Holy Dow!

Market down 733 points.. Am I right or what!!! :) .. 20 of the previous 23 trading sessions, Dow index has made a three digit move.. putting it another way,, the market has been UP only in one session so far - 940 point monday move .. This is the perfect definition of volatility and no wonder VIX is back on the track to make a new peak ( at 69.5, its shy of just 6 points to make a new high)..

Today, I listened to a 2 hour analyst call of Chesapeke (CHK).. The stock was trading at $40 last month and is at $16.. Most of the last weeks drop in share price is attributed to the insider selling (The CEO of the company had to sell 31M shares to meet his margin calls). I was tempted to buy the stock during the call, as the management was pretty bullish on the outlook of the company. I stepped back after I plotted the price action of Natural gas and XTO (another natural gas company). Historically the stock price has closely tracked the price of Nat Gas, but off late there has been a big digression,.. Now again, they are hand-in-hand.



The best thing to do, now, is to stay side lined till there is a recovery in Nat gas Prices. Well, I do not think the prices of Nat gas are going to improve in the short term (1-2 months). Ac to the U.S. Energy Department Nat gas inventories increased 88 billion cubic feet in the week ended Oct. 3 to 3.198 trillion cubic feet. The department's next supply report is scheduled for tomorrow, and the average estimates predict an increase of another 63B cubic feet. Add to it, a mild weather prediction that would curtail the demand for heating the homes. I would rather stay short these Nat gas stocks.

Rating agencies have coem to their senses more than needed I guess. Last week Moody's played around with MS credit rating (jeopardizing the Japanese bank and MS deal).. Today, S&P said it may downgrade $280.1 billion of Alt-A mortgage securities. Last month, ratings companies downgraded about $118 billion of prime- jumbo and Alt-A bonds. In August the figure was $ 200 Bn.. This is going to make the things even worse.. Banks would have to shore up cash to meet the capital requirements, and they can raise neither equity nor debt as the equity and debt markets are in deep kaka. More selling of assets follows.

Today, Intel (INTC), JPMorgan Chase (JPM), and Wells Fargo (WFC) should be doing well. They earned the right with outstanding numbers for the last quarter. But, each is up only modestly, 1% or a bit better. They have been dragged into the pit by the news that retail sales were poor last month, down 1.2%. There was not much surprise in the retail figures. The economy is in a recession. It was bad, and there is more coming. However,10 Reasons why you should be bullish..

A couple of days back I heard a tune on my radio and was trying hard to recollect the singer, the song and the movie.. Struck me today that the song is "Bitter Sweet Symphony" by Verve, and the first time I heard it was in the movie "Cruel Intentions". I have been playing that song on my comp since noon.. :).. ( The tune, supposedly, be pretty similar to "The Last Time" by Rolling Stones..

Early conclusion.. but well, ydays action was a dead cat bounce!!

The market opened with a ~ 200 point gain, but by the end of the day, the market ended ~60 points down. Well, it might be a profit taking from ydays rally, or the wait-and-see approach as tomorrow some of the financial institutions have their earnings release date.. JPM, WFC... Should be an interesting day tomw.

Verizon has trouble getting the committed capital for the 28.1 Bn acquisition deal of Alltel. Seems every one - hedge funds, PE firms, banks, Soveriegn Wealth FUnds are hoarding cash.

The American Bankers Association asked the Securities and Exchange Commission on Monday to override accounting rule makers’ new guidelines on mark-to-market accounting, saying they still relied too heavily on distressed asset values. Another step away from the definition "free-capital-markets". It is the bankers who vouched for mark-to-market accounting when the asset valuations were shooting through the roof.. Now that there is no market for those toxic derivative products they want the rule to be evoked. Ironical is the fact that why now are the banks worried when the treasury is willing to buy 700Bn (now it is 450 Bn as 250Bn is put aside to buy the preferred stock of banks) of bad assets from banks??? May be, 700Bn is not enough to cover the BAD assets!!

