Saturday, October 4, 2008

"Emergency Economic Stabilization Act" of 2008 Highlights & what Day Traders Should Know

WASHINGTON (Dow Jones)--Here are highlights of the "Emergency Economic Stabilization Act" of 2008:

ASSET PURCHASES: The Treasury Department could purchase up to $700 billion in troubled mortgages and other assets through a "Troubled Asset Relief Program" or "TARP." The $700 billion would be available in phases. The first $250 billion will be immediately available to the Treasury secretary. The next $100 billion will be available if the president issues a certification of need. The final $350 billion would come if the president sends a written report to Congress seeking it; Congress could disapprove these additional funds. Treasury's authority to purchase troubled assets would initial ly expire on Dec. 31, 2009, but could be extended.

EXECUTIVE COMPENSATION LIMITS: If the Treasury purchases at least $300 million in mortgage-based assets from a financial institution, that company would lose the ability to take a tax deduction on the amount of salaries that exceed $500,000 for its top five individuals. It also includes a 20% excise tax on golden parachutes payments triggered by events other than retirement.

DEPOSIT INSURANCE: Would temporarily increase federal deposit insurance limits to $250,00 from $100,000 for most bank accounts. The increase on the deposit limits backed by the Federal Deposit Insurance Corp. and National Credit Union Share Insurance Fund would last through the end of 2009. Additionally, the FDIC would temporarily be allowed to borrow unlimited amounts of money from the Treasury.

WARRANTS, EQUITY STAKES: The bill requires the Treasury receive "non-voting warrants" from financial institutions participating in the program. This would be regardless of whether the government is purchasing troubled assets directly or through an auction process, a Treasury official said. That would give taxpayers an ownership stake and profit-making opportunities in participating companies. Foreign banks with a "sufficient U.S. presence" taking part in the program would also have to give up warrants to the U.S. government, Treasury said.

MARK-TO-MARKET ACCOUNTING: The bill restates the Securities and Exchange Commission's authority to suspend the application of the Financial Accounting Standards Board "Statement Number 157" - or mark-to-market accounting - if the SEC determines "that it is in the public interest and protects investors." A study on the same topic is also required.

TOXIC ASSET INSURANCE: The Treasury secretary is required to create a program "to guarantee troubled assets of financial institutions" purchased by the U.S. government. The Treasury is required to establish "risk-based premiums for such guarantees sufficient to cover anticipated claims." Financial firms can choose to unlo ad their troubled assets via U.S. government acquisition or by participating in the industry-funded insurance program, Treasury officials said. Companies that participate in that insurance program would have to pay premiums to insure those assets.

INTEREST ON RESERVES: Provides the Federal Reserve with the ability to pay interest on the regulatory reserves it requires financial firms to hold for capital adequacy reasons in 2008, rather than in three years' time, as it is currently scheduled to do.

FORECLOSURE RELIEF: For the mortgages acquired by TARP, the Treasury secretary is to implement a plan to "mitigate foreclosures and to encourage servicers of mortgages to modify loans through Hope for Homeowners and other programs." Hope For Homeowners was an anti-foreclosure program in the
housing bill passed earlier this year. It requires the Federal Reserve, FDIC and Federal Housing Finance Agency to develop plans to minimize foreclosures.

FANNIE, FREDDIE TAX BREAKS: A tax benefit is included to hel p, primarily, community banks that held Fannie Mae and Freddie Mac preferred stock. It allows them to treat their losses in preferred stock in Fannie and Freddie as ordinary tax losses, rather than capital losses. For individuals, the bill extends through 2012 a provision to minimize the tax hit on homeowners facing foreclosure. This item, passed as part of housing legislation this year, makes tax-free amounts that a bank forgives a homeowner as part of foreclosure or work-out proceedings. Those amounts would otherwise be taxed as income to the homeowner.

OVERSIGHT: Creates a "Financial Stability Oversight Board" to oversee the program, which includes the chairmen of the Federal Reserve Board, the Securities and Exchange Commission; the Federal Home Finance Agency director and the Housing and Urban Development secretary. Also requires the U.S. comptroller general to report to Congress every 60 days about the program. An independent inspector general will oversee the Treasury Department's decisions, which will be subject to judicial review. It also will require posting of transactions online for public view.

