Wednesday, March 31, 2010

Think of the Bears as Cola ....

Gosh this market is beyond boring.  Every day is almost identical to the last - a movement in premarket, and first 20 minutes of the trading day.... and every so often a flurry in the closing 15 minutes.  Otherwise the S&P 500 sits in a tight range of 2-4 S&P points as 5 firms computers trade to each other, collecting rebates by the millions for creating liquidity.  A few months ago we noted the wards of the state - AIG, Citigroup, Fannie and Freddie were 40% of all volume... Zerohedge noted again we are back at that, with Citigroup alone now "25% of all volume". And that boys and girls is your new paradigm market. 

Despite this morning's "disappointing" ADP employment figures I still expect a blowout government payroll figure Friday because ADP uses private sector payroll data and hence does not benefit from make believe jobs that help to stoke "animal spirits" in the stock market via the birth/death model .[Jan 27, 2008: Monthly Jobs Report & Birth Death Model] (which of course are revised away quietly a year later), [Feb 3, 2010: US to "Find" Extra 825,000 Unemployed this Friday after Birth/Death Model Revised]  nor does it account for weather.  (remember, only Canadians can hire workers during snowstorms - it's not possible in the US).  And of course it does not include those census workers.  So I'm not worried about it, nor is the market.**  Garbage in - garbage out has been working for years, why stop it now?   [May 10, 2008: Finally Some Mainstream Reporters are Figuring Out the "Spin" from Government]

If humans were still the dominant species in the stock market, I'd assume a "sell the news" reaction could face us as "buy the rumor, sell the ("good") news" hits Monday (the market will be closed Friday) but I have no historical reference for the HAL9000 era. We did have a long run in 2006/2007 where the S&P 500 never fell more than 2% (I think it was about a year and a half) and in retrospect I guess this was the turning of the page of the new era.   The robots give us an almost emotionless market (only global economic calamity causing their sponsoring firms to deleverage seems to cause the circuits to malfunction), and as long as all the right algorithims are checked and every entity on the planet is backstopped, I guess we just continue ever upward (or sideways) .  Down is not an option unless it is intraday or -0.2%.

Think of bears as cola...

** based on income tax receipts which the US government SHOULD be using for employment rather than all the hocus pocus they use to justify their "fine tuning", it does appear the labor market is finally showing some actual growth.  Remember, we need 125K jobs a month just to keep up with population growth.


[Video] Tech Ticker: David Walker - US Standard of Living Unsustainable Without Drastic Action

One of our long time favorites, ex U.S. Comptroller General, David Walker has a series of videos on Yahoo's Tech Ticker.  In a testament of the leadership of the country, he left the position he long heldbecause he thought he could do more to affect change within government... by being outside of it.  One can only imagine what it must have been like to wake up every morning and bang one's head into a brick wall each day, trying to tell the spend happy sailors whose only purpose in life is job security and handing out favors to those who got them elected, that they need to think out longer than 1 election cycle.   But, knowing how few care about cost - benefit analysis, and are simply happy to keep enjoying government largesse (benefits without cost!) - I expect to be showing the same David Walker videos 5 years from now.  The debt figures in his movie I.O.U.S.A. [Aug 7, 2008: I.O.U.S.A. Movie Trailer] already seem quaint, and it's only 2 years old.  In America, until it gets to national emergency stage - please don't bother us with these ...these... facts, and figures. 


(I) U.S. Standard of Living Unsustainable Without Drastic Action, Former Top Govt. Accountant Says

President Obama might have signed the health-care reform bill into law last week, but the debate rages on. Opponents are gearing up for another attack on the the bill, partly because many of its provisions will be phased in slowly.

But the outrage over health-care really isn't about the actual bill, says our guest David Walker, former U.S. Comptroller General and head of the Government Accountability Office. "It was really more about the fact that government is out of touch and out of control."

Who will bail out America? A longtime budget hawk and currently CEO of the Peter G. Peterson Foundation, Walker says America's growing long-term debt is dangerously close to passing a "tipping point" that could trigger soaring interest rates and a plummeting dollar. In a worst case scenario, that could trigger a "global depression," he says, warning: "Nobody's going to bail out America."

With the U.S. facing $50 trillion in unfunded liabilities and around $62 trillion in total long-term debt, what worries Walker most is what happens after the recession dissipates, as detailed here. "I'm less concerned with the short-term deficits than I am the fact that we're not doing anything about those structural deficits that people used to call long-term," he says. "But the long-term is here."

What's ultimately at stake may be nothing short of Americans' faith in government and our standard of living. "There is a way forward. There is hope," Walker says. "But we need to actually make some tough choices."

(II) Bush Administration "the Least Fiscally Responsible in History," Budget Hawk Says

With the U.S. facing annual deficits of $1 trillion (or more) for the next decade, the recent sell-off in the bond market could be cause for alarm. Are foreigners finally calling Ben Bernanke's bluff? Is America the 'new Greece'? Have the deficit chickens finally come home to roost?

