- GM bondholders present bold counteroffer: kick government out and end up with control of the company (WSJ)
- WHO warns swine flu pandemic imminent as virus thrives in North America (Bloomberg)
- FBI looking into losses at Freddie Mac (WSJ)
- Taiwan stocks rally the most since 1991 on historic China investment (Bloomberg)
- The man who nationalized the financial and automotive industry aims for "fast private sector exit" (WSJ)
- Rising bond yields present fresh Fed challenge (FT)
- Shorter sentences sought for crack (WSJ) [and smoking green shoots]
Overallotment: April 29
by Zero Hedge - April 30th, 2009 12:22 pm
Tyler Durden’s Overallotment: April 29
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DiggSwine flu: The predictable pandemic?
by ilene - April 30th, 2009 11:36 am
The New Scientist has an interesting article on swine flu, the current strain that’s jumped from pigs to humans--Swine flu: The predictable pandemic? For more, visit the New Scientist website. - Ilene
Summary:
- the virus is very different from those we have immunity to and there are no existing vaccines
- the virus is spreading readily among people, but how readily is unknown – it could go pandemic or fizzle out
- this virus emerged in 1998 and has been endemic and evolving on hog farms throughout North America
- this virus is a member of the H1N1 family (with H and N being the virus’s surface proteins haemagglutinin and neuraminidase). It is endemic in pigs, causing mild pig illness, but in 1998 hybrids formed in the pig "mixing vessels" combining the pig virus with viral material found in humans and birds.
- there are various hybrids, triple reassortants. They were rapidly evolving by 1999. The one we’re now seeing has H1 and N1 surface proteins of swine origin and a "cassette" of internal genes" of human and bird origin. These hybrids switch surface proteins to evade the pigs’ immune system, outcompeting the endemic swine flu virus.
- the rapid evolution in pigs created the potential for a human pandemic, it’s been brewing for about 10 years.
- last year, the CDC warned that swine H1N1 would "represent a pandemic threat" if it started circulating in humans.
- the avian polymerase genes are worrisome, similar genes made H5N1 bird flu lethal in mammals and made the 1918 human pandemic virus so lethal.
- this new strain appears to have originated in pigs owned by a subsidiary of Smithfield Foods.
- our lack of previous exposure to the swine H1 and N1 surface proteins means we have no immunity, however, it is not clear how transmissible (contagious) and how virulent these new viruses are in humans.
- Ilene
Swine flu: The predictable pandemic?
THE swine flu virus has been a serious pandemic threat for years, New Scientist can reveal – but research into its potential has been neglected compared with other kinds of flu.
As New Scientist went to press, cases were being reported far from the original outbreak in Mexico. The clusters of milder infections in the US suggest the virus is spreading readily among people. The US Centers for Disease Control and Prevention (CDC) says this strain is so different from existing…
Thrilling Thursday Morning
by Phil - April 30th, 2009 8:48 am
8,200!
Finally we make the target we discussed since the beginning of the month but, sadly, it took another shot of Federal stimulus to get us there. Now what? I did say at the time that I thought it would be a short-term top as 8,200 is the 5% rule bottom of the 8,650 mid-range (8,217 to be exact) that we expected to get back to in May but we didn’t expect to get there without a pullback test of 7,632. Heck, we haven’t even tested 7,900 properly since our very brief visit to 7,699 on the 21st. I didn’t count that as a test as it was brief and 1% off our mark but, since then, the market sure has acted like it aced the test and is ready to move up to the next set of levels.
As we can see from David Fry’s chart of the S&P, the S&P is hitting very serious resistance at about the 885 mark and that ties right in with Dow 8,250 and Nas 1,717, which is our first US index to hit the 40% mark. Our other 40% levels will take some work as we’re looking for Dow 8,413, S&P 946, NYSE 6,232 and Russell 514. The Dow and the Russell have the best chance of getting there but we’ll have to see as, at the moment, the Nasdaq is more of an outlier at the moment. We need to keep an eye on the Nasdaq leadership: GOOG, AAPL, RIMM, AMZN, EBAY, ORCL, INTC… for signs of weakness. If they can’t keep it going, the entire market rally may falter here.
