Saturday, March 31, 2007

Hedge Fund Rankings

Plenty of food for thought from HedgeFunds Weblog with its listing of The Top Ten Global Hedge Fund Firms, along with a variety of other interesting pieces.

Friday, March 30, 2007

Quick Recap

True to its historical track record the final week of March proved to be a downer even with so called Window Dressing. The Dow Jones Industrial Average rose 5.60 to 12354.35, but it finished lower overall for the first quarter by 0.9%. The blue-chip index rose eight of the last nine months, but fell two of the last three weeks. The S&P 500 declined 1.67 to 1420.86. It finished the quarter up 0.2%. The Nasdaq Composite Index was up 3.76 to 2421.64, ending the quarter 0.3% higher. It has risen for seven of the last eight quarters.

And now we're upon April and Aprils have not been particularly friendly to the market bulls over the last couple of years and over the last 10 the strongest Aprils were by and large during the roaring 90s. Why are Aprils difficult months? Earnings. 1st quarter earnings season will kick off in a couple of weeks. The expectation is for 4% year over year growth in 1st quarter EPS for the S&P 500... and what's the forward p/e of the S&P... and bulls on CNBC are saying it looks cheap?

The week ahead is likely to be a bit quieter than usual because of the Passover holiday although trading volume during the past week was again on the light side in general. Financial markets will be closed on Good Friday for a long Easter weekend.

As far as I know, the Labor Department still plans on releasing its monthly employment data on Good Friday even with closed markets. Non farm payrolls are forecast to come through at 135,000. This Wednesday (4/4) ADP will release its employment report.

Since the Japanese carry trade unwinding started to creep back into the picture during the past week and had a noticeable impact again on the stock market, many eyes will be on Monday's release of the BOJ's Tankan survey. A reading of 24 is expected by economists in the quarterly reading of business sentiment in Japan.

As if a growing trade rift with China isn't bad enough for the dollar, this little ditty on the dollar's falling share of global reserves also doesn't provide much comfort

Sunoco (SUN) is poo pooing speculation concerning a possible takeover of Sunoco (SUN). Call options activity has been running at 24,000+ vs 3,200 puts with call strikes trading up to $80. theflyonthewall says implied volatility at 30 is actually below historic volatility "invalidating takeover chatter". thefly's comments are carried via the Bloomberg system on trading desks around Wall Street and its worth noting that after the note came out the stock eased off the highs of the day. I'm not sure I buy the low implied volatility argument given the heavy volume; these aren't a few folks from chatrooms buying up these calls. This is something to keep an eye on. The rumored suitor, by the way, is ExxonMobil (XOM).


This one got by me with all the action in DNDN. A no brainer short going into the report now that the Administration is pushing us down the ethanol road at all costs: Corn Plunges 5% as US Farmers Plan the Most Acres Since 1944. Every farmer wants in.. heck, I'll be growing some in my lower 40 here in suburban NYC.

Ceridian (CEN)

Is there private equity interest in Ceridian? Reuters seems to think so: Bain, Blackstone among Ceridian bidders - sources. $40 a share is the rumored takeout price, though options activity is dead.

The Yen for Yen

The Japanese Yen is up more than 50 points in futures trading and that has helped to knock the stock market into negative territory today. 1410 continues to be my area of greatest interest on the S&P 500, that was the low of the day when the market rallied after the FOMC announcement last Wednesday. A close below that mark today would be bearish in my view and set us up for a white knuckle Monday. So far today, we have had a test of that area and the market is attempting to bounce off the lows. By the way it's not just dollar vs yen that's weak.. how 'bout dollar being at a six yr low vs the Brazilian real of all things.

Also continue to keep a wary eye on the price of crude - still above $66 and news out of the Middle East. These are the wildcards as well. Resolution of the Iran-Britain problem would likely send crude slumping and spark a relief rally in stocks.

I unloaded a good chunk of my Dendreon (DNDN) March 7-1/2 calls this morning at a profit of 733% for which I am grateful and ecstatic over. Since I make a living trading, a big boost like this is good and keeps food on the table, etc - so no complaints at all about my profit even if it was a bit below the highs since in some ways it really is almost money for nothing. After rising to as high as $19.45 in pre market the stock is up 159% at above $13 under minded a bit by some pretty bad analysts at firms like Lazard and UBS who are saying there's a good chance the full FDA could delay Provenge's release until 2010. These are the same analysts who were telling us Provenge had virtually no chance of making it through yesterday's CBER meeting. Even worse than taking away some options gravy from the speculators, the analysis from these frauds puts doubts in the minds of the people who are suffering from the disease. Wickedness and perversity reigns supreme among those who wear pinstipes and wingtips in the Wall Street office environment. I will hold the rest of my calls to see what happens in the coming days.

Yesterday the likes of Bear Stearns and Indymac had the nerve to say that subprime remains contained. Here's something from the real world camp: Bank of America Says Housing May Trigger `Correlation Crisis'.

I'm going on vacation next week, but will continue posting.

Morning Market Comment

It's all well and good that my Dendreon (DNDN) call position is going to skyrocket today (I have the April 7-1/2s), the real victory is for the victims of prostate cancer who will soon have another treatment option available.

Indymac (NDE) has been going to great lengths to say all is well in its ALT-A lending world even touting recent purchases of shares by insiders. BOFA is not buying it - affirming its SELL rating this morning. Bank of America says keep an eye on NDE's current delinquencies.

The usual suspects are defending Dell (DELL) shares this morning... Pru, Citigroup saying to continue buying the stock. Cowen is Neutral wondering if Dell's historic margins were lower than stated...hmmm. Think reiterated its Sell.

Stock futures point to modest opening gains ahead of economic data (see last night's "Curtain Raiser" for the low down). One notably absent rising group in the market yesterday - the chips again as the SOX underperformed as cracks in the chip world continue to appear (eg warning from RF Micro, or insider sales by MU just in the last few days).

Speaking chips - Intel providing details on its next family of chips.

Credibility is not in the dictionary at H&R Block-head: H&R Block remains in talks to sell Option One unit

Some like it cold, some like it hot, some do not like a crude rally 9 days old! WTI holding above $66 on Iran tensions and the headlines this morning aren't looking too good.

This is something to keep in mind: U.S. may impose sanctions on China

Thursday, March 29, 2007

Friday Curtain Raiser

I spent a great afternoon getting to meet a couple of top notch guys from the blogosphere today in New York City, though blogging is only part of what they do.

There's some important economic data on tap for Friday morning:

-Personal income and spending at 8:30 ET each expected to rise by .3% for February.
-NAPM Chicago is expected to rise to 49, which would still indicate weakness in manufacturing in the Chicago region.
-A 1% drop in construction spending is expected when figures are released at 10.
-Also at 10, the latest on consumer sentiment from the U of Michigan. Its sentiment index expected at 88.8.

Crude oil and tensions in the Middle East will continue to make for volatile markets. Crude is up another .9% tonight rising deeping into $66 territory.

There will be a few interesting movers in the market tomorrow.

