May 30 (Bloomberg) — Federal Reserve Board Vice Chairman Donald Kohn raised the possibility of giving Wall Street securities firms permanent access to loans from the central bank, as long as regulators tighten oversight of the companies.
Kohn also advocated continuing Fed auctions of funds to commercial banks and loans of Treasuries to Wall Street dealers even after markets stabilize. Such channels would stay open “either on a standby basis or operating at a very low level,” he said in a speech in New York yesterday.
The remarks go beyond Fed Chairman Ben S. Bernanke, who has indicated the central bank would shut lending to investment banks when the credit crisis passes. Lawmakers and regulators are debating how to approach the supervision of investment banks in the aftermath of the Fed’s rescue of Bear Stearns Cos. in March.
“If you are a bondholder in one of these Wall Street firms, you know you have a big `Sugar Daddy’ now called the Federal Reserve that’s going to back you up,” said Jeff Pantages, chief investment officer of Alaska Permanent Capital Management in Anchorage, which oversees $1.8 billion in assets.
“But if you are a stockholder this kind of worries you” because investment banks “will be more highly regulated and won’t be able to use leverage as much as” before, he said.
Kohn said he hasn’t decided whether securities firms should continue to gain access to loans from the central bank. Read more here.
I have been talking about an expected wave of bank failures for quite some time, most recently in Too Late To Stop Bank Failures. Recently I was asked to compare the current crisis to the 1980′s S&L Crisis in regards to to whether or not this crisis will be worse.
By sheer number of failures the S&L crisis will dwarf what’s coming hands down. Here is a chart from MarketWatch that tells the story.
However, numbers alone are not the proper way to measure things.
A proper focus must include an analysis of the magnitude of the failures, who will be affected by those failures, and what actions the Fed might have at its disposal to handle the situation.
Let’s start with a look at bank consolidations. Following is a history of just one bank, courtesy of Mr. Practical :
Roll Up
Here’s an incomplete list of former financial institutions that now comprise what is known as JPMorgan (JPM):
Bank One
Chase Bank
U.S. Trust
Manufacturer’s Hanover Trust
Chemical Bank
First Chicago
National Bank of Detroit
First U.S.A
Bear Stearns (BSC)
Of course there are thousands of smaller financial institutions that have been rolled up into this behemoth. Many of us believe that the last and most famous "acquisition” was really a bail-out of JPMorgan, the deal in reality injecting some $50 billion of capital into this amalgamation of finance.
So what you say? Well I think as we watch bank after bank (Royal Bank of Scotland(RBS) this morning as an example) take recurring “one-time” write-offs we can begin to see just what a ponzi scheme this has been over the years. Banks book loans, mark them up in value, and show the difference in profits. They’ve done the same thing with the phantom book value these deals present when consummated. Over the last few decades banks have not really made any money; they have merely been a conduit for the Fed to create massive credit. The U.S. money supply is now over 99% debt.
The ponzi scheme is unwinding and investors continue to be gullible. Those that bought Citigroup (C) on its dilutive stock offering are now over 20% in the red.
Global stock markets topped out on the back of the sub-prime/credit debacle in October 2007. Prices subsequently moved lower until reaching climatic bottoms in January/March this year, triggering rallies throughout the world until a few days ago. The big question investors are grappling with at this stage is whether the rise in prices has simply been a bear market rally, or whether we’re back in a primary bull market.
I have previously said: “Whereas I am doubtful about the longevity of the rally, I am also not in the Armageddon school. Is the answer perhaps a ‘muddle-through’ market, characterized by below-average returns? That is my hunch, for what it’s worth.” (See post entitled “Poll of the Week: Stock Markets – Which Way José?” from April 25, 2008.)
In searching for answers, it’s appropriate trying to get a grip on the direction of banking stocks in names like Citigroup (C), Lehman (LEH) and Morgan Stanley (MS), as these are usually a good indicator of the market as a whole, especially given the large proportion of financial services of many major stock markets.
The following is a long-term chart of the S&P Banking Index relative to the S&P 500 Index, clearly showing the massive underperformance of banking stocks since the middle of 2002.
I’ve pulled out a few fundamental graphs pertaining to the US situation in order to assist in gauging the lay of the land.
Firstly, as far as lending standards are concerned, US banks are still in tightening mode.
Sources: Federal Reserve Board; I-Net; Plexus Asset Management.
But it would appear that the lending standards could start easing during the current or next quarter, at least when considering the historical relationship with the Fed funds rate.
Sources: Federal Reserve Board; I-Net; Plexus Asset Management.
Interestingly, banking stocks have historically started outperforming the S&P 500 Index around two to three quarters before lending standards ease.
Sources: Federal Reserve Board; Bloomberg; I-Net; Plexus Asset Management.
