Saturday, April 26, 2008

Enjoy The Week

Tonight will be the last post until next weekend. It is vacation time! Try not to be too upset.

FED Meeting - Groundwork Laid for a Quarter Point
I saw on TV and in many articles all the talk of the FED coming to an end of their slash and burn rate cut rampage. Not only that, but many are even seriously convinced that the rate cuts did nothing to help the housing market! Well, welcome to clear thinking boys!

The FED will have their announcement on the 30th. 25bps, 50bps are the only two contenders here with no cut a remote possibility. How the markets react will be key to figuring how long the current rally will last. My guess is 25bps, with the rate then at 2% and a big market rally on the whole "the FED would only stop cutting if things were great!" idea. Poor kids.

Rebate Checks in the Mail
The whopping $600-$1200 rebate checks will begin arriving this week. Free money! Oh wait, the government is giving me money, which comes own taxes? Not really free is it? Whatever.

Anyway, this is supposed to kick start spending. Like most things from this administration, just spending money and acting like everything is great will not work. I cannot understand why the government just did not give the entire stimulus plan money directly to the companies in the DOW and S&P and sidestep the whole consumer angle. Like most things, they always do it the hard way!

Have a good week.

Friday, April 25, 2008

Volatility Must be Causing Sleepless Nights

Friday at last. I am officially on vacation! I leave Monday morning for Jamaica and will return next Saturday. Try not to miss this fine blog too much. I wanted to thank everyone for the active comments on last night's post. I really do like discussion and feedback.

Daily Mainstream Media Bash
While the boob from last nights post was pretty bad, today brought even more stupid magic from a Yahoo Finance story. I especially like to focus on the end of the day summaries as anyone asked to comment on the days trading tries to fit market action to some kind of smart sounding statement.

Check this one out where the guy contradicts himself in the same thought process:
Stocks mostly up as investors overcome economic worries
Friday April 25, 6:16 pm ET By Eileen Aj Connelly, AP Business Writer
NEW YORK (AP) -- Wall Street ended its second straight winning week with a moderate advance Friday, overcoming concerns about consumer confidence and inflation.
--Overcame concerns? How? Why? What data or information made "investors" rethink their take on inflation and consumer confidence? Oh, you wanted real analysis? Sorry!

After slumping early in the session in response to weak consumer confidence and a spike in oil prices, investors seemed to turn their attention to broader signs, including the week's generally satisfactory earnings reports, that suggested that government efforts to steady the economy appear to be working. That shift in focus sent stocks up late in the day.

Although the Reuters/University of Michigan consumer sentiment index came in with its lowest reading since the early 1980s, Tom Lydon, president of Global Trends Investments in Newport Beach, Calif., said companies' first-quarter reports convinced investors that "overall, things aren't all that bad."
--Broader signs that show the economy is good include, um, well, I could not find one.

While consumer spending represents about 70 percent of the economy, UBS equities strategist David Bianco said "it's the wrong thing to be looking at to gauge the prospects" for the Standard & Poor's 500 companies.
"Business activity is strong in the U.S. and especially globally," he said. "That's far more important."

--And there it is. While the consumer represents 70% of the economy, it is the wrong place to be looking when thinking about business activity! That is a good one. So the 30% of business to business activity can make up for the other 70% now? Whatever Mr. Bianco. I hope AP did not have to pay for this amazing insight.

Excellent Article on the "Subprimation" of America
As they say over at Calculated Risk, "We are all subprime now"! One of my favorite writers on things economic is Charles Hugh Smith. He is able to present very good insight into many areas if interest, and usually in unique ways that really cut to the heart of the matter. Yesterday's post on his site is about as fine a take on this whole mess I have ever seen. See it here:

Quick and dirty summary:
"The key take-away is how oil exporting countries' enormous profits--generated by the late-70s-early 80s spike in the dollar-denominated price of crude oil-- were recycled by U.S. banks into high-interest loans to Argentina and other risky Developing Economies. When Argentina et. al. defaulted, the losses drove Citicorp and Bank of America to the brink of insolvency.
Fast-forward to the 2000s: now this stupendous oil-revenue wealth has been supplemented by veritable mountains of dollars piling up in Asian exporters' accounts. Where to put all this cash to work in a low-interest rate world?
Answer: credit-risky mortgage borrowers in the U.S."

Read the whole thing. A very powerful piece indeed. There will be a quiz!

Volatility Must be Causing Sleepless Nights
What has been truly remarkable during the super fun period that began last August has been the wild volatility in pricing across all asset classes. As many here do, I follow gold and Silver pretty closely and the jumps up have been as great as the heart stopping drops! While the trend has been up, the vicious cutbacks are harsh.

This can apply to just about any asset. Stocks, Treasuries, you name it, have all been showing swings to the tune of over 2-5% for over 3 months now. That volatility is coming on the heels of a long term period where volatility was basically absent. What does this mean?

To me it means two things. One, traders of all sorts must be dining out on Pepto Bismal and Tums to keep their stomach intact overnight. With news breaking at all hours and usually with major ramifications, sleeping must be very hard! The second thing it means to me is that the so called "brilliant" market has no idea what anything is worth right now. This is a key point. One can argue stocks or whatever are overpriced, under priced, or about right all they want. The fact is that the prices for all assets right now is subject to severe adjustment and on a daily basis. If any of these things were valued by solid fundamentals, the prices would be much tighter bound. Keep that in mind as things go forward.

It is very clear that there is an extreme mispricing of assets across the board. The more bullish would argue that a much higher move is in the cards. The more bearish would argue for a nasty correction. Daily whipsaws show nobody really is sure. The time is coming when one or the other is going to be the clear winner. Expect a major move at that point.

My guess? After August, in late September things will resolve much lower. But that is just my take. Leave some thoughts in the comments section.

Friday Night Entertainment
It is the weekend, and a vacation weekend no less!

The great film "National Lampoon's Vacation" of course is the gold standard of vacation films. My favorite scene is the family arrival at "Wally World" in the Griswold family truckster, and the park is closed! Clark (Chevy Chase) loses his mind and punches the mascot moose:

Comic Relief
From the film "Anchorman" we are shown the cologne called "Sex Panther" which comes with the label; "60% of the time, it works every time!"

Rock Blogging Anyone?
I had not heard this Ozzy song in a while, but I always liked it very much. The song is called "Secret Loser" and it is a rocker:

One of Motley Crue's best tunes "Girls, Girls, Girls". Great drums, great guitar, and hey, the video is not bad!

Probably my favorite Guns and Roses song, "Night Train":

Have a good night.

Thursday, April 24, 2008

Thursday News Deluge

Sorry for the lack of posting. Getting things set up for the vacation next week and getting my work projects transferred has taken a bit of time this week. Only Friday to go and I am officially on vacation! Good stuff.

Yahoo Article Chock Full of Stupid
Some of you may wonder why most of the articles I use here are Yahoo Finance articles. There are a few reasons. First, Yahoo collects feeds from AP, Marketwatch, Bloomberg, and Reuters which comprise the dreaded "mainstream media" arm of finance. I like to read what passes for analysis for the masses. Second, I just like the Yahoo set up and find it easy for me to navigate and find the information I want. Third, the articles are almost always the funniest thing I read all day, so they serve as comic relief for me.

Today's market wrap-up piece was especially tickling today. Let's take a look:
Wall Street rises after drop in jobless claims, Ford results
Thursday April 24, 5:54 pm ET By Tim Paradis, AP Business Writer
NEW YORK (AP) -- Wall Street rallied Thursday after the government's jobless claims data and Ford Motor Co.'s first-quarter results helped reinject some optimism about the economy into the market.
The Dow Jones industrial rose more than 80 points as investors focused on the Labor Department data showing weekly unemployment claims dropped and word that Ford had a $100 million profit in the first quarter. The news allowed investors to look past the Commerce Department's report that new home sales fell in March to the lowest level in more than 16 years, a sign that the housing slump isn't close to an end.

