Good news coupled with a bad news.. But since the good should always triumph over bad, the market ralied well over 50 points in market action today.

The good signs came from the housing front - existing home sales. Existing-home sales – including single-family, townhomes, condominiums and co-ops – rose 7.4% to a seasonally adjusted annual rate of 6.54 million units in November from 6.09 million in October, and are 44.1 % higher than the 4.54 million-unit pace in November 2008. Current sales remain at the highest level since February 2007 when they hit 6.55 million. Though much of the data is fabricated by weak seasonality in '08, housing credit and extra low interest rates.

On the bad news front - According to the third estimate of GDP growth in the second quarter, the real GDP growth is revised down to 2.2% from a prevoious estimate of 2.8% which inturn was revised from 3.5%. Analyst estimates were at 2.8%. THis simply implies that the US economy is not growing as much as it was/is expected to grow. Weak consumer spending, Unemployemtn is going to make the challenage even worse in Q4 and forward.. I guesss.

Its almost an anniversary of ZIRP( Zero Interest Rate Policy), and today FED has decided to keep the interest rates at the same 0-0.25% level, for the foreseeable future. In the policy statement today, there were some subtle remarks that the economy has stablized in many fronts esp in housing and consumer spending, yet the labour and credit markets continue to be strained. Well, the statement in itself would bode well for the future direction of the economy, and Dollar would some part gain some of its lost value over the last two months - and that woudl be why gold be a shortterm sell.

Another reason why C is a good long term buy.. Fed, Treasury, tax payer have always been backing C, as it was and still is (after cutting its business to nearhalf, and diluting its share holders by an additional 17Bn issue) too big to fail.. IRS followed the suit in support of bolstering the 'finances' of C.. The IRS today "quietly" agreed not to collect billions of dollars in potential taxes from Citigroup Inc as part of its deal to allow the bank to repay its taxpayer bailout. Lst q, C had about $38 Bn in past losses and going forward if C was profitable, this provision by the IRS would enable C to skip taxes on the next 38Bn in profits.. Thats about 0.35*38 Bn in earnings, potentially over the next 10-20 years!!

Headlines:

GS had changed its compensation 'provisions' preemptively, inlight of 50% tax on the walst bonuses slapped by UK govt... Now much of the executive bonus compensation would be in the form of stock, that cannot be exercised for the next 5 years.

Its long been spoken about CMBS taht it is going to be the next shoe. Todays Moody's published the delnquency rates of CMBS, and yes, nothing to cheer about. the aggregate rate of delinquencies among US CMBS loans stood at 4.47 per cent as at the end of November, an increase of 46 basis points compared with the prior month. Just to give a notion to compare - the same figure stood at 0.22% in Jul 2007. However to purport this view on CMBS, offlate, a couple of CMBS issues were over subscribed in US. In my opinion, the current price on a CMBS does reflect the elevated delinquencies.. the question is whether the banks had marked their assets to these market prices or not.

Again.. back.. after a long long long heitus.. I do not want to talk about the shit that spread over the last 8 or so months. Well,, I am still in deep pile of it. though, now I see signs I can swim out of it!! :)

Anyways, The market over the last 4-6 months has been stable trying to break both ways. Economic data has both been supporting and negating the investor sentiment. All the while, Fed, US Govt has been on its toes to prop up the sentiment on the smallest sign of weakness.. So far so good. But the real question is - Would the same plot be the game saver over the next year!!

Gold - has been my single best investment over the last 6 months.. (I got out of it when it is at 1200 ). I think Gold is poised for a breather or a correction here.. The bull story for gold has been that the sovereign nations are piling on gold as part of re-balancing their reserves, for the fact that dollar has lost its lusture as a safe haven. However, India, Russia are two countries which are shifting their reserves to Gold.. and China doing the same is a mere expectation. Infact CHinese Central Bank personnel did mention that they would not BUY any gold at these elevated prices. Next.. Dollar I guess will never lose its sheen as a reserve currency, and thus a safe haven.. It will simply not.. not in my lifetime!! I guess!!

No.. I am not contending that Gold is not poised for a rally here.. But, over the shortterm it might as well headed for a correction.. May be $1000..

A double dip recession in sight.. May be.. Investors are concerned about the deluge of dollars into the economy.. and thats the primary reason for the dollar being on the fall (in addition to high budget deficit, low interest rates).. and typically a flood of dollars shoudl lead to inflation, and yes, in that environ gold is the best hedge. However.. look at ydays KR earnings. a miss of 10 cents and a lowering of guidance of about 30 cents.. the reason being - defaltionary pricing pressure.

Next, Mexico, a commodity producer and sixth largest producer of Oil, has sought insurance policy (1 Bn) against oil price falling below $57 next year. A sign that the consumer demand for commodities would generally be weak, and the dollar might as well turn its trend here!!

I was almost at the rock bottom when I started the day,, but now, after a random talk with Harish and Vishal for just 10 min, I am all excited and pumped up..

I feel so lucky to have such friends around me, all the while!!

Sometimes I wonder, how much longer/further can I go before I snap!!

Green shoots?


This phrase has been coined to describe a possible recovery situation in the economy, and this has been teh driving force behind this bear market rally. Today reports do substantiate the argument against any green shoots and in my opinion, the economy is no way near a sustained recovery phase.

The Conference Board’s sentiment index decreased to 49.3 from a revised 54.8 in May. Economists forecast confidence would rise to 55.3 from 54.9 in the prior month. this low confidence number reflects a weak labor market sentiment and high energy prices. This is a striking contrast to the May number, which clocked in at a (revised) 54.8, well above the expected 42. Equity markets rather obligingly fell in the aftermath of the release. Though tis number is well above the 25 figure in March, it is well below the average figure of 87 during end of recessions.


Shall continue tomorrow..


Markit launched the first global family of sovereign credit default swaps. Well, think about it.. CDS on COMPANIEs (LEHMAN, Bearstearns likes) are balmed to be one of the causes of this current global financial melt down.. Imagine, with the levels of debt that is being raised by the nations, what if, a country goes down because of the speculation over its solvency a,d Credit Default Swaps???

unedited post after a l;ong time..
Hope i will be back to normal and post regly..

THE SAVINGS RATE IS NOW ON A CLEAR UPTREND

for every dollar that is coming out of Washington to support a 70% consumption/GDP ratio, it is getting barely more than 8 cents worth of new spending activity.not even the most aggressive monetary and fiscal policy since the 1930s is going to stop consumer spending in volume terms from rolling over in the second quarter.

Wage Deflation:
Wages and salaries fell at a 1.6% annual rate in May and are either flat or down for nine months in a row. The YoY trend is now -1.1%, which is the most that organic wages have deflated by since the data were first collected 50 years ago.

Jobless claims may not be a good metric:
Companies are not just downsizing their payroll, but have also cut the workweek to a record low of 33.1 hours. Fewer people are working and those that are still working have seen their hours dramatically cut this cycle.

What makes this cycle “different” is that three-quarters of the workers that were fired over the last year were let go on a permanent, not a temporary basis.There may well be job growth in the future in health care, infrastructure, energy technology and the like, but we can say with a reasonable amount of certainty that there are a whole lot of jobs in a whole lot sectors where jobs lost this recession are not going to come back. For example, the 580k jobs lost in financial services; the 320k jobs lost in residential construction; the 1.7 million jobs lost in durable goods manufacturing; the 1.1 million jobs lost in the wholesale/retail sector; and the 380k jobs that were lost in the leisure/hospitality industry. That is over four million jobs that were shed this cycle that are not likely to stage a comeback even after the recession is over. To show you how big a number four million is, we didn’t create that many jobs in the prior expansion until it reached its fourth birthday towards the tail end of 2005.

