I am glad I am not the only one who notices these things…. I am only speaking as someone who has watched the market since mid 90s and have never seen the behavior I see now. Whenever a key technical average is threatened a magical flood of futures buying comes in. Almost every morning the past 10 weeks pre market futures are green (apparently there is not enough time to buy stocks between 9:30 AM and 4:00 PM). The last 30 minutes has magical reversals – we saw it just last Thursday at a key moving average. [May 21: Bookkeeping - Covering Index Shorts Around 3:30 - 3:45 PM]
There can only be one entity who has the buying power to do this… and with Goldman Sachs as the 4th arm of government you can use them behind closed doors. But I am sure we’ll never know the truth… and I hate to sound like a grassy knoll type but the market just does not act like it used to if you really watch closely. The S&P now regularly jumps in 4-5 point increments in a matter of 60-120 seconds late in the day. In my humble opinion the government knows so many quant and program trades now are tied to the indexes that it is easy to manipulate this market… you lead, they will follow automatically (by their programming). So for a relatively low cost you can move things where they "should be", and the momentum performance chasing computers will support your case. And Goldman Sachs can pile up trading wins since somewhere in their bowels, in the cigar smoke… cheers of victory cry out. From late April via ZeroHedge
This is getting surreal. Goldman principal program trading is now well over 5x compared to its customer and agency trades and a 150 million share pick up compared to last week. For yet another week, Goldman’s principal trading represents more than half of all NYSE member firm principal transactions.
Clearly in a ‘free market’ system it would look embarrassing for this type of behavior to be out in the open. But heck Japan was tossing around
In this issue: Things That Go Bump in the Night
A Trillion Dollars as Far as the Eye Can See
The Global Recession Gets Worse
Where Will the Money Come From?
The Paradox of Deficits
Naples, London, and Eastern Europe
There is something that is bumping around in my worry closet. The bond market is not behaving as if there is deflation in our future, and the dollar is getting weaker. Unemployment keeps rising, but most of all, the US government deficit looks to be spinning out of control. This week we look at all of this and take a tour around the world to see what is happening. There is a lot of interesting material to cover….
A Trillion Dollars as Far as the Eye Can See
As of this week, total US debt is $11.3 trillion and rising rapidly. The Obama Administration projects that to rise another $1.85 trillion in 2009 (13% of GDP) and yet another $1.4 trillion in 2010. The Congressional Budget Office projects almost $10 trillion in additional debt from 2010 through 2019. Just last January the 2009 deficit was estimated at "only" $1.2 trillion. Things have gone downhill fast.
But there is reason to be concerned about those estimates, too. The CBO assumes a rather robust recovery in 2010, with growth springing back to 3.8% and then up to 4.5% in 2011. Interestingly, they project unemployment of 8.8% for this year (we are already at 8.9% and rising every month) and that it will rise to 9% next year. It will be a strange recovery indeed where the economy is roaring along at 4% and unemployment isn’t falling. (You can see their spreadsheets and all the details if you take your blood pressure medicine first, at www.cbo.gov.)
Just a few quick thoughts. This year the proposed administration plan is to borrow 50% of every dollar spent. The CBO projects than nominal GDP will grow by about 50% over the next 10 years (which is historically reasonable), but also that revenues will double, which suggests massive tax increases in relation to GDP. Interestingly, the International Monetary Fund says growth next year will be tepid at best (more below). The deficit in 2010 is almost 10% of GDP. The average proposed…
Banks are not content to have bidders rape taxpayers on their behalf. The banks want to rape taxpayers themselves. Please consider Banks Aiming to Play Both Sides of Coin.
Some banks are prodding the government to let them use public money to help buy troubled assets from the banks themselves.
Banking trade groups are lobbying the Federal Deposit Insurance Corp. for permission to bid on the same assets that the banks would put up for sale as part of the government’s Public Private Investment Program.
PPIP was hatched by the Obama administration as a way for banks to sell hard-to-value loans and securities to private investors, who would get financial aid as an enticement to help them unclog bank balance sheets. The program, expected to start this summer, will get as much as $100 billion in taxpayer-funded capital. That could increase to more than $500 billion in purchasing power with participation from private investors and FDIC financing.
