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Wednesday, August 17, 2022

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Thursday Morning

Well I made my bull case in last night’s post, now let’s see what kind of mess we’re dealing with today…

As expected, MBIA reported far less than $12Bn in losses that were bandied about yesterday by Wall Street hyenas and an irresponsible MSM, but $2.3Bn lost in one quarter by a company with just $2.3Bn in SALES (not earnings) is simply not good.  MBIA wrote off $3.5Bn in credit derivatives giving them a tax break (oh sorry, I mean loss on paper) of $1.9Bn for the year, compared to a profit of $819M in 2006.

John Laing wrote an excellent article on how overdone the MBIA sell-off was in Barron’s last week so I won’t get into it here but we really need to get real with these financial companies.  Perhaps the company was a little overvalued at $70 in October but, had they not written off $3.5Bn (again, paper losses) they would have shown a profit of $1.6Bn for the year (and paid $500M in taxes).  Barron’s is not blindly stating a bull case, back in June they correctly titled an article "A Mortgage Meltdown for MBIA?" and were just a little bit ahead of the curve, as was I when I said way back in 2006 that Amaranth was just the "Tip of the Iceberg."

Even an iceberg forms a base if you go deep enough and MBI down 82% and ABK down 88%, we just may be near enough the bottom to hit something solid.  I’m not ready yet to dive back in there but I think I’ll begin a little speculative accumulation on both of these stocks with the MBI Jan ’09 $20s at $3 and the ABK Jan ’09 $20s at $1.75 and I will roll each down $5 for + $1.50 whenever it is offered.  This will be fun if this thing turns around and there will probably be a chance to get out down 50% otherwise.

[Go to story.]Well a 40% reduction in Fed Funds rates don’t seem to be exciting the markets today as jobless claims climbed 69,000 to a 3-year high of 375,000.  Personal Savings climbed to 0.2% from 0% last month and that is going to scare the retailers as Personal Income was up .5% which led to a very low consumption rate, up just 5.5% for the year.  Since food and energy are up close to 12%, that means pretty much all of US consumers’ extra money has been going to necessities (and IPods). 

Asia was mixed this morning with Japan up 247 points, heading pretty much straight up all day and erasing a week’s worth of losses in one session.  The Hang Seng dropped 197 points but that’s an hour’s move for them so we will consider that noise.  Those snowstorms are shutting down much of China and crippling the economy, it will be our turn next year so make sure you hit those winter clothing sales! 

Europe is off about 2% ahead of our open so we’ll just have to grin and bear it in the morning but now the Senate has passed the relief package, we can expect a mid-day announcement that may turn things up a bit. 

RDS.A had a 60% rise in income on 5% lower output and a $716M "impairment" charge for keeping Nigerian operations off-line was a drop in the barrel compared to the $31Bn in excess revenues they gained from jacking up the price of oil to record levels last quarter.  Thanks in large part to the efforts of Shell, inflation in the EU hit an all-time high.

We are down 150 just ahead of the bell and I’m selling my puts (will reposition later but these are huge profits) and will be rolling down, stopping out callers and bottom fishing so it’s going to be a busy morning.  If we break below 12,200 I may have a change of heart but, otherwise, I think it’s a nice chance to grab all the things we wish we bought on Monday morning (seems so long ago!).

Have a fun day!

 

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Goodnight all; save any abuse or other comments for tomorrow !

xian – Hey, those large “yes and no” buttons might come in handy when you lose your dexterity after a night of bar hopping and need to call a cab or drunk dial your ex.

Good Morning everyone.

UK markets up a lot today 1.7%. The main index is closing back in on the significant 600 mark. (Now 5977).

Whoops that was me !

Morning, DB

Asia Markets : Friday, February 01, 2008

(The following is from WSJ; please cross check with other sources to confirm.)

Japan*

13497.16
-95.31
-0.7%

Hong Kong*

24123.58
667.84
2.85%

DJ Shanghai*

469.50
-8.90
-1.86%

S.Korea*

1634.53
9.85
0.61%

India*

18233.42
584.70
3.31%


Baltic Dry Index (BDI)
+152 6052

* at close
Sources: Dow Jones, Reuters

Markets Are Mixed, Sydney Adds 3% But Japan Slips
Despite hefty interest rate cuts by the U.S. Federal Reserve this week, investors were still worried about the health of the U.S. economy and the global ramifications of a slowdown. This left Asian markets mixed in the afternoon session Friday with Japan closing lower but Australia jumping 3.4 percent.

Global stock markets were roiled by fears this week that a credit downgrade of big bond insurers would further harm the banking sector and stunt the global economy. Wall Street closed higher Thursday, but this couldn’t salvage the Dow’s worst January since 2000. It was the worst January since 1990 for the S&P 500 Index and the worst January ever for the Nasdaq, down 9.9 percent on the month.

