Saturday, March 27, 2010

Most Popular Posts of the Quarter

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In case you missed it... the most popular posts of the first quarter of 2010  (does not include the tabs across the top of the webpage which are generally always top 5)

Top 10

  1. [Video] Ordos - China's Empty City (click here)
  2. Sovereign Risk Chart - Where Would the US Fit in, on Europe's Scale? (here)
  3. [Video] Nouriel Roubini Crushes the Kool Aid Drinkers on CNBC (here)
  4. Byron Wien's 10 Surprises for 2010 (here)
  5. Trader Who Called 1996 Crash in Copper Says Prepare for Another - "Catastrophe Awaits" (here)
  6. Kyle Bass of Haman Capital - Japan Defaults on Debt or Devalues in 3-4 Years; US in 10-12 (here)
  7. India Joins China in Global Hunt for Commodities (here)
  8. Charles Biderman of TrimTabs Claims US Government Supporting Stock Market (here)
  9. Harrisburg, PA - You've Got (Bankruptcy) Next! (here)
  10. His is (Way) Bigger than Yours - One Daytrader's Office Setup (here)
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Fun Data for the Quarter

Cities that visited most by rank

  1. New York
  2. San Fran
  3. Chicago
  4. London
  5. Los Angeles
  6. Singapore
  7. Houston
  8. Austin
  9. Seattle

Countries Outside the US by rank (20% of traffic)

  1. Canucks
  2. UK
  3. Australia
  4. India
  5. Germany
  6. Singapore
  7. Croatia (!?)
  8. Hong Kong
  9. Italy
169 countries in total with 1 visit each (surely in error!) from Syria, Northern Mariana Islands, Cocos (Keeling) Islands, Malawi, Kyrgzstan, Zimbabwe, Faroe Islands, Armenia, Myanmar, Eritrea, Botswana, Saint Lucia, Laos, Grenada, Gabon, Maldives, Kazakhstan (Borat was here), Antigua, Angola.

Friday, March 26, 2010

What Would You Do?

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Let's see how how group consensus works in technical analysis.  As I look through the portfolio, F5 Networks (FFIV) provides a dilmena I often see.  The stock has pulled back nicely after a huge gain to the 20 day moving average (just above).  But it just created a potential double top.

[click to enlarge]


What would you do here?  Buy? Or Wait?

Being Mr. Cautious of course I am in the "Wait" camp..........but of course the status quo is to buy every dip.  Frantically.

If you want to take ownership of your vote above or post a specific reasoning, feel free to add a comment below.  I'll check back in a week for now to see which commentator is correct, at which point you will be rewarded with a FMMF Technical Analyst of the Week award. 

*no prizes involved*
*Residents of Hawaii, Alaska and that land mass between Minnesota and Alaska excluded*

Also for fun, check out this commerical for Chantix.  I don't know what is worse - the damage from cigarettes, or the damage from taking Chantix.  Holy side effects Batman.




Long F5 Networks in fund; no personal position

x

Bookkeeping: Closing Last Shard of EnerNOC (ENOC)

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EnerNOC (ENOC) has bored me to tears of late.  It is neither doing much bullish nor bearish - just a lot of neutralish (!)  I keep waiting for a breakout to load up, but it simply is doing nothing.  To give a chance to roar I will sacrifice it to the market gods and close out the very small position we had left.


I began the position in November 09, and was stopped out of the majority of the position in early February - when the market actually had the ability to go negative for more than a few hours, and by more than 0.5%.  Since then it has just been sitting at the bottom of the portfolio while I wait for some sort of signal (either way) that has never arrived.

EnerNOC, Inc. is a leading provider of clean and intelligent energy solutions, which include demand response, energy efficiency, energy procurement, and emissions tracking and trading services. These solutions help optimize the balance of electric supply and demand, provide cost-effective alternatives to traditional power generation, transmission, and distribution infrastructure, and drive significant cost-savings for end-use customers.



[Feb 12, 2010: EnerNOC Beats Estimates, Guides Down for Q1 2010 but Flat for the Year]

No position

Greenspan: Recent Yield Surge a Canary in Coal Mine; Even a VAT Tax Won't Help US Catch Up to Deficits - But Lauds Free Money Bernanke Policies

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While Alan "Bubble" Greenspan is not high on my list of economists, people still pay attention to what he says.  Even Alan is concerned about about the deficit situation, and agrees on our outlook about the danger of rising yields for a country that has no quit in it, when it comes to drunken sailor spending.  He even believes the VAT tax that I've opined will come to the US within a few years (and has been floated in the major newspapers for the first time this winter), [Dec 11, 2009: NYT - Many See VAT Option as a Cure for Deficits]  won't be enough to help us catch up with our rampant budget holes.

Remember, cost benefit analysis.  All the benefits now, but shhhh - no talk of the costs.  We're having a party, and I don't want to think out longer than 2010.

As an aside, I don't think the 10 & 30 year bonds are ready to go on a breakout - it's too early for that event to happen from this seat - but we just never know when the bond vigilalantes are going to finally extract any form of discipline on the US.  The more I think about it, I think the Chinese were simply showing America a very small hint of what can happen if you start calling them bad names like "currency manipulator".  But these are two charts we need to always keep our eyes on in the background.




Via Bloomberg:
  • Former Federal Reserve Chairman Alan Greenspan said the recent rise in Treasury yields represents a “canary in the mine” that may signal further gains in interest rates.  Higher yields reflect investor concerns over “this huge overhang of federal debt which we have never seen before,” Greenspan said in an interview today on Bloomberg Television’s “Political Capital With Al Hunt.”
  • “I’m very much concerned about the fiscal situation,” said Greenspan, 84, who headed the central bank from 1987 to 2006. An increase in long-term interest rates “will make the housing recovery very difficult to implement and put a dampening on capital investment as well.”
  • U.S. interest-rate swap spreads declined to the lowest levels on record this week, reflecting investor concerns about the ability of nations to finance rising fiscal deficits.
  • Historically, there has been “a large buffer between the level of our federal debt and our capacity to borrow,” he said. “That’s narrowing. And I’m finding it very difficult to look into the future and not worry about that.”
  • I don’t like American politics and what’s happening,” Greenspan said.

As for the European VAT almost certainly headed our way within 1-2 election cycles ("shared sacrifice people!")
  • Greenspan said in an interview last year that a consumption tax was a likely response to a widening budget deficit. That may not be sufficient when the gap is caused by a failure to cut spending, he said today.   “I’m not convinced by any means that we can succeed in stabilizing this long-term outlook strictly from a value-added tax,” Greenspan said.
[Aug 26, 2009: US Federal Budget in Pictures]
[Aug 24, 2009: Cumulative Deficit Estimate for Next Decade Increased by $2 Trillion.... Since May]
[Jun 12, 2009: NYT - America's Sea of Red Ink was Years in the Making]
[Mar 26, 2008: Annual Spring Entitlement Warning Falls on Deaf Ears]
 
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That said, Greenspan is obviously wowed by what Bernanke pulled off.  It is like Yoda watching young Skywalker blossom:

The first economic 'recovery' in history not caused by the real economy but by the finance economy.  (I've pointed out in many pieces I am shocked so few bankruptcies have happened in the public space - but the ability to issue stock & debt, that is sucked up by banks - and their customres - who can buy at will with free money offered the Fed - is a trick I completely underestimated)  Asset inflation solves many ills (in a nominal world) - something the UK also is attempting as well but paying for it with their loss of purchasing power as their currency is in freefall.  As I repeat almost every week - the US can do things no other country can get away with due to the reserve currency.
  • The former Fed chairman said the U.S. economic recovery has been driven “to a very large extent” by a resurgence of stock prices.  “You can see the whole blossoming of finance,” Greenspan said. “As these stock prices have gone up, debt became far more valuable, and you can see this huge issuance, especially of junk bonds.”

