Tuesday, April 13, 2010

Intel (INTC) Creams Estimates

While Intel (INTC) will get all the attention tonight I'll be reading through the CSX (CSX) data (they also beat by 9 cents) for a better idea of what is going on in the economy.  (I don't care if they beat or miss analysts guestimates - simply what they have to say about what they are seeing in their business)  As for Intel a "surprise" beat of 5 cents on the bottom line with a much better than expected revenue figure (+$500M) as well.  This should send the Fast Money guys into an orgy of giddiness from 5 PM to 6 PM..... and futures should be jumping as I type.

  • Intel (INTC) on Tuesday reported a first-quarter profit of $2.4 billion, or 43 cents a share, compared with a profit of $629 million, or 11 cents a share, for the year-earlier period. Revenue was $10.3 billion, up from $7.1 billion in the same quarter the previous year. Analysts had expected the Santa Clara, Calif.-based Intel to report earnings of 38 cents a share, on revenue of $9.8 billion, according to a consensus survey by Thomson Reuters  
This will be the last quarter where year over year comparisons are going to be *this* easy to beat since Q1 2009 was the depth of the recession.  (i.e. a behemoth like Intel normally doesn't grow revenue 44% year over year!)  While every company is reporting results versus year ago period (as is the status quo), what is more interesting is looking at how these companies did versus the same period 2 years ago when a more normal economy was prevalent. 

That said once more selling (almost) anything is a mistake, and my index exposure - only gone for a few hours - already makes me feel empty.   Thankfully, I have not shorted the index in ages as the "6 day moving average" rule continues to tell us shorting is evil and unpatriotic.  Since the market no longer corrects, the first 2 days of this week will be considered a "sell off" (the market was only up 0.2% Monday and flat today, i.e. "2 days of selling") - hence the rally is now ready to resume after that pullback! ;)

Since we are overweight in technology I hope this helps to bust some of our stocks out tomorrow - the party has been mostly in banks, insurance, consumer discretionary and industrials of late.  I continue to plan to liquidate into this unrelenting rally as we are going to soon be entering territory rarely seen in terms of winning streaks.  If the market rallies straight for 4-6 more weeks I can see myself going to 90%+ cash, since we'd surely be at some unheard of standard deviation above the norm.

Until good news is sold (i.e. 2 months of rallying has priced in the data)... the market remains unshortable.  Party on Garth.


EDIT 4:40 PM - some data on the economy from CSX below; the irony in the statement below is that consumer related stocks and coal are 2 of the superstars of the stock market.  In the end electricity consumption is one of the best barometers of economic health, so the fact that the US continues to not need a lot of natural gas and coal makes this 'recovery' thesis hard to get behind.   But that's the real economy - the important thing for us is the stock market economy which is in a place of nirvana: (a) labor costs pared to the bone (b) government handing out money like there is no tomorrow to its consumers to spend (c) the new house ATM born (d) Ben Bernanke backstopping any carbon based entity on Earth.  A potent combo.

  • While most shipments rose, the company said coal and consumer-related shipments continued to be weak. A drop-off in building products and other shipments related to the housing market persisted. Coal shipments declined as consumers and businesses used less electricity.


Bookkeeping: Closing Massey Energy (MEE) - Would Like to Replace with Walter Energy (WLT)

I essentially flipped a coin between Massey Energy (MEE) or Walter Energy (WLT) when I began the stake in MEE, looking for coking coal exposure.  Right after I purchased it (small stake), it did an offering allowing us a more attractive price to build up a position.  Then the stock rallied sharply so it looked like it was going to work out very nicely.  However, since the mining accident a dark cloud has come over the name....

This is a tough one because it is about time frame.   In the long run I am sure this will be a good price for the stock but in the near term I'd expect a lot of scrutiny which I assume weighs on the stock.  Because of that potential I am going to cut the 2nd half of the stock (8% loss on this batch) and close out the position; the first half was sold last week.

Can't do much about situations such as this, the trade was working out perfectly but out of the blue news items will happen over a course of the year, for which you cannot prepare for.

I would like to move the monies into Walter Energy (WLT) but this is an example of a stock that has run up with no rest and while it can continue it becomes increasingly difficult from risk/reward to just chase...

I don't know if the recent action is a "double top" in WLT... it could possibly be.

Another option is to move some of the money into Alpha Natural Resources (ANR) but the name has not been performing as well as WLT or MEE (pre accident) are/were.

Long Alpha Natural Resources in fund; no personal position


Ambac (ABK) - The Circle of Life

Where is Charlie Gasparino when you need him?  That joke will only resonate with those who were around in January-March 2008ish and were subjected to the nearly daily market rally at 3:45 PM when Charlie would show up on CNBC blurbing about a government rescue for Ambac or MBIA.  [Apr 23, 2008: Ambak & MBIA Back to Their Old Ways]  Ah the good ole days when our biggest worries were these relatively meaningless companies.  Much like the Greece bailout, it is amazing how the market can rally on the same rumor week after week. 

The mortgage insurance stocks - after being left for dead Fannie, Freddie style are surging the past few days as principal reduction plans supposedly lift their prospects.

The move in Ambac (ABK) is especially awesome because despite a (Wall Street) "reported profit", apparently in its 10Q it says it could be insolvent within a year.
  •  Ambac Financial Group Inc., the bond insurer that stopped paying some claims and accepting new business, jumped 71 percent in New York trading after reporting fourth-quarter net income of $558.1 million amid a tax benefit and unrealized gains on derivatives.
  • The company, which also said it has “insufficient capital” to finance itself past the second quarter of next year and may need to file for bankruptcy ...
  • The “equity market reaction is dumbfounding,” Rob Haines, an insurance analyst with CreditSights Inc. in New York, said in an e-mail. The “GAAP earnings number sounds good, but nothing has really changed.”
Since no one in the equity market bothers to read anything but a headline anymore (since by doing so it would take more than 2 seconds - and HAL9000 will already have made 8000 trades in that time) in the dumbed down market, bankruptcy potential is just a meaningless detail.  Further, since there is no risk in the stock market anymore and no public company can fail... people are brushing off such warnings and piling in.  

  • "The transfer of structured finance obligations to the state regulator and the subsequent payment at a discounted rate is a de-facto default," said Egan-Jones Ratings, a rating agency that's paid by investors rather than issuers, on Friday. "However, credit quality of the remaining corpus is enhanced."
Run Forrest Corpus Run!

There used to be something we called the Greenspan put... i.e. the Maestro would find a way to make sure things never got out of hand so buy stocks at will.  We need a name for Bernanke - because he makes that put look like child's play.  Maybe the Bernanke Forcefield - everything is protected, we are immune and shielded.

In the old days, this sort of speculation would mark a top in my eyes... in these new days, its just another day at the office. Enjoy.

No position

Bookkeeping: Selling Index Stuff

I don't know if the market will experience its first 1% drop in 2 months anytime soon but I am going to sell off my index positions at this point ... if we begin to make new highs I will reassess but for now I am going to sell the TNA ETF, originally bought 3/29 for about a 7% gain and some call options I bought Friday afternoon hoping for a better "Magical Monday + Greece bailout" bounce.  I had a nice profit on the calls but with the smallish pullback on the S&P 500 that has disappeared

All these overbought indicators - including 93% of stocks over their 50 day moving average have not mattered for a long time.  So I don't know when they will matter.  It is simply hard to justify risk reward after a 11-12% move straight up (and much higher in Russell 2000 index) - so far 2010 has been a good year, so no need to take outsized risks here.  I also am wary because the "gaps" we need to fill on major indexes are about 9.5% away and this market has yet to correct more than 10% since March 2009.  So if we move any higher, it will be the first 10% correction - which will be a new development.

