Posts Tagged commodities

7/22/13…what do aluminum and oil have in common? A lot it turns out!

July 22, 2013 at 8:40 am · Filed under banking, economy, financial, markets, politics ·Tagged , , , , , , , , ,

From The Friars Club Encyclopedia of Jokes: “LBJ always told the truth, except when his lips moved.” – Red Buttons

Bloomberg Quotes of the Day: “Science does not know its debt to imagination.” – Ralph Waldo Emerson…think of inventions from sci fi…Scientology…the list goes on…

The Bottom Line: Labor market trends are slowly improving, with the recent drop in jobless claims. Manufacturing activity expanded as indicated by the Empire State and Philadelphia Fed regional surveys. Industrial production and business inventories rose while housing starts and sentiment dropped. Retail sales rose, suggesting modest growth in consumption in Q2. Inflation remains subdued. Next week’s economic calendar is fairly light. We will get the June Existing Home Sales (Monday), July Richmond Fed Manufacturing Survey (Tuesday), June New Home Sales (Wednesday), June Durable Goods Orders (Thursday), and July Consumer Sentiment Final (Friday). Courtesy of Economic Advisory Service

Bloomberg Top Stories:

*UBS Approaches U.S. Settlement on Mortgage Securities as Profit Increases–aren’t you glad we bailed out the banks and brokers…so they could continue to enrich themselves?

*Wall Street Commodity-Trading Businesses in Jeopardy as Fed Reviews Rules – finally!

*Copper Leads Metals Higher on U.S. Economy Speculation as Stocks Fluctuate

*McDonald’s 2Q EPS $1.38, estimate $1.40 – hmmm let’s see how that plays out!

*Abe Election Win Sets Up Next Fight as Struggles Loom Over Growth Strategy

*Portugal 10-Year Yields Drop to Four-Week Low as Early Election Ruled Out

*Bull Market Through 2013 Confirmed by S&P 500 Rallies of Past 23 Years – uh huh, did anyone stop to think it might just be different this time…when was financial crisis?

*RBS is Sued by Fired Emerging-Markets Rates Head Lee Over Forfeited Bonus – awww

*China Move to Market-Set Lending Rates Puts Spotlight on Low Saver Returns

*Cohen the Cutthroat Trader Stares at Demise for Being Soft on Supervision – heh heh!

*Hezbollah’s Military Arm Branded a Terror Group by EU in Strike for Funding

*Kerry’s Day-and-Night Pursuit Reaps a Fragile Win no Mideast Peace Talks

*Duchess of Cambridge Admitted to London Hospital in Early Stages of Labor

*Earthquake in China’s Gansu Province Kills at Least 75 People, Agency Says

A very strange options expiry occurred last Friday. Volume was low (3.28B shares vs an average 3.44B), but real trades on the NYSE rose to a strong but not great 872M shares – highest since July 8 (prior expiry on 6.21 produced a huge 2.01B shares, a 12-month high). Despite that the average for the week was still a weak 680M shares and for MTD just 688M, well below even the anemic 12-month average of 722M shares. But what kind of day was it? A nothing day…with the Dow and Russell 2000 flat, the S&P 500 the winner (due to options no doubt) +0.2% and the loser was the Nasdaq 100 down 1.1%!!! and the Composite -0.7%, the rest were all up 0.1%. So why bother writing about it? Well, let’s analyze the NDQ 100: it lost 33 points with 1.1:1 advancing but the real story is within that: six stocks, led by MSFT with a huge 30 point loss combined for 42 losing points (AAPL -5.6; GOOG +3.3; EBAY -1.5; ISRG/INTC -1, while just four gained more than 1 point (AMGN +3.1; GILD +2.6; BIIB +1.5; CELG +1.1), total: 8 points!

But get this: the VIX plummeted 8.9% to 12.54 -1.23, lowest since 5/17 and, at least to TB, makes market not only very rich but vulnerable…you decide. A/D’s and Breadth went nowhere…except Nasdaq breadth was -1.6x!

…here’s the book:

* Dow 30 flat vs +0.5% vs +0.1% vs -0.2% vs +0.1%; Dow Transports +0.1% vs +1.7%!!! vs +0.8% vs -0.7% vs +0.5%; Russell 2000 flat vs +0.7% vs +0.4% vs -0.4% vs +0.7%; Dow Utilities +0.1% vs +0.9%! vs -0.2% vs -0.5% vs +1.6%!!!; S&P 500 +0.2% vs +0.5% vs +0.3% vs -0.4% vs +0.1%; Nasdaq Composite -0.7% vs flat vs +0.3% vs -0.3% vs +0.2%; NDQ 100 -1.1%!!! vs –0.2% vs +0.3% vs -0.1% vs FLAT.

*NYSE Volume slipped to a below average 3.28B shares vs 3.44B vs 3.15B vs 3.05B vs 2.6B (1.96B is the lowest of 2013). REAL NYSE Volume rose was to a strong but not exceptional 872M shares vs a weak 664M shares vs 666M (Hex?) vs 617M vs 562M (lowest since 7/3). The 12-month average is 722M shares! The average since 6/30 is just 688M shares, ranging from 482M to 906M, 482M being the 2013 low! There have been just SEVEN 1B+ share sessions! There have been 28 800M+ shares in 2013: 10 up, 17 down, and now one mixed, but on trades of less than that 89 have been up and 32 down…there have been 27 mixed sessions.

*New 52 week highs have ranged from 33-864. They fell to a still solid 494 vs 690 vs 448 vs 456 from 687. New lows barely rose to a still weak 37 vs 27 –new low – vs 30 vs 37 vs 40 vs 32 vs 29.  

  1. Advance/Declines were listless: 1:1 vs +2.1x! vs +1.9x! vs -1.8x! vs +1.6x (recent range -17.5x to +4.4x) on NYSE and -1.1x vs +1.6x vs +1.5x vs -1.2x vs +1.9x (recent -3.5x to +3x). Breadth was slightly worse: -1.1x vs +2.3x! vs 2x! vs -1.6x vs +1.8x (recent -18.6x!!! to +6.9x!!!) on NYSE and -1.6x! vs +1.3x vs +1.8x vs -1.3x vs +1.7x (recent -12.8x to +6.2x)  
  2. NYSE Financials rose by a weak 0.1% vs +1.3%! vs 0.5% vs -0.3% vs +0.5% vs +0.3% vs +1.5%. BofA was most active again: -0.1% vs +3.1%!?! vs +2.8%!?! vs +0.4% vs +0.7% vs +1.9%???. It closed at $14.75 -.01 a day following a new five year high of $14.85! Brokers flat vs +1.3% vs +0.2% vs -1.2%!; KBW Banks +0.3% vs +1.7% vs +0.6% vs -0.8%; Nasdaq Banks +0.3% vs +1.4% vs +0.4% vs -0.5%. No other financials were market movers…heck, there was no movement!  
  3. Volatility (S&P VIX) PLUNGED to 12.54 -1.23, or 8.9%??? from 13.77, with a range of 12.54 to 13.97 – a positive key reversal??? On an unremarkable session?  It peaked at 20.49, plunged to 18.90 on June options expiry then closed at 20.11 on 6/24 and has been down since – a decline of 33%! 6/24’s session high of 21.91 was highest since 12/31/12 (22.72)!!! The range since April ‘12 is 11.05 (multi year low o n 3/14/13) to 21.9, It is well below the 40/50 day (15.93/15.33) and the 200 day (15.02)!!!…ytd the range is 11.05 (3/14) to 21.92 (6/24)! You might want to entertain puts here…or stop orders with limits…TB’s just sayin’…

European stocks mixed, Asia stronger: UK -0.3% vs -0.2% vs flat vs flat vs +0.4%; France +0.1% vs -0.3% vs +0.3% vs -0.6% vs +0.4%; Germany -0.1% vs -0.2% vs +0.2% vs -0.3% vs +0.2%; Japan +0.5% vs -1.5%!!! vs +0.1% vs +0.6% vs closed; Hang Seng +0.3% vs flat vs +0.2% vs flat vs +0.1%; Korea +0.5% vs -0.2% vs +1.1%! vs -0.5% vs +0.3%; India +0.1% vs +0.1% vs +0.5% vs -0.9% vs +0.4%. U.S. equity futures little changed in yet another extremely narrow trading range: DOW -12; SPX +0.30; NDQ +2.75.

Bonds closed higher on Friday – especially the long TIP, for a 2nd day? Higher overnight: 10 yr Treasury 2.48% +1/32 (recent range 2.74% to 1.63%!!!), and the 30 yr range of 2.82% to 3.71%, currently 3.55% +1/4. The long TIP is 1.23% +5/16 – still the weakest link since the (record?) low of 0.36% on 4/5. Recent high 1.53%! Libor update: 0.265%! 3 mos, 0.397%!!! 6 mos. Both remain near the Jan. 2010 record lows (0.245% and 0.382% respectively). Foreign bond yields lower led by Portugal; Greece weaker: Germany 1.52% -1; UK 2.27% -1; France 2.19% +1, Italy 4.34% -6; Spain 4.60% -7; Portugal 6.32% -30!!! vs 6.62% -21!; Greece 9.95% +17 vs 9.86% vs -13 vs 9.93% vs 10.07% vs 10.02% -16!!! vs 10.27% -19!!! vs 10.33% -25!!! vs 10.69% vs 10.85% +28!!! vs 10.52% vs 10.54% +40!!! vs 10.85% -37!!! vs 11.22%. Recent range: 8.04% to 12.57%.  Japan 0.78% -3! Note daily changes on Greece!!!

