Archive for
February, 2009
by Phil - February 28th, 2009 4:16 pm
Boy is this a tough market, even Berkshire Hathaway profits dropped 96%.
First of all, stop right now if you haven’t read Warren Buffett’s Chaiman’s Letter in the Berkshire Hathaway Annual Report. He can tell you a lot more about the state of the economy than I can. Although I will go over some of the highlights of The Oracle of Omaha’s 100-page report, you should read the whole thing – go ahead and read it, then come back – I’ll wait…
Berkshire Hathaway has produced a compounded annual gain in value of 362,319% since it’s founding in 1964, about 10 times what you would have gotten investing in the S&P 500, roughly a 20% annual growth rate. Included in that figure is a 9.6% decrease in book value last year, the first loss since 2001 and the second loss EVER. The average S&P company dropped 37% of their book value in 2008 and this year is looking worse already. "By the fourth quarter," says Mr. Buffett, "the credit crisis, coupled with tumbling home and stock prices, had produced a paralyzing fear that engulfed the country. A freefall in business activity ensued, accelerating at a pace that I have never before witnessed. The U.S. – and much of the world – became trapped in a vicious negative-feedback cycle. Fear led to business contraction, and that in turn led to even greater fear."
Buffett does not provide a positive outlook, he expects a rough 2009 and "for that matter, probably well beyond" but that does not shake his outlook that, over time, investments made today will pay off in the future. He has a quote that is almost identical to one of mine: "Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down."
Commentary on the housing market was: "The 1997-2000 fiasco should have served as a canary-in-the-coal-mine warning for the far-larger conventional housing market. But investors, government and rating agencies learned exactly nothing from the manufactured-home debacle. Instead, in an eerie rerun of that disaster, the same mistakes were repeated with conventional homes in the 2004-07 period: Lenders happily made loans that borrowers couldn’t repay out of their incomes, and borrowers just as happily signed up to meet those payments. Both parties counted on “house-price appreciation” to make this otherwise impossible arrangement work. It was Scarlett O’Hara all over again: “I’ll think about it tomorrow.” The consequences…
Tags: Berskshire Hathaway, BRK.A, Warren Buffett
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by ilene - February 28th, 2009 3:51 pm
Here’s another colorful, informational graphic representation of our financial world – the Goldren Parachutes, by Jess Bachman.
Courtesy of Jess Bachman at WallStats
When high-ranking executives are fired from a company, for whatever reason, they don’t go to the back of the unemployment line. Instead, they typically receive compensation in the form of the “golden parachute.” Golden parachutes can include severance pay, cash bonuses, stock options or other benefits. In the case of the financial crisis and the ensuing bank failures, if it seems like these executives are being rewarded for poor performance, you may be right. Here’s a look at what some bankers made on their way down.
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by ilene - February 28th, 2009 3:06 pm
Acknowledging that "we cannot borrow our way out of debt," Ellen Brown suggests the Federal Reserve stimulates our debt-ridden economy by creating new, essentially interest-free money, which does not have to be paid back. Here’s how.
Ellen Brown, at the Web of Debt
“Diseases desperate grown are by desperate appliances relieved, or not at all.” – Shakespeare, “Hamlet”
Moody’s credit rating agency is warning that the U.S. government’s AAA credit rating is at risk, because it has taken on so much debt that there are few creditors left to underwrite it. Foreigners have bought as much as two-thirds of U.S. debt in recent years, but they could be doing much less purchasing of U.S. Treasury securities in the future, not so much out of a desire to chastise America as simply because they won’t have the funds to do it. Oil prices have fallen off a cliff and the U.S. purchase of foreign exports has dried up, slashing the surpluses that those countries previously recycled back into U.S. Treasuries. And domestic buyers of securities, to the extent that they can be found, will no doubt demand substantially higher returns than the rock-bottom interest rates at which Treasuries are available now.1
Who, then, is left to buy the government’s debt and fund President Obama’s $900 billion stimulus package? The taxpayers are obviously tapped out, so the money will have to be borrowed; but borrowed from whom? The pool of available lenders is shrinking fast. Morever, servicing the federal debt through private lenders imposes a crippling interest burden on the U.S. Treasury. The interest tab was $412 billion in fiscal year 2008, or about one-third of the federal government’s total income from personal income taxes ($1,220 billion in 2008). The taxpayers not only cannot afford the $900 billion; they cannot afford to increase their interest payments. But what is the alternative?