The market is so tired of going up, even True Religion (TRLG) is faltering....

For those keeping track at home, the 6 day moving average is 1189.


One out of Ten US Mortgages is now Delinquent ... Which is Great for Consumer Spending.

Six months after I posed the thesis that a huge rise in delinquent mortgages (some by circumstance, but a growing number by choice) is leading to a resurgent consumer, [Nov 25, 2009: America's Stealth Stimulus Plan; Allowing It's Home "Owners" to be Deadbeats]  as monies once used to pay for housing now can go towards all others forms of shopping... it is finally hitting the mainstream.  I've seen it hit major blogs in the past 6 weeks, I am starting to see it in the mainstream papers, and even CNBC caught up to it yesterday.  (lightbulb!)

I was chuckling to myself as Diane Olick (who in all fariness is one of the actual realists on CNBC) chimes in this "new theory" was causing a ruckus on the "financial blogosphere". (CNBC does not have the video of her interview available on the website for some reason)  Here is a video from earlier in the day...

Via Diane's blog:
  • Okay, so 7.9 million Americans are not paying their mortgages.  Are we really thinking about the implications of that?   I've already reported studies that show Americans are now far more likely to pay their other bills first before their mortgage (which is a big turnaround historically speaking.)  That means they pay off their credit cards, cable bills, car loans in place of their home loans. Some are forced to, while others are doing so strategically. Don't get me started again on strategic defaults...
  • Paul Jackson, publisher of Housingwire.com, wrote a fascinating article last week that put this into real cash perspective.   He describes a case study of someone who applied for the government's Home Affordable Modification Program. The person had an $1,880.00 monthly mortgage payment on which they'd defaulted, but said person's monthly bank statement showed payments to a tanning salon, nail spa, liquor stores, DirecTV bill with premium charges, and $1,700.00 in retail purchases from The Gap, Old Navy, Home Depot, Sears, etc. 
  • .....the rate at which formerly current borrowers are defaulting now is rising. I guess it's just another, innovative way of using your home as your ATM.  It currently takes well over a year, in some cases nearly two years, to go from missing a payment to being chucked out of your home.

I might need to increase my "stimulus" assumptions as the number of Americans squatting has risen sharply in even the half year I did my analysis.  We are now at the stage 1 in 10 mortgage holders are living "rent free".  I would not be surprised if this increased to 13-15% in the next 18-24 months as people catch the wave and look at the spending habits of their neighbors who don't have to worry about minor things.... like paying a mortgage.  Here is the latest data:
  • One of ten mortgages are delinquent as of the end of February and new delinquencies continue to run at record rates.  
  • The total number of non-current first-lien mortgages and REO properties is now more than 7.9 million.
  • The number of mortgages delinquent at the end of February 2010 is 21.3% higher than the same time last year despite government-led modification efforts
  • February's foreclosure rate of 3.31 percent represented a 51.1 percent year-over-year increase.
  • Total U.S. loan delinquency rate: 10.2 percent
And if you think things are improving, think again - as I said above - many people who put nothing into their home and are underwater are going to simply join the party.
  • Furthermore, the percentage of new problem loans is also at its highest level in five years. More than 1.1 million loans that were current at the beginning of January 2010 were already at least 30 days delinquent or in foreclosure by February 2010 month-end.
Think about that last sentence... of the 7.9 million total delinquent, 1.1 million just hit in the first 2 months.  Now that's impressive... obviously word is spreading on how easy it is to get all the toys one could not afford in the past.

So the headline mainstream press will scream this news is awful.  Wrong!  Not in the new paradigm economy - all losses are born by US savers and everyone else wins in this scenario. This data is GOOD.  The more delinquent mortgages the better!  Why?  2-3 years ago we feared delinquent mortgages because it hurt banks and threatened to bring down the financial system.  Now there is no such fear - the Federal Reserve and US government have deemed our largest banks too big to fail.   They can take losses for as long as is required.  Further, with the political pressure put onto our national accounting board, just over a year ago we changed our accounting rules so the banks could mark these mortgages on their balance sheets per their discretion rather than at 'market value'.  And if you have been living outside of a cave anytime in the past 3 years you realize what happens when banks are allowed to do things at their discretion.


So for newer readers here is the 'game' as I've outlined many times.
  1. Home'owners' default.. many of which are owners only in practice (not putting a dime down on their home).   
  2. That money once used to pay mortgages can now go into the economy as a form of permanent stimulus via consumption.   Back in November I figured the number to be akin to the spring 2008 Bush stimulus - but instead of a 1x benefit, it's a permanent stimulus. 
  3. The banks drag feet on foreclosures because to make their balance sheet look good they will only take so many foreclosures over in any 1 quarter.  Since the FASB (accounting board) rule change, they can do this since they don't have to mark the mortgages to reality - they can pretend... until of course the actual foreclosure.  So the majority of mortgages on their books are still at "their discretion" and only the % they foreclose on, do they have to mark to "market" (i.e. reality).  Hence the 6 months foreclosure now turns into the 18+ month foreclosure.
  4. The market could care less about losses for large banks or the reality of the balance sheet because the US government stands behind all major banks... they are too big to fail.  So the banks have nothing to worry about.  Buy financial stocks - they are risk free, like Treasuries.
  5. In the meantime Ben Bernanke will keep rates at 0% so the banks can "out earn" the losses.  [Apr 20, 2009: How Banks Will "Outearn" Their Losses] Borrow from Fed at 0%, invest in anything (stocks, bonds...heck even do some loans), and make the spread.  Use that 'free money' to offset foreclosure losses.

Presto magic!

So it's all a ponzi scheme in the end... the Fed is subsidizing the banks and via proxy US consumer spending.   (we see proof of that every month as consumer credit is contracting - which never happens in the US.  Why should Americans expand debt when 10% of the housing population doesn't make payments anymore?)  Since banks are not foreclosing for long periods of times, this benefit accrues not for 6 months, or 9 months but can now take 18 months to 24 months before the banks come to kick you out of your home.  The truly skilled at this game, I believe can now go without paying for a home for nearly 3 years.  How?  Default for X months... generally 15-18 months, get into government modification program (which restarts clock)... make 1 payment (optional) then re-default.  Start process over... should be able to squeeze another 15+ months out.  That is what half of American squatters are doing.  [Mar 26, 2010: Half of US Home Modifications Default - Again]

Oh, I forgot the last part of the circle of Ponzi.... each quarter the Treasury force feeds taxpayer monies into Fannie, and Freddie to make up for the losses they are suffering on the back end for supporting the entire US market.  [Jan 5, 2010: WSJ - The Treasury Department's Christmas Eve Masscare of the US Taxpayer] The amount is equal to a Greek bailout about every 2-3 quarters, but America has become so immune to big numbers, we don't even discuss it anymore.  And even if Americans cared they could do nothing about it by decree of a Christmas Eve order than Mister Geithner may put as much taxpayer money into these entities as he pleases for the next 3 years.  (and trust me, if it requires more than 3 years it will continue on past that).  Just shuffle $15Billion to Fannie, and $12B to Freddie... once a quarter... it's all part of the system now.

