Archive for
March, 2009
by ilene - March 24th, 2009 3:19 am
Mish reviews Geithner’s controversial plan.
Courtesy of Mish
The long awaited details of Geithner’s "plan" for dealing with bad bank assets is finally out. Githener’s plan is disingenuous at best. If people want to be outraged at something, it should be over Geithner’s plan.
The Wall Street Journal has the story in Timothy Geithner: My Plan for Bad Bank Assets.
The American economy and much of the world now face extraordinary challenges, and confronting these challenges will continue to require extraordinary actions. No crisis like this has a simple or single cause, but as a nation we borrowed too much and let our financial system take on irresponsible levels of risk.
My Comment: Actually the root cause is simple to understand, micro-mismanagement of interest rates by the Fed, Fractional Reserve Lending, and Congressional spending run rampant.
The depth of public anger and the gravity of this crisis require that every policy we take be held to the most serious test: whether it gets our financial system back to the business of providing credit to working families and viable businesses, and helps prevent future crises.
Today, we are announcing another critical piece of our plan to increase the flow of credit and expand liquidity. Our new Public-Private Investment Program will set up funds to provide a market for the legacy loans and securities that currently burden the financial system.
The Public-Private Investment Program will purchase real-estate related loans from banks and securities from the broader markets. Banks will have the ability to sell pools of loans to dedicated funds, and investors will compete to have the ability to participate in those funds and take advantage of the financing provided by the government.
The funds established under this program will have three essential design features. First, they will use government resources in the form of capital from the Treasury, and financing from the FDIC and Federal Reserve, to mobilize capital from private investors. Second, the Public-Private Investment Program will ensure that private-sector participants share the risks alongside the taxpayer, and that the taxpayer shares in the profits from these investments. These funds will be open to investors of all types, such as pension funds, so that a broad range of Americans can participate.
Third, private-sector purchasers will establish the value of the loans and securities purchased under the program, which
…
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by ilene - March 24th, 2009 2:13 am
Are the dollar’s days as the most important reserve currency in the world numbered? China would like to think so.
Courtesy of Tim Iacono at The Mess That Greenspan Made
It’s kind of funny how the IMF (International Monetary Fund) has gone from irrelevance to center stage in just a matter of months. Following quickly on the heels of last week’s news that the Federal Reserve plans to print up another trillion dollars came this announcement that a UN panel wants to replace the greenback with a shared basket of currencies.
Today, according to this Reuters report (hat tip MA), China loudly seconded the plan.
Earlier today, China’s central bank governor, Zhou Xiaochuan, offered a bold proposal to overhaul the global monetary system and replace the dollar with the IMF SDR (Special Drawing Right).
The SDR, an international reserve asset created by the IMF in 1969 but little used since that time, has the potential to act as a super-sovereign reserve currency, eliminating risks inherent in any single currency used for that purpose.
In a speech that took the unusual step of being issued in both Chinese and English, Mr. Zhou was careful not to mention any "specific" currency that the SDR might replace.
Mr. Zhou commented:
The outbreak of the [credit] crisis and its spillover to the entire world reflected the … systemic risks in the existing international monetary system.
The world needs a reserve currency that is disconnected from individual nations and is able to remain stable in the long run.
The role of the SDR has not been put into full play due to limitations on its allocation and the scope of its uses. However, it serves as the light in the tunnel for the reform of the international monetary system.
The price is becoming increasingly high, not only for the users, but also for the issuers of the reserve currencies. Although crisis may not necessarily be an intended result of the issuing authorities, it is an inevitable outcome of the institutional flaws.
It appears that the days of exorbitant privilege may be numbered.
In addition Mr. Zhou…
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by ilene - March 24th, 2009 12:10 am
Lesson in trading the Gap Up on a Trend Day.
Courtesy of Corey Rosenbloom at Afraid to Trade.com
Hats off to the Bulls today for a 7% across the board equity rally. Today’s move shatters key resistance at 805 and alters the daily chart structure – but for now, let’s step inside the Trend Day for March 23 to see how we could have recognized it and how we could have traded it.
SPY (S&P 500 ETF) 5-minute chart:
The Futures market had been up overnight, and price gapped up in a larger than normal gap (which had low odds of filling). Since most trend days begin with a large overnight supply/demand imbalance, that should have been the dominant thinking going into today’s trading, particularly since Treasury Secretary Geithner (finally) announced a Plan that – apparently – Wall Street and the Banks approved.