TAX EXTENDERS: Would extend roughly $150 billion in tax cuts that have expired or are set to expire at the end of this year, including a two-year extension of the business research tax credit. The tax provisions, which were added by the Senate this week, include a "patch" to protect 25 million taxpayers from the alternative minimum tax in 2008, and an extension of the state sales tax deduction. The latter is important for states that do not have a state income tax, such as Florida and Texas, where residents are allowed to deduct sales taxes in lieu of state income taxes.

RENEWABLE ENERGY: The bill provides a variety of tax incentives aimed at encouraging investments in renewable energy programs, including extending the 30% investment tax credit for solar energy and fuel cell properties through 2016. Tax credits for wind, refined coal and other renewable energy projects are also extended, and the bill adds new tax credits for homeowners who make their homes more energy efficient through the use of small wind or geothermal technology.

Friday, October 3, 2008

FRi. OCT. 3- The Saga of Las Vegas Sands

In an era in which we are daily seeing things that we have never seen anymore, here is a brand new one for most of us. It is common for many new entrepreneurs in small businesses pump in their own money to make sure said operations commence and succeed. However, one does not see this type of action in a company with a near $13 billion market capitalization as we saw on Wednesday. Sheldon Adelson, the son of a cab driver who made a vast fortune on a computer show followed by gambling pumped in $475 million from his own pocket into Las Vegas Sands (LVS). Why did he do it? Basically, the company needed money to avoid violating the debt covenants of its primary lenders at the end of the quarter (i.e. Tuesday). Mind you, Adelson is the 15th richest American according to “Forbes” with an estimated $15 billion fortune. Adelson lent the money to his company at a 6.5% annualized rate with a 2013 target of re-assuming his money. Initially, the market viewed this as a positive move because it shows confidence by a wealthy scion of the gambling industry having faith in the future of his company. But, look a little deeper and one can tell this is a horrible situation. Clearly, the company is suffering from massive liquidity concerns and the gambling business is slowing dramatically in all of its major locations. Most importantly – stunningly- it indicates that the company cannot obtain money from any source than a CEO right about now unless the money is attained at a prohibitive rate of interest. Adelson owns 245 million shares of LVS thus he has every incentive in keeping this company alive, but clearly there is danger here. Initially, the stock popped in the pre-hours on Wednesday in trading a couple points higher to 39. In less than two business days, the stock closed at 26.50, down an approximate 32% from its Wednesday morning levels. As day traders, we need to remember this behavior should it happen again as time progresses because there was a definite trade in LVS (unfortunately, it was not locatable) as this case is a proxy of what will likely happen to other stocks in similar situations.

Overnight, markets in Asia were sharply lower, but Europe is neutral. State-side, the WB deal with WFC will likely place a bid under the market…nobody really knows what with the jobs report coming up and the legislation, but stocks are stronger than the futures would indicate. Look for a short-covering rally of some sort in anticipation of the approval and the fact that the merger of WFC and WB seems to provide inherent value to some of the smaller banks as well.

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


GPN- great earnings

CPWM- up sharply yesterday after getting pummeled in recent days; look to buy thru 2.60ish if it gets there

WFC/WB- well up on 7 dollar a share takeover offer (in stock) from WFC

AIG- reorganizing themselves…could be A-B-A2 to upside

SOV,GGP,NCC- other small financials which may suddenly have more value

PENN- warned on its quarter

KWK- very weak; closed on its low…looking for continuation

POT, IPI, MON, CPO, BG, WLT, CLR- all demolished yesterday; if market strong today, looking for some A-B-A2s on all of them to the upside

AAPL- in peril of breaking par; if market weak, will short below there with a quick trigger out if wrong

HIG, PRU, MET- many insurers ravaged yesterday; if things get bad today, many of these shares could evaporate on all sorts of rumors that one may be the next AIG

CLF, STLD, X, NUE- among other steel stocks has gotten crushed. Looking for massive short covering in any rally.