Home foreclosures:
RealtyTrac announced that default notices still went up 18% YoY in May. It is not just Florida or California any more either, the foreclosure crisis has spread right across the country and is no longer just a problem in areas where home prices have deflated sharply.

Deteriorating credit quality of consumer:
Credit card charge-off rates hit a record high for the sixth time in as many months in May — to 10.62% from 9.97% in April.


The full brunt of the credit collapse may be behind us, but, the other two shocks, namely deflating labour markets and deflating home prices, are very much still front and centre.

Thanks to ZeroHegde. 

Below are some of the key points contained in Stree Test Methodology:

(1) “more than 150 senior supervisors, on-site examiners, analysts and economists” spent a month reviewing the 19 BHC’s that hold two thirds of the country’s bank assets and account for one half of the loans

Ten trillion dollars in assets and five hundred trillion dollars in derivatives in one month? A typical single bank examination utilizes hundreds of examiners and takes several months. 

(2) ”the firms were asked to project…..the firms were asked to provide…etc.”

In other words, the banks tested themselves and the 150 examiners took their word for it. Any wonder they passed?

And my fave:

(12) “Supervisors evaluated firm loss estimates using a Monte Carlo simulation that projected a distribution of losses by examining potential dispersion around central probabilities of default.”

Ah…smells like Gaussian distributions. The old standard. We have seen how well that assumption works in these unusual times. An example of the dependability of using Gauss, taken from stock market movements in October, and calculated by Nassim Nicholas Taleb of Black Swan fame, showed that the price movements seen in October 2008 could be expected to occur---using estimates based on Gaussian distributions---once every 73,000,000,000,000,000,000,000 years. For those of you not tied to Biblical strict constructionism, the Universe is around 18,500,000,000 years old. Looks like it will be a few quintillion years before we see October again.

Thanks to ZeroHegde.

Fuck this,.. Leaked stress test results!!

1) Of the top nineteen (19) banks in the nation, sixteen (16) are already technically insolvent. (Based upon the “alternative more adverse” scenario which had a 3.3 percent contraction of the U.S. Economy in 2009, accompanied by 8.9 percent unemployment, followed by 0.5 percent growth of the U.S. Economy but a 10.3 percent jobless in 2010.)

2) Of the 16 banks that are already technically insolvent, not even one can withstand any disruption of cash flow at all or any further deterioration in non-paying loans. (Without further government injections of cash)

3) If any two of the 16 insolvent banks go under, they will totally wipe out all remaining FDIC insurance funding.

4) Of the top 19 banks in the nation, the top five (5) largest banks are under capitalized so dangerously, there is serious doubt about their ability to continue as ongoing businesses.

5) Five large U.S. banks have credit exposure related to their derivatives trading that exceeds their capital, with four in particular - JPMorgan Chase, Goldman Sachs, HSBC Bank America and Citibank - taking especially large risks.

6) Bank of America`s total credit exposure to derivatives was 179 percent of its risk-based capital; Citibank`s was 278 percent; JPMorgan Chase`s, 382 percent; and HSBC America`s, 550 percent. It gets even worse: Goldman Sachs began reporting as a commercial bank, revealing an alarming total credit exposure of 1,056 percent, or more than ten times its capital! (HSBC is NOT in the top 19 banks undergoing a stress test, but is mentioned in the report as an aside because of its risk capital exposure to derivatives)

7) Not only are there serious questions about whether or not JPMorgan Chase, Goldman Sachs,Citibank, Wells Fargo, Sun Trust Bank, HSBC Bank USA, can continue in business, more than 1,800 regional and smaller institutions are at risk of failure despite government bailouts!

The debt crisis is much greater than the government has reported. The FDIC`s "Problem List" of troubled banks includes 252 institutions with assets of $159 billion. 1,816 banks and thrifts are at risk of failure, with total assets of $4.67 trillion, compared to 1,568 institutions, with $2.32 trillion in total assets in prior quarter.

Put bluntly, the entire US Banking System is in complete and total collapse.

More at: http://turnerradionetwork.blogspot.com/2009/04/leaked-bank-stress-test-reults.html

Back after a long break.. Again, muddled between a ecstasic phase and a job dilemma. No regrets what so ever.. 

I am surprised the market has been holding over the last couple of weeks. The market continues to rally on a sign of good news, and ceases to respond on bad news. This is not a actual sign of a market bottom, but the investor frustration on the pace of the drop. I do believe that the market has further downside beofre a sustainable recovery. 

Fed's beige book is out today, and on the face of it, it signalled a near end to the recession, and led to a last hour market rally, Rake the top and there still are some bad news across US. "A complete absence if lenders in commercial real estate market", "steady or falling prices since last report", "revenues at services firms generally decreased, as did average service sector wages and employment".. and worse, "the deflation is still a looming danger". 

Quote of the day "If you owe yoru bank manager a thousand pounds, you are at his mercy. If you owe him a million pounds, he is at your mercy". In regard to the position of US with China!! :) 

Todays market action has been volatile, with a wild see-saw action, as both positve and negative economic data flooded the market. 

The market saw some initial buying interest on a positve report from the commerce dpt that durable good orders unexpectedly showed a substantial increase in the month of February after falling in each of the six previous months. The report showed that durable goods orders jumped 3.4 percent in February after falling by a revised 7.3 percent (from 4.5%) in January. Economists had been expecting durable goods orders to fall by 2.5 percent. Durable good orders is a leading indicator, and it bodes well for the industrial machinary stocks. Some of the stocks that I like in this segment - GE, PRST (though a much grim printing machinary stock), DXPE. 

The markets saw some further upside as a saperate report showed an unexpected increase in new home sales in the month of February. This marked the latest in recent string of positive housing market data. Though the SALES are on the rise, the median price of the homes has not stopped its decline. With high inventory levels and rising unemplyment it is a hard case to make for a housing market stabilization. 

Midday of the session, when DOW was up about 200 points, investors were spooked by the 34 bn 5yr treasury bond auction results. The auction drew a yield of 1.849 percent and a bid-to-cover ratio of 2.02, well below the average of 2.21. (bid-to-cover ratio is an indicator of demand for the treasuries). The failed auction of UK gilt added to the negative sentiment. I am not sure how much to read into the data, as it seems, it is a holiday for Japanese bond markets and Japan is one of the big buyers of US treasuries. 

The new mantra that is driving the markets over this week is the optimism on PPIP. Economists and investors argue on both sides of the arugument whether PPIP will be the savior. Bill Gross of PIMCO endorsed it. Fink of Blackrock,  and the eternal bear Nouriel Roubini expressed an positive opinion. I personally do not think it will work. Zero Hedge has a very interesting table from Goldman Sachs.. It shows Goldman's estimates for how banks are carrying assets like commercial mortgages and consumer loans on their books. The banks, it seems, are carrying those assets at ludicrously optimistic averages of between 89 per cent and 96 per cent of their original purchase price. For the PPIP to be benificial to the banks (which I opine is the main  intention behind the plan), the bids should be north of 90 cents on a dollar, when the market price for the same is speculated to be below 50 cents on a dollar. However, I was wrong many times and so was GoldmanSachs. 

The most repated sentence on CNBS these days -" March 8th bottom is going to hold"!! and that is exactly what they said from Nov through feb.. " Nov 20th bottom is going to hold". As Jon Stewart said - "FUCK YOU"!!! 

Song: "Last kiss" - Pearl Jam

Mood:  "I wish I were right" 

Don't stop dancing!! :)

Somethings, no matter how many times you repeat/undergo, would not give you enough practice to deal with it the next time. No wonder, I lived my whole life in one dilemma or the other!! 