Now, looking at the Daily Chart, odds favored a continuation of the down-swing that began last Thursday, particularly into key resistance. A lot of people – myself included – were short going into Monday’s open. It is my belief initially that today’s upward momentum was caused in part if not in most part by fund short-covering (short sellers’ stops being triggered as price inched its way higher). It also helps remind me why I much prefer intraday trading – you get to take advantage of overnight gaps rather than being victim to them! I do most of my trading intraday though I still like to keep some swing trades on – I just hate the gap-risk like today’s action shows.
Back to the intraday structure. If the assumption becomes “Today has good odds to be a Trend Day” then the strategy then becomes to throw away all indicators and then rely only on key moving averages to trail stops and time entries. The moment you suspect we have a trend day, it is a good idea to go ahead and join in the direction of the supply/demand imbalance, because if it IS truly a trend day, then the market will close on the highs or lows of the day – meaning, you don’t need elegance of trade entry to be profitable.
The simplest strategy is the following:
Buy any pullback to the 20 period EMA
…
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by David Fry - March 23rd, 2009 8:33 pm
Dave Fry at ETF Digest, March 23, 2009
Why are Ponzi Schemes always with us? Because they’re seductive and apparently so it is with Geithner’s new plan.
If his plan doesn’t work banks will walk away with whatever they’ve made while the taxpayers will eat the difference.
There isn’t a shred of transparency in this scheme since we won’t know who’s selling, what’s being sold, who’s buying, and at what price. No one’s going to tell us because authorities believe, “you can’t handle the truth”.
I’m not alone in my opinion as noted HERE.
The stock market likes all this in a big-time way since traders don’t give a crap about the details and see a short-term opportunity to make some money from the scheme. After all, making money is more compelling than rational dissent or critical thinking.
So enough with the negativity—let’s get to it.
Stocks went nuts on the housing data and for Geithner’s plan. Home sales unexpected jumped 5% beating expectations. The good news is that inventory is being taken off the market but at the price of a 15% decline in prices. The latter will hurt refinancings but that’s something to worry about down the road.
Volume was higher and breadth was as positive as one would expect. We broke through previous resistance levels on SPY for example, but now we’re quickly back to short-term overbought conditions.
…
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by Option Review - March 23rd, 2009 5:46 pm
Today’s tickers: BX, GCI, AA, LVS, XLF, JPM, C, AGN, RHT, SU & SWY
BX The Blackstone Group L.P. – The broader market experienced gains after fresh information from the Treasury Department was released regarding its plan to utilize private and public funds to relieve banks of bad credit and toxic assets. Shares of BX soared on the news by 23% to $7.77 because it is has now been widely reported that hedge funds and private-equity firms are likely to reap substantial gains from the public-private partnership. Blackstone jumped to the top of our ‘hot by options volume’ market scanner after one investor established a sold straddle in the May contract. At the May 7.5 strike price 10,000 calls were sold for 1.60 each while 10,000 puts were also sold for 1.10 each. The gross premium pocketed on the trade amounts to 2.70 and is fully retained if shares settle at $7.50 by expiration. Call volume has far outweighed put volume with a ratio of 2.4 calls to each put traded. We observed pure call buying in the April contract where traders picked up lots as high up as the 10 strike for a premium of 33 cents each. One investor paid a net cost of 40 cents in order to roll 4,350 in-the-money calls at the June 2.5 strike price forward to the same low strike expiring in January 2010. Optimistic traders also picked up 3,000 calls at the January 10 strike price for 1.86 each. Option implied volatility peaked at 120% today, but has since come off to the current reading of 105%.
GCI Gannett Co., Inc. – Shares of the international news and information company are up by more than 7% to stand at $2.30. GCI appeared on our ‘hot by options volume’ market scanner after one trader utilized options in search of gains on the rising stock. We believe that this investor likely purchased 1,000,000 shares of the underlying stock and simultaneously sold 10,000 calls at the April 2.5 strike price for a 15 cent premium. By selling the option contracts the trader effectively reduced the price of the shares to $2.00 each because the stock was trading at $2.15 at the time of the trade. Should the 2.5 calls land in-the-money by expiration this investor will have sustained gains of 23% if the shares get called away from him at the end of the…
Tags: AA, AGN, BX, C, GCI, JPM, LVS, RHT, SU, SWY, XLF
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by ilene - March 23rd, 2009 5:01 pm
Market thoughts of Bob Savage, via Tyler Durden.
Courtesy of Tyler Durden at Zero Hedge
Some midday sanity from Goldman’s Bob Savage. Zero Hedge does not necessarily agree with some of the assumptions/conclusions here.
