Lemley Yarling Management Co
309 W Johnson Street Apt 544
Madison, WI 53703
June 30, 2010
June 29, 2010
We sold Nokia
for a loss and added shares of Barnes
& Noble, NVDIA and Ford. We sold NOK because there are
other issues with better percentage gain potential that we would like to buy if
the sell off continues.
June 28, 2010
We don’t know whether to cry or
laugh-or go away for a few days. We just read Krugman’s latest column (http://www.nytimes.com/2010/06/28) about the coming of the Third Depression and Maureen Dowd’s column (http://www.nytimes.com/2010/06/27/) about cell phone radiation and coupled with that the wails of
Europeans and Republicans to balance budgets instead of continue stimuli we
think we need a week away.
And so today will
be our last post until July 7. We will of course be watching markets and
acting- we hope appropriately- if that is needed.
Asian and European markets were
mixed overnight and Gold is up a few dollars. Oil has a $78 handle as the
trading day begins. This week and next week are holiday weeks and so the action
may be more volatile with fewer players. It used to be that holiday weeks would
be quiet-but that was then and this is now. At the end of the two week period
the results will probably be the same- little overall movement unless there is
market moving news.
NVDIA has $3 per share in cash ($10
share price) and is priced at 1.2 times revenues and 12 times earnings. We are
adding shares to accounts. In January we sold at $18. We have been repurchasing
at $13 down to $10.
(Yahoo/Finance) Nvidia Corporation provides visual
computing technologies that generate interactive graphics on workstations,
personal computers, game consoles, and mobile devices. It operates in four
segments: Graphic Processing Unit (GPU), Professional Solutions Business (PSB),
Media and Communications Processor (MCP), and Consumer Products Business (CPB).
The GPU segment offers GeForce products that support desktop and notebook
personal computers, PCs, and plus memory products. The PSB segment provides
NVIDIA Quadro professional workstation products and other professional graphics
products, including NVIDIA Tesla high-performance computing products used in
the manufacturing, entertainment, medical, science, and aerospace industries.
This segment also offers RealityServer, which streams interactive and
photorealistic 3D applications to Web- connected PCs, laptops, netbooks, or
smart phones; Quadro Plex SVS, a visual computing platform for professionals
who interact with 3D models and analyze data; and the OptiX ray tracing engine,
an application acceleration engine for software developers. The MCP segment
provides ION NVIDIA motherboard GPU that addresses the integrated core logic
market. The CPB segment offers Tegra mobile products that support tablets and
smartbooks, smartphones, personal media players, Internet television,
automotive navigation, and other devices. This segment also licenses video game
consoles and other digital consumer electronics devices. The company sells its
products to original equipment manufacturers, original design manufacturers,
add-in-card manufacturers, and system builders operating in the entertainment
and consumer, consumer electronics, professional design and visualization,
computing, and mobile computing markets. Nvidia Corporation was founded in 1993
and is headquartered in Santa Clara, California.
We have also been adding Coldwater to accounts. It is the cheapest of the national women’s
retailers on a share prices to sales per share ratio. It is our retail
speculation. In April we sold over $8 and we have been repurchasing at $4 and
(Yahoo/Finance) Coldwater Creek Inc., together with its
subsidiaries, operates as a multi-channel specialty retailer of women's
apparel, accessories, jewelry, and gift items primarily in the United States.
It operates premium retail stores and merchandise clearance outlet stores; and
day spas, which offer various spa treatments, including massages, facials, body
treatments, manicures, and pedicures, as well as an assortment of relevant
apparel and lines of personal care products for women. The company also offers
products through its e-commerce Web site, coldwatercreek.com, as well as
through catalogs. As of January 30, 2010, it operated 356 premium retail
stores. Coldwater Creek Inc. was founded in 1984 and is headquartered in
From a new Fitch release:
A recently completed study by Fitch
shows half of all securitized non-agency mortgage loans in Florida are 60 days
or more delinquent. Also among the study's more notable findings, 'Florida
already ranks the worst among all states in mortgage delinquencies across all
product types,' said Managing Director Roelof Slump. 'Additionally, Florida
contains a disproportionate amount of non-prime loans, with 85% of loans being
categorized as Alt-A or Subprime.' Such products have become associated with
weaker performance in general. This is especially meaningful in Florida where
severe home price declines have impacted most areas of the state.
The 60+ day delinquency rate for
Florida has been heavily influenced by the significant home price declines
already seen to date, along with the worsening in the rate of unemployment. On
an aggregate basis, 81% of all loans in the state are 'underwater',
and the average mark-to-market loan-to-value ratio of Florida loans is 138%.
'Nearly 40% of all Florida borrowers owe more than 150% of the value of
their homes,' said Slump. Although half of all borrowers in the state
are current on their mortgage payments, they owe 120% of their home values.
Given the significant negative equity, 'further economic stress brought
on by the Gulf oil spill and declines in the tourism and fishing industries
would be likely to further increase default rates,' said Slump.
Florida was amongst the hardest
hit states in terms of rising U.S. unemployment, with only Nevada suffering a
greater increase. Following a trough of 3% in the summer of 2006, Florida's
rates steadily rose to a peak of 12.3% in February 2010 before recovering to
the current rate of 11.2%. While the entire state faced increases, the stress
was not uniform, with MSAs such as Tallahassee and Gainesville (respective peaks
of 9.1% and 9%) spared the double-digit rates seen in Cape Coral-Ft. Myers,
Tampa, Orlando, and Miami (peaks of 14.2%, 13.2%, 12.6%, and 11.6%,
respectively). Statewide, unemployment has shown some decline from its peak,
with decreases of 1% or more seen across all MSAs.
The leading Democratic Party
candidate running for governor of Wisconsin has a new TV ad in which he
complains that prisoners receive better health care than hard working middle
class Wisconsinites. His solution; cut prisoner health care benefits, and this
from the Democratic favorite.
In this same vein a news report
we saw on local TV waxed eloquent-as much as Wisconsin local TV can- about a
great state of the art prison that was opening. On another program the
moderator talked about all the post office and other government buildings that
were built during the Great Depression by the WPA that are still in use.
That got us to thinking that the
government should replace all schools in the U.S. that are over 50 years old.
Such a program would be an investment in
the future and would make sense in that such a program would give work to
all the building trades folks who are out of work. Of course as with all things
political that is to simple a solution.
Diane Swonk, Mesirow Chief Economist:
Monday, June 28, 2010 - 8:45 a.m. Central Time
Incomes Rebound, Consumers Spend Cautiously
Consumer spending edged up 0.2%
in May, slightly stronger than markets were expecting. It is important to note,
however, that those gains came on the heels of a downward revision to consumer
spending in the first quarter.
Incomes bounced back even
stronger than spending. This pushed the savings rate to its highest pace in
eight months, but at 4%, it is still abysmal and less than half the pace we are
going to need to see over the next five-to-ten years if we hope to put our
financial houses back in order. Incomes were aided slightly by the hiring of
census workers during the month. However, the gains were nothing to write home
about. We are also seeing a bounce-back in hiring in the finance sector, which still
pays better than other sectors and is buoying overall income growth.
Separately, the G-20 wrapped up
their meetings with promises (but little confidence) that austerity measures
would not snuff out the recovery in Europe, as tensions between China and the
U.S. flare. It seems that China is not as eager to appreciate its currency and
curb its exports as the U.S. would like, and that will no doubt lead to greater
trade tensions between the two powerhouses as the elections approach in November.
Bottom Line: Consumers continue to heal their balance sheets. However, much of
the deleveraging continues to come from a high rate of defaults, particularly
in the mortgage sector, rather than more prudent spending patterns. The
adjustment for the U.S. consumer has just begun, and will be a long and arduous
market measures closed mildly mixed in light trading. Breadth was flat. Gold
lost $12 to $1240 and Oil ended with a $78 handle.
June 25, 2010
The S&P 500 looks to want to test the 1040 level on the downside
for a 4th time. If it breaks that level the next two levels are at 1010
and 960. With the bulls failing to punch through 1015 on the upside in the
latest rally the bears are regaining control. All these are short term
considerations. There needs to be at least some churning if not more downside
to work off the excesses of the 13 month rally off the lows of March 2009. That
is the short term technical picture
The financial system has stabilized and now it is a
matter of the economy finding a way to grow. Corporate earnings are recovering
and cash levels in corporations are sufficient but investor psychology remains
tentative and subject to wild swings. And the HFT folks continue their
discomfiting gaming of the system. It is obvious that there is not going to be
any more stimulus out of Washington as the caterwauling about debt has reached
a crescendo- (WSJ) Spooked by concern about deficits, the Senate shelved a
spending bill that included an extension of unemployment benefits, suddenly
cutting off a federal cash spigot opened by President Barack Obama when he took
office 18 months ago. The collapse of the wide-ranging legislation means that a
total of 1.3 million unemployed Americans will have lost their assistance by
the end of this week. It will also leave a number of states with large budget
holes they had expected to fill with federal cash to help with Medicaid costs.-
The folks who were in power for ten years and created the deficit problem are
doing the loudest complaining.
We are 50% or less
invested in good quality stocks and will continue to trade around core
holdings. The companies we own have the potential to gain 50% from current
levels in any sustained market rally and we also think these same companies
have double potential over the next few years if we chose to hold them. With
our large cash position in most accounts- except for the smallest- we are
content to watch with funds available if the markets decide to test the 950
level on the S&P 500 and provide us with an excellent opportunity to commit
(WSJ) Wall Street's $100 million
man has stumbled, a potential warning sign for traders poised to bolt banks for
Andrew Hall, the legendary energy
trader who left Citigroup
Inc. last year after his lofty compensation ignited controversy about pay
practices at banks receiving government support, has hit a rough patch running
his own hedge fund.
His commodities fund posted a
decline of more than 10% last month, its weakest month in the last two years,
to put it down nearly 10% this year through May, which is behind similar hedge
funds. Mr. Hall was bullish as shares of commodity producers and other energy
"Unfortunately, we did not
dodge the onslaught," Mr. Hall, 59 years old, wrote in a June 1 letter to
his investors. "We did reduce risk
but not fast enough. We did hedge but not well enough. And we did re-enter some
markets that we had exited, prematurely, as it turned out."
we clap with one hand financial regulation passes. With no uptick rule allowing
the HFT goofs free rein don’t expect much change in market volatility. And
there will be another crisis just not when everyone expects it. And the
Government will have to use taxpayer money to rescue the system. Do the
jokesters in Washington really believe the American people are fools?
Financial issues are all opening higher on the news and are the only
industry in the green this morning.
(Bloomberg) -- JPMorgan
Chase & Co. and Citigroup
Inc. led bank stocks higher after congressional negotiators agreed
on a financial-reform bill that stops short of banning hedge-fund and
JPMorgan gained 93 cents, or 2.5
percent, to $38.96 in composite trading on the New York Stock Exchange at 10:10
a.m., while Citigroup gained 13 cents, or 3.4 percent. Morgan
Stanley climbed 1.5 percent, and Goldman Sachs
Group Inc. increased 1.6 percent. All four companies are based in
New York. Bank of America Corp., based in Charlotte, North Carolina, rose 1.8
President Barack Obama’s proposed
Volcker rule to ban banks from investing in hedge funds and private-equity was
softened to allow them to invest as much as 3 percent of their capital. A ban
on derivative-trading by commercial banks proposed by Senator Blanche
Lincoln of Arkansas was amended to allow trades on interest rates
and foreign-exchange swaps. Banks will have as many as two years to comply.
“The market is sort of
celebrating the fact that the largest banks’ operations are largely left
intact,” said Nancy Bush,
founder of NAB Research LLC in Annandale, New Jersey, who covers JPMorgan, Bank
of America and Wells Fargo & Co. “Most of the companies that I’ve talked to
this morning have agreed with my overall assessment.”
(Bloomberg) -- Stocks
in Europe and Asia fell, with the MSCI World Index extending its longest losing
streak in a month, after the U.S. government said first-quarter economic growth
was less than previously reported and investors speculated the Group of 20
summit will fail to address Europe’s debt crisis. The yen strengthened and
The U.S. economy grew at a 2.7
percent annual rate in the first quarter, less than previously calculated,
reflecting a smaller gain in consumer spending and a bigger trade gap.
The revised increase in gross
domestic product was smaller than the median forecast of economists surveyed by
Bloomberg News and compares with a 3 percent estimate issued last month,
figures from the Commerce Department showed today in Washington. Corporate
profits climbed more than previously projected.
The revised figures showed an
economy that was more dependent on inventory restocking and less driven by
demand from consumers and businesses before the European debt crisis
combined with the turmoil in financial markets and a lack of inflation, are
among reasons Federal Reserve policy makers this week reiterated a pledge to
keep interest rates low.
Research In Motion (Blackberry) disappoints and is down 10% in the
We added LIZ, IRE,
ANN and BKS in small amounts to many of our accounts. We also took a larger
position in Cienna with our AMAT money and added more shares of Coldwater.
