Tuesday, August 9, 2011

5.5% Move in the S&P 500 Since 2:40 PM

That's the vicious countertrend move people have been trying to catch for days.  The fact that it happened in a 80 minute span is quite neck spinning!

If you are looking at what merchandise to buy on an individual basis, you want to see what is leading on a day like this.  I see a lot of same familiar momo names leading the charge.

EDIT 3:59 PM - try +6.1%!

Wicked Volatility

I have no idea where the market will end today because the swings this entire day have been simply amazing.  I can't remember a more volatile day - certainly nothing since early 2009.  We started the morning with a huge swing of a couple 100 points on the Dow, and in the past hour we've seen multiple swings of such a nature.  If you are a short term trader with any sort of stops out there, they are getting hit multiple times and then you are getting reversed.

We just did a 35+ point move down in the S&P 500, followed IMMEDIATELY by a 35+ move up.  Whew.

Side note - the Fed is finally admitting what many of us have said - these pie in the sky idea of 3-4-5% GDP growth are nothing but fanciful tales. Considering all these budget deficit projections are based on 3-4% growth from here to the moon, you realize just how much more serious the situation is, and how off the CBO data is for projected deficits in the coming decade.

Fed: Exceptionally Low Rates Until at Least Mid 2013, and 3 Dissenters

The major change today was instead of saying 'an extended period of time' the Fed upped the ante by giving a very long time frame.  Easy money until AT LEAST mid 2013.  Translation: We are Japan.

The Committee currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.  

Makes me harken back to a story a few months back [May 19, 2011: Prepare for a Fed Hike... in 2018]

We also have 3 dissents, which is the most I can remember:

Voting against the action were: Richard W. Fisher, Narayana Kocherlakota, and Charles I. Plosser, who would have preferred to continue to describe economic conditions as likely to warrant exceptionally low levels for the federal funds rate for an extended period.

Full statement here.

Gold again surging :)

Insiders Pick Up Pace of Buying

Just a few weeks ago at the tail end of July we posted a story showing the intense level of insider selling.  Well, that has reversed according to Mark Hulbert.

  • But there is one group that appears to be doing so (buying). And they have a history of being more right than wrong about the market's direction.  I'm referring to corporate insiders, a group that includes corporate officers, directors, and largest shareholders. You may recall that, three weeks ago, corporate insiders were selling at an abnormally high pace. By one measure, in fact, they were then selling at the fastest pace in the nearly 40 years that insider data had been collected.
  • With the Dow Jones Industrial Average now more than 1,400 points lower, the insiders appear to be shifting back to the buy side in a big way.
  • Consider an insider indicator calculated by the Vickers Weekly Insider Report, published by Argus Research. This indicator is a ratio of the number of shares that insiders have sold to the number that they have bought.
  • For insiders transactions last week, according to the latest issue of the Vickers service, which I received late Monday night, this sell-to-buy ratio stood at 1.68-to-1. That's bullish, according to Vickers, since the long-term average level for this ratio is between 2 and 2.5 to 1.
  • To further put the current level of this ratio into context, consider that in the week ending July 22, this ratio stood at 6.43-to-1.  And among those companies whose stocks are listed on the NYSE and the AMEX, the ratio during that week stood at 13.10-to-1 — which is the highest, and most bearish, reading for the ratio since Vickers began collecting data in 1974.
  • Further confirmation that the insiders are responding in true contrarian fashion to the market's plunge: Vickers' sell-to-buy ratio steadily improved last week as the market dropped. For transactions just last Friday, for example, the day after the Dow's 513-point plunge, the ratio stood at an extraordinarily bullish 0.33-to-1.
  • To be sure, you should never throw caution to the winds when following any one stock market indicator. After all, the insiders aren't always right. And even when they are, the market doesn't always respond as immediately as it did following their record level of selling in mid July.  Still, it is comforting that a group of investors who presumably know more about their companies' prospects that the rest of us consider the low prices of their stocks to represent attractive bargains.

Marc Faber Now Expects a Bounce, While Still Intermediate Term Bearish

Say what you will but Marc Faber's call last week for a 'bear market' looks pretty darn good now.  That came on Tuesday, when the S&P 500 had closed essentially at its primary support of 1250.  To be fair he made the call earlier in the day... the S&P 500 had opened around 1280s.  With two traumatic selloffs since then, we'll call it roughly 11% lower on the S&P 500 since his call.   Small caps via the Russell 2000 have been hit even harder in that time, over 15%!

He appears to be a pretty tacticle trader, so in the very short term he now appears to be constructive - although still calling for a low of 1100 by October.  Heck we're 20 points away from that as of yesterday's close.

  • Marc Faber, who predicted just last week that a bear market was on its way back, says the current selloff in equities is overdone and he expects a short-term rebound.  "I think that near-term stock markets around the world are very, very oversold and most oversold since February, March 2009 and 1987," Faber said. "(It) doesn't mean that they can't go lower, but I think they will rebound."
  • Faber, the editor and publisher of The Gloom Boom & Doom Report hasn't, however, changed his bearish view. He still expects the S&P 500  to drop to 1100 by October, but he says the selloff came even earlier than he had expected.
  • "The strategists in the US, mostly brainless people, who are predicting S&P between 1400 and 1500 by year end, I think they will have to re-adjust their views and I think the markets may actually go lower," he told CNBC on Tuesday.
  • Faber says the correction has been so vicious because investors have lost faith in politicians and current economic policies.  "Nobody trusts (anyone) anymore, the Obama administration, the U.S. government, Congress, the people that voted for the debt increase and so on," he said.
  • The selloff in stocks has boosted safe-havens including Treasurys, driving 10-year yields down to 2.35 percent, despite Standard & Poor's downgrade of the U.S. credit rating. Faber, along with Jim Rogers, believes Treasurys are overvalued and that yields will have to rise.  "In my opinion, around this level, government bonds in the US are the short of the century," he added.

Some Positives at the Margin

Long time readers know I've been negative on the economic underpinnings (structural) from essentially day one on the blog.  [Dec 4, 2007: First Half Predictions for 2008] The U.S. refuses to acknowledge the problems it has, not to mention actually trying to address them and instead is reactionary trying to run around like a chicken with its head cut off to douse immediate fires with water.  Like many third world countries, we have a dysfunctional government which has become a curse on the economy, rather than neutral ... or heck, a positive.  The economy has been filled with never before seen levels of steroids and hence a 'recovery' has occurred over the past few years.  I'd contend almost all the recovery has come in the top end, college educated class and on corporate balance sheets - much of the rest of the country is standing still, or falling farther behind.

That said the stock market is not the economy and that has made for tricky trading at times as the economic underpinnings of the U.S. (which matter less and less to our multinationals) and corporate profits have diverged significantly. I had underestimated the power of laying off millions of U.S. workers in terms of creating very nice earnings as fixed expenses plummeted across corporate America.  To fill the hole of all those lost wages and benefits, in came the government.  That can work for a few years and/or for as long as you keep federal deficicits at a massive 10% of GDP.  But without those constant fingers in the dam, even corporate America will eventually feel some pain.  Indeed we've been seeing how dependent some of our blue-est of blue chips are on government spending the past few quarters (i.e. ask Cisco).