The doubters about the US PPIP [Public Private Investment Program] and TALF are significant. Most point to three issues:
- Where is the money coming from? The FDIC is guaranteeing a loan but the raising of new capital appears to be coming from market. So leverage of 6-1 is a limit put on that hope that money will rush in. FED and Treasury aren’t on hook for more than $100 bn, nor is FDIC providing loans just insurance like AIG.
- Who will sell their toxic assets? The implicit point of the program is that it will clear banks of their bad assets – but unless forced its hard to understand this will happen. The inducement for banks to realize losses must be linked to the “stress test” upcoming.
- What price works? The 84 cent price listed in the US Treasury fact page may be a wishful rate but it underscores the need for a market as many think it’s a 20 bid at 90 offered story with the in between a neverland of dreams over reality. But if you dwell on the negative you are likely to misunderstand what is going on today and over the last two weeks in the US. The government action is having an effect. The data isn’t getting much worse – the housing sales suggest stabilization. [Cornelius disagrees with this statement and rightfully so.] In fact the confidence of government officials is beginning to sink into the greater public. The Pew Research Center for the People & the Press reported a shift in the way Americans perceive the news they are hearing –with the mix of good and bad news rising significantly.
So as we sit through a 5% plus rally up in stocks to test the S&P500 805 resistance many are wondering why this is working – and that may be one answer. But in FX the story shifts from US to Europe with many wondering if the ECB will get it. The European trade data this morning shows some real pain – an over 10% drop…
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by ilene - March 23rd, 2009 4:03 pm
Shifting focus to home sales numbers – weakness in hiding?
Courtesy of Zero Hedge, posted by Cornelius
Existing home sales number were
released this morning and on the surface, it seemed to be a solid win for the US – about time right? MoM existing home sales were priced into markets about a -0.9% clip but the numbers came out at 5.1% in the green. The NAR’s numbers are pretty solid drivers for the USD and these numbers were being carefully watched as January clocked in at a buzz-killing -5.9% MoM.
However, the deeper story painted is not a promising sign.
Consider:
- over 45% of the sales were foreclosures or short sales
- median existing home prices fell 15.5% (in one month)
- inventories rose 5.2%
- most of the increase was concentrated in the Northeast, with the South also doing ok
The picture painted is one where newly desperate homeowners are joining the existing desperate homeowners selling into a terrible market and the market is flushing itself out with increasingly severe price cuts. February should be viewed as a brief break before the housing market continues to plunge. The significance of the increases being located mostly in the Northeast can be attributed to many things but one explanation that seems the most credible is that the unemployment picture is not as bad as the industrial heavy MidWest or the tech heavy West coast.
This is a key number to watch in the upcoming months as it will be a key indication of the effectiveness of the Fed and Treasury’s recent moves. A housing market does not a recovery make but the story it tells should be a strong indicator of the bottom.
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by ilene - March 23rd, 2009 3:13 pm
Here are Mish’s thoughts on the Geithner plan – again agreeing with Paul Krugman. - Ilene
Courtesy of Mish
The Treasury Department is expected to unveil early next week its long-delayed plan to buy as much as $1 trillion in troubled mortgages and related assets from financial institutions, according to people close to the talks.
Although the details of the F.D.I.C. part were still being completed on Friday, it is expected that the government will provide the overwhelming bulk of the money — possibly more than 95 percent — through loans or direct investments of taxpayer money.
The hope is that such a generous taxpayer subsidy will attract private investors into the market and accelerate the recovery of the country’s banks.
The key protection for taxpayers, according to people briefed on the plan, is that the private investors will bid in auctions against each other for the assets. As a result, administration officials contend, the government will be buying the troubled loans of the banks at a deep discount to their original face value.
Because the government can hold those mortgages as long as it wants, officials are betting the government will be repaid and that taxpayers may even earn a profit if the market value of the loans climbs in the years to come.
To entice private investors like hedge funds and private equity firms to take part, the F.D.I.C. will provide nonrecourse loans — that is, loans that are secured only by the value of the mortgage assets being bought — worth up to 85 percent of the value of a portfolio of troubled assets.
The remaining 15 percent will come from the government and the private investors. The Treasury would put up as much as 80 percent of that, while private investors would put up as little as 20 percent of the money, according to industry officials. Private investors, then, would be contributing as little as 3 percent of the equity, and the government as much as 97 percent.
Private Public Partnership Details Emerging
Yves Smith at Naked Capitalism is sounding concerns about
…
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by ilene - March 23rd, 2009 2:41 pm
Courtesy of Mark Thoma at Economist’s View, citing Paul Krugman in the NY Times.