Lehman CDS data point: The payment calculations so far performed by the DTCC Trade Information Warehouse (an electronis exchange where the CDS are settled) relating to the Lehman Brothers bankruptcy indicate that the net funds transfers from net sellers of protection to net buyers of protection are expected to be in the $6 billion range (in U.S. dollar equivalents). That is way below the $250 Bn figure that is floating around (even I quoted the same number in my prev post). If thats the case, I guess the problems regarding the Lehman bankruptcy are overblown and the "recovery" or stalibilty shlod occur sooner than the estimates..

Oil trading at 79 dollars.. national average for gas is $3.16 and expected to lose another 20-30 cents. This I guess, is the greatest stimulus package that anyone can ever expect!! :).. Will save millions of dollars from tax payers pockets!! - Another reason why the recovery should be sooner.

Earnings :

INTC (Intel) reported today after the market close. Reported 35 cents estimates being 34 cents. 

Genentec Reported.. Revenue line beat the estimates but earnings did not.. 

I thought I will start writing about the earnings report as the earnings has started. but.., my schedule seems tight to properly end the post.. Should change it.. I write more than half of my blog before I leave the offcie. After I come home the time just flips past.. I watch an episode of "two and a half men", chat with Sammie and Harish,, go for a jog, come back, eat, watch part/full Sammie's movie of the day,spend some time over the phone .. and thats it -- its freaking bed time.. Either I should start scribbling early, or I should squeeze my bed time!! 

A deadcat bounce or has the market really bottomed?

"This is worse than a divorce. I lost half of my net worth and still have a wife."

I called for a rally on Thursday, but I guess I was two days late. Today the markets rallied with dow gaining about 940 points. I dont think that this run would sustain, with LEH CDS cash (270 Bn) settlement due on 21st Oct, The CDS spreads have not come down yet, 3 Month LIBOR is still trading at 4.75 (down 7 bips though), CP market is still frozen, no new data points indicating a recovery of the economy. But well, this rally has been long pending and it did. I think the market would shake off part of todays gains in this week, but I doubt whether it would be back to where it was two days back. I wish I had kept the Dowjones Index (DDM) one day more. But well, the best trades are always the trades that you SHOULD have done.

My pick, APWR had an amazing run today , gaining about 68% over fridays close. The stock is still trading below my price target - $20. I had my limit order at $6.00, but the stock once crossed never touched it again. Should add more of it to my already existing position.

Deal logic reports that the number of deals that are either withdrawn, rejected or allowed to expire stands at 991 so far this year. Monday alone, five deals were put off, the notable being the United Technologies' $2.6 billion bid for Diebold. Getign financing for a 1Bn deal is almost impossible in the current market situation, where as financing of a 10Bn deal was relatively easy last year.

On the bright side, The U.S. government is set to buy preferred equity stakes in nine top financial institutions as part of its new comprehensive plan to tackle the credit crisis. The comprehensive plan and the money involved is going to be made public tomorrow. I guess this would drive the markets even higher, but as the ownership stake in the financial firms involved is diluted, I guess the financials would trend lower. However, the steps taken by fed and Treasury seem to lag the steps taken by the european counterparts.. European banks were the first to insure the deposits, put in direct cash (equity) infusion into banks, guatrantee/insure inter bank lending - a relatively m ore hassle-free steps than buying the assets from the banks. The TARP plan unviled by fed and the treasury is still very fuzzy and ambiguous and with uncertain effects on various assets classes. Treasury, I guess would take cues from ECB and follow suit before the shit hits the fan..


Feeling sleepy tonite.. My day was pretty tiresome, coz of the markets and also coz my younger brother is laid off from his current position.. Good thing is that he would continue to be on the pay roll for the next two months. Hope things go smooth from here! QI closed their operations in Cary.. and selling its stake in its subssidiary to my elder brother's company (MU).. I'd be happy if Mahi were able to get a job in Boise or in Dallas!!