PCAR- among transportation stocks, one of the day’s weakest. Looking to short thru yesterday’s 32.73 low if it opens higher

UNP, BNI- among railroads which were thrashed yesterday; looking for A-B-A2 rally if market holds

GT- very weak; looking to short thru yesterday’s 13.15 low if it opens higher and sells off

WMB, HK- among second-tier energies that were throttled; looking for bounce in short covering otherwise short thru yesterday’s lows

LIZ-among yesterday’s weaker retailers; looking to short thru 14 in any market weakness

AEM among the miners destroyed yesterday; looking for short covering rally otherwise short thru yesterday’s low

FCL, MEE, BTU, ACI- looking for short covering on a Friday else short thru yesterday’s lows

TRN- particularly weak; did not bounce at all Tues-Wed…if it opens close to unch, looking to short thru yesterday’s 19.95 low



FDO .34/1.76B .40/1.75B 1.62/6.98B 1.70/7.22B

Good luck today.

Thursday, October 2, 2008

THURS. OCT. 2 - Unintended Consequences

This is not a purely economics or political blog nor do we endorse any particular strains of thought in either field. With that in mind, the fields of politics and economics have particularly Dominanted the trading landscape of late in coming to an intersection with the ‘rescue plan.’ This intersection of free market interference often results in unintended and nasty consequences. One of these instances has occurred due to the short selling ban of financial stocks. Now, stocks are going to go where stocks are going to go- they may get there faster if one could short at will, but a fair price can and usually is determined. If Microsoft has $12 in cash, and no debt, one knows it is worth at least $12/a share so it cannot really get below $12 unless forecasts called for the company to hemorrhage money earnings-wise. With this in mind, the inability of the proper market mechanism of shorting has caused some bizarre and volatile moves. One notices of course in conjunction with the first point that every equities market benchmark are actually below their trading levels of two weeks ago. But, in trading terms, the rules have led money managers and fund managers to do things they do not ordinarily do. If you drive a car, you have to have car insurance. Well, when you are a hedge fund manager, you often look for a way to get ‘insurance’ for your portfolio. Since one cannot, for instance, be long Bank of America (BAC) and short Merrill Lynch (MER) right now, one must try to short other things. And this is why on a day like yesterday, one can see C, PNC, JPM, USB, BAC, and MER sharply higher with the broader market down…everything else is being weighted upon. Furthermore, there is that increasing dichotomy of good versus bad financials as well with further complicates things. The net of this for day traders is to watch for even weirder moves than normal in individual stocks as time progresses particularly if things calm down as stock selection becomes key- yet much more difficult due to the constant chaos of this SEC-designed move. By the way, the SEC extended the ban through the 3rd business day after Congressional legislation is approved re a financial rescue or October 17- whichever is earlier.

Overnight, markets in Asia were generally lower with Europe a tinge higher. State-side, trading will be plan-centric anew with a weak start likely due to worries over said plan and the GE pricing of its stock offering. Today looks to be like yesterday with thin volatile trading generally to the downside- the VIX was notably higher yesterday so it is worth monitoring.

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


STI, BK, C, PNC, JPM- all major banks strong yesterday; solid banks getting separated from the bad; if it wasn’t for this sector, the market would have been down a lot yesterday

GRAN- closed very strong yesterday; may follow through today


Fertilizers- all will likely react after MOS warned. Best trades in the group may well be before 7AM ET if there are mispricings compared to 8PM After-hours trading. Look for exceptional weakness in MOS, POT, IPI, MON, and CF. MOS conference call 11AM ET in which they’ll provide some color on the future so be weary around that time in this group (11Amish to 12PMish).

HTZ- along with other rental car companies, closed near long-term low yesterday.

SMSC- bad earnings guidance

CNW –warned on earnings

RRI- very weak last few days; debt may be downgraded…if market weak in particular, looking to short new low.

SLM- closed on its low.

