Traderbill's Financial Markets Weblog

TB’s Saiz: “the lunatics are not running the asylum…they have LEFT the asylum!”

From TB’s Unabridged Dictionary: Bulnerable – when one is so bullish that he is extremely subject to pain if he is wrong.

…the reaction to the Non-Farm Productivity (aka worker suffering report) was enough to make TB nauseous, especially coming less than 24 hours after the Fed saw no tightening for as far as the eye can see (ok, an exaggeration but you get the point as it is a moving target).

Let’s get past the productivity gains and recall the FOMC meeting yesterday…let’s think about the ongoing SEC investigations on insider information…the mixed earning reports…good but mostly due to cost-cutting…and let’s not forget today’s payrolls! (see overnight commentary for details)

The market rally yesterday was inexplicable unless one counts ‘tired of trying to take it down’ as a reason. Everything: advance/declines, breadth, new 52 week highs to lows, etc. was bullish…in fact most indices managed to close above their 50 day moving average but still below the 40 day…Transports excepted, which didn’t even push the high up to the 40 day. The one fly in the ointment was volume…lowest in nine sessions and first below average day in that period…this casts doubt on the seriousness of the rally.

So we are in a perfect setup for today’s Non-Farm Payrolls and Unemployment reports. There are three things that can happen…euphoria that it is better than expected providing a rally opportunity, surprise and thus a takedown, and lastly, a hybrid: run it up as they have on the last two payrolls Fridays – either to the 40 day or thru it, and then slam it and in that case we could plunge thru the 50 day at the same time. As we await the reports, European markets are about flat while Asia is in rally mode again. Globex futures are up very slightly which puts them near fair value to yesterday’s market close.

Commodities have been see-sawing with little change and yesterday, only Grains were able to stage a move of more than 2% and they were down…in fact all sectors were down but components were mixed. Natural Gas was the only winner in Energy but it has been beaten up for months, Crude was down after the highest close since Oct. 22, and RBOB Gasoline was down again. Gold set a record high on Nov. 4 of $1094.40 but has been going sideways ever since…open interest is starting to slip from the highs – records? But what is strange is that normally the pattern is for high open interest to occur after the peak on the selloffs…could this mean we are going higher?

Yesterday, TB said that JPMorgan should negate those interest rate swaps with the municipalities. It turns out that in an agreement with the SEC they will pay a $772 million fine: give Jefferson County, Alabama $50 million, pay a $25 million penalty and cancel $647 million in fees to unwind transactions to cancel the interest rate swaps. Now, what about the other municipalities across the U.S.???

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Citigroup’s former CEO John Reed, who led the bank for 14 years said, “I’m sorry” for the repeal of Glass-Steagall and is now calling for breaking up the bank(s) to separate the banking and investment divisions…that was gutsy on his part. Kudos!

It is about time for us…and mainly our bribed elected leaders to admit that capitalism, if it is not to self-destruct, must be saved from the key element that makes it work: greed! That can only be accomplished by sound regulation and transgressions must be punished efficiently and publicly with perp walks, etc. Yet it is the banking system…indeed the very banks that we bailed out that are resisting any change to regulation. That is because we have largely had in this country (and most others) banking laws of the bankers, by the bankers and for the bankers. Let’s get it done…get it done right…get it done fast! They have just proven they do not do it better or even know what they are doing.

As for compensation, a survey of CEO’s…obviously without names…had the majority saying the CEO is grossly overpaid. We know this in the financial sector but how about Abercrombie & Fitch who sales plummeted…the CEO earned $78 million last year – for what? They’re a damned retailer for God’s sake! But the problem goes back to the compensation of people in risk areas of financial companies and how CEO’s serving on other boards are supportive of higher compensation packages for the CEO. But the worst thing is they are blinded by their own wealth. They have no idea what these people do or the future liabilities the firms are incurring. Therefore, while TB sees no need to change the compensation of ‘most’ salesmen, traders, underwriters and investment bankers should have a large portion – proportionate to the future risk – given in the form of restricted stock. At least they will suffer with the shareholders for their greed or incompetence…or both? How many times in this column has TB stated that the problems in the financial sector began when the brokers went public? Under the partnership model, where the partners could only take out the income…which was the firms return on equity (when TB was at Merrill deferred compensation was paid at that rate and it worked well). But it requires oversight…supervision…and caring about the long term future of the firm.  

In a publicly held company that is at odds with the goals of the CEO who sees his main job as maximizing stock price during his tenure for his personal gain…the future – and the shareholders – be damned! He actually sees the shareholders as brethren as they too are short-term in sight…no longer buy and hold…except for the fools or those who haven’t awakened to the sad reality that nobody but them cares about the long run.

In contacting USBancorp, TB realized that this well-run bank is managed by Richard K. Davis who serves as Chairman, President AND CEO. There are also three Vice Chairmen, one the CEO, one head of Consumer Banking, and one another group head. There are according to Bloomberg 15 directors, who as a group own 0.08% of shares held which is below the 0.18% weak level for the industry – no skin in the game! One the Chairman Emeritus is even on the board of competitor Citibank…no other banks in their peer group allow that. TB likes this one: one is a coroner! Wonder what he brings to the table? How can a Chairman of the Board also be CEO and have as a primary concern the shareholders interests?

The shooting at Fort Hood, Texas was shocking. Particularly because he was a Major and his name suggests he is a Muslim…it remains to be seen whether he is but he was known to object to the wars in Iraq and Afghanistan…and disappointed that Obama hasn’t pulled out yet. But mainly he is a psychiatrist that has treated returning troops and was about to be deployed to Iraq after spending most of his career at Johns Hopkins. He was disturbed by post traumatic stress…perhaps his is a new disease: pre-traumatic stress? We will have to see how it plays out but at least he is still alive so we may learn something.    

Hope you all have a fun and relaxing weekend…we are all stressed out by now!

TB

Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries…as he sees it…and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Hope you find it useful. Copyright TBD Capital LLC, © November 6, 2009.

TB’s Quote of the Day: “He is a good man and his intentions are good, but we are back to square one,” Arab League Ambassador Yahya Mahmassani, “His words have not led to actions so far.” …Same old same old…just like in the good old U.S. of A! TB

…not only could Buffett not do it alone, the entire Dow Transport index gave back 1.5% of its near 6% gain on Tuesday’s announcement that Berkshire is buying Burlington Norhtern (which has stalled at $97.10…well below the $100 bid. Overnight we learned that shareholders are suing both companies over a lack of information, and Davenport cut Burlington to ‘neutral.’ This follows yesterday’s announcement that S&P may cut Berkshire’s AAA rating (but they said it would be no more than two notches).

But the worst thing is that even at yesterday’s highs Transports could not get back up to their 50 day moving average and are way below the 40 day. Since this worst performing index (which in itself is a bad omen if you believe in Dow Theory or even that if the economy is strong than goods need to be shipped in higher volumes), became the BEST performing index for a day….what does this say about the rest of the stock market (asked rhetorically)? Take heart…the other indices are in worse shape! Oops!

The reason for today’s quote is that we are Americans…and by God or Allah while we can criticize our government for it’s corruption, inaction, clumsiness…nobody else has the right to do so…isn’t it scary that others can listen to Obama’s speeches and not stay invigorated for even four years?…or one? What is getting done in D.C. At least when Dubya was in charge things were happening…wars were starting …OK it would be hard to start another one now…what about Iran or Korea though? Likely candidates.

But what’s next…criticize Wall Street…the re-declared financial capital of the world? Just in: 7 more hedge fund personalities have been arrested in the Galleon Case – let’s just hope that that is all they find… we don’t need our faith in U.S. corporations being shaken any more than it already is!

Speaking of which, the lily-white JPMorgan (does Jamie Dimon wear white shoes?), according to the SEC, bought Rolex watches for Jefferson County Alabama officials to remain the ‘chief bond banker’, and other gifts totaling $8 million! Mr. Dimon would say those involved were fired – eventually when Jeff Co was on the verge of bankruptcy which it still is…but it these were illegal activities should JPM still be collecting the bounty from these acts? No…HELL NO! Nor should any of the other banks…too bad Lehman and Bear aren’t gone so they could share in the pain. Remember this was more than a decade after the SEC adopted strict pay- play rules…which should have eliminated them.