Dendreon (DNDN) will explode to the upside on FDA panel backing it received for its Provenge prostate cancer immunotherapy. It's stock was halted today. DNDN's Provenge stimulates the body's immune system to fight prostate cancer and is the first of its kind therapy to receive FDA panel backing. Formal FDA approval is expected before May 15th. The drug was so effective in trials that some test subjects are alive after more than 3 years, though shorts have harped with futility on a missed goal of reducing "time to progression", or advacement of cancer. When it was realized that Provenge achieved the 'gold standard' of extending survival, the treatment was given priority review earlier in the year leading to today's decision. More than 25% of the DNDN's float is sold short; so the combination of a first of its kind cancer treatment making it through the FDA panel and massive short interest should make for interesting trading tomorrow in the stock.

Other biopharmas rallied on the Dendreon news. Cell Genesys (CEGE) jumped 26% in after hours trading, Biomira (BIOM) surged 17%, Genitope (GTOP) rose 16% and Genvec (GVEC) rose nearly 9%. The Dendreon victory today is expected to spur more immunotherapy development as much as that makes the chemo poisoners cringe. What was up with that FDA panel reviewer Harold Sher from Memorial Sloan Kettering today at the panel meeting - simply vile and hateful toward the idea of something that has little in the way of side effect and enables prostate cancer victims to live longer. I can just imagine the guy's bedside, "What! You only vomit 4 times a day, you've still got some hair left and your red blood count is only down 10??!! You need more of our chemo!!"

Will Friday be H&R Block's (HRB) date with destiny? The company had been aiming to sell its OptionOne mortgage division by the end of the quarter.

This gets uglier with each new revelation: Dell finds evidence of misconduct in finance probe.

And the ball is only starting to roll here: REFILE-UPDATE 2-Homebuilder Beazer gets grand jury subpoena

On the mortgage front: Even the million dollar homes are getting hit.

A new definition for DENIAL: Bear Stearns, IndyMac Say Subprime Woes Won't Spread (Update2)

Morning Market Comment

I've got a loaded schedule today, so this post will be brief and posts today will be limited.

As noted last night things had simmered down considerably for stock, energy and currency futures and as the night progressed stock futures gained a modest head of steam and are a bit higher this morning. As I've noted over the last few days, that low point of the FOMC meeting day in the neighborhood of 1410 remains an area of key interest. If we break below it, very bearish implications, but certainly if we can stay above it - yesterday SPX finished at 1417 - the bulls are still in the game. We'll see how much game they have with the market set to move higher. One positive for the bulls today - Yen futures are down more than 60 points,

Today's economic reports are supposedly, at least according to the mainstream media, giving the markets a boost - a final revision of GDP to show 2.5% economic growth. I would only remind, that there is this thing called the first quarter that's coming to an end and that very strong March economic activity is needed to keep GDP above 2% first quarter from after weak January and February data. Jobless claims also moved to a two month low.

Boone Pickens was on CNBC this morning. He says, "you will see oil at $80 before you see it at $50". I have no reason to doubt this guy given a wide range of factors which I don't have time to write about this morning. Crude up again today, creeping toward $65 which could certainly be a negative factor on equities if it continues to advance today.

I finally threw in the towel on KB Homes (KBH). Yes, that was my 7.1 mln share block that crossed the tape this morning handled by Lehman at between $43.10 and $43.50. KBH down 1.6% following that trade, and of course I'm only kidding about it being my trade.

Dendreon (DNDN) will be halted most of the day as the FDA decides the fate of the company's Provenge immunotherapuetic for treating prostate cancer. My father had this dreaded disease which killed him in 2005; it was a miserable and painful experience at the end for him. Well beyond the potential return for investors, I'm hoping that for sufferers of the disease that Provenge really offers another option in what is a situation of very limited options once the disease progresses to its advanced stage.

I mentioned Circuit City (CC) last night. Jeffries this morning notes that the "sweet spot" in the flat panel tv sales cycle has already passed which could hurt earnings as well as valuation. I just see trouble here going into earnings for both CC and Best Buy (BBY).

A steal of a deal? US Steel to Acquire Lone Star Technologies for $2.1 Billion.

Bear Stearns doesn't view a takeover of Hershey (HSY) as likely. Don't have time to put up a chart of HSY, but looking at it last night... it has reached a classic triple top point.

Pete Stolcer's has a full list of movers this morning.

Wednesday, March 28, 2007

Thursday Curtain Raiser

Brief post tonight due to family related stuff (fun).

Compared with the fireworks of late yesterday afternoon's brief crude oil surge and revelation of an FBI investigation of Beazer Homes (BZH) things are mighty tame this evening. U.S. stock futures are little changed tonight.

Thursday's economic data releases include a final revision of 4th quarter GDP, expected to hold at 2.2% growth and the weekly jobless claims which are expected to rise by 4 thousand to 320,000.

Dollar has stabilized as well this evening, but with Japanese fiscal year end repatriation going on, yen-dollar trade will be volatile this week. I will do more on Yen to SPX relationship tomorrow morning.

S&P 500 is perched at its 10 day moving average. But test of 1410, previous resistance is what I'm looking for. 1410 is also pre-Fed meeting rally. After that it's the 20 day moving average to look out for.

By the way... what's up with this chart? Why did bank credit fall off a cliff???

Circuit City to cut more than 3,500 jobs is the non desript headline on the Google Business headlines page. Putting my nifty headline translator decoder ring on, it should really read: "End of Quarter Layoffs At CC Signal Earnings Miss Ahead". Lee Scott yesterday was winking and nodding that things are starting to slow down at Wal Mart; so if CC is cutting thousands of already low paid floor workers to replace them with even lower paid workers - sounds like the quarter wasn't so hot - or is just me be silly?

Good night.

Dendreon (DNDN)

CNBC's coverage of Dendreon (DNDN), the developer of the Provenge prostate cancer drug that's up for FDA review, has been well informed and well balanced. I was pleasantly surprised by the coverage. One analyst on their coverage said today that Provenge, "has the greatest survivability for any 3rd line cancer drug......" CNBC's unofficial FDA panel vote tally is 6 Yes, 4 No and 7 Undecided. Following the release of the vote tally, DNDN shares rocketed further, presently up 15%.

The more fascinating story is in the options trading. Call options volume in the April and May contracts totals nearly 190,000 contracts today with the April 7-1/2, Apr 10 and April 12-1/2 volume out-trading open interest! I've traded options since 1988 and have not often seen this sort of thing happen.

DNDN will be halted tomorrow while the FDA panel review is conducted. Whatever the outcome, trading Friday will either be explosive to the upside (perhaps above $12/shr), or the stock will collapse below the $2 mark.

Disclosure: Long and hedged position in DNDN.

Durables Follow Up

Please see Prof Nouriel Roubini's assessment of Durables. It is indeed the Capital Goods numbers that are alarming: It is astounding that Bernanke continues to pump the 'moderate' growth line.

Ahead of Quad Core, Big Price Cuts from Intel and AMD?

The battle between Intel (INTC) and AMD continues and is about to rachet up a few notches.
Thus far AMD has played the role of the 'black knight'.

The "M" Ticker Is Finally Going To be Used Again

Macy's will take the ticker M at the Big Board, meaning the NYSE has given up on reserving it for Microsoft (MSFT). Wasn't M previously used years back for a Texas bank MCorp? I believe it was - one of the biggest FDIC banking bailouts back in the 1980s.

No Change In The Script

Agent Paulson is quoted on Reuters as stating housing "at or near bottom". Says the Treasury Secretary, it looks like "housing issue is going to be contained."

Ben Bernanke, meantime, sticks with his forecast for 'moderate' economic growth.