XOM missed by .03 this morning but still earned .92 per share and seem to be forgiven for it. While profits are down 58% from last year, last year was $10.9Bn so $4.6Bn may be disappointing but oil back over $50 does allow the company to project better times ahead (gee, maybe that’s WHY oil is at $51.50 this morning). I wouldn’t touch them with a 10-foot pole as they did beat revenue forecasts by 20% ($64Bn vs $54Bn) which indicates the company is doing a lousy job of controlling costs and may face disaster if the economy doesn’t improve or if oil collapses.
While earnings have been pretty good, expectations have been really low. This is like getting all excited about a limbo contest at the beginning, when all the…
Anti-Libertarian Nonsense From Henry Kaufman & Company
by ilene - April 29th, 2009 11:41 pm
Mish - in defense of libertarianism - Ilene
Anti-Libertarian Nonsense From Henry Kaufman & Company
In How libertarian dogma led the Fed astray Henry Kaufman launches into tirade against the "Libertarian Fed" and the "prevailing economic libertarianism". I have a question for Kaufman:
Since When is Constant Meddling in the Markets a Sign of Libertarianism?
The idea that Greenspan or the Fed is Libertarian is absurd.
Greenspan never left the markets alone. At every crisis (real or imaginary) Greenspan slashed interest rates. Here are two prime examples: In 1999 the Fed threw money at non-existent problems such as the Y2K scare. That policy decision helped fuel the Dot-Com bubble. When the Dot-Com bubble burst Greenspan stepped on the gas in 2001-2002 to bail out banks at risk because of poor loans to both Latin America and the internet companies. That policy decision fueled a massive housing bubble not just in the US but worldwide.
Every step of the way, the Greenspan and Bernanke Fed micro-mismanaged interest rates as if they knew better than the free market where rates should be. The reality is the Fed does not know where interest rates should be only the free market knows.
Fed Uncertainty Principle
When it comes to interest rate policy, some think the Fed simply follows the markets. If that is the case, why do we need the Fed?
In actual practice, the Fed neither leads nor follows the market. However, the Fed does massively distort the market, a perfectly valid reason we do not need the Fed. For a complete discussion of this idea, please read the Fed Uncertainty Principle.
Bully Pulpit Silliness
Kaufman goes on with numerous anti-Libertarian rants including a discussion of how "adherence to economic libertarianism inhibited the Fed from using the bully pulpit or moral suasion to constrain market excesses."
Please! Kaufman wants the Fed to get on the bully pulpit (as if that does a damn thing) when 18 months ago the Bernanke Fed did not think the housing crisis would spillover into the real economy. Hells bells, slashing interest rates to 0% and throwing trillions of dollars at problems did not do a thing to contain the crisis yet we are somehow supposed to believe that better use of a bully pulpit could have prevented this crisis?
Fannie Mae and Freddie…
Is Joe Biden Associated With A Fund Of Funds Feeder Scam?
by Zero Hedge - April 29th, 2009 11:10 pm
Courtesy of Tyler
Is Joe Biden Associated With A Fund Of Funds Feeder Scam?
Zero Hedge is always happy to discover something rotten in the state of capital markets. We are even happier when others dig independently and come up with their own startling conclusions. Tonight – we are very happy. John Hempton, who writes the insightful blog Bronte Capital, has done some amazing dot connecting in what, if true, and not swept promptly under the carpet by the powers that be, could expose a hedge fund scandal that could rival the Madoff fiasco, for the simple reason that it implicates none other than Barak Obama’s right hand man: Joe Biden. The fund in question is Paradigm Capital, a fund of funds, that is controlled by Hunter and James Biden, the VP’s son and brother, respectively.
