2009 April « Traderbill's Financial Markets Weblog

Archive for April, 2009

4/30/09…19 and counting

April 30, 2009 at 4:21 am · Filed under economy, financial, markets

Yesterday’s rally was puzzling…why was it so strong…yet on a third day of below average volume? Here are the key points:

*advance/declines and breadth were very strong

*new 52 week highs continued to gain and are now 3:1 to new lows

*most indices rose to highs since early January, particularly strong was the Russell 2000 Small Cap and the two Nasdaq indices looked good, while Transports continued to hold on to their up trend but are really trending water…they are past the inflection point.

Bonds weak and tiring of all these auctions which will continue as far as the eye can see, and even further. Commodities rallied but have struggled near the lows while tracing the 40 day moving average for the past 7 sessions. Dollar is well off the highs and mid-range between the 40 and 200 day moving averages which are slowly converging.

Today is month end, not significant in itself but tomorrow is MAYDAY!!! and we should all hope that it isn’t in the distress sense. Much of the world’s markets will be closed tomorrow so they can engage in protests…mostly against the U.S. or go out and buy masks or fill Tamaflu prescriptions. All can go swimmingly until next Friday when we get the payrolls reports…who cares unemployment is a lagging indicator…not when weekly jobless claims continue to rise…sheesh! Oh, and about those nice earnings? Much of the gain is from layoffs…you know, counted as one-time charges. Go slowly.

TB’s Quote of the Day: (we)…“ would have been profitable this quarter if
not for the dramatic improvement in our credit spreads – which is a significant positive development, but had a near-term negative impact on our revenues,” Morgan Stanley Chief Executive Officer John Mack said. Huh? You mean if they had deteriorated you would have done better, John? …not to mention how the increase in the value of their debt hurt earnings, right? All they need to be really profitable is more injections of cash by the Fed, right?…or convert TARP 5% preferred to common stock!

…how long can this go on? Stocks rebounded again yesterday and are up again overnight despite a worse than expected GDP number (-6.1% vs. consensus -5%), but they shook it off on better earnings from some companies. Procter & Gamble just released and had the first drop in earnings in seven years due to a stronger dollar…like John Mack above, if only the dollar had been weak! They beat the lowered bar analysts earnings by 3 cents ($0.84 per share), and revenues slipped (they see a 2-4% decline for the year). Let’s see how the stock reacts today…it closed at $50.42 and overnight it is $51.26-99.

OK, BofA got the message…Ken Lewis remains CEO but is no longer Board Chairman or even on the board. But what have they got? Walter Massey, 71, an outside director is now Chairman…he was formerly President of Morehouse College and has a business background…but is that good enough in this derivatives filled environment. Retired General Tommy Franks is also on the board…but what does he offer on running a supermarket bank? Of the rest of the board only two are under 69 years of age. This illustrates the problem corporate America faces…boards of aging directors who are on multiple boards but can offer nothing…zip…in a financial crisis like we are facing.

When Sam Armacost was CEO of BofA, it was said that his most difficult job was keeping the directors from falling asleep. Armacost bought Charles Schwab who sat on the board and then bought back his company if that says anything…also he bought it back for less than they paid for it!

Is the Wizard losing it? Yesterday, Buffett announced he wouldn’t release Berkshire’s earnings until after this weekend’s festivities. He previously said that the company had profitable operating earnings but that was ex-investment earnings…you know those huge long-term derivative bets he put on against stocks…and they are what matters. Still, the stock which has been in a slump rallied…never saw a stock rally before on postponement of the earnings release…he really is a wizard…of Omaha or otherwise. By the way, his good friend and now director, Bill Gates, said he is on board (and on the board?) for the rest of his life. The stock rallied 5.6% yesterday but is off 1% overnight. Stay tuned.

Go buy a DQ or some See’s Candy today and show your support for Warren, OK?

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, April 30, 2009.

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4/29/09…the age of majority

April 29, 2009 at 5:06 am · Filed under economy, financial, markets

…18 straight days of sideways motion, and we limped into it as we have the last few days…only worse

*of the indices the WSJ posts daily only 16 were up while 35 were down, and the losers were down more than the gainers

*advance/declines and breadth were all less than +/- 2

*both volatility indices declined slightly and are <39, but 40 is the key to watch for

*volume was below average for a second day which has not occurred since 4/7/09.

*new 52 week highs continue to beat new lows but both numbers remain well below 50

*we have not seen a significant move in 6 sessions – since 4/20/09

*the movers…TB uses the biggest ones in index points, up or down much less than they have been on any given day, and ones that are up the most one day tend to be down the most the next and vice versa…a sure sign of day trading and nothing more

*commodities weak, crude fell but the NYSE Energy Index was up, Oil Services down

*banks were weak on the stress test results, BofA meeting today, but not THAT weak

*bonds tanked in the long end and in TIPS and gold declined despite uncertainties

If ‘sell in May and go away’ is correct we are in for an ugly summer, if we get there! On the other hand, in years that have started out weak there have been big summer rallies.

It just seems that we have so much bad information that overwhelms any good news that may be in occasional economic data…and even that news is offset by how weak the indicators are. This morning we get the first look at Q1 GDP and it won’t be pretty (it is just out and showed a worse than expected 6.1% decline).

According to the Fed, the lose/lose stress tests have produced at least six of the 19 banks that will need to raise more capital…despite their contention that they plan to pay it back as soon as possible (yet another reason Ken Lewis should go). Remember it is only the top 19 that have been examined so far…with at least 20 more problem banks below that could see similar problems…just makes you want to dash out and buy bank stocks, no?

So let’s think about this: if the only solution to raise capital (as measured by common stock) is to convert the TARP preferreds to common (with the added benefit of saving the 5% dividend), that is massive dilution to the banks…especially at these distressed prices. So if you own bank stock wouldn’t it be better to own preferred issues since only Citi has forced conversion on three classes of preferred, despite big cuts in the common dividend? TB says yes and has done so in his own and clients accounts. IF the banks suspend the dividend on the preferred they will have no other source of raising capital and preferred issuance would be tainted forever…at least that is how TB sees it. Plus you can get 20% to 80% capital gain potential in the preferreds while earning double digit dividend returns. This has never happened before…so why gamble on price appreciation in the common with virtually no dividend income while you wait for what might never come?

To a lesser degree this is true in owning common shares in low or non-dividend paying stocks that might have double digit returns but still have huge losses while with those that pay a high sustainable dividend…and there are a lot of them out there…reinvesting those dividends could pay off mightily. Look especially for stocks that have been pulled down with the sector but didn’t deserve it. Avoid stocks with high amounts of debt, particularly with short maturities no matter how good they might look and also those with defined benefit pension plans that are now an enormous drain on earnings. It ain’t easy to do!

This mess is not going to be cleared up easily or quickly and stop preaching that the stock market is 6-9 months ahead of the economy. The bottom is as hard to find as on a boat without a fathometer, 50 feet of line, and the depth is greater…it is just a ‘wag’ so don’t listen to the ‘eggspurts’ as you will likely get egg on your face. On the other hand, while it is safe is earning 1% or less in a money market fund going to get you anywhere.

Notes on a few sectors:

Currencies; the dollar has peaked…at least for now…it was never strong, only looked better than anything else. The Dollar Index got above the 40 day moving average then crashed back below it and is now about halfway between the 40 day and 200 day which is major support. It remains to be seen how it will impact stocks, bonds, or gold.

Gold is fighting to get above and hold above $900 and didn’t get anything from dollar weakness yesterday. So long as it holds above $866, the 200 day however, if it does it is a buy around $840…if we get there.

Energy is two distinctly different things lately: oil and natural gas which have frequently gone in opposite directions. Holding above $50 seems a formidable task and the overnight news that Rotterdam is running out of room to hold more stores of crude does not bode well for a continuation

Bonds, TB’s love, are impossible to trade due to huge price moves and frequently in the opposite direction you would expect…this is particularly true of TIPS (which may even move in the opposite direction to the 30 year bond on big move days?). Even corporates with attractive yields aren’t moving with the stock market, and high yield (TB calls it junk), is even more difficult to decipher due to competition from other high risk assets. That leave muni’s which have rallied nicely lately (although the 5 year and under area has no value due to high demand and yields of <2% from 1-3 years and <1% in the front end. This is due to the high issuance of taxable muni’s…especially the ‘Build America Bonds’ (BAB’s), where the government subsidizes 35% of the interest cost and they can decide whether to keep it and issue taxable, or pass it on..so it all depends on which is cheaper. This is giving corporate bonds competition…especially since while taxable they are still exempt from state taxes and those are rising…at least in California!