Gold closed modestly higher at $1294.00 +$9.50 – two days following a NEGATIVE key reversal (???) and a new rally high of $1301.70 – highest since 6/24. 6/27’s intraday low was $1179.40 – lowest since at least 2011 and now critical support. $1300 is again resistance, then the 40 day/50 day: $1324/1341 – both still falling, and way above, the 200 day – $1571!!! Overnight it is $1323.80 +$29.80!!! O/n high $1326, highest since the huge drop on 6/20!!! Crude closed at $108.05 +.01 – BUT with a new intraday rally high of $109.32!!! It is well above the 40/50 day m/a’s (98.48/97.87) – both up sharply, while the 200 day ($93.06), also rising is distant support. First support is $104.21-36 – a triple bottom from 7/10-7/12. 4/18’s low of $85.61 was lowest since 12/11! It is slightly higher overnight at $108.40 +.35 on a narrow inside session. The range is now $85.61-$109.32 since March 1, 2012.

Some random thoughts:

When are we all going to stand as a group and scream: we’re mad as hell and not going to take it anymore…not from Congress…not from the financial sector…not from Jamie Dimon and Lloyd Blankfein who spit in our faces daily…and certainly not from the Fed, and SEC? When will we stand on our hind legs and yell: enough is enough? Will it be after the top 1% owns all the assets? This is how you destroy a democracy.

Surprise, surprise…an investment in a few forklifts has made $5 billion for Goldman Sachs over the past five years while slowing the flow of aluminum from the producers to the end users. Isn’t that special? Oh, and how did they do this? With a special exemption from of all places…your Federal Reserve…that Goldman infested organization who is supposed to protect we, the people, from the banks (and faux banks), adding about one cent a can to soft drinks and other goods. A pittance…except en toto.

Ah, but thanks to the New York Times, that bastion of liberals, the game may now be over as the Fed, who was ready to renew the exemption from trading limits proposed by the CFTC, is sheepishly rethinking and it seems has no choice but to pull the pin on this lucrative scam. Free market capitalism, my derriere!

But let’s look back before the financial crisis: specifically from February 2008 to – you’re gonna love this 7/11/08…any gamblers out there? Anyone recall what happened and drew attention to Wall Street then? Okay, here goes…Crude in five months rose from $86 a barrel to an all-time record $147.27 – a 170% increase. Why? Middle East turmoil? No, because the banks and brokers taking advantage of an exemption to CFTC rules were stockpiling crude in storage tanks all over the eastern states. Surely, you recall this, right?

What began as the ‘sheep’ – aka pension fund consultants and advisors recommended that the funds diversify into commodities…so, the banks were only too willing to appease their appetites…except the volume exceeded the demand for commodities index swaps.

There are two main commodities indices: the CRB Index which underweights energy and overweights grains, and the GS Commodities Index which grossly overweights energy and is the more popular among those involved in energy…natch!

While the CRB weight is about 35% energy, the GS Commodity Index as of May 2008 was 78.65% energy (40.73% CRUDE!!!). So? The more commodities index swaps that were done…again with banks and brokers having no limits…the more they rose. In addition, due to such visible demand what did the banks/brokers do? The obvious thing: they front-ran the orders so as to profit from creating the swaps. That, not a Mid-East crisis or shortages (except the ones they created), was what drove oil to those record highs! What kind of regulator would allow that to happen…uh…a friendly one (TB is being tactful and kind here)? Of course, once 60 Minutes did an expose on them the game was over…ah but that wasn’t until April 2009!!!…nearly a year late:  60 Minutes oil speculation

But worse than what they did to oil was what they did to food prices and inflation and creating famine…but hey, who cares? Are you beginning to see why TB is so angry at the big banks, Congress, the Fed, and the SEC??? Disgusting. Why would any responsible citizen buy or hold stock in JPMorgan, Goldman Sachs, and the others involved? Too make money, idiot! Isn’t that what life is all about? …and death?

So will the aluminum hoarding story become a 60 Minutes special? Will we have to wait a year for them to get it together? Will anyone pay for it? Will Larry Summers be Fed Chairman by then and give them a pass? You decide but it makes TB sick!

Free market capitalism is a myth…Milton Friedman didn’t get it…or perhaps he was blinded by those involved. Sad to create a monster and not benefit financially from it…seems that’s the least one can do, right?

What kind of country have we become? But the Tea Party mentality GOP continues to coddle and cater to the perps…Dems too but the scale is incredible. Meanwhile, we have a Congress that can’t accomplish a thing…ok, the House can vote down Obamacare 39 times and according to John Boehner will continue to do it until they win in the Senate.

See you have to cut government spending and safety nets in order to not have to raise taxes on those who have created the mess…is this a country you can be proud of? Not TB!

Have a reflective day!

TB

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11/15/11…extreme volatility!

December 15, 2011 at 7:29 am · Filed under economy, financial, markets ·Tagged , , , , , ,

What a time to be on the road. Fortunately, TB has been able to follow the market…follow, not understand it…with his mobile Bloomberg. Yesterday’s plunge in gold…and oil…along with stocks, has brought him out of hibernation. Won’t bother you with trying to define why it is happening but the attached article, if you are interested enough to read it, confirms TB’s claims that we are seeing unprecedented volatility in the markets which  are once again correlating. Further, as the article points out, correlation between all stocks in the universe is 0.77%, meaning that stockpicking is futile. Add to this the volatility in bonds and it is an extremely treacherous market. We have seen what happened to some of the legends of investing: Bill Miller, for instance who beat the S&P 500 for a record 23 years has left his fund. Others, as discussed in the business are throwing in the towel too.

TB has felt fortunate that he decided that income producing stocks well before those who focus on growth, would help avoid the pitfalls…to an extent that has worked, more so than attempting to buy bonds since the financial crisis developed. How does one buy a bond where you could lose…or make…1-2% gains overnight…and then see them reverse again, possibly  the very next day. Intraday trading is highly dangerous…yet that is where the only real volume is in the stock market. Increasingly, a high majority of stocks in an index move the same direction…often 90:1 or even higher…a clear sign of index trading by high frequency traders. We know one thing…and that is what it isn’t: a market.

Gold broke thru the 200 day moving average plunging along with other commodities. Crude was a special case falling more than 5% from over $100 a barrel compounded by OPEC’s decision to raise production quotas.

As the article indicates however, volatility in options expiring in January is extremely high…in contrast to what we saw in the prior few days on the VIX when it actually declined on a day stocks also fell.

But you can’t stay in cash…although high levels are recommended. As pointed out bonds are dangerous…even Bill Gross, the bond king, was way off base and has only improved his performance by using non-bond investments.

It’s a jungle out there. Don’t look to TB for the answers but at least he identified the problem.

Enjoy your weekend…until next week,

TB

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7/9/09…LHLL

July 9, 2009 at 6:30 am · Filed under Uncategorized ·Tagged , , , , , ,

Bloomberg Quote of the Day: “We don’t know a millionth of one percent about anything.” – Thomas A. Edison

….Lower High Lower Low is what LHLL stands for. A quick skim of the market summary for Tuesday will show that recurring in every single index! Astute readers will recall on Tuesday TB commenting that we missed ‘key reversals’ (higher HIGH, lower low and close below the prior day’s low) by about a point at the top on the major indices. But what is worse is that the ranges have extended dramatically at the low end, frequently into the next 100 or even 1,000 level. Take a look at the Dow Industrials for instance:

7/1 Closed 8504. Range 8580-8447. Broke 40, 50, and 200 day ahead of 3 day weekend

7/2 Closed 8281. Range 8503-8280

7/6 Closed 8324. Range 8328-8206

7/7 Closed 8280. Range 8326-8154

7/8 Closed 8178. Range 8219-8087

Four straight lower closes, four straight ‘two handle days and all after busting thru the 40, 50, and 200 day moving averages. The three now stand at 8487, 8456, and 8397 respectively presenting formidable resistance. Note that the 200 day has been decilining by more than 10 points a day while both the 40 day and 50 day were rising until July 1st on the 40 day before rolling over, while the 50 day continues to rise but will rollover soon due to the gradual decline since the 8799 high close on June 12 although the high of 8877 was achieved on June 11. This is a market in decline. Now let’s look at the S&P 500:

 7/1 Closed 923. Range 932-920

7/2 Closed 896. Range 921-896

7/6 Closed 898. Range 898.72-886

7/7 Closed 881. Range 898.60-879 Broke below the 200 day moving average!

7/8 Closed 879. Range 886-869

Exactly the same it just took longer to break the 200 day, but the 40 day moving average began to decline on July 2, and the 50 day is still rising but about to roll over. Now let TB bore you with one more index, the Barron’s 400, their top 400 stocks based on performance but the composition is not released for proprietary reasons…Dow Jones wants an ETF created so they can collect the fees.

