Sunday night edition of America’s favorite game: kick the can down the street, better known as “someone else’s problem.” From the WSJ
The final term sheet still needs to be reviewed by the various financial and legal advisers, said the people familiar with the matter. And there is the chance that a final deal could falter over last-minute negotiations.
Under the proposal, CIT would likely pay interest rates 10 percentage points above the London interbank offered rate, said these people. (As of Friday, three-month Libor stood around 0.5%.) CIT has also agreed to pledge some of its highest-quality loans as collateral on the $3 billion package.
The new loan could act like a “bridge” to a series of debt-exchange offers that CIT would launch in order to get bondholders to swap some of their bonds for equity in the company or for new debt that matures later.
J.P. Morgan would have considered lending if CIT were first to seek bankruptcy protection, but the bank “couldn’t get comfortable with a deal outside (bankruptcy) court,” said one person familiar with the matter.
CIT’s advisers, which includes Evercore Partners, then launched talks with its bondholders, led by investment firm Centerbridge.
You mean after Dana and Extended Stay Centerbridge is still around? And now CIT? Did these guys just buy whatever bonds Goldman was a size seller in?
The $3 billion rescue financing plan will be backed by remaining unsecuritized assets which likely exceed $10 billion, another source familiar with the matter said.
“The $3 billion is new money but securitized by all the remaining unsecuritized assets which probably exceed $10 billion,” that source said.
So i) bondholders are screwed either way, ii) the company will pay 10%+ on the bridge instead of paying 3.5% on a DIP, iii) the stock will pop tomorrow only to crash to zero ala GM soon enough, iv) Peek will cash out, and v) in 6 months when chapter 11 is inevitable, the company will suddenly become Too Big To Fail and taxpayers will be on the hook after the bulk of any salvagable value will have been leaked away.
Continuing the series of State Street presentations on relevant market topics, the latest piece “What are the Implications of the Growing Use of Electronic Trading” focuses on the nuanced difference between “real liquidity” and “liquidity hazard”, depending on whether one is a price taker or market maker. Yet based on limited available public disclosure, non-premium clients of the NYSE and other PT-espousing exchanges have no visibility of who and under what conditions any given broker/dealer and quant become one or the other. And while merely a few years ago HFT was less than half of traded stock volume, recent data indicates high frequency trading now accounts for over 70% of US volume, and thus it is important to reassess what is the relevant set of data disclosure by dominating broker/dealers. The risk is palpable – as State Street itself notes, there is “equity capital at risk.”
And closing off this weekend’s program reading series is the following 2005 panel piece from Euromoney, which captures the insights of insiders such as John Elay of Hotspot FX, Scott Freeman of GFX, Bank of America, George Houlihan of GETCO, Ed Hulina of UBS, Ulf Lindahl of A.G.Bisset & Company and Mark Robson of Reuters. Particularly notable is the disclosure by Ed Hulina who discusses the liquidity mirage: “There are a lot of banks making prices and there’s ultimately only so much end-user volume to support those prices. So, yes, I think there is a risk of a liquidity mirage in some respects if there is a proliferation of platforms and people providing prices and representing more liquidity at any given time than is actually there.“
Zero Hedge has disclosed how HFT/PT is now unquestionably dominating the markets as traditional trading mechanisms have fallen on the sidelines. Hulina’s point in 2005 is exponentially more relevant now: how can we possibly know what liquidity is real in this market dominated by intermediaries and evaporating end-users? Absent regulatory reform, the only way to know would be a forensic analysis once the current topology breaks and the components are analyzed in retrospect. Of course, by then it would be too late.
