Friday, September 26, 2008

FRI. SEP. 26- Deal.....Or No Deal?

If you'd have ask any free market protagonist approximately one month ago what any of them thought of the government interfering in any regard with the markets, they’d have all glared at you. But the outlook of many people on finance has changed in the last month. Last week, the entire system was in danger of collapsing. That is said without exaggeration. Let's say that Citicorp has $10 billion in deposits and $9.97 billion in loans and a few people want to take money out. Usually, they borrow overnight at a small rate of interest from another bank; billions of dollars normally exchange hands. There was zero activity on last Wednesday night. Furthermore, there was a run on money market funds so $1 that was worth at least $1 plus interest annually was now worth 97 cents. For instance, let's say you had money in your 401k, but it was all in cash. Or in your IRA- all cash. Your money is swept into money market funds and you get a tiny rate of interest. For the first time in history, you could lose money by staying in cash. Companies like State Street, Bank of New York, Morgan Stanley, and Goldman Sachs were in imminent danger of failure because they had no access to the capital markets. Therefore, whatever government plan that is implemented cannot be done piecemeal. What they want to do is to clear off the banks’ books. Basically, the government (meaning the taxpayers) become full to the boat long American real estate and mortgage bonds. BUT- this allows the banks to ostensibly start with a clean slate and begin loaning money out anew. It's like the system gets a new 'day one' to begin (theoretically) doing their stuff properly. And once confidence is restored, people will begin buying real estate not wanting to miss the boat, real estate begins re-inflating, the stock market goes up, and the government suddenly makes a profit on this bet. But to do this requires more capital than any private corporation can possibly raise. Will it work? Who knows. What is to stop banks from doing the same crud all over again knowing that they will get bailed out if they are wrong? But, if nothing is done, we'll be in a situation worse than the Great Depression because the entire banking system will collapse as nobody will loan anybody anything while everyone withdraws what they have from the banks. Industries like the chicken industry- look at Pilgrim's Pride- (PPC) announced layoffs due to increased cost of capital...and now they are in verge of default since nobody will give them any more money- it is dominoes. Investment banking already has collapsed. So, again, will the government make money on the MBS's? If everything works as it should, it'll be the greatest investment in the history of the world because investments they will pay pennies on the dollar for will be worth several times that in several years as things recover...indeed, look at FNM/FRE already as they have more than quintupled from their lows. The problem is one of psychology; people have to feel safe again...but once they do, greed takes over as fear is removed. But again, this will take more money to jump-start than anyone can fathom so no corporation can willingly step up to do it. For day traders, it has a direct impact on the stock market obviously in the next few days. It is highly likely that if there is an ‘installment-based’ plan, the market’s gains will quickly evaporate; action is needed now seems to be the market’s mantra. However, if the market gets what it wants and the whole system is unclogged, it could be the beginning of a very nice bull run. There is arguably no bigger turning point for the markets in several generations than what happens with this deal.

Overnight, stocks were hit in Europe and then hammered in Europe as the deal talks collapsed. The markets in the U.S. will likely open strongly to the downside and then trade based on rumors of “will they- won’t they” re the deal.

Reiterating-If the whole story is not there -
If something is good, assume either a short thru unchanged or an A-B-A2 based on direction of the market unless specifiedIf something is bad, assume either a buy thru unchanged or an A-B-A2 based on direction of the market unless specified


A.CN- good earnings

FINL- good earnings

OI- closed very strong; may be A-B-A2 to upside

JPM- buying WM…should get huge deposit base; will likely be viewed as positive for JPM…if JPM opens down with market, buy JPM thru unch


RIMM- warned for next quarter; much of tech will be down in sympathy. If deal announced before open re government and the techs open higher, short big cap tech like AAPL as they are all trading down before-hours; do not confuse the macro with the micro so to speak.