7/1 Closed 211.81 (peak). Range 214-210

7/2 Closed 204. Range 211.80-204…broke below the 40 and 50 day m/a’s

7/6 Closed 202. Range 204-199

7/7 Closed 198. Range 202-198

7/8 Closed 197. Range 199-194  Close is just 7 points above the 200 day

So you have three different sized indexes and we could add the Rusell 2000 Small Cap to the mix with similar results (the Russell broke below the 40 and 50 day on July 2nd after peaking on July 1st). The two Nasdaq indices remain well above the 200 day but gapped down on the open on July 2nd (they peaked back on June 11), and the next day broke both the 40 and 50 day moving averages…now remember those are the two strongest indices!

We have to go back to late May to early June when we first had a rare ‘silver cross’ where the 40 day broke above the 200 day, and an even more difficult ‘golden cross’ a few days later when the 50 day followed suit. These by definition are extremely bullish patterns…but not this time! First after the crosses the indices began to flatten until they are not only totally flat now but beginning to roll over. This is not supposed to happen! It is therefore indicative of a ‘faux’ rally! This is not the dawning of a new bull market!

But to confound things even more is the fact that bonds have remained extremely volatile (even the outperforming junk bond sector has broken down while investment grade corporates are holding on and munis are now volatile thanks mainly to California but other states problems are beginning to enter the equation. Want more? The Dollar can’t seem to get a grip and despite a nice rebound from treacherous territory it is now mired between the 40 and 50 day m/a’s and overnight it is trading just below the 50 day!  This has caused gold to break down and like all the others broke below its 40 and 50 day at about the same time. But as it approaches the 200 day ($882) it should again attract buyers.

Once again commodities are a scandal and for the same reason as a year ago. TB does not believe in conspiracy theories but has written about the Plunge Protection Team (PPT) which was a quid pro quo with the government. This group of securities dealers (led by Goldman Sachs…perhaps we should change the America from ‘U.S’. to ‘G.S.’ In a little known act until recently the SEC exempted the big 5 dealers, three of which are gone – two merged into banks, one allowed to drown and the other two given bank status!

TB wrote about the runup in oil prices from 1997 to the explosion in the first half of 2008 and how that move on a lame theory of too much global demand…the only increase was China building huge storage vaults and stocking them ahead of the Olympics! That runup to nearly $5 in gasoline prices in the U.S. brought on fears of runaway inflation…false…and was fueled even further by …you guessed it…Goldman Sachs…with theories of ‘peak oil’ – another sham…when TB was in the sixth grade a publication called the Weekly Reader distributed to elementary schools said we would run out of oil in 50 years…the forerunner to peak oil! This fueled the GOP’s famous ‘drill, drill, drill’ which was absolutely insane as a response but they cuoldn’t bring themselves to recognize global warming or gas guzzlers until Al Gore rammed it down their throats…and then only reluctantly.

But here is a kicker….the reason for the runup was that consultants to pension funds…and who do they listen to but Goldman Sachs convinced the funds to invest in commodities index funds…these funds are modeled on the Goldman Sachs Commodity Index which is heavily weighted towards oil (while the CRB Index is more to grains). Then using an obscure provision that exempted them from position limits (based on the reports out then that were sketchy at best…TB read that only banks had this exemption so he thought  JPMorgan and Citi…but no it was actually dealers as we are now finding out. So it was a rigged game and if you doubt that, even Goldman alum, and former hedge fund manager, Jim Cramer called the oil futures market a ‘farce’ …actually something like a farce inside a farce inside a sham or words to that effect.  Not only are we paying for this but the entire population of the world…and folks you can blame this squarely on the Bush Administrations  ‘anti-regulation of any kind’ stance…with an able assist from Robert Rubin! The CFTC was held hostage and a former exec of it is blowing the whistle and it lands squarely at Goldman’s feet. It is hard to imagine the government allowing this to happen but Goldman is so entrenched in the government that nobody objects, in fact they ask for their opinion!

Cramer got TB going on this but then a friend sent a lengthy conspiracy theory piece by Matt Tabibbi who writes for Rolling Stone…you can google and get it but it blames Goldman for every financial catastrophe since its inception…well supported in theory but whether all is as bad as he suggests (warning he uses expletives after all it is Rolling Stone), TB leaves up to you…but where there is smoke…so even if a quarter of it is true, it is shocking. If you can’t find the article and want to read it TB will forward it to you. Ya gotta hand it to Matt though…he went where TB would not tread after having gone up against former employer Merrill Lynch during the Orange County bankruptcy in 1994. It is hard to defend yourself when Wall Street has been represented by virtually every major law firm in the country…world?…and therefore will not represent you against them! Also, when Lehman failed Paulson told us there was nothing he could do…no doubt he had consulted with Goldman who was more than happy to see their biggest competitor fail…oh well…you decide!

By the way…Pimco has pulled out of the PPIP, toxic asset disposal plan…they who jumped in first. Why pull out? Because they feel it will not work! Yep, another Goldman plan…oh and so is ‘Cap and Trade’ which will likely pass and be a blight on the U.S. economy while Goldie makes even more money trading the credits. What is Goldman’s secret? Get rich…get caught…then settle for a pittance…is this a great country or what?

One last thing…remember when the TARP money was being passed out? Well, CIT got $3 billion and applied for status as a bank…remember Goldman and Morgan Stanley were granted it overnight…arguably they are more of a bank than these two dealers will ever be and they make loans to companies that are not being made by the banks now. The U.S. is holding up on giving them bank status and has been for months…meanwhile they are trying to regulate GE as a bank and they are resisting…now consider that GE is more of a finance company than an industrial but CIT is strictly a financial company and should be accorded the status…but their CEO unfortunately came from Merrill…now if he had been from Goldman…

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TB reflected a lot at Ernie Voigt’s funeral yesterday…which was attended by several hundred…yes Clint was there. Something that struck a nerve however was how loved he was and respected. Now recall back to Farah Fawcett and Michael Jackson dying the same day. Farah’s tribute came and went. The front page of the paper was black and all about Michael…also included in smaller type was Farah. Since then his story has been all over the news. Then there was that tribute Tuesday that bordered on obscene in its praise of him…not just as a great entertainer which undoubtedly he was but Al Sharpton giving him credit for Obama becoming president and Magic Johnson saying how much he had done for people of color…this for a guy who was no more black than O.J. Simpson and tried to make himself white. TB wouldn’t be writing this if it wasn’t that so many friends and even a commentator (KCBS’ Dave Ross), objected to it…wonder how the vast citizenry of Los Angeles feels having to pick up the tab for crowd control, etc.  This at a time when so many people are hurting and for a proven pedophile…the Catholic church has nothing on him.  

If TB offended you with this he is truly sorry, but it is worth it if it made you THINK!

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 9, 2009.

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12/3/08…driving for dollars

December 3, 2008 at 5:30 am · Filed under economy, financial, markets ·Tagged , , ,

Bloomberg Quote of the Day: “The word ‘meaningful’ when used today is nearly meaningless.” – Paul Johnson

 

Aesop’s Fable: The Man, The Boy, and their Donkey

A Man and his son were once going with their Donkey to market. As they were walking along by its side a countryman passed them and said: “You fools, what is a Donkey for but to ride upon?”

So the Man put the Boy on the Donkey and they went on their way. But soon they passed a group of men, one of whom said: “See that lazy youngster, he lets his father walk while he rides.”

So the Man ordered his Boy to get off, and got on himself. But they hadn’t gone far when they passed two women, one of whom said to the other: “Shame on that lazy lout to let his poor little son trudge along.”

Well, the Man didn’t know what to do, but at last he took his Boy up before him on the Donkey. By this time they had come to the town, and the passers-by began to jeer and point at them. The Man stopped and asked what they were scoffing at. The men said: “Aren’t you ashamed of yourself for overloading that poor donkey of yours with you and your hulking son?”

The Man and Boy got off and tried to think what to do. They thought and they thought, till at last they cut down a pole, tied the donkey’s feet to it, and raised the pole and the donkey to their shoulders. They went along amid the laughter of all who met them till they came to Market Bridge, when the Donkey, getting one of his feet loose, kicked out and caused the Boy to drop his end of the pole. In the struggle the Donkey fell over the bridge, and his fore-feet being tied together he was drowned.

“That will teach you,” said an old man who had followed them:

“Please all, and you will please none.”

 

…can you believe it? Rick Waggoner, the CEO of GM driving to Washington, D.C…in a hybrid…as is Mullally. TB has referred to the above fable before, and it is if the Big Three are scripting from it. That is what is happening…sort of…they get jumped on them for bringing three corporate jets to beg for alms at the alter of Congress, so what do they do? Do they fly down in one plane? NO…do they take a commercial airliner? NO…they drive. Oh how TB wishes he could ask a question: Mr. Waggoner and Mr. Mullally, the world is wondering if you think this is a good use of your time in a financial crisis? If you do, get out of here because even the $1 salary you have no agreed to is too much…since you could be replaced by someone with common sense…wouldn’t you love to hear what Lee Iococca would say??? Chrysler, TB thinks is selling its fleet of jets…what about the rest of them? See this is the problem with spoiled little boys and their toys…and believe TB these whizbangs are just the tip of the iceberg. They are all good at plant closings and layoffs (except when times are good and they just let people sit around doing nothing…then suddenly they layoff 10,000 or 50,000…WTF??? Meanwhile they spent five years doing record share buybacks which look insane in retrospect! But give up their country club memberships, jets, limo’s, etc…uh uh…things aren’t that bad…especially if the taxpayers are willing to foot the bill. So the poor Big Three took the heat…what about AIG? Did they sell their jet fleet? Did anyone ask them too? This is truly sick!