Thanks guys for the useful economic analysis!

Morning Market Comment

The market is bracing itself for Ben Bernanke's appearance at 10:30 before the Joint Economic Committee. Bernanke's been on the high wire and it will be interesting to see the balance he strikes between talk of saving the housing market or a need to be vigilant on the inflation front, or if he emphasizes one vs the other. The 30 year bond yield has been climbing, especially since the Fed rate decision/murky statement. The 30 year has fallen in the face of weak economic data in recent days as the chorus grows for Fed rate cuts to shore up housing.

The point being - a dovish Fed has not been well received by the bond market and that further strong hints or lowered short term rates by the Fed could interestingly enough push yields up on the securities that... bingo - impact mortgages. One side note: the yield curve has un-inverted itself in recent days as long rates have gone up and that sure doesn't mean risk of recession is gone - it seems to me that it means disorder and uncertainty abound as the Fed faces inflation and a weakening economy. Such fun!

Bernanke won't be getting much support from the markets today which are in a dither over everything from an FBI probe of Beazer Homes to Middle East tensions. Even today's durable goods orders data looks feeble: U.S. Feb. durable goods orders rise 2.5%.

Beazer Homes (BZH) down 11% on word of the FBI probe. Full Charlotte Observer Story. What other names? National City (NCC) mentioned in that Charlotte story as a key lender and that's worrisome; a name like NCC out of the blue is flash in the frying pan. That to me is called 'spreading contagion'. Other names? That's something everyone will be digging into. Home builder stocks across the board weak and a very sullied looking group this morning.

Wachovia is telling clients NOT to bottom fish BZH shares, seeing significant downside.

Crude oil, energy continues on the rise. We'll see how things shake out at 10:30 when the inventory data come through.

At the very least for the stock market, 1409/1410 area is what I am eyeing for support; that area was a resistance area for a brief time as the market rebounded.

GM is reported to be out of the running for Chrysler.

Does Cadbury's chief have a taste for more than a Hershey bar? Of course, such a deal would be difficult given the company's stock ownership structure which dates back to the wishes of founder Milton Hershey. Interestingly, Hershey's implied volatility is just 17.

Potential buyers still eyeing Palm: source.

The Journal reports IndyMac's (NDE) chairman and a director bought $1 mln worth of the mortgage company's stock.

Yahoo will soon be rolling out unlimited email storage.

Pete Stolcer's has a full list of movers this morning.

Tuesday, March 27, 2007

Wednesday Curtain Raiser

Are we going to be waking up to the sight of mushroom clouds and the napalm in the morning? From the way crude oil traders behaved earlier you'd think that was what was in store. Earlier crude spiked above $68 on rumors, since denied, that Iran took shots at Navy warships. Crude has since eased back to about the $63.90 level. April RBOB is up to a whopping $2.09 a gallon rising with the rest of the complex and ahead of tomorrow's DOE inventory data. Analysts forecast a 1.8 million barrel gasoline draw for the week ending Mar. 23, along with a 1.6 million barrel rise in crude stocks and a 1.2 million barrel draw in distillates. Natural Gas is up another 7-cents helped along by Accuweather's forecast for an active Gulf of Mexico hurricane season.

Speaking of things energy: China is paying for Iranian oil in E u r o s. That's happening as Iran reduces US dollar exposure.

Gasoline at over $3 in California and in the high twos nationwide can't be good for homeowners on the brink and certainly isn't good for consumers in general. Just ask Wal Mart: Wal-Mart CEO says cautious as fuel prices rise.

February durable goods order data is due at 8:30. After a slump in January a rise of 3.4% is expected.

But all of that may seem trivial as Ben S. Bernanke - Fed chairman, helicopter drop pilot, printing press operator and provider of Bernanke 'puts' to the financial realm - makes an appearance to the Joint Economic Committee. Reuters preview here. Under what was supposed to be a more transparent Fed there seems to be more confusion than ever. So who better to unravel the mysteries? Congress, of course. Some folks seem to wonder why there's so much confusion; I think it's by design. Heaven help the markets if Bernanke were to explain, or better yet, confess, what's the Fed and the Treasury are really up to. All it will take is for Ben to say all is well and the market will be up 500 tomorrow. Seriously, it will be interesting to see just how serious the market takes Bernanke at whatever word he gives on Wednesday.

Can no one tell the truth anymore? What's turning out to be a big lie from Microsoft about Vista continues to snowball. Microsoft fudging facts on Vista sales? What about Office 2007?

It looks like a 'fun' day ahead in the markets tomorrow.

Late Day Crude Surge

While crude came off the highs after the Navy denied rumors Iran fired on U.S. Navy Warships (click here), it remained well above the lows of the session. Trading this evening will be very interesting.
A $6 trading range certainly is not an everyday occurrence that's for sure!

Maybe This Is What It Will Take To Send Home Builders Slumping?

Beazer (BZH) getting looked over by the Feds.... a story developing this evening. A Beazer Wheazer... stock down over 16%

Flashback.. it was just last week that the CFO left Beazer.:
That's always got to be a good red flag and it's why some of us are wondering what's been going on at GM's Rescap with the recent departure of its CFO and a number of other top execs.

Vista Sales Follow Up

This morning I linked to a report that stated Microsoft (MSFT) sold 20 mln copies of Vista. I admit I was groggy and didn't have my usual critical eye quite on. A commentator has alerted me to this write up.,1895,2108207,00.asp. It makes more sense. Thanks, bofiz!

Late Session Comments

H&R Block (HRB) options trading is picking up again. More than 7000 April 20 puts have traded with implied volatility rising to 56. Even the less active April 17-1/2 puts which were offered yesterday at only .15 were offered as high as .30 today. The company had targeted the end of this quarter to sell its OptionOne mortgage division. There has been active call trading as well.

Natural Gas is up 3% at $7.49 per decatherm. Accuweather says last year was just a breather.

April 6 0400 hrs mark it down on your calendars. Oy vey, I kid you not! I realize Debka is Debka, but that one takes the cake.

A Few Quick Notes

There's excitement surrounding shares of Adobe (ADBE). It has launched Creative Suite 3 (CS3). KRBO today has lifted its price target from $45 to $50 saying earlier than expected release is a positive for the stock.

Microsoft (MSFT) Windows Vista sales reportedly top 20 million.

Citigroup initiated Amgen (AMGN) with a Hold and $64 target saying Growth At Reasonable Price (GARP) is likley underway.

Soliel rates Google (GOOG) a Hold saying DCF valuation pegs the stock at $417.

HSBC downgraded Newmont (NEM) to Neutral from Overweight.

Thinking about buying a Kodak product?
Eastman Kodak Ditches Better Business Bureau

Big pre-market rally for Gamestop: GameStop net income jumps in 4th quarter

Morning Market Comment

Consumer Confidence data comes our way at 10:00 this morning. A drop of a little more than 5 points is expected. I'm not ruling out a bigger than expected drop, though the Conference Board does the bulk of the survery earlier in the month (obviously since its a March survey out on March 27th) so certainly the stock market jitters would have been captured, but perhaps not the snowballing impact of subprime. We'll see. These numbers are also greatly impacted by the health of the labor market and with official stats still showing "low" overall unemployment, we'll also have to see how long it takes for the Conference Board's index to fall below the 100 level.