However with tumult in the markets comes some positives.  Oil has dropped significantly the past few weeks and now sits at the lowest level in 2011 at just above $80 per barrel on WTI.  If the refiners play along this should be a nice tax cut for 'average Joe'.  Of course Mr. Bernanke could destroy that tax cut with QE3 which would punish the dollar (again), and push speculators into all things that Bernanke cannot print on a whim.

On the housing front, 10 year yields are back to sub 2.40%.  (this would look like one heck of a double bottom if it were a stock chart)  For those looking to first time housing purchase, and/or refinance, it's a gold mine.  Of course, many Americans lack basic savings for first time purchases and just about anyone who could, should have refinanced by now during the ultra low rates of the past few years - but I'm trying to be positive this morning, at least on the margin.

As for the market, with so much technical damage all rips to the upside should be considered bounces to sell into, until proven otherwise.  At this exact moment, I would not be constructive on a market for anything other than an oversold bounce (potentially dramatic!) until we see the S&P 500 back over 1250.  That's quite a ways away.  With that said, there should be a vicious rally at some point here - and perhaps in anticipation of The Bernank coming to aid of speculators at Jackson Hole, Wyoming 2.0.

I do not believe the Fed will do anything dramatic today (in terms of a QE announcement) because they like to telegraph things ahead of time, and they usually float things in the Wall Street Journal or other news outlets before they act.  So if Ben wants his QE3 soon, we should start seeing a parade of rumors and Fed Presidents showing up on the major news outlets between tomorrow and end of August.  For now, the WSJ's John Hilsenrath (one of the chief talking outlets for the Fed) lists the most likely options before the bazooka.

Monday, August 8, 2011

S&P 1125 to the Point as Bloodbath Continues

Not much to say here - it's a bloodbath out there.  When S&P 1175ish was broken I said I did not really see any support until 1125.  I thought there would be some sort of bounce between here and 'there', before potentially finding our way down to 1125 however.  That did not happen - it has been a straight elevator down.  'There' is already here....

The way we are finishing is of course ugly and there won't be much to take home from it.  If it is just the debt downgrade we are reacting to, I am surprised for this sort of a reaction but I think its more of a recession call.  One that the bond market has been signaling for months, but that the equity market has been ignoring, just as in latter 2007 to mid 2008.

My call over the past half year for QE3 by 'this winter' might be proven to be conservative.  The desperados at Jackson Hole may be making a repeat performance in a few weeks.  Heck, they might show up tomorrow at the Fed announcement.  Expect massive volatility as speculators demand a white knight on horse to show up tomorrow afternoon.

Maybe S&P 1125 is in Play Soon After All

I didn't think we'd be talking about S&P 1125 level so soon, but with 1170 broken earlier today and 1150 just breaking it is time to bring it up.  This is the area of August 2010 highs and a complete and utter rejection of QE2 from its first conception at Jackson Hole, Wyoming.  Amazing how quickly you can waste $600 billion...

Obviously we are incredibly oversold, I'd imagine at the worst levels in almost every reading since March 2009 and when this snapback rally happens its going to be immense even if it only takes back 1/3rd to 1/2 of the downward move.  But we're still not there in terms of finding that bottom for even a bounce.

EDIT 1:50 PM - 1142 on S&P 500, and we are closing in on two -5% days out of three if things don't change in the last 2 hours of the session.

The Few Stock Winners of the Past Month

The action continues to be horrid as we make new lower lows almost daily.  After the punishment the past three weeks, I thought it would be interesting to construct a list of stocks that could at least stay flat over the past month to pick out names with high relative strength in an awful market.  The caveat is some of these are buyouts (HK) or rumored buyouts, while others are stocks driven up via good earnings  (which doesn't make them bad buys necessarily).  Also a handful like PM are the 'go to hide' type of stocks.

I used some parameters such as
  1. >$10 stock price
  2. >200K average volume
  3. >$300M market cap

Here are the 67 names although with today's action a few may have fallen off the bottom of the list

