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Friday, March 29, 2024

Testy Tuesday Morning

You must watch this.

It's all right, I'll wait….  Wow, don't you just want to slit your wrists after listening to these guys?   That is CNBC's top of the morning take at 6am to wake up the average investor on the economy.  Two guys being interviewed with the "bull" just looking for a 20% drop from here and the bear calling for another 30% correction, reminding us that is nothing compared to the 80% drop of 1929 (looking for VIX "somewhere north of 40 or north of 50").  Has CNBC ever had a guest that was bullish on the financials?  Really, have they discovered anyone in America who does not think banks are worthless?

They are pouncing all over the MER strory for all it's worth as the company announces a $11.1Bn debt reduction achieved by selling $8.5Bn in stock (half of which is being bought by management and Temasek holdings), a fire sale of assets and an additional write-down of $5.7Bn.  This write-down is comprised of a $4.4 billion loss associated with the sale of CDOs, a $0.5 billion net loss on the termination of hedges with XL Capital Assurance and an approximately $0.8 billion maximum loss related to the potential settlement of other CDO hedges with certain monoline counterparties.

Merrill Lynch aslo agreed to sell $30.6B gross notional amount of U.S. super senior ABS CDOs to an affiliate of Lone Star Funds for a purchase price of $6.7B.  You will hear CNBC et al scream "20 cents on the dollar" all day long but, at the end of the second quarter of 2008, these CDOs were already carried at $11.1B, and in connection with this sale Merrill Lynch will record a write-down of $4.4 billion pre-tax in the third quarter of 2008.  So they are selling $11.1 Billion of assets they havee already marked as total crap for $6.7Bn in cash.  If there is a dip in the financials today, we will buy into it as this is a non-story and is being spun by the usual suspects to spook investors out of the markets ahead of the senate housing bill and a surprisingly strong GDP report.

Last night guidance was upped by UHS, WBSN, AMGN, CHE, WMGI, NTWK, SPG (real estate!?!), KFT, MDF and SOHU.  Gee, they must be operating on Mars because certainly there can't possibly be a place on earth where guidance can be raised can there?  Of course there are misses too but this is not a depression – no one raises guidance in a depression.  I'm pretty sure it's not even a recession, just a housing bubble that blew up in the face of the Wall Street firms who funded it and they are so caught up in their own depression that they project it on everyone else in their analysis.

We have one problem and it's oil prices and oil prices are up based on nonthing real.  There is no shortage of oil – if you want it you can get it.  There is so much oil that NYMEX traders canceled 6 Billion barrels of it last month and accepted delivery of just 23M at the close of August delivery.  Now that we are trading September contracts for a week, those scamps at the NYMEX are pretending they want 307M barrels to be delivered to Cushing, OK in September.  This despite the fact that Cushing can only handle 42M barrels a month but that never stops them from pretending does it? 

Still (and I have been pointing this out for months) NO ONE has purchased A SINGLE BARREL of oil since it was $70 for May 2011, Aug 2011, Feb-May 2012 or July-Nov 2012.  Really NYMEX criminals, if you are going to "paint the tape" at least do a good job of it!  Of course these bozos go before Congress along with the well-paid CTFC watchdogs and claim that these contracts are legitimate hedges, not speculation, but don't you find it interesting that and airline or a trucking company or whoever it is that has "legitimate hedging" needs oil at $120 a barrel in 2013, and needs oil at $123 a barrel in 2010 but doesn't need any oil in 2011 or 2012?  I guess I just didn't get the calendar where those years are marked as holidays yet…

Its a scam and it's not even a subtle one but with GE/CNBC putting their full weight behind the $200 oil train (as GE makes tens of Billions selling very expensive alternate energy solutions that need $100+ oil to be worthwhile) while guest after guest appears on their network telling you everything sucks but commodities and Cramer foams at the mouth and Kudlow say "drill, drill, drill…"  It's not just CNBC of course, much of the media has been co-opted by big business and big oil, CNBC is just the most eggregious, despicable example of this trend – they are the public relations facade for the people who are ransacking this nation.

