Archive for
January, 2009
by ilene - January 29th, 2009 4:31 pm
New York Attorney General Andrew Cuomo is stepping up the investigation into Merrill’s $4 billion bailout-for-bonuses scandal. He is also reportedly considering demanding that the bonuses be paid back:
Susanne Craig, WSJ: New York Attorney General Andrew Cuomo is expanding the scope of his investigation into bonuses paid by Merrill Lynch, with the inquiry now likely to include whether directors and shareholders were misled about giant losses at the Wall Street firm, a person familiar with the situation said.
Mr. Cuomo plans to press John Thain, the former Merrill chairman and chief executive who was forced to resign last week from Bank of America Corp., on what he told Merrill directors about ballooning losses in mid-December, this person said.
In addition, Mr. Cuomo wants to know why the Charlotte, N.C., bank didn’t publicly disclose that Merrill’s condition was deteriorating. BofA Chairman and CEO Kenneth Lewis is likely to face questions from Mr. Cuomo about bonus payouts by Merrill, including what he told directors about them, according to this person…
Bank of America is in hot water, too:
"We plan to look at the fiduciary duty of these two men and others at various points in this saga," the person familiar with the investigation said Wednesday. "Looking at Bank of America, if they did a bad deal and didn’t tell anyone, it not only hurt shareholders, it hurt taxpayers because of the government funding that has been extended to the bank."
The investigation is at an early stage, but Mr. Cuomo’s office is examining potential remedies such as trying to recover bonuses already paid, fines or alleging securities-law violations, the person familiar with the investigation said.
In a statement, Mr. Cuomo said Bank of America faces a "$4 billion question" about "why it failed to stop Merrill Lynch from issuing year-end bonuses as it was taking over the company."
That last part goes straight to Bank of America’s
…
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by ilene - January 29th, 2009 3:13 pm
Here’s another important, actually horrifying, article started by Michael Panzner, in which he references and includes articles by Tom Engelhardt and Nick Turse, stressing that the consequences of an economic meltdown stretch far beyond finances. 
Courtesy of Michael Panzner at Financial Armageddon
In today’s increasingly digital world, analysts spend a lot of time focusing on measurable details. They ask questions like "How long?" "How big?" and "How many?" and seek to draw all sorts of conclusions from the answers.
But as we’ve often seen during the past two years, hard data doesn’t necessarily tell the whole story. In fact, one reason why so many Wall Street "strategists" and economists missed the boat on the unfolding depression is because they gave short shrift to anecdotal reports and other evidence of widespread economic distress that could not be easily distilled into simple data points.
That doesn’t mean numbers don’t matter, of course. As it happens, a report by the associate editor of TomDispatch.com, embedded within a post [by Tom Engelhardt] entitled Tomgram: Nick Turse, Desperate Times and Desperate Measures," marries hard and soft data together in a way that makes it clear just how bad things are.
The headlines tell the story. My hometown paper played the news relatively mildly as "Layoffs Spread to More Sectors of the Economy"; the Washington Post chose the slightly stronger, "Layoffs Cut Deeper into Economy"; the Los Angeles Times picked "Deluge of Layoffs Hits U.S. Economy"; the Indianapolis Star, "50,000 New Pink Slips Pile Up"; and the San Jose Mercury, "Bloody Monday: U.S. firms slash 50,000 jobs." At a news conference, the new president rattled off selected names from the all-star line-up of companies that were tossing out bodies and shutting down lives: "Over the last few days we’ve learned that Microsoft, Intel, United Airlines, Home Depot, Sprint Nextel, and Caterpillar are each cutting thousands of jobs. These are not just numbers on a page. As with the millions of jobs lost in 2008, these are working men and women whose families have been disrupted and whose dreams have been put on hold."
Meanwhile, the one-day estimate of the number of layoffs,
…
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by Option Review - January 29th, 2009 1:35 pm
Today’s tickers: BAC, OI, TROW & MSM
BAC – Bank of America – There seems to be a firmly contrarian bid for call options evident in today’s option trading where out-of-the-money calls in Bank of America for both February and March expiration are attracting sizeable volume. Investors bought more than 10,000 lots at each in the first 30 minutes of trading despite the fact that shares in the bank slid 7% to $6.86. Elsewhere February 6.0 and 7.5 strike put options were also sought after with investors paying premiums of 60 cents and 1.34 respectively. Implied options volatility grew once again today as investors digested the passage of a stimulus package raising the reading at BAC to 143%.
