Lemley Yarling Management Co
15624 Lemley Drive
Soldiers Grove, Wi 54655
October 29, 2010
Asia was lower overnight as is
Europe at midday. Oil has an $81 handle and Gold is down $1 as the trading day
(Bloomberg) -- The U.S. economy
grew at a 2 percent annual rate in the third quarter as consumer spending
climbed the most in almost four years, a sign the expansion is developing
staying power. The increase in gross domestic product matched the median
forecast of economists surveyed by Bloomberg News and followed a 1.7 percent
gain the prior three months, Commerce Department figures showed today in
Washington. Household purchases, about 70 percent of the economy, rose at a 2.6
percent pace, the best quarter of the recovery that began in June 2009.
(WPO) The government announced
Thursday that it had spent $80.1 billion
on intelligence activities over the past 12 months, disclosing for the
first time not only the amount spent by civilian intelligence agencies but also
by the military. The so-called National Intelligence Program, run by the CIA
and other agencies that report to the Director of National Intelligence, cost
$53.1 billion in fiscal 2010, which ended Sept. 30, while the Military
Intelligence Program cost an additional $27 billion....The disclosure Thursday
that intelligence spending had risen to $80.1 billion, an increase of nearly 7
percent over the year before and a record high, led to immediate calls for
fiscal restraint on Capitol Hill.
We reduced the Ford
position in trading accounts (8 pennies loss) and placed part of the funds in more
Gold gained $15 to $1357 and Oil
was lower at $81.40. European bourses closed lower on the day.
- What was the average monthly private sector job growth
in 2008, the final year of the Bush presidency, and what has it been so far in
- What was the Federal deficit for the last fiscal year
of the Bush presidency, and what was it for the first full fiscal year of the
- What was the stock market at on the last day of the
Bush presidency? What is it at today?
- In 2008, we lost an average of 317,250 private sector
jobs per month. In 2010, we have gained an average of 95,888 private sector
jobs per month. (Source) That's a difference of nearly five million jobs
between Bush's last year in office and President Obama's second year.
- In FY2009, which began on September 1, 2008 and
represents the Bush Administration's final budget, the budget deficit was
$1.416 trillion. In FY2010, the first budget of the Obama Administration, the
budget deficit was $1.291 trillion, a decline of $125 billion. (Source) Yes,
that means President Obama has cut the deficit -- there's a long way to go, but
we're in better shape now than we were under Bush and the GOP.
- On Bush's final day in office, the Dow, NASDAQ, and
S&P 500 closed at 7,949, 1,440, and 805, respectively. Today, as of 10:15AM
Pacific, they are at 11,108, 2,512, and 1,183. That means since President Obama
took office, the Dow, NASDAQ, and S&P 500 have increased 40%, 74%, and 47%,
The major stock
measures closed minorly mixed to end the month. Apple toyed with the $300 level
but closed above. Breadth was flat and volume light. Next week will be
October 28, 2010
“There is always risk; if there
weren’t it would be called winning not trading.” Todd Harrison
Asia and Europe were mixed
overnight. Gold is up a few dollars and Oil down a few pennies as the trading
day begins. Stocks are going to open higher on the better than jobless claims
report. Trading will be tempered awaiting next week’s election and Fed meeting.
Diane Swonk, Chief Economist, Mesirow Financial
One Week Improvement in Jobless Claims Welcomed, but Not Enough
Weekly jobless claims plummeted
21,000 to 434,000 in the week ending October 23, no doubt as retailers started
to hire for the coming holiday season. (Halloween is the biggest non-gift
giving holiday.) The news is welcome, but not enough to assure the Fed that the
economy is on firmer footing. Indeed, claims for the previous week were revised
up, while continuing claims fell but not as much as many had hoped. The four
week moving average on claims, in particular, is still hovering above the
450,000 threshold, a level more consistent with rising, rather than falling,
unemployment. The Bottom Line: Initial claims are a highly volatile and
inconsistent indicator of unemployment. Moreover, the level of claims is still
too high to be reassuring for an economy that is supposed to be almost 16
months into a recovery. We should be seeing claims closer to 350,000 than 450,000
by now. As a result, today's data will have little impact on Fed Chairman Ben
Bernanke's decision to further ease via large-scale asset purchases. It, along
with vocal dissent within the ranks of the Fed, however, is likely to temper
the size of the Fed's initial purchases. We are currently expecting the Fed to
expand its balance sheet by about $200 billion by the end of the year. The
Fed's asset purchases could easily top $1 trillion a year from now if the
economy doesn't improve fairly dramatically between now and then.
We traded (bought
& sold) TWM (Russell 2000 double short ETF) for 36 pennies profit in accounts in which we have
been trading TWM. We also repurchased
the Major Bank ETF (KBE). BankAmerica
(8% of KBE) is firm this morning as the markets have moved lower and with JP Morgan (8% of KBE) higher the banks
seem to be exhibiting more relative strength. The weakness after the first hour
is in retailers and techs.
Our recent strategy has been to trade the TWM since it has good daily moves and
hold the QID as our short hedge against our long position in some accounts. The
QID represents a double short on the
NAZZ 100 which is comprised of Apple and Netflix and Amazon etc.
all these stocks have led the rally since September 1. If the markets roll over
they have a greater percent downside risk.
We have been trading J
Crew and GE and KBE and Ford but we are also comfortable holding them in any downturn and
adding to positions.
From PIMCO's Bill Gross: Run
While next Wednesday’s [FOMC]
announcement will carry our qualified endorsement, I must admit it may be
similar to a Turkey looking forward to a Thanksgiving Day celebration.
Anyone for 1.10% 5-year
Treasuries? Well, the Fed will buy them, but then what, and how will PIMCO tell
the 500 billion investor dollars in the Total Return strategy and our equally
valued 750 billion dollars of other assets that the Thanksgiving Day axe has
Ben Bernanke ... you are doing
what you have to do, and it may or may not work. But either way it will likely
signify the end of a great 30-year bull market in bonds ...
The ten year Treasury is trading at a 2.65% yield. If the interest rate
on the ten year moves to 4.25%% in the next two years–where the interest rate
was in December 2008 –folks buying that bond today will suffer a 30% loss of
Chrysler to Invest $600
Million in Illinois Plant
DETROIT—Chrysler Group LLC will
spend $600 million to upgrade production at its Illinois assembly plant,
bringing the auto maker's total announced U.S. investment to $2.1 billion since
its exit from bankruptcy court last year.
The company will use the funds to
build a body shop and install new machines at the Belvidere assembly plant to
support the production of future models in 2012. The plant is home to the Jeep
Compass, Jeep Patriot and Dodge Caliber.
Taxpayers saved Chrysler. The
number being thrown around is that the Taxpayers lost $4 billion saving
Chrysler. But that doesn’t take into account news like this and also the
salaries and jobs that were saved. We know these transactions are complicate
and not amenable to sound bites. But if folks took the time to figure it all
out they would realize that the jobs saved and money to spent by Chrysler and
Fiat in the future will more than offset the $4 billion.
Halliburton is just one bad company.
Halliburton testing conducted
before the BP Gulf of Mexico oil spill showed that cement similar to that
pumped into the blown-out well would be unstable, but there is no evidence that
the contractor sounded alarms to BP, according to a presidential commission
investigating the disaster. The test data, shared with staff of Obama's
commission on the Deepwater Horizon oil spill, run counter to Halliburton's
claims that the nitrogen-cement mixture used in the Macondo well was stable.
European stocks closed lower. Oil
also ended higher at $82.42and Gold gained $20 to $1348.
(AP) Wells Fargo does not plan to halt foreclosures despite an
employee's testimony that she signed up to 500 foreclosure documents daily
without reading them. The employee of the San Francisco-based bank said in a
deposition taken last March that she signed between 300 and 500 foreclosure
documents per day, verifying only her name and title. Such practices have been
called into question by attorneys general in 50 states. They have accused
mortgage companies of violating state laws. Wells has not halted foreclosures
and says it has discovered no problems in the legal documents used to process
them. The company said earlier in the week that it would review pending foreclosures
for potential defects.
