Wednesday, February 28, 2007

Greeny Mutters the "R" Word Again

This time to a closed circuit bunch in Japan... with a slightly more hedged tone (click here). Perhaps a bit of that elusive Greenspeak coming back in to keep us guessing. Amazing that Ben soothes earlier in the day with a moderate growth message (yeah, the guy who is presently the Fed chairman and the former Fed chief is playing around with the "R" word). It's the new Fed 'good cop, bad cop' play book. All we need is for Voelker to say something, or perhaps Ben to hold a seance to get a special message and grimace from the hereafter out of William McChesney Martin!

So Tokyo is down over 300 tonight and Shanghai surprise is down about 2%. SnP futures are down 6 and Dow Futures are down 40.

By the way, I understand Greenspan delivered this message to his sweetie pie Andrea...

Understanding The China Market Decline Better

As I suspected. The Chinese market swoon was "engineered".

One of the links to the right is for Strafor.com. Stratfor is like having your own CIA. It is a service which I gladly pay my hard earned money to gain objective intelligence on geopolitical matters. What? I'm going to rely on the New York Times, or the Washington Times? Oy, I like to be well informed.

Here are a few excerpts of the Strafor take on the Shanghai market debacle:

The Chinese government has become increasingly concerned about levels of investment in its economy or, more accurately, the sheer amount of money that is chasing projects. State firms with limitless access to subsidized capital from state banks have used that access to launch thousands of nonprofitable firms. This glut in "investment" money drives up the cost of commodities and adds industrial capacity without actually producing anything of much use, making life more difficult for the average Chinese and unduly harming relations with foreign powers that face a glut of otherwise noncompetitive Chinese goods. This penchant for over investment has now spread to the stock market in two ways. First, the same politically connected government officials who started dud companies are taking out loans to buy shares, or are using shares they already hold as collateral for new loans. Second, ordinary Chinese citizens have started borrowing -- sometimes against their homes -- in order to play the market. In January, the number of total traders on the Chinese exchanges grew by 1.38 million, an increase of 134 percent from a month earlier, while stock turnover was up 700 percent from a year earlier. The net result is an absurd stock surge with no basis in fundamentals. At present, some Chinese banks now have price-to-earnings ratios higher than financial behemoths such as Deutsche Bank and Chase, despite deplorable management and a history of highly questionable lending policies.For the past few months, the government has been working to drive down this speculative investing. On Feb. 26, China's State Council launched a new "special task force" that accurately could be referred to as the "get-those-idiots-to-stop-borrowing-to-gamble-on-the-stock-exchanges" team. Its express goal is to get the Chinese domestic security brokers to lay off such speculative decision-making, while also putting a crimp in the source of the subsidized capital. Day one started by the script, and Beijing is likely quite pleased with the way things are going (or at least it was until its actions unintentionally triggered a global meltdown). Also, since the Shanghai exchange is actually still up 3 percent for the past week despite suffering its largest drop in a decade, the State Council probably hopes for more drops in the days ahead.

There's quite a bit more to the article, but Stratfor doesn't want me to duplicate their entire report. It is worth subscribing to their service by clicking the link to the right (and I am not compensated for sending you there).

But I'll throw in two more lines for your consideration from Stratfor:

"...the Chinese believe their exchanges are massively overvalued (hence the engineered crash). They will do this again, and are not (yet) particularly concerned with the international consequences."

"...everyone else now is going to chew on the fact that Beijing did this intentionally."

Thursday Curtain Raiser

The bulls gave a so so account today by keeping major indices into the plus column by way of a .4% Dow gain, .3 Nasdaq gain and .5 SPX gain. Even a guy like Drudge is left wondering with his headline: "Rebound?" Technically it was a rebound, but it seemed perfunctory - perhaps the embodiement of a dead cat bounce.

So at least the market was able to bounce back a bit today, but the advantage is now squarely in the hands of the bears. Below is a chart of the Dow with an overlay of the Relative Strength Index. For the first time since last summer and spring RSI has fallen below 50 and this has not meant good things for the bulls...

In plain and simple english, bullish momentum has broken down. I'm going to stick with my forecast that we eventually see Dow 11.6K

While the Volatility Index ($VIX) fell 15% to 15.42, there was an urge to make bearish bets on the ETFs. Put buying on IWM (Russell iShares 2000) eclipsed call buying by a margin of 4 to 3. 4 to 3 sounds inocuous but thats over 400,000 puts traded today vs 300,000 calls. Likewise, SPY puts traded at ratio of 315k to 175k; and DIA puts eclipsed calls by a margin of 49k to 27k. Of course, if that kind of thing keeps up, it will be a great contrary indicator. But now it seems indicative of folks who gotten some 'religion' and are buying themselves some protection along with some new bearish speculative froth. The put to call ratio on the IWN has averaged 3 recently, now it's at 4.87.

Russell 2k, by the way, among the big indexes that broke below the 50 day m oving average during the past week. But even more important on the Rut is the 76 area. If we break that double bottom area, skids are greased IMO for a run down to the 200 day moving average.
There will be plenty o' data and info to sift through tomorrow: Jobless Claims, Challenger Job-Cut Report, Personal Income and Outlays, Construction Spending, ISM Manufacturing Index, EIA Natural Gas Report, Chain Store Sales, Motor Vehicle Sales, Money Supply.

New Century (NEW)

An interesting headline this afternoon... Citigroup (C) is now the proud owner of a 5% stake in NEW. My feeling on this is that it is bad news for shareholders. C may be positioning itself to be the thousand pound shareholder gorilla at future bankruptcy proceedings. We'll see. By way of disclosure - I am a NEW May put holder.

Steel Technologies (STTX) SOLD!

Wow... $30 all cash... more than 60% premium. Buyer: Mitsui.

And now the usual suspects are running: AKS, WOR, RYI. This will be a saga that continues tomorrow. Tomorrow.. I'll Love ya... tomorrow... it's only a day away!

Apple iPod Sales Said to Be Strong

Piper says things are looking strong for Apple iPod says. The latest NPD data shows that the company may have sold has many as 12mln units for the March quarter.

Naty Down to $7.30

Shoulda, Woulda, Coulda... I should have stayed short... But nat gas is finally undergoing a bit of tankage. It's part overall energy/commods weakness, but part seasonal as well.

Sprint Nextel (S)

Upgraded at Citi to BUY with a $25 target. Citi believes Sprint better positioned to restructure and is a potential M&A target. The stock is at the high of the day, up 7%.

Ben to the Rescue

Never mind today's economic data, Bernanke says the markets are working well and the economy is in good shape. The Fed chairman, however, also sounded another note of caution about future entitlement liabilities. And not to worry, Ben is also monitoring the subprime meltdown closely.

Palm (PALM) Takeover Specualtion

Lightreading.com says Nokia and or private equity could make a run for Palm in the $20/shr range. Ha! But you get 2 for the price of 1... Unstrung has its own version as well!

Sprint Nextel (S) Takeover Talk Again

So this is why the stock is up 6% today. http://money.cnn.com/2007/02/28/news/companies/Sprint/index.htm?section=money_latest

Latest Energy Data Has a Bullish Tone To It

DOE Crude Inventories for week of February 23rd:
Crude inventories +1.42M vs. consensus estimate of +2.0M. Gasoline inventories -1.94M vs. consensus estimate of -1.5M. Distillates -3.79M vs. consensus estimate of -2.6M. :theflyonthewall.com

Margin Calls - Bill Cara's Excellent Thoughts

I've been meaning to add Bill Cara, who doesn't know me from a hole in the wall, to my favorite links section. I am a regular reader. He has a great analysis of the impact of margin calls on yesterday's sudden 200 point slide. It makes sense to me:
http://www.billcara.com/archives/2007/02/caras_daytrader_bull_board_wed_14.html#more

Modest Plus Signs

And that's a good thing. BUT I'd like to see breadth improve. It's not terribly negative but as of 10 a.m...