 

Note that Ford says it does not need the money now but is asking for the commitment because if the other two fail they will need it. GM and Chrysler now say they need $15 billon to survive until next month…time’s awastin’ while those CEO’s drive to D.C.

 

About 40 years ago TB heard a great story. The general manager of Ford had a major problem…they had hired so many people due to rapid growth that they didn’t have room for them. So, within his authority, he had plans drawn up for a new building adjoining the old one. Winter was approaching so, since he couldn’t get Henry Ford’s attention he had the excavation begun, certain that Ford would see the logic. One morning he finally got to see ole Henry and explained to him how they had run out of room. “Get your clipboard,” Ford said and proceeded to walk thru the office. If he saw someone with their feet up on the desk or reading the paper, etc. he got their name. By the time they had finished, he had cut the staff substantially. “See, your idea was a good one, but mine was more effective,“ Ford said. Sheepishly, the GM led Ford to the window where trucks were busy excavating a huge hole. Ford said, “I have never punished a man for using initiative so you won’t lose your job…but…by tomorrow morning I want that hole filled and grass growing on it.” Trucks worked all night but they got the job done. TB heard this story from a business law professor who had one of the driver’s grandson in his class. A great story…we need more Henry Ford’s and Lee Iacocca’s and fewer clowns.

 

Stocks: Yesterday was a classic dead cat bounce…but the oh’s and ah’s at CNBC were remarkable. Only in America…or at least on CNBC, would a 270 point gain following a 679 point decline be heralded as a victory. Furthermore, both were on slightly above average volume and yesterday’s rally was on a string of inside days (higher low and lower high than the prior day), and an indication of no conviction. True, Monday created a major oversold position, but then why didn’t we dive initially since the decline then and the rally yesterday were both done in the final hour of trading (for that matter the gains and losses over the past three weeks, or more, have been determined in the final hour). So label it as a DCB, nothing more…no evidence on how today will fare…just be careful. As usual, the movers are 90% the same stocks, moving in whatever direction the traders want it to go, with little or no concern over fundamentals…so if you are a fundamentalist in these markets…you need a church, because that is the only thing working for you, and even they had problems in the last election! TB might be more constructive on stocks if every time they rallied all those parading on CNBC weren’t saying it is a buying opportunity, thus no capitulation…a few more are bearish now but it takes ALL of them to be bearish to force a capitulation…got it?

 

Bonds: What can TB say as the long end is at record lows, yields on treasury bills are non-existent and you have to go out to three years just to earn more than 1%! You can get about 2% on a federal agency while the new TGLP’s (Treasury Loan Guarantee Program) bonds being issued by everyone from Goldman Sachs to Wells Fargo are yielding about 3%…question is why with the guarantee by FDIC why do you want to buy a treasury?…only reason is the state income tax exemption and that is more than compensated for by the yield. TB long a lover of Zero Coupon bonds is reveling in his success as they are at record highs (in price). Municipals are truly bifurcated, with the short end rich…lucky to get 2% in the front end while the longer term muni’s are suffering from the eroding economy and thus lowering of credit quality (see it’s all about credit), and increasing supply, accompanied by the loss of insurance protection, meaning investors now have to do their homework. Corporates are bifurcated also with investment grade now going sideways after rebounding while junk bonds…er high yield…are at their lows…price, not yield. Some say you should take the risk…the same ones who have been telling you that stocks are a bargain…so you can safely wait if you are a junk buyer.

 

 

All that glitters: yesterday, TB mentioned that technicians were recommending selling gold and buying platinum. Today, the WSJ is questioning whether the yellow metal still has value in economic turmoil. TB poses that it was the ‘securitization’ of gold that caused the fall last March from the $1,033.90 record high and subsequent failed attempt at $1,000 that peaked on July 15 at $989.60. In fact, Gold peaked just as the surge in other commodities really took hold (due to massive investment in commodities index funds and unlimited buying by commercial banks to write commodities swaps with them). The peak in the CRB Index was July 3 and it is down 25% since then while the energy heavy Goldman Sachs Commodities Index is down 40% over the same period.

TB believes that the reason for the initial rally in gold and its subsequent peaking was the popularity of the two ETF’s for it and later silver (note that there are no capital gains on these as the physical commodity is purchased the same day). The first, was StreetTracks with GLD with an inception of 11/18/04. Over that period it rose from $44 (1/10 of an ounce of gold), to a high of $100.44 on March 17, a gain of 228%. Due to the new product (we know this since the earlier inception of the ETF in London had a similar effect there, but the real run-up began in November 2005. TB has pointed out in the past that the success of the product is self-fulfilling since the higher the underlying commodity goes, the more buying interest and the more that is bought the more gold that has to be purchased for the collateral…it is physically held in a vault and stamped with the ETF’s symbol. Conversely, declining gold prices cause selling of the ETF and thus further selling of physical gold. That is the reason, not a desire to hold gold, that gold is weak, it is still a storehouse of value…try to buy a Kruggerand or any other gold coin these days, they are not available. Thus, like other commodities that had heavy speculative investment, it is weak.

 

Currencies? The dollar is the only game in town…that and the yen, while the Euro, and especially Sterling are being trounced. Unfortunately, that is bad news for the U.S. economy and big ticket items as those coming over here to buy luxury goods and avoid the Value Added Tax are finding it too costly.

 

What’s left? The only safe harbor…cash…of course you are earning less than 1% in a money market fund and nothing under your mattress…under those circumstances the ole mattress looks pretty attractive…relatively speaking, right?

 

So if you are expecting the long-awaited resumption of consumption, you have a long wait coming…indeed.

Who is the President and where is he? Dubya has been invisible lately…even Laura Bush was interviewed on Meet the Press last Sunday but the Man has been out of sight longer than after 9/11. Meanwhile, Obama has held five press conferences…note that the stock market did not sell off after these (although it was down on some of the occasions). Contrast to Dubya’s questionless moral-building speeches that were virtually identical and without emotion that capped rallies if they were occurring prompting those in the pits to beg that he not do it again. It appears he finally got the hint. Also note, that while Obama’s speeches have been substantive on teams, cabinet posts, etc. he has stayed clear of the line of control and repeatedly pointed out that he is not the President…yet. Hopefully he can deliver as well after he is inaugurated. We desperately need it! TB doesn’t know about you but he is shocked at the hostility of some of the question as if they are trying to bait him into losing his sense of calm…don’t recall that before.

 

Happy trading…or at least not unprofitable ones!

 

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 December 3, 2008.

 

 

 

 

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11/19/08…cheap is

November 19, 2008 at 6:02 am · Filed under economy, financial, markets ·Tagged , ,

Bloomberg Quote of the Day: “Know how to ask. There is nothing more difficult for some people, nor for others, easier.” Baltasar Gracian. Hence the 3 automotive wisemen!

 

..what is ‘cheap’? Ask a hundred people in a room and you will get 50 or more different answers. More importantly, with a plunging stock market, what truly is cheap? The problem is time horizon. Some day we will look back on this as the great buying opportunity of a lifetime…someday. On the other hand we might look back on it as we did the market six months ago, or a year ago and see it as the selling opportunity of a lifetime. The reason of course is the three “L’s:” Liquidity, Leverage and Legislators. A fourth would be LUCK, be it good…or bad. Welcome to the biggest casino in the history of the world except perhaps Holland during Tulipmania…at least there was some value to the bulbs…but then they never did come back in value either, did they? As we speak, not one of the four is working for us.

 

If you listened yesterday afternoon to the grilling (well done, please) of the Big Three Auto CEO’s yesterday, it was very obvious when they were lying: every time they said they would not be back for more money if Congress would just give them $25 billion, or was it $50 billion…whatever. Of course they ‘couched’ it in terms of an anti-ceteris parabis…if all other things are changed…and over the next six months. Now get this straight: the credit crisis will be solved; the economy improving; and buyers back in droves. TB thought that the real estate sector had high hopes but this trumps it (not a pun on The Donald, he isn’t worthy of one, he is the joke).

 

So what does one do? TB would tell you but if he did he would be violating what he said yesterday in his ‘prognostication’ piece, and be just another charlatan. In point of fact, TB doesn’t have a clue. Six months ago…heck three months ago, he didn’t think we would be at this point, not that he expected stocks off to the moon but he believed a floor would be in with a long, long slightly upward trajectory…not that that makes for a dawning of a new bull market, but perhaps a chance to  take a breather.

