Archive for May, 2008

Kohn Signals Wall Street

Here’s an excerpt from an article on Bloomberg, interesting reading.

Kohn Signals Wall Street May Get Permanent Access to Fed Loans 

By Scott Lanman and Anthony Massucci

May 30 (Bloomberg) — Federal Reserve Board Vice Chairman Donald Kohn raised the possibility of giving Wall Street securities firms permanent access to loans from the central bank, as long as regulators tighten oversight of the companies.

Kohn also advocated continuing Fed auctions of funds to commercial banks and loans of Treasuries to Wall Street dealers even after markets stabilize. Such channels would stay open “either on a standby basis or operating at a very low level,” he said in a speech in New York yesterday.

The remarks go beyond Fed Chairman Ben S. Bernanke, who has indicated the central bank would shut lending to investment banks when the credit crisis passes. Lawmakers and regulators are debating how to approach the supervision of investment banks in the aftermath of the Fed’s rescue of Bear Stearns Cos. in March.

“If you are a bondholder in one of these Wall Street firms, you know you have a big `Sugar Daddy’ now called the Federal Reserve that’s going to back you up,” said Jeff Pantages, chief investment officer of Alaska Permanent Capital Management in Anchorage, which oversees $1.8 billion in assets.

“But if you are a stockholder this kind of worries you” because investment banks “will be more highly regulated and won’t be able to use leverage as much as” before, he said.

Kohn said he hasn’t decided whether securities firms should continue to gain access to loans from the central bank.   Read more here.





S&L Crisis vs. Current Crisis

Comparison of the S&L Crisis and the Current Crisis, courtesy of Mish.

S&L Crisis vs. Current Crisis

I have been talking about an expected wave of bank failures for quite some time, most recently in Too Late To Stop Bank Failures. Recently I was asked to compare the current crisis to the 1980′s S&L Crisis in regards to to whether or not this crisis will be worse.

By sheer number of failures the S&L crisis will dwarf what’s coming hands down. Here is a chart from MarketWatch that tells the story.

However, numbers alone are not the proper way to measure things.

A proper focus must include an analysis of the magnitude of the failures, who will be affected by those failures, and what actions the Fed might have at its disposal to handle the situation.

 

Let’s start with a look at bank consolidations. Following is a history of just one bank, courtesy of Mr. Practical :

Roll Up

Here’s an incomplete list of former financial institutions that now comprise what is known as JPMorgan (JPM):

  • Bank One
  • Chase Bank
  • U.S. Trust
  • Manufacturer’s Hanover Trust
  • Chemical Bank
  • First Chicago
  • National Bank of Detroit
  • First U.S.A
  • Bear Stearns (BSC)

Of course there are thousands of smaller financial institutions that have been rolled up into this behemoth. Many of us believe that the last and most famous "acquisition” was really a bail-out of JPMorgan, the deal in reality injecting some $50 billion of capital into this amalgamation of finance.

So what you say? Well I think as we watch bank after bank (Royal Bank of Scotland(RBS) this morning as an example) take recurring “one-time” write-offs we can begin to see just what a ponzi scheme this has been over the years. Banks book loans, mark them up in value, and show the difference in profits. They’ve done the same thing with the phantom book value these deals present when consummated. Over the last few decades banks have not really made any money; they have merely been a conduit for the Fed to create massive credit. The U.S. money supply is now over 99% debt.

The ponzi scheme is unwinding and investors continue to be gullible. Those that bought Citigroup (C) on its dilutive stock offering are now over 20% in the red.


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Citi, Lehman Pointing to Rally?

Banking stocks, relative to market, analysis by Prieur du Plessis, courtesy of Minyanville.

Citi, Lehman Pointing To Market Rally?

Global stock markets topped out on the back of the sub-prime/credit debacle in October 2007. Prices subsequently moved lower until reaching climatic bottoms in January/March this year, triggering rallies throughout the world until a few days ago. The big question investors are grappling with at this stage is whether the rise in prices has simply been a bear market rally, or whether we’re back in a primary bull market.

I have previously said: “Whereas I am doubtful about the longevity of the rally, I am also not in the Armageddon school. Is the answer perhaps a ‘muddle-through’ market, characterized by below-average returns? That is my hunch, for what it’s worth.” (See post entitled “Poll of the Week: Stock Markets – Which Way José?” from April 25, 2008.)
 
