Monday, October 17, 2011

Found the Website Issue

Apparently over the past few days, one of the links on the website brought by a 3rd party was infiltrated and causing issues on some of the websites it appeared on (mine included).  At the bottom of each blog entry there are three 'related links', and over the past 48 hours the company that provides that link was being attacked and hence any website that used that service was potentially exposed.  Since those links are temporary and change each time someone comes to the site and reads that story, this is why when I scanned for malware I could not find it - it had already been eradicated.

They said they have since fixed it, but it might take 24-48 hrs before Google recognizes the website as safe again.  Until then you might continue to get the message about this being a site potentially with security issues etc etc.

I've removed that linking service at the bottom of the posts for now.

You Know the Economy is Bad When....

People foresake shoes with holes in them, for no shoes at all!

Crocs (CROX) is down 35% after hours.

IBM also missed on the top line in both hardware and software - hmmmm.

With all the accounting games they can still do fine on the bottom line but you can't 'adjust' revenue.  Something to keep an eye on.  Been a long while since IBM disappointed.

Getting Some Sort of Malware Warning but no Malware Detected

For some reason in the past 30 minutes or so, Google has reported the website as suspicious with potential for malware - although when I go to the diagnostics page to find out why it says there has been no malware detected.

Not really sure what to do about it.... when I go to my analytics page it also says Google has not detected any malware.  Bugger.

Here is the page I was referenced to - any computer geniuses feel free to contact me.

Safe Browsing

Diagnostic page for

What is the current listing status for
Site is listed as suspicious - visiting this web site may harm your computer.
What happened when Google visited this site?
Of the 25 pages we tested on the site over the past 90 days, 0 page(s) resulted in malicious software being downloaded and installed without user consent. The last time Google visited this site was on 2011-10-14, and suspicious content was never found on this site within the past 90 days. 
This site was hosted on 1 network(s) including AS15169 (Google Internet Backbone).
Has this site acted as an intermediary resulting in further distribution of malware?
Over the past 90 days, did not appear to function as an intermediary for the infection of any sites.
Has this site hosted malware?
No, this site has not hosted malicious software over the past 90 days.

Blame the Germans for Today's Selloff? Too Easy of an Explanation

The popular comment today is the market is selling off due to German officials trying to ratchet down expectations ahead of this Sunday's "deadline" for a plan for a plan to be announced.  German Finance Minister Wolfgang Schaeuble said it was wrong to expect a miracle.   So the market is selling off 2%.  Just like it rose last week.... because of the same people were happy enough to let speculation rise to a fervor pitch about said miracle (under guise of a bazooka).
  • "We won't have a definitive solution this weekend," he said.  Schaeuble said the plan would have to include a reduction in Greece's debt mountain. He repeated at the weekend that private bondholders would have to accept steeper voluntary write-downs on their Greek holdings than the 21 percent agreed last July.
  • A lead negotiator for the banks said this could only happen if policymakers addressed the "full range" of sovereign debt issues in Europe. Charles Dallara of the Institute of International Finance (IIF) declined comment on reports that the private sector might have to take a 50 percent loss.

More likely, this was an extremely overbought market which had essentially jumped 13% in 7.25 sessions.  The shorts were squeezed one last time in the closing moments Friday to take the S&P 500 to resistance at 1225 - which was not only the late August highs, but also the 100 day moving average.  So we found a convenient excuse to sell 'em - blame the Germans..

Frankly I did not think it would be so 'clean' as running to 1225 and then reversing on a dime - appeared way too obvious to me, but this time obvious was the right choice.  Now we are back in that little range between roughly 1190 (1188 when we broke through, 1191 currently) and 1225.  We've only just given back a fraction of what was gained the previous two weeks, so nothing to worry about yet.  If there is a close below 1185 in the coming days then we appear back to this multi month whip saw between roughly 1120 and 1220.

Big picture remains over 1240, more constructive, below 1120 more damaging - everything in between just a trader's world.

IBM after the bell will be a good report to watch - they have been hitting home runs constantly the past few years as they've become one of those global multinational powerhouses in which the majority of revenues now come from overseas.  Will be curious what they have to say about the economy - engine maker Cummins finally admitted to slowdown after 2 months ago not seeing it.

  • The US and much of Europe may already be in recession while demand is dropping sharply in emerging markets, the head of one of the US’s biggest manufacturers has warned
  • In an interview with the Financial Times, Tom Linebarger, who will take over as chief executive of Cummins, one of the world’s biggest engine-makers, in January, said he expected the next six to nine months to be a highly uncertain time for the global economy, “Europe could drive another global recession pretty easily,” he said. “Some of the countries in Europe are already in a second recession or will be shortly. That could get a lot worse.”
  • The US is much in the same spot,” Mr Linebarger added. “We’ll find out in three or four months if we’re already in recession but it wouldn’t surprise me to find out that the US is already in negative growth, once all the figures are adjusted, or we’re very close to that. I’m very concerned about that.
  • “We’re seeing the effect in Europe on our business, though what worries me the most is the effect European problems will have on the rest of the world. The US is already weak. If Europe gets a bad cold, the US will get much sicker.”
  • The Cummins chief said he was also worried about emerging markets, whose growth has boosted the manufacturer’s bottom line and is expected to make up an increasingly important part of its revenues in coming years. Three-fifths of the company’s revenues come from outside the US.  “In China and India, their economies are doing well but inflation rates are high, so they’re cutting back on demand and raising interest rates to get inflation under control, which is hurting our markets,” he said. “All those things are near-term concerns of mine.”
  • Mr Linebarger’s comments contrast with recent data that suggest that the US might avoid economic contraction this year, as well as with Cummins’ own projections for its growth in the next four years. Mr Linebarger explained that those targets were longer term, and that the company did not assume growth would be steady.

No position

How is Your Country's Market Performing this year?

We're doing quite good relatively, 12th out of 78 countries.  And frankly, second among countries 99% of people would actually invest in (Indonesia continues to be the star of the past three years). The BRICs have struggled all year, and continue to do so - should set up a nice buy somewhere in the next 9-15 months though in that group.   Europe - no explanation needed.

Via Bespoke

[click to enlarge]

[Video] Just Because He's So Darn Entertaining - 3 Howard Davidowitz Clips

Like the somewhat crazy uncle at Thanksgiving, Howard Davidowtiz is back on Yahoo Tech Ticker.  He opines on topics from Occupy Wall Street to Howard Cain... and yes even his specialty, retail.  A lot of the discussion between Aaron, Henry, and Davidowitz should be very familiar to long time FMMF readers - it's just that these discussions have hit the mainstream the past 12-18 months.

(I) Sales Up, but Confidence Down - Here's Why It Makes Sense

[5 min video]

  • A strange economic trend appears to be emerging with American consumers. Retail sales have been trending higher while consumer confidence is at a 30-year low.  Retail sales grew 1.1% in September, the fastest pace since February, we learned on Friday. Even excluding strong auto purchases, the figures were better than expected. All this, even in the midst of stock market tumult and fears of another recession
  • Meanwhile, those same economic concerns are still weighing on confidence. Consumer confidence plunged more in October than expected, according to the Thomson Reuters/University of Michigan index. It's now at the lowest measure since May 1980.
How is this contradiction possible?
  • Howard Davidowitz, president of Davidowitz & Associates says it's simple. "We have got a bifurcation that keeps getting bigger and bigger," he explains to Aaron and Henry in the accompanying clip.  What accounts for the increase in sales is the top earners in the country are doing fine. "Ten percent of the consumers account for 40% of the spending," he says. This group is primarily made up of college graduates who are not suffering from massive unemployment. In fact, unemployment for that segment of the population is under 5%.
  • But, there's another larger group that's struggling to get by, which explains the consumer worry. "Eighty percent of consumers are in a depression," says Davidowitz.  It's this growing gap between the haves and have-nots that is responsible for the Occupy Wall Street movement, says Davidowitz.