MET, HIG, CB, TRV- among other insurance stocks all weak yesterday
FAST- weak on huge volume

NOC- among other defense contractors, this one was down a lot yesterday…wonder if it follows through today.

DE- way down yesterday; if it turns today against the fertilizer tide after opening down if it does, will be a great buy thru unch.

KWK weak yesterday

WG- closed near its low yesterday

MAR- poor earnings guidance



MAR .32/2.95B .63/4.13B 1.79/13.21B 1.90/13.65B

STZ .44/966M .62/1.15B 1.72/3.98B 1.92/4.15B


GPN .59/396M .55/409M 2.27/1.66B 2.62/1.91B

RECN .25/210M .29/221M 1.13/883M 1.27/926M

Good luck today.

Wednesday, October 1, 2008

WED. OCT. 1 - Finding Value Amid The Rubble

Particularly in the long-run, one always tries to find ‘value’ and pick bottoms after a lengthy market decline. It is human nature for a trader/investor to do so. But really, how do any of us know what ‘value’ is? In the last few days, companies such as Nike (NKE) and Hewlett Packard (HPQ) have announced extensive buyback programs. This is a notable sign that some companies feel that their stock prices have reached levels at which they feel it is prudent to accumulate shares of their own stock. Otherwise, why buy the shares? The only reason to buy stocks in a market like this is not merely to support your share price because the firms can get drubbed which his obviously the last ting shareholders want. Rather, the companies must feel that there must be value in their own shares. Late last week, we may have found a very definitive answer at one company anyway. On September 10, Joy Global (JOYG) re-set the parameters for their buyback program. The Board of Directors of the company increased the authorization for the buyback from $1 billion to $2 billion worth of stock and extended the last day for completing share repurchases to Dec. 31, 2011 rather than the end of 2008. Furthermore, the company is expected to finish the first $1 billion of repurchasing by the end of 2008. The reason this is important is as such: the market capitalization of the company is approximately $5 billion. Thus, JOYG is buying back at least 20% of their shares over time plus whatever is left in their current buyback. With shares of the stock having fallen 50% from their high a few months ago, this is the company’s way of saying that they think the stock has gotten cheap. Ostensibly, they are privatizing up to 40% of themselves in removing the shares from the float. Does this mean with 100% certainty that the stock is going to halt its decline? Of course not. But, again, what it does tell us is that the company feels like its shares have gotten cheap. For day traders, it is a situation to monitor because these buybacks will likely increase in frequency over time plus the intra-day pops the stocks get (i.e. POT on September 12) can be rather extensive. Thus, keep en eye on which companies announce these buybacks because these are the stocks that will more likely do well whenever the market does eventually turn around; furthermore, the more this practice is commenced, the higher the likelihood of a true market bottom.

Overnight, markets in Asia were mildly higher while markets turned slightly negative again in Europe. Rumors are that the U.S. Senate will change 'the bill' nad pass it tonight; in the interim, look for stocks to come in a bit following yesterday's light volume rally in a thin volatile session marked by little news making it difficult today to day trade.

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

Lots of imbalances again:


Either buy thru unch or A-B-A2 to downside because these were all artificially high closes:

FRZ- rallied 65 cents on close

MET- rallied 3 ½ on close

PRU- rallied 4 on close

ALD- rallied 1.15 on close

BK/WFC- rallied sharply on close

GOOG- had bizarre finish yesterday with many trades recalled by NASDAQ; anywhere below 400 on an open is a buy point unless it is due to a downgrade

LVS- The CEO is pumping in his own money - $475 million- as seed capital for the company as a loan

GME- buying France’s largest video game retailer


HIG- all sorts of rumors of exposure to AIG, et al and how bad it is…if it opens down but market strong, definite buy thru unch

NARA- closed very weak yesterday

MECA- down sharply after being forced to amend debt agreements…may follow-through to downside today

FDO- oddly lower yesterday ahead of earnings on Friday

HK- reducing capital sending for the year by 1/3…not a good sign for the company’s future prospects

PDX- warned on earnings guidance



ATU .54/426M .56/437M 2.05/1.69B 2.31/1.77B

WWW .60/325M .51/371M 1.90/1.25B 2.10/1.32B


BLUD .23/71M .22/72M .95/297M 1.21/348M

MOS 2.93/4.12B 3.40/4.67B 13.99/19.04B 16.90/21.61B

MU -.22/1.55B -.14/1.62B -1.26/5.94B -.27/6.66B

Good luck today.