The relative performance of banking stocks is largely driven by the “mortgage margin”.…
Excerpt: Sigma Designs (SIGM) shares are down sharply this morning after the company late yesterday disclosed disappointing results for its fiscal first quarter ended May 3. As Tiernan Ray noted in a post yesterday, the company missed the Street consensus at both the top line and the bottom line.
The company’s post-earnings conference call (seetranscript) was less than encouraging. Sigma said it expects FY Q2 revenue to be up slightly on a sequential basis; given the $56.9 million reported in Q1, the old Street consensus estimate of $69.2 million clearly looks way too high. In response to a question on the call, the company indicated that its old guidance of revenue for the full year of $300 million to $350 million was no longer valid, although it did not actually provide new guidance.
“I think as a result of this call and what we indicated we’re pulling away from that range,” VP of strategic marketing Kenneth Lowe said on the call. “I think at this point in time we’re going to pull that guidance.”
The company seems to be facing significant issues in both of its two primary businesses: providing chips for IPTV set-top boxes and for Blu-Ray disk players…
We finished the week up just slightly with some good consolidation but, as it was the end of the month, I was a little suspicious about the action into the close. Volume was not terribly impressive but there was a huge surge as we sold off into the close, hopefully just some funds cashing out but not the way you want to end a week.
We made good progress on our virtual portfolios with fantastic gains in our small virtual portfolios with our 2-week old $10,000 Virtual Portfolio already at $13,965 and our new Day Trading Virtual Portfolio up a decent 10% in 10 days of trading. Also new is our Stocks Virtual Portfolio but that’s up just 2% in two weeks as there wasn’t enough volatility to play around with.
Our older virtual portfolios also held their own:
The Short-Term Virtual Portfoliopicked up 8% for the week as we went a little more to cash and are, overall, quite bearish with a lot of open puts covering not too many longs.
Our Long-Term Virtual Portfolio added just 4% and is still fairly bullish with 23 uncovered calls. We are still well covered on 30 other positions and, of course, our STP puts outweigh the open balance on the calls by a good deal (about 50%).
Complex Spreads are flat, up 315% for the year, as GOOG and APPLE are fully covered so the run in both is not doing us any good at the moment. We are heavy in the CROX Jan $10s, still hopeful they’ll come back.
It was a good call to hold our position in the $25,000 Virtual Portfolio as we gained another 40% this week, now up 84% at $46,081. We took some bullish positions there in EDU and SUN and dismantled the FSLRfly, leaving just the $270 puts.
We closed just 55 positions this week with a 66% average gain, mainly taking winners off the table to get some cash when we had the opportunity but we are not that well protected from a big sell-off in our small virtual portfolios so I’ll trust these gains only when we get to more cash. Meanwhile, we’ll have to watch carefully and see what sticks.
The Debt Slave Act, better known as the Bankruptcy Reform Act of 2005 has at long last blown sky high. We will get to "how" in just a moment but first let’s review some of the provisions of the bill. Lenders asked for and received everything on their wish list as follows:
Wish List
A strict financial means test that may prohibit many debtors from filing a liquidation bankruptcy under Chapter 7;
A requirement that all debtors must receive a briefing from an approved credit counseling agency at least six months before they can file their bankruptcy case; Note: Check with your local bankruptcy court to determine if they will waive the time restrictions in the beginning months.
A requirement that debtors take an approved class on debt management techniques before they receive their bankruptcy discharge;
A provision making it easier for a court to dismiss a bankruptcy case outright or to convert a Chapter 7 case to a Chapter 13 case; and
A provision permitting a court to impose sanctions on attorneys, or even on debtors, for filing a Chapter 7 case that is dismissed or converted to a Chapter 13 case.
After the fairy godmother (Bush) signed the bill written by industry lobbyists and passed by Congress as "reform", banks and lending institutions went on a credit binge of previously unimaginable proportion. The most ridiculous abuse of common sense were the so called "Liar Loans" more commonly referred to as "Stated Income Loans".
In addition, much of the subprime mess and the HELOC (home equity) can be attributed to lending institutions behaving as if Sixteen Tons was the new state of being.
You load sixteen tons, what do you get
Another day older and deeper in debt
Saint Peter don’t you call me ’cause I can’t go
I owe my soul to the company store
"When the price of oil starts to come down there will be some relief to the US airlines. I anticipate some form of government intervention before most of the airlines go bankrupt again. The "New" shares will soon be required to become "New New" shares.
From the pockets of US airline employees to those of the Middle East oil sheiks. You’d think somebody other than Texas oil people who are running this Administration and the past one would be able to take control after the government changes hands in January. Rather than taking a unified political stance against Sudan, as they did this week, you’d think the three Presidential candidates might first line up against the urgent problems that exist today in America, which is the food and oil one that is bankrupting the country….