Speaking of national scammers:  Former Pentagon official Richard Perle, who was influential in marching this country into a Trillion dollar war in Iraq that has claimed close to 500,000 lives and sent over 600 US soldiers home with missing limbs (the ones who weren't re-enlisted, that is), is working on a deal with northern Iraq's Kurdistan regional government to secure drilling rights in the region.  According to the WSJ: "Mr. Perle has attended events promoting the interests of Kazakhstan, an oil-rich nation whose ruler, Nursultan Nazarbayev, is involved in a long-running U.S. investigation of 1990s-era oil-company bribery. Mr. Perle has publicly lauded President Nazarbayev as "visionary and wise."

Asian markets wisely pulled back this morning with the Nikkei plunging 194 points but holding onto the magic 13,000 mark (13,159) while the Hang Seng fell 429 points to 22,258 and the Shanghai pulled back 2% to 313.  On the whole, we're still in better shape than we were 2 weeks ago and globally holding up here will be a good sign.  The generic look to the drops, like our drop yesterday, gave us the impression more of program selling on a slow summer day than any real investor panic, which our friends at CNBC are working so hard to foment.

SNE cut forecasts on a 47% drop in net profit and SBUX is closing 84 stores in Australia (cool map of store closings by state) and China is closing pretty much EVERYTHING ahead of the Olympics in a gold medal attempt to cut down pollution, which has failed to get down to "safe" levels in Beijing 4 out of the past 8 days.  With the Olympics just 10 days away, China has forced 1M cars off the road, halted construction around the city and closed hundreds of factories already.  Officials are now considering more factory shutdowns, banning 90% of private vehicles and is forcing tens of thousands of workers to go on "forced holiday" with reduced pay.

The city's air-quality index has been above 100 nearly half the time. The index goes from zero for the cleanest air up to 500; China calls anything above 100 "light" pollution, but says people with heart disease or respiratory problems should curtail exercise and exposure. The World Health Organization's 2005 guidelines say exposure to one third as much is unhealthy.

Also of concern in Asia is a 12-hour exchange of gunfire along the India/Pakistan border (Kashmir) in what the Indian army is calling the worst violation of the 2003 cease-fire agreement yet. India and Pakistan have fought two of their three wars over Kashmir, but the frontier has been largely quiet since a 2003 cease-fire agreement, which formed the cornerstone of a peace process between the two countries.  India's Central Bank, meanwhile, raised it's key lending rate half a point to 9% and lowered growth forecasts, hoping to fight runaway inflation that is making bullets expensive…

Europe is not yet exchanging gunfire but the CEO and Chairman of ALU have been given the axe as that merger has gone nowhere.  Not to worry, BP made 28% more than last year and European trading is more or less flat ahead of our open, recovering off a poor start this morning (they must watch CNBC!).  The key to the US and European turnaround this morning is a $1 drop in oil, showing $123.60 at 9am and boy do we need this today!

We still have TONS of earnings to get through, far too many to mention.  I'm seeing a dozen misses this morning including ALU, HEP, LCAV, LEA, NRG, PVTB and SEPR – nothing too alarming.  On the hit parade are about 30 names including AAI, BP, GIB, CL, ELNK (surprising), FDP, HW, MHP, NCR, NOC, SAP, TEVA, VLO and X – still not enough gloom and doom to justify a 20% drop in the markets

It's going to be a nice morning to take out our financial callers and pick up some quick plays like selling C $15 puts and buying $17.50 calls as they hyenas are out in force today going after the big boys.  WB is very attractive at $13.90 this morning and we can buy the stock and sell the $12.50 calls for $2.25 (better if we wait for a bounce) for a net entry at $11.65 and a nice 7% 3-week profit if we get called away.  WM is still a buy at $3.80 in the spread we outlined last week and MER $25 calls should make an interesting momentum play, very attractive if they fall but hold $23. 

Lots of fun out there today but only if the markets stay positive and oil stays negative.  X shows strong global demand despite the US slowdown and if we can sneak past that without waking the oil bulls, this could turn out to be a good Testy Tuesday…

 

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