Now for the most important part - brought to you by a former member of the Plunge Protection Team:
  • A continued rally in share prices could help sustain the expansion, Greenspan said.
Hint hint.

Bookkeeping: Sold Both Index Levered ETFs

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While the close is more important than intraday, with the S&P 500 drifting below the 5 day moving average I am going to sell the levered ETFs for losses and watch from here.  Last Friday and this past Monday the market did the exact same thing and bounced back so no big issue.  But if the market does not have momentum in 1 direction these levered ETFs start to act poorly.


I might consider going 180 degrees, and try the short side (for the afternoon only) on the indexes if S&P 1160 breaks.  Which I realize is asking for a miracle.

Other than that, I'll be manning the 1-800-Default phone lines ...
x

Half of US Home Modifications Default - Again

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As I was writing this piece, I thought it sounded so very familar.  Then I remembered - I already wrote this piece.  In 2008. [Dec 8, 2008: More than Half of Homeowners with Modified Loans are Back in Trouble]  I remember when it was posted to SeekingAlpha.com how I was told by certain commentators to just wait.  These first X number of government programs were not aggressive enough.  It's not fair to use them as a judgement if the government peeing away money left and right was the correct gesture.  Well, it's been 15 months and any number of government housing programs hence, each becoming more aggressive and where do we stand?  In the same exact spot. 

Within 9 months, half of Q1 2009 modifications had RE-defaulted by the end of 2009.  I am sure the apologists will tell me AGAIN the programs are not aggressive enough.  And to wait, it will start working.  Any minute now.

Via Bloomberg:
  • More than half of U.S. borrowers who received loan modifications on delinquent mortgages defaulted again after nine months, according to a federal report.  The re-default rate of loans modified in the first quarter of 2009 was 51.5 percent by the end of the year, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said in a joint report today. The figure, which measures payments at least 30 days late, climbed to 57.9 percent for changes made in the prior 12 months.
Not too shabby, a 60% failure rate once you expand it out to 12 months.  Actually I believe that is called "success" in government work. 

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But as we have seen the past year, the true suckers are those who are in the other 40%.  They are making payments on their homes?  Look people - do I have to explain the "suck in government monies game and live a rent free life" to you again? 

Step 1: Stop making payments, live rent free for months on end as you haggle with bank - if you are really good you might be able to squeeze a year out.  Perhaps 15 months.  More money to shop and make sure you keep your high end car (that you deserve)

Step 2: Have government design program to save you  (of course said program has to pay the banks money to have them agree to be part of the program - banks win in every scenario in Cramerica).  Go shopping.

Step 3: Bank reluctantly drags feet and offers you program after months of document exchange.  Go shopping.

Step 4: Make 1 mortgage payment (optional).  Go shopping.

Step 5: Re-default (try to keep laughter down so neighbors who pay mortgage don't hear).  Go shopping.

Step 6: Wait for government to design a new program for you (i.e. repeat step 2 but bigger and better).  Go shopping.

Step 7: See step 3  (at this point you should have played the system for nearly 2 years - if you repeat it for a second iteration, you might be able to pull off another 2 years of "rent free living!" out).  And please don't forget to support our retailers.

I am willing to sell this handy "Do it Yourself" worksheet to the 40% who are not understanding how to scam their fellow taxpayer for the introductory price of $0.99 (please make a Paypal donation in the right margin of the website - thank you)

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  • Modifications are “clearly not working well and it’s not a surprise,” said Sam Khater, a senior economist at First American CoreLogic in Tysons Corner, Virginia. “It’s pointless to rewrite these loans because they’re underwater.
Sam, it is not pointless.  It is a backdoor stimulus plan.  I pointed it out as such last fall and now everyone else is catching onto the "game".  The banks get free money for "participating".  And the consumer gets to go shop and help drive the American consumer driven economy (look at those same store sales!) as they play the system for 18-36 months, almost all of those without making 1 darn mortgage payment.  [Feb 18, 2010: Jim Cramer has Lightbulb Moment - Not Paying Mortgages is Keeping Americans Spending]  Just multiply a $1300, $1500, $1700 monthly payment x all the people in any stage of default and you have yourself the permanent stimulus plan, rolling quarter after quarter - year after year.  I did! --->>>>>  [Nov 25, 2009: America's Stealth Stimulus Plan; Allowing It's Home "Owners" to be Deadbeats]  We all win here. Especially since the deficit does not matter.*

*Source: Cheney.

Plus in government, 60% failure is a high achievement.
  • Assistant Treasury Secretary Herb Allison defended the program at the Congressional hearing, saying it has shown signs of stabilizing the housing market.
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Even better news, when at first second third fourth fifth sixth seventh eighth ninth tenth you get the picture you piss the taxpayer's money away, try try again!  Program #XX (I can't keep track, it might be program 15, program 18, program 25) since 2007 is being rolled out today.  The 2nd program in 2 months in fact.  (maybe we can do 12 housing programs this year alone)  And (shocker) the banks are being paid even more in this one to participate.  When I grow up, I want to be a bank.
  • The Obama administration announced programs to help U.S. homeowners avoid foreclosure, including subsidies for borrowers who owe more than their home is worth.
  • The plan would increase payments to lenders that modify second mortgages.  The lender would have to cut the amount owed by at least 10 percent to less than the value of the home. The first and second mortgages combined would have to be no more than 115 percent of the home’s value.
  • The Treasury plan will help unemployed homeowners reduce mortgage payments for three to six months while they look for work. If homeowners don’t find a job in that time, or if they find a new job at a lower salary, they will be evaluated for further assistance.
  • Under the new programs, existing incentives will be expanded for borrowers with FHA-guaranteed loans, and relocation assistance payments will be doubled for borrowers who have to move out of residences. Servicers will be required to consider principal writedowns when modifying loans and the Treasury will offer incentives for principal reductions.

Again people of America, please follow my 7 step program (details also can be found at 1-800-Default) and if you are really working it, you might not need to make another rent/mortgage payment until 2013.  Time for mamma to get some new shoes (or a new car).

Go buy some retail stocks!

Thursday, March 25, 2010

Bookkeeping: Sold Index Calls from this AM

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I am getting whipsawed quite badly the past 48 hours in my SPY calls.  Since most of today's gains came in premarket, it's difficult impossible to catch that move with options.  Hence I had to chase this morning and we are now below where I entered so JUST as yesterday I am punting and going to take a loss today.

S&P 1170 is the 5 day moving average and we seem to be headed that way ...this is a now almost extinct intraday reversal. (EDIT 3:45 PM - hmm, now it looks like 1166.6 is the 5 day moving average per stockcharts.com)

Still holding the ETFs...

EDIT 4:02 PM - the 5 day exponential obviously is volatile as it takes into account "today's" price - hence the drop during the day; it looks like it ended just over 1166.  The market closed right "at" (within a whisker) of the 5 day moving average again.  I wonder what upset the computers today.... the euro dropping on bailout news is nothing new.



Let's see what 'they' do in premarket tomorrow.  At March's pace the small cap index is headed for a 100%+ gain for the year.

x

Doug Kass - 20 Signs that Could Mark a Top

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After what appears to be the call of the decade (although he was a few weeks early) in his S&P 666 is a "generational low", Doug Kass remained bullish for a good long time.  But late last fall he began pulling in his reigns; obviously in the market with no quit that was in error.  Happens to the best, no dishonor there - unlike most celebrated pundits he actually admits errors.  As I've said of late, the more experience you've had with historical patterns and markets, I think the more it hurts you in this sort of market that acts different.