(Huffington Post) SAN FRANCISCO —... farm
workers are teaming up with comedian Stephen Colbert to challenge unemployed
Americans: Come on, take our jobs. Farm workers are tired of being blamed by
politicians and anti-immigrant activists for taking work that should go to
Americans and dragging down the economy, said Arturo Rodriguez, the president
of the United Farm Workers of America. So the group is encouraging the
unemployed – and any Washington pundits or anti-immigrant activists who want to
join them – to apply for the some of thousands of agricultural jobs being
posted with state agencies as harvest season begins. According to the Labor
Department, three out of four farm workers were born abroad, and more than half
are illegal immigrants.
All applicants need to do is fill
out an online form under the banner "I want to be a farm worker" at,
and experienced field hands will train them and connect them to farms. http://www.takeourjobs.org
Europe closed lower for the U.S.
markets moved higher. Oil gained $2.30 to $78.44. Gold was up $10 to 1255.
helped the major market measures close positive today after the down week. But
the higher close was iffy until the end and certainly didn’t engender any
bullish confidence. Breadth was positive and volume was summer Friday light.
June 24, 2010
This is a biblical market we had
seven days of up movement and now we are entering the seven days of down. Asia
was mixed overnight and Europe is lower in the early going. Oil has a $75
handle and Gold is down a few dollars at $1233.
And so CNBC is running video of
folks camping out all night to be in line to buy Apple iPhones. Two
questions spring to mind. Do these folks work? And are these new customers or
are they replacing their old Apple phone with a newer one?
Haute Couture and only in America:
(AP) -- Mike ''The Situation'' Sorrentino will soon be showing off more than
just his abs: his new clothing line. Sorrentino, who stars in MTV's hit reality show ''Jersey Shore,'' has
teamed up with Miami-based Dilligaf by Bohica Bill to launch a couture line.
The line -- to be called Dilligaf Couture by the Sitch -- will debut in July
and will consist of T-shirts, sweat
shirts and accessories. The items will feature his own artwork and the
brand's acronym Dilligaf.
What are accessories to T-shirts?
(MarketWatch) Jobless claims were
457,000 down from 475,000 the prior week. May Orders for U.S.-made durable
goods sank in May, falling 1.1% on weaker demand for airplanes, steel and
communications equipment, the Commerce Department reported. The decrease was
not as severe as the expected 1.4% drop forecast by economists surveyed by
MarketWatch. It is the first decline in total orders in the last six months and
the largest since August 2009. The underlying report was not as weak as the
headline suggests. Excluding aircraft, orders rose 0.9%. Shipments fell 0.4% in
May, and were up 0.4% excluding transportation goods.
Inventories rose 0.8%.
If you watch Fox/Republican TV- which we never have- this is the new
story line on the Gulf Spill—that it is the governments fault. What Murdoch’s WSJ article fails to mention
is that the MMS was under the purview of Dick Cheney and his folks for the
eight years when the flow predictions were made.
PLC and other big oil companies based their plans for responding to a big oil
spill in the Gulf of Mexico on U.S. government projections that gave very low
odds of oil hitting shore, even in the case of a spill much larger than the
current one. The government models, which oil companies are required to use but
have not been updated since 2004, assumed that most of the oil would rapidly
evaporate or get broken up by waves or weather. In the weeks since the
Deepwater Horizon caught fire and sank, real life has proven these models,
prepared by the Interior Department's Mineral Management Service, wrong.
(WSJ) The U.S. Supreme Court on Thursday found fault with the federal
government's high-profile convictions of Enron's Jeffrey Skilling and former
media mogul Conrad Black, rejecting the government's use of a key white-collar
crime law on which part of the prosecutions were based. The justices sent the
cases back to two different lower courts to determine whether portions of
Skilling and Black's convictions should be thrown out. In ruling for Messrs.
Skilling and Black, the high court, in opinions by Justice Ruth Bader Ginsburg,
found fault with a federal law that gives prosecutors the authority to bring
cases against executives who deprive companies of their honest services.
(AP) -- The Supreme Court has
sided with former Enron CEO Jeffrey Skilling in limiting the use of a federal
fraud law that has been a favorite of white-collar crime prosecutors.
The court said Thursday that
the "honest services" law could not be used in convicting Skilling for
his role in the collapse of Enron. But Justice Ruth Bader Ginsburg said in her
majority opinion that the ruling does not necessarily require Skilling's
conviction to be overturned.
Former governor Rod Blagojevich
was originally charged under the 'honest services' fraud law but was
re-indicted in anticipation of the Supreme Court limiting use of the law.
During arguments on this case
last December, several justices seemed inclined to limit prosecutors' use of
this law, which critics have said is vague and has been used to make a crime
out of mistakes and minor transgressions in the business and political world.
The court, at the same time,
rejected Skilling's claim that he did not get a fair trial in Houston because
of harshly critical publicity that surrounded the case in Enron's hometown.
The court in this ruling also
sided with former newspaper magnate Conrad Black, setting aside a federal
appeals court decision that had upheld Black's honest services fraud
conviction. But as in Skilling's case, the justices left the ultimate
resolution of the case to the appeals court.
We didn’t agree with the Skilling
prosecution. We think the government
theories in the Blago trial are also suspect. Blago only did what every
politician does when making an appointment. The difference is that his
conversations were recorded.
(CNBC.com) Some of the stocks
most commonly held by average investors are also the ones most often used in
high-frequency trading and thus subject to high levels of volatility, says an
investment firm that has examined the trend. Companies such as Apple, General
Electric, JPMorgan Chase and Apple are on a newly released list of stocks
commonly used by computer-generated high-frequency trading (HFT) programs,
according to BNY ConvergEx Group, an institutional investment advisory firm in
New York. Below is a list of the stocks most commonly used in high frequency
AA, AAPL, BAC, BRCD, C, CSCO, DELL, EMC, ETFCD, F, FNM, GE, HD, INTC,
JPM, LVS, MOT, MS, MSFT, MU, ORCL, PFE, QQQQ, RF, S, T, XLF, XOM, YHOO
We bought shares of Ford
at $10.75 for larger/aggressive accounts.
Spain closed down 3%, The FTSE
and French markets were down 2% and Germany lost 1.5%. Oil was flat at $76.44
and Gold gained $11 to $1248.
a bad day at Black Rock and Rockefeller Center too. The major market measures were
down from the gitgo with no rally attempts and all closed down 1.5% and more. Breadth needed a large dose of Listerine.
Volume was summer light as the HFT boys and girls played their games. We like
it better when they play their games to the upside.
June 23, 2010
Europe and Asian markets continued to
trade lower overnight and Oil is down over $2 with Gold also lower as traders’
perception of the world economic glass has gone from half full to half empty in
the last two days.
Sales of new single-family houses in May 2010 were at a seasonally
adjusted annual rate of 300,000 ... This is 32.7 percent (±9.9%) below the revised
April rate of 446,000 and is 18.3 percent (±13.0%) below the May 2009 estimate
of 367,000. The major market
measures moved lower even though the news was expected since the tax credit
Citi reiterates a 'Sell' rating on
(NYSE: WAG), price target $31. Citi analyst says, "WAG's F3Q10 results
demonstrated worse-than-expected pressure on profits from fewer generic
introductions and lower reimbursement fees. Additionally, topline trends
remained weak in the quarter as WAG cycled difficult flu compares and the weak
macro environment limited consumer spending on frontend merchandise. We expect
these trends to continue over the next couple quarters...We are lowering our
F4Q10 EPS estimate to $0.41, down from $0.46 previously, due to
worse-than-expected reimbursement pressure, fewer new generic introductions,
and continued weak Rx trends and Front-End SSS. We are also lowering our F2010
EPS estimate to $2.10, down from $2.20 previously."
Last year Walgreen missed in this same quarter and then beat for the rest of
the year. The problems of integration and contention with CVS that the company
is experiencing are the reasons the shares are priced at this level. Analyst
negativity often provides opportunity.
We sold the trading position in KBE for a scratch profit.
A sour cherry tree grows outside our
office window. Since we aren’t allowed cherry pie-unless we make it- the
raccoons and birds get an early season fruit feast when the cherries ripen in
June. The robins visit the tree and take fruit for their young as if the tree
was planted just for them. The raccoon mother brings her babies at night. And
the red headed woodpeckers act as if they have found gold. They fly to the
tree, quickly grasp a cherry and then take off in rapid flight screaming at
their good fortune.
Shain, the nurse in
one of the most memorable photographs from World War Two,
at the age of 91. The picture, taken in Times Square on V-J Day after the
Japanese surrender, appeared in Life magazine.
Oil ended at $76.34 and Gold was
down $7. European bourses were down 1% and more.
major market measures fluctuated before closing mixed on the day with the DJIA
higher and the S&P 500 and NAZZ and Russell 2000 lower. Breadth was flat
and volume light.
June 22, 2010
Markets around the world are
lower this morning as the 7 to 9 day winning streak comes to an end following
on yesterday’s reversal in U.S. markets.
Walgreens (WAG) said Tuesday that its fiscal third-quarter profit
fell to $463 million, or 47 cents a share, from $522 million, or 53 cents a
share, a year earlier. Sales climbed to $17.2 billion from $16.2 billion. The
most recent quarter's results included a 4-cent negative impact tied to the
elimination of a tax benefit, a 2-cent charge tied to the April purchase of its
smaller rival Duane Reade and a 1-cent restructuring cost. Analysts, on
average, estimated Walgreens would earn 57 cents a share on sales of $17.1
billion, according to FactSet.
The shares are off this morning
and we will add more if they go lower. Walgreen is a great company and its
current troubles are a chance to add or initiate purchases at very attractive
Britain is now ruled by conservatives and
so it is going to cut spending and raise middle class taxes to attack its
deficits. And it expects unemployment to drop. It is raising its value added
tax from 17% to 20% and cutting tax credits for middle income folks by an
average of $500 per family. But of course corporate taxes will be lowered.
The U.S. military indirectly pays warlords in Afghanistan to protect
its convoys: http://media.washingtonpost.com/wp-srv/world/documents/warlords.pdf
... The findings of this report range from sobering to shocking. In
short, the Department of Defense designed a contract that put responsibility
for the security of vital U.S. supplies on contractors and their unaccountable
security providers. This arrangement has fueled a vast protection racket run by
a shadowy network of warlords, strongmen, commanders, corrupt Afghan officials,
and perhaps others. Not only does the system run afoul of the Department’s own
rules and regulations mandated by Congress, it also appears to risk undermining
the U.S. strategy for achieving its goals in Afghanistan.
... Security for the U.S. Supply Chain Is Principally Provided by Warlords
Finding: The principal private security subcontractors on the HNT
contract are warlords, strongmen, commanders, and militia leaders who compete
with the Afghan central government for power and authority. Providing
“protection” services for the U.S. supply chain empowers these warlords with
money, legitimacy, and a raison d’etre for their private armies. Although many
of these warlords nominally operate under private security companies licensed
by the Afghan Ministry of Interior, the warlords thrive in a vacuum of
government authority and their interests are in fundamental conflict with U.S.
aims to build a strong Afghan government.
Bloomberg) -- Sales of U.S.
previously owned homes unexpectedly fell in May, a sign demand was probably
pulled into prior months before a June tax-credit deadline.
of existing houses, which are tabulated when a contract closes, decreased 2.2
percent to a 5.66 million annual rate, figures from the National Association of
Realtors showed today in Washington. To receive a government incentive worth as
much as $8,000, buyers must have signed contracts by the end of April and need to
complete deals by the end of this month.
We switched DreamWorks
to Ciena and added shares of Walgreen selling Yahoo in the process. We also sold trading positions in Kroger and Applied Materials since the markets look like they want to pull
back and we want cash to add to our longer term positions. All of today’s sales
were for scratch profits.
voters have reacted enthusiastically to Sen. Orrin Hatch's legislation to drug
test the unemployed and those receiving other forms of government cash
assistance, the Utah Republican told the Huffington Post after introducing
his measure last week. "A lot of people are saying, 'Hey, it's about time.
Why do we keep giving money to people who are going to go use it on drugs
instead of their families?'" Hatch said. The goal, he said, is to get users into treatment. (And Hatch wants
to send undocumented workers back to Mexico only so they can get a good meal.)
Most European bourses were down
almost 1%. Oil lost 50 pennies to $77.40 and Gold ended flat at $1245.
continued their pullback into the close with the major measures all down 1% and
more. Breadth was of course 4/1 negative and volume was light.
June 21, 2010
Happy Summer Solstice!!
Asian and European markets are
higher on comments by China that the government may let the yuan sort of seek
its own level against the dollar. Oil has a $79 handle and gold is touching
$1260. And U.S. futures suggest an up 1% and more opening.
The People's Bank of China said
Saturday it would allow the yuan's exchange rate to be more flexible, a move
widely seen as signaling it would let the yuan resume a gradual rise against
the dollar. Beijing had essentially pegged the yuan to the U.S. currency since
July 2008, as an emergency measure to help stabilize the Chinese economy amid
the worsening global financial and economic crisis.
Our guess is that the Chinese are
just taking advantage of the drop in the euro against the appreciation in the
dollar. They will sell or not buy U.S. Treasuries and buy European Sovereign
debt which yields more and is tied to the euro. It’s called hedging.