(Reuters) Wells Fargo said on Wednesday it will
re-file documents on 55,000 foreclosures, drawing immediate fire from one of
the state attorneys general most critical of banks in the continuing home
foreclosure crisis.... Wells Fargo found problems with foreclosure
affidavits in 23 U.S. states where the final internal review or the
notarization of the documents did not meet company standards. The bank plans to
re-file the affidavits by mid-November.
Today was another
mixed day of trading with the NAZZ and S&P 500 higher and the DJIA slightly
lower. Breadth was flat and volume light.
October 27, 2010
Even Fortune Magazine thinks
the banks are goofy:
The biggest danger to the U.S.
capitalist system doesn't come from communists or community activists or
left-wing academics. It comes from some of the nation's biggest financial
institutions. These companies, which helped create the financial meltdown that
touched off the Great Recession, have now found yet another way to undermine
the public's faith in capitalism and markets: the foreclosure fiasco.
Even before the foreclosure
problem appeared, the level of public distrust of our financial and political systems
was approaching the pathological. It's going to get even worse when the true
lesson of this episode sinks in. To wit: If you screw up big time when you deal
with a giant bank, you're toast. If the giant bank screws up when it deals with
you, it gets a do-over.
Sure, many - probably most - of
the people whose mortgages are being foreclosed got in trouble because they
overreached or lost their jobs, not because anyone cheated them. But if we're
going to have rules, they ought to be binding on everyone. If I'm supposed to
obey the law and pay my bills, the people I'm paying ought to have to obey the
All markets were/are mildly lower
this morning as all await the Fed’s pronouncement next week. (Marketwatch) Most
Asian stock markets and currencies ended lower on fears that the U.S.
quantitative easing program could be quite conservative, which triggered a
rebound in the dollar and hurt commodities. European equities declined for a second
session as software group SAP AG and brewer Heineken posted disappointing
The Wall Street Journal reported
that the Fed is likely to unveil a new round of quantitative easing worth a few
hundred billion dollars over several months in contrast to its purchases of
nearly $2 trillion worth of bonds during the financial crisis.
Durable goods orders were up 3.3% in September which was better than but ex transportation
(airplanes) orders were down 0.8% which was worse
than. Bull or Bear take your pick.
An hour into the trading session
the action is different than it has been for the past few weeks. The S&P
500 and DJIA are down 1% while Banks have a bid.
We added GE to
accounts and we repurchased the J Crew at $31.50 that we sold yesterday
at $32.75. To make room for these purchases without increasing our long
positions we sold KBE for a plus
European bourses closed lower.
Gold lost $14 to $1325. Oil ended at $81.97 down 57 pennies.
A rally in the
last half hour cut losses in the DJIA and S&P 500 while the NAZZ was
higher. Volume was light and Breadth greater was negative but techs were firm.
October 26, 2010
want to be in Kentucky when the end of the world comes, because it's always 20
years behind" - Mark Twain.
Markets in Asia and Europe
meandered overnight and U.S. futures suggest a slightly lower opening this
morning. Gold and Oil are off a few dollars and a few pennies respectively.
Ford reported record thirds quarter earnings. We are buying shares in our trading
(NYT) The Ford Motor Company said on
Tuesday that it earned $1.7 billion in the third quarter and that it expected to have zero net debt by the
end of December, one year ahead of forecast. It was the sixth consecutive
profitable quarter and the best third quarter in more than 20 years for Ford,
which has been gaining momentum because of popular new cars and crossover
vehicles, even as the overall market and the economy remain relatively weak.
Ford, the only one of the three Detroit automakers to avoid bankruptcy and not
accept government bailout assistance, has earned about $6.4 billion so far in
2010, just two years since a $14.8 billion annual loss that was the biggest in
Altogether, there are some 9
million hard-working-Americans-if-they-could-find-work receiving unemployment
benefits. More than 5 million of these are on extensions under Emergency Unemployment Compensation.
And they are the lucky ones. Another 6
million without jobs receive no jobless benefits because they are, for
various reasons, ineligible. And those hapless 6 million don't include a few
million other workers who have dropped out of the labor force in despair and
aren't even counted as unemployed.
As the major measures opened lower we sold SDS for at 50 pennies profit and TWM for a plus scratch.
Goldman Sachs is selling $1.3 billion of 50 year bonds with a 6%
interest rate. Two years ago Goldman had to pay Warren Buffet 10% and issue
warrants to purchase shares at $115 to borrow $5 billion. How times change.
Thank you Uncle Sam.
We sold J Crew
for a $1.50 four day profit. We also added to our double short NAZZ 100 (QID) as a couple of the hot
NAZZ stocks were showing weakness in the afternoon.
European bourses closed lower.
Oil unchanged at $82.58 and Gold unchanged at $1335.
The major measures
spent most of the day in negative territory and closed mixed. Breadth was flat
and volume was light.
October 25, 2010
The glass is full today as Asia
and Europe were higher overnight and U.S. stocks are going to move higher at
the opening. Gold is up $10 and Oil up $1 with and $83 handle.
September existing home sales
were up 10% month over month and down 20% from last year.
88% of S&P 500 stocks are
above their 50 day moving average.
With the major market measures up 1% we added shares of the double short
S&P 500 (SDS) to our trading
accounts and also increased the TWM position by 50%
From the Chicago Fed: Index shows economic activity slowed further in
Led by declines in
production-related indicators, the Chicago Fed National Activity Index
decreased to –0.58 in September from –0.49 in August.
The index’s three-month moving
average, CFNAI-MA3, ticked down to –0.33 in September from –0.32 in August.
September’s CFNAI-MA3 suggests that growth in national economic activity was
below its historical trend. With regard to inflation, the amount of economic
slack reflected in the CFNAI-MA3 suggests subdued inflationary pressure from
economic activity over the coming year. http://www.calculatedriskblog.com/
European bourses closed mostly
higher. Gold was up $15 at $1340 and Oil gained $0.66 to $82.33.
(Bloomberg) As the recession
pushed U.S. incomes down last year, America’s highest earners -- 74 people who earned more than $50 million
-- saw their pay more than quintuple on average to a record $519 million each.
Those top-end Americans earned a
combined $38.4 billion in 2009, up from $11.9 billion earned by 131
individuals with wages above $50 million in 2008, according to Social Security
Nationally, the average annual
wage fell by $384 to $39,269 and the median wage fell by $253 to $26,261 during
the worst economic slump since the Great Depression.
$38 billion could have paid a $38,000 salary to 1 million folks.
(Bloomberg) -- The Treasury sold $10 billion of five-year
Treasury Inflation Protected Securities at a negative yield
for the first time at a U.S. debt auction as investors bet the Federal
Reserve will be successful in halting deflation.
The securities drew a yield of
negative 0.55 percent, the same as the average forecast in a Bloomberg News
survey of 7 of the Federal Reserve’s 18 primary dealers. The sale was a
reopening of an $11 billion offering in April. Conventional Treasuries
rallied amid speculation about the amount of debt the Fed may purchase to spur
the economy in a strategy called quantitative easing.
The major measures
closed higher in desultory trading. Breadth was 2/1 positive. Our guess is that the markets this week will
be quiet awaiting the Fed meeting and National elections of next week.
October 22, 2010
We bought the double short NAZZ 100 (QID) and double short Russell 2000 (TWM) in trading accounts. We also bought J Crew in larger accounts. JCG is down 15% in the last two days at
its 12 month low on a downgrade by Needham.
Asia was mixed overnight and
Europe is mildly lower at midday.
Europe closed lower. Oil ended at
$81.16 and Gold was up $2 at $1328.
We sold half the QID
and TWM for 20 pennies losses in
each. The markets looked like they were headed lower when we purchased but
instead traders were heading home.