"Only time will tell," says David Walker, President and CEO of the Peter G. Peterson Foundation, which is devoted to promoting fiscal responsibility.

A longtime deficit hawk, Walker says a distinction must be made between short- and long-term deficits. The former is largely caused by the recession and will likely prove temporary, says the former U.S. Comptroller General and head of the Government Accountability Office.

"What threatens our future are the deficits that will exist when the economy is recovered, when unemployment is down, when wars are over and the crises are passed," Walker says. "That's what threatens the ship of state."

Specifically, Walker cites the $50 trillion in unfunded liabilities -- mostly for Social Security, Medicare and Medicaid -- which make up the bulk of America's roughly $62 trillion in long-term debt.
The hole is so gargantuan we cannot grow or inflate our way out, says Walker. He offers the following prescription, as detailed in a new book Comeback America:
  1. Re-impose tough budget controls
  2. Reform social insurance programs
  3. Constrain spending
  4. Reform the tax system in ways to raise revenue
As to which party or President is responsible for our predicament, Walker says there's "equal opportunity for critique."  The George W. Bush administration "arguably was the least fiscally responsible in history," Walker says, based on the swing in the federal budget from a $230 billion surplus in 2000 to a $1.2 trillion deficit in 2008.

"But the jury is out on the current administration," he says. "The numbers are shocking. Ultimately [Obama's] responsible now. He's got to come to grips with 'what are we going to do?' on his watch. We'll have to see what ends up happening."

(III) David Walker: Health Care Reform Savings "Misleading," But Not Double-Counted

Health care reform is now law but the arguing between Democrats and Republican over the costs is likely to last well into the November midterm elections.

The non-partisan Congressional Budget Office concluded the House version of the $940 billion bill passed into law would cut $138 billion off the federal deficit over the next 10 years. Republicans don't buy it and say the law will bankrupt the country.
Are the numbers to be trusted?

That's the focus of the accompanying clip with David Walker – arguably the most qualified person to answer these questions. As the former head of the Government Accountability Office and former Comptroller General of the United States Walker is intimately familiar with the fuzzy math lawmakers try to get away with.

One of the leading arguments over the reform bill was centered on the contention that it double counts some of the Medicare savings. Walker, the current CEO of the Peter G. Peterson Foundation, isn't sure it's double counting but is comfortable saying the savings the assumptions the CBO were forced to do their accounting from was misleading. "In reality the economic capacity of the United States is no different," he says.

Whether the health-care reform saves us money is unclear and will be determined by time, Walker contends. However, he's certain "government is bigger, entitlement programs have expanded, spending has increased and taxes are higher" as a result of the law.

Frankly, Walker believes there's bigger fish to fry before we get to the reform costs: There's "$50 trillion of unfunded promises -- of which $38 trillion or more is Medicare alone -- that we still don't know how we're going to keep,"

To better understand what that means for the average American family, Walker says, "the median household has a second or third mortgage equal to 10 times their income but no house backing that mortgage."

In a new book, Comeback America, Walker lays out a game plan to attack the problem, featuring these simple steps:
  1. Imposing a budget on how much the federal government will spend on health care
  2. Change our payment systems, our tax incentives and our taxpayer subsidies
The even bigger problem may be getting politicians to act on these unpopular but necessary ideas.


Previous Walker:
  1. [Jan 6, 2010: David Walker CNBC January 2010 Video]
  2. [May 23, 2008: David Walker on CNBC this Morning]
  3. [Nov 23, 2008: David Walker in Fortune Magazine]
  4. [Mar 26, 2008: Annual Spring Entitlement Warning Falls on Deaf Ears]

[Aug 24, 2009: Cumulative Deficit Estimate for Next Decade Increased by $2 Trillion.... Since May]

Ben Bernanke Content to Sacrifice American Savers to Recapitalize Banks and Benefit Debtors

Finally someone is speaking up on a theme we've been promoting for a long while - one of the many "arbitrages" currently going on in the US.  In this case, throwing America's savers under the bus, so that (a) any 4 year old may run a bank successfully simply by turning on the light in the morning [Apr 20, 2009: How Banks will "Outearn" their Losses] and (b) so that debtors may benefit.

What is sad to see is the potential for the desperate American saver - who has been hit by multiple Federal Reserve induced bubbles, being set up to have her monies swiped away yet again.  Many who have been hit by two stock crashes and a real estate crash - all within a decade's time mind you (3 Black Swans - what are the chances with a Federal Reserve gone crazy?) - now have fled into bonds.  [Sep 16, 2009: Mutual Fund Investors Cling to Safety of Bonds, Missing Stock Rally]  Why bonds?  Because they are "safe" and offer some yield over and above the (almost nothing) offered in saving accounts or CDs.  But safe is a relative term - interest rates and prices of of bonds have an inverse relationship.  At some point, rates will go up ... and prices of said bonds shall fall.  Which from my anecdotal discussions and readings on the intertubes - is going to be a shock/surprise for many of our savers who are simply trying to find any product that generate even modest returns over and above inflation rates.  Surely within 3-5 years we will be reading story after story of the individual investor "shocked" they have taken losses in their bond mutual funds. 