--Reinject? Is that even a word? To RE inject, one assumes a prior injection was done. I thought all we had were capital injections for banks, or cash infusions or some other such medical terminology!

Sellers held sway early in the session, sending the Dow down nearly 57 points, after the home sales report. The data appeared to stir concerns that the hangover from the housing bubble would remain an intractable obstacle for the economy. But as the session wore on, the market righted itself, perhaps because there were no real surprises in the day's negative news.
--So the market righted itself? Markets are supposed to reflect a realistic pricing for stocks, and perhaps that will mean a down market sometimes. AP makes sure you get the idea that ONLY up markets are correct and good. As for no surprises, if the market chooses to not be surprised, that's their business.

John Merrill, chief investment officer at Tanglewood Capital Management in Houston: "The earnings picture is not so bleak as people though it was going to be," he said. "There's been so much talk of the spillover from the credit crunch and homebuilding into the real economy and that just doesn't seem to have happened."
--John Merril makes the list for retarded quote competition 2008. Mr. Merril does not think the housing bust and credit crunch has spilled over into the REAL ECONOMY? Ok, what is the real economy? If the REAL ECONOMY is unaffected, why in the hell is the FED loaning their treasuries out en mass through the alphabet soup of lending facilities? Is the loss of an estimated 40,000 finance jobs the real economy? Has Mr. Merril listened to Starbucks, UPS, FEDEX, Amazon, etc about the prospects for the real economy? I love this quote. Would the REAL ECONOMY please stand up so Mr. Merril can see you?

The dollar rose for the second straight day, regaining ground from its record low against the euro on Tuesday amid rising expectations that the Federal Reserve will pause in its string of interest rate hikes following its meeting next Wednesday. The euro brought $1.5686 in late New York trading, down from $1.5896 Wednesday and $1.6018 on Tuesday.
The greenback's advance sent commodities prices falling; hard assets like oil and gold tend to rise when the dollar is falling, so they reversed course Thursday as the U.S. currency regained some strength.
A drop in oil prices was particularly reassuring for Wall Street. Crude's surge toward $120 a barrel earlier this week compounded already rising concerns about inflation and its impact on consumer spending. Light, sweet crude fell $2.24 to settle at $116.06 on the New York Mercantile Exchange.

My favorite kind of reporting is the kind that is blatant in it's bias. When Oil rises from $80-$116 over the last year, the media says the rise has no effect on the "solid" economy. No get this, when oil drops $2.24 to $116 a barrel this is REASSURING to the market! That's rich! Let's see here, $2-$3 bucks on a $115 barrels is a whopping 2.5% drop! Woo Hoo Oil is headed for $30 a barrel any day now! Same thing with the silly dollar rise. 120 on the index down to 70, and I am supposed to get all excited about a rise to 72? WOO HOO! Thanks for the laughs Yahoo.

Student Loan Debacle Can Only be the Work of Government Intervention
The current crisis in student loans is an important thing to watch. I found this wonderful article that is a great summary:

Key summary quote, but you should read the whole thing:
"To summarize: Congress mandated a return on student loans that is too low to attract private capital in the current market. So Congress will now use your money to create artificial investor demand. Taxpayers will bear more risk so that Congress can fashion a new business model to replace the one it just destroyed. The Bush Administration, unwisely but typically, has endorsed this approach."

So first they screw it up, then they subsidize fixing it. Sounds like perfect government logic indeed. When will ANYONE ever learn the basic rule of making things more "affordable" through government subsidy? I will clue any that do not know in;

Ambac All of a Sudden Very Honest
Again, I am scooped by Mish, Calculated Risk and Market Ticker regarding the sudden honesty from Ambac. Try Mish's take here:

Basically, ABK is now (now they want to look under the hood?) looking more closely at some deals they were involved in that have silly high default rates. How high? How about a 82% loss projection! That's Triple A all the way baby!

Seems good old Bear Stearns was slipping some funny stuff their way, and now ABK wants the lawyers to check it out. That's bad. Real bad. Lawyers, fraud, and large sums of money tend to get very ugly. Get your popcorn ready!

I hope JP Morgan is ready for this event. I said a while ago that people thinking JPM head Mr. Dimon is Yoda because the FED handed him BSC may come to rethink their lofty praise. Likewise, the FED may rue the day they took Triple A paper like this in swaps for Treasuries. Karl Denninger does the best job at explaining why "contaminated treasuries" will mean higher prices for, well, basically everything credit related going further.

Word of the Year 2008 Nominees
Calculated Risk has a thread up looking for the year 2008 "word of the year" candidates to replace 2007's awesome "subprime" and "contained" wonders. I favor "kitchen sink" as it relates to writeoffs, or "Triple A" which I think will become a dirty word by years end. Vote in the new poll here, or make suggestions in the comments section. I will make updates to the vote list over time. I am also taking Friday night rock blogging requests.

Have a good night.

Monday, April 21, 2008

You Know The Worst is Behind us When...

Still good weather up here. Going to be close to 80 degrees on Wednesday. Figures that I leave for Jamaica next Monday!

Bank of America Reports They are Screwed
The BAC earnings report was a surprise to me in that they posted a profit at all. Nice job guys!
Bank of America's 1Q profit shrinks amid economic worries
Monday April 21, 4:24 pm ET By Ieva M. Augstums, AP Business Writer
Bank of America's profit falls 77 percent in first quarter, economic worries loom
CHARLOTTE, N.C. (AP) -- If the 77 percent drop in Bank of America's first-quarter earnings is any indication, the economy may have a long way to go before it works out the problems that began with the subprime mortgage crisis.
--So, an admission that subprime is not contained?
The nation's largest retail bank on Monday quintupled the money it set aside for loans that go sour, and hinted that consumer weakness and the housing slump means that things will not get better for it, or for the economy, for some time.
"I think first it would be too early to strike up the band and sing happy days are here again," Chief Executive Ken Lewis said on a conference call with analysts during which he said the situation in the capital markets was particularly tough in March.

--Ken Lewis? That name sounds alot like Ken Lay!
"It still remains unclear what ramifications the housing downturn, higher energy costs and subprime crisis will ultimately have and how long the downturn will persist," Chief Financial Officer Joe Price said on a conference call with analysts.
--Hey Joe price, I can answer your open question; the housing bust, higher energy costs,and continuing PRIME mortgage crisis is going to be bad for Bank of America. Your Welcome.

Going over the conference call, I give full credit to the BAC team. They were pretty blunt about future prospects. They were very clear about their precarious situation should the credit issues continue. There was no attempt to sugar coat or play the "its the bottom of the ninth inning" game like Mozillo used to play.

If the market chooses to ignore a clear and stark presentation of the troubles big banks are facing, that is their problem. I mean it is our problem as the taxpayer when we will have to make such fools whole again after they lose their butts!

You Know The Worst is Behind us When...
I thought as a change of pace I might try and play the whole "worst is over" game and try and set up a list of reasons or markers that would confirm the worst is over. Like a David Letterman Top Ten Reasons List, here is a collection of things one has to think is either happening right this second, or very soon for the worst to be over:
  • Home Price declines over
  • Unemployment going back down
  • Consumers get access to some store of free and easy cash
  • Foreclosure numbers going down
  • Lenders loosen qualification guidelines for mortgages
  • Commercial real estate will not crack
  • Consumer debt defaults creep into credit card space

There is no proof at all any of the above is occurring right this minute. As for the possibility that any of the list items will occur anytime soon, it does not seem likely.