The full story is quite intricate but very much worth it. In putting the facts together, Hempton had a temporary brush in with "the adversary’s" legal counsel, only the be vindicated when his initial subject, Ponte Negra Capital, ended up having its assets formally frozen by the SEC. But it does not end there. As Hempton lays it out best:
Firstly the [Paradigm] business was not started by the Bidens – it was purchased by them. It was started by Dr James Park. When the Bidens purchased the business they believed it to have 1.5 billion of funds under management. This little section from an affidavit signed by James Biden (the VP’s brother) is revealing. The affidavit is here.(a). The Paradigm Hedge Funds had only between two and three hundred million dollars under management, which were leveraged to over five hundred million, not the more than $1.5 billion under management represented to us by Lotito and Fasciana.
(b) The returns on the Paradigm Hedge Funds were not as represented to us by Lotito and Fasciana; and (with editing)
(d). The primary manager of the funds, Dr. James Park, had an apparent substance abuse problem and had been an absentee manager for several years…Now please put this in perspective. The Bidens – mostly through failure to do proper due diligence – seem to have wound up in control of a fund of hedge funds which they claim (in sworn affidavit) that
…
Morgan Stanley Turns On Hoovermatic AH In SPYs Today
by Zero Hedge - April 29th, 2009 11:00 pm
Courtesy of Tyler Durden at Zero Hedge
Morgan Stanley Turns On Hoovermatic AH In SPYs Today
The jolly folks at Morgan Stanley sure pulled a fast one today, trading 10% of the SPY volume at 6:40 pm, way after most people’s bed time. At least they got their league table brownie points. 30 million shares in three well dispersed blocks is nothing to sneeze at. The question arises was this for the benefit of their in house PDT [Process Driven Trading] boys which, as was announced recently, are likely to be spun off and thus aggressively releveraging after a day like today when nothing could shake the market’s optimism (and momentum) may have seemed like a good idea. Or did some external fund benefit from MS’ prime broker generosity to accept humongous long blocks of SPY. One will likely never know, especially with the workaholics from the SEC at the helm.
How to Play Short Term Pops
by ilene - April 29th, 2009 10:02 pm
Brad Stafford, at Market Club, sent me a video explaining how to trade short term "pops" in stocks, using the market club system. Here’s what he wrote:
"We’re often asked at MarketClub just how to play short-term pops. Regardless if you are look at stocks, futures, or the forex market, it’s always the same… MarketClub Alerts. With these Alerts you are getting a warning of a major move. It’s not that you are reacting to fundamentals, it’s just that when the technicals align, you are the first to know."
Brad demonstrates how the system works using a few flu-related stocks (sva, vicl, and pork bellies). The flu-related stocks started their ascent (or descent in the case of pork bellies) before the news of the flu was out, so the strength of the stocks portended a future move. It would have been possible to catch the greater move that came after the flu news. If you’re interested in this system, check out the video. There’s also a free trial to the service. - Ilene
FAZ 3x Financial Bear Fund Crushed
by ilene - April 29th, 2009 9:00 pm
Corey at Afraid to Trade has some words of caution on the "trader’s trap” leveraged funds. – Ilene
FAZ 3x Financial Bear Fund Crushed
Courtesy of Corey at Afraid to Trade
I wanted to call your attention to a major fallacy permeating the trading community regarding the 3x leveraged short (inverse) Financial fund FAZ. Let’s compare FAZ and XLF (financial SPDR) and then challenge a common assumption that seems plausible at first, but upon simple inspection, the fallacy comes to light.
FAZ Daily Chart:
The FAZ has fallen 92% from its March 6th high of $115 (as of this writing, it trades now at $8.50 per share). Keep in mind, this almost complete wealth destruction occurred in just over a month. With such a dramatic move possible, it serves as a warning sign for newer traders to avoid these 3x funds… though often newer traders are the ones most drawn to the possibilities (as in, greater than 100% returns in a month which are also possible and have occurred).
