Weekend Wrap-Up, Still Trying to Get Bullish
by Phil - March 14th, 2010 5:20 am
I’m having writer’s block this weekend.
Usually when I can’t think of what to write it helps me to go over our portfolios so I started this morning reviewing the Buy List but I didn’t get far because it was silly. Of 43 plays on the buy list, 39 are doing well - too well in fact to the point where it’s hard for me, in good conscience, not to say let’s kill the whole thing and get back to cash as we’re up about 20% in 2 months and that’s just ridiculous - most people would call that a good year and go on vacation.
The Buy List was 100% bullish and we did catch a good bottom on our early February entries. I was gung ho bullish then because I felt comfortable that the 10,000 line on the Dow would prevail and that we were good for a run back to the top (10,700), following, more or less, the pattern we had in 2004 (see original post for charts). Well that’s pretty much what’s happened since then but that’s not making me happy because I see no reason we won’t complete that pattern and begin falling off a cliff shortly.
As you all know, I’m not a big fan of TA, or patterns for that matter but the reason I started looking for patterns was to try to get a handle on how long market could really keep going up before falling victim to exhaustion. To me it seemed we weren’t at that point on Feb 6th but now that we’ve put in that big push back up - if we can’t punch up to new highs on all our indexes then I do think it’s time for the markets to take a break.
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Clearly I’ve been too bearish for the past couple of weeks and we are now 224 points over 10,400 on the Dow which is where I turned bearish as the January data made me lose faith in our ability to get back to 10,700. I should have stuck to the TA because we’re a lot closer to 10,700 than we are to 10,400. With the Russell and Nasdaq exploding to their own new highs. You can see though, from the above chart, why I do want to wait to see the NYSE, Dow and S&P confirm this move up - it’s not far now!
We’re finally getting the hang of the Wonderland Market though it’s actually quite simple…
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Excessive Use of Repo 105 is White Collar Crime
by ilene - March 13th, 2010 8:40 pm
Excessive Use of Repo 105 is White Collar Crime
Courtesy of Joshua M Brown, The Reformed Broker
I won’t bore anyone with a two page dissembling of Lehman’s use of Repo 105 which we learned about from the report on its demise this week. Rather, this post will simply be a sledgehammer that slams the obvious into the side of the blogosphere.
For the uninitiated, the scam that was being perpetrated by Lehman Bros senior execs and their auditors isn’t a new one, it was just pulled off on a massive scale, costing investors and the economy dearly.
Repo 105 was an accounting trick that allowed Lehman to temporarily shift $50 billion in liability off of their balance sheet just in time to show investors a quarterly report demonstrating reduced leverage. Once the quarter was closed, Lehman would then repurchase (repo) that debt back onto its balance sheet. And they did this several times.
This window dressing allowed the company to fake solvency and sucker in investors, both in the stock market and, the company had hoped, from the sovereign wealth funds it was flirting with.
They would hide tens of billions of dollars temporarily and then trot out "Rock Star CFO" Erin Callan to lie to the world on television about how everything in Lehmanland was just fine.
Auditors Ernst & Young, the Lehman Bros Board of Directors and especially the Senior Executives who signed off on this practice have committed a crime. This is securities fraud. Their culpability ranges from negligence to outright thievery. It may be Ivy League caliber securities fraud, but it is fraud nonetheless. And if technology or industrial executives had engaged in this exact same behavior, they’d be in court defending themselves right now.
Not much more to it.
Now we’ll see if Sarbanes-Oxley has any actual teeth or if it turns out to have only been an Enron band-aid all along.
Read Also:
Lehman Report May Point Way For Criminal Charges (Reuters)
Lehman Report Points Way To Plaintiffs, Not Prison (BusinessWeek)
Accounting Fraud, Short-Sellers & The SEC (TBP)
(What's this?)