Tribune) At least 40 people were shot
over the weekend across Chicago, with seven of them slain, according to police logs. The toll
covers a period from 8:43 p.m. Friday--after violent storms hit the city--to
6:39 this morning. On Sunday, Chicago
Police Superintendent Jody Weis acknowledged a high number shootings over the
weekend and attributed more than half of them to the work of gangs. The total
from overnight Sunday into this morning was at least 18, including a 1-year-old
girl who suffered a graze wound and a 44-year-old man who was shot in the head
(Bloomberg) -- Corowa Shire, home to
Australia’s biggest hog farm and a three-hour drive from Melbourne, couldn’t be
farther from Wall Street. That didn’t stop the local council, which represents
about 11,000 people, from investing A$1 million ($878,900) in one of the most
esoteric inventions cooked up by the financial industry, a constant proportion
debt obligation, or CPDO, with the catchy name “Rembrandt.” The top-rated note,
linked to credit-default swaps on investment-grade companies, lost 93 percent
of its value in two years. “How do you have an AAA rated instrument go belly up
as quickly as that one did?” asks Ian Rich,
director of corporate services for the council, which is suing its financial
adviser, Local Government Financial Services Pty, over the losses. “We’re very
straightforward now in our investments. We’re really only investing in term
deposits with major banks.”...
... Over the last decade the financial industry justified the rapid growth
in products such as CPDOs, collateralized debt obligations and credit-default
swaps by arguing that they were sold to qualified investors who understood the
risks and were able to bear them. Their view was echoed in July 1998 Senate
testimony by then-Federal Reserve Chairman Alan Greenspan, who said that “regulation of derivatives transactions that are
privately negotiated by professionals is unnecessary.”
A decade later his assessment was proven wrong when some of the
industry’s most sophisticated participants, including Citigroup
Inc. and American International Group Inc., were bailed out of bad bets on contracts
whose risks they underestimated. By using government funds and cutting interest
rates, politicians and central bankers laid the cost on taxpayers, savers and
people living on fixed incomes.
The damage from opaque, complex
products extended to communities and schools, such as Alabama’s Jefferson
County and Harvard University, which paid hundreds of millions of dollars to
cancel interest-rate swaps. The early 2008 collapse of the $330 billion market
for auction-rate securities, products that were touted as safe, cash-like
investments, led to losses for investors including the state of Hawaii.
To read the entire article http://noir.bloomberg.com/apps/news?pid=20601109&sid=ana_DCpXgsSI&pos=10
(Reuters) - As early word of BP's Deepwater
Horizon blowout began spreading, investors panicked. After closing above $60
before the April 20 disaster, the energy giant's shares plunged almost 20
percent in New York, to below $50, in just two weeks.
It is not hard to understand why.
Even then, the out-of-control oil spill in the midst of rich fishing grounds
and nearby resort beaches raised the specter of horrific damages and untold
Yet, nearly to a person, the
dozens of securities analysts who followed the British oil giant were unfazed.
As BP (BP.N)
shares continued to drop, most were screaming the same message: buy, baby, buy.
Credit Suisse, which had a "buy" rating on the stock at the time, did
not even mention the accident in an April 28 report. The firm upgraded earnings
estimates after BP reported strong quarterly results the day before. A day
later, with BP's shares then down 11 percent, Citigroup's Mark Fletcher weighed
in. He argued that the decline was "disproportionate to the likely costs
to the company, even assuming damages can be claimed." In the same report,
he estimated BP's total share of the cleanup at just $450 million -- today,
conservative guesses put the figure at $10 billion to $20 billion. Around that
time, Morgan Stanley was among the chorus citing the strong rebound of Exxon (XOM.N)
shares after the 1989 Valdez tanker spill in Prince William Sound, Alaska, as a
reason to be bullish. "We think the sell-off presents an attractive buying
opportunity for investors with medium-term investment horizons," the firm
All told, 27 of 34 analysts
tracked by Thomson Reuters rated the stock "buy" or
"outperform" as recently as May 11. The other seven rated the shares
"hold." There was not a single rating of "sell" or
"underperform" among those tracked.
And then there was the exuberant
television host Jim Cramer, who insisted that Bear Stearns was fine just days
before the company's stock crashed. On
May 10, he told viewers of his "Mad Money" show on CNBC that he was
purchasing shares of BP for his charitable trust at just under $50. "If
you get any good news at all, you're at the bottom," he said. "I'd
like to buy it. If he did, he didn't make out so well. As estimates of the
spill grew -- and grew and grew -- and efforts to cap it failed, BP's stock
sunk ever lower. It didn't hit bottom for another month, the New York-traded
ADRs touching $29 in midday trading on June 9, down 52 percent from just before
the Deepwater Horizon disaster. That's approaching $100 billion in shareholder
wealth that has been destroyed.
How could so many analysts have
gotten the call so wrong? Of course, to err is human. And Wall Street is also
prone to herd-like tendencies. But some experts say the unanimity of error
around the BP blow-up also has exposed -- yet again -- the conflicts and
weaknesses that still bedevil the sell-side analyst community, despite a decade
of much-heralded reform.
For more http://www.reuters.com/article/idUSTRE65H4A920100618
(WSJ) HONG KONG--Currency traders
left the Chinese yuan party too soon. Now they are piling back in. China's
weekend announcement that it would revert to its pre-crisis currency policy
caught investors who had given up on their long-held yuan positions off guard.
Turmoil in Europe and fears of a double-dip recession led currency traders to retreat
from the idea that China would loosen its grip on the yuan.
"Over the last four weeks,
more than three-quarters of clients were unwinding long-Asia positions,
especially as things were blowing out in Europe," says Adam Reynolds,
co-head of Asian fixed income and currencies at Societe Generale in Hong Kong.
"As things stabilized last week, a couple guys put a position back
on," he says, but mostly investors everyone missed the opportunity to
profit on China's announcement.
Most European bourses closed 1%
and more higher. Oil was up 50 pennies at $77.80 and Gold lost $22 to $1235.
Entering the last hour of trading
the major measures have surrendered most of their gains for the day with the
NAZZ negative. Retailers have been down all day and financials turned down in
the last hour.
major measures moved sharply lower in the final hour to reverse the gains of
earlier in the day. At the bell the NAZZ was down 1% and S&P 500 down almost
as much. The DJIA only showed a small loss as basic industry stocks were the
only issues showing strength today. Breadth was negative and volume was light.
June 18, 2010
Asian and European markets were mixed overnight and U.S markets look to
pen slightly lower. Oil is down $1, Gold is up another $10 and the euro is
CVS/Caremark and Walgreen
have a new deal on Pharmacy benefits. That is not a real surprise since
Walgreen needs the business and CVS would have had antitrust problems if it
refused to deal with Walgreen.
(NYT) Paul Krugman: That ’30s Feeling
Suddenly, creating jobs is out, inflicting pain is in. Condemning
deficits and refusing to help a still-struggling economy has become the new
fashion everywhere, including the United States, where 52 senators voted
against extending aid to the unemployed despite the highest rate of long-term
joblessness since the 1930s.
Many economists, myself included, regard this
turn to austerity as a huge mistake. It raises memories of 1937, when F.D.R.’s
premature attempt to balance the budget helped plunge a recovering economy back
into severe recession. And here in Germany, a few scholars see parallels to the
policies of Heinrich Brüning, the chancellor from 1930 to 1932, whose devotion
to financial orthodoxy ended up sealing the doom of the Weimar Republic.
But despite these warnings, the deficit hawks are prevailing in most
places — and nowhere more than here, where the government has pledged 80
billion euros, almost $100 billion, in tax increases and spending cuts even
though the economy continues to operate far below capacity.
What’s the economic logic behind the government’s moves? The answer, as
far as I can tell, is that there isn’t any. Press German officials to explain
why they need to impose austerity on a depressed economy, and you get
rationales that don’t add up. Point this out, and they come up with different
rationales, which also don’t add up. Arguing with German deficit hawks feels
more than a bit like arguing with U.S. Iraq hawks back in 2002: They know what
they want to do, and every time you refute one argument, they just come up with
Here’s roughly how the typical conversation goes (this is based both on
my own experience and that of other American economists):
German hawk: “We must cut deficits immediately, because we have to deal
with the fiscal burden of an aging population.”
Ugly American: “But that doesn’t make sense. Even if you manage to save
80 billion euros — which you won’t, because the budget cuts will hurt your
economy and reduce revenues — the interest payments on that much debt would be
less than a tenth of a percent of your G.D.P. So the austerity you’re pursuing
will threaten economic recovery while doing next to nothing to improve your
long-run budget position.”
German hawk: “I won’t try to argue the arithmetic. You have to take
into account the market reaction.”
Ugly American: “But how do you know how the market will react? And
anyway, why should the market be moved by policies
that have almost no impact on the long-run fiscal position?”
German hawk: “You just don’t understand our situation.”
The key point is that while the advocates of austerity pose as
hardheaded realists, doing what has to be done, they can’t and won’t justify
their stance with actual numbers — because the numbers do not, in fact, support
their position. Nor can they claim that markets are demanding austerity. On the
contrary, the German government remains able to borrow at rock-bottom interest
So the real motivations for their obsession with austerity lie
In America, many self-described deficit hawks are hypocrites, pure and
simple: They’re eager to slash benefits for those in need,
but their concerns about red ink vanish when it comes to tax breaks for the
wealthy. Thus, Senator Ben Nelson, who sanctimoniously declared that we can’t
afford $77 billion in aid to the unemployed, was instrumental in passing the
first Bush tax cut, which cost a cool $1.3 trillion.
German deficit hawkery seems more sincere. But it still has nothing to
do with fiscal realism. Instead, it’s about moralizing and posturing. Germans
tend to think of running deficits as being morally wrong, while balancing
budgets is considered virtuous, never mind the circumstances or economic logic.
“The last few hours were a singular show of strength,” declared Angela Merkel,
the German chancellor, after a special cabinet meeting agreed on the austerity
plan. And showing strength — or what is perceived as strength — is what it’s
There will, of course, be a price for this posturing. Only part of that
price will fall on Germany: German austerity will worsen the crisis in the euro
area, making it that much harder for Spain and other troubled economies to
recover. Europe’s troubles are also leading to a weak euro, which perversely
helps German manufacturing, but also exports the consequences of German
austerity to the rest of the world, including the United States.
But German politicians seem determined to prove their strength by
imposing suffering — and politicians around the world are following their lead.
How bad will it be? Will it really be 1937 all over again? I don’t
know. What I do know is that economic policy around the world has taken a major
wrong turn, and that the odds of a prolonged slump are rising by the day.
they did so well with the last hedge fund??
Who gives these folks the money???
(Bloomberg) -- Citigroup Inc.
plans to raise more than $3 billion for its private-equity and hedge funds,
even as U.S. lawmakers consider banning banks from owning and investing in
so-called alternative funds, people with direct knowledge of the plan said.
Citi Capital Advisors, which oversees about $14 billion, may
seek $1.5 billion for private equity this year and $750 million for hedge
funds, said the people, who declined to be identified because the plans aren’t
public. An additional $1 billion is targeted next year for hedge funds, the
In case you forgot:
Citigroup Shuts Down Old Lane,
Co-Founded By Pandit by Joyce Moullakis and Josh Fineman
June 12 2008 (Bloomberg) -- Citigroup Inc. Chief Executive Officer
Vikram Pandit plans to shut down Old Lane Partners, the hedge-fund group he
co-founded and sold to the bank last year for more than $800 million. Citigroup
will purchase most of Old Lane's assets, and clients can start withdrawing
their investments beginning July 31, the New York-based bank said in a statement
today. The wind- down is at least the fourth failure for Citigroup's hedge-fund
management unit this year. ``It raises more red flags as far as the credibility
of the board of directors as well as management,'' said Bill Smith, president
of Smith Asset Management, which manages about $80 million and owns Citigroup
Citigroup has booked more than $40 billion of credit losses and
writedowns since the subprime mortgage market collapsed last year. Pandit, who
took over as CEO in December, outlined plans last month for the company to sell
$400 billion of assets. More than a dozen hedge funds have closed, needed cash
infusions or been liquidated this year. Peloton Partners LLP folded in March
after wrong-way bets on mortgage securities. Taking on Old Lane's holdings will
increase Citigroup's assets by about $9 billion in the second quarter, the
company said. Citigroup's so-called Tier 1 capital ratio, a measure of the
bank's ability to absorb loan losses, would have dropped to 7.7 percent from
7.74 percent as of March 31 had those assets been included at the time, the
Recruiting Method: Citigroup Vice Chairman Lewis Kaden said in an April
interview with Fortune magazine that the July 2007 Old Lane purchase was a way
for the bank to recruit Pandit as well as John Havens, who was promoted in
March to head investment banking, trading and hedge funds, and Brian Leach, who
became chief risk officer. ``This transaction is an investment as much as it is
an acquisition,'' ousted Citigroup CEO Charles Prince said of the deal in April
last year, citing the 20-year track records of Pandit and Havens. Citigroup has
declined more than 40 percent on the New York Stock Exchange since Pandit, 51,
took over in December. The shares rose 68 cents, or 3.5 percent, to $19.89 in
composite trading at 4:15 p.m. The bank took a first-quarter charge of $202
million to write down the value of its investment in Old Lane, according to a
regulatory filing in May.