I want to explain the concept of trend days, v churn days that I’ve been mentioning of late. I’ve noticed these patterns over the past few quarters, but have only in the past 4 weeks or so tried to take advantage of it. So far, with good success. What has really stood out aside from the fact what happens yesterday has nothing to do with today (the market has no memory) is how few reversal days we have anymore. I am not sure the cause of this; I am sure part of it is the dominance of program trading over humans with momentum based strategies but who knows how much. All I know is it has continued repeatedly and while obvious to me (and I assume others) it keeps repeating. So until the pattern ends, there is no reason not to take advantage of it – there are actually some low risk strategies that keep your cash protected overnight but allow you to allocate capital via the levered ETFs (long or short) or even calls or puts (which I’ve started doing); and you can be done by the end of the day and have that money cozy under your mattress.
By a reversal day I just mean a very choppy day where we start the day up by a significant margin and then go down significantly later in the day, or vice versa. Those happen occassionally but seemingly far less than in the past. Instead, we have had a dominance of 2 kind of days: (a) churn days or (b) trend days. Most of the time you know by 10:30 – 11:00 AM what it is going to be.The churn days have also been remarkable of late – we had a few examples last week during the downturn… immediately after a huge swoon the very next day (remember, the market has no memory from day to day) we get an almost silent day. The market will essentially ping pong back and forth in a very small range, from top to bottom of the range but never making a new high or a new low. Shape wise it…
The board of directors of JP Morgan Chase will hold a board meeting in the nation’s capital for the first time on Monday, the New York Times reports. In attendance, also a first, will be the chief of staff of the President of the United States, Rahm Emmanuel.
You can read all about the historic occassion in the Times article right here.We’d pull an excerpt for you, but it’s worth reading in it’s entirety. Instead, we’re inspired to pull this from the concluding chapter of Animal Farm.
A week later, in the afternoon, a number of dogcarts drove up to the farm. A deputation of neighbouring farmers had been invited to make a tour of inspection. They were shown all over the farm, and expressed great admiration for everything they saw, especially the windmill. The animals were weeding the turnip field. They worked diligently hardly raising their faces from the ground, and not knowing whether to be more frightened of the pigs or of the human visitors.
That evening loud laughter and bursts of singing came from the farmhouse. And suddenly, at the sound of the mingled voices, the animals were stricken with curiosity. What could be happening in there, now that for the first time animals and human beings were meeting on terms of equality? With one accord they began to creep as quietly as possible into the farmhouse garden.
At the gate they paused, half frightened to go on but Clover led the way in. They tiptoed up to the house, and such animals as were tall enough peered in at the dining-room window. There, round the long table, sat half a dozen farmers and half a dozen of the more eminent pigs, Napoleon himself occupying the seat of honour at the head of the table. The pigs appeared completely at ease in their chairs. The company had been enjoying a game of cards but had broken off for the moment, evidently in order to drink a toast. A large jug was circulating, and the mugs were being refilled with beer. No one noticed the wondering faces of the animals that gazed in at the window.
Thousands of jobless Pennsylvanians are joining the growing ranks of people around the country who are exhausting unemployment benefits, as some experts worry about another blow to a stumbling economy.
Gov. Ed Rendell said 17,800 Pennsylvanians exhausted their jobless benefits in the week that ended Saturday, the first big wave of Pennsylvanians to do so. He urged legislators to pass a bill to extend the benefits.
Around the country, the number of people exhausting their benefits is piling up. By the end of September, more than 500,000 people will exhaust their benefits checks, with the biggest groups in Pennsylvania, California and Texas, according to estimates by the National Employment Law Project, an advocacy group for low-wage workers based in New York City. That number will nearly triple by the end of the year, the group said.
The number of jobless New Yorkers across the state jumped significantly during the month of June, according to state Department of Labor statistics released Thursday.
The unemployment rate increased from 8.2 percent in May to 8.7 percent in June. That’s the highest level since October of 1992.
In New York City, the rate increased from nine percent in May to 9.5 percent in June — the highest level in more than a decade. That translates into more than 850,000 people out of work in the state.
"Because of our 8.7 percent unemployment rate, we will qualify for an additional seven weeks of unemployment insurance benefits," said New York State Labor Commissioner M. Patricia Smith. "So right now New Yorkers will be eligible for 79 weeks of unemployment insurance benefits."