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While cries of ‘socialism’ continue, they are waning…especially from shareholders in bank stocks, not to mention those who lost money with Bernie Madoff, Allan Stanford, and their ilk. Watch closely the Bank of America shareholders meeting today where Ken Lewis will likely be stripped of at least one job (Chairman) and possibly CEO too, as well he should. Furthermore, while it won’t happen this time, the entire board should go. To those who have not only had paper and in some cases real losses on their banks stocks, the real issue is the near total loss of dividend income…the reason they bought the stock in the first place…only the high flying financial sector whose growth and earnings would make many hedge funds envious creating the capital appreciation that soon burst.

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4/28/08…17 going on 18?

April 28, 2009 at 4:09 am · Filed under economy, financial, markets

Bloomberg Quote of the Day: “Happiness in intelligent people is the rarest thing I know.” – Ernest Hemingway…hope the bell isn’t tolling for you. TB

It has now been 17 days that the market has continued in it’s sideways pattern. Overnight equities are being pummeled but they were yesterday and we ended up with a very tame day that even held some of Friday’s gains. The losses though are bigger than yesterday’s and once again Asia and Europe are leading the way. It is becoming apparent that the ‘nosing’ above resistance on the Nasdaq indices and Russell 2000 were only feeble attempts and thus vulnerable to a selloff. TB

…can we make it to 18 straight days of sideways motion? The dollar continues to strengthen and gold is weak again but and at the $899-901 level that is minor support while energy and other commodities are weaker too. Coupled with bonds showing only minor strength (although we are in a 2,5, and 7 year auction cycle this week). Getting involved on either side requires courage, or alternatively a deathwish. Watch and wait.

The reason that it appeared as if stocks would breakdown yesterday was the concern over swine flu, which would have a major deleterious effect on the global economy, and judging from the news coverage, we are grossly underestimating the effect. The Fed/Treasury/BofA story coupled with concerns now overriding Friday’s euphoria over the bank stress tests (sic), only seemed to hit the financials and bank stocks still didn’t decline past Friday’s lows…if that. Are we taking the stress tests seriously because the risk is that they are so stringent (unlikely) that several banks fail them (although Geithner already told Congress ‘the vast majority’ won’t require further assistance, but did he mean if things don’t worsen?), or that hardly any do, which could potentially be worse. Either way, the short term gain from quelling the market by restoring faith that the government was on the case, is being offset by the longer term implications. Also, those failing the stress tests have just three options to raise capital: (A) get it from the Feds, (B) sell additional shares of common stocks, or (C) convert the TARP preferred’s to common stock. While there is a common thread: equity dilution, only ‘C’ is possible in the current environment, which will subtract a lot of revenue from the government at a time we need it…and just how are the banks repaying us? Tougher lending restrictions, reneging on loan commitments, overnight changes in credit card rules, and hidden charges. But rest assured…Congress is on the case working on rules that will not go into effect until 2010. How many times must TB say: we have the best (sic) government money can buy?

FDIC Chairman Sheila Bair is asking for authority for her agency to take pre-emptive action to shut down bank holding companies: this could be read as Citigroup and BofA, right? She says the concept of ‘too big to fail’ is dead, and she is right to say so. But as with anything else it is the unintended consequences that nag. As we found out with the Continental Illinois failure in the wake of Penn Square, holding company investors are not sacrosanct like they are with the underlying bank. So while TB concurs with her logic, how can banks raise capital under these circumstances? Too many unanswered questions. Worse, there is a chorus of legislators who want to make bondholders pay too.

Please examine those ‘green shoots’ very carefully…they might just be weeds!

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The infallible Warren Buffett may have gone a bridge too far. By selling ‘puts’ ten years out on stocks he collected fees but it is a potential liability for the company that won’t go away because if we aren’t out of this mess in ten years his companies will be doing so poorly the upside won’t matter. Like his flawed currency futures bet that sapped earnings a few years back, this could have a similar effect. This from the man who derided derivatives as lunacy? Hope that isn’t an indication of his mental state.

Signs of the times…as in there are no atheists in foxholes:

*the governor of Texas has asked for 850,000 units of flu vaccine from the Feds for his state…wait a minute…wasn’t it he who said that the government is sapping so much from the people that Texas might be forced to secede?…and that was just two weeks ago!

*the GOP cut $1 billion for vaccines from the budget labeling it as pork!…as one reporter put it “swine and pork are about the same thing,” right? You betcha, Red Ryder…till you need it. Also, people are getting prescriptions for Tamiflu to take as a preventative, which it is not and further it is depleting supplies for those who will need it when they really GET the flu.

Have a swineless day…don’t be spineless, but don’t try to be a hero either!

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, April 28, 2009.

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4/27/09…green shoots?…little grains of mustard?

April 27, 2009 at 4:19 am · Filed under economy, financial, markets ·Tagged Ben Bernanke, Henry Paulson, Ken Lewis, Tim Geithner

TB’s Quote of the Day: “Nobody ever sold a stock because they thought it would go up. And as a group, corporate insiders obviously are scarcely enthusiastic about the prospects for a genuine bull market.” – Alan Abelson writing in 4/22/09 Barron’s on the huge imbalance of sellers to buyers by insiders…and they should know. TB

TB is repeating Thursday’s market commentary because nothing new happened although the Nasdaq indices and Russell 2000 did move a bit higher but still into resistance. Last week was the sixth straight up week from the March 6 Friday low, and the Dow has gaine 22.7% in that time. Friday made it 16 straight sessions that we have been in a narrow band on the Dow and S&P 500. Only the Dow Transports remain in an uptrend from April 2, while the others are now starting to roll over but there is not enough conviction to take them down…or up! Something has to change soon and when it does this range will either become formidable resistance or support…you make that call! Volume has held averaging about 1.6 billion shares on the NYSE and while Advance/declines and Breadth are still more powerful to the downside it is not like we saw over the past year or more. Furthermore, while there is now a dearth of both new 52 week highs and lows, the ratio has held to only slightly negative to as high as 8:1 since March 17. We haven’t seen a run like that since the selloff began in 2007! Take a wait and see, k?

Once there were green shoots

kissed by the sun
Once there were ashes where markets used to run
Once there were blue skies with white clouds high above
Once they were part of all the things we love
Where are the green shoots that thrived in the fields

Green shoots are gone now, parched by the sun
Gone from portfolios where markets used to run
Gone like a dagger that stabbed into my heart
Gone with investors who let their dreams depart
Where are the green shoots

that we used to love

I’ll never know what made them go away
How can I keep searching when dark clouds hide the day
I only know there’s nothing here for me
Nothing in this wide world, left for me to see

Still I’ll keep on waiting until they return
I’ll keep on waiting until the day we learn
You can’t be happy while your heart’s on the roam
You can’t be happy until you bring it home
Home to the green shoots and me once again

-adapted without permission by TB from ‘Green Fields’ by The Brothers Four (1960)

…green shoots…has replaced Kudlow’s dumb ‘little grains of mustard seed’ that he ran into oblivion. The problem with green shoots is often they are weeds and hard to get rid of. Thus when you see them poking their little arms out of the ground you get all excited until you see them for what they are.

This does not in itself imply that TB is bearish…only that the fools are bullish. Fools looking under ever rock, every nook and cranny, for those marvelous shoots of green.

The ‘eggspurts’ have taken to calling every one week or one month change in economic data as an inflection point, only to have their hopes dashed by the next report. So it was with weekly jobless claims a week ago that declined so they ignored that record 6 million of continuing claims then on Wednesday lo and behold claims jumped again and with them continuing claims…and there are so many more examples out there but weekly claims are the one everyone is focusing on for an end to layoffs…keep waiting we are at 660,000 and rising…worse, last week was the survey week for April unemployment!

“Self-deception doesn’t get you anywhere.” –TB…and it doesn’t fool anyone else either!

Avast! You swine!