The Nikkei ended down 0.7 percent, dragged lower by worries about the U.S. economy ahead of key jobs data and a tumble in Sony shares to a 14-month low after the electronics giant lowered its profit forecast. South Korea’s KOSPI finished 0.6 percent higher. Australian shares closed 3.4 percent higher, up for a second straight day.

In markets still trading, Hong Kong stocks rose as gains on Wall Street prompted investors to pick up shares such as mainland lenders and insurers that were knocked down in a two-day selloff. But rate-sensitive Hong Kong property developers slid after local banks lowered their prime rates by 25 basis points, compared to the half-percentage point rate reduction by the Hong Kong Monetary Authority. Blue chips veered into negative terrain at one point as property shares were hit, while tumbling Chinese domestic stock markets also weighed.

Chinese stocks plunged more than 3 percent as concern about damage to the economy from fierce winter weather helped to trigger a fresh sell-off by jittery investors. The market was already bearish after the index tumbled 16.7 percent in January, its second largest monthly drop this decade, so it was vulnerable to speculation about damage to transport, energy and food supplies from heavy snows across central and eastern China in the past week.

Miners Bolster European Markets
Stocks jumped across Europe, helped by a strong finish on Wall Street in the previous session and a sharp rise in mining stocks after Chinese and American companies took a stake in Rio Tinto.

Trading direction could shift quickly at 1:30 pm London time, though, when the U.S. Labor Department issues its January employment report. On average, economists predict a rise in nonfarm payrolls of 75,000 for the month. After a weak gross domestic product report, investors will likely to be sensitive to a lower-than-expected number as concerns about a recession grow.

The Dow Jones Stoxx basic resources index was more than 5 percent higher in morning trading. Financial stocks also performed well, with the Stoxx financial services indexes up more than 1 percent. Financials performed well in the U.S. on Thursday after major rating agencies decided to hold off downgrading bond insurers.

Oil Eases to Near $91 as OPEC Meets
Oil eased to near $91 a barrel on Friday as OPEC ministers began a meeting they have said will keep oil output unchanged despite fears of a looming recession in the United States, the world’s top oil consumer.

U.S. light, sweet crude [ 91.29 -0.46 (-0.5%)] for March delivery fell, paring earlier losses as deep as $1. It settled 58 cents lower in New York on Thursday, after rallying from lows on the back of a rising stock market. London Brent crude [91.78 -0.43 (-0.47%)] was down.

Ministers from the Organization of Petroleum Exporting Countries (OPEC) have so far resisted calls from consumer nations led by the United States to pump more oil to help lower prices and alleviate economic pressures.head of their 9 am London time meeting in Vienna on Friday, Iranian Oil Minister Gholamhossein Nozari said all producers were in favor of not changing output policy. Newspaper reports said the powerful Saudi Oil Minister Ali al-Naimi would back that position, saying global supply and demand were in balance. The group’s stance comes amid mounting concerns the United States economy is headed for a recession after a slew of recent economic data pointed to a deteriorating economy.

The U.S. Federal Reserve has sought to ward off a recession by a series of interest rate cuts. It has cut rates by 125 basis points in two tranches in the last nine days. A gloomy outlook for the U.S. economy has sent many speculative investors, who helped propel oil’s rally above $100 a barrel last month, into safer havens.

Dollar Steady as Market Hunkers Down for Payrolls
The dollar held steady on Friday, within a cent of record lows against the euro and at weak levels against other major currencies, as traders bided time ahead of critical U.S. employment data.

Some analysts believe the U.S. economy is already contracting, and the massive reduction in interest rates over the last four months of over two percentage points clearly shows the Federal Reserve is worried too, These rate cuts and growing worries over the economy and have weighed on the dollar. But expectations of further credit-related financial market turmoil have prompted some U.S. investors to withdraw funds from overseas markets, thus limiting the upside of currencies like the euro, sterling and yen.

The dollar was flat against a basket of major currencies at 75.19, close to the two-month low just below 75.00 touched on Thursday. The euro
[ 1.4879 0.002 (+0.13%) ] was steady on the day against the dollar, eyeing a move above $1.49 toward the record high of $1.4966 and the psychological target of $1.50. The dollar [ 106.32 -0.13 (-0.12%) ] held steady against the yen, and dipped a little against the Swiss franc
Swiss Franc Spot [ 1.0777 -0.0036 (-0.33%) ] , within half a cent of its all time low struck Thursday.

The U.S. central bank followed that up by slashing rates by half a percentage point to 3.0 percent earlier this week, leaving the fed funds rate the lowest among developed countries save Japan and Switzerland.

In London, Gold bullion opened Friday at a bid price of US$926.65 a troy ounce, up from US$922.95 late Thursday.