Let us call this the circle of Ponzi life.


So please don't sweat it when you see delinquencies increase in the months to come... the Fed and government has the whole system rigged beautifully - no one loses except American savers who are financing the whole gig.   [Mar 31, 2010: Ben Bernanke Content to Sacrifice American Savers to Recapitalize Banks and Benefit Debtors]  In fact, our economy is now so reliant on such 'stimulus' I am going to become worried once delinquencies start falling....

Until then.... the old house ATM has been replaced by an even bigger, shinier, and newer new house ATM.  [Dec 13, 2009: WSJ - American Dream 2: Default, then Rent]  Now go forth and shop!*

*note: I will admit while I put 2 and 2 together in this scam in 2009, where I failed from an investment perspective is to not pile into consumer discretionary stocks once I saw default is now an encouraged practice in Cramerica.  My bad.

Bookkeeping: Selling Most of Wyndham Worldwide (WYN)

There is no specific technical reason to sell Wyndham Worldwide (WYN) and being one of our few consumer discretionary names, it has been an outperformer of late.  And a great stock for us the past 1 year+.  I've usually been able to trade around a core position in the name, buying on dips - selling when it pops but dips have become extinct. That said, with the stock up 30% in 2 months (and the last place we made a material purchase on Feb 5th) I am going to sell the majority of the position and just keep a 0.1% allocation.

If the market ever can pull back again, and stocks fall - I'll obviously buy back the allocation. Finally after thus huge run the valuation is making some sense at 15x forward 2010 estimate - reasonable for a hotel chain but at a huge discount to peers which are being valued on Internet 1999 valuations.

Long Wyndham Worldwide in fund; no personal position


Chinese Quest for Resources Making Billionaires of Some Australians

Quite a fascinating story on Bloomberg ... right place, right time, right land ownership - and you too can make hedge fund type of wealth.   [Jun 13, 2009: Australia in Perfect Position Aside China, but at a Cost?] On a broader scale, this once more shows China's very long term planning - just as they partnering with countries in Africa (we'll build out your infrastructure in return for access to natural resources) [May 13, 2009: Commodities - It's China's World: We Just Live in It] , the country obviously does not like the oligarchy of the major miners (VALE, BHP, RTP) and is essentially trying to create their own (Chinese backed) competitors... it will take many years, even if successful. [Dec 15, 2009: China's Economic Power Unsettles Neighbors]
  • Zeljko Zaic, a leathery-skinned surveyor at a Chinese- backed mining company, stands atop a sun-scorched ridge in the Australian Outback and kicks a lump of red iron ore lying on the trail.   “One day soon this will be part of someone’s house in China,” he says. 
  • In only five months, this 1,900-square-kilometer (734- square-mile) stretch of semidesert and salt lakes in the midwestern region of Western Australia has been transformed from a desolate habitat for kangaroos and bush flies into a base for the next wave of the nation’s mining boom.  Australia’s Gindalbie Metals Ltd. has joined with China’s Anshan Iron & Steel Group to build a A$1.8 billion ($1.65 billion) iron ore mine. The project includes a nine-story processing plant, a township of air-conditioned homes and a pub, restaurant and cricket pitch for 1,500 workers
  • Fueled by China’s appetite for minerals, about 50 publicly traded mining companies, many with market caps of less than A$2 billion, are spreading out mostly in Western Australia, a region four times the size of Texas with a population of just 2.2 million. Chinese investors, mainly state-owned steelmakers, have funded at least 20 of these outfits as part of Beijing’s move to reduce its dependence on Melbourne-based BHP Billiton Ltd., the world’s biggest miner, and Rio Tinto Group, the No. 2 iron ore exporter. 
  • The shares of eight Chinese-backed iron ore companies skyrocketed as much as 15-fold from 2005 to 2010, turning a handful of entrepreneurs into actual or aspiring billionaires. “It’s been life changing for some of these people,” says Tim Schroeders, who helps manage $1 billion, including mining shares, at Pengana Capital Ltd. in Melbourne. “It would have been a pipe dream 10 years ago to think you could compete with the world’s biggest mining companies.” 
  • “China is giving us the ride of our lives,” says Colin Barnett, premier of Western Australia. “There are risks and uncertainties, but it’s a ride we have got to take.”  
  • The Chinese government asks its companies to acquire strategic natural resources,” says Deng Qilin, general manager of Wuhan Iron & Steel Group Corp., which invested in two small Australian mining companies in 2008. “We are not saying we must take a controlling stake. We like any form of investment so long as we get the resources.” 
  • Last year, state-owned Hunan Valin Iron & Steel Group paid A$1.3 billion for a 17.3 percent stake in Fortescue Metals Group Ltd. The company was founded in 2003 by Andrew “Twiggy” Forrest, 48, who grew up on an Outback cattle ranch as the great-grandnephew of a 19th-century Western Australian explorer and state premier. Perth-based Fortescue, which makes almost all of its revenue from exports to China, earned A$508 million in the year ended in June 2009.  Forrest’s worth grew to at least A$4.7 billion as his company’s shares soared 1,200 percent in the five years from March 2005, giving it a market cap of A$14.8 billion. 
  • Forrest told Bloomberg Television on March 19 that he was studying plans to raise as much as $8.9 billion to help lift annual production to an eventual 260 million tons from the present 40 million. Four days later, Forrest told a conference in Perth that Fortescue was prepared to sell stakes of more than 50 percent in some of its lower grade iron ore projects in Western Australia to overseas steel mills. These projects include a joint venture with Baosteel Group Corp., China’s second-largest steelmaker, that the company said is about to begin. 
  • Paul Kopejtka has both battled and collaborated with Chinese investors. A coal miner’s son from Western Australia, Kopejtka, 42, earned a chemical engineering degree from Perth’s Curtin University before founding Murchison Metals Ltd. in 2004 and selling shares a year later. In 2009, Sinosteel Corp., China’s biggest iron ore trader, outflanked Murchison in its bid to buy Midwest Corp. Sinosteel paid A$1.4 billion in a hostile takeover of Midwest.  “It’s like a big chessboard, and everyone is jockeying for position,” says Kopejtka, who aspires to become a billionaire. Shares of Perth-based Murchison have soared 12-fold to A$2.65 since March 2005, making Kopejtka worth A$60 million. 
  • Clive Palmer, 56, a law school dropout, became a billionaire investing in real estate and mining. This year, he plans to sell shares in his Brisbane, Queensland-based Resourcehouse Ltd., a company with iron ore and coal reserves. Palmer hopes to raise $3 billion -- highlighting how the rewards of doing business with China have so far exceeded the risks entailed in riding the dragon. 
  • Six Chinese companies and their Australian partners are also setting up operations in the midwestern region, a new, mostly magnetite-mining frontier in Western Australia 1,000 kilometers south of the Pilbara. In the midwest, Karara Mining Ltd., the joint venture between Perth-based Gindalbie Metals and Anshan Iron & Steel, aims to start mining hematite and magnetite beginning next year. Unskilled workers can earn with overtime as much as A$140,000 a year. Foremen can make A$200,000.  “Thank God for China,” says Dionne Drew, 43, a Karara safety officer. “Where would we be without them?”

