Archive for 2008

Hedge Funds Threaten to Block

Michael Steinberg comments on a NY Times article reporting that hedge funds are threatening legal action against banks that are renegotiating mortgages when it’s not in the hedge funds’ financial interests.

Prediction: This doesn’t get very far for very good reasons.  

Hedge Funds Threaten to Block Mortgage Modifications 

Courtesy of Michael Steinberg at Click Broker 

After 9/11, President Bush told world leaders that either you’re with us or against us in fighting terrorism. There was no middle ground. In fighting the financial crisis, that determination seems to be lost in the free market and sanctity of contracts ideology. While it is clear that Treasury Secretary Paulson is choosing winners and losers in the TARP program, none of the winners are being forced to be with us on mortgage modifications. And few financial institutions are patriotic enough to voluntarily modify mortgages for the national interest.

The New York Times “Mortgage Threat From Hedge Funds Irks Democrats” reports that multiple hedge funds threatened legal action against banks that renegotiated mortgages in a manor not in their financial interest. Greenwich Financial Services and Braddock Financial are failing to realize that the current Administration is reaching its end, and the new Administration is likely to change the focus from top down to bottom up in the rehabilitation of our financial system.

House Financial Services Committee Chairman Barney Frank sent a letter to these funds stating: “For the hedge fund industry, which has flourished from much of the past decade, to take steps so actively in opposition to what is currently in the national interest is deeply troubling.” Up to this point, Congress has been ineffective in forcing Paulson’s hand on mandatory mortgage modifications. In fact, the Administration is now willing to pay for cooperation by absorbing losses. Interesting, they are willing to force National City (NCC) into PNC’s (PNC) hands and give PNC a $7.7B TARP bonus for cooperating, without demanding any mortgage modifications.

Fortunately, as I wrote in "Countrywide Settlement Benefits Bank of America and the Country," the courts are paying little credence to the President’s ideology when deception and predatory lending are involved. The Democrats want bankruptcy judges to be able to modify mortgages on primary residences in the same manner they now can on second, vacation and investment homes.
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GE Needs Funding

Mish reports on GE’s plans to get funding from Fed.GE Building

GE Needs Fed Bailout To Finance Operations; Dividend At Risk

GE is struggling to get short term financing at a price it wants to pay. So what does GE do? The answer is twofold:

1) Borrow from the Commercial Paper Funding Facility

2) Pretend this is a good thing.

Consider this ridiculous headline: GE to Sell CP to Fed to Help Unlock Credit Markets.

General Electric Co., the biggest U.S. issuer of commercial paper, plans to use the Federal Reserve’s new short-term funding facility, throwing its weight behind the central bank’s efforts to unlock the credit markets.

“This is a way for us to demonstrate our support for what the Fed is doing, which is providing all-around liquidity,” Wilkerson said.

GE’s Disingenuous Pronouncement

Let’s translate what GE said into English:
"We desperately need short term cash and cannot get it elsewhere."

GE Sees Shrinking Economy

GE’s CEO Immelt Sees Shrinking Economy for 2-3 Quarters.

The U.S. economy will have two or three quarters of “negative growth” once global financial systems stabilize, General Electric Co. Chief Executive Officer Jeffrey Immelt said.

Financial markets are experiencing the greatest disruption since the 1930s, tightening credit for corporate and consumer borrowers. GE, the biggest U.S. issuer of commercial paper, said yesterday it plans to use a new short-term funding facility from the Federal Reserve when the program starts next week, throwing its weight behind Fed efforts to unfreeze the credit markets.

Companies should be planning under a scenario of “what happen if the credit markets are half the size in 2009,” Immelt said. GE still runs the company for its debt to be rated AAA, the highest available, Immelt said. Financial companies will either become bank holding companies or have the AAA rating, he said.

“We still believe if you have low cost of funds, good origination, good risk management, there is a role” for a AAA- rated company, Immelt said. “You’re either one or the other as time goes on.”

What if the credit markets are half the size? What will that do to your financing costs if you cannot get a handout from taxpayers?

GE Will Cut Costs, Jobs
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Greenspan Follies

Here’s some ideas to ponder, courtesy of Mark Thoma at Economist’s View.  The author of the excerpt, Dean Baker, touches on concepts I’ve been thinking about lately from a different perspective.  I agree with his suggestion that Ayn Rand could have predicted the outcome given the rules that existed (or didn’t exist).  So the "free market" does not operate within a vacuum, and perhaps Greenspan got it wrong by not truly understanding what he thought he stood for.

"Greenspan Follies"

Dean Baker on Greenspan’s admission that he made a mistake in resisting regulation of credit markets:

Greenspan Follies: The World Is as Ayn Rand Would Have Predicted, by Dean Baker: Alan Greenspan has finally acknowledged that he may have made some mistakes in allowing an $8 trillion housing bubble to grow unchecked. (Look for rivers flowing upstream.)