At the NYSE declining issues still hold a roughly 17 to 13 lead over gainers, while at the Nasdaq decliners have advancers beat by margin of 17 to 10. Those numbers need to improve, or we'll have trouble later in the afternoon. No? If breadth turns positive that will be a great bullish later in the day and especially so if VIX can go back toward the 15 mark.

New Home Sales - YIKES!

DJ * US Jan New Home Sales -16.6% To 937,000;Consensus1.080M Dow Jones

That's one bad number, even with a December revision:

DJ * US Dec New Home Sales Revised To 1.123M From 1.120M Dow Jones

As noted Sunday night, sales are now down to 2003 levels. In some respects 2003 levels aren't so bad, which is why I mock those who say the bottom is at hand in the housing market. No way Jose.

The January drop is the worst since 1994.

Chicago Manufacturing Further Contracts

DJ * US Chicago Purch Mgmt Adj Feb Index 47.9 Vs Jan 48.8 Dow Jones

This data is not enough to get in the way of the modest little stock rebound that's underway, but certainly something for the bears to tuck under their hats. Manufacturing is clearly in trouble and that's bad given the troubles in housing and autos. Any reading below 50 on this diffusion index indicates contraction.

Snap Back Ahead

As noted yesterday, extremes were just too extreme... with the TRIN, VIX, put to call among other indicators going through the roof no surprise that we will see a snap back. But does anyone remember what happened in '87? Big up morning, up 160 as I recall (but 160 then really meant something), then accelerated selling in the afternoon. Now the day after the crash in 87 things got so bad after the snap back rally failed that specialists were walking away from their posts (LOL that was a sight) and that's not likely to happen today. But no matter how good today's snap back, we're assured that yesterday's low print will at some point be re-tested. When has that not happened from a technical standpoint after a crash and burn like yesterday?

"The time to buy is when blood is running in the streets." -Baron Nathan Rothschild (1777 - 1836).

Some have equated yesterday's action to blood running in the streets. To an extent, I agree it was messy yesterday. But 400+ yesterday was only 3%... my how we've become spoiled, or is it just that many are inexperienced and don't have the capacity to remember the percentage sizes of 87 and 89? I think the true blood comes if the Dow falls to the 50 week moving average that I mentioned last night at some point in the not too distant future. We'll see.

Goldman Remains Bullish on Apple (AAPL)

Goldman Sachs says Apple shares should remain a core holding a bought on weakness.

Analyst covering the company says he met with Chief Operating Officer Tom Cook. While no new news was providing, the meeting has reinforced the bullish Apple thesis.

Merrill Downgrades Its Competitors

I don't have the details. theflyonthewall.com is reporting the MLCO has downgraded Bear (BSC), Lehman (LEH) and Goldman (GS) to Neutral from Buy. More later.

Tuesday, February 27, 2007

Brief Wednesday Curtain Raiser

8;30 ET we get the final revision of 4th quarter Gross Domestic Product. The consensus estimate is for a big DOWNWARD revision to show growth of 2.3%. This consensus number will be important. Anything too far below will scare the stock market into further worries about corporate earnings; too far above 2.3% and inflation worries will grip the markets. GDP price deflator is expected at 1.5%.

At 9:45 Chicago NAPM data comes our way. Important stuff here as well on manufacturing. It's forecast to bounce back a bit right to the diffusion line of 50 which would indicate tepid growth.

Then at 10, New Home Sales data will be released. An annual pace of just over 1 mln is expected.

So there's a good amount of market moving, or disrupting economic data on the way on Wednesday following the Tuesday slump and dump.

I talked earlier about the stock market, so let's not beat a dead horse.

I decided to take a breather on the gold futures... actually got out at $688 today. Tonight it's down to $671. I'm still holding my large position in GLD and have managed to add a few hundred more shares from trading futures over the last few months to bring my total holdings to ridiculous levels which I'm loving at a cost basis that still below what would be $460/oz! There are a lot of gloaters out there in the blogosphere over the slide in gold today. All I can say is... big mistake. Funny thing is, they don't realize that gold's run to almost $700 was a key signal in alerting to trouble ahead to the stock market - but I digress.

What Will The Bears Do For an Encore?

We'll find out tomorrow morning at 9:30, is probably the best answer.

Though, we will have early indication of how things will shape up for tomorrow once trading in Shanghai begins in about 2 hours.

Here's a useful link for keeping an eye on the activities in Shanghai: http://www.sse.com.cn/sseportal/en_us/ps/md/sh_b_qci.jsp.

With regulators in China worried about excessive speculation, I just can't help but to wonder if the government will allow things to slide a bit further to wring out some speculative excesses in that market. With a TRILLION in foreign reserves, the Chicoms could easily stop any sort of blood letting in their stock market, but excess has been a concern. Helping to grease the skids - new rule changes. And next week, the big meeting of the National People's Congress where more legal reforms may be coming which could impact the Shanghai market. Somewhere in this blog is a link to a WSJ article about folks in China buying stock by using credit card debt and even mortgaging their homes - all a not too much for regulators. Of course, knowing what we know on how the Hong Kong market has been operated, especially pre-2000 it's also doubtful that we'll see complete meltdown in Shanghai.

Getting back to the U.S market outlook. While I had been writing about various warning signs that there were trouble signs (and being abused for it and called bad names), I wasn't thinking we'd be seeing a 500 point down day this quickly. I was thinking next fall. And who would have dreamed a shoot up in the VIX to 18+? LOL, I did own VIX calls (between 30 and 80) at each strike all the way to 18 and have sold most them. These VIX calls I had mostly quintupled or more in value today so this was one of my best days ever in the markets. But even here, I was not expecting late February fireworks.

With this surge in VIX and TRIN, it would not surprise me if we get some sort of relief rally perhaps as early as hour 2 of tomorrow's session IF things don't blow up too badly in China overnight, or some other dislocation doesn't appear by tomorrow morning.

But there's a BIG BUT here. Technical damage has been severe. I think the relief rally will be brief (watch out for those briefs). Now that the 20 week moving average has been soundly trounced in the Dow, once we get some relief, the 50 week or thereabouts sure looks prime for the pickin'

The shabby thing about the above Dow chart is that weekly MACD (top chart) has negatively diverged for the first time since last May. That's were I'm thinking that we're in for further eventual downside.

Same for other major indices. 50 day, 20 week, etc taken out today. Yes, likely rebounds, or snap backs, but further downside testing looks likely given the technical damage. More later. Time to take number-1 son to cub scouts.

Trading Collars Be Damned

While it looks as if the market is intent on going lower anyway into the close, the 2:45ish sudden 200 point meltdown was fascinating to watch. As they collared the market, as you would expect the normal flow stopped. As traders placed sell orders against S&P futures when the collars were lifted at 2:45 - BAM... a vacuum of sellers which the system could NOT handle. The discount to fair value on futures vs cash was breath taking! The chart below shows the high jinks on the Dow intraday at the time.


The TRIN Goes Nuts


We haven't seen the TRIN behave like this since 2002 and that was during the the time the market was putting in a major bottom. Interesting to see a TRIN reading this extreme with the market still relatively close to the highs. The concern here is that the swings are too extreme and that we could see a quick snap back later in the week. We'll see. These are days when I sure miss Bill Lefevre and Lou Ehrenkrantz.

Nasdaq 100 Breaks Key Uptrend Support

Support had been at 1766...

But, still more than hour to go. However, will VIX up in the stratosphere relative to recent levels, the rescue squad may be stuck today.