But no worries about that - the savers of America are here to subsidize the spending culture and to make sure our oligarchs are fed, fat & happy.  (remember who the Fed reallys "works" for)  All signals go. [Rhetorical questions - with all this "recovery" around us, why won't the Fed move off "emergency" levels of rates?]

Charles Schwab opines in the Wall Street Journal:

  • Today's historically low interest rates may be feeding banks' profitability, but they are financially starving our seniors.   In February 2006, when Ben Bernanke was first sworn in as chairman of the Federal Reserve, the federal-funds target rate stood at 4.5%. That same year, the average yield on a one-year certificate of deposit was 5.4%. A retiree who diligently saved for a lifetime and had amassed a nest egg of $100,000 could count on an added $5,400 in retirement income per year. That may not sound like much to the average Wall Street Journal subscriber, but for a senior on fixed incomes that extra money improved the quality of his life.
  • Today's average rate for an identical one-year CD is roughly 1.3%. On the same nest egg, that retiree will now get annual payout of just $1,300—a 76% decline in four years.   Some would argue that today's low inflation rate offsets the decline. But even at an inflation rate of zero, a 76% decline in spending power is painful. And we're already seeing signs of inflation this year.
  • To be sure, the country's recent financial crisis required unprecedented action by the Fed, including lowering rates to levels not seen in more than 50 years. In particular, the infusion of capital into the banking system through historically low fed-funds target rates pulled many banks from the precipice of collapse. By that measure it has been a resounding success.
  • Yet these unprecedented low rates have now been in place for almost 18 months. As a result, banks have enjoyed virtually free access to money while retirees have been deprived of any meaningful yield on their fixed-income portfolios. For a large segment of our population—people who worked long and hard, who followed the rules by spending less than they earned and putting the remainder away to keep themselves independent in retirement—the ultra-low interest rate is more than a hardship. It's a potential disaster striking at core American principles of self–reliance, individual responsibility and fairness.
  • To put the scale of this problem in context, consider the fact that more than $7.5 trillion in American household wealth is held today in short-term, interest-bearing products such as checking and savings accounts, retail money funds and CDs. At today's low interest rates, the return on those savings is hundreds of billions less than it would have been at 2006 interest rates. (and hundreds of billions directly to the bottom line of our oligarchs)  Retirees feel the consequences disproportionately, but because much of that income would have made its way into the economy, spending and job creation also suffer.
  • I see the pain that low interest rates have caused very directly. My company, Charles Schwab, serves millions of individual investors, many of whom are 65 and older. These people depend on cash savings for their financial well-being.   Many in this age group are being forced to stretch for income one of three ways. One is to take on more risk just as they are progressing through retirement. Another is to go longer in maturity with their fixed income investments, locking them into a situation where inflation will bite further into their principal and purchasing power. And the worst is the slow erosion of principal that is already occurring as people cash out of savings to make up for needed income.
  • It's not just retirees on fixed income we should be concerned about. Let's not forget that savers of all ages—even the young person opening his first savings account—need some incentive of future reward for saving. Today, there is none.

And that last sentence says just about all you need to know about national priorities.

China's Shanghai Composite Falls 5.1% in Q1 2010, 5th Worst in the World

It continues to be interesting to watch the selloff in Chinese shares shrugged off ignored, as for much of the past 3+ years the Chinese market has seemed to lead the US market by about 4-6 months.  That said, the Shanghai market is a very different animal from a normal exchange as it's a closed system without foreign investors so trying to put *too* much emphasis, on what amounts to a self contained casino, might be dangerous. [Oct 13, 2007: Shanghai the Mystical Land of Premium Valuations]

After a level of never before seen (as a % of GDP) stimulus in early 2009, [Feb 16 2009: Is China Pulling an Alan Greenspan?] some of that flew into the Chinese market. [Jun 29, 2009: China Business News - $170B of Bank Loans Funneled into Stock Market]  So with the Chinese now trying to seemingly slow down parts of their economy, this could simply be payback.
Chart wise, the past few days have brightened the picture on the chart after a long period of languishing - we'll see if this can continue.  Keep in mind Q3 2009 was also a poor quarter, so 2 of the last 3 quarters in China have been non too inspiring.