To be in the "Hope" camp right now takes pure self delusion and a bit of pure effort to ignore the current data. Take a look again at the list above and compare it with the headlines. Using the BAC, WB, WFC and C earnings results and conference calls, can any of the listed items be seriously considered as happening soon?

Now I know the market is a forward looking magical carpet ride that is never wrong, but if we are talking six months to a year out the market is still wrong at this point. A 5 year (minimum) bubble build-up will not be done and over with in 8-10 months. Something has to give, and soon.

Have a good night.

Sunday, April 20, 2008

Glacial Pace of Finance Can be Frustrating

Garden Work Is Exhausting
Wow, I had no idea how much work digging a garden was going to be! I spent about 4 hours yesterday preparing the soil. I used some of the web links supplied by reader Kevin for direction. To make the soil ideal, it really is labor intensive. All is done now, and I have planted the potatoes, some turnips, cucumbers, and my wife wanted sunflowers. We shall see if anything works!

Glacial Pace of Finance Can be Frustrating
Bank of America will report their "earnings" (losses actually) tomorrow. Will BAC meet estimates? Beat estimates? Miss estimates? Who knows and it really makes zero difference. The issue at hand is the glacial pace of information in the world of finance. Bubble head types would have you believe the worst is over, banks are done with losses, and home prices are on the rebound. It makes a nice story. Those with half a brain know this is absurd, but until ANOTHER quarters worth of degraded data comes out, denial will reign.

It is frustrating to have to wait the situation out. There are too many with a serious interest in delaying what is needed to allow the process of unwinding bad debt and home prices to happen in short time. All will have to be dragged kicking and screaming the entire way down. This process will take time.

After a week like last week, it is hard to find ideas to try and make some trades. I would like to put some money to work, but with the economic disconnect running so hot any play could be compromised. With an overactive FED and a Bank of England looking to follow suit any position may be rendered a loser overnight. Risk is high.

Things to watch this week:
  • BAC earnings
  • Oil, will it ever stop going up?
  • Gold, is this the end of the bull market?
  • Home sales numbers
  • The garden
  • The John Adams Series finale

I expect some market fireworks tomorrow, I have one of those feelings. Until tomorrow then!

Have a good night.

Friday, April 18, 2008

Markets Rally Because The End of the World Was Already Priced In

Another great day here in Massachusetts. That makes two 70 plus degree days in a row. Spring has sprung indeed! Garden prep tomorrow. Glad to see G is still around. While I have no particular knowledge of the railroad company you listed G, my Dad was a railroad trackman, foreman, and supervisor for over 20 years for the old B&M Railroad. I worked weekends with him often. I can lay rail, gauge check it, and properly install switches. I miss the heavy tools and the heat of the gravel in summer time.

Markets Rally Because The End of the World Was Already Priced In
Another ripper to the upside today. In Wednesdays post I noted "..the DOW is range bound from 11,700 to 12,700. Tightly bound. Almost supernatural! Until the DOW breaks either number in the range, the daily move makes no difference to me at all." Well that took two days! The DOW closed today at about 12,850 which is a breakout from the range I had set. I capitulate, and the bulls have win this round. I expect a rally going forward, maybe 2-3 months until next earnings season.

The accumulation of horrible news is astounding. The levity of markets and market players is equally astounding. it is like a drunken frat party where any idea is celebrated as great because everyone is so wasted. "No surprises", "Could have been worse", and "They didn't close the doors" are not exactly bullish sentiments. As for it all being "priced in", I would ask:
  • With the indices only about 10% off the highs, is total failure and collapse only worth 10-20% less than the 3 year highs? Good question!

Oil raging, groceries raging. The dollar, gold, and the ten year bond all over the place. TED spreads up. LIBOR maybe fake. So much gyration!

I will try to make sense of it all this weekend. Now it is time for chilling.

Friday Night Entertainment

No suggestions for music/movies/pictures so I will just go for it.

Great Picture

This picture shows us that even a cat knows the economy is in the dumper!

humorous pictures
see more crazy cat pics

Musical Interlude

With the general mood out there one of fun and euphoria, I will try to play some fun songs.

Lita Ford and "Kiss Me Deadly":

Totally rocking tune from Cinderella "Somebody Save Me":

A little softer tune, Cheap Trick with "The Flame". Great Vocals!:

The Bangles were a better band than they got credit for, and their version of "A Hazy Shade of Winter" is top notch:

Have a good night.

Thursday, April 17, 2008

Thursday Site Maintenance

Thursday Site Maintenance
A late start tonight as I was purchasing my new fishing license. I thought I would take care of some housekeeping of this site. Judging by the total lack of comments, I imagine nobody will mind! HAHA!

Some earnings headlines from today though:
The Bad
Capital One Financial Corp.'s first-quarter profit fell 19 percent
Marriott International Inc. said Thursday its first-quarter profit dropped 34 percent
City National profit drops 22 percent
Doughnut retailer Krispy Kreme Doughnuts Inc. said Thursday its net loss widened in the fourth quarter due to charges and a dip in doughnut sales
Harley-Davidson Inc. will cut its work force by about 8 percent and curtail shipments of its iconic motorcycles this year after reporting a decline in first-quarter profits Thursday, with domestic sales tumbling nearly 13 percent
Merrill Lynch & Co.,the world's largest brokerage, reported a first-quarter loss on more than $6 billion in additional write-downs and said it would cut 4,000 jobs
Pfizer earnings fall 18 pct, hurt by generic drugs

The Good
Google's 1Q profit climbs 30 pct and tops analyst views
IBM shares rise to highest price in 6 years after earnings

Overall, the markets are pleased with earnings thus far! Wonderful.

I loved the progression of the MER report which at first was worse than expected, which became inline, which morphed into pretty good as the day went along:

Worse Than Expected
Wall Street firm's quarterly loss is even wider than expected -CNNMoney 6:50am
Merrill earnings weigh on financial sector -Marketwatch 9:36am
Not so bad
Merrill's Stock Surges Amid Hope Worst May Be Over -CNBC 2:30pm
All Inline
Merril Lynch reported losses inline with expectation - Radio station WEEI Market report in car 5:00pm

It is all priced into the stock!

I am taking Friday night entertainment (movie clips, rock music, other music) suggestions in the comments section.

Have a good night.

Wednesday, April 16, 2008

Stock Market No Longer Relevant

Another one of those strange days. If you could read JUST the basic headlines for the financial news and then tried to fathom a guess as to what the averages were doing, you would have been way off I imagine. All news is good news once again!

Bank of England Will Copy FED Crap Swap Plan - See, the US does Export Things!
While the federal Reserve and the Treasury department on this side of the pond have been doing gymnastics to invent new and creative ways to lose taxpayer money, so far the Bank of England seemed satisfied with bailing out one measly bank (Northern Rock) and doing a bunch of complaining. Now, however, our neighbors across the way have decided to go the full monty and directly copy the US model of rewarding big banks:
Government plans to help UK banks
By Stephanie Flanders BBC economics editor
The Bank of England is poised to launch a new lending programme for UK banks in an effort to break the logjam in the credit market, the BBC has learned.
Final details are still being worked out including the scale of the plan and the exact terms.
But it will be similar to moves in the US, will be backed by the Treasury and could be launched as soon as next week.
The scheme would temporarily allow banks to swap their mortgage-based assets for government bonds.

The government does not consider this a bail-out of the banks and the BBC understands the scheme will not go ahead unless it can be designed to protect the taxpayer from any loss.

HAHA! The UK is always so "you foolish Yankees" but now they are going down the same road we are! I love the use of the word "temporarily" in regard to the swap program. Only if temporary means over 5 years! How about this non starter "..unless it can be designed to protect the taxpayer from any loss". I got news for you, there is no way to protect against the possibility of a loss unless you are a major US bank, then you are covered!