First-Quarter Loss: The writedown contributed to a net loss of $509
million in the hedge-fund unit during the first quarter. Overall, Citigroup
reported a net loss of $5.1 billion, the second biggest in its 196-year
history, because of writedowns on mortgage-related bonds and leveraged loans
and an increase in consumer-debt delinquencies. All former Old Lane partners,
including Pandit, will be required to maintain their investments in the Old
Lane funds or other designated Citi Alternative Investments funds. The Old Lane
fund produced a 2.8 percent return last year.
``All investors in the fund -- third parties, Old Lane employees, Citi
senior management and Citi proprietary investments -- will be treated
consistently during the unwind process,'' Ned Kelly, chief executive officer of
Citi Alternative Investments, said in the statement.
Pandit, Havens and Leach all worked at Morgan Stanley, the
second-biggest U.S. securities firm by market value, before they co-founded Old
Lane. Pandit received $165.2 million
from Citigroup last year for his stake in Old Lane, then
reinvested $100.3 million, after tax, into the fund, according to a March
`Legacy Assets': Pandit has said he'll get rid of ``legacy assets,''
including real-estate holdings and collateralized-debt obligations such as
bonds backed by pools of mortgages. ``Closing down Old Lane is probably not
something they wanted to do, but $9 billion for Citigroup, in the bigger
scheme of things, is not disastrous,'' said Royal Bank of Scotland
analyst Corinne Cunningham.
An enlarged photograph would
work just as well.
The University of Illinois has
nixed plans for a nearly $100,000 sculpture of President Stanley Ikenberry
after the Tribune asked questions about the work. The sculpture, which was to
hang in the dining hall in the new Ikenberry Commons opening this fall, was to be paid for with student housing
fees. While no contract had been signed, U. of I. officials filed required
paperwork with the state last month to justify the no-bid purchase, saying the
university "intends to award" the contract to Urbana-based sculptor
Peter Fagan. The $98,000 work, requested by the board of trustees and
"created to honor President and Mrs. Ikenberry," was to be installed
by Oct. 1, according to a notice in the Higher Education Procurement Bulletin.
Europe closed flat and Gold was up at $1258 while Crude finished at
The major market measures closed mildly higher
in desultory summer Friday expiration trading. Breadth was positive and volume
was active because of witching.
June 17, 2010
Asian markets were mixed and
European bourses were a bit higher overnight. Spain successfully sold some
bonds and that gave markets around the world a firmer tone- according to the
talking heads. Oil and Gold are flat as the trading day begins.
BP suspended its dividend and
will fund the $20 billion commitment from cash flow.
Jobless claims rose 12,000 to
472,000 and the major market measures gave back their gains of the day on the
In some larger accounts we switched Kroger (bought yesterday afternoon)
which popped $1 and change (5%) on a good earnings report today to DreamWorks which is down from the mid
$40 per share range to $27 in the last
month after the movie Shrek 3
(AP) -- It looks like investors have had enough of "Shrek,"
as DreamWorks Animation SKG Inc. shares
fell in morning trading. Goldman Sachs analyst Ingrid Chung cut DreamWorks to
"Neutral" from "Buy," citing a week performance from
"Shrek Forever After," the fourth movie in the popular
franchise. "Shrek" has brought
in more than $200 million in domestic ticket sales, but has been disappointing
relative to previous sequels. In a
client note, Chung said the movie demonstrates that DreamWorks has a tough
balance to strike between trying to pump as much money from each franchise it
owns and being careful it isn't "over-saturating" the market. She
lowered her estimate for "Shrek" domestic box office sales to $250
million from $325 million.
And given the smaller return on "Shrek," she lowered her
earnings per share estimate for the year to $1.57 from $2.50. On average,
analysts surveyed by Thomson Reuters expected $2.10.
So when the stock was trading in
the $40s it was a buy and now that it is under $29 it is a sell. OK. OK.
European stocks inched higher,
unable to sustain earlier strength after data from the U.S poured cold water on
the strength of the recovery of the world's largest economy. The Stoxx 600
index rose for the seventh consecutive session, matching a September 2009
streak. Oil closed with a $76 handle and Gold gained $20 to $1250.
Major stock measures were down most of the
day and but moved higher in the last fifteen minutes to close on the positive
side. Today is the first part of Quintuple Witching which may have affected the
action. Breadth was 3/2 negative and Volume was summer light.
June 16, 2010
Overseas markets were mixed
overnight with China closed for holiday and U.S markets are going to give back
one quarter of yesterday’s gain on the opening. Oil has a $76 number and Gold
is flat as the trading day begins.
Friday are Quadruple/Quintuple Expirations plus Quarter end is upon us and also
yearend for most nonprofit organizations at the end of June
negative and the shares are down 10%. There were rumors of the preannouncement
last week and the shares sold off but rebounded yesterday. Now they are back at
a more than 5 year low. On a positive note the yield on the shares is now 5%
and may that offer support. We held our nose and added more
With cell phones, when the analysts like them the love than and when they
(Bloomberg) -- Nokia Oyj,
the world’s biggest maker of mobile phones, cut its second-quarter and
full-year forecasts, citing a lack of high-end devices and a weaker euro.
Second-quarter handset revenue
and margins will be “at the lower end of or slightly below” the range forecast,
the Espoo, Finland-based company
said in a statement today.
Nokia has struggled to come out
with a touch screen model that meets user expectations raised by Apple Inc.’s
iPhone. The company is losing high-end customers to the iPhone, Research in
Motion Ltd.’s BlackBerry, and phones running Google Inc.’s Android software,
while increasing sales of cheaper smartphones with smaller profits.
Nokia fell as much as 55 cents,
or 7 percent, to 7.37 euros, the most in more than a month. It was trading
down 6.6 percent at 7.40 euros as of 3:07 p.m. in Helsinki.
Sales in the devices and services
division may fall below 6.7 billion euros ($8.2 billion) as the company’s
product mix shifted toward less-profitable midrange and low end phones, Nokia
The adjusted operating margin in
handsets may fall below 9 percent in the second quarter and 11 percent for the
year, it said. The company lowered its devices margins forecasts on April 22 to
9 to 12 percent for the quarter and 11 to 13 percent for the year.
From the Fed: Industrial production and Capacity Utilization
Industrial production advanced
1.2 percent in May after having risen 0.7 percent in April. Manufacturing
output climbed 0.9 percent last month, its third consecutive monthly gain of
about 1 percent, and was 7.9 percent above its year-earlier level. Outside of
manufacturing, the output of mines edged down 0.2 percent, and the output of
utilities increased 4.8 percent. The jump in utilities reflected unseasonably
warm temperatures that boosted air conditioning usage in May after
uncharacteristically temperate weather in April reduced heating demand. ... The
capacity utilization rate for total industry rose 1.0 percentage point to 74.7
percent, a rate 6.2 percentage points above the rate from a year earlier but
5.9 percentage points below its average from 1972 to 2009. http://www.calculatedriskblog.com/
the rich don’t get richer (although Fortress still collects its fee):
(NYT) It seems that, relatively speaking,
the private equity industry hasn’t been all that kind to the Fortress
Investment Group in the last five years. The hedge fund and private
equity giant has booked $5 billion in unrealized losses from private-equity
funds started since 2005, when the buyout boom took off, Bloomberg News reported.
That figure, the news service said, is more than Fortress’s largest New York
rivals combined. Blackstone
Group LP, the biggest private-equity firm, had an unrealized loss of
$861 million in the period and KKR & Co.’s buyout funds are down $708
million, according to regulatory filings in the past six weeks. Funds at Leon Black’s
Apollo Global Management LLC posted a profit.
Investors’ Intelligence reported 37% Bulls and 33% Bears down and
up 1% respectively from the week before.
(Bloomberg) -- Builders broke
ground on fewer U.S. homes in May than anticipated after the expiration of a
government incentive. Housing starts
fell 10 percent, the biggest decline since March 2009, to a 593,000 annual
rate, from a revised 659,000 pace in April that was less than previously
estimated, Commerce Department figures showed today in Washington. Building permits,
a sign of future construction, unexpectedly fell to a one-year low.
Single-family starts suffered the largest drop since 1991. Builders
focused less on starting new projects and more on completing houses for those
seeking to qualify for the tax credit, which required contracts be signed by
April 30 and closed by the end of this month. Growth in sales
and construction will now depend more on job gains and a drop in foreclosures,
which have pushed down prices and created competition for builders.
(LaCrosse Tribune) PULASKI, Wis. - Sales
of yachts has improved, causing two northeastern Wisconsin companies to recall
350 employees from layoff. Carver Yacht Group of Pulaski is calling back 250
employees and another 100 workers will be back on the jobs at KCS International
in Oconto. Company executives tell the Journal Sentinel that orders for
sport-fishing yachts and similar vessels have rebounded, especially in the
Pacific Rim and Eastern Europe.
Global Macro Hedge Funds Net Short Equities http://www.marketfolly.com/2010/06/global-macro-hedge-funds-net-short.html
Bank of America Merrill Lynch is
out with their latest hedge fund monitor report and so we'll check in on the
most recent exposure levels from hedgies. Overall, managers continued to sell
equities and added to shorts in 10 year treasuries. A few weeks ago, we
highlighted that hedgies had very low net
long exposure and this trend continues. Also, we pointed out that
long/short equity was the worst performing strategy. This trend also continues
as equity funds continue to feel the sting. You can see how badly some of the
top dogs fared in our May hedge
fund performances update (it's not pretty).
Based on CFTC data, it is
estimated that global macro hedge funds are actually net short US equities as
of last week. This isn't the first time we've seen this stance as of late
because back in early May, it appeared that global macro
funds were net short equities then as well. Additionally, these
funds are in crowded longs of the US dollar and are short commodities as well.
This trade seems to be the complete opposite of what many put on during the
financial crisis (short dollar, long commodities). It looks as if macro funds
are pressing their bets and playing catch up. After all, we previously highlighted
how these funds were
struggling earlier in the year.
As of last week, long/short
equity hedge funds were 22% net long. Again, this is well below historical
averages of around 35-40%. These fund managers continue to favor high quality
and growth stocks and we've highlighted this trend numerous times on the site
before. However, last week they were slightly reducing high quality exposure.
Market neutral funds also reduced
exposure to the stock market. However, they are still net long and have above
average exposure. They seem to prefer value and small cap names.
(AP) -- Senior administration
officials tell The Associated Press that BP
has agreed to finance a $20 billion fund to pay the claims of people whose
jobs and way of life have been damaged by the devastating Gulf Coast oil spill.
The independent fund will be led by lawyer Kenneth Feinberg, who oversaw
payments to families of victims of the Sept. 11, 2001, terrorist attacks.
We added Kroger to accounts
that own Applied Materials. It is on a multi year low.
Good Luck Carl:
(Bloomberg) -- U.S. corporations
that gave stock options to executives claimed tax deductions in 2008 that were
$52 billion higher than the costs they reported to shareholders, a U.S. senator
said. Michigan Senator Carl Levin,
who has been trying to pass legislation to limit tax deductions for stock
options since 1997, said the difference between the deductions and expenses
increased by $4 billion from 2007. He said the numbers were released by the Internal Revenue Service.
“Current stock option accounting and tax rules are out of kilter,” Levin said
in a statement. He said companies “benefited from an outdated and overly
generous stock option tax rule that produces tax deductions that often far
exceed companies’ reported expenses. It’s a stock option tax break we can no
longer afford and ought to end.”
European bourses closed higher.
Oil closed at $77.67 and Gold was flat at $1233.
markets opened lower, absorbed the selling and moved to the upside then pulled
back in the last hour to close slightly lower. Breadth was 3/2 negative and
volume was summer light. Consolidating the gains of Tuesday was positive.
June 15, 2010
There used to be very large
statue of Jesus in front of a church that could be seen from Interstate 75 just
north of Cincinnati, Ohio. The statue was called Touchdown Jesus because of the
way its arms were raise. The statue was destroyed by lightning a few days ago.
Some may think that God was mad at someone in the church but our guess is that
God didn’t like Nebraska joining the Big Ten.
Touchdown Jesus Statue Destroyed By Act Of God
Asia was mixed small overnight
and Europe is small positive this morning. U.S. futures indicate a higher opening
but not much enthusiasm. Oil is touching $76 and Gold is flat. The Obama man
speaks to the nation tonight on the Gulf Oil Mess and up on Capitol Hill today
the Oil honchos are going to be interrogated by the folks who love them when
they need money for campaigns but can’t show that love to the public.
We added shares of BankAmerica,
Coldwater, and Nvdia to accounts.
European bourses closed higher
and Gold rose $8 to $1233 while Oil gained to $77.
The major market measures opened higher and
climbed all day in light trading. At the close Breadth was 6/1 positive and the
major measures were up 2% and more. Up volume was again 20 times down volume.
Those breadth and volumes ratios are confusing technicians because HFT has made
many of the old measures as these two meaningless.