Hi Ramana

Even more important for today,

MSFT buys YHOO @ $31/shr !!!

http://biz.yahoo.com/prnews/080201/nyf040.html?.v=101

damn that was a great decision to take off YHOO covers…

Great news on Yahoo. Might even help Google.

Glad we sold those YHOO callers yesterday.

Hi Bert – Great minds post at the same time.

I reckon Phil knew !! I do recall a comment about keeping the March calls in case the buyout rumour resurfaced. Cool Phil !

Yipeeeeeeee … YHOO Is going to make our day…

So.. dumb question in this sort of context, but… what are we doing with our YHOO calls? Is this a sell into excitement sort of situation? Does this mean my JUL 20’s will get pinned @ $11? Do we wait out the whole merger process or something? Holding for overbidders probably doesn’t make much sense, since there really aren’t any other companies big enough to buy YHOO other than MSFT or GOOG, which would not make much sense at all if that happened…

Guess I better get rid of those QQQQ puts quickly..

MICROSOFT JUST OFFERED $44.6bn FOR YAHOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO!!!!!!!!

I wonder if the Yahoo news will and insult to injury and hit Google shares even harder. People might see the combined MS/YHOO as a greater threat and be tempted to bail out while GOOG is retreating on their earnings news.

GOOG does seem to be trading lower in premarket than it was trading after hours…

Phil,

May I humbly thank you for suggesting YHOO in the $10K and $25K

March of course we have the $22.5 and we have JUL $17.5 – I guess we will need see which MAR strike is relevant, however if there is a bidding war, this could be a bit risky as we may see an acceleration on the price.

Phil – I have YHOO Jul 20 Calls fully covered with Mar 20 calls. Should I just roll up to the 30 strike and hold until deal closes?

We are taking about jump from 19 to 31???

Yesterday I was busy whole day and didn’t took cover off. So didn’t get to read a chance to take caller off…
Happy but not tooo happy…

Phil,

Nice call yesterday, but I didn’t have a chance to unload my callers. BOOHOO.

I have an equal # of July 20’s vs Feb 20’s. Any hope on this?

Phil – also on YHOO, I had rolled to March after earnings for a better cover. Should I roll back to Feb to capture that premium. What do you think the chances are of this deal not not going thru?

Phil – Thanks for the rollback advice and yesterday’s closeout on the short calls. I gues I’ll be subscribing for a long time with the profits on YHOO.

Pre-market YHOO is $30 at this time, MSFT down $1.30 – GOOG looks unchanged at this time, AAPL getting a small nudge.

The Yahoo Effect
Yahoo! shares are racing in the pre-market after Microsoft agreed to buy Yahoo! (YHOO) for $31 a share, or $44.6B, a huge +61.6% premium to yesterday’s closing price. The futures are up across the board on the news, with deal-making clearly a beneficiary of the move. Legg Mason (LM) is going to be very pleased having an over 6.5% holding of shares outstanding. Others of the Duke & Duke ilk will also benefit with most of the large banks/brokers holding at least 1.5%-2% each in inventory. This is going to generate a lot of excitement in the big broker/dealer/IB space and ironically they rather than tech stocks in general may be the big winners on the day. A couple of things to note possibly on the downside once all the pom-pom action is over. Yahoo! (YHOO) has only a 0.79% weight in the NDX 100. Google (GOOG) has a 5.2% weight and Microsoft (MSFT) a 6.52% weight. The arbs are going to go to work on Microsoft and Yahoo! but the net effect will likely be to pull down Microsoft by a good margin which may net out the upside benefit to the index. That may prove to be something of a drag once we head for the cash after the open. The real problem is going to be with Google (GOOG). This is not the best news for them on several fronts and they already had issues post-earnings yesterday. We can expect the shares to get further discounted and that may pressure the NDX. See our note here from yesterday on levels. On the plus side we can expect traders to be digging for anything that has a pulse that could be a buyout candidate. Regardless of merit that is going to get a lot of names in tech that are past losers moving in a big hurry. More on that as we find them. :theflyonthewall.com

BTW – It’s my BDay. Thanks for the present.

MSFT – YHOO … Wow !!

and to msft: Whyyyyyyy ?

and what will this do to GOOG today ?

Phil,

Congrats on taking out the YHOO callers at 11:56 A.M.

Unfortunately due to full-time job, I didn’t get a chance to do that. I wish you had your email alert service started by now. Lunch-time reading,…not enough time to catch-up with all these posts. I wish you had different section for all your posts only.

Anyway, I have 2-questions :

1) I bought 10 Jul. 17.5 @ 3.5 and sold 10 Feb. 20 @ 0.55 against my july position. Is there anyway to improve this position?

2) Just curious as to what triggered buying back the callers?,…just 2 weeks before expiration?

Thanks in advance,

Jack.

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