 

TB felt, and still does, the income be it from bonds, or stocks would be the key IF they were sound, viable companies. Thus one can look at it as a bank account where you live off the income and see the value of the investments coming back…sure beats relying on growth stocks. But since then we have seen some of the best companies…or at least they were the best companies plunge in value…and of late it is the industrials that are taking the biggest hits. Take HP yesterday with their blowout earnings…the stock rallied 14.5% but is still trading at just 9.3x estimated earnings…for a tech company…and a p/e to growth rate (PEG) of 0.7x, which is deep value, not growth! Then there is CAT, which would benefit from infrastructure spending, right? 6.1x p/e, PEG 0.6! IBM, 9.2x/0.8. Boeing (BA), 8.5x, 0.8x. Alcoa (AA), 6x p/e, 0.4 PEG and 7.2% dividend yield! Northrop Grumman (NOC) 7.5x p/e; 0.8 PEG…and the list goes on.

 

Then there are the stocks being hit lately with p/e’s in the low teens: MMM; JNJ; KO (although PEG is 1.5x); or Verizon (VZ), which not only had great earnings but raised the dividend? Dividend yield jumped to 6.45% while p/e is 11x and PEG 1.5x; United Technologies (UTX) 10x 0.9x PEG; 

 

These are not recommendations, merely a reality check. With the exception of NOC, these stocks were gleaned from the ‘movers’ of the past few days on the Dow 30!

Remembering back to the Depression…TB wasn’t there…the companies that survive or prosper are no respecter of the past but these companies seem more likely than most to do so, right? Some day we will all look back on this era and laugh…yeah, right, just like our grandparents used to go into hysterics when the told us about it!…if they spoke at all.

 

TB is not constructive on commodities, especially energy…did the Saudi’s hijack there own tanker as a way of reducing supply…hold on, that was just a joke…sort of…but you can bet they aren’t as upset as they would have been three months ago! How do you hide a ship like that? These aren’t the days of the Barbary Pirates…we know where it is, just like the other ships…either that or we have wasted billions on those spy satellites. But one think TB has back on his radar screen is gold…now you all know TB is not a gold bug but demand for the yellow metal hit a record high in Q3…interesting as it hit a low of $681 on 10/24 and has traded below $700 once since then (11/13). After bouncing the next day, Monday and Tuesday were BOTH inside days (lower high, higher low than the previous), and so far today is even inside that! So with stocks weak, and inflation down, and the greatest financial market crisis in history, should gold be weak?

 

The answer, TB believes, is in the securitization of a commodity…what else is new, wasn’t securitization what caused this mess? The vehicle is the Gold ETF, of which there are two. They are a perfect vehicle (especially in an IRA since they are taxed as ordinary income no matter how long you hold them since they represent ownership in the physical commodity…so why invest in the gold stocks which are so easily manipulated…buy the real thing…IF you do invest, right…and it beats dragging gold bars around with you. So TB would like to see one more test…or a breakout from where we are…again this is not a recommendation, merely an idea to consider…TB does not own it in his own or client’s accounts…yet. Also, Silver is not Gold…got it?

Over the past 28 sessions, since putting in the low on the Dow (7882 on 10/10), we have tested the lows FOUR times (in 8 sessions), and broken 8000 once…sadly that was on 11/13, over a months since we put in a low, and yesterday was the lowest one since that test…that does not sound like ‘building a base’ to TB…not at all.

 

A good day to all!

 

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

 

 

 

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9/5/08…gutwrenching

September 5, 2008 at 5:33 am · Filed under economy, financial, markets ·Tagged , , , , , , , , , , , , , , , , , , ,

…that is the best term TB can come up with for the disaster yesterday. Worse, it is carrying over into the overseas markets. If you are one who normally just looks at the prose here (if so, TB hopes you took a look at the performance table yesterday which indicated the rally since the July 15 lows was way overdone unless you believe this is the dawning of a new bull market in which case you are ignoring the credit problems which not only are not abating but worsening), do yourself a favor and look at the over night markets section and if you have time the market summary from yesterday…something is up.
 
TB had just about broken himself of uttering expletives…until yesterday afternoon. The market finally got to him…not the market per se which is merely an expression of the economic problems, self-induced, that we are facing…but the failure of government to prevent it from occurring, and the failure of his investment manager brethren to become incensed as their clients assets have deteriorated. Consider:
 
*The failure of the SEC to protect investors…first by eliminating the uptick rule when instead they should have modified it for the change from eighths to decimals years ago and thus made it a 10 tick rule. Worse, they decided it was superfluous basing it on data during the bull market of 2002-2007! Not only that they allowed naked shorts to exist and finally a year ago started putting out a ‘threshold securities’ list for fails to deliver 10,000 or more shares in the prior 5 trading days that were at least 0.5% of the shares outstanding. Currently, there are 87 stocks on that list with 19 failing for more than 100 days. The leader, Chipotle Mexican Grills (CMG) is at 493 days and at least 35 are financial stocks, many of them housing (which could well explain the rally a few days ago). Due to the recent rally Lehman is on for 1 day, but Wachovia is at 89, Downey Financial 180, First Federal 243, and Hovnanian 272 days. For Hovnanian shorts are about 50% of the float! Wachovia is more than 10%; and Chipotle is one-third! What is the point of having a list, let alone rules and then ignoring them. Force the shorts to cover! Make them hurt instead of the shareholders the SEC is sworn to protect! Perhaps they take their cues from the boards of directors who are also derelict?
 
*The failure of the CFTC to enforce rules on banks that they do on commercials and speculators as to position limits. Thus, when consultants told pension funds to buy commodities (as they did hedge funds and as they failed to tell them to rebalance from 1998 on…and yet they are the only ones who cannot be held accountable under ERISA laws!), which threw tens of billions into commodities hedge and index funds and created inflation which is now perceived as evil when it is not inflation but artificially induced price increases which were seen by the ‘Xperts’ as proof of rapidly increasing global demand when in fact it was a sham. TB will take credit for seeing this and still sees Crude falling perhaps as low as $80. But something happened, most likely jawboning the banks who were writing the commodities swaps for the index funds and thus began the unwind…TB is willing to bet this was the case…lead among these banks was JPMorganChase which has been annointed along with its CEO Jamie Dimon as all-knowing (just like Goldman Sachs). TB also said that is why the Fed went to them to take over Bear Stearns – they had the most to lose! They are the biggest player in derivatives…especially credit default swaps in the world and at least a major player in interest rate swaps. Yesterday, they announced they were out of that business with municipalities due to Jefferson County, Alabama (Birmingham), which they are blaming on rogue salesmen…of course the SEC has been investigating them and this sure looks pre-emptive. There is much more to come of this and the auction rate securities market implosion which has taken with it, the municipal bond insurers…leaving bondholders exposed when the really need the protection.
 
*The failure of the Fed and other regulators to insure that after the demise of Glass-Steagall, controls were not placed on banks who have little concept of investment risk and need to be seen as safe by depositors…now the FDIC’s reserves are about exhausted and they are trying to raise insurance fees to banks…of course, the smaller banks who had nothing to do with this are screaming bloody murder as they well should! It isn’t as if we didn’t have a blueprint for these problems following the S&L crisis which was brought on by deregulation, and then the ensuing banking crisis. Furthermore, credit unions are now having problems brought on by too much leverage…the same as the big banks! Allen Greenspan was in a position to do something about this and chose to ignore it even though advised to act by the late Fed Governor Ed Gramlich.
 
Now don’t get upset as the following is not a political statement…but is merely fact: for the past eight years the GOP has run the government and the Congress for all but the last two of those years. Bush never found his veto pen until the Dems took control but the margin was so weak that they have had no power (this is not to say they would have in fact solved any of these problems). The reason for bringing this up is it is the laissez-faire attitude of the GOP on capitalism that created this mess. This feeling that unbridled free-market capitalism (which goes hand in hand with the tax breaks for the wealthiest 1-2% on an alleged trickle-down theory), that set up this ‘anything goes’ financial market. Whether we get a deep recession or even a depression depends on how we handle this. So far, the only person who has shown any sense is Ben Bernanke and he has been under fire by the same people for being a dove on inflation. TB feels he is no dove but sees it as TB does and this ‘dovetails’ so nicely into his research on how the Fed caused the 1930’s recession to turn into a domestic and global depression. Think about the parallels…and the link is the global financial system which is more entwined than ever. The inflation will be self-correcting…but will the credit markets???
 
So what does all this have to do with yesterday’s markets? Well, some of the Xperts were blaming it ion weak economic data…but only retail sales reports for August looked that way…productivity looked good and confidence was better so what is the problem? Retail should be hit, yet…but every single sector…and GE was the only positive in the Dow and not meaningfully so…there was not ONE meaningful gain in index points by any stock in any index! By the way the lovely Erin on CNBC was pointing to the fact that the declines in auto sales were less than expected and that is signaling a bottom…hold that thought Erin…along with those guys on Fast Trading in the afternoon…frankly they sound like a bunch of nutcases…TB believes they should be forced to report the accuracy of their calls…especially the loudmouth! Class dismissed!
 