June 14, 2010 Flag Day
Asian and European markets were
higher and U.S. futures indicate a higher opening. Oil has a $76 handle and
Gold is down $5. The euro is better at $1.22.
The Bank for International
Settlements (BIS) put out the BIS Quarterly Review, June 2010
yesterday. As part of the review, the BIS estimated the exposures of banks by
nationality to the residents of Greece, Ireland, Portugal and Spain:
As of 31 December 2009, banks
headquartered in the euro zone accounted for almost two thirds (62%) of all
internationally active banks’ exposures to the residents of the euro area
countries facing market pressures (Greece, Ireland, Portugal and Spain).
Together, they had $727 billion of exposures to Spain, $402 billion to Ireland,
$244 billion to Portugal and $206 billion to Greece (Graph 3).
French and German banks were
particularly exposed to the residents of Greece, Ireland, Portugal and Spain.
At the end of 2009, they had $958 billion of combined exposures ($493 billion
and $465 billion, respectively) to the residents of these countries. This
amounted to 61% of all reported euro area banks’ exposures to those economies.
French and German banks were most exposed to residents of Spain ($248 billion
and $202 billion, respectively), although the sectoral
compositions of their claims differed substantially. French banks were
particularly exposed to the Spanish non-bank private sector ($97 billion),
while more than half of German banks’ foreign claims on the country were on
Spanish banks ($109 billion). German banks also had large exposures to
residents of Ireland ($177 billion), more than two thirds ($126 billion) of
which were to the non-bank private sector.
French and German banks were not
the only ones with large exposures to residents of euro area countries facing
market pressures. Banks headquartered in the United Kingdom had larger
exposures to Ireland ($230 billion) than did banks based in any other country.
More than half of those ($128 billion) were to the non-bank private sector. UK
banks also had sizeable exposures to residents of Spain ($140 billion), mostly
to the non-bank private sector ($79 billion). Meanwhile, Spanish banks were the
ones with the highest level of exposure to residents of Portugal ($110
billion). Almost two thirds of that exposure ($70 billion) was to the non-bank
United States has discovered nearly $1 trillion in untapped mineral deposits in
Afghanistan, far beyond any previously known reserves
and enough to fundamentally alter the Afghan economy and perhaps the Afghan war
itself, according to senior American government officials.
And so now Afghanistan is the
realm of untold mineral wealth. Our guess is that the trillion in minerals is
buried gold we gave to tribal leaders so that they wouldn’t help the Taliban
kill our solders.
Volker says he doesn’t think
banks should be forced to spin off their swaps desks. That section of the
Financial Regulation bill is what is holding the major bank stocks back in this
rally. Should it be dropped the financials should begin to participate. An
added benefit to dropping the provision is that Citi shares will rally on the
news because major banks will be able to continue ripping off their customers
for profit and the share price of Citi will rise and enable the government sell
the rest of its Citi stock at a larger profit.
Krugman writes: Does Fiscal Austerity Reassure Markets?
Here’s a thought I should have
had earlier about the debate over whether now is a good time to start fiscal
For the most part, this debate
has been between those like me and Brad DeLong, who
assert that budget-cutting should be postponed until we’re no longer in a
liquidity trap, and those who insist that we must cut immediately, even though
it would inflict economic damage and do little to improve the long-run budget
position, because immediate cuts are necessary to achieve credibility with the
My response, and Brad’s, has been
to say that right now there’s no hint in the data that the United States (or
the UK) has a problem with the markets, and to question why the deficit hawks
are so sure about what the market will want in the future, even though it
doesn’t want it now.
But I suddenly realized this
morning that there’s yet another question for the deficit hawks: what evidence
do you have that fiscal austerity of the kind you’re demanding would reassure
markets, even if they did lose confidence?
Consider, if you will, the
comparative cases of Ireland and Spain.
Both countries appeared, on the
surface, to be fiscally responsible until the crisis hit, with balanced budgets
and relatively low debt. Both discovered that this was an illusion: revenues
were buoyed by immense real estate bubbles, and when the bubbles burst they
plunged into deficit — and found themselves potentially on the hook for large
The countries responded
differently, however. Ireland quickly embraced harsh austerity; Spain has had
to be dragged into austerity, and still faces major political unrest.
So, how’s it going? This article
is typical of what you read: it describes the Irish as doing what has to be
done, while the Spaniards dither. And it has good things to say about how the
Irish response is working:
Much bitterness but also
stoicism; markets impressed by Irish resolve to bite the austerity bullet.
Well, I guess that’s right — if
by “markets impressed” you mean a CDS spread of
226 basis points, compared with 206 points
for Spain; not to mention a 10-year bond
rate of 5.11 percent, compared with 4.46 percent
So, I’m glad to hear that
Ireland’s stoic acceptance of austerity is reassuring markets; it must be true,
because that’s what everyone says. Because if I didn’t know that, I might look
at the data and conclude that markets actually have less confidence in Ireland
than they do in Spain, and that austerity in the face of a deeply depressed
economy doesn’t actually reassure markets at all.
But hey, what are you going to
believe: what everyone knows, or your own lying eyes?
So Arizona is going to introduce
a bill to pressure Israel to deport the children and grandchildren of European
Jews to Poland and Germany (and the kids
of illegal Polish immigrants in Chicago and the descendants of illegal Irish
immigrants in NYC and the heirs of illegal Italian immigrants in Buffalo.) You'd
think there would be some kind of outcry, wouldn't you?
Oh, wait. They just want to revoke the
citizenship of the children of Mexicans so they can be deported to Mexico (and
other countries "down there.") Not a problem.
Wall Street Trumps Main Street – Asymmetric Information in Derivatives
There has been a vigorous debate
on the portions of Financial Regulation concerning Derivatives. This article by Jane D’Arista
highlights why Derivative reform is an essential part of reducing systemic risk
and bailout risk. However, financial
reform is not only about reducing these risks.
It is also about restoring balance, fairness and integrity to financial
services, moderating corporate power and regulatory capture in Washington, and
allocating resources in the economy in a way that provides more for job
creating industries and less for the outsized financial sector. To take one quote from the article which
addresses my focus today:
Buying and selling OTC
derivatives contracts is a zero sum game. Unlike portfolio lending that links
the fortunes of borrowers and lenders, one party to a
derivatives transaction wins while the counterparty loses.
So let me pull back the curtain
on how derivatives work in one particular area on Main Street. What is generally considered to be the
most plain vanilla derivative product in the Interest Rate
Swap. In simplified terms, what an
Interest Rate Swap does is allow one party (generally a borrower of funds) to
pay interest to a bank at a variable rate but to “synthetically fix” the rate
through a swap. Another party takes the
other side of the trade. The borrower
will generally assume that party is the bank, but if the bank wanted to take
and be paid for the rate risk it could just have made a fixed rate loan in the
first place at a higher interest rate. There is another party (counterparty)
that takes the interest rate risk in return for being paid a monthly payment.
So as a simple example, the
borrower may have a $3 million loan. It
might pay 3.5% per annum in variable rate interest to the bank. It may pay a payment equal to another 2.5% on
the interest rate swap for an “all in” rate of 5.5%. The Counter Party gets the 2.5% (less the
market maker’s fee), in order to assume the risk that rates will rise. The borrower is supposedly protected from a
rise in interest rates.
On the surface, this seems pretty
simple and a borrower might feel well prepared to make a good decision on the
Here are the problems as I see
The borrower has no way to know if the
rate swap is a good deal. In other
words, they buy something that seems simple but is in fact quite complex. Look at it this way, the borrower paid 5.5%
instead of 3.5%. That is a 57% increase
in the cost of credit. The borrower has
paid a large sum of money and has few ways to ascertain if it is a good deal.
You can rest assured that the counter party on the swap is much more sophisticated
regarding the mathematics behind the transaction. They are financiers
deliberately taking interest rate risk for a fee.
The bank may have limited the borrower’s
pricing options in order to induce him or her to enter into the interest rate
swap. The bank could have offered a
fixed rate loan. Banks do this all the time, except when they don’t. Often a bank will not offer a fixed rate loan
at all and will present the swap as the only way for the borrower to hedge
interest rate risk.
The borrower may not have any other place
to go to get the interest rate swap. Generally the swap is cross collateralized
with the actual loan. Unless the
borrower is shopping the loan and the swap at the same time, they have no
competitive information available. Since
90% of swaps are done by 5 banks, if the borrower is shopping a big bank
against a local or regional bank, the best swap pricing is not going to be
available to the smaller bank anyway. So
the big bank has a competitive advantage.
Swaps have risks to the borrower that are
not necessarily apparent and may not be properly disclosed when the swap is
sold. These include the very real chance
that the swap can actually be “underwater” if terminated early. The amount it is “underwater” is based on
complex mathematical formulas involving changes in interest rate curves from
the time the swap was initiated until terminated. Further, the rate that is “hedged” is the
“index” rate, not necessarily the borrower’s loan rate.
The economic value of either side of a
swap’s position is a function of several factors including the rate curve and
discount rates. It is not a function of
the index rate. The borrower will often
not understand this. Effectively this
means that the net position on the swap may not be correlated well with changes
in the “index”. It is somewhat analogous
to the problems with pricing on some ETFs that are based on futures
contracts. The ETF is intended to track
a certain commodity price but since it actually owns futures contracts rather
than the commodity itself, the value of the ETF does not correlate well with
the intended benchmark.
The borrower’s loan can be declared in
default for a variety of reasons including failing to maintain certain
financial ratios, credit ratings, etc., even if there is no payment
default. A loan default will generally
trigger a default on the swap, which may become due and payable in full. The borrower may find that in addition to
whatever other difficulties it is encountering, now a large unexpected payment
is due on the swap contract. In this
case, the contract failed to deliver the protection the borrower
purchased. The borrower would have to
read and understand all the fine print to understand these risks.
Swaps are very profitable for banks and
are generally sold by a commissioned sales force. The individual incentives earned can be
substantial enough to create a moral hazard at the individual banker level.
Their personal interest may not align with the interest of the client. This is
not disclosed. The incentives differ at
The front line bankers themselves rarely
have a full understanding of an interest rate swap transaction. The figures come from a wizard behind a
curtain known as the “money desk” or “swap desk” or “derivatives
platform”. Even if the banker wanted to
explain the exact economics to the client, they would generally not have the
information or expertise to do so.
Please note that these comments
relate to only the most simple form of derivative contracts. I would expect all the shortcomings I’ve
identified to be magnified in more complex transactions.
R.I.P. Jimmy Dean: The Sausage King's Grossest Meals
European stocks rose, as
stronger-than-expected euro-zone production data fed hopes of economic
recovery, boosting basic materials stocks, commodities and the euro. Oil gained
to $75.12 and Gold was flat at $1225.
stocks opened lower and placed a damper on the first hour rally. Banks then
caught a bid and the rally revived only to be followed by an afternoon bank
swoon with the major stock measures following bank stocks lower. In the final
hour the HFT boys’ and girls’ computers decided down was easier than up and the
DJIA and NAZZ dropped below even to close lower on the day. The S&P 500 was
insignificantly higher. Breadth was flat and volume moderate.
June 11, 2010
After the big up day yesterday
futures are flat ahead of the opening. A follow through day to the upside is
needed before the bears will begin to worry. Overseas markets were higher as
they played catch-up to the U.S. markets of yesterday. Oil is back under $75
and Gold is flat as the trading day begins.
Retail sales were down 1.2% in
May and that number has placed a damper on the futures suggesting a down
opening. A pullback this morning may set up a snap back this afternoon. If not
then the markets are back to no person’s land.
Drugstore chain Walgreen was cut to market weight from overweight at Thomas Weisel
Partners, which said its downgrade was based on a tepid sales outlook and the
potential discontinuation of the group's relationship with CVS Caremark. The broker said CVS' decision to drop Walgreen from
its network in 30 days is much faster than Walgreen had originally proposed and
estimated the lost CVS sales would equate to roughly $4.6 billion in annual
revenue. It added that the lost revenue estimate doesn't include front-store
purchases that will no longer be made by consumers filling prescriptions. (This
is why the shares are down 60% from their 2007 high and 30% in the last few
The market action this morning is positive even though
the major measures opened lower. We added Applied
Materials and more Major Bank ETF
(KBE) to accounts.
Consumers Lose Momentum in May (Diane Swonk—Mesirow Chief Economist)
Total retail sales dropped 1.2% from April to May - more than a percent
below market expectations - while sales, excluding autos, dropped 1.1%. Sales
for April were revised up slightly, which helps to dampen the blow, but doesn't
change the reality of the data, which is not terrific.
Declines were broad-based with a drop in everything from vehicle sales
- which is contrary to the unit sales
figures released for the month - to clothing, department stores, building
materials and garden equipment. Few are willing to invest in beautifying their
yard when they are still worried about paying their mortgage.
Not all news was dismal. After falling off a cliff during the
recession, discretionary spending on food and drinking places posted another month
of increases. We also saw modest gains in spending on furniture, appliances and
electronics, which no doubt reflects the residual spurt to spending created by
an increase in home sales, as homebuyer tax credits expired at the end of
Revisions to the data offer another sliver of hope, which are likely to
be upward given reports by retailers that spending will pick up slightly in the
second half of the month after the initial survey was taken.