Late last night Target put out a pre-recorded message saying it will meet its goal for March same store sales to rise by a hefty 11 to 13%. Target had predicted the big March gains due to early April arrival of Easter. Strong retail sales in March will be vital in pumping GDP figures for the first quarter, especially since it's looking like consumer spending as of January and February is running at a little over 1% annualized in real terms (when adjusted for inflation).

Lennar, the home builder, reported this morning. Quote of the day from the company's CEO: "While some markets are performing better than others, the typically stronger spring selling season has not yet materialized." This is running exactly as I've been expecting. Even at the non profit that I'm treasurer of the board tried to take a property we were selling late last fall off the market in order to wait for the strong spring selling season. I urged them not to do it expecting this type of weak spring scenario. Fortunately they kept the property on the market and we sold it. My theory remains that folks who took their homes off the market during winter will flood the market with additional inventory as spring progresses only hobbling the real estate market further. As for Lennar - it is just amazing how they managed to match Wall Street estimates with a profit of 43-cents and managed to modestly beat on the top line with $2.79 bln in revenue - which is why I opted not to buy the puts yesterday. The games are amazing with these home builders. But at least this time around, Lennar management had the decency NOT to issue guidance and withdrew its 2007 forecast.

Later today: Regulators face grilling over the subprime debacle.

DaimlerChrysler shares are on the rise this morning. Private equity groups lining up backing for Chrysler bid: Detroit News

Soros holds 6.4 pct AudioCodes stake--SEC filing.

Pete Stolcer's has a full list of movers this morning.

If you're in the hedge fund industry, HedgeFunds Weblog has some warm thoughts.

I'll have a look at some Wall Street analyst comments a little later.

Monday, March 26, 2007

Tuesday Curtain Raiser

There will be more grilling on Capitol Hill over this subprime mess. This time the House Financial Service Committee gets a crack at questioning various regulators.

Let's hope those regulators don't try to again say subprime isn't contained to subprime, because the evidence is mounting that the problems in subprime mortgages are spreading:
Subprime mortgage crisis may hurt auto loans -S&P.
Oh, but wait - they're still are saying it's contained: Subprime Woes Not Impacting Credit Market, says NY Fed Chief. Silly me.

As the Barron's interview of Sy Jacobs noted over the weekend, we're in the midst of a 'slow motion train wreck' (in subprime) that's picking up speed. Where not along ago the signals were ducky from the credit ratings agencies, the guidance in recent days has been swinging gradually towards worsening assessments: S&P raises 2006 subprime mortgage loss expectation, Fitch: Subprime Woes May Cause Problems for US RMBS Servicers.

GM was up 26 cents Monday, but what's going on at its Rescap division? The Gale Warning Red Flags are Up IMHO.

So with my inside source on the real estate market right here at home (my wife), the slide in new home sales was not a surprise. This Northern Trust pdf gives quick analysis and provides some excellent visuals to give you a look at just how deep in the crapper the housing market is.
And ultimately, Mrs. K tells me, the existing home sales figures are also going to get flushed down the toilet (my words not hers) as well.

As I blogged somewhere here, or maybe I was talking to someone (this is bad when blogging and the rest of life get confused and mixed together) about this, economic activity this month (March) is going to have to be spectacular give the weak housing, retail sales and manufacturing numbers we've seen for January and February to keep 1st quarter GDP from falling below 2%.

Consumer Confidence data from the Conference Board is due at 10 ET. In February it reached 112.5 its highest level since August of 2001. Its predicted to slip to 107 for March. If it doesn't take a surprise plunge tomorrow, look for a slide next month. Unless the methodology has changed, the bulk of the Conference Board survey is done closer to the beginning of the month; while that may capture some negative feelings about the stock market swoon, it may not have picked up the snowballing impact of subprime. Eventually, I feel subprime will crater Consumer Confidence.

Tonight, Google News lists 139 stories similar to this one: Subprime bust forces families from homes, and that's got to have a fearful impact and will eventually show up in confidence numbers.

I'm still holding my gold futures position and happy. Gold rallied following the New Home Sales data as bonds took off and the dollar fell. The dollar just doesn't get any respect these days. Just the other day I posted about the IMF's desire to see dollar depreciation. Today word that China holdings of U.S. debt not a problem should a "shift" in allocations occur. I would take that to mean, Ben Bernanke would just order up the printing of more bucks.

Lennar (LEN)

Lennar (LEN) and Gamestop (GME) will be among the most notable companies posting earnings Tuesday morning. At LEN Earnings of 49c are expected on revenue of 2.54 bln - down from the year before of course. It was oh so tempting to pick up LEN puts this afternoon, but I refrained. If the world were normal and things worked the way you would expected them in above board manner, a put bet would make perfect sense. But with all sorts of accounting tricks available to home builders to delay write offs and the option for home builders to call a bottom in the housing market each quarter with impunity, buying puts ahead of earnings seemed too risky. If the bottom falls out tomorrow, it won't be a one day affair and there will still be the opportunity to buy puts. A real selloff after earnings in a home builder would also be a significant event and mark a nastier turn in sentiment against them. But given the ability for home builders to promise better times ahead and sugar coat - who knows? LEN could rise tomorrow. Maybe I've become too much of a cynic.

LJ International (JADE)

We contacted LJ International (JADE) investor relations today for an update on whether the company is any closer to issuing a news release concerning the date it plans to announce earnings. Managing Partner Haris Tajyar would only say that the company is in the "process of completing our audit." Tayjar was unsure when the audit would be completed.

Whenever there's a situation where earnings are running late and the word 'audit' is muttered, there the potential for downward pressure on a company's stock. JADE shares are down nearly 3%.

While this may pressure shares in the near term, my bias on this one remains bullish, though with any 'auditing' related situation be prepared for anything.

New Home Sales

As I warned over the weekend... The Friday existing home sales data was corrupt and not reflective of what's going on out there. How can you have existing home sales surge, while new home sales are falling? As I said, certain distortions contained in existing home sales are NOT contained in the New Home sales data. Plus, you need to consider who puts existing home sales together: the National Association of Realtors which bases its numbers on a sampling of MLS data. As a result a completely different reading on New Home Sales: New-home sales fall to 7-year low in February. Sales data for December and January also revised lower.

Morning Market Comment

This is the last trading week of March. Many have been talking about 'window dressing' support for the market this week. All this talk about 'window dressing' makes me think about a good salad 'dressing' more than anything else and not about bad assumptions with respect to the stock market. I've really taken a liking to a combination of Ken's Raspberry Walnut drizzled on along with some Marie's Blue Cheese salad dressing... mmmmm delicious! As for the stock market and "window dressing" and the last week of the month, if you're like me and enjoy leafing through historical data one thing you'll fine is that the last week of March has been an up week for the market only a few times over the last 15 years. It does, however, as if we're off to a higher start this morning. S&P 1438-1440 is an area of resistance that I'm looking to see broken to confirm last week's upside breakout.

Charles Prince is trying to keep is job as chairman and chief exec of Citigroup. For him to survive, it looks like 15,000 will lose their jobs.

Tiffany up 2%.. earnings pretty much in line. The company's wealthy customers are actually shifting expenditures toward more expensive diamonds.

Hey Abbott (ABT)! Abbott Xience stent superior to Taxus in key study. This has led to a round of analyst cut for Boston Scientific (BSX).