How about turning to the lender of last resort, the Federal Reserve itself? The advantage for the government of borrowing from its own central bank is that this money is virtually free. This is because the Federal Reserve rebates any interest it receives to the Treasury after deducting its costs, and the federal debt is never actually…
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by Option Review - February 28th, 2009 12:32 pm
Today’s tickers: QCOM, GT, IVN, AMGN, C, GFI, HMY, SQNM & GE
QCOM – Qualcomm Inc. – Things might be looking better for Qualcomm – but not just yet according to one large option trade that went through earlier today. An investor sought protection in the April contract for fear that shares would be below $35.00 when the contract expires and turned the cost of the premium into a credit by selling January 2010 expiration puts at the same strike. The strategy assumes that the shares will not break through the strike price as the second quarter begins, in which case the investor gets paid out for every penny below $35.00 the share are at that time. But ahead the investor’s core assumption is that shares will shift ahead of $35.00 when next year begins, rendering the sold put options worthless. Today Qualcomm is trading a shade higher at $33.75.
GT – The Goodyear Tire & Rubber Company – Shares of the manufacturer of tires and rubber products have fallen by 5% to $4.57 today. Perhaps the continued decline stems from the downgrade GT received on Monday to ‘underweight’ from ‘hold’ by a KeyBanc analyst, who cited challenges such as global sales declines, and rising costs related to pension and raw materials. Despite the downgrade and today’s decline in share price, one investor established a bullish play on the stock. At the April 7.5 strike price, 10,000 calls were purchased for 10 cents each. Should there by a rally in shares before expiration, this trader will see premiums grow richer at the 7.5 strike, and could then potentially sell the calls to profit. There is a delta of 0.13 on the trade, thus there is a 13% chance that these calls will land in-the-money by April. The current share price would need to experience an increase of 66% in order to surpass the breakeven point on the trade located at $7.60. Whether the shares can breach the breakeven point or not, this investor can still capitalize on today’s position with even a slight rally in shares by selling premium.
IVN – Ivanhoe Mines Limited – The international mineral exploration and development company’s shares have rallied by 3% to stand at $4.59. IVN caught our attention when it edged onto our ‘hot by options volume’ market scanner. Calls were in demand in the June contract, where over 12,300 calls were purchased…
Tags: AMGN, C, GE, GFI, GT, HMY, IVN, QCOM, SQNM
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by ilene - February 28th, 2009 12:22 pm
Brad DeLong, at Grasping Reality with Both Hands, assesses reality.
Courtesy of Brad DeLong at Grasping Reality with Both Hands
Paul Krugman is unhappy:
Feelings of despair: There’s so much to like about where Obama is going — health care, transparency in government, ending the war in Iraq. And the stimulus bill is OK, though not big enough. But on the question of fixing the banks, many of us are feeling a growing sense of despair. Obama and Geithner say the right things. But Simon Johnson nails it:
How long can you say, “we are being bold” when in fact you are not?
Obama and Geithner say things like,
If you underestimate the problem; if you do too little, too late; if you don’t move aggressively enough; if you are not open and honest in trying to assess the true cost of this; then you will face a deeper, long lasting crisis.
But what they’re actually doing is underestimating the problem, doing too little too late, and not being open and honest in trying to assess the true cost. The actual plan seems to be to keep the banks semi-alive by implicitly guaranteeing their liabilities and dribbling in money as necessary, all the while proclaiming that they’re adequately capitalized — and hope that things turn up. It’s Japan all over again. And the result will probably be a deeper, long-lasting crisis.
Back last November, I said that the Obama administration needed to do five things:
- Expansionary monetary policy at an appropriate scale.
- Expansionary fiscal policy at an appropriate scale.
