.
  • The reason is simple: Rather than crowding out the private sector, Uncle Sam is now standing in for it. Much of the government borrowing went to investments in financial institutions needed to keep them alive. Other hundreds of billions went to a variety of programs aimed at stimulating the private economy, including programs that effectively had the government pick up part of the cost for some home buyers and some auto buyers.
  • This week, the Federal Reserve published its quarterly report on debt levels in the economy. While Uncle Sam borrowed more, others borrowed less. The accompanying chart shows that total domestic debt — the amounts owed by individuals, governments and businesses — climbed just 3.7 percent from the second quarter of 2008 through the second quarter of this year. That is the smallest increase since the Fed started these calculations in the early 1950s.
  • Moreover, domestic debt declined in the second quarter, falling 0.3 percent to $50.8 trillion. The figures are not seasonally adjusted, making quarter-to-quarter comparisons risky, but it was the first such decline since the first quarter of 1954, when total debt was less than $500 billion.
  • Over the year, total household debt fell by 1.7 percent, and mortgage debt — the largest component of household debt — fell a bit more, at a 1.8 percent pace. This is the 10th recession since the Fed began collecting the numbers, but the first in which the amount of home mortgage debt fell. Some of that decline, of course, came from foreclosures that canceled debt and left lenders with big losses.
Here is a great point and why the US economy is in much more dire straits than people recognize. We've have not borrowed to create productive capacity - we've borrowerd to create financial hocus pocus so a tiny sliver of society could gather great wealth. I'm sorry... I mean financial innovation happened and it was great for all of us.
  • For most of the last two decades, the biggest increase in debt in America came from financial companies. Much of that debt came from financial innovation rather than actual economic activity.
  • Once, a homeowner took out a mortgage, and household debt increased. But by early this decade, the mortgage could be used to secure a mortgage-backed security, and the mortgage-backed security could be used to secure a collateralized debt obligation. Those last two loans counted as financial obligations. There was no more real economic activity, but there was a lot more borrowing.
Of course you will hear from those who benefit from the Federal Reserve largess, that they created lots of economic value. For themselves at least.
  • ... other financial borrowing became the equivalent of government debt, at least as seen by the lenders. That was because the money was either borrowed by government-sponsored enterprises like Fannie Mae, or guaranteed by them or by government agencies.
Watch the shell game play out - can you find the debt? It should be easy to find, the financial elite have moved it onto your grandchild's back. Private financial debt becomes public debt. Presto magic - Houston, we have our "solution": socialization of losses, privation of gains. Oligarchs win while beating their chests of how they've got this crisis "beat!"

Speaking of beat.... the beat goes on - we've only refinforced this game, made the big boys even bigger and let them know they can do whatever they wish because now they REALLY are integral to the system, and the powers that be in D.C. have told the nation they will not be allowed to fail. You can imagine the fallout this will cause in the coming 5-10 years. And when the next disaster happens - you will see the same policy responses. Because it is much better to repeat history than learn from it; especially when those benefiting from the system (and pulling the strings) could care less about the masses in the country, or long term health of the republic. It's their ballgame - don't complain, but please do send in your taxes as a good peasantry.
  • Twenty years ago, nonfinancial businesses in the United States borrowed $1.70 for every dollar borrowed by the financial sector, government-guaranteed or not. Now the figure is 68 cents.
Who needs non financial business?

Asians it appears...

Americans? Not so much. We have financial hocus pocus - aka prosperity.


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