Bears are back?

Positions
********
+100 GS @ 100.45 vs. cost @ 74.79
+2000 UYG @ 2.47 vs. cost @ 2.00

Markets
********
Markets closed off their intraday lows, but still fell approximately 3% across the board as automaker/bank woes resurfaced. The Fed's PPIP (Public-Private Investment Program), announced last week, combined with better than expected economic data (existing/new home sales, durable goods orders) added to a global market rally last week. Enthusiasm faded on Friday and markets across the globe fell on Monday.

The Pee-PIP, as it is so elegantly know in Washington, is a great idea in theory, but fails to address a primary concern. First of all - I ask how this is any different than the idea that Hank Paulson's team came up with at the onset of the TARP (Troubled Asset Relief Fund Program). The idea is great. Remove toxic asset from the banks' balance sheet and the banks will lend! The challenge is going to be pricing. Is the government (taxpayer) going to overpay for the assets relative to the private sector? Will banks sell assets they believe may recover in value for such fire-sale prices? No one truly knows how to value these assets and we hope the bids match the offers.

Regardless, we have seen sharp declines in equity markets over the past 2 sessions, but equity futures are pointing to small gains. Asian markets are generally higher after their woodshed beating on Monday. Is this the start of a bigger downtrend? Let's see how the economic data plays out. We have data tomorrow on nationwide home prices, Chicago area manufacturing, and consumer confidence. Friday's labor market report is expected to show continued large losses (-660k jobs) and a surging unemployment rate of 8.5%.

Hard to think happy thoughts,
TM

First signs of selling pressure

Positions
*********
+100 GS @ 108.98 vs. cost @ 74.79
+2000 UYG @ 2.80 vs. cost @ 2.00

Markets
*******
Markets have seen their quickest technical bull market since 1938. A technical bull market is a 20% rally off lows. We've seen a 21% move since the 12-years lows set on March 9. Today's selling is not at all surprising, given the profit taking and weak personal income and spending economic data. After disappearing from the face of the earth, Tim Geithner has been a regular on Capitol Hill. I believe the government/treasury has done plenty for markets. All of these programs, some highly suspect, will take time to impact markets if they do at all. There have been a lot of opportunities to buy into this rally, but it just doesn't feel like it is truly sustainable.

On March 4th, I suggested a bunch of longer-term trades and they have performed better than expected. This emphasizes the fact that most industries will rally or crash together. In one-way trending markets, industry diversification is useless. Over longer periods of time, you may find it somewhat useful. View those March 4 trade ideas:
http://tradefear.blogspot.com/2009/03/lack-of-conviction.html

Summary:
UYM @ 9, trading @ 13.24
UCO @ 8, trading @ 9.52
SSO, DDM < 20, trading > 20
STLD @ 8.97, trading @ 9.37
FCX @ 32.41, trading @ 42.01

Live from Queens
TM

Toxic assets

Positions
*********
+100 GS @ 106.37 vs. cost @ 74.79
+2000 UYG @ 2.67 vs. cost @ 2.00

Markets
*******
Global surge - equities across the globe are soaring on the Treasury's plan to purchase toxic assets. The plan is certainly not without flaws/kinks, but it has sparked a big rally. The Fed's plan to purchase "Long Dated" treasuries and MBS spurred initial optimism last week. Two things to note...
1) When did 2yr-10yr treasuries become longer term?
2) Is this rally sustainable?

Regardless - I predicted a while back that the Geithner plan would have a seismic impact on the markets. So far, so good, but I see too much bearish sentiment to defend my earlier statement. It is possible that we have seen the bottom, but we've all be faked out before.

I was very encouraged to see February Existing Home Sales shoot up 5.1% month-over-month today. Chalk it up to steep, and I mean steep, discounts. Let's see some momentum in the housing markets and maybe then we can talk about the worst being over. Forget about the labor markets. 7% unemployment is going to look good 1-2 years from now. The natural rate of unemployment probably has shifted higher.

An unrelated aside.
Why do the best people always get treated so poorly?