(II) Occupy Wall Street Uprising a Response to "Bought and Paid For Politics"

[6 min video]

  • After a month in lower Manhattan, Occupy Wall Street is going global. 
  • "Social unrest goes with bought and paid for politics, which is what we have," says Howard Davidowitz of Davidowitz & Associates. "Everybody is a bold-faced liar - Republicans and Democrats."
  • The real cleanup needs to be in and of Washington D.C., Davidowitz says. "If we can only get these guys to do a little bit of honest work, I'm telling you this mess can be cleaned up," he says, suggesting America could once again use a man like Ross Perot -- a third party candidate who focused the nation's attention on the deficit.
  • Indeed, one goal of the movement I've observed, which has been under-reported to date, is campaign finance reform. 
  • No fan of the movement -- which he compares unfavorably to the Tea Party -- Davidowitz believes Occupy Wall Street is a reaction to a corrupt, dysfunctional political system and "a massive unfairness and criminality in everything we're doing."
  • Henry, meanwhile, believes the problem is more fundamentally about economics, as detailed in a recent post on Business Insider: "The problem in a nutshell is this," he writes. "Inequality in this country has hit a level that has been seen only once in the nation's history, and unemployment has reached a level that has been seen only once since the Great Depression. And, at the same time, corporate profits are at a record high."
  • "In other words, in the never-ending tug-of-war between 'labor' and 'capital,' there has rarely—if ever—been a time when 'capital' was so clearly winning."

(III) Here is Why Herman Cain's Popularity Boost Won't Last

[5 min video]

  • Former Godfather's Pizza CEO Herman Cain has taken the lead in the Republican polls for President. His popularity has jumped 22% in six short weeks, according to a new Wall Street Journal/NBC News poll.
  • "I think he is a real person and that is why he is ahead in the polls," says Howard Davidowitz, chairman of Davidowitz & Associates. "He is not a robot."
  • The big question on the minds of many is whether Cain's popularity will wane as fast as it surged, just like it did for Perry and Rep. Michele Bachmann (R-MN), while the Republican party tries to find a candidate who is NOT Romney, but who can win against President Obama.
  • Davidowitz is not convinced Cain is the candidate who can beat Obama for two reasons:
  • 1) He does not have enough money in his campaign coffers …
  • 2) and as a result his staff is too small and not as organized as others.
  • The way Davidowitz sees it, even though "the Tea Party is not in love with Mitt Romney," he is the one person who can — and will likely -- beat Obama.

First Test at Breaking Through 200 Day Moving Average this Week

After a relentless two week rally, the S&P 500 finished off last week skimming along the 100 day moving average, and reaching old highs from late August, around 1225.  The level is not so surprising - but the incredibly short duration to get there, from where the market sat just 1.75 weeks earlier is.  There has been almost no relent to the move, and now we are approaching overbought levels.

Just above the 100 day is the very important 200 day moving average.  One can see that in late July, once that level broke, it was a swan dive.  In theory, after such a huge move, it would be very difficult to break through a key resistance area without at least some rest - but we've seen strange things the past few years, so anything is possible.  Much like how we broke support at 1220 which led to an avalanche of sell orders (bulls throw in the towel) just two weeks ago, the opposite would happen on a break over that 200 day moving average for the bears.  Which ironically, just might cause a selloff - we'll see how it plays out.  Either way, after such a big move and with a key resistance area ahead, one would assume a more bidirectional market.

Europe remains Europe - the first key deadline for "bazooka solutions" is this Sunday, and then another comes November 4th.  Obviously the market has been dominated by Europe for months.

The economic docket is light this week, and is dominated by reports on housing and inflation which the market has long ignored.  A couple of regional Fed surveys might catch traders momentary interest.  For now expectations have fallen so low for the economy that even "meh" data is making people happy.

Earnings season ratchets up this week, with a lot of the S&P 500 type of multinational companies reporting.  This will give us something to look at other than Europe...

Sunday, October 16, 2011

WSJ: Many 'Focused" Mutual Funds Have Rough 2011

The WSJ takes a look at the struggles of the 'focused funds' category of mutual funds; which includes some of the best known 'star' managers.  I continue to be amazed by the struggles of CGM Focus  (CGMFX) (Ken Heebner) who had one of the best decades in the history of investing up through mid 2008.  And the latest casualty is Fairholme (FAIRX), as Bruce Berkowitz has his hands deeply soiled by the financials.  Interestingly, both funds started going downhill within a short time of a cover story in a major financial magazine!

There are definitely plus and minuses of this focused strategy, as it helps you out perform, but without capital risk management, you could under perform by a wide margin as well.

  • Scan the list of the worst-performing mutual funds of 2011, and you will run across a slew of formerly highflying fund managers whose picks have crashed and burned.  The Fairholme Fund, managed by renowned investor Bruce Berkowitz, has lost more than 27% this year, according to investment-research firm Morningstar. Ken Heebner's CGM Focus has lost more than 22% and Bill Miller's Legg Mason Capital Management Opportunity has dropped almost 35%.
  • A common thread runs through the failures. Each manager's fund owns fewer than 50 stocks or has more than half of its money tied up in its top 10 holdings.  Such so-called focused funds are designed to let star managers shine. Instead of being bogged down in hundreds of stocks, where even a great pick will have only an incremental impact on the fund's return, the manager can home in on the few companies he or she is most excited about.
  • When those picks outperform, the manager is a hero. Morningstar named Mr. Miller "domestic stock fund manager of the year" in 1998. Mr. Berkowitz was "domestic stock fund manager of the decade" in 2010. But just a few sour picks can cause such funds to plummet. 
  • This year, Mr. Berkowitz's Fairholme has been hurt by its 17% allocation to American International Group, which has lost more than half its value. The fund also holds significant stakes in Bank of America (down 53% year to date) and St. Joe (down 30%). 

  • "If you concentrate your assets, you must really believe in your idea," says Emory assistant finance professor Klaas Baks. "You can see that in better returns." In the meantime, a manager's strong conviction in the eventual salvation of a company can lead to wild swings in performance.
  • Legg Mason Capital Management Opportunity shot up more than 84% in 2009. This year, the fund's share price has dropped by more than a third.

Here is another key reason it helps if a manager tries to mitigate wild swings:
  • ....some investors won't have stuck around for the rebound. That is because they tend to get out of funds after bad years and dive in after good ones, often after the rebound has run its course.
This is an amazing statistic!
  • CGM Focus, for example, has made almost 10% annually over the past decade, but the fund's shareholders have lost more than 7% annualized through September, according to Morningstar. The firm calculates investor returns by incorporating the effect of money flowing into and out of the fund as shareholders buy and sell.

Mother Jones - Who Are the 1%?

Some interesting graphs from Mother Jones, as the world gets peeved at "the 1%".  As for myself, I hope most of my readers are in the top 1% ;)  While graph 3 gets most of the attention, I think graph 2 might be the longer term issue - at current trends, in a few generations just about all the country's wealth will be in a relatively tiny amount of hands. 

Even though the richest 1 percent of Americans don't all work on Wall Street, they do control a disproportionate amount of its wealth, including nearly half of all stocks and mutual funds and more than 60 percent of securities.

But you can't beat this chart for the most dramatic measure of just how wide the gap between the tippy-top and the 99 percent has become. While incomes for the superrich have skyrocketed in the past three decades, most Americans' have flatlined. 

Friday, October 14, 2011

U.S. via IMF and BRIC Nations Set to Prop Up European Rescue Fund

Markets were very happy this morning on news reports that both BRIC nations and the U.S. itself (via IMF, which it has a large funding stake in) were prepared to contribute to the European rescue fund.  Since the IMF is a mystery to Average Joe, most won't realize U.S. tax dollars are going in this direction...