Global equity markets are being hammered overnight on swine flu fears…so far only Spain has reported outbreaks other than Mexico. Asian companies are curtailing business travel to Mexico and according to a Bloomberg article, Roche Holdings (Swiss) and GlaxoSmithKline(GSK) may benefit from vaccine sales, as will Gilead (GILD) and retailers CVX and Walgreen’s (WAG) on hygiene products such as sanitizers.

Will this be the end to the six week winning streak for stocks? The dollar, which had slipped from the 22 day rally is bouncing just below the 40 day m/a, and Gold, which closed above its 40 day ($913.40) Friday, is right there and hit $919.60 overnight. Bonds are rallying, especially TIPS, which makes no sense to TB as inflation should not be a concern if the flu hits us when we aren’t even close to coming out of recession.

Barron’s had it’s Big Money Survey of the market and TB found far too many managers bullish, even as most also thought we have not yet seen the bottom in stocks or that the recession will be over before 2010 at the earliest…6-9 months my foot!

There is far too much concern that unemployment may hit 10% than the fact that the adjusted unemployment rate already is (includes discouraged workers who have dropped out of the labor force) is 11.9%, and adding in those working part-time but who want to…need to…work fulltime, the rate is over 16%. We are living in a society that requires two people in most households to work in order to cover expenses and debt…and when just one of those persons is cut to part-time or loses their job, it is a serious problem. Yet, the bulls think the consumer will be back…not soon…and now he will be buying swine flu vaccine and prescriptions like Tamaflu! Way too bullish…way too soon.

The triangle of Bernanke, Paulson, Lewis is becoming a box since it is inconceivable that Geithner didn’t know what was going on…wasn’t at the meetings, etc. BofA shareholders became the scapegoat for the common good…right, Macchiavelli? They might beg to differ. As for Ken Lewis, this is just one more nail in his coffin…or as Robert Louis Stevenson might say,”…for want of a nail a CEO was lost.” Lewis is losing all the nails in his horseshoe, one by one, and it appears to be hanging upside down.

Already we know the Fed has pushed its authority past the legal limits to save the country but now they are outright flaunting U.S. securities laws designed to protect shareholders, a sorry state of events. Jonathan Weil wrote a column on this today for Bloomberg (NI WEIL for Bloomie subscribers or TB will forward upon request), and said that if you expect Mary Shapiro to do anything you don’t know her record of not challenging Wall Street or it’s firms. Another Bloomberg story this morning says that Goldman Sachs is putting on risky bets at the fastest pace on Wall Street…remember, they are now a BANK (sic) and still levered 20:1. Yet another Bloomberg articles says that banks that failed stress tests were given three options: get federal aid, sell shares, and third covert TARP shares to COMMON resulting in huge dilution. Talk about a Hobson’s choice!

Have a great day and watch to see how things play out before diving in.

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, April 27, 2009.

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4/24/09…15 and counting!

April 24, 2009 at 4:25 am · Filed under economy, financial, markets ·Tagged Bank of America, Ben Bernanke, China, George Springman, gold, Henry Paulson, Ken Lewis, Morgan Stanley, U.S. dollar

Bloomberg Quote of the Day: “I have often depended on the blindness of strangers.” – Adrienne E. Gusoff, reporter WNBC, NY. Here is another of hers: “Not only is life a bitch…it has puppies!” or “Girls just want to have funds.” Lastly, “Life in a vacuum sucks.” Very perceptive, TB.

Sorry about yesterday because TB meant to give you a snapshot of the market. No harm though as Thursday made it 15 straight sessions that we have been in a narrow band on the Dow and S&P 500. Only the Dow Transports remain in an uptrend from April 2, while the others are now starting to roll over but there is not enough conviction to take them down…or up! Something has to change soon and when it does this range will either become formidable resistance or support…you make that call! Volume has held averaging about 1.6 billion shares on the NYSE and while Advance/declines and Breadth are still more powerful to the downside it is not like we saw over the past year or more. Furthermore, while there is now a dearth of both new 52 week highs and lows, the ratio has held to only slightly negative to as high as 8:1 since March 17. We haven’t seen a run like that since the selloff began in 2007! Take a wait and see, k? Markets seldom go sideways this long!

Fiduciary: (n.) one who holds a fiduciary relation or acts in a financial capacity – Merriam Webster Dictionary. Woefully inadequate, this is better, from Wikipedia:

“A fiduciary is someone who has undertaken to act for and on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence.” Legal Definition Legal Terms Dictionary.

…yesterday’s news on the Bernanke/Paulson/Lewis triangle is upsetting. Lewis says that he was told by Bernanke and Paulson that BofA had to complete the Merrill Lynch takeover or they would have his job. Furthermore, he was not to release any details of Merrill’s financial condition. Paulson says he did it because Bernanke told him to. Bernanke reportedly was concerned of another broker failure if the deal didn’t go through. Sounds very plausible and righteous except for one thing: the shareholders!

Does the government have the right to require a company to complete a contract…there are other means of redress, right? Secondly, what does it say when the story was released by NY Attorney General Andrew Cuomo – not the federal government?

At a time when people are crying ‘socialism’ isn’t this our worst fear? The government forcing financial problems…on a bank already loaded with problems…at the expense of the shareholders who are now suing the bank! Also, this does not take the pressure off of Lewis who had a fiduciary duty to inform the shareholders of all material events was caught in a vise between his shareholder obligations and fear of losing his job if the government went after him. Hmmm, lemme see…got it! Screw the shareholders!

The Results of the bank stress tests (sic) will be released on April 29 whatever that will tell you. At 2pm EST the methodology (sic) used will be announced…it is sick to TB.

Meanwhile, investor concern over the condition of the banks is decreasing which has to make you wonder…is the Fed telling the Plunge Protection Team remnants to buy them?

Concern over the brokers however isn’t over however. While Goldman Sachs (GS) stock continues to appreciate since the plunge the day those ‘artificial’ earnings due to switching from a fiscal year to calendar year turned dross into gold or a loss into a gain, it has gone sideways but not once did it fall through the 200 day moving average that shifted from resistance to support on April 3, 2009. In fact the trendline from the November 21 low ($47.41) is straight as a rail and up 259% since ($122.81)!

Not so for poor Morgan Stanley (MS) which closed at $21.96 yesterday breaking thur the 40 day moving average. This is important since it had been above in an uptrend since the October 21 low (a one day island formation) that was longer and as straight as Goldie’s except it only closed above the 200 day m/a twice, back to back sessions and then began its decline. Not only did it break the 40 day but also broke the 200 day m/a which is converging with the 40 day at $23.25 or so. There you have one strong indicator and resistance. Essentially, since gapping up on March 11, it has gone sideways. Although it closed the gap on 3/20 it had been up, supporting on the 200 day since then until the selloff Wednesday. Not a pretty picture as it was on volume of 62.4 million shares, highest since the April 2 market rally began. Good luck Mr. Mack…and you too, Kris!

Is there any connection with this and the collapse of the dollar over the past two sessions? After a 22 day rally, it plunged thru the 40 day moving average yesterday and even more overnight. The Dollar Index now stands at 84.73 and MAJOR support is the 200 day m/a at 82.55…since currencies move in longer cycles than stocks pay attention to the support!

As crude struggles with $50, gold is merrily rallying from the 200 day moving average support ($867) for a 5^th session and traded to $914.30 overnight slightly above the 40 day m/a ($913). Also overnight we learned that China has been adding dramatically to its gold reserves and is now the fifth largest holder…want to guess who the sixth is? If you said the U.S. you are dead wrong: number one. No, number six is the StreetTracks Gold ETF (GLD)…talk about power to the people! Anyway, it is nice to see someone besides speculators buying gold. Remember what a joke it was that China would become the lead currency? …not so funny on a gold basis…but politically or economically? No way in hell…the world is saddled with the buck…mainly because we are the biggest consumer – or at least we were until recently, right?

Definitely the easy money in this rally has been made…many times over by the computer driven trades that are essentially day trading. TB has heard several money managers say that you won’t make money with a buy-and-hold strategy any more, and they are probably right. But the problem is with all those ‘rabbit punch’ trades, how do you get enough of a gain to make a profit after transaction costs and taxes? You don’t! Not unless we get a lasting rally that some say is on the way…but then you will have to decide when to sell, right? Don’t want to leave a lot of money on the table do ya?