Allowing banks to have it both ways would give them added incentive to sell assets at low prices, even at a loss, the banks contend. They claim it also would free up capital by moving the assets off balance sheets, spurring more lending.
Bair Says Banks Can’t Buy Own Assets in PPIP Auction
Federal Deposit Insurance Corp. Chairman Sheila Bair said banks involved in the U.S. Public- Private Investment Program won’t be permitted to buy their own impaired assets as a way to cleanse their balance sheets.
“There should be no confusion: Banks will not be able to bid on their own assets,” Bair said today at a Washington news briefing to discuss first-quarter U.S. bank earnings. There is “no structure” for such purchases, she said.
Banking groups and the Clearing House Association LLC, a group of 10 lenders including JPMorgan Chase & Co. and Bank of America Corp., are pressing the FDIC to let them use the program to buy their own troubled assets, the Wall Street Journal reported today.
Bair said other issues could discourage participation in the program including “discomfort” among potential buyers and sellers that Congress might change the rules.
Sheila Bair on Cramer today. Instead of pandering her flawed policies in front of a small (if any) cable audience, with such pearls as "insured depositors have nothing to worry about", maybe Ms. Bair can finally get back to Zero Hedge in its FOIA request attempting to obtain some/any information on just what is the compensation/fee structure for FDIC’s advisor, and the real man behind the curtain, Perella Weinberg. How is this private investment bank/hedge fund, whose succumbing to Ratner’s bullying attempts recently was the main reason for the non-Tarp lenders to abandon their fight to block the Chrysler 363 asset sale, incentivized to advise Sheila and her henchmen when it comes to deciding which bank(s) to close. And not just that, but one would be interested in finding out just what role did Perella Weinberg play in the negotiations between Carlyle, Blackstone and Ross when they acquired BankUnited, and, more relevantly, what fee did P-W get out of that deal.
Please Ms. Bair – at least a flat out refusal to our FOIA request would be sufficient. In the meantime, if readers would like to join this effort, the FDIC’s FOIA submission page is here.
Listen to the interview below and focus on the language about economists and examiners (~2 minutes into the interview): these are the people on whom the fate of the financial system lies.
The Auto Task Force Car Czar formerly known as Steve Rattner has reported an overall net worth of between $188 million and $608 million. Obviously the former NYT reporter can relate to the UAW’s loss of its healthcare benefits. Among his assets:
- Between $500,000 and $1 million in Goldman stock.
- Less than $1,001 apiece in Bear Stearns Cos., Citigroup Inc., and Lehman Brothers Holdings Inc.
- Sold between $1,000,000 and $5,000,000 of LCDX10 CDS protection (long loans) on 3 occasions between October and December, 2008, and IG11 on three occasions (long investment grade credit).
[click on table for larger view]
- Less than $1,001 in Ford. - Between $500,000 and $1 million in Cerberus Institutional Partners LP Series 2. (yes, the same Cerberus that owned Chrysler).
- An airplane, valued between $5 million and $25 million, used in an air charter business.
- A horse farm in North Salem, New York, valued at between $5 million and $25 million.
- 150,000 in General Motors Corp.’s senior secured loans using a credit-default swaps index that guarantees the secured debt of 100 companies, including GM, the filing shows.
- $105 million in various Quadrangle investments.
Zero Hedge is going through this filing with a fine toothed comb. Where are the assets of Rattner’s recently DUIed wife, Marueen White?
A stunner – Art Samberg is shutting down Pequot Capital, after alleged insider trading allegation disclosure has "cast a cloud over the firm and have become a source of personal distraction."
I am writing to you, our loyal clients and friends, to let you know that I have reached the painful conclusion that it is necessary to wind down Pequot’s business.
In the coming months, we plan to liquidate the Core Funds and return cash to investors while spinning out Matawin under the leadership of Mike Corasaniti and Special Opportunities under the leadership of Rob Webster and Paul Mellinger.