A pic says more than 1000 words!!!

Today is the anniversary of Dow peak (14k odd)..Happy Anniversary Wall Street!!!

In todays post I put some charts, which in a way indicate the gravity of the situation!!


VIX: the "fear IOndex" as it is called, captures the investor sentiment.. The higher it is, the higher is the "fear factor" of the investor. It has reached all time peak today..



Baltic Dry Index:
the index indirectly measures global supply and demand for the commodities shipped aboard dry bulk carriers, such as cement, coal, iron ore, and grain. It indicates the "globalisation" factor and the "global economy" growth..


TED spread: I explained the term in one of my previous posts.. Its the spread between the 3 month LIBOR and the 3 month Tbill.. The wider the spread, the bad it is for the economy..





and finally the index itself.

In an extraordinary move that reflects the gravity of the financial turmoil, the world’s central banks on Wednesday announced coordinated interest rate cuts as they try to restore confidence in the economy. Included in the decision to cut rates were the Federal Reserve, the Bank of England and the European Central Bank as well as those in Canada, Sweden and Switzerland. But it didnt matter mcuh for the markets.. A 2.5% gain hours before the market closed, vanished in a snap!! Emotionally draining markets.. I was wrong in my prediction that there would be a rally today!!

Britain’s largest banks were preparing on Wednesday to boost their capital reserves after the government launched an unprecedented £400bn rescue plan to restore confidence among financial institutions. The three-pronged plan, rushed out Wednesday morning, could see the government investing up to £50bn in banks while offering guarantees over as much of £250bn of new bank debt and adding £100bn to the existing Bank of England short-term loan scheme.Following the foot stpes is the treasury, is considering taking ownership stakes in many US banks in a bid to restore confidence in the battered financial system

USD to Indian Rupee exchange rate:

and the intraday chart:

amazing that it touched 49.. if things continue to be like the way they have been, I would not be surprised if it hits 50!!! So if you want to transfer money to India, this is the right time!!!








A veteran's description of an abnormal day, ie. today:
http://macro-man.blogspot.com/2008/10/open-threadrunning-diarybrain-dump.html

Financial Melt down explained in simple terms..

Pretty damn tired with the shit happening around me.. !!!

The articles I skipped reading:

Tomw the market might aswell rally.. http://online.wsj.com/article/SB122342570193613559.html?mod=googlenews_wsj

http://ftalphaville.ft.com/blog/2008/10/07/16715/banks-prepare-for-cds-pay-outs/

http://www.rgemonitor.com/roubini-monitor/253911/radical_policy_steps_necessary_to_avoid_a_systemic_meltdown_interview_with_the_council_on_foreign_relations

http://www.aleablog.com/super-siv-its-alive/

http://www.federalreserve.gov/newsevents/press/monetary/20081007c.htm - if this (Buying the CP of companies is indeed a BIG thing) added with a rate-cut-hope, could not cheer the markets, I have no clue what will.. But I do see a rally tomorrow..

Another histroric moment.. DJI below 10000.. down 800 at one point..

A lighter start, for a grave end..

"From a commenter on the FT website: If you had purchased £1000 of Northern Rock shares one year ago they would now be worth £4.95; with HBOS, earlier this week your £1000 would have been worth £16.50; £1000 invested in XL Leisure would now be worth less than £5; but if you bought £1000 worth of Tennents Lager one year ago, drank it all, then took the empty cans to an aluminium re-cycling plant, you would get £214."

And.. another funny snippet.. An Ibanker who lost his job on WallStreet has started to offer "Physical Services" to make money.. These vulture Ibankers would market anything to make money!! :)

Bill's comment when Harish said 'we should pack our bags and head back to India' - "there are no jobs there either.. You should stay in a place where you are less poor!!"