(naked capitalism, 3/12/10)
(naked capitalism, 1/25/10)
(AlphaNinja, 3/12/10)
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Spotlight on the Non-Recovery in Texas; Heads Still Buried In The Sand
by ilene - March 13th, 2010 7:56 pm
Spotlight on the Non-Recovery in Texas; Heads Still Buried In The Sand
Courtesy of Mish
Here are a pair of articles about the recovery in Texas that simply did not happen. Please consider New data, new story on jobs.
For much of 2009, Central Texas business leaders hung their hats on reports that showed, even in a recession, Austin was still adding jobs.
Turns out there was a problem with those positive reports: They were wrong.
Revised figures show Austin lost more in ‘09, and numbers began to decline earlier than thought.
The revised data also show that Texas as a whole had a tougher job market last year than thought. The state lost 354,000 jobs in 2009, which is 78,000 more than the 276,000 previously estimated, according to the updated data.
The commission and its counterparts around the country revise their job data each year based on newly available information from employers’ tax records that show how many people were on payrolls. The monthly numbers are estimates, based on surveys from employers.
The California Employment Development Department on March 1 reported the state had lost 292,000 more jobs in 2009 than officials had thought; the new estimate is 871,000 jobs cut, compared with the earlier estimate of 579,000. Oregon reported losing 28,000 more jobs in 2009 than previously estimated.
Texas cannot escape budget shortfall
It goes to figure when unemployment is soaring, tax revenues will drop off. And so they did. Please consider Officials: State cannot escape budget shortfall.
The Texas economy seems to have turned a corner, but the improvement will not be enough for the state to avoid a significant shortfall in the next budget, state officials said Monday.
Sales tax collections are slowly picking up as more jobs are added in Texas, said John Heleman , the Texas comptroller’s chief revenue estimator.
In February, the state’s sales tax collections were down 8.8 percent compared with the same month a year earlier. Though still in the red, the February figure looked better than the previous months’ double-digit decreases that have put the state 13 percent behind last year’s collections six months into the budget year.
"One month certainly doesn’t make a trend, but it is encouraging to see that we are beginning to move in the right direction," said Heleman, who added that he expects to see sales tax growth starting this summer.
The state’s sales tax revenue collection is a key indicator of Texas’ fiscal health because that money fills more than half…
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The Implications of Velocity
by ilene - March 13th, 2010 3:09 pm
The Implications of Velocity
Courtesy of John Mauldin at Thoughts from the Frontline
The Velocity of Money
Our Little Island World
GDP = (P) x (T)
P=MV
A Slowdown in Velocity
Dallas and Thoughts on the Economy
This week we do some review on a very important topic, the velocity of money. If we don’t understand the basics, it is hard to make sense of the hash that our world economy is in, much less understand where we are headed.
But before we jump into that, I want to let my Conversations subscribers know that we have posted a recent conversation with two hedge-fund managers, Kyle Bass of Hayman Advisors [and his staff] here in Dallas and Hugh Hendry of the Eclectica Fund in London. Our discussions centered on what we all think has the potential to be the next Greece, but on a far more serious level. It was a fascinating time.
Then next Wednesday we will post a Conversation I had with George Friedman of Stratfor fame, and then the following Wednesday a Conversation that I just completed with Dr. Ken Rogoff and Dr. Carmen Reinhart, the authors of This Time Is Different.
For new readers, Conversations with John Mauldin is my one subscription service. While this letter will always be free, we have created a way for you to "listen in" on my conversations with some of my friends, many of whom you will recognize and some whom you will want to know after you hear our conversations. Basically, I will call one or two friends each month and, just as we do at dinner or at meetings, we will talk about the issues of the day, with back and forth, give and take, and friendly debate. I think you will find it very enlightening and thought-provoking and a real contribution to your education as an investor.
And as you can see, I can get some rather interesting people to come to the table. Current subscribers can renew for a deeply discounted $129, and we will extend that price to new subscribers as well. To learn more, go to http://www.johnmauldin.com/newsletters2.html. Click on the Subscribe button, and join me and my friends for some very interesting Conversations.