Ticker Performance (Month) Company Industry  Market Cap 
HK 51.83% Petrohawk Energy Corporation Independent Oil & Gas            11,590
IDCC 44.37% InterDigital, Inc. Wireless Communications              3,094
EM 37.11% Emdeon Inc. Business Services              2,114
SFN 30.70% SFN Group, Inc. Staffing & Outsourcing Services                  681
TAOM 29.05% Taomee Holdings Ltd. American D Business Services                  516
RADS 27.70% Radiant Systems Inc. Business Software & Services              1,118
ARJ 22.69% Arch Chemicals Inc. Specialty Chemicals              1,183
ATHN 14.48% athenahealth, Inc. Business Services              1,879
CBOU 12.66% Caribou Coffee Company, Inc. Specialty Eateries                  321
NLC 12.40% Nalco Holding Co. Synthetics              4,555
CEF 12.29% Central Fund of Canada Limited Industrial Metals & Minerals              6,089
LXK 11.77% Lexmark International Inc. Computer Based Systems              2,619
GNC 10.38% GNC Corp. Drug Stores              2,530
LOPE 10.23% Grand Canyon Education, Inc. Education & Training Services                  716
ZIP 10.21% Zipcar, Inc. Consumer Services                  929
BRFS 8.26% BRF - Brasil Foods S.A. Meat Products            15,774
QCOR 8.07% Questcor Pharmaceuticals, Inc. Biotechnology              1,819
EEFT 7.07% Euronet Worldwide Inc. Business Services                  870
REXX 6.96% Rex Energy Corporation Oil & Gas Drilling & Exploration                  504
BAP 6.18% Credicorp Ltd. Money Center Banks              7,127
EVEP 6.09% EV Energy Partners LP Oil & Gas Drilling & Exploration              2,106
TRLG 6.07% True Religion Apparel Inc. Textile - Apparel Clothing                  814
GOOG 5.93% Google Inc. Internet Information Providers          186,966
TMX 5.60% Telefonos de Mexico, S.A.B. de C.V. Long Distance Carriers            15,811
THS 5.49% Treehouse Foods, Inc. Processed & Packaged Goods              2,011
CLNE 5.01% Clean Energy Fuels Corp. Gas Utilities                  986
ALXN 4.62% Alexion Pharmaceuticals, Inc. Drug Manufacturers - Other              9,356
AAPL 4.60% Apple Inc. Personal Computers          346,379
LQDT 4.49% Liquidity Services, Inc. Internet Software & Services                  721
MFN 4.47% Minefinders Corp. Ltd. Industrial Metals & Minerals              1,152
ZAGG 4.29% ZAGG Incorporated Specialty Retail, Other                  328
ZOLL 4.19% ZOLL Medical Corp. Medical Appliances & Equipment              1,335
SM 4.18% SM Energy Company Independent Oil & Gas              5,023
JCOM 4.14% j2 Global Communications, Inc. Internet Software & Services              1,389
MLNX 4.02% Mellanox Technologies, Ltd. Semiconductor - Broad Line              1,120
ENR 3.67% Energizer Holdings Inc. Personal Products              5,365
TLK 3.37%  PT Telekomunikasi Indonesia Tbk. Telecom Services - Foreign            17,605
CROX 3.36% CROCS Inc. Textile - Apparel Footwear               2,562
RGC 2.70% Regal Entertainment Group Movie Production, Theaters              1,881
NZT 2.50% Telecom Corp. of New Zealand Ltd. Telecom Services - Foreign              4,100
VIV 2.44% Vivo Participacoes S.A. Wireless Communications            11,900
MA 2.36% Mastercard Incorporated Business Services            41,490
ACTG 2.32% Acacia Research Corporation Research Services              1,701
ABG 2.29% Asbury Automotive Group, Inc. Auto Dealerships                  636
HRBN 2.20% Harbin Electric, Inc. Industrial Electrical Equipment                  538
ID 2.13% L-1 Identity Solutions Inc. Security & Protection Services              1,085
NCI 1.82% Navigant Consulting Inc. Management Services                  556
VOD 1.79% Vodafone Group plc Wireless Communications          143,789
AUQ 1.75% AuRico Gold Inc. Ordinary Share Gold              2,012
JAZZ 1.71% Jazz Pharmaceuticals, Inc. Biotechnology              1,493
LPR 1.65% Lone Pine Resources Inc. Common Independent Oil & Gas                  943
AH 1.46% Accretive Health, Inc. Management Services              2,800
DATE 1.45% Jiayuan.com International Ltd. Internet Information Providers                  394
TDY 1.19% Teledyne Technologies Inc. Aerospace/Defense Products               1,911
SDT 1.13% SandRidge Mississippian Trust I Independent Oil & Gas                  750
FNF 1.03% Fidelity National Financial, Inc. Surety & Title Insurance              3,504
GMCR 0.89% Green Mountain Coffee Roasters Inc. Processed & Packaged Goods            14,695
CPHD 0.84% Cepheid Scientific & Technical Instruments              2,108
CHL 0.79% China Mobile Limited Wireless Communications          189,648
CF 0.67% CF Industries Holdings, Inc. Agricultural Chemicals            10,483
CHT 0.62% Chunghwa Telecom Co. Ltd. Telecom Services - Domestic            33,093
CHK 0.56% Chesapeake Energy Corporation Independent Oil & Gas            20,177
COG 0.42% Cabot Oil & Gas Corporation Independent Oil & Gas              6,987
PM 0.29% Philip Morris International, Inc. Cigarettes          123,315
TLVT 0.23% Telvent Git S.A. Computer Based Systems              1,168
RRC 0.09% Range Resources Corporation Independent Oil & Gas              9,201
GRM 0.08% Graham Packaging Company, Inc. Packaging & Containers              1,718

Right Back to Friday's Lows

Not a fun time for the bull side.  This is the second time in under a week the market rallied to a positive (or in Friday's case, nearly unchanged) close after a down day, which should have been positive.... but opened the next day down deep in the red.  Last Thursday was more ECB inflocted whereas today is debt downgrade inflicted.

Currently we sit at the intraday lows of last week.  Let's see if it holds.

EDIT 10:19 AM - Ok not so much.  Once we break those old supports such as previous lows, its amazing to watch how fast those computers sell off this market.  We dropped 8 S&P points in a flash.

Meanwhile, the ECB Commits Overnight to Buying Italian and Spanish Bonds

I mentioned Thursday morning that in the upcoming ECB press conference, the market was expecting (demanding?) that the ECB pull a Fed and start buying Italian and Spanish debt.

The ECB press conference today may be a form of catalyst as the marketplace is pressuring Trichet to reinstate sovereign debt purchases, which apparenly have not been utilized the past four months.  With both Italy and Spain the current focus, it would seem like Trichet would open the door to this which might appease markets.  The 'big bailout'f und (ESFS) is not yet funded, and not looking to be operational until end of year - so the market is looking for a bridge in the meantime
Rather than do this - which I believe led in large part to the mini crash Thursday - Trichet waited, with probably good intent to pressure the 2 countries (esp. Italy which has been out of the limelight unlike Spain) into quicker reforms.

Friday morning I mentioned there were really only a few options here.

Frankly I don't know of any solution to Europe aside from (a) it breaking apart and allowing the member countries to follow the U.S. and Japan solution - debase the currency or (b) the ECB turning into the Fed and taking trillions of assets on their balance sheet by turning into the U.S. or Japanese central bank or (c) some sort of crazy plan where American citizens begin taking on European debt as the Fed somehow does something crazy that supports the ECB.

Position b does not seem plausible YET in Europe but I feel will be the eventual situation. Position c would be Armageddon type of situation, simply because asking the Fed to support another country (or continent) to that extent would seem incredible. Position a would be messy but frankly Europe would not be in this mess if they each had their own currency to debase. (see Iceland!)
Then after European markets closed, the rumors about Trichet following through on what I said the market demanded Thursday, started floating out - leading to the stock market reversal.

We are in some form of (b) and (c) from best I can tell.
  • European Central Bank President Jean- Claude Trichet started buying Italian and Spanish assets today in his riskiest attempt yet to tame the sovereign debt crisis.   Italian and Spanish bonds surged as the ECB entered the market, sending 10-year yields down more than 70 basis points.
  • With governments failing to act swiftly enough to stop contagion from Greece’s fiscal meltdown, it has fallen to the ECB to battle a crisis that’s now threatening the survival of the euro. Buying Italian and Spanish debt may require the ECB to massively expand its balance sheet and open it to accusations of bailing out profligate nations, breaching a key principle in the euro’s founding treaty and undermining its credibility. Germany’s Bundesbank opposes the move.
  • Because the ECB will have to spend considerably more to have an impact on the bond markets of the euro area’s third- and fourth-largest economies, it may not be able to continue to sterilize its purchases by absorbing the equivalent amount from banks via term deposits, said Carsten Brzeski, senior economist at ING Belgium in Brussels.  That would amount to swelling the money supply, or quantitative easing, which may in turn fuel inflation. “I don’t think that very large volumes -- like 50 billion a week -- can be sterilized,” Brzeski said. “Then they risk throwing their very last principle overboard.”
  • While the ECB may be playing for time until the EFSF is ready to take over bond purchases, between them they may be forced to hold “close to half of the traded Italian and Spanish debt, or around 850 billion euros,” Cailloux said.

I'm no expert on the ECB but from what I've been reading they do not have unlimited ability to 'print' ala the Fed, due to Germany's Weimar experience. However, to buy this Spanish and Italian debt - the money has to be coming from somewhere. It is unclear where (if anyone is an ECB expert feel free to chime in!), and I am wondering if the ECB is utilizing their unlimited swap line with the U.S. Federal Reserve. So in theory the Fed is printing money, letting the ECB borrow it, which allows the ECB to buy the sovereign debt, and send the Fed an IOU. I could be wrong but I think with gold up over 3% to >$1700, this is how it is working even if the banks are not saying it out loud. If this is how it is working, best to keep it quiet until someday down the road because the uproar in Washington would be supreme.

