This post is an update on the High Stake Poker Game involving Lehman and a consortium of bankers and brokers still in progress. Interestingly, two new side games are forming, one involving Lehman, the other involving Merrill Lynch and Bank of America. More on that in a moment.
The dealers (the Fed, the Sec, and the Treasury) are getting annoyed that no one is willing to make an "all in" bet. In fact, all the players are just sitting around the table holding their cards close to their vest not willing to make any bets, let alone go all in.
It is fitting that side games would start forming given that nothing is happening at the main table for hours. One of the dealers has left the main room and is now dealing a new game in the "Cinderella Pumpkin" side room.
Here is the main condition governing play in the Cinderella Pumpkin Room.
If LEH files for bankruptcy by midnight tonight any trades (bets) made during this session stand, otherwise they’re all broken.
The above information is from a reputable casino source of mine who states "At least a few of our credit sales traders are in the office today. I just spoke with one — they’re having a special 2-hour trading session today from 2-4pm ET. The deal is if LEH files for bankruptcy by midnight tonight any trades done during this session stand, otherwise they’re all broken. Wild."
Another casino employee with awareness of the side game informs me that Credit Default Swaps (CDS) on the investment index are up 50 basis points in this special session. Not being at the Casino, I cannot confirm any of this.
The optimistic view, presented by Adam Warner at Daily Options Report, is that maybe the 3% drop in the futures is not going to get much worse immediately (I think there’s an implicit "immediately" in between the lines) because the Lehman car wreck has been playing out forever, as we’ve been watching, forever. Note to self: Ask Adam if he sells bathing suits on the side.
So here’s a combo of events you don’t see often. An up SPX on a Friday AND a higher VIX.
Not that a VIX with a 25 full is particularly high historically, but in 2008 it’s a decent reading.
The reasons were pretty obvious. We closed Friday knowing LEH and maybe Wamu, would see some sort of resolution. And now apparently Merill and AIG need one too.
But is something all that cosmic really going to happen? The LEH car wreck has played out in Super slo-mo forever. And this isn’t BSC at 30 going to $2, LEH and WM were already there. And we’ve seen this movie before over and over again all year.
I try to look at volatility subjectively. An absolute number needs context. Not that 25.6 volatility presages a crash, and not that the news is anything but awful, but we’re getting late in the game to worry about more financial shoes dropping. News Flash: They took down lots of horrendous paper and can’t get it off their sheets without Ben and Hank stepping in. So just wondering aloud whether this is that long-awaited excess Fear that’s been a little slow in forming.
As I type, the futures are signalling a market down something like 3%. So maybe the VIX was just pre-pricing in a gap, much like ahead of an earnings. And maybe once we open and settle in, volatility will dip and it’s back to Complacency Station. It could be nothing more than that.
In any event, should be interesting. Again, if you want to do something bullish, calls or call spreads make the most sense imho.
And yes, mentions of VIX are sponsored by VIX Swimwear and Clear Pepsi "Sure those clear drinks haven’t been popular for 20 years, but that won’t stop
The story notes that the Federal Reserve will take lower quality assets as collateral for loans and a consortium of banks will provide financing to assist an orderly liquidation of the company.
I am not sure that one can have an orderly liquidation of a company which has been around for a century and a half. This is confirmation, proof positive that we live in a most troubled time. One week ago we watched and cheered (I did) as the Treasury rescued FNMA and Freddie Mac.
That effort provided only the briefest interlude of calm in the markets. There is some historic climax to this series of crises lurking just around the corner. At every twist and turn in this year long saga the result which has ensued has always been the worst case scenario. We are, I believe, headed for a very very ugly end to this story.
Government has not been able to hold back the forces which have taken down financial giant after financial giant. Capitalism demands pain. Good risk is rewarded and imprudent risk is punished. We were engaged in an orgy of imprudent risk taking for nearly a decade and now a heavy price will be paid for the violation of so many simple and common sense precepts of trading.
I truly fear for our economy and our system the next several days.
He has thirty years of experience on Wall Street. That last sentence has my attention.