--------

Anyways, the market has been pretty ruthless today, ganied negative traction from huge losses in the world markets. The hope that the bailout would actually "bailout" has waned, and the fears that the global slowdown (global recession) have started to feed the investors panic.

At one point during the day the head lines were - GE hit a new 11 year low, F hit a 5 year low, ATT hit a new two year low, VZ hit a three year low, AAPL, YHOO, GOOG, CSCO, EMC, JAVA, BA hit a new 52 week low. Well, with all this shit happening, I guess bad or worse woule be an understatement.

BofA reportes the earnigs today. disappointing.. . and here are the comments by the CEO Ken Lewis - "These are the most difficult times for financial institutions that I have experienced in my 39 years in banking"

The Fed has certainly provided hundreds of billions of dollars at its emergency window and Paulson has his $700 billion. But I dont think this owuld be enough to avert the BIG disaster that is ahead. Companies, cities, and states would have to run to raise capital to keep themselves operating. GM darwn down its credit lines, F raising another 10 Bn through common stock, GE had to raise 15 Bn(Oh,, it was interesting to see the CP yield of GE.. last week the yield on a 1-7day maturity paper was 0.5%, but today it is 1.5%, suggesting taht there is no one to buy the paper at three times the yield!! ), GCI accessed its credit line, CA state needs a 7Bn short term funding .. and this is just from what I have known or read.. On the enterprise side, SAP warned about its 3Q earnings today.. SAP being the second largest enterprise software compnay, this warning is a signal that the companies are cutting back on their capex, technological updragdes, software purchases... Not a good sign about the general "corporate sector".

An Article from Nouriel Roubini presents a better picture of what is happening in the markets and what is ought to happen.

Problems the economy facing:
- a silent run on the huge mass of uninsured deposits of the banking system and even a run on some insured deposits are small depositors are scared; - a run on most of the shadow banking system: over 300 non bank mortgage lenders are now bust; the SIVs and conduits are now all bust; the five major brokers dealers are now bust (Bear and Lehman) or still under severe stress even after they have been converted into banks (Merrill, Morgan, Goldman); a run on money market funds restrained only by a blanket government guarantee; a serious run on hedge funds; a looming refinancing crisis for private equity firms and LBOs); - a run on the short term liabilities of the corporate sector as the commercial paper market has totally frozen (and experiencing a roll-off) while access to medium terms and long term financings for corporations is frozen at a time when hundreds of billions of dollars of maturing debts need to be rolled over; - a total seizure of the interbank and money markets.

and the probable solutions:
- blanket guarantees of all deposits followed by triage between solvent and insolvent banks; and if a guarantee requires delayed legislative action the Fed could announce that it will provide unlimited and unconditional liquidity support to any bank that experiences a run on its uninsured deposits; - drect extension of the Fed’s PDCF liquidity support to other member of the shadow banking system as the small number of broker dealers accessing the PDCF are not relending the liquidity to the rest of the shadow banking system; finance companies, leasing companies and other non-bank financial institutions lending to the corporate sector and real economy should have access to the PDCF and TSLF; - drect Fed lending to the corporate sector via Fed buying the commercial paper that corporates are not able to roll over; and possibly even lending to state and local governments that are a now also facing a roll-off of their maturing short-term liabilities. - a coordinated 100bps reduction in policy rates by all major advanced economies central bank and, possibly, even some emerging market economies central banks;

A carry trade blood bath:



Carry trade: well,, its a simple investing (arbitrage) strategy.. Borrow the monay from a low interest nation ( japan - where the interest rate has been near zero, and invest in currencies/countries with a higher interest rate (say developing/developed nation.. AUY/EURO or in a investment witha higher return.. In a perfect world, this strategy should make money.. But as the local investment (say AUD) loses money/value, the investor has to sell the asset and buy the YEN to pay the interest.. So demand for YEN rises and it gets strong.. Lately, with the markets worldwide taking a beating, YEN is getting stronger, and that does not mean that Japanese economy is doing better than the rest of the world.