Aside from the Malthusian (potential) risks [Mar 24, 2008: WSJ - New Limits to Growth Revive Malthusian Fears] [Jun 20, 2008: World Population to Hit 7 Billion by 2012], China also does not like the control these mining companies have to set prices....
  • Australia is China’s top supplier of iron ore, providing it with 43 percent of its imports, according to data compiled by Bloomberg. BHP and Rio Tinto control more than 80 percent of the Australia-China iron ore trade.    Iron ore spot prices more than doubled to $147.50 a metric ton on March 25 from a year earlier, according to the Steel Index.
  • Smaller companies face huge hurdles in competing against the mining giants. BHP and Rio Tinto, who trace their history back more than 100 years, occupy the best mining leases in the Pilbara. The hematite ore they mine needs only to be crushed before being loaded onto trains and ships. When the ore gets to China, it can often be fed directly into steelmaking furnaces without processing. 
  • BHP and Rio Tinto have another advantage: In the Outback, where there are few roads and train tracks, the mining giants built their own railway and port for their exclusive use.   In 2008, Fortescue became the first of the smaller iron ore mining companies to construct its own rails and port after spending five years and part of A$2.8 billion on the project.
  • Smaller companies are at a disadvantage because many of the remaining mining leases are for lower-grade ore, including magnetite. It contains less iron than hematite and needs more costly processing
  • Citic Pacific Ltd., the Hong Kong unit of China’s biggest state-owned investment company, paid $200 million to Australian entrepreneur Clive Palmer for the rights to mine 1 billion metric tons of magnetite. Citic is now spending a total of $4 billion on several projects, including a 450-megawatt power station to process 28 million tons of the iron ore annually. The company also has to construct a 51-gigaliter (13.5 billion- gallon) desalination plant and a 25-kilometer (15.5-mile) slurry pipeline to transport the processed ore from the mills to a custom-built port. 

End game?
  • China is positioning itself to play a major role in the next generation of iron ore miners,” says Hambling, who helps manage $300 million. “In 5 or 10 years, I don’t think Rio Tinto or BHP will be in as commanding a position as they are in now. There will be a fourth and fifth force in mining.”
And making some billionaires along the way....

    [Oct 14, 2009: Finacial Post - Australia Still Hopping]
    [Nov 11, 2009: China Continues Expanding "Infrastructure for Resources" Policy with Agreement in Malaysia]

    Monday, April 12, 2010

    Bookkeeping: Weekly Changes to Fund Positions Year 3, Week 36

    Year 3, Week 36 Major Position Changes

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

    Cash: 62.2% (v 70.6% last week)
    19 long bias: 33.5% (v 24.6% last week) [includes 1 option position]
    2 short bias: 4.3% (v 4.8% last week) [Includes 1 'long dollar' position]

    21 positions (vs 21 last week)

    Weekly thoughts
    More of the same... US markets were up for the 6th straight week and 7th out of last 8.  Volatility was low, volume was low, and the market has not a care in the world as long as the time to raise rates is kicked out another 6 weeks every Fed meeting.  It all has a robotic feel to it, such little emotion now.  Simply buy any dip if only for minutes in length - be rewarded within 4 hours.   Further, it has really become a 3.5 day week at this point.  We noted some 5 months ago the strange pattern on Mondays (they had been up something 8 out of 9 weeks at the time) and despite the swoon in markets in mid Jan to mid Feb the pattern mostly continued.  Now it has become near religion that the market will be up Monday so traders position for it... which means the back half of Friday has now become a positive time as people pile into the "can't miss" trade.  That leaves 3.5 days for normal operations.

    The Monday miracle reminds me the 3:30 PM miracle we saw through much of 2009... people always anticipated a strange upward movement that had a high degree probability of happening in the closing 30 minutes so traders kept piling in anticipating it day after day.  The patterns change but these repetitious things keep occurring in one form or another.  Rarely have things to telegraphed to the market, continued to work for so long... a bit boggling.  At this point one just has to play along realizing one day it will end badly and one will lose money when it happens.  But everyone's game plan is to try to make as much money before then, acting like Pavlov's dog.

    No need to post charts at this point, they look the same as they did 5 weeks ago, 3 weeks ago, and last week.  The S&P 500 has not penetrated even the 6 day moving average on a closing basis in nearly 2 months.  Until it can even make traders sweat one bit by falling below the 10 day, there will not any flinching. The only point I will highlight is since March 2009 there have been 3 corrections, all generally 8-9%.  We are now approaching 9.5% away from the lower of the 2 major gaps on both the S&P 500/ NASDAQ charts - so with a little more upside, when this gap eventually fills it will be our first 10% correction of this rally.


    The economic news front is relatively busy this week but at some level none of it matters anymore - everyone is fixated on employment and since we are going to get 400-500K+ type of job "growth" the next few months as census workers flood into the US, the rest seems irrelevant.  Certainly the market has brushed aside any worse than expected news for weeks on end.   The only reason to care at this point is sometimes the economic reports cause a 4 minute selloff which allow you to "buy buy buy" at huge discounts ...sometimes up to 0.3% off.

    More important this week will be earnings reports; at the front end (first 2-4 weeks) are S&P 500 multinationals and as I've opined many times we are now in the age of the global corporation.  They can arbitrage their labor costs and governments the world over are supporting their nation's spending so it's a great time to be a corporation, the bigger the better.  The only question is how much of the earnings beats are already in prices - only when markets sell off on good news can we assume they are ready to retreat.

    As for economic data:

    Tuesday: Import and Export Prices... not that key to market but let us begin to watch import prices for signs of inflation.

    Wednesday:  (a) Consumer Price Index - the way our government reports it, there is almost never any inflation in America, and when it appears its isolated and explained away since food and energy doesn't count.  Neither does healthcare, or tuition.  Honestly CPI could go to 20% and Ben would not care at this point. (b) Retail sales - we already know this will be 'better than expected' and should be until analysts get their head out of their behinds.  Look analysts - huge swathes of Americans no longer bother to pay their mortgages, please go and sit down and multiply 5-6M mortgages not being paid x average American mortgage payment and reverse engineer it to figure out why you are constantly shocked... it's not that hard.  At this point the WORST thing for the American economy is for foreclosures to stop - it's one of the main economic drivers now. (c) all types of Fed heads speak Wednesday (Lacker, Warsh, Fisher) - one will certainly say something empty about "caring about inflation" while the rest reassure the markets that easy money will be here for a long time.

    Thursday: Industrial production and 2 lesser business surveys - Empire State & Philly fed.

    Friday: (a) Housing starts - again it does not matter; the great majority of housing data has been disappointing the past 2 months and the market doesn't care much.  Plus seasonality should begin to help these figures. (b) Consumer sentiment.

    I will continue to keep a close eye on any producer inflation reports... in 2008 once steel and oil broke to the upside we saw massive stress in the system [May 23, 2008: Smaller Asian Countries Begin to Buckle Under Oil] [May 17, 2008: WSJ - Fast Rising Steel Prices Set Back Big Projects] - the market ignored it for a while and then finally buckled (along with a minor thing called the worst financial crisis in our lifetime).  Obviously oil is jumping - I am getting my first questions this weekend of "why is gas near $3 when the economy is horrid" - but that seems to only be a Michigan problem, because I tell these people the economy is roaring in the rest of the US.  And iron ore and met coal prices are jumping which is going to put steel producers in quite the spot - either they eat the majority of these price gains which will destroy their margins or they try to pass along to the supply chain.   Much like early 2008 the market could care less about these issues today... it only matters when in matters.  And government data sure is not going to help us - we'll have to see what the company's who use these raw inputs say in the coming quarters.


