The attached presentation, from John Taylor of Stanford and John Williams of the SF FRB, prepared in the weekend before the Lehman bankruptcy, and thus in the eye of last year’s hurricane, provides some additional insights into money markets, the Fed’s TAF program, OIS spreads, and how everything can go spectacularly wrong at mere whiff of that greatest black swan of all, and the one concept all in the financial business take for granted: counterparty risk. With the Fed now actively pursuing the extraction of capital out of money markets instead of primary dealers, the potential liquidity imbalance will be a major threat to the system and will be actively monitored by Zero Hedge. If the Fed’s soothing admonition that it has things in control serves any purpose, it is that sooner rather than later risk flaring and six sigma events will once again be a daily occurrence.
According to an AP source and an article in the Wall Street Journal the United Auto Workers gave local Ford unions the weekend to review and ratify contract changes, but as of today, it’s a no go.
The UAW and Ford agreed to contract changes weeks ago, but the workers needed to approve the deal, some 41,000 UAW-represented Ford employees.
Ford was seeking to reduce labor costs, bringing them more in-line with rivals GM and Chrysler- both having won concessions from the UAW being bankrupt and all.
Inquiring minds are asking the question "How many jobs were created out of the various stimulus programs so far and at what cost per job?"
That is a good question. Not that we can believe the reported number of jobs created, but let’s assume for the sake of argument that the figures provided by the administration are correct.
The US economic stimulus programme has directly created or saved 640,000 jobs so far, the White House said on Friday as it battled to find ways to show that its $787bn package was working, despite persistently high unemployment.
Data this week showed that the US economy had started to grow again but the Obama administration has faced rising criticism that it wasted taxpayers’ money on the stimulus.
The White House tried to counter this by championing the jobs figures and even uploading videos to its website showing the dollars in action. The figures showed around half of the jobs were in education and 12.5 per cent were in construction.
"These reports are strong confirmation that…we are on-track to create and save 3.5m jobs through the Recovery Act by the end of next year," said Joe Biden, vice president.
But criticism has mounted this week over the accuracy of some preliminary stimulus data released by the White House. Even the Economic Policy Institute, a left-leaning think-tank which has fervently supported the stimulus, said there were serious problems with the figures.
Bear in mind it is impossible to prove how many jobs were created and it is beyond preposterous to think one can estimate the number of jobs saved.
However, let’s take the administration’s estimates at face value.
Inquiring minds want the official numbers on which to base the cost per job created. So please consider the administration’s own numbers as reported on Track The Money Recovery.Gov as of October 30, 2009.
Let’s do the math.
Math To Date
Funds paid out so far = $83.8 billion + $52.1 billion + $71.4 billion = $207.3 billion
$207,300,000,000 / 640,329 = $323,739.83 per job created
Jeremy Siegel defends the Efficient Markets Hypothesis: When you are at Wharton as I was during my undergraduate years, it is hard to escape the aura of the school’s most famous finance professor Jeremy Siegel. Even before I was interested in the stock market I had read his now somewhat controversial book Stocks for the Long Run. As a result of the recent crisis and miserable track record of the S&P over the last 10 years, Siegel has had to deal with a significant amount of criticism. Many financial commentators now suggest that buy and hold is dead. Those who disagree point out that Warren Buffett has used a buy and hold strategy that has made him one of the world’s richest men. The problem with using Buffett as an example is that Berkshire is now so large that the portfolio is very inflexible and thus is forced to employ a buy and hold platform. Entering into or exiting a material position is a major undertaking that has the potential to dramatically affect the price of a stock, especially considering the way value investors react when they hear Buffett is buying or selling. I personally believe in buying and holding a basket of equities. However, that basket needs to change over time based on where the value is. Whether the allocation changes by sector or by country over time, my own philosophy is that being nimble is preferable. The idea that serious investors should buy and hold an index or a basket of the same stocks is an outcropping of the EMH that detracts from returns and sets investors up to be slaughtered when there are broad market declines.
Having said all that, I commend Siegel for being critical of the Fed and its role in the financial meltdown. Many of the leading academics in this country seem afraid to rock the boat but Siegel definitely pulls no punches:
The misreading of these economic trends did not just reside within the private sector. Former Fed Chairman Alan Greenspan stated before congressional committees last December that he was “shocked” that the top executives of the financial firms exposed their stockholders to such risk. But had he looked at their balance sheets, he would have realized that not only did they put their own
Our freedom depends on our government enforcing and abiding by the law. It’s apparent that we are headed down the slippery slope Justice Louis Brandeis describes in Olmstead v. United States (1928):
"In a government of laws, the existence of the government will be imperiled if it fails to observe the law scrupulously. Our government is the potent, the omnipotent teacher. For good or ill, it teaches the whole people by its example. Crime is contagious. If government becomes a lawbreaker it breeds contempt for law: it invites every man to become a law unto himself. It invites anarchy."
We have the Federal government’s massive and flagrant display of lawlessness, and population somewhere on the way from apathy to dependency in the Fatal Sequence cycle of civilization. – Ilene
Before the era of Frankenstein Finance and the fanatical focus on fee-based income, lenders tried to hold themselves out as models of probity (for the skeptics out there, I did say "try."). Those responsible for making credit-granting decisions and looking after the interests of shareholders also demanded that borrowers meet certain standards before they would see even a dime of their employers’ money. These criteria are known as the "5 C’s of Credit," which are the
key elements a borrower should have to obtain credit: character (integrity), capacity (sufficient cash flow to service the obligation), capital (net worth), collateral (assets to secure the debt), and conditions (of the borrower and the overall economy).