We’ll likely only get one attempt at rescuing the banking sector, and Paul Krugman prefers we use the "time-honored procedure for dealing with the aftermath of widespread financial failure" rather than the Geithner plan:
Financial Policy Despair, by Paul Krugman, Commentary, New York Times: Over the weekend The Times and other newspapers reported leaked details about the Obama administration’s bank rescue plan… If the reports are correct, Tim Geithner … has persuaded President Obama to recycle … the “cash for trash” plan proposed, then abandoned, six months ago by … Henry Paulson.
This is more than disappointing. In fact, it fills me with a sense of despair. … It’s as if the president were determined to confirm the growing perception that he and his economic team are out of touch, that their economic vision is clouded by excessively close ties to Wall Street. …
Right now, our economy is being dragged down by our dysfunctional financial system… As economic historians can tell you, this is an old story… And there’s a time-honored procedure for dealing with the aftermath of widespread financial failure…: the government secures confidence in the system by guaranteeing many (though not necessarily all) bank debts. At the same time, it takes temporary control of truly insolvent banks, in order to clean up their books.
That’s what Sweden did in the early 1990s. It’s also what we ourselves did after the savings and loan debacle of the Reagan years. And there’s no reason we can’t do the same thing now.
But the Obama administration, like the Bush administration, apparently wants an easier way out. The common element to the Paulson and Geithner plans is the insistence that the bad assets on banks’ books are really worth much, much more than anyone is currently willing to pay… In fact, their true value is so high that if they were properly priced, banks wouldn’t be in trouble.
And so the plan is to use taxpayer funds to drive the prices of bad assets up to “fair” levels. Mr. Paulson proposed having the government buy the assets directly. Mr. Geithner instead proposes a complicated scheme in which the government lends money
…
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by ilene - March 23rd, 2009 1:37 pm
Next, let’s take a look at Henry Blodget’s reaction to Geithner’s plan. Henry cites John Hussman, and both agree – this plan saves the bondholders while transferring massive losses and further risk to the taxpayers.
Courtesy of Henry Blodget at Clusterstock
The outrage of all outrages in the last 18 months is the complete protection of bank and corporate bondholders at taxpayer expense. These bondholders lent money to reckless banks and corporations who bet the farm on the premise that house prices would always go up. And they lost.
Now, thanks to bailout nation, taxpayers are on the hook for trillions. Bondholders, meanwhile, have lost next to nothing.
Today’s $1 trillion Treasury plan is just more of the same: A byzantine public-private partnership that will put $1 trillion of taxpayer money on the line so bondholders won’t lose a dime.
Fund manager (and PhD) John Hussman explains the end game of this current policy:
[T]he U.S. currently has a private debt to GDP ratio of about 3.5, which is nearly double the historical norm, at a time when the underlying collateral is being marked down easily by 20-30%. That implies total collateral losses of 70-100% of GDP; a figure that includes not only mortgage debt in the banking system, but consumer credit, corporate debt and so on.
The holders [of this debt] are not just banks, but insurance companies, pension funds, foreign lenders, and others. Even so, there is no way to prevent huge, ongoing losses, because the cash flows off of these assets are not sufficient to service the debt. The only question is whether the bondholders appropriately bear those losses, or whether the public bears them inappropriately. A continued policy of protecting all of these bondholders would eventually require U.S. citizens to be put on the hook for something on the order of $10-14 trillion. We are nowhere near the end of this process.
We simply cannot make these bad investments whole unless we are willing to hand the next 10-20 years of U.S. private savings over to the bondholders who financed reckless lending. Those bondholders should, and ultimately must, take a portion of these losses, and debt obligations will have to be restructured. Wall Street…
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February 23rd, 2012 12:07 am
Courtesy of www.econmatters.com.
By
EconMatters Oil futures spiked more than 2% in one day to their highest level in nine months on Tuesday Feb. 21. WTI front month contract closed at $105.84, while Brent ended at $121.66 on ICE, primarily on investors fear of potential conflict over the escalating tensions between the US, Europe, Israel, and Iran. A second Greek bailout deal of €130bn (£110bn; $170bn) also helped to inject some optimism into the market (which would seem totally mis-placed as we may need to
relive this Greek drama in two years). Nevertheless, the fact remains crude oil market supply and demand has not changed a bit to warrant a 2%+ price jump in one day.
...
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February 22nd, 2012 12:15 pm
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
Earlier today, we learned the first stunner of the Greek bailout package, which courtesy of some convoluted transmission mechanisms would result in some, potentially quite many, Greek workers actually paying to retain their jobs: i.e., negative salaries. Now, having looked at the Eurogroup's statement on the Greek bailout, we find another ...