In searching for answers, it’s appropriate trying to get a grip on the direction of banking stocks in names like Citigroup (C), Lehman (LEH) and Morgan Stanley (MS), as these are usually a good indicator of the market as a whole, especially given the large proportion of financial services of many major stock markets.

The following is a long-term chart of the S&P Banking Index relative to the S&P 500 Index, clearly showing the massive underperformance of banking stocks since the middle of 2002.


Sources: Bloomberg; I-Net; Plexus Asset Management.

I’ve pulled out a few fundamental graphs pertaining to the US situation in order to assist in gauging the lay of the land.

Firstly, as far as lending standards are concerned, US banks are still in tightening mode.


Sources: Federal Reserve Board; I-Net; Plexus Asset Management.

But it would appear that the lending standards could start easing during the current or next quarter, at least when considering the historical relationship with the Fed funds rate.


Sources: Federal Reserve Board; I-Net; Plexus Asset Management.

Interestingly, banking stocks have historically started outperforming the S&P 500 Index around two to three quarters before lending standards ease.


Sources: Federal Reserve Board; Bloomberg; I-Net; Plexus Asset Management.

The relative performance of banking stocks is largely driven by the “mortgage margin”.…
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Sigma Designs Again

And here’s a song to go with it, I’m Sorry.

Sigma Designs In Freefall; Backs Off Old FY ‘09 Guidance

Excerpt:  Sigma Designs (SIGM) shares are down sharply this morning after the company late yesterday disclosed disappointing results for its fiscal first quarter ended May 3. As Tiernan Ray noted in a post yesterday, the company missed the Street consensus at both the top line and the bottom line.

The company’s post-earnings conference call (seetranscript) was less than encouraging. Sigma said it expects FY Q2 revenue to be up slightly on a sequential basis; given the $56.9 million reported in Q1, the old Street consensus estimate of $69.2 million clearly looks way too high. In response to a question on the call, the company indicated that its old guidance of revenue for the full year of $300 million to $350 million was no longer valid, although it did not actually provide new guidance.

“I think as a result of this call and what we indicated we’re pulling away from that range,” VP of strategic marketing Kenneth Lowe said on the call. “I think at this point in time we’re going to pull that guidance.”

The company seems to be facing significant issues in both of its two primary businesses: providing chips for IPTV set-top boxes and for Blu-Ray disk players…





Weekly Wrap-Up

That was a nice, short, uneventful week!

We finished the week up just slightly with some good consolidation but, as it was the end of the month, I was a little suspicious about the action into the close.  Volume was not terribly impressive but there was a huge surge as we sold off into the close, hopefully just some funds cashing out but not the way you want to end a week.

We made good progress on our virtual portfolios with fantastic gains in our small virtual portfolios with our 2-week old $10,000 Virtual Portfolio already at $13,965 and our new Day Trading Virtual Portfolio up a decent 10% in 10 days of trading.   Also new is our Stocks Virtual Portfolio but that’s up just 2% in two weeks as there wasn’t enough volatility to play around with.

Our older virtual portfolios also held their own:

  • The Short-Term Virtual Portfolio picked up 8% for the week as we went a little more to cash and are, overall, quite bearish with a lot of open puts covering not too many longs. 
  • Our Long-Term Virtual Portfolio added just 4% and is still fairly bullish with 23 uncovered calls.  We are still well covered on 30 other positions and, of course, our STP puts outweigh the open balance on the calls by a good deal (about 50%).
  • Complex Spreads are flat, up 315% for the year, as GOOG and APPLE are fully covered so the run in both is not doing us any good at the moment.  We are heavy in the CROX Jan $10s, still hopeful they’ll come back.
  • It was a good call to hold our position in the $25,000 Virtual Portfolio as we gained another 40% this week, now up 84% at $46,081.  We took some bullish positions there in EDU and SUN and dismantled the FSLRfly, leaving just the $270 puts.

We closed just 55 positions this week with a 66% average gain, mainly taking winners off the table to get some cash when we had the opportunity but we are not that well protected from a big sell-off in our small virtual portfolios so I’ll trust these gains only when we get to more cash.  Meanwhile, we’ll have to watch carefully and see what sticks.

We got the oil pullback we were looking for but, with a finish at $127.35, we don’t really have much to celebrate…
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Bankruptcy Reform Act

This one’s from Mish.