Unemployment benefit extensions are expected to help an additional 47,000 jobless New Yorkers who would have lost their benefits in August.
Urban.org provides a nice background on Unemployment Insurance benefits and the problems certain states faced at the end of 2008:
The states finance UI benefits with payroll taxes paid by employers into state trust funds maintained at the U.S. Treasury. State balances earn interest income. The Treasury also makes loans to states whose trust funds have been exhausted. At the end of 2008, trust fund balances were low in several states, and three (Indiana, Michigan, and South Carolina) had already borrowed to maintain benefit payments to eligible workers.
$10.9 billion. That’s the amount of money currently lent by Federal Department of Labor (DOL) to a group of 15 states whose unemployment insurance (UI) trust funds have run dry.
How did we get here? Back to Urban.org (bold mine):
For the aggregate U.S. economy, the highest-ever payout rate was 2.22 percent of payroll experienced during January-December 1982. Before the current recession, reserves across 51 state UI programs totaled $37.6 billion in December 2007 and represented just 0.80 percent of total payroll for the year. The RRM at the end of 2007 was 0.36, that is, the reserve ratio of 0.80 percent divided by the high cost rate of 2.22 percent. Reserves totaled about a third of the recommended actuarial standard and represented roughly four months of benefits at the highest-ever payout rate.
In other words, based on the level of unemployment insurance needed in the 1982 recession, states only had about 4 months worth of unemployment ready to pay out. Thus, the following can’t be a surprise. Back to Economic Populist:
And it’s about to get a whole hell of a lot worse. By the end of the year that number will likely have have grown to 35 states. Total DOL emergency loans to states at that time? Nearly $50 billion dollars. The situation will be far worse for some states than others. The states appearing in red on the map below are those that will need DOL loans to keep unemployment benefits rolling.
When discussing high-frequency trading, Zero Hedge recently asked "As Goldman is becoming the primary conduit of trading (whether principal or agency) in virtually all markets, the risk of a massive liquidity drain becomes exponentially larger, and the risk of an exogenous event approaches LTCM and Lehman levels. It is this key risk driver that regulators should be focusing on, instead of chasing and attempting to punish the perpetrators of the most recent market crash (we are not saying they should not, but they should prioritize and now should focus on what is most critical to maintaining a functioning market topology). " It seems we were wrong about authoritarian figures never predicting the implicit risk of this subset of program trading – ironically, it was well over 20 years ago and none other than the future Chairman of the Federal Reserve Larry Summers who had some prophetic words of caution. In a paper titled "Commentary on ‘Policies to Curb Stock Market Volatility" in which Larry was discussing the cause and effect of Black Monday (about which he is quite wrong that nobody had seen coming), he lays out some oddly forward looking observations about program trading, or positive-feedback trading as high frequency trading was yet to become a staple market diet.
"In any event, positive-feedback trading is likely to increase volatility substantially. If one wants to design regulatory interventions that will decrease volatility, one must think about measures that will discourage positive-feedback trading rather than negative-feedback trading. Positive-feedback trading is substantially discouraged when traders using that strategy suffer massive losses, which is what one observed after the crash. Everyone who had been pursuing positive-feedback strategies bought more and more as the market went higher and higher, thinking that their portfolio insurance would enable them to get out. They were wrong. It’s clear that the crash reduced volatility by reducing the attractiveness of positive-feedback trading."
And some very peculiar observations on margin requirements by Larry, which may have much to do with why it has become so difficult to borrow any heretofore presumed liquid stock:
"More generally, the case for margin requirements raises a question. Instead of asking why the market fell
With Google (GOOG) announcing earnings that ‘disappointed’ Thursday night and Intel’s (INTC) earnings earlier in the week surprised, let’s take a quick look as of July 17th at these two market moving stocks.