Global Sante Fe (GSF)

Now the company is stoking speculation about a takeover, according to this Reuters story.

Quick Midday Update

As selling begets selling not only in stocks, but in commodities, I took the opportunity to dump the metals futures positions across the board to lock in recent profits... no sense in ruining an overall up day from profits in VIX calls, BIDU puts, etc on losing profits in metals, especially gold and silver. The run back to $690 in gold earlier was a gift today.

Volatility Index (VIX)

The $VIX is up 21% as of this writing and above its 200 day moving average for the first time since last September. Will it be a brief poke above the 200 dma like last September and August, or longer lasting like the adventurous VIX rally of last May?
VIX and More is the place to go for deeper analysis of the VIX... http://vixandmore.blogspot.com/. Bill at Vix and More is on top of what is a huge part of the today's market story.

EEM

A few weeks ago, maybe sooner (time flies with three kids here), I talked about the EEM, Morgan Stanley Emerging Market Index and how it was looking toppy.

Interesting that the recent high was reached on less than stellar volume, and today's plunge on heavier than average volume. The picture is no less pretty for China I-shares.




S&P Also Breaks Its 50 DMA

But thus far 50 day on the S&P has been breached by a small amount. I still think the burden is on the bears to close the market below these 50 day moving average marks - otherwise we're talking garden variety pullback. Even better than a close above the 50 day for the bulls would be a rebound late this afternoon above the 1440 level which is the bottom end of the recent upward trading channel.

CNBC Media Advisory

Two of them...

Jon Najarian of Optionmonster.com will be on CNBC with Melissa Lee (a former Bloomberg colleague) at noon eastern today. Don't miss Jon's analysis of the markets from the perspective of an options trader.

Tomorrow (Wednesday) morning, energy expert Stephen Schork will be on CNBC at 6:50amEST: Mr. Schork will be interviewed by Joe Kernen, Becky Quick and Carl Quintanilla on Squawk Box. Stephen is the guy who keeps me and a who's who of trading pros informed about the energy markets. There is no better source of energy information than the Schork Report.

Some More Economic Data

WASHINGTON (MarketWatch) -- Sales of existing U.S. homes rose 3% to a seasonally adjusted annual rate of 6.46 million in January, the highest in seven months, the National Association of Realtors reported Tuesday. It was the largest percentage gain in two years. Sales were down 4.3% year-on-year.

Remember: It was unusually warm in the first half of January.

Other economic news:

The consumer confidence index rose to a five-year high of 112.5 in February from 110.3 in January, the Conference Board reported. See full story.

10 year note holding to a gain of 10-ticks, yield at just above 4.59%.

Dow 12500 Point and Figure Sell Signal?

I mentioned this last night, by way of a John Murphy email that came through yesterday. So here we are already. 50 day moving average at 12,550 already taken out. It is this 12,500 that is of greater interest today from a technical standpoint.

Continue to keep an eye on the trannies... It's another rough day there...


Still, with these charts showing some negative changes ala Dow Theory, the bears had better gun for a close below 12,500 to do some real damage, or the bulls could be back in the bear china shop later in the week to take it back up and do their own damage.

Countrywide (CFC)

Just a quick note - CFC has been the top of my list of lenders which I despise.

I hate it for the insider selling that's been going on.
I despise it for the FT.com takeover story stunt last month, which coincided with the CEO filing to sell shares on the same day.
If you know anything about the mortgage lending industry, sure they're less than 20% exposed to subprime, but it doesn't hide the fact that CFC has always been a high pressure mortgage sweat shop and that they are well exposed in the A tranches of the credit universe as well which has been falling off a cliff, not to mention the jumbos.

Chickens, maybe the bears (LOL) are coming home to roost. Already the stock has blasted down through the $37.50 strike. There was huge buying in the April puts last week there. As the Najarian brothers would say at Optionmonster.com... chaaaachingg!

Nouriel Roubini's Site

It's always worth checking out, especially today. First, Nouriel been at the forefront of warning of problems in the economy. Now that Alan Greenspan has joined the camp of warning of a possible recession at the end of the year, Roubini's theories are being validated as we trudge through 2007. Nouriel discusses the views of Morgan Stanley economist (heavy weight/soft landing proponent/bull) Dick Berner. Dick is a great guy who I had the privilege of interviewing a number of times during my years at Bloomberg Radio and Television. If Dick Berner is getting concerned about credit, you should be too: http://www.rgemonitor.com/content/view/180186/85/

Morning Market Comment

The headline is blazing on Marketwatch: "Futures Signal Big Losses". Most times I pay little heed, but with S&P futures down 13 and Dow futures down 95, it does appear as if a slide is on the way.

As Marketwatch says, there are a confluence of problems for the bulls:

-Durable goods orders fell 7.8% in January.
-Shanghai's Composite Index shed nearly 10%, its biggest fall in 10 years, amid profit-taking sparked by concerns that the government may implement new measures to cool speculative behavior. See Asia Markets.
-Japanese Yen futures up 123 points! Carry trades being unwound following the China selloff. See Currencies.

The news has taken commodities down across the board, including energy and metals.

My stop for gold futures is quite a bit below the present levels and of course I won't be selling any GLD.

Interesting with the China woes, I have an open put position in Baidu.com (BIDU) which has been SUFFERING, so today that will actually rebound, w/BIDU down about 5%.

I also have various open March and April VIX call position ( my insurance against a drop in the market) so it will interesting to see what happens there.

Here's Tuesday's stocks to watch from Marketwatch.com

10:00 ET existing home sales are due, which could added additional volatility into the market picture.

Monday, February 26, 2007

Here's Another Doom And Gloomer - Alan Greenspan

Of course, I say doom and gloomer tongue in cheek. Greenspan is the creator of something called the "virtuous cycle" where everything runs just right. Well, now Greeny is thinking that perhaps everything is not running quite right. I've been aware of this all day, but haven't gotten round to posting... just in case you missed it - Greeny spoke his mind today: http://www.mercopress.com/vernoticia.do?id=9942&formato=HTML.

Incidentally, I'm adjusting my blogroll. It's gone. I've gone back to a Favorite Links format. I will no longer be linking to blogs authored by anonymous authors and will likely be adding few new names to the list that I now have until I get to know the people behind those blogs.

Tuesday Curtain Raiser

Earlier today I talked about the slide in the XBD. Here it is again, with a view value added items.


The upper chart is a ratio of the XBD to the S&P 500 and look what's happened: an uptrend of better than 5 months has clearly been broken over the last week. I'd say this would be an important red flag to keep an eye on where the overall health of the stock market is concerned. Where, afterall, would the stock market bull be without the brokers over the last 3 years? The brokers have been among the strongest of leaders.


John Murphy over at Stockcharts.com sent an email late this afternoon noting that a big weekly MACD divergence is only in the process of forming...


We'll have to wait to see how things pain out this week where weekly MACD is concerned, but already, weekly RSI is looking shabbyl. It's just another interesting piece of the puzzle that has featured an overall resiliant market with a capital-R, yet signs continue to pop up of trouble on the horizon.

Tuesday is going to feature some important economic data. At 8:30 ET we get January Durable Goods Orders - forecast by economists to fall by 3%. Ex-transportation will be especially important since a drop in aircraft orders at Boeing is expected to skew the headline number. As the Econoday chart shows, this is one volatile data series.



At 10 a.m. we get the latest on Consumer Confidence from the Conference Board, and also Existing Home Sales. A small nudge higher to a 6.25 mln rate is expected.