The major market
measures closed mixed in light trading. Breadth was 2/1 to the good most of the
October 21, 2010
Everything is wonderful. Asia and
Europe were higher; Gold and Oil have a bid; the Repubs are on their way to
taking over the world; all in Britain are happy giving up jobs and middle class
tax credits are ready to cut defense spending; and Germany’s chancellor doesn’t
think different nationalities can live together. China is paying more on
deposits than U.S. banks; the Obamaites are going to let the banks and courts
figure out the foreclosure mess; and the Yankees are still alive in the series
(Reuters) New U.S. claims for
unemployment benefits fell more than expected last week, government data showed
on Thursday, pointing to some improvement in the labor market. Initial claims
for state unemployment benefits fell 23,000 to a seasonally adjusted 452,000,
the Labor Department said. Despite the drop, which also saw the unwinding of
the prior week's administrative related-jump, claims remain perched above
levels usually associated with a strong job market recovery, making it all but
certain the Federal Reserve will ease monetary policy further next month.
How companies like Google and Apple avoids paying U.S. taxes although
the technology they use is created in the U.S. with a net 2% tax rate or $3
billion per year not paid.
Gail Collins (NYT) Alaska, an extremely angry state that hateshateshates all forms of government,
despite the fact that 40 percent of its
economy comes from government aid, and the state’s oil-revenue-sharing program gives families thousands of dollars
in payments every year. “Unemployment has never been lower; there is no
housing crisis; banks are solvent. We just got Permanent Fund Checks — and,
boy, are we pissed off!” said Michael Carey, an Anchorage Daily News columnist.
The DJIA was Up 100
down 40 closed up 40, just another day of HFT. The major measures were positive
at the close giving up the 1% gain of earlier in the day. Volume was moderate
and breadth negative at the bell after being 3/1 positive in the first hour of
trading. Europe closed higher and Oil was down $2 at $80.50. Gold dropped $20
Worth the read:
Eastlake couple foreclosed upon
three times, despite never missing a payment
The first time Michael and
Pamella Negrea were foreclosed upon in 2001, the suit was thrown out of court.
They had never even made a late payment. That
didn't stop GMAC Mortgage.
In 2005, two years after the case was dismissed, GMAC filed for
foreclosure again. This time, the Negreas sued for breach of contract, fraud
and unfair debt collection. They won more than $217,000, and the foreclosure
was thrown out again. And still that didn't stop GMAC.
The mortgage company now has foreclosed again, just as GMAC sits at the
heart of a national foreclosure scandal. The company has suspended foreclosures
in 23 states, and is reviewing cases in all 50 states, over revelations of
possibly fraudulent documents, and several other banks have followed suit.
"It's like a foreclosure machine," the Negreas' attorney,
Stephen Futterer of Willoughby, said of GMAC. "It won't stop."
The Negreas' case reveals the inner workings and the depth of the
troubles facing the mortgage industry, which seems to have blindly shoved
through thousands of foreclosures without even reading the documents.
Michael Negrea, a Willoughby police officer for 25 years, says most
people he talks with can't even comprehend their tale. "You think, 'You
make your payments, and everything is fine.' You would think this couldn't
A representative for GMAC did not return a phone call seeking comment.
The Eastlake couple's story started in 1995, when they built their
modest 2,400-square-foot colonial and borrowed $200,000. They refinanced in
1998 with a local mortgage company, which sold the loan to Advanta Mortgage
The loan was sold a year later to Nation's Credit, then it was sold to
Homecomings Financial, with the loan being serviced by Fairbanks Capital Corp.,
one of the nation's most notorious mortgage lenders. The Federal Trade
Commission in 2003 sued Fairbanks for deceptive and illegal practices,
including not posting customer payments, and the company agreed that year pay
$40 million in damages.
Sometime while Fairbanks was in the picture for the Negreas, two
payments didn't get posted.
"You'd call and talk to someone and they said they'd look into
it," said Michael Negrea, 53. "When you called and asked for the
person you talked to, they no longer worked for the company. You'd leave a
message for a supervisor, and they'd never call you back."
A foreclosure was filed in 2001 on behalf of Homecomings, which owned
the loan. Right around the same time, the servicing was transferred from
Fairbanks to GMAC. Once Homecomings said the Negreas were in foreclosure, the
company wouldn't accept their monthly payments. So the couple simply put the
money in the bank.
When attorneys for both sides sat down in 2003, they worked out a
written settlement: All penalties and interest would be wiped out and the
Negreas would pay the actual payments owed. Homecomings/GMAC also would erase
the foreclosure and negative information from the Negreas' credit files. (The
Negreas say that still has never happened.) The Negreas started making normal
payments again in early 2004.
By June, GMAC sent another default letter. The couple had copies of
their canceled checks and even the return receipts from the Postal Service
showing when the payments had been sent and received. All payments had been on
time, and GMAC apologized in July for the mistake.
In October, they got another default letter. And they got a letter
saying that GMAC thought their $500 homeowners' insurance premium hadn't been
paid, so they were imposing a new policy at $3,200. In truth, their insurance
hadn't lapsed. They'd had the same company since buying the home.
GMAC again sent apology letters.
After the couple sent their December payment, it wasn't cashed. The
next month, in January 2005, GMAC again filed for foreclosure and wouldn't back
"They pretty much treated us like criminals," Michael Negrea
Futterer, who has been their attorney in the case since 2003, filed a
counter claim for breach of contract, fraud and violating debt collection laws.
The Negreas insisted on going to trial. As the evidence unfolded,
Michael Negrea said, "you could hear some of the people on the jury
saying, 'Oh my gosh.' "
It turned out that GMAC had applied their payments to the bogus
penalties that had been forgiven in court proceedings back in 2003, as well as
to payments that had already been posted.
Futterer asked for a large enough award from GMAC to wipe out their
roughly $200,000 mortgage forever. By the time they got the $217,244 settlement
more than three years later -- in 2009 -- GMAC had again added on more than
$50,000 worth of fees.
So why wouldn't they refinance the balance with a more reputable bank?
It is because they still had two foreclosures on their credit records,
along with dozens of erroneous late payments. "They screwed up our credit
so bad we can't get any kind of loan," said Pamella Negrea, 57.
But GMAC wasn't done.
In 2008, the couple got a statement from GMAC demanding payment for its
attorneys in the second foreclosure case -- the one in which GMAC lost the
counterclaim. "How can you ask for legal fees when you paid our legal
fees?" Michael Negrea asked.
During the last few years, GMAC has repeatedly accused the Negreas of
not having homeowners' insurance and insisted on making monthly home
inspections, charging $700 or more for each one. GMAC told them the inspections
were to make sure they still lived there. Michael Negrea considered them
The couple had been making normal payments last year when GMAC again
stopped cashing them, saying they owed a lump sum of nearly $310,000 plus
attorneys' fees on their $208,000 mortgage.
In August 2009, GMAC/Homecomings filed for foreclosure again, this time
in federal court instead of common pleas court. "We feel they're
court-shopping," Futterer said. The trial is set for January.
The Negreas are ecstatic that GMAC's practices may finally be coming to
light, even though the accusations so far are limited to whether GMAC gave
false information about foreclosures.
"I can't image how many people lost their houses who didn't
deserve it," Michael Negrea said.
The couple is drained from years of back and forth with GMAC.
"I think a lot of people would have just given up," said
Pamella Negrea, a graphic designer. "Nobody believes us. People think, 'A
bank wouldn't file for foreclosure if the bank wasn't right.' "
"People ask me, 'How do you put up with this?' I have no
choice," Michael Negrea said. "It has cost us a fortune. We don't
make that much. But it's our home.
October 20, 2010
Asia and Europe war mixed
overnight and U.S. futures suggest a flat opening. Gold is up a few dollars and
Oil a few cants after yesterday’s large sell off in both commodities.
We switched BankAmerica at 90 pennies per share on
day loss (ouch) to the large Bank ETF
(KBE) on which we made a 35 pennies profit the day before (yea). We also
eliminated the trading positions (GE
35 pennies loss and Intel 35 pennies
profit Chico’s plus scratch and Dell 10 pennies loss) we established
yesterday as the markets in our stocks
zagged this morning while other
stocks zinged. It’s that kind of market.