Lehman will seek to place its parent company, Lehman Brothers Holdings, into bankruptcy protection, while its subsidiaries will remain solvent while the firm liquidates its holdings, these people said. A consortium of banks will provide a financial backstop to help provide an orderly winding down of the
As unlikely as it seems that I would turn to the mainstream media to support my Crash thesis, this article from Friday’s Washington Post sets out a scenario where, quoting from the last sentence of the article,
"We are nowhere near the resolution of a financial crisis that has been years in the making and that has only begun to have its impact on a newly globalized economy."
Rather then piece meal the author’s ideas with my own, here is the column, posted in the spirit of "I couldn’t have said it better myself" (or, in the spirit of laziness on a Sunday afternoon).
Excerpt: "Oil prices have now dipped back near $100, other commodity prices are in a free fall, interest rates are down, and the dollar is up smartly against just about every currency.
From one angle, that all looks to be good news. Since food, energy and commodities were behind the recent surge in prices, inflation suddenly looks like less of a threat, particularly since a strong dollar also lowers the prices of other imports. Lower energy prices take some of the pressure off such hard-hit industries as autos and airlines, and off households that have been forced to cut back on other expenditures. More growth, less inflation — nothing to complain about there.
But what if it weren’t that simple?
What if what’s really happening is that sky-high energy and commodity prices weren’t a reflection of a fundamental shift in supply and demand, but merely another speculative investment bubble? [i.e., the thesis here at PSW for many months - Ilene]
And what if that bubble burst because the investment herd finally realized that double-digit annual economic growth in developing countries was not a sure thing — that it was actually unsustainable, the result of underpriced currencies and an investment boom that had created bubbles in asset prices and economic output?
That, of course, would be a very different story. It would explain why prices for just about every financial asset you can think of are now falling all around the world, sending desperate investors fleeing to…
Following is an update on the High Stakes Poker Game involving Lehman (LEH), Merrill Lynch (MER), J.P. Morgan Chase (JPM), Goldman Sachs (GS), Citigroup (C), Bank of America (BAC), Barclays, and others.
Please consider Lehman to be the pot. Lehman is not a player, Lehman is being played for. The other players around the table are deciding how much that pot is worth.
The Fed, the Treasury, and the SEC are acting as the dealer (or if you prefer the carnival barker). The role of the carnival barker is to get the amount bet as high as possible. The preferred scenario was to goad Barclays and the Bank of America to go "all in".
The problem with the "all in" scenario is there is a "side pot" to consider (i.e. the bad bank). In this case the "side pot" has negative value. The other players at the table would have to fund the bad bank while not sharing in the main pot.
Furthermore, only Bank of America and Barclays have enough chips to bet on the Lehman main pot, but they are reluctant to do so unless the value of that pot is guaranteed by the dealer.
Unable to find a savior, the troubled investment bank Lehman Brothers appeared headed toward liquidation on Sunday, in what would be one of the biggest failures in Wall Street history.
But Barclays, considered the leading contender to buy all or part of Lehman, said Sunday that it could not reach a deal without financial support from the federal government or other banks, making a liquidation
Sept. 6 (Bloomberg) — Boeing Co.’s machinists went on strike today, seeking improved pay and job security as the planemaker benefits from record orders and tries to keep its 787 Dreamliner schedule from slipping further.
The union’s 27,000 members in Washington, home to Boeing’s Seattle-area manufacturing hub, Kansas and Oregon began the strike at 12:01 a.m. local time today. Machinists make parts and assemble planes for the Chicago-based company, which trails only Airbus SAS in commercial planemaking.
"We’re out here for a lot of reasons," including built-up resentment over previous contracts and workers’ hopes for job security and higher pensions and starting wages, said Don Grinde, 51, as he picketed outside Boeing’s Everett, Washington, wide- body factory, where he’s a crane operator. "The first step for us is to hit the ‘delete button’ for all the take-aways, and then we can start from there" with a new contract.
The walkout may jeopardize Boeing’s customer relations amid unprecedented demand from airlines for newer, more fuel- efficient planes and keep the 787, its most successful new aircraft, from flying this year. A monthlong strike would shave 31 cents a share off Boeing’s earnings and cost $2.8 billion in lost revenue, Merrill Lynch & Co. analyst Ronald Epstein of New York estimates.