But Dimon is a CEO and CEO’s sometimes (?) do dumb things…take Charles Schwab…they sold funds that were ‘the same as money market funds’ to their clients. They know it…the whole world knows it…yet they are letting it go to a class action suit rather than simply pay…and pay quickly (it should have been done a year ago…their good clients who were screwed by their misstatements (true, at the time there wasn’t an expert out there that didn’t believe those adjustable rate securities were ‘safe’, including TB who had used them for more than a decade), but instead Schwab is paying on a ‘case by case’ basis…can you figure the logic? This on a company that prides itself on it’s honesty and care for the client…which in other areas TB believes they do. It is all about doing the right thing…even if it hurts in the short run…got it Chuck and Jamie???

TB’s friend, Mark Gilbert wrote a Bloomberg article today “Valuing Bonds, Dollar is Crazy in World Gone Mad.” He points to the 3.5% yield on the 10 year Treasury Note when just two days ago the Treasury announced it was going to borrow a ‘net’ $276 Billion in the fourth quarter AND another $478 billion in the first quarter of next year. The point is there is no shortage of supply and the Chinese ‘must shop until they drop’ as TB sees it and if they stop shopping bond prices will drop and with it the value of their own investments…a vicious circle that only Machiavelli could have seen as virtuous!

Mark goes on to say that investors who own European corporate bonds have earned more than 15% total returns this year and subordinated debt is up 26%…high yield? Up 67%. Yet, as TB has been saying (and TB carries with him 37 years of bond experience), how can you buy a bond when it could be down 2% the next day…or even the same day. The volatility in bonds is worse than in stocks! Thanks to Mark for putting this in but TB had also noticed the impetus for Mark’s article: Moody’s is predicting speculative bond yields to peak at 10.9% this year…then decline to 6% next year which he feels is too optimistic.

Lastly, TB heard Niall Ferguson on Bloomberg yesterday who is not only concerned but bearish on the outlook for capitalism and blames much of it on ‘too big to fail.’ Ferguson, a Harvard professor, but don’t hold that against him…says that if a company has more than 100,000 employees, it is more prone to failure than smaller companies. Yet, the Fed is still encouraging size…in fact they stupidly wanted to merge Wachovia with Citigroup! But what do you expect from a Fed Chairman who idolized his ex-bosses low interest rate mentality, and a Treasury Secretary and former NY Fed President, was simply too close to the bankers…part of his job there…NOT as Treasury Secretary!

In closing, TB is now bullish on stocks – NOT!!! Despite this:

Non-Farm Productivity rose by 9.5% in Q3 (note that is for the quarter!) vs. consensus +6.5%, while Labor Costs FELL by 5.2% vs. consensus -4%. Astounding, the talking head say!  But are they? Productivity is up 4.3% over the past year…nolt that’s good BUT look at this: Output, which was up 4% in the Quarter yet off 3.5% over the past year was a positive. But Compensation rose 3.8% (Real Compensation, adjusted for inflation was just up 0.2%), and is now +0.5% over the past year… but how can this be? Was it Goldie’s bonuses? Who knows…but Hours Worked FELL 5% and as we know are at the lowest level in decades and down 7.5% over the past year was the boost while Labor Costs  plunged 5.2% following -6.1% and -5% and are now down 3.6% over the past year. If you believe this crap…and surely there are those out there…who do…good luck!

Oh, Dow Futures which were up ONE point when TB wrote earlier jumped and now the market is open: Dow +79; S&P 500 +6; Nasdaq +17…have we all forgotten that 70%+ of our economy is built on CONSUMPTION???

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If you have heard Ben Stein lately, you know he is optimistic. Yesterday, Paul Krugman found this clipping from 1982 that was prompted by reading an article by David Leonhardt that said ‘we are in a liquidity trip now, which means it is harder for the Fed to turn things around’ (Volcker was Fed Chairman then…thankfully).  So Krugman checked back in the Times files and found an earlier 1982 article titled “A scenario for a depression,’ which warned that we might be in a liquidity trap with no way out. The author: the same Ben Stein….makes you want to get on the horn to your broker right, now doesn’t it? Buy, buy, buy….buy until you drop?…till stocks drop?

Have a good day and don’t let TB or anyone else do your thinking for you – ever!

TB

Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries…as he sees it…and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Hope you find it useful. Copyright TBD Capital LLC, © November 5, 2009.

AT 10:30am EST today, Bloomberg will be having a debate on Capitalism from the Aspen Conference in NYC…it would behoove you to watch it! TB

Bloomberg Quote of the Day: “Truth exists only lies have to be invented.” – George Braque…at least that is something politicians can do right! TB

TB’s Quote of the Day: “We’re on the Boulevard of broken taillights with the fender benders and the bumper jumpers.” – Panther Pierce on Dick Whittinghill – L.A. jock on KMPC for nearly three decades in the 60’s and early ‘70’s…did you Whittinghill this morning? Does anyone remember Helen Trump and her suitor who was always ‘stepping on her stoop, reaching for her knocker.” Foster Brooks also appeared frequently hiccup!

…Warren did it!!! …and TB aced it…ok, a 95 because he told you BNI would take the Transports higher…had the stock gone to the $100 bid that alone would have taken the Dow Transports up 129…but no…it was up 195 as our best and brightest deemed that if Warren was buying the rails they should too! What did he know that they didn’t? So here’s the scoreboard on the close: BNI +108; UNP +22; CSX +16; NSC +13…lemme see that is uh….159 of 190 points…sounds about right, WRONG! Can’t even call it short covering as the Transports have been the ‘canary’ so it doesn’t seem there would be THAT many shorts. But what really happened? NOTHING!!! – a temporizing bid!

Wouldn’t it have been incredible with the Dow Transports up 5.3% for the rest of the market to have been down 1% or more? Well, we did the next best thing. All other indices were up or down just a fraction except NYSE Energy (+1%), AMEX Composite (+0.9%), Barron’s 400 (+1.2%), and the Russell 2000 small cap (+1.5%). In sectors; the SOX closed -1.3% after gapping down on the open and then struggling back and filling it but not much more, while Oil Services surged 2.9%. But the big loser in Energy was XOM which cost 10 index points!

Now get this: Dow Industrials, both Nasdaq indices, S&P 500, and Dow Utilities all had INSIDE days (lower high and higher low than prior day) meaning a total lack of conviction! The AMEX Composite had a ‘slight’ positive key reversal but more or less parallel to Monday as did the Barron’s 400. Also, despite that 5.3% gain, the Dow Transports high was STILL below BOTH the 40 and 50 day moving average. Very sick!

Once again we have a stupid reason for a rally in the overnight market: the weaker dollar and speculation the Fed will continue to keep rates low…hello??? Is THAT a good reason for a rally? Be careful as this sell-off is NOT over yet…not by a farsight!

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As the aforementioned Dick Whittinghill would say, TB was ‘out among ‘em’ last night and met some interesting people at an iShares ETF conference in the City…sorry New York but there is only ONE city – Baghdad by the Bay!

In the other city, can you believe Michael Bloomberg getting elected Mayor for a third term??? He won by only a 4% margin…is that all you get for spending $100 million of your own money for the privilege? TB likes Mike but what kind of ego must have to spend that much money …to be DA MAYOR (oops, that was Willie Brown). He might have had a higher margin if he gave $100 to a million voters, no? There is something wrong when a mayoral race costs that much…and for him to spend the money on it!

The GOP is crowing over the election results…well they shouldn’t be…anymore when the Dems took charge in the ’98 election (1998 NOT 1888…TB is old but not THAT old!). It was a vote against the government…and if the GOP can’t figure that out let Rush crow all he wants because they aren’t bringing in the moderates…THEY are fed up with both parties!

Locally, Congressperson Ellen Tauscher’s empty seat (no pun intended), due to her taking an appointment as Asst. Secretary of State…was decided last night with political hack and crony John Garamendi (D) not winning handily in a run-off election with a GOP candidate (Harmer…harmless?) in a hugely Democratic district….TB found that not only he but several others voted GOP just so he wouldn’t get so damned smug…he is NOT what government needs…collects a state pension from the legislature, former insurance commissioner…does that tell you anything…and get this: he is flying back to D.C. today so he can sworn in tomorrow and be able to vote on Friday…bet he spent a lot of time reviewing whatever it is he is going to vote for…or getting instructions from Pelosi? Sorry to be so cynical but that’s the way it is.

To TB the votes in Virginia, New York etc, are similar to TB’s ‘moral’ vote. We are being screwed…D.C. is still owned by the lobbyists so just business as usual.

As for John Corzine…awwww…but he was beaten by Republican Chris Christie…hmmm did they confuse the name with Christy Todd Whitman? One never knows when dealing with the mentality of the electorate! Why isn’t TB crying for him? Well…as former Chairman of Goldman he knows what goes on in municipal finance…so early this year he said that all state and local government contracts should be ‘competitive bidding’…except for municipal bond deals….the most corrupt of all!