First, with Google (GOOG):
Google, like Apple (AAPL), has been in a very strong uptrend off the early March lows. With only one pullback before the June highs, price rose almost without pausing.
The run-up into the June high was tremendously powerful (that’s why people trade Google – for the action and volatility) which terminated in a doji that gapped up into an exhaustion/reversal bar just above $440.
We had an “abc” move down off those highs into what appears to have formed a “double top” at prior resistance with a slight negative momentum divergence.
Notice how volume spiked Thursday as traders/investors took positions in expectation of blow-away profits (similar perhaps to Intel). Playing the ‘earnings game’ can be very risky, as expectations were not met by Google’s latest announcement. We are now in a ‘pullback/retracement’ mode.
Next, on to Intel (INTC):
As opposed to Google, expectations for Intel (INTC) were lower, and so better than expected numbers caused the stock to surge, driving the S&P minis up nine points after Tuesday’s close (which preceded a trend day on Wednesday… though strangely enough Intel formed a doji on Wednesday and a ‘trend day’ on Thursday).
Volume surged to a new 2009 high as did price and the 3/10 momentum oscillator – all signs of fresh and enduring momentum that should lead to higher prices in the established up-trend (though expect a pullback/retracement instead of a parabolic rally – the new momentum high indicates a short-term overbought reading, as do all oscillators).
So it’s a different picture as painted by two market leaders.
While Tim Geithner is out in the Middle East making the obligatory rounds, professing support for a strong U.S. dollar, investment strategists are wondering aloud whether a weak U.S. dollar is really what the U.S. government wants. David Rosenberg put out the following note over at Gluskin, Sheff.
It is the second anniversary of the credit crunch and after all of the fiscal and monetary policy initiatives, the best we get are green shoots and now that story is getting stale. Go back two years and you will see that the funds rate was 5.25%. Today it is zero. The fiscal deficit was 2.0% of GDP two years ago. Today it is 13%. Mortgage rates were 6.5%. Today they are 4.7%. Homeowner affordability with all the government measures is 70% stronger today than it was then too. The Fed’s balance sheet then was $850 billion. Today it is bloated at $2 trillion. The government has tried just about everything. Or has it? What if we were to tell you that the one policy tool that is unchanged since the summer of 2007 is… the U.S. dollar? It is exactly the same level now, on any trade-weighted measure, as it was back then. The greenback is struggling at the 50-day moving average, and this could well be the next policy shoe to drop.
We have seen huge fiscal and monetary stimulus. We have seen the Fed buy up toxic assets and bloat its balance sheet to unprecedented levels. There have even been mammoth changes in the affordability of homes, largely due to lower mortgage rates (and declining values). In short, everything has been done in the last two years to spur growth in America – that is everything except devaluing the greenback.
With unemployment still rising and Congress’s biannual election season coming up in no time, it would be quite tempting to orchestrate a devaluation in order to get a short-term boost.
As we said above, the U.S. government has practically exhausted all of its policy options … except for one; the U.S. dollar. It is the only policy tool that has not budged one iota since the crisis erupted two years ago. As we mull this over, we recall all too well this great book that a client referred us
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at firstname.lastname@example.org with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
Stocks were able to leverage some optimistic news and dovish words from the Fed to take another stab at an upside breakout attempt last week. Although readers have sometimes accused me of being a permabull, I am really a realist, and the reality is that the slogans like “The trend is your friend” and “Don’t fight the Fed” are truisms. And they have worked. Nevertheless, I am still not convinced that we have seen the ultimate lows for this pullback, especially given the weak technical condition of small caps.
In this weekly update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review our weekly fundamentals-based SectorCast rankings of the ten U.S. business sectors, and then offer up some actionable trading ideas, including a sector ...
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
Arrogance cost former French president Nicolas Sarkozy the election in 2012.
Judging from statements he made today, he's just as arrogant, if not more so today. He even brags of a bigger Facebook audience than Francois Hollande and his UMP party opponents, ignoring the fact that 60% of the electorate does not want him to run again.