The BankAmerica trade is particularly annoying because the stock
reacted the way we thought it would after earnings yesterday morning (down-we
bought- then up). But the afternoon news of the PIMCO lawsuit changed the
dynamics of the trade and introduced and element of uncertainty that overnight
news did not eliminate. PIMCO is a very large elephant and has a friend at
Treasury and also a few at the Fed and so it will be interesting to see how the
lawsuit against BAC for not selling proper MBS progresses.
Of course the folks who lost
money on the MBS (mortgage backed securities) are long gone from ownership and
the battle for the bucks is now between BAC and behemoth speculative investors.
PIMCO has purchased much of its position in the last few months even going on
margin –according to zerohedge.com- to establish a vary large holding in the
Countrywide MBS that are the subject of the lawsuit.
By the by, the KBE position
allows us the potential of recovering the BAC loss while not concentrating our
bank holdings on just BAC. While we know the banks are in the wrong on the
foreclosure stuff we also know that money is power and they sure have a lot
more going for them that bankrupt home owners and small pension funds that lost
fortunes on the MBS purchases.
http://www.zerohedge.com/article/bank-america-complete-denial-over-foreclosureputback for stories on the banks and their
foreclosure and MBS and CMO problems.
Investors’ Intelligence was 45%
bulls (47% last week); 22% (24%) and 32% correction (28%).
Stocks closed off their
best levels but still up 1% on the day. Breadth was 3/1 positive and volume
moderate. Oil recovered $2 of the $3 lost yesterday to $82 and Gold rose $10 to
October 19, 2010
Today is the anniversary of the 1987 Crash, in case anyone is
China raised interest rates 0.25%
on one year lending and deposits- that’s more than we get in the U.S.; the
dollar strengthened and Gold dropped 3%; Apple
beat but disappointed on iPad sales; IBM
beat but traded lower; and Turnaround Tuesday is in full force with the major
stock measures down 1.5% in the first half hour of trading.
Asia was mixed overnight and
Europe was mildly higher until U.S. stocks opened lower with breadth and up/down
volume both 9/1 negative as the HFT kids ply their trades.
For those worried Goldman Sachs made a few dollars in the
quarter and BankAmerica was
profitable if one ignores the $10 billion write-down of goodwill with another
$70 billion of goodwill on the books.
GS reported third-quarter net income of $1.9 billion, or $2.98 a share,
down from $3.19 billion, or $5.25 a share, in the year-ago period. Wall Street
analysts polled by Thomson Reuters had forecast quarterly profit of $2.32 a
share, on average. Economic conditions “continue to be challenging in a number
of important markets,” said Chief Executive Lloyd Blankfein in Goldman’s
BAC posted a $10.4 billion write-down tied to new financial
regulations in the third quarter as the Charlotte, N.C., company’s revenue rose
and its investment bank’s fixed-income desk turned in better results than
competitors. Because of the write-down, BofA’s third-quarter loss widened to
$7.3 billion, or 77 cents a share, compared with a loss of $1 billion, or 26
cents a share, a year earlier. Without the noncash write-down, the bank earned
$3.1 billion, or 27 cents a share, and reported much-improved credit quality.
Revenue climbed 2.3% to $27 billion. Analysts polled by Thomson Reuters had
recently forecast earnings of 16 cents a share on $27.2 billion in revenue.
No mention of huge rate increases helping earnings. Drink the Kool Aid:
(Reuters) - UnitedHealth Group
posted far better-than-expected third-quarter profit on Tuesday as its health
plan members used fewer healthcare services. The company also raised its 2010
profit outlook, and its shares rose 3.2 percent. UnitedHealth, the largest U.S.
health insurer by market value, reported strong revenue growth for its health
plans for the poor and elderly.
The decline in healthcare service
costs stems from lower costs from to the H1N1 flu compared with a year ago and
a longer-term trend of consumers deciding to delay care as they face a higher
financial burden because of medical expenses, said Wedbush Securities analyst
Sarah James. "It looks like a strong quarter, and the outperformance was
driven by lower-than-expected medical expenses," James said. "A
longer-term trend is from the continued lower hospital utilization, which is
something that we've seen across the companies every quarter this year."
- Shares of Coldwater Creek Inc dropped
as much as 33 percent Tuesday before the bell, a day after the women's
apparel retailer forecast a surprise third-quarter loss saying its fall
merchandise assortment did not resonate well with customers.
We took profits on our short positions in SDS, QID and TWM. We also
sold the balance of KBE and bought Intel, GE and BankAmerica in
accounts that owned KBE. Our feeling is that while a correction is overdue,
today’s pullback on Apple earnings will recharge the bulls to move stocks higher
into the election. We are using INTC, GE and BAC as anchovies for the move.
NY Fed President William Dudley: Regional Economy and Housing Update
[L]et's consider the slow housing
recovery. Housing market activity—both new construction and sales—remains
depressed. On the construction side, total housing starts are running at just
600,000 units per year (seasonally-adjusted) in recent months. This is up from
530,000 units at the trough in the first quarter of 2009 but it is still
extremely low by the standards of the last 50 years. In fact, the rate of new
construction is so low that there is barely any net growth in the U.S. housing
stock these days.
One reason why so little housing
is being built is that many existing homes stand vacant. We estimate that there
are roughly 3 million vacant housing units more than usual. And more vacancies
are added daily as the foreclosure process moves homes from families to
mortgage lenders. This stock of vacant homes will shrink when fewer are
foreclosed upon and more of these homes are sold or rented out.
On the sales side, even though
low mortgage interest rates and falling home prices have together boosted
housing affordability to its highest level in 40 years, the current pace of
sales is quite sluggish. Impediments to home sales include tight lending
standards, a weak job market and continued uncertainty regarding the future
path of home prices. The large decline in home prices that occurred between
2006 and 2008 is also important. This decline reduced the amount of equity that
owners have in their homes, making it difficult for people to come up with the
funds needed to "trade-up" and move into better homes.
In addition, the steep decline in
home prices put many families at risk of mortgage delinquency and, ultimately,
losing their homes to foreclosure. With lower home prices, many families now
owe more on their mortgage than their home is worth. This means that they
cannot refinance or sell their homes easily if they experience a financial
crisis, such as a job loss or a serious illness. Recent developments on
foreclosures have been mixed. While RealtyTrac reports that foreclosure
completions in the United States exceeded 100,000 for the first time in
September, it is important to remember that foreclosure is a lengthy process in
most states. Our data indicate that, in recent quarters, borrowers are becoming
less likely to fall behind on their mortgages, so fewer households are now
entering the foreclosure process. At the same time, though, major lenders have
acknowledged serious problems in the processes they have used to repossess
homes and announced moratoria on new foreclosures. Taken together, these
developments suggest that the situation in housing remains uncertain for the
The Federal Reserve actively
encourages efforts to find viable alternatives to foreclosure, like loan
modifications, or deeds in lieu. We also support due process and access to
legal counsel for homeowners facing foreclosure, for instance through legal aid
programs. At the same time, it is important that foreclosures that properly
comply with state and federal law can ultimately take place, as this is a
necessary part of the adjustment that will eventually return us to more normal
conditions in the housing market.
At present, the extent of the
documentation problem and its wider ramifications are still uncertain. In
conjunction with the Office of the Comptroller of the Currency and the Federal
Deposit Insurance Corporation, the Federal Reserve is therefore seeking to
establish the facts through a review of the foreclosure practices, governance
and documentation at the major bank mortgage servicers. We want to ensure that
the housing finance business is supported by robust back-office operations—for
processing of new mortgages as well as foreclosures— so that buyers of homes
and investors in mortgage securities have full confidence in the process. We
are monitoring developments closely in order to evaluate any potential impact
on the housing market, financial institutions and the overall economy.
That didn’t take long:
Bank of America reopened more
than 100,000 foreclosure actions, declaring that it had found no significant
problems in its procedures for seizing homes. GMAC Mortgage said that it also
is pushing ahead with an unspecified number of foreclosures that came under
Does this story ring a bell?