As the above Econoday chart shows, the trend has not been a good one in housing. This chart also gives pause because it shows the phenomenon of falling home sales has not been with us for a very long period of time, yet it is amazing that many pundits were recently saying we hit bottom when it's clear to see we've only gotten down to 2003 levels. Yes, there are a bunch of liars out there masquerading as analysts, economists, etc. With my wife in the real estate business and my ability to see first hand what goes on on the MLS daily, my theory is that come springtime the market will be flooded again with new inventory.

I have no changes on bullish thoughts on energy and metals.

John Murphy in his email earlier today had mentioned that he feels Dow 12,500 will be an important tipping point that would generate the first PnF sell signal since last August. That makes sense to me when looking at 3 box reversal chart.

Tonight stock futures are little changed... all quiet ahead of what promises to be another exciting battle between the bulls and the bears.

On Marketwatch.com, an excellent column by Herb Greenberg about Novastar. It's not merely about the implosion of Novastar, but Herb also takes a much needed swipe at what he calls the "see-no-evil, hear-no-evil, speak-no-evil investment message-board crowd". That crowd would include bloggers as well. Greenberg's Novastar Column.

A Big Catch on MyBlogLog - Pete Stolcers

Pete Stolcers recently joined the MyBlogLog community to highlight his 1Option blog. Pete is the real deal in the world of trading options. Says Pete, "I live to trade and I love to talk about it. From the floor of the CBOT in 1989 to present day professional trader, my career has been centered on options. I started OneOption, LLC to share my passion." This is exciting stuff. I'm proud to add Pete to my "Important/Favorite Links" section. Please take the opportunity to check out Pete's blog and take advantage of the Open House that he's having.

$87 BILLION in Tax Refunds So Far This Year

The press has been talking about a special telephone excise tax refund that many filers have not taken. What jumps out at me is that the government has sent out nearly $87-BILLION in tax refund checks this year. That's up over 5% from the year before. $87-bln - no doubt some of that money has had to have made its way to you guess it - the stock market.

Mid Afternoon Notes and Comments

After being away for a week I've had to take care of a bunch of non blog related issues.

As noted over the weekend, Downey Financial (DSL) was mentioned in Barron's as a subprime lender at risk for causing grief to its shareholders. Its shares are down 5% today with put volume running 10-1 vs calls in the March contracts.

Anyone notice the Dow Transports today?

Worst session for the trannies since August. It was a nice run while it lasted. Richard Suttmeier, this guy is one sharp cookie who I interviewed on Bloomberg Television and radio in the 90's, has some very worthy comments if you think valuation means anything - otherwise skip it.

Anyone notice XBD today?XBD breakdown should be reason for concern, or am I just fear mongering? Anyone with half a brain knew the gig was up after those incredible Q4 and 2006 numbers would be an almost impossible act to follow in 2007 - plus throw in subprime risk and you've got the recipe for XBD breakdown. December lows of 235 sure seem like a good target.

But even as I write this, I'm seeing 1200 NYSE ticks again to save the day. Even New Century (NEW) has had a big recovery from down 7% to being lower by less than a 25-cents (which is why I wasn't so enthusiastic about jumping on those Mar10 puts). So all seems "normal" for another day. The trend is your friend.

New Century (NEW)

One wonders how many more times you go can go back to the well and make a fortune with these subprime stocks? I'm always cautious about going back one time too many.

Here we have a stock down 7% today, but still trading above $14, yet volume on the March 10 puts in the first 3 hours of trading is over 1000 on open interest at 22-thousand. While that's not overwhelming reason to jump into those puts head first, it is sure indicative of the bearish sentiment surrounding this stock and many others either directly involved in subprime, or guilty by association. The further slide in NEW shares comes as investors and speculators have totally ignored Friday's upgrade of the stock by UBS from SELL to NEUTRAL and a $17 price target. UBS had stated that NEW's liquidity risk was OK and the weak credit outlook is already reflected in NEW's shares. Really?

So we'll see what happens March 1st... just a few days from now. That's when NEW is expected to report the revisions earnings.

Obviously with ABX bbb- falling through the floor boards, even if NEW pulls a big rabbit from the hat, prospects over the medium and long term look bleak for the company.

And this whole issue of them having to correct errors relating to how it incorrectly applied Statement of Financial Accounting Standards No. 140 - Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities - stinks to high heaven. After scandals like Enron, how is that New Century and its accountants could fail to include the expected discount upon disposition of loans when estimating its allowance for loan repurchase losses?!? Get my drift?

Gold

A few folks have emailed me this evening, and I will respond tomorrow morning.

I have received several emails concerning gold asking if I remain bullish.

The short answer is that I remain personally bullish on gold. Of course, I am not a financial advisor so I do not dispense personal advice on whether you, the reader, should or should not be buying or selling gold.

But I continue to hold a large GLD position as well as metals futures positions (though I did pare back the metals futures just a bit to reduce delivery exposure).

If you listened to my radio broadcasts even back in the late 1980's on 1010 WINS, New York and WBZ, Boston you probably knew I had a soft spot for the yellow metal since my weekend business reports on the two stations regularly featured gold experts. It has taken quite a while for gold to rise from the ashes, but I personally feel the best is yet to come. Jim Sinclair at JSMineset is looking for an eventual $1650+ and judging by the ignorant scoffers out there now, I'd say Jim is on the money.

Yep, the top callers are out there again already, but why weren't they there telling everyone to buy when gold fell below $600 not so long ago? Those people first owe you a BIG apology for not getting you in at $550 last summer and out at $700. Then, they owe you a BIGGER apology for being the fake, phonies and frauds that they are for anonymously blogging in the first place and then not giving sound reasoning for telling you to dump your gold position, or any position for that matter.

Don't get me wrong. I don't mind the opposing view. I do mind the phonies who come out of the woodwork who did nothing for their readers to get them into gold nearly $150 ago, but now tell them it's time to sell without giving a good reason.

Here's something you can always be assured of getting here: INTELLECTUAL HONESTY. Perhaps my reasoning will be wrong, but I will at least attempt to give you what I feel is sound reasoning, AND my name and mug shot is always on the page.

Sunday, February 25, 2007

Subprime Troubles To Lead to 41c/Shr Earnings Shortfall at GM

A good source on Wall Street sent me research this evening from Citi analyst Jon V Rogers stating that higher credit provisions at GMAC's ResCap unit could lead to a shortfall of 41-cents a share at GM for 2006 Q4. Further, GM's annual run rate EPS could be cut by at least 14-cents starting this year. Citi is maintaining at SELL rating on GM.

Due to a variety of subprime issues, the report says Residential Capital's Q4 net income could be driven down to a loss of $160 million from a profit of a $119 million last year.

One other note, Rogers says GM may pay GMAC $400-mln to adjust tangible book value in light of the ResCap problems. Ya just can't make this stuff up.

Definition of the Day.... PORTFOLIO INSURANCE

From http://www.investorpedia.com a basic definition:


Portfolio Insurance
1. A method of hedging a portfolio of stocks against the market risk by short selling stock index futures.

1. This hedging technique is frequently used by institutional investors when the market direction is uncertain or volatile. By short selling index futures they offset any downturns, but they also hinder any gains.

What I get sick of in reading the many blogs out there is the simplistic polarity of either "bulls are dumb", or "bears are evil" depending upon the perspective of the blogger (and boy could I name some names). Lost in the shuffle of bull vs bear argument is that enough unusual things are happening from subprime collapse to Iran nukes is that you can't go wrong with hedging or buying portfolio insurance to protect yourself.