    For the portfolio, I am completely lulled into complacency as the siren's call to "buy buy buy" catches me.  Valuations in some of these sectors are reaching insane level and some stocks are up 50%+ straight but people are still being rewarded.  As is always the pattern with the human lemming everyone is confidant they will find a chair when the music stops - but for now everyone keeps dancing with DJ Bernanke pushing us through a non stop party ... an orgy of sorts.

    On the long side I restarted home builder Lennar (LEN) even though truthfully I believe the housing market 'rebound' this spring will disappoint.  But a lot of this depends on rates - if mortgage rates head to 5.5%+ I think the US is especially cooked, so watch that 10 year bond... the country is addicted to easy money and can no longer even handle 6% mortgages.  Thus far, LEN has done nothing for us. I cut back half of Massey Energy (MEE) after the mine disaster struck... thus far the stock sold off sharply for 2 days before a dead cat bounce Friday.  It still sits below the 50 day so I might punt it this week and redeploy into a name without such a dark cloud overhead. I sold half of Indian bank HDFC (HDB) simply because it's had quite the run - that has not been a good reason to sell anything since stocks are now breaking out on top of old breakouts but I am hoping some of the laggard names take the baton from the big runners.  Indian stocks are up an astounding 9 weeks in a row!

    I bought some SPY Index calls Friday afternoon because I am now a robotic lemming just like the rest - late Friday are up, in anticipation of Magical Mondays.  Funny how people use to pare risk going into a weekend, now no one has fears... the only things that can happen on weekends are Chinese economic data or bailouts... it's all good.  Again, as mentioned above - this one day will blow up in people's face but by historical standard it should have blown up long ago since everyone sees it.  Either way, these SPY calls could be gone Monday as the anticipation of Greece being handed a gift has now come to pass... we'll see how the day goes.

    On a side note - I am also disappointed in performance of Diamond Offshore (DO) since purchase the week previous to last.  In fact, almost all the drillers really underperformed last week as HAL9000 switched into E&P names... grrr, wish I knew the algorithm.

    On the short side I bought back into the exposure against US bonds, but auctions went reasonably well last year and it might be dead money again for a while.   I was stopped out of AsiaInfo Holdings (ASIA) late Friday for a loss; the stock jumped another 3.2% Friday so it saved us some skin.  I also noticed this weekend it reports Monday so all for the best as I don't like to be heavily involved with any stock about to be exposed to lemmings' over reactions.

    Sunday, April 11, 2010

    Updated Position Sheet

    Cash: 62.2% (v 70.6% last week)
    Long: 33.5% (v 24.6%)
    Short: 4.3% (v 4.8%) [long US dollar positions are considered "short"]

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

    [click to enlarge]

    LONG (1 photo file)



    Greece Offered $61 Billion in Standby Loans; Someone in the "Know" Already Profited

    Notwithstanding the fact that markets have rallied on

    1. A rumor of a potential bailout for Greece a few months ago
    2. Confirmation a bailout was being discussed
    3. A framework of the bailout version #1
    4. A framework of the bailout version #2
    And late Friday and most likely Monday, a more precise bailout.... it is almost sad to see the Greek problem go away being kicked down the road.  Each time we talk of more moral hazard the markets rally; at this point it seemed best to leave Greece hanging so we could get a new rally on a new bailout news item every 2-3 weeks...

    That said, investment banks who have close ties to global governments "smart money" already knew this late Friday.  (I cited it on the blog as well)  It is hard to find a good intraday chart of the Athens Exchange, but I cut and paste what was available from the exchange website below... as you can see, the "smart people" got whiff of the news as a market that was doing nothing all day, suddenly spiked 3% in the closing hour.

    Once again fellow peons, the stock market is all about analyzing, PE ratios, profits, and homework.  It has nothing to do with having the right people placed in the right places to take advantage of all the information leaks... nope, not one bit.  Will anyone look into this to see who profited? Nah - it was just a random walk down Wall Street as Mr. Malkiel would say.   Wonderful "analysis" by a few oligarchs I am sure.

    Anyhow, back to the news Goldman Sachs & JPMogan knew Friday at about 2 PM (allegedly)
    • European governments offered debt- burdened Greece a rescue package worth as much as 45 billion euros ($61 billion) at below-market interest rates as they try to end its fiscal crisis and restore confidence in the euro. 
    • Forced into action by a surge in Greek borrowing costs to an 11-year high, euro-region finance ministers said they would offer as much as 30 billion euros in three-year loans in 2010 at around 5 percent. That’s less than the current three-year Greek bond yield of 6.98 percent. Another 15 billion euros would come from the International Monetary Fund
    • With the euro facing the sternest test since its debut in 1999, the 16-nation bloc maneuvered around rules barring the bailout of debt-stricken countries, aiming to prevent Greece’s financial plight from spreading and to mute concerns about the currency’s viability. Germany also abandoned an earlier demand that Greece pay market rates
    • “This is a huge amount,” said Stephen Jen, managing director at BlueGold Capital Management LLP in London and a former IMF economist. “This is more than a bazooka. They have gone nuclear on the issue of Greece. In the short run the market is short Greek assets so we’ll get a rally in those.” 
    • The teleconference of euro-region officials, which included European Central Bank President Jean-Claude Trichet, left open was how much Greece might need in 2011 and 2012, the final years covered by today’s decision.

    Friday, April 9, 2010

    Gold (GLD) on 7 Day Rally Touching 2010 Highs

    The flood of liquidity is washing over everything - all assets are rising in wonderful harmony, even gold which has been lagging this year has now joined the party.  The other precious metals (silver, platinum) are singing in tune as well.

    (please note I am showing GLD ETF rather than gold itself, since the commodity chart is not real time)

    What I love seeing the past few weeks are things like oil rising and airlines rising right along with it - even as their top variable cost crunches potential profitability.  No problemo - these banks need to stuff their 0-0.25% money somewhere since the real economy doesn't need much of it.   Buy it all, Monday awaits... 52 week highs in airlines as oil goes to $190 surely is a sensible event awaiting January 2011.

    Everyone into Bernanke's Ark... the floods are here.  Can't wait to hear his Congressional testimony in 2019 on how none of the misallocations of capital were his fault...

    Long DB Gold Double Long ETF in fund, no personal position

    Muriel Siebert: American "Public Does Not Have Faith in the Marketplace"

    Investment legend Muriel Siebert with some common sense views of the stock market.  Apparently, a marketplace dominated by a handful of players who can "tilt" the board create liquidity to create 97-98% winning percentages [Nov 4, 2009: Goldman Sachs Q3 Winning Percentage: 98.4%], .... along with trading now dominated by thousands of automated trades in the time a human can bat an eyelash is not something she is very cool with.  I wonder what she thinks of trading huddles? [Aug 27, 2009: Goldman Sachs Trading Huddles] But really what does she know - she's only been around for 5-6 decades, and can't program an algorithm to cross reference 8200 variables at once, in an eighth of a second.  She probably even reads financial statements - old fashioned!