(below chart does not have today's move within it)

Generally the ECB would not want to do this sort of strategy, being more conservative than the Fed but (a) this is a crisis and (b) they can rationalize it as a short term bridge until the ESFS is funded and ready near the end of the year. 

Again, I could be wrong - but if I am, I do not know where all this money is coming out of the sky to fund the Italian and Spanish purchases. 

I believe this is the far more important story today, and this 'bailout' is more important than the U.S. downgrade, although the latter has more shock appeal to the masses.  That said, I'm still unclear on the long term solution because the ESFS needs to be funded by member states such as France who I have been pointing out for a year has a pretty junky debt to GDP ratio itself, and how big is big enough for the ESFS to support Italy and Spain?  I am not sure there is anything 'big enough' to bail out the situation other than the ECB finally relenting and printing (either by being given authority to do so, or using the Fed somehow).

On top of all this, the Fed meets this week and it will be interesting to see if they have anything new to say in tomorrow afternoon's statement.

In Case You Haven't Heard - the U.S. Debt was Downgraded by S&P

For those living in a remote cave over the weekend, welcome back to the Matrix, and I am here to inform you that S&P downgraded U.S. debt late Friday
  • S&P lowered its rating on the U.S. by a notch to AA+ and said the outlook is negative as well, as it threatened another reduction in two years. The rating agency said the deal reached by lawmakers to cut the federal deficit by an estimated $2.1 trillion over a decade didn’t go far enough, and “America’s governance and policymaking [is] becoming less stable, less effective, and less predictable than what we previously believed.”

What's that?  Tim Geithner assured you just 1.5 years ago that would never happen?

Hmm... have you ever seen the 'Ben Bernanke was Wrong' video?

Feb 8, 2010:  Geither Says U.S. Will 'Never' Lose Aaa Rating

“Absolutely not,” Geithner said, when asked in an ABC News interview broadcast yesterday whether a downgrade is a concern. “That will never happen to this country.”

Meanwhile two bit bloggers such as those at Fund My Mutual Fund have been raising the concern for years.  But what do we know, not being U.S. Secretatry Treasury or some other cool title holder.

[Apr 15, 2008: Could the US Lost its AAA Rating?]
[Nov 12, 2008: CNBC Europe - USA May Lose its AAA Rating]
[Mar 29, 2009: CNNMoney: Should USA Still be AAA?]
[Mar 16, 2010: US, UK Move Closer to Losing AAA Rating Moody's Says]

The market is reacting in sharp knee jerk reaction down but frankly I don't see the 'big deal'.  Anyone paying attention would realize we are not the best credit in the world, and we implicitly are partially defaulting on our creditors by use of the printing press.  They borrow from us, and we pay them back in devalued dollars... not something someone of the highest credit would do.  Japan has been playing this game for years on end, and has the same credit rating the U.S. now has from S&P - have they fallen off the face of the Earth?  No.   

That said, almost no one pays attention unless its the lead story on basic cable news networks, so I am sure it is a jolt to the majority of Americans, especially psychologically. 

Egan Jones - which is not part of the "Big 3" rating agencies, downgraded the U.S. a while back, and I find their word more worthwhile than these institutions that are by government fiat the rulers of all things credit rating.

The 10 year bond is ironically down under 2.5% as the stock market rout and worries about the debt situation overseas dominate.  If the S&P downgrade really meant something serious, or was not already implicitly understood, you'd see the market pricing U.S. debt at a higher interest rate - not lower.

Frankly the much more important news came out of Europe late last night, which I will discuss in the next post.

Friday, August 5, 2011

LinkedIn (LNKD) Reports First Quarter as a Public Company

LinkedIn (LNKD) reported its first quarter as a public company with a surprising profit, and nice revenue growth.  However, some analysts rightly question the valuation.  That said, when the market is good, people are piling into a few select high growth stocks without regards for valuation.  Valuation will only matter.... when it does.

Via AP

  • LinkedIn earned $4.5 million, or 4 cents per share, in the April-June period. That contrasted with earnings of $938,000, or 2 cents per share, at the same time last year.  Non-GAAP EPS for the second quarter was $0.10.
  • Revenue more than doubled from last year to $121 million while membership climbed 61 percent to 116 million at the end of June.
  • Revenue from hiring solutions, or services that help companies hire employees -- which makes up the bulk of the social network's business -- surged 170 percent to $58.6 million, racing past expectations.  Revenue from marketing solutions jumped 111 percent to $38.6 million, while sales of premium subscriptions rose a more sedate 60 percent to $23.9 million.
  • Analysts, on average, had projected a loss of 4 cents per share on revenue of $104.5 million, according to FactSet.
  • The earnings in LinkedIn's most recent quarter represented the most money the company has made in any three-period so far in its eight-year history. It's still a puny profit for a company whose market value is sitting around $10 billion.
  • Losses could loom ahead too. LinkedIn has indicated it's willing to sacrifice short-term earnings to increase spending on technology and new product development.  Growth is also expected to slow, partly because of economic uncertainty and partly because of the temporary lift provided by the IPO publicity.
  • LinkedIn expects its third-quarter revenue to climb as high as $125 million, which would be slightly below the second-quarter growth rate of 120 percent. For the full year, LinkedIn sees its revenue rising to as high as $485 million, roughly doubling from $243 million in 2010.
  • LinkedIn gets more than two-thirds of revenues from fees that it charges companies, corporate recruiting services and other people who want broader access to the profiles and other data on the company's website. The remainder comes from advertising.

Some analyst reaction:
  • Morgan Stanley analyst Scott Devitt this morning cut his rating on the stock to Equal Weight from Overweight on a valuation basis, noting that his base case valuation on the stock of $110 leaves little upside.
  • Evercore Partners analyst Ken Sena reduced his rating to Underweight from Equal Weight, setting a $70 price target. He is concerned about both valuation and the coming expiration of lock-up agreements that affect 92% of the company’s outstanding shares.
  • William Blair analyst Timothy McHugh picked up coverage of the stock with a Market Perform rating. “If we used a multiple of 7-9 times projected 2012 revenue for hiring solutions, 6 times for premium subscription, and 14-16 times for marketing solutions, shares would be worth $55-$80,” he writes. “Upside to our revenue estimates, which is very possible, could push this valuation range up a bit. However, the company’s valuation leaves no room for error, in our opinion, so we prefer to find a better entry point on the stock.”

Full report here.

