Archive for 2008

Contrary Indicators

Excerpt from Barry Ritholtz’s

Understanding Contrary Indicators

"Yesterday, I mentioned in passing a fabulous cover story from a 1962 Time magazine. While these sorts of contrary indicators are subject to interpretation, they are worthwhile to those who can properly interpret them, as they can provide insight that is not readily available elsewhere.

I have been tracking these sorts of signals for many years. In 2003, I published a research piece, titled Contrary Indicators 2000 – 2003 Bear Market. I thought it was important to remind people that, despite the fact the market had been shellacked, there were plenty of signs of a major bullish reversal that could be followed by tradrs, fund managers, and investors..

That these indicators exist for both bullish and bearish extremes points to their agnosticism. However, these are easily misinterpreted. In this week’s Barron’s The Trader column, Kopin Tan discusses a specific JP Morgan research piece, which misuses a sentiment indicator, the Conference Board Consumer Confidence readings:

‘Some of you, of course, are miffed at how Wall Street is banking on your largesse even as they trade your pain. The Conference Board said last week that consumer confidence sank to the lowest in 16 years. Your confidence has been this morose or worse only five times since 1967, and each time the stock market has rallied soon after, with the Standard & Poor’s 500 index producing average returns of 15% six months later and 23% a year after, according to JPMorgan.’

Unfortunately, consumer sentiment surveys are coincident, not leading, indicators. And while JP Morgan is correct that Consumer Confidence Index has only been as bad as it is presently 5 times before (the current reading is 57.2), in 3 of those 5 previous occasions, the index got considerably worse (Approximately: 1992 = 48, 1980 = 49, and 1975 = 44)…"

Click here to finish reading.

Liquidity Issues

Courtesy of Mish, "More to the point, is it the deleveraging that is distorting asset prices or was it the easy credit of having to put up only 25% capital in the first place that was distorting asset prices?"

Liquidity Issues Hit Hedge Funds

The Financial Times is reporting Liquidity levels hit funds of hedge funds.

Some hedge fund managers have classed the first quarter of this year the worst on record. Very few have met their performance targets and many have fallen into negative returns.

Volatile markets have made it hard for fund managers to judge how assets will perform, while the drying up of credit has forced many to sell investments.

“Most funds of funds have done poorly in the past six months,” says Mick Gilligan, director of fund research at Killik & Co. “The first quarter of the year has been pretty extreme, with many managers describing it as the worst they have ever experienced.” He says that only 40-50 per cent of funds of hedge funds have generated a positive return in the past six months. The uncertainty in the market has created a difficult backdrop.

“It has been quite volatile in every sector,” says Martin Baxter, who manages a fund of hedge funds at Collins Stewart. “A lot of people are making money one day and losing it the next.”

The main obstacle for hedge funds, however, has been the sudden withdrawal of liquidity from the market.

Banks had been happy to lend up to 75 per cent of an investment, enabling hedge fund managers to gear up their portfolios. But, in recent months, many banks have reined in the level of risk they are willing to take. As a result, hedge fund managers have seen their ability to borrow diminish.

“Managers have got to find more capital to put up against their positions, and so have been forced to sell other positions,” says Gilligan. These forced sales have distorted asset pricing in the markets, which has created further problems for managers. Gilligan says that in some cases managers are now having to put up 75 per cent of the capital for new investments.

According to Killik & Co’s research, one of the worst performers over the past six months has been the highly-leveraged CMA Global Hedge

continue reading

Book Review: While America Aged

This is an excerpt from a book review by David Merkel on Roger’s Lowenstein’s book While America Aged, about issues surrounding pensions and potential problems we will face years from now.

While America Aged

Where were you while America aged? I’ve been following the issues in this book written by Roger Lowenstein for over 20 years. As an actuary (but not a pension actuary) and a financial analyst, I have written about the issues involved since 1992.

Roger Lowenstein motivates the issues surrounding pensions by telling three stories, those of General Motors, the New York City Subway, and the City of San Diego. He captures the essence of why we have pension problems in a way that anyone can appreciate. I sum it up this way: promises today, payments far in the future. Get through the present difficulty, at the price of mortgaging the future.

If you repeat that recipe often enough, you get into a tough spot, as GM is in today. Give GM credit though, a lesser firm would have declared bankruptcy long before now, and shed its pension liabilities to the Pension Benefit Guaranty Corporation [PBGC].

Given the softness of funding requirements for pension liabilities, the easy road for corporations and municipalities has been to skimp on funding pensions, leaving a bigger problem for others to solve 10+ years later. As for municipalities, review my recent post here.

Now, why didn’t the US Government insist on stricter funding standards for pension plans? Because of pushback from corporations and municipalities…

…PS — In some ways, the actuarial profession comes out with a black eye in books like this, and I would say that it is deserved. I don’t believe in professions, per se. Self-regulating guilds/industries are a fool’s bargain. There are no guilds/industries where if you can’t explain it to a bunch of average folks, there should be no cause for discipline from society at large. What stinks to me, is that there is no hint of discipline to any of the actuaries, and other third party consultants from the actions that they took to support the actions of politicians and corporations where they bent and broke pension funding rules. The ABCD [Actuarial Board for Counseling and Discipline]? What a joke.