Pete Stolcer's has a full list of movers this morning. This is a link that I will feature on a regular basis.

Vonage (VG) says don't count them out: But Wall Street isn't listening (see analyst comments below).

Dell has been upgraded to Buy from Neutral at Goldman Sachs with a $28 target.

Jetblue upgraded to Neutral from Reduce at UBS with a $13 target, from $12.

You've gotta love the Wall Street ranking system. Stanford questions if Vonage (VG) can survive in light of the recent court ruling, lowers its target from $5 to $3, but still rates the stock a Hold. What would it take them to cut it to a Sell?? Bear Stearns, however, did downgrade VG to underperform.

Speaking of holds - another one: Deutsche Bank says Motorola (MOT) shares may be LESS of a bargain than they appear. The firm maintains a Hold questioning the company's ability to turnaround its mobile devices unit.

DBAB does like Apple (AAPL) lifting its target from $125 to $130 noting that near term chip ASP weakness will support better margins.

IMF Would Like To See Further Dollar Depreciation

According to a report in Reuters. No doubt they will get it over time.

Sunday, March 25, 2007

Dendreon (DNDN) - A Lottery Ticket For Some, But Survival For Many More

A Food and Drug and Administration advisory panel is set to review whether Dendreon's prostate cancer drug Provenge is worthy of approvable letter status. Provenge is the first ever immunotherapy to treat prostate cancer and the panel meeting will take place on Thursday. It is likely that briefing documents will be posted on the FDA's web site on Tuesday which could lead to pre-meeting volatility as players tried to interpret how the panel will lean.

Data released late last year by the company showed great promise in extending the survival of advanced stage prostate cancer patients. Further detail found here. But a key problem with Dendreon's trial was that in a key respect it was a failure since the trial did not achieve delaying so-called "time to progression" which is discussed here. The last link is to an older article and some of the outstanding issues have since been resolved, but the "time to progression" issue remains a sticking point. Will the FDA panel overlook that failure and see the drug's effectiveness through the eyes of a prostate cancer patient and the apparent life extension that it gives, or will data be a sticking point?

Puts and calls are VERY expensive as you might imagine with open interest in favor of the call side by roughly 2 to 1 in the April contracts. Short interest on the stock is about 20 mln shares. IF there's a favorable ruling, the move in the stock could be explosive. Negative ruling and no doubt the stock sinks below $2.

New Home Sales Due on Monday Morning

There's some mystery and intrigue into why the two charts above differ so much. One is a chart of New Home Sales which are reported by the guba-mint; the other is a chart of Existing Home Sale reported by the National Association of Realtors (or Realators as some people are prone to incorrectly say). On Friday the NAR reported a 3.9% surge in sales during February - some noting that the February NAR figures were stale since they reflected closings on sales dating as far back as 60 days before. But there may be a more sinister force distorting and boosting the figures. Does the February data involve an onslaught of unhealthy short sales and did Trustee Sales (the completion of a foreclosure process) also distorting the February picture? The tell tale sign of lacking health in the NAR data is the rise in housing inventories. And to my questions about short sales and foreclosure transfer of title, I can't find out for sure if that was the case.

Maybe I'll have my answer tomorrow. If we see a spike in New Home Sales which are not subject to desperation short sales or completion of foreclosures, or even the desperation sale of 2nd homes (which could also be a problem in the existing home series) - then perhaps housing did see a real rebound in February. After a 16.6% tumble in January, New Home Sales are forecast to modestly rebound to a 980,000 annual rate in February, from 937k in January.

Saturday, March 24, 2007

Tokyo Land Grab! Japanese Land Prices Rise For the First Time in 16 Years

Tokyo, Osaka, Nagoya are hot! Will Dolf DaRoos, Carlton Sheets and Robert Kyosaki be selling their real estate courses there?

Just how hot are things... These lines from a Nikkei English News story....

"An end to asset deflation will have a major impact on the overall Japanese economy. Banks and companies no longer saddled with the burden of falling land prices may become willing to take on more risk in their loans and businesses. Paper profits on land holdings may also help improve consumer sentiment.
But some warn that land prices are overheating. For instance, commercial land prices adjacent to Hakata station in Fukuoka Prefecture have jumped 40%, a rise that some believe surpasses the land's actual profitability.
Japan's land assets are said to total around 1,200 trillion yen, which is half of its peak. Nationwide commercial land prices are at about the same level as they were in the latter half of the 1970s. Even though Japan has marked an end to asset deflation, the recovery is nascent. Therefore, the government will need to tread cautiously with its economic policy management."

The Week Ahead - 1st Quarter Homestretch

The first quarter is just about history and that will bring both anticipation and angst as "earnings season" approaches in just a few weeks. Zack's estimates median earnings growth for Q1 '07 of 8.3% for the S&P 500 companies. Earnings growth in the 4th quarter came in at nearly 13%. In a separate post late Sunday I will take a look at how the stock market might behave in the week ahead.

Fed chairman Ben Bernanke has been summoned to testify on Capitol Hill before the Joint Economic Committee on Wednesday. Committee Chair, NY Senator Chuck Schumer says Bernanke will be quizzed about the subprime fiasco as well as inflation and the overall direction of the economy. The testimony starts at 9:30 ET followed by q&a.

The economic calendar features the New Home Sales data right off the bat at 10 ET on Monday morning. After tumbling more than 16% in January, sales are expected to show a modest rebound in February to an annual rate of 980,000. On Tuesday Conference Board Consumer Confidence is expected to fall by more than 5 points to 107 for March. The final revision of 4th quarter GDP comes out Thursday and it's expected to remain at 2.2% while Jobless claims might tick up by 4k to 320k. Friday is going to be a big day for economic data. At 8:30 Personal Income and Spending numbers will be released, likely to show income and spending both up by 3-tenths. The NAPM Chicago Purchasing Managers Index is then released at 9:45 and expected to show a rise to 49, which still indicates business conditions in the Chicago region are contracting. U of Michigan Consumer Sentiment is expected to hold steady at 88.

Major earnings reports:
Monday - Dollar General (DG), Tiffany (TIF), Phillips-Van Heusen Corp. (PVH)
Tuesday - Lennar (LEN), McCormick Co. Inc. (MKC) , H.B. Fuller Co. (FUL)
Wednesday - Paychex (PAYX), Sonic (SONC)
Thursday - Carmax (KMX), AG Edwards (AGE), Family Dollar Stores Inc. (FDO), Solectron Corp. (SLR), Worthington Industries Inc. (WOR), Finish Line Inc. Cl A (FINL)
Friday - Global Payments Inc. (GPN)

End of quarter is the deadline that was set by H&R Block (HRB) to sell its troubled Option One mortgage division, already classified as discontinued operations by the company. Block has been seeking $1.3 bln for the operations, seen by many analysts as an unlikely prospect.

Friday, March 23, 2007

Ohio To Bailout Subprime Borrowers

Ohio is throwing $100 mln at the subprime problem, raising the money through a taxable muni-bond sale, to make a "dent" in stemming defaults. Ohio Loan Details Click Here. The program will make 1000 fixed rate loans available to switch folks out of higher interest ARMs. That won't make a dent, that will be a tiny ding.

