TB’s Quote of the Day: “The new normal will not be investor-friendly unless your forecasting dial is turned to ‘Pollyanna’ – Bill Gross of PIMCO
…yesterday you had the ‘pump’ and sometime between now and Friday you will get the ‘dump.’ Kind of like a crystal meth high…the drop is not worth the high! ….but at least this is not addictive…it invokes more head-scratching than anything else. Once again we have come to options expiration week but that was not part of the discussion yesterday concerning the ‘dream’ rally. No, it was Meredith Whitney issuing her first ‘buy’ recommendation since founding her own company…is she going to be another ‘one trick pony’ like Elaine Garzarelli whose main claim to fame was calling the 1987 crash while an strategist and fund manager for Lehman Brothers (not to be forgotten is the fact that she bought put options for the fund which was not a legal investment and thus Lehman lost money on the deal restoring the cost to the participants). Since then her record has been so-so…kind of like Schwab chief investment strategist, Liz Ann Sonders. (Note: it is purely coincidental that these are all women…the point is that they become respected for their opinions in all conditions due to a few good calls within a short time frame.)
Whitney, along with Robert Schiller, Nouriel Roubini, and Black Swan author Nicholas Taleb. And mortgage company blow-up monitor www.ml-implode.com were the whistle blowers…the only ones who cared while the revered sources sat on their collective butts.
But what did Whitney really do yesterday. Besides her ‘buy’ recommendation on Goldie she said that the financial sector looks good in the short run but faces huge problems going forward for most of the banks. Should this have been cause for a rally of 4.5% in financial stocks…a 6.5% pop in the KBW Bank Stock Index, 4.2% gain in DJ Select REIT Index while Insurers FELL 0.8% (the only loser on the day)? What led the rally from the June interim lows (note it was earnings season then too!)? Bank stocks! What led the rally from the March cycle lows? BANK STOCKS and other financials. Get the picture…is it a coincidence that both of these were at the beginning of earnings reports? Please think before you jump into this ill-conceived rally. Ill-conceived? Whatever does TB mean???
NYSE volume yesterday was just 1.19 million shares. Historically average volume is 1.5 million shares yet since 6/29 it has averaged just 1.09 million shares or about 2/3 of normal! The highest volume in this period (summer doldrums) was 1.44B shares on July 8 while the lowest volume of the entire year was 733 million on July 2. Is this the kind of rally YOU want to participate in? It is a classic bear trap to TB’s way of thinking! TB has been commenting daily in the closing market summary on how BofA and Citi are the biggest components of that volume. Yesterday, BofA alone was one-third of total NYSE volume; Citi AND CIT Financial 19% each, or 71% of total volume…add GE 9% and you have 80% of total NYSE volume…this isn’t a market…it’s a lottery! BofA shares rose 9.3% and Citi 7.3% while CIT fell 11.8%…GE was up 6.3% and Wells Fargo +8.4%, and ya know what? Not one stinking technical achievement between them! True, WFC went from the 200 day to close JUST above the 40 and 50 day but the resistance above is foreboding…trapped long positions that will sell into a ‘pop’ in the days (hours?) following their earnings reports exceeding analysts ‘lowered bar’ expectations.
JNJ reported earnings of $1.15 vs. consensus $1.12…but get this, the highest estimate was $1.14!!! Get it? The pack is extremely tight…uncertainty will do that.
Now we have Goldie’s earnings of $4.93 handily beating estimates if $3.65 on trading…how much of that came from those proprietary ‘codes’ that were stolen by Sergey? Also, don’t forget that missing month (November) when they converted to bank status and had to convert to a calendar from a fiscal year! Look, make no mistake about it they know what they are doing but it also appears they know what the government is about to do. You decide. Guess what? After rising 5.% yesterday and closing just 3 cents below its recent high highest level since 9/12/08, GS if off 0.5% in overnight markets! It’s never enough!