The bottom line is that Stagflation is worsening, and I have never seen such conditions do anything but tear apart the prices of equities and bonds. That too will really hurt the whole financial group, leading to more losses and more staff cut-backs in future.
As I see it, the Bear market has just begun. Unless there is a sudden and sharp pull-back like 1987, the Bear could linger. As long as fuel and food costs stay high and the housing industry remains in shackles, I think the equities Bear could last through 2009…"
"I am impressed that more seasoned Wall Street people are speaking out today about the inequities in capital markets. Stephen T. McClellan CFA, is one whose views are quite similar to my own.
Author of Full of Bull, Stephen is a former Wall St analyst with 32 years experience, including 18 years at Merrill Lynch and eight at Salomon Brothers. He has ranked on the Institutional Investor All-American Research Team for 19 straight years and on the Wall St Journal Poll for seven years. He is in the Journal’s Analysts Hall of Fame.
Essentially, Stephen believes, as do I, both of us having been there for many years, that Wall St’s job is to shift investment risk to the buy-side, so the glass will always be at least half full. As you…
As I mentioned in last night’s wrap-up, it’s been a very low volume week and, on the whole, it’s been nothing to get excited about. We need to make some serious break-outs on our Big Chart levels and I don’t think that’s going to happen with oil getting it’s usual boost into the weekend, especially with Rent-A-Rebel now pre-announcing their plans.
The latest oil terrorist to run up the markets is CNBC’s own beloved Jim Cramer, who took time out of his busy schedule last night to devote 15 minutes of his show to misinform his viewers about oil. If you have any doubt as to how important this message is to Criminal Narrators Boosting Crude, just log onto www.cnbc.com and look at where this segment is featured.
Cramer interviewed the CEO of JOYG, who supplies mining equipment, and somehow Cramer managed to twist a legitimate, healthy demand for minerals, into proving his point about oil. Cramer’s premise, that demand automatically means short supply is flawed on many levels. If I have a mining company and you are paying me $86 a ton, I may run my mine normally (as it’s only $20 more than last year) but, if one month later, you offer to pay me $104 per ton, I may order a little more mining equipment to cash in while I can.
Yes there is a lot of demand for minerals and there are spot shortages, but they are due to delivery inefficiencies, not lack of availability. It is called a demand CYCLE for a reason and sometimes the demand outstrips the supply but, in a free market, higher prices put more supply on line until you get to a point of equilibrium. Speculators ruin the curve by creating false demand for product they do not intend to purchase causing miners to overproduce and commit to contracts with equipment makers like JOYG (a big Cramer pick) which eventually leads to a massive oversupply and crashes the market. Don’t worry though, Cramer and his pals will be long gone by then – off to put you into the next thing they are looking to get out of.
Cramer says (at the 2:00 minute mark) "The gap in coal could be 60 to 100 million tons this year, that’s massive, even the US… can’t make up that amount." While this…
We have made nice progress over last week but let’s not hurt ourselves patting ourselves on the back just yet as we still have oil at $125, which is still A LOT and we have still not broken out over the levels we didn’t break out over last week. Volume over the past 2 days has been very light so we’re going to need to see more to confirm an up move, even if we do get something solid. While traders have not all "sold in May," it looks like many of them have decided to go away so it could be a long, slow road to recovery.
The last time we did the Big Chart was Tuesday, the 20th and oil was trading right about $126. We generally lost a lot of ground in the past week and, as I said last week, we are just floating around in the range between our "Feeling Better" levels that we set way back in January after the big drop, and the critical 200 DMAs, which are proving very tough to break.
The small Mediterranean country of Greece has been more than a thorn in Europe’s (NYSEARCA:VGK) back for the past eighteen months; it has been the focal point of foreign press on Europe, and in this case all press is not necessarily good press. To truly understand the scope of the Greek debt crisis, one must analyze the Greek economy and its overall importance to the Euro. As ever more countries bid to enter the Euro, now Greece appears to bid for an exit, the first ever in the Euro’s history. A Greek exit from the Euro has been likened to a w...
Top 5 RisersStockRatingAnalysisWDCSTRONGBUYWestern Digital is one of the top candidates projected to achieve both higher than previously projected earnings in the short run and a higher earnings growth rate in the long run.KROSTRONGBUYKronos Worldwide is gaining higher expectations and its recent history of its earnings increases is significant.URIBUYProjected value continues to rise for United Rentals while long term increases in earnings growth are also becoming more widely expected.SWHCBUYAn increasingly attractive expected long term growth rate and a significantly higher projected valu...