Via Bloomberg:
  • The Shanghai Composite Index lost 5.1 percent from January to March, the fifth-worst performer among 93 indexes globally tracked by Bloomberg, and the worst quarter since the three months ended Sept. 30, when the gauge fell more than 20 percent in August.
  • Stocks fell in the past three months after the central bank twice ordered banks to set aside more money as reserves to rein in record new lending. China’s inflation rate accelerated to a 2.7 percent pace in February, the fastest in 16 months, after food prices climbed and industrial production rebounded.
  • The market is worried that corporate earnings growth might peak in the first quarter due to the low base last year and rising costs,” said Wang Zheng, a fund manager at Jingxi Investment Management Co. in Shanghai.
  • “The biggest concern for investors has been the risk of inflation, of overheating and tightening,” Nicholas Yeo, head of China and Hong Kong equities at Aberdeen Asset Management, “That concern is still lingering. We’re not very bullish for this year because there are still risks.”
  • The Shanghai Composite’s retreat has sent valuations falling by 23 percent to 29.1 times reported earnings from last year’s high of 37.7 times in August, according to weekly data compiled by Bloomberg.
  • Earnings at listed Chinese companies probably rose 18.1 percent last year, Shenyin & Wanguo said in a report, reducing its earlier estimate of 20.5 percent. Net income will gain 27.2 percent in 2010, it said, paring the earlier 28 percent forecast.

Still not cheap at 29x earnings, but then again Shanghai was substantially higher than that last year.
  • China’s new lending fell in February from a month earlier after the unprecedented record expansion of 9.59 trillion ($1.4 trillion) in 2009. The government this month ordered 78 state-owned companies to exit the real estate business and raised the deposit requirement to increase costs for developers and cool the real estate market.

On the bullish side...
  • Hartford Financial, AMP Capital Investors, Martin Currie, JPMorgan Chase & Co. and Morgan Stanley are predicting a rebound for China stocks, citing the prospect the government will ease its tightening stance, the possible appreciation of the yuan, the introduction of stock-index futures and faster global growth.  
Stock index futures?  An instrument easily moved around in light volume by powers that be (allegedly)?  Something tells me brigther days are ahead for the Chinese market (of course with most of the upward moves coming in premarket and the first 10 minutes of the session) ;)

[Apr 3, 2008: NYT - To See a Stock Market Bubble Bursting, Look to Shanghai]
[Jan 28, 2008: Nikkei, NASDAQ, Homebuilders.... China Next?]
[Nov 1, 2007: PetroChina the 1 Trillion Dollar Company? Is *this* the Top?]

[Sep 1, 2007: The Growing Bubble in the Shanghai Index]
[Aug 28, 2007: China "A" Shares Bubble]

Monday, March 29, 2010

Boeing (BA) Taking Airliner Production Related Stocks on a Ride

I've been watching this move in Boeing (BA) for a few months in awe - this is definitely the definition of "cyclical".   On the plus side, this is one thing still made in the USA so any good news for Boeing is good news for the general economy.
  • The aircraft maker reported Q4 sales rose 42%, year over year, to $17.9 billion, yielding profit per share of $1.75; that was ahead of analysts’ average $17.6 billion estimate on the top line and way, way ahead of $1.36 on the bottom line.

The halo effect is now rubbing off on the entire industry as many suppliers are surging right along with the giant.  Today, Precision Castparts (PCP) - a stock that was on fire in 2007 - was upgraded by Goldman Sachs.
  • Goldman Sachs upgraded aerospace parts maker Precision Castparts to buy from neutral on Monday, citing renewed demand for commercial aircraft. "The commercial [original equipment] outlook has improved significantly as Boeing Co. and Airbus are now raising [production] rates, and Precision Castparts is a major beneficiary," the investment firm said in a note to investors. Goldman Sachs upped its 12-month price target for Precision Castparts to $153 from $136.

Titanium Metals (TIE) - along with RTI International Metals (RTI) are the "daytrader's / momentum trader's choice" to play the sector (hand raised) - and have been in an unrelenting move of late.  Once more it appears 2008 to early 2009 was just a dream sequence from 'Dallas' and we're right back to the good ole times.

Definitely a group I need to go back to blog inception and read up on previous posts on these names.

No positions

NYT: Daytraders 2.0 - Wired, Angry, and Loving It

A fun piece in the New York Times, especially interesting for those of us around for Daytraders 1.0.  As anyone who has been in the market a long time, you try just about everything once; I found daytrading to be the most stressful methodology even though you hold the positions the shortest amount of time.  Each time someone asks me "what style should I do?" my answer is simple - find what works best for you.*  Daytrading doesn't fit well for those with perfectionist tendencies.  Also, with the increasing dominance of algorithims I expect the game has become even harder in recent years than when I was trying it a long time ago.  The computers know the historical pattern, so it's very easy to go opposite to the pattern to stop people out, grab their shares, and then continue back in the original direction. 

*in the current market, any strategy works - we're all geniuses circa 1999 again.