This modest act of contrition should be welcomed, but analysts have been far too quick to describe Greenspan as a prisoner of his free market ideology and the current crisis as a story of the free market running wild. …

First, insofar as Greenspan acted (or didn’t act) out of ignorance of the true situation, it was because he was ignoring Ayn Rand, not because he was following her.

Let’s set the stage. Bear Stearns, Goldman Sachs, Citigroup and the rest of the big banks are run by hotshot Ivy League business school types. These are bright, hard working ambitious people who want to make lots and lots of money.

The executives at these banks are sitting on enormous piles of money that they can get access to as a result of being at these huge banks. The hotshot executives know that they can get huge bonuses by taking risky gambles with the banks’ money.

The executives can make bets, that if they pay off, will get tens of millions a year in bonuses and other compensation. Of course, if they lose they can bring down the house, meaning that they bankrupt Bear Stearns, Lehman, etc.

What would Ayn Rand expect to happen? On the one hand we have the hot shot executives, on the other hand the schmucks who own stock in these banks. Would Ayn Rand expect that the executives would put aside their ambition, their lust for success, their greed, in order to benefit shareholders who are too dumb to even know what a


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Politcal Post of the Week

Well, well, well, the Republicans are getting desperate now aren't they?

In the sickest thing I've heard so far it turns out the McCain campaign worker who claimed that she was attacked by an Obama-supporting mugger did, in fact, carve a B  (for Barack) into her own face and made up the whole story  (and you NEED to click on the video) in an effort to discredit Obama supporters.  Not surprisingly (as she IS a McCain supporter), the woman has a history of mental health issues…  This was no small thing, it was national news and the McCain campaign (who are known for vetting things so well) had said in an official statement at the time: "We're shaken up by this. It's sick and disgusting" and Sarah Palin spoke with the "victim" by phone

I think we've gone way too far past way too far when people are resorting to faking incidents with the intent of sparking racial tensions in order to win an election.  I can't even believe the year is 2008 and it's even possible that we still have this stuff going on in America and what's really disturbing is the way this totally faked incident spread like wildfire in the media, before the police even had a chance to investigate.  Is it a coincidence that the McCain campaign flew this woman up from Texas to Pittsburgh, where they are pushing hard to flip the state or that "McCain officials pushed a version of the story that was far more explosive than the available or confirmed facts permitted at the time."

The claims to KDKA from the McCain campaign were included in an early story that ran late  Wednesday on KDKA's Web site. The paragraphs containing these assertions were quickly removed from the story after the Obama campaign privately complained that KDKA was letting the McCain campaign spin a racially-charged version of the story before the facts had been established, according to two sources familiar with the discussions.

With the markets melting down and the fact that I decided this election was over back on the 9th (our last Political Post), I haven't been paying much attention to the political shenanigans.  Who cares that the McCain campaign spent $150,000 on clothes for Palin and another $5,000 on makeup alone (hell, they spent $8,672.55 just to try to make McCain not look like a walking corpse!)
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Weak Weekly Wrap-Up

The Ink Tank: A daily roundup of editorial cartoonsAnother week down the drain – literally.

Back on October 2nd, with the Dow still at 10,500 we were already looking for cover in well protected plays and I put up 3 "Option Plays That Are Better Than Cash" and I'm pleased to say that, despite a 20% decline in the Dow since then, all 3 of those plays are working (although GE is testing our lower limit).  It's important to understand the mechanics of these option strategies as they allow us to stay in the markets while picking up gains that are significantly better than CDs or treasuries without having to ties money up over a specific time frame or (yikes) putting it in a bank

Of course this wasn't our first bearish set of calls, we went bearish on the financials on Sept 8th (Dow 11,500), choosing SKF Jan $90 calls to cover the finanicals when they were way down at $22 (now $77.60) and on 9/11 we got even more bearish as the bailout seemed like a very wrong way to go and, by Sept. 15th, it was time to go short on the Russell with $700 puts – but who would have thought they could go from $16.20 to over $200 in the next 3 weeks?  So there are always ways to make money by staying in the market and balancing out your virtual portfolio.  Recently we've been generally looking at staying 70% bearish with 30% speculating to the upside and, while we THINK we are getting some real bargains, what we are looking for now is a proper turn signal that will let us at least shift to a neutral stance.