Post Close Comment

A mixed day for Wall Street with the bulls not able to overcome Wednesday's S&P 500 highs and not even able to get a head of steam going for the Nasdaq. As seen in the chart above, S&P 1438 was resistance for a third session. On my market data screen in the right hand column, intraday shows a number of attempts to breach 1438 but to no avail. On the otherhand, no major trouble developed from the failure to break above that level either.

But are their cracks on the horizon? The Philly Housing Index couldn't hold gains as the day wore on. The chart below shows the spurt at 10 when the existing homes sales data came out, but then fade to red. What happened with the Philly Housing Index? The answer is simple. My Realtor wife reminds me that the existing home sales data reflects actual closings in February so the February numbers are actually reflecting handshakes that were done the previous 30 to 60 days before! The headline number spiked the market, then reality set in that the numbers were pretty useless.

We won't see the actual dismal sales activity of February show up in the Existing Homes series until the May figures come out. Isn't that a happy thought.

It was interesting to see a NON-subprime lender go out of business this past week. California based LoanCity is out of business. It specialized in A and Alt-A loans, but couldn't meet tougher warehouse lending standards - and they say subprime is contained?

One group that gave some support - the Trannies. The Dow Transports rose more than 1.6% as railroads rallied again. Intermodal traffic decline last week be damned, there's the ongoing talk of consolidation in the industry, even talk of LBOs. Union Pacific (UNP) was Union Terrific today rising by nearly 4% with active call trading in the Aprils right up to the 115 strike. Volume exceeded open interest in both the April 110s and 115s. But you've got to ask, who would buy a 145 year old railroad company with a stock market value of $28-bln? They obviously didn't ask and just bought UP along with a smattering of other railroad stocks.

Nasdaq 100 (NDX) was simply stuck today, not even trying to make an assault on the highs of the week, same for QQQQ. The bulls completely shunned any try at filling the QQQQ gap between 44.5 and 44.75 following the Wednesday rally. Today names like Microsoft (MSFT), Cisco (CSCO), Apple (AAPL) and Google (GOOG) were out to lunch. Biotech led by Amgen's chemo trial failure was also a large drag and Jabil Circuit, a huge supplier of components to Nokia (NOK) and Cisco was down more than 10% after delivering weak guidance.

Gold was spanked today, but still up for the week. The energy complex was strong with crude and RBOB rising for the week. IF gasoline prices are sustained at present levels, or go higher energy inflation jitters are going to be added to the list of items for Wall Street to worry about. In a place like California, ground zero for mortgage implosion, $3.25 gasoline could be the final straw that pushes more people off the edge.

The most tangible thing all of this meant for me today is that I took my profit on the SPY calls and decided to cash out. I can always jump back in if the bulls manage to mount an assault on 1438 S&P and succeed, but various indicators which I have discussed in various posts have popped up since the Fed rally that have made me decide to dump the SPY calls. Next week is the last week of this quarter so it's time to start looking at things with an eye towards pre-announcements and anticipating guidance and, of course, sniffing out more IEDs in housing.

Quick Energy Comment

Gasoline and crude are both up in reaction to this story:

But let's face it, crude and gasoline in particular had been rising for quite some time (see last night's post). One other interesting point. Early time change as part of the energy bill when you think about it, actually ADDS more driving hours earlier enhancing springtime gasoline demand earlier. Ah, those Washington politicans - always have the bases covered.

Rail-o-Rama Union Pacific (UNP)

Last week there rumors surrounding CSX, this week it's Union Pacific, up $3 today. It's all in the realm of takeover chatter. But options volume is busy right up to the April 115 strike.

Existing (Used) Homes Sales Rise

6.69 mln annual rate is better than expected. Mediam home price down by more than 1 percent. Supply of homes also up in February.

This ought to be good for the homebuilders today and perhaps the market in general though it is a Friday.

Keep an eye on the Yen.. futures up 33 points - not a major rise but a factor that could become a problem later in the session.

At 1438 on the S&P - we're bumping up against Wednesday afternoon's highs which is key resistance for the bulls to overcome. If we can sail past 1440 we could see some stronger buy come back in to the picture today. On the other hand, if 1438 proves a brick wall, that could be trouble for the bulls. We'll see.

A Few Quick Notes

After the 10 a.m. release of housing data, unless all hell breaks loose, posting will be limited. I am under the gun to get another non blog project done.

I have dumped my short position in Palm.. basically the tiniest of profit after commisssions... didn't get the negative bang for the buck I was anticipating after results. There still seems to be a floor of support under the stock on hopes a buyout will emerge.

SPY Calls - still holding. Will decide what to do with those after housing. Oddly enough, VIX was mispriced on Wednesday afternoon. They took it way too low. Larry McMillan in his Daily Volume alerts noted this morning that $VIX rose yesterday because traders realized that VIX was priced below the statistical volatility of the SPX. Larry says that's rare. It's a good thing because even as the market dipped a bit intraday yesterday I had noticed that my SPX call premiums were little changed from where I made my purchase and I am still a bit above with water with the SPY position. cool.

Morning Market Comment

I was so busy yesterday that I hadn't noticed that I passed the 100,000 mark for unique visitors. Thanks to everyone for stopping by! 100k folks passing through this tent since I put it up last November - not bad. Total clicks are closing in on nearly 200,000.

Overall stock futures flat as the likely catalyst for the market, at least in the morning, will be the 10:00 release of the used homes sales data.

Amgen (AMGN) down 4% on termination of chemo PACCE trial. A variety of analysts defending the stock this morning, but AMGN still down 4%

Amgen's failure is Imclone's (IMCL) good fortune. That stock up 20%. Citi even upgraded IMCL from Sell to Hold based on diminished threat from Amgen's Vectibix.

Nike Profit Up, But US and Margins Disappoint, Stock down 2-1/2%.

Summing up yesterday's Dodd hearing: Uh oh, this isn't going to be good for sales of Alan Greenspan's book - soon to hit store shelves.

H&R Block (HRB) - Page C1 of the Journal: Subprime Unit Proves Taxing For H&R Block. There's some good reading there.

Countrywide, IndyMac sued by homeowners
Rising from the ashes, New Century up 63% after striking a deal with Barclays.

Bank of America and UBS both downgraded PALM (PALM) to Neutral citing valuation. I'm surprised there were only 2 downgrades following that bizarre post earnings conference call. Palm down about 3%. continues to perpetuate the story about a coming deal for Palm which in and of itself is fin. But why do they use unnamed "sources" so much? Why don't they at least say if the source is a person close to the situation, investment banker, janitor, etc? Plain old "sources" is crappy reporting.

And as noted earlier this week I heard "chatter" about Kronos. Kronos has been sold for $55 to Hellman and Friedman. Next time I will have to act on such "chatter". The options accumulation was very evident last week in the March 45 calls. Amazing.

Thursday, March 22, 2007

Friday Curtain Raiser

10:00 ET features the release of important economic data - Existing Home Sales, or sales of used homes. Sales for February are expected to fall to annual rate of 6.26 mln after rising in January to 6.46 mln. This is a data series is produced by the National Association of Realtors so no matter the outcome, we can expected good ole' David Lereah, the NAR's chief economist, to spin it some in way to make it seem as if we're in real estate nirvana. Lereah could have found good spin following that shooting incident at Ford's Theater back in 1865 if he were spokesman for a guy with the last name of Booth. By the way, there is actually a good blog that covers the ridiculous things that Lereah says called, David Lereah Watch. It's worth checking out.