TB sadly reports on the passing of his former boss, friend, and mentor, George Springman, last week. He was Chief Investment officer of Wentworth, Hauser & Violich, and prior to that Chief Investment officer of the City and County of San Francisco Retirement System. He was well known and regarded in financial circles.

Have a great weekend,

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, April 24, 2009.

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4/23/09…more mirrors

April 23, 2009 at 4:27 am · Filed under economy, financial, markets

Bloomberg Quote of the Day: “Force is all-conquering, but it’s victories are short-lived.” – Abraham Lincoln…but then, we learned that in Iraq, right?

…just how stupid are we as investors? One bank has great earnings and entire market rallies, another has bad and entire market sells off. At least it will all be perfectly clear after those stress tests are in, right? This is the biggest bill of goods ever sold to the American people…oops forgot about TARP, TALF, PPIP or whatever it is. What is the difference between a bond investor and a stock investor? Bond investors ain’t buying it!

Yesterday, a bond salesman called me with an offering on Bank of Ireland bonds. WHAT??? TB said incredulously. “But they are guaranteed by Ireland.” TB went through the roof! While the bank has problems the guarantee may be worse? Like, Iceland, the ability of Ireland to pay off the banks debts is ridiculous as companies shut down factories and leave in droves like the ‘flight of the earls’ during the potato famine. Erin go braugh! …but go braugh with someone else’s money other than TB’s, will ya? …now if it had been stock, somebody would have jumped all over it…how much can I buy?

Mockingly, TB’s friend and Bloomberg writer, Mark Gilbert, in London came up with the type of questionnaire that might have been used in the stress tests. Here are a few TB thought particularly good with his additions for American readers in italics (complete article is available on Bloomberg at NI GILBERT):

*Award your institution five points for every ex-Goldman Sachs Group Inc. manager on your board. Double that tally if former Federal Reserve Chairman Alan Greenspan ever took part in
a private conference call for your favorite clients. Lose all points if the head of your executive compensation committee has a worse golf handicap than your chief executive officer.

*This week, an anonymously sourced blog entry said the government’s stress test would show that 16 of the 19 banks in the study are technically insolvent, with none of the 16 able to
survive a disruption of their cash flow or additional defaults on their loans. On hearing this, your first reaction was:
   (a) Please, please, please let me be in the threesome. I’ve worked like a dog selling assets and raising capital.
   (b) Please, please, please let me be in the 16. I’m tired and I’d like to spend more time with my money.
   (c) Only 16? Surely some mistake . . .

*Your accounts are audited by:
   (a) Pricewaterhouse Coopers LLP.
   (b) Ernst & Young LLP.
   (c) Deloitte & Touche LLP.
   (d) Moe, Larry and Curly in Rockland County, New York.

*A mob gathers at the doors of your institution. Your instinctive reaction is that:
   (a) Barbarian rioters, led by Ralph Nader, are at the gates demanding the end of capitalism.
   (b) Your customers have finally lost patience with counting their losses and are demanding your head on a plate.
   (c) All those derivatives specialists you fired last month have finally found their collective spines and want to reclaim
the portion of your previous bonuses that their spreadsheet-shuffling was responsible for generating.

*Gain 10 points if you, the current CEO, have been asked to be or already are:
   (a) a member of the U.S. Treasury.
   (b) an employee of the Federal Reserve.
   (c) Bo’s pooper-scooper.

*Your current company vehicle is:
   (a) a Cessna Citation X jet.
   (b) a Maybach limousine.
   (c) a Toyota Prius
   (d) a Segway scooter.
   (e) a rusty bicycle.

*Which best describes your ability to sell bonds on the international capital markets without the benefit of a U.S. government guarantee?
(a) Bill Gross backs up the truck and says “fill ‘er up.”
(b) Bill Gross laughs so hard he snorts coffee out of his nose and down the front of his shirt.

*Timothy Geithner says the “vast majority” of the nation’s
banks have more capital than they need. Your response is:
   (a) Which nation is he talking about? ‘Cos it certainly isn’t the U.S. of A.
   (b) What is he smoking and where can I get some?
   (c) You laugh so hard you snort coffee out of your nose.

(*Your institution is positioned to remain solvent in a world economy resembling that of:
   (a) the past decade.
   (b) Japan.
   (c) Cuba.
   (d) Zimbabwe.

*Lose 10 points if your CEO plays bridge or golf. Lose another 10 points if he’s up to tournament standard or has a 3 handicap.

* Lose five points for each of the following:
   (a) The words “never sleeps” feature in your slogan.
   (b) There’s an umbrella in your logo.
   (c) The name of your institution begins with “C” and ends with “itigroup.”

…gimmie a ‘C’…please! Write up your own sample questions if you like and TB will include them in the next column…provided it doesn’t have anything to do with drugs or mistresses or worse. Here is TB’s sample portfolio:

25% ‘C’ – Citigroup

25% ‘R’ – Ryder Systems, Inc.

25% ‘A’ – Agilent Technologies

25% ‘P’ – Phillips Petroleum…oops merged with Concoco so now COP, whatever

It is diversified: Financial, Transportation, Technology, Energy, but it is still C-R-A-P. Now if you take the four sectors and mix them up the first letters spell F-E-T-E…par-tay!!! But that is as good as the advice you are getting on CNBC, right? Yeppers!

TB is laughing…at them not with them…or perhaps he is joining them in laughter having pulled of a Ponzi scheme that Bernie Madoff would be envious of…in fact he would still be in business! What is baffling is why Allen Stanford is in denial!?! Hold you head up high, Sir Allen! If you don’t wish to laugh, look at your 401(k) or 201(k) and cry.

___________________________________________________________________________

Well, we are halfway there. Obama’s Attorney General Holder is going to hold the authorizers of torture for prisoners accountable…perhaps then we will learn just who in the Administration suggested they wrote those memo’s that said it was ok. TB thinks it will lead to a former AG and a VP with a Secretary of Defense a distinct possibility. Then let’s get on to Wall Street and find out just who was accountable and in the process let’s dump Citi’s board, and require all board chairmen to be elected by the shareholders.

TB still can’t believe that people justify this in the name of protecting us from terrorism. Can’t we just go back to ‘don’t ask, don’t tell’ and let the CIA do it the old fashion way? If you want horror watch the movie on Hitler’s last days in the bunker, Downfall, available on Netflix. But more than watching it in German with subtitles, click the box for the director interview. There you see the entire movie but with the director telling us what he was trying to get at and facts about the actors. It is not entertaining but it is riveting. What is incredible is the contempt not only Jews but for the German people. A monster with a deathwish wants the entire country to die with him…not the country – the people! Old, children, women, etc. He ridiculed the most disciplined officers at least since the Romans and they stood there and took it…he called them fools, liars, incompetent, sabotageurs, and more. But what is sickening is that even after they knew he was dead, the continued to follow his orders. They killed, held orgies, even as the Russians approached, and thousands committed suicide in what was said to be similar to what the Japanese did…but the Japanese did it with honor…this was pure cowardess in the face of defeat. There was not one of these men that you would want to know…and if you would, TB doesn’t want to know you. They were sick.

But what TB thought of during the movie was of the fear that was spread here of terrorist so that the Constitution could be circumvented. Some of you will argue this because 9/11 was so tragic. But the liberties we gave up for that protection were not worth the cost. It was all so irrational too: stop Mexicans from coming to the U.S. to work as they had for decades while ignoring the Canadian border with thousands of miles of lake access, or simply down the Atlantic or Pacific coast. Then we complained about the illegal immigrants which had not grown until they could no longer go back home and then return to work again…and then we say they took American jobs…how many of you are willing to become maids, laborers, or field workers? How many unemployed today are? Yet we succumbed to the fear that just the same as the German people did…and make no mistake, the German people were as hypnotized by this monster as the military.

We think in horror of the 10,000 or so who died in 9/11…it is a pittance compared to the number of Americans and Iraqi’s who have died during their liberation…and compare to the 6 million Jews and 44 MILLION others killed during Hitlers reign. Perspective.

Have a reflective 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, April 23, 2009.