Chico’s is down on the Coldwater news and we bought for more
aggressive accounts for a trade. We also added shares of Dell to those accounts. Dell has been seeing consistent buying the
past few weeks.
Don Draper would be proud from:
Dead Man Will Be Remembered for
Spreading Oral Cancer
Louis Bantle, the former
marketing director and chairman of U.S. Tobacco, died earlier this month at the
age of 81 from emphysema and lung cancer. Bantle was most famous for convincing
millions of teenagers to dip.
The WSJ chronicles Bantle's work
from the 1960s through the 1990s, during which time he helped turn snuff into a
billion-dollar business and tripled its use among 18-24 year-olds.
"We must sell the use of tobacco in the mouth and appeal to young
people," he said, according to the minutes of a marketing meeting in 1968.
"We hope to start a fad." [...]
"If you go to high school in Texas and you don't have a can of
snuff in your pocket, you're out," Mr. Bantle told Forbes in 1980.
Your legacy will live on, Mr.
So much for the rally--The markets were trying to rally when news that
NY Fed and PIMCO are suing BAC to force them to buy back $49 billion in
mortgages. And this tidbit from siliconvalleyinsider
on the lawsuit is interesting: There are two really weird regarding the parties
who are suing Bank of America over mortgage repurchases. The first is
that the New York Fed -- who would suspect would be solely focused on the
health of big banks -- is one of the parties. But also suing BofA, according to
Bloomberg, is BlackRock, the asset manager that's 34% owned by
BofA! Bank of America, of course, acquired its stake in BlackRock when it
acquired Merrill Lynch during the crisis. It was reported in August that BofA may seek to unload its stake in
Below is the Bloomberg report. By the way the Fed encouraged BAC to buy
Countrywide. It all gets curioser and
(Bloomberg) -- Pacific Investment
Management Co., BlackRock
Inc. and the Federal
Reserve Bank of New York are seeking to force Bank of America Corp.
to repurchase soured mortgages packaged into $47 billion of bonds by its
Countrywide Financial Corp. unit, people familiar with the matter said. The
bondholders wrote a letter to Bank of America and Bank of New York Mellon
Corp., the debt’s trustee, citing alleged failures by Countrywide to service
the loans properly, their lawyer said yesterday in a statement that didn’t name
the firms. Investors are stepping up efforts to recoup losses on mortgage
bonds, which plummeted in value amid the worst slump in home prices
since the 1930s. Last month, BNY Mellon declined to investigate mortgage files
in response to a demand from the bondholder group, which has since expanded.
Countrywide’s servicing failures, including insufficient record keeping, may
open the door for investors to seek repurchases by bypassing the trustee, said Kathy Patrick,
their lawyer at Gibbs & Bruns LLP. “We now are in a position where we have
to start a clock ticking,” Patrick, who is based in Houston, said today in a
telephone interview. MetLife Inc.,
the biggest U.S. life insurer, is part of the group represented by Gibbs &
Bruns, said the people, who declined to be identified because the discussions
aren’t public. TCW Group Inc., the manager of $110 billion in assets, expects
to join BlackRock, the world’s largest money manager, and Pimco, which runs the
biggest bond fund, in the group, the people said. Countrywide also hasn’t met
its contractual obligations as a servicer because it hasn’t asked for
repurchases itself and is taking too long with foreclosures, either because of
document or process mistakes or because it doesn’t have enough staff to
evaluate borrowers for loan modifications, Patrick said. If the issues aren’t
fixed within 60 days, BNY Mellon should declare Countrywide in default of its contracts,
she said. “The letter states a demand directed to Countrywide to cure the
defaults,” said Kevin Heine,
a spokesman for BNY Mellon. “It does not ask BNY Mellon to take any action. BNY
Mellon will continue to perform its duties as trustee.” Charlotte, North
Carolina-based Bank of America will “defend our shareholders” by disputing any
unjustified demands it buy back defective mortgages, Chief Executive Officer Brian T.
Moynihan said today. Most claims “don’t have the defects that people
allege,” Moynihan said on Bloomberg Television, referring to so-called
putbacks, in which guarantors or investors in mortgage-backed securities ask to
return bad loans. “We end up restoring them, and they go back in the pools.”
Mark Porterfield, a spokesman for Newport Beach, California-based Pimco, Brian
Beades, a spokesman for New York- based BlackRock, and Peter Viles, a spokesman
for Los Angeles- based TCW, declined to comment. John Calagna, a spokesman for
New York-based MetLife, didn’t immediately return messages seeking comments.
Jeffrey V. Smith, a spokesman for the New York Fed, declined immediate comment.
“We continue to review and assess the letter, and have a number of question
about its content, including whether these investors have standing to bring
these claims,” Bank of America Chief Financial Officer Charles H. Noski said
today on a conference call with analysts. “We continue to believe the servicer
is in compliance with the servicing obligations.”
Wonder if PIMCO
did any shorting of BAC paper or the major stock measures before the news of
the lawsuit was announced. Getting the Fed to join in the suit was a coup for
Bill Gross who has now assumed the head guru mantle for this Market. Just
Gold ended down $40 at $1331. Olli dropped $3.47 to $79.61 and European
bourses closed mildly lower.
Stocks opened lower on
the Apple news, IBM action and China rate increase. After three hours of
trading the S&P 500 had rallied back to half the initial loss. Then news of
BAC being sued hit the tape and the selloff resumed. At the closed the major
measures were 2% lower. Volume was higher and Breadth was abysmal. Tomorrow
will tell the short term tale. 1115.60 is the line in the sand for this
selloff. The S&P 500 closed at 1116.32.
October 18, 2010
Asia was lower overnight and
Europe is slightly higher at midday. The major market measures are tentative at
the beginning of trading and Gold is flat while Oil ahs an $81 handle.
(Bloomberg) -- Production in the
U.S. unexpectedly dropped in September for the first time in more than a year,
showing the industry that led the economy out of the recession is cooling.
Output at factories, mines and
utilities fell 0.2 percent, the first decline since the recession ended in June
2009, figures from the Federal Reserve showed today. Factory
production also decreased 0.2 percent, reflecting declines in
consumer durable goods, like appliances and furniture.
The rebuilding of stockpiles, a
component of the factory rebound last year, will probably cool following eight
consecutive gains in inventories, a sign assembly lines will not accelerate
much more. At the same time, improving demand from overseas
and a pickup in business investment on new equipment may keep benefiting
American manufacturers like Alcoa Inc.,
helping support the world’s largest economy. “Manufacturing is beginning to see
growth ratchet down as the inventory swings calm down,” Joshua
Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New
York, said before the report. With inventory rebuilding ending, factory growth
is “much more dependent on final demand, which is pretty modest.”
We cut our QID (double short NAZZ 100) in half became Apple comes with
earnings tonight and it comprises 20% of the ETF. We think Apple is overpriced
but we want to mitigate the risk of one more pop after earnings. We added SDS (double short S&P 500) and TWM (double short Russell 2000) to accounts owning QID.
(CNBC) Charles Evans, president
of the Chicago Fed, said that “in my opinion, much more policy accommodation is
appropriate today” because “the US economy is best described as being in a bona
fide liquidity trap”, a point where
ultra-low interest rates and high savings rates
conspire to make monetary policy ineffective.
(WSJ) European stock markets
reversed early losses, boosted by a modestly upbeat session in the U.S. on the
heels of strong earnings from Citigroup and a report showing increased optimism
in the home-builder sector. Gold ended at $1372 and Oil at $83.06.
We sold KBE in larger accounts for a scalp
The NAZZ has closed higher in 7
of the last 8 trading sessions. Apple and IBM report after the close and will
set the tone for overnight and early morning trade.
The major stock
measures closed up 1% and volume was moderate. Breadth was flat. Tomorrow is
October 15, 2010
Google beat big time and the shares are 10% higher and have given a
positive tone to the early market trading. GE missed on revenue but beat on
earnings. Google is now the big dog influencing trader sentiment.
(Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said additional monetary stimulus may be warranted because inflation
is too low and unemployment is too high.
“There would appear -- all else being equal -- to be a case for further
action,” Bernanke said today in the text of remarks given at a Boston Fed
conference. He said the central bank could expand asset purchases or change the
language in its statement, while saying “nonconventional policies have costs
and limitations that must be taken into account in judging whether and how
aggressively they should be used.” He didn’t offer new details on how the Fed
would undertake those strategies or give assurances the central bank will act
at its Nov. 2-3 meeting.
Asia and Europe were mixed
overnight and Oil has an $83 handle while Gold is $1380. Today is a Triple
Diane Swonk, Chief Economist
Retail sales surprised on the upside by rising 0.6% in September, after
being revised up in August. An increase
in vehicle sales, which are now starting to get a lift from a resumption of
subprime lending (yes, you read that correctly), accounted for a portion of
that rise. Sales excluding autos rose a more moderate 0.4%, but were still
respectable. Spending on electronics and online retailers accounted for much of
the strength. Spending at clothing and department stores declined, as higher
prices at the pump cut into some discretionary purchases. Spending at
restaurants and bars also moderated, as more of us opted for fast food and
take-out instead of dining out.
What is supporting the gains in
Consumers appear to have dipped into their savings, given what we
already know about employment growth, which was nonexistent during the month.
We are also seeing some support from extensions to unemployment insurance.
Finally, there is the foreclosure crisis:
consumers who have stopped paying their mortgages have extra cash on
hand, but their actions will ultimately create more pain for consumer balance
sheets by limited home price gains.
So extended unemployment money, money from not paying on mortgages and no
saving are the given reasons for the uptick in retail sales. Whoa!!!!!!!!!!!!
The Major Bank ETF
(KBE) remains under pressure and we bought shares for many accounts. The Banks are not
participating in this rally as traders are worried about the mortgage fiasco.
The reality is that the banks will be allowed to foreclose at some point. They
probably don’t have good title in some cases and probably also broke some laws
but what else is new. They have the power and the money. It’s our money but
they have it.
If the rally continues some of the money from on fire tech overvalued tech stocks is
going to rotate to bank stocks.
Apple and Google are very strong today and we think part
of the tech strength in the face of financial weakness has to do with
expirations. We have been and are buying
more the double short NAZZ 100 (QID) in some accounts for a trade.
Not all hedge funds make money.
Some lose big time:
.... The New York State Common Retirement Fund is still extricating itself after telling
the bank last year that it wanted to back out of a 2008 commitment to the $4.7
billion Morgan Stanley Real Estate Fund VII, part of a group that manages $43.6
billion, according to the people, who asked not to be named because the
decision wasn’t made public.
The retirement fund, the third-largest in the U.S., wrote down an
undisclosed amount of cash it had already contributed to Fund VII to about
zero, one of the people said. Sonny Kalsi, the former head of the unit, left in 2009, and Morgan Stanley has
changed the leadership three times in the past two years. Morgan Stanley’s real-estate group told investors it expects to lose
$5.4 billion of an earlier $8.8 billion international fund, called Fund VI, a
person familiar with the matter said in April. Performance figures for Fund
VII couldn’t be obtained. ....
Carolina’s Department of the State Treasurer
contributed $440 million to
international Fund VI and has received $5.8 million back in distributions,
according to a report from the fund. The
remaining stake is valued at $74.6 million as of June 30, the report said.....
Zero Hedge reports that Bill Gross is buying Mortgage Backed Securities
(MBS) on margin in his PIMCO Total Return Fund. It s Zero Hedge’s contention-
with which we agree- that Gross has a line to the Fed about their future
actions that ordinary folks like us don’t have.
Who cares what Benny (that’s Bernanke) and the Inkjets blink in Morse code when you have the one and only
Bill Gross. As we said last month, the best necessary and sufficient tell to decide what the Fed will do
on November 3 is to keep track of the Total Return Fund's composition. Today,
TRS just released its updated September holdings, and for all those hoping to
see that Pimco Billy is betting the farm on QE2 - that's a bingo. Pimco has just increase d its MBS holdings to the highest since July
2009, when Gross was already dumping MBS on the tail end of QE1. The biggest
tell however, is that just like before QE1 and QE Lite were announced, Bill has
once again gone on margin, reducing his net cash exposure from $5 billion to
($7.6) billion. And keep in mind this is September: we are certain that once
the October results come out, a few weeks after QE2 is effective, TRS will have
a material margin position of more than $20 billion, and will have pumped up
its MBS holdings up to $100 billion. So now that we are certain that Gross just
telegraphed that QE2 is imminent, that leaves us with two questions: 1) why MBS
and not USTs? Is Gross saying that Bernanke will once again be forced to come
out and buy MBS in addition to USTs? or 2) did Gross just get screwed on his
doubling down MBS? With fraudclosure forcing such reputable MBS managers as
Gundlach to claim that it will have no impact on their business model, we are
also certain that the entire Fashion Island campus is sweating bullets
currently. If the entire MBS model is indeed unwound as some speculate, this
could well be the end of PIMCO (and how poetic that would be). Yet these are
considerations for the future. For now - anyone who may have had an ounce of
doubt as to Bernanke's FOMC announcement intentions, can now put it away.
Oil lost $1.40 to $81.30 and Gold
closed lower after making a new high down $10 at $1367. European bourses closed
lower on the day.
closed on their lows for the day and coupled with cyclical and commodity stocks
being lower they offset the strong day in the high flying internet stocks. On
the day the major market measures were mixed with the DJIA down, the S&P
500 flat and the NAZZ up 2% in moderate trading. Breadth was flat.
October 14, 2010
Did you know it is
physically impossible to lick your own elbow?
The ultimate insult for folks
losing their homes because they lost their jobs to offshore hiring is that the
people doing the paperwork to oust them were also overseas hires. The NYT has a
story in today’s edition:
And even when banks did begin hiring to deal with the avalanche of
defaults, they often turned to workers with minimal qualifications or work
experience, employees a former JPMorgan executive characterized as the “Burger
King kids.” In many cases, the banks outsourced their foreclosure operations to
law firms like that of David J. Stern, of Florida, which served clients like
Citigroup, GMAC and others. Mr. Stern hired outsourcing firms in Guam and the
Philippines to help.
Complete story at http://www.nytimes.com/2010/10/14/business/14mortgage.html?_r=1&hp
Interesting comment on the
Jobless claims were up 13,000 for
the week to 462,000. Asia was higher overnight and Europe is mixed at midday.
Gold is at $1380 and Oil has an $83 handle.
But if an employee had embezzled $10,000 he/she would be going to jail.
(AP) The Swiss bank UBS said Thursday that it will not take legal
action against former executives and board members for the huge losses suffered
during the U.S. subprime crisis that forced a bailout of the company. Kaspar
Villiger, chairman of Switzerland’s largest bank, said in a statement that the
company had learned lessons from the crisis and now was focusing on the future.
“What happened should not have been allowed to happen. With our
decision to refrain from legal proceedings, we do not want to gloss over the
mistakes made by UBS or absolve those involved of their corporate
responsibility,” Mr. Villiger said. “Today, we have laid the foundation for
drawing a line under the future.”
Privately held companies are borrowing money in junk bond market to pay
dividends to shareholders.
The Large Bank ETF (KBE) is down
4% today as the foreclosure news is finally affecting bank stocks. The banks
are a drag on the rest of the markets.
Google reports after the close
tonight and its report is going to be the main focus tomorrow.
The WSJ reported that there are
rumors that AOL and a few LBO firms are considering a bid for Yahoo. No word
from Yahoo. AOL is one tenth the mark cap of Yahoo. Say what? It’s just like
the old days.
Companies are acquiring other
companies with their cash. That means fewer jobs – not more, so much for the
Fed flooding the system with dollars to stimulate job growth.
Who’s on first?, A foreclosure story.