I don't like what I'm seeing on the rail data front. For half a year the rate of growth in total rail traffic has been coming down. Last year it had been growing by as much as 5% over the previous year, now traffic contracting by a little more than 2-1/2%. Figures as of 3/17 provided by show an alarming statistic: Intermodal traffic contracted by nearly 6% last week versus the year before! Intermodal which is largely a reflection of imported goods in trailers that are offloaded directly from ships at port onto rail cars and then transferred to rigs and trucked to their final destinations had maintained a fairly robust pace with a 4-week rolling average of 4.8% growth rate. This is definitely a development to watch and something that will keep my trigger finger itchy on the SPY calls; weather may have played a role, but other already weak catagories were actually showing improved growth rates over their 4 week rolling averages.

Let's talk gasoline. Gasoline is early this year - early to its seasonal rally.

Even during last year's high falutin' action, gasoline gave us a V-bottom in mid-February '06, in '05 gasoline was actually late and didn't surge until mid-May. This year the seasonal move started in late January and is hasn't looked back. Why? The answer is fairly simple: strong domestic gasoline demand. Inventories have been down six weeks in a row and we're a little more than 10 mln barrels above the alarm bell 200 mln barrel storage mark. There's no doubt that we're starting to look on the overbought side here, though MACD still leaves room from an extreme spike. As refiners complete maintenance and gear up for summer demand production one of a few things is going to happen: either crude oil is going to rise as crude stocks are drawn upon to make more gasoline, or the price of gasoline is going to fall as that new production hits storage. The higher crude option makes sense to me. Stephen Schork of the Schork Report points out that the crack spread - now at astounding heights above $20 - will one way or another be coming down.

Natural gas had its first injection of the year with 17 bcf going into underground, a draw of 2 bcf was expected. That should have been bearish, but nat gas maintained a bid through the day on worries this year's hurricane season will be active.

A few other evening developments...

Blackstone Going Public—Its Own Way

Nike may move lower Friday morning after margins disappointed.

Palm (PALM) earnings beat street estimates, but the company guided to a lighter revenue outlook; the net effect was a 14-cent after hours rise. Management staunchly refused to answer several questions posed by analysts during the conference call about a possible takeover of the company. It was a tension filled CC; the refusal to answer has left everyone guessing.

Since Sabre (TSG) is being bought Kraft (KFT) is being added to the S&P 500.
Since Lenox Group (LNX) no longer qualifies, it's being booted from the S&P 500 and Newport Corp (NEWP) is being added. Both sets of changes effective end of business day 3/30.

The Dodd Subprime Hearings

Kudos to Senator Christopher Dodd of Connecticut for holding his Senate Banking Committee subprime hearing. While nothing was really accomplished to stop a problem that only time, lots of money and pain will need to work out, it was good that a broader audience got to witness the dichotomy that is well known by those us in the financial world: those vested interests who are so desperate to tell everyone subprime is 'contained' versus folks like Countrywide managing director Sandor Samuel who testified today that foreclosures for 2006 maybe the worst yet and that there is more to come. The Fed official who said, "At this time we are not observing spillover effects from the problems in the subprime" looked disingenuous for trying to downplay the subprime meltdown by offering only the "at this time" perspective and not volunteering more information on the risks associated with Alt-a mortgages and coming resets.

Dodd ought to invite some bigger fish in. Former Fed chairman Alan Greenspan should 'splain why he openly advocated adjustable rate mortgages during those 1% Fed Funds days when he knew better than anyone else that the Fed Funds rate would not stay at 1% forever. Or how about the CEOs of the big investment houses in New York? Bear Stearns, Morgan Stanley, Lehman, et al are the securitizers of all of that mortgage debt - the packagers who sell it to buyers like pension and mutual funds who are eventually going to get burned.

Dodd only scratched the surface today, but it was a decent start.

A Good Read On the Mortgage Woes

Casey Serin, the guy who I blogged about months back, is featured in The Economist in this eye opening report.

A Few Mid Afternoon Musings

I've been out getting some fresh air. Spring is finally making an appearance here in the NY Metro region and it was nice to take a walk in the mild air. It's about 60 and sunny today.

Merrill put out a note saying it maintains a Neutral on Palm (PALM) seeing downside risk and weak guidance tonight. That's quite different from Bank of America which a few days ago said Palm estimates for this quarter are conservative. We'll see who's right in about 3 hours.

Over 2000 Novastar (NFI) April 7-1/2 calls have changed hands today. There's been talk from sources that NFI will receive private equity funding.

Nouriel Roubini is warning that next we're going to see a meltdown in subprime credit cards and subprime auto loans.

Overall, just a dead day in the stock market.


First Notice Day warnings are going out or have gone out depending on contracts as the transition from April to June begins.. I've rolled early into the June contracts. This may be inhibiting the price of the metal today.

Let It Not Be Said That Things Are Dull At the BOJ

This is a great interview because while it shows that monetary officials in Japan are no less adept at dancing around questions, reading between the lines of the answers reveals the BOJ is in a high state of alert WRT what's going on with its currency. Kudos as well to Mr. Nakaso for pointing at the China was not THE cause for the worldwide swoon in stocks Feb 27th.

TOKYO, March 22 (Reuters) - Following are key remarks made by
Hiroshi Nakaso, director-general of the Bank of Japan's financial
markets department, in an interview with Reuters on Thursday.

Q. How do you view recent developments in Japan's money market over
the past year since the BOJ ended its ultra-easy policy, called
quantitative easing? What are challenges ahead?

"The money market has become very active over the past year.
Short-term derivatives markets, such as trading in overnight index swaps
(OIS), have grown rapidly over the past year ...
"Challenges ahead include enhancing effective collateralised markets
and short-term derivatives markets. We are trying to yield specific
results in our efforts in this area over the next six months ...
"We are keeping a close eye on the OIS market. But the market is
still driven mainly by some foreign financial institutions. If more
traders participate, the market will better reflect the market's view on
interest rates and increase liquidity ...
Q. As more foreign investors join in Japan's money market, rates
could fluctuate more than before. Would that affect the BOJ's money
market operations?

"We are now back in the world of having interest rates. The
overnight call rate has been risen to 0.5 percent from 0.25 percent. The
market function is gradually and steadily recovering ... There will be
flows of funds, and as a result it is natural for interest rates to
fluctuate to some extent. I think that is what we call a process of
rates being determined in the market. "

Q. The benchmark 10-year Japanese government bond yield hit a
13-month low on Thursday, a level seen before the BOJ ended its
quantitative easing policy. How do you view the recent decline in
Japan's long-term interest rates and what are reasons behind it?
"The outlook for prices is stable. In addition, it (the decline) is
also affected by falls in interest rates overseas, especially those in
the United States. Furthermore, market participants do not expect an
interest rate hike any time soon after February's rate rise. So
investors who had been refraining from buying bonds are starting to
invest again, and that has underpinned demand for bonds. Those factors
combined are supporting the JGB market."