Song: "Dont stop dancing" -Creed

Mood: Philosophical 

PPIP and the 500 point rally..

Today Tim has unveiled his long-awaited (much in the lines of Paulson Plan) to remove bad assets from the books of the banks. This PPIP is intended to take the legacy assets off the balance sheets of the banks, and there by help the banks raise their capital levels and start lending. This program ensures that the private sector is particpated in the buying along side the public sector (backed by and over looked  by FDIC, Treasury and the Fed). This 'program' is supposed to generate a buying power of about 500Bn, with a potential to expand to about 1T. The program will allow banks to identify which assets they wish to sell, FDIC will do an analysis, leverage will not exceed 6 to 1 in debt to equity ratio, and it will include eligibility for all sizes of institutions.  Pools will then be sold to the highest bidder and financing is provided via an FDIC guarantee.  Then the private sector partners will control and manage the assets until final liquidation. 

On teh face of it,  this might seem to be a real good deal for the banks( it might as well be), but I have my doubts. Well, I base my argument based on te response to last week's TALF program. Of the 200Bn plan that was announced, the bids recieved were only of 4.7Bn. Also, the crux of this PPIP  is to set the price for the assets, which is THE million dollar question. If I am an investor planning to but the assets from the banks under PPIP, I would try to pay as less as possible (though FED will lend me money to lever  up my investment 6 to 1, my 16% investment is in the first lein of losses), and that woudl force the banks to write down the remainig assets to the new price, (assuming banks are very much carrying the assets at above market prices) - and more write downs lead to more losses, and more troubles for banks. Say, if I am FORCED to buy the assets at a price above the market price, well, the banks benifit. And, I and the tax payer will benifit as long as my return is more than the cost I paid (maane, the loans turn out to be good loans and paid up in time). But in this environment, I guess it is a hard bet to make. However, What I think as the actual intention of the FED is to CREATE a market for the assets, and FORCE the banks ( as Private Investors) to bid for the assets (of other banks) at a price above the mark, and eventually drag the value of all the assets along. If what I speculate is right, well, I am screwed, as I am short the market. And C and BAC will make an amazing investment decisions even at these prices.  

Oil, after a long time has hovered around $53 dollars. I agree with Pickens in his call that Oil would reach $60 and be at $70 by this year end. Well, it is not that the demand for oil is going to ramp up, but that the pace with which the rig count is droppping is far more worse than the demand itself. U.S. Rig Count down 41 from last week at 1,085; down 699 year over year. Canadian Rig Count down 61 from last week at 159; down 169 year over year. The US Offshore rig count is 43, down 4 from last week; down 14 year over year. If this trend continues, I guess, OPEC would not even have to think about cutting the production to jack up the prices.. Btw, I own commodity etf, in this environment where Dollar devaluation seems inevitable, it is better to invest in 'inflation' trades.

Song: "Everybody's changing" - Keane (This band is known as "the band with no guitars", coz of its heavily piano-based music)

Mood: "Why do I push the things till the last minute"

IBM is in discussion with Sun (JAVA) about a potentail acquisition in a 7Bn deal. This would mean a near 100% premium to Sun's ydays close. I personally think this is not going to bode well for IBM or for the combined compnay. This deal came through on the heels of the announcement made by CSCO the other day about their entry into the server market. Currently the server market is dominated by IBM, and HP. CSCO's (a supplier of blades, swiches to IBM and HP servers) entry into the server market would pose a threat to the market share on IBM. Lets hopw its not another S-Nextel, or Alcatel-lucent deal. 

Unemployment in the UK crossed the 2 million mark and the unemployment rate hit 6.5%, its highest rate in more than 11 years. The number of people claiming unemployment benefit rose by 138,400 to 1.39 million. This was the largest monthly increase since records began in 1971.

http://www.ritholtz.com/blog/wp-content/uploads/2009/03/45279strip.gif

The FOMC has come in with no rate change as we had expected.  When it is already at a near-zero rate policy, there was no other outcome.  The Fed Funds Target Rate was left at 0.00% to 0.25%, and the discount rate was left at 0.50%. The Fed will buy an additional $750 billion worth of agency mortgage backed securities.  It will also purchase an additional $100 billion in agency debt instruments, and it will purchase an additional $300 billion worth of long-term Treasury securities over next 6-months. The magnitude here is that the mortgage backed security purchases are now more than doubled, and the unconventioanl purchase of Treasuries, which would force the mortgage rates lower. Hopefully, this would stop the ever receding housing market. Treasury yields in 10-year and 3-year notes have tanked as bond prices have gone up.  The dollar has also tanked, and gold is up higher as a result. I guess the follwing days trades would be 'inflation' centered. Gold would continue to go up, may touch the 1000 levels again.. TBT and PST would be good buys too.. no downside by quite an upside. 

Tomorrow's trade - BUY BUY BUY, commodities, gold, stocks, bonds. .. SELL SELL SELL Dollar, 

Bear market Rally - Part II

Happy death Anniversary, Bear Stearns! 

A not-so-surprising rally over the last week, S&P up about 12% and everyone on CNBC crappping about equity markets bottoming. The bullish case is pretty easy to make. Commodity prices picking up, lower credit spreads, Fed and Treasury funded programs, banks returning to profitability ( for the first two months), global stimulus packages, TALF & TARP policy initiatives .. Yet, it is not all good as it sounds. 

FUnadentals are still bad, job losses have not yet subsided, House prices have not stabilized yet, consumer confidence still low, bad balance sheets at banks, banks not issuing credit, Manufacturing and productivity at an all time low .. 

Well, my take,, it is easy to get carried away by the bull market action, but the fact is there is a thin line between a bounce and a recovery. Typical bear market is interlaced with 2-3 bear market rallies, and the typical upside in a bear market rally is about 20%.. ( well, i agree, stats lose their relevance in a recession, but no wrong in finding a reason in numbers). And this rally, though is strong ( 4 consecutive up-days), does not have enough fundmental support to morph into a next BULL MARKET. 20% upside from the bottom of S&P would give a close of 811. I would not as much surprised if S&P breaches 800 level, and Dow 8000. Enjoy while it lasts. BTW, I am short the market.. and I kick mymself hard for selling my stake in GE and C minutes before Friday close. 

On sunday, OPEC decided not to cut production. It indeed is surprising when it seemed that the primary goal of the cratel was to puch the price target to abouve $75. Not that the cartel became philanthropic overnight, it is that the world economy is in such a fragile state that any increase in the oil price would do more harm to them and the world than good. 

The American International Group on Sunday released the names of financial institutions that benefited last fall when the Federal Reserve saved it from collapse with an $85 billion rescue loan and then three subsequent bailouts.

$38.8B US Banks

$50.2B Foreign Banks

$12.0B Municipal Bonds

$84.0B Unaccounted for.. (may be bonuses to those very assholes who are responsible for the badbets!!).. And then the bullish guys owe the 'anticipated-bull-market' to the initiatives from Fed and Treasury.. 

AA is the latest addition to the comapnies that cut the dividend. In a measure to cut costs, AA today reduced its dividend to 3 cents to 17 cents per q. This would save about $400 Mn per year. What is surprising is that AA is issuing common stock and preferred at these levels. The problem with Aluminium is that the prices have been down very very sharply, and accoring to the management of AA,  they are expected to drop by another 25% in the first Q. When the prices were on the rise, Chinese factories have incresed their Al production, and now the collective Chinese production is three times that of US. And a big dent in the consumer spending, and Capital expenditure spending continue to hurt every Al producer. Is it a BUY at these levels. May be yes, May be No, or May be I dont know. The post market action ( down 20%) was more of the fear of dilution. If the Al producers start cutting the production to stabilize the prices any near term, owing Call options (2010 exp) is not a bad idea.