Live from passion free land,
TM

The Soviet Union of America

Positions
*********
+100 GS @ 97.57 vs. cost @ 74.79
+2000 UYG @ 2.51 vs. cost @ 2.00

Communist, Oh I meant Markets
*****************************
America the communist. Seems strange to say. How is it that this administration has received so much blind support (me included)? If we continue in the direction we are going, the facelift that is given to Wall Street will render America useless. America, "the land of the free," has been the destination of capital for quite a while. Understandably, lawmakers are upset, but Robin Hood isn't taking their undeservingly absurd pay and distributing it to homeless shelters. Okay - so I am a bit vexed by this whole thing. I apologize. Congress needs to take a quick look in the mirror and regulators should follow.

"Perfectly legal."
~When Obama was asked if people should be going to jail his response was that the activities were perfectly legal.

Economics 101 - Incentives. Take away incentives and mediocrity will reign.

This crisis occurred do to excessive risk taking and slightly lax regulation. Apparently, the government wants to have their cake and eat it too. When booming, they sat back and relaxed. You cannot have reward without risk. If you didn't understand the risks, well who did, then maybe you have to suffer the consequences. I know many companies will not be able to give back the TARP money, but many will choose to do so even if they cannot afford to. This will prolong the recession, cause more pain, AND reduce productivity.

Well done! I say "well done."

Equities trading is underway (unchanged), with few catalysts today before Bernanke's speech.

Who voted for these guys?

Markets Love Fed's Liquidity Drive

Positions
*********
+100 GS @ 105.94 vs. cost @ 74.79
+2000 UYG @ 2.91 vs. cost @ 2.00

Markets
*******
Today was all about the Fed and their plan to keep mortgage rates low through treasury/agency buying. This has caused an enormous rally in treasuries (10yr Treasury Rate -40bp today). Equity markets obviously liked the news that had been speculated, but not confirmed. The S&P500 briefly crossed 800 and financials continue to surge as expectations that the worst is over surface. Let's not forget about the huge short squeeze in Citi and other stocks. A very common trade on the street has been to short the common stock and go long preferred shares. These traders have been crushed and have had to close out their shorts - aiding/causing the large rallies.

Economic data is likely to stay weak for some time, but markets are finally seeing the light at the end of the tunnel. I'm still not sold that we are done with the negative, but it is not easy to get short into this market right now. Funny - it was impossible to get long just a week ago.

Watch out for profit taking. Wouldn't be a surprise to see selling soon.

Live from balmy Queens,
Everyone is thinking happy thoughts

TM

So Far, So Good

Positions
*********
+100 GS @ 96.57 vs. cost @ 74.79, stop @ 86
+2000 UYG @ 2.40 vs. cost @ 2.00

Markets
*******
So far, so good. A sizeable equity market rally yesterday fizzled in the final minutes of trading and we are set to test this outcome again. U.S. equity markets have been positive for nearly the entire day and we are currently looking at greater than 1% gains across the board. Better than expected housing starts and building permits today may have sparked the rally, although absolute levels remain near historical lows. Frankly, any deceleration in deteriorating fundamentals is a positive sign to me.

I couldn't have been more incorrect to dump 1000 C @ 1.62 only 5 days ago (trading > 2.40). However, I did replace the position with 2000 UYG @ 2.00 (trading > 2.30). I wanted significant exposure to financials, and I wanted a longer term view. I just couldn't justify the risk and in this marketplace, I decided to err on the side of caution.

With 20 minutes to the closing bell, it looks like we have extended gains and hopefully wont see a repeat of yesterday's last minute sell-off. We've seen a large bounce from our lowest levels of this recession and I plan to hold onto a few positions and wait on the sidelines for more ideal entry points.