OI – Owens-Illinois Inc. – Call buyers appear to have stepped into the fray to catch the falling knife that is OI’s share price, down around 10% following an unexpected quarterly loss through the end of December. Shares in the packaging and bottling company traded to as low as $19.34 as sellers dumped the shares. Meanwhile it appears from a glance at time and sales data that it was call buying on the way down that might have stopped the decline. The February 20 strike is populated by 3,371 existing positions and those were today almost matched by volume within the first hour of trading of over 3,100 lots. Premiums were all over the map falling from 2.35 to 1.00. Much of the activity occurred at prices within a nickel of the low point where 1,131 calls traded while its shares were boring a hole into the ground at its lowest point of the day. The March strike attracted call interest at both 17.5 and 22.5 strike. Implied volatility at 63% after earnings compares to historic share price volatility of 69% according to our data.
TROW – T. Rowe Price Group Inc. – Money manager, T. Rowe Price slipped after writing down some of its investment values sending shares down 4% to $32.05. Options open interest at just 29,720 was eclipsed by three slugs of put option volume in the April contract where each of the 22.5, 25 and 30 strikes rang up at 10,000 lots. However, the trade appears to be less bearish than at first blush with only the 30 strike apparently purchased at a 3.90 premium. The two lower strikes appear to be used to fund the transaction bringing…
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by ilene - January 29th, 2009 1:26 pm
A few months ago, in Crisis Approaching, we discussed a Supreme Court case (Santa Clara County v. Southern Pacific Railroad Company, 1886) noted for granting corporations the rights of natural persons. 
"The corporate personhood debate refers to the controversy (primarily in the United States) over the question of what subset of rights afforded under the law to natural persons should also be afforded to corporations as legal persons." (Wikipedia)
As we examine the economic crisis – the causes, the enabling laws, and laws that never were enforced – perhaps we should take a closer look at our entire body of corporate law. It may be that the law as it exists and is enforced now provides corporations with too many rights, shareholders with too few, and shields individuals acting under the corporate veil too extensively. Perhaps Michael Panzner‘s discussion below highlights results flowing from a failed body of corporate law. – Ilene
Courtesy of Michael Panzner at Financial Armageddon
Although I disagree with economists about many things, I’m a big believer when it comes to incentive theories. Simply put, when people are rewarded in some way for doing one thing instead of another, they will tend to oblige.
That is one reason why, for example, Soviet factories were famous for producing large stockpiles of substandard goods that nobody really wanted. Instead of responding to market forces, workers and managers were being rewarded on the basis of how well they met state-mandated production targets.
In that vein, given that many of those who helped bring about the worst financial crisis since the Great Depression are still in charge — read: being rewarded for earlier bad behavior — as detailed in the following Associated Press report, "AP IMPACT: No Pink Slips for Bailed-Out Bank Execs," logic suggests they will carry on making the same mistakes as before.
They’ve been bailed out, but not kicked out.
At banks that are receiving federal bailout money nearly nine out of every 10 of the most senior executives from 2006 are still on the job, according to an Associated Press analysis of regulatory and company documents.
The AP’s review reveals one of the ironies of the bank bailout: The same executives who were at the controls as the
…
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by Phil - January 29th, 2009 9:05 am
Well, we got our stimulus boost – now what?
I’ve been saying all week I’m dreading tomorrow with the GDP report and what I think are going to be disappointing earnings from XOM, which could create a nasty 1-2 punch to the gut of the Dow. We didn’t want to wait and we covered up and went naked on our downside index puts in member chat at 2:40, weighting the virtual portfolio back to bearish at 8,355 on the Dow. We were glad then sad that we did that but now we are glad again as the pre-markets are indicating a sell-off back to 8,300.
We certainly got the pop we were expecting as Hong Kong’s markets opened back up with a nice 4.5% gain but the mainland is still closed (why don’t we get week-long market holidays?) and it remains to be seen if the Hang Seng can hold 13,000. The Nikkei added 1.8%, keeping up with the Dow at 8,251 and the rest of Asia was up slightly following our "rally day" but lack of follow-through on our part can fizzle things fast tomorrow. When the FXY tests 112 again it is probably time to short the yen…
Now it’s 8:30 and Jobless Claims came in at 588,000 with 4.8M continuing claims. I would have to say that I’ve read at least another 100,000 jobs worth of lay-off notes this week from earnings announcements. Durable goods were also terrible, down 2.6%, but about what was expected but the ex-Transportation number is down 3.6% and that is very bad. Even worse is last month’s durable goods number turned out to be a farce as it was revised down from -1.5% to -3.7%. We’ll see if the market can take this in stride but toss in some big oil misses and a -5% GDP and I think this week is going to go pretty much as we planned – even with the Trillions in additional stimulus promised by Obama and "Bad Bank" Bernanke.