Some snippets of a lengthy article:
  • REMEMBER the day traders?  They were hard to miss during the tech-stock mania a decade ago, when the Nasdaq seemed like a casino built by morons and a chimp with darts could pick winners. You would hear about these guys — nearly all of them were guys — and wonder: Could anyone make a living this way? And if the answer was yes, why were the rest of us suckers still holding down regular jobs?
  • Perhaps you assumed that the twin calamities of the Internet crash and the Great Recession had doomed the day-trader species in the unruly jungle of American capitalism. But some dreams refuse to die, and few, it seems, are more resilient than the dream of beating the market while wearing nothing but tighty-whities.
  • (Today's daytraders) are harnessing all the crowd-sourcing features of the Internet circa 2010: YouTube, Twitter, and companies like GotoMeeting, a Web conferencing service.
  • They are also harnessing a lot of market-related rage. The gruesome stock plunge of late 2008 and early 2009 was a searing, fool-me-twice moment for many people. The market again seemed hopelessly treacherous, a mug’s game.
  • It is hard to say how many day traders are currently plying their craft, if that is the right word, in this country. Brokerage firms track the activity and demographics of their customers, but they have been reluctant to share that data. About the most we know is that the day traders skew male, and the number of trades per $100,000 in client dollars is a little less than half what it was back in 2000, according to the Charles Schwab brokerage firm.  Even that figure seems high.
  • Many of the new day traders are people who recently lost jobs and can’t find work.  “They’ve got a severance package or a nest egg that they want to invest themselves.” (not a recommended adventure for those just 'starting out', as the market does a great job of stealing your money the first few years)  “It’s not impossible to make money actively trading,” Mr. Barber continues. “There are slivers of people out there who are quite good. And everyone thinks they will be in that group of 1 percent.”
  • “There’s an adrenaline rush. And the thing about day trading is that it gives you pretty quick feedback. If you buy and hold, a lot of things need to happen before you see a result, and much of what happens relates to external factors that are beyond your control. With day trading, you’re in charge.”
  • Mr. Gomez says that day trading has become far trickier in recent years because of the rise of robo trading — the use of computers to automatically buy and sell huge numbers of shares in superfast bursts, based on algorithms.
  • Big, muscular Wall Street veterans like Goldman Sachs have the money, smarts and brute power to dominate this computerized battle, and many day traders may not even be aware how outgunned they now are.  (amen - and that holds true for everything, not just daytrading.  As I've said in the past, we are but mice scurrying at the feet of the elephants - with it comes more agility but also the danger of being stomped on)
  • “It’s not something we fully understand, but algorithms don’t have emotions,” (sound familiar?) says Mr. Gomez. “It’s like these machines can smell a human. ....what used to be a waltz is now more like mosh pit.”
  • Mr. Lindloff buys shares in Patterson-UTI Energy, because he thinks it looks ripe for an uptick. Instead, it dives a few cents, and because Mr. Lindloff has an automatic stop on the trade — which sells the shares if they dip below a certain threshold — they are sold for a loss. A moment later, the shares shoot up. Mr. Lindloff thinks he has been juked and jived by a robo trader.
  • ... the most Mr. Bettinger will say about day trading is that it’s a “tough gig.” “You’re competing against mega-institutions that are trading in hundredths of a second.”

What a classic line:
  • If the motto of the original day-trade boom was, “If the pros can do it, so can we,” the motto today is, “We can’t do much worse than the pros.”

BW: Visas for Foreign Entrepreneurs

I almost did a double take when I happened upon this article since it mimics an idea I've proposed in the past.  My first thought was "lightning must of struck if this was conceived in Congress" - then I saw the idea actually was birthed in the private sector, and has since gained traction in our hallowed halls of D.C.  That said, I am aghast that even something like this - which seems like a no brainer and has excellent "outs" in case the immigrants fail at creating jobs for Americans - has (a) opponents and (b) a chance to not make it through Congress.  This is something that should have been passed a decade ago.