No, TB sees the problem as a double whammy: first JPM announced the investigation which sent shivers thru the market as it is the interest rate swaps which have made the auction rates securities mess so hard to unwind, second came the announcement that the weekly oil inventories reports…there are two, one by the American Petroleum Institute and one by the government from data voluntarily submitted. Unsaid, it that you are supposed to report truthfully…as it turns out the government has been lied to by some capitalist pigs…can you believe that? The thing is that the reports come out on successive days so think how much you could make by trading the discrepancies! That appears to be what they did…and now Ospraie and a couple more commodities funds have been wiped out…who is going to pay for that. Worse yet…isn’t this just one more case of pension funds investing high and being forced out low? Can anyone tell me what commodities have to do with pension benefits payouts? What is the link? None!
There you have it…that is what caused the rout yesterday and with the weaker than expected payrolls report just out and unemployment at a 5 year high, you better pray that the market can bounce today.
 
Perhaps TB is just being paranoid and probably is, but after you have been as critical of the government as he is you have to wonder when the California Department of Corporations informs you that you are being audited. Actually, the guy was very nice and after having an LLC for four years it isn’t surprising to have a routine audit. The audit is next week…can you imagine lil ole TB having someone here for two days to go over his records? Wow…that is attention!…and a lot of prep work for TB…files, etc.

Thankfully the convention is over…TB could not take another, Carly Fiorina, Rudy Guiliani, or Lindsay Graham tirade…sure they are trying to fire up their core but why not speak the truth? How can they make all those negative statements when they have been in control for the past eight years bringing on the biggest financial debacle in not just US but global history?

TB did however like McCain’s speech and IF he can deliver on what he is promising…which given the depth and breadth of the Beltway machine is highly doubtful, TB could accept him as President…he is a good man. TB also knows Obama cannot deliver on his promises but at least he offers hope. We have just had a President who will likely go down as the worst in US history so McCain is right that who becomes President is important if not crucial. Now we come to the ugliness…60 days of catfighting, lies, deception, digging up dirt…everything but what the people want to see…unless things change…when are they going to stop talking about same-sex marriage, abortion rights, etc., and get to what the people care about: their well-being and the future of their kids and grandkids? This is a disgrace.

TB couldn”t help but think, listening to the speeches, especially Palin’s how it sounded like someone running for class President…you know…less homework, longer lunch hour…what’s not to like? But as in high school, they get elected but nothing changes…hah! fooled ya, but got your vote! Yesterday, on CNBC, the blustery Mark Haines had a GOP and Dem strategist. The GOP gal took off on Obama’s ‘reckless’ tax plan…until Haines had had enough and said: “oh please, cut the crap and tell the truth.” He was also hard on the Dem guy as he expressed the feelings of the people…cut the he said, she said and tell us the truth which is somewhere in the middle of a broad band that runs from L.A. to New York City. How Lindsay Graham could talk about the founding fathers and the GOP in such glowing terms. Those guys are rolling over in their graves listening to this crap. We are all supposed to be patriots too. Send your kid to Iraq…after all we are winning…the point is had this administration done the job properly we would not be forced to win to not lose face. First, we should have taken care of Afghanistan where the terrorist were instead of dividing our forces…second, we should not have used trumped up charges to invade Iraq and not with enough troops to protect the citizenry after we took over Baghdad…third, we should have not allowed Bremer to proceed with his right wing de-Baathification which sent 50,000 armed Iraqi troops underground unable to get jobs…this violated our underlying principle: the Iraqi’s know who the bad guys are, let them take care of them. Yet, we are told we are winning…at what cost to American and Iraqi families? If you do something, do it right!

Sorry for the tirade…hope you survive today and have an enjoyable, well-deserved weekend!

TB 

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9/3/08…reality bites

September 3, 2008 at 4:38 am · Filed under economy, financial, markets ·Tagged , , , , , , , ,

TB’s quote of the day (reprise): “We have met the enemy and they are us.” Walt Kelly again (Pogo) 
 
…yesterday was a nightmare: stocks opened more than 200 points higher and bonds were weak but we hit up 318 on the Dow and it was Sayonara Takahashi…and quickly. TB had to go out about 11:30am EDT and heard the market report on the radio…Dow was still up over 100 and the 10 year treasury was up 3/4…no you fool, he thought…you mean DOWN 3/4??? But the commentator was correct. By the end of the session we had squandered the gains and closed down slightly. There were key reversals (higher high, lower low, and close below Friday’s low) in every major index. Energy was trashed (-5%) and only 2 stocks in the NYSE Energy Index were up…and just barely!
 
After last week’s oscillations on low volume, including the 111 point rally Thursday and the 171 point decline Friday, the open seemed too good to be true…and it was. The result is the worst thing that can happen…a faux selling climax becoming a suckers rally. But the amazing thing was that the selloff was sans one sector: financials! That is amazing…even though the ‘eggspurts’ continue to say avoid it? Not that that advice is not without wisdom as we are far from solving the credit problems which have morphed from subprime to prime to credit cards and auto loans…yet some still think we are in a ‘muddle-through’ economy…that, to TB, does not compute. Credit is the thing from which all good things flow…until they don’t!…and that is where we are now…a nation of debtors in withdrawal…forced to go to AA!
 
Commodities are not only falling rapidly they are being crushed…see the summary from yesterday. Gold and Crude have definitely imploded and had the CFTC done their job we not only would not have seen a run-up of the magnitude we did this year as crude broke above $100, but we wouldn’t be suffering again to the downside…by the way…gas prices aren’t falling anymore despite crude…go figure!
 
Likewise, the SEC didn’t do their job and let speculators destroy the financial sector. But now they are feeling some pain too. Overnight we learned that Ospraie, a New York based fund that was once the largest is shutting down due to heavy losses in energy, resources, etc. Down 38% ytd and nearly 27% in August alone! What an insult to have to pay 2% fees…to a management that will now likely attempt to start a new fund since the ‘high water mark’ is unattainable…hopefully you can see the folly of hedge funds…it was all done with big bets…leverage…and it was the leverage and sheer brute strength that made them successful…this will be written up in many books and we will all have a good laugh…except those who lost their shirts. Still think commodities are going to rebound sharply? Not likely!
 
TB is going to stop here and watch how this thing plays out…what a rude awakening upon returning from a two week vacation in which a lot happened on a daily basis but in the end little changed.
If you read yesterday’s column and thought TB was biased against the GOP you are wrong…he is biased about both parties and what they have allowed to happen. Therefore he is leaning towards Obama just because it will at the least shake up Washington and might even do as Kennedy, Reagan, and even Clinton did…not that any of those effects more then sedated the beltway money machine.TB watched to the GOP convention last and it merely reaffirmed to him how asinine these things are. Fred Thompson got up and fired up the crowd with political rhetoric after a great tribute to McCain that was powerful, but then dug into the dirt, slamming the Dems for their leadership (or lack thereof) in Congress…ignoring the fact that they have been in control (barely) for less than two year…what about the other six, Fred? He cut into Obama as doing nothing and essentially not qualified for office. Then, he went on about the lack of cooperation in Congress…as well as everyone being on the take…again…look at the scandals and who were the offenders? His own party! He praised Sarah Palin…who he knows nothing about…for taking on the corrupt political power in Alaska…not mentioning that it was the GOP. Thompson also criticized those who think we are in a depression…certainly the wealty Thompson isn’t feeling it as are most of the wealthy…this comes awfully close to Phil Gramm’s ‘nation of whiners’ speech. I’m sorry Fred but you are a pretty good actor…but really…

Then, along came Joe Lieberman…his endorsement of McCain who he has known and trusted for years did not come as a shock but to say that Obama ‘has promise’ but is not ready to become President is amazing and then to shift to Palin as having the experience to do the job just didn’t fly, and he doesn’t even know her. He said the two of them will clean house inside the beltway…how many times have we heard that in the past?…including the Gipper! Note that although he talked of McCain’s independence, the voting record shows he went with Bush over 90% of the time versus about 15% for Obama. Seems like a huge tactical error to TB.

TB has been trying to find out more about Sarah Palin…try Wikipedia! She has ties to the Alaska Independence Party and as late as March of this year sent a sympathetic message to them…interesting qualification for a VP, no? She also advocated abstinence only for teens…that logic loses to hormones every time…and now she knows that first hand. Overall, the bio there reads pretty good but is sure makes one wonder when the corruption was in her own party…and Ted Stevens was one of her supporters. This isn’t just the GOP…this is politics: absolute power corrupts, absolutely…and always! 

This has to be the wackiest election in US history. It is amazing to watch delegates at either convention get fired up…who do they think is paying for this stuff? Lobbyists of course…what a sham conventions are…

What TB is trying to decipher is the truth and who he should vote for. Lieberman said vote for the person, not the party…but who is then behind the person: the party. Take a look at the GOP platform and see if it sounds like McCain…even vaguely!

Hope you all have a good day and that the markets behave better than yesterday…fat chance!

TB 

 

 

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8/14/08…TB/Cramer v Cox

August 14, 2008 at 5:59 am · Filed under economy, financial, markets ·Tagged , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Quote of the Day: “Adversity makes strange bedfellows”…just one of the variations on ‘politics makes strange bedfellows’ which goes back to the 1800’s…but Margaret Mitchell more likely made if famous in Gone With The Wind in 1939. Thus TB and Cramer as bedfellows (God forbid), versus Chris Cox. 
 