In an interesting twist of fate, the firms that have traditionally decided who should get credit have been put in the position of needing extraordinary amounts of other people’s money just to stay alive. Unfortunately, based on what we’ve seen so far, including reports like those that follow, it’s doubtful whether most, if not all, of today’s troubled financial institutions would even qualify for a loan based on traditional measures of suitability — like "character," for example — if their friends in high places weren’t so intimately involved in the process.
On Wednesday Goldman Sachs, after picking a peculiar time to do so, decided to lower their Q3 GDP estimates, thereby lowering the bar for broad GDP expectations, and the resultant “beat” by the official BEA data of a 3.5% reading sparked the biggest market rally since July (only to be followed by an even bigger drop on Friday). Whether or not Goldman’s prop trading operation benefiting directly or indirectly from this increase in volatility is unknown as the firm does not provide that level of granularity and detail in its earnings reports. Yet based on the most recent disclosure from the NYSE, Goldman is now trading at a more than 10:1 ratio of principal to agency (read gambling with taxpayer funds about 10 times more than it transacts on behalf of clients).
Zero Hedge is still hoping that the NYSE will eventually disclose what percentage of Goldman’s principal trades goes to the exchange’s SLP program, as previously promised. Perhaps one of the reasons why the NYSE’s profitability is collapsing is because of the ongoing posture of opacity, despite all claims by Mr. Niederauer to the contrary. That, and of course dark pools encroaching more and more into exchange territory until such time as only retail sheep investors are left to trade on open venues.
Regardless of whatever P&L may have been generated by GS over the last two days when volatility took a roughly 35% round trip, Messrs. McKelvey and Hatzius are now hedging their bets on their GDP call, providing an extended matrix as to why not only will they be proven right, but why Q4 GDP will be a dramatic disappointment, courtesy of a CfC-esque pull forward of future GDP production/consumption.
As Rosenberg and many other strategists have been repeatedly banging on the table on this issue, the Q3 GDP is simply a recreation of the Cash For Clunkers effect, taken to the national level. Just as CfC managed to pump the SAAR rate for August to 14.3 million, which subsequently plummeted to 9 million in the next month, expect a comparable pattern with Q4 GDP. And unless the administration plans on essentially running the economy on one-time stimuli until the next presidential election, the bigger the artificial sugar high, the greater the subsequent crash. As much as Summer, Bernanke et al wish they could change the laws…
In the first half of October, NYSE short interest as reported staged a moderate comeback, rising by 2.8% sequentially to 13.4 billion shares on October 15th, from 13.1 billion at the end of August, and a 1.1% decline from the 13.6 billion shares short on October 15, 2008. The short interest represented 3.51% of total shares outstanding.
The five biggest short interest position increases were in the following companies (possible new long positions established on technicals):
Citi: 178,057,74; 50.95% (increase in SI sequentially)
Xerox: 47,136,876; 611.75%
Pfizer Inc: 285,836,513; 6.81%
Merck: 195,283,992; 8.9%
CIT Group Inc 81,042,082; 21.43%
The five biggest short interest position decreases (the stocks the contrarians may be interested in considering shorting):
“So why have you not written anything lately?” Deadhead asked me on one of our “groupie” chat sessions. Those NC-17 chat sessions are da bomb. You get to see Cheeky Bastard in full force ODed on caffeine and the rest—Lizzy36, thurWopr, TitanTrad, nopat, LesterB—with occasional pokes by Marla. That all would change as the chat goes mainstream, but it was fun while it lasted.
“Because I have not had anything to say”. “ This “wash, rinse, and repeat” cycle as Robo likes to describe it was getting a little boring. When Tyler tells you that bots are trading this market, he is not making it up. The bots seem to have surrendered this week (or gotten instructions to sell mercilessly).
Last week we made a high of 1101 on the S&P 500; on Friday we traded down to 1033. We had a huge down week and closed near the low of the day. This is also a low-tick Friday close that happens to mark the end of the month, meaningful in my book. The VIX went from 20 last week to over 30 this week. Volume is exploding to the downside… Sometimes when the market speaks the market screams. Right now, it is screaming.
Yes, I know every dip has been a gift to buy in this bear market rally. But what has rallied the most is the biggest garbage—AIG, Citi, FifthThird, Fannie and Freddie. Some of those idiotic moves are now unwinding. They will unwind more…
In my opinion, banks should lead this market lower. The relative performance against the S&P 500 is rolling over (above). Throwing a TARP over an insolvent banking system may create a spectacular bear market rally, but that is as far as it will go. Bear market rallies tend to unwind, completely… For an example what a bear market rally looks like in a particular stock see BAC. It will break 10, again…
No one can tell you with precision when S&P 500 at 666 will be retested, but it may be in 2010. I don’t have high hopes that 666 will hold. The US economic model was built on rising leverage ratios for consumers and the banking system is dependent on credit growth…
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.
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 ...
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%.
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 ...
Top 5 RisersStockRatingAnalysisAGBUYAn 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...
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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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.
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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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 ...
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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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
(