Via BusinessWeek:
  • Peter Tegelaar and Coen Stevens sound like just the sort of entrepreneurs the U.S. economy could use right now. The two friends are working on a Mountain View (Calif.) startup called Newcope and want to hire employees. But there's a problem: They're Dutch. In the U.S. on tourist visas, they'll have to return to the Netherlands this spring, unless something changes fast. Jeff Clavier, a venture capitalist who is considering backing the pair, says their departure would hurt Newcope's prospects, since the company is working on a payment system for online games and much of that expertise is in Silicon Valley. "Their likelihood of success in the Netherlands is close to zero," he says.
  • Tegelaar, 28, and Stevens, 27, have a chance for a reprieve. With prodding from the U.S. venture community, Senators John Kerry (D-Mass.) and Richard Lugar (R-Ind.) have proposed a two-year visa for any immigrant entrepreneur who can secure $250,000 in capital from American investors. (no brainer!)
  • After the two years are up, the person could become a permanent resident if his or her business has created five full-time jobs in the U.S., raised an additional $1 million, or hit $1 million in revenue. (yes we can!) The senators hope to pass the StartUp Visa Act this month as part of legislation aimed at helping small businesses add jobs.  "The incentive for entrepreneurs to bring their ideas to the U.S. would be the prospect of becoming a resident of this country and the potential for a greater market," said Lugar in an interview.  
  • The startup culture in the U.S. has long been the envy of the world, but other countries are closing the gap. Last year 8% of U.S. residents founded companies, down from 12.4% in 2005, says the Global Entrepreneurship Monitor, a research consortium of the London Business School and Babson College. In 53 other countries that the group tracks, the percentage of residents creating companies rose to an average 11%, from an average 8.7%, over the same stretch.  (not good)
  • The idea for the bill began with Paul Graham, a partner at the Mountain View startup incubator Y Combinator, who wrote an online essay in April arguing for what he called a "founder visa." The post prompted Foundry Group Managing Director Brad Feld, Founders Fund investor Dave McClure, and other venture types to push the idea in Washington. More than 160 venture capitalists and other investors signed a statement backing the bill. "It's such an obvious win," says Graham. "The smartest and most ambitious people [could] come to Silicon Valley."  (or any part of the country that has a niche these entrepreneurs are trying to create a business in)
But nothing is simple....
  • The proposal is one of the few with bipartisan support in Washington. Still, passage isn't a sure bet. One matter of debate is how much the U.S. would benefit from the proposed visa. Proponents say it could attract thousands of startups in a few years and tens of thousands of jobs. Ron Hira, associate professor of public policy at the Rochester Institute of Technology, counters that the legislation's backers haven't done enough research to support such optimistic projections.
Let's say it adds ZERO jobs.  (which I find preposterous)  What would you lose from starting the program and watching how it develops?  Nothing.  If not one person creates 5 flipping jobs - no one gets citizenship.  Simple.

Instead academic theory is going to hold it up?  Nonsensical.

Are John Paulson's Hedge Funds Now Too Big to Outperform?

An interesting question raised by Bloomberg - are the assets gained by John Paulson after the now infamous bet against the US subprime market, getting to a point that it will be impossible to truly outperform the market / peers?  We saw earlier this month that Paulson now is the 3rd largest hedge "fund" [Mar 8, 2010: List of Largest Global Hedge Funds] at some $32 billion but in actuality this is more than 1 fund.  That said, there are only so many opportunities out there where the footprint left by this amount of money won't be noticed... perhaps part of the reason of the moves into gold [May 16, 2009: John Paulson Continues to Pile Into Gold] and one of the companies with the most shares in the world. [Aug 26, 2009: Citigroup Surges on John Paulson Investment]  With his concentrated style it will make it even more difficult than for the average hedge fund.  I guess we will find out the answer to these questions in about 3 years.

  • John Paulson started the year overseeing $32 billion in hedge funds, third in the world behind JPMorgan Chase & Co. and Bridgewater Associates LP. Unlike many of his biggest rivals, he’s taking in new cash, raising the question of how much money is too much for a hedge-fund manager.  “As with all managers that bulk up, there’s always the risk of returns becoming mediocre.”
  • Paulson & Co., the New York-based firm that the former Bear Stearns banker and Gruss Partners trader started in 1994, differs from many large competitors because it makes concentrated bets, such as the wager against subprime mortgages that helped generate $3 billion of profit in 2007.  While New York-based JPMorgan and Bridgewater of Westport, Connecticut, are larger than Paulson’s firm, they tend to make comparatively smaller bets.
  • As assets increase, it can get harder for a fund to find investments big enough to drive returns and to trade without distorting prices.  Paulson’s main $19 billion Advantage funds, which primarily seek to profit on distressed debt, bankruptcies and mergers, have lagged behind peers this year and last after beating them in 2007 and 2008.  Today, he has 10 percent to 15 percent of his Advantage funds in the shares of gold-mining companies on the expectation that prices of the metal will rise along with inflation.
  • In 2009, the Advantage Plus fund climbed 21 percent, compared with about 25 percent for peers. Through February 2010, it lost 1 percent, compared with a gain of 1 percent for similar funds. The Credit Opportunities funds climbed 35 percent last year, and are up 0.35 percent this year.
  • Paulson continues to market his funds because he sees opportunities in the next 18 months to 24 months as companies restructure their debt.    The unleveraged version of the Advantage fund is targeting returns of 12 percent to 15 percent, he said.
  • Fourteen firms managed $20 billion or more in hedge funds at the start of 2010, when industry assets stood at $1.6 trillion. Hedge funds oversaw a record $1.9 trillion in mid- 2008.  In 1998, only George Soros’s Soros Fund Management LLC and Julian Robertson’s Tiger Management LLC exceeded the $20 billion mark. Within two years of hitting that milestone, both firms had suffered big losses and decided to stop managing money for other investors.
  • “There is a point where you can be too big to generate returns,” said Lawrence P. Chiarello, a partner at Red Bank, New Jersey-based SkyView Investment Advisors LLC, which selects hedge funds for clients. “Being large and able to build a strong infrastructure are good things, but in general I think the pendulum has swung too far.”
  • In 2008, Chicago-based Citadel Investment Group LLC, whose assets had climbed to about $20 billion, lost 55 percent in its biggest funds after wagers on convertible, high-yield and investment-grade bonds hedged with credit-default swaps all went awry. It managed about $12 billion at Dec. 31.