Back to the iShares conference…they had a political analyst from D.C. (natch) to talk about legislation being discussed …don’t worry…their bark is worse than their bite. Talking over cocktails, TB asked how we get out of this mess with the corruption in the Capitol…that Citi and BofA are using our money to stop banking reformas well as JPM and others. He said he didn’t know. Follow-up: doesn’t it make you sick to watch up close and personal? He said that from the time he was a kid he was a political junkie so he just likes to watch…but says it is tough sometimes. Very politically correct!

Here is a closer for ya: US Bank had a mortgage in Rancho Murrieta (near Sacramento). A $1 million home in a very upscale area…pristine. The owners tried to sell…cut price to $850k…then had an offer at $650k…had a buyer…the bank rejected the offer…put it up at auction and bought it back….listed it for $450k…for 15 minutes had an offer and accepted same. The buyer? The son-in-law of the guy who was handling the foreclosure! The bank said it was all up and up…(down and down?). Now here’s the thing in this, to TB, illegal, transaction: they have now driven appraisals down in the area by more than $200,000….two sellers had to take their home off the market…and hopefully the bank had more mortgages there so they too can suffer….or sell to some employees kid! Now readers know that TB has always liked USB…well they are going to hear from him on this!.Here is their phone number thanks to Bloomie: 651-466-3000. Richard K. Davis is Chairman/President/CEO (and you know how TB thinks that should be banned). TB is sure eh would like to hear your views on the matter.

Have a good day and don’t let TB or anyone else do your thinking for you – ever!

TB

Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries…as he sees it…and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Hope you find it useful. Copyright TBD Capital LLC, © November 4, 2009.

Bloomberg Quote of the Day: “You cannot escape the responsibility of tomorrow by evading it today.” – Abraham Lincoln…ole Honest Abe was on to something…but try telling that to capitalists…or their government…fools that we all are. TB

…stocks rally out of the chute…the Dow up 130 and then can’t do any more than hold on…well brace yourself, Bridget…because stock futures are down nearly 100 o/n!

Before we discuss the market let’s discuss the state of banking reform…then at the endh TB reports a conversation he had with the small business group at Bank of America (sic) yesterday. It tells volumes.

Our problems are not anywhere near over. Furthermore, we selectively bailed out Citi (for a fourth time), AIG (so Goldie and Gip ‘Em could be paid off on their credit default swaps), Bear Stearns (giving it to Gim ‘em), Wachovia (by giving it to Wells (but they wanted Citi to get it!!!), Merrill by whatever you call it to BofA, but we let Lehman (Goldie’s biggest competitor), and CIT (the sole source of credit to small and medium-sized businesses, file bankruptcy. We also provided TALF, TARP and TLGF (Treasury Loan Guaranty Funding) to the banks and Goldie and Morgan Stanley on the wink that they are banks – they are most definitely NOT!!!

To show their gratitude, the banks have done the following:

*Act as underwriter on their own TGLF bonds further providing revenues for a priceless Federal guarantee

*Reduced lending in order to rebuild capital and putting more pressure on the small and medium sized banks which are now the ones failing “too small to survive”

*Ripped of state and local government issuers by selling them interest rate swaps that were misrepresented and now grossly underwater…no relief offered.

*Are going to pay bonuses larger than last year…etc. …etc. …etc.

Meanwhile, Jamie Dimon says that derivatives were NOT a cause of the credit crisis…this from the smartest man in banking…perhaps because he does NOT wish to see them regulated. The banks have stepped up lobbying efforts against banking reform and consumer protection…Citi and BofA with our money…JPM with our gift of Bear!

Oh and CIT is now safely in bankruptcy and credit will still be available. What did CIT really need? Nothing more than an extension of the guarantee on their commercial paper. When the commercial paper market dried up, they had to cut back on their factoring…that left them with lower revenues and sizeable debt. Is this what the banks wanted to they could move in on this hithertofore unwanted segment of their business?. Certainly not as exciting or profitable as writing interest rate swaps, CDS, or commodities swaps which drove energy price to the moon in early 2008 even as the global economy was beginning to crumble.

Yet you love stocks…inventory rebuilding is on the way…as is business investment…this is enough to make TB sick…the rules of finance and investing are out the window.

Now a quick summary of yesterday’s stock market: Stocks opened up for no particular reason…Dow to up 130 then the came back down and held on to a mere fraction of Friday’s losses…while putting in lower lows…and had nothing more than a dead cat bounce! Advance/declines and breadth were essentially even after that huge trouncing last week. Volume was 1.55B shares and new lows have exceeded new highs for three of the last four sessions…we have not seen this since July! Every index is trading below its 40 day and all but the Dow and NYSE Energy are trading below both the 40 and 50 day.

We just learned that Berkshire Hathaway is buying the remaining 77.5% of Burlington Northern (BNI) for $100…a 33% premium to last nights close ($76). This made TB happy because some of his accounts hold it and thanks to limits were not stopped out on it earnings miss. Now here’s the thing…thanks to the weighting, this purchase will add 130 or so points to the Dow Transports today…and will probably cause more buying of other rail stocks….but does it make sense?

The Dow Transports have been lagging miserably, were the first index to peak, the first to close below the 40 day m/a…and then the 50 day…if the economy is weak why do you want to buy transportation stocks??? Think about it…you too, Warren!

Buffett owns Kraft (KFT) that is buying Cadbury (CBY)…Buffett said it was a very full price especially when you are paying for it with weak stocks (he owns 9.4% of KFT). A few years ago (after TB bought BRK which was the only stock that rallied coming out of the dotcom bust) he made a big…emotional bet against the dollar…which cost the company $15 billion…he did it on his own…and only on a ‘gut’ feeling that was wrong. But most importantly remember that Buffett invests for the long run…and may be the only manager left…except Ken Fisher…that does that. While that is a laudable effort, it is futile when businesses are being managed by the quarter (or tenure of the CEO), and stocks turn over frequently thanks to speculative trading that leaves buy and hold investors holding the bag… welcome to Casino New York!

So ignore the Transportation index today and if you own BNI cheer…if, on the other hand you own BRK…you might not be so happy….amazing the interpretation of all this on Bloomberg…who knows what CNBC is saying as Betsy Quick idolizes Buffett.  

If you think TB is being to hard on an icon…there are many such as Julian Robertson and Martin Sosnoff, who lost their touch…but Dr. Love (Mario Gabelli) someone how is idolized despite non-star performance….how about this: Buffett used to write on Christmas Cards to friends “may you live until Berkshire Hathaway does a stock split.” That stuck with TB in a company that doesn’t pay dividends either and the ‘A’ shares (of which Warren and Charlie have their holdings, 33% and 1.25% respectively) are still selling at slightly below their 40/50 day m/a’s ($98,750 vs $100,000). Well, if you own the ‘B’ shares  (1/30th of ‘A” shares) which closed last night at $3,265…you have one foot in the grave: they just announced a 50-for-1 stock split! Hmmm…why would they do that? To bring in more buyers!!!! The price on the new shares would be $65!!! Warren…do we look like some kinda stupid??? Yup! Also, remember there were valiant effort somilar to this in 1929 that proved futile – at least in the short run…but in the long run we are all dead…right Lord Keynes?

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When TBD Capital LLC was started in 2002, TB opened an account with BofA. He also got a business line (and credit card.from AmEx… with no financial history). He then transferred the line when Citi offered him 0% for one year…and then to BofA when they did the same). Even though that deal is over the rate is low and to finance equipment etc. TB had build up a balance on the loan while the business was developing (read: got paying clients). He recently increased capital with the intention of paying off the loan but a lightbulb went off and he decided to pay down only half the loan to see what happened to the credit line – first! So the payment was made on the 30^th and then he checked his on line statement and saw the check cleared but the balance on the business line was the same. Also, available credit was the same (during the crisis, the bank reduced the line by $7,000, just because it was unused to bolster free capital), so he called the bank.

After pushing buttons for 15 minutes he finally reached a live rep. Here is what happened (abridged as we were talking n circles for another 15 minutes):

TB: “I just made a payment on my loan and was going to pay it all off but I want to keep my line and have heard too many comments from others about having their lines slashed.”

BofA: “Well, I just checked your account history and you have no marks against you in the notes. So I see no reason they would reduce the line.”

TB: “It was the same nine months ago when you cut the line by $7,000 during the crisis.”