NPSP- announced discontinuation of development of a drug

WB- closed on its low; if negative, will be buy thru unch if market peaks up on deal rumors

TDC- weak yesterday ; looking to short thru yesterday’s low


AM .09/481M .64/502M 1.43/1.84B 1.71/1.84B

GY .15/201M .16/206M .48/778M .69/794M

JBL .31/3.24B .36/3.44B 1.13/12.75B 1.40/13.66B

KBH -1.20/725M -.85/925M -.38/3.07B -.55/2.37B

Not a ton out there…it will likely be as it was yesterday…lots of rapid-fire range-based trading in small size for bigger profits…for instance, if JPm opens at 45 and falls to 44 in three minutes, but the market begins rallying, it is likely a buy at 44.05 for a pop towards 44.50 rapidly with a 44 out. That type of action. That is the environment we are in and everything, once again, hinges on the deal.

Good luck today.

Thursday, September 25, 2008

THURS. SEP. 25- Buffett's 2nd I-Bank Foray

Warren Buffett clearly has had a long and prosperous career in finance. Arguably the wealthiest individual on the planet, he has a net worth some people estimate in excess of $50 billion. He has done many things correctly over the years from accumulating shares of Coca Cola and Washington Post two generations ago to buying numerous successful smaller businesses in a myriad of industries. Wise investments such as these have padded Buffett’s returns over the years. However, one notable ‘miss’ cast a wide shadow over his otherwise stellar returns and reputation. Buffett became one of the largest shareholders of Solomon Brothers post-1987 crash. In 1991, the firm almost collapsed after a bidding scandal over the way it handled some submissions to the trading department re its bonds cast a pall over the company. It got to the point where Buffett was forced to take the reins of the CEO job at Solly in order to try to keep the company afloat- admittedly something he was indeed able to do. All of this is important because Buffett is being seen as the savior of Wall Street because of his stake in Goldman Sachs (GS). Now, the circumstances are obviously different than 17 years ago. Buffett is not taking a position within the company nor does he seek to buy common shares of stock instead focusing on the preferred class. Buffett is one savvy individual and obviously has a shot of making a tremendous amount of money on his investment as Goldman shakes out, but it still doesn’t solve the rest of the financial problems the world faces nor does it mean he’ll be right. He is also betting that some sort of economic plan will be approved imminently. G-d help us all if he is wrong on the bailout much less his investment, but realize that even Buffett is not perfect. For day traders, we’ll be tracking the rumors of the government plan for the next two days at least and hoping Buffett’s GS bet turns out a lot better than his Salomon investment else not only is he in trouble, but the rest of us are as well.

Overnight, markets in Asia were generally down, but the mood seemed to change in Europe as investors are becoming gradually convinced that the U.S. government will do something to bail out the banks. State-side, futures are up as well in the very early going. Trading will once again be rumor-driven and illiquid with all attention on the package but likely with an upside bias as early weakness in GE as shaken off and the tide of believers in ‘the plan’ continues to swell.

Reiterating-If the whole story is not there -
If something is good, assume either a short thru unchanged or an A-B-A2 based on direction of the market unless specifiedIf something is bad, assume either a buy thru unchanged or an A-B-A2 based on direction of the market unless specified


NKE- great earnings

BBBY- in-line numbers, but better than whisper numbers

TMTA – putting itself up for sale

SQNM- very strong yesterday


PAYX- missed on revenues

COF- share offering at 49; if stock opens above 49, short thru 49 else A-B-A2 to upside

FIF – missed earnings

PPC- rumors abundant that the credit of PPC is going south all day yesterday which were confirmed by the company at 1AM; if it opens higher, short thru unch and watch TSN, CALM, SFD for sympathy move

OSK- horribly weak again; looking to short thru yesterday’s low between 9 and 9.05

GU- closed weak; looking to short at 6 or below

TEN- if it opens higher, looking to short thru yesterday’s low around 12.40ish

JOSB- down dramatically; looking for an A-B-A2 snapback if market strong otherwise if it opens higher, short thru yesterday’s low around 31.40ish