European bourse indexes finished
lower on the day.
Do you feel silly that you tried to lick your elbow?
The major market
measures closed lower on the day in light trading. Breadth was 2/1 negative,
October 13, 2010
Intel beat lowered expectations last night and JP Morgan beat this morning by decreasing loan loss reserve
calculations. The major market measures opened higher on the general feeling of
higher markets ahead. Investors Intelligence reflected this thinking its latest
numbers with 47% bulls and 24% bears. Prior week was 45% and 27%.
Asian markets were higher
overnight and European bourses are also higher at midday. Gold is $1352 and Oil
has an $82 handle.
With the markets up in the first
half hour of trading JP Morgan and Intel are lower.
The rescue of the trapped miners
and the ensuing news coverage reminds of when we were kids and children used to
fall down abandoned wells and the rescue or sad non rescue was a big new item
for the time it took to reach them.
Parasites and hypocrites: http://www.rollingstone.com/politics/matt-taibbi/blogs/TaibbiData_May2010/218982/83512
Marketwatch.com had this comment
about today’s action:
Stocks gain for a fourth day on
results from such titans as Intel and after the Fed signals more monetary
Intel is lower today.
It used to be that folks bought
Gold when the world was ending. Now they buy Gold for? Anyway, Gold is up $25
today to $1370. Oil ended at $83.20. European bourses closed up 1% and more.
The major measures gained 1% today as
markets await the Fed’s move to stimulate the economy by flooding the system
with another trillion plus dollars. When they make the move -if not before- the
bloom will be off the rose. Volume was light and Breadth 3/1 positive.
October 12, 2010
No guts, no glory. We
sold the single short ETFs Monday.
The major market measures are
slightly higher than when we left. The S&P 500 has remained above 1150
support and has been trying to get to the next resistance level of 1200. Intel
earnings come tonight and INTC has already warned so our guess is that a positive
reaction is possible. With earnings season in full force the next three weeks
the markets may be one of individual stocks while the major measures meander.
But that is only a surmise not a prediction.
Asia was mostly lower mixed
Monday night as is Europe at midday. U.S. market measures are going to open
slightly lower. Oil has an $82 handle and Gold is $1351 as the trading day
We know you were wondering:
(WSJ) Pay on Wall Street is on pace to break a record high for a second consecutive
year, according to a study conducted by The Wall Street Journal. About three
dozen of the top publicly held securities and investment-services firms—which
include banks, investment banks, hedge funds, money-management firms and
securities exchanges—are set to pay $144 billion in compensation and benefits
this year, a 4% increase from the $139 billion paid out in 2009, according to
the survey. Compensation was expected to rise at 26 of the 35 firms.
In case you were also wondering:
The government is expected to announce this week that more than 58
million Social Security recipients will go through a second straight year
without an increase in monthly benefits. This year was the first without an
increase since automatic adjustments for inflation started in 1975.....
More than 58.7 million people rely on Social Security checks that
average $1,072 monthly. It was the primary source of income for 64 percent of
retirees who got benefits in 2008; one-third relied on Social Security for at
least 90 percent of their income.
And remember retired folks who keep their funds in safe bank C/Ds are
receiving no income on those C/Ds because the Fed ahs artificially lowered
interest rates to 0% to save those same investment banks that are paying record
While we were away the NYT published an article on Sam Zell and the
destruction of the Chicago Tribune.
Professor of Economics Peter Diamond won the Nobel
Prize for Economics today,
for his work and that of two others on the difficulties in matching supply and
demand in the labor market. It so happens that Diamond was an Obama nominee for the Federal Reserve, whose nomination had been sent
back to the White House by GOP senators in August. And
why did Richard Shelby and other GOP senators reject Diamond’s nomination at
Because they thought he was
unqualified to set monetary policy, as
if the Fed itself has demonstrated a good grasp on that subject over the last
two decades under GOP appointees.
A good explanation of QE 2 (Quantitative Easing round 2), the supposed
Fed action in November that will save the economy:
Diane Swonk, Chief Economist at
The Bottom Line: The Fed will
ease again, and do so in a very big way, starting in November. Moreover, they
will keep rates low for a very long time, maybe into 2012. That said, asset
price bubbles will not be tolerated as they were in the past, which means that
the Fed may have to raise short-term rates more aggressively if bubbles appear
to be emerging, once the economy is on stronger footing.
(http://www.zerohedge.com/ )Alarm bells are ringing everywhere as
Goldman (which joins UniCredit in boosting its gold price target) may have just
picked the short-term top in gold, after it revised its 12 month target from
$1,365 to $1,650. And while David Greely's track record is nowhere near as
atrocious as that of Goldman's FX team which manages to top tick the EURUSD
every single time, the fact that Goldman is now opening Long Gold
recommendations (to go with its current trading recommendations of long Corn,
Copper, Platinum and WTI) is reason for big worry. Recall which bank was
getting its clients to go all in in crude 2008 when oil was $140+. We would be
very cautious when Goldman is on "your" side of the trade.
Nonetheless, the firm is pretty much spot on "We believe that a return to
quantitative easing will act as a strong catalyst to carry gold prices to even
stocks dragged broader European measures
lower, amid concerns that China's latest effort to tighten lending rules
could dent global growth.
The major stock
measures closed higher in light trading. Breadth was 5/4 positive.
October 11, 2010
October 8, 2010
October 7, 2010
out the SDS and QID positions yesterday for a loss because the double short exposure
was not warranted when the S&P 500 closed above 1150 resistance that had
held for the past 5 months. Today we bought SH and PSQ which are the
single short S&P 500 and NAZZ 100 ETFs respectively. We continue to want
exposure to the downside but with the September Employment report being
announced before the opening tomorrow morning we don’t want a double risk
exposure if the number extends the rally for a few more days. With the single
short ETFs if the rally extends we will have room to add to the market short
October 6, 2010
Happy Birthday Bette!
October 5, 2010
October 4, 2010
We are taking the
next week off to celebrate (?) our 67th birthday on October 9. We will return
Tuesday October 12.
POLITICS IS STUPID! But the STUPIDEST politics is blaming the voter.
Asia was higher overnight and
Europe is mildly lower at midday. U.S. futures are pointing to a slight lower
Paul Krugman: http://www.nytimes.com/2010/10/04/
Matt Taibbi on the carried interest tax break for billionaires:
Once again a key piece of news has passed virtually without comment.
While the entire nation argues over nonsense like the WTC Mosque, Rick
Sanchez, and, yes, blue-red culture war stuff like the Tea Party, congress
yesterday quietly took a knee on the “carried interest” tax question. In doing
so they decided not to take a vote on changes already approved by both houses
that would scale back perhaps the most preposterous tax break in the entire
federal code, one that leaves hedge-fund gazillionaires like Stevie Cohen and
John Paulson paying less than half the top tax rate paid by most middle and
upper-middle class Americans.
The carried interest tax break is a classic example of how in America
constituencies with the means and the bureaucratic endurance to get what they
want slowly hack away at the government over time, carving out exemptions to
their civic responsibilities while ordinary people suck the proverbial egg. A
100% or 200% tax break for hedge fund and private equity billionaires is not
the sort of thing that one passes instantly, by standing up in front of big
campaign crowds and urging on a mob; it takes a long time and a lot of behind-the-scenes
.... There is absolutely no
logical or ideological justification – not even the wildest, craziest reed-end
of a hint of a justification – for a hedge fund manager paying half the tax
rate of a trucker or a teacher or a doctor. The only thing the carried interest
tax break accomplished was that it provided an incentive for people to work as
hedge fund managers. This was purely and absolutely a handout to big campaign
contributors. It’s so preposterous and indefensible that it’s not uncommon to
see even Wall Street people admitting that it goes too far (see here for example)
Complete article: http://www.rollingstone.com/politics/matt-taibbi/blogs
We sold QID and
SDS for a total 80 pennies (30 pennies and 50 pennies respectively) profit.