BofA: “Our accounts are always under review so they do that but I see no reason they would do it again.” (obviously reading from a script)

TB: “But what if I write a check for a purchase and in the meantime the bank lowers the line…and the check bounces.” Can’t you tell me if they are going to do it or what information I can provide to insure that the line remains intact.”

BofA: “Our accounts are always under review and we always send a letter to advise you that the line has been reduced.”

TB: “Yes…after the fact…you are speaking from the banks point of view with absolutely no consideration of your customer’s position. Small businesses cannot operate successfully without knowing their available credit…and if my check bounces…”

BofA: “If that happens you can request a review of your line…”

TB: (becoming irritated)….and they will tell me know because I just bounced a check!!!” Also a creditor might report me as a deadbeat…can’t you see where this is going? You are destroying the chances of a recovery because small businesses cannot operate and grow without credit….and it was the banks mismanagement that caused this to be a crisis. Furthermore, you exist only by the largesse of the American taxpayer. (TB then explained to her that he meant nothing against her but only the banks inane policies…she got it).

The discussion then became totally circular with the upshot being that no, I cannot request a review of the account…as that is being done on an ongoing basis…yadda, yadda, yadda….

Have a good day and don’t let TB or anyone else do your thinking for you – ever!

TB

Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries…as he sees it…and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Hope you find it useful. Copyright TBD Capital LLC, © November 3, 2009.

Bloomberg Quote of the Day: “No man goes before his time – unless his boss leaves first.” – Groucho Marx    

…Halloween came early this year…by one day…it was even scarier than the real thing too! This, folks, is what TB has been afraid of and predicting…but what he is even more afraid of is fear returning to the market place and you could smell it on Friday!

Also, have you noticed that first, after peaking on September 23 with a key reversal the market dove on September 30…Friday was monthend making it two and a row…should we go for a trifecta?…worse yet if we see…as we saw at yearend 2008 another sell-off could we do what would do the most damage (the market moves in the direction that causes the most people the most pain) to mutual funds and money managers: after a horrible first quarter, two consecutive strong quarters, the strongest two quarters in decades…and then break that string with a negative quarter. As of Friday, the S&P 500 was up 17% year to date…but at the end of September it was up 19%…a bad omen.

TB warned to paraphrase the sage advice of a former colleague: if we were up 19% at the end of the quarter, what are clients going to say if we are only up 10% at yearend? Think damage control…the first level of fear…the second is when the little guy sees his portfolio going in the tank…anjd that is the fear that overwhelms logic…but have we been logical in the last quarter? TB says no…the logic ended in mid-July and caved on  September 23.

So how far can we go down? Without fear, to the 200 day moving averages which TB has helpfully repeated from Friday so you won’t tax your memory or your computer’s. If fear rears it’s ugly head past that…far past up to and including the March lows. But THE most critical level for now is 1014 on the S&P 500, the first Fibonacci retracement from the March lows – if you recall the 50% retrace was 1121 which was never crossed. Several times TB has heard 1016-1018 mentioned…on the presumption that if we touch 1014 it will be the third rail and we won’t come back from it.

But is a ‘correction’ to the 200 day that bad? Do you even know when we were last at the 200 day moving averages??? On virtually every index it was July 15! Think about it,,, just four and a half months ago and the market was up 11% from the lows then! Now that of course isn’t as much fun as the Dow hitting a meaningless 10000 which means you were only down 30% from the highs if you stayed in the game proving you to be a horrible poker player. But why should you, when CEO’s, hedge funds, and most other players…including Goldman Sachs, could care less about anything longer than a quarter or their tenure with the firm! That in a nutshell, is what is wrong with investing today! Nobody gives a fig about the long-run…therefore, why should you? Think about number one but as Rodney Dangerfield said, “don’t step in number two!” We are deep in #2!

TB read an analysis of bear markets and thinks it was by technician Sy Harding…if not, he apologizes to the source and will correct if he can find it. In every bear market where there has been a subsequent rally of 60% or more, which this one was at the peak on September 23, but only 57% at the close, there has been a correction back to the 200 day moving average. Hogwash! you say. Fine, disagree, disbelieve, but what are you going to hang your alternate hypothesis on? November to May is the best time for stocks? But wait weren’t August and September supposed to be the worst months? Wasn’t October the month of crashes? Does the market give a damn about the calendar?…does it even know what it was? No! But what it does know is earnings growth, and p/e ratio’s and that is what TB will hang his hat on! The market also knows how to ‘drill down’ (another new cliché) thru economic data for the truth (the truth?? You can’t handle the truth!), and it doesn’t like what it saw despite the blustery of those with an imbedded interest in a rally…the same people who love to give you their favorite stocks…of course they are, by coincidence, the ones they have the biggest positions in! So again, don’t trust TB, don’t trust anyone – think for yourself!

Look at the damage done on Friday:

1. VOLATILITY! Both the VIX and VXN plunged on Thursday offsetting a jump of  13% on Wednesday BUT both surged nearly 25% on Friday and are now straddling 30 – surprisingly the VIX was the big mover….and both are nearing the 200 day m/a at 33! This is the highest point since July 8…hold that thought!

2. New 52 week highs were exceeded by new lows for a second day with a slight positive in between on Thursday…we have not seen this since mid-July (around level of the 200 day moving average now!)

3. Advance/Declines were very negative -6.6:1 on NYSE and -4.4:1 on Nasdaq, and worse, Breadth was -19.5x on NYSE and -11.6x on Nasdaq…nothing to be a bull about!

4. EVERY index  (except NYSE Energy) plunged below their 50 day moving averages…while the NYSE got back above that it is also below the 40 day.

5. Every index had a lower high and lower low and would have suffered another negative key reversal (Dow Transports and Utilities did)…the only reason they didn’t is that they were down right out of the chute so could not put in a higher high…this would be the second since 10/21 and the THIRD since 9/23…we are on borrowed time – running out! The more important issue was the lows on every index were below Thursday’s lows (all indices closed at or near the highs that day), and the closes were all below those lows.

Here are the support levels for the key indices, ranked as TB sees their significance:

(close is first, as of 10/28, Fib retraces are 1^st 23.6% from low; 2^nd 38.2% from low)

Note: Peak 10/31/07; low 3/6/09…also moving averages are still rising rapidly!!!

1. Nasdaq 100: 1682; res 1693 50 day, 1709 40 day, 1773 1^st Fib from high; sup 1629 50%; 1485 2^nd Fib from low; 1441 200 day

2. Nasdaq Composite: 2059; res 2064 res 50% retrace; 1875 2^nd Fib retrace from low; 1782 200 day

3. S&P 500: 1042; res 1050 50 day, 1058 40 day,1110 50%; sup 1005 2^nd Fib, 917 200 day

4. Russell 2000; 566; res 50 day 566!, 50% 586; 40 day 596; sup 2^nd Fib 528, 200 day 506

5. Dow Transports: 3640; res 3835 50%; 3836 50 day, 3869 40 day; sup 3494 2^nd Fib; 3264 200 day…peak was May 2008!

6. Barron’s 400 (best stocks): 241; res 241 2^nd Fib; 244 50 day; 247 40 day; sup 218 2^nd Fib; 207 200 day

7. Dow Industrials: 9762; res 9755 40 day; 10216 50%; sup 9697 50 day; 9732 2^nd Fib; 8585 200 day.

8. SOX: 301; res 316 50%; 317 50 day; 321 40 day; 326-27 multi-top; sup 288 2^nd Fib; 266 200 day

9. NYSE Energy: 11222; res 11233 2^nd Fib; 12037 10/21/09 high; 12426 50%; sup 11087 40 day; 10945 50 day; 11233 2^nd Fib; 9757 1^st Fib; 9743 200 day – look how steep that is!

10: Dow Utilities: 366; res 376 40 and 50 day!; 390 1^st Fib; sup 354 200 day; 351 1^st Fib

Most troubling to TB is that now that we have broken below the moving averages they are still moving higher! That makes them a rapidly moving target that will get harder and harder to catch: technicians rule, fundamentals fool! Don’t trust them as they aren’t there!

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TB doesn’t usually care much for Saturday Night Live – except the opening skit. This week it showed ‘Barrack Obama’ holding one of his Oval Office chats. He was saying that it is wrong to say that everything he is doing is leading towards socialism. They then had on the right side of the screen a checklist of his promises…healthcare reform, get out of Iraq, Afghanistan, solve the credit crisis, etc. He proudly pointed that not one of those objectives had been completed therefore he is not leading us to socialism.

TB would also like to point out the lack of accomplishment so far in Obama’s term of office: by this point in Dubya’s first term we were fighting in Afghanistan and plans were being made for Iraq! 