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February 22nd, 2012 11:05 am
Courtesy of Benzinga.
In recent years, traders and investors have increasingly turned to social media to discuss their investments. Now, interested parties can get a scientific look at what is being discussed on a weekly, monthly, and even hourly basis.
Provided by Social Market Analytics, here is the morning social media outlook for Wednesday, February 22.
Most Bullish
Sentiment has been most bullish this morning on two tech companies.
Sourcefire (NASDAQ: FIRE) reported stellar earnings yesterday afternoon, which prompted several analysts to upgrade their price targets on the stock. The company hit a fresh 52-week high earlier this morning, as shares surged over 23%.
Procera Networks (NASDAQ: ...
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February 22nd, 2012 11:03 am
Courtesy of David Grandey.
In today’s market, it’s more important that ever to have a mindset to maintain a sane mental state and stay peaceful calm and centered.
Keep in mind with the markets as stretched as they are, we are in a high risk zone for pulling back as we have been in an accelerated uptrend with barely any pullback to speak of which as we all know can not continue forever — it never does. That said the music can stop at a moment’s notice and odds favor when it does it will be a gap down. So using that as a backdrop let’s look at SXCI. SXCI — SXC Health Let’s say that issue breaks above the pink line and triggers a long side trade. That’s all fine and dandy HOWEVER it’s what happens next that we have no control over. At that point it either follows through or it doesn’t. WE NOR YOU HAVE ANY CONTROL ...
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February 22nd, 2012 12:00 am
Top 5 RisersStockRatingAnalysis
AGBUYAn increasingly attractive expected long term growth rate and a significantly higher projected valuation from just a few weeks ago make AGCO a company to watch.
PCUBUYThe recent earnings history for Southern Copper shows significant improvement while projected valuation continues to rise.
PAGBUYAn increasingly attractive expected long term growth rate and a significantly higher projected valuation from just a few weeks ago make Penske a company to watch.
FEICBUYAn increasingly attractive expected long term growth rate and a significantly higher projected va...
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February 21st, 2012 2:23 pm
Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
Other than that rally last Thursday that caught a lot of technicians flat footed (i.e. post the Apple reversal) the breadth in this market has been relatively poor the past 5 sessions or so. The Russell 2000 has been lagging the major indexes dominated by large caps, and my watch lists have contained far more red than green. Some people have been calling it the NBA market ("Nothing but Apple") but it's been a bit broader than that – i.e. Microsoft has acted well, and some groups are still working.
A bearish take on this is of course what I cited above – breadth is narrowing which usually happens near tops. Fewer and ...
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February 21st, 2012 1:40 pm
Reminder: David is available to chat with Members, comments are found below each post.
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free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. -
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February 21st, 2012 1:39 pm
Today’s tickers: WYNN, CTRP, DTV & WMT
...
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February 21st, 2012 8:58 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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February 20th, 2012 10:36 pm
Courtesy of John Nyaradi.
Monday comes and goes with no agreement on Greece until late night settlement on Greece.
European finance ministers met in Brussels Monday and deep into the night and finally, in the wee hours, apparently have struck an agreement for the next round of bailout money for Greece.
In overnight trading, the European indexes were up with the DAX gaining 1.46%, the STOXX 50 adding 1.2% and the FTSE climbing 0.7%
In Asia, major indexes were down slightly as the world waited for an answer on Greece.
The U.S. Dollar (NYSEARCA:UUP) declined after announcement of the agreement while the Euro Dollar (NYSEARCA:FXE) jumped.
The issue remains the same as it always ha...
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February 19th, 2012 3:12 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 most recent Stock World Weekly, Balancing Act. Click on this link to sign in or sign up to read.
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January 30th, 2012 7:22 am
Here is a quick update of past trades and our current position.
AA Money
No trade this week as we wait for AA to settle. Phil remarked last week that AA seemed overvalued. In the meantime, it looks like we might have to roll our Feb 9 calls. Good thing we sold only 5 of them against our position.
Last week P&L - 310.00
We lost ground last week, but we still have 11 months to sell premium!
FAS Money
Very good week for FAS Money as we benefited from the large amount of premium sold the previous week. We covered most of the shorts in advance of the Fed speech, but sold another set of options on Wednesday after the speech - 2 FAS calls that expired worthless on Friday, 2 FAS put that we are still holding and 2 FAZ put that we bought back for a profit on Friday. A late stick comparable to last week's almost gave us problems at the end of the day though!
Last week P&L - $4277.00
IWM Money
A decent week in this virtual portfo...
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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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