While some would see this as a great relief that the Bank of England is getting involved, I see it more through the lens of another sign of how screwed the systems are around the world. Imagine a CAPITALIST market whose slogan is "The Government is our best Friend". Not much to brag about.

Stock Market No Longer Relevant
Checking out the reaction to the "positive" earnings reports today, especially those in the financials, has left me with only one conclusion: the stock markets are longer relevant to any discussion of the economy, housing, banking, etc. Some may argue that the markets are always irrelevant, and to be sure there are many times they are, but I would say 80% of the time they are a useful proxy for analysis.

The stocks of the banking and financials are a perfect example of a irrelevant action. At this point the banking system suffers from the following major macro issues:
  • No reasonable time frame for the housing issue to improve (3 plus years out)
  • No transparency on the value of many assets (REO's, Level III's, CDO's)
  • Reliance on a FED with open wallets
  • Reliance on all time low interest rates
  • Reliance on foreign cash or private equity

A very precarious situation.

In the face of this, many are desperately trying to call "the bottom". This is of course retarded. Bottoms form when no one even wants to try and find one. Tech stocks bottomed around Nasdaq 1000 (down from 5000!) in September 2002. Try a Google News archive search from that month and you will not find one article, headline, or guestimate that the bottom was in. This is important to understand.

If you are a short term (1 week or less) trader or a daytrader some of these reactions to news matter to you. If you are following trends and macro environments the short term moves are worthless. Banking stocks are so badly understood right now only wild swings are to be expected. Lets take a look at the JP Morgan Wells news from today as an example.

JPM beat analysts expectations by only posting a 50% DROP in quarterly profit. That must be good because the stock itself popped for almost 7% to the upside. The basic comments made were:

  • JPM did not do even worse, so this was an upside surprise
  • JPM CEO Dimon is the new master genius of the universe
  • JPM (and WFC) were inline with loss expectations

So there seems to be some contradictions here. First off, I could orchestrate the Bear Stearns takeover with the FED doing all the finance and heavy lifting, so lets get over Mr. Dimon already.

The moving of the goalposts for the banks has been impressive. Lose more than expected, the worst is over. Lose less, and this is the bottom. Come in right at expectations, and this is really an upside surprise. There is no way to lose! At this point I call on all financial analysts to stop issuing calls on the banking sector. It is obvious you have no idea how to target these stocks, and the numbers game looks silly.

Unless you are a short term guy, I am now calling the stock market irrelevant to any meaningful discussion of the financial events at hand.

The Fix is in on The DOW? (and others)

After Friday's down day, things looked grim. An entire weekend of bad news, and toady's terrible inflation and oil price results, one would expect some kind of downside to stocks. In keeping with my irrelevant call, a huge up day ensued. Strange? Maybe. Fixed? Quite possibly. Pull up a chart of any of the averages since January 1, 2008 and you will see a ridiculous tight ass range for the markets. There is an absolute floor for the indices, regardless of data or news. Is it the FED? The banks themselves? The Treasury? Martians? I don't know but the DOW is range bound from 11,700 to 12,700. Tightly bound. Almost supernatural! Until the DOW breaks either number in the range, the daily move makes no difference to me at all.

Have a good night.

Tuesday, April 15, 2008

Califonia Leads the Way Back in Time

I still get cracked up when I read last night's post about the CNN show and the poor guy named Mark who is very stupid. Sometimes the best comedy is real life.

Delta Airlines and Northwest To Merge
I really do not care at all about the airlines. The travelling I have done has always been disappointing with regards to the flight and the entire airport experience. It is what it is. Will this merger make anything different? Probably not.

My main issue with the merger is that another mega company will have been made. It is hard to have innovation and real competition when there are no choices. Microsoft and Intel are excellent examples. A jumbo airline conglomerate will not help out the consumer I imagine. Oh well. I thought by now we were supposed to have flying cars anyway, what happened to that?

Lehman CEO Fuld says worst of credit crisis behind Wall Street and he is Right!
Another champ came out today and sealed his own removal at some point next year. Lehman CEO Richard Fuld decided to cast his lot with the "worst is over" crowd with his statement today. I actually agree with Mr. Fuld in his assessment, but not in the way he would like. Here is what I mean by the truth that "THE WORST IS BEHIND WALL STREET!":

The wall of water is clearly "behind" the poor man in the warning sign. I totally agree that the worst is behind Wall Street, and will soon overcome the attempts to ignore reality.

Califonia Leads the Way Back in Time
In a sense, the home price declines currently underway are like a time travel trip back in time. As prices retrace their parabolic rise of the boom we in effect are going back to prior price points in years gone past. Southern California seems to be leading the way in this regard (way to go Cali!) and have a look at this stunner from today:

"The median price paid for a Southland home was $385,000 last month, the lowest since $380,000 in April 2004. Last month's median was down 5.6 percent from February's $408,000, and down a record 23.8 percent from $505,000 in February 2007. That peak median of $505,000 was reached several times last spring and summer."
Full article:

So prices have retracted to the year 2004 levels. Ouchie! Now I realize there is some play at work here with the numbers as sales of foreclosed homes will drag the price down and skew the sample, but this is still a realistic price drop.

What date should homes have to go back to? It depends on the area. A good rule of thumb would be the 2000-2002 time frame before the really creative financing started to become outrageous. The banks should plug those prices into their models and see what that would mean for their financial position. Still think the worst is over Mr Fuld? You can change your mind!

Have a good night.

Monday, April 14, 2008

Savings, Debt, and Stupidity; a Nasty Combination

Solid 50 degrees here for the next 7 days. This kind of Sun and warmer air will start to wake the fish up! I am going to Jamaica the last week in April, and when I return the spawning season should be over. I do not bass fish during the spawning season as I feel it hurts the fishery to mess with fish while they are making and tending to the baby fish.

Wachovia Has Big Losses, Cash Infusion, and the Stock Went DOWN?
Today was one of those days where you are left scratching your head. Wachovia bank (WB) came out and stated their loss for this quarter (about $400 million), will be cutting their dividend (about 40%) and will be selling/diluting their stock to the tune of $7 Billion more dollars. Not too shabby!

Now if I was able to day trade, I would have been LONG this stock this morning in anticipation of the "Losses over, still has access to capital" mantra that has been the norm. As soon as the market opened up, WB broke out! To the DOWNSIDE? Almost a 10% drop, and the stock would close today down 8%.

Just what the heck happened here? I am not sure. Maybe the stories of more losses for the banks on the way has finally dented the bulls foreheads out there. Maybe something else. I thought today's event was both interesting and important.

Goldman Sachs On Fire
I am not sure there is a better firm out there than Goldman Sachs. These guys take no prisoners and even call for outright short selling! Today GS makes headlines with this deep, well researched, and timely call on the markets:
U.S. "awful" Q1 results could hit stocks: Goldman
By Caroline Valetkevitch
NEW YORK (Reuters) - Early first-quarter earnings are signaling an "awful" reporting period that is expected to send U.S. stocks lower in the weeks ahead, Goldman Sachs said in a research note on Monday.
General Electric Co's surprisingly weak results on Friday sparked a triple-digit sell-off in the Dow Jones industrial average raising fears that the credit turmoil has spread beyond the banking and financial sectors.
The news followed disappointing results from aluminum company Alcoa Inc which kicked off the reporting period a week ago, and from package delivery service United Parcel Service.
"Although only a few firms have reported (first-quarter) results, early signs are awful," said the note, which was released by Goldman U.S. investment strategist David Kostin.
"We expected generally disappointing results and a swath of lowered profit guidance that will drive the S&P 500 lower in coming weeks."