Quick ABX Update

For five weeks running the ABX BBB- index of credit default swaps has been plunging, finishing Friday at just under 69. That means it now costs 1-1/4 million dollars a year to protect 10 million worth of the bonds against default.Tom Petty's "Free Fallin'" comes to mind when I see that chart. Perhaps Peter Schiff, president of Euro Pacific Capital is correct in thinking that the BBB- ABX contracts will go to zero. In more ominous fashion, A rated tranches are also weakening. Here's something to ponder:
Sorry, but these charts of what swap players are willing to pay don't lie. It should be noted that this index tied to the A rated tranches is still above 90 (ABX scaling makes it look worse), but there has clearly been deterioration which is an indication that spillover from subprime is starting to occur into the what are supposed to be higher quality, or "safe" areas of the mortgage world. Only $1 trillion in adjustables will reset this year. But, don't worry be happy - right?

Subprime Exposure

Who's exposed? Barron's ventures a guess by way of its "The Trader" column:

"WHILE BROKERS HAVE RESIDUAL EXPOSURE, the largest firms are in the business of moving and shipping -- but not storing -- such loans, notes BofA's brokerage analyst Michael Hecht. Street firms can be stung if the value of loans bought drops sharply before they can sell derivatives and pass along risk. But in a worst-case scenario, Hecht estimates the earnings hit at 5% for Bear Stearns (BSC), 4% for Lehman Brothers (LEH), and 2% each for Goldman Sachs (GS), Morgan Stanley (MS) and Merrill Lynch (MER). Subprime residual interest as a percentage of tangible equity is roughly 9% for Bear and Lehman, and 3% for the other three. "

The column goes on...

"Mortgage lenders may be on shakier ground. The risks are worse for those dependent on payment stretching, which exacerbates credit risk and puts pressure on new originations, and indirectly sourced loans inked at weaker prices and with less credit control, says BofA's Robert Lacoursiere. Lenders susceptible to credit deterioration include Indymac Bancorp (NDE), Fremont General (FMT), Novastar and Accredited Home Lenders (LEND), while New Century, Downey Financial (DSL) and GMAC are on the watch list."

I'm sorry to be a bit skeptical, but the columnist cites the work of Wall Street analysts. How many analysts have had their guns ablazin' warning early about a subprime debacle in the first place?

Get Ready for $70 Per Barrel Oil Again

Two factors are going to drive the price of oil higher: expectations for higher consumption (by China in particular) and by lower than expected output by non-OPEC producers. The latest batch of data on the state of the oil industry comes from a meeting of the the Institute of International Finance (IIF) in Doha. These figures from the IIF cognoscenti confirm the shocking downward revisions in non-OPEC supply estimates by the IEA last week. By the way, if you dig deeper into that IEA site, there is an excellent discussion concerning why the NYMEX futures complex remains as contangoed as it is... worth the read even if the IEA supply estimates aren't worth Jack.... Frost.

Given the situation with the imploding subprime culture - yes, culture because we're talking a whole class of millions who will lose their homes in the months ahead and the likelihood that the higher rung JUMBO mortgages will be the next group of mortgages to fall - $70 crude while presenting a terrific bullish trading opportunity in CL, XB, etc will be tough for the consumer and ultimately the entire economy to weather. But hey, don't worry be happy - right?

While my overall futures portfolio surged last week thanks to the metals, the one lousy trade I had was a natural gas short (which I dumped on Friday). It didn't stay mild enough for long enough in the northeast to have a meaningful impact and early seasonal Climate Prediction Center (CPC) forecasts are indicating the summer winds may be blowin' in strong this year which would stoke demand for nat gas by way of gas fired electricity generation.

Friday, February 23, 2007

I Will Be Back In Full Gear By The End of The Weekend

I decided to spend a few more days away, and would have spent another week away were it not for the kids needing to go back to school on Monday.

After looking at the state of the ABX world tonight, I am not feeling so bullish anymore about the stock market. Everyone knows of the hyperbolic carnage that's occurring in the bbb- tranches, but the A tranches, as I noted a few weeks ago... I dont remember when, are coming under heavier pressure as the subprime catastrophe spreads into prime. Sorry, this isn't doom and gloom... this is reality. The words "catastrophe" and "carnage" are words used by the sensational rag - The Wall Street Journal. Flight to quality toward 10 year is not doom and gloom - reality again. Checkmate.

I'm not going to say we;re in for a hard landing and that the Fed will lose control, but the rah rah bulls out there clearly did not anticipated a rally in gold much less flight to quality moves to treasuries this week that could have made them big bucks this week... LOL. I'm not going to say the market is about to crash, but 1+1 has not been equaling 2 lately and it's starting to make me a bit wary.

Despite being on vacation, my open position in gold futures grew my futures portfolio by more than a ridiculous 30%, which in some ways is scary because I was holding more than I should have been holding from a potential delivery standpoint... and my stock portfolio jumped by 6% on the rise in GLD. If I had listened to the johnny come latelies out there and bought diamonds, or spiders or whatever it is that you buy on a bet that the stock market is going to explode, I'd be poorer. Moral: nothing wrong with putting many eggs into one basket if it is the right basket.
This is also the fault that I'm finding with a lot of blogs.. there is a whole world of investing opportunities beyond stocks yet the blogosphere is mostly stock centric and sure tends to avoid things like ABX. Plus, if Agent Paulson has given the green light for the hedgies to manipulate commodities again - why the blazes play around with Google when you can make a fortune on energy, or metals?!?

I'll have a full post on Sunday night.

Quick Friday Vacation Post

ResMAE's soon to be gone forever web page: "ResMAE is setting a new standard of excellence in the subprime wholesale mortgage industry. With forward-thinking internet technology, a broad menu of competitive products, and fast processing through regional centers nationwide - that's mortgage lending done right. That's ResMAE"

The company will be auctioned off for pennies on the dollar next week. But that's really the past. I think you've got to look beyond subprime prime pure plays (though plenty of good shorting opportunities are still there even though alot of "easy money has been made) and look at lenders with a mixture of products. Scans of the options chains show bets are being placed against many of them. Use your imagination for your due diligence.. not that hard to come up with a good list.

Liquids on yesterday's energy inventory data went through the roof. Here we are only in February and XB:CL front month crack spread is up near a whopping $15... amazing (in my best german scientist accent). This certainly keeps the incentive in place for refineries to refine crude, and demand remains strong as well at over 9.1 mln bpd in the 1st quarter, according to the Schork Report. I am also still short nat gas but ready to dump if the price jumps up into the high 7.80's.

Metals... what more can be said. I remain long gold and have also jumped into silver. Both are looking over bought.. buy on the dips is my motto.

One question I continue to ask, is why is VIX March call open interest is into the 5 digits all the way to the 20 strike?

Lazlo's ticker sense has noticed the recent high ticks that have been mentioned here... http://tickersense.typepad.com/ticker_sense/2007/02/uptick_downtick.html

Wednesday, February 21, 2007

Gold

$682 - if you do a search in the box above... cheers! The vacation is going great. I could get used to not blogging. lol.

I love the scenario all the more that a further run in the major stock indices is coming, because it will only lead to a bigger snapping of the big rubber band once what's going on out there catches up to the stock market. If anyone's left scrathing their head about what I mean WRT "what's going on out there" best to close the Cramer Scottrade account and open a passbook savings account.

Anyone who's been paying attention to what has moved gold from the $250s to the present levels knows that today's CPI is but a small factor behind today's rally in gold... a good catalyst to light a powder keg of far greater reasons which continue to ignite gold. I also don't think it's a coincidence that Novastar went from Red giant to black hole last night. Clearly growing credit risk and the set of problems that would present also give investors reason to throw some money at gold - not to mention the geopolitical events of our times.

http://www.jsmineset.com remains the place to go for complete gold information and commentary. If there's any bit of good I hope this blog has accomplished, as I consider its future, is that I have driven a good amount of folks over to Jim Sinclair's site to gain real understanding in how to navigate what will be financial times like none of us have never known.