No position

Fannie Mae Quietly Seeks Another $5.1 Billion Bailout

We take a moment from our normally scheduled market thrashing for this update:

Hmmm... this is surprising.  Usually Fannie Mae announces earnings after the close Friday when almost everyone has left the building.... along with their request for more billions of dollars of bailouts.  Yes, they're still asking - quarter after quarter.  Today, for some reason the news came out in the morning.  Perhaps because everyone is fixated on the crazy action in the general market.  So please empty your pockets for another $5.1 Billion.

  • Mortgage finance giant Fannie Mae said it would ask for an additional $5.1 billion from taxpayers as it continues to suffer losses on loans made prior to 2009.  The largest U.S. residential mortgage funds provider on Friday also reported a second-quarter net loss attributable to common shareholders of $5.2 billion, or 90 cents per share.
  • Including the latest funding request, Fannie Mae has needed $104 billion in government capital injections since the U.S. Treasury seized control of it in 2008 during the financial crisis.
  • Fannie said in a statement that its second-quarter loss "reflects the continued weakness in the housing and mortgage markets, which remain under pressure from high levels of unemployment, underemployment and the prolonged decline in home prices since their peak in the third quarter of 2006." It said expenses related to mortgage modifications also contributed to its loss in the quarter.
  • The $5.2 billion loss attributable to shareholders follows a loss of $8.7 billion in the first quarter and compared with a loss of $3.125 billion in the second quarter of 2010.

Reason for the Reversal - ECB Says will Buy Italian and Spanish Bonds... Pending Reforms

This was what I was looking for in yesterdays news conference from Trichet (which he failed to deliver)

Appears to be the reason for the reversal... or Trichet really likes technical analysis and wanted to help the market ;)

Reuters saying ECB telling Italy it will buy Italy and Spain bonds if they commit to bring forward specific reforms

In due time, the ECB's balance sheet will be as chock full of debt as the Fed's is.


Link here.

The European Central Bank is demanding that Italian Prime Minister Silvio Berlusconi commit to fast-track specific welfare reforms and a constitutional amendment enshrining a fiscal rule before it will buy Italian bonds, sources close to the matter said on Friday.

The sources, speaking on condition of anonymity because of the sensitivity of the issue, said the ECB had agreed in principle on Thursday to buy Italian and Spanish bonds if key structural reforms were brought forward.

Berlusconi's office said he and Economy Minister Giulio Tremonti will hold a news conference at 1700 GMT, although it was not clear whether he will make an announcement along those lines.

Top European Union leaders were applying concerted pressure on Berlusconi to make an announcement by the end of the weekend so that the ECB could intervene in bond markets early next week

"The ECB has already signalled their will to act. People in the market say the ECB has started inquiring about Italian bond prices, but it hasn't bought any," one source said.

Looking Good on the Reversal

See edit in previoius post... already back to 1190s....

The rubber band has been pulled back so far, could have a very nice violent upward move here for short term flippers (which is all I would be in this type of market)

1175 Broken, So Longs Will Throw in the Towel Here

1175 broke on the S&P 500, so anyone hoping for that sort of support will throw in the towel.  We should get a woosh down quickly as computer orders hit, and then we have to see what happens.  Either another horrible day or a reversal after everyone is washed out....

It is fascinating to watch if nothing else.

EDIT 12:09 PM - Ok we got the break of support, the washout, and a small reversal.  Already back to S&P 1178ish.  If you play this long, you do the same thing as yesterday, use a stop out if we break 1175 or days lows depending on how loose of a stop you want.  If your stop hits, its a sell - no questions asked, as with yesterday.

Wicked Oversold, but Thus Far Hasn't Mattered - Coming to Test November 2010 Lows

As I mentioned yesterday once we broke that low of the day in the afternoon, I was not very interested at another attempt until we got to 1175ish.  You can see why from the chart below.  If bulls can't make a stand there, frankly it will be amazing but we are seeing liquidation and emotional selling at this point.  Good for those of us with patience and who preserve capital but still quite awe inspiring to watch.  By standing to the side with lots of cash in times like this, you are going to (mostly) miss the glorious day we reverse but you will not have huge losses to make up.  So you really don't need to catch the bounce like all the people swimming in horrendous losses the past 3 weeks.

Just like overbought markets can remain overbought, so can oversold.  It seems more so nowadays with the dominance of the HFT crews.

Every single secondary indicator is flashing massive oversold and "reading not seen since 2008 or 2009" but those of you who lived through 2000-2002 and 2008-early 2009 know, things like that sometimes don't matter.

If 1175 breaks, I really don't see much in the way of support for a while because the QE2 rally made the market go up vertical without building any support along the way.  1125ish is the high of August 2010, and that's 50 points below 1175. 

That said, for those newbie technicians this is an excellent example of a head and shoulders formation that 'worked' once the neckline was broken.  There was a similar occurence last year but we had a strange situation where it did not work - I don't remember the exact circumstances, I just remember having to reverse course 180 degrees at the time.


Frankly I don't know of any solution to Europe aside from (a) it breaking apart and allowing the member countries to follow the U.S. and Japan solution - debase the currency or (b) the ECB turning into the Fed and taking trillions of assets on their balance sheet by turning into the U.S. or Japanese central bank or (c) some sort of crazy plan where American citizens begin taking on European debt as the Fed somehow does something crazy that supports the ECB.

Position b does not seem plausible YET in Europe but I feel will be the eventual situation.  Position c would be Armageddon type of situation, simply because asking the Fed to support another country (or continent) to that extent would seem incredible.  Position a would be messy but frankly Europe would not be in this mess if they each had their own currency to debase.  (see Iceland!)

For the past year I have been pointing out FRANCE as a suspicious character which the market has not concentrated on.  Germany and France are supposed to be the 2 strong players in the EU, but France has a quite poor debt go GDP ratio as well (as bad as Portugal!), but has for some reason been granted immunity.  While both Spain and Italy are TBTF (hence the ESFS), if the market ever focuses on France than what do you do?  Hence something to keep your eye on in the years ahead.  [Feb 5, 2010:  Sovereign Risk Chart - Where Would the U.S. Fit In?]

[click to enlarge]

Whatever the case there is really no argument for fiat currencies - at least those of the big 3 - yen, dollar, or EU - 3 ugly ducklings who have been in a race to the bottom since 2008 and from this point of view will be for much of the next decade.  Hence... gold.

Wow, that Did Not Last Long

A straight dump from the opening gap up.  From about +1.2% to -0.5% in minutes.  For now its a market mostly to watch as that sort of action is dangerous.  As I said I would have preferred a gap down to create some sort of wash out and at least a short term rally.... maybe we will still get it but it's stomach churning for now.

As mentioned yesterday the Nov 2010 lows of 1175ish is an area I'll be interested in watching closely.  At this pace we might get there soon.

Bespoke: Key ETF Performance Over the Last Week and Month

I would have liked to seen this data shown since the July peak, but whatever the case it is always interesting to see what has been hit the hardest and what has held up whenever we get this dramatic swoons.  Bespoke created a table below showing the major ETF classes.  No surprise the Europeans have been hit the hardest but a bit surprising Germany (which has been a star during this recovery) has been thrown out with the bathwater.  Back in the U.S. midcaps have suffered the most in terms of market cap, while the cyclical growth sectors (no surprise) have been hit the hardest as questions about a double dip arise.