On a serious note, TB believes that he would have done well to follow the ‘sage’ advice of Bill Clinton who put the far left in their place and successfully (morals aside) led an eight year economic boom that was real and not built on hocking one’s home. Too bad he can’t see that Nancy Pelosi is his nemesis…and ours.

Then on the Stepanopolous round table the very Reverend Al Sharpton was a guest who brought a smirk to George Will’s face when he said that liberals are the new conservatives because they are ‘conserving’ America…you go Al!…far away!

Hope you all have a prosperous week…which will not likely be done by playing the bull!

TB

Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries…as he sees it…and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Hope you find it useful. Copyright TBD Capital LLC, © November 2, 2009.

TB’s Quote of the Day: “Democracy is a device that ensures we shall be governed no better than we deserve.” – George Bernard Shaw…but does that include Barney Frank???    

Bloomberg Quote of the Day: “Success has ruined many a man.” – Benjamin Franklin – so true!  

—

If you can keep your head when all about you
Are losing theirs and blaming it on you;
If you can trust yourself when all men doubt you,
But make allowance for their doubting too;
If you can wait and not be tired by waiting,
Or, being lied about, don’t deal in lies,
Or, being hated, don’t give way to hating,
And yet don’t look too good, nor talk too wise;

—

…Yours is the Earth and everything that’s in it,
And – which is more – you’ll be a Man my son!

-‘If’ by Rudyard Kipling (1865-1936)

…remember that line from The Sixth Sense?…dead people walking, seeing only what they want to see…the zombies of Night of the Living Dead…blindly walking to and from work…looking straight ahead.

That is what we have become as investors. Fundamentals?…out the window. Old saws (i.e. sell in May and stay away)..out the window…Technicals?…now there is an interesting one…but do you believe history or do you say “it’s different this time?”

Wrote this column yesterday but the surprise rally makes TB add this: while the rally was at face impressive, it changed nothing from Wednesday…but they can maintain if the Dow can gain just 10 points to stave off a down week and 20-50 points on the rest. Still, the 40 day m/a’s held and it begs the question what for? Why a rally on the 3.5% GDP number which was a mere dent and ex-autos due to Cash for Clunkers which ended at the end of August it was up just 1.5%. A Bloomberg article postulated that inventory rebuilding will replace the consumer…for how long??? They think into the first quarter and then they see net new jobs…oh really? Overnight another Bloomberg article said the risk of the Obama/Bernanke plan is that the recovery will be fleeting and the U.S. will be saddled with trillions of debt…Martin Feldstein, Chairman of the NBER said that after the inventory rebuild there could be a slowdown “and a possible double dip.”  Actually, this adds to today’s discussion because TB could argue either the bull or bear case…but it is worrisome to him that everyone is a bull…meaning fully invested…so where do we go from here? Do you think the last two days which were more or less offsetting made the little guy feel more comfortable? Heck, TB couldn’t even find a professional that felt more comfortable…it was what it was (cliché).

The last one describes a conversation with an old friend of TB’s who he respects more than any other technician…but we diverge at times and this is one of them. We talked yesterday morning and here is the way the conversation went:

TB: Did you see that breakdown yesterday? Every index plunged thru the 40 and 50 day m/a’s! We should correct down to the 200 day…and hopefully hold there.

RS: I don’t get too concerned about that only when the 200 day is above the 40 and 50 day.

TB: …but how can you have that given the steepness and length of the decline?

RS: I see this as a correction…September is normally the worst month of the year but we rallied thru it…December is a very strong month so I think we will be higher by then and into January

TB: …but look what happened this year…strong December and beginning of January, then  we tanked on January 6^th until we hit the March lows…

RS: …but that was because we didn’t understand how bad the condition of the banks was

TB:  …and you don’t think it still is? This is, and was a credit crisis…also fear is back in the market…virtually every stock was down yesterday…

RS: …that is because the buying has been in ETF’s and so they are selling…but I don’t think the hedge funds have started selling yet…

TB: …another good point…people aren’t ‘picking stocks’ they don’t have the confidence and are instead buying the broader indices and sectors…they still have a lot in money market funds…also saw a CNBC poll taken after Wednesday’s close…100% of strategists they polled said that this was just a blip…and all said we would be higher by year end…some with Dow 11000 and one with Dow 11500…we are still in a credit crisis

RS:  …I think we will be higher and yes 11000 is possible..just got the fund flows and money markets saw inflows last week…jobs are a lagging indicator so it will show up late

TB: …GDP is a lagging indicator too…I still think we have to go down to the 200 day!

RS: (Phone rings)…sorry, I have to take this call…

Do not misunderstand…TB is not saying he is wrong but he thinks that there is too much significance placed in historical data that does not apply in a credit crisis…instead compare to 1929-34 and Japan from 1989 to 19994 and longer…we are tracking both! Scarily so….and it is the very steepness of this correction (rally?) that should concern us. We are way ahead of the fundamentals…the value was at the March lows…when fear prevailed…or as another said…the value was at the 9/30/08 level…everything else was panic selling…reminds TB of ‘if you can keep your head while all those about you are losing theirs…you just don’t understand the situation’ (Kipling/Mad Magazine)

TB must admit that he was chicken…why? Because he could not subject his clients to any more losses than they already faced…he did not sell everything mind you…but he could not risk more losses…but is that being cowardly…or just prudent? Which would hurt a client worse: to sell everything at the lows? To hold on? To buy and risk further losses? It is not an easy answer and it comes from the basic principle of money management: know your client. But if you are a major money manager how do you do that? After all, you can’t selectively sell while selectively buying for others? Do you become more concerned with relative performance than absolute performance? We all know the answer to that one…because that is the game…to beat the other guy…even if you lose money. Our values are warped…hedge funds have it right: only absolute returns matter…but uh oh…there is that 2/20 fee…with the 20% only applying above the high water mark…which will never be seen again by most and they need the 2% to cover expenses…so why not just shut down the fund and regroup? That is what many are doing. For the love of God how did we come to this? Our investment principles stink! Worse, what we are buying is stock in companies who only  care about beating their competitors as the key is to have the best performer in a sector, knowing that money will flock to the best performer at the expense of the worst and managers must maintain some kind of sector weighting. Why do I want to own an auto company when the entire sector is in the tank?…or an airline?…just because it is the best performing one even if it is operating at a loss? Oh, and utilities…with solid yields…yet nobody wants to own them? Go figure…don’t dividends count…IF you have the ability to maintain or raise them?

Here are the support levels for the key indices, ranked as TB sees their significance:

(close is first, as of 10/28, Fib retraces are 1^st 23.6% from low; 2^nd 38.2% from low)

Note: Peak 10/31/07; low 3/6/09…also moving averages are still rising rapidly!!!

1. Nasdaq 100: 1682; res 1693 50 day, 1709 40 day, 1773 1^st Fib from high; sup 1629 50%; 1485 2^nd Fib from low; 1441 200 day

2. Nasdaq Composite: 2059; res 2064 res 50% retrace; 1875 2^nd Fib retrace from low; 1782 200 day

3. S&P 500: 1042; res 1050 50 day, 1058 40 day,1110 50%; sup 1005 2^nd Fib, 917 200 day

4. Russell 2000; 566; res 50 day 566!, 50% 586; 40 day 596; sup 2^nd Fib 528, 200 day 506

5. Dow Transports: 3640; res 3835 50%; 3836 50 day, 3869 40 day; sup 3494 2^nd Fib; 3264 200 day…peak was May 2008!

6. Barron’s 400 (best stocks): 241; res 241 2^nd Fib; 244 50 day; 247 40 day; sup 218 2^nd Fib; 207 200 day

7. Dow Industrials: 9762; res 9755 40 day; 10216 50%; sup 9697 50 day; 9732 2^nd Fib; 8585 200 day.

8. SOX: 301; res 316 50%; 317 50 day; 321 40 day; 326-27 multi-top; sup 288 2^nd Fib; 266 200 day

9. NYSE Energy: 11222; res 11233 2^nd Fib; 12037 10/21/09 high; 12426 50%; sup 11087 40 day; 10945 50 day; 11233 2^nd Fib; 9757 1^st Fib; 9743 200 day – look how steep that is!

10: Dow Utilities: 366; res 376 40 and 50 day!; 390 1^st Fib; sup 354 200 day; 351 1^st Fib

There you have it. Now about stops. This is the data you need for setting stops for individual stocks be they trailing or stop loss…and be sure to use limits so you don’t get crushed! They can be time-consuming to find manually (TB has a Bloomberg), but as Jim Cramer says if you are an investor you need to devote at least one hour a week to it…seems fair doesn’t it? Most sites can give you whatever averages you want it just takes longer to find. But don’t you owe your future one hour a week? One hour less of TV or something else you do that may be relaxing but is a waste of time.