    We much prefer this new paradigm video game stock market.   A place which parallels a gambling hall where CNBC economic report countdowns akin to football pregame shows get our hearts beating, (5....4....3....2....1! Liesman time!)  and betting on one extra comma or change in phrase by the Fed, is part and parcel with the A.D.D. generation brought up on Zelda and Mario.  [Sep 9, 2009: WSJ - Vanguard's John Bogle, Warren Buffet Speak Out Against Short Term Nature of Markets]  Oh, and earnings season... where the value of stocks can fluctuate billions in seconds based on a Reuters headlines as gamblers make Baccarat decisions?  Company "ownership" via stock? Haha... only for 1/4000th of a second. 

    In a broader sense let us just keep repeating the mantra "Wall Street = Main Street" as that $700 in the ROTH IRA that half of Americans have in the market, showly clears the 'majority' of Americans own stock and are part of the "equity society". [Mar 9, 2010: Nearly Half of Americans Have Less than $10K for Retirement, a Quarter Less than $1K

    Either way, this market does not need small fry anymore.... with net equity outflows (that would be investors drawing OUT money) for the past year it has risen 70%+ so who really needs the individual investor anymore?  Just lend banks money at 0% and let them make risk free return - retail investors are so 1960s 1970s 1980s 1990s.  Can we blame Americans for thinking this has just became a great transfer of wealth machine the past 10 years?

    Via CNBC:
    • Wall Street veteran Muriel Siebert has seen her share of downturns, yet none has been quite like this.  “It has a different feel to it,” she said in an interview with CNBC.com. “We want a marketplace where people are going to take their retirement money and build up stocks for their retirement. They’re not doing it to the same degree anymore. I have customers who are sitting on cash in their accounts because they don't have the same confidence. Cash has lost its value in terms of creating income for them.”  (Bernanke: "You're welcome, American savers") [Mar 31, 2010: Bernanke Content to Sacrifice Savers to Recapitalize Banks and Benefit Debtors]
    • What scares me, disappoints me, the public does not have faith in the marketplace,” she said. “You don't see the same public trading that we've seen. We've got to get that back. Public investors are responsible for a lot of the success of this country.”
    • The banks were pigs,” she said. “A bank has an obligation for the public's money. Some of the things they were doing was outright gambling.”  (thankfully they learned their lesson since bad mistakes were punished... err, what's that Oh.)
    • Siebert faults a lack of transparency, particularly in derivatives and dark pools. While derivatives have a place in the markets, she said, they should be registered.  (but if things are not done in dark corners, how could we exploit the system....err, I mean "create liquidity")  “We used to have more transparency as to what was going on in the markets,” she said. “It was actual trading, so you could analyze it a little better. (ahhh, actual trading with some form of analyzing... those were the days - bestill my heart)  If you take a dark pool, you've got to have some transparency with what the trades are. Force them to put it on the tape when it happens; force them to identify short ticks.”
    • ....for public investors to return to equities, she said, global securities regulation is essential. Siebert recommends that the SEC and Federal Reserve hold a global meeting with their foreign counterparts to establish uniform securities and banking rules.
    • But regulation from Washington can only go so far, said Siebert.   “These people are passing laws and they don’t know the system,” she said. “Until you work in the system and you work with people that were specialists, and analysts, and portfolio managers, and people at banks—this is the financial industry— why don’t they have a team of people that are working in the system everyday?”  (we have teams of people - they work at agencies like SEC - but when your teams of people are mostly attorneys... and attorneys who are captured regulators, it really is a moot point.  Carry on.)
    • Born during the Great Depression, Siebert has witnessed economic cycles as a Wall Street trader and a bank regulator. She started her career as a $65/week trainee in research to become the first woman to hold a seat on the New York Stock Exchange in 1967. Today, Siebert heads Muriel Siebert & Co., her discount brokerage firm.

    [Sep 16, 2009: Mutual Fund Investors Cling to Safety of Bonds, Missing Stock Rally]

    [Video] Dylan Ratigan with Bill Fleckenstein & Alan Grayson; Greenspan says Congress is to Blame for His Interest Rate Policy

    Wonderful video by former CNBC maestro Dylan Ratigan - the only person on the network not named Rick Santelli whose sole thought is "how can government help me get my portfolio higher, damn the long term costs."  Greenspan enemy Bill Fleckenstein (whose warnings all came true eventually) is also in this clip (best hair on the planet) as is the only Congress person who apparently reads ZeroHedge, the sometimes wacky Alan Grayson. (While a huge fan of Ratigan and Fleckenstein, I don't know what to make of Grayson - but at least he makes Bernanke squirm at times)  [Oct 7, 2009: Dylan Ratigan - America Being Subjected to "Corporate Communism"] [Dec 26, 2009: Ron Paul with Dylan Ratigan]

    Speaking of easy money Al, a slight tangent:  Mr. Greenspan, after insisting for months that his low rates contributed not one iota to America's constant bubbles (which everyone has laughed at) now has switched excuses.  Now he says Congress essentially forced him into low rates to keep the housing party going... can you believe this guy?  So much for the mandate of price stability and full employment ... I must of missed the part of "keep housing bubble going under Congressional pressure".  The one point of truth is he finally admitted the Fed is not really independent....
    • Former Federal Reserve Chairman Alan Greenspan chastised critics on Wednesday by pointing out that Congress pushed the U.S. central bank to make sure lending to poorer Americans kept rising in the 2000s.
    • "There's a presumption that the Federal Reserve's an independent agency, and it is up to a point, but we are a creature of the Congress and if ... we had said we're running into a bubble and we need to retrench, the Congress would say 'we haven't a clue what you're talking about'," Greenspan said.


    This 12 minute video is a good introduction to what the heck is going on this country for your friends who find all this financial stuff difficult to understand.  I only hope Dylan is not removed from the GE (soon to be Comcast) family, since he seems to be one of the only guys left who doesn't say "all the sins of the past are ok & no changes need to be made since the stock market is now up 392 of the past 467 days".

    (email readers will need to come to site to view)   Pass it along....

    (h/t ZeroHedge)

    1.2 Million American Households Lost in Great Recession - Through 2008

    While we have discussed this trend in 2008 [Jan 16, 2008: Interesting Human Economic Toll Piece in NYTimes] as the stock market was not too far from all time highs and "everything was peachy"....

    One consequence is an upending of the traditional pattern, in which middle-aged children take in an elderly parent. As $15-an-hour factory jobs are replaced by $7- or $8-an-hour retail jobs, more men in their 30s and 40s are moving in with their parents or grandparents.

    ....and 2009 I've never seen it quantified, hence this quite remarkable statistic below is quite interesting.  As bulls wonder why housing has not rebounded, even with generational lows in (Fed induced) mortgage rates AND home affordability - it appears much of the answer is quite obvious.  Through 2008 (vs 2005), 1.2 million American households have simply vanished - despite the annual population growth.  I wish I had data for the late 70s / early 80s which (in these eyes) is the only comparable recession post WWII, to see what sort of shrinkage the US experienced then - but we are definitely seeing some amazing things in the underlying economy.  The formerly always mobile American has been unable to migrate to the jobs (mostly centered around Washington D.C. nowadays) [Dec 24, 2009: Recessions Alters Migration Pattern in the U.S.] [Apr 23, 2009: As More Homes Fall Underwater, Trapped Americans Cannot Migrate].... many are sticking in marriages because they cannot afford divorce [Apr 8, 2008: Recession Causes Relatives to Move in Together & Sharp Drop Off in Divorces] .... and it appears well over a million former households [and counting] have withered away, leaving countless bachelors living with mom and dad again even at the ripe age of 35.  (data only through 2008, 2009 surely increased these trends)

    But let's stop all this unhappy talk.... we have to view EVERYTHING in Kool Aid glasses (i.e. if aliens came to Earth and destroyed every building except for the Fed. you would want to buy stocks \as it would be bullish since it would mean low rates for an extended period), so let's give the bull case:

    "That's 1.2 million extra households that will soon be buying houses as economic recovery sweeps the nation!  Boo Yah!" 