The Bottom Line: The recovery continues on its rocky and fragile path.
This report only confirms that, but it would be nice to get a bigger slice of
optimism. Foreigners, hoping that the U.S. consumer will play Atlas and buy all
of their exports to keep their economies going, will be particularly disappointed
as we continue along a path of deleveraging and rebalancing.
the geeks will program their computers to not take the share price of an
individual stock down over 10% in five minutes. 6 minutes will be fine.
‘Circuit Breaker’ (WSJ)
The New York Stock Exchange said it will begin a phased rollout on Friday. BATS
Global Markets and Direct Edge also have said they expect to begin
implementation Friday. The rule will be in effect on a pilot basis for six
months. All exchanges will halt trading for five minutes in an individual stock
when its price moves 10% or more, up or down, in the previous five minutes. The
pause is designed to give traders time to catch their breath and assess whether
a stock’s price change stems from a real shift in value or an unrelated market
European markets closed higher
and Oil ended with $74 handle and Gold was flat. The euro closed the week at
was easier for the HFT boys and girls to close the market measures higher after
a mostly slightly down day of trading. Breadth was 2/1 positive as banks and
financials rallied to the plus side in the last hour of trading and volume was
summer Friday light. The games begin again on Monday. The trading today was
positive for the rally continuing folks.
June 10, 2010
For whatever reason - and we don’t
know why - U.S. futures are 1% higher in the pre-market. The reason given is
good economic news in Asia. Asian and European markets were higher overnight.
Oil has a $75 handle and Gold is lower.
Jobless claims were 456,000 for
Caremark speeds up termination of prescription drug deal with Walgreen
By JASON ROBERSON / The Dallas Morning News
In 29 days, CVS Caremark Corp. will kick Walgreen Co.
out of its pharmacy benefit network because of a dispute over reimbursement
rates. But CVS Caremark said Wednesday that customers won't miss much. CVS Caremark is known for operating a
drugstore chain, but it also manages a prescription drug program for 2,200
corporate clients who represent 53 million people. As a pharmacy benefit
manager, CVS Caremark is responsible for processing and paying prescription
drug claims and negotiating reimbursement rates with pharmacies. Many of them
are also competitors, like Walgreen. However, Walgreen is not happy with what
CVS Caremark is paying. On Monday, Walgreen said it would not participate in
any new or renewed CVS pharmacy benefit plans. In response, CVS Caremark sped
up the separation to be effective in 29 days, which includes existing benefit
plans involving Walgreen. "We are disappointed but not surprised that CVS
Caremark has taken this action," Kermit Crawford, executive vice president
of pharmacy at Walgreen, said in a written statement. "Their patent
disregard for patient choice and broad access reflected in today's decision
reinforces our conviction that it would not have been in the best interests of
our patients, pharmacists or shareholders to grow our business with CVS
Caremark." CVS Caremark would not
pinpoint its number of corporate Texas clients. Prescription drug users will
not be affected if their employer does not use CVS Caremark as its pharmacy
benefit manager. Even if it does, CVS Caremark says that of its 64,000 pharmacy
participants, only 7,000 are Walgreen stores. CVS Caremark said 85.9 percent of
its members have access to a network pharmacy within a 3-mile radius of where
they live. When Walgreen is excluded from the network, the number changes to
85.7 percent. Tom Ryan, chairman and chief executive of CVS Caremark, said he
regrets any inconvenience the change may have for members who use Walgreen.
Walgreen is under more selling pressure
today and we are adding shares under $29 with room to buy more.
Because we reentered women’s retailer Coldwater yesterday and the day before,
we sold Chico’s today and are
placing a good chunk of the proceeds in Nokia
on its all time low.
With economic concerns continuing
to weigh on the market, it's no surprise that some of Wall Street's
most-storied investors are increasing their cash positions right now. Take George Soros, for example:
The billionaire investor's firm sold off $182 million in stocks last quarter,
closing out holdings in more than 140 companies. But as bleak as that snapshot
may look, more important are the stocks Soros is adding to his fund.
Here's an analytical look at (one)
stock Soros Fund Management is buying right
now. Just as overseas stocks arguably made Soros' fortune, his fund
continues to take big positions in overseas companies.
for instance. The Finnish mobile device company was one of a handful of new
positions opened by Soros Fund Management in the last quarter. Nokia has long
been a key player in the highly competitive cellular phone market, having
captured roughly a third of the global cellular handset market. The company has
done that effectively by putting tremendous efforts into both its low-cost
entry-level phone offerings, which are extremely popular in emerging-market
economies where cellular phones are still seeing steady growth, and its
next-generation smart phone products. The next step for the handset
manufacturer is transactional and service-based revenues. Taking a page from
Apple's playbook, Nokia's Ovi platform offers the company's handset users a
mobile media store that could spur significant top-line growth in the coming
A tumbling Euro is actually
panning out well for the Finnish firm. Because Nokia's Euro-denominated
business is so big worldwide, the company should recognize material currency
conversion gains. And while that's a scenario that's less attractive for the
company's 9 billion euros in the bank, at least any devaluation is offset by a
devaluation of Nokia's already-manageable debt load. Soros Fund Management
thinks the situation will be favorable in 2010; the group picked up $16.9
million worth of Nokia shares to open its position.
With $3 per share in cash Nokia is priced at 2/3rds of revenues.
Even with all the hoopla about the iphone
Nokia controls 36% of the smart phone market to Apple’s 15%. Apple is obviously gaining on Nokia but the shares
price of $9.40 is discounting a lot of bad news.
(Bloomberg) -- The U.S. Securities and
Exchange Commission approved rules that will halt trading in Standard &
Poor’s 500 Index stocks during periods of volatility, a response to the May
6 plunge that wiped out $862 billion in 20 minutes.
The circuit-breaker test,
scheduled to last through Dec. 10, will pause trading for five minutes when a
company rises or falls 10 percent in five minutes or less. The New York Stock
Exchange said it will begin implementing the curbs tomorrow. The regulator
delayed the start of the pilot program last week.
European stocks gained sharply
Thursday, lifted by strong Chinese export data, a successful Spanish bond
auction and some reassuring words from the ECB.
The European Central Bank left its key
interest rate unchanged at 1% and raised its forecast for growth in the euro
zone this year, but lowered its forecast for 2011. Gold was down $8 to $1222
and Oil gained $1 to $75.47.
major market measures opened up 1%, were up all day, and closed on their highs
up 2% and more. Breadth was green and volume was lousy- as it has been on all
rally days recently –not good. We’ll find out if this was another one day wonder tomorrow.
June 9, 2010
Asian and European markets are
higher this morning as are U.S. futures. Follow through from yesterday is
important for the bulls. Oil has a $72 handle and Gold is flat.
Investors’ Intelligence had 38% bulls and 32% bears in its latest
weekly report. When we left on vacation in late April and the markets were 15% higher
the numbers were 53% bulls and 18% bears. Buy’em
higher sell’em lower is the mantra of the momentum traders and the HFT boys
(Bloomberg) -- China’s
stocks rose the most in more than two weeks after Reuters reported a
surge in the nation’s exports and higher-than-estimated new loans in May,
signaling Europe’s debt crisis hasn’t derailed the economy.
Sarkozy and Merkel called for the EU to get
its rules in place especially on banning naked shorting of credit default swaps
on sovereign debt. We don’t remember Sarkozy being on board on this item when
German banned the practice a few weeks ago. The SEC should join in but of
course they will probably have to study the issue for several years.
(Bloomberg) -- France and Germany called on
the European Union to speed up curbs on financial speculation, saying some bets
against stocks and government bonds should be banned as markets suffer a
resurgence of “strong volatility.”
In a joint two-page letter,
French President Nicolas
Sarkozy and German Chancellor Angela Merkel
sought proposals from European Commission President Jose Manuel
Barroso on a ban on so-called naked short sales of “certain” stock
and bonds, as well as on naked credit-default swaps on sovereign bonds. They
call for proposals to be ready by the middle of next month rather than October
as had been planned.
The letter shapes a common
position between the leaders of Europe’s two largest economies after Merkel
last month caught other EU leaders off guard when she unilaterally banned naked
sovereign credit-default-swaps within Germany. She argued the actions of
“speculators” exacerbated the European debt crisis that has rattled markets and
driven the euro to a four-year low.
Proposals to regulate short
selling and credit-default- swaps will be brought forward and come “during the
summer,” Commission Spokeswoman Pia
Ahrenkilde-Hansen told journalists in Brussels today. She didn’t
specify whether they would be ready by July as requested by Merkel and Sarkozy
in their letter.
“The return of strong
volatility in the markets makes it necessary to question certain
financial methods and certain products such as naked short-selling and credit
default swaps,” the leaders said in the letter, e-mailed by their respective
offices in Paris and Berlin today.
Walgreen and CVS are battling
which is pushing the share price of Walgreen down to attractive levels.
(WSJ) The customer battle between
CVS Caremark Corp. and Walgreen
Co. heated up on Wednesday, with CVS saying it plans to eliminate the rival
from its pharmacy-benefit manager network. CVS Caremark— which is both a
drugstore chain and pharmacy-benefit manager, administering drug plans for
employers and insurers— said that although it has "worked diligently to
come to terms" with Walgreen, it "has no choice" but to
terminate the drugstore giant's participation in retail pharmacy networks in 30
days. The company also said it will terminate Walgreen's participation in its
Medicare Part D retail pharmacy networks effective Jan. 1. On Monday, Walgreen
had announced it was dropping out of CVS Caremark's drug-benefits network,
citing CVS's promotion of prescription plans that require patients with chronic
conditions to use either CVS stores or the Caremark mail-order pharmacy.
"Walgreens' most recent actions have violated the terms of its existing
agreements and ... Walgreens has failed to respond to efforts by CVS Caremark
to continue business negotiations," CVS Caremark said in a news release.
Treasury-Led IPO May Hand Bankers Lowest Fees Since 1999
(Bloomberg) -- Wall Street
bankers may be pushed to charge the lowest fees in at least a decade to arrange
the Treasury’s sale of General Motors Co. in what could be the second-largest
initial public offering in U.S. history. Bank of America Corp., Citigroup Inc.,
Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley are vying
to lead the automaker’s share sale, which may raise as much as $12 billion, an
estimate by Independent International Investment Research Plc showed. The U.S.
government may seek underwriting fees of as low as 2 percent, according to
finance professors at Cornell University and Georgetown University. That’s less
than any U.S. IPO over $5 billion since 1999, Bloomberg data show.
The Treasury, which owns a 61
percent stake in GM, will pressure the banks to accept fees that may be less
than half the 5.5 percent average for all IPOs in the past decade after
spending $150 billion in taxpayer money on the same financial firms during the
credit crisis, the professors said. The underwriters would make as much as $360
million in an initial offering of GM based on the average 3 percent fee for
past deals over $5 billion, data compiled by Bloomberg show. “The last thing
they need is the government putting hundreds of millions into the banks’
pockets,” said Roni Michaely, a finance professor at the Johnson Graduate
School of Management at Cornell in Ithaca, New York. “Especially with the
public scrutiny and anger over Wall Street.”
Michaely, who studies IPOs, said
the banks may make fees of as low as 2 percent from underwriting GM’s share
Best story of last night’s
Alvin Greene spent no money and didn’t campaign and he won:
(AP) Alvin Greene is an unemployed veteran who has never held
political office. After filing for the Democratic primary in the Senate race
from South Carolina, his campaign seemed to stop. There is no Alvin Greene web
site, no Alvin Greene bumper stickers, no Alvin Greene yard signs. There's not
even an Alvin Greene FEC filing.
Nonetheless, Greene won last
night's Democratic primary, beating Vic Rawl, a judge who served in the South
Carolina legislature for four terms. A judge who had gathered $186,000 for the
"I wasn't surprised, but not
really. I mean, just a little, but not much," Greene told Mother Jones.
Greene, on the other hand, didn't
raise a dime. In March, he walked into the state Dem headquarters and handed
over a personal check for $10,400, the filing fee to run in the Senate race.
The chairwoman, Carol Fowler, was taken aback and told Greene he needed to
start a campaign account and write the check from there. A few hours later he
came back with a proper check, according to the Free-Times, and filed.
After that, nothing. Fowler says
Greene didn't show up at political events, including the convention. Rawl has
never seen him.
But somehow, Greene took 59% of the
vote last night and will face Sen. Jim DeMint (R-SC) in the fall.
There was, by conventional wisdom, little chance Rawl could beat DeMint, who
has millions of dollars to spend on a campaign and is popular in South
Fowler speculated to the AP that Democratic voters unfamiliar with both Rawl and
Greene chose Greene because he appeared first on the ballot.