What is going on? GS is calling for stocks to actually fall when they do not even come close to matching wildly high earnings estimates? This is serious stuff here! GS is really upping the ante lately. There will be no place for reality based bloggers like myself if the mainstream thinkers start to use common sense! I feel I am at risk. I guess I could just do a fishing blog.

Savings, Debt, and Stupidity; a Nasty Combination
I was sitting at lunch today and the television in the cafeteria was on CNN. Around noon CNN has a show called "Issue #1" which usually centers on financial news and personal economic issues. They have a panel of "experts" and they do a Q&A session using viewer emails. I just so happened to look up at one point and was graced with what is easily the best example of why this country is in so much trouble I have ever seen. I dug up the show transcript today to make sure I did not imagine it. Here it is, viewer Mark's question in all of it's glory:

'Mark has a question. He asks, "I recently saved up about $20,000." That's good news. "Unfortunately, I have a little over $14,000 in credit card and medical debt. Eight of the accounts are in collections. Three are supposed to fall off my credit report by January 2009. Should I take my savings and pay off the collection accounts or continue to keep it in a savings account?"'

Oh Man! That has had me laughing hard for about an hour now. Mark has "saved" $20k by basically charging his expenses and not paying his medical bills. Mark would like to know if he should pay off the 15% plus interest rate credit card bills, or continue to earn a whopping .8% interest in a savings account. I swear this was on! Really it was! You can see the full transcript here if you do not believe me:
It is almost at the end of the show.

So what was the advice that Mark did get? Lets find out:
OK, I'm thinking this is a little bit of a no-brainer. Allan, go.
CHERNOFF: I'm begging Mark, why are you saving money when you've got all this credit card debt? Pay it off. Get it away from you. I mean, that's just such a common mistake. So many people feel, oh, it's OK to have this revolving debt. You're never going to earn that level of interest rate in a bank.
WILLIS: Right.
CHERNOFF: The level that the credit card charges.
GANDEL: I totally agree. But -- I'm sorry to cut you off. I totally agree. But I think -- and as you got this money, you can make a deal. You should go to the different creditors and say, listen, you see that I've got a bunch of debts, eight different accounts, but I got the money to pay you off. Let's make a deal. And I think if the person -- if Mark goes around and negotiates with each person, they might be -- he might be able to pay off that debt for $10,000 instead of $14,000.
WILLIS: All right. Well, that's a great idea.

Wonderful in every way. This is a gem of a find am I am glad to share it with you all. This poor guy Mark has savings confused with, well, not paying for things. Mark also has no idea how his debt is compounding at the card company crazy high rates. At least Mark called CNN for advice!

After that, I cannot top it tonight. Please pass this one along to others, it is a rare find! Please vote in the new poll as well.

Have a good night.

Sunday, April 13, 2008

Sunday Mixed Bag

More technical difficulties last night. If there are any experts on the Netgear products XE102 Ethernet Bridge and the companion piece WGXB102 Powerline Range Extender please indicate so in the comments. For some help with these retarded things I may offer a major reward. If I can figure out how to get the pieces all talking correctly I will have brutal fast Internet after all!

Writedowns That Are Over, Still on Schedule For This Week
In the Sunday Time online, a UK paper, we learn that the writedowns that are now over with will continue next week courtesy of Merril Lynch and Citigroup:
From the Sunday Times
April 13, 2008
US banks Citigroup and Merrill Lynch reveal fresh $15bn loss
CITIGROUP and Merrill Lynch will heap further pain on Wall Street this week as they reveal additional sub-prime write-downs totalling $15 billion (£7.6 billion) or more.
In another sign of the intense pressure on leading banks, Deutsche Bank is attempting to offload some of its 35 billion (£28 billion) of toxic debt to a consortium of private-equity firms.
Huge exposure to American mortgages is expected to result in Citi taking a $10 billion hit to its accounts, dragging the bank to a first-quarter loss of almost $3 billion. Some analysts believe Citi’s write-downs could stretch to as much as $12 billion.
Merrill will suffer $5 billion of write-downs, analysts say, which would push the bank $2.7 billion into the red.

I would love for the multitude of market commentators that were so sure things were over with a recently as last week to be asked to comment on this new round of writedowns. I imagine they would just say "Well this is the last of it this time I am sure!" Even though calls for the end of losses are constantly being shown to be wrong, don't expect these calls to stop anytime soon.

Alcoa, UPS, GE; Not Exactly Subprime Companies

Earnings season was off (haha, get it? OFF) to a poor start last week with misses by Alcoa, UPS and GE. While GE certainly has a bit of exposure to the finance angle of things, it is a broad business exposed to all facets of the economy. These bellweather companies are saying that the once "contained" subprime debacle has indded filtered out to the broader economy. While this is no surprise to the kind of folks that read blogs like this one, it is still fun to watch the CNBC types in the mainstream say they are "shocked", "surprised", or "blindsided" by such events. At some point soon the problems that the P/E 's of the DOW, S&P, and other indices have will be hard to ignore. Again, current stock prices do not reflect a slowdown at all. Nothing is in fact "priced in" regarding a possible recession. Keep this in mind if you are going to venture into the market.

Not Every Negative View is a Short

I know, I know, never read message boards! But if you do you will see that any negative observation or opinion is railed as a "short". This stupid idea has even extended as far as infecting Cramer and others who think everyone not waiving pom poms for the markets are all aggressively short stocks. I am currently out of all positions, but I am looking for a play to make. I am negative on MANY aspects of the economy and stock market. I DO NOT short. I don't like the idea of shorting and I am uncomfortable doing it. You can only make at most 100%, but you could lose a lot more. I only make plays on the long side myself. This is not a commentary on anyone else's strategies, just explaining my own. So not every negative voice out there is a short. And besides, shorting is a legal way to play the market, so just shut up. You do not see people screaming at the LONGS for jacking the market up on hype do you?

Books, TV, and Movies

On Saturday the mail brought the new book "Greed, Fraud, and Ignorance" by Richard Bitner. This book details an insider's view of the subprime shenanigans. I just read the opening chapter, and it seems like it is going to be pretty good. I will update in a while if the book is a full on recommendation.

The HBO series "John Adams" is down to its last few episodes. The series has been excellent and I easily advise checking it out.

I saw "No Country for Old Men" last night. I was both impressed and a little let down. The acting was top of the line. The filming was great and set the dark mood of the film. The Characters were all deep and multi layered. I just really did not think the ending was all that great. Still, a strong recommendation from me.

Other Stuff

Sunday diversions;

My favorite scene from the film "The Matrix", perception makes reality indeed!?

In a trilogy full of memorable scenes, one great one is Pippin's song from "The Lord of the Ring; Return of the King":

Have a good night.

Friday, April 11, 2008

Goldman Sachs Starts a Bear Raid?

Two days in a row over 50 degrees! Spring had finally made its final approach. It was a long winter. Congratulations to loyal reader G, as he has secured new employment. I hope all is well with you G, and all who peruse this blog.

Bill Gross Rapidly Becoming a Shill
I imagine in the future there are going to be many financial commentators that will look pretty silly due to their inability to see, and later analyze, the housing bubble. Bill Gross, who runs PIMCO's largest bond funds, is rapidly becoming transparent in his repeated calls for government intervention to support house prices.
From Bloomberg (story by Deborah Finestone):
"April 10 (Bloomberg) -- Pacific Investment Management Co.'s Bill Gross lifted holdings of mortgage debt in the world's largest bond fund to the highest since 2000, while putting on the biggest bet against government debt since at least the same year. "

So on one side Mr. Gross is adding mortgage debt to his holdings, while he simultaneously calls for some kind of floor to be put artificially under home prices to protect his investments. If that was not sad enough, Mr. Gross then doubles down by betting against government debt, as he must know that any major home price bailout will trash that market as a consequence. This behavior resides in the baseless shill arena, and Mr. Gross should keep his plans and investments to himself to avoid looking like one.

