Just yesterday I wrote about the government program CARS- better known as “Cash for Clunkers,” and no sooner did I hit the old “submit” button to the blogsophere; well, the proverbial shit just about hit the old radiator fan.
Hours later there were reports that the administering NHTSA changed some of the combined fuel ratings for a handful of cars; basically, making some prior deals involving cars (I’m not sure which ones) null and void. In order to get the rebates, the old clunker had to get a combined EPA rating of 18 miles-per-gallon or less. Cars rated 18 mpg or less were now not deemed a “clunker” putting the deals in jeopardy. The government… “Takes it back.”
I heard of some people getting notices from the dealers (who actually fronted the rebates) to either come-up with the additional $4,500 they thought they would get from the government; or turn-in their shiny, brandy new car they had taken home just a few days prior. These were cases, of which, last I heard were “under review.” Never a good thing.
Wednesday night I did some investigating.
I went to my favorite local car dealership (names and brands un-important) and struck-up a conversation with my good friend the general sales manager- the “desk guy.” These people actually like it when talking to them doesn’t involve squeezing every last penny out of a deal (that really isn’t realistically there); so, when they’re not working, working hard for your money (read, to get your money), they’re an honest bunch. Really.
Bottom line he, the manager had nothing but kind things to say about the program. “Sure, it’s gotten people in the door, but what a f’n nightmare…” His words, not mine.
“The paperwork is crazy, they got you jumping through all these hoops… It’s total a fiasco.” A fiasco. I’m not surprised. But the car business thrives on this kind of stuff- some would even call the car promotions business “controlled chaos,” at least it should be if it’s done right. And that’s just what “Cash for Clunkers” is proving to be. Chaotic.
I learned some finer points about the program that aren’t clearly drawn-out on the extensive national websites and the myriad of car commercials, flooding the national TV and radio slots.
At a time when the financial industry’s credibility is at an all-time low, you would think Wall Street’s finest would break their necks providing transparency.
Not so. Stock analysts continue to promote corporate earnings lies, insisting that net income isn’t really what investors need to know.
Instead, their earnings estimates ignore often huge expenditures that can’t help but affect a company’s health.
In analystspeak, Intel Corp. wasn’t hit with a $1.45 billion fine from the European Union in the second quarter for anticompetitive practices.
After setting aside funds to cover the fine, which Intel is appealing, the semiconductor-maker had a quarterly loss of $398 million, or 7 cents a share. Disregarding the fine altogether, analysts maintain the company earned 18 cents a share, beating their average estimate of 8 cents.
As Wall Street tells it, the employee stock options Google Inc. granted in the second quarter didn’t cost its shareholders $293 million.
Google, according to generally accepted accounting principles, earned $1.48 billion, or $4.66 a share, in the period. Not enough for Wall Street, which prefers to say the company earned $5.36 a share, leaving out the cost of stock options.
Spreads were tighter in the US as all the indices improved (though leaking wider most of the day from a gap tight open, albeit with HY closing below 800bps). Indices typically underperformed single-names with skews mostly narrower (and this is becoming critical as IG is in mid single-digits and HY skew is very tight – perhaps signaling some room for HY-IG decompression or just single-name protection buying hedged via the index) as IG underperformed but narrowed the skew, HVOL underperformed but narrowed the skew, ExHVOL intrinsics beat and narrowed the skew, XO underperformed but compressed the skew, and HY’s skew widened as it underperformed.
The names having the largest impact on IG are General Electric Capital Corp (-40bps) pushing IG 0.3bps tighter, and CIT Group Inc (+39.67bps) adding 0.15bps to IG. HVOL is more sensitive with General Electric Capital Corp pushing it 1.34bps tighter, and CIT Group Inc contributing 0.65bps to HVOL’s change today. The less volatile ExHVOL’s move today is driven by both Valero Energy Corp. (-12bps) pushing the index 0.12bps tighter, and National Rural Utilities Cooperative Finance Corporation (+5.5bps) adding 0.05bps to ExHVOL.
The price of investment grade credit rose 0.12% to around 99.46% of par, while the price of high yield credits rose 0.7475% to around 89.69% of par (intraday peak of $90.1875 or 773bps). ABX market prices are higher (improving) by 0.47% of par or in absolute terms, 0.99%. Broadly speaking, CMBX market prices are higher (improving) by 0.56% of par or in absolute terms, 0.15%. Volatility (VIX) is down -0.21pts to 25.4%, with 10Y TSY rallying (yield falling) 5.1bps to 3.61% and the 2s10s curve flattened by 5.9bps, as the cost of protection on US Treasuries fell 4.64bps to 26.5bps. 2Y swap spreads widened 1.4bps to 37bps, as the TED Spread tightened by 0.2bps to 0.31% and Libor-OIS improved 0.7bps to 28.4bps.