Read more here.

Evaluating Cancer Drugs

This article, by Fredric Cohen, discusses the article posted last night "Cancer Cruel Economics," for those of you who have an interest in biotech and cancer drug development.

Evaluating cancer drugs at FDA

In the June 2nd paper issue of BusinessWeek (published online 5/21) the article “Cancer’s Cruel Economics” by Catherine Arnst provides a high-level look at the difficulty some small copmpanies are facing getting their cancer therapies approved in the US. 

The focus is on cancer immunotherapies, particularly Antigenics’ Oncophage.  I last discussed Oncophage in 2006, after the first report of its Phase 3 results.  I have also devoted space in this forum to other cancer therapies mentioned in the BusinessWeek article including Dendreon’s Provenge and Genitope’s MyVax.

I was intrigued by a quote attributed to Richard Pazdur, head of CDER’s Oncology review division:

“[Post hoc subgroup analysis for differential treatment effect] is like shooting an arrow and then painting the bull’s-eye around it,” says Pazdur. “You cannot use subset analysis to salvage a failed trial.”

Pazdur’s concern regarding treatment effect inferences derived from post hoc subgroup (subset) analyses rests on firm grounds, but the quote suggests a black and white attitude towards their utility, without any room for compromise.  That’s too bad, because the rule of thumb Pazdur is apparently using to reject subgroup evidence of efficacy is imperfect, undoubtedly resulting in the rejection of some effective therapies.

I’m not going to write a manuscript-length post describing the many risks inherent in inferential subgroup analyses. There are many published reviews you can find that do that.  Suffice to say that the risks of both false-negative and false-positive inferences are inflated with subgroup analyses relative to the main analysis (primary hypothesis test), whether the analyses are pre hoc (defined before the trial results accrue) or post hoc (sometimes called retrospective).  Pre hoc analyses are less susceptible to Pazdur’s target drawing, especially when the specifics of the subgroup are rigorously pre-defined than post hoc, and so they are preferred by regulators.

What I’ve found to be less well represented in the literature is a situation in which the weight of evidence presented in the subgroup analysis

continue reading

Cancer’s Cruel Economics

Billions of dollars are spent developing cancer drugs, but precious few get approved. Is the FDA part of the problem?

by Catherine Arnst

Sneak A Peak

This week we considered a position on the XLF, the Financial Select Sector SPDR.  But before deciding whether to enter a trade, we needed to sneak a peak behind the XLF in order to view its consituent components and hence discover whether the reward to risk ratio might be attractive at this point in time. 

The first step in uncovering the XLF is to discover the primary holdings for the Select SPDR. Yahoo! Finance reports that the top 10 holdings are:

American Express (AXP) – 2.48%

American International Group (AIG) – 5.95%

Bank of America (BAC) – 8.84%

Bank of New York Mellon (BK) – 2.5%

Citigroup (C) – 5.93%

Goldman Sachs (GS) – 3.38%

JP Morgan Chase (JPM) – 6.84%

US Bancorp (USB) – 2.77%

Wachovia (WB) – 3.03%

Wells Fargo (WFC) – 4.94%




Looking at some of the major holders in some more detail, we can find out even more about the XLF.  Let's start with American Express.


American Express started an uptrend in March and so far the uptrend has remained intact despite the most recent correction in the market and in financials on the whole.  That's a good start if we're considering a bullish thesis on the XLF.

AIG has had its share of woes lately, but late in the week received an upgrade from Morgan Stanley citing the most recent correction as being 'overdone'. 


Certainly from a reward to risk perspective, AIG is looking attractive as a longer term play.  2-0 for the bulls.

If good companies trading at multi-year lows based on dismal sentiment constitutes good reward to risk ratios, then Bank of America is a contender for the prize ceremony.


Bank of America is now trading at 4-year lows.  If ever there was a time to speculate on BAC, now might be it!

Next on the list is a top-performer in the group, Bank of New York Mellon, which has maintained tremendous chart strength in the face of what could be described as a sector collapse earlier in the year.


Nothing for the bears to grab…
continue reading

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.

continue reading

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”.…
continue reading

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…


Zero Hedge

Johns Hopkins, Bristol-Myers Face $1 Billion Suit For Infecting Guatemalan Hookers With Syphilis 

Courtesy of ZeroHedge. View original post here.

A federal judge in Maryland said Johns Hopkins University, pharmaceutical company Bristol-Myers Squibb and the Rockefeller Foundation must face a $1 billion lawsuit over their roles in a top-secret program in the 1940s ran by the US government that injected hundreds of Guatemalans with syphilis, reported Reuters.

Several doctors from Hopkins an...

more from Tyler

Phil's Favorites

This Is The One Chart Every Trader Should Have "Taped To Their Screen"

Courtesy of Zero Hedge

After a year of tapering, the Fed’s balance sheet finally captured the market’s attention during the last three months of 2018.