Lehman Brothers Knows No Shame
So one of the major issues with the banking system is that banks do not trust each other, and thus will not readily lend to each other. Hence the alphabet soup of FED lending facilities (TAF, TSLF,etc) to ensure market movement by standing in as the lender of last resort. I always find it comical that the mainstream media will report something like "banks are wary of lending to other bank" and stop there. A great follow-up topic may be, well, why are they so scared? Inquiring minds want to know.

I have repeatedly warned that the problem the FED is going to have by opening up their balance sheet to the investment banks is that the FED has ZERO idea how craven and sneaky these entities are. They would sell their own mothers for a buck. Forget the major issue of moral hazard (that is so last year!), the biggest risk for the FED is that they will get used like a fool if the IB"s are given a chance. Case in point, Lehman Brothers takes their crap to the FED:
Lehman makes move to turn unsold debt to cash
Friday April 11, 2:59 pm ET
NEW YORK (Reuters) - Lehman Brothers Holdings Inc, looking to raise cash, packaged $2.8 billion of unsold loans into bonds, then used some of the securities as collateral to borrow from the Federal Reserve, people familiar with the deal said Friday.
Lehman transferred loans that included some risky leveraged buyout debt into a new investment entity called Freedom, which then issued securities, about $2.26 billion of which were rated investment-grade, they said.
The bank used a relatively small amount of those securities as collateral for a low-interest, short-term cash loan from the Federal Reserve.
The move should give Lehman more money to finance its activities but also raises questions about the quality of the collateral the Federal Reserve is receiving from dealers to which it lends money.
"There's a significant hazard to the Federal Reserve taking poor assets onto its balance sheet," said James Ellman, president of hedge fund Seacliff Capital in San Francisco.
At this point, it's not clear how many of the Fed's loans to investment banks have been collateralized by assets like subprime mortgage bonds or loans used to finance leveraged buyouts.
But if the perception arose that the Federal Reserve's balance sheet featured too many bad assets, the dollar could weaken. And banks might be emboldened to take more risks if they believed the Fed would bail them out.
Lehman declined comment on the Freedom transaction.

This was my point a while ago. Give the IB's an inch in an effort to save their lives, and they will take a mile and try to leverage up as well. This is truly a sickening practice and one can only hope that Mr. Bernanke will be asked directly about this practice ASAP. At least the program is named correctly. The moniker "Freedom" must mean freedom from class, freedom from common sense, freedom from responsibility, and freedom from shame. LEH gets my vote to get torpedoed by renegade shorts.

Goldman Sachs Starts a Bear Raid?
Analysts are a funny bunch. While they should be unbiased data crunchers and conservative forecasters, they are instead paid hacks by the industry to praise stocks and promote buying. Even Enron was a "strong buy" until the morning they blew up, and the they were downgraded to "pretty strong buy" (I made that up!). The worst rating most stocks will ever have is "hold" and a "sell" rating usually means after the fact failure.

With this in mind, Goldman Sachs today not only lowered the boom on Washington Mutual with a rare "sell" rating, they also recommended SHORT SELLING the stock! Oh, the humanity!:
Goldman recommends short-selling Washington Mutual
By Steve Goldstein
Last update: 8:23 a.m. EDT April 11, 2008
LONDON (MarketWatch) -- Goldman Sachs recommended short-selling Washington Mutual Inc in a note to clients on Friday, and cut its price target to $10 from $12. "The bad news is that our new product-by-product analysis of its mortgage portfolio suggests $17 billion to $23 billion of embedded losses in WaMu's current book of business, of which only $3 billion have been absorbed so far; subsequently, we forecast a $14bn provision charge in 2008," the broker said. The good news is that it believes WaMu's $7 billion capital raise should be sufficient, seeing a year-end tangible-equity-to-tangible-assets ratio in excess of 7%.

The only thing more amazing than an outright shorting call, was the last sentence of this note. read it again:
"The good news is that it believes WaMu's $7 billion capital raise should be sufficient, seeing a year-end tangible-equity-to-tangible-assets ratio in excess of 7%"
So WM is going to lose another 17-23 Billion dollars, and the stock should be shorted, BUT GS thinks the stock should be at $10 instead of $12!? GS also thinks the 7 Billion that WM just got will be just dandy!? GS looks a little all over the place here. Just another strange day in the never ending credit saga we all know and love.

Friday Entertainment
After a strange market day it is time to get into the weekend mode.
Funny Pic
Bad kitties go to jail I guess:

humorous pictures
see more crazy cat pics

Great Movie Clip
Beatrix versus O-Ren Ishii from the film Kill Bill Vol. I. Great music, great swordfighting, great on all levels:

Rock Blogging

I had heard this song in the car a while back and it was driving me crazy that I did not know who the band was! I finally figured it out today. Check out Concrete Blond with "Joey"

Not sure what ever happened to this band, but I really loved this song when it came out a long time ago! Try Big Wreck with "That Song":

I was thinking of The Wallflowers today and their song "One Headlight":

Have a good night.

Wednesday, April 9, 2008

Wednesday Night Rip Offs

Only 1 comment last night. Where is my regular readership? I am still getting about 100 hits a day, but the lack of comments makes me think my stuff is not that good. Or it is so good and spot on that there is nothing else to say. Either way, I like all comments.

Iceland Banks Facing a Run
I admit, I really do not follow world news very much. I do notice things that will impact financial considerations though. Yesterday and this morning I heard on the radio that the Central Bank of Iceland had their interest rates at 15% to curb inflationary pressures running at around 9% (they have yet to learn the US system for making inflation come in tame no matter what) as well as to stop a flight of capital from the country's banks. This USA today story is an OK article on the event:

Good quote: "Financial experts in Iceland say the market tremors are being fueled by speculators, not reality. On Friday, the head of Iceland's central bank, Davíð Oddsson, called for "an international investigation on such attempts to bring a healthy economic system to its knees."

What is funny about the above is that here in the US we have the opposite problem. Speculators are driving our markets higher through rampant speculation while the reality is that our banking system is in REAL trouble. Pretty funny. A bunch of my friends love to travel to Iceland, and are fond of the country. I wish Iceland good luck.

FED Considers Even More Ways to Lend Money to Insolvent Banks
Mish, as usual, has the best post out there concerning the FED's considerations of new ways to loan money to insolvent banks. I really cannot add anything else to this great piece titled:
"The Fed is Terrified":

I will include a scary graph (from Mish, from WSJ) that highlights the rapid degeneration of the FED's holdings over the past 9 or so months:

Read the post already!

Wednesday Night Rip Offs
I admit, I had planned to make the FED money pit story my main thought topic for this evening, but Mish both beat me to the punch and wrote a piece far better than I would have. It happens. I ran into a couple of other stories today that after I read them I said "Wow, that rocked!". As I am a little short on time tonight I will just rip off some more great works and link to them here!

A great "5 Things You Need To Know" today which uses the insightful Jean Baudrillard work I have recommended endlessly, "Simulacra and Simulation":
Very insightful.

A piece from Financial Week (hat tip Prudent Bear) that hits Mr. Greenspan's "It wasn't my fault at all" defense pretty hard. Lots of folks lend their voice to pile on the blame:

Way Cool Video
This BMW commercial has unbelievable video of an ACTUAL engine in operation. No CGI computer generated effects, just a real engine observed with real cameras using special filming techniques to be able to see what is happening. Great explanation here:

The opening of the valves (two intake valves for this engine), the fuel droplets coming out, the valves closing, and then the spark plug firing is about as cool a scene as I have ever seen. It is a must see:

Have a good night.