Notice the volume surge that has occurred as FAZ plunged to new lows – volume reached over 300 million shares on trading days last week. This is a result of lower prices (which mean we can buy more shares for the same money) and availability to more traders (with smaller accounts).
Be very warned if you’re tempted to think, “I’m going to buy at $8.00 because this fund is going to turn right around and go back to $110 in a month!“ You are devastatingly wrong – and I’ll show why.
Remember the FAZ is a three-times leveraged fund of the financial sector. Let’s take a look at XLF, the AMEX Sector SPDR to put FAX’s 90% plunge in context.
XLF Daily Chart:
In the same time FAZ fell 90%, XLF rose 92% from its March 6th lows of $5.88 to its April 17th high of $11.33. Is it any wonder a 3x leveraged inverse fund plunged so far? There’s structural mechanics of these funds I don’t intend to discuss here (please read the prospectus and fund description for Direxion), but I want to challenge a common assumption that I heard discussed recently.
Let’s revisit the question “If I buy FAZ at $8.00, and the XLF falls, then FAZ will surge back to $110 if the XLF retests the $6.00 March lows.”
Categorically false.
These fund relationships…
Ken Lewis Stripped Of Chairman Role
by Zero Hedge - April 29th, 2009 8:22 pm
Courtesy of Tyler at ZH
Ken Lewis Stripped Of Chairman Role
When you end up angering CalPERS, this should not come as much of a surprise. At least he retains the CEO title: Walter Massey will replace Lewis as Chairman. Now maybe Bernanke can be stripped of the title Uberload of the Formerly Free Financial Markets and Emperor of the Amazingly Ubiquitous SPY Bid.
Bank of America Corp., the biggest U.S. bank by assets, stripped the title of chairman from Chief Executive Officer Kenneth Lewis after investors rebelled against management’s handling of the Merrill Lynch & Co. takeover.
Walter E. Massey, 71, the president-emeritus of Morehouse College in Atlanta, was named chairman, while Lewis will be president and CEO, the bank said in a statement, expressing “unanimous support” for Lewis to continue. A shareholder resolution to split the jobs of CEO and chairman was approved at today’s annual meeting in Charlotte, North Carolina, where Bank of America is based. All 18 directors were re-elected by “comfortable margins,” the bank said.
Glass Lewis & Co. was among proxy advisers that endorsed splitting the CEO and chairman jobs and campaigned against Lewis’s re-election, citing his handling of the Merrill Lynch takeover and a 77 percent decline in the bank’s stock in 12 months. Speculation that Lewis might quit has been fueled by U.S. stress tests, which may show the bank needs more capital.
“It’s a small victory for the people who had a campaign against Lewis but it’s not particularly significant in terms of how the bank will continue to be run,” said Michael Holland, founder and chairman of New York-based Holland & Co., which oversees more than $4 billion in assets and doesn’t own Bank of America stock. “I don’t know how much more of a voice Mr. Massey will have as chairman than he had as a board member.”
Dave’s Daily
by David Fry - April 29th, 2009 7:05 pm
Dave Fry’s ETF Digest, April 29, 2009
Stock markets spiked higher early and added to the momentum after the Fed non-announcement. However, there was plenty of profit-taking from the highs of the day into the close.
Typically a Fed-day yields heavy volume but that wasn’t the case today as volume remained relatively light. Breadth was extremely positive.
Markets never make sense and this is when hindsight kicks-in to provide logic. You get terrible GDP data (dare we say “worse than expected”) and you’d think well, that’s it for this rally. But, the bulls still have the tape. They looked inside the numbers and spun low inventory data as bullish since businesses will have to restock. Or will they? That’s not for us to say.
Furthermore, it’s the end of the month and time to get out the green paint to produce some good results for clients.
All this is why, despite negative, nay cynical, opinions we invest systematically since trying to make fundamental sense of current events only yields frustration and few profits.
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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...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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