Over in Europe, they are giving up about half of yesterday’s gains and both Putin and Wen used the podium at Davos to slam the US, blaming us for the global crisis (kind of hard to argue actually). France did what they usually do in times of turmoil – they went on strike – with a nationwide shutdown by "public and private workers." (now THAT’S a…
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by ilene - January 28th, 2009 11:28 pm
The Socialization of CNBC. In the worst and dumbest possible way.
Courtesy of Adam Warner, at Daily Options Report
Suppose you have a trading firm with two employees. Say you typically cover their losses out of pocket, and pay them a modest salary and a 20% bonus of their profits. One guy earns $10 million, the other loses $20 million. You are now out $10 million. Unfortunately for the guy who you owe a bonus, you have no money on hand. You go hat in hand to Congress and cry "systemic risk". Should the government then give you that $2 million so you can go pay him? CNBC would suggest yes, and it’s an affront to Capitalism to even think otherwise. I truly beg to differ.
Unfortunately for the guy with the good year, his paycheck is necessarily tied into the overall profitability of the firm that backs him. That’s how it works. I knew a guy who made a fortune on the day of the Crash in ’87 and got rewarded by losing his job as the firm that he worked for went broke.
OK, this is all off topic here. And I appreciate the irony that after I made some twitter-y wisecracks (in 140 characters or less) about CNBC wasting countless time talking about Thain and BAC and commodes and limo drivers and what not, I’m going to waste time with a post on it.
CNBC truly does not get it. Most of them, not all of them, Charlie Gasparino and Mark Haines do get it, can’t think of others off-hand though.
We carped about privatizing gains when they were good and socializing the losses via TARP. Fine. I would like the ability to claw back, but not going to hold my breath on that one.
But CNBC essentially advocates we keep privatizing gains and socializing losses. Even within the same firm.
I do not want one dime of the money I paid in taxes going to Merrill bonuses, or anyone’s bonuses. Ostensibly we face systemic risk and have to throw all this money at them. RIGHT NOW! Why should one penny of that possibly go to bonuses? I have sympathy on a personal level if there’s someone there who actually made money for the firm last
…
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by ilene - January 28th, 2009 6:16 pm
Greg Newton comments on the evolving Mark-to-Madoff accounting procedure contemplated for the Bad Bank Plan. 
Courtesy of Greg Newton at NakedShorts
Mark-to-market. Mark-to-mystery. Now, Mark-to-Madoff.
The Obama administration is close to deciding on a plan to purchase bad — or non-performing and illiquid — assets from banks, according to industy (sic) sources. The plan could be announced early next week.
The so-called “bad bank” plan, would address the key problem of how to price the assets by using a model-pricing mechanism. The model would take account of the government’s ability to hold onto assets, even to maturity, and pay for the (sic) them with cheap funding.
Result: the government might end up paying more
than current market prices for the securities.
by Steve Liesman
CNBC Jan. 27 2009
by Robert Schmidt and Alison Vekshin
Bloomberg Jan. 27 2009
And The crookes will be paid: AIG Said to Pay $450 Million to Retain Swaps Staff
by Hugh Son, Bloomberg Jan. 27 2009
American International Group Inc., the insurer saved from collapse by government money after losses on credit-default swaps, offered about $450 million in retention pay to employees of the unit that sold the derivatives, according to two people familiar with the situation.
About 400 workers at the financial products unit may get the money in two installments, said the people, who declined to be named because details of the payments were confidential. The business was responsible for about $34 billion in writedowns since 2007 as the market value of swaps AIG sold to banks plunged amid the subprime mortgage market collapse.
The payments bring to more than $1 billion the amount AIG has committed to keep its employees from leaving. The New York- based insurer in September took a federal bailout to avoid bankruptcy and is selling subsidiaries to repay the government. …
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by ilene - January 28th, 2009 5:02 pm
Surprise gift packages for all! Here’s a WSJ editorial on the stimulus plan, the ‘‘American Recovery and Reinvestment Act of 2009.’’
You won’t believe what’s in that stimulus bill.
"Never let a serious crisis go to waste. What I mean by that is it’s an opportunity to do things you couldn’t do before."
So said White House Chief of Staff Rahm Emanuel in November, and Democrats in Congress are certainly taking his advice to heart. The 647-page, $825 billion House legislation is being sold as an economic "stimulus," but now that Democrats have finally released the details we understand Rahm’s point much better. This is a political wonder that manages to spend money on just about every pent-up Democratic proposal of the last 40 years.