Self-Appointed Savior Has "No Choice"
The Financial Times reports Sarkozy Pledges to Win Voters Back from French Far-Right. In a television interview, the former centre-right president who failed to get re-elected in 2012, said: “I am going to reconquer those French people,” referring to the voters who in May helped the FN become the country...
In day when Alibaba took the headlines, it was left to the Russell 2000 and Semiconductor Index to warn of potential change.
The Russell 2000 experienced a large bearish engulfing pattern, although within the boundaries of the declining channel. There was an undercut of the 200-day MA, which will need to be watched on Monday. Shorts could get aggressive with a stop above 1,164 (and/or declining channel line).
The semiconductor index also experienced a bearish engulfing pattern, which doubled as a 'bull trap'. This is a decent sho...
Investors are dumping shares in Yahoo, sending the stock down 5.0% to $40.08 after shares in Alibaba made their debut on the floor of the NYSE just before midday. Shares in BABA for their part initially traded up to a high of $99.70, a near 47% increase over the IPO price of $68.00. Typically, one would expect put options that are 5% out of the money with roughly 4-hours left to trade to see waning implied volatility. But, at the start of the trading session and ahead of the first trade for BABA, the Sep 19 ’14 40.0 strike put options were trading with 271% volatility or $0.30 per contract amid uncertainty as to how the start of trading for Alibaba would take shape.
Administradora de Fondos de Pensiones Provida S.A. (PVD) shares will not be trading on the NY Stock Exchange after today. Tomorrow, shares will be harder to sell. Strangely, I wasn't able to find information on the internet, but Paul just sent me a copy of the email he received from Interactive Brokers.
We're selling PVD out of the Virtual Portfolio today at $87.18.
From: Interactive Brokers dated July 18, 2014
Holders of AFP Provida S.A. American Depository Receipts (ADR) are advised that the Company has elected to terminate the Deposit Agreement effective 2014-09-18.
Despite the various opinions on Bitcoin, there is no question as to its ultimate value: its ability to bypass government restrictions, including economic embargoes and capital controls, to transmit quasi-anonymous money to anyone anywhere.
Opinions differ as to what constitutes "money."
The English word "money" derives from the Latin word "moneta," which means to "mint." Historically, "money" was minted in the form of precious metals, most notably gold and silver. Minted metal was considered "money" because it possessed luster, was scarce, and had perceive...
Reminder: Pharmboy is available to chat with Members, comments are found below each post.
Well PSW Subscribers....I am still here, barely. From my last post a few months ago to now, nothing has changed much, but there are a few bargins out there that as investors, should be put on the watch list (again) and if so desired....buy a small amount.
First, the media is on a tear against biotechs/pharma, ripping companies for their drug prices. Gilead's HepC drug, Sovaldi, is priced at $84K for the 12-week treatment. Pundits were screaming bloody murder that it was a total rip off, but when one investigates the other drugs out there, and the consequences of not taking Sovaldi vs. another drug combinations, then things become clearer. For instance, Olysio (JNJ) is about $66,000 for a 12-week treatment, but is approved for fewer types of patients AND...
Note: The material presented in this commentary is provided for
informational purposes only and is based upon information that is
considered to be reliable. However, neither MaddJack Enterprises, LLC
d/b/a PhilStockWorld (PSW) nor its affiliates
warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither PSW nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance, including the tracking of virtual trades and portfolios for educational purposes, is not necessarily indicative of future results. Neither Phil, Optrader, or anyone related to PSW is a registered financial adviser and they may hold positions in the stocks mentioned, which may change at any time without notice. Do not buy or sell based on anything that is written here, the risk of loss in trading is great.
This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities or other financial instruments mentioned in this material are not suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only intended at the moment of their issue as conditions quickly change. The information contained herein does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation to you of any particular securities, financial instruments or strategies. Before investing, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.