That said, I've been a long time follower of Mr. Kass and am always interested in his musings.  He prefers to call turning points whereas I am more of a trend follower - I'll let someone else grab the credit for calling turns because if you are wrong you take pain.

Today he has 20 points to watch out for that could signal a market top.  Please note for item #1 bonds continue to be weak after yesterday's hammering and sit at important support.


While I am sure interest rates account for something in HAL9000's array of programs, I am not sure which of the others will.  With human emotion becoming less of a factor in the new paradigm market (which led to the normal ebb and flow of the old days), I think it's more important to figure out what could mess with the algorithms, because outside of events that cause human stress & hence selling (i.e. when Greece first flared up) this market feels like its on some sort of computerized auto pilot.  Only when human stress jumps, and actual selling pressure (volume!) overwhelms the program do we change direction for more than a day or two.  That seems to be the new blueprint, at least from this point of view.  Doug is still looking at some of the old roadmarks - for his sake, and most of our sanity - I hope some of those markers still supersede silicon microchips.

----------------------------------------------

Via TheStreet.com:

A few weeks prior to the markets hitting a generational low a year ago, I created a watch list that enabled me to better gauge the bottom.

Now, nearly 13 months later and with the S&P 500 almost 500 points higher, it is time to focus on a new checklist of some potential adverse developments that could contribute to a market top and a reversal of investors' good fortunes since March 2009.


  1. Interest Rates: The yield on the 10-year U.S. note might climb to over 4% (now at 3.85%). A 4.00% to 4.25% yield would likely provide a tipping point for increased competition to equities and produce an interest (mortgage) rate headwind to the nascent housing recovery at a time when stock dividend yields have nearly halved and when a large phantom inventory of unsold homes is about to begin to enter the residential for-sale market.
  2. Jobs / Economy: A more sluggish-than-expected expansion in new jobs and the weight of higher taxes in 2011 might translate to a downturn in consumer confidence, reduced business fixed investment and a more shallow domestic economic recovery in the second half of this year.
  3. Retail: Cautious forward comp guidance in retail could reverse the February-March strength.
  4. Europe: There could be growing signs of weakness in the European economies.
  5. Credit: Over there, we might witness evidence of more sovereign (Spain?) crises, and, over here, we could see more U.S. municipal -- the universe is large! -- financial woes. Forced austerity measures would likely produce lower growth.
  6. Credit (Part Deux): Credit spreads might widen.
  7. Geopolitical: We could see a possible rise in geopolitical tensions or even another terrorist act on our shore.
  8. Monetary Policy: We might have a less dovish Fed in words (jawboning) and in action (through an increase in the federal funds rate).
  9. Tightening Abroad: It is likely that central banks around the world will begin to clench their monetary fist, especially in China.
  10. Protectionism, Trade and Currency Wars: Things might get ugly, especially on the U.S. / China front.
  11. Housing: A renewed leg down in home prices is possible as the spring selling season could fail to appear. (It hasn't gotten off to a great start.)
  12. Sentiment: We could witness the birth of a 5x to 10x levered bullish ETF, a burst in bullish investor sentiment, an expansion in hedge fund net long positions, a further drawdown in mutual fund cash positions, a meaningful increase in retail mutual fund equity inflows and massive outflows out of Rydex bear funds.
  13. Technical: Stocks could fail to respond to good news, suggesting that the sharp corporate profit recovery has been baked into prices. A breakdown in financials and/or transports could occur. Overseas markets might fail to make new highs, or we could see a further contraction in NYSE / Nasdaq exchange volume.
  14. Deflation: Industrial commodity prices could weaken.
  15. Speculation: We might see an increasingly speculative market for low-price issues.
  16. Underwritings: The emergence of a record syndicate calendar is possible.
  17. Wall Street: A substantial increase in Wall Street industry hirings could be announced.
  18. Dr. Doom vs. the Sunshine Boys: Dr. Nouriel Roubini could see green shoots, causing bullish strategists and money managers to demonstrate even more swagger. Reminiscent of late 1998, a sell-side analyst (perhaps the new Henry Blodgett) might raise his 12-month Apple (AAPL) price target to $375 a share, leading another analyst to top that target and move to $400 a share a week later.
  19. The Media: CNBC could throw another celebratory party. Time magazine might declare the death of the bear market on its cover or run a cover story offering a new bullish economic and/or stock market paradigm. Sir Larry Kudlow could have trouble finding a single bear to appear on CNBC's "The Kudlow Report." Record ratings might induce the management of CNBC to expand "Squawk Box" from three hours to four hours (6:00 a.m. to 10:00 a.m.) and add an additional anchor to join Joe, Becky and Carl.
  20. Dougie: Maybe I turn bullish.

[Dec 21, 2009: Doug Kass 20 Surprises for 2010]

Principal Reduction Plans Finally Arriving - Social Acrimony Not Far After

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We often like to talk about 'benefit-benefit' analysis versus 'cost-benefit' analysis.  On Wall Street it's almost always benefit-benefit because almost every 'solution' the US has come up with the past few years to this economic disaster has pulled in benefits with the costs pushed out (onto the public at large) but at a future date.  So we do not "feel" the negatives now, and only enjoy the positives.  Bailouts, handouts, subsidization, easy money, the whole cadre of "good times".

Specific to the housing market we have seen a litany of solutions which frankly are unfair to the "responsible", and reward the not so responsible*.  Thus far the argument to those people has been "if we don't do this, then housing values for everyone will fall".  The reality is housing values still fell, and many of those who made the worst choices are being rewarded.  I won't rehash the progression, we probably have 50 different posts on various programs, handouts, giveaways - ironically a lot of these are as much backdoor bailouts for the banking system as they are benefits for the homeowner.

The ultimate step in the housing 'solution' has been principal reduction - different from interest rate reductions or extending the terms of a mortgage, this is probably has the most "in your face" sense of unfairness.  Do the wrong thing... get principal reduced.  Play by the rules?  No soup for you!  It has to be even more egregious to watch because certainly many of those who played by the rules shook their head as they watched the neighbors do their annual "cash out refinance" to pay off credit cards, take the vacation, buy that SUV, or install the granite countertop.  Their thoughts were "one day they will get their come uppance".  But instead almost all American resources have been devoted to rewarding this group*.  Bank of America has introduced a pilot program yesterday, and I expect the Treasury Department to roll something out in the next few quarters as well - this has been rumored for quite a few months.  

*note - of course some proportion of homeowner receiving benefit today are victims of circumstance i.e. job losses, and did abide by 'the rules'. 

Ironically the BAC program is going to be devoted mostly to helping those who took the most insane loans - the option ARMs.  [Aug 13, 2008: Option ARMs- Who Thought Up these Time Bombs?]  You remember the ones - where not only do you pay no principal but more principal is tacked onto your mortgage each month because you could not even qualify for an interest only mortgage.  i.e. a benefit to the people who truly were not home owners in any way, shape, or form other than on paper.
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Turning back to our 'cost-benefit' analysis I do believe there are many NON financial costs created by the solutions we have taken.  Holding a society together generally is some basic sense of fairness and equity.  Especially in America.  Play by the rules, work hard - get ahead.  I believe this faith has slowly but surely been lost over the past few years.  Not just in seeing how corporations -especially of the financial kind - have been treated & protected, nor how savers have been sacrificed so that debtors can benefit, nor how tax monies are used to protect public workers while private are subject to "the free market", nor how homeowners are catered to while renters are 2nd class citizens - but simply citizen versus citizen.  Social acrimony is on the rise.  I have no way to quantify it, and I don't know all the implications.  But this is one of the reasons I believe the outrage the incumbant politicians are going to see this fall will be massive.   [Mar 17, 2010: 17% Approval Rating for Congress, More than Half of Americans Would Vote Every Member Out]  I do believe the "responsible" people are fed up.... many people are beginning to believe there is no reason to play by the rules, because that places you in the 'sucker' category in America.   What that sort loss of faith in the system does to the long term trajectory of a society... I simply do not know as there is no template to work off of.