Q. How do you view adjustments in global markets since end-February?
"There are still factors to be examined but basically the adjustment
since end-February has been mainly due to increased concerns among
traders about taking excessive risks ...
"If we look back closely, I think markets had already been worried
about a build-up of risk positions. A decline in Chinese stock prices
itself was not the reason behind stock prices falls worldwide, but it
helped trigger such movements.
"Since the end of February, people have become more worried about
subprime housing loans in the United States, and markets are a bit more
cautious about the U.S. economic outlook. But there is no change in
global economic fundamentals, and I think the recent adjustment is only
"In any case, global stock markets, including the U.S. market, have
been sensitive to daily economic indicators and other factors, while the
foreign exchange market has been nervous after a recent unwinding of
some carry trades. So we would like to continue monitoring market
movements carefully."
Q. What is your view on the yen carry trade and its impact on
financial markets?

"Since the end of February, volatility in the foreign exchange
market has increased amid global stock market adjustments, so some hedge
funds unwound their yen selling positions and that was reflected in the
market. But if you look at the long-term trend, Japanese investors,
including individual investors, would be unlikely to change their stance
on investing in foreign currency-denominated assets. In any case, it is
hard to understand the overall picture of yen carry trade, and some
hedge funds could change their positions substantially in a short period
of time, so the BOJ would like to monitor movements closely."

Q. Do you think there is a worry about a sharp unwinding of yen
carry trades?
"So far, we have not seen any sign of such unwinding, but we would
like to keep monitoring movements carefully."

How Low Can Palm (PALM) Go?

It was back in mid February when Palm shares saw their first 10 mln+ share day on takeover speculation. As the chart indicates, the stock was trading in the $14-1/2 to $15 range. A number of analysts say the idea of a Motorola takeover is all but dead if it was ever true to begin with. Tonight Palm will post earnings. 12-cents a share is expected; the reaction/outcome is going to be very interesting.
.. and yes, I went short at the opening bell this morning.

Morning Market Comment

Stock futures aren't indicating a continuation of the explosive upside action we experienced following the surprise move by the Fed to move away from its tightening bias, but futures are still on the plus side.

Economic data today: Jobless Claims slipped last week 4,000.

How real was yesterday's rise? Well, I've talked about the liquidity injections and perhaps being 'real' doesn't have to matter in the near term if all it takes is some well placed futures trades to push the market up. But assuming that T/A still means something - 'realness' would become more apparent if the Nasdaq 100 gap can be filled.

Will the bulls get trapped in between? If NDX can make its way to 1820 in short order, then look out above.

While Motorola's after the bell warning is primarily a Motorola-esque (MOT) problem (stock down 4%), it's a reminder that earnings season and other pre-announcements loom large over the next three weeks. Some analysts are saying it take up to a year for Motorola to improve.

Palm (PALM) is down 4% as longs there are freaking out. It's Thursday morning and the buyout that everyone thought was supposed to be here isn't Many had placed bets on Motorola on being the suitor. I had asked the other day why folks were buying those May 22-1/2 calls based on doubt about the takeover premium that would be involved - not even a scenario where MOT would fall flat on its face. PALM now faces the prospect of confessing earnings this evening without a takeover prop. Wow, it's a debacle.

Also, after the bell, H&R Block's Option One (HRB) subprime unit received a renewed credit line from Bank of America, but the line was cut in half. The decline in Block's stock after hours was less than a buck yesterday, but it sparked to renewed questions over whether the company will deliver on its goal to sell Option One for over a billion-dollars by month's end.

Senator Christopher Dodd will hold his subprime hearing today. He's going to grill banking regulators among others before the Senate Banking Committee.

Funds of hedge funds are growing in popularity, Hedge Fund News reports The Londinium JPM Emerging Markets Fund has been launched after six months of study.

The dollar selling has settled down a bit this morning, but the damage has been done there. This morning Euro futures hit a brick wall in the $1.34 neck of the woods, but $1.37 is surely in the cards now. Yen futures are down 31-points. Front month gold has also been taking a breather at the $664 mark this morning.

Wednesday, March 21, 2007

Today's Bull Raid

There are a lot of folks in disbelief that the Fed switched its bias today to neutral. Granted, the Fed has created confusion by continuing to talk up the inflation risks, but it has removed the "firming" language. So just as Elvis is really dead, the Fed has done the deed and as left the door open to moving to an easing bias. To insist that because the Fed continues to talk up the inflation risks means the Fed did not change its bias betrays a lack of understanding of the constituencies that the Fed must play up to including world central bankers who look to the Fed to at least project an image of being vigilant about inflation. Remember the grief Bernanke went through during his first year on the job when there were doubts over whether he was an 'inflation fighter'?? There's just no way the language on 'flation would be toned down, especially after last week's PPI and CPI figures. And just briefly - the Fed is not flying in the dark. They know more than you think. While they are waiting for many pieces of 1st quarter data that you and I are also waiting for, they have droves of pencil heads crunching all sorts of numbers and looking at all sorts of things. Just go back through old minutes of past Fed meetings and read about the arcane yet eye opening things they are privvy to. If you think FOMC members are blindsided by dislocations and merely getting their data from tv land, think again. I also won't delve deeply into the political overtones, but did anyone really think Bernanke and Co were going to do anything that would send the stock market back into a tailspin and hasten the economy's trek to a recession while the White House deals with a war fiasco in Iraq and political battles inside the Beltway?

Greater disbelief tonight permeates through the shell shocked bear camps - I've been reading and hearing expressions of disgust, anger, bewilderment etc over today's bull raid. This was the Battle of Trenton Part 2, with the over confident bears (Hessians) drunk from recent celebration routed by a surprise bull attack today. Or was it a surprise? I won't go into the story of Colonel Rall except to say he lost that battle because he ignored a key piece of information. There have been some very interesting pieces of information that have popped up recently that have given me some understanding as to why the market has been able to bounce back on low volume- not the least of them the Fed repurchase or, REPO activity.

I've blogged about this repo activity in recent days as a red flag: billions has been poured in by the Fed to prop up the market. I've discussed how this money flows to primary dealers and how it can then be deployed to trading desks and how it can then be dumped into the futures markets which can magnify moves, though not necessarily trading volume. Voila - instant rally, or rebound. Perhaps the mistake that I made in not making the warning cogent enough was failure to include a picture. Here's a picture of the cumulative Repo activity:

Yeaah... that 950 is 950 BILLION smackaroos. I'm only addressing Fed repos, not even the stuff that Treasury is doing with Term Investment Options (TIO) which can also be at the billions of dollars per day level. Notice two key things on the above chart, generated by, A. repo activity has surged by nearly $50 bln in just the last few weeks and B. notice that repo activity went through the roof starting last June when the market was going through a period of tankage. Last June the Fed kept pumping the system until the end of the year and then they took their foot off the gas through early 2007.

My takeaway from looking at this stuff in recent days has been to be wary of stepping in front of the liquidity locomotive. The Fed holds the key to the money printing press and with the repo operations it can deploy cash through temporary loans that can help juice big market gains - just consider the extent of the rally up until February 27th.

Does this mean I no longer feel the Dow has a chance at going to sub-Dow 10k levels as I posted a few weeks back? I'm still in that camp, though as I noted earlier, technically we have a shot at the recent highs at S&P 1460, which is not too far off. The Fed's repo elixir will eventually meet its match given the extent of the problems the economy faces, the risk of a meltdown associated with over leveraged positions and the winds of change WRT to dollar holdings by Far East central banks. But for now it seems as if this repo stuff has worked and ignoring these indicators and becoming polarized to either a strictly bullish or bearish mindset in this volatile market will produce the 1776 Tom Paine lament, "These are the times that try men's souls."