Sadly, I'm not reporting live from the Golden State
TM

Huge test this week

Positions
********
+100 GS @ 98.55, increase stop to 86
+2000 UYG @ 2.00 (longer term holding)

Markets
********
US equity markets soared last week in a much needed and expected bear-market bounce. The Dow and S&P both rose more than 10% on the week and the S&P crossed some key levels. This week is going to be very important for directional trade. I was asked last week if the huge 359 point rally in the Dow was just another one-day headfake, and I correctly predicted the start of a much stronger move. However, fundamentals remain terrible and we are likely to see contracting economic data this week. Are the shorts gone? Probably not - and it might be the best time to get short. I'm still not sold on the 100% doom and gloom and Geithner's plan, if ever released for heck's sake, will likely cause a seismic shift in perceptions. This could be for the better or the worse, but it should have a lasting impact.

Short sellers are likely facing a positively skewed probability curve - likelihood of small frequent gains, and possibility of huge losses. I personally would like to test this week. Let's see how the market reacts to negative economic data. Last week we generally had better than expected data. I was hoping for downtrodden data to see if the momentum could hold in the face of adversity.

Monday we will get a look at NY State Manufacturing and nationwide Industrial Production. Both are expected to contract, but both are expected to show improvements. I'm not looking for home runs here. If the markets perceive that the worst is over, good things are likely to happen. I don't think we are there yet, and thus this is a big week for me. Can we hold onto the momentum or is last week going to look like a mere hiccup in the long-run.

Live from the amazingly beautiful Golden State,
TM

Follow through at last in a huge way

Returns
*******
Total Realized @ 14.7%
Sell 2000 C @ 1.62 vs. cost @1.60, return = 1.25%

C is too risky for me. Financials are risky, but I like the market leaders (GS) and ETFs only. Therefore: S 2000 C @1.62 and Buy 2000 @ 2.00. This slashed my returns from 17% to 14.7%. Remember I am calculating returns on an outlay/proceeds basis, not based on total capital.


Positions/Trades
****************
+100 GS @ 95.85, cost @ 74.79
Buy 2000 UYG @ 2.00

Follow-Through
**************
US equity markets have shown remarkable resilience. With just 22 minutes left to the close, we are looking at our first 3-day winning streak in quite some time. Markets have reacted positively to better than expected February retail sales numbers and a less than expected cut in GE's credit rating. February retail sales excluding volatile auto components rose 0.7% vs. a -0.2% consensus. Big deal right? Yes - January retail sales are typically overstated due to the impact of gift cards (sales counted when cards are used, not purchased) and to build on January's positive month-over-month is very encouraging.

Mark-to-market talks today reminded me of Geithner's February 8th testimony on his bank rescue plan and I was listening to the talks holding onto my chair and screaming, "Not again!" FASB Chairman Robert Herz told a House panel the agency "could have the guidance in three weeks." Are you kidding me? Three weeks? What the heck are you doing? Is there a more pressing need to address? Tim Geithner - do you know?

Nonetheless, markets are soaring with the Dow up 247pts, S&P500 up 30pts, and NASDAQ up 54pts. Asian markets should get a huge boost from the US short-squeeze 2 days ago and follow-through today. Tomorrow's economic plate is light, and thus earnings/guidance/unpredictable events should drive trading activity. I did predict 7 handles on the Dow/S&P by Friday's close - Let's just say I'm hoping we hold on tomorrow.

Live from Queens
Thinking happy thoughts

TM

Déjà Vu Follow-through

Realized Returns
***************
17% - attachment to follow

Trade Summary
******************
Sell 1000 UCO @ 7.65 vs. Buy @ 6.70
Buy 2000 C @ 1.60, stop @ 1.30

Markets are making an attempt at a two-day sustained rally, but consumer staple stocks are not cooperating and general sentiment is still very weak. Banks/financials again having a strong day with C, GS (leader), but well off the highs. Interest rates continue to decouple from equities. At one point the Dow in 2009 was down 30% and the 10yr treasury was up 75 basis points. Market optimism about suspension of mark-to-market (MTM) accounting rules is overdone and MTM rules must remain in effect to provide proper information to prospective investors. Risk-reward folks. You buy the risk, deal with the consequences.

Would be happy to see green across the board today, but it is looking more and more unlikely as we progress to mid-day. Tomorrow's retail sales number is the most important piece of economic data this week and the expectation if for a contraction month-over-month from January.

Live from Queens
TM

Bear-market bounce, or 1 day spike?