Tuesday, September 30, 2008

TUES. SEP. 30 - The "Why" Behind The Largest DJIA Point Drop In History

As noted in this space yesterday, “(Monday) could be a very scary day.” Well, it was. Why? Why did yesterday happen? Why do the markets keep falling? Most people truly have no comprehension, understanding, or knowledge of what is going on. The credit markets are ostensibly frozen. Nobody can get a car loan. Nobody can get a mortgage. Big entities like banks (Wachovia the latest) to much smaller entities (like five gas stations in a one mile radius of my house) are simply being swallowed or worse- completely shutting down. There has been a tremendous amount of politicking in DC in particular, but all over the place over doing something about it. And really? What else is new? But there is no crying wolf this time. It is not for anybody at Protrading Network to debate the merit of free market economics. So we won’t. But it is indisputable simply by studying the numbers that a bank run at Wachovia (WB) as a simple example that the system is in trouble. WB has $300 billion in loans, $53 billion in debt, and an estimated $42 billion in losses on the loans. The FDIC has an estimated $43 billion left in it. Therefore, any bank run would have depleted the FDIC without the entity opening up taxpayer coffers and would have set up bank runs at other places as people panicked. So, whether the compromised government plan is right or not- although it will take a LOT more than $250 billion in an immediate-term funding to fix this- yesterday shows something MUST be done IMMEDIATELY. Banks are scared to lend, real estate prices are crashing, and goods are sitting at port because entities cannot get credit to ship (look at Dryships- DRYS which has declined 75% in the last few weeks). It will NOT get better until/unless SOMETHING is done to spark hope…and if it does not happen soon, Dow 10000 will be a very distant memory for a long time to come.

The markets are bouncing this morning following the panic selling on the close yesterday as denoted by the watch list below on all those imbalances. So, the markets would be expected to have a slight bounce to offset the unmitigated declines. Also, there is a renewed sense of hope that something will be done in Congress this week. And as was denoted in "The Shawshank Redemption," hope is a good thing. Look for very thin illiquid rumor-driven trading today albeit slower than yesterday as many market players will be away for the bulk if not all day because of the Jewish holidays.

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

Lots of imbalances again:


Either buy thru unch or A-B-A2 to downside because these were all artificially high closes:

FED – rallied 1 ¾ on close

HEV- rallied 1 ½ into close

HTM- rallied 70 cents into/at close

VSE- rallied 60 cents into close and another 90 cents on close

VLNC- rallied 60 cents into close


Either short thru unch or A-B-A2 to upside because these were all artificially low closes:

GOOG- broke 10 points on the close; 381 artificially low close.

STT- broke 4 on the close; 44 very low close

BK- broke 3 ½ on close

WFC- broke 3 ¾ on close

C- broke 1 ¼ on close

JPM- broke 4 on close

GE- broke 1 on close

BAC- broke 1 ¾ on close

MER- broke 1 ½ on close

SPWR- broke 15 on close

COF- broke 3 ½ on close

PRU- broke 4 on close

NTRS- broke 7 on close

ZION- broke 4 on close

COMV- fell 60 cents on close

CELG- fell 6 on close

FCEL –fell 60 cents on close

GILD- fell 2 on close

HCBK- fell 1 ¾ on close

FITB- fell 1 ½ on close

CME- fell 35 on the close…yes, that’s right…35.