Tuesday, February 20, 2007

Still On Vacay... But a Few Notes

NFI... as expected it has blown up but I admit I was looking for Hiroshima and what we got tonight was a full fledged ICBM 50 megaton hit which will take the company by its own account years to recover from. The remaining March puts that I have will be sold for a very good profit. But aside from my immediate family really cares right? Of far greater concern is the carnage left in the wake of the NFI earnings report. Check the Roubini blog link to the right for a spot on analysis of what's going on in the subprime and how it will spread.

Obvious immediate lesson - investors ALWAYS get what they deserve. Ominous developing lesson - too many thought NFI was best of breed and a blow up of this magnitude couldn't happen to them. Think again. No one is immune when problems snowball.

By the way, I've been on vacation and really neglecting this blog and it's still popping up at #3 on the TopBlogSites ranking. It has been interesting to look at the stats to see a huge amount of traffic from some of the subprime related message boards where the original NFI posts from a few weeks ago warning of imminent danger have attracted attention. Quite funny. Subprime is starting to pop up on everyone's radar screen and the speed at which problems in subprime spread into the higher quality realms of the mortgage world is what will likely determine the staying power and strength of whatever the bulls are going to throw at the stock market in the weeks ahead.

Nat gas - I'm willing to be patient (wrong) for a while longer on my short bet up to the gap range at about $8 and have prepared to roll into the March contract.

Monday, February 19, 2007

Late Weekend Vacation Comments

There have been a variety of interesting developments since the closing bell sounded Friday afternoon.

In theory, the combination of Sirius and XM as a merger of equals SHOULD mean that shares of both should go higher, BUT given the perceived regulatory issues the deal faces along with technological integration, it could be quite some time before there's a lasting positive impact from the combination. This deal, however, seems to be the only way out of the debt and churn spiral both companies had been locked in. Yes, I feel the CEOs of both companies are finally crying "Uncle". I can't help but to wonder if the anti trust concerns are over blown since it seems that in a sense the two separate companies had been a trust of sorts since there had been no prospect of a third party launching into satellite radio space. Or to take a step further, while a combined SIRI-XMSR will exclusively "own" the satellite radio spectrum, the company still faces intense competition from free of charge terrestrial radio. We'll see if gains materialize Tuesday and more importantly if they hold.

I have my wife to thank for steering that family away from taking Jetblue (JBLU) this past weekend to Florida. We surely would have been one of those cancelled flights! We took alternate means to get to our southern destination. But having said that, it seems that JBLU is turning the weekend debacle into a learning experince to make the carrier better.

I spent hours driving on Saturday... all day, then my wife spent hours more once it got dark. It's amazing what you think about as you put all those miles behind you. One of the things I spent time thinking about was the possibility of GM buying Chrysler. I've got to say that I'm warming up to the idea. Gm could extract a great deal if value from the Chrysler asset base, also improve capacity utilization and also gain concessions from the UAW. There would also be the issue of blending the product lines of the companies to come up with somthing that would fly at the dealers. GM and DCX ay both jump on my buy list.

HP, Wal Mart and Home Depot will be posting earnings this week (read preview here).

I've been patiently holding my natural gas short position and even upped it as nat gas moved above $7.50 per decatherm. The back of winter is finally about to be broken. No doubt we'll see nat gas go below $7 in the days ahead. The question is how low before the reality of air conditioning demand begins to appear across the Old South and the rest of the southern tier of states. I get the feeling it's good that we're going into summer with extra nat gas supply.

Saturday, February 17, 2007

Gone Ice Fishin'!

Posting will be limited next week, but I will post here and there.

Be back at it full time on Friday the 23rd of February. Have a great week!

Recession Risk and Dow Record Highs

We're living in interesting times, very interesting times indeed.

The Dow hit yet another record closing high Friday even with a backdrop of bad economic data.

But then again, in the relativistic times that we live, what I feel is "bad" may not be so "bad" for you and could actually be "good" or even "great" for you. So let me be clear. When I talk about "bad" economic data, I am referring to the sort that indicates that recession risk is climbing.

As I discussed earlier today and have noted during the course of just the last couple of day, or linked too, there has been some "bad" economic data. But have no fear, the bull is here and the Dow marches higher.

As the week drew on even the subprime stocks, which were severely battered late last week and at the start of the week, managed to rebound a bit. But all is not looking well on the subprime front and this would appear to grease the skids where the economy is concerned. Markit.com's ABX bbb- index continued to fall through the floor:

So investors are now paying just under $1 mln to protect against default of $10 mln in bbb- rated subprime bonds. This thing is headed into meltdown mode.

The Gordon Lightfoot song the Wreck of the Edmund Fitzgerald literally just played on shuffle here in the home office. One of the best set of lyrics....

When supper time came the old cook came on deck
Saying fellows it's too rough to feed ya
At 7PM a main hatchway caved in
He said fellas it's been good to know ya.

It's pretty clear we've long past the stage of "rough" times in subprime... the "main hatchway" has given in now that default insurance rates on subprime debt are at just about $1 mln.

If you think this situation will be contained to just subprime loans - think again. Look what happened earlier this week with Standard and Poor's saying negative things about higher-quality mortgages.

Combined with the overall negative flow of information, it adds up to growing recession risk. How interesting given the stock market's behaviour as if it were a big beach ball under water that just has to pop up (someone else made the analogy, sorry for the lack of credit, but I can't remember who.. was it Zen?).

Think I'm getting a overly carried away about recession prospects while the rest of the world sees growth in the economy forever? Thing again.

Economist David Rosenberg at Merrill Lynch now thinks the recession risk has gone back above 50%: http://rsch1.ml.com/9093/24013/ds/63768_95.PDF. I had warned back in December that warm weather would skew (eg strengthen) data and throw folks off; now that things are getting back to normal weather-wise that data is coming back to portraying weakness.

With respect to the debate over whether subprime spills into other areas of the market, Morgan Stanley economist Stephen Roach cautions against complancy: http://www.morganstanley.com/views/gef/archive/2007/20070212-Mon.html#anchor4374. Scroll down to the next commentary and MS economist Dick Berner has a differing viewpoint.

We won't find out the answer to this question on Tuesday when trading resumes, but who's going to be right? The bulls, or the data points? While the Wall Street bulls remain firmly in control of things and could do so to the point of even more spectacular gains on Wall Street and in world markets, the the sagging economic data points are pointing to an eventual day of reckoning.

Friday, February 16, 2007

Mid Afternoon Musings

I'm back from early day running around.

Dow dip of just a tenth of a percent is decent considering another day of bad economic news. It does seem as if those matters of the dismal science just don't matter much these days - things like falling real estate construction, foreign capital outflows, weak consumer confidence, etc. Though it maybe it's not that one cares but that expectations are brewing that the Fed will come to the rescue with an interest rate cut sooner than many think? 10 year t-note up 5 ticks today, bring the yield down to 4.69%. Whatever the reason for the market's non reaction and complacency (VIX stuck down near 10) to some pretty big negatives in the economy, the resilience of the bulls is nothing short of stupendous with the Dow regularly hitting all time highs and the S&P 500 getting closer to lifetime highs again as well. And perhaps as Zen Trader has thoerized there may be a lot more to go.

I've covered markets since 1981 and still remember going on air in 1982 with the breaking news of Dow-1000 finally being broken for good. Skepticism about the Dow's level even then was easy to find. That's why I keep an open mind on this stuff. There are so many reasons why the stock market should be gettng hammered hard right now, but the market is now only a few hundred points from Dow 13k. so while I'm well aware of the copious warning signs, I still find the evidence Zen is presenting as compelling and worth considering. It pays to be skeptical, don't get me wrong on that, but I still have fond memories of talking heads on FNN in 1989 predicting a triple digit Dow. Just recently at my parent's house I found an old Bob Prechter magazine pretty much predicting the end of the stock market in 1992 to coincide with the ending of some grand super-cycle bull phase started in 1792 that was supposed to come to an end. It was fun reading. He pulled out all the stops, even examining fashion trends, etc.