Here is a sampling of some 500+ comments from USA Today on the Bank of America pilot program (not the "rich people's paper like the WSJ, or the "liberal" NYT - but the common guy's paper) and I think it reflects the loss of faith in the system and doing the "right" thing.  Which is why this rally, these paper gains, the "recovery" bought and paid for by government spending, a Fed back into full bubble creation mode, a bevy of home "owners" no longer paying mortgages but instead shopping and the like.... is in many ways so short sighted.  Because the true costs (outside of the financial) associated with it on the citizens who have been chugging along, struggling, play by the rules - are not being discussed.

#1

Lets go to court! I have a B of A loan and my house has decreased in value by 30% but I don't owe more than it's worth because of a 40% down payment. So I should get a 30% reduction in my loan amount.
Lets just abuse working America and pander to the banks, politicians, wall street and the folks who made mistakes in borrowing.

Idiots!

#2
 
No need for responsibility anymore folks. A lot of people working two or three minimum wage jobs, just to make ends meet, have got to really be wondering if it's worth it. The parasites and losers who squandered their resources are getting all their needs met. While those out busting their butts are getting the shaft.


#3
 
I'm starting to realize there is no upside to doing what is right, being responsible to your fellow Americans, etc.


Some folks run up outrageous credit card debt, purchase homes they can't afford, etc. And their penalty? They have their debt principals reduced, their rates reset to lower rates, they qualify for debt consolidation and other government programs.


And all that is at the expense of those of us that are responsible. We pay higher rates and more fees than we otherwise would to compensate for these folks. We pay higher taxes to fund the government programs that these folks use.

#4

Thank you, again we look like fools for actually buying a home we could afford & making the payments while the people who jumped in over their heads and mismanaged their budgets are REWARDED...

#5

Really? So, maybe as a responsible citizen who bought within my means and worked hard to get my mortgage paid down - I get no reward? But those who "bit off more than they could possibly chew" get rewarded? Who's going to pay for that???


"Fair" is apparently only fair when it benefits the irresponsible!
Irresponsibility has become an enterprise in this nation - it gives a whole new meaning to "free enterprise".

#6

So let me get this right. If I would have just made some bad decisions and taken out some home equity loans in a time of economic downturn, I could have had the gov't give me up to 30% of that money for free. That sounds great. I mean after all they're going to take it from the ones who made good decisions and give it to the ones who made bad decisions. Doesn't that reward bad decisions? Isn't that Marxism? And can people honestly argue that this administration isn't socialist?
 
#7
 
Hey Bank of America, I’m not stupid enough to take on an adjustable rate mortgage that I won’t be able to pay off once the loan resets, and I’m responsible enough to do the math, figure out what I can afford, and live within my means. I even saved up a rainy day fund to handle unforeseen emergencies before I ever borrowed to buy a house.



Seriously BOA, it is unfair these stupid and irresponsible morons who bought more house than they could afford with creative financing schemes like interest only loans, negative amortization loans, and balloon payment loans get principal reductions while their smarter and more responsible neighbors get NOTHING. Actually it is worse than getting nothing. Their smarter and more responsible neighbors are paying for it in the form of higher taxes and losses in their retirement accounts because their retirement accounts may have held bank stocks either directly or indirectly through mutual funds. The bank stocks cut their dividends and the stock prices dropped because the deadbeats didn’t pay their mortgages like they agreed to do when they signed on the dotted line.


#8

I am an idiot. I have a BOA mortgage and paid my mortgage. I didn't buy a boat or a camper or a Harley, I still drive two vehicles that are paid for. I don't fly when I go on vacation. I live within my means. If I was smart 10 years ago, I would have bought a Harley, a big boat and a nice shiny new truck to haul everything and let my mortgage go. I would have all my toys and the bank forgiving 30% of my debt. Oh well, live and learn.

#9

In other words, everyone who worked hard and saved a down payment is getting the shaft. If two people bought a house for 300k, one with 0 down and one with 60k down, the one with no down payment now owes less than the one who shelled 60k out of their own pocket. ...... I guess this is why we have govt., to offset the rewards of responsibility and hard work that the natural world provides. Thanks Obama! I don't really see any pt in going to work anymore.

#10

So let's reward the numbnuts who bought a house they couldn't afford while those of us that are financially responsible keep paying what we owe. Just another example of how personal responsibility is no longer important to many people...

#11

BofA will probably make up the difference by sucking the money out of its responsible borrowers and other account holders by socking them with more hidden fees.

#12

Absolute nonsense... Look under virtually any of these problems and you'll find overspending, equity loans that went to vacations, unneeded luxuries, expensive cars, and other assorted junk. i.e. mismanagement of money.

Had these people lived within their means, didn't over buy, buy McMansions, and spent responsibly they wouldn't need a bail-out at, what will eventually be, our expense..


This is pure BS...

#13

This country is no longer about being a land of opportunity, it is about taking from the responsible to give to the irresponsible. I am underwater because of all the foreclosures in the area I live. Many have just decided to stop making the payments and bank what would have been their mortgage payments. With a lawyer you can stay in your house for free for 3 years or more. Yet there are those like myself who do the responsible thing and continue to make mortgage payments. But no one cares about us. Maybe we should just all stop making our mortgage payments and expect Obama to bail us all out.

#14

Only in America in 2010. If you were prudent and decided to forgo the mcmansion you couldn't afford and paid your monthly payment faithfully on the home you could afford you now find yourself subsidizing the deadbeats and would be Donald Trumps who acted irresponsibly and got in way over their heads. How stupid can the banks and govt be. They are encouraging more of the same behavior in the future.

Ain't no free lunch folks, someone (meaning you and me) will pay to clean this mess up.

#15

what about us? The people that live within their means, pay their mortgage and bills on time. We do it right and get the shaft...nothing for us... I can't stand it any more.


Sowing the seeds....

Priceline.com (PCLN) - Breakout

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After consolidating a large move, Priceline.com (PCLN) was trading under $246 for a few weeks.  That level was breached today, and you can see the power of the "breakout" trade below. 


Which is why you don't want to be shorting anything that breaks out of a consolidation pattern....

Within the next few days we might finally reach the "panic buying" stage; today seems like the first step.  You can almost hear the thundering foot steps of a 7 foot tall, 400 lb bundle of bullishness approaching.



No position

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Bookkeeping: Stopped Out of Maidenform Brands (MFB) Short

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The chart for Maidenform Brands (MFB) is almost identical to the True Religion chart posted in the previous entry.  Although even stronger in some ways (recall this stock had a period where it did not have 1 down session in a month!).  [Mar 10, 2010: Some Stocks Have Not Gone Down 1 Day in a Month]  Unlike True Religion where I took the initiative, this move is on auto pilot as my stop loss of nothing more than a 3.5% loss has hit.  (original order was last Friday)  Not much one can do here, a rising tide is lifting all boats and once S&P 1170 was broken to the upside I expected to start getting stopped out of most of the shorts.  In reality the damage has been far less than I assumed, and of course we are more than making it up on the long side.