    Or another tact: assuming some proportion are moving in with family at "rent free" or "much lower than they used to pay in mortgage or rent" that frees up money to go shopping, which is the main driver of the US economy.  In that case, just imagine how great the economy COULD BE if we can shrink households by another 20%?  40%? Put every American under 1 roof? (gulp, gulp....mmm, Kool Aid) 

    Via CBSMarketwatch:
    • The number of American households dropped by an estimated 1.2 million between 2005 and 2008, even though the population increased by 3.4 million in 80 of the largest metropolitan areas during that time, according to a new study by a professor at the University of Southern California.
    • More young people are living with their parents instead of moving out, postponing the creation of their own households. Meanwhile, more families are combining households for economic reasons, including the loss of a home due to foreclosure, according to Gary Painter, associate professor in the School of Policy, Planning and Development at USC. 
    • The decline in the number of households contributed to the excess supply of apartments and single-family homes on the market.
    • Also, the recession caused a five-fold increase in the rates of overcrowding, he said. A household that has more than one person per room indicates overcrowding.  (that might be even more remarkable... oh well, living 2 in a room allows for more clothing purchases and the ability to maintain that service bill for the iPhone. Priorities!)
    • While the analysis incorporates data only through 2008, Painter said the decline in household formation likely continued through 2009. "Clearly, given the depth of the downturn in 2009, and the ongoing weakness in the job market through the beginning of this year, this study gives no reason to expect that household formation has picked up at all," he said.
    Here is the real reason housing is not rebounding... the long term rate of home ownership is 65%.  By doing all sorts of stupid things we were able to get this rate up an additional 4%.  That +4% has helped caused an international financial disaster.  (a small price to pay to keep the ponzi economy going for a few more years, right Ben Greenspan? Or is it Alan Bernanke?)  But even now, after years of carnage we are still ABOVE the long term ownership rate... stuck at 67%.*  Which is why the FHA has to do almost all the same stupid things the private sector was doing just to maintain status quo.   Also keep in mind part of this 67% are what I will call faux homeowners - they put little or nothing down, and no longer bother to make payments.  So what's the true home ownership rate if we excluded millions of squatters?  It doesn't really matter, since squatting is now a strategy by large amounts of Americans.

    *only in America is 0% down, with seller based financing, using option ARM loans called "ownership".
    • The national homeownership rate has fallen to just above 67%, from above 69%. Renter household formation dropped even more than the formation of homeownership households.

    Fun snippet....lack of financial education in US public schools ---> working like a charm.
    • Native-born Americans showed a larger decline in household formation and a larger increase in overcrowding rates than immigrants.

    MSNBC does the same story with a more human interest angle...  again showcasing the 'underemployment' angle in America.  I encourage Mr. Brown to give up his old school entrepreneurial spirit (private sector work stinks, you actually have to take risks that can backfire)  and instead take a job with government - pay is great, benefits wonderful and job security immaculate.  Stop trying to create your own way, Mr. Brown - the state is here to offer you its teet.  Take it!
    • Since Richard Brown lost his job to the recession and his Boston home to foreclosure a year ago, he’s been working short-term consulting assignments until he gets back on his feet. In the meantime, he’s been “couch surfing.”   “I’ve lived with my brother, my cousin, my friend and my dad,” he said. “The IRS keeps calling me, asking me: ‘What’s your address?’ And I say, ‘What week is this?’”
    • Armed with college degree and an MBA, Brown, 49, built a solid resume over three decades as a corporate controller for several Fortune 500 companies, including W.R. Grace and Wal-Mart, (big mistake... I don't see even 1 federal agency on his resume) before launching his own global consulting business with clients in Europe and Mexico. But when the Panic of 2008 sent clients scrambling, he was unable to keep up with a jump in his mortgage payments and lost his home to foreclosure.
    • ...renters also have been forced to double up or move in with friends or family. That’s a major reason that the vacancy rate for U.S. apartments stood at 8 percent in the first quarter, the highest level since 1986, according to a report this week from Reis, a real estate research firm.
    • There are currently some 5 million homeowners that are 90 days or more past due on their mortgages  (rent free and loving itIt's mall time! Daddy needs a new iPad!)

    As for Mr. Brown?  Welcome to the 'recovery'....
    • He recently move into a rooming house where he continues to track down consulting work.  “I pay $600 for a third-floor room that gets hot in the summer,” he said. “It’s a blow. I don’t belong here. I’m an educated person. I’ve held executive positions. And here I am in a boarding house where Russian is a first language.”

    Markets Bearing Down on 6th Straight Up Week as Dow 11,000 Beckons

    Barring an atypical selloff in the closing hours, US markets are poised for their 6th straight up week, and 7th positive week out of 8. 

    Since almost every Monday the past 8 months has been up, the market now has a head start every week since it's really a 4 day week, with Monday being up 90%+ of the time.  Hence those other 4 days need to be negative simply to offset Magical Mondays.   This pattern of course leads giddy buyers to pile in late on Fridays knowing they are bulletproof.   This reminds me a lot of the "3:30 PM" effect we saw much of 2009 ... when, almost without fail, the market would stage a rally in the closing 30 minutes of the day - regardless of the actiont the first 6 hours.

    (once again, I'll say what used to happen is when EVERYONE notices a pattern the market would reverse and quash those who became complacent playing it... this seems to no longer be true in the new paradigm market)

    Greece has been an issue all week, with spreads on debt blowing out to levels higher than BEFORE the IMF/EU "we have a bailout planned, but just don't have specifics"... with the Athens market flat all day and then exploding higher 3% in the closing 15 minutes of the day it looks like Bailout Planet might occur this weekend.  Which of course will lead to a positive market Monday..... it's all circular.

    All we are waiting on is a silly psychological level of Dow 11,000... upward and onward to all time highs.  But in such a slow fashion there are not even index trades to be had.

    There really is not much more to discuss with the market - all (tiny) dips, even if they last 30 minutes, must be bought... selloffs are to be 0.3% or less in nature although once in a while we'll allow 0.5%, Mondays are up at a 90% rate, which means Fridays are now to be almost always up as traders pile in for the "can't miss" trade.  Greece will be taken care of this weekend - we promise.  And if not, ignore it anyhow because it's old news.

    Updates: 6 day moving average 1185ish.  Distance from gaps - 5.1% from S&P 1124, 9.5% from S&P 1078.  Please note we have not had a 10% correction the entire rally since March 2009; 9% has been the max.


    Bookkeeping: Stopped Out of AsiaInfo Holdings (ASIA) Short

    At this point the only game in trying to short anything is "over / under" i.e. how many days it takes before one gets stopped out of a reasonable stop loss.  I am going with 5.

    AsiaInfo Holdings (ASIA) looked like it wanted to fill that gap as it broke support on March 24th.