The point is, it is one thing to be skeptical, but quite another to actually short the market too early, or even just stay away from the market and miss the opportunity to build portfolio gains. And mind you, we're not talking internet, or concept stocks in the Dow, we're talking names like Boeing, UTX, etc that have brought on huge returns since the market rebounded last year. When the right time comes to short the stock market, it will be the opportunity of a lifetime, now isn't that time yet but let's hope we can figure out when that time is a little bit ahead of the crowd.

OEX expiration and sell program troubles for the bulls would kick in if OEX fell to 665 or below... still seems comfortably above that mark.

A variety of subprime stocks are on the rise today, including LEND and NFI with 2% gains and NFI with a 4% rally. Here's a few grafs from a Dow Jones story:
NEW YORK (Dow Jones)--The poor performance of subprime mortgage loans,especially those made in 2006, will not have a major fallout in the rest of the capital market, analysts at Goldman Sachs said in a conference call Friday.The total amount of likely losses in the subprime sector is "unlikely to holdmajor risk to capital markets in general," said Jan Hatzius, an analyst with Goldman Sachs.That's because the size of the subprime market is very small compared to thesize of the much larger capital market, he said.For instance, an estimated $290 billion worth of foreclosures would add up to just 1.6% of the total market capitalization of the equities market, Hatziussaid.Also, the deterioration in the subprime market has not spread to other assetclasses, like autos and credit cards. "Overall credit card charge-offs are at historic lows," said Mike Swenson, one of the Goldman analysts participating inthe call.

Can you believe they would forget to leave out the impact of swap derivatives tied to all that subprime mortgage paper?

Mark next Wednesday on your calendar. It's AT&T vs Microsoft in the U.S. Supreme Court.

Quick Morning Market Comment

Limited today has I prep for my trip to head South.

Macro economic data will get under the skin of investors today. Housing starts plunge 14% is a headline that won't be ignored, though I have to tell you, things like the outflows in the TIC report yesterday which was largely ignored is what really will bite the rumps of many out there if such things continue. But this housing starts plunge, along with building permits slump stinks to high heaven. Worse yet, you've no doubt heard voices in recent weeks saying the housing market has bottomed. When you hear those voices again, and I will name names later this afternoon or evening when I have time, your mind should automatically shut them off. #1 voice, Alan Greenspan - just the other day talking about a bottoming housing market... simply a disgrace.

By the way, the pundits who were gleefully cheering a bottom in the housing market recently were pointing to data indicating inventories were coming down. They should have come out of their ivory towers to understand that the For Sale signs that came down in many neighborhoods in recents months were a good chunk of sellers throwing in the towel during the winter months. I have access to MLS data in the Hudson Valley and there are price drops every day and contracts with seller's agents that are simply left to expire on the system after six months of no sales. Those same sellers will be back this Spring to flood the market all over again.

At least there were no nasty (on the surface anyway) inflation surprises: January core PPI's on target, up 0.2%.

The BEST boys are out with an interesting report on Google (GOOG) this morning. The say the search engine's new algorithm, due in 2 weeks, will help GOOG to rake in more money from advertsiers with a better ad bidding system. BEST maintains an Outperform.

Citi also reiterated a buy on GOOG with a $600 price target.

Microsoft will be a drag on the Nasdaq today after CEO Ballmer said some estimates on Vista sales are too high. This interesting entry from http://www.theflyonthewall.com

"Microsoft-MSFT concerns over Vista confirmed-Hold@STFG
Steve Ballmer's comments at the analyst briefing suggested some estimates for Vista 2008 revenue were too high, citing ASP challenging and piracy in emerging markets. Stanford has a $55.9B revenue estimate for 2008, slightly below the consensus of $56.5 billion. :theflyonthewall"

On some days this week, Yahoo! (YHOO) has actually provided some leadership in the Nasdaq. Today RCBM reiterated an Outperform and upped its price target to $34 citing Panama.

The Broadcom options probe gets more intense by the minute as the Chairman refuses to cooperate.

Is AMR a takeover candidate? Analysts quoted in BusinessWeek think so, but Pru this morning says its doubtful Goldman and British Airway (BAB) would put together a deal. First Boston also says "we'll believe it when we see it."

Thursday, February 15, 2007

Friday Morning Curtain Raiser

I'm leaving the stock market recap and data preview to the fine folks at Stock Trading 101 tonight. I am simply bushed. But I will add one link. The Chinese year of the pig is coming up and Chinese soothsayers are predicting a tumultuous year for the financial markets. It got me to thinking that the predictions of those 'seers' are just as accurate if not more so than those that come from the well attired and wealthy variety of 'seers' on Wall Street. At least the so called soothsayers seem to recognize that there are problems in the world.

Natural gas - It got down to $7.06 but bounced back to $7.34 in late night trading. That keeps my short trade at a neutral return thus far. It will be getting quite warm. Over at the Wright Weather message board, skilled amateur forecast Don Sutherland (an excellent forecaster) sees this warm up coming (read about it here). I still think that means we see NG go below $7 in the days ahead to test support in the $6.75 area.

Crude - I've stayed away. It's been range bounce recently, but I'm seeing some signs of a potential break out. For the first time in weeks crude got slapped down to its 20 day moving average (see chart), but did manage to bounce right off. What I find intriguing about the chart below is that without fail rebounds in the 20 day moving average. when it's below the 50 day, have led to rebounds in the price of crude - of course, some rebounds larger than others.



Friday is the last day to trade the March contract.
Gold - I've opened a long position there again and will keep it simmering with a fairly wide stop... gotta be there following the recent dollar slide-o-rama and all of the whacked out geopolitical headlines that have been flowing. Thank goodness for http://www.jsmineset.com/ where all things related to gold are covered so well. I've got to link though to this story about Bush's ol' pal Vlad Ordering Russian Military Forces To Attack US Forces During Iran Invasion. That could get ugly. In this screwed up world in which we live, no wonder gold is up above $670.
Euro giving back a bit - EuroFX down 12 at 1.3152; Yen futures dipping by 5.

New York Mortgage Company - SOLD!

In the ever changing and chagrined mortgage world another fire sale... err, deal.

Earlier today word came through that Silver State Lending is no longer lending/.

They're dropping like flies in that business.

Microsoft (MSFT) Vista

Dow Jones is reporting Microsoft as saying that MSFT sees some 2008 Vista revenue views as being too high. D'oh. Details later.

Chipolte (CMG), Agilent (A), Netgear (NTGR), Baidu.com (BIDU)

It doesn't get much better than Chipolte (CMG) from an execution standpoint. CMG has been on my radar since I read Howard Lindzon's take on the company a little while back.

The company posted earnings of 33 cents a share versus estimates of 28c; revenue hit $219.7 mln vs estimates of 216.4 mln. Same stores sales up a whopping 10.1%. It plans on opening up 105 new restaurants this year.

Agilent (A) posted earnings of 39 cents, 5 cents ahead of estimates. Revenue of $1.28 bln vs expected $1.27 bln.

Netgear (NTGR) posted strong results of 43 cents a share vs estimates of 37c. Revenue also beat 164 mln vs ests of 158.5. The company sees 1st qtr revenue of as much as $165 mln vs estimates of 161 mln. I'm long here.