Here is the Geithner interview - 15 minutes, email readers will need to come to site to view

  • The U.S. plans on being an active partner as efforts intensify to get Europe get back on its feet financially, Treasury Secretary Timothy Geithner told CNBC Friday.  With global leaders preparing for next month's G-20 summit in Cannes, France, the International Monetary Fund — of which the U.S. is the greatest contributor — is being relied on to help underwrite whatever efforts are needed to backstop toxic European sovereign debt.
  • Geithner said the IMF has "very substantial" resources to fund a device that could look like the Troubled Asset Relief Program, which helped navigate American financial institutions through the crisis in 2008 and 2009.  "Through the IMF, of course, we're already playing a very major role," he said in a live interview in Paris. "We're happy to see the IMF continue to play that role in support of a more forceful, comprehensive strategy where Europe's own resources—very ample resources—are deployed on a much more substantial scale."
  • Geithner declined to give a specific number on what would be required to aid Greece and any other potential countries that need help meeting their obligations. Estimates have run as high as $2 trillion for a liquidity fund, and Geithner said that whatever the figure is, it should leave no doubt that there will be more than enough.  "A basic rule of financial crises management is you want to make sure you have a level of resources that are larger than the potential need you face," he said. "If markets see that then they'll have the incentive to continue to lend, invest, to get more exposure to those countries."

Very very similar language in this story late yesterday on the role of some of the BRIC nations.... the last sentence is the funniest one.  Essentially rather than China giving money directly to European banks the path is China--->IMF---->European country--->European bank

  • Emerging market countries are working on ways to contribute money rapidly to expand the effective firepower of the International Monetary Fund, with the aim of increasing its role in combating the eurozone sovereign debt crisis.
  • The discussions, in parallel with talks in the eurozone about creating a bigger “bazooka” to intervene in financial markets, are aimed at producing a confidence-boosting announcement by the Group of 20 heads of government summit next month.
  • People familiar with the discussions say governments are considering either funding an IMF-run special purpose vehicle (SPV) or lending to the IMF by buying special bonds. Although details have not been worked out, the increased firepower could be used to finance new IMF credit lines to prevent contagion from the Greek crisis spreading to Italy and Spain, or to recapitalise European banks.
  • A European official said: “We’re increasingly coming to the view that the eurozone crisis is too big a problem for Europe to solve on its own. If you want to sort it out properly you need American and Chinese money, which means the IMF.”
  • The Bric (Brazil, Russia, India, China) countries favoured a procedure used in 2009 when individual governments pledged to buy special bonds issued by the IMF, a person familiar with the Brazilian view said.
  • IMF staff have produced a range of options at the behest of emerging market governments, of which two are most likely. One is an SPV that would lend money under the auspices of the fund, but would take in money separately to the normal government contributions to the IMF.  The second is the bilateral option currently preferred by the Brics.
  • Eswar Prasad, formerly head of the IMF’s China division, said the proposals would allow big emerging market countries to help bail out Europe without buying eurozone sovereign bonds directly, which would expose them to loss. The plans could also be wound up after a number of years.  “The emerging markets have now found ways of donating money to the IMF which are likely to be domestically politically acceptable,” Mr Prasad said.
  • Another person familiar with the discussions said the money could be used for public bank recapitalisation. “This solves the ownership problem of China buying big stakes in a European bank,” he said. “Instead, China gives money to the IMF; the IMF to France; and France to its banks.”

Thursday, October 13, 2011

Google (GOOG) Smashes Estimates with $9.72 Quarter vs $8.76 Estimate

Oh I am so glad to talk about something other than Europe for the first time in a few months.  Google (GOOG) is the first interesting company to report and had pulled an Apple with an under promise and over deliver, beating estimates by almost a dollar.  The stock is up about 8-9% in early action.  Full report here.

Google net revenue jumped $7.51 billion, compared with estimates of $7.31 billion.  (this is "net" of acquisition costs)

Traffic acquisition costs were $2.21 billion.

Google's tax rate a paltry 19% - must be nice. Double Irish and Dutch Sandwich is working out well (55% of revenue is now overseas, and it won't be repatriated anytime soon). (see related Blopmberg story)
  • Google Inc. cut its taxes by $3.1 billion in the last three years using a technique that moves most of its foreign profits through Ireland and the Netherlands to Bermuda.

Technically the stock had just eeked over the 200 day moving average the past few days...

No position

Another Nice Bounce off the 50 Day

We have had some very constructive action today as the S&P 500 came down to test that 50 day moving average and has bounced smartly.  NASDAQ continues to be the leader, and almost every day NASDAQ leads and the rest seems to follow. 

Supposedly this afternoon rally is due to some encouraging words from the ESFS chief, but frankly I just think with such low volume out there, this is all machines and technicals dominating.
  • The euro is creeping back toward breakeven on the day against the dollar, and US stock prices are following the euro higher, after Klaus Regling, chief executive of the European Financial Stability Facility, said Italy and Spain will be able to fund themselves and won’t have to tap the newly expanded bailout program.
(blah blah blah Charlie Brown teacher's voice blah blah blah)

We sort of have 3 major areas in the market now - below this 1188 we just broke through, between 1188 and 1225-1235, and then let's say roughly 1240 or higher. 

The action in equity markets is interesting in light of relative weakness in a lot of commodities; but that group has improved as the U.S. dollar weakens and the euro rallied on (apparently) the comments above.

Sina (SINA) Trading in its Own Zone

Not really sure what is happening in Sina (SINA) today - it's up 13% on a day where not much is happening in the market.  Maybe some speculators reaching for a beta trade on a slow day.  Can't seem to find an analyst upgrade or anything of that sort.

This name was hit along with a bunch of the cChinese internets a few weeks ago on the reports of regulators looking into accounting...

It's obviously right below a hoard of resistance...

EDIT 1:08 PM - reader says an upgrade today by a research firm.

No position

Do Yesterday's Fed Minutes Indicate QE3 on Horizon?

If the market had not been so stretched yesterday, the minutes of the Fed's last meeting - released yesterday afternoon- would have created a celebration amongst those who worship at the altar of Fed assistance.  While there were 3 dissents from any further action, there are already 2 members voting for more aggressive action than already taken (Operation Twist).... hint:  outright bond purchases (we can bet one of those was VP "Easy Money" Yellen).  Talk about a wide divergence.

As the composition of the voting board changes Jan 1st - apparently one more dove should join the bloc - we'll see better clarity of how the 2012 version of the Fed votes soon enough.  In the past the Fed was apt to stand pat during election years, for fear of being seen as favoring one party or another but in this cycle it seems it's all steroids, all the time.

As always we will go with the media mouthpiece for the Fed - the WSJ's John Hilsenrath

  • Federal Reserve officials weighed several options for boosting the economy when they met in September and could revisit those measures—including more bond purchases—if the recovery continues to flounder.
  • Minutes of the Sept. 20-21 meeting of the policymaking Federal Open Market Committee, released Wednesday after the customary lag, showed officials had conversations—in which they disagreed often—about what to do next. 
  • The committee agreed on a plan to shift the Fed's $2.65 trillion portfolio of securities toward longer-term securities and more mortgage debt than previously planned in an effort to bring down long-term interest rates. The hope is that lower rates will spur more spending and investment.
  • Three officials dissented because they didn't want the Fed to act—Richard Fisher, president of the Federal Reserve Bank of Dallas, Charles Plosser of the Philadelphia Fed and Narayana Kocherlakota of the Minneapolis Fed. 
  • Two others, who weren't named in the minutes, wanted even more aggressive action to bring down high unemployment. They didn't dissent in part because the Fed wasn't ruling out additional steps at future meetings. Chicago Fed President Charles Evans, currently a voting member, has publicly advocated more aggressive efforts to aid the economy. But his spokesman declined to confirm he was one of the two officials urging a bolder move.
  • More Fed bond-buying is controversial in and outside the central bank. Opponents object because it potentially weakens the dollar and they believe it could cause higher inflation. Supporters say it could help the economy by lowering long-term interest rates and boosting stocks, and that a lower dollar would help exports.
  • The measure isn't a foregone conclusion. "A number" of Fed officials at the meeting thought buying more securities would be "a more potent tool that should be retained as an option in the event that further policy action to support a stronger economic recovery was warranted," the minutes showed.
  • Others argued that the Fed should take this step only if a Japan-style deflation—marked by falling consumer prices and economic stagnation—threatened to take hold. For now, it doesn't look as if deflation is a threat. "Inflation had yet to come down as much as participants had expected earlier this year," the minutes noted.
  • Officials debated other steps to help the economy. One idea was to lower the 0.25% rate the Fed pays banks on their cash deposits at the central bank. Lowering the rate could help stimulate bank lending, some argued. But others feared the move would disrupt short-term lending markets because investors and banks are making so little in those markets now. Those fears won out.
  • Some officials want the Fed to say how much inflation would need to rise or how much unemployment would need to fall to spur the central bank to raise interest rates. Although they took no action, the minutes showed they held out the possibility of providing more guidance on this front when they release their quarterly economic projections. The next batch is due in November. 
  • Fed officials generally were downbeat about the economy. While most didn't anticipate a recession, several noted that, with growth slow, the recovery was vulnerable to shocks. They cited "significant" risks, including persistent debt reduction and spending restraint by households, tighter U.S. fiscal policy and potential spillover of Europe's financial troubles

