Archive for October, 2009
Just an update on the status of the Fed’s Treasury and MBS purchase programs.
From the Atlanta Fed weekly Financial Highlights:
From the Atlanta Fed:
The Fed has purchased a total of $297 billion of Treasury securities through October 21, bringing it about 99% toward its goal. Of these purchases, $4.5 billion have been TIPS. Last week, the Fed made a purchase on October 13 for $2.95 billion in the seven-to-10-year sector.
The NY Fed purchased $1.05 billion more yesterday, so there is just $2 billion more to come over the next week.
And from the Atlanta Fed:
The Fed purchased a net total of $16.1 billion of agency-backed MBS between October 8 and 14, bringing its total purchases up to about $945 billion, and by year-end [CR Note: by the end of Q1] the Fed will purchase up to $1.25 trillion.
The Fed purchased an additional $18.1 billion net in MBS over the last week, bringing the total to $963 billion.
The Treasury purchases will end next week – and will probably make the news. The MBS purchases are ongoing.
Market update:
The third graph is from Doug Short of dshort.com (financial planner): “Four Bad Bears”.
Note that the Great Depression crash is based on the DOW; the three others are for the S&P 500.
Galleon Informant Surfaces (WSJ)
Roomy Khan, who worked for Galleon in the late 90s, is said to be “Tipper A.” In 2005, she asked Rajaratnam for another job. He didn’t give her one, but he did ask if she had any inside information about any companies (turns out the answer was yes). Investigators say the informant and Mr. Rajaratnam both traded shares of Polycom multiple times, as well as shares of two other companies where the informant allegedly got inside information: Hilton Hotels and Google Inc. Also, Kahn and her husband were sued by their housekeeper a few years ago.
Meriwether Setting Up New Hedge Fund (FT)
How much investor money can John Meriwether lose in one lifetime? Step right up and find out. Fresh off the success of JWM Partners and huffing on the fumes of the LTCM days, Meriwether is starting a third hedge fund, JM Advisors Management, to launch next year. It will reportedly use the same strategy as both LTCM and JWM to “make” money. Act now to get in on this can’t-lose opportunity.
TPG Plans To Return $20 Million In Fund Fees (WSJ)
Throwing investors a bone: “The gesture is TPG’s second concession this year, as it tries to shore up its relationships with investors who have committed billions of dollars with the private-equity firm but have seen little in the way of new deals or positive investment returns.”
Galleon managers in Asia explore buyout of fund (Reuters)
“Management buyout is the most logical option,” said one of the sources, who declined to be identified because the talks were not public.
Credit Suisse Posts Third Straight Quarterly Profit on Trading (Bloomberg)
Net income was 2.35 billion Swiss francs ($2.33 billion), compared with a loss of 1.26 billion francs in the year-earlier period, the Zurich-based bank said in a statement today. Brady Dougan is “confident” about the banks business model.
The December NASDAQ 100 was lower due to profit taking overnight as it consolidates some of this week’s rally. Stochastics and the RSI are overbought and are turning neutral to bearish hinting that a short-term top might be in or is near. Closes below the 20-day moving average crossing at 1720.16 would signal that a short-term top has likely been posted. If December extends this month’s rally, weekly resistance crossing at 1783.71 is the next upside target. First resistance is Wednesday’s high crossing at 1779.25. Second resistance is weekly resistance crossing at 1783.71. First support is the 10-day moving average crossing at 1741.85. Second support is the 20-day moving average crossing at 1720.16. The December NASDAQ 100 was down 4.00 pts. at 1749.25 as of 6:02 AM CST. Overnight action sets the stage for a lower opening by December NASDAQ 100 when the day session begins later this morning.
The December S&P 500 index was lower overnight and is trading below initial support marked by the 10-day moving average crossing at 1080.33. Stochastics and the RSI are overbought and are turning bearish hinting that a short-term top might be in or is near. Closes below the 20-day moving average crossing at 1063.13 would signal that a short-term top has been posted. If December extends this month’s rally, the 50% retracement level of the 2008-2009-decline crossing at 1112.80 is the next upside target. First resistance is Tuesday’s high crossing at 1099.00. Second resistance is the 50% retracement level of the 2008-2009-decline crossing at 1112.80. First support is the overnight low crossing at 1072.20. Second support is the 20-day moving average crossing at 1063.13. The December S&P 500 Index was down 1.30 pts. at 1076.80 as of 6:05 AM CST. Overnight action sets the stage for a lower opening by the December S&P 500 index when the day session begins later this morning.