Where have all the young men gone?
Long time passing
Where have all the young men gone?
Long time ago
Where have all the young men gone?
Gone for soldiers every one
When will they ever learn?
When will they ever learn?

Where have all the soldiers gone?
Long time passing
Where have all the soldiers gone?
Long time ago
Where have all the soldiers gone?
Gone to graveyards every one
When will they ever learn?
When will they ever learn?
(Music and lyrics by Pete Seeger)

 
Today’s Topics: Shortselling and the SEC; Financial Sector Returns, Commodities and the Dollar:
 
Shortselling:
…hard to imagine TB in full agreement with CNBC’s Jim Cramer (who is next? Larry Kudlow? uh, no). But you have TB with 36 years investment experience and Jim Cramer having run a hedge fund being the only two people to have stuck out their necks to make the case that the SEC and its Chairman, Chris Cox are not doing their job…not doing it?…they have failed miserably not only to protect investors but to maintain orderly markets! Do not take this to mean TB is now a Cramer acolyte…he is not…just that the three greatest showmen of the past 100 years have been P.T. Barnum, Mohammad Ali, and Cramer. TB did not agree or feel it was appropriate for Cramer to give his emotional rant on Bernanke and the Fed…it was stupid and out of frustration. Nor did he believe Cramer’s declaration that a bottom was in for stocks was right (although at the time, TB felt that July 15 might have been a bottom for financials). 
 
Yesterday, during market hours, Cramer calmly said that allowing the ban on naked shorts of the GSE’s and the primary government securities dealers (while leaving the other financial stocks exposed and thus the focus of the thrust for the hedge funds), while the others were left dangling in the winds, was open season on financials. They took ’em down…a move which actually began in forces on Tuesday when the longs exited knowing that if the ban was to be extended it would have been announced before the expiration. Financial stocks were down 3.5% Tuesday and 2.6% yesterday as the shorts piled on. The KBW Bank Stock Index fell 10.5% in the two days (-6.4% and -4.1%), while Brokers fell 6.8% (-5.4% and -1.4%). As for the two GSE’s, FNM was off 8.5% while the battered FRE was lifeless (but over the past 12 months they are off 87% and 90% respectively and both are trading at single digits).
 

Bank and Dealer Returns:

 
Why is it so hard for other people to see what Cramer calls ‘conclusive evidence’ that naked short selling…and lack of an uptick rule are a license to steal for highly leveraged hedge funds and more importantly an effective deterrent for legitimate investors to buy any financial stock as they cannot overcome the tsunami of short selling: fool me once, shame on you, fool me twice, shame on you! TB says, shame on Mr. Cox and whoever the hell is advising him on this matter. This is not about deterring short-selling…only by making everyone play by the long established rules…rules that the SEC has failed to enforce during this administration and by repealing the uptick rule as a useless relic rather than to modify it by making it ten .01 upticks, the SEC has aided and abetted the destruction of our financial markets and even the foreign banks. Here is a table showing 12 month returns for banks and brokers, then year to date and from yearend to the 7/15 lows…the day Wachovia (WB) announced its disastrous quarter, and beginning of ban on naked shorting of the select financial stocks:
 

Banks: 12 mos to 8/13 YTD to 8/13 12/31/07-7/15/08
WAMU (WM) -88% -70% -74%
Wachovia (WB) -68% -61% -76%
Royal Bk Scot. (RBS) -61% -51% -62%
B of A (BAC) -40% -30% -55%
Wells Fargo (WFC) -13% -3% -32%
ING Bank (ING) -12% -13% -24%
US Bancorp (USB) 2% -5% -28%
State Street (STT) 2% -18% -27%
PNC Financial (PNC) 4% 7% -22%
Averages: -30% -27% -44%
Brokers:
Lehman (LEH) -71% -76% -80%
Merrill Lynch (MER) -64% -52% -54%
Citigroup C -61% -40% -54%
UBS Securities (UBS) -58% -58% -56%
JPMorganChase (JPM) -15% -15% -29%
Goldman Sachs (GS) -3% -23% -27%
Averages: -45% -44% -50%
       
Note that among the banks, only 3 have had positive returns over the past 12 months. TB did not include dividends which would not have turned any of the others positive. Also note how much improvement there has been since the 7/15 lows…not also that the three winners were hit hard by shortselling until July 15th even though they did not have the significant problems of the big banks. TB said that if a big bank was to fail it would likely be Wachovia, and WAMU may be the next Countrywide.
 
As for the brokers, since we no longer have Bear Stearns to kick around, poor Lehman has become the goat. But note what has happened to Goldman…it has lost its luster along with JPM. TB has warned that JPM’s exposure to derivatives…mainly credit default swaps would be a major problem had the Bear gone done creating a cascading of defaults…JPM’s positions dwarf the Bears…also the way they were accounted for was balancing longs vs. shorts, not exposure per counterparty and thus does not provide any value in the event of several counterparties, or a few major ones defaulting on their obligations. A recent survey of hedge funds showed that their greatest fear is in this area. (Heard on the Street today suggests that options indicate a high probability that Merrill will slash their dividend…something they have not done since going public in 1971…and a possible reason Thane has cannibalized the company while maintaining the dividend at a cost of over $500 million per quarter while raising more capital?)
 
If looking at the last two columns does not convince you, or Mr. Cox, on the reasons to eliminate naked shorts for all financials…and it should be for all stocks…nothing else will. Worse, is their failure to even enforce the rules by allowing naked shorts to run as long as 1-1/3 years…as with Chipotle. Insanity!
 
Commodities and the Dollar:
 
The dollar has come back sharply from its lows and is now back to the levels pre- Feb 26, although it was in a steady decline then. TB does not believe in coincidences and this ties directly to the upsurge in crude and gold prices as well as the broader commodities. Due to the commodities decline the easy gains have been made but for the dollar to advance will take much more, but the good news is the panic selling is over. TB reported earlier about the Gene Epstein article in Barron’s about a month ago on the impact of index funds and hence commodities swaps on prices…TB said then that we had seen the peak in inflation at 5.2%…it came out this morning at 5.6% but Energy added just 4% this time and Food 0.9%…the Core is up just 2.5% over the past year…so now TB says this is the peak. (See today’s Ahead of the tape on how owners equivalent rents are pushing up inflation due to falling home prices while they deflated them during the housing boom) Epstein pointed to wheat contracts held by index funds which equaled 50% of the production. This gave speculators a bad name (whose positions are strictly limited and monitored by hedge funds) and almost caused a panicked Congress to pass legislation limiting speculation when the problem was investing and, like the SEC, a failure by the CFTC to enforce the rules. See yesterday’s WSJ for the article on Cotton futures which shows how true commercials, with a need to hedge, have suffered losses as they sold forward and then were forced to cover due to margin calls…TB believes this is also what happened to crude carrier SemGroup, not overtrading although it may have appeared that way…or it is possible that to offset the losses from the margin calls they took on additional long positions. The point, however, is that this is a form of price manipulation and the ICE which now controls cotton, has failed to see it…even though they studied the problem but only for the two day period when it spiked…not the events leading up to it…a pity.
 
In conclusion, if the SEC, and CFTC would do their job it would be an immense help to Bernanke and the Fed as well as the BOE and ECB. TB believes the release of the CPI data confirms this as bonds are rallying on what should have been bad news…after all, crude and gasoline prices are down about 8% since the CPI survey was done. Bonds do not rally frivolously…particularly in this environment!  

A friend corrected TB on sex scandals not being limited to the Dems…the GOP has had its share including Newt Gingrich, and the details of McCain’s divorce…probably why they are not making much of the Edwards affair. It does seem however that the Dems have adulterous affairs while the GOP divorces wives after having the affairs…you decide what that means…trophy wives?

As for the Beijing Olympics a big black mark for them: the 7 year old girl singing was actually lip-synching a la Milli Vanilli, while a 10 year old sang in the wings…she was not used because she had bad teeth.  How reprehensible that is…also some of the things we saw as live were not actually happening in the stadium…special effects…all is not always as it appears…but then, you knew that!

Hope you all have a good day and that TB has provided you with some useful information to do battle with the markets.

All the best, 

TB 

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8/13/08…where have all the flowers gone?