No position

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Bookkeeping: Covering Athenahealth (ATHN), True Relgion (TRLG) Shorts

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I am covering both Athenahealth (ATHN) and True Religion (TRLG) simply to reduce my short exposure as the market is impossible to fight here.  

Once more Athenahealth has offered us a nice gain in a short period of time (2 days), and normally I'd keep pressing this name but with the S&P 500 on yet another new leg up, I want to preserve the small gain and will take the 3%.  While nothing impressive, in the context of this market - it is doing its job of creating a hedge.


While I am taking a 1% loss in True Religion (original short March 15th) I am actually extremely pleased with the outcome.  In the time I shorted TRLG not only has the stock market continued up, but the sector the company is in (consumer discretionary) has been the strongest.  Many of True Religion's peers have shot up 5-10-20% in the time.  So this is a relative win as we experienced no pain and had a proper hedge on.  The market is simply not working in our favor.  The stock has now stalled for 12 sessions... my stop loss was in the lower $30s.  If True Religion can jump over that level I expect a new leg up to begin ... while it has not happened yet, I am bowing to the pressure of the overall market and being proactive.


This still leaves us with some short positions but takes away 6% exposure.  On which we actually made money on a net basis.  I will look to slap on more hedges at higher levels, perhaps with these stocks or maybe with others.  But for now I just want to get out of the way of the rampaging bulls.

No positions

The Beat Goes On; New Highs

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The "5 day moving average" rule move continues to work, as yesterday's close was just above.  Today the MA has moved over 1170.


I sort of tongue in cheek said late yesterday as the 'traumatic' selloff happened:


All it takes is a +0.5% premarket markup tomorrow and all this will be forgotten as the run to the roses continues ;)

Lo and behold, what did we have this morning?
 
While I shook myself out of those SPY Calls yesterday due to the risk factors, I stated:
 
I am more than happy to buy them back at more expensive levels on an up day, as they are meant as very short term trading vehicles during trend days. Yesterday's breakout did not follow through so I'll make the same trade another day.


So we are back in, as today is a new high and the market almost never reverses intraday anymore once it begins to move strongly in one direction; another 'new paradigm' stock market development.
 
There is really nothing more to add kids... it's the same old, same old.  New high - everyone piles in.  Rinse. Wash. Repeat.  I don't really see any resistance ahead for a long while.  Even 1200 is nothing more than psychological.  It might be S&P 1220s where there is any true stall based on charts.  Master plan if this continues is to keep riding it and then if we just rally straight into next Friday's labor report, expect a sell the news reaction on what I expect to be "blowout" numbers.
 
p.s. Google (GOOG) reversed yesterday as someone came in and in 1 order apparently bought 975,000 shares or $530M of stock!  So I might of put the bottom in on that stock with my sale. (I'm happy to do anything for the cause)

p.s.s. shocked none of my shorts have stopped out yet with the market on meth in an almost non stop run up.
 
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Hubba Hubba - US Dollar Breaks Out

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Yesterday was one interesting day outside of equity markets...

It is quite fascinating to see poor economic data - especially of the housing kind (yesterday's February new home sales were the worst on record, despite the US government bribing people to buy homes and near record low mortgage rates) - and European distress completely ignored by market players.  Investors look to be under the belief that "where there is a will, there is a bailout" but seem to be ignoring this is simply inning 1 in a series of sovereign debt issues.  Yesterday, Fitch downgraded Portugal's debt (the P in PIGS) [Mar 9, 2010: Portugal Tries to Front Run Bond Vigilantes], and EU members continue to squabble on the best way to bail out Greece.  "To IMF or not to IMF, that is the question!"
  • The US dollar climbed Wednesday to the highest level in more than 10 months against the euro on mounting speculation the EU would ask the IMF to help bail out debt-ridden Greece in a sign of European weakness.
  • A French government source said: "There are different opinions on the degree to which the IMF would participate in an aid scheme.  "There are some countries that want no IMF at all, some that would accept technical IMF assistance, some that are ready for a certain amount of IMF financing and others that want the Fund to be the only financial provider."
  • Analyst at British bank RBS added: "The involvement of the IMF is a negative on the European solidarity front... because it challenges the idea that the euro area can sort its problems out on its own."
  • The Fitch ratings agency meanwhile lowered Portugal's long-term debt rating by one notch and gave it a negative outlook, warning that a severe strain on public finances had reduced the eurozone country's creditworthiness.
  • "The last time that we recall the greenback making such broad-based gains in the market was at the height of the Lehman Crisis, where extreme risk aversion prompted capital flight into the safe haven US dollar," he said.
So with all this mess, the US dollar is winning the "least ugly" (for now) award.  Remember, this is going to be a chronological crisis - and the US stands as the world's reserve currency; hence is at the very end of this huge daisy chain.  So even as the US spends like a drunken sailor, it is the only country in the world that can get away with it due to being the largest and most liquid currency - and bond market.  And perceptions will take a long time to change.  The great irony is the divergence in the bond market and the currency market yesterday - the US dollar surged as a quite bad 5 year auction happened.  Which might be the first signal of investors reluctance to fund the non stop debt explosion in the US.  (or if you live on a grassy knoll, it could be our chief enabler China stepping back from the table to show the US what it could do ... payback for Google?)

Either way, Miss Congeniality in the Ugly Currency Contest broke out to 10 month highs:


Made all the more hilarious by the fact that the US is already ahead of Portgual into the race to "the next Greece" [Feb 5, 2010: Sovereign Risk Chart - Where Would the US Fit in, on Europe's Scale?] - thankfully we have a printing press to make all our problems go away.  Not so fortunate for such 'easy fixes' in Portugal, Greece, Spain et al.

[Mar 16, 2010: US, UK Move Closer to Losing AAA Rating's Moody's Says]

Long Powershares DB US Dollar Bullish ETF in fund; no personal position

Wednesday, March 24, 2010

NetLogic MicroSystems (NETL) Offers 3.2M Shares; Another 2.7M Being Dumped by Former Acquisition Target

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My gosh, the stock issuance parade is on overdrive as the nearly free money from the Fed is quickly moving from the investment banks and its way into the hands of our corporations - Ben's master plan is working wonderfully.  Sacrifice the savers so the borrowers may thrive; thankfully most savers are completely in the dark of what the Fed is or how it works.  Sheeple power.

This has to be the first time I've seen a stock SPLIT its shares (Monday!) and than do a share offering within a week's time.   But that is what NetLogic Microsystems (NETL) has done.  What a market.
  • NetLogic Microsystems, Inc. plans to offer 3.2 million shares for sale, according to a news release issued Tuesday. 
  • The company also said former shareholders of RMI Corp., which the company bought last year, plan to sell 2.7 million shares. The company will not receive any proceeds from the sale of shares by the selling stockholders.
  • NetLogic Microsystems, which makes processors used in Internet and corporate networking equipment, said it will grant the underwriters the option to buy about 885,000 more shares to cover overallotments.
This is the 2nd stock in a week we just bought which within hours/days issued shares.  I guess the new policy is to buy the shares on the announcement since stocks only go up on share issuance in the new paradigm market (Massey Energy for example is up 4% today).  Unlike Massey there are shareholders also dumping their shares along with the 3.2M shares being raised for internal purposes.   Effectively a 3.2M share dilution along with 2.7M share hitting the open market versus being in 'strong hands'.  NETL had 57.5M shares.