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From Fed Governor Daniel Tarullo: Confronting Too Big to Fail
One approach suggested by a number of commentators is to reverse the 30-year trend that allowed progressively more financial activities within commercial banks and more affiliations with non-bank financial firms. The idea is presumably to insulate insured depository institutions from trading or other capital market activities that are thought riskier than traditional lending functions. There are, however, at least two reasons why this strategy seems unlikely to limit the too-big-to-fail problem to a significant degree. One is that, historically at least, some very large institutions got themselves into a good deal of trouble through risky lending alone. Moreover, as we have already seen in the experience with Bear Stearns and Lehman, firms without commercial banking operations can now also pose a too-big-to-fail threat.
Another approach would be to attack the bigness problem head-on by limiting the size or interconnectedness of financial institutions. Some observers have even suggested that existing large firms should be split up into smaller, not-too-big-to-fail entities, in a manner a bit reminiscent of the break-up of AT&T in the early 1980s. Of course, the conceptual and practical challenges in breaking up the nation’s largest financial institutions would be considerably more daunting than those faced by Judge Greene in creating four regional operating companies and a long distance carrier out of the old AT&T. Indeed, to my knowledge, no one has offered anything like standards for undertaking this task, much less a blueprint for how it would be accomplished. This is, in other words, more a provocative idea than a proposal. Like many a provocative idea, though, even in an unelaborated form it can focus attention on the relative effectiveness of alternative policy proposals.
The fact that the largest financial firms will account for a significantly larger share of total industry assets after the crisis than they did before can only add to the uneasiness of those worried about the too-big-to-fail phenomenon. It is notable that current law provides very little in the way of structural means to limit systemic risk and the too-big-to-fail problem. The statutory prohibition on interstate acquisitions that would result in a commercial bank and its affiliates holding more than 10 percent of insured deposits nationwide is the closest thing to such an instrument. Policymakers and policy commentators alike might usefully attempt to develop similarly discrete mechanisms that could be beneficial in containing the too-big-to-fail problem. As must be apparent from my remarks today, my strong suspicion is that an effective response to the problem will likely require multiple, mutually reinforcing instruments.
emphasis added
Tarullo suggests:
A regulatory response for the too-big-to-fail problem would enhance the safety and soundness of large financial institutions and thereby reduce the likelihood of severe financial distress that could raise the prospect of systemic effects. Such a response consists of three elements.
First, the shortcomings of the regulations that failed to protect the stability of the firms and the financial system need to be rectified. Regulatory capital requirements can balance the incentive to excessive risk-taking that may arise when there is believed to be government support for a firm, or at least some of its liabilities. There is little doubt that capital levels prior to the crisis were insufficient to serve their functions as an adequate constraint on leverage and a buffer against loss. The Federal Reserve has worked with other U.S. and foreign supervisors to strengthen capital, liquidity, and risk-management requirements for banking organizations. In particular, higher capital requirements for trading activities and securitization exposures have already been agreed. Work continues on improving the quality of capital and counteracting the procyclical tendencies of important areas of financial regulation, such as capital and accounting standards.
These regulatory changes are surely a necessary part of a response to the too-big-to-fail problem, but there is good reason to doubt that they are sufficient. Generally applicable capital and other regulatory requirements do not take account of the specifically systemic consequences of the failure of a large institution. It is for this reason that many have proposed a second kind of regulatory response–a special charge, possibly a special capital requirement, based on the systemic importance of a firm. Ideally, this requirement would be calibrated so as to begin to bite gradually as a firm’s systemic importance increased, so as to avoid the need for identifying which firms are considered too-big-to-fail and, thereby, perhaps increasing moral hazard.
…
A third regulatory change is in some respects the most obvious and straightforward: Any firm whose failure could have serious systemic consequences ought to be subject to regulatory requirements such as those I have just described.
( click to enlarge )AIG – The bounce this afternoon from its 50-dma looks like an entry point. I would use a tight stop under today’s low. I’d target the $44.98-45.90 zone.
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( click to enlarge )RBS – Bullish divergences on MACD paint a bullish picture for the stock. The stock is a Technical Buy at current price. With ROC now showing the stock is oversold and KD at low we could see buyers back again. Key Levels for stock: Bullish above 15.52 / Bearish below 15.16.
Other Stocks to Watch :
Today’s candlestick pattern was a Bullish Engulfing
WFC – WELLS FARGO & CO
KEY – KEYCORP
VLO – VALERO ENERGY CORP
SVU – SUPERVALU INC
ABC – AMERISOURCEBERGEN CORP
HOC – Holly Cp
GMT – G A T X CORP
SAFM – Sanderson Farms, Inc.
ELGX – Endologix Inc
IMN – IMATION CORP
Today’s candlestick pattern was a Bearish Engulfing
INTC – Intel Corporation
CSCO – Cisco Systems, Inc.
NOK – NOKIA CORP
AUY – YAMANA GOLD INC
BRCD – Brocade Communications
HAL – HALLIBURTON CO HLDG CO
JNJ – JOHNSON & JOHNSON
HST – HOST MARRIOTT CORP
ABX – BARRICK GOLD CORP
RIMM – Research in Motion
CX – CEMEX S.A.
