Friday, August 29, 2008

College Football Kick-off... A blogger... and Economic Commentary

College Football Three