Mac and iPod sales continue to be lousy in Feb...

The latest National Association of Home Builders’ survey shows that confidence is unchanged from last month.  This is the second month in a row that the level has remained at 9 for new single-family homes. THis might be percieved as a half-empty-glass case. The number has been at such a low level (50 is the pivot point.. above 50 - expansion and below 50 - comtraction) that it cannot get any worse than this. 

Today, me Harish invited Ranga and Sharmila over for dinner.. and it was amazingly fun.. Three hours of continuos laughter. :) :) .. 

Song: Tainted Love - Marlyn Manson. 

Mood: "Excited" 

A rally long pending..

A rally that was long pending. A positive news from Citi initiated the uptrend even before the market opened. In a internal memo, Vikram Pandit said that the company is profitable through the first two months of 2009 and is having its best quarter-to-date performance since the third quarter of 2007. That initiated the rally, and it did rally strong for the day. Midday, Ben's comments about the economic recovery IF the banks are stabilized added to the optimism of the investors.  

That raises the question about the credibility in Pandit's statement. Well, Citi might be well capitalized and be profitable for the first two months of the Q, but it does not guarantee a equally good last month of the quarter.  Fitch's Prime Credit Card Delinquency Index measures credit card debt more than 60 days late through January, and it surged to a record 4.04% in the most recent month, trumping the 3.75% record set in the previous month. This might as well weigh on the credit card losses of Citi. My take, Citi over the next 2-3 days (this week has no major economic data releases, though US trade data is slated for release on Friday), would trade at the same levels ... but as the earnings date near (in APr) it would fall back to dollar menu.. :) 

Well, as I write this,trade data from China is out, and well, not a good news. The trade gap narrowed to $4.8 billion, about an eighth of the amount (Not a typo,, it is one eighth) in the previous month. Exports tumbled 25.7 percent from a year earlier. Imports fell 24.1 percent. The median estimates in a Bloomberg News survey of 16 economists were for a $28.3 billion trade surplus, a 1 percent decline in exports and a 22.5 percent drop in imports.  The corresponding eport drop in Jan was 17.5% and the imports fell  by 43%. There is not hope that the exports figure would improve any time soon. And the imports are very much dependent upon the success of the stimulus plan. The fact that about one third of the goods manufactured in China are exported, and these siginificant drop in exports signals the extent of decline in global economies. 

On the economic front, Jan wholesale trade data came in lower, though not enought to meet with the forecast.  January's inventory levels fell 0.7%, versus the consensus outlook for a fall of 1.0% (which is bad). Even worse if the difference between the sales drop and the inventories drop. Sales dropped 2.9% from December levels, and nose-dived by 15.4% from the prior year period. The sales-to-inventory ratio expanded to 1.3. 

http://1.bp.blogspot.com/_Et4TQ-a0gGU/Sbak1hSSdAI/AAAAAAAABks/pUTcIn8H9Do/s1600-h/sales_inventories_chart.PNG

http://1.bp.blogspot.com/_Et4TQ-a0gGU/Sbak1hSSdAI/AAAAAAAABks/pUTcIn8H9Do/s1600-h/sales_inventories_chart.PNG

High-tech manufacturing company United Technologies Corp. said Tuesday it will issue 11,600 layoffs this year due to the deteriorating global economic outlook. A ray of hope that AT&T Inc. plans to invest up to $18 billion and create 3,000 jobs nationwide this year, to keep pace with demand for wireless, broadband and video services.

An interesting article on Semantic Search. A technology that might provide an alternative to Google.. http://www.informationweek.com/news/internet/search/showArticle.jhtml?articleID=215801388&subSection=News

Quote of the day:  If the banks become stable, the economy may turn. - Ben Bernanke. 

Yes,, infact a BIG IF!!! :) 

Song: Mother - Pink Floyd (They were playing this song on the radio today monring on my way to office :) :) ) 

Mood: "If I keep my eyes closed, would the crap around me disappear!"

Lazy..

Could not figure out whether I am too lazy or too tired to write. !! 

Song: Hurt - NIN 

Mood: "Waiting"

weekend rambling

Consider these data points - the CDS on Berkshire Hathawayare trading at a wider spreads than those of covering Vietnam's debt, and the CDS spreads of GECC are trading at a spread wider than those of Russia's debt.It’s all the more remarkable because Berkshire’s and GE Capital’s debt both carry the highest rating of triple-A from Moody’s and Standard & Poor’s. Wll, that does not actually mean that the companies chances of default is much more than Rusia's or Vietnam's. CDS aren’t always a true gauge of the market’s risk perception.CDS can be thinly traded, and therefore subject to exaggerated movements — or even manipulation. Moreover, there is always an incentive for an Investor (Hedge funds or Institutional Investors) to TWEAK the CDS spreads and take advantage of long/short positions. Its very much similar to shorting a banks stock and spreading rumors about bank going under. No wonder CDS market shoudl be regulated. 

Wells Fargo joins the band of banks/companies which slashed their dividends.  WFC today slashed its quarterly payout to 5 cents from 34 cents a share. 

The U.S. unemployment rate surged in February to the highest level in more than 25 years and the economy lost more than 600,000 jobs for a third consecutive month, this would mean further reductions in spending, more fore closures. The jobless rate surged to 8.1 percent, more than forecast and the highest since December 1983. 

The Markit iTraxx Crossover index rose to 1,170 basis points for the first time. This means it costs 1,170,000 euros to insure 10m euros of debt on an annual basis over five years. The index, which is considered the best gauge of credit sentiment in Europe, has broken through fresh levels all week as concerns over the world economy and financial system grow.

What-If AIG/C/GM goes under!

Today I got a question from a friend of mine. He asked me what would happen if C, AIG and GM go under, and my first line of response was 'we are fucked for the next 2-3 years'.. I asked Bill the same question just to check whether he has any different opinion.. Nope.. 

Well, though i think GM is not as BIG or as SERIOUS as an issue as C or AIG going under, it will have a serious impact on the ecoonomy. Though in longer run it is good for F and Chrysler (provided they survive; F will definitely see the light, considering the fact that it didnt BEG for any bailout money, and that it is in talks with its debt holders to restructure the debt), it is not as good for the auto part compnaies, car dealers,  car rental companies and for institutions that hold GM's debt. In my previous post, I mentioned that over the past three years, big banks like Bank of America, Citigroup and JPMorgan Chase helped the automakers sell more than $56 billion of new debt securities. That figure does not include $47 billion of risky loans made to various affiliates of Chrysler, Ford and G.M. In another post, I quoted a study on what-if scenario of all the three car makers go bankrupt. (3M job losses, 400bn loss of personal income in 3 years, 150 Bn in tax losses to US govt in 3 years). If it were GM alone, a simple math of dividing the numbers by three would give a vague idea. 

AIG: Well, the problem with AIG is that it deals with Insurance, on institutions credit in the form of Credit Default swaps. Much worse is that fact the AIG mostly SOLD the insurance. When the economy is good, companies dont go belly up, or the chances of any compnay defaulting its debt would be low, providing a steady revenue stream for AIG, in terms of insurance premiums. When  things go bad,  AIG has to pay the debt to the insurance holders incase of a default. If a firm buys and sells the insurance, the effect would not be as much as it would be with a single mode exposure.Given that, AIG cannot go under, as it would expose a huge counterparty risk and would lead to many other firms writing down or going under. It is the same reason why Mr. Kohn, Fed vice-chairman, declined to make public the counter parties of AIG.  