The Velocity of Money
The Federal Reserve and central banks in general are running a grand experiment on the economic body, without the benefit of anesthesia. They are testing the theories of Irving Fisher (representing the classical economists), John Keynes (the Keynesian school) Ludwig von Mises…
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Goldman’s Prop Trading and Reputational Risk
by ilene - March 13th, 2010 1:25 pm
If you haven’t seen Larry Doyle’s website, Sense on Cents, it’s worth a visit and bookmark. Larry has over 20 years of experience on Wall Street, from trading mortgage-backed securities to serving as National Sales Manager for Securitized Products at JP Morgan Chase. Through his writing and radio program, Larry hopes to help his audience better understand the complexities of the economy, global finance and the markets.
Larry’s internet radio show, Sense on Cents with Larry Doyle, is on "No Quarter Radio" every Sunday night from 8-9PM. There are links here to previous interviews by Larry with Michael Panzner, and Steve Megremis, founder of The Daily Bail, and many others. - Ilene
Goldman’s Prop Trading and Reputational Risk
Courtesy of Larry Doyle at Sense on Cents
On Wall Street, information is everything.
Timely access to information as to who is buying/selling what, how much they are buying/selling, and why they are buying/selling is absolutely invaluable. The Wall Street banks fight tooth and nail to protect their information franchises.
That said, there are supposed to be rules as to how information is handled and processed so that trading complies with the rules of the road. Banks are not supposed to front run clients. Banks are not supposed to give up client names. Do the banks practice what the regulators preach?
Given the fact that Wall Street banks run both customer operations and proprietary desks, there are supposed to be Chinese walls in place to make sure that information is handled properly between desks. At the firms where I worked, the proprietary desks were either on a different floor from the customer desk or in an entirely different building.
Thank you to a friend of Sense on Cents for sharing a recently released report which would seem to indicate that the Chinese walls at Goldman Sachs would appear to be neither tall nor long (said in jest), but virtually non-existent.
Asset-Backed Alert, a Wall Street trade publication, reports:
Data-Sharing Worries Grip Goldman Clients
Investors are accusing Goldman Sachs of violating Wall Street code by permitting information-sharing between two types of collateralized debt obligation traders: those who work on behalf of clients and those who handle proprietary capital.Goldman currently has the two desks situated next to each other in its Lower Manhattan headquarters. They also have a common supervisor, managing director Jerry Ouderkirk. Such a lack of separation is frowned upon by market players, and buysiders say the bank has committed an even graver transgression by allowing the traders to exchange information about CDO prices and…
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What The Lehman Report Proves: Financial Insolvency
by ilene - March 13th, 2010 1:20 am
What The Lehman Report Proves: Financial Insolvency
Courtesy of Karl Denninger at The Market Ticker
The Lehman Report on which I wrote last night regarding deeply troubling issues surrounding the Lehman Bankruptcy, has laid bare some very ugly facts relating to our financial system, corporate governance, and our government’s active complicity not only in the Lehman collapse, but in ongoing balance sheet shenanigans and the current investment picture.
The conclusions I am forced to reach, after much reflection and sleeping on this article overnight, are not pretty.
They compel me to advise that, in my opinion, the market is now trading both technically and on a fundamental basis, exactly as the Nasdaq was in 1999.
I recognize this is a serious charge and has implications that are most unpleasant, in that it implies a probable detonation ahead at some time in the next year - one that will not only destroy all of the gains made since March of last year but go beyond that - indeed, perhaps as far as the banner on The Market Ticker has for the major indices.
The technicals of the last month leave no doubt what’s going on - the market is moving in a parabolic upward fashion, exactly as was the case for the Nasdaq in ‘99, and indeed, we are approaching the sort of gains in the broad market that Nasdaq saw in 1999.