The International Association of Machinists and Aerospace Workers members rejected Boeing’s three-year contract offer on Sept. 3, and leaders delayed the strike until today so the two sides could work with a federal mediator. The extended talks also failed because "the Boeing company did not address our issues," the union said yesterday on its Web site.
Boeing on Aug. 28 issued a final proposal that it called the best in the industry, offering an 11 percent pay raise over three years and higher pension payments. The company refused union demands to limit the use of outside contractors for work the machinists have traditionally done. Boeing also asked that workers pay higher medical co-pays and deductibles.
"Asian markets are now open, and nary a Lehman bailout in site.
Before you start congratulating the powers that be over their restraint, understand why there is no such rescue plan in place. My comments earlier this week in Slate:
To be eligible for a bailout, firms must also demonstrate a particular genius for screwing up. Before it went bust, Bear Stearns had a monstrous $33 of debt for every dollar of capital, and hedge funds it owned destroyed hundreds of millions of dollars of clients’ cash. It got a bailout. Lehman Brothers, which has taken painful measures to reduce its risk, is perversely less likely to get direct government help. "The worst Lehman can do is destroy the firm," said Barry Ritholtz, CEO of Wall Street research firm FusionIQ and author of the forthcoming Bailout Nation. "Bear Stearns, on the other hand, set up the firm so that if they screwed up, they could threaten the entire financial system." That may explain why Treasury Secretary Paulson has thus far resisted providing federal succor to Lehman."
So far, this year alone, the DOD has agreed to transfer more than $32Bn in weapons and other military equipment to foreign governments. That’s up from $12Bn in 2005. According to the NYTimes: The trend, which started in 2006, is most pronounced in the Middle East, but it reaches into northern Africa, Asia, Latin America, Europe and even Canada. “This is not about being gunrunners,” said Bruce S. Lemkin, the Air Force deputy under secretary who is helping to coordinate many of the biggest sales. “This is about building a more secure world.”
Gee, it does sound a lot like gun running though, doesn’t it? Sales are also booming for Russia, who competes with us to arm nations like India and Brazil with fighter jets. Less sophisticated weapons, and services to maintain these weapons systems, are often bought directly by foreign governments. That category of direct commercial sales has seen an enormous surge as well, as measured by export licenses issued this fiscal year covering an estimated $96 billion, up from $58 billion in 2005, according to the State Department, which must approve the licenses.
“Sure, this is a quick and easy way to cement alliances,” said William D. Hartung, an arms control specialist at the New America Foundation, a public policy institute. “But this is getting out of hand.” Howard L. Berman, chairman of the House Committee on Foreign Affairs, said: "This could turn into a spiraling arms race that in the end could decrease stability.” Saudi Arabia, this fiscal year alone, has signed at least $6 billion worth of agreements to buy weapons from the United States government — the highest figure for that country since 1993, which was another peak year in American weapons sales, after the first Persian Gulf war. The US has moved from supplying 40% of the world’s arms in to 52% in 2006 so if someone, somewhere is being killed, it’s very likely by our stuff!
This is great stuff for our top defence contractors (2006 figures) like LMT ($36Bn – 91% of revs), BA ($31Bn – 50%), NOC ($24Bn – 78%), RTN ($20Bn – 96%), GD ($19Bn – 78%), LLL ($10Bn – 80%) and UTX ($8Bn – 16%) but what does it say about our foreign policy? We supply both India and Pakistan with weapons – a neat trick since they each maintain more troops at each other’s boarder than we have in…
Insight 4. It is likely that we will have product shortages for at least the next three to four weeks, because of shut in refinery capacity and reduced refinery runs.
We have said that it is likely to take a week or two to get refinery production up to pre-Ike levels. Suppose it takes 10 days. Adding 10 days to the date of the hurricane (September 12) brings us to September 22. If it takes an average of 18.5 days to get product from Texas to New Jersey by pipeline, it will take until approximately October 10 before supplies are back to normal. It could be a little shorter than this, or quite a bit longer.
Insight 5. One of the biggest refined product pipelines, Colonial Pipeline, is now reported to be shut down, because of lack of refined product input.