At the other end of the spectrum is poor old CIT Financial, whose problems may lie in its choice of a CEO, Jeffrey Peek who hails from Merrill Lynch…so what you say? The CEO is the source of earnings or problems. But what about CIT which is a well-run company but a victim of the financial meltdown thru no fault of their own. Paulson, Bernanke, and others have said the biggest mistake they made was in not saving Lehman (although they insist they didn’t have the power…bullshit…if TB had been Treasury Secretary he would have called Dick Fuld’s bluff…the way the did Ken Lewis’ but they are now making the same mistake for months. At a time when banks…except for community banks…are balking at lending to companies, CIT is the one who carries that responsibility but they are being frozen out of the credit markets…in an odd juxtaposition they are having their credit rating lowered to even deeper junk status. This is an outrage! (TB does not own any CIT stock or bonds, directly or indirectly). With the stroke of a pen CIT could be saved, yet the government sits on its collective butt and is letting this happen and if CIT goes you will see just what you saw with Lehman but with more job losses as what few industrial companies we have left can’t get financing. Perhaps they will have to issue IOU’s like California did so Goldie and other brokers…oops banks…can make a profit trading them too…or allow Blackstone (BX) who could find no problems in anything Goldman did …how could they…do they want to get cut off? The only question is why the government is doing nothing…but deliberating. Without hesitation they gave money to those who created this mess, except Lehman, even AIG’s derivatives group…thus allowing Goldman to get paid on its position against AIG. Sick!
(To those of you who think this is bunk, consider this: TB testified TWICE before the Orange County Grand Jury in 1995. The second time he was the ONLY witness who would come forward…the others…and TB knows the names of the funds who testified the first time since they stupidly left their WSJ’s in the waiting room…refused out of fear of reprisal from Mother Merrill…that folks is a fact and one that angered TB.)
Not only has Wall Street become incestuous…but then it always was…it has totally infected the government. Eliot Spitzer…you do remember him don’t you?…was on Bloomberg this morning lashing out at Goldie and its ties to the government. Meanwhile, New Jersey Governor John Corzine (yet another GS alum) has seen his approval rating drop to 40%…aka 60% disapproval. Corzine, who TB used to consider a true believer, as did a friend who knew Corzine well, said he had never heard of ‘laddering’ or ‘spinning’ of IPO’s…perhaps he was being technical since the concept but not the terms might have been used; Corzine who stated a couple of months back that to prevent corruption, all bids for public entities should be competitive…except municipal bonds which should be able to be ‘negotiated’…despite evidence by the MBIA that it costs issuers more to do a negotiated deal. Oh, well, Spitzer consorted with a prostitute…so that discredits him…gee is he the only one? We, the country that is most obsessed with sex in the world, and porn, condemns something that is commonplace in Europe. Not defending him, especially since he was stupid, but we lost a crusader but folks, he is back…stay tuned.
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The Obama administration is in dire straights…his popularity is starting to fall and he is now being held at least partially accountable. The stimulus is a failure…possibly because of the massive size and the difficulty of doling it out without massive fraud. But he has got to get himself and the Democratic leadership focused on things that will repair this mess not on every social reform under the sun. It pains TB to see this because after watching John McCain’s defense of Sarah Palin Sunday on Meet the Press he shudders to think where we would be under that team. To TB, Obama was our last and only hope of change and they have got to get moving on doing it right.
Meanwhile, the GOP is resorting to the same old scare tactics…the latest being regulation of blogs so that if a blogger is informed that his data is wrong he must ‘remove’ it immediately or face an investigation. This is pure fear….does anyone understand the logistics of this? Consider how trying to stop copying of DVD’s is failing…you can’t stop it…only make an example of those who are caught. The intent behind Harvard Law Professor Cass Sunstein’s proposal is to stop ‘hateful’ reporting…you know…just the way that Rush Limbaugh does on a daily basis. So they have blown this up into a situation as with gun control and every other thing…it is irrational fear and distracts us from what we should really be concerned about: a collapse of the global economy.
Step back and think today….think long and hard.
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, © July 14, 2009.