DG said...
Do you think the rally today is a temp spike based on non-economic data?Kinda likea mini one day bubble....I mean Vikram Pandit had no choice but to say everything was fine and dandy right? Its not like he can tell everyone the sky is falling. Weren't Jimmy Cayne and Fuld saying the same thing way back when. I'm curious about your thoughts
March 10, 2009 9:49 PM


Response
*********
I've been writing a lot about follow-through over the past few weeks and believe that we'll see a bear market bounce (long overdue). Today's rally was just another statement from just another CEO who cannot possibly say that the world is ending. However, to me, it was powerful for 2 reasons.

1) Deferred Tax Assets (DTAs) - Citi has a very large portion of total asset in the form of DTAs on their balance sheet which would be used against future taxable income if they return to profitability. A bank's healthy is more frequently being measured by Tangible Common Equity (TCE) in this environment, and questions have been raised about the "quality" of Citi's TCE. If the bank truly exhibits a positive earnings quarter, this will greatly improve the viability of its TCE. Now we can question whether the earnings are "quality" and derived from continuing operations and not asset sales/discountinued operations. Let's crawl before we attempt to walk.

2) Banks can make money! A few notable financial institutions have announced positive early results in 2009 thus far and this is extremely encouraging. Deleveraging and risk reduction crippled banks, among others, in 2008 and perhaps we are seeing some signs of stability. Time will tell.

I see this as a bear market bounce, and believe that both the Dow and S&P500 close with 7-handles on Friday, March 13th.

TM

Banks lead the way

Positions
*********
+100 GS @ 82.36, cost @ 74.79, increase stop to 75
+1000 UCO @ 8.54, cost @ 6.70, stop @ 7.70

Markets
*******
An uplifting Citi memo essentially sparked a much needed 4% plus rally across the board. Why such a big move? First of all, this is an extremely oversold market. Markets have been pummeled since Tim Geithner's vague bank rescue plan on February 8th. Most banks have lost 40% since that day and the S&P500 was off 22% since the now infamous "bank rescue" announcement.

Citi, after the latest government rescue plan has been criticized for having a weak asset base. A large percentage of total assets are Deferred Tax Assets (DTA). DTAs are prior period tax losses that are used to reduce/eliminate taxes payable if the company should return to profitability. However, if a company with DTAs is not expected to regain profitability, then a contra-account, valuation allowance, must be increased as a direct hit to net income. So DTAs are only valuable if a company exhibits future profitability. News of Citi's apparent profitable start to 2009 was thus very uplifting and helped spark a global rally in equities.

Short-covering helped build large early gains and we'll see if the momentum can last throughout the session. No doubt, we'll see more negative economic data, more job losses, and deteriorating economic fundamentals. At some point, valuations will be discounting all future negative data and forecasts will be so weak that actual reports beat consensus estimates. At that point, we should turn higher for good.

Good luck calling it - Live from Queens
I'm still thinking happy thoughts

TM

A small, tiny light at the end of the tunnel

Positions
*********

+100 GS @ 74.98, cost @ 74.79, stop @ 70
+1000 UCO @ 8.46, cost @ 6.70, increase stop to 7.70


Monday Morning Blues
********************

Asian market were crushed overnight as bank woes persisted. Weakness carried over to Europe and caused early gains to evaporate. US equities have had a seesaw session thus far as early losses turned to sizable 1% gains and back to flat again. No confidence, skittish buying.

Non-financial Acquisition
*************************

Big news of the day - Merck's $41B takeover offer for Schering-Plough (SGP) in pharmaceutical space. As expected, Merck's shares are taking a beating (-10%), and SGP's shares are up (+14%). This is a big deal for me personally and I don't have beneficial interests in either company. Acquisitions have dried up significantly (nearly zero) since their 2007 boom and this deal is encouraging. I'm not expecting a Butch Cassidy, gun-slinging type consolidation wave but when valuations are so attractive, it is hard for solid companies to resist these low-priced blockbusters. It is exactly this type of activity that I believe may help form an equity market bottom. Let's just say this is a good start, unless of course the deal falls apart or gets rejected. When enough non-financial companies take advantage of very low valuations, the retail investor may finally regain confidence to turn over their mattresses and slowly re-enter the market. Joblessness will continue and economic growth will stagnate, but much of this is already priced into this downtrodden market.