We’ve looked it over, and even we can’t quite believe it. There’s $1 billion for Amtrak, the federal railroad that hasn’t turned a profit in 40 years; $2 billion for child-care subsidies; $50 million for that great engine of job creation, the National Endowment for the Arts; $400 million for global-warming research and another $2.4 billion for carbon-capture demonstration projects. There’s even $650 million on top of the billions already doled out to pay for digital TV conversion coupons.
In selling the plan, President Obama has said this bill will make "dramatic investments to revive our flagging economy." Well, you be the judge. Some $30 billion, or less than 5% of the spending in the bill, is for fixing bridges or other highway projects. There’s another $40 billion for broadband and electric grid development, airports and clean water projects that are arguably worthwhile priorities.
Add the roughly $20 billion for business tax cuts, and by our estimate only $90 billion out of $825 billion, or about 12 cents of every $1, is for something that can plausibly be considered a growth stimulus…
Here’s another lu-lu: Congress wants to spend $600 million more for the federal government to buy new cars….
Another "stimulus" secret is that some $252 billion is for income-transfer payments — that is, not investments that arguably help everyone, but cash or benefits to individuals for doing nothing at all. There’s $81 billion for Medicaid, $36 billion for expanded unemployment benefits, $20 billion for food stamps, and $83 billion for the earned income credit for…
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by Option Review - January 28th, 2009 1:51 pm
Today’s tickers: XLF, GS, VIX, CX & T
XLF – Financial Select Sector SPDR – Shares in this financial portfolio are off to the races this morning and stand 10.5% higher at $10.10. Heavy option activity doesn’t confirm the relief with which investors have greeted the so-called “bad bank” plan, which would help remove the bind of lending due to toxic assets clogging up financial companies’ balance sheets. Within the 81,000 call volume at the February 10 strike, where average premium was 74 cents today, 45,000 calls were sold while 26,000 were marked as bought. At the March 12 strike call, which saw most volume in that contract, more call volume appears to have been initiated by sellers where premium of 38 cents was achieved. In the February puts, it appears that a 19,000 lot put spread was traded accounting for most of the volume at the 8.0 and 9.0 strikes. In this trade, which we can’t tell was an opening or closing transaction, the investor sold premium of 32 cents at the upper strike in exchange for the payout of 16 cents at the lower strike. This could be simply a credit put spread aimed at taking the net 16 cents in the event that financial shares stay afloat, or it could be the closing side of a trade in which the buyer has now lost confidence. Implied volatility on the XLF dropped to 77.9% today.
GS – Goldman Sachs Group Inc. – Shares of GS are up nearly 10% to $85.93 this morning and bullish options investors are piling into the call side looking for upside exposure. Some have looked to the February contract, initiating a call spread at the 85.0 and 95.0 strikes, while others have stretched their optimism into the March contract. One investor appears to have purchased 5,800 lots for 2.35 at the March 100 strike. If shares of GS can rally through $100.00, profits will be realized at a breakeven of $102.35 and beyond. Options implied volatility is off by around 10% at 69% today.
VIX – CBOE Volatility Index – The S&P’s fear gauge is lower but holding steady at the 40 handle after the coverage of the bad bank plan. That’s a daily decline of 4% as investors consider whether or not the news will come to fruition and more importantly whether the plan might provide a lasting solution for the broken…
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January 27th, 2012 1:40 pm
Reminder: David is available to chat with Members, comments are found below each post.
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January 27th, 2012 12:55 pm
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
In an effort to reach the angry mob, CNBC's Rick Santelli goes all Sesame Street on the numbers behind the US Debt Ceiling Rise. Focusing for two minutes on what this practically means for every man, woman, child, and politician, the shouting Chicagoan points out that when the US breaches this new limit then the world's entire population will be on the hook for $2,346 each (and $52,409 per US person).
...
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January 27th, 2012 12:35 pm
Courtesy of Doug Short.
The Weekly Leading Index (WLI) growth indicator of the Economic Cycle Research Institute (ECRI) posted -6.5 in its latest reading, data through January 20. The latest public data point is a reduced contraction from last week's -7.6 (a slight downward revision from -7.5). This is the highest level (i.e., least negative) since early September. However, the underlying WLI declined fractionally from an adjusted 123.3 to 122.8 (see the third chart below).
Early last December Lakshman Achuthan, the Co-founder of ECRI, spoke with Tom Keene on Bloomberg Television's Surveillance Midday. You can watch the video on the ECRI website here, with bold heading Recession Update. The eight-minute video is well worth watching in its...