Also do not be afraid to sell…if you have big enough positions and like the stock…put in stops on half…and don’t be afraid to buy it back if you were stopped out even if it doesn’t go lower IF market has stabilized. You are doing this for protection, not because you don’t like the stock…you are trying to hold on to gains and minimize losses.

You may not agree with the above and TB respects that This is just one suggestion that might let you sleep easier at night. Remember the most important thing: whatever you do…do it to make you feel better and reduce stress. If you are more comfortable doing nothing or if you don’t feel you want to devote the time to your portfolio, that is your choice…but TB hopes you will at least think about your plan.

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Why should we have confidence in our markets? The banking lobby is stalling and watering down any possible regulation; Geithner told Congress it was crucial that the Administration and Fed work together on any future crisis (while FDIC Chairman Sheila Bair took the other side)…which could turn things even more political last time thanks to differing treatment of Lehman, AIG, and CIT; we have the biggest insider trading scandal in history that has roped in INTC, IBM, and now former CEO’s of AMD and McKinsey and Company; Goldman claims that their Black Pools and flash trading improve market liquidity….yet they know that it is illusory liquidity.

But if you think that a positive GDP that was propped up by an expired auto program, and believe that a one quarter inventory rebuild can possibly turn the economy around without new, higher paying jobs, more power to you. So think a deep ‘V’ or join TB and Martin Feldstein who say why have a single when you can have a double dip???

Happy trading and Happy Halloween!

TB

Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries…as he sees it…and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Hope you find it useful. Copyright TBD Capital LLC, © October 30, 2009.

“The trend is your friend…until it hits a bend,” Albert Edwards, Societe Generale economist, “beware, we may have just hit one.” Commenting on slowing in U.S. economic growth for first time since March…that would be the lows.

…like ‘perfect storm,’ ‘at the end of the day,’ and other clichés, this one is getting on my nerves…it started as “thank you soooo much’ morphed into ‘thank you so much’ and has no iterated to ‘thank you sa mach’…it grates on the brain! Thank y’all so muuuch for understanding. But what are they all so thankful for? Coming on their show? TB doesn’t get it as it is being so overused…now you can expect it to become thank you so much for not belching. Anyway thank yew so much for reading this blurb. Your humble writer, TB

Ok, enough levity as yesterday’s sell-off was dead serious and cannot be dismissed:

*For the first time since 7/8-7/10, new 52 week lows exceeded now highs. Since the March lows here are the only times that happened (prior to that lows were in control): 3/30-4/1; 4/7-4/8; 4/14-15; 5/5; 5/13-14; 7/8-10…they did not exceed new highs since then including following the key reversal on 9/23 that looked like a ‘rout’

*Volume was 1.68 billion shares – highest since 9/30…in fact every day this week has had above average volume…something we have not seen since the four days leading up to the 9/23 key reversal

*Advance/Declines and Breadth were not only negative they were the worst seen in this sell-off: NYSE -8.6:1 and -9.4x; Nasdaq -5.6:1 and -11.8x; AMEX -4.6:1 and -15x!!!

*Whereas on Tuesday, only the Dow Transports and Utilities were below their 40 and 50 day moving averages, we had a plunge yesterday of the S&P 500, BOTH Nasdaq indices, Barron’s 400, AMEX Composite and the Russell 2000 which took out both of these, as TB warned could happen – in a single session! The sector TB watches, Philly Semiconductor Index (SOX, was below them for two days and plunged yesterday even more. Remember this sector the Nasdaq indices and the Russell 2000 led us out of the March lows! This is a very bad sign! The NYSE Energy which had been riding the coattails of the runup in Crude is now suffering with it and is withn 125 points  (about 1%) of breaking the 40 day and another 125 puts it below the 50 day…tell it goodbye!

*On Friday and Monday, commodities, stocks, and bonds were all down…following the dollars lead…but wait? Weren’t stocks supposedly benefitting from dollar weakness? That was the line we were fed…Tuesday only stocks and the dollar were weak, bonds

were strong and commodities ‘stabilized’. Yesterday, the dollar rallied – right up to and slightly above the 40 day moving average and stocks and commodities plunged while bonds were up. The sell-offs were broad base hitting every sector!

*While earnings have been beating ‘lowered bar’ estimates, there continues to be little ‘top line’ revenue growth and more coming from cost-cutting. Add to this the Fed ‘testing’ it’s reverse repo facility…just in case they need to use it if economy surges, which they are forced to do because the supply-siders are wringing their hands over fears of inflation…they would prefer DEFLATION??? Meanwhile the central banks of Australia and Norway have tightened, China is becoming tougher on bank lending, India has told the banks to buy more government bonds to bolster their balance sheets, and both the Bank of England and ECB are talking of raising…all of which is about increasing investor confidence that they know what they are doing and they don’t favor inflation. It is highly unlikely that either will tighten soon…perhaps for a year or more…but the biggest joke is the Fed tightening…to what end? …drive us back down again???

TB is not happy to be proven correct…all he cared about was for his readers not to suffer unnecessarily by following the bulls who were begging for more inflows to stocks. Isn’t the biggest rally in seven decades (per Bloomberg) enough for them? Doesn’t it make sense to realized we have rallied too far…too fast??? This remains a credit crisis – not just an economic one. Overnight, BASF reported a 69% drop in revenues and said they will cut but not eliminate their annual dividend which is (was) near 5%. Exxon Mobil just reported earnings of 98 cents vs. estimates of $1.02 – their fourth straight decline as oil prices fell! It closed at $73.84 – indication is down $3 on open.

So all we have going for us (?) is a positive GDP surprise this morning…consensus is for +3.2% vs. down 0.7% in Q2…and it better be that good or better…also the Price Index is expected to be +1.5% from unchanged and we need that to show some of he deflationary pressure is off. That information will be released at 8:30 am EDT  - GDP just released…look for positive open then fade into close. TB

Where might stocks stop their decline? Think their 200 day moving averages…TB will provide the data for key indices tomorrow…how exciting! 

The K1 hedge fund blow-up has snared JPMorgan, Bank of America, and others including Deutsche Bank…something like $300 million each. Helmut Kiener, the founder has been arrested for fraud…he a former salesman turned hedge fund manager.

Then there is the story that won’t go away: Goldman Sachs and AIG!

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The bailout of AIG is getting more scrutiny due to the fact that the negotiations over how much to pay creditors on the CDO’s was overseen by Tim Geithner, then President of the NY Fed and the Chairman, Stephen Friedman of Goldman Sachs…who during the negotiations bought 400,000 shares of Goldie and resigned saying there was no conflict of interest. Unlike Martha Stewart nothing further has been done to him. Once Geither went to Treasury, he oversaw the settlement which ‘to avoid a long drawn-out settlement with creditors’ which included ahem Goldman Sachs, Citi and others, he took the unprecedented step of paying 100 cents on the dollar and it was recorded as market value!

The ire at Goldman and Citi getting paid in full by a company now owned 86% by the taxpayers is not going away…worse, Goldman had already hedged its hedges with AIG sensing that they would be worthless…talk about a windfall…double! This is sick.

Meanwhile the House is working on a new plan for future financial rescues even as they say that ‘too big too fail’ is a mistake…no doubt that is due to the enormous lobbying effort of the banks (Citi spent more money lobbying this year than last year or the year before). The latest plan is for those who have a vested interest…read the public would have to ante up in order to save them…i.e. throw good money after bad. We are being screwed by our elected officials who are apparently more concerned with their own wallet and re-election than about the taxpayers the swore to serve! When will we learn?

CNBC should discontinue their Fast Money segment where you can ‘learn’ from traders…have you noticed they hardly ever admit when they are wrong…and last night they saw this selloff as not even a correction but a blip. How much value is there in that? Only to make you make dumb bets into positions they are already in….SOP.

Have a some kind of day,

TB

Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries…as he sees it…and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Hope you find it useful. Copyright TBD Capital LLC, © October 29, 2009.

Bloomberg Quote of the Day: “When you’re as great as I am, it’s hard to be humble.” – Muhammad Ali

TB saiz: “When you’re as humble as I am, it’s hard to be great.”