FFIV- closed near a low; looking for an A-B-A2 short if it opens lower

GE- warned on earnings


CHTT 1.03/114M .93/106M 3.98/457M 4.54/486M

DFS .36/926M .29/894M 1.52/3.77B 1.38/3.69B

MKC .48/781M .85/959M 2.14/3.22B 2.39/3.47B

MTN -.19/256M -.75/159M 2.73/1.14B 2.31/1.05B

SCHL -1.00/293M 2.14/710M 1.89/2.00B 2.20/2.06B

TXI .87/274M .92/287M 3.55/1.12B 4.02/1.21B


A.CN .67/6.02B .70/6.25B 2.65/23.39B 2.91/25.73B

FINL .17/353M -.10/281M .56/1.32B .68/1.35B

RIMM .87/2.59B .97/2.93B 3.78/10.98B 5.38/15.58B

Good luck today.

Wednesday, September 24, 2008

WED. SEP. 24- Breaking The Buck

Last week, among the notable finance firsts was one thought unfathomable. One of the largest money market funds- The Primary Fund managed by The Reserve suffered a severe redemption of its monies by panicked investors after it was discovered that the Primary Fund actually owned a swath of Lehman bonds. Because of the massive withdrawals from these concerned folks, the net asset value of the fund fell under $1 to approximately 97 cents in a rare instance of what is called “breaking the buck” in the industry. And if you think this doesn’t affect you, well, think again. How many of you own IRA’s, for instance, in which you are not fully invested? Well, much of that money is swept either into a company fund (i.e. a Fidelity money market fund) or into other funds…well guess what, rather than drawing interest on that money, suddenly your hard-earned dough was in danger of evaporating. This caused a mini-panic within the industry and caused the assets of an entity such as The Primary Fund to decrease from $63 billion to $23 billion in two days. This is one facet of the grand government plan; namely, Uncle Sam wants to be rich Great-Uncle Sam in assuring us that our money is safe. In turn, this led stocks like State Street (STT) to trade down to as low as 29 on Thursday before literally doubling since that time. We devote this space to this topic because it is a facet that must be watched over the next few weeks. The credit markets are still in lockdown mode and if people search to see if some money market funds are safer than others, a stampede of outflows could occur which would lead to more panic on Wall Street…and for us day traders, it is yet one more travail to be mindful of intra-day as we keep our eyes out for any added dangers in this risky environment.

Overnight, markets in Asia were generally higher while prices in Europe are near unchanged. Today is one of those dichotomy days discussed in the blog a couple of weeks ago; there is a vote of confidence because of GS, but how does that help everything that is bad? So, the market will likely try to sell off a bit- particularly from up well over 100 on the Dow on the futures which is where they are as of this writing…it will be very choppy all day in all likelihood at a minimum with a decided direction for the bulk of the day likely made by 10AM (until/unless Bernake says something unusual at his 2:30PM appearance).

Reiterating-If the whole story is not there -
If something is good, assume either a short thru unchanged or an A-B-A2 based on direction of the market unless specifiedIf something is bad, assume either a buy thru unchanged or an A-B-A2 based on direction of the market unless specified


SIL- way up yesterday on substantiated rumors; buy on an A-B-A2 or preferably, a short thru unch if it opens higher

MS,GS- particularly strong yesterday into the close; notable…then after the close, Buffett announced his GS investment...looking for A-B-A2 to downside preferably before 8AM ET; since these are not locatable, looking for buy on SKF preferably at 100 or less for quick pop before 8AM ET.