Tuesday, April 8, 2008

Irreconcilable Differences

That was a wild finish to the college basketball title game last night. I missed the live game but caught a replay of the final two minutes. It is not over till it's over indeed.

Irreconcilable Differences
The very character of things financial as of late can best be described as "hard to reconcile". Stock behavior, market analyst commentary, and public officials (present and former) seem to be at odds with hard facts and common sense. Today even saw Alan Greenspan basically refute the entire Paulson expansion of regulation plan as useless. Lets take a look at some amazing contradictions presently at work;

Washington Mutual Dilution Plan: I had a post on the WM cash "infusion" last night. This morning the infusion became even bigger and some more details were released. Suffice to say that this deal basically halves the company's value to existing shareholders. The convertible price for the stock is set at $8.75, the dividend was slashed to 1 cent from 15 cents, and the bank will cease and desist all wholesale mortgage business, cutting 3000 workers. Of course this cascade of rough news was good for over a 30% rise in the stock yesterday, and today it held most of it to close at $11.81, quite a ways from $8.75. So is this doubling of the market cap of WM a good move, or is it more like the last ditch efforts by CFC before they gave up? Time will tell, but certainly WM is a heavily impaired company going forward. It is hard to reconcile the idea that the interest in WM from private equity is a positive sign when the private equity guys are getting WM stock cheap, a board seat, cessation of most mortgage lending exposure going forward, and a reasonable expectation of a FED bailout to $10 should this all go south.

Alan Greenspan and Anything Resembling Reality: At some point, Greenspan's friends or anyone that cares for the man is going to pull him aside and forcefully shut him the hell up. The more he speaks, the more he buries his credibility permanently. The man says so many opposing things and things that make no sense I can only submit that he has lost his mind. In a forthcoming exclusive interview with CNBC (exclusive? Greenie is talking to anyone, even high school papers if they will listen!) Greenspan makes the observation that, get this, interest rates made NO DIFFERENCE in home buying during the low rate years of late 200o to 2003. If interest rates make no difference to home buying, then the rushed rate cutting frenzy the current FED has been on seems pretty dumb indeed. Greenspan blames investors for aggressively buying bad mortgage paper, and even begging to buy more. Greenie may have a point there, but then it becomes impossible to reconcile the current FED bailout bonanza with terrible decision making by investors does it not? Greenie also balks at increased regulations, and say that they would not have, and will not make any difference. Take that Hank Paulson and the reform package horse you rode in on. Either Greenie is still "the Maestro" and the current FED is retarded, or monetary policy was run by a delusional madman for years. You cannot have it both ways. As a tiebreaker, Greenspan also says we are in the "throes of a recession" at the same time he predicts home prices will stabilize in 2008. OK bro! Say hi to Andrea for me.

UPS and Alcoa Versus the Recession is Over Idea: UPS was out this evening with a lowered guidance going forward as they perceive the economy to be "rapidly deteriorating". Alcoa missed earnings last night on high fuel costs. The recession that never happened and is now over crowd is going to have a tough time with these bell weather companies saying things are not that good going forward. Of course if you just extrapolate stock prices out far enough, the recession will indeed be over. Why not just price stocks today at a price where the companies will be making huge dollars like 150 years into the future, and then these short term blips will smooth out.

There are many more. Reality and perception are diametrically opposed right now. Something has to give. Some think the return of money through bank deals (WM, CFC, BSC, C) means something. I might caution it is the same folks that pushed to buy all the crap mortgage paper to start with now are trying to buy back in lower. Dollar cost averaging I guess. If the past few years has shown anything, it is that there may not be a thing called "Smart Money" anymore. Maybe there never was.

Have a good night.

Monday, April 7, 2008

Washington Mutual Pulls a UBS; Shareholders Cheer

A bit short on time tonight as the wife and I are going to book our vacation plans this evening. I need to go somewhere warm and it looks like one of the Sandals resorts in Jamaica will provide the needed sunlight. Another week without Economic Disconnect? I hope you all will survive!

Alcoa Earnings Miss "SOME" Estimates
Alcoa kicks off the earnings season, and reported that they were a little short of expectations. Not to worry though as the feel good market spin machine was in full throttle "it is priced in" mode. Check it out:
Alcoa 1Q Profit Drops on Higher Costs
Monday April 7, 5:48 pm ET By Daniel Lovering, AP Business Writer
Alcoa 1st-Quarter Profit Plunges 54 Percent on Higher Costs, Weaker Dollar
PITTSBURGH (AP) -- Aluminum producer Alcoa Inc. said Monday its first-quarter earnings plummeted 54 percent as higher raw material and energy costs and a weaker dollar cut into results.
Net income dropped to $303 million, or 37 cents per share, during the first three months of the year, compared with $662 million, or 75 cents per share, during the same period last year, the company said.

The results failed to meet some Wall Street expectations. Analysts surveyed by Thomson Financial, on average, forecast earnings of 48 cents per share on revenue of $7.18 billion.

So higher energy prices were an issue? Didn't Alcoa get the FED speech where inflation was "well anchored" and fuel prices were expected to "moderate in the coming quarters"? It has been 3 years and I have not seen the moderation the FED is expecting!

37 cents/share vs. 48 cents/share. Hum, quick calculation says that is a 20% miss! Not to worry, the result only failed to meet "some" projections. Remember this kind of a 20% miss as earnings season goes along. Expect plenty of whopping misses, but the market will react very positively. You know, the recession is over and all that.

Washington Mutual Pulls a UBS; Shareholders Cheer
In another great move by the super scrappy banking sector, Washington Mutual was reported to be close to a deal to get one of those awesome "infusions" of cash that every healthy bank needs in a huge offering to some private equity firm named TPG Inc (vote in new poll). The deal was said to be around $5 Billion dollars. yes that was FIVE Billion, and yes the market cap of WM before the run up today was about $9 Billion. You read that right.

Now of course this will dilute current shareholder to the tune of anywhere from 30-50%, but hey, it is a cash infusion. It shows someone likes WM. People paying to get screwed seems to be THE THING this year. I wonder if there is going to be a problem with the deal now that the stock rallied 30% just today on the news. Yes, 30% just today you read that right. Going forward try not to be so surprised! Might that kind of a pump be the jump TPG was counting on occurring AFTER they bought in? Who knows.

And take a look at the WM volume today, 191 MILLION shares traded compared with the average 50 Million shares! Wowza! Can there be that many shorts in the entire world? This is some wild activity and I think the FED with their new found powers should make sure Martha Stewart is not up to her old tricks again.

What does this mean? I dunno, but if you research how much Alt-A exposure WM has in the worst bubble areas (Mish has all the graphs) I cannot see how WM will survive going forward. If TPG was thinking it can get in around $4-5 dollars a share, a FED backed bailout could land them around $10 a share for a nifty 100% gain. Remember we are past moral hazard, that was a few miles back.

Take it all in today:
  • Major DOW component AA misses by 20%
  • WM sells out half the company
  • YHOO wants higher bid (Note to Yahoo, you only get a bailout if you are going to fail, not just because you want more money. Wait a few more months for that kind of thinking!)
  • The entire state of Nevada is in foreclosure (kidding!)

All good news if you believe the markets had priced in every stock going to zero and a Depression occurring. Where stocks ever priced for that possibility? Nope. Can they rally as if they were? You betcha!

Have a good night.

Sunday, April 6, 2008

Slow Sunday Off Topic Detour

Even though it has been rainy and dark here in Massachusetts all weekend, the air is definitely changing to Spring. Temps in the 40's and that smell of warmth was pretty great this weekend. Almost time to buy the fishing supplies I will need and prepare for the season. Very good indeed.