(Bloomberg) -- Federal Reserve Chairman
Bernanke said the U.S. central bank will act as needed to aid
financial stability and economic growth after restarting emergency
currency-swaps to help contain Europe’s debt crisis. “Our ongoing international
cooperation sends an important signal to global financial markets that we will
take the actions necessary to ensure stability and continued economic
recovery,” Bernanke said today in testimony to a House Budget Committee
hearing. The impact of the crisis on U.S. growth is “likely to be modest” if
financial markets “continue to stabilize,” he said. He reiterated that the U.S.
recovery is being restrained by the housing and commercial real-estate markets
and repeated his call for lawmakers to come up with a long-term deficit-
reduction plan. Bernanke and most of his fellow policy makers have given little
indication they will soon back off from the central bank’s pledge to keep interest
rates at a record low for an “extended period,” given high
unemployment and low inflation. Two days ago, Bernanke said that while the Fed
will raise rates before the economy reaches “full employment,” growth isn’t
fast enough to reduce joblessness quickly.
We repurchased BankAmerica
and added/added to Coldwater, Yahoo, Boston Scientific and Ford.
The only other stocks we are interested in right now are St. Jude add Walgreen
but we are giving them a bit more room to the downside.
(WSJ)European stocks rose,
extending gains late in the session, boosted by strong U.S. stocks and some
cautiously optimistic comments by Federal Reserve Chairman Ben Bernanke. Oil
gained $2 to $$74 and Gold was $1230 down $16.
Entering the final hour the major
measures have given back most of their gains as British Petroleum dropped $4
per share in the contra hour. That drop will affect the FTSE tomorrow since BP
is the largest stock on it. An analyst in London said there is a 50/50 chance
that BP will cut its dividend and that seems to have set off the further
selling and placed a blanket on the markets good action. The final hour will be
the tell since the markets need to
close higher or they are going to roll over.
S&P 500 gave back most of yesterday’s gains on last hour selling. The DJIA
gave back one third. Breadth was negative and volume was active. The rally
failed which means there is probably more painful work on the downside ahead.
The stocks we own are at attractive levels, all at/or on/near their yearly and
in some cases multi year lows and we are in them for more than a few points
higher from here. And we have cash in all accounts for lower levels. Because of
the failed rally the next buy level is 1010 or 4% lower from here and 19% lower
from the high.
June 8, 2010
Corrections to be effective have to
instill fear of loss in investors. The current correction may be beginning to
do this. Overnight Asia was mixed and European bourses are mildly lower at
midday. Gold is at a record of $1250 and Oil has a $71 handle. BP says it is
capturing oil at a rate of 15,000 barrels per day which may represent a good
chunk of the spewing oil.
Stocks look to open higher on Turnaround Tuesday. A
swoosh lower this morning (The S&P 500 closed at 1050 and the support level
is 1040) might have cleared the way for a good rally –since markets are at the
level they collapsed to on the May 6th Computer? Crash- and it would be
technically positive to bounce off 1040 before moving higher (of course it
needs to hold 1040 or it is Katie bar the
door time). If the S&P 500 drops through the 1040 level the next
support at 1010. As we learned last year, patience is needed as we recommit
funds. Stocks that we thought were cheap 20% higher in price than now can and
may get much cheaper. We made the mistake of remaining investors in 2008 and
2009 not realizing the power of the no uptick rule and High Frequency Trading
to wreak havoc on the downside. Investing is much more art than science and we
now have to learn how to live with the new “no rules” atmosphere and take our
time. The HFT folks are trend followers and with the trend now down they are
exacerbating the trend in that direction. But upon reflection the HFT folks
were probably the reason for the extended run to the upside over the 12 months
ending April 2010.
We wrote of this last week, too bad we won’t get any of their fees.
Hopefully Congress will intervene before the company is split to remove assets
from legal claims.
(NYT) It seems unthinkable, even
now, that the disastrous oil spill in the Gulf of
Mexico could bring down the mighty BP. But investment bankers
get paid to think the unthinkable — and that is just what they are doing. The
idea that BP might one day file for bankruptcy, particularly as part of a
merger that would enable it to cordon off its liabilities from the spill, is
starting to percolate on Wall Street. Bankers and lawyers are already sizing up
potential deals (and counting their potential fees). Given the plunge in BP’s
share price — the company has lost more than a third of its value since
Deepwater Horizon blew — some bankers and analysts say BP is starting to look
like takeover bait. The question is who would buy BP, given its enormous
potential liabilities? Shell and Exxon Mobil are both said
to be licking their chops. And already, flinty legal minds are dreaming up
scenarios in which BP would file a prepackaged bankruptcy and separate the
costs of the cleanup — and potentially billions of dollars in legal claims —
into a separate corporate entity.
rich get richer as they game the system that Congress provides them:
(Bloomberg) -- Billionaire Edward
Lampert may have found a way to shield himself from millions of
dollars in taxes under legislation that would raise levies on profits at
private- equity firms.
ESL Partners LP, the Greenwich,
Connecticut, hedge fund Lampert started more than 20 years ago, and affiliates
distributed about $829 million of stock in Sears
Holdings Corp., AutoNation Inc. and AutoZone Inc. to him on June 2,
according to regulatory filings. The fund is scheduled to transfer more shares
in the retailers to Lampert by the end of July.
By taking direct ownership of the
shares, Lampert would be taxed at the capital-gains rate of 15 percent when the
stock is sold, rather than the ordinary income rate of 39.6 percent that his
fund would have to pay under the bill, according to Robert
Willens, whose New York-based firm analyzes tax and accounting rules
for Wall Street clients. Lampert is ranked 316th on the Forbes list of world’s
richest people, with an estimated net worth of $3 billion.
“It’s totally an astute thing to
do,” Willens said in a telephone interview. “It doesn’t take a fortune teller
to predict that we are going to see a lot of this activity between now and the
end of the year.”
While the legislation is aimed at
reducing a tax break for buyout firms, Lampert’s hedge fund often holds
investments for more than a year, making it eligible for the lower rate applied
to private equity under the current law.
10:30AM and the S&P 500 is
On the bounce off 1040 we
repurchased shares of GE, Symantec and Dell lower than the prices at which we sold last week. We are at a level where a bit more exposure
is warranted. We are doing this reluctantly- since the correction is getting to
us- but the level (S&P 500 down 15% from the top a month ago) calls for
committing more dollars. All three stocks are on the yearly and actually
nine month lows and are of very good quality. We also added shares of the Bank
ETF KBE to accounts that own it and
a new position in Yahoo.
Europe closed lower. Oil ended at
$71.98 up 54 pennies and Gold was $1238 down $3. The euro was $1.19.
major market measures closed mixed without much conviction. The DJIA and
S&P 500 were up 1% on programs and the NAZZ was down small as was the
Russell 2000. Breadth was flat and volume moderate. Support held today and the
markets with some hesitancy rallied right off the number they were supposed to.
The results were maybe too pat but we will take any crumbs.
June 7, 2010
Asian markets were 2% down and
more overnight playing catch-up with the drop in the U.S. on Friday. European
bourses were mildly lower at midday and U.S. futures indicate a flat to
slightly positive opening. BP‘s latest try is capturing a good deal of the oil
and that may add a bit more positive tone to events.
Justice delayed,...? Are these folks still alive? We know the victims aren’t.
(WSJ) All eight of the Indian
officials charged in connection with the Bhopal gas leak more than 25 years ago
have been found guilty by a district court in Bhopal, Indian news channels
June 7, 2010, 3:33 am
Rereading my post on the folly of the
G20, it seems to me that I didn’t fully convey just how crazy the
demand for fiscal austerity now now now really is.
The key thing you need to realize
is that eliminating stimulus spending, while it would inflict severe economic
harm, would do almost nothing to reduce future debt problems. Here’s the IMF’s
estimate of sources of the growth in debt over the next few years:
And even this figure conveys a
misleading impression of the importance of stimulus spending. First, since
cutting stimulus would weaken the economy, it would reduce revenues — that is,
a substantial part of the debt growth the IMF attributes to stimulus would have
happened even without stimulus, through lower revenue. Second, for the US at
least the core reason for long-run budget concern is rising health care costs —
in fact, health cost control is the sine qua non of long-run solvency — which
has nothing whatever to do with how much we spend on job creation now.
So how much we spend on
supporting the economy in 2010 and 2011 is almost irrelevant to the fundamental
budget picture. Why, then, are Very Serious People demanding immediate fiscal
The answer is, to reassure the
markets — because the markets supposedly won’t believe in the willingness of
governments to engage in long-run fiscal reform unless they inflict pointless
pain right now. To repeat: the whole argument rests on the presumption that
markets will turn on us unless we demonstrate a willingness to suffer, even
though that suffering serves no purpose.
And the basis for this belief
that this is what markets demand is … well, actually there’s no sign that
markets are demanding any such thing. There’s Greece — but the Greek situation
is very different from that of the US or the UK. And at the moment everyone
except the overvalued euro-periphery nations is able to borrow at very low
So wise policy, as defined by the
G20 and like-minded others, consists of destroying economic recovery in order
to satisfy hypothetical irrational demands from the markets — demands that
economies suffer pointless pain to show their determination, demands that
markets aren’t actually making, but which serious people, in their wisdom,
believe that the markets will make one of these days.
We took a small loss on Symantec to switch some accounts to a new/or increased position in
the Major Bank ETF (KBE) and/or to
get a more cash in accounts.
The easiest path continues to be down as the major measures lost 1% and
more today, most of it in the last hour. Breadth was all negative and volume
June 4, 2010
Markets around the world are lower as the
cup of positive thoughts is emptied by the negative drumbeat of news. Markets
are 90% psychology and the psychology today is decidedly downbeat. U.S. markets
are going to open 2% lower.
The Employment Report for May was
up 431,000 but since hiring census workers accounted for 411,000 (temporary)
and birth/death adjustments (called hedonics- statistical adjustments that are
made to reflect changes in the population) accounted for an additional
211,000. The markets moved lower on the
surface positive but in reality negative news. Private payrolls added only
is lower because Hungary is in trouble and may go the way of Greece. Hungary??
And so we now have to worry about Hungary’s currency- the forint- when of
course 99% of investors around the world have never hear of it. Hungary has a
population of 10 million. http://en.wikipedia.org/wiki/Hungary
(Bloomberg) -- Hungary’s forint
dropped to the weakest level in a year, while government bonds and stocks
plunged after a spokesman for Prime Minister Viktor Orban
said the economy is in a “very grave situation.” The forint depreciated 2.2 percent to 288.11
per euro at 1:53 p.m. in Budapest, the weakest level since June 2009. The extra
yield investors demand to own Hungary’s debt over U.S. Treasuries rose 41 basis
points, the most since June 2009, to 3.60 percentage points, according to
JPMorgan Chase & Co.’s EMBI Global
Index. The BUX Index of equities tumbled 3.3 percent. Hungary’s
economy is in a “very grave situation” because the previous government
manipulated figures and lied about the state of the economy, Orban’s spokesman Peter
Szijjarto said at a press conference in Budapest today. Talk of a
default is “not an exaggeration,” Szijjarto said. European equities and U.S.
stock-index futures fell after the comments.
The new chant on cable news is that by
suspending offshore drilling Obama is going to tank the economy by causing job
losses. In the Canadian arctic oil companies are required to drill a relief
well at the same time as they drill the intended operating well so that if
something goes wrong the relief well can be immediately activated to stop the
oil flow. That makes sense to us. Obama should allow drilling if two wells are
drilled at the same time. That would double the number of jobs and the oil
companies would have to pay. Since offshore wells are a small portion of all
the oil produced in the world the increased cost would not cause an increase in
the price of oil but would just lessen the obscene profits of the oil companies
by a very small amount.
It is getting
painful for folks who remember last year and don’t want to go through that kind
of mess again. That could lead to a whoosh down next week after investors have
the weekend to lick their wounds. We don’t like seeing our own account values
drop but thankfully we have a large chunk of cash and hopefully learned from
last year to take our time. We said a correction was needed and it is important
that the correction be painful.
15/1 down issues to up on the
NYSE as trading begins. And our guess is that the up issues trading are all
short biased ETFs.
At 11AM the major measures are
down 2% or where they were Tuesday night. Volume is active as the big boys and
girls have fun with their computers. Investors, including us, are on the
sidelines waiting to see what the HFT geeks do this afternoon.
Reuters says China is buying euro
based assets at $1.20 to stabilize the euro.
We sold Dell in all accounts for a scratch
loss and bought a beginning position in
the Bank ETF (KBE) in our larger accounts. We also repurchased shares of Coldwater-down 25% from the price we
sold last week and 50% from its yearly high- in small amounts in large accounts
to place our toes back n the water.
We agree with this market
commentator - Sean Udall- observations http://www.minyanville.com/gazette/buzzbanter/print.php
I do find it curious that folks are saying all the gains this week are
from the "anticipation" of a great jobs number. I guess all
those other bountiful economic reports just don't matter, or these valuations
akin to the 1970's lows (we may be lower now on a Treasury yield adjusted
basis) don't matter. Or how about the massive oversold readings heading
into this week?
Heck it just doesn't matter. Hungary is insolvent! I guess it doesn't matter
that many other countries have had to "restructure" in the past. If
memory serves Spain defaulted something like 5 times in the past. The market
Pretty much all of Latin American defaulted in the late 1990's. The market went
higher. In fact, how did the market then go to massive bubble heights?
A huge economy the then Soviet Union nearly collapsed (or did they?). I think
we had a 9-12% correction on that one -- if that. Then the market went higher.