Live from Queens,
I'm thinking happy thoughts

TM

Buy GS @ 74.79, stop-limit @ 70

Positions
*********

B 100 GS @ 74.79, stop-limit @ 70
+100 UCO @ 8.19, cost @ 6.70, increase stop to 7.50

The mysterious wall street leader has been unnecessarily slammed today. I've been waiting for an entry point and have a tight stop in place given the possibility that this could be the start of a bigger sell-off in Goldman. They are profitable and they cover short-term liabilities. In a prior trade, I correctly dumped GS in anticipation of their worse than expected 4Q earnings release and the stock soared to my dismay.

Live from Queens,
TM

Redefine Portfolio Diversification

Redefine Portfolio Diversification
**********************************

"Diversification is a protection against ignorance. It makes very little sense for those who know what they're doing."

~ Warren Buffet, 1996 Berkshire Annual Meeting

True words of wisdom. Diversification needs to be re-analyzed during bear markets. Stock picking is difficult for even seasoned veterans because non-diversifiable risk is always present. In bull markets, diversification, along with throwing darts at the stock section of the Wall Street Journal typically produce positive returns.

In times of utter catastrophe (see '29-'32, '73-'74, '00-'02, now) diversification yields mediocrity at best. That is due to the fundamental difference between diversifiable risk and non-diversifiable risk. Inversely, or lowly correlated sectors during bull markets become positively correlated during bear markets as non-diversifiable risk dominates. Essentially, fear driving selling reverses negative, or low correlation. So in a significant bear-market a truly diversified portfolio must employ a long/short strategy or utilize significant alternative assets (Treasuries).

Financial innovation by virtue of inverse ETFs allow investors access to short-the-market strategies.

A word from the wise. Shorting this market is like "picking up pennies in front of a bulldozer."
~ Warren Buffet


Live from the uncharacteristically balmy, and even more pleasant Queens,
Think happy thoughts

TM

Discouraged workers, downward revisions

Positions
*********

+1000 UCO @ 7.87, cost @ 6.70 (Increase stop to 7.30)


Jobs, Jobs, Jobs
****************

Sell the dummy rallies! Markets irrationally jumped on horrific jobs data today and the sizeable rally slowly, but steadily disappeared. We are now looking at worse than 1% losses across the board. February's nonfarm payrolls loss of -651k jobs was in-line with consensus expectations (-648k). Many explain today's phantom rally by stating that the losses weren't nearly as great as feared. Reality quickly set in. Downward revisions to December and January payroll numbers exceeded 150k. One astute forecaster (ok so I wasn't the only one) correctly predicted a rise in the unemployment rate to greater than 8%. However, I think this number significantly understates the actual level of unemployment.

What is a discouraged worker? A discouraged worker is a jobless individual that is unable to locate work and through frustration, exits the labor force. I understand - presumably all of those frustrated people have decided to retire early (at 26) and pursue other opportunities. It makes perfect sense, doesn't it? Let's just say that many people aren't currently searching for work because unless your expertise is in the pharmaceutical/healthcare sector, you are like a desperate guy hanging out with 15 of your older sister's girlfriends - You may get the look, but you have to be Don Juan to get a shot.

Supply and demand folks. There just aren't that many opportunities. Discouraged workers in this downturn are very much unemployed.


Live from Queens,
TM

Lack of Conviction

Current Positions
***************
+1000 UCO @ 7.90, cost @ 6.70 (increase sell stop to 7.00)

Realized Returns
***************
Even though I wish I could grow money on trees, I essentially have a fixed budget, plus 33%. However, for simplicity, return calculations will be done on a per-trade basis as it is highly unlikely that all funds will be invested simultaneously.