AKNS, SPWR, FSLR- tax credit extended last night for solar companies; should eb good for solar stocks today

SQNM- positive drug news- looking for A-B-A2 of some sort preferably to upside but if news is digested early on, it will likely sell off very early in morning

COF- reiterated guidance and issued shares; usually, share issuance is bad but if tape is strong, may rally as a sign that the company is shoring up capital


DTG- in danger of violating waiver covenant; short thru yesterday’s 2.90 low if it opens higher

AGM- continues weak; looking to short thru 6.50

ENER- horribly weak yesterday; would like an A-B-A2 bounce if oil rallies

ZION- high-quality bank stock; would like A-B-A2 to upside off of open

X/NUE- steels among other materials weak; due for a bounce of some sort

CB,PFG- weak insurance stocks; if market rallies, looking for A-B-A2 to upside

PPC- weak; looking to short thru yesterday’s low particularly in weak market


None before open; here are after-hours:

BBBY .46/1.86B .45/1.89B 1.83/7.44B 2.06/8.02B

CPRT .46/205M .47/205M 1.74/783M 2.06/887M

NKE .92/5.19B .80/4.75B 3.90/20.30B 4.45/22.02B
PAYX .41/541M .41/544M 1.64/2.22B 1.85/2.44B

Good luck today.

Tuesday, September 23, 2008

TUES. SEP. 23 - Effects of Government Action

It is time to really reflect on what is going on. The entire face of Wall Street has officially totally changed as the designation ‘investment bank’ was removed from the facades of Goldman (GS) and Morgan Stanley (MS) as their new moniker is now ‘bank holding company.’ The repo market was so frozen last week that at one point, there was no overnight activity whatsoever between banks. Articles like this one are being published in The New York Post:

NY POST: "Almost Armageddon"

So, the government’s solution to this is to simply try to bail out the bad debts from the banks and let the banks feel free to start all over again. Of course, this is more than a bit of an oversimplification as such a plan requires the approval of both the executive and legislative branches of the government. What exactly will happen is not yet known, but there is little doubt that Treasury Secretary Paulson is committed to doing something. What this “something” will involve will be a ratcheting up of the printing presses. The government effectively has no spare cash lying around as indeed, they’ve already issued bonds to fund the AIG bailout. We began seeing true evidence of this in the last day or so as the value of the American dollar has fallen dramatically, longer-term bonds had one of their biggest descents in history, oil had its biggest tone-day gain ever yesterday intra-day, and equities came right back to Earth. Trading this week will be Dominanted by this story as discussed in Friday’s blog so be ready as the swings will be wild in a relatively illiquid market thus caution and a paring back of trade size are a must this week yet stick around because there will be constant action.

Overnight, markets in Asia were lower with Hong Kong particularly weak, down almost 4%. European bourses are solidly lower as well. Today will be more of the same state-side; there are several conferences planned by various government officials today with trading likely driven by what they say along with a stream of random rumors. Be very nimble as conditions will likely remain thinner than normal due to the inability of some of the ‘short’ players to enter the market.

Reiterating-If the whole story is not there -
If something is good, assume either a short thru unchanged or an A-B-A2 based on direction of the market unless specifiedIf something is bad, assume either a buy thru unchanged or an A-B-A2 based on direction of the market unless specified


AIG- strong all day yesterday; in a stronger tape, may be worth watching if any rumors of dissident buyouts come in

UNP- raised earnings guidance


MGM,LVS- among other casinos ,very weak yesterday

AGM- drubbed amid rumors it will follow in footsteps of FNM and FRE. If it gets there, looking to short thru yesterday’s low of about 7.20.

GGP, BPO- among others, property stocks hit hard yesterday; looking for follow through in weak market or strong rebound in up market.

JPM, RJF, PRU- among others, major financials weak yesterday. Cannot short them, but if they open lower and market look to rebound, all buys thru unch much less A-B-A2 in strength

SPF/KBH – major homebuilders very weak yesterday; same story…look to buy in strength in particular.

EWBC, COBZ, FMER – among other regional banks, closed way off their Friday morning highs. If they open down and cross thru unch if market holding, they will all likely get short covering.

LEN- neutral earnings, but did not issue guidance; instead, they said that the government has to do more to prop up the housing market. Seriously.

FDS_ beat on earnings marginally, but warned slightly for future earnings in noting that that their income may be adversely affected due to AIG, WM, et al.