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4/29/09…a vast desert

April 22, 2009 at 5:38 am · Filed under economy, financial, markets ·Tagged banks, Tim Geithner

TB’s Quotes of the Day are from Flip Wilson…TB and a friend were discussing him over lunch the other day. The discussion revolved around whether it was Aretha Franklin or Jo Anne Worley on Laugh In (1968-73), who used ‘sockitome’ first…it was the chorus in Aretha’s song. “Respect” (1967), written by the late, great, Otis Redding (who died before his first album with ‘Sittin’ on the Dock of the Bay was released). Nice lunch, Brother Rick!

“The devil made me do it.”

“Violence is a tool of the ignorant.”

“You can’t expect to hit the jackpot if you don’t put a few nickels in the machine.”

“The cost of living is going up and the chance of living is going down.”

“Get well cards have become so humorous that if you don’t get sick you’re missing half the fun.”

“When you’re hot, you’re hot; when you’re not, you’re not.”

…what is the meaning of ‘vast’? and why do we care? According to the Princeton Dictionary:

huge: unusually great in size or amount or degree or especially extent or scope; “huge government spending”; “huge country estates”; “huge popular …

Well the reason we care is Tiny Tim used the word yesterday…as in Geithner. Tiny doesn’t refer to his diminutive stature but to his shrinking reputation as Treasury Secretary. Stocks opened slightly lower before Geithner started asking questions directed towards him by members of a Congressional committee…the name escapes TB as there are a plethora of them out there, all preening for their constituencies…and why don’t they give Geithner and Bernanke time to do their jobs instead of asking repetitive, inane questions for which they already have the answer they want and just to make them swing in the breeze….this is the equivalent of orgasm for legislators! Ah, but TB digresses…

Yessir, TB has heard of a vast conspiracy (such as Goldman Sachs and the Plunge Protection Team), or the silent majority speech of November 3, 1969 on the Viet Nam War by Nixon: “And so tonight-to you, the great silent majority of my fellow Americans-I ask for your support.” – it wasn’t long after that it all went downhill for him. But Geithner combined vast AND majority and like an alchemist turing dross into gold…voila! The market rallied (you like me…you really like me…ok, that was Sally Field), and Tim’s stature was revived…after all how many people can combine two words and turn an entire market around?

See, we could combine those words and it would do nothing but to say, after commenting that the stress tests on the banks had not yet been completed, and then say “the vast majority of banks” do not require further financial assistance, cheapens the value of the stress tests…doesn’t it? It is as if they had a hypothesis and by god they were going to prove it right by sending out armies of examiners who would obviously come up with the same conclusion. But the market didn’t care…after all the vast majority of banks don’t require any further assistance. But the question again is: do you feel lucky…will do you, investor?…huh?…do you? See an investor doesn’t care about the vast majority of anything he only cares about the one he owns…like the homeowner with a fire in the neighborhood if his is the only one destroyed.

So like a bunch of lottery ticket buyers (MEGA Millions is $155 million on Friday), we rushed out to buy the weakest sector of the session and turned it around so that not only did the Financials close up 5.8% after falling 9.1% on Monday, and with the KBW Bank Stock Index up 8% after declining 15.4%, and even the Dow Jones REIT Index rose 10.2% following an 11.5% decline.

There are about 3,000 banks in the country, the vast majority are sound…and always were but they have been weekend by the escapades of the top 9 and the loan losses of the few that finish out the top 19. So never mind the 50% declines in earnings at Bank of New York Mellon (BK), and US Bancorp (USB), because our beloved Treasury Secretary says the vast majority of the banks are sound. Let’ say 98% is a ‘vast majority’ then 2% of 3,000 is 60 banks…but if even FIVE of those are in the top 19, which seems plausible, and those five are institutionally held, then you might just have a problem By the way, TB is not implying that BK or USB will require assistance, in fact he is quite sure they won’t, but Citi is dead and would be dead in the free market capitalism that created them.

One other comment from Tiny Tim: it is right for the taxpayers to share the risk with individual investors so that the pain is distributed….where did he ever get that?

Ah yes, free market capitalism…we are headed for socialism…socialism which is just one step from communism and we will all be paid the same regardless of who we are or what we do…come on…gimmie a break will ya? If only those who are crying socialism now had screamed “market regulation” over the past decade…if the Sandy Weill’s and Phil Gramm’s had not prevailed…if Cheney hadn’t told Cox to do no harm, etc. We are not headed for socialism…only some form of equalization where the rich with boundless empires set up foundations that look after their interests…it wasn’t always this way but the amounts of wealth are so staggering and it is many of these people, Bill Gates and Warren Buffett excluded, who have done much of what caused the situation we are in. This country always has and always will operate on a pendulum…that is what a democracy is supposed to do because if it doesn’t it will cease to exist. The founding fathers saw this…too bad the elected officials and those who cry “socialism’ don’t get it.

Before you tune TB out, consider this from www.irs.gov Using the lastest available data (2004…hey, they work slowly), about 2.7 million Americans earned $1.5 million or more and after deductions for mortgages etc. had a combined net worth of $10.2 trillion! That is an average of $4.1 million dollars…not too bad, eh? In 2005 (they were getting a bit better here) there was a total of 77,143 foundations with total assets of $481.8 billion and an average of $6.25 million.

Now consider that the threshold for being in the top 10% of taxpayers is still around $105,000. In 2006, here is the breakdown by income and percent of growth from 2001:

2006 2001 % change

Income >$10 million: 15,956 5,309 +301%

Income >$1 million: 943,000 158,000 +765%

$200,000 – $1 million: 3.7 million 2.2 million +64%

$100,000-$200,000: 12.1 million 8.4 million +12%

$75,000-$100,000: 11.1 million 9.2 million +20%

All Taxpayers 138.4 million 130.1 million +0.8%

TB does not begrudge those who are in these brackets but when he hears propaganda such as 40% pay no taxes when they do pay payroll taxes and yes, that includes illegal immigrants working for companies (as for households most don’t report it but it is negligible), who pay both the payroll tax and social security which they will never see. Also, that the top 5% pay 40% of the income …well, shouldn’t they? Should they pay more? You decide what is fair, that is a personal choice. How much is enough? What would you be willing to pay in taxes to live in America? …what if you were a top executive with one of the banks or brokerages or hedge funds that created this mess (not to mention a rich Congressman who eagerly took their money)? Please think about it!

_____________________________________________________________________________

TB has been screaming that a CEO should not also be the Chairman of the Board and preferably it should be an outside director selected by the shareholders since the board of directors are the stewards of the shareholders NOT to do the CEO’s bidding. CalPers, the largest public pension fund has now called for the Chairman of ALL BOARDS to be an outside director selected by the shareholders. Hear! Hear! Now we’re cooking!

Yesterday, Obama strongly suggested that he would follow the recommendations of the Attorney General on prosecuting those who wrote the memos authorizing and justifying the Guantanamo torture. That is as it should be as we will then hear them squeal about who told them to write those memo’s. Do any names come to mind. True, it is an about face but it is right. Fear of terrorism does not excuse a civilized society from acting civilized. Besides there is nothing to be gained from torture except torturing the minds of those ordered to do the torturing…under pain one does what one can to cause it to stop and that means lying. This has been proven again and again, yet we say we must have it although there is no documented proof of anything of value being obtained or that could not have been obtained using other means.

Now, Obama has to ignore the cries of Wall Street and get to the source(s) of the financial crisis. Of course that won’t be easy with Congress covering their huge buttocks. The only way to prevent this from happening again is to make someone pay…besides the taxpayers that is! As Simon Johnson and Jack Willoughby have eloquently written, Wall Street cannot be the main supplier of information to the government on solving the problem.

Have a good 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, April 22, 2009.

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4/21/09…Wells giveth and BofA taketh away

April 21, 2009 at 5:22 am · Filed under economy, financial, markets ·Tagged freddie mac, Bank of America, Fannie Mae, Wells Fargo, US Bancorp, Paul Volcker, Larry Summer, Peggy Noonan, Bank of New York Mellon, Nancy Pelosi, Chris Dodd, Barney Frank

TB’s commentary can also be accessed at his blog www.traderbill.com with the market summary updated usually by 6pm EDT, overnight markets at 7:30am, and then followed by the daily commentary. It also has an index of other features…you can put cursor on calendar date and by clicking get column for that date…back to Nov.! Over 28,300 hits since 11/9/07. TB

While yesterday’s stock market was brutal it is not a confirmed kill. There are several reasons for this, but one was that despite a strong rally in bonds, the short end merely retraced Friday’s losses and the long end…especially TIPS, didn’t even do that. Then there were commodities where the GS Commodities Index plunged 5.3% and Precious Metals and Industrials were the only gainers…energy was off 6.8% which caused Oil Services to decline by 6.7% and the NYSE Energy Index to fall 4.7%…still, the 40 day moving average remains intact…barely! Financials were the worst performer (-9.1%), and REITS were off 11.4%, the only sector up was the gold and silver miners (+2.4%).