…gains momentum and this sell-off is certainly doing that…painfully so! Thanks to Mad Magazine decades ago for that saw…who cares about gathering moss anyway? The point is that this selloff is gaining momentum and overseas markets are in the tank today on poor earnings (why did they just realize this…the qualtity of earnings?). Worse, the retired CEO of AMD has now been drawn into the Galleon affair so we have a triad of tech: AMD, IBM, INTL. Isn’t that just great? Buy today and you will regret it. Also, if you are a stock picker note that the stocks that go up are ‘rotating’ and by and large it is becoming every stock having a down day…eventually. The danger here is of fear taking hold again as we saw last September…cheer up…you can buy stocks cheaper…just don’t do it yet. Those 40/50 day moving averages TB has been chirping about (as a canary), have been prescient as that is when his stops kick in…so far he has lost only about 15% on the stops…many of which he raised above the 40/50 line when he saw the sell-off emerge….a nice place to be. None of the stocks he has been stopped on have rallied since – none! The latest casualty was Cisco, with WalMart, and Nucor the day before. Also got stopped out on Glaxo which just reported and missed…bid is down. By the way, other than Cisco he did not buy any of these stocks but ‘inherited’ them from another ‘well-known’ manager. Expecting to get stopped out on several today of the Asian stocks…arigato! If you try it be sure to put a lower limit in with your stop!

So what happened yesterday?

*Advance/Declines and Breadth were negative again…that is three straight and four of the last six sessions for A/D and five of the last seven for Breadth!

*New 52 week highs plunged to 111 from 248 from 306 from 245 from 534…twice before it was over 600 this month. Meanwhile new lows which had been running single digit rose to 48 and the ratio which has been as high as 22:1 is just above 2:1!

*Transports, Utilities, and the SOX are now below their 40/50 line and the Russell 2000 small cap is not only below 600 but below the 40 day and closed on the 50 day yesterday! The rest could do it today based on the overnight weakness. We could/should be in for a test of the 200 day moving average as has happened in every bull market rally in a secular bear market….remember this 10+ year cycle is only two years old! Oops!

*Volume which has been below average for months has been at or slightly above for the past three sessions…this is not what you want to see in a sell-off!

You can be bullish if you want…but not TB!

Let Jamie do it! Ah, the one, the only Jamie Dimon. Yesterday, TB listened to a long interview of him by Charlie Rose at the SIFMA (Securities Industry and Financial Markets Assn. – which no one ever called it as it was expected we knew the acronym!). Dimon was candid (?), funny at times and not completely forthcoming in TB’s humble opinion. There were many culprits of the financial crisis according to Sir Jamie but they were not the banks, the regulators, and most definitely not derivatives! No sir, it was greed. Derivatives are good, he says…despite the fact that credit default swaps which were ‘designed’ as a hedge…pullease…they were for speculation by hedge funds under cover of being hedges for legitimate investors. Thanks to them, companies cut their staffs of bond analysts relying instead on municipal bond insurance and the swaps to let them buy crap. This put them in the position of making more money on a bond if it defaulted than if it paid off at maturity (isn’t this what the problem now is at CIT???). Sir Jamie also talked of the bad guys in the industry…he had only to look within his own bank to see ripping off municipalities such as Jefferson County, Ala. (Birmingham), Oakland, Ca, and other places where interest rate swaps were misrepresented. Also, on the subject of derivatives, how about the limitless commodities swaps his bank and others underwrote to commodities index funds causing the surge in food and energy prices in early 2008 which sealed our fate? Then, after saying that banks should be separated from their investment subsidiaries (told you that was what he was preparing for with the internal shake up), he said banks should be able to operate hedge funds…he said this even after the Galleon scandal?…or what about Citi’s foray into them and what that cost them. Speculation is not now, or never was, part of the definition of a bank. But he feels that it is OK to own them so long as they don’t invest in them…could the reason be to keep his wealth management clients captive? He also is still big on credit cards (he recently said his goal is to surpass AmEx – the losses be damned). He talked of their takeover of WaMu which is an unmitigated disaster as their conversion doesn’t work…you can’t transfer funds from one state to another and they are losing customers in droves.

Make no mistake about it, he is the smartest banker out there…at least that we hear about. But if he is such a good guy, why hasn’t he done anything about those interest rate swaps that the bank force fed to state and local governments? We’re waiting, Jamie.

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TB has been checking daily for a response on Salary Czar Feinberg’s plan on executive compensation from Graef (Bud) Crystal. Readers know of TB’s respect for this recognized compensation analyst who has been disgusted as we all have by the growth of executive compensation…with no correlation to performance. TB has talked to Crystal in the past and was writing for Bloomberg regularly. He is no longer doing that but writes as an occasional contributor. Today he has a column and it is the first sensible comment on compensation (ironically he talks about the Nixon salary controls which were a failure as people only moved from one company to another and some even moved back at much higher salaries…TB had planned to comment on that failure today). Crystal now has a website www.graefcrystal.com on executive compensation…check it out.

Have a terrific day!  

TB

Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries…as he sees it…and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Hope you find it useful. Copyright TBD Capital LLC, © October 28, 2009.

Famous Baseball Quotes: Who said the following?

A. “Adios”

B. “Back, back, back, back…Gone!”

C. “Bonsoir, elle est partie!” (It’s gone!)

D. “Bye bye, baby”

E. “Forget it!”

F. “Get up. Get outta here. Gone for good!”

G. “It could be…it might be…it is! (A home run!)

H. “It’s going…going…gone!”

I. “Kiss it goodbye!”

J. “Long gone!”

K. “Tell it goodbye!”

Answers at end of commentary…what? You wanted TB to make it easy for ya? 1^st prize is a one year paid  subscription to TB, 2^nd is a two year, 3^rd is a three year…

…what are all those quotes doing here? Because they aptly describe what happened yesterday…but it was like watching the visiting team hit the home run! A SECOND straight DOWN day! Stocks were DOWN, Bonds were DOWN, Commodities were DOWN. It isn’t supposed to work that way but that is how it was…and not just down but big time down….and we did it twice! Worse, stocks tried to rally and failed miserably.

We start talking about $2,000 gold and gold falls (meanwhile the moving averages are not only up, they are over $1,000!); we start talking about $100 oil and crude falls…don’t even ask about natural gas which has been in the dumps for months! So why not start talking about Dow 11000 and watch it turn turtle too?

As if Friday’s selloff wasn’t bad enough, Monday’s was enough to make one ill Yesterday’s rall out of the chute took the Dow precisely 100 points above Friday’s close, then it plunged again closing down 106 points – a 206 point swing on the day. We were saved from another negative key reversal by the mere fact that Friday’s closes were at or near the low. Mind you, the rallies are insignificant as we are still nowhere near the 50% retracement of the entire selloff from 2007…in fact in most cases we are still down from September 30 2008…hence the focus on year-to-date figures. Also, the steepness of the rally HAD left the 40 and 50 day moving averages in the dust but they are back…Transports and Utilities have already penetrated them and the rest are in striking distance…but who cares? Also, who cares that in every secular bear market we have rallies of the size of this one and they invariably end with a test of the 200 day moving average and in the case of Japan they did it repeatedly while they dove for 10 years. There was plenty of opportunity to make money trading but not if you were greedy! But the real question is:

Why do we think we should be where we are???

If things are so ‘rosey’ (not to be confused with bear David Rosenberg), why are we screaming for more stimulus (when only about half of it has been spent…the remainder being saved for just before next year’s elections)? Why did the market sell-off as it focused on this mornings Case-Schiller Home Price Index which is expected to decline for a 32^nd month? Worse yet, why are our elected officials ignoring calls for more bank regulation – in fact a return to Glass-Steagall by the only man in this country with a proven track record on knowing how to run the banking system…if you said Alan Greenspan go to the rear of the class and sit down! Paul Volcker…a man Obama respects enough to make head of his Economic Recovery Team but instead relies on Rahm Emanuel and Tim Geithner?

A Bloomberg story this morning cites that it was Geithner…no doubt with the blessing of the Treasury’s economic consultant – Goldman Sachs…who after supervising the creation of a document on how much the creditors (those holding credit default swaps with AIG) would be paid. The document had a _________ to fill in with the percentage of the notional value of the contract. The blank was crossed out so that Goldman and Merrill received 100% of the value of those contracts…no negotiation…just pay it! Never in the history of a bankruptcy has this been done…and worse to firms we were busy bailing out! Thus Goldie had a good year at the taxpayers expense and is upset with our interfering in their black pools, flash trading and more. Capitalism is the best way, so leave it alone and we will all thrive…trickle down! Do you feel it?