Quote: 

“You are telling us that the counterparties that got par for their bonds or for whatever — the American taxpayer shouldn’t know who they are? And then you may come back to us and ask for more money for more banks and more corporations? You will get the biggest ‘no’ you ever got.” Jim Bunning, the Republican senator from Kentucky, when Fed vice chairman, Donald Kohn declined to make the counterparties public. 

C: it is simply too BIG to fail.

I rest my case.. and yes, we would be in deep shit for the next 2-3 years (4-5 years would be  a stretch) if any one of or all of the above events happen! 

Hedge funds: There’s a big hole in the hedge fund industry, as nearly $1 trillion in assets has disappeared over the last six months of 2008, according to a study. And I sit here and wonder whether to feel good to be STILL working for a hedge fund, or to regret for the same! 

Citi for a brief period traded below a dollar!! A DOLLAR??? Every time it gets below 1 buck, it is a screaming BUY.. but a risky one though.

What Do AIG, FNM, FRE (and GE) Have in Common?

This article is too insightful, and even more simple. Plagiarized from The Big Picture blog. 

Good Evening: 

Investors were handed various and conflicting pieces of news this morning, but hope for the future won out over worries about the present by day’s end. Word of a second stimulus package being readied in China, some kind words for the stock market from Steve Leuthold, and a couple of decent pieces of economic data represented the positive news that helped boost share prices. On the negative side, some weaker than expected economic news and a continued slide in the shares of GE helped to limit today’s gains. Since GE has received quite a bit of attention of late, I will conclude by offering an opinion of what I think might be driving this AAA-rated company’s share price lower than many investors had ever thought possible.

Global stock markets and U.S. stock index futures were higher overnight in response to a story out of China that another economic stimulus package might be on the way. As a nation of savers, China can probably afford to pump more funds into its economy, a situation U.S. citizens can only witness with distant envy. This proposal boosted not only the CSI 300, but global indexes and even commodities. Index futures here were up 1% prior to the release of the first batch of economic statistics. Mortgage purchase applications plunged to new depths in the latest reporting week, while two different glimpses of the U.S. employment picture were mixed. The Challenger Job Cut report portrayed a slowdown in the intensity of announced layoffs in February, while the ADP report estimated that the U.S. lost almost 700,000 jobs during the same period.

Given ADP’s track record as a misleading employment indicator, market participants seemed to shrug off the gloomy report and pushed stocks almost 2% higher at today’s open. Thirty minutes into the day saw the release of the ISM services survey, and it came in just a hair better than had been expected. The S&P 500, which had easily topped the 700 mark in the early going, eased back to test this level an hour into the session. When 700 held firm, buyers for various ” China plays” emerged and propelled the major averages to new highs by lunchtime. Bloomberg may have added a bit of a tailwind to equities when it posted a story that the well respected money manager, Steve Leuthold, was expecting a rally (see below). And while a sickly Beige Book (see below) and a heaviness in all securities bearing the GE name may have bothered the bulls, they were still able to push the averages to gains of 4% gains in the afternoon before a late bout of selling left the indexes ahead by 2.25% (Dow) to 4.8% (Dow Transports).

Treasurys sank in response as yields rose 6 to 10 bps on supply concerns. The U.S. government will likely have to auction off a cool $2 trillion during calendar 2009, a figure which defies both one’s imagination and quite possibly the combined appetites of global central banks. It wouldn’t surprise me in the least to see the Fed feel the need to put a floor under Treasury prices at some point this year. No doubt it was some of these same worries that knocked the dollar index down 0.8% today. Commodities, however, were Wednesday’s big winner. Dreams of renewed demand from China pushed almost everything but gold higher, and the CRB index closed with a gain approaching 4%.

GE’s stock price approached retirement age earlier this decade, but its shares now fetch no more than hat sizes. So why are both the equity and fixed income securities of this AAA-rated company under so much pressure? Guests on CNBC (which seems to tout its GE parentage less often of late) can’t stop talking about it almost as much as investors can’t stop selling the stock. One reason has to do with capital structure arbitrage. New owners of various fixed income obligations bearing the GE name have been selling short the common equity as a hedge. Momentum and fears that what happened to previously AAA-rated AIG could happen at GE are also exerting a gravitational pull on the share price.

Perhaps the real reason GE shares keep circling the drain has to do what it has in common with not only AIG, but with Fannie Mae and Freddie Mac as well. AIG, FNM, and FRE all hit the wall bearing the highest possible debt rating from Moody’s, S&P, and Fitch, and many rightly worry if GE will suffer the same fate. How is it possible that AAA-rated companies can so suddenly come a cropper? Simply blaming the ratings agencies for not doing their jobs, while correct, does not get to the heart of the matter. Nor does short-sighted management at the firms in question go far enough in explaining these amazing falls from grace.

To me, the real reason AIG, FNM, FRE (and perhaps GE) got into financial trouble had to do with their AAA rating and management’s desire to exploit it — even arbitrage it. Borrowing at the best interest rates available to non government entities, companies like GE and AIG found they could fund sizable financial units much more cheaply than could have been possible if the financial units (AIG Financial Products and GE Capital respectively) had to be funded without parental support. Knowing that the ratings agencies would be loathe to downgrade them (thus admitting a mistake), GE pushed its borrowing as far as they could and bought all sorts of assets with yields higher than its AAA funding costs. Call it a reputational ratings arbitrage, if you will.

GE exploited this “rep arb” so far that PIMCO’s Bill Gross felt forced to publicly cry “foul” a couple of years ago in one of his “Investment Outlooks”. PIMCO even boycotted GE’s commercial paper in protest of this arbitrage because it amounted to nothing more than a huge carry trade. As any carry trader will tell you, the risks are simple: The cost of funding your trades can go up, or the assets you’ve financed can go down. Enough of either can lead to ruin and both scourges are at work inside the opaque GE balance sheet these days. The hubris of GE’s CEO, Jeff Immelt, is only partially to blame. The GE culture under his boss, Jack Welch, set an impossible precedent when GE always beat its quarterly guidance by one penny. Can any assortment of fine industrial businesses be so predictable without a few financial levers being pulled now and then? A financially massaged, “Beat the Street” mentality was in place well before Mr. Immelt took the reins, but it seems to this outsider’s eyes that eventually he eventually tried to engineer what the global economy could not deliver. These thoughts are only a theory — one I readily admit to being unable to prove. But it’s easy to see the results. Too much borrowing was undertaken to buy too many risky assets, and the stock price is itself at risk until this situation somehow reverses.

While slightly different forces were at work when AIG (too much CDS exposure), FNM & FRE (too much residential mortgage exposure) all fell apart, the desire to abuse their AAA-rated funding advantage lay at the heart of all the leverage they took on and later came to regret. The legendary Michael Milken used to look with scorn upon AAA-rated paper, and not just because of the skimpy yields over Treasurys they gave investors. “Things can only get worse at those companies and their ratings can only go down”, he said on more than one occasion. Looking at GE and the others today, I’ll bet even Mr. Milken is struck by just how right his timeless warning has become.

– Jack McHugh

Looking for a leading indicator - Watch China!!!

Much of todays market gain can be attributed to the news from China. Earlier today, Shanghai composite index rose 6%, on the news that China was set to add 4Tr Yuan (about $580 Bn) stimulus package. the talk in the merket is that the new package could as well be 6Tr -8Tr Yuan. On top of that, China PMI beat expectations coming at 49 in Feb, a big imporvment from 45.3 in Jan. 

Had it not been the weak job data from ADP, the market would have ended even  higher. The ADP national employment report showed 697k jobs were lost in February, the worst performance so far in this recession indicating that economic conditions are still deteriorating more than a year into the downturn. Moreover, the prior month was revised down by 92k to -614k. Well, ADP data has always been a precursor to Non Farm Payroll data, and I would not be surprised  if the number for Friday’s nonfarm payroll report standa at 700K, and an 8% unemployment rate. 