Have we really wiped out 35% of the Russell 2000's value in 45 days?  Is a stock only worth what it's going to make next year or do we still invest for the long-haul?  When the Dow was still around 10,000, on October 7th, I said that, although things seem cheap, value is an illusion in a panicked market – a point that was driven home to me as I sat through the optimistic presentations at the Value Investing Congress and I said that evening:  "Bear in mind
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Hedgers close option positions Microsoft

Today’s tickers: MSFT, HBC, DWA, AGN, XLF, C, MS & VIX

MSFT – Microsoft Corp. – Despite an initially positive response to Microsoft’s earnings yesterday, its shares couldn’t avoid the initial Friday meltdown. By noon they had rallied 1.1% to stand at $22.59. Given the robust options volume sniffed out by our scanners today we were curious to look at precisely where the volume took place. In the November contract at the 19 strike puts investors sold several blocks of 2,000 lots between 82-84 cents as volume rose to around 19,000 contracts in the series. On looking further we note that open interest during the past five sessions has grown by roughly the same amount indicating that today’s put sale is likely the successful removal of intended downside protection over earnings. So today’s market meltdown provided a cherry on top of the cocktail for at least some Microsoft option traders. Elsewhere the January 30 strike call appears to have been sold around 15,000 times indicating a lack of conviction that the shares will recover too strongly in this environment.

HBC – HSBC Holdings ADR – While Asia has been largely unscathed by the financial crisis to date, there is no escaping the fact that the fresh wave of currency dislocation is impacting economies and companies. Today shares in HSBC are sharply lower by 15.5% at $54.45 as evidence emerges suggesting corporations are being hammered with currency related losses. The Far East and emerging markets are core areas for HSBC and Standard Chartered Bank. Our market scanners picked up a sharp rise in implied volatility in HSBC options by 15% to 86% as put demand was evident at the 60, 50 and 40 strikes. At the two lower strikes where currently no customer interest exists, investors paid premiums of 4.30 and 1.50 respectively to hedge against further downside at HSBC.

DWA – Dreamworks Animation – An interesting play in Dreamworks where implied volatility has reached a fresh peak today at 81% on the equity options. An investor appears to have further interest in adding to a long strangle on the stock in the November contract. The trade involved the 30 calls and 25 puts where around 1,200 lots traded at a combined premium of 3.0. Shares are trading at $27.28 and the investor appears to be adding to an existing position where similar open interest exists.

AGN – Allergan Inc. –
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Jim Grant

Jim Grant videos, via Todd Sullivan at Valueplays.

Jim Grant Interview (video)

 
I tell you, Grant is one of the best out there….In this interview he covers everything from the consumer, the Fed, short sellers and global confidence in market. In what is looking like a historic down day for the Dow (.DJI) and S&P (.INX), it bears watching…

Part 1


Part 2

 





Forced Selling

Brief note by Chad Brand at Peridot Capital Management.

Watch the 2002, 2008 Intra-Day S&P 500 Lows

The forced selling and mass liquidations are continuing, with the pre-market futures trading limit down this morning. October has always been the most volatile month of the year, and investment fund fiscal years end a week from today (as opposed to a normal December year-end).

Don’t fool yourself into thinking the market action here is based on fundamentals, because everything we are seeing is simply irrational behavior based on forced selling. Buyers are balking because once things become irrational, there is no inherent floor to prices.

If you want to watch specific levels, the 2002 S&P 500 low was 768. The 2008 low so far was 839. The S&P 500 closed at 908 yesterday, and traded limit down (60 points) to 855 this morning. If we don’t hold those levels, another round of computerized sell programs will likely hit the market. The support there should be strong, but in this market, who knows what will happen.

Update: 10:00am — Here is a graphical representation of the last two decades:

 

 

Additional note: 

Wild Market: Sign of a Major Hedge Fund Blowup?

Excerpt:  "Once the new kings of Wall Street, hedge funds are now looking like the court jester.

It’s all speculation at this point, but it seems highly likely we’ll find out that one or more major hedge funds imploded this week, especially given the dramatic moves in currencies, commodities and emerging markets.

Wild swings in the markets most frequented by speculators are "only the result of imploding hedge funds leading to massive liquidations," writes Ashraf Laidi, Chief FX Strategist at CMC Markets. (Laidi declined to name names.)…

…While few tears are being shed for the "pirates of finance", forced selling by hedge funds is having a direct affect on the portfolios of "average" investors, especially those overweight emerging markets and commodities."

 




Black Silicon

Black silicon is created by firing pulses of laser light at a piece of silicon wafer in the presence of the gas sulphur hexafluoride.  This process results in the silicon having a rough surface - greater surface area - which absorbs more light, thereby increasing the efficiency of panels in converting energy to electricity.  Eben Esterhuizen discusses how this innovation may serve to bring down costs in the solar energy industry. 

Will Black Silicon Light Up Your Solar Portfolio?