Bloomberg: U.S. Truckers Fuel Purchases Drop the Most in 10 Years, in Any "Non Recessionary" Quarter

Yesterday we looked at the data for imports in our nation's busiest ports - today we have some data on trucking fuel purchases.  In a way, I'd find the fuel purchasing data more damning as trucks are moving product for both import and export.  So it's one thing to say the U.S. economy is relatively comatose (imports) but we'd at least like to see exports doing well.  According to the data, this last quarter saw the steepest drop off in fuel purchases of any "non recessionary" quarter during the past decade.

  • U.S. truckers’ fuel purchases dropped the most in the three months through September of any quarter in the past 10 years, excluding recessions, as deliveries slowed to retailers, factories and consumers.
  • The Ceridian-UCLA Pulse of Commerce Index, which measures the volume of driver purchases at fueling stations nationwide, dropped at an annualized rate of 4.3 percent in the three months through Sept. 30. The breadth of truckers’ deliveries makes their fuel purchases an indicator of economic health.
  • “Since June, trucking activity has been receding at a pace that would be expected to show up in other economic measures soon,” Ed Leamer, the index’s chief economist, said in a report. “Two or three more months like this would confirm an official recession.
  • The Ceridian index may be a better gauge of future economic growth than some government data because it won’t be restated, Leamer has said. (lol - that's an understatement... it also won't be 'adjusted' over the years by political pressure as almost every other government report has been) The index’s decline suggests a third-quarter growth rate of zero for U.S. gross domestic product, he said. (don't worry - official statistics will show something far in excess of zero)

As an aside, while equity markets have been snorting the cocaine of intervention the past 6 days - please note, after a dead cat bounce, copper has done nothing the past 3 sessions.

No positions

Something I Learned Today

Apparently if credit default risk widens on a bank, and its bonds get hit, the bank can count that as income.  Gosh you have to love U.S. accounting standards.

From Business Insider:

The one item everyone is raising red flags about is the $1.9 billion pretax DVA gain.  DVA is short for debt valuation adjustment.

Bloomberg explains the DVA:

[R]esults may include gains taken under a U.S. accounting rule known as Statement 159, adopted by the Financial Accounting Standards Board in 2007, which allows banks to book profits when the value of their bonds falls from par. The rule expanded the daily marking of banks’ trading assets to their liabilities, under the theory that a profit would be realized if the debt were bought back at a discount.

In other words, when investors and traders bet against a banks' bonds, causing credit default swap spreads to soar, the bank is allowed to book a mark-to-market gain.

Last year, Bloomberg spoke to Oppenheimer analyst Chris Kotowski who called the DVA an "abomination."  He explains, "Just because Morgan’s credit spreads widened out this quarter doesn’t mean that their ultimate interest and principal payments changed one iota."


Apparently this rule was passed by FASB in 2007.  I wonder who lobbyed for it?  More importantly what sort of accounting standard do you have when lobbying is part of it.  What a joke.

....a U.S. accounting rule known as Statement 159, adopted by the Financial Accounting Standards Board in 2007, which allows banks to book profits when the value of their bonds falls from par.

Ironically these same banks went to cry to the accounting board that mark to market should go away (which FASB did in April 2009), since its unfair - and really what does the market know about fair value pricing?

But apparently exceptions can be made.

Wednesday, October 12, 2011

13% on the S&P 500 Since Last Tuesday 3 PM

Remarkable.  Now it becomes interesting.

NYT: What are U.S. Ports Saying About the Economy?

Outside of official government reports, many like to look at transport metrics such as railroad and port data.  Obviously to dictate the health of the U.S., imports are going to say a lot more than exports.  Based on August port traffic (ahead of the holiday season) it appears 2011 is not going to be as rosy at 2010.

  • Analysts have been raising their predictions for holiday spending ever since the back-to-school shopping season was stronger than most had expected.  But the people who work at the companies that ship and transport retailers’ goods are not nearly as optimistic about holiday sales.
  • When retailers expect that Americans will be crowding into their stores, their orders pile into the nation’s ports in August and September for delivery to stores by late October. But logistics companies say that is not happening this year.“We’re concerned, because usually at this time, you see this peak,” said Richard D. Steinke, the executive director of the Port of Long Beach in California. “We haven’t seen it.”
  • In Long Beach, the second-busiest container port by volume, August imports fell by 14.2 percent from August 2010. While the port has not yet released September volumes, a spokesman, Art Wong, said it expected about a 15 percent drop from September 2010.
  • The holidays receive outsize attention, because sales in November and December tend to make up about a fifth of retailers’ sales for the whole year. And retail sales are a crucial indicator of economic health, given the importance of personal consumption in keeping the economy afloat. 
  • In recent weeks, many retail analysts and trade groups have issued fairly positive forecasts about holiday sales. Last Thursday, the National Retail Federation said it expected holiday sales to rise 2.8 percent over last year. And late last month, the federation said it expected port volumes to rise by at least 4.5 percent a month for the final four months of the year.
  • In contrast, the people who work at ports, and at train and trucking companies, say the shipments do not seem to be high enough to signal strong holiday sales. Higher shipping volumes are “a prediction that sales are going to go up,” Mr. Steinke said. “The N.R.F. and some of those groups have said there’s going to be an increase in volume coming through the ports. When our August numbers are down and carriers say future loadings aren’t all that great, you wonder where that peak is coming from.”
  • While Mr. Steinke said that retailers occasionally delayed shipping for as long as possible to see how the economy progressed, he said they usually gave transportation companies a heads-up if they were planning a lot of last-minute orders. This year, he said, the retailers do not seem to be expecting that.  “We talk to the railroads, we talk to our ocean carriers, and they’re not seeing this big peak, or bracing themselves for a big late peak,” Mr. Steinke said.
  • The slowdown seems to be occurring on land, too.  “We’re not seeing any real, significant peak,” said Steve Branscum, group vice president for consumer products marketing at the Burlington Northern Santa Fe Railway, referring to the company’s import business. The railway typically has increased imports in August through November. But this year, he said, “the last three months, July, August, September, our numbers have been pretty flat compared year over year to the same month, and the West Coast imports have been down a little bit.”  
  • FedEx’s chairman and chief executive, Frederick W. Smith, said last week that shipping across the Pacific in June through August “was a bit lighter than we had thought it would be.” During that period, international priority shipments fell compared with a year earlier, the company said in its conference call in September. Alan B. Graf Jr., the chief financial officer, offered a detail. “Simply stated, we put capacity out anticipating traffic that did not materialize,” Mr. Graf said.
  • Mr. Smith said FedEx was now expecting a 2.5 percent to 3 percent increase in holiday shipping volumes this year; in 2010, it had a 15.4 percent increase.

Good or Bad? Walmart (WMT) Says Things are Picking Up the Past Quarter

Back in 2007 (while the market was still "forecasting" rosy times) [Dec 6, 2007: Target Shoppers Turning into Walmart Shoppers] and first half 2008, the stock of Walmart (WMT) really took off.  This was part of our 'pooring of America' theme, as I opined the U.S. consumer was finally going to take a massive hit without the house ATM to rely on.  Let's not read 'too much' into it yet, but Walmart is out this morning with a quite positive business review - and the stock seems to be breaking out.  If the Main Street economy is improving, you don't want to see a pick up in sales at Walmart.