(Barron’s) Shares of Ford
are up 52 cents, or 4%, at $12.78, after Morgan
Stanley analyst Adam
Jonas initiated coverage of the stock with an “Overweight”
rating and a $20 price target, writing that investors are underestimating the
revenue potential at a transformed Ford. Improved credit ability is going to
produce auto industry volume much higher than people think, Jonas asserts: he
sees industry units in North America of 14 million next year and 15 million in
2012, which is well above the 12 million or so auto analysts have been
predicting for next year. Jonas sees Ford staging a dramatic balance sheet turnaround,
going from $5.4 billion of net debt this year to $1 billion in net cash at the
end of next year and $9 billion in net cash by 2013.As a consequence, his
estimates for Ford’s sales are dramatically different than Street consensus:
$115 billion this year, versus $120 billion Street, but $129 billion next year,
versus $125 billion on the Street. Jonas values Ford at 7.2 times its
normalized earnings per shares, which would be about $2.60 per share, well
above the $1.83 the Street expects the company to make next year. He also
throws in 74 cents per share for its net operating loss carry-forwards.<
(WSJ) European stocks fell, with
worries about regional economic growth prospects remaining at the fore ahead of
the earnings season that begins later this week. Oil was unchanged at $81.03
and Gold was unchanged at $1317.
The major market
measures were lower all day and closed down 1% in light trading. Breadth was
3/1 negative.Be back in a week but as usual
will be watching the markets. If we make any trades we will post them along
with the daily Model Portfolio values.
October 1, 2010
The new mantra is that government
is attacking business. Ignored is the fact that had the Treasury and Fed not
intervened in the autumn of 2008 and the Spring of 2009 there would be no
business since the financial system would have collapsed. But it it’s the
election season ad since the Russian are now trading partners and not enemies
and Republicans can use a few Latino votes so immigration has disappeared from
the radar screen and the evils of big government are now the whipping boy. What
brought this to mind was CNBC‘s interview of the CEO of a golf course company
this morning in which he blamed government for the companies lousy performance.
It couldn’t have been recession and the fact that there are too many golf
courses. No it was government. And the beat goes on. By the by, how many over
65 folks who rail against government spending have refused Social Security and
Asian was higher overnight and
Europe is up at midday with U.S. futures also higher as the new quarter and new
Hewlett Packard named as CEO a fellow from SAP, the European
software giant. He left SAP under strained circumstances in earlier this year.
The shares of HPQ are lower by 5% on the news. (WSJ) Mr. Apotheker is a native German who spent more than 20 years at SAP, a
business-software maker. He was named co-CEO in April 2008 and then sole CEO a
year later. His tenure alone at the top of SAP was marked by controversy, such
as raising the rate the company charged for product support amid a weak
economy. SAP eventually backtracked after customers protested the higher fees.
Mr. Apotheker resigned abruptly from SAP in February.
U.S. personal income rose 0.5% in
August and real consumer spending edged up 0.2%, the Commerce Department said.
Wall Street economists had expected a 0.3% increase in income and a 0.4% gain
in spending. The personal consumption expenditure price index rose 0.2% in
August compared with July. Inflation is up 1.5% in the past year, the same pace
(WSJ) The Irish government said Thursday that the total cost of fixing its
banks, battered by an epic housing bust, could in the worst case total as much
as €50 billion ($68 billion), or about a third of the country’s economic output
last year. That’s much higher than the government’s previous commitment of a
total of €33 billion for the bailout. As a result of its bank rescues,
Ireland’s budget deficit will rise to 32% of its economic output this
year—roughly 10 times the European Union limit and the biggest in the euro
zone’s 11-year history. http://dealbreaker.com/
Also from http://dealbreaker.com/
Don’t Listen to Geithner or Krugman (The Atlantic) http://www.theatlantic.com
Taleb explained his simple metric for
judging whose economic opinions are worth his time: “Did someone predict the
crisis before it happened? … If the answer is no, I don’t want to hear what the
person says. If the person saw the crisis coming, then I want to hear what they
have to say.” Other unlucky economic figures who failed Taleb’s test included
writers Paul Krugman and Thomas Friedman.
We guess this means we must be listened to by the powers that be.
Diane Swonk, Chief economist
The University of Michigan
Index of Consumer Sentiment, which tends to be more stable and reliable than
the one produced by the Conference Board, fell from 68.9 in August to 68.2 in
September. The good news is that this is less than many expected and showed
some improvement over readings mid-month. The bad news is that confidence in
the economy is still low and moving in the wrong direction. Personal incomes
surged at a faster than expected 0.5% pace in August. However, a large jump in
transfer payments - largely extensions to unemployment insurance - accounted
for much of that gain. Indeed, many government workers lost pay during the
month, as they were forced to take unpaid furlough.
Consumer spending increased at
a 0.4% pace, which was also an upward surprise. Back to school shopping and
increased spending on necessities helped buoy expenditures in August. Services
also helped, as unusually hot summer weather prompted many of us to turn on our
Separately, tax revenues fell,
probably because of the large role that non-taxable transfer payments played in
determining the increase in income. The saving rate edged up slightly.
The Bottom Line: The consumer
is still struggling, and growing ever more dependent on transfer payments, to
keep spending going. Even high-income households have moved down the food chain
to take-out restaurants in recent months, which is a sign of caution and stress
on consumer balance sheets. There is faint hope that the recent spurt in
mortgage refinancing will spur a little more spending as we move into the
holiday season. As one person who recently refinanced told me, "I was so
shocked when I saw my appraisal, and how much equity I had lost in my home in
recent years, I decided to save instead of spend the extra money I was getting
each month from mortgage restructuring."
Cash hoarding (used
to be called saving) is exactly what
the Fed is trying to combat and one of the most compelling reasons for them to
expand their balance sheet. The hope is that the returns to saving will drop so
low that investors and lenders will start to make more prudently risky and
productive loans and investments. (also known as the punish savers to save banks action)
(Bloomberg) -- Manufacturing expanded in September at the
slowest pace in 10 months, underscoring the Federal Reserve’s forecast of
“modest” U.S. growth in coming months.
The Institute for Supply Management’s factory index dropped to 54.4 from 56.3 in August, the Tempe, Arizona-based group
said today. Readings greater than 50 signal growth and economists forecast a
decline to 54.5, according to the median estimate in a Bloomberg News survey.
Measures of orders and production fell to the lowest level since June 2009.
Rotation to financials and banks
the last two days has kept the major measures from moving lower. When that
rotation rends the rally will fail. The S&P 500 continues to try and move
above 1150 without much luck. We repurchased the SDS
double short S&P ETFs and the QID double short NAZZ 100 this morning in the
same accounts as yesterday for trades.
According to the IRS the median
(equal number of taxpayers above and below this income level) taxpayer in 2008
had an income of $34,140 and paid $2790 in Federal Income taxes and $2610 to
FICA and Medicare.
Go here to see table (worth the time):
|What You Paid For 2009 tax receipt for a taxpayer earning $34,140 and paying $5,400 in federal income tax and FICA (selected items)|
|Interest on the National Debt||$287.03|
|Combat Operations in Iraq and Afghanistan||$229.17|
|Health care research (NIH)||$46.54|
|Education Funding for Low Income K-12 Students||$38.17|
|Military Retirement Benefits||$32.60|
|Pell Grants for Low Income College Students||$29.75|
|NASA Space Program||$28.09|
|Internal Revenue Service||$17.69|
|Environmental Clean Up (EPA)||$11.67|
|National Parks||$ 4.27|
|Drug Enforcement Agency||$3.14|
|Funding for the Arts||$0.24|
|Salaries and benefits for members of Congress||$0.19|
Zero Hedge’s take on the SEC release of the reasons for the May 6 flash
stocks started the month on a mildly negative note as investors absorbed a wave
of U.S. economic data, although shares in London eked out a gain. Oil ended
the day and week at $81.46 up $1.50 and Gold was $1317.
The major stock
measures closed up what they lost yesterday. Breadth was flat and volume light.
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Summary of Business Continuity Plan