Added to this, mid day the beige book report didnt sound any cheerful either. It shows more pain and more suffering ahed, just like the rest of the economic data we have seen lately.  The report puts the likelihood of any near-term recovery as very low.  Only two of twelve districts districts did not see significant deterioration. Significant recovery is not expected until late 2009 or into 2010. Consumer spending remains slow and there is an exceptionally sluggish auto market. Housing price decreases have not slowed with many markets continuing to see double-digit drops.  Mortgage demand is depressed and consumer lending is down while unemployment is up and wage pressure is muted. and the list does not end here!! 

Well, now Do I think todays rally is sustainable.. ?? Hell no!!

On the flip side, things are not as bad as they sound they are.

Though the unemployment data suggests that the rate is racing towards 10%, the worst in layoffs might be behind us. Outplacement firm Challenger, Gray & Christmas Inc. reported that the number of planned job cuts (Lay Offs) announced in February fell for the first time since December. Less layoffs - less future job losses.. however, we may have to endure more 600k-jobloss-months before it gets better.

Added Fed and Treasury are doing their best to stop the bleeding. Apart from the global stimulus efforts, I personally think TALF has the potential to atleast bring optimism/stability to the credit markets, if not, turn it around. The TALF is a loan facility consisting of $100bn equity from the Treasury and $900bn from the Fed. It extends secured lending to holders of newly issued consumer ABS and CMBS in order to get consumer lending again: demand from securitization accounted for 40% of loans extended to consumers.  Lately the securitization market is DEAD. 

GE has traded below 6, alevel not touched since 1990s. Markets are worried about the near term outlook for GE as GECC ( GE Capital) might have an influence on the earnings of GE Industrials. 

Musing, FDIC’s fund fell from $34.6bn in the third quarter to $18.9bn in the fourth. And if Blair has any credibility to what she says, if the economy continues to be in this state over the next year, the FDIC fund might run to zero or even negative levels as bank failures would force the fund insolvent.. WOndering if our deposits which are supposedly be insured are INSURED! ?? 

Mood: "When will this end"

Song:  Shattered - OAR

Ok.. Here I go again.. after a long break..

Well, to cut short what has happened in the last two months, January has been the worst January ever, February is a not an exception either. and today has been marked in history as a worst begining for March. TOld that, what/where do you think the market is headed ???

Look at whats happening around the globe:
China slowed quite sharply at the end of last year. Japan’s January exports are down 46% y/y, the fastest decline ever.
India seems to be decelerating. Malaysia didn’t grow in the fourth quarter.
Thailand’s exports and industrial production fell at a record pace in January.
Abu Dhabi tentative bailout of Dubai.
And the woes at Eastern European countries running a huge public debt and Account deficits.
In Q4 of 2008 GDP fell by about 6% in the US, 6% in the Eurozone, by 8% in Germany, by 12% in Japan, by 16% in Singapore and by 20% in South Korea. So things are even more awful in Europe and Asia than the US.
Standard & Poor’s is reporting that the number of companies poised for a credit downgrade in February was 977, the highest ever.

See you at 6500 Dow!!

Stocks down on more negative earnings surprise.

Stocks opened markedly lower on the day, were mixed during the day and ended it in slightly red, following the release of some economic and corporate nesws.

On the economic front, Commerce Department report showed that personal spending fell by 1.0 percent in December following a revised 0.8 percent decrease in the previous month, marking the sixth consecutive monthly decrease in spending. With most of the job losses coming in the Jan (about 200,000) the consumer spending is going to get even worse from here.

Though personal spending was faling at a faster rate than income (down 0.2%), personal saving as a percentage of disposable personal income was 3.6 percent in December compared with 2.8 percent in November. Though this is off the lows of near 0%, it still is much lower than the historical average of 5.2% in 90,s.

Separately, the Institute for Supply Management said its index of activity in the manufacturing sector unexpectedly rose to 35.6 in January from 32.9 in December, although a reading below 50 still indicates the twelfth consecutive month of contraction in the sector. Hopefully this indicates that the situation does not get any worse.

Much of the hopes are hinged on the stimulus package, but the $819 Bn stimulus package seems to face some resistance from the Republicans as the Senate begins their debate. The main intention of the package should be to atleast stop the job losses, if not job creation, instead of throwing it around like pieces of paper.

I think infrastructure stocks, Healthcare IT stocks, Educational stocks(ceco, coco, esi, dv apol), broad band stocks (esp towers, amt, cci, sbac) would benifit out of the stimuls package. (Should study more about this).

Mood : Sick .. literally, though.
Song: Sweet Pea - Amos Lee (ATT commercial)

Todays share of bad news:

The U.S. Labor Department said that jobless claims were up 3,000 last week to 588,000, more than expected. 

The U.S. Commerce Department said that durable goods orders were down 2.6% in December, weaker than expected. For all of 2008, orders were down 5.7%, the second largest decline on record

The U.S. Census Bureau said that new home sales were at an annual rate of 331,000 units in December, down 14.7% from November's pace and weaker than expected. For all of 2008, there were 482,000 new homes sold, down 38% from 2007. 

The markets showed a notable weakness during the pre market trading as the economic data didnt show any signs of improvement in the economy. After trending higher in the last 4 sessions, stocks moved back to the downside during the day, as traders did some profit taking. 

Housing stocks saw substantial weakness, as traders reacted to the disappointing new home sales data. Financials were hurt by the profit taking  from yesterdays rally. Significant weakness also emerged in the airline sector, as reflected by the 5.2 percent loss posted by the Amex Airline Index. U.S. Airways (LCC) and Continental (CAL) fell sharply after reporting significantly wider fourth quarter losses compared to a year ago.

GOld, as I mentioned in my previous posts has edged above $900 dollars again. 

Another batch of key economic data is due to be released on Friday, including the Commerce Department's advance report on fourth quarter gross domestic product. The report is expected to show that GDP fell by 5.4 percent in the last three months of 2008.

Quote of the day!!

Pussy, gets everyone.. No one is spared!! - William K. Woodruff.

I came to my senses after a big gap.. Thanks to Dada, Bumchik, and my parents. :) ..

All of a sudden things have turned better again..

In light of IBM positive earnings release and the hope of Obama's magic wand, the indices gained back the losses they had yesterday. Dow rallied 279 points (3.5%), S&P 35 (4.3%) and NASDAQ 66 points (4.6%).

IBM posted better-than-expected Q4 earnings and, unlike many of its high-tech rivals, forecasts a rosy 2009. Acknowledging the extremely difficult economic environment,' IBM expects continued benefits from growing profitability on its software and services businesses. IBM said customers are continuing to sign up for outsourcing and other services contracts despite the global slowdown. IBM reported fourth quarter earnings of $3.28 per share, up from $2.80 per share in the same quarter last year and above analyst estimates of $3.03 per share. IBM also surprised analysts by forecasting full year 2009 earnings of at least $9.20 per share, well above analyst estimates of $8.75 per share.

Even though there are no news on Financial firms, most of the financial stocks settled over and above the losses that they had in yday trading. C cuts its dividend to 0.01 from 0.16 cents to shore up much needed cash. This dividend cut would save C around 817M per quarter. C, JPM, BAC, MS each posted about 30% gain in todays trading. (I am happy I didnt sell my C shares Yday).

Best part of today was AAPL's earnigs release. Earnings rose a modest 2% from last year, as higher costs and expenses dented a 6% sales growth. However, the company's quarterly earnings per share breezed past analysts' expectations as did its quarterly sales. AAPL reported a top line of 10.2 Bn in revenues, and 1.78 in earnings per share. Alaysts expetected revenues of 9.2Bn and 1.39 in earnigs. Though the guidance is below the street estimates, I dont thin it will have any significant impact. AAPL is known for its conservative guidance.