Tax Deadline
In case you do not know, your 2007 taxes must be postmarked by April 15th. I finished and sent mine out on Saturday. It always makes me angry when I see how much of my money goes bye bye to the government. What ever happened to the MAJOR tax system overhaul that the current president campaigned on in 2004? Possibilities included a 15% flat tax, a consumption based tax system, and lower taxes in general. We got nada. Zilch. Just another empty promise from the W. For the record I am strongly in favor of a flat 15% tax for all income earners earning over $25,000 yearly. No deductions. No exemptions. No loopholes. Everybody pays the same. Never going to happen, but it would be my choice.

Slow Sunday Off Topic Detour
Not much in the way of news this weekend. The Fox Business block Saturday morning was full of "September is the big housing rebound" types and the ever present "financials are a SCREAMING buy here" dreamers. People just do not get it yet. While most of the usual suspects were arguing against any possibility of a recession even up to two weeks ago, the same folks now are bullish on the idea that the recession is now over, and it is time too play the recovery. Amazing logic and mental twisting. I lack the interest to savage that mindset this evening.

Instead I will take a detour to talk about some off topic stuff just for fun.

My potatoes have begun sprouting good eyes, so they should be ready to plant soon. Kevin and others, ever hear of the "Topsy Turvy"? I saw this on an infomercial and I almost ordered it! Looks wild:
No need to plant in the ground. Amazing!

I have seen survivalsim start to become a major talking point on some sites. The concept has alot of interest. I suggest reading Max Brooks two works "The Zombie Survival Guide" and "World War Z". While the books deal with theoretical zombies, people and their behavior and condition should a major calamity occur may very well resemble zombies. Great reads anyways.

Question for any fishermen out there; do you prefer to fish shallow water or deep water? Many of the reservoirs I fish require deep water (for freshwater fishing 20-40 feet is deep!) tactics. I like fishing deeper because it adds an element of surprise to the catch. If you cannot see where your lure is, or any fish there is added excitement for me. Which do you prefer?

Favorite Steak?
This will be the poll question tonight. What is your favorite steak? Filet mingon? Prime rib? Ribeye? Another cut? Use the poll and/or comments section to respond. It is very close for me between Prime rib and a bone-in Ribeye, but the Ribeye wins out. Any steak is a good steak however.

Bad Movie Warning
This weekend I was treated to two dreadful films that should be avoided at all costs. The first is "The Fountain" starring Hugh Jackman and Rachel Weiz. The special effects were wild, but the film was pretty bad. The second is "The Good Shepherd" starring Matt Damon. Any film that has Angelina Jolie in it, but only for like 3 minutes sucks anyway. The film itself is a mess. And long. And pointless. Do not even bother watching. You are welcome.

Boxing Rounds
Always been a huge boxing fan. Here are some great rounds from history;

Hagler vs. Hearns Round 1: The fight that was known as one of the greatest fights ever had a ridiculous round one filled with huge punches and wild momentum swings. I will never forget Marvin Hagler's menacing stare at Hearns after the round one ending bell was rung:

Julio Cesar Chavez saves his title stopping Meldrick Taylor in the final round (with 2 seconds left!)while trailing on points. Great drama:

Have a good night.

Friday, April 4, 2008

Fitch Downgrades MBIA and The Earth Still Turns

Rain all day here. It has been like 20 hours of rain. At least it is not snow! For those that may think that the end of the world is not at hand, I would advise you that the boy band "New Kids on the Block" are reuniting and going on tour. Surely this is a harbinger of the end!

Jobs Report -Much Stronger Than Anticipated
What you need to know about the current market atmosphere is that there is a severe amount of self delusion being done. Today's jobs report is a perfect example. Consensus was for a drop of 60-70,000. The number came in a bit worse at negative 80,000 with reductions in previous months numbers as well. Now the higher number was surely a bad thing right? Well, not so fast. About 5 seconds after the report was released there was already a new consensus view that the market was expecting a jobs lost number closer to negative 120-150,ooo so in fact -80k was stronger than expected!

If you are sufficiently motivated, you can pull up the premarket articles and compare it with the post report articles. Moving the goalposts has long been a wall street special, but this 5 minute rework stuff is really something. I imagine if the number came in at -120k the talking heads would have said they expected 1 million jobs lost, so this report was wonderful news. Whatever. Mish has a great wrap up of the finer details of the jobs number.

Fitch Downgrades MBIA and The Earth Still Turns
I had come in from the laboratory at work today and I punched up the Yahoo page, hit the Yahoo Finance section, and I was terrified when I saw the news:
Fitch Cuts MBIA's Rating to "AA"
Friday April 4, 3:12 pm ET By Stephen Bernard, AP Business Writer
Fitch Cuts Financial Strength Rating of Bond Insurer MBIA to "AA" From "AAA"

NEW YORK (AP) -- Credit rating agency Fitch Ratings said Friday it cut the critical financial strength rating of MBIA Inc. because the bond insurer does not have enough spare capital to warrant a top-notch rating.

Now you must remember just a little while back there was serious debate about whether the loss of the vaunted "AAA" rating would cause a "systemic crisis" that could engulf the whole world in flames. I was pretty scared about that possibility, so I gingerly looked out the window of the office. It was still raining. I made sure that the water was not turning to steam from the firestorm engulfing the planet, but everything seemed ok. I heard no screams, and I took a walk through the hallways to see if anyone was behaving in a panic. I saw nothing out of the ordinary. After about 20 minutes to make sure the fabric of the universe was still intact, I checked out some reaction to the news.

Within 5 minutes (minute men of wall street?) the MBI CFO had this statement:
"We respectfully disagree with Fitch's conclusions," C. Edward Chaplin, MBIA's chief financial officer

Well did anyone expect the guy to say "We acknowledge we are screwed, sell our stock"? I checked the stock price, and it was only down about 4-5%. It was about 20 minutes later that the accepted line was that this was, of course, priced into the stock. A little later the validity of the Fitch rating was even called into question. Anyways, the point being is that nothing bad happened. Things moved on. Just like things would have moved on if BSC had gone boom.

The monoline insurer story is a good one that highlights the massaged reality under way. When Fitch and Moody's reaffirmed the "AAA" a while back, those ratings were solid and well researched. Now that Fitch has made the obvious downgrade, the Fitch rating system is not worth paying attention too. I bet it would be if they changed their minds though!

This event sets up Moody's and S&P for a decision. All rational analysis points to a loss of the "AAA" rating, and has for some time. Fitch has made the downgrade. The other two firms can either follow suit or reaffirm their "AAA" ratings. The obvious danger of keeping their ratings at "AAA" is if MBI goes bust, and Fitch has a downgrade on the books, the two ratings agencies stand to lose all credibility. On the other hand, a reaffirmation will probably keep Fitch out of new business (who wants a true report?) so an increase in business could there for the taking. Next week should be interesting indeed.

Washington Mutual Alert
When a daily chart looks like this:

And the move is on big volume (68 million shares vs. 48 million average daily volume) it usually means something. Perhaps the FED was bored after a weekend off and needs to bailout another bank on Sunday. WM is in some kind of trouble, and I think by Monday there is going to be some kind of coordinated effort to do something. It's too big to fail!

Friday Entertainment Blogging
First up a car video! This is the part of the film "Christine" where Arnie learns that the car is indeed supernatural and can repair itself:

Rock blogging anyone?

Megadeth with a perfect song for the times "Foreclosure of a Dream". Written about farms being lost a while back, but certainly applicable to now:

Old school? You want old school? Try a little Styx with "Too Much Time on my Hands":

Staying old school, Toto with "Rosanna":

Hall and Oats with the classic and awesome "Maneater". Great saxophone!:

I get to do one heavy one. AC/DC with "Who Made Who" featured in the film "Maximum Overdrive", another Stephen King work:

Have a good night.