As you know, my trading in 2001 on behalf of the Core Funds has been the subject of investigations by the SEC and US Attorney’s Office. Those agencies closed their investigations in 2006 without bringing any charges, but Pequot nonetheless suffered from adverse publicity. In late 2008, the government reopened its investigation. Public disclosures about the continuing investigation have cast a cloud over the firm and have become a source of personal distraction. With the situation increasingly untenable for the firm and for me, I have concluded that Pequot can no longer stay in business as an investment advisor.
I am enormously proud of Pequot’s long-term track record. A client who invested in the Pequot Partners Fund at inception earned a net annualized 16.8% return over 22 years vs. the S&P’s 8.5% return during this period. More recently, the Pequot Partners Fund has generated net annualized returns of 10.1% over the past five years and 1.8% in 2009 through April 30 vs. the S&P’s declines of 2.7% and 2.5%, respectively.
We intend to distribute to Core Fund investors a significant amount of cash by June 30, with the remainder substantially paid out over the next few months, pending completion of the year-end audit, liquidation of certain less liquid assets and payment of expenses. Details for each individual fund will be forthcoming. Pequot will retain the necessary infrastructure to support the wind down process.
The Matawin and Special Opportunities funds will become independent entities no later than year-end, and we will take steps to ensure a smooth transition. These funds will have a robust infrastructure and we believe they will
The bond market has spoken, and it demands QE2 (the equity market is insane – it has no idea what it wants). The way treasuries and mortgages are trading, the situation threatens to very quickly spiral out of Bernanke’s control (and then how will Wells and BofA pretend like they have some recurring cash generating power? On the non-recurring front, AIG has already been tapped dry.) The table below indicates that based on 2009 supply (not to mention outstanding notionals) the Fed will have to reach into its toolkit for some other (very drastic) measures.
It is painfully obvious that the status quo will not suffice. So the real question is what is the Fed waiting for? Is Ben merely afraid of China’s reaction to the imminent launch of QE 2-xxx – that would seem like an irrelevant issue as marginal refi/lenders are about to be priced right out of the market, at the same time as house prices are still dropping, thus destroying absolutely any incentives for (highly confident) consumers to lever themselves up.
Of course, the traditional repricing of govvies would involve a dropping stock market (and actual, non-transferable corporate risk), however with all the garbage propaganda about green shoots and all that other crap, combined with government backstop programs of every kind and with a disappearing market liquidity, Bernanke et al have made it impossible to price equities properly: one merely needs to observe the lack of sellers after any plateau.
As for the dollar, while it has gotten phenomenally cheap recently, it is only a matter of time before the Eurozone caught up, as it starts to feel the true impact of the trillions of toxic assets, which are allegedly marked at even more ludicrous levels than their U.S. counterparts. Of course, there is the South Korean Won safe haven…
So while Bernanke contemplates the Catch 22 of his most recent Frankenstein, I present the chart of the 30 Year (not the 10 Year I have been focusing on). Although, one would not know that by looking at it.
The market’s reaction to the S&P Case Shiller data showing the home prices dropped almost 19% in March was that the data is old, so there is no point in giving it much attention. The market seemed to shrug it off by posting large gains.
But, the numbers from March are like canned vegetables. It takes them a long time to spoil. That point was driven home by a study Fitch, the credit ratings agency, is preparing that shows "that between 65% and 75% of modified subprime loans will fall 60-days or more delinquent within 12 months of the loan change." In other words, even if homeowners are given a second chance to keep their homes and enjoy lower monthly payments, they are prepared to walk away. (Read "Four Steps to Ending the Foreclosure Crisis.")
The market is looking for ways to claim that housing is finding a bottom and that it is possible that a recovery in home prices in the wings. While there may be some pick-up in sales in the most depressed markets including Nevada and Florida, there is no sign that prices are rising. Clever buyers are moving in to buy homes in foreclosure, but the prices of these houses are so low that their sales may actually bring down the average price of the homes being sold in those markets.