The full set of DTCC data is in (that is the repository for reporting CDS data) and reading between the lines provides us with some significant color on what was occurring at JPM's CIO office. For the Cliff Notes' version - see the summary at the bottom...
First things first, the position does not appear to have any HY9 tranche involvement at all, but a modest short HY credit index position was unwound in mid-Feb (we suspect related to the IG9 tranche unwind - since the d...
The following are the M&A deals, rumors and chatter circulating on Wall Street for Tuesday May 22, 2012:
SAP to Expand Cloud Presence with Acquisition of Ariba
The Deal: SAP AG (NYSE: SAP) and Ariba (NASDAQ: ARBA) announced that SAP's subsidiary, SAP America, has entered into an agreement to acquire Ariba, the leading cloud-based business commerce network, for $45.00 per share, representing an enterprise value of approximately $4.3 billion. The acquisition will combine Ariba's successful buyer-seller collaboration network with SAP's broad customer base and deep business process expertise to create new models for business-to-business collaboration in the cloud.
The carryover from yesterday's rally in the S&P 500 dove for cover in the final hour of trading on news that Greece's former prime minister mentioned contingency planning for a Greek exit from the Euro. The index had reached an intraday high, up 0.95% during the late morning, faded through the afternoon, and sold off during the final hour when the Greek news began circulating. A rally during the last 10 minutes of trading lifted the index out of the red to a 0.05% gain at the close.
The index is now up 4.69% for 2012, which is 7.22% off the interim closing high on April 2nd.
From an intermediate perspective, the S&P 500 is 94.6% above the March 2009 closing low and 15.9% below the nominal all-time high of October 2007...
EXPR - Express, Inc. – Shares in apparel retailer, Express, Inc., dropped nearly 30.0% today to a new 52-week low of $16.38 after the company projected full-year earnings below those expected by analysts. Options on EXPR are far more active than usual today, with overall volume on the stock currently at 4,460 lots, up nearly 2,000% over the stock&rsq...
To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...
It is still very early in the conversation but the fact some European leaders are seriously considering a region wide bond is definitely a sea change. This news came out yesterday and while Germany will resist, it will be interesting to see if over the next 6-12 months the idea of a "eurobond" gains momentum. The bond would obviously help protect the weaker countries in the region (letting them borrow at rates they otherwise would not) and be a penalty for the stronger countries (namely Germany). So Germany has to consider if its worth the cost and/or if this is a cheaper way to maintain a flawed system in a current form R...
Reminder: OpTrader is available to chat with Members, comments are found below each post.
This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).
We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options.
Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.
To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here
NEW: Ilene is available to chat with Members regarding topics presented in SWW, comments are found below each post.
Here is this week's test version of the latest newsletter. We apologize for some formatting issues that need to be worked out. Please tell us what you think.
Reminder: Pharmboy is available to chat with Members, comments are found below each post.
In this article, please revisit an article written two years ago titled, "The Calm Before the Storm." This article focused on the patent cliff that was looming in the pharmaceutical industry, that was later picked up by the New York Times and several other bloggers! Subsequent articles were written about big pharma company's revenue streams, and the pros and cons of of their later stage pipelines. Other articles have also attempted to identify smaller biotechs with the potential to reap big reward...
My last weekend update is dated from January 30 so after a long hiatus, here is an update of our virtual portfolio. Since the last update, we have closed the AA Money portfolio due to a lack of enthusiasm (and activity) and I have stopped tracking the FAS strangle as the low VIX makes it hard to get rewarded for the risk! But we have added a small $5KP virtual portfolio which does not use any margin.
FAS Money
We have had to recover from a big move up by FAS and a low VIX which keeps option prices low. But the portfolio has gaine about 10% since the last update.
Last update P&L - $5499.00
IWM Money
Not a lot of activity in this portfolio where the main focus is on the large IWM BCS. But the portfolio has grown over 20% since the last update.
Last update P&L - $1998.00
$5KP Portfolio
This is the virtual portfolio that replaced the AA Money portfolio. It does not use margin and we will keep holdings under $5K.
AAPL $50K P...
Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(blogroll, archives,
more).
Contact Ilene to learn about our affiliate and
content sharing
programs.
Facebook
Twitter
LinkedIn 
del.icio.us
Digg
However, numbers alone are not the proper way to measure things.
Sigma Designs In Freefall; Backs Off Old FY ‘09 Guidance
That was a nice, short, uneventful week!
The Short-Term Virtual Portfolio picked up 8% for the week as we went a little more to cash and are, overall, quite bearish with a lot of open puts covering not too many longs. 
Well this week went by quickly!
Cramer says (
12,646 – Yipee, we’re back to our May 9th lows!
Pharmaceutical Facts
German
Spanish
French
Italian
Portuguese
Japanese
Korean
Russian
Chinese
Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(