SYMC – Symantec Corporation
HGSI – Human Genome Sciencs
HL – HECLA MINING CO
DFS – Discover Financial
MCD – MCDONALDS CORP
ODP – OFFICE DEPOT INC
KGC – KINROSS GOLD CORP
LSI – LSI Corp
MAT – Mattel Co
EGO – Eldorado Gold Corp
PCX – Patriot Coal Corp
MEE – Massey Energy Co
KIM – KIMCO REALTY CORP MD
MET – METLIFE INC
ELN – ELAN CORP P L C
UIS – UNISYS CORP
IAG – IAMGOLD CP
NE – NOBLE DRILLING CORP
EXC – EXELON CORPORATION
ALL – ALLSTATE CORP
ADI – ANALOG DEVICES INC
FL – Foot Locker Inc
Chiesi Search For Investor Edge Went To Far, Say Prosecutors (WSJ)
Danielle’s attorney begs to differ: Mr. Kaufman said that all Ms. Chiesi was doing was trying to get better information than most people have, which is “what thousands and thousands of people in the financial community try to do,” He added, “I did not see any allegations that Danielle was trading for her own account or that she personally profited from this.”
Bank of America Saw Merrill Losses in November, E-Mails Show (Bloomberg)
“Read and weep,” Chief Accounting Officer Neil Cotty wrote in a Nov. 5 e-mail to Chief Financial Officer Joe Price that included Merrill’s October financial report.
Galleon Moves Assets Into Cash (FT)
Most investors are redeeming ASAP though one charitably offered: “Liquidation would be the objective thing to do,” adding that he would be “looking to see what happens this week.”
Goldman Sachs Exec Defends Bonuses At Ethics Debate (Reuters)
Brian Griffiths said he was not “ashamed” of his bank’s compensation package.
King Suggests Splitting Up Largest Banks to Stem Risk (Bloomberg)
Mervyn says chop ‘em up.
Fed Chooses Staff Economist as Head of Bank Supervision (WSJ)
“As an economist with deep expertise in financial markets, Pat Parkinson will be an important asset at a time when we are focusing on a multidisciplinary approach to banking supervision and regulation,” Mr. Bernanke said. “We’re working to supervise the banking sector in a way that focuses not just on individual institutions, but on how those institutions are interconnected and are integrated into the financial system and the economy.”
There’s no question about it, the markets can be very difficult at times. On the other hand, you can laugh all the way to the bank if you approach the markets in a systematic way.
I was looking once again at the S&P 500 and many people have said the market has gone up, not on the fundamentals, but on the perception that things are going to be better. Perception is one of the most powerful elements of the market. I would say that perception trumps both the fundamental and technical.
So what’s going to happen to the S&P 500? Is it going to continue going higher for the rest of the year, or are we close to a turning point?
In my new short video, I outline several key areas that this market is fast approaching. These levels could be the Achilles heel for this market and potentially set the direction for the rest of the year. Click The Chart To View The Video
Checkout what these Market Club users have to say about the technology. Click Here.
As always, the videos are free to watch and there is no need to register.
Enjoy the video, all the best.
Adam Hewison
President, INO.com
Co-founder, MarketClub
Courtesy of Phil’s Stock World
Wheee, being bullish is fun!
We’re still not great at it as we shorted a few toppy-looking calls yesterday (WFMI, QLD, SPY and POT) but that was a normal offset to bullish plays on SO, ERX, VZ, RIMM, BMY, EMC, AAPL, TXN and T. Of course, we’re also playing our bullish Watch List, which still has plenty of laggards that we’re picking up. SRS was irresistable as they fell below $9.50 again but clearly we tipped bullish and all those bullish plays from last week should start bearing some fruit as well. The best thing about being a bull is – the markets went up for no reason on low volume and we were happy about it – Imagine that!
Of course we are still skeptical becasue the economy still sucks but it is fun to get a little more bullish while it lasts. Even our too bearish $100KP enjoyed yesterday’s action, finishing the day $101,364. That won’t last if we keep going higher and I’ll be looking for some bullish plays to officially add there if we hold our levels today (we didn’t yesterday).
AAPL is going to be a huge winner for us this morning. We’ve been selling Jan $165 and $170 puts for weeks as our key way to play earnings (collecting between $5 and $7) and yesterday, in Member Chat, I suggested selling the $185 puts for $7 as well as the April $180/200 bull call spread, also at $7. It was my position that you would be better off putting $2,000 into either of those plays than you would be spending $18,750 to buy 100 shares of the stock ahead of earnings. It will be interesting to see which position fares better today.