*again incomlpete post*.. should start writing early from tomw!!

random stuff!!

Well, had a bad saturday.. got a ticket for speeding (46 on a 35 road), car was stalled at almost 1:00 am, had to run for a connector to jump start it.. on teh whole, it was a pathetic night..
So, here I am, on a sunday afternoon , in the office, reading stuff..

Some snippets:

Libor, set every morning in London, is what banks pay to borrow money from each other. That in turn determines prices for financial contracts valued at $393 trillion as of Dec. 31, 2007, or $60,000 for every person in the world, and helps set consumer interest rates on everything from home loans to credit cards. Neat analysis of TED spreads

Why is the dollar strong?

Bank X, a foreign bank takes $ deposits and invests proceeds in $ assets, sadly these turn out to be toxic. Bank X dumps the toxic assets, takes the loss. What do they have to do to make the depositor whole ?
BUY $. And, $ will gain against EUR and GBP, not JPY.

Bill is passed, yet market is down 150!!

Amazing times indeed.
As I pointed out yday, the house did pass the bill with 263-171 vote. Most Democrats were in favor (172 yeas to 63 nays), while a slighter majority of Republicans voted against (91 yeas to 108 nays). however, it didnt come as a big surprise for the market. DJI traded as high as +300 during the first half of the day, before the bill was put on for a vote, but soon after the outcome, it began its fall, ending about -157 points for the day.

WFC (WellsFargo), a bank that I personally liked for its conservative loan portfolio, made a bid for Wachovia for $7 a share ($15 Bn stock swap), without any govt intervention. Citi made a statement demanding Wachovia and WFC to terminate the agreement. Citi in the past had made a bid for Wachovia's banking operations for 2.1 Bn Citi stock, and govt intervention. Well, watch out for the news of Citi matching WFC's bid..

Banks’ discount window borrowings averaged $367.80 billion per day in the week ended October 1, nearly double the previous record daily average of $187.75 billion last week. An outstanding figure, reiterating the fact that the inter-bank lending market is frozen and does the commercial papaer market.. The banks have no place to borrow money from to meet the overnight capital requirements other than Fed.

*in complete post*

“If we don’t do this, we may not have an economy on Monday.”

So said Ben bhai ..
Last two days the market has been pretty ruthless.. and the Times says “two of the scariest days ever in financial markets.”

I was totally lost on what was happening around me. GE had to raise 15 Bn of capital, Buffet was the saviour, put in 3 Bn for 10% preferred and a warrant to buy stock of GE at 22.25, a discount to the ydays closing price.

Today, the CDS spreads got wide for most of the SOLID companies, like ATT, JOYG, Mariata.. Commerical paper market froze..There were some corporate bonds yielding 200%, maturing in the next 1-2 months.. I guess the ripples of financial, credit market meltdown is spreading to other sectors now. Add to it the redemptions in hedge funds. There is no sector good enough to park the money.. Gold is coming down.. as the dollar is going up (Well, technically dollar should be weak coz the economy is gettinng screwed, but the twist is that the Euro and other basket of currencies are getting far weaker than the dollar, making dollar relatively strong.. Ferts had a VERY pathetic/scary/shitty day today.. MOS was down 41% in a single day.. POT, CF, AGU - nothing was spared. Tech names - AAPL, GOOG are trading at their liwest levels.. Coal, corn, wheat, soybeans are off their peaks.. Commodities are no longer recession proof.

Investors had ample time to judge whether the bail out woudl actually "bailout" the economy, and, I guess, the consencus is that it does not. So tomw, if the congress approves the bill (which they have to) the market will have a knee jerk reaction, but would lose its gains by the eod.

I wanted to post the CDS spreads along side the price action in the past two days, for soem sectors.. but havr to be at work early tomw..

Good night. . Hope we get over this as a bad dream.. :)