[Dec 9, 2009: Hedge Fund Titan John Paulson Bullish on Bonds... Equities Not too Shabby Either; Inflation Concerns Remain]
[Nov 19, 2009: John Paulson Set to Launch Gold Hedge Fund]
[Aug 12, 2009: John Paulson Makes Bank of America 2nd Largest Holding after Gold
[Nov 18, 2008: Paulson Buying Mortgage Backed Securities]

Bookkeeping: Weekly Changes to Fund Positions Year 3, Week 34

Year 3, Week 34 Major Position Changes

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

Cash: 76.0% (v 71.6% last week)
17 long bias: 17.8% (v 19.3% last week)
3 short bias: 6.3% (v 9.1% last week) [Includes 1 'long dollar' position]

20 positions (vs 23 last week)

Weekly thoughts
This is getting repetitious.  Last week the market went up.  We are overdue for a pullback of at least 1%.  Which has not happened in about 6 weeks.  It will happen someday.  Each of the past 3 weeks I predicted this will be the week. Each week I was (am) wrong.  Rinse.  Wash.  Repeat.

The monotonous, emotion less market continues ever upward.  Last Thursday there was an actual reversal but all it did was turn us from +1% to 0% for the day.  It simply has a feel of computers trading day in and day out, on light volume, happy to collect their rebates for creating liquidity.  Only when volume picks up (what I assume is when humans actually get involved in some manner) does the market have a chance to drop.  But volume only picks up for hours at a time.   We've been pointing to this Friday's job report the past few weeks as an event the market seems to be anticipating.  The thought here is a 300Kish type number of "job gains" .... sprinkle 100K+ census jobs, plus 75K+ "weather related" gains from February, plus our always reliable 100K jobs from the birth/death model ... which will be revised away next March - and presto magic, you have a jobs recovery.  This has all the smell of the "housing recovery" the bulls were frothing at the mouth to tell us about spring 2009.  You know the one - where people are amazed home sales in May are higher than February, and sales in June are higher than March.  Especially when bribed with $8000.  Now we will be amazed that a million plus census workers being hired causes job gains.   As long as we don't look under the surface, amazement is a very easy achievement, and it since market analysis is done in 10 seconds or less the jobs figure headline is all that matters.  The *only* wildcard is the data is going to be released Friday when the market is closed - allowing people to stand in awe of the figure for a full 3 days.  We shall rejoice. (and be surprised)

To the indexes - last week the S&P 500 looked like this... we said the index was in a white noise area between 1150 and 1170.

After the healthcare bill passed the premarket futures were down sharply but a rampage of buying caused the market to surge, and almost the entire (white noise) range was hit Monday alone.  Then the break over 1170 happened in the last hours of Tuesday, at which point you could see the vertical move up as the computers took over.   The market sort of hung around Wednesday, made another surge up Thursday for no specific reason other than the market needs to go up, but a late day reversal (a rarity) caused the S&P 500 to turn from +1% to 0%. (which nowadays is considered a negative day).  And Friday we just hung around.  So we are going nowhere fast in particular but betting against the market remains nearly impossible.  Now the chart looks like this and we remain between 1170 and 1150.

I remain reluctant to actively short the index for more than a few hours at a time, unless S&P 500 level 1150 is broken as it's been a losing trade.  Eventually it will be a winner but we're all dead eventually.   Downside targets remains (a) 1124 and (b) 1078.  The latter is 3.6% downside and the latter 8%.  Since this move up has been unrelenting, yet glacial (most days +0.3%, 0.4%) with sideways moves consolidating each stair step up, the moving averages are coming along and the underlying index price is not moving too fast ahead of the moving averages.  Interesting.

The NASDAQ had a similar journey, although slightly stronger with its top end of the white noise being 2400.  The 3 sectors leading this chart: XLI (Industrials), XLY (Consumer Discretionary), XLF (Financials) continued to lead last week.  One area of weakness / under performance is XLE (Energy).....

The dollar broke out as bailout planet continued in Europe, and bonds acted a bit naughty late in the week but without any auctions this week that might be put on the back burner for now.

And that about summarizes the action - its slow, many days very boring, and except for mini bursts in premarket, the first 30 minutes of the day, or last 30 minutes, much of the day is sideways churning - certainly not much of a traders market the past month.  China remains range bound and listless, and many other emerging markets are blah.