[click to enlarge]

July Employment +117,000 with Private Sector +154,000; Unemployment Rate 9.1%

I was thinking we'd have a pretty solid number, if for nothing else the previous 2 months were so horrid and had deteriorated so quickly that we'd have some reversion to a mean.  However, I would not be placing bets on it.  Indeed, the number came in quite solid at 117,000 job gains with a better number in the private sector.  Will have to see how many of these gains came from 'birth death' model but with such a bad oversold condition and sour mood on Wall St anything in the 100K range would be good enough I think.

The unemployment rate ticked down 0.1% to 9.1%.  Digging for more info and will update shortly.

Average hourly earnings up 0.4% versus last month's 0.0% (big improvement)

Average hourly workweek flat at 34.3 hours.

Labor force dropped to 63.9%, which explains the drop in the headline unemployment rate.  Awful.

Thursday, August 4, 2011

Always a Bull Market Somewhere: Priceline.com (PCLN) Up Some 12%+ In After Hours

Priceline.com (PCLN) continues to awe and amaze - cannot believe I sold this one in the $200s a few years back thinking it had run its course.   The chart below is deceiving as the stock fell 7.4% to $483 during regular hours and is currently trading in the mid $530s in after hours.

The company absolutely demolished analysts estimates of $4.87 by 62 cents! ($5.49)

Revenue rose 44% to $1.1 billion.  (International sales skyrocketed 90% to $612 million)

Bookings rose 70%.

Guidance for next quarter was superlative - $9.10 to $9.30 versus analysts' $7.94.

“The Group benefitted from strong second quarter performances by our global hotel and rental car businesses,” said Jeffery H. Boyd, President and Chief Executive Officer of the Priceline Group. “Global hotel room nights increased 56% compared to last year, while global rental car days were up 55% for the two nd quarter. In general, our hotel booking business is benefitting from improving ADRs, continuing strength in our core markets, and high rates of growth in new markets, particularly Asia-Pacific, where both Booking.com and Agoda are performing well.”

No position

Did I Mention Fugly? Oh Yes, I Already Did...


At this point if you are looking for some natural support areas the 1175ish area from Nov 2010 looks like a good spot. 

A bad unemployment number and gap down would be the 'best' thing tomorrow.  A gap up, I would not prefer.

Today was the first day, after being patient with this selloff, I would have tried a foray into the long side but I was stopped out within a few hours.  Any bad opening tomorrow would have me interested again.

So Ben Bernank's $600B of QE2 has been about halfway repelled in terms of 'wealth effect'.  Another great use of our money. :)

Boy oh boy, just by having the fund open and being 100% in cash the past few weeks, I would have been off to a roaring start versus the indexes.

Starting to Get those Calls and Emails

I'm starting to get those calls and emails from people who barely watch the market, saying "what's going on???!!"

Generally that's a positive sign ;) as are the traffic spikes on the blog.

Tomorrow will be so interesting with the employment report.  Anything like 150K jobs should send this market in a tizzy upward!  That said, with 35 minutes to go the close is looking poor - finishing near or at the lows of the days..... therefore only riverboat gamblers should be the only ones going long.  Unless one of those hockey sticks shows up in the last moments.

p.s. WSJ reporter went on CNBC about 40 minutes ago speaking tales of QE3... which was why we had the rally from 1213ish to 1222. ;)

Bespoke: Most 52 Week Lows Since March 2009

Pretty interesting statistic by Bespoke Invest - today is showing the most 52 week lows in the S&P 500 than anytime since 3/9/2009.  Unless we do a 'crash', there is a great buying opportunity close here.

The market was tricky today - it broke through the earlier morning lows, and flushed out people like me who stop loss when that happens. Now we are back to 1221ish on the S&P 500. So one could say a 'double bottom' intraday has been created, although a tricky one. I'll be watching these last 50 minutes closely.

Intraday Double Bottom Test Here

Important moment here as we go back to retest the lows earlier in the day.  As I wrote earlier, either we break and we're in bad shape, or we hold and it could be a very good thing.

If we break the lows of the day,  I'd be stopping out of positions put on earlier today and going back to cash.

Ok, Now We're Panicking

Down 3%.... things are flushing out...

EDIT 11:48 - 3.4%

EDIT 11:55 AM: Good conditions for a snap back as its getting 'egregious' out there... only problem is Europe is nutso.  But closed for the day.

EDIT 11:58 AM - on Twitter just posted if you are going long, go with a stop out versus low of the day.  I would be doing that here. Might get a retest of days low - if it breaks, have to go out again.  If we bounce, this could be a nice play to make 'fast money'.


Indeed the ECB says they have been buying Irish and Portuguese bonds, but the market doesnt seem to be too content with this after all.
  • The European Central Bank intervened in markets buying Portuguese and Irish bonds while its president, Jean-Claude Trichet, told journalists the bank's bond-buying program was not dormant.
  • Traders quoted by Reuters said the central bank was buying the bonds in the secondary market just after Trichet said, answering a question about its SMP program: "I would not be surprised if by the end of this teleconference you will see something on the market."
  • Trichet refused to comment when being challenged as to why the ECB bought only Portuguese and Irish bonds, not Italian ones.

Thus far the S&P 500 has held yesterday's lows, but with relatively "meh" data on the economic front it is surprising to see such a dramatic drop.  Time to start a new QE rumor? One a day cannot hurt.  For now Europe dominates.


Amazing statistic by CEO of Careerbuilder.com this morning on CNBC

45% of people have taken a pay CUT in their new jobs vs 23% who have received a pay INCREASE. 

That's mind blowing, and I only wish we could see that trend over time.  It continues to point to the slow erosion of the middle class via structural factors we've outlined countless times the past 4 years.

No Follow Through

While we are waiting the weekly jobless claims, futures are not looking like there is going to be any real follow through on yesterday's QE3 celebration in the afternoon.  While off the worst levels of the overnight session, most of yesterday's gains look to be erased at the open barring a material change in futures in the next hour or so.  Therefore, it appears yesterday afternoon was some combination of selling exhaustion (we're very oversold), and short sellers covering on the QE3 discussion.

Both the ECB and BOE kept interest rates steady, which was expected.  The ECB press conference today may be a form of catalyst as the marketplace is pressuring Trichet to reinstate sovereign debt purchases, which apparenly have not been utilized the past four months.  With both Italy and Spain the current focus, it would seem like Trichet would open the door to this which might appease markets.  The 'big bailout' fund (ESFS) is not yet funded, and not looking to be operational until end of year - so the market is looking for a bridge in the meantime:

  • "It is to some extent anticipated in markets that the ECB could be some kind of bridge until the EFSF is fully implemented. As we know, the EFSF is not ready before the end of this year to buy up in the secondary market, but it would be a massive positive event in markets if the ECB stepped in and put away its reluctance to act in the market," Danske Market chief analyst John Hydeskov told CNBC on Thursday morning.