- Massive bank recapitalization--or nationalization--so that banks believe that they can be banks that start lending again rather than being zombies that think they have to hunker down and minimize risk in order to keep the next negative shock from destroying the institution.
- Massive buy-ups of mortgages by Fannie and Freddie so that (a) mortgage deals could be reworked, and (b) the supply of risky assets on financial markets that the private sector could be reduced in consonance with the banking system’s reduced risk tolerance.
- Design the regulatory system for financial markets going forward.
Bernanke has done (1). Summers and company have
…
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by ilene - February 27th, 2009 11:14 pm
Yes, Can We? Jesse’s Café Américain lists policy changes to stop the corruption, greed and deceit that now defines our political and financial system.
Courtesy of Jesse’s Café Américain
The Fourth Quarter GDP number came in at a negative 6.2% versus the original negative 3.8 percent announcement earlier this year.
That is not a big adjustment. It is a HUGE adjustment. That first number was so obviously cooked by a high side inventories estimate and a lowball chain deflator that it was a knee-slapping howler to anyone who is following this economy closely.
This decline did not happen overnight. It is merely being reported that way.
There should be little doubt in most people’s minds that Bernanke, Greenspan, Paulson, and many in the Bush Administration were deceiving us about the state of the economy, for years, almost routinely as a matter of course.
That is important to understand. This was no act of God, no hurricane or meteor strike. And a lot of folks on Wall Street and in Washington playing dumb now knew what was coming. You can decide their motives for yourself, but fear and greed should be high on the top of your list.
The economy has been rotten for a long time, since at least 2001 if not before, and as it worsened more and more money was taken off the table by the Bush Administration and their corporate cronies through no bid contracts and welfare for the wealthy. Coats of paint were slapped over the growing imbalances, market manipulation, malinvestment, fraud and corruption.
Remember that. Don’t let it go. Because as sure as the sun will rise, these jokers will be back in business given half the chance. They are shameless, greedy beyond all reason, and persistent. The fiscal responsibility being preached now by the Republican minority is repulsive hypocrisy.
That is why it is so disappointing to see what looks like business as usual from the Obama Administration. Larry Summers appears to be a tragic choice as chief economic advisor. And Tim Geithner, while a capable fellow, is not a thinker, but a doer, an implementer, and a disciple of the fellows that caused this mess.
What to do? Let them know now we expect reform. Don’t fall
…
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by ilene - February 27th, 2009 3:43 pm
Additional insight to the USO situation — pyramids can spontaneously construct themselves. – Ilene
Posted by Izabella Kaminska at FT.Alphaville
Stephen Schork of the Schork report jumps on the United States Oil Fund issue on Wednesday. He too is blaming the size of the ETF for current distortions in front-month Nymex WTI contracts. [Chart on left shows how poorly USO has been tracking $WTIC - courtesy of Adam Warner.]
He refers specifically to the March/April roll when spreads moved from $3.26 to $8.18 and expired at $1.09. Quite a volatile move. He explains (our emphasis):
"As we outlined at the time, this volatility was largely attributable to “the roll” by long-only commodity index funds, particularly the United States Oil Fund ETF (USO). Open interest in the March contract was 363,757 on February 05th. Per the fund’s website, the USO rolled 85,057 contracts the next day. In other words, the USO held sway over the market, i.e. these funds (USO, S&P GSCI et al) are artificially skewing the front of the NYMEX curve; putting downward pressure as they sell a massive percentage of open interest in the spot over the course of a few sessions.
The USO has since announced it will roll over the course of four sessions instead of one; the April/May roll will take place in between March 06th and 09th. The fund is holding length of 61,940 NYMEX futures, 4,000 NYMEX WTI financials and 30,583 ICE futures, 96,523 contracts in total with a market capitalization (as of last night’s close) of $3.86 billion.
All this length will have to get rolled in a couple of week’s time. What’s to prevent front running the roll? Nothing, that’s what. Over the last three sessions the April/May contango has moved from $2.14 (-5.1%) to $2.80 (- 6.6%)."