I only had a starter position of 0.4%ish in this case, so I will buy some more NetLogic on the news, as the stock driftly perfectly to the 20 day moving average.  I'll layer on a 1% allocation here and I guess in the George Costanza market ("whatever decision I make, I will do the opposite - with great results"), NETL will rally on the actual dilution.  This is completely backwards to how I'd normally do things...



Long NetLogic Microsystems in fund, no personal position

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Bookkeeping: Sold SPY Index Calls

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I am too cautious to hold these SPY Calls (April 118) through any real pullback - they simply can cause too much damage in a short amount of time.  I sold about 70% of the position earlier this afternoon when the S&P 500 popped back near S&P 1170, and now am exiting the last 30% around S&P 1167.  A drop to S&P 1160 or whatnot would cause losses I am not willing to bear.  I am more than happy to buy them back at more expensive levels on an up day, as they are meant as very short term trading vehicles during trend days.  Yesterday's breakout did not follow through so I'll make the same trade another day.

I will remain more patient with the the index ETFs to see if the "5 day moving average" rule holds; remember if the S&P 500 closes below 1167 that will be the first close below the 5 day moving average since Feb 16th.  There is nothing earth shattering about that figure - the market is supposed to close below the 5 day moving average often - but it simply signals how incredibly sticky this market has been to the upside.  I'll assess if these are worth holding as the afternoon wears on.

I am now wondering if the nonsense tech stock IPO valuations (good companies, silly valuations) might reflect the height of giddiness and a short term top.  Generally I like to look for nonsense stocks - especially of the $3-$9 Chinese and biotech variety to start exploding up with 20-30% moves on a daily basis - to mark a top.  That has not really happened except for a few days about 2-3 weeks ago.  Of course we just kept chugging along upward.  But maybe instead it will be the IPOs; we'll see - calling tops has been a silly exercise... we'll only know in retrospect.  There are still quarter end mark up games to play, and at this point in the insanity I'd like to see the market run right into the labor report a week from Friday for a perfect "sell the news" moment. 

All it takes is a +0.5% premarket markup tomorrow and all this will be forgotten as the run to the roses continues ;)

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Bookkeeping: Covering Most of iShares Barclays 20+ Year Treasury Bond (TLT)

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I need to start paying more attention to my position in iShares Barclays 20+ Year Treasury Bond (TLT).  Since it does not move much from day to day, I tend to sort of have it in a corner and not do much with it - but today's movement is large enough for me to notice (still small relative to your average stock however).  Apparently there was a poor 5 year Treasury auction... could simply be an outlier event but if the US starts having more troubles (i.e. needing to pay higher rates) to fund its debt - which WILL happen at SOME point - this whole "nothing is wrong in the world since everything is backstopped by the Fed and government" ethos will begin to show cracks.   One day this instrument will cease to be range bound and begin falling like a rock - the panic that follows should be interesting.

I've had this position on for a 1.5 years and I plan on having it on for 5-10 years or whatever it takes, as the US continues to drive itself off the cliff spending like a drunken sailor, with no regret.  But like I often say, it won't matter until it matters - thus far, the mini US (UK) has taken far more of the brunt in currency and to a lesser degree bond market.  The US will be the last to be hit due to its reputation.  Ironically any UK blowup will help the US in the nearer term as the "safety trade" will be back on.  The idea of a country acting so irresponsible as 'safety' is laughable but that's the market's perceptions and it will take many years to change it.


For today, I am going to cover almost the entire position (I only have a 1% allocation) near $89.50 and try to get my short back in the $91s.  I will need to make the position size larger in the future to have more effect on the portfolio.

If you are new(er) to the website and want to understand the thesis of this trade please review:  [Nov 21, 2008: Bookkeeping - Initiating Ultrashort Lehman 20+ Year Treasury (TBT)]



Short iShares Barclays 20+ Year Treasury Bond in fund; no personal position

MaxLinear (MXL) Up 35%, Calix Networks (CALX) Up 20%

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As I thought Tuesday, both MaxLinear (MXL) and Calix Networks (CALX) would be bid up to nonsense valuations.  [Mar 23, 2010: Two IPOs of Interest this Week]  A very nice gift indeed for the institutions who were gifted these shares.

MXL was priced at $14, it trades just over $19 as I type for a 35% gain.
CALX was priced at $13, it trades around $16.20 as I type for a 20% gain

So a blended average of 27.5% for a few hours work, and that folks is how you can help turbocharge your performance if you are an institution with access to the right people to get the right IPOs into your portfolio.

As for performance from here?  Heck these things could double or triple now that they have little to no association with any value.  If not 70 PE ratio, why not 170?  or 350. 

Being conservative I'd be happy to dump my shares to the retail lemmings right here, and then write in my quarterly shareholder letter to mutual fund investors about what an excellent investment it was... all 2 hours of it.  Or I could go the more traditional route, and not mention this freebie handout at all, and just have shareholders marvel at my "skillz".

No positions

WSJ: "Stimulus" Plan Creates $33B Tax Windfall for Corporations Across Cramerica

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It looks like the lobbyists in myriad other industries sat back in awe at what the home building lobby pulled off [Mar 18, 2010: Large Public Homebuilders Benefit from Tax Aid - Lobbyists Win Again] and as part of an extension of jobless benefits (yes you heard me) were able to make sure they got theirs too!  After all "the social safety net" or "stimulus" is all about handing back corporations the taxes they paid in the good times.  I am not really sure why we bother to have a tax code anymore for the big fish... the taxes they pay during good (bubble) times are simply being handed back to them during downtimes under the guise of "stimulus" ... better known as "you want us to continue to contribute to your political coffers don't you?"  (insert dogma here about onerous 35% corporate tax rate in Cramerica here)

Can you imagine, dear reader, how nice this arrangement would be for all of us?  During the boom years we pay our 1040s as dutiful citizens but then in 2008, 2009 as we struggle with the economy, we have our lobbyists work the midnight oil to slip into "stimulus" programs line items stating that we should get back the majority of the taxes we paid in previous years since times are tough and the last thing Congress wants to see, is our suffering.   Gosh, if only we lived the good life of a corporate-citizen*

*as deemed by the Supreme Court

Since our legislators now vote on bills before they have time to read it - or even have their staffers read it - we can expect many such goodies to pop up after the fact, most never reported in a mainstream media publication since the pork / handouts / bribery is too small to report.  (can't wait to see all the goodies in the healthcare bill we shall discover circa 2012)  After all, we have become numb to large numbers - if the bribery generosity is not over $100 billion we don't even blink anymore.  $12 billion?  Whose gonna miss it!  Thankfully we don't have a yawning chasm of debt in this country ...

Of course the recepients of such largesse will claim its not "just them" but 250 corporations that benefit - but the lion's share is going to just a few of the head honchos.  ($5.1B of the $12B identified thus far goes to just 3 companies)  At the head of the hand out line... oligarch JPMorgan which claims that the taxpayer backstops are not enough, nor the 0% Fed funds rate they enjoy, nor the implicit backstop of the US taxpayer, nor is the FDIC "loss sharing" agreement they enjoy on each bank they take over (i.e. where the FDIC takes the majority of the losses on the liabilities when bank A takes over failing bank B, letting the bank who does the takeover receive a massive cash cow - assets up the wazoo with most of the losses born by a federal agency).  They want their cake, and the tax write off on the cake as well. 

If you are a regular FMMF reader - I already explained "the game" in last week's piece but WSJ readers now get to see it splashed on the front page.  Please note the figures below are only for the FIRST $12 Billion... there is at least $21 Billion more to come this year alone.