For those who need a refresher, here it is:
Now let’s look at the S&P 500 since the March lows:
And if you need a refresher on what happened to the Nasdaq after it topped in early 2000, here’s that unfortunate reality:
Not only did the entire ramp in 1999 disappear, more than another 50% was lost beyond that.
The seriousness of this cannot be overstated. Anyone who bought into the start of the decline in 2000 was wiped out by doubling into a decline that took a literal 85% off the NDX from the peak. Worse, today, nearly a decade later, we remain more than 50% below the peak valuation that the NDX reached.
The Nasdaq is not alone in this behavior. The Nikkei 225 reached 38.957 in 1989. Today it trades around 10,000 - a nearly 75% loss from it’s all-time highs, and despite 20 years it has not healed.
An analytical look at history says that when markets rise on fraudulent accounting and false claims - that is, the booking of asset values that is fictional, the claim of profits that were never really made, the hiding of losses off-balance sheet - the losses,…
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Economy, Analyst Research, Features
by ilene - March 13th, 2010 1:06 am
Christopher Thornburg’s Awesome Presentation: Why This Bounce Is Fake, And Why We’re Double-Dipping In 2011
Courtesy of Joe Weisenthal and Vince Veneziani at Clusterstock/Business Insider
Christopher Thornburg of Beacon Economics recently delivered an excellent presentation on the state of the economy and whether or not the bounce will last.
His answer is: no.
We strongly recommend you flip through it, if only because it’s an excellent overview of the current state of play.
Follow the presentation >
(What's this?)
(THE PRAGMATIC CAPITALIST, 8/29/09)
(Kirk's Market Thoughts, 4/2/09)
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Bells Will Ring At The Bottom in Stocks and Housing
by ilene - March 12th, 2010 7:47 pm
Bells Will Ring At The Bottom in Stocks and Housing
Courtesy of Charles Hugh Smith Of Two Minds
The cliche will be wrong–bells will toll at the bottom in housing and stocks.
The Wall Street cliche is "they don’t ring a bell at the bottom," meaning that there is no definitive signal that a market has truly hit bottom, as opposed to just another leg down in a longer slide.
Guessing that "the bottom is in" sets up another cliche, "catching a falling knife" which describes impatient speculators buying stocks or houses in the conviction that "the bottom is in" only to lose their shirts as the market continues its decline after a brief head-fake of "recovery."
In the standard ideology of "investing" (code word for rampant speculation), it is "impossible" for bells to toll at the bottom because that would be too easy; the market famously trends in whatever way will cause the most loss and grief for the greatest number of participants/players. If a bell rang at the bottom, then everyone could jump in with low-risk certainty that the "bottom is in."
But that’s only half the story. Let’s start by considering a number of things which are widely considered "impossible." How about the notion that 4% of mortgage holders defaulting could trigger a collapse in the housing bubble?
Can 4% of Homeowners Sink the Entire Market? (February 21, 2007)
Oops, the "impossible" happened.
Here are a few other things currently considered "impossible" which seem not just likely but highly probable, if not guaranteed:
1. States will default on their bond, pension and entitlement obligations.
2. Pension funds will go broke.
3. Vast numbers of cities and counties will go bankrupt as the impossibility of raising taxes and meeting their soaring debt and pension obligations becomes obvious to all.
4. Commercial real estate will rival television as a "vast wasteland" of empty office towers, empty malls, empty strip malls, empty retail and empty warehouses.
So what’s the "other half of the story" in why the bells will toll at the bottom in stocks and housing? Simply this: nobody will want to buy stocks or houses even as the bells toll mournfully on, because the foundation beliefs which have propped up those markets for decades will be discredited and repudiated.