But, we are still UP for the quarter although we erased most of the gains by taking out the gap from April 9 that was tested last Wednesday(the Nasdaq indices and the Russell 2000 did close it then), but the support remains the opening gap from the April 2, rally.

Volatility shot up by more than 12% BUT both indices remain slightly below 40, the fulcrum if you will. Advance/Declines and Breadth were ugly to be sure but only on the NYSE with -9.3:1 and -20.7x respectively…the Nasdaq was not as bad -5.1:1 ad -2.9x. What was bad was that the three leaders (Nasdaq indices and Russell 2000), all gapped down on the open creating resistance above, but nothing really bad happened at the bottom. Here are the key levels to watch and watch you should before you buy:

*Dow closed 7841, support 7437-83, it bounced off the 40 day m/a from 3/30-4/2

*S&P 500 closed 832, support 780-83 a triple bottom from the same dates, 813.62 is also support the high of 4/1 when it gapped up on 4/2

*Nasdaq 100 closed 1309, support 1205-1211 from 3/30-4/2, 1255 the 4/1 high and with this and the following indices the 40 day m/a which is now higher: 1212

*Nasdaq Comp closed 1608, support 1485, the 3/31 low, 1553, 4/1 high, 1489 40 day

*Russell 2000 closed 453, support 408-12 from 3/30-4/1, 4364 a double bottom from 4/7-8 and the 40 day at 414.

The last three indices should be your guide…heed them!

…that about sums up yesterday’s market action. The financial stock rally began on April 9 when Wells released their earnings and culminated yesterday with the last of the big banks, BofA reporting. As a result, financial stocks plunged 9%, with the KBW Bank Stock Index off 15.4%. To say the stress tests are a dismal failure is a gross understatement! Worse than a failure, they are a sham! Here’s why:

Analyst Meredith Whitney, who along with Professor Nouriel Roubini was mocked for panning the banks and saying there will be failures said yesterday that this was the ‘wonder quarter’ for banks. As TB said, most of the gains came from investment banking but here is one she pointed out: in November the Fed announced they would be buying back federal agency securities this year….they did…but not before the nine biggest banks increased their holdings of agencies by 30%!…think about it: the Fed is bending over backwards to give them profits…including the payments on the failed swaps with AIG which boosted Goldman’s earnings so much…and you can bet JPM, Citi, and BofA.

Nouriel Roubini pointed out that the stress tests are based on one to two years forward, meaning that it is assumed the situation will be better and banks capital will be improved. The concern is that the biggest banks are sapping the strength of the smaller banks thru increased FDIC insurance rates, etc. Roubini says, as has TB said many times, that the system for reserving against loan losses is flawed (TB would add that those reserves could be invested in anything from cash to treasuries…to mortgages!), as the reserves are only increased when loan losses rise…not when they are anticipated to rise but when they actually do. That is why the banks were still drawing down loan loss reserves in the third quarter of 2007! As the economy gets worse realized losses get bigger and thus more has to be held in reserve…if this isn’t counter-intuitive TB doesn’t know what is but it makes sense to FASB and they make the rules!…like mark-to-market accounting!

Roubini and some other professors instead prefer FDIC insurance rates based on ‘risk.’ In other words, if a bank takes on a lot of risky assets or has a lot of loan losses their rates are raised accordingly and steeply so that they bear the brunt of their own problems, not the smaller banks whose situation is worsened by higher rates as is happening now…and for nothing they have done. Imagine an insurance company that did this…you would move out of there and fast unless you are a fan of driving while drunk. Sadly, the Fed has openly been trying to eliminate small banks for more than a decade…to make the big banks stronger. Well, we see what that stupid idea got us…especially when the government refuses to regulate and is in fact guided by the very people who got us here.

Yesterday on Bloomberg News they showed a clip of Paul Volcker speaking at Vanderbilt University on Saturday. What he said was disturbing, coming from him, former Chairman of the Fed and President of the N.Y. Fed (Geithner has these same credentials but trust TB that it is not the same). Here is what he said:

   “I don’t think the political system will tolerate the
degree of activity that the Federal Reserve, in conjunction with
the Treasury, has taken,” Volcker, head of President Barack
Obama’s Economic Recovery Advisory Board, said today at a
conference at Vanderbilt University in Nashville, Tennessee.
   U.S. lawmakers from both political parties have expressed
concern in recent months that the central bank has overstepped
its authority by creating several emergency credit programs
aimed at reviving lending and ending the recession.
   “I think for better or for worse we are at a point where
the Federal Reserve Act, after all that has been happening in
the last year or more, is going to be reviewed,” Volcker said.
   Under the act the central bank may in “unusual and exigent
circumstances” lend to “any individual, partnership, or
corporation” as long as the loans are secured “to the
satisfaction” of the Fed.

These are very strong words from possibly the wisest Federal Reserve Chairman in our lifetimes. It must pain him to say them but he realizes the scope of the problem has become so vast that the Fed is in fact the government.

TB gets emails from readers who love to bash Rep. Barney Frank and Sen. Chris Dodd. They are not both cut from the same cloth and while TB can find no good in Dodd, especially since we still have vacancies at the Fed and barely enough governors for a quorum! But Frank…and before you tune TB out remember that while he supported FNMA and FHLMC, the GOP was in control during the period when things turned sour and while FNMA paid off the Dems in the Congress, in a much more subtle manner FHLMC was ‘bribing’ key Republicans in the Senate…that is called having your bases covered…is a true believer. He has some good ideas and works hard to get things done. TB has even less love for House Speaker Pelosi, who is way too far to the left for his tastes and that is dangerous when the person is the speaker.

But in all things politic there are a few good guys and a lot of bad guys but it is mostly gray. Pelosi now want to launch a record investigation into Wall Street based on the Pecora investigation in 1933 into the stock market crash. It should be done! TB is tired of hearing on everything from the markets to Guantanamo Bay that we must move forward. Had there not been a Pecora investigation we would not have had Glass-Steagall, which we don’t now and surely should have, the SEC, whose first Chairman Joe Kennedy, who was a cheat, a horrible Ambassador to the Court of St. James, but an incredibly good SEC Chairman…after all, he implemented rules that had allowed he and his friends to become rich…like shortselling – without upticks where they could drive the stock down forever and naked shorting…would some of the proponents of free markets please read and understand this concept??? Obama is dead wrong on this…we have to find the guilty and even if we can’t prosecute them, shame them into oblivion…he also needs to break that deadly link between the government and Goldman Sachs as well as any other conflicts of interest.

So let the investigations begin and stop listening to the vested interests who say forget about it…if we do we will go down this path again…and soon…and they will be richer! Also, shareholders at Citi are irate that the government hasn’t replaced the board. This board couldn’t find it’s way out of a shoebox…all hand selected by Sandy Weill.

Today, is the equivalent of Super Tuesday in the elections…the second tier of banks is reporting and what is coming out is not pretty. Bank of New York Mellon (BK) and US Bancorp (USB) earnings both plunged 51%…although BK came in with earnings less than half street estimates while USB bested the lowered bar. BK also cut the quarterly dividend from 24 cents a share to 9 cents, while USB maintained it at 5 cents…it cut it from 42.5 cents last quarter…preferreds just keep looking better and better to common!

Yesterday, TB said that hell would be listening to Larry Summers speak for an hour. Correction, TB was too harsh. Hell would be listening to a debate between Summers and Peggy Noonan!…the pained expressions on their faces…the slow talk…the lack of passion…you get the picture.

Have a good day!