Via WSJ:

  • Wal-Mart Stores Inc. says it is finally poised to end its nine straight quarters of declining sales at stores open at least a year in its core U.S. business. Executives for the world's largest retailer said during the company's annual meeting for analysts Wednesday morning that comparable store sales at U.S. Wal-Mart stores have been positive for the past three months, leaving Wal-Mart on track to report an end to its domestic slump when it discloses earnings next month.
  • "From about May we have been on an upward trend," said U.S. president Bill Simon, adding that the company has had positive comparable-store sales for the three months ending in September.
  • Chief Executive Mike Duke said the company is seeing signs of an emerging class in many developing nations, presenting opportunities for growth, yet is still seeing a depressed consumer in the U.S.  "Here in the U.S., there really is an income bifurcation," Mr. Duke said, adding, "Our customers still have concerns about jobs."

[Apr 10, 2008: Walmart Continues to Suck Wind from All Other Retailers]
[Nov 10, 2009: Walmart Executive: "There are Families Not Eating at the End of the Month"]

No position

Shoud be Overbought by End of Week

Well I was wrong that we cannot continue to rally on the same news.  Today we seem to be happy that Slovakia will approve expanding the ESFS.  Even as yesterday we did not sell off on the threat they would not.  So all news is good news again.
  • Slovakian leaders are meeting again to vote on the expansion of the European Financial Stability Facility (EFSF), after a party in the ruling coalition failed to back the plans in yesterday's vote. The government lost its confidence vote and the President is expected to  appoint an interim cabinet, meanwhile Slovakia is expected to approve the expansion of the EFSF in its second vote.

Just as everyone had their eyes on S&P 1120 for months on the low end, now everyone has eyes on 1225 on the high end.  My only worry is so many people are looking at it, it seems far too obvious as a resistance area.

As each day passes, we will soon reach an overbought reading - even as just over a week ago we were massively oversold.  At current pace by Thursday or Friday we seem apt for selling.  But in general this market just remains one big macro trade - risk on, risk off.

Tuesday, October 11, 2011

NYT: As Its Economy Sprints Ahead, China's People Are Left Behind

The New York Times is running a series of stories on the Chinese economy; the second of which came out a few days ago.  There are quite a few surprising pieces of information in this one, as the view from the West is a great middle class is emerging in China, as labor wage arbitrage drives tens of millions of jobs away from developed economies and into theirs.  But some of the statistics were interesting to say the least - seems like China is having a very similar issue to the United States where even as the economy grows, a disproportionate amount of the spoils are going to the capital (or political) class rather than the labor class.  Actually that is not the only similarity - see this passage

the government keeps the interest rate on savings accounts so artificially low that it cannot keep pace with China’s rising inflation.

It's quite a lengthy article, worth the read - I'll bring over some of it here.

  • Under an economic system that favors state-run banks and companies over wage earners, the government keeps the interest rate on savings accounts so artificially low that it cannot keep pace with China’s rising inflation. At the same time, other factors in which the government plays a role — a weak social safety net, depressed wages and soaring home prices — create a hoarding impulse that compels many people to keep saving anyway, against an uncertain future.
  • Indeed, economists say this nation’s decade of remarkable economic growth, led by exports and government investment in big projects like China’s high-speed rail network, has to a great extent been underwritten by the household savings — not the spending — of the country’s 1.3 billion people.
  • This system, which some experts refer to as state capitalism, depends on the transfer of wealth from Chinese households to state-run banks, government-backed corporations and the affluent few who are well enough connected to benefit from the arrangement. Meanwhile, striving middle-class families like the Wangs are unable to enjoy the full fruits of China’s economic miracle. 
  • “This is the foundation of the whole system,” said Carl E. Walter, a former J. P. Morgan executive who is co-author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise.” “The banks make loans to who the Communist Party tells them to,” Mr. Walter said. “So they punish the household savers in favor of the state-owned companies.”
  • It is not just China’s problem. Economists say that for China to continue serving as one of the world’s few engines of economic growth, it will need to cultivate a consumer class that buys more of the world’s products and services, and shares more fully in the nation’s wealth.
  • But rather than rising, China’s consumer spending has actually plummeted in the last decade as a portion of the overall economy, to about 35 percent of gross domestic product, from about 45 percent. That figure is by far the lowest percentage for any big economy anywhere in the world.
[click to enlarge]

    • Here in Jilin City, where chemical manufacturing is the dominant industry, the state banks are flush with money from savings accounts. The banks use that money to make low-interest loans to corporate beneficiaries — including real estate developers, helping fuel a speculative property bubble that has raised housing prices beyond the reach of many consumers. It is a dynamic that has played out in dozens of cities throughout China.
    • Meanwhile, China’s central bank in Beijing also depends on the nation’s vast pool of consumer savings to help finance its big investments in the foreign exchange markets, as a way to keep the currency artificially weak. The weak currency helps sustain China’s mighty export economy by lowering the global price of Chinese goods. But it also makes imports unaffordable for many Chinese people.
    • News reports of the nouveaux riches in Beijing and Shanghai snapping up Apple iPhones, Gucci bags and Rolex watches may conjure Western business dreams of China’s becoming the world’s biggest consumer market. But consumer choice here in Jilin and many other heartland cities is confined largely to the limited offerings of dingy state-run department stores and mom-and-pop shops. Any sales of global “brands” come mainly in the form of the counterfeits and knockoffs often sold at outdoor markets.
    • Why would China, which hopes eventually to surpass the United States as the world’s biggest economy, deliberately suppress the consumer market that might help it reach that goal? Some analysts trace the current policies to habits formed in the late 1990s. That’s when the bloat of China’s giant, uncompetitive state-run corporations nearly brought China’s economic expansion to a standstill. Suddenly, with state-owned companies facing bankruptcy, the state banks were saddled with hundreds of billions of dollars in nonperforming loans; many banks faced insolvency.
    • To avert a crisis, Beijing allowed state-owned companies to lay off tens of millions of workers. In 1999 just one of those companies, the parent of PetroChina, a big oil conglomerate, announced the layoff of a million employees. And to shore up the banks, Beijing assumed tighter control over interest rates, which included sharply lowering the effective rates paid to depositors. A passbook account that might have earned 3 percent in 2002, after inflation, would today be effectively losing 3 to 5 percent, once inflation is factored in.
    • That is how Chinese banks can provide extremely cheap financing to state-owned companies while still recording huge profits. It has also helped the banks provide easy financing for big public works projects, which besides the high-speed train system have included the 2008 Beijing Olympics and the monumental Three Gorges Dam.
    • It was during this same period that the Communist government discarded the longstanding “iron rice bowl” promise of lifelong employment and state care. Beijing shifted more of the high costs of social services — including housing, education and medical care — onto households and the private sector.Together, these measures added up to the managed-market system now known as state capitalism. 

    Fascinating stuff.

    Reuters: Wall St. Protestors Target Homes of Top Executives

    Hmm... in 2007 I opined despite the slow erosion of the middle class [Dec 2007: Do the Bottom 80% of Americans Stand a Chance?], that as long as you gave the people food stamps, American Idol, and NFL they will remain contained (i.e. the circus and bread strategy employed in Roman times) for a very long time.  Perhaps I was wrong it could last a decade or two more.  It appears the natives are waking up.  Latest story is a move to protest outside the homes of the country's politically favored.

    Hmm... anyone have directions to Greenspan's house?