Colonial pipeline is one of the largest pipelines, with a capacity of 2.4 million barrels a day. It serves the Southeast and the East Coast.
Figure 3. Colonial Pipeline Route
Until Colonial pipeline is back to carrying full capacity of gasoline, diesel, and other refined products, there are likely to be shortages along the gulf coast and the Southeast. The Northeast may also begin to see shortages.
Other major outages have also been reported. Explorer pipeline, carrying 700,000 barrels a day of petroleum products from Texas/LA to Indiana, is completely shut down. Plantation pipeline, carrying 600,000 barrels a day of petroleum products from Louisiana to Virginia, is operating at reduced rates.
Insight 10. Because some areas are likely to be very short of supply, it is likely that gasoline prices would need to rise to $10 a gallon or more in those areas, to cut back demand sufficiently.
In some areas, there may be temporary shortfalls of 25% of more of gasoline supply. To allocate such short supplies would take a very high price. Government officials are not likely to let this happen. Instead, we are likely to see many
Excerpts: "A deal has been drafted to buy Lehman Brothers’ bad assets and clear the way for an eventual sale of the troubled firm, CNBC has learned.
Under the terms of the proposal, which could still blow up, all the major Wall Street firms would pitch in $30 billion total to purchase Lehman’s bad real estate assets and create what’s knows as a "bad bank."
The proposal is being drafted Saturday night and will be discussed Sunday morning, according to sources close to CNBC. If Wall Street agrees on the terms, which would amount to around $3 billion per firm, it would clear the way for the sale of Lehman Brothers itself to one of several suitors, including Bank of America, Barclays Plc and HSBC.
Executives remained less than pleased with the proposal as they left the New York Federal Reserve around 6 p.m. to convene again Sunday morning. Contingency planning for no deal getting done, potential bankruptcy and defaults continues as Lehman continues its search for a buyer.
"Why should we give up capital so Barclays and Bank of America can buy a clean bank," said one Wall Street executive.
Despite the grumbling, those in the know expect the deal to get done Sunday, with Barclays in the lead to buy the rest of Lehman, including Neuberger. No price has been set just yet.
One Wall Street executive involved in the meetings put it this way: "I’m thinking logically; if they do nothing it’s Armageddon. That means they do a deal. It will be announced at 6 p.m. (ET) Sunday."..
…But with firms like Bank of America and Barclays refusing — at least so far — to budge on their position that they will only buy Lehman without the beaten down real estate assets, and the street balking on the government plan, which calls on the big firms to chip in a total of around $3 billion to purchase the Lehman assets, people with direct knowledge of the meeting say a deal may not get done."…
One of the critical steps in President Obama's "off-ramp" de-escalation plan for the crisis in Ukraine was a so-called 'observer mission' by the Organisation for Security and Co-operation in Europe (OSCE) to ensure that all citizens were being treated fairly. That 'plan' has hit a wall this morning as PTI reports that pro-Kremlin gunmen blocked the obersver entry. Seems like another red line just got crossed.
Pro-Kremlin gunmen kept foreign observers from entering Crimea today as Russia welcomed the prospect of the Ukrainian peninsula joining the country amid the worst East-West crisis since...
Total nonfarm payroll employment increased by 175,000 in February, and the unemployment rate was little changed at 6.7 percent, the U.S. Bureau of Labor Statistics reported today. Employment increased in professional and business services and in wholesale trade but declined in information....
Severe winter weather occurred in much of the country during the February reference periods for the establishment and household surveys.
Today's report of 175K new nonfarm jobs was better than the Investing.com forecast of 149K. And the unemployment rate of 6.7% w...
We have discussed the sword of Damocles that is hanging over the heads of the Ukrainian (and European for that matter) people for some time. The dominant role that Russia plays in providing energy is becoming critical, however, as Gazprom notes:
*GAZPROM SAYS TODAY IS DEADLINE FOR NAFTOGAZ TO PAY FOR FEB. GAS
*NAFTOGAZ OVERDUE PAYMENTS AT $1.89B FOR GAS SUPPLIES: GAZPROM
*GAZPROM SAYS NAFTOGAZ ISN'T OBSERVING CONTRACT
*GAZPROM: UKRAINE DEBTS CREATE 'RISK OF RETURN TO SITUATION AT BEGINNING OF 2009' (when Gazprom cut off Ukraine g...