Bankruptcy Reform Act Finally Blows Sky High

The Debt Slave Act, better known as the Bankruptcy Reform Act of 2005 has at long last blown sky high. We will get to "how" in just a moment but first let’s review some of the provisions of the bill. Lenders asked for and received everything on their wish list as follows:

Wish List

  • A strict financial means test that may prohibit many debtors from filing a liquidation bankruptcy under Chapter 7;
  • A requirement that all debtors must receive a briefing from an approved credit counseling agency at least six months before they can file their bankruptcy case; Note: Check with your local bankruptcy court to determine if they will waive the time restrictions in the beginning months.
  • A requirement that debtors take an approved class on debt management techniques before they receive their bankruptcy discharge;
  • A provision making it easier for a court to dismiss a bankruptcy case outright or to convert a Chapter 7 case to a Chapter 13 case; and
  • A provision permitting a court to impose sanctions on attorneys, or even on debtors, for filing a Chapter 7 case that is dismissed or converted to a Chapter 13 case.

After the fairy godmother (Bush) signed the bill written by industry lobbyists and passed by Congress as "reform", banks and lending institutions went on a credit binge of previously unimaginable proportion. The most ridiculous abuse of common sense were the so called "Liar Loans" more commonly referred to as "Stated Income Loans".

In addition, much of the subprime mess and the HELOC (home equity) can be attributed to lending institutions behaving as if Sixteen Tons was the new state of being.

You load sixteen tons, what do you get
Another day older and deeper in debt
Saint Peter don’t you call me ’cause I can’t go
I owe my soul to the company store

Liar loans are now blowing up. I talked about this recently in Bring On The Alt-A Downgrades.

Liar Loans Discharged In Bankruptcy

Debt Slavery is now in reversal. Inquiring minds should consider this extremely significant ruling: BK Judge Rules Stated Income HELOC Debt Dischargeable.

Tanta writes:

This is a big deal, and will no doubt


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Thoughts on Market

These excerpts are from Bill Cara’s blog, yesterday and today.

Daily Report for Thu, May 29, 2008

"When the price of oil starts to come down there will be some relief to the US airlines. I anticipate some form of government intervention before most of the airlines go bankrupt again. The "New" shares will soon be required to become "New New" shares.

From the pockets of US airline employees to those of the Middle East oil sheiks. You’d think somebody other than Texas oil people who are running this Administration and the past one would be able to take control after the government changes hands in January. Rather than taking a unified political stance against Sudan, as they did this week, you’d think the three Presidential candidates might first line up against the urgent problems that exist today in America, which is the food and oil one that is bankrupting the country….

The bottom line is that Stagflation is worsening, and I have never seen such conditions do anything but tear apart the prices of equities and bonds. That too will really hurt the whole financial group, leading to more losses and more staff cut-backs in future.

As I see it, the Bear market has just begun. Unless there is a sudden and sharp pull-back like 1987, the Bear could linger. As long as fuel and food costs stay high and the housing industry remains in shackles, I think the equities Bear could last through 2009…"

 

Bill Cara’s Community Chat, Fri., May 30, 2008

"I am impressed that more seasoned Wall Street people are speaking out today about the inequities in capital markets. Stephen T. McClellan CFA, is one whose views are quite similar to my own.

Author of Full of Bull, Stephen is a former Wall St analyst with 32 years experience, including 18 years at Merrill Lynch and eight at Salomon Brothers. He has ranked on the Institutional Investor All-American Research Team for 19 straight years and on the Wall St Journal Poll for seven years. He is in the Journal’s Analysts Hall of Fame.

Essentially, Stephen believes, as do I, both of us having been there for many years, that Wall St’s job is to shift investment risk to the buy-side, so the glass will always be at least half full. As you…
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Friday Already?

Well this week went by quickly!

As I mentioned in last night's wrap-up, it's been a very low volume week and, on the whole, it's been nothing to get excited about.  We need to make some serious break-outs on our Big Chart levels and I don't think that's going to happen with oil getting it's usual boost into the weekend, especially with Rent-A-Rebel now pre-announcing their plans

The latest oil terrorist to run up the markets is CNBC's own beloved Jim Cramer, who took time out of his busy schedule last night to devote 15 minutes of his show to misinform his viewers about oil.  If you have any doubt as to how important this message is to Criminal Narrators Boosting Crude, just log onto www.cnbc.com and look at where this segment is featured.