    The very next day the stock reversed ... after closing below support the previous session - so already an ominous sign.  After that - just a bunch of sideways action & with the market unable to selloff for more than 3-4 hours at a time and not in any capacity over 1%, the stock finally broke back above my stop loss in the closing moments of yesterday's trade. 

    Another loss for the short side...

    The trade could still be pursued but for a low risk entry one would look for a price below $26 to remount.

    No position


    Wednesday, April 7, 2010

    Stick Save

    I know, I know... it was strange there for a moment.

    It appears between the hours of 1400 and 1525 sellers detached from the Matrix in quadrants 6h, 18c, and 32n.  Our sentinels tracked them down and they have since been quashed.... as was seen in the closing 30 minutes of the day.  Sorry for the inconvenience.

    Of course volume surged during the selling as humans were allowed to be part of the game for an hour, which is the only time we see any real volume anymore.  Otherwise we just drift ever upward on little volume as automated trades dominate.

    Both the 5 day and 6 day exponential moving average held at the end of the day and really that's the only thing that matters. Back to your normally scheduled melt up.  Premarket futures have been down 2 days in a row... this is unacceptable.  Time to get one of those nice +0.3%+ premarket's tomorrow. 

    Larry.... we're sorry and still love you. (ok not really... but do your job)


    Could Larry Summers Be Leaving?

    I found the reason for the selloff - it appears Larry Summers is throwing a temper tantrum and took his finger off the "buy SPY futures" button at any sign of weakness.

    Rut Roh Raggy - looks like Larry's ego is being hurt and he doesn't want to play house anymore.  Obama and Timmy Geither [Oct 15, 2009: All of Tim Geithner's (Wall Street) Men]  are apparently in a bromance and Larry seems to be the third wheel.. Widely thought to be biding his time for the Fed chairmanship, once a knife was inserted in Bernanke's back ("Et tu, Larry?") obviously that plan did not work out. 

    Stifling proud old men who care about the country (Paul Volcker) [Jun 26, 2009: Bloomberg - Paul Volcker Marginalized; Major Push Back on Curbing Excess. Our Life of Financial Oligarchy Does not Change] can only be entertaining for a man of such prodigious ego for so long.  Using his wealth of knowledge on how to make HAL9000's across the globe work in concert from his days at quant hedge fund DE Shaw [Apr 6, 2009: Larry Summers - No Conflict of Interest; He Pinkie Swears] to make good on President Obama's March 2009 "I think it's a really good time to buy stocks" (wink wink) has more or less run its course.

    So now what? I know the optics would be terrible but a "thank you for your service to our oligarchy" advisory position at Goldman Sachs (GS) or JPMorgan (JPM) would be the only fair thing.  But even Larry probably knows going directly from White House to the financial oligarchy (without stopping at another position first for appearance sake) would be much too obvious.

    The most important question to markets....who runs point at the Plunge Protection Team once Larry goes?  Someone has to wake up early 4 out of 5 mornings to gun SPY futures.   [Mar 18, 2010: (Video) Scott Bleier - Behold the Zombie Market]  Or make sure to hit the "buy buy buy" button each time the market swoons more than 0.5%.  Larry are you being naughty today?  Your petulance is legendary.

    (p.s. I never knew Mark Zandi had such sway in the White House... news to me)

    Via The Atlantic's Joshua Green (blog)
    • One angle in my recent profile of Tim Geithner concerned his relationship with Larry Summers, his former mentor and the director of the National Economic Council. I contend that Geithner, not Summers, has emerged as Obama's key adviser on financial matters, and that Summers isn't happy about it.
    • Since my piece appeared, the buzz that Summers is looking to leave--or is being pushed out--has picked up. Earlier today, my colleague Marc Ambinder wrote about this, defending Summers against his critics while leaving open the possibility that he may, indeed, leave. My own view is a bit less sanguine. I think Summers is going to leave sooner rather than later, possibly before the mid-term elections, and if not then, soon afterward.
    • Why? Because Summers is frustrated by his role, and his colleagues are clearly frustrated with him. Alexis Simendinger had a devastating item in last week's National Journal suggesting that Summers's "legendary self-regard" and "ego the size of the national debt" had gotten out of control.
    • Some of Summers's frustration no doubt stems from his wanting to be Treasury secretary. When that plum went to Geithner, Summers cast his eye on the Fed chairmanship and agreed to bide his time until Ben Bernanke's term ended at the NEC--a staff position well below his old job as Clinton's Treasury secretary.
    • Most administration officials tactfully avoid pointing this out, because Summers has a fragile ego. But that's why Joe Biden is so great. "How many former Secretaries of the Treasury would come in not as Secretary of the Treasury?" Biden blurted out to the New Yorker's Ryan Lizza last fall. (hahah!)
    • But Summers didn't get the Fed job either. Apparently that didn't sit well. Administration insiders told Simendinger that Summers demanded a series of perks as compensation, including cabinet status, golf dates with the president, and a personal car and driver. (translation: "waaaah! waaaah!!! wahaaaaahhhh!!!")  In the "No Drama" Obama administration, such behavior stands out.
    • And it isn't the first time Summers has been the target of leaks. Last June, only a few months into the administration, Jackie Calmes of the New York Times ran a Summers-focused piece on "tensions" in the economic team. A little later, Al Hunt wrote a column suggesting Obama was frustrated with Summers's poor coordination of the economic team. I heard the same thing from several sources, one of whom groused about the time spent "cleaning up Larry's messes."
    • Summers always seemed a bad fit for NEC director because the job entails dispassionately presenting the president with the counsel of his competing economic advisers. Summers doesn't do "dispassionate" and he didn't want to limit himself to fielding others' advice--he had plenty of his own to offer. In other words, he was supposed to be the referee, but he also wanted to play power forward.   This rankled other members of the economic team, including Austan Goolsbee, Christina Romer, and Peter Orszag, enough that they're widely presumed to be the sources of many of the leaks.
    • Summers maneuvered to sideline people like Paul Volcker, Joe Stiglitz, and even Orszag, behavior more characteristic of the Clinton administration than the Obama administration. Alter also reveals that Obama's nickname for Summers is "Dr. Kevorkian," which does not imply paternal fondness.
    • But what really makes me believe that Summers won't stick around is that all this Machiavellian intrigue has failed to win him what he wanted most: power. Summers gets plenty of presidential face time, but he's not the nexus of White House activity that everyone expected him to be, and that doesn't sit well according to the Summers associates I spoke with.  The hand-holding of anxious lawmakers that became an integral part of the NEC job under Summers's mentor, Bob Rubin, is being handled by another economist, Mark Zandi, a former McCain adviser.
    • If Summers's situtation is untenable, two questions arise: Who succeeds him at NEC? And where does he go next? I, too, heard--but, alas, could not confirm--the rumor that Rahm Emanuel has put out feelers for a possible successor.  (we could hope for Lloyd Blankfein or Jamie Dimon but that would simply be too good to be true)
    • I don't know what's next for Summers, and neither did anyone I spoke with. Fed chairman is out of the question, and contra the periodic blogger hyperbole, Geithner seems ever more secure at Treasury. A university presidency isn't going to happen. So a return to Harvard, Wall Street consulting and an FT column might be the likeliest option.
    • The natural time to leave would be after the mid-terms--but if Democrats get thumped, it might look like Summers got pushed out. The embarrassing leaks seem designed to bring about an announcement sooner rather than later, which might, in the end, be the best thing for all parties because it would inoculate Summers against a mid-term rout.

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