+1000 UCO @ 8.01 vs. -1000 @ 6.505
+1000 FAS @ 5.34 vs. -1000 @ 4.73
Total realized = 18.9%

Prospects (Longer-term by request)
********************************
ETFs: Given the bear market, these are inexpensive ways to hold 1000+ shares in a bullish trade.

UYM @ $9, China, China, China - Commodities have been killed. This 2x leveraged ETF will give you an inexpensive way to go long materials.

UCO @ $8, Crude oil prices are likely to pick up when the economy does, and I think it may happen before. We've seen three bullish inventory reports in a row and bigtime resistance doesn't come into play until $54.
(I own/trade)

SSO, DDM < $20, 2x leveraged Dow & S&P 500 ETFs

Single stocks:
STLD - Steel Dynamics @ 8.97
Industry has been shellacked along with the rest of commodities, but the anticipated Chinese stimulus package and longer-term recovery plan should boost demand and create lucrative opportunities for those brave enough to whether temporary plunges. Alarmingly high debt/equity ratio may scare you. Dig deeper and find the notes to financial statements and see that the majority of the liabilities are longer term, with the earliest chunk due 2012 @ 6.75%.
(I own)

FCX - Freeport McMoran @ 32.41
Copper, Gold specific standout. Recently has cut production and modified demand forecasts. On the November 20th low, FCX was trading around $15. Since then, it has more than doubled to nearly $33. Think you already missed the boat? Not likely.
(I own)

Market Recap
*************

Where is the follow-through? During the market's precipitous decline, we have seen a number of 10-20%+ bear-market rallies. Lately, we have not seen any momentum and today's rally comes at a tough time. Today's harbinger of pain, the ADP private employment, forecasted 697,000 private sector jobs lost. Should we see a number worse than -700,000 on Friday, it may be difficult to find reasons to buy.

The rally today lacked conviction because all S&P 500 sectors were not big winners. Financials dragged all day long, and I do not believe we can sustain a rally with weak financials. Can financials turn around? Ask Tim Geithner and what they are doing about the toxic assets.

Live from the corner of McKinney & I can't read that sign
Think happy thoughts

TM

******************************************************************
Before you act, think about your suitability and consult your own financial advisor

Afraid to rally

A weak attempt at a rally is occurring in US equity markets. Early 1 percent gains for the S&P and NASDAQ have been cut down after -7.7 percent pending home sales - a leading indicator.

The markets remain very oversold but trying to pick a bottom is pure gambling and those who have attempted to bottom feed during this crisis are likely looking to be bailed out.

Looks like I missed the boat temporarily on the bearish ETFs but like a good friend of mine says, "You can't lose what you don't put in the middle....." okay so Matt Damon and I aren't pals, but you get the gist.

I'm actually looking to reenter UCO but Friday's payrolls number may put an old fashioned licking on any bulls. But my good friend Matt said "You can't win much either."

Buy 1000 UCO @ 6.70, stop at 6
Tight 10 percent stop in case I am wrong.

Live from the Lone Star State
Eat barbeque

TM

6-Handles, Dow & S&P

Positions
********
None

Prospects
*********
DXD, FAZ, DUG - bearish ETFs

Midnight-Hour Commentary
**************************

Asian markets essentially got slammed as global recession concerns weighed heavily. HSBC trading was suspended and yet the Hang Seng was down more than 4%. U.S. equity futures are all lower by more than 1% in late Asian trading. We are likely to see a 6-handle on both the Dow (today) and S&P500 this week. Technical indicators are all pointing to falling equity markets and financials are likely to resume their slide after last week's brief hiatus.

This week is a heavy economic data week and no one is expecting anything uplifting, especially not from Friday's ultra-important Nonfarm payrolls report for February. The consensus is near -650,000 and some estimates are as high as -800,000. The unemployment rate is expected to rise to 7.9%, but I think we crack 8%.

I may look to enter into some bearish-ETFs this week. I like DXD (Short Dow 2x) and FAZ (Short financials 3x). I also think DUG (Short Oil/Gas 2x) may be a good play despite the back-to-back bullish inventory reports as demand concerns may take the limelight this week, outweighing OPEC actions and supply issues.


Live from my upper west side commode
TM