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4/20/09…smoky mirrors

April 20, 2009 at 5:26 am · Filed under economy, financial, markets ·Tagged Bank of America, Barron's. JPMorgan, Goldman Sachs, Jamie Dimon, Ken Lewis

(Friday’s close once again provided little new information despite options expiration which at least pushed volume up to 1.95 billion shares and provided new 52 week highs a 1.5:1 advantage to new lows but the raw numbers were just 34:9, so take it with a grain of salt, but we’ll take it. Advance/declines and Breadth were both positive but less so, ignoring the -1.5:1 breadth on the AMEX (now Altnext). But there was really nothing exciting in any of the stocks…MCD, the biggest gainer on the Dow only added 11 points while DVN was the biggest on the NYSE Energy with 5…while XOM lost 17! Why didn’t option expiry mean anything? Dunno, perhaps because of the weekend and the news that comes out before the market opens…like BofA’s earnings…but the point is: pay attention to a break in either dirction…and respect it! TB)

…modern efficiency, if the mirrors are smoky enough you don’t need to inject smoke…that also hides the telltale smell…and smell the earnings of the financial stocks do…bad! First Goldman Sachs, then Wells Fargo, and now Bank of America’s earnings. JPMorgan where Jamie Dimon said so confidently that earnings would be positive…thus caused BofA and Wells to say ditto….how could they be so sure so early? Was it because they saw how investment banking (a very broad term) was positive…and how much came from one-time AIG payments? So far there is a common thread…sell the news!!! Quickly! BofA was down 3% in overnight market within minutes of the release taking the rest of the Globex market with it…now down 8%! But there is another common thread: the earnings are coming from the investment management side and it is all thanks to you boys and girls who donated your tax dollars to saving them all from themselves…too bad they didn’t have the same consideration for their borrowers and clients.

Before we start, if you are a Goldman Sachs skeptic as TB always has been…figures don’t lie, do they? Try this link: www.goldmansachs666.com (the name immediately tells you it is not a PR stunt…in fact, GS is suing to stop the bloggers from using the name. Didn’t know ‘goldmansachs’ was one word (although TB has heard similar evoked as an expletive), or ‘666’ was part of it but it figures…how’s this for a conspiracy theory: where did the S&P 500 bottom out? 666…you be the judge! Seriously though, there is some good stuff on this site including a beautiful chart from www.muckety.com with a cicle and GS in the middle surrounded by the names of the players and the companies and government positions they held…also more on the PPP (Plunge Protection Team). Now:

Goldman Sachs: Read the article in Barron’s. You may already have notice that becoming a bank has its advantages. First you can borrow from the Fed without all those silly acronym terms. If you recall, shortly after Lehman…try that weekend, Goldman and Morgan Stanley applied for ‘bank’ status, a process that normally takes months or more of vetting but it was done before the market opened on Monday! …must have used the same people who vetted Geithner and the latest Obama problem from New York state.

Thanks to those blowout earnings announced last week, Goldman proudly announced they were going to sell $5 billion of common shares (6.6% dilution) or half the TARP money they borrowed, and use the money to pay it back…then under their breath so they could increase bonuses. Wow…all this off just one quarter’s earnings…these guys are smart! How did they do it?

First, whereas their first quarter was to have begun in December as their fiscal year ended on November 30, the law requires that a bank have a calendar year (this could come back to haunt at yearend when both Goldman and Morgan Stanley (their fiscal year also used to be November 30), come up with the other banks who want to avoid taking big positions at yearend, thus impairing liquidity…by staggering them among the various brokers liquidity was provided…no longer, friends.

There was an old Abbott and Costello routine that showed a passenger car on a train with 12 seats but Abbott had 13 people with tickets, so he told #1 to stand aside then seated the rest in order thru 12…then came back and told number one to take the “13^th seat.” In other words a slight of hand as the 13^th just faded from sight …which is exactly what Goldie did with December!…it never happened! Instead they buried it in the back of the notes. Now where did there blowout earnings come from? One-time AIG payments in closing out those nasty swaps (one has to wonder if this was also why Dimon was so quick to declare the first quarter to be a good one…also, since any smart player runs a ‘matched book’ in them…is it coincidental that they had only the winners and AIG all the losers?…has anyone heard of anyone having to pay AIG on a swap?…just asking.), so it was a one time event. But what Barron’s points out is that while they wish to pay the TARP back, they have no intention of paying back the TLGP or more accurately refunding the $29 billion bonds so that the FDIC is off the hook…that guarantee saves them about $500 million a year…$7 billion for all participants. One of the requirements FDIC, not Congress set for paying back TARP funds is that not only must they have enough capital but to be able to raise capital if necessary. In January, GS floated just $2 billion in 10 year notes at 7.50% and while they have rallied they still yield about 7% or over 4 percentage points over the 10 year treasury. Now back to that $500 million in savings thru the TLGP bonds….they are already accruing compensation expense at the rate of $600,000 per worker! That, along with leverage is what got us where we are: accruing bonuses and then paying them out regardless of the earnings…i.e. let the shareholders foot the bill. As for the leverage, what was 40:1 leverage has been drastically reduced so not to worry: to 20:1…for a bank??? Yet while they seek the benefits of being a bank their CFO proudly stated that they “have little consumer exposure.” Hey, it’s your money…and if you own the stock you get to pay twice!

Wells Fargo: More stunning earnings and more mirrors…a lot came from Wachovia’s investment department. Just keep in mind that WFC was the biggest subprime lender and they conveniently left out that part…they just sold all the loans to the ‘sukka’s’ but turned out they suckerpunched themselves by taking down the second lien and the unsecured portions being overly confident that they would be re-fi’ed before any problems showed up…a bad bet. Yet WFC, alone was credited with the April 9, rally…ya…hoo! Hey, anyone know what happened to Wells Fargo Mortgage, the biggest underwriter of subprime loans? No more subprime unit.

Bank of America: Remember when the people at Disney used to say: let’s do it for Mikey (Eisner)? Well, was this done for Kenny? Details are out and lo and behold it was Merrill Lynch that produced the lions share of those earnings…buying Lewis at least another quarter as CEO…hopefully they are smart enough however to strip him of the Chairman title just don’t bet on any creative thinking in board room’s these days…they are all braindead! Now get this: BofA’s Tier 1 Capital rose to 10.1%! If you believe that TB will sell you a bridge…his home…you name it! By the way BofA owes $45 billion to TARP and issued $44 billlion in TLGP funds so if Barron’s math is correct they are saving about $2.5 billion in interest expense. …plus like all the others, they even charged an underwriting fee…for issuing their own bonds and it was more than on most bond issues! Also the Bank increased their loan loss provision for credit cards…it is up 44% in 3 months! Countrywide is reportedly ‘on track’…whatever that means.

So the common thread is that the earnings are coming from the investment banking side, and some with the help of AIG and more creative accounting. What is going to happen if nobody flunks the stress test? The reaction to BofA this morning should be a strong hint.

If you think TB is being overly harsh, credit default swap spreads on BofA and Citi widened 10 and 15 bp’s this morning to 530 bp’s and 240 bp’s respectively…the market has less confidence in the numbah’s than TB does!

If you are bullish on stocks, you need to read this week’s Barron’s: Alan Abelson and Mike Santoli both do a very good job of explaining the rally…and it smells…worse than week old fish! Also, TB had a ‘routine’ audit from the state…the 4-5 year variety or so they said. Three days to audit a one person shop? No wonder they didn’t catch Madoff!

Anyway, TB was catching up on reading over the weekend and if you didn’t read it, be sure to read “The Lessons of the Savings-and-Loan Crisis…Willoughby was a deputy director of FSLIC during the crisis and he practically screams a warning to Obama: don’t trust the financial sector. If you don’t get Barron’s TB will gladly forward the article to you…it is scary and a must read as was Simon Johnson’s article in The Atlantic “The Quiet Coup”, only much more detailed…there is a financial oligarchy and it is running the government.

TB has a new definition of hell: listening to Larry Summers speak for an hour…purgatory is a half hour. That guy always looks like he is in serious pains…TB is thinking kidney stones…or something similar.

Hope you have a great week.

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, April 20, 2009.

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4/17/09…r e s p e c t

April 17, 2009 at 5:28 am · Filed under economy, financial, markets

Bloomberg Quote of the Day: “The wisest mind has something yet to learn.” – George Santayana…smart man, now think how much you and I have left to go! TB

TB’s Quote of the Day: “I don’t get no respect.” -Rodney Dangerfield

…the close as TB will because if he doesn’t it might just ‘sockit to me’, as Aretha Franklin might say. Don’t worry about the open, don’t worry about mid-day just worry about the close and respect it! We could either break out of this four day ceiling (some indices did but so slightly as to cast further doubt on the ability to rally from here), turn turtle and head back down to the bottom of the range…that being the gap created by the April 1 close and the April 2 open…now you wouldn’t want to go long in the morning and have that happen would you?…well, would ya?