DTV- fell 2 on the close

TROW- fell 6 on the close

PNC- fell 2 on close

CVX- fell 2 ½ on close

AFL – fell 4 ¾ on close

DDR – fell 3 ½ on close

AXP- fell 2 on close

TRV- fell 6 on close

UNH- fell 3 ½ on close

MET- fell 3 ¼ on close

MI – fell 2 on close

BBT – fell 5 on close

PNX – fell 1 ½ on close

SOL – fell 1 ¼ on close

CNO- fell 80 cents on close

RF- fell 1.75 on close

AMTD, ERTS, AMGN, EBAY, DELL – among the many big cap NASDAQ stocks that closed on their lows on huge volume

PGR, CB, MIR, EP- among the insurance and utility companies belted…all closed on their lows

Oils/metals, et al- all ravaged yesterday

Good luck today.

Monday, September 29, 2008

MON. SEP. 29- The New King Of Banking

Sometimes, a deal can be really really good. On paper, this certainly seems to be the case with JP Morgan (JPM). For $1.9 billion, they received access to all of the deposits at Washington Mutual. As of June 30, the bank had deposits of almost $200billion; amidst a quiet bank run, about 10% of this was withdrawn in the last two weeks bringing the bank below its key capital requirement ratios. Yet, for a measly sum, JPM acquired the access to all of this capital and simply wrote off all of the bad debt. This of course is phenomenal for JPM should the banking system work out as they now have deposits to loan out, a mortgage business via Countrywide, and a brokerage arm via Bear Stearns. However, it also did something else- it staved off a Great Depression. We are well aware how that it sounds, but stick with us. The FDIC has less than $50 billion in funds. Washington Mutual has tremendous amounts of bad debt. So, if depositors went to get their money out, the loans much more than offset the deposits. And suddenly the FDIC has no money (although the government would merely turn on the printing presses to fix that one in all likelihood). And then people rush to Washington Mutual. And then the media gets involved. And then people go to other banks to take their money out. And suddenly, there is no banking system. That is how close we were to the precipice on Thursday night and it is also why for the first time in its history, JP Morgan announced a major deal on a Thursday rather than a Monday. As it is, there is a major credit lock-up; dry bulk ships cannot leave ports right now because they cannot receive funding to go as they have no access to their credit lines. So, if everything turns out OK, JPM will be the go-to bank and if not, you know, it just won’t matter. As for day trading, realize the good and bad dichotomy will continue and intensify as the system is cleaned out no matter how this deal turns out.

Overnight, markets were hit very hard throughout the world with Hong Kong down 4% and markets throughout Europe down 3% across the board. The perception is that Europe and Asia are not joining the fight with the U.S. plus ‘the deal’ is not going to solve much of anything in its compromised state. Thus, stocks will open sharply lower state-side. With no monies forthcoming imminently from the government coffers and a Jewish holiday tomorrow, it could be a very scary day today.

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


C, WFC- trying to take over WB…would be good for company if they get same sort of deal JPM got with WM.

MNI- avoided a default notice by refinancing; stock should be higher else short thru unch

RZ- strong all day Friday

IDEV- up on strong good news..would love an A-B_A2 pattern near Friday’s high at which point it is a buy thru that 3.80 high

CCOW- exploded on a short squeeze late Friday afternoon

BAC,WFC- had huge buy imbalances on close; if they open unchanged, they are actually sharply lower from 3:59PM on Friday and would buy a weak open if market rallies

WB-discussing a deal of some sort with C…if deal goes through, will probably be take-under and if deal does not go through, bank needs capital so not good either

AGU- crushed after downgrade; looking for bounce with other stocks in industry else short thru Friday’s low of 63.30

SVNT- poor drug news; looking to short thru Friday’s 15.66 low

GNW, FED- among others, these got destroyed on Friday…cannot short them so they are worth watching and even an A-B_A2 to upside if they open higher and hold unchanged

TRA- down in sympathy with AGU in similar downgrade

SDA- chicken producer ravaged on Friday; looking for a short thru 9 on a down A-B_A2 pattern if it sets up


CALM ? ? ? ?

SCS .22/866M .25/886M .89/3.44B .97/3.46B

WAG .45/14.69B .51/15.35B 2.18/59.12B 2.45/64.74B


CMGI ?/270M ?/297M ?/1.11B ?/1.21B

Good luck today.