    • The Occupy Wall Street movement will take its protests to the New York homes of super-wealthy executives on Tuesday as Goldman Sachs boss Lloyd Blankfein canceled a talk at a college in the city.
    • Protesters will march through Manhattan's Upper East Side on a "Billionaire's Tour" to take their grievances about economic inequality to the homes of News Corp's Rupert Murdoch, JPMorgan Chase's Jamie Dimon and others.
    • As the movement builds strength around the United States, Blankfein canceled a talk at New York's Barnard College, saying he had to be in Washington.
    • About 100 protesters were arrested earlier on Tuesday in Boston after the group expanded its camp. The "Billionaire's Tour" on Tuesday also plans to stop at the homes of David Koch, co-founder of energy conglomerate Koch Industries, and hedge fund manager John Paulson.
    • "Join us on a walking tour of the homes of some of the bank and corporate executives that don't pay taxes, cut jobs, engaged in mortgage fraud, tanked our economy ... all while giving themselves record setting bonuses," said NYC Communities for Change, one of several groups organizing the protest.  It said protesters would march from house to house "demanding accountability for Wall Street crimes and an extension of the Millionaire's Tax," a New York state tax that is due to expire at the end of the year.
    • On Thursday college students are planning a solidarity protest on at least 56 campuses, while large protests against economic inequality are being planned on Saturday around the United States.

    On a serious note - it is pretty fascinating to see this play out in the U.S., which aside from the 60s does not have a culture of protest as is common in Europe.  Even if the system is so corrupted it is doubtful any change can happen, its still nice to see some people emerge from slumber.   In many ways this movement has very similar roots to the original Tea Party (rage against the machine...), before it got hijacked...

    Government Investment Arm Swoops in to Prop Up Chinese Banks

    Well at least they are transparent about it.  Chinese stocks of the banking kind, shot up overnight as an investment arm of the Chinese government, came into the market to buy buy buy.  At this point one has to wonder with the Fed intervening in bonds and herding savers into risk assets, various EU countries with short bans on financials, the Japanese central bank buying REITs and such, and now the Chinese outright buying stocks, where there is any price discovery happening on the globe.  All artifical, all the time - paper printing prosperity reigns.

    More importantly, this appears to be more fallout of the massive Keynesian plan to flood the economy with stimulus during the global financial crisis.  We asked back then if China was simply following the Greenspan policy of kick the can down the road [Feb 16 2009: Is China Pulling an Alan Greenspan?] [May 27, 2009: How is China Spending their Stimulus... and How Many Loans Will go Bad?]- usually we are early on these things, asking the question two years ahead of the fallout.  And just like Greenspan's (and now Bernanke's) policy, eventually the can kicks back. [Jun 2, 2011: China Now Beginning to Feel Hangover from Lending Boom of 08/09 - Government May Assume Some Local Debt]  So all you can do as a central bank and government is simply pour more steroids on the problem.

    • China is moving to support its state-run banks and financial markets, with a government investment arm purchasing shares in the four biggest lenders as worries mount over debt and slowing growth.
    • Central Huijin Investment Ltd., an arm of the sovereign wealth fund China Investment Corp., announced it bought shares in the four big banks after the benchmark Shanghai Composite Index closed at its lowest level in more than two years on Monday.
    • The news initially boosted Shanghai shares by 0.8 percent but the benchmark ceded most of those gains in the afternoon, closing only 0.2 percent higher at 2,348.52.
    • Chinese share prices have languished despite the country's still robust growth, weighed down by Europe's debt crisis, Beijing's credit tightening, and potentially high levels of bad loans at Chinese banks after a lending surge that helped China rebound from the global financial crisis.
    • The government intervention in the stock market is also meant to counter growing concern over a debt crisis among China's small- and medium-sized businesses at a time when bank liquidity is stretched by central bank requirements to hold record levels of reserves to help counter inflation.
    • Central Huijin is the major shareholder in China's big state-run banks. The company said in a brief announcement on its website Monday that it bought shares in the Industrial & Commercial Bank of China, Agricultural Bank of China, Bank of China and China Construction Bank and that it would continue its market-support operations. It gave no details about the amount of shares purchased.
    • Given its continued concern over inflation, which has been hovering near three-year highs but is expected to moderate further in coming months, China is focusing on local bailouts and credit easing to help smaller companies but is unlikely to announce new stimulus spending anytime soon, analysts say.
    • The banks' Hong Kong-listed shares showed significant gains. ICBC climbed 6.7 percent, Agricultural Bank shot up 12.8 percent, Bank of China gained 7.7 percent and China Construction Bank added 5.8 percent. Gains on the Shanghai index were more modest.

    Good Action this Morning

    While we've had a head spinning rally since late Tuesday, the market still is not overbought on a lot of secondary indicators - I've thrown RSI and a stochastic oscillator below as examples.  A very quiet day today, consolidating this huge move and where S&P 1188 was held, would have been a victory for the bulls.  So far it's even better than that, with the NASDAQ green most of the session, and the S&P 500 well above that 1188 level now.

    Volume continues to be light, but I'm training myself in 2011 to forget everything I learned about volume the prior 10+ years, since this new era market laughs at the need for volume to confirm.  Eight robots trading amongst themselves changes things I suppose.

    With little in economic news, other than a rumor out of Europe not much to move the market.  If the S&P 500 can advance to that 1220-1225 level in the next few sessions, that would seem to set up a very nice opportunity for selling/shorting in the very near term, as most of the secondary indicators should be screaming overbought by that time.

    Risk on!

    [Video] Marc Faber Visits Squawk Box

    Kind of a disjointed interview with Marc Faber this morning on CNBC.  Surprisingly, he is very bullish the dollar.

    8 minutes - email readers will need to come to site to view

    Monday, October 10, 2011

    Took All Day But....

    That 1188ish level held for a good 5 hrs, but they snatched it away there in the last 5-10 minutes.

    next range is 1190ish to 1225ish.  The bulls now have their mojo back with the global bailout power back in force.

    Volume stunk, but no one cares about volume in the new intervention era post 2008.

    Don't have final #s yet, but since 1940, the NYSE has never had a 90% up day on the lowest volume in a month. $$

    (until today) ;)

    Doug Kass - 10 Questions for the Bears

    Isn't it amazing after a frantic run up in the first hour, we have sat in a +/- 2 point range on the S&P around that 1188 level I mentioned  for hours on end?  Ahh, computers....

    Last week hedgie Doug Kass asked 10 questions for the bulls; this week he has 10 for the Bears... and not just how they expect to stop Detroit's offense tonight on Monday Night Football. (duu duh duu duu)

    1. Pace of domestic economic growth: Third-quarter 2011 GDP (in real terms) will likely expand by over 2.5%, well above 2011's first-half growth of less than 1%. This pace of growth is stronger than the consensus forecast was as recently as a month ago, as business fixed investment, personal consumption expenditures and the improving trade deficit will all be positive contributors to growth. As well, third-quarter S&P 500 corporate profit growth (aided by a still-weak jobs market, strong productivity gains and rising production) should advance to a near $100-per-share annualized rate. Sure, beyond the current results, visibility is limited, as the manufacturing orders less inventory mix produced the third negative reading in four months and the household sector labors under a decline in stock and home prices, a contraction in government jobs and stagnating wages and little progress in real incomes.
      Nevertheless, both the residential real estate and the U.S. automobile industries are deeply depressed, represent historically low percentages of GDP and pent-up demand will be unleashed at some point. Almost all of the other recent domestic economic releases (e.g., jobless claims, the national ISM and lower food and energy prices) signal that the U.S. will muddle through into 2012. Meanwhile corporations have already proven that they are positioned to prosper even in a relatively sluggish backdrop -- for instance, in the first half of this year, earnings exceeded expectations despite sub-1% GDP growth. Corporate balance sheets are liquid, inventories are conservatively aligned relative to sales, and profits are at record returns in third quarter 2011 (as profit margins having benefited from, among other factors, years of cutting fixed costs).
    2. Europe and China: While Europe is a wild card, it rarely ever pays to bet on catastrophe. European leaders, though slow in response, no doubt have a full understanding of the consequences of not addressing their debt crisis. As I mentioned recently on "Fast Money," the eurozone and its banks are now experiencing a La Dolce Vita moment -- in the same way in which Marcello Mastroianni struggled between the allure of the cafe life in Rome and the responsibilities of living with his girlfriend. This was exactly what the U.S. and our financial institutions experienced three years ago -- as a country, we were forced to find our way back to recovery and our banks were forced to accept responsibility (and recapitalize) for their misdeeds.
      My expectation is that the eurozone will become domesticated and accept the consequences of its actions (and recapitalize). Indeed, on Sunday, Merkel and Sarkozy agreed to a eurozone bank recapitalization.
      As to China, the September Chinese HSBC Markit Service PMI climbed back to 53.0, a blow to those who believe in a hard landing.