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January 27th, 2012 11:15 am
Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
Some combination of better made cars, and less Americans able to pay new car prices has conspired to push up the average age of U.S. vehicles to a new record high. Reflecting this sea change, one of the best investment g...
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January 27th, 2012 10:05 am
Courtesy of Benzinga.
Shares of battered tech company Research in Motion (NASDAQ: RIMM) are seeing much strength during Friday's trading session.
Fairfax Financial Holdings released a 13G filing with the SEC this morning, in which they disclosed a 5.12% stake in Research in Motion.
Currently, shares of Research in motion are up over 4% at $16.85. Over the last year, Research in Motion is down over 72%.
Research In Motion Limited is a designer, manufacturer and marketer of wireless solutions for the worldwide mobile communications market. RIM provides platforms and solutions for access to information, including e-mail, voice, instant messaging, short message service.
...
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January 27th, 2012 12:00 am
Top 5 RisersStockRatingAnalysis
ASBCBUYMany analysts are expecting higher than previously expected long term growth from Associated Bancorp, and its near-term earnings outlook is also improving.
CZZSTRONGBUYThe recent earnings history for Cosan Ltd shows significant improvement while projected valuation continues to rise.
STLDBUYProjected value continues to rise for Steel Dynamics while long term increases in earnings growth are also becoming more widely expected.
PSESTRONGBUYAn increasingly attractive expected long term growth rate and a significantly higher projected valuation from just a fe...
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January 26th, 2012 6:16 pm
Courtesy of John Nyaradi.
Major markets and major index ETFs corrected slightly today after the stock market’s euphoric party yesterday Major markets suffered a slight hangover today, as the S&P 500 dropped .57%, the Dow Jones Industrial Average dropped .18%, the NASDAQ dropped .46% and the Russell 2000 Index dropped .34%, after yesterday’s crazy Fed and Tech Sector induced Wall Street Party. The NASDAQ, in particular, partied very hard, so hard in fact that the NASDAQ reached its 11 year record high.
The major market index ETFs were hungover too as the SPDR S&P 500 ETF lowered .51%, the SPDR Dow Jones Industrial ...
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January 26th, 2012 1:38 pm
Today’s tickers: DB, ATHN & LSI
...
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January 23rd, 2012 8:56 am
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
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January 22nd, 2012 10:09 pm
Here is the virtual portfolio weekend update. Basically a recap of the positions and some notes about the trades. As usual, I'll post the previous week's P&L for comparison. Not the greatest of week in general!
AA Money
Only transaction last week as we bought back the AA Feb 9 puts on Tuesday for close to a 70% profit. The idea is to sell another set of put as soon as we get a chance.
Previous week P&L - $400.00
We lost some ground this week, but we'll keep on selling premium!
FAS Money
We also lost some ground in this virtual portfolio, but we have sold plenty of premium for the coming week. A little correction would go a long way to help! On Wednesday we sold the FAS Feb 72 puts (already good for 50%), on Thursday we added the Jan4 78 calls and on Friday we had to roll the Jan 78 puts to the Jan 80 puts. We were hoping for these ones to expire worthless on Friday, but a late stick killed that hope.
Previous week P&L - $4372.00...
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January 22nd, 2012 2:52 am
NEW: Elliott and Ilene are available to chat with Members regarding topics presented in SWW, comments are found below each post.
Here's the latest Stock World Weekly. We discuss the Fed's next move, and it's new policy for more QE-cating. Brief review of Sabrient's trade ideas for 2012 (already doing well) and a few new buy-writes from Phil and Pharmboy. Enjoy! (Feedback appreciated - give some life to the comment section below.)
Click this link for this weekend's newsletter, and sign in or sign up.
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January 18th, 2012 1:09 am
Reminder: Pharmboy is available to chat with Members, comments are found below each post.
Finding new and exciting Biotech companies that target novel mechanisms is like trying to find a needle in a haystack. Sure there are many companies working on cutting edge science, but investing in those companies to reap the rewards of their work is a very dangerous game. More often than not, companies fail because the mechanism does not pan out, the compound(s) do not have pharmacokinetics (get into the body or last very long in the body), or an adverse event happens that knocks years off a development timeline. In addition, the stock can be manipulated by market makers so investors don't know which way is up. I approach investing in biotechs as a long term prospect. I continue to like our current portfolio of biotech companies (join in chat for many of those plays), and we continually add/subtract shares and sell/buy options on ...
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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...
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