FDS .64/154M .63/156M 2.46/576M 2.73/672M

LEN -.52/1.07B -.40/1.18B -2.34/4.44B -.17/4.18B


FUL .35/360M .42/372M 1.53/1.41B 1.83/1.47B
WOR .55/916M .43/890M 1.80/3.57B 1.57/3.50B

Good luck today.

Monday, September 22, 2008

MON. SEP. 22- Shorting Is Now Very Hard

Most day traders out there love shorting stocks arguably more than getting long. Why? Because oftentimes, stocks fall much faster than they rise. As a wise friend of one of the officers of ProTrading opined: “It is much easier to destroy wealth than it is to build it up.” Indeed, institutions such as Lehman Brothers, which had operated for almost two centuries saw themselves destroyed in a matter of weeks if not days. Well, as day traders, the only way we can profit from such horrible events (if they are going to happen anyway) is to sell these stocks short. Many bigger institutions have illegally been shorting stocks for a long time now without locating the shares. If one is selling stock he does not have, he has to borrow the shares. Well, if he just sells the stock without borrowing it, he is ostensibly doing a trade with shares that don’t exist. What the SEC did thru Thursday was merely enforce several rules as well as adding a new one- namely, they shored up the clearing process and ordered any fund with a value of over $100 million to daily disclose their short positions. This of course interferes with the market place because it shreds anonymity from the funds although they are indeed forced to follow the rules of borrowing or face the consequences. For the day trader, many clearing firms are tighter with the locate process and there is not as much stock to borrow because everybody is now complying with the rules thus there is not as much stock to borrow for stocks in which locates can be obtained. The big blow, however, came Thursday night in the middle of the night when the Feds decided to disallow shorting of 799 selected financial companies for the next two weeks- a move unprecedented in modern finance. The market is going to go where it is going to go over time, but we’ve seen a short squeeze in the immediate-term as some selling pressure has been taken out of the market. However, the main impact is that it will make many stocks much harder to borrow as well as make the locate process that much more difficult. Thus, while many of us will be frustrated to not be able to short as many stocks as we’d like, know we are simply complying with the rules and making the market the mechanism the government apparently wants it to be to help alleviate the pressures on the financial system.

Overnight, markets in Asia rallied a bit more ,but the rally began to wane in Europe. Futures were getting drubbed overnight before the U.S. government announced that GS and MS were to change their status as investment banks into regular banks thus officially ending Wall Street as we know it. With no official plan announced over the weekend to follow up the government’s pronouncements, stocks look much lower this morning. It will be choppy, but likely down today unless something major happens re the plan or any other trigger in a much harder day for day traders as we are unable to short many of the things we’d like to do.

Reiterating-If the whole story is not there -
If something is good, assume either a short thru unchanged or an A-B-A2 based on direction of the market unless specifiedIf something is bad, assume either a buy thru unchanged or an A-B-A2 based on direction of the market unless specified


Imbalances- same story as Thursday; a number of stocks spiked on the close. If they open higher than the spikes, short at unch and/or if they open below unch, but rally towards unch, buy thru unch. And it’ll be the opposite move with the sell imbalances.


BZP- has rallied strongly with oil..if it opens higher and oils sell off, short thru unch, otherwise A-B-A2 depending on which side of unch it opens.

CTBK- has been very strong; looking to short into weakness if banking stocks weaken

NDAQ- very strong Firday; same story as CTBK

AMTD- see above

WRSP –particularly strong Friday; if it opens negative, want to buy aggressively thru unch.

Banks/brokers- all closed strong; they should open down this morning. If they rally, buy any of them (BK, MS, GS, BAC, JPM, et al) thru unch

MS- annoced that Mitsubishi Bank can buy up to 20% of the stock

MSFT- increased buyback




HIBB- acted horribly on Friday; if it holds unch, want to buy it but if it opens higher and falls through unch, short it

KMX- bad earnings

AZO- bad earnings

Good luck today.