Via WSJ:
  • J.P. Morgan Chase & Co. is nearing a deal that would allow it to benefit from a tax refund of as much as $1.4 billion, becoming the latest company to tap a little-noticed plank in an economic stimulus bill. (a stimulus for Jaime Dimon yes - for America? Not so much)  That law let companies apply losses from 2008 or '09 against taxes paid in the previous five years, instead of the previous two years. Failed Seattle thrift Washington Mutual is eligible for about $2.6 billion in tax refunds, thanks to big losses in 2008. Now J.P. Morgan, which took over WaMu's banking operations in September 2008, is in discussions with the Federal Deposit Insurance Corp. and bondholders about the refund.  According to people familiar with the talks, an agreement under discussion would let J.P. Morgan claim more than half of the total, to be held in an FDIC receivership as part of a larger settlement with bondholders.
  • J.P. Morgan wants to protect itself against exposure to mortgages that WaMu serviced, people familiar with the matter said. The refund could help J.P. Morgan avoid paying any damages out of its own pocket. (i.e. heads JP Morgan wins, tails JP Morgan wins - thank you for handing us Washington Mutual, and please take all the risk out of our hands - we thank you for your service to our oligarchy, American government.  Please find the deposit to your politicial campaign coffers at the agreed upon date & have a nice day.)
  • Many other companies have benefited from the 2009 tax-refund law already. According to an analysis of securities filings by The Wall Street Journal, more than 250 companies have so far said they expect to get about $12 billion in federal tax refunds under the law. (we're not done yet - the chart above is only for the first batch!)  That remains a partial list. The Joint Committee on Taxation, a congressional committee, estimated the provision would cost $33 billion in its first year. (there is more than 1 year to this?)
  • Some critics have found the corporate-tax-refund technique wanting as a stimulus or job-creation move. (no worries, anyone you need tax money handed to you just start throwing lines like "we'll move overseas if you don't give us this incentive"  There are 3-4 bullet points of dogma you can use... "job creation" is another great one)  Prior to Congress's passage of the $787 billion stimulus law in early 2009, the Congressional Budget Office looked at six possible stimulus approaches and ranked this one least effective, saying each corporate tax dollar refunded would generate at most 40 cents of boost to gross domestic product.
  • The corporate-tax-refund approach wasn't included in the big stimulus bill early in the year, but was part of legislation in November that extended jobless benefits.  (another reason Congressional bills should be split into pieces so that they are not filled with backdoor handouts that have nothing to do with the main purpose of the bill - but that would not allow for easily hidden malfeasance)
  • Home builders, hit with big losses in the housing slump, are getting the biggest lift from the law. Sixteen builders estimate they're due refunds totaling over $2.6 billion. The tax break propelled builders Lennar Corp., Hovnanian Enterprises Inc. and KB Home to profits in recent quarters.
  • Others that have said they're receiving tax refunds include US Airways Group Inc. and Alaska Air Group Inc.; retailers Liz Claiborne Inc., Borders Group Inc. and Zale Corp.; and financial-services firms HSBC Holdings PLC and Legg Mason Inc.
  • The law doesn't say how recipients must use the refunds. Some plan to pay down debt or stockpile cash. Most aren't saying how they'll use the money.
  • Some companies intentionally took steeper losses last year to qualify for bigger tax refunds. KB Home sold land at a loss in 2009, the Los Angeles home builder told investors in January.  "We were able to dispose of lots, generate cash, take advantage of [the tax break], improve our balance sheet," KB Chief Executive Jeffrey Mezgersaid. "It was a very nice move for us." Booking the $192 million tax benefit propelled KB Home to a $100 million profit in its fiscal fourth quarter ended Nov. 30. (KB Homes did a nice job but the CFO at Pulte Homes deserves an A++++ for whatever he did to get nearly $1 billion in taxpayer money handed back to him/her - I hope he/she received huge bonuses for that level of skill!)
Look - you can run your company into the ground and even receive the handout - it's good to be a corporate citizen of Cramerica.
  • Circuit City Stores Inc., which sought bankruptcy protection in 2008, recently said it expects an $86 million refund. The retailer closed all of its stores last year.
Now that's "stimulus" baby!

------------------------------------------------

If you don't want to read the nitty gritty this is really the only takeaway you need to pass along to your Facebook friends:
  • Douglas Shackelford, a tax professor at the University of North Carolina at Chapel Hill, said using federal tax receipts to shore up corporate balance sheets amounts to "public borrowing to pay off private debt"
Boo Yah.  Corporatamerica rules.

Bookkeeping: Short AsiaInfo Holdings (ASIA)

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I really like AsiaInfo Holdings (ASIA) (fundamentally) but Goldman Sachs really crushed the stock with a downgrade at the most inopportune time a few months back. Then they upgraded the stock on March 1st, creating a huge surge - and gap up.  It is almost as if Goldman is playing the stock like a fiddle ... must be nice to move a stock (or market) wherever you need it to go.

Since the Goldman upgrade I've been torn; should I chase this story I like? It's a breakout after all... but that nasty gap.  I see a similar pattern in countless charts now and the next serious cleansing in this market has a lot of "gap filling" to do.  But stocks can move ever upward on momentum so the gaps mean nothing... until they do.  I obviously decided to not chase it, which has cost me opportunities in other stocks but saved me some pain in this one.  Most likely I would of jumped in just as the stock was about to stall...


Today ASIA broke below the 50 day moving average, so my set up improves substantially to see the gap filled - even in an incredibly strong market.  I have therefore decided to put on about a 3% short allocation in the $26.20s with the very obvious target of the upper $24s to cover.  If the market can actually have a -1 to -2% day (perish the thought) I am sure this puppy would fill quickly.  I will consider stopping out if the stock jumps back over a level somewhere near today's high.

I will continue to point out that the Chinese stock market is lagging, and even the Brazilian one is not doing that well.  While they are digesting huge gains of 2009, this divergence between the US (and to some degree Europe) and some of the favored developing markets is something to keep an eye on.  It has not mattered - yet.

Short AsiaInfo Holdings in fund; no personal position

Lost S&P 1170, at Least for a Moment

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A rare premarket down futures has everyone confused today.  How can this be allowed? How can it be? It's stunning.

After holding S&P 1170 for most of the morning, the S&P 500 has just slipped below that level. (ironically just as I showed an intraday chart yesterday of how the market went "vertical" right after S&P 1170 was breached to the upside, we see the EXACT same pattern in reverse today - the minute 1170 was broken, we lost 4 S&P points immediately - still a vertical technical driven move, but in opposite direction)  Normally I'd be selling index positions on that break since that is a failure to hold the breakout level, but I am going to try the methodology I mentioned yesterday and that is to hold on as long as the 5 day moving average holds on a closing basis.  The problem with doing this is, eventually this market is going to reverse and blow people up.  It might be today, or in 10 weeks.  The second problem is while the 5 day moving average rule has worked wonders the past 5-6 weeks there have been a few times that level broke INTRADAY before opportune buy orders came in to save the market.  So one cannot tell at 2 PM (obviously) what will happen at 4 PM.  One of these days the 2 PM tell won't be a false positive as it has been the past 5-6 weeks.

Hence, today is going to be interesting - since the option plays can ruin a portfolio quickly I might not be able to hold them for any serious intraday dip lower than this level, but the levered ETFs I might be willing to allow some more leeway.  Of course the whole idea that I am making even a minor change to my style, points to the complacency that sets in as we all expect a late day rally to "make it all better".

The 5 day moving average is roughly 1167- only on 3 occassions have we broken even below this level intraday in this slow motion rally but 2 of those days have been in the past 4 sessions.