Outside of that Japan intervened overnight in the currency markets as the dollar has weakened tremendously versus the yen.  Being a heavy exporting country, this is not good for Japan.
  • The Japanese yen plunged Thursday after Tokyo intervened and the nation’s central bank stepped up its monetary easing.  The action in Tokyo, which came a day after Switzerland acted to push down its own currency, marks the first time Japan has stepped into the market since the aftermath of the devastating March 11 earthquake.
  • Later in the day, the Bank of Japan announced that it was adding to its asset purchases — such easing tends to weaken currencies — even as it said that Japan’s “economic activity has been picking up steadily.”

Gold and to a lesser degree silver continue to rocket, as fiat currency debasement is the only solution governments and central bankers seem to know.

Wednesday, August 3, 2011

Nice Reversal

Not sure if that was *the* reversal but with expectations low for Fridays job reports, and whispers of QE now surrounding bears at every corner, it was a positive day.  Ending on the high was a positive.  I'd mention the moving averages but once we get going upward they don't seem to matter...

[Video] Former Fed VP Kohn Supports QE3 as Long as Inflation Slows - Market Rejoices

Here we go again! QEinfinity!  Donald Kohn (ex VP of Fed) hinted in an interview he'd support QE3 if inflation stayed subdued.  The market loves it.  Gold has been sniffing this (and more European bailouts) for weeks.  My prediction of QE by this winter is looking better by the moment.

The first two rounds of QE worked so well (I mean that 0.4% Q1 GDP was a charmer) so let's do another....

However, there will never be another 20% correction allowed in the history of the US stock market because QE will continuously be employed. ;)

Video below...

  • The U.S. economy faces a risk of falling back into recession and the Federal Reserve might need to consider a new round of securities purchases to deal with it, even though it isn’t in a strong position to address a slowdown, three former top officials at the central bank said.
  • In an exclusive interview with the Wall Street Journal, Donald Kohn, Vincent Reinhart and Brian Madigan – the last three directors of the Fed’s powerful monetary affairs committee — put the risk of a new economic contraction at between 20% and 40%. Madigan and Kohn said the Fed should consider a third round of bond purchases only if inflation slows from recent elevated levels and if the economy continues to underperform. But they cautioned a new purchase program, dubbed QE3, would not represent a cure-all.
  • Madigan, who advises Barclay Capital and teaches at Georgetown University after retiring from the central bank a year ago, said the Fed’s $600-billion bond purchases that ended in June had a “relatively modest” positive effect on the economy. “Purchases of that order of magnitude could be helpful at the margin,” he said in his first public interview since leaving the key position at the Fed.
  • Kohn was the most optimistic, saying the odds of a new recession following the severe downturn of 2008 and 2009 stood around 20%. Kohn, the Fed’s no. 2 official until Sept. 2010, still believes the economic slowdown in the first half was mainly due to temporary factors such as high food and gas prices and the impact of Japan’s earthquake on the global supply chain. But even he’s starting to lose faith in this forecast.
  • Fears that a new recession may be around the corner are hitting global financial markets and sent U.S stocks down for the ninth straight session Wednesday. U.S. consumers cut spending in June at the fastest pace in nearly two years, raising concerns that the economy is stalling largely because of underlying weakness following the financial crisis, not one-off factors. Economists have started to downgrade their forecasts for faster growth in the second half, after gross domestic product rose by less than 1% in the first six months of the year.
  • Kohn said the Fed still has some options to support the economy, but “they’re kind of limited”. He expects the central bank, which holds a policy meeting Aug. 9, to wait and see whether the recovery is really losing steam before taking any action. If that’s the case — and inflation is coming down — then he’d give “very serious consideration” to a new round of bond purchases.
  • The bond purchases can help the economy by keeping borrowing rates, which are tied to U.S. Treasurys, low and by driving investors to riskier assets like stocks. But they’ve been attacked by Republicans at home and foreign government officials for fear they’ll spark runaway inflation and have lead the U.S. dollar to lose too much value.
  • Fed Chairman Ben Bernanke told Congress last month that he’s prepared to act if economic weakness persists. But he’s also signaled that, in order to buy more bonds, the Fed must see a risk of deflation. Though there have been hints that consumer prices are cooling off, many measures of inflation remain above the Fed’s informal target of close to 2.0%.
  • The U.S. government’s jobs report for July, to be released Friday, is expected to show the unemployment rate to have remained at a lofty 9.2%. Total nonfarm payrolls are forecast to have increased by only 75,000 last month, with continued layoffs seen in state and local governments.
  • While relieved that a government default was avoided, the former Fed officials were critical of a deal approved by Congress Tuesday that allows the government to borrow more now in exchange for budget deficit cuts of as much as $2.4 trillion over the next decade.
  • Reinhart, who said he gives Congress “a very low grade” like most Americans, believes the odds of a credit downgrade by rating companies have not changed following the debt deal. Standard & Poor’s was looking for 10-year budget cuts of $4.0 trillion to confirm the U.S. top-notch AAA rating.
  • Kohn noted the deal leaves lots of uncertainty over the path of fiscal policy, making it harder for the Fed to decide what to do with monetary policy. The debt deal doesn’t specify what happens to the payroll tax cut enacted in Jan. and passes on the key long-term decisions of cutting the deficit to a bipartisan committee.
  • While more bond purchases could help the U.S. economy at the margin, Madigan said that providing more explicit guidance on how long the Fed’s short-term interest rate remains close to zero — another easing option mentioned by Bernanke — would not be so effective.
  • The Fed funds rate, or the rate at which banks lend to each other overnight, will probably stay at a record low at least until the middle of 2012, according to both Madigan and Reinhart. The Fed drove the rate down to zero at the end of 2008 to fight the financial crisis, leaving it with fewer ammunitions to lift the economy.
  • “We’re flying the plane slower and closer to the ground, so we’re less resilient to adverse shocks,” said Reinhart, who puts the odds of a new recession at 40%. Following a financial crisis, seven out of 15 countries studied by Reinhart have experienced two recession over a 10-year period.