If there is one thing…just one thing…you should respect today it is options expiration. While not a triple or quadruple witching it is an important one as the latest wave of the rally from the bottom (March 9), which began with stocks ‘gapping up’ on the open on April 9, closed the gap on Wednesday and is now dependent upon not closing the opening gap from April 2. To be sure, these gaps on the S&P 500 were just 1 point each but technicians value even small gaps in their analysis and in a market that is characterized by thousands of electronic, computer driven, trades every hour…how else do we get volume on the troubled financials (C, BofA, AIG, GE, JPM) ranging from 150 million to over a billion shares a day when the entire volume of the NYSE only averages about 1.5 billion shares? BofA for example had an average volume of about 120 million shares from 1/1508-1/15/09…prior to that it had been around 75 million shares, but since January 15^th the average has soared to 505 million shares. The others are proportionately similar. That is why you need to pay attention to options, and when they expire it can be explosive.

However, this time, ever since ‘Good Thursday’ (you remember the big rally on 4/9?), the shorts covered (normally that happens on Tuesday or Wednesday ahead of expiration, so for four days we have been bumping up against the highs…yesterday a few even took out those highs so they will provide initial support but once broken should trigger a wave of selling and since the gap from 4/9 was closed on Wednesday, all we have to hang our hats on is that opening gap. Here are the gaps from April 2, respect them…especially if we close below them (with exception of Dow 30 lower number is prior day’s high):

Dow 30 – 4/16 8125.43. Did not have a true gap on 4/2 but opened 3 points higher (7964-7761), same on 4/9 (7839-7837)

S&P 500 –4/16 865.30; 4/2 (814-813.62), 4/9 (829-828.42)

Nasdaq 100 – 4/16 1353.98; 4/2 (1273-1254.90), 4/9 (1321-1306.40) – most important as it was the leader

Nasdaq Comp – 4/16 1670.44; 4/2 (1580-1551.60), 4/9 (1619-1595.90)

Russell 2000 – 4/16 473.88; 4/2 no gap (429.15-429.51), 4/9 446.95-442.14)

Therefore, it should not be surprising that on the eve of expiry stocks did nothing that was technically significant! A few positives though:

1. The Dow was up on 1.2% above average volume

2. The two Nasdaq indices and the Russell 2000 Small Cap are best performers

3.Advance/Declines and Breadth were solid yesterday

4. New 52 week highs turned positive to new lows again and have been very close. Yesterday it was 32:15 and have been very close since March 12…on 3/11 it was 199:11 negative. This is impressive since at one point this year we had 1954 new lows and only a handful of new lows. Also, given the depth of the selloff it is amazing there are any 52 week highs.

Note that almost the entire range (except about 50 points on the Dow) since 4/9 was on that first day of the rally…we have been treading water ever since.

So just sit back and ignore the comments of the cognizenti and wait for the final act.

————————————————————————————

Nobel laureate Joseph Stieglitz says that the bank rescue plan will fail because like the ties between Paulson and Goldman Sachs, and prior to that of course, Robert Rubin, and a cast of even more, the Obama Administration has ties too close to Wall Street. This is just one of three related top stories on Bloomberg today. The others:

*Congress wants AIG CEO Edward Libby to sell his Goldman Sachs shares ($3 million) as it is a conflict of interest since Goldman Sachs is AIG’s biggest creditor. AIG responded that Libby, who works for $1 a year, took the job as a public service.

*The Lehman bankruptcy worsened the crisis as it was too big to fail. But what are we doing to prevent there being more firms too big to fail?

Now back to Stieglitz who says as most smart people do that the problem banks should be taken over, shareholder wealth wiped out and the assets sold or breaking up the banks into several entities. He says the ties to Wall Street prevent any such solution from even being considered as it is not in the streets best interest and that is what it is all about. More and more people are commenting on or alluding to the oligarchy that has been created between the financial sector interests and Congress’s personal interests. If there is a conflict of interest it is right there and they have proven which way they lean: towards the ones who are making them wealthy, not their constituents…now we are at a crisis point and it is sink or swim for them. Those tea party protests were right: throw them out, throw them ALL out. But then we still have to pay them their retirements…aarrgghh!!!

TB started his career…in banking…37 years ago. At that time John Bunting, CEO of First Pennsylania, was adored as an innovator even more than JPMorgan’s Jamie Dimon. He built First Pennsy into a big trading operation…and then it imploded. How many of you have ever heard of John Bunting today? That was a key learning experience for TB. Bankers are good at what they know…and that is lending…lending, that is when it is sane, such as making 80% mortgages and using real financial statements. They can also run good securities trading operations for governments, municipals, and even mortgage obligations. What they are not good at is understanding risk! If they did would they have made those 102% loans was Wells Fargo did (80% first, 20% second, and 2% unsecured), the sell off the subprime mortgage and pray that it will be refinanced soon? They definitely do not understand derivatives…perhaps JPMorgan is an exception but TB doubts it…what they did was control exposure but they still, like AIG and Lehman have layers of offsetting swaps on their books that could blow up on them. Insurers have a better understanding of risk but even they are subject to the 100 year storm.

After reading the above can anyone possibly believe that what we are seeing in the stock market is nothing more than a countertrend rally in a secular bear market?

TB does however believe the ‘fear’ is out of the market reducing the likelihood of a panic, but it is not being replaced by optimism…other than the ‘Kudlowites’ who were never bearish in the first place and want to resume the status quo.

Real estate may have bottomed, as friend in the industry tell him, but how long could they stay weak?…and what could cause prices to rise? These are two distinctly different issues. Year over year last month, San Francisco area real estate prices fell by 46% driven by foreclosure sales which were more than half of total sales.

The argument is that homes are cheap and affordable again…that is if you have 20% down and can qualify for a mortgage. But the other problem is that for prices to rise in real estate a necessary component is rising wages, right? …and that is not going to happen anytime soon…in fact the danger is wage cuts…take it or go get another job. This is particularly true at the local government level…in Vallejo, California, which is in bankruptcy, the judge has set aside the union contracts…including those pertaining to retirement. This is crucial as it opens the door to more bankruptcy filings by municipalities (states cannot declare bankruptcy), follow closely.

IF you can buy a property cheap thru foreclosure, it is possible as a friend in Los Angeles does, to buy it and rent it out for a positive cashflow. But you are still leveraged and if enough of these speculators have other financial problems the situation could worsen.

This is not to discourage readers from investing in real estate…merely to do so with moderation. For first time homebuyers the tax benefits now are huge, especially in California. But consider: IF they buy a home that will reduce other expenditures or consider at least saving…saving is the bane of capitalism…at least American capitalism. Spending is the driver here…and how are we going to regain the level of consumption, or even get close to the historical levels? Buying a new car? How about a two year old model that is cheap and affordable rather than take the big depreciation in the first year? OR how about moving up in class by doing this on the same amount of dollars? The point is things are not going to go back to where they were…and you had better hope they don’t because a long, slow recovery is preferable to resuming our old ways (without the massive financial sector leverage), and then coming right back here in two or three years.

This is not an exaggeration as most or all of the growth we experienced from 2002 to the 2007 peak was due to leverage…that is why the financial sector became more than 40% of the economy…while we didn’t produce anything for all intents and purposes. That means no more mortgage equity withdrawals (MEWS), multiple credit cards, etc.

If you are in your thirty’s, any growth in your 40`1(k) has been wiped out or worse. If you are a baby boomer your retirement budget and plans are changing. If you are already retired it is even worse. So you tell TB where that explosive consumption will come from? Buying at garage sales???

Just a few things to think about. Have a great weekend!

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, April 17, 2009.

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Archive for April, 2009

4/30/09…19 and counting

4/29/09…the age of majority

4/28/08…17 going on 18?

4/27/09…green shoots?…little grains of mustard?

4/24/09…15 and counting!

4/23/09…more mirrors

4/29/09…a vast desert

4/21/09…Wells giveth and BofA taketh away

4/20/09…smoky mirrors

4/17/09…r e s p e c t

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