AMR Corp. (AMR) and UAL Corp. (UAUA) both reported steep fourth quarter loses. Airlines today came under a selling pressure with AMR losing about 2.48 (24%) and UAL losing about 6%. AMR trading at 7.95 is a BUY.

EBAY Q4 earnigs decline from the same quarter last year but barely beat the estimates, and worse guides much lower for Q1 09. Non-GAAP net income was $524 million or $0.41 per share, compared to estimates of 0.39. Looking forward, for the first quarter of 2009, the company expected earnings in the range of $0.32 to $0.34. Analysts expecting about 40 cents for the same period.

Economic data is likely to attract some attention on Thursday, with the Labor Department due to release its weekly jobless claims report, while the Commerce Department is due to release its report on housing starts in the month of December.

Germany is expecting the economy to shrink by 2.25% in 2009, whihc is the worst performance since WW II. This forecast is much lower than its previous prediction for the year 2009 (0.2% growth) made in mid-October.

Interesting pic off FT. http://alphaville.ftdata.co.uk/lib/inc/getfile/4156.jpg

The Singapore economy shrank 16.9% in the fourth quarter, far exceeding forecasts of a 12.5% contraction. The government said it now expected Singapore’s economy to contract 2 to 5% percent this year, slashing its forecast further from an already downgraded outlook of a range of minus 2% to plus 1% published just three weeks ago.

From Aleph blog:

Consider the similarities between the US and Britain in the current crisis:

* Accommodative monetary policies.
* Generally free-ish with respect to financial regulation and credit.
* Overleveraged housing markets after a bubble.
* Banks that felt they could hedge risks and enhance returns through structured finance and derivatives.
* Aggressive approaches to bail out financial institutions.

Yet, Sterling took a beating and the Dollar is making new highs againist most of the currencies but Yen.

Reaosn being "the US Dollar is the global reserve currency and the British Pound is not. Thus Britain, as it tries to reflate, runs up against borrowing constraints faster than the US does."

And why are they not many alternatives to USD?

"The Yen? Japan has its own problems, and their economy is not large enough to deal with all of the financial flows entailed.

The Yuan? Banking system too immature.

The Euro? Too young. Tha current danger of the Euro is not that it will be weak, but that it might be too strong, leading to hard adjustments in Ireland, Spain, Greece, Portugal, and tangential European economies with weak fiscal policy positions. I’ve said it before; I’ll say it again: the Euro is a noble experiment, but currency unions that are not political unions don’t typically work. Then again, most fiat currencies eventually fail.

External commodity-based currencies? None that I know of; few governments want to limit their power by tying their hands on monetary policy."

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and this GUY is the worst pessimist I have ever known, but the sad part is he got it right thus far.. His prediction - "Assuming a further 20% fall in house prices and unemployment peaking at 9%, we project total loan losses to amount to $1.6T out of $12.4T loans outstanding. Of these $1.6T loan losses, about $1.1T accrue to U.S. banks and brokers." And the bank Capitalization of FDIC banks being 1.4T, US financial system is Effed!!

Congratulations, President Barack Hussein Obama

Let me start with a bright note on the things.. The credit markets definitely seemed to have given in quite considerably from its all time highs made in the last quarter..

1) LIBOR has fallen dramatically worldwide.
2) Commercial paper issuance has increased substantially and commercial paper rates have fallen substantially.
3) The mortgage-backed securities market has rallied substantially, pushing mortgage-rates to all-time lows. Moreover, the yield spread between agency securities and Treasuries has fallen substantially.
4) Corporate and municipal bond yields have fallen sharply of late, including junk bond yields.
5) Corporate bond issuance is rebounding.

New support for the U.S. economy will arrive within weeks when the Federal Reserve initiates its Term Asset-Backed Securities Loan Facility (TALF), which will provide up to $200 billion for the asset-backed market.

The 3-month Libor-OIS spread fell below 100 basis points for the first time since September.

In this back drop I did expect that Obama Presidency would bring a rally (short-term) in this bear market. but --- What Obama Rally???

Barack Obama was sworn in as the 44th President of the United States, taking office at a time when the U.S. economy is in its worst shape since World War II. The Indexes continued their downtrend with growing concerns about banks around the world and the possibility of more surprises in the balance sheets. C down 18%, RBS down about 11% followed by a 67% ddown yday, JPM down about 23%. I guess C abd BofA would face a smiliar fate of RBS .. A huge governement intervention in the banks operations and a huge injection of capital into the bank.. But, this would come at a cost to the shareholders as it causes a dilution and literally wipe the shareholder value to 0. Though the Fed and Tresaury have been injecting money into the banking system and waiting for teh second leg of TARP money to be injected, Banks still do not have any incentive to lend the money. The next set of capital injections would tag along with a set of regulations and rules. In line with that Khakhari has demanded the banks which recived the TARP injections to provide a monthly report on the balances, loans etc.

State Street (STT) turned in one of the banking sector's worst performances after reporting sharply lower fourth quarter earnings and forecasting flat results for full year 2009. Shares of State Street fell 59 percent to a twelve-year closing low. Significant weakness was also visible among real estate and housing stocks, as traders expressed concerns about the impact of a continuation of the financial crisis. Electronic storage, steel, oil service, and semiconductor stocks posted notable losses.

Even with a strong U.S. dollar, February gold closed up $15.30 at $855.20 with concerns about several large banks and expectations that 2009 will produce negative growth in several countries.

The day has ended with Dow down 332 points and settled at a level seen before Dec 1st.

In a conference at Dubai Roubini commented:
U.S. financial losses from the credit crisis may reach $3.6 trillion, suggesting the banking system is “effectively insolvent,”
“I’ve found that credit losses could peak at a level of 3.6 trillion for U.S. institutions, half of them by banks and broker dealers, If that’s true, it means the U.S. banking system is effectively insolvent because it starts with a capital of $1.4 trillion. This is a systemic banking crisis.”
“The problems of Citi, Bank of America and others suggest the system is bankrupt,”
Oil prices will trade between $30 and $40 a barrel all year
“I see commodities falling overall another 15-20 percent,”


Guess, we are not even close to calling it a bottom. Welcome to the second session of wild swings in the market ... yet again..

Fuck me

... for being such a pessimist!!!

Markets finally crak ahead of a week of economic data.

The unfolding week's economic calendar is heavily loaded, with a few key economic reports slated for release during the week. The Commerce Department's retail sales report for December, the Fed's Beige Book, the Labor Department's consumer and producer prices reports, the results of the manufacturing surveys of the New York Federal Reserve and the Philadelphia Federal Reserve, the December industrial production report and the University of Michigan's January preliminary consumer sentiment report are among the key economic reports that could help drive trading.

Today, the market, especially the materials, commodities have come under pressure from Deutsche Bank lowering estimates on AA, and the USDA crop prodiction estimates. Deutsche Bank said Alcoa's net debt position of about $9 billion and near-term negative free cash flow makes a rebound unlikely in the near future.

Mid way through the day, financials came under tremendous pressure lead by C. Citigroup also suffered a notable loss amid reports that the financial services giant is weighing a sale of a stake in its Smith Barney brokerage business to Morgan Stanley (MS). Though Citi would boost its equity base by about 5Bn through this sale, this actio is percieved as bad by the analysts, as Smith Barney is one of the cash generating business (worth 10Bn) for C. Also, C analysts cut down the estimates for BofA and expected a 3.6Bn operating loss estimate for BofA this quarter, where as C itself is expected to report $10 Bn operating loss for the upcoming quarter. But, C and BofA, i guess, are cutting down their diversified operations and trying to concentrate on their core business, ie. retail and Commercial banking. C market cap less than US Bancorp.. No way.. I would buy in C at the current level as a long term investment. 