Keeping track of our 2 gaps - they still sit there at 1124, and 1078; the latter is now 7.8% below.  That is interesting because the only 3 corrections we've had the past year have been of the 8%ish variety.  Combined with one of the most overbought markets I've ever seen, just something to keep in mind.  That doesn't mean we cannot rally another 5% straight from here; the relentless grind higher deserves the benefit of the doubt as anyone who has stood in it's way has been made the fool ... until the pattern breaks, people will keep repeating it.  It will only be wrong once.

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Tuesday, March 23, 2010

If You Don't Believe Technicals Have Come to Dominate Fundamentals... Today is a Case Study

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While I do believe most investors should have both tools in their tool belt - both fundamental and technical analysis - I've opined many times the market character has changed.  Technicals have come to dominate, and Benjamin Graham is stuffed in a closed somewhere.  For those who watch things day by day, year by year, the nature of the market is very different then even 5 years ago.  If you don't believe in the hocus pocus, black magic of technical analysis I can not only point you to a few years worth of posts, but today alone is a great example.  We cited 1170 on the S&P 500 as an important level... I'm not genius here, everyone on Wall Street, human or silicon, also knew that was an important level.  We butted against this level 5 days in a row (intraday).  Just as we did 1150 the previous week(s).



Today it finally broke and we (almost) immediately went vertical - here is the intraday chart.

[click to enlarge]



Now at some point, as used to happen, the obvious trade fails.  I don't know when that point will be, but that's not the point of the exercise.  So much of the trading nowadays is concentrated in a few huge institutional hands - prop trading, quant trading, robot trading, all copying each other and it self reinforces.  [Feb 12, 2010: (Video) Scott Patterson Tells Us the History of HAL9000 in "The Quants"]  (of course it self reinforces to the downside as well which we began learning in August 2007 and through February 2009)  I've repeated over and over that this, along with the dominance of ETF trading has changed the face of the markets - many times individual stocks; especially of the larger kind; are simply dragged along with their indexes.  Their individual stories, fundamental stories, or characteristics are now secondary to what ETF they are in, and if that is HAL9000's choice of the day, week, or month.

I will repeat to newbies to technical trading the example I like to use.  If you saw a pattern where sweater sales in Miami shot up double whenever the temperature went over 90 degrees, you'd be incredulous.  You'd laugh.  You'd scoff.  But if this happened over and over and over... and you were a sweater salesperson, trust me - you'd load up on sweaters once it hit 90 degrees.  Like it or hate it - it is "the market", so to ignore it... well it's at your own peril in my opinion.  That in my mind is technical analysis at its basis...... patterns.  And the more people who follow the same pattern (and program computers to do so) the more it self reinforces.  Which is perhaps why these moves fail so much less than in the past. 

Unless it's partly the helping hand of Larry Summers, who spent some time learning how the markets work on the inside at hedge fund DE Shaw.  [Apr 6, 2009: Larry Summers - No Conflict of Interest; He Pinkie Swears] Because if you know how the quants work, and you really wanted to lead the market to an ever higher place, you could be one powerful man - almost a Pied Piper of sorts; blowing your flute at the most opportune time so the lemmings - silicon or human - follow.  Confidant enough in fact, to get your President to say "it's time to buy stocks" the same week the market put in a low in March 2009, and then went on an epic rally - low volume in nature, much of it in premarket of course.  But that's a theory for those who live on grassy knolls of course... ;)  I'll have none of that thesis! [Mar 18, 2010: (Video) Scott Bleier - Behold the Zombie Market]

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Away We Go (AGAIN)

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Repeat everything from this post just last week, at SP 1150 [Mar 16, 2010: Away We Go], and simply change it to SP 1170.   Not much more to add - this is simply the same trade repeated over and over... and over... and over - expecting the "obvious" to fail like it used to in the old days, but it never seems to anymore. Back into long index positions - will stick with it unless 1170 is broken as support.

(I've added BGU to my normal array of TNA and SPY calls - in this case April 118s) 




EDIT 3:22 PM - this might actually be a better chart to show.  It indicates the S&P 500 has not closed below even the 5 day moving average since February 16th.  Remarkable.   Perhaps the better idea is not to sell until a close below the 5 day moving average.  Mulling it - by changing to this strategy it would lead to 1 bad loss the time the obvious trade does not work, but it would not require me to move in and out of the index positions very often.




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HAL9000 Blesses Deere (DE)

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The non stop breakouts continue... Deere (DE) is the latest to go as HAL9000 finally rushes in after a break over the all important $60 level.  One day that gap at $53s is certain to fill but at the current pace of non stop rally perhaps we're talking the crash of 2014.



I am very torn on whether to participate on this type of breakout; I can buy with a stop loss below $60 which is where the breakout came from.  This is the same exact trade I do on indexes each time they break to a new level.  I know this is what HAL9000 and its peers in the human world are doing en masse.  So it will work.  Until it doesn't.  But will every obvious trade just continue to work ad nauseum?  Sort of living in an Alice in Wonderland market...

No position

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Bookkeeping: Closing Google (GOOG)

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Bad timing in Google (GOOG) as the news flow has been horrible and the company has been the center of drama with China.  As I said in the weekly summary this was a name I was targeting to punt if it fell much farther and... it continues to falter.  So away she goes.  I continue to think this is a big overreaction to 1.5-2% of revenue being lost but obviously some of Google's "out years" growth potential is impacted by the Chinese situation.  Either way, I don't like drama and the stock is at the center of a lot of drama.


I am taking a 4% loss on the position.  This was another failed breakout, but due to specific news so I am ok with the premise of purcashing the stock; it looked to be in great shape prior to the announcement of the pullout.

Meanwhile Goldman threw Baidu.com (BIDU) a bone this AM and increased its price target to mid $600s from mid $500s.  Why not $1000?  Where is Henry Blodget when you need a serious upgrade? (only those of you from 1999 or earlier will get a laugh at that one)
  • Goldman Sachs lifted its Baidu.com price target to $675 from $575, following Google's move to redirect its China site to its Hong Kong site. The broker, expecting the Hong Kong site to be at best slow if not unavailable, estimates that Baidu may capture between 33% and 75% of Google.cn traffic.
No positions

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Bookkeeping: Short Athenahealth (ATHN) ... Again

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I plan to remain disciplined even in a market that only goes in 1 direction and keep sending out scouts on the short side, even though most return decapitated.  After a big pop on earnings (which we fortunately covered our short just hours before), Athenahealth (ATHN) has fallen back below some moving averages, once more giving us a solid entry point and a "bad chart" to offset the 90%! of stocks now above their 50 day moving average.

Again I will short a 3% allocation around $38.50 and assume I will be blown out of the water if the S&P jumps over 1170 (it's just a matter of time isn't it?)



As an aside, part of this 'game' is pure luck - I had mentioned both Shanda Interactive (SNDA) and First Solar (FSLR) as bad charts last week but they were not my first 2 choices; instead I went with 2 names that were stopped out within 24 hours.  I should have gone with option #3 and #4 in retrospect - SNDA even announced a stock buyback yesterday and still can't find life. Talk about dispiriting.



With so few stocks below the 200 day moving average - these are serious outliers.  If the market is ever allowed to sell off again, I assume they would really begin to take body blows.

I still have my 2 retail shorts (bras and $300 jeans) which somehow I have not been stopped out of yet (just missed by a few pennies on one of them this AM), even as retail stock after retail stock surges to the moon. 

The British pound also remains a mess as the "mini US" swirls around the drain.


Short Athenahealth in fund; no personal position

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