How many times in these commentaries has TB said that capitalism only works on its own IF management manages…i.e., plans for the future not the current quarter or the tenure of the current CEO? That also requires investors who are there for the long run but they are not…the average holding of a stock is not only less than one year, it is more like three months! Who cares in that environment and that creates the motivation to ‘cheat’!

Were it not for the costs of getting elected and more importantly (to them) re-elected, we might be able to survive. Instead we want quick fixes such as encouraging more consumption when the consumer is in fact tapped out! He has depleted the equity in his home and the banks aren’t going to advance more.

Overnight, Emerging-Market stocks had their biggest decline in seven weeks…the last time being when China said they were going to require the banks to curb lending. Well, this time it is India, who told it’s banks to increase their holdings of government debt. Result: -2.3%, taking Japan (-1.5%) and China -1.9% on Hang Seng and nearly 3% on both the Shenzhen and Shanghai exchanges. Three weeks ago, Australia’s central bank tightened and Norway may be the first European bank to tighten. But that is not going to happen here. Why? Because we have the worst personal debt levels in the world and if you want to kill the recovery (technical) all the Fed has to do is tighten. Yesterday, the Fed tested it’s new ‘reverse repo facility with the primary dealers…a week ago they tested an overnight facility…this time they created a dual facility: overnight and one week and that sent shivers thru the bond market….needless TB thinks but it would be nice if we backed up enough to put some value in the 10 year note (3.80%-4%).

But it is merely a test…like those air raid drills at 10am on the last Friday of the month when we were growing up in the Cold War. The Fed knows it can’t tighten…even if it wanted to…which it does not…but it needs to show they are alert…unlike those two pilots for Northwest who overshot Minneapolis by more than 150 miles. Remember  Thomas Jefferson’s famous quote: “eternal vigilance is the price of liberty.”

A friend sent TB a speech by David Einhorn who runs a long-short hedge fund. It is TB on steroids! Yesterday, John Mauldin picked it up in his Outside the Box edition and TB urges you to follow the link. You have to read it for yourself to see just what a man of wisdom (Renaissance Man?) Einhorn is. Here is the link:

http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/archive/2009/10/26/liquor-before-beer-in-the-clear.aspx

If we persist on growing the economy quickly (i.e. before the 2010 elections), it will not only enrich the banks who screwed us but insure that we do not build the foundations for sustainable economic growth and if we don’t reform the banking system including irradicating the inane ‘too big to fail’ we will doom ourselves to repeating this exercise in a few years and likely with worse consequences…fool me once…

TB is going to cut right here in hopes you will connect to the link and read it in entirety and thoughtfully. It may be the most important piece you read this year!

Answers to baseball trivia: a) Wayne Hagan, b) Chris Berman, c) Rodger Brulotte, d) Russ Hodges, e) Vin Scully “Vinnie”, f) Bob Ueker, g) Harry Caray, h) Harry Hartman, i) Bob Prince, j) Ernie Harwell, k) Lon Simmons – Hall of Famer

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While the supply-side economists wring their hands over rampant inflation in the wings, we should instead be focusing on the risks of DEFLATION…deflation spell DEPRESSION, yet these seers cannot understand that what we have seen in rising asset prices (capital assets only) is an aberration. Unsustainable and that stagflation would be a welcome event at this point.  After all the supply-siders helped to create the greatest income imbalance in a century…way to go guys! But at least you got rich!

Have a great day!

TB

Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries…as he sees it…and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Hope you find it useful. Copyright TBD Capital LLC, © October 26, 2009.

Bloomberg Quote of the Day: “The best time to make friends is before you need them.” – Ethel Barrymore

…what kind of day was it? A baffling day! No, it was a DOWN day! Stocks were DOWN, Bonds were DOWN, Commodities were DOWN. It isn’t supposed to work that way but that is how it was…and not just down but big time down.

Commodities were off nearly 1% with only Silver and Copper up anywhere near 1% – Gold down slightly, ten commodities, led by Coffee (-4.5%) were down 1% or more; Bonds were down from 1/8 on the 2 year to 1 point on the long bond, and stocks were down more than 1% on every index with Transports leading the way – down 3.5%!

It is that that last note that is particularly disturbing as Transportation has not confirmed this last leg of the rally from the March lows. Also Barron’s confirmed TB’s concern about small caps which led the rally along with the two Nasdaq indices did not put in new highs last week but only they big stock indexes and those struggled all week to eke out even minor gains…but not to worry…stock futures are up overnight – by about 0.5% – but let’s not get carried away by that.

Also, it is inconceivable to TB that his equity brethren can still be so giddy after the gains we have had since the March lows and still see stocks rising as far as the eye can see. TB also has had no takers on his theory (not proprietary) of trailing stops with limits…everyone still appears to be all in for a Merry Christmas, Happy Hanukah and even Ramadan! …heck, many are still looking for a Happy New Year and more!

On the subject of trailing stops however TB cannot stress enough (although he is stressing of late), the significance of placing LIMITS with those stops. A case in point is Burlington Northern (BNI) which posted earnings Friday (although Barron’s didn’t see fit to point it out or even make mention of it), that missed on earnings, which were lower than Q3 2008, had lower revenue and lower revenue miles. That caused the stock, one of Warren Buffett’s and TB’s favorites, to plunge…taking the Transportation index with it.

The stock gapped down on the open by more than 2 points, plunge more than 6 points and close down 6.5% on the session.. Not only that it opened below both the 40 and 50 day moving averages and even closed more than 3-1/2 points below both of them. But the real story was the index where BNI subtracted 28 index points (the total loss was 137), and not one stock in the 20 comprising it was up…UNP and CSX added another 34 points. If the rails aren’t doing well how can the economy be doing well? Hard to fathom.

 So how did TB’s stops fare? He had a trailing stop at $81.95 with a LIMIT of $81.70 (due to having sizable gains). The stop was well below the 40/50 day m/a’s which converged at $82.77 (had he had a loss he would have had a stop at $82.75).The stock closed Thursday at $84.62…gapped down on the open to $81.92! and dove to $78.32 before closing at $79.12…where it was on October 5! Also, that is right on the trend line from the March 9 lows. So had TB not had a limit, he would have been stopped out and he would be fuming. Assuming it can stabilize here this is a good entry point on the stock (or at least it looks that way). On the other hand if it fails, support is at the 200 day: $72!

Whether you choose to call this a countertrend rally in a secular bear market (and contrary to popular belief these do not last just two years but a decade or more), or a cyclical bull market which TB refuses to do since we have not come back to 50% of the entire loss…to refresh that is 10336 on the Dow and 1121 on the S&P – which TB thinks is moot. What is of interest…or at least should be…is the similarity to this secular bear market with 1929 and to Japan following 1989. If that similarity continues this is merely the first leg in many before the secular bear dies. Don’t be like the bull in the corrida.

Barron’s also neglected to comment on the failed IPO two weeks ago of Banco Santander do Brasil (BSBR) – the largest every in Brazil $8Billion and the largest globally since 2008…priced at $13.40, it opened at $14.04, plunged to $12.80 and closed at $13. The high since then has been $13.87 and high closed $13.79 that day, with Friday’s being back at $13.25. The importance of this issue, along with the size, is the fact that they priced it at 18x earnings despite the average Brazilian bank being 15x…the size of the issue be damned! Also, a week ago it finally dawned on someone to comment on the 50% premium to net asset value that the market has ‘deeded’ to Pimco…how long has TB been chirping about that???

You cannot trust those who talk on CNBC or even Bloomberg, or those who write (including TB) to make the right decisions…those decisions are yours so you have to do your own thinking…but one way you can beat money managers is to be flexible…they, like economists, cannot be…and we know the track record of even the best economists.

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One more week of the talk shows focusing on health care and TB is going to go stark raving mad! The rhetoric-loaded blather is enough to make you feel ill. Oh, and if the GOP doesn’t shut up about their ideas being ignored…they have no ideas…only negativism…nattering nabobs of negativism (Spiro T. Agnew)…nor do they want to as they sense failure and by being the loyal (sic) opposition they can be the heroes.

But regardless of which camp you are in …or neither as TB and most people he knows…do not forget that all these hired guns are just that…bought and paid for by the lobbyists and the best and most highly paid are by the financial sector who wants absolutely no reform whatsoever. They would destroy us all for their own gain. Why do similarities to the Romans keep coming to mind?…or even the Venetians. This is how empires are destroyed…by smiling politicians…OK. and House Minority Leader Boenier who always looks like he is in pain. How do we extricate ourselves from this mess and these thieves? 

Have a contemplative day,

TB

Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries…as he sees it…and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Hope you find it useful. Copyright TBD Capital LLC, © October 26, 2009.