TB’s Quote of the Day: “A rising tide lifts all boats.” – Sean Lemass, Irish politician but popularized by John Fitzgerald Kennedy…until the bad caulking lets some of them sink again!
…anyone else remember that old German drinking song, Schnitzelbank? Ist das nicht ein schnitzelbank? Jah! Das ist ein schnitzelbank! Then among the various descriptives in the verses was: kurtz und lang (short and long). If this were a court proceeding it would be named Kurtz v Lang. You all know where TB stands on this and hopefully see the importance of balance in financial markets yet yesterday afternoon, a woman, one of the regulars on Dylan Ratigan’s Times Square carney show said this is all stupid…naked shorts, no uptick rule…she even pointed to the .01 uptick without suggesting that the fools change it to 12 ticks as Chuckie Schumer proposed (i.e. roughly 1/8 which would get us back to where we started).
Still cannot get over the dereliction of duty discussed yesterday and as one of TB’s favorite daily writers put it: “we need to clear everyone out of ‘effing’ D.C.” TB concurs but has yet to identify a true leader”
Bernanke: why didn’t he even consider raising margin requirements from where they have been since 1974 (50%) and the lowest they have been since at least 1968?…highest was 80% from 1968-70!!!
Cox: you all know where he has had his swollen head since he took over as SEC Chairman. It is inconceivable that he could go before the Senate knowing he would be asked about naked shorts, yet he in an off the cuff, yet calm, manner said that they were going to impose limits on shorting GSE’s. The next day they extended that to the 19 top financial institutions…but not effective till Midnight Sunday and then for a period of just one month…fool! …should have said until further notice!
Paulson: TB is stammering to find the words…
CNBC is reporting this morning from Sag harbor in the heart of the Hamptons…once again they are mocking us over shorts…gee nobody complained when the market was going up…gee why only when things go bad…but they do have a point if the Cox-led SEC had been doing its job it wouldn’t have been sitting idly by but considering what rules we need…you do know there is a precedent for this, right? It’s called 2000…and note nobody did anything then either…TB only recalls a few pleas to pension funds to stop lending out their stocks.
Look at these top stories from Bloomberg this morning:
*Citigroup report ’smaller than estimated’ loss of $2.5 billion…shares gain
*Freddie Mac $3 billion bond sale snapped up in Asia, Europe as yields rise. 3.358% for 2 yrs +88bps
*Merrill shares drop after $4.7 billion loss as writedowns dwarf estimates…this one is interesting as it is almost equal to what Mike Bloomberg and friends paid for their 20% interest in Bloomberg PLC. Thane says they have enough cash now but then we hear they are contemplating further sales.
*Schlumberger Q2 profit rises 13% as oil price climbs to record…yep that happened on 7/11 but it is down 12% since then!
Stocks were up overnight then weak on Citi earnings…following Merrill…you have heard all the breathless hype on CNBC about this rally…how meaningful it is…TB wishes to show you just how meaningless it is…and that IF we fail today we are truly in a bear market…secular? The SEC put on a Bandaid…more of a dissolving suture. TB is frequently asks what he does. He has answered to money manager friends: the things you are supposed to be doing but aren’t…because you have too many committee meetings, client meetings, compliance meetings, etc.
Look at the table below of key indices and financial stocks returns from the ‘peak’. Note that the last to peak were the Dow, S&P 500 and NDQ 100 last October (aside from Energy and Transports which peaked in mid-May). Then note the following:
1. TB has repeatedly pointed out that for the last 3 quarters the markets have sold off from the last day for T+3 settlement in the quarter, which applies specifically to hedge funds due to borrowing, etc. He has also pointed out that no sane money manager wants to see the market down at quarterend due to a loss of fees, and hedgies thus can make money managers looks worse than they do…watch for this at the end of September…TB has not seen one other analyst make this observation!
2. Note how early the weak stocks peaked…i.e. Wachovia, and Citi…someone smelled a rat!
3. Despite the hype of the past two days rally note that not one of the indices or stocks is back to the levels of 6/25 (last day for T+3 in Q2!). Also only BofA, Transports and Energy are even close! This makes today all that more important and it is also options expiry!
4. Notes: all returns are unannualized and include dividends reinvested in the index/stock.
If you want proof that this is mere shortcovering, please explain why Wachovia (WB) has rallied 34% over the past two sessions…including 27% yesterday when state regulators swooped down on their St. Louis investment headquarters over auction rate securities trading…they are merely the first and there will be many more to come. Question: why are we not hearing any investigations into JPM over their confiscatory fees on interest rate swaps to Jefferson Co., Alabama…nary a word….and remember they are the big writers of commodity swaps (as well as credit default swaps). Caveat emptor! TB
We had all better pray that after options expiration this morning we can rally and rally hard. TB doubts that the hedge funds will allow us to take out the June 25th levels…if so, it will only be because of those ‘frivolous’ anti-capitalist short selling rules, right? Think of this as Groundhog Day! No shadow, please!
TB hopes you found his research on returns useful and that it saves you from leaping into the fray. This is not a time for bravery but one for common sense which these days is not all that common.IF this rally is real, which TB severely doubts, you have plenty of time to buy in…instead look for those boats of your with the caulking rotting…and sell them to some other poor fool!
Enjoy your weekend!
TB