Quick Baidu.com (BIDU) followup, stock got to my target of $100 today and managed to bounce back to $105 on late day short covering. We'll see what impact options pinning has tomorrow. To the extent that my mental stop will allow, I plan to hold my March puts looking for another test of $100.

Earnings This Evening

A couple of interesting things jump out...

Straddles on CMG - Choptle are indicating a potential $3 move there and for Agilent (A) perhaps a $2 move. NTGR March call activity looks especially good ahead of earnings.

MOT for PALM?!?... amazing the the rumors that are being spit out these days!

E*Trade up 2% Today as Pru Talks Merger

Pru Mike Mayo has put an interesting research note out today stating there's a "1/3rd likelihood" for a Schwab-E*Trade merger over one year as idustry consolidation continues.

Pru likes thirds. The report goes on to state that Schwab (SCHW) could pay a 1/3rd premium for E*Trade (ETFC) and receive 1/3rd accretion. The report also states that such a deal would solve the succession delimma at Schwab. A merger would open the door for the 70 year old Chuck Schwab to retire and E*Trade CEO Mitch Caplan to take the reigns of the combined companies.

Says Prudential, "Net-net: we continue to recommend the stocks of both given recent favorable trends and positioning, combined with the potential added benefitof a merger involving these firms."

Natural Gas and a Few Other Notes

EIA reports a 259 Bcf withdrawal from storage last week, above the expected 245 Bcf, but we had been bracing for something worse and it didn't show up. And down she goes! Nat gas heading for $7 per decatherm.

Also NOAA saying the cold won't last through the end of March, which is what has been said on this blog for the last several days.

BIDU holding to a loss of about 10%... interesting that March put options premium sank a bit in the first hour as the stock bounced to $104 (and as implied volatility deflated following earnings), but premiums have creeped back... no doubt in my mind that after expiration the stock goes to below $100... probably next week - much like the pattern last July.

I am going to be away for a while today... getting ready for a week's vacation starting this Saturday! I promised my wife that once I "retired" we'd do more traveling - so it starts next week.

Morning Market Comment

With Ben Bernanke doing a carbon copy performance before the Senate Financial Services Committeee today, the bulls won't necessarily be doing a command performance. Stock futures are drifting lower this morning.

Jobless claims stronger than expected again at 357k, 314k was expected. But Empire Manufacturing - 24.4 vs 10.6. Industrial production fell .5% for the lowest reading since September 2005.

The really important report of note today, is the TIC Report... doesn't look good.

March Yen futures are up over 50 points following the stronger than expected Japanese GDP at 1/2%; March EuroFx is up 45 points in response to those TIC outflows.

The 10 year treasury is up 12/32nds, yield at 4.694%, unfazed by a report in the Journal that China is considering reducing its U.S. bond purchases (Click China Here to read more).

Apple is planning to introduce 15.4-inch MacBooks in the second quarter, so says Digitimes.

Gold holding at just above $672... crude also little changed. Nat gas holding ahead of EIA.

Baidu.com (BIDU) Gets Hammered

It's been an orderly but relentless pre market bleed. The bears have caught up with BIDU. The stock has fallen to as low as the $101 level. A 10% drop today seems reasonable given the company for the first time guided lower on the top line. They warned of FLAT revenue from Q4 to Q1 and on the conference call last night the CEO and CFO seemed to hint that this situation could continue into Q2. That's just bad for an internet high flyer trading at 60x forward earnings.


Analysts are downgrading...


BMUR downgrades to HOLD from BUY;
CITI downgrades to SELL from NEUTRAL with a target of $105.
UBS downgrades to REDUCE from NEUTRAL with a target of $99.


UBS noted that the Q4 upside was "due to lower expenses and the booking of tax income."

There isn't much rocket science to this chart. It shows a couple of interesting things: Breaks below 50 day moving average aren't generally long lasting, but they are generally sharp downward moves. Chart also shows the 200 day moving average is just above $93 and while never breached looks to be a target IMO within a few weeks given those analyst downgrades.

The company blamed "seasonality" for the revenue slowdown. I believe it... At BIDU "seasonality" is a synonym for ..... GOOGLE.


$100 wouldn't be a surprise today... wil it be the pin point this week?

Wednesday, February 14, 2007

The Thursday Curtain Raiser

It's Ben Bernanke Part Deux on Thursday, this time before the House Financial Services Committee. Ben will repeat his prepared text that he delivered to the Senate Committee Wednesday and then field those ever thought provoking questions from the lawmakers. Oh how I wish one of them would spend the weekend-before watching re-runs of Columbo to learn that "just one more thing" technique. Just when Ben thinks he's fooled another one, the hammer comes down from the lawmaker, "umm, Dr. Bernanke, just one more thing..."
Today our Fed chief talked of waning inflationary pressure and moderate economic growth - a wet St. Valentine's day kiss to Goldilocks and her economy. The stock market loved it, bond market loved it, dollar hated it.
Let's talk about the stock market first. The Dow wasn't able to hold to a triple digit gain for a 2nd day (not that there's a natural law that says it has to). I found that interesting given the strong NYSE ticks, a bunch above 1300 and one even above 1400. Despite so many stocks being bid up at the same time, it seemed as if that buying was still subsequently met with enough selling to keep the blue chips off the highs. The Naz was stronger with a gain of more than one percent as names like Applied Materials and Qualcomm became the leaders for a day, leaving the old leaders like Apple and Microsoft in the dust.
Zen Trader's indicators are telling him the stock market may be poised for a big lift higher. While the blogger behind AheadoftheNews.com, always an interesting read is throwing out a noteworthy caution.
There will be some IPO excitement Thursday. High speed telecom equipment company Opnext (OPXT) priced 16.9 mln shares at the top of the range at $15/shr. The managers for this one were Goldman, JP Morgan and CIBC. Barron's wrote about it over the weekend saying it would be a "hot" IPO.
Flat retail sales and falling bond yield conspired to send the dollar lower again. The Euro has shot back up to the upper end of the recent trading range - tonight March EuroFx up 9 points at 1.3152. Japanese Yen has been green on the screen for the past couple of day. March Yen futures are up another 44 points on a big jump in Japanese GDP. Will there soon be a rate hike in Japan? What will that do to the ubiquitous carry trade activity the funds and institutions that have been doing those trades with near reckless abandon? Let's hope the world doesn't find out the hard way.

10 year treasury yield holds at 4.74%
Gold at $673, silver at $14 - If the dollar index (in this chart I posted last night) breaks below 84, it will be a sure fire catalyst to run gold above minor resistance at $682, then to $690 and back to $700.
My nat gas short continues to simmer. The EIA on Thursday is likely to report a draw of 250 Bcf of nat gas from underground storage. We could be talking a record withrawal, but even with that supplies would still be more than 15% above 5 year averages. By this time next week temps are forecast to rebound back to the 40's in NYC! If we go well above 260 bcf tomorrow I will either hit the liquidate button, or the reverse button. We'll see how it plays out.
Crude oil little changed at just above $58, tomorrow is the last day to trade the March contract. A Sanford Bernstein analyst is making a bold prediction that crude could fall to as low as low as $30 a barrel with the slide getting underway as early as March if OPEC doesn't cut production enough. That would be a shorting opportunity of a lifetime! It would also change many investment ideas as well for a variety of markets - really turn the financial markets upside down. Just off the top of my head, that kind of a slide would crash oil company stocks but put a lot of discretionary dollars back in the pockets of consumers and save companies tons of energy consumption dollars. A rout in energy commodities would no doubt have a big impact on other commodties as well and surely if consumers can spend more it would probably reignite inflationary headaches for Gentle Ben Bernanke. And $30 oil would have interesting geopolitical implications for a variety of countries which rely on receipts from oil sales. It would be a fascinating situation if it happened.