August 13, 2008 at 3:55 am · Filed under economy, financial, markets ·Tagged , , , , , , , , ,

…Where have all the flowers gone?
Long time passing,
Where have all the flowers gone?
Long time ago.
Where have all the flowers gone?
Picked by young girls every one,
When will they ever learn?
When will they ever learn?
(words and lyrics by Pete Seeger)
 
The same can be said for the markets…when will bulled up buyers learn that the big rally on Friday on low volume followed by a creeping higher to levels not seen since early June on most indices but also on low volume spelled trouble? How could the expiration of the prohibition on naked shorting of GSE’s and select financials which just so happened to be primary government securities dealers go unnoticed by CNBC and the other cognozanti?…or is it illiterati? So when JPM announced a $1.5B write-down of mortgage assets which is a pittance these days it was the biggest down stock in the Dow and the S&P 500, followed by Bank of America. Wachovia which also added $500 million to loss reserves for auction rate securities fell 1.5% but held above the 40 day moving average. During the ban short interest in these stocks declined by 78% in relation to other securities and fell by 13% in the two weeks ended July 31 vs. a decline of just 1.5% in all other shorts. As for the brokers, Goldman Sachs fell 6% yesterday, its biggest drop since Feb. ’07 but is still up 6% during the period of the ban. JPMorgan. Thus the July 15 lows may not hold thanks to the SEC’s failure to extend the ban. Meanwhile short interest in the SPDR financial ETF ROSE 13% during the period. Berkshire Hathaway which had toyed with the 40 day for two days failed. Transports were taken apart on a day energy prices were falling. Why did SEC Chairman Chris Cox not extend the ban and at the same time extend it to all financial stocks? Why not enforce the other rules of shorting and demand those on the threshold list be covered…if someone goes belly up doing so good! Let them fail…aren’t you tired of seeing the only losers being homeowners, investors and taxpayers? This at a time we find out that the wealthiest along with corporations despite all their tax breaks are not paying their fair share? Yep, three out of four corporations pay no taxes and small businesses with losses are the biggest cheaters on taxes. This brings us to commodities which TB wanted to mention yesterday.
 
TB has long contended that the inflation problem has been caused by one and only one thing: index buying of commodities futures which are in turn invested in commodities swaps without limit. If only, when they saw what was going, on the CFTC had enforced position limits on banks instead of beginning to study the issue about two months ago when if enforced someone big was going to get hit…think JPM! But due to the orderly yet rapid decline in commodities prices, especially crude and gold, it appears that someone whispered in someone’s ear to unwind positions for their own good…perhaps it was to JPM and the other dealer banks…someday we will learn the truth. Meanwhile it has taken all this time to find out about options manipulation to the tune of $1.7 million out of the money calls by 50% at that time that the Fed was trying to assist Bear Stearns…somebody either knew something or was spreading rumors. If not, it was a blindly stupid bet that paid off…and those folks, just do not happen!
 
If you are thinking of buying a financial stock…any financial stock…think hard before doing so. We are now back to destroying any stock in that sector…this is truly pathetic. Who is advising Cox? Not TB! TB has nothing further to say…color him disgusted!

We have now returned control to the speculators at the expense of individual investors and pension funds. The SEC is supposed to protect investors. Instead it is aiding and abetting those who would destroy an entire market for their own personal gain. If you can’t see this, TB pities you.

Hope the market helps you today…a big hope!

TB 

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8/7/08…commodities commonalities – and follies

August 7, 2008 at 4:54 am · Filed under economy, financial, markets ·Tagged , , , , , ,

Bloomberg Quote of the Day: “The art of being wise is in the art of knowing what to overlook.” – William James…one of TB’s favorite philosophers since his first and middle names are the same.  
 
…why are all commodities taking a hit all of a sudden? TB believes it is because they all benefited about the same time and for the same reason: demand from investors, not speculation. Meanwhile Congress has focused on speculation as the problem but fortunately killed a bill that would have prohibited or at least limited speculation in commodities. The fact that they are now falling sharply and in two unrelated commodities especially: Gold and Crude (or for that matter the entire Energy sector), should give one pause. So what is causing the selloff that has resulted in the CRB Index falling 16.2% since peaking on July 3 and the industrial weighted GS Commodities Index falling 18% over the exact same period? First, some definitions:
 
*Contango – when the lead contract is priced lower than the further out contracts. This is a function of the cost of carry and storage costs on the commodity as well as a belief that prices will rise.
 
*Backwardation – when the farther out contracts trade at a discount to the lead contract and is an expectation that future prices will decline…Silver only traded in backwardation for a brief period in the 1980’s after the Hunt brothers were forced to liquidate their positions.
 
Obviously, when the curve is flat there is confusion as to the direction of prices and that does not last long.
 
A misconception is that futures are a zero sum game since the number of longs equals the number of shorts. In the past it has been true but only recently have banks exploited their position limit exemption to take on positions as a ‘hedge’ against commodities swaps they have written with index and hedge funds. This is a violation of the rules which specifically define a hedge as against the underlying commodity. 
 
Then there is the argument that speculation does not matter since at expiration the futures and spot price converge. BUT this only applies to the lead contract and that can be rolled out to a longer dated contract. Studies show conflicting evidence whether futures prices are more accurate than spot prices, especially in long dated contracts…TB believes that they are only as useful as any consensus that applies at a point and reflects psychology at that point in time…the same as the predictive ability of Fed Funds futures, or any implied interest rate, on whether the Fed will tighten.   
 
TB believes the sharp drop in commodities is due to a deleveraging of positions…or more accurately…net withdrawals from commodities index funds which started the problem back in February. Consider:
 
*Both Gold and Crude began their selloff on July 15…just after we learned that the CFTC was looking into the impact of index funds on commodities prices due to banks having unlimited position limits and thus being the only ones that could write commodities swaps with the indexers in unlimited quantities (while the SEC contemplated its naval on naked shorts and lack of an uptick rule).
 
*Since January, pension funds have been rapidly increasing their exposure to commodities thru commodity based hedge funds and commodities funds (note that a few commodities hedge funds have gone bust recently due to short positions and huge margin calls)
 
*Backwardation to contango…using the spread between the lead contract in Crude and the Dec. ’15 contract (the longest dated with significant open interest), when the lead contract in Crude first closed above $100 on Feb.19th (TB’s wife’s birthday and at that time the most hits his blog had received), the market was still in backwardation (where the longer dated contracts are below the lead contract), also, at this point the ‘peak oil’ argument was taking hold that we have maxed out or will soon max out on production and then it will decline causing prices to rise…to $200 or more according to some sources. TB did not subscribe to this theory and subsequent finds by Petrobras off Brazil and also discoveries above the Arctic Circle make this less likely (when TB was in elementary school some scientists believed oil reserves would be exhausted in 50 years…long since passed). Oil prices remained in contango until May 13 when they were flat all the way out the curve but by 5/15 there was a $2 premium on the Dec ’15 contract (contango), which held until July 25-29 when there was key reversal down (higher high lower low and lower close), followed by an inside day, then another key reversal down. TB believes this was significant as it showed indecision (futures then moved up for 3 sessions before tanking again. At that point the curve was FLAT but by yesterday’s close the Dec ’15 contract was $5 below the lead!
 
This indicates, at least to TB that some of the positions supporting those commodities swaps are being unwound. It is possible the banks have increased the cost of the commodities swaps significantly due to fear of regulation (TB pointed out earlier a Barron’s article by Gene Epstein that warned of forcing the banks to unwind positions could cause serious losses for them), would expose their investment bank side to losses which in turn would negatively impact the commercial bank side…nobody seemed to think that while they were writing these swaps and hedging them by buying contracts (Epstein pointed out that one half the wheat production was held in index funds!), they were in fact harming the banks customers and in turn the banks themselves. TB believes JPMorgan was the biggest writer of these swaps as they are of credit default swaps…and thus why the Fed turned to them to bail out the Bear (a collapse of Bear would have caused an implosion in the swaps that could have seriously impacted JPM).
 
So perhaps the CFTC ‘talked privately’ with JPM and the other banks and ‘jawboned’ them into cutting back their positions gradually which in turn caused the commodities indexers to cut back on their positions and money to flow out of the index/hedge funds…time will tell, but the point is that at least $25 a barrel was speculation…TB believes it was $50 or more! Regardless, think of the pain that has been placed on the economy, the problems caused for the Fed as they tried to balance inflationary fears with a recession…can anyone deny it truly is a recession at this point? The ‘proof’ to TB that this is what happened is that Gold and Crude should have no relationship to one another yet the lead contract had a secondary peak on July 15…same as crude and the patterns since are quite similar. The damage that has been caused to producers (commerical accounts), especially farmers hedging their crops cannot be understated. Those who sold their crops forward were hit with unprecedented margin calls…as did SemGroup (which may have then tried to overtrade their way out of the mess)…and when they went to their capital starved bank were told they would not finance the margin calls…this is the destruction of the most efficient market on the planet and one that has served well for more than 100 years. 
 
Thus TB concludes that there is no oil crisis…that while there has been a significant upward shift in demand due to emerging markets…oil prices above $100 have been a function of commodities funds (investing not speculating), hedging of longer dated contracts by users (i.e. airlines), and even holding up of supplies by producers (Iran with ships anchored in the straits), and shipping lines (moving slowly allegedly to conserve fuel…but that could not have happened without agreement by the shippers themselves). But he is also concerned that even a modest backing off of prices will cause us to revert to our old habits and for Congress to put energy conservation on the back burner as it has for 20+ years. Interestingly, commodities were a poor investment over that entire period! Oil dropping below $100 would be a big boost to stocks (countertrend rally)…and bonds and the dollar…until we realize of course that we still have a credit crisis but even that would be mitigated.
TB had a great time in Oregon. Terrific weather and he got to listen to his nephew audition for the UofO band which he passed with flying colors. He is an incredible musician who plays 48 instruments both woodwind and brass. Still, a long drive but a pleasant one.

Hope you all have a great day…and week!

TB 

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