What housing "bulls" do not want to admit is that people who have underwater mortgages will often give up on the opportunity to keep their homes because they see no financial future in staying. They may never get any equity from their residences. They are probably better off to rent under the circumstances and move back into the housing market when it begins to recover. Some owners have been burned so badly that they may rent for life. That in and of itself will keep demand for home purchases low. (See pictures of the housing crisis.)
Another factor that will not allow home prices to recover is the reluctance of banks to lend money to anyone except people with sterling credit ratings. Those people are harder and harder to find during a recession when paying bills late may be the only way to pay them at all.
First, it was the GM Term Loan B which benefited from hedge fund exuberance, taxpayer generosity, and the administration’s soon to be nationalization, and hit 95 earlier today after trading in the 80s on Friday, and much cheaper over the past month, as the consensus has emerged that the administration will pay off the loan at par (a bit of a change from the fulcrum security treatment at Chrysler).
Now it is Ford’s turn, whose TLB traded at 71.5 today, from a 65 bid yesterday. Not surprisingly, a major cheerleader emerged in the face of Merrill which had this to say about Ford’s TL: "We believe Ford is well positioned to benefit from the struggles at GM and Chrysler, likely picking up market share and realizing similar UAW concessions to those negotiated in Chapter 11."
Once Ford emerges as a stalking horse bidder for Good GM (or as a buyer of the government’s equity stake for $0.99), it will pick up even more market share, and will result with about 40 car lines, of which roughly 38 will be as redundant as they have been over the past 5 years.
The treasury curve has just imploded, with the 10Y, a massive outlier (especially in a 2s10s30s curve), just hitting a record steepness. The 2s10s just broke the previous wide of 273 bps and at last check was trading at 275 bps. Stocks, as expected compliments of the mysterious Spoos (in)visible hand, still defying gravity.
Zero Hedge friend Mojakus has put together some very interesting thoughts on the negative convexity phenomenon (self fulfilling prophecy) in treasury action today.
The effect is finally being felt in stocks which are getting pounded. Amusingly, while yesterday CNBC had a BREAKING NEWS: MARKET SURGES alert for 4 hours straight, for some odd reason the MARKET PLUNGES alert is nowhere to be found. SHOCKING.
As for what is happening in Bernanke’s promised land of cheap mortgages, the chart below does not need an explanation:
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
Deflation simply means falling prices. The 4-pack below reflects that the bond players believe in the deflation theme as the yield on the 10-year note breaks below the 2009 and 2011 lows.
Speaking of deflation and falling prices, the CRB has now broken below last summer's lows, the CRX is at last summer's lows, and Crude Oil finds itself on key rising support.
With the only real catalyst on the horizon not due for nearly one month - that would be the Greek elections of June 17 which while presented as the make or break event for the Eurozone, we believe will be once again inconclusive, resulting in no actual government, but merely more elections down the road - here is the daily sequence of events of what we can expect: i) Europe releases definitive rumor that everyone is preparing for a Greek exit full of bombastic jargon and details of how Greece will be annihilated if it does exit the EMU; ii) immediate election polls are...
China Automotive Systems, Inc. (NASDAQ: CAAS) oday announced that its wholly owned subsidiary, Great Genesis Holdings Limited, has entered into a definitive agreement to sell its equity interest in Zhejiang Henglong & Vie Pump-Manu Co., Ltd, to the Zhejiang Vie Group Great Genesis's joint venture partner in Zhejiang. This transaction is subject to local regulatory authority approval.
Founded in 2002, Zhejiang, which designs, manufactures and markets power steering pumps, is located in Zhuji City, Zhejiang Province. According to the Agreement, Great Genesis will sell its 51% stake in Zhejiang to Vie Group for RMB52 million, which represents a 24% premium as compared to the May 20, 2012 estimated net book value of approximately RMB42 million. According to unaudited accounting information, Zh...
The small Mediterranean country of Greece has been more than a thorn in Europe’s (NYSEARCA:VGK) back for the past eighteen months; it has been the focal point of foreign press on Europe, and in this case all press is not necessarily good press. To truly understand the scope of the Greek debt crisis, one must analyze the Greek economy and its overall importance to the Euro. As ever more countries bid to enter the Euro, now Greece appears to bid for an exit, the first ever in the Euro’s history. A Greek exit from the Euro has been likened to a w...