By the start of the fourth quarter, the Fed had finished raising the caps on monthly roll-off of its balance sheet to the full $50bn per month (peaking at $30bn USTs, $20bn MBS, although on many months the (balance sheet) B/S does not actually shrink by this full amount which depends on the redemption schedule) and by end-Q4 markets also experienced some of the largest volatility and drawdowns in nearly a decade.

As Nomura&...

more from Ilene


The Competition For Capital Has Made Stocks Cheap

By Michelle Jones. Originally published at ValueWalk.

The new year is upon us, and now is the time many investors look at what 2018 was and prepare for what 2019 might be. Recession jitters are starting to pick back up again, especially now that the full picture of 2018 is in the books. But what if you could pick only one theme for 2018? Jefferies strategist Sean Darby and team have a suggestion which is especially timely given that it appears to mark the end of an era.

StockSnap / PixabayVolatility carries into the new year

This past year was one of extremes, and the markets ended i...

more from ValueWalk

Kimble Charting Solutions

Stock declines did not break 9-year support, says Joe Friday

Courtesy of Chris Kimble.

We often hear “Stocks take an escalator up and an elevator down!” No doubt stocks did experience a swift decline from the September highs to the Christmas eve lows. Looks like the “elevator” part of the phrase came true as 2018 was coming to an end.

The first part of the “stocks take an escalator up” seems to still be in play as well despite the swift decline of late.

Joe Friday Just The Facts Ma’am- All of these indices hit long-term rising support on Christmas Eve at each (1), where support held and rallies have followed.

If you find long-term perspectives helpf...

more from Kimble C.S.

Digital Currencies

Transparency and privacy: Empowering people through blockchain


Transparency and privacy: Empowering people through blockchain

Blockchain technologies can empower people by allowing them more control over their user data. Shutterstock

Courtesy of Ajay Kumar Shrestha, University of Saskatchewan

Blockchain has already proven its huge influence on the financial world with its first application in the form of cryptocurrencies such as Bitcoin. It might not be long before its impact is felt everywhere.

Blockchain is a secure chain of digital records that exist on multiple computers simultaneously so no record can be erased or falsified. The...

more from Bitcoin

Insider Scoop Explores Strategic Alternatives, Analyst Sees Possible Sale Price Around $30 Per Share

Courtesy of Benzinga.

Related 44 Biggest Movers From Yesterday 38 Stocks Moving In Wednesday's Mid-Day Session ... more from Insider

Chart School

Weekly Market Recap Jan 13, 2019

Courtesy of Blain.

In last week’s recap we asked:  “Has the Fed solved all the market’s problems in 1 speech?”

Thus far the market says yes!  As Guns n Roses preached – all we need is a little “patience”.  Four up days followed by a nominal down day Friday had the market following it’s normal pattern the past nearly 30 years – jumping whenever the Federal Reserve hints (or essentially says outright) it is here for the markets.   And in case you missed it the prior Friday, Chairman Powell came back out Thursday to reiterate the news – so…so… so… patient!

Fed Chairman Jerome Powell reinforced that message Thursday during a discussion at the Economic Club of Washington where he said that the central bank will be “fle...

more from Chart School

Members' Corner

Why Trump Can't Learn


Bill Eddy (lawyer, therapist, author) predicted Trump's chaotic presidency based on his high-conflict personality, which was evident years ago. This post, written in 2017, references a prescient article Bill wrote before Trump even became president, 5 Reasons Trump Can’t Learn. ~ Ilene 

Why Trump Can’t Learn

Donald Trump by Gage Skidmore (...

more from Our Members


Opening Pandora's Box: Gene editing and its consequences

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


Opening Pandora's Box: Gene editing and its consequences

Bacteriophage viruses infecting bacterial cells , Bacterial viruses. from

Courtesy of John Bergeron, McGill University

Today, the scientific community is aghast at the prospect of gene editing to create “designer” humans. Gene editing may be of greater consequence than climate change, or even the consequences of unleashing the energy of the atom.


more from Biotech

Mapping The Market

Trump: "I Won't Be Here" When It Blows Up

By Jean-Luc

Maybe we should simply try him for treason right now:

Trump on Coming Debt Crisis: ‘I Won’t Be Here’ When It Blows Up

The president thinks the balancing of the nation’s books is going to, ultimately, be a future president’s problem.

By Asawin Suebsaeng and Lachlan Markay, Daily Beast

The friction came to a head in early 2017 when senior officials offered Trump charts and graphics laying out the numbers and showing a “hockey stick” spike in the nationa...

more from M.T.M.


Swing trading portfolio - week of September 11th, 2017

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 ...

more from OpTrader


Free eBook - "My Top Strategies for 2017"



Here's a free ebook for you to check out! 

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.

Some other great content in this free eBook includes:


·       How 2017 Will Affect Oil, the US Dollar and the European Union


more from Promotions

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...

Learn more About Phil >>

As Seen On:

About Ilene:

Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

Market Shadows >>