Traderbill's Financial Markets Weblog

TB saiz: “It took nearly a decade to destroy the global economy by dismantling the laws of finance thru excessive leverage…but it only took a two-month bear market rally to dismantle a basic tenet of investing: stocks can continue to rally even as their intrinsic value is sharply diminished.” – TB said that??? Yep, just now!

…well, we finally had an average volume day yesterday. That’s the good news. The bad news is it was on a down day. Not that is was that bad a day percentagewise. But despite the Dow only being off 0.8% and the S%P 500 -0.5%, both had negative key reversals (higher high, lower low, and close below the prior day’s low). Not only that but The Russell 2000 Small Cap and Dow Transports both had outside days, narrowly missing the negative close necessary for a reversal. Both Nasdaq indices narrowly missed having outside days and both are back to flirting with the 200 day moving average…all others are below (the SOX is above and it gained but with 2:1 declining. The only two indices with advances were NYSE Energy and the Alternext Composite (formerly AMEX).

There is little doubt from the data that a three-day weekend is coming: three straight days of below average volume, starting with last Friday, each with lower volume. Yesterday’s final tally was 1.64 billion shares abut 100 million above average but came at a price: 400 million in the final 10 minutes of which 200 million were at the close and they were selling! The Dow after peaking at 8592 in the first hour, crossed into negative territory just after the final hour began as they deciphered the minutes of the last FOMC meeting and determined they still show economic weakness (duh!), despite alluding to an illusive inflection point (nice alliteration) and then slumped to 8405 before gaining back 17 of it.

BofA (BAC) managed to not only hold on to 24 cents of the gain ($11.49) but peaked at $12.24 or nearly $1.50 above the 1.5 million share offering price done in the twilight hours on Tuesday. TB thinks the reason these deals are getting done in the dark (another feeble attempt at an alliteration) is to prevent the shortsellers from catching wind of them. You announce after the close and simultaneously…good news travels fast you know…voila! The deal is done…in fact they originally talked of doing it at $10 but demand for dilution was so strong they did it at $10.77. Wells, Morgan Stanley, etc. did it now the others. Now troubled Regions Bank is trying to raise capital…doesn’t there have to be a squeezing out here at some point? Not as long as cash abounds TB would guess.

What is causing a continuation of the closing hour selloff this morning (Dow futures -57; SPX -6.30; NDQ -9.25) is that S&P announced they might cut the UK’s AAA rating which is why their bonds are down and the rest of Europe is up by a similar amount. It has also stabilized the dollar for now after dipping slightly to a new low and giving us 4.3% more downside before support at the Dec 18 low. The reason given was a deteriorating financial condition. Moody’s followed suit and we are awaiting Fitch’s comments. The U.S. is also at risk of losing it’s AAA rating…quel horror and sacre bleu!…that is if you believed over the past six months or so that it still is AAA! TB gives it a BBB- on credit watch for a downgrade. But seriously a loss of AAA would seriously impair both countries ability to sell bonds and that is especially critical for the U.S. of A.

One only has to look back to the last 30 year UST auction that some newscaster incorrectly labeled a ‘failed auction.’ That, thankfully, it was not…there were enough bids but the ‘tail’ was unusually long meaning some people got them who were hoping they wouldn’t…that is one of the responsibilities of being a primary government securities dealer – to support treasury so there are no failed auctions…hmmm, last TB looked, JPMorganChase, Citi, BofA, and Morgan Stanley were all primary dealers!

Is anyone else concerned that capital is being raised for the wrong reasons?…and you even more concerned about the speed with which they seek to repay those pesky TARP funds with strings attached? So far however, nobody is offering to pay back the FDIC guaranteed bonds…not yet. But to pay back the funds the Fed has to be convinced that these stellar institutions…all banks now thanks to a flick of a pen and one the Chairman of the NY Fed, now deposed, gained monetarily from by buying more Goldman shares, of which he is coincidentally a director. Aren’t revolving doors wonderful? You are totally shielded if you work for Goldman or JPMorganChase, right? The rest are sisty uglers and not worthy of government largesse! See the real reason they want to pay back the money is to remove the restrictions so they can retain those good people working for them…especially the CEO’s and CFO’s who got us here in the first place!

Here is something important: billions, perhaps trillions are in cash equivalents such as money market instruments. By now more than $400 billion has been added to savings and the banks are flush with cash which the don’t wish to lend – even to one another! But they have to do something with it so they lend it to other banks as discussed yesterday in the Libor market (London Interbank Borrowing Rate), which is monitored by the British Bankers Association. The benchmark 3 month rate fell 6 basis points overnight to 0.66% which follows a 3 basis point drop Wednesday, and it is down from 0.75% after breaking 1% for the first time on record a week ago! But as a friend pointed out to TB the banks are still so credit conscious that this ‘average’ rate is 25 basis points higher than what the best banks, such as JPMorganChase have to pay for funds. See how this adds to their profitability? The point is that fear is abating by investors and eventually even hand-wringing bankers will steel their nerve…perhaps they are doing that nightly at a local gin mill or wine bar.

There is hope, folks. Yesterday, Tiny Tim…aka Treasury Secretary Geithner, who is smart enough to understand international finance but can’t do his own taxes properly, was asked how much he earns. He said the government pays him a good salary. When pressed he said it was $200,000, which isn’t chump change exactly but far less than he could have (will?) earn on Wall Street. So perhaps, we can recruit some of those fine brains for the public sector and let them be investigators for the SEC…oops, they are disbanding it or at least stripping it of many of its duties….so better to try Treasury or the Fed, kids.

TB has run out of pertinent things to say and thinking about the weekend. Friday, he is leaving for Sheridan, Wyoming to attend his niece’s high school graduation and visit the world famous (why are so many remote places world famous?) Mint Bar…to pick up a new hat and t-shirt.

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Hope you all have plans for a great three day weekend and that they exceed your lofty expectations!

 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, May 21, 2009.