Courtesy of Eben Esterhuizen, writting at The Panelist

Sometimes the best scientific discoveries are made by accident. "We were doing research on the chemical reactions on metal surfaces and, on a hunch, I said let’s look at semiconductors, without a clear plan," said Eric Mazur, a physicist at Harvard University, about an experiment done in 1998. A decade later, it looks like his accidental discovery may revolutionize solar technology.

First, let’s get the science mumbo jumbo out of the way. Mazur’s research team fired short pulses of laser light at a piece of silicon wafer in the presence of the gas sulphur hexafluoride. The process blackened the silicon, and when he examined the surface under a microscope he found that it was covered in a forest of short spikes. Black silicon’s rough surface can absorb more light and can also trap a wider range of frequencies, including infra-red rays, that normally pass straight through standard silicon.

Mr. Mazur told The Guardian newspaper that photovoltaic cells using black silicon would significantly increase the efficiency of modern panels, the majority of which only convert around 8% of the energy falling on them into electricity. The very best convert around 20%. He said that a black silicon wafer could approach the theoretical limit of converting around 30%-40% of the energy falling on it into electricity.

The company created to commercialize his work, SiOnyx, last week announced the production of the first commercial-grade wafers. Is this a bullish development for solar stocks? Yes. Should you immediately go out and buy solar stocks? Not yet.

Almost everyone agrees that solar power has enormous potential, but the industry is being held back by the high cost of silicon wafers. Research teams have spent years looking for ways to bring down costs by improving the efficiency of solar cells, and black silicon may be the technology they’ve been waiting for.

But it looks…
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Phasing Out Cholesterol

Deborah at Wall Street Weather has written a series of articles on the pharmaceutical industry, including a number on cholesterol medication (links below – should be interesting reading and an interruption to the non-stop dismal reports on the world economy).   

Pfizer Phasing Out Cholesterol

Courtesy of Deborah at Wall Street Weather


“Pfizer’s (PFE) patent on Lipitor expires in March 2010*. Both the Lipitor and PFE charts are negatively aspected from 2008 to that time. It looks like PFE’s Lipitor sales will start showing a decline as early as February. It doesn’t appear that PFE will have a blockbuster replacement for Lipitor.” From my post, “Lipitor’s Limits” (December 20, 2007)

A September 25, 2008 memo by Martin Mackay, Pfizer’s president for Global Research and Development, confirms that Pfizer will not develop any more drugs that target cholesterol as the culprit in causing heart disease. In fact, Pfizer will exit drug development for cardiovascular disease altogether.

Pfizer’s exit from statin development indicates the cholesterol craze has reached the end of its cycle trend. Profits have declined as more statins go off patent, and patients switch to much cheaper generics, or forgo statins altogether in order to take “essential” medications. This means that high cholesterol as an indicator of heart disease was nothing more than a marketing strategy for big pharma to make a ton of money and should be viewed like any other product trend. Bone health and frailty (osteoporosis) is another trend Pfizer is exiting for the same reasons.

Pfizer’s “higher priority areas” for drug development are Alzheimer’s disease, diabetes, inflammation/immunology, oncology, pain, and psychoses (schizophrenia). From a planetary cycles perspective, medicines for pain and inflammation could be blockbusters providing they have the ability to target the specific area needing treatment rather than affecting the entire body. At this point in time, pharmaceutical stocks should be viewed like a utility company. In the next few years, the real leaps in health care will not emanate from a drug company’s R&D lab but instead come from the physics department. Think magnetism, light waves, sound waves, and other forces.

* All of Pfizer’s patents related to Lipitor expire in 2011.

Here are links to all of the posts I’ve written about the pharmaceutical industry:
“Surprise! Your Brain Needs Cholesterol”, “Pfizer’s Artificial Ad”, “The Drug Numbers Game”, “Cholesterol On The Cover”, “Pfizer’s Depressing Quarter”, “Pfizer’s Chantix Gets
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ValueWalk

#1 Performing Global Macro Hedge Fund Sees More Shorts Opportunities Ahead As China Bursts

By Jacob Wolinsky. Originally published at ValueWalk.

Crescat Global Macro Fund update to investors on 1/19/2019

Crescat Global Macro Fund and Crescat Long/Short fund delivered strong returns for both December and full year 2018 in a difficult market. Based on ...



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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...



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Phil's Favorites

Divisive economics

 

Guest author David Brin — scientist, technology consultant, best-selling author and futurist — explores the records of Democrats and Republicans on the US economy in the following post. For David's latest posts, visit the CONTRARY BRIN blog. For his books and short stories, visit his web...



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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...



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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...



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Insider Scoop

Cars.com 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 ...

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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...



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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 (...



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Biotech

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 www.shutterstock.com

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.

...

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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...



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OpTrader

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 ...



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Promotions

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:

 

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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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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.

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