The economic data has not been squat the past few weeks, as all news is good news as long as Ben Bernanke promises us free money for an extended period of time.  Which he did yet again last week in Congressional testimony after the Fed meeting.  Which means (wink wink) we can push out any tightening another 6 weeks and the language at the next meeting will be identical to the one we just saw.  Even the flailing housing numbers have been completely ignored.  Just as we did a year ago, we'll clap like seals the next 4 months as housing figures improve (as they do every April - July), then I guess as we did last year ignore them when they falter the following 8 months.  This week:

Monday: Personal Outlays & Income
Tuesday: A consumer confidence report
Wednesday: Chicago PMI, Factory Outlays
Thursday: ISM Mfg, Construction Spending
Friday (holiday): Employment

The only data point above that I could see derailing things is ISM Manufacturing, the data point is roughly at 56 consensus and the flood of global stimulus has pushed companies to rebuild inventories.  If the private sector does not take over from the government sector, at some point inventories will stack up and the nascent recovery ends.  But it's impossible to see what is going on under the surface with so much governmental money flooding in from every crevice.

The consensus for jobs is +200K with a range of 75K to 300K.  I don't know what world the guy at 75K is living on as the birth death model (where the US has been creating fictional small business jobs the entire recession) and census workers alone will get us way over that point.   There should be another 600-800K census jobs coming in the months to follow so until the market fully discounts this, good cheer shall continue.  Of course at some point the market must discount all these jobs extinguished in the fall as well.  So the only interesting data point is how traders square up their books knowing they won't have access to the casino within milliseconds of the monthly jobs report and must wait until Monday to be surprised by a better than expected react to the jobs data.   One other interesting thing is economists estimate the workweek to shoot up to 33.9 hours which would be the highest we've seen in a long while.


For the portfolio cash went up because (a) I am having a hard time applying money to the 3 hot sectors, when so many of those stocks are up 50-70% in 6 weeks and (b) the market is taking away almost any and all short positions within days of when I put them on.   Frankly when I am looking *this* hard for individual long positions that has always marked a time the market pulled back at least modestly.  But I've been looking hard for 2 weeks, and the market does not go down - again, my historical experience means little with the way this market behaves.  Many people I've been reading for years on the intertubes have been expressing the same opinions for most of the past month.

On the long side I began a position in NetLogic Microsystems (NETL) simply due to error - the stock split 2:1 and the simulator I run my portfolio in did not compensate so my long standing limit buy order executed - it was a small order so no big deal.  Within 48 hours after splitting the company did an offering, at which point I bought more shares, to make the position a moderate size.   I started a position in Massey Energy (MEE) - within hours the company announced a stock offering (notice a theme?), which hurt the stock - but in the George Costanza market, stocks now rally when they company diluted shareholders.  I closed a large position in Google (GOOG) for a smallish loss as it broke support and continued to sell off on the same news from China....  which appears to have set the bottom in the stock.  Later in the week someone bought $530M worth of shares in one fell swoop - mind boggling.  Since I sold the stock jumped right back over support.

EnerNOC (ENOC) a position held since last fall was closed out, as it has been unable to move for many weeks on end.

On the short (i.e. loser!) side - I reshorted Athenahealth (ATHN) which has been good to us; we won again as I quickly covered for a 3% gain.  That might sound like peanuts but 3% down in this market is like 15% down in a normal market.   AsiaInfo Holdings (ASIA) was shorted as it broke support and eyed a large gap in its chart - still holding.  I covered a multi week short in True Religion (TRLG) for only a 1% loss and consider it a major victory as the stock went nowhere for 2-3 weeks as its sector was the hottest in the market.  The stock still has not broken to the upside but I became nervous once the S&P 500 broke over 1170 and the unstoppable market seemed ready to take away my candy.

Exact same logic in Maidenform Brands (MFB) - the strength of the market simply hit my stop loss and I could not stay in.   I covered our modest allocation in iShares Barclays 20+ Year Bond (TLT) as bonds swooned mid week.  If something goes awry in the bond market we'll jump back in, but generally this is slow money and since this has been range bound for months on end, I would not expect a "breakdown". (yet)

We played some index positions this week but went nowhere with them as we were chasing our tail most of the time - unless a sustained move in 1 direction happens they don't generally give good results and we did not get that this week.   It's one of those weeks where the only person who got rich were the brokers.

Sunday, March 28, 2010

Updated Position Sheet

Cash: 76.0% (v 71.6% last week)
Long: 17.8% (v 19.3%)
Short: 6.3% (v 9.1%) [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)




Saturday, March 27, 2010

Most Popular Posts of the Quarter

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)

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?

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


Bookkeeping: Closing Last Shard of EnerNOC (ENOC)

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

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]

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

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 ...

Half of US Home Modifications Default - Again

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 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. 


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)


  • 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.

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

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

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.


Doug Kass - 20 Signs that Could Mark a Top

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.



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]

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