    Read the other 8 here.

    CBO Estimates Fiscal 2011 Deficit Matches 2010 at $1.3 Trillion

    Not sure if this is 'better than expected' or 'worse than expected' but the hits keep on coming.  Revenue was hit on both the corporate and individual side (social security) due to tax cuts.  Without those hits the gap would have narrowed a bit.
    • Spending and tax revenue both grew, but by equal amounts: about $140 billion. That left spending at $3.6 trillion and revenue at $2.3 trillion.
    The one 'improvement' is since the economy grew, the deficit was 'only' 8.6% of GDP versus the prior year's 8.9%.

    I'd expect a deficit well in excess of a trillion in fiscal 2012 as well (Oct 2011-Sep 2012).

    • The federal government ran an estimated $1.3 trillion budget deficit in fiscal 2011, the same amount as in the previous year, the Congressional Budget Office said Friday.
    • In its monthly assessment of the government's finances, the nonpartisan congressional scorekeeper said the $1.3 trillion deficit was equivalent to 8.6% of gross domestic product, down from 8.9% in fiscal 2010 but still the third-highest percentage of GDP recorded since 1945
    • Spending on education, commerce, housing and space programs fell, and spending on defense, Medicare, Medicaid and Social Security grew more slowly than usual.
    • Not all tax receipt categories grew, however. Nor did all spending categories fall or moderate.
      Corporate income tax revenue overall fell about 6% due to stimulus-based tax cuts that let companies accelerate their deductions. Similarly, social insurance tax receipts, which support Social Security and Medicare, fell 5.3% because of the payroll tax cut approved by Congress in December 2010.
    • The national debt now stands at $14.9 trillion and interest payments on the debt shot up last year to $266 billion. 

    Short Selling Rises Most Since 2006 in September - Just Ahead of Rip Roaring Rally of October

    It almost never fails does it?  Just as investors position themselves for zig.... instead zag happens.  Apparently we just saw the largest increase of short selling since 2006 in September - which worked out nicely for about 1.75 days in October, before this face ripping rally of 10%.  One can be sure part of this move upward is those newly placed shorts covering - indeed we saw such a vicious move last Tuesday in the closing 45 minutes, I have to assume many of those positions were harpooned that day.

    • Investors are increasing bearish trades around the world by the most in at least five years, convinced the lowest valuations since 2009 will prove no barrier to losses after $11 trillion was erased from equities.  Borrowed shares, an indication of short selling, climbed to 11.6 percent of stock last month from 9.5 percent in July, the biggest increase since at least 2006.
    • Trades that profit when Chinese equities decline have reached a four-year high and bearish bets in the U.S. are the most since 2009, exchange data show.
    • Slowing economies are spurring short sellers after indexes in 37 out of 45 major countries tumbled 20 percent, the common definition of a bear market. 
    • “The Lehman collapse is way too clear in people’s minds,” said Henrik Drusebjerg, who helps oversee $230 billion as senior strategist at Nordea Bank AB in Copenhagen. “They don’t want to get burned as much again. They know either they get some protection or get out altogether.”
    • About 4.1 percent of NYSE shares have been borrowed and sold, up from 3.5 percent at the end of July, data from the bourse shows. U.S. short sales are rising at the second-fastest pace on record after the 2008 financial crisis, according to exchange data dating back to 1995. 
    • Short selling, where traders borrow shares and sell them, hoping for a decline, is increasing even as equities approach the cheapest valuations on record. The MSCI All-Country World trades at 11.8 times reported profit, compared with 11.9 in the five months after Lehman’s collapse. The measure’s average price-earnings ratio since 1995 is 21, data tracked by Bloomberg show. 
    • The bond market indicator that has predicted every U.S. recession since 1970 now shows that the economy has a 60 percent chance of contracting within 12 months. The so-called Treasury yield curve, adjusted for distortions caused by the Fed’s record low zero to 0.25 percent target interest rate for overnight loans between banks, shows that two-year notes yield 20 basis points, or 0.20 percentage point, less than five-year notes, according to Bank of America Corp. research.

    And the last time this happened?
    • Bearish bets last increased faster in March 2009, the same month the S&P 500 began a bull market that doubled its value.

    Like Clockwork...1188

    That did not take long... we are already seeing a 1188 print on the S&P 500 as of 10:22 AM.  This is now a 10% move from late Tuesday afternoon (3 PMish) when the S&P hit 1080, and that news report hit on about a plan for a plan for recapitalizing the European banks.

    Certainly the mood has taken a 180 degree turn, but chasing 10% up (in 4 sessions) does not appear to be an awesome risk/reward scenario.   From here, if the index breaks above and closes over say 1190 you have a new range (part of the old range in fact) to look at which is essentially 1188 to 1225.

    As stated for the past few months, one would like to see a break back over the 200 day moving average to get a lot more constructive.  We are talking 1240 minimum.

    I am not sure how many more days we can rally on essentially the same news - it's been 4 of of the past 5.  We get it - the private debts of Europe will be transferred and backstopped by the public ala USA.  The Paulson / Geithner ethos has won - party on Beavis.

    [Video] Alan Grayson Describes What Occupy Wall Street is All About on Real Time w/ Bill Maher

    Former Rep Alan Grayson was considered a bit of a loose cannon when serving in Congress, but was a favorite of the blogosphere for being quite blunt - agree or disagree with his views.  As the 'Occupy Wall Street' "mob"* strengthens, the question is what is their main message - especially as a lot of groups piggy back.  Grayson was on Real Time with Bill Maher and probably explains the main thrust better than I've seen in a lot of other media outlets.  My main beef with his explanation is I believe the issue is 'corporatism' rather than 'Wall Street' - blaming Wall Street for the what has corrupted the system is incomplete.  Broadly speaking many people feel that the political system is bought and paid for, and their voice is no longer heard.  As long as we had bubbles of the stock and real estate sort to distract, and create a sense of wealth that was transitory, that was 'ok', but now that the tide has washed out, and economic opportunities are lacking for many - it has become an issue.

    This is a 5 minute video - but you can skip straight to minute 1:40 for where Grayson begins to talk.

    *Cantor's words....

    Rallying on a Plan for a Plan in Europe

    After a hiatus Friday afternoon, markets have picked up where they left off since Tuesday afternoon when the reported a plan for a plan to recapitalize European banks.
    • German Chancellor Angela Merkel and French President Nicolas Sarkozy on Sunday said a comprehensive response to the debt crisis would be finalized by the end of the month, including a detailed plan to ensure European banks have adequate capital.  
    • Merkel has said that policy makers will do "everything necessary" to provide enough capital to banks to stem a debt crisis.  
    • Paris wants to tap the EFSF to shore up its banks, worried that pouring its own money into them could compromise its coveted triple-A credit rating.  Officials in Berlin have made clear that they believe the fund should be used only as a last resort, when euro zone member states don't have the means to support their banks on their own.
    • German news agency DPA, citing financial sources, reported on Sunday that euro zone finance ministers were working on scenarios involving a 60 percent reduction in Greece's debt.

    David Cameron is channeling Hank Paulson:
    • As they met, British Prime Minister David Cameron urged them to take a "big bazooka" approach to the crisis, telling the Financial Times that euro zone leaders had to break their cycle of doing "a bit too little, a bit too late."

    As for U.S. markets, the conversation is identical to what we mentioned late last week.  That 50 day exponential moving average, near 1188, is one traders will keep an eye on as it has represented resistance for the better part of three months.  If that is broken, then the next level to watch is the mid 1220s, which is now both the highs during this selloff from late August, as well as where the 100 and 200 day moving averages are quickly headed to.

    Thankfully, earnings season slowly begins this week so we have something else to talk about other than Europe.