In other earnings fun, we are strategically taking well-hedged earnings plays. ZION was a ratio backspread, buying 4 Apr $21 calls for $2.10 and selling 6 Dec $19 calls for $1.55 in a bearish play on their earnings. Looking good so far. BSX was also played for a miss, selling an even amount of Nov $10s against the Feb $11s, both at .65 and we went bullish on TXN, buying 6 Jan $25s for .82 and selling just 4 Nov $24s for .70 as we expected good but not great earnings there. We’ll see how those do today but they’re all looking like winners in pre-market. The nice thing about plays like this is the are fairly low-risk and not capital intensive and you can often close out your winners the next day and roll the capital along to the next opportunity.
As we can see from David Fry’s S&P Chart, we are slogging through resistance zones and the nice earnings beats this morning from Dow components CAT (10x beat!) DD, KO, PFE and UTX had better give us the fuel to get over the top or I will be back to thinking we are too toppy. CAT earned .64 per share vs. .06 expected in the consensus of the 23 clueless analysts who follow them (highest estimate was .27). That aready puts them .30 over the year’s target earnings of $1.49 with a quarter still to go and you can see why CAT was a staple of our buy lists when they were down around $30!
CAT is, of course, the poster child for the new measure of corporate success in America. They dramatically cut production and laid off thousands of workers and then beneffited from Global stimulus, which boosted demand from developing countries such as China and Brazil, while a weaker dollar makes the company’s products less expensive in overseas markets and rising commodity prices boost that sector and keep their customers digging. Falling steel prices were also a huge help to CAT this year as the company also beat March expectations by 875% and June expectations by 227%, poving the theory that some analysts never learn…
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( click to enlarge )CIT – The stock is still facing resistance around $1.36 ( near its 50-day moving average ). Fresh long should be made only when the stock moves above this resistance level. The technical chart is still showing weakness as MACD is below 0. However with K line back above D line and stock back above 10-day moving average we may see some rally coming.
Other Stocks to Watch :
Today’s candlestick pattern was a Bullish Engulfing
CYSG – Cape Systems Group, Inc.
MRK – MERCK & CO INC
NWSA – News Corp Ltd
BPOP – Popular, Inc.
GLW – CORNING INC
THC – TENET HEALTHCARE CORP
CMCSK – Comcast Corporation
ALTR – Altera Corporation
NVLS – Novellus Systems, Inc.
MMR – MCMORAN EXPLORATION CO
CA – CA Inc
CIEN – CIENA Corporation
AKAM – Akamai Technologie
V – VISA Inc
FSLR – First Solar Inc
CNX – CONSOL Energy Inc
TEL – Tyco Electronics Ltd
SE – SPECTRA ENERGY CORP
TWC – Time Warner Cable Inc
EOG – EOG Resourses
ABB – ABB LTD
ENDP – Endo Pharmaceutical
Today’s candlestick pattern was a Bearish Engulfing
LVS – LAS VEGAS SANDS CP
KO – COCA COLA CO
MYL – Mylan Inc
YRCW – Yellow Roadway
HAS – HASBRO INC
AMZN – Amazon.com, Inc.
RAD – RITE AID CORP
ROYL – Royale Energy, Inc.
CPWR – Compuware Corporation
TK – Teekay Co
GNVC – GenVec Inc
TLEO – TALEO CORPORATION
Courtesy of Joe Weisenthal Business Insider
In his latest letter, Raymond James strategist Jeff Saut laughs at the bears still calling this a “Sucker’s Rally”
To us it is interesting that despite the monstrous rally in stocks, accompanied by extremely strong advance/decline statistics (Art showed a great breadth chart of this at the conference, which is attached), the negative nabobs continue to call this a bear market “sucker’s rally!” While it’s true that markets can do anything, the real “suckers” have been the bears who didn’t employ adaptive asset allocation and consequently have “sat” out the seven-month rally. Clearly, we disagree with the bears’ assessment, having maintained the view that this is a new bull market since April. Moreover, participants got the Dow Theory confirmation of that “bull market” strategy either in July, or August, depending on which levels you used for the Dow and the Transports. Whether the current rally turns out to be a tactical bull market within the longer-term confines of a trading range market, or the first “leg” of a new secular bull market, remains to be seen.
But, as we told our friend and founder of the “must have” minyanville.com website, “does it really matter?!” Indeed, as the title of Ned Davis’ legendary book reads, “Being Right or Making Money?” Obviously, we’ll opt for “making money.” To that point, we have argued that with credit spreads (Ted spread, OIS to Libor, etc.) back to pre-Lehman levels, there is no reason why the equity market can’t “fill” the downside vacuum visible in the charts created by the Lehman bankruptcy. In the S&P 500’s (SPX/1087.68) case this implies at least a 1200 upside target. Tobe sure, there will eventually be a healthy correction, yet there is little question the primary trend is “up.”
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