Cramer interviewed the CEO of JOYG, who supplies mining equipment, and somehow Cramer managed to twist a legitimate, healthy demand for minerals, into proving his point about oil.  Cramer's premise, that demand automatically means short supply is flawed on many levels.  If I have a mining company and you are paying me $86 a ton, I may run my mine normally (as it's only $20 more than last year) but, if one month later, you offer to pay me $104 per ton, I may order a little more mining equipment to cash in while I can. 

Yes there is a lot of demand for minerals and there are spot shortages, but they are due to delivery inefficiencies, not lack of availability.  It is called a demand CYCLE for a reason and sometimes the demand outstrips the supply but, in a free market, higher prices put more supply on line until you get to a point of equilibrium.  Speculators ruin the curve by creating false demand for product they do not intend to purchase causing miners to overproduce and commit to contracts with equipment makers like JOYG (a big Cramer pick) which eventually leads to a massive oversupply and crashes the market.  Don't worry though, Cramer and his pals will be long gone by then – off to put you into the next thing they are looking to get out of.

Cramer says (at the 2:00 minute mark) "The gap in coal could be 60 to
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Thursday Wrap-Up

12,646 – Yipee, we're back to our May 9th lows!

We have made nice progress over last week but let's not hurt ourselves patting ourselves on the back just yet as we still have oil at $125, which is still A LOT and we have still not broken out over the levels we didn't break out over last week.  Volume over the past 2 days has been very light so we're going to need to see more to confirm an up move, even if we do get something solid.  While traders have not all "sold in May," it looks like many of them have decided to go away so it could be a long, slow road to recovery.

The last time we did the Big Chart was Tuesday, the 20th and oil was trading right about $126.  We generally lost a lot of ground in the past week and, as I said last week, we are just floating around in the range between our "Feeling Better" levels that we set way back in January after the big drop, and the critical 200 DMAs, which are proving very tough to break.

 

 

10 Day

25%

20%

Feeling

200


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Pharm Facts

Courtesy of Mark J. Perry, at Carpe Diem

Pharmaceutical Facts

Time to develop and market a new drug: 10-15 years

Average Cost to develop a new drug (2006): $1.318 billion

Total R&D spending on drugs in 2007: $58.8 billion

Generic share of market in 2007: 67%

Percent of marketed drugs that cover R&D costs: Only 20%

Total number of drugs approved in 2007: 23

R&D as a percent of U.S. sales: 18.7%

Average effective patent life for major drugs: 11 years

Medicines currently in development: 2,700 compounds

For every 5,000-10,000 compounds tested, the number that make it to clinical trials: 5

For every 5 compounds that make it to clinical trials, the number that get FDA approval: 1

Probability that a compound tested eventually gets FDA approval: .01% (1/100th of 1%) to .02% (1/50th of 1%)

Source: Pharmaceutical Industry Profile 2008





 
 
 

Zero Hedge

Explosion Hits Russia's Largest Virus Lab Which Houses Plague, Smallpox, Ebola And Other Deadly Viruses

Courtesy of ZeroHedge View original post here.

A sudden explosion at a Siberian virus research center on Monday reportedly left the facility engulfed in flames, according to several Russian news outlets. 

Firefighters and other emergency personnel were dispatched to the "Vector Institute" located several miles from Novosibirsk - an emergency which was upgraded "from an ordinary emergency to a major incident," a...



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Phil's Favorites

The future of work will still include plenty of jobs

 

The future of work will still include plenty of jobs

Even though the future is unknown, Canada’s employment rate has risen steadily from 53 per cent in 1946 to more than 61 per cent today. (Shutterstock)

Courtesy of Wayne Simpson, University of Manitoba

There is now widespread anxiety over the future of work, often accompanied by calls for a basic income to protect those displaced by automation and other technological changes.

As a labour economis...



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Lee's Free Thinking

Is The Drone Strike a Black Swan?

Courtesy of Lee Adler

Pundits are calling yesterday’s drone strke a “black swan.” Can a drone strike on a Saudi oil facility, be a “black swan.”

According to Investopedia:

A black swan is an unpredictable event that is beyond what is normally expected of a situation and has potentially severe consequences. Black swan events are characterized by their extreme rarity, their severe impact, and the practice of explaining widespread failure to predict them as simple folly in hindsight.

I seriously doubt that no one expected or could have predicted a drone strike on a Saudi oil facility.

Call Me A B...