OvaScienceSM (NASDAQ: OVAS), a life sciences company focused on the discovery, development and commercialization of female fertility treatments, today announced the issuance of two United States patents covering its AUGMENTSM fertility treatment. AUGMENT is based on the Company's egg precursor cell (EggPCSM) technology and is being developed to improve egg quality and the success of in vitro fertilization (IVF). AUGMENT will be available in international IVF clinics this year.
“The new patents strengthen and extend the protection for AUGMENT in support of our efforts to offer a potential new fertility treatment option to women and families,” said Michelle Dipp, M.D., Ph.D., Chief Executive Officer of OvaScience. “We continue to aggressively pursue additional pate...
The Global X Social Media Index ETF (Ticker: SOCL) touched fresh record highs on Thursday morning, surprising no one given the top three holdings of the Fund are Hong Kong-based Tencent Holdings (12.678%), Facebook Inc. (12.506%) and LinkedIn Corp. (8.166%), which are up 130%, 160% and 22%, respectively, since this time last year. The SOCL reflects the performance of companies involved in the social media industry, including companies that provide social networking, file sharing and other web-based media applications. Shares in the ETF rose 1.3% today to a new high of $23.00, and have soared approximately 65% since this time last year.
Today brought three better than expected economic releases from Construction Spending, ISM Manufacturing, and Personal Income. The ISM figure was quite unexpected and Personal Income was well above expectations. If we ignore for a moment that the Final GDP reading for Q4 was lowered on Friday (which may or may not have been primarily caused by severe weather), we have had a week of better than expected economic numbers. Corporate earnings have also continued to exceed forecasts, albeit with a bit more cautious guidance.
Of course, none of that matters when the “war drums” start beating. Russia and the Ukraine are engaged in a serious game of “chicken” with a bear in the hen house. The Russian ruble has borne the brunt of the damage so far with a double digit drop today again...
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...
Reminder: Pharmboy is available to chat with Members, comments are found below each post.
Ladies and Gentlemen, hobos and tramps,
Cross-eyed mosquitoes, and Bow-legged ants,
I come before you, To stand behind you,
To tell you something, I know nothing about.
And so the circus begins in Union Square, San Francisco for this weeks JP Morgan Healthcare Conference. Will the momentum from 2013, which carried the S&P Spider Biotech ETF to all time highs, carry on in 2014? The Biotech ETF beat the S&P by better than 3 points.
As I noted in my previous post, Biotechs Galore - IPOs and More, biotechs were rushing to IPOs so that venture capitalists could unwind their holdings (funds are usually 5-7 years), as well as take advantage of the opportune moment...
Welcome to the fouth update of the IRA Virtual Portfolio. First I am going to summarize the current state of the Portfolio then I will get into all the activity we had during September expiration.
Profit and Loss – Net of closed positions the portfolio is up a total of $769
Market Commentary – Last expiration I said, "I would like to put a total of $20,000 to work by the end of SEP expiration. If the VIX pops up to around 20 I plan to put about $50,000 total to work." The market didn't quite reach the goal but I did manage to deploy $15,000 of buying power. I still feel the market is too high and expect a correction during October. If the vix pops up to around 20 I still plan to put about $50,000 to work. If a correction doesn't happen I still plan to have a total of $25,000 in buying power put to work by October expiration. Now on to the act...
Note: The material presented in this commentary is provided for
informational purposes only and is based upon information that is
considered to be reliable. However, neither MaddJack Enterprises, LLC
d/b/a PhilStockWorld (PSW) nor its affiliates
warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither PSW nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance, including the tracking of virtual trades and portfolios for educational purposes, is not necessarily indicative of future results. Neither Phil, Optrader, or anyone related to PSW is a registered financial adviser and they may hold positions in the stocks mentioned, which may change at any time without notice. Do not buy or sell based on anything that is written here, the risk of loss in trading is great.
This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities or other financial instruments mentioned in this material are not suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only intended at the moment of their issue as conditions quickly change. The information contained herein does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation to you of any particular securities, financial instruments or strategies. Before investing, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.