Which leads him to make one very brave assertion, a comparison to a pyramid scheme. To clarify – Schork is not saying the USO is an outright pyramid scheme itself. He is asserting the nature of the market, the established participants and the fund’s structure is such that it inadvertently encourages a passive self-propelled pyramidization to take shape. One fuelling the other so to speak. As he explains:
"So how is this like a pyramid scheme? A pyramid scheme…
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by ilene - February 27th, 2009 2:03 pm
Tyler Durden at Zero Hedge reports on a possible looming ETF disaster. (Follow-up to Crude Talk by Adam Warner.) – Ilene
The ETF bubble looks like it may be the next one to burst.
WSJ just out that the CFTC is probing the USO ETF for price moves coinciding with trades in and out of crude-oil contracts. The USO has recently gotten
prominent media attention over allegations that it is a perpetually value bleeding asset, and potentially a pyramid structure.
The Commodity Futures Trading Commission confirmed late Thursday that its enforcement staff is investigating USO concerning its so-called "roll" into a new contract on Feb. 6. The scrutiny is part of a broader probe into the oil market.
"The CFTC takes seriously issues surrounding price movements in our nation’s vital energy markets," acting CFTC Enforcement Director Stephen J. Obie said.
USO has grown so large in recent months — its holdings account for 20% of all April crude futures contracts on the New York Mercantile Exchange and about 30% of the contracts on ICE Futures Europe — that it has a noticeable effect on oil prices when it moves in and out of contracts each month.
It is not clear what would happen to the USO in case impropriety is found and the fund is forced to shutdown and unwind it massive futures positions. Nonetheless, this could be a harbinger of increasing regulatory intervention in other ETFs which have seen a huge rise in trading in recent months.
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by ilene - February 27th, 2009 11:34 am
Citi Deal – Outrageous, embarrassing, Geithner gifting as much taxpayer money to Citi stakeholders as possible.
Courtesy of Henry Blodget at ClusterStock
If the latest Citi bailout goes as planned, US taxpayers will now own 36% of Citigroup. They will have paid way too much for the stock, thanks to Timothy Geithner, but ever-cheery Citi CEO Vikram Pandit is happy to report that this latest
bailout should end speculation that the company will be nationalized:
"In many ways for those people who have a concern about nationalization, this announcement should put those concerns to rest."
We guess that’s why the stock is down 30% this morning--because nationalization fears have been put to rest. After all, if the preferred shareholders convert, Citi will now have $80 billion of common equity, which is no doubt enough to absorb the future losses on its crumbling $1+ trillion balance sheet (the company only lost $10 billion last quarter!).
But remind us again why these preferred shareholders are going to convert? Thanks to the ever-generous Timothy Geithner, the conversion price is $3.25. Citi’s stock is now available for $1.80. So why, exactly, are the private-market preferred holders like Prince Alwaleed going to give up their preference and fat preferred dividend to overpay for common stock?
How much longer are we going to have to go through this? At this point, it’s just plain embarrassing. Can’t we just grab the place, chop it up, and sell off the pieces? What the market’s telling us this morning is that that outcome is inevitable, so we might as well get on with it.
See Also:
…
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by ilene - February 27th, 2009 10:58 am
Let’s check in with Rob Hanna at Quantifiable Edges. Reviewing the banking sector today and the SOX yesterday, he’s finding a bullish biases forming, or maybe "struggling" to materialize.
Courtesy of Rob Hanna at Quantifiable Edges
The one sector that held up very well Thursday was the Banking Index (BKX). Yesterday I showed a study that suggested a bullish bias following a negative SPX day where the SOX thrives [below]. Below is a similar test using the BKX instead of the SOX:
(click to enlarge)
This study would have triggered both on Wednesday and Thursday. Instances are too few here to draw any solid conclusions. It does appear worthwhile to keep an eye on the BKX as well as the SOX, though. Interesting about this study is that there were two occurrences in 2008. They were on 1/22/08 and 10/10/08. Both near notable market lows.
Edit: Citigroup is trying its best to ruin these results as I type this. Expect the banks to remain front and center. Looks like we’ll have another action filled day.
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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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