Oh yeah, those post crash 1970's valuations -- wasn't that a terrible time to
buy stocks? A guy named Buffet turned a couple hundred grand into billions in
less than 2 decades off of those lows.
Don't get me wrong. In all those periods
mentioned above, we had an uptick rule. We had circuit breakers and we didn't
have the CDS specter. But that is exactly why we are approaching and have
1970's type valuations.
crash women shriek and Monday is just three days away when all the fun begins
again. The S&P 500 was down 3.5% with the DJIA down 330 points at 9933. Breadth
was 10/1 negative with volume 20/1 negative and what more need we say except we
have lots of cash. No
uptick rule and the HFT boys and girls say thank you very much to the SEC.
June 3, 2010
(MarketWatch) European shares
jumped on Thursday, with commodity-sector firms and auto companies leading
broad-based gains for the region. Asian stock markets closed higher, with
Japan's Nikkei 225 Average marking its biggest gain of the year up 3% as
exporters cheered a falling yen. Oil has a $73 handle and the euro is at $1.22
as the treading day begins.
would be forced out of business by the SEC if we were guilty of this. Different
(Bloomberg) -- JPMorgan
Chase & Co.’s London unit was fined a record 33.3 million pounds
($48.9 million) by Britain’s financial regulator for not properly separating
client money from the firm’s accounts. An average of $8.6 billion wasn’t
properly segregated by JPMorgan Securities Ltd. in an error that went
undetected for seven years, the Financial
Services Authority said in a statement today. Client money held by
the bank’s futures and options business wasn’t put in a separate overnight
customer account, the FSA said.
(Yahoo Finance) The latest ADP Employment Change report indicated
that private payrolls increased by 55,000 in May. However, that was actually
weaker than the 70,000 increase that had been widely expected. It also marked a
pullback from the upwardly revised addition of 65,000 jobs in April. The latest
in weekly jobless claims was just
released. Initial claims for the week ended May 29 totaled 453,000, which is
down 10,000 week-over-week and generally in stride with the 455,000 initial
claims that many had come to expect. Continuing
jobless claims increased 31,000 week-over-week to 4.67 million, which is
more than the 4.61 million that had been expected. The final reading on first quarter nonfarm productivity
showed an increase of 2.8%, which is a pullback from the previously reported
3.6% increase. It is also less than the expected 3.3% increase. Unit labor costs for the first quarter
fell 1.3%, which is a softer decline than the 1.6% drop that had been widely
expected after a 1.6% decline had been previously reported.
Tuesday was a 90% down Day.
Wednesday was a 90% up day. (refers to volume of issues traded and means 90% of
volume of issues traded were either up or down for the day)
were higher on the opening and for the first two hours but at 12:30pm are lower
in quiet trading. We have to leave early today but will be here bright eyed and
bushy tailed tomorrow.
June 2, 2010
Asia and Europe were lower
overnight but U.S futures indicate a higher opening today. How long it will
last is the question. A down opening
would set up a turnaround but that doesn’t look like it will happen.
It was only a matter of time:
AT&T is lowering prices on some of
its wireless-calling plans for a second time in six months and moving to a
model of charging users based on the amount of Internet surfing they do and
email traffic they generate on devices like the iPhone.
The move, while it lowers the
cost of entry-level plans, means heavy data consumers will have to pay more for
service unless they cut back their usage. It kicks in June 7, when Apple Inc.
is expected to announce its latest iPhone.
AT&T's $30 unlimited-data
plan for smartphones will be eliminated for new users. Starting next week, it
will be replaced by new plans costing $15 a month for 200 megabytes of data
traffic or $25 a month for 2 gigabytes. AT&T says 98% of its customers use
less than those amounts. Users who exceed 2 gigabytes of usage will pay $10 a
month for each additional gigabyte.
On this morning’s higher opening we halved our positions in Ford, American Eagle, Chico’s
and Nvdia. The markets failed to
hold gains yesterday and rolled over in the last hour of trading. That was
lousy action and so we decided to lower our exposure and see what occurs. We don’t
like surrendering hard earned gains but our holdings in the ten companies we
own are sufficient to allow us to participate when a rally occurs but not so
great as to destroy us if the correction expands.
Ford May sales were up 23%, GM
up 16% and Chrysler up 32%.
European bourses ended flat. Oil
gained pennies to $72.85 and gold dropped $3 to $1222.
What was that about the euro becoming the world currency?
(Reuters) - The Iranian central bank has announced that it will
sell 45 billion euros from its foreign exchange reserves to buy dollars and
gold, China's official Xinhua news agency reported on Wednesday, citing
unspecified Iranian media reports. Xinhua said that the sales would be
conducted in three stages and that the first had already begun, citing unnamed
It also said that other Gulf
states had also started cutting their euro holdings.
You think it is maybe because he owns shares?
(Bloomberg) -- Warren
Buffett, whose Berkshire
Hathaway Inc. is the largest shareholder in Moody’s Corp., said the
ratings firm’s chief executive officer shouldn’t be singled out for blame over
credit grades on mortgage-related assets that proved to be wrong.
“I’m much more inclined to come
down hard on the CEOs of institutions” that needed to be bailed out by
taxpayers, Buffett said today at a hearing of the Financial Crisis Inquiry
Commission in New York. Managers at Moody’s “made a mistake that 300 million
other Americans made,” he said. Raymond
McDaniel, the CEO of Moody’s, sat beside Buffett at the hearing.
The saw is stuck.
We raise cash and the major market measures
close 2% higher. What else is new? Volume was punk as the only negative. Breadth
was mostly positive on our screen with the banks all green as were the large
tech stocks. Retailers were lower until the last hour HFT mark up session.
Retailers report same store sales for May in the morning. Today’s action
suggests something is going to be announced in Europe overnight unless it is
just the big boys and girls playing games in which case the markets should roll
over tomorrow or Friday.
June 1, 2010
The stock market correction is
now in full swing with Gold higher at $1222, Oil lower by $2 with a $72 handle
and Asian and European markets down 2% and more. The euro is at a four year low
this morning at 1.2174
dollars. U.S. futures indicate a down 1.5% opening on the S&P
500. And how was your Memorial Day weekend?
BP didn’t stop the oil leak. An
interesting statistic that we gleaned over the weekend is that the Mississippi
river empties 3.3 million gallons of water into the Gulf of Mexico every
second. Thus in a minute the river empties twice as much water into the Gulf as
BP has leaked oil spill in the last 60 days. The amount of oil is a problem but
where it is going is a much greater problem.
CNBC leads off its day with a fellow from
some think tank called Citizens for Affordable Energy. By the way the guest
Richard Hoffmeister a former executive at Shell Oil, the folks who have made a
mess of the Nigerian Delta continual oil spills from their drilling operations.
Back in 2008 Hoffmeister was also on CNBC congratulating Bush for opening up
the outer continental shelf to oil drilling. http://www.cnbc.com/id/25685730/Top_Oil_Executive_Quit_Rhetoric_On_Energy_Policy
ISLAMABAD (The Borowitz Report) - The US confirmed
today that it has killed al-Qaeda's number three for the nine thousandth time,
setting a new world's record for killing the number three man in a terrorist
"No matter how many times
you do it, it's always a special feeling when you nail their number
three," a US military official said today. "I'm sure I'll feel this
way when we do it for the 9001st time."
The termination of al-Qaeda's
number three sets up a power vacuum within al-Qaeda, with candidates to replace
the fallen Mustafa Abu al-Yazid scrambling to remove themselves from
consideration. According to one candidate within the terror group, "The
words no al-Qaeda member ever wants to hear are, 'Congratulations - you're our
new number three.'"
Hewlett plays its game again of firing folks and taking a $1 billion
special charge so that it can manage earnings going forward.
(WSJ) Hewlett-Packard said it
plans to spend $1 billion through automating data centers and other functions,
resulting in the shedding of 9,000 jobs over several years. H-P expects to take
a $1 billion charge during a multiyear period. It anticipates the restructuring
will generate the same amount in annual savings, or $500 million to $700
million in net savings after reinvestment. The company plans to replace
approximately 6,000 of those positions to increase its global sales and
From Eurostat: Euro area
unemployment rate at 10.1%. The euro area1 (EA16) seasonally-adjusted unemployment rate was 10.1% in
April 2010, compared with 10.0% in March. It was 9.2% in April 2009. The EU271
unemployment rate was 9.7% in April 2010, unchanged compared with March. It was
8.7% in April 2009. Eurostat estimates that 23.311 million men and women in the
EU27, of whom 15.860 million were in the euro area, were unemployed in April
Among the Member States, the lowest unemployment rates were recorded in the
Netherlands (4.1%) and Austria (4.9%), and the highest rates in Latvia (22.5%),
Spain (19.7%) and Estonia (19.0% in the first quarter of 2010). Compared with a
year ago, one Member State recorded a fall in the unemployment rate and
twenty-six an increase. The fall was observed in Germany (7.6% to 7.1%), and
the smallest increases in Luxembourg (5.3% to 5.4%) and Malta (6.9% to 7.0%).
The highest increases were registered in Estonia (11.0% to 19.0% between the
first quarters of 2009 and 2010), Latvia (15.4% to 22.5%) and Lithuania (11.2%
to 17.4% between the first quarters of 2009 and 2010).
The DJIA has had only 5 up days
since May 4.
The major measures were down at the opening but recovered to the plus
side after an hour of trading and we used the pop to sell Verizon for a scratch and also sold Walgreen for a scratch profit and GE for a 10% loss. We sold BankAmerica
for a scratch and Huntington Bank
and Fifth Third for a loss which
leaves us room to buy the Major Bank
Index (KBE) on a further sell off. We have spent dollars buying and adding
to NVDIA, American Engle, Symantec
and Chico’s plus Boston Scientific and they give us more
percentage volatile upside (and downside) than the issues sold. We think the correction
we predicted is running its course but we also want to have a bit more cash for
comfort and to have to place in our more aggressive holdings if we are wrong
and the markets continue to head south.
From Bloomberg: http://www.businessweek.com/news/2010-06-01/commodities-biggest-drop-since-lehman-bear-signal-update2-.html
The Journal of Commerce commodity
index that includes steel, cattle hides, tallow and burlap plunged 57 percent
in May, two years after a decline that foreshadowed the worst recession in half
a century. The index of 18 industrial materials declined the most since October
2008 as Europe’s debt crisis widened and China took steps to curb growth.
A few minutes ago CNBC had the
first mention of bankruptcy protection for BP that we have heard. The talk will
become more general in the days ahead as BP’s
costs of cleanup mount. BP has to eliminate its dividend for PR purposes and we
are cautioning clients who ask to take their time getting involved. We’ve seen
this game before with Union Carbide
and the India catastrophe, the asbestos claims, and Texaco/Pennzoil judgment bankruptcy in 1987. There is no rush.
Shorting Reform (NYT)
To: Wall Street chief executives
From: Your man in Washington
Re: Embracing the status quo:
Heavy rains from tropical storm
Agatha caused an enormous sinkhole to open up in Guatemala
City, swallowing a three-story building and a house, and killing
one. At least 115 people in three countries died in the storm. [CNN;
This aerial photo was distributed by the Guatemalan government.
(Bloomberg) -- Manufacturing in
the U.S. expanded in May for a 10th month as factories boosted payrolls to keep
up with rising global sales. The Institute for Supply Management’s manufacturing
fell less than forecast to 59.7 from 60.4 in April, which was the highest level
in almost six years. Readings greater than 50 point to expansion. The group’s
export index climbed to the highest level in two decades.
A report from the Commerce
Department showed construction spending rose 2.7 percent in April, the most
since 2000, as demand related to the end of a tax credit spurred builders to
break ground on more houses. Economists projected no change for April,
according to the median forecast in a Bloomberg News survey.
Manufacturing growth from China
to the euro region weakened in May. The Purchasing
Managers’ Index for China fell to 53.9 in May from 55.7 in the
previous month, the Federation of Logistics and Purchasing said.
A separate index released by HSBC
Holdings Plc and Markit Economics fell to the lowest level in a year. A gauge of
in the 16-member euro region declined to 55.8 from 57.6 the previous month,
London-based Markit Economics said. That’s below an initial estimate of
55.9 released on May 21.
The ISM’s production index eased
to 66.6 from 66.9, the highest since January 2004. The new orders measure was
unchanged at 65.7.
gauge climbed to 59.8, the highest level since May 2004. The measure of export
orders increased to 62, the highest since December 1988.
The measure of orders waiting to
be filled rose to 59.5 from 57.5. The index of prices paid fell to 77.5 from
The inventory index decreased to
45.6 from 49.4 in April. A figure lower than 50 means manufacturers are cutting
European stocks ended flat, staging a
late recovery as gains on Wall Street following some better-than-expected U.S.
economic data propelled regional indexes higher, offsetting earlier losses. Oil
ended at $73.25 and Gold at 1225.
Matt Taibbi on the passing of the
Financial Regulation Bill in the Senate:
The major measures remained higher most
of the day but programs in the last hour pushed the S&P 500 down 1.5%.
Volume was active and Breadth all negative on our screen and 4/1 negative on
the NYSE at the close.
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Summary of Business Continuity Plan