Top 5 RisersStockRatingAnalysisWDCSTRONGBUYWestern Digital is one of the top candidates projected to achieve both higher than previously projected earnings in the short run and a higher earnings growth rate in the long run.KROSTRONGBUYKronos Worldwide is gaining higher expectations and its recent history of its earnings increases is significant.URIBUYProjected value continues to rise for United Rentals while long term increases in earnings growth are also becoming more widely expected.SWHCBUYAn increasingly attractive expected long term growth rate and a significantly higher projected valu...
The market remains a mess right now as we are back to the environment of latter 2011 and middle 2010 where random comments from officials across the Atlantic move everything en masse. Today the market was hit by word that preparations for Greece's exit from the EU are being considered.
Of course a denial by another official would send the market up 1% immediately. Rinse, wash, repeat – year #3.
The bigger picture right now is all stocks are moving as one asset class as our massive correlations return. Until that changes it is very difficult to bother to be a stock picker.
EXPR - Express, Inc. – Shares in apparel retailer, Express, Inc., dropped nearly 30.0% today to a new 52-week low of $16.38 after the company projected full-year earnings below those expected by analysts. Options on EXPR are far more active than usual today, with overall volume on the stock currently at 4,460 lots, up nearly 2,000% over the stock&rsq...
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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).
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In this article, please revisit an article written two years ago titled, "The Calm Before the Storm." This article focused on the patent cliff that was looming in the pharmaceutical industry, that was later picked up by the New York Times and several other bloggers! Subsequent articles were written about big pharma company's revenue streams, and the pros and cons of of their later stage pipelines. Other articles have also attempted to identify smaller biotechs with the potential to reap big reward...
My last weekend update is dated from January 30 so after a long hiatus, here is an update of our virtual portfolio. Since the last update, we have closed the AA Money portfolio due to a lack of enthusiasm (and activity) and I have stopped tracking the FAS strangle as the low VIX makes it hard to get rewarded for the risk! But we have added a small $5KP virtual portfolio which does not use any margin.
FAS Money
We have had to recover from a big move up by FAS and a low VIX which keeps option prices low. But the portfolio has gaine about 10% since the last update.
Last update P&L - $5499.00
IWM Money
Not a lot of activity in this portfolio where the main focus is on the large IWM BCS. But the portfolio has grown over 20% since the last update.
Last update P&L - $1998.00
$5KP Portfolio
This is the virtual portfolio that replaced the AA Money portfolio. It does not use margin and we will keep holdings under $5K.
AAPL $50K P...
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I am glad I am not the only one who notices these things…. I am only speaking as someone who has watched the market since mid 90s and have never seen the behavior I see now. Whenever a key technical average is threatened a magical flood of futures buying comes in. Almost every morning the past 10 weeks pre market futures are green (apparently there is not enough time to buy stocks between 9:30 AM and 4:00 PM). The last 30 minutes has magical reversals – we saw it just last Thursday at a key moving average. [May 21: Bookkeeping - Covering Index Shorts Around 3:30 - 3:45 PM]
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Just a few quick thoughts. This year the proposed administration plan is to borrow 50% of every dollar spent. The CBO projects than nominal GDP will grow by about 50% over the next 10 years (which is historically reasonable), but also that revenues will double, which suggests massive tax increases in relation to GDP. Interestingly, the International Monetary Fund says growth next year will be tepid at best (more below). The deficit in 2010 is almost 10% of GDP. The average proposed
Banks are not content to have bidders rape taxpayers on their behalf. The banks want to rape taxpayers themselves. Please consider 
Bair Says Banks Can’t Buy Own Assets in PPIP Auction
The market is looking for ways to claim that housing is finding a bottom and that it is possible that a recovery in home prices in the wings. While there may be some pick-up in sales in the most depressed markets including Nevada and Florida, there is no sign that prices are rising. Clever buyers are moving in to buy homes in foreclosure, but the prices of these houses are so low that their sales may actually bring down the average price of the homes being sold in those markets.
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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
(