The Dollar weakened with DXY falling 0.39% to 79.322, Oil rising $3.39 to $66.74 (outperforming the dollar as the value of Oil (rebased to the value of gold) rose by 4.89% today (a 4.96% rise in the relative (dollar adjusted) value of a barrel of oil), and Gold increasing $4.13 to $934.13 as the S&P rallies (982 0.73%) outperforming IG credits (113bps 0.12%) while IG, which opened tighter at 111.75bps, underperforms HY credits (note that HY/IG fell below 7x for the first time in…
Following up on yesterday’s piece, demonstrating the SIGMA X Advance look (Flash order) nature, I would like to present the following research piece, once again written by GSES, which is even more self-incriminatory and demonstrates why the SEC should immediately ban SIGMA X, or at least should undertake a thorough investigation into the propriety of Dark Pools, especially those controlled by equity market monopolist Goldman Sachs.
Senator Schumer, Mary Schapiro, if nothing else, please take a look at the highlighted areas.
The increasingly disenchanted American investors thank you in advance.
July 28, 2009 — This is perhaps the most important thing I learned over my years working on Wall Street, including as a managing director at Goldman Sachs: Numbers lie. In a normal time, the fact that the numbers generated by the nation’s biggest banks can’t be trusted might not matter very much to the rest of us. But since the record bank profits we’re now hearing about are essentially created by massive federal funding, perhaps it behooves us to dig beneath their data. On July 27, 10 congressmen, led by Rep. Alan Grayson (D-Fla.), did just that, writing a letter to Federal Reserve Chairman Ben Bernanke questioning the Fed’s role in Goldman’s rapid return to the top of Wall Street.
To understand this particular giveaway, look back to September 21, 2008. It was a frenzied night for Goldman Sachs and the only other remaining major investment bank, Morgan Stanley. Their three main competitors were gone. Bear Stearns had been taken over by JPMorgan Chase in March, 2008, Lehman Brothers had just declared bankruptcy due to lack of capital, and Bank of America had been pushed to acquire Merrill Lynch because the firm didn’t have enough cash to survive on its own. Anxious to avoid a similar fate, hat in hand, they came to the Fed for access to desperately needed capital. All they had to do was become bank holding companies to get it. So, without so much as clearing the standard five-day antitrust waiting period for such a change, the Fed granted their wish.
Bank holding companies (which all the biggest financial firms now are) come under the regulatory purview of the Fed, the Office of the Comptroller of the Currency, and the FDIC. The capital they keep in reserve in case of emergency (like, say, toxic assets hemorrhaging on their books, or credit derivatives trades not being paid) is supposed to be greater than investment banks’. That’s the trade-off. You get access to federal assistance, you pony up more capital, and you take less risk.
Goldman didn’t like the last part. It makes most of its money speculating, or trading. So it asked the Fed to be exempt from what’s called the Market Risk Rules that bank holding companies adhere to when computing their…
Over the past week everyone seems to have jumped on the HFT bandwagon: people who know nothing about the issue, as well as tested industry veterans, all of a sudden are chiming in, with some, like quant legend Paul Wilmott debating the potential dangers of HFT, while others such as respected bloggers including Eric Falkenstein and John Hempton saying it is too much noise over nothing. Both sides of the debate are respected, as, if nothing else it forces further clarity on this most secretive topic.
While long-time Zero Hedge readers have known our position on the issue since early April, the basis of our perspective has always been a (very relevant) question. Which is why it is useful to hear those who are directly involved in not only the HFT market, and not only were instrumental in developing the HFT architecture, but have worked for the largest HFT option trading desk in the US, that of Citadel (and likely were sitting one desk away from the likes of Misha Malyshev, made infamous by his involvement in the Aleynikov-GS scandal). We present to you Michael Durbin, who tips his cards in a piece by Reuters’ Matt Goldstein who broke the Aleynikov scandal.
Durbin says it’s reasonable to wonder whether Wall Street’s unfettered embrace of algorithmic automated trading could be setting the stage for a future meltdown.
“You have multiple HFT trading firms and sometimes their agendas are complementary and sometimes they’re not,” explains Durbin, director of HFT research with Blue Capital Group, a small Chicago-based options trading firm.
“There could be a time where these HFT programs unintentionally collaborate and you have a two- or three-minute period where the markets are going crazy. Then other traders respond to it and it simply gets out of control.”
What Durbin’s talking about is the dreaded contagion effect, in which a bad trade or a rogue algorithm misfires — sparking copycat sell orders at other high frequency desks.
A little on Durbin’s background:
Durbin certainly has the bona fides to speak to the potential risk. Before joining Blue Capital, he worked for two years at Citadel Investment Group, constructing the hedge fund’s high frequency trading desk for stock options — the largest in
Banks have finally come to a realization there does not need to be a branch on every corner. If this story sounds familiar it is because the same discussions took place in 2000.