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Insider Scoop

New Relic Cuts 2020 Sales Guidance, Announces Changes In Management

Courtesy of Benzinga

New Relic (NYSE: NEWR) has reaffirmed its second-quarter guidance and cut its sales guidance for fiscal year 2020 from $600 million-$607 million to $586 million-$593 million.

The company’s chief technology officer, Jim Gochee, and chief revenue officer, Erica Schultz, have resigned. New Relic also named board member Michael Christenson as its chief operating officer. Christenson joins from his ...



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The Technical Traders

Metals are following downside sell off prediction before the next rally

Courtesy of Technical Traders

It is absolutely amazing how the precious metals markets have followed our October 2018 predictions almost like clockwork.  Our call for an April 21~24 momentum base below $1300 followed by an extensive rally to levels above $1550 has been playing out almost like we scripted these future price moves.

Now that the $1550 level has been reached, we are expecting a rotation to levels that may reach just below the $1490~1500 level before attempting to set up another momentum base/bottom formation.  And just like clockwork, Gold has followed our predictions and price is falling as we expected. Just look at our October 2018 chart where we forecasted the price of gold...



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Chart School

Crude Oil Cycle Bottom aligns with Saudi Oil Attack

Courtesy of Read the Ticker

Do the cycles know? Funny how cycle lows attract the need for higher prices, no matter what the news is!

These are the questions before markets on on Monday 16th Aug 2019:

1) A much higher oil price in quick time can not be tolerated by the consumer, as it gives birth to much higher inflation and a tax on the average Joe disposable income. This is recessionary pressure.

2) With (1) above the real issue will be the higher interest rate and US dollar effect on the SP500 near all time highs.

3) A moderately higher oil price is likely to be absorbed and be bullish as it creates income for struggling energy companies and the inflation shock may be muted. 

We shall see. 

...

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Kimble Charting Solutions

Bond Yields Due For Rally After Declining More Than 1987 Stock Crash

Courtesy of Chris Kimble

U.S. Treasury Bond Yields – 2, 5, 10, 30 Year Durations

The past year has seen treasury bond yields decline sharply, yet in an orderly fashion.

This has spurred recession concerns for much of 2019. Needless to say, it’s a confusing time for investors.

In today’s chart of the day, we look at a longer-term view of the 2, 5, 10, and 30-year treasury bond yields.

Short to long term bond yields are all testing 7 to 10-year support levels as momentum is at the lowest levels in a decade.

A yield rally is likely due across the board after a recent decline that was bigger than the stock crash in 1987!

If yields fail to ral...



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Digital Currencies

China Crypto Miners Wiped Out By Flood; Bitcoin Hash Rate Hits ATHs

Courtesy of ZeroHedge View original post here.

Last week, a devastating rainstorm in China's Sichuan province triggered mudslides, forcing local hydropower plants and cryptocurrency miners to halt operations, reported CoinDesk.

Torrential rains flooded some parts of Sichuan's mountainous Aba prefecture last Monday, with mudslides seen across 17 counties in the area, according to local government posts on Weibo. 

One of the worst-hit areas was Wenchuan county, ...



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Biotech

The Big Pharma Takeover of Medical Cannabis

Reminder: We are available to chat with Members, comments are found below each post.

 

The Big Pharma Takeover of Medical Cannabis

Courtesy of  , Visual Capitalist

The Big Pharma Takeover of Medical Cannabis

As evidence of cannabis’ many benefits mounts, so does the interest from the global pharmaceutical industry, known as Big Pharma. The entrance of such behemoths will radically transform the cannabis industry—once heavily stigmatized, it is now a potentially game-changing source of growth for countless co...



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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

...

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Members' Corner

Despacito - How to Make Money the Old-Fashioned Way - SLOWLY!

Are you ready to retire?  

For most people, the purpose of investing is to build up enough wealth to allow you to retire.  In general, that's usually enough money to reliably generate a year's worth of your average income, each year into your retirement so that that, plus you Social Security, should be enough to pay your bills without having to draw down on your principle.

Unfortunately, as the last decade has shown us, we can't count on bonds to pay us more than 3% and the average return from the stock market over the past 20 years has been erratic - to say the least - with 4 negative years (2000, 2001, 2002 and 2008) and 14 positives, though mostly in the 10% range on the positives.  A string of losses like we had from 2000-02 could easily wipe out a decades worth of gains.

Still, the stock market has been better over the last 10 (7%) an...



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Promotions

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Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

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About Phil:

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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