Commodities were lower across th board today as the USDA crop data is out, and the report screams a falling demand and increasing stocks (inventory) of all commodities globally. 

Corn was increased from 1.474 to 1.790 million bushels.

Soybeans was increased from 205 to 225 million bushels.

Wheat was increased from 623 to 655 million bushels.

As of December 1st, the USDA said that there were:

10.1 billion bushels of corn stocks, up 2% from a year ago.

2.28 billion bushels of soybean stocks, down 4% from a year ago.

1.42 billion bushels of wheat stocks, up 26% from a year ago. 

Most of the fertilizer stocks came under a selling pressure, with POT down about 12% ($74), MOS down 11% (34.6), AGU down 10% (31). I do believe that the commodities at these levels are oversold and the prices are consolidating at these levels. I would own the general Ag Stocks ( ETF - MOO) at these levels,, and add as the price falls down. 

 

YTD - 0% .. :)

The selling pressure that started early in the session continued through out the day,ending the session with dow down 245 points. This weakness came as investors sold off their gains in response to the weak economic data.

Morning started with weak ADP employment data (private sector). the data showed that non-farm private employment fell by 693,000 jobs following a revised decrease of 476,000 jobs in November. Economists had been expecting the report to show a somewhat more modest decrease of about 450,000 jobs.

On corporate front, INTC announced a downward revision to their revenue guidance. It now expects fourth-quarter revenue to be about $8.2 billion, down 20 percent sequentially. Earlier, the company expected fourth quarter revenue to be $9 billion, plus or minus $300 million. The fact that INTC revised their guidance twice in two months weighed heavily on tech stocks and the stock market in general.

EIA inventory data contributed to the weakness in oil and gas sector. Crude oil lost about $5.95 and ended at 42.63 after the report showed that crude oil inventories increased by 6.7 million barrels last week. The increase was much larger than the expected build of around 1 million barrels.

Bad news came from the metals sector as well. AA said Tuesday evening that it is cutting 13,500 jobs, or about 13 percent of its global workforce, in an attempt to curtail costs in the face of the global economic downturn.

Tomorrow jobless claims data and Consumer Credit data should be out. Friday is the actual test for market as the much anticipated Employment Situation data is out. Well, in light of ADP employment data, these reports are not going to be any different but worse. So hang on for yet another wild ride.

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Oppenheimer’s Meredith Whitney has a note out today. "We now believe that, at a minimum, capital ratios will be meaningfully lower in the fourth quarter versus post TARP pro forma levels. Aside from the greater than $40 billion in writedowns and provisions we expect for the group of bank stocks under our coverage, and earnings pressure related to chronic negative operating leverage, we also expect capital strains to become apparent from ratings change pressures. Accordingly, we maintain our cautious stance on our group." The effect of those Q4 downgrades, estimates Whitney, will be to more or less drain all TARP money pumped into the system so far. Well, its a speculation to buy into financials in near future.

Here’s some bad news for all those governments around the world looking to raise large amounts of cash to pay for their stimulus programmes. Today, the first Eurozone bond auction (German bond) of the year has failed to attract enough bids to reach the money the govt wanted to raise. Well, even the most developded economies' governements are not spared from the credit crunch. This bodes as a even worse news for countries that are planning to raise large amounts of debt to pay for their stimulus packages. I guess, treasuries would continue to be the safest haven to park the money, and the dollar would remain strong. Well, though this is completely in contrary to my ydays trade recommendation, I am still confortable long in TBT and PST. But, gold would face selling pressure in short term, may be for the next 2-3 weeks.

ISRG preannounced and well, the ernings were not good. This long time overvalued stock had to come down, and it fell back to the 2007 beginging levels. Tomorrow this would put pressure on the health care technology firms. (JnJ, Medtronic MDT comes to my mind)..

Lenovo Group, China's largest and the world's fourth largest personal computer manufacturer, will cut 2,500 positions equivalent to 11 percent of its total workforce.
---

Song: Apocalyptica - I don't care.
Mood: Wildly confused..

Back from vacation..

Investors begin the first full week of 2009 trading on Monday with one question in mind: Is the worst over?

2009 is likely to be another volatile year for stocks. There is, meanwhile, little optimism when it comes to the global economy. The year has already started with gloomy signs of recession, including dismal U.S. manufacturing data.

Manufacturing in the euro zone was also bad, hitting a record low in December, according to data released at the end of last week. Factories in China, India and Russia slashed output and jobs at a record pace in the month.

This week’s big data report will come on Friday, when the United States issues its latest monthly jobs data. Economists are looking for job losses in the region of 475,000, which would be hefty, albeit an improvement on the month before.

The jobs report is crucial because it reflects everything from business activity to likely consumer spending patterns. The more people out of work, the less spending, the less chance of recovery and so on.

considering this, I am still bearish on the broad market,, though for the longer term I would like to own stocks that are bettered, and yet have good porspects going forward. i would compile a list of stock I would like to own for this year, and track the performance of the same through out. (WOrk for the weekend). .

Though 2008 is marked with the bursting of many bubbles, anew bubble is brewing to be burst in this year.. Treasuries.. Lately, the yields on the treasuries are pushed to near all-time lows, as investors rushed to park their money in govt backed debt. As a result, the benchmark 10-year Treasury note yields just 2.40%, down from 3.85% as recently as mid-November. The 30-year T-bond stands at 2.82%, and three-month Treasury bills were sold last week for a yield of just 0.05%. The chief risk for treasuries stems from two reaons. 1. inflationary impact of both the Federal Reserve's super-accommodative monetary policy, which has dropped short rates close to zero, and 2. the enormous looming fiscal stimulus from the federal government. Goldman Sachs Group Inc. puts the amount the U.S. government needs to raise at about $2 trillion, including new issuance and rolled-over securities. To raise this kind of amount, US should attract the investors by increasing the yields on the treasuries. 

However, withe the level of fed intervention the yields can continue to be at their current levels for sometime from now. Reason being, Ben and Co would not mind buying the long term treasuries to keep the yields low.. also, China, would be a likely buyer of treasuries to artificially keep the Yuan weak and the Dollar strong.. 

The market faces its first supply test of the new year this week, with the Treasury expected to auction some $50 billion in three- and 10-year Treasury notes and 10-year Treasury Inflation-Protected Securities, on top of billions of dollars in Treasury bills.

I am short the dollar ( though for the first half of the year Dollar would remain strong, but eventually it should give in), and short the treasuries ( Own TBT and PST - both ultra short treasuries). 

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I still could not get my head around the rally that has tsarted in mid Dec and still continuing in this new year, though there are no signs of any recovery or a positive economic data.. Well, the only news that is pushing the equities is the stimulus plan of Obama. He seems to have a touch of the god. He spoke about the Infrastructure and the infra stocks fly, including housing stocks. Spoke about health care spending and the health care stocks fly. mentioned tax rebates, the general market rallied thinking that the consumers would spend the saved tax monies on th economy.. Well, when the consumer is not at all willing to spend $1.60 on a gallon of gas, why would they be willing to buy cars, homes, restaurants.. Obama is a saviour is not an investing idea.. period.. but is the short term this is what would drive the markets.. atleast till the end of Jan. I would not be surprised if S&P touches 1000 and Dow 10000 but the end of Jan. 

New year resolution: I intend to post more regularly this year.. hopefully with a market analysis at the end of each day.. build a portfolio and track the  daily/monthly performance.