Those beliefs are:
1. That housing/real estate is the foundation of long-term wealth
2. That stocks/mutual funds beat other investment asset classes over the long haul.
What seems "impossible" now–that people will repudiate these core beliefs and turn in disgust…
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Marc Faber And Mish Shedlock: We’re Doomed
by ilene - March 12th, 2010 5:49 pm
Marc Faber And Mish Shedlock: We’re Doomed And There’s Nothing Those Boneheads In Washington Can Do About It
Courtesy of Henry Blodget at Clusterstock
Washington is patting itself on the back for having orchestrated an amazing economic recovery. But Washington lawmakers are a delusional bunch of boneheads, say Marc Faber and Mike "Mish" Shedlock, editor of the Gloom, Boom, and Doom Report and investment advisor at SitkaPacific Capital Management, respectively.
The economy is NOT recovering, they say, and the U.S. faces a depressing "eventuality" of either crushing deflation (Shedlock) or runaway inflation (Faber). The timing and type of this eventuality is uncertain, say the gurus, but they are certain it’s too late for America to change course.
"It’s beyond repair — it’s too late," to avert fiscal disaster, Faber declares.
"The day of reckoning has arrived," Mish adds. "The question is how long it takes to play out."
This grim outlook doesn’t mean you’re helpless. Faber recommends individuals prepare for doomsday by buying gold, owning assets abroad and buying property outside of major cities.
Click here to see more from Faber and Mish:
The Great "Inflation Debate or Deflation?" Debate: Mish vs. Dr. Doom
Marc Faber: Don’t Expect Another Crash … Bernanke Won’t Allow It
(What's this?)
(The Mess That Greenspan Made, 3/12/10)
(GreenLightAdvisor Views, 2/25/10)
(THE PRAGMATIC CAPITALIST, 2/22/10)
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Options Player Reveals Long-Term Bullish Sentiment on AIG
by Andrew Wilkinson - March 12th, 2010 4:19 pm
Today’s tickers: AIG, MU, F, POT, CLF, PAYX, ERIC, SVU, LFC & CA
AIG - American International Group, Inc. – The insurer’s shares experienced a fantastic 56.7% run up from its low point in the current month of $24.54 on March 3, 2010, up to yesterday’s intraday high of $38.45. During the current session, AIG surrendered a small portion of its recent share price gains, slipping slightly lower by 1.40% to stand at $34.62 in afternoon trading. Extreme-bullish positioning in long-dated options caught our attention today as one investor established a call spread in the January 2011 contract. The optimistic trader purchased 5,500 calls at the January 2011 $50 strike for a premium of $3.65 apiece, and sold the same number of calls at the higher January 2011 $75 strike for $1.30 each. The net cost of the transaction, and maximum loss potential faced by the investor, amounts to $2.35 per contract. American International Group’s shares must surge 51.2% from the current price of $34.62 in order for the trader to break even on the spread at $52.35 per share. Perhaps the individual responsible for the trade expects AIG’s shares to rebound up to the current 52-week high on the stock of $55.90 (attained back on August 28, 2009), or above within the next ten months to expiration. Maximum available profits of $22.65 per contract – total gains of $12.4575 million – accumulate for the bullish player if AIG’s shares jump 116.6% from today’s price to $75.00 by January expiration day. Shares last traded above $75.00 back in October of 2008.
MU - Micron Technology, Inc. – A large-volume long-term bullish transaction on the manufacturer of semiconductor devices indicates one big options player anticipates continued upward movement in the price of Micron’s shares by expiration in January 2011. Shares rallied 2.55% to $10.05 this afternoon, but earlier increased more than 4% to reach an intraday high of $10.25. The optimistic investor purchased a debit call spread in by picking up 20,000 in-the-money call options at the January 2011 $10 strike for a premium of $2.07 apiece, marked against the sale of 20,000 calls at the higher January 2011 $15 strike for $0.58 each. The net cost of the spread amounts to $1.49 per contract, positioning the investor to amass profits if Micron’s shares exceed the breakeven price of $11.49 by expiration next year. Maximum potential profits of $3.51 per contract – total gains of…
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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
(