Bank of America spokesman James Mahoney: "Over the longer term, as customer demands evolve, we see a fewer number of branches that provide more services."
Analyst Richard Bove of Rochdale Research: "While the bank is likely to close the branches, the reason being given is simply farcical," Bove wrote in a research note Tuesday. "The branches will be closed because they are not economically viable."
Some banks have been deemed too big to fail. But could some banks simply be physically too big? That seems to be the case with Bank of America (BAC), which was reported to be planning to shut 10% of its 6100 branches. According to the Wall Street Journal, which broke the story in Tuesday’s editions, B of A’s customers increasingly are opting for online and mobile banking transactions. Moreover, half of the bank’s deposits are being made via automated teller machines, up sharply from just one-third six months earlier.
But veteran banking analyst Dick Bove of Rochdale Securities disputes that a shrinkage in B of A’s vast branch network would be driven by technology. Economics will be the main factor reining in the ubiquitous red-and-blue branches, he says.
Whatever the motivation, America’s big banks are apt to learn the lesson being absorbed by Starbucks (SBUX) — you can reach the point of diminishing returns from expansion. And once the culling begins, the resulting vacancies in these prime retail spaces can only worsen the downward spiral in commercial real estate as well as employment in banking.
Only now, well into the 21st century, has electronic banking become the norm for retail bank customers. But Bove avers that they had shown a distinct preference for old-fashioned bricks-and-mortar branches. Opening more branches expanded deposits, which earlier in the decade could be deployed profitably owing to low deposit rates and robust mortgage lending at a generous,
July 30 (Bloomberg) — The U.S. Securities and Exchange Commission will review so-called flash orders used by four equity markets, NYSE Euronext Chief Executive Officer Duncan Niederauer said.
Charles Schumer, the third-ranking Democrat in the U.S. Senate, told the SEC to review flash orders in a July 24 letter. Regulators told NYSE officials they will examine them, and based on those discussions it appears unlikely the SEC will impose curbs on other forms of high-speed trading, Niederauer said today in a conference call with analysts to discuss the New York-based company’s second-quarter results.
“I don’t think there is any fear of them doing something that would severely damage the displayed liquidity on U.S. equity markets,” he said. “High-frequency trading is actually the most consistent source of liquidity.”[TD: Time for one more of those "The Y in the NYSE stands for Trust" ads]
John Nester, a spokesman for the SEC, didn’t return a telephone call seeking comment. Last month, SEC Chairman Mary Schapiro said the agency is concerned that electronic indications of bids and offers are being disseminated to a select group of brokerages.
NYSE’s competitors — Nasdaq OMX Group Inc., Bats Global Markets, Direct Edge Holdings LLC and the CBOE Stock Exchange — give information to their clients about orders for a fraction of a second before the trades are routed to rival platforms. NYSE Euronext, the world’s largest owner of stock exchanges, told the SEC in May that these flash orders result in most investors getting worse prices.
Dear Wall Street: New York AG Andrew Cuomo is appalled by your behavior, which he details in his new report titled, provocatively: "No Rhyme or Reason: The ‘Heads I Win, Tails You Lose’ Bank Bonus Culture."
What’s so damning about Cuomo’s report is that it goes beyond the well-travelled idea that bonus payouts suffer from an asymmetry, namely that they’re paid out in good times, but that there’s no claw-back later on if things blow up:
…One thing is clear from this investigation to date: there is no clear rhyme or reason to the way banks compensate and reward their employees. In many ways, the past three years have provided a virtual laboratory in which to test the hypothesis that compensation in the financial industry was performance-based. But even a cursory examination of the data suggests that in these challenging economic times, compensation for bank employees has become unmoored from the banks’ financial performance.
Thus, when the banks did well, their employees were paid well. When the banks did poorly, their employees were paid well. And when the banks did very poorly, they were bailed out by taxpayers and their employees were still paid well. Bonuses and overall compensation did not vary significantly as profits diminished.
An analysis of the 2008 bonuses and earnings at the original nine TARP recipients illustrates the point. Two firms, Citigroup and Merrill Lynch suffered massive losses of more than $27 billion at each firm. Nevertheless, Citigroup paid out $5.33 billion in bonuses and Merrill paid $3.6 billion in bonuses. Together, they lost $54 billion, paid out nearly $9 billion in bonuses and then received TA~ bailouts totaling $55 billion.
I could not help noticing that China’s imports from Japan fell 16.2pc in December. Imports from Taiwan fell 6.2pc. The strong yen strikes again: Honda decides to build a high-performance hybrid Acura in Ohio – instead of its home nation of Japan. The firm’s continued shift in p...
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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).
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...
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...
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.
Top 5 RisersStockRatingAnalysisASBCBUYMany 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...
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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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.
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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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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.)
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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...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(