Reuters: China's Shortcut to America via Reverse Mergers

Anyone who has been paying attention to markets the past 6 months has seen the large uptick in blowups by Chinese small caps, almost without exception companies that made it to the U.S. via reverse merger. Reuters has a quite fascinating in depth report on the reverse merger market, specifically focusing on the path many Chinese companies have taken to get backdoor listings (rather than using IPOs).  [Jun 23, 2011: List of  Chinese Reverse Mergers]  Definitely an interesting read for those not familiar with this sort of process, and eye opening in a multitude of ways.  Aside from the history of it all, it is quite amazing to see how prevalent shell companies are in this country.  Some snippets below:

  • A spate of spectacular collapses of Chinese stocks listed on American exchanges has cost U.S. investors billions of dollars. The fiasco has sparked multiple investigations. Accusations are swirling in Washington and Beijing.  It all began with an email sent out of the blue a decade ago to a Texas businessman named Timothy Halter.
  • The email came from Shanghai native Zhihao "John" Zhang. The former medical student introduced himself and asked: Was Halter interested in helping bring Chinese companies to the U.S. stock market? Zhang proposed using a backdoor method that the Texan had mastered for American firms: buying dormant shell companies listed on U.S. exchanges. Soon, Halter and Zhang brought two Chinese firms to market in America: a manufacturer of power-steering systems and a maker of vitamins, weight-loss supplements and household cleaners.
  • The email led to a boom for a niche industry of advisers who specialize in a brand of deals, called the "reverse merger," that use shell companies to give clients easy entry into U.S. capital markets. More than 400 Chinese companies seized the chance.
  • Leading the way was Halter, a slim, salt-and-pepper-haired man who played a direct or indirect part in 23 deals; staked his name on at least 20 other deals done by his Shanghai partner, Zhang; and paved the way, through conferences in China, for dozens of other deals.   His firm, Halter Financial Group, threw splashy "summits" to promote the industry, including a gathering headlined by former President George W. Bush in 2010. Its website boasts: "Reverse Merger Experts!" But deals birthed by Halter and his imitators are now blowing up.
  • Investors have alleged widespread accounting irregularities and other problems at dozens of the Chinese companies that reverse-listed in the U.S., causing share prices to nosedive. Since March, some 30 Chinese firms have seen their auditors resign and at least 25 have been delisted from U.S. exchanges.
  • Reuters interviewed nearly 100 industry participants and examined financial records of dozens of Chinese companies to paint the most detailed picture yet of the network of dozens of players involved in the reverse-mergers boom.
  • That industry hinges on a handful of leading "shell brokers" such as Halter who purvey paper companies; investment banks who specialize in financing a firm after a reverse merger; and auditors, usually small shops, who are lightly regulated in the U.S.--and not at all in China and Hong Kong.
  • The Public Company Accounting Oversight Board, the U.S. auditing watchdog, issued a report in March about potential problems with the audits of Chinese companies formed through reverse mergers. The Securities and Exchange Commission has set up a working group to examine Chinese reverse mergers, and the Federal Bureau of Investigation has opened its own broad investigation, say people familiar with the situation.
  • The Chinese reverse-merger boom and bust offer insight into a little-understood corner of American business: the widespread use of shell companies, which can offer their owners a way to minimize regulatory scrutiny. The U.S. in recent years has called for much greater transparency in global business transactions. But on American shores, opaque shell companies are rife.
  • A reverse merger hinges on a shell company-a firm without meaningful assets or operations, used as a vehicle for transactions-that's already listed on a stock exchange.A deal typically starts with a so-called shell broker, anyone from a small shop to a larger firm such as Halter's. Brokers acquire shells, often domiciled in a secrecy-friendly state such as Delaware, Utah or Nevada. The broker then sells the U.S. shell to an operating company seeking to trade on a U.S. exchange-a transaction which, unlike an initial public offering, isn't overseen by regulators.
  • The acquiring firm thus becomes a publicly-traded company, with access to U.S. investors - but without the time, expense and scrutiny of a traditional initial public offering. Companies are incorporated under state rather than federal law, and so the federal overseer of stock flotations, the Securities and Exchange Commission, doesn't as a matter of course review reverse mergers until after the deal is done.
The article goes on from there ...

First Real Panic Selling

For the first time in this selloff, we are seeing some real panic and people finally dumping some of the momentum names.  That's incrementally bullish.  I was hoping for a gap down to start the day to make it a bit 'easier' but this is doing the trick.

The S&P 500 broke the yearly intraday lows, post ISM release and we're going to get a snapback rally at some point.  People just don't want to put their hands out yet to catch the falling knife. 

I pulled the S&P 500 chart farther out than usual just to show how darn far The Bernank was able to affect the market with QE2 nearly a year ago.  Ironically, Jackson Hole Wyoming is only a few weeks away.

One of my favorite gauges - the % of S&P 500 stocks below their 50 day moving average was at a yearly low of 14% coming into the day.  Obviously this figure is lower at this very moment as we experience another selloff.

I'm more bullish today than I have been the past few weeks (again for at least a bounce).  That said crashes come from oversold conditions, so one must always have that in the back of your mind. (I'm not calling for a crash - its a low probability event)

The perfect bull scenario is a bad morning, that ends with a rally to take the market to highs of the day.  It's not always that easy, but if you see a day like that - it's a good thing.

ISM Non Manufacturing at Lowest Level in 17 Months at 52.7

Not too surprisingly, we have a weakening ISM Non Manufacturing figure - it fits in with the rest of the data.   The reading of 52.7 is down from last month's 53.3.  (Estimate was 53)  It is still expansionary as its over 50, and for the first time in a long time we see the non manufacturing reading higher than the manufacturing - probably because the service sector is slower to adjust to economic conditions.

On the negative front new orders fell, inventories rose, and employment fell.  On the positive side some pressure in prices subsided.

  • "Sales and customer traffic recovered slightly, pulling even with last year after trending lower for several months. Discretionary spending per customer has continued to decline in all areas of the operation." (Arts, Entertainment & Recreation)
  • "Sales volumes are steady. Input costs are increasing." (Agriculture, Forestry, Fishing & Hunting)
  • "Business outlook remains steady, but concerns about the second half of the year remain." (Professional, Scientific & Technical Services)
  • "Municipal government has not bounced back at a similar pace to the private sector." (Public Administration)
  • "New home construction is still very slow. Repair and remodel is the only bright spot." (Wholesale Trade)
  • "Commodities cooling off and dropping a bit." (Retail Trade)
JULY 2011
  Non-Manufacturing Manufacturing
Index Series
Direction Rate
NMI/PMI 52.7 53.3 -0.6 Growing Slower 20 50.9 55.3 -4.4
Business Activity/Production 56.1 53.4 +2.7 Growing Faster 24 52.3 54.5 -2.2
New Orders 51.7 53.6 -1.9 Growing Slower 24 49.2 51.6 -2.4
Employment 52.5 54.1 -1.6 Growing Slower 11 53.5 59.9 -6.4
Supplier Deliveries 50.5 52.0 -1.5 Slowing Slower 16 50.4 56.3 -5.9
Inventories 56.5 53.5 +3.0 Growing Faster 6 49.3 54.1 -4.8
Prices 56.6 60.9 -4.3 Increasing Slower 24 59.0 68.0 -9.0
Backlog of Orders 44.0 48.5 -4.5 Contracting Faster 2 45.0 49.0 -4.0
New Export Orders 49.0 57.0 -8.0 Contracting From Growing 1 54.0 53.5 +0.5
Imports 47.5 46.5 +1.0 Contracting Slower 2 53.5 51.0 +2.5
Inventory Sentiment 59.5 58.5 +1.0 Too High Faster 170 N/A N/A N/A
Customers' Inventories N/A N/A N/A N/A N/A N/A 44.0 47.0 -3.0
* Non-

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