    Saturday, October 8, 2011

    So Funny - Whatever Happened to Alex P. Keaton

    If you are old enough to remember the iconic Alex P. Keaton character from Family Ties, plus have been following markets the past two decades, this tongue in cheek piece by The Reformed Broker, will tickle your funny bone to the extreme.  It takes a look at what Alex's journey would have been like in the 2 decades after securing his dream job in 1989 at a major Wall Street investment firm. 

    In the final episode of Family Ties, which aired in the spring of 1989, Alex P. Keaton (played by Michael J. Fox) was en route to his dream job at a major Wall Street investment firm after graduating college.  He was 23 years old and had spent the entire Reagan decade preparing for his yuppie ascendance.  Let's take a look at Alex's career in finance over the ensuing two decades...

    1990 - 1993:  Alex makes his bones as a junior investment banker at Lazard Freres & Co in New York.  His team takes advantage of the Savings and Loan crisis in which 787 deposit institutions failed costing almost $100 billion to mop up by snagging real estate all over the country at pennies on the dollar.  Alex is in his mid-20's and still rocking the suspenders/white collar-on-blue shirt look.

    1993-1996:  An explosion of more than 500 Initial Public Offerings finds Alex riding high as an underwriter at Merrill Lynch.  He takes a myriad of deals public including Boston Chicken, Snapple Iced Tea and Callaway Golf to name a few.

    1998:  Alex is now operating out of Silicon Valley as a research analyst/investment banker for Thomas Weisel.  The deal flow is fast and furious and Alex is in a position to both bring web companies public and then 'rate" them on the sell side.  It's a win-win for both the bankers and the companies...not so much for the retail investors who buy in the secondary.


    Follow the link for the rest... haha.

    John Paulson's Main Advantage Fund Down 47% thru September!


    While John Paulson still has his $15 or $20B in personal wealth, the performance of his main hedge fund in 2011 is going to go down in the books as a spectacular flame out - and take a big hit out of his reputation.  September appears to have been an epic disaster.  Bloomberg is reporting his main hedge fund has almost lost HALF of its value year to date thru the end of September.  That's simply incredible.  While I have not agreed with his rosy economic outlook the past 2 years, and his emphasis on financials, I am not sure how you do that badly, especially when the broader market is only off 8-12% for the year.  It might take years to get this fund generating performance fees, due to the clawback provisions.  It will be interesting to see how much money is taken out by investors by the end of October.

    • John Paulson, the billionaire who is betting on an economic recovery by the end of 2012, has lost 47 percent this year in his largest hedge fund, according to three people with knowledge of the matter.  Paulson’s Advantage Plus Fund, which seeks to profit from corporate events such as takeovers and bankruptcies, uses leverage to amplify returns
    • The fund’s gold share class declined 32 percent this year through the end of September, said the people, who asked not to be identified because the fund is private.
    • Paulson, 55, would have to return about 89 percent in the remainder of the year to break even in the Advantage Plus Fund. Paulson & Co., which is based in New York and manages $30 billion, has lost money this year on investments including Citigroup Inc., Bank of America Corp. and Sino-Forest Corp.
    • The Recovery Fund, which invests in assets Paulson believes will benefit from a long-term economic upturn, has fallen 31 percent this year, according to the people.

    [Sep 28, 2011: From Penthouse to Outhouse - Investors Try to Avoid Paulson's Positions]
    [Aug 10, 2011: John Paulson's Main funds Down 21% and 31% for the Year]
    [Mar 29, 2010: Are John Paulson's Hedge Funds Now Too Big to Outperform]
    [Jun 6, 2011: John Paulson's Funds have Rough May]
    [Jun 21, 2011: John Paulson Has Potential $720M Loss in Sino Forest]

    Friday, October 7, 2011

    2010 Census Reveals Interesting Nuggets on the Housing Market

    Quite a bit of interesting information on the housing market courtesy of the 2010 census data.  Perhaps, most important the home ownership rate is quickly returning to the 'mean' we've seen pre-bubble in America.  I believe the rate peaked somewhere right around 69%, whereas we are already down to 65.1% - generally this figure has been around ~64%.

    What can't be measured here in the raw data, is the change in attitude towards home ownership.  Where it was once a 'no brainer' and 'can't lose' proposition, now many don't want to be exposed to all the 'risk'.  Not sure on the long term implications, because this is going to have far reaching effects - many young adults and teenagers exposed to the bust are going to have a very different attitude the next few decades, than those who grew up in the 80s or 90s.

    • The American dream of homeownership has felt its biggest drop since the Great Depression, according to new 2010 census figures released Thursday.  The analysis by the Census Bureau found the homeownership rate fell to 65.1 percent last year. While that level remains the second highest decennial rate, analysts say the U.S. may never return to its mid-decade housing boom peak in which nearly 70 percent of occupied households were owned by their residents.
    • Unemployed young adults are least likely to own, delaying first-time home purchases to live with Mom and Dad. Middle-aged adults 35-64, mostly homeowners who were hit with mortgage foreclosures or bankruptcy after the housing bust in 2006, are at their lowest levels of ownership in decades.
    • Measured by race, the homeownership gap between whites and blacks is now at its widest since 1960, wiping out more than 40 years of gains. Blacks, who as a whole have lower income and higher unemployment than other groups, were particularly set back by the housing bust. Their homeownership rate fell from 46.3 percent in 2000 to 44.3 percent; among whites, the rate dipped slightly from 72.4 percent to 72.2 percent. Whites are now on average 1.63 times more likely than blacks to own a home, the widest gap since 1960.
    • "The changes now taking place are mind-boggling: the housing market has completely crashed and attitudes toward housing are shifting from owning to renting," said Patrick Newport, economist with IHS Global Insight. "While 10 years ago owning a home was the American Dream, I'm not sure a lot of people still think that way."
    • Nationwide, the homeownership rate fell to 65.1 percent -- or 76 million occupied housing units that were owned by their residents -- from 66.2 percent in 2000. That drop-off of 1.1 percentage points is the largest since 1940, when homeownership plummeted 4.2 percentage points during the Great Depression to a low of 43.6 percent.
    • Since 1940, the number of Americans owning homes had steadily increased in each decennial census due to a mostly booming economy, favorable tax laws and easier financing. The one exception had been 1980-1990, when ownership remained unchanged at 64.2 percent.
    • The U.S. housing crisis is far worse than the experience in most Western industrialized nations, which, unlike the U.S., did not foster markets of subprime lending to promote homeownership. The U.S. continues to maintain a relatively high rate of homeownership, surpassed only by countries such as Spain, Ireland, Australia and England.
    • "In the U.S., there's still a strong cultural pull toward homeownership, because in normal times it's always been seen as a way to build net worth and equity," said Dan McCue, research manager at Harvard's Joint Center for Housing Studies. But with many former homeowners now renting, he said, clearly that dynamic has changed: "It puts a renewed focus on rentals, and on ways to create new opportunities for low-income households to build their wealth."
    • In all, nearly 44 percent of all renters in the U.S. are minorities, compared with only 22 percent of homeowners.

    Other census findings:
    • Homeownership rates decreased in each region of the country over the last decade. Midwesterners were most likely to own a house, at 69.2 percent, followed by Southerners at 66.7 percent, Northeasterners at 62.2 percent and Westerners at 60.5 percent.
    • For the fourth census in a row, West Virginia had the highest homeownership rate, at 73.4 percent. The District of Columbia, with its high share of single twenty- and thirty-somethings who rent, had the lowest at 42 percent.
    • While homeowners were the majority in most of the nation's metropolitan areas, they were outnumbered by renters in many of the nation's largest cities. They included New York City, where renters made up 69 percent of households, Los Angeles at 61.8 percent, Chicago at 55.1 percent and Houston at 54.6 percent.
    • By age, the highest ownership rate nationwide is for those 65 and older, about 77.5 percent. Older Americans are more likely to own their homes debt-free and thus be less exposed to the foreclosure crisis. Still, their homeownership rate is down slightly from a 2000 peak of 78.1 percent.
    • Among adults 34 and younger, homeownership was nearly 40 percent, the highest since the mid-1990s.  (that's an interesting anomaly) For adults in the 35-44, 45-54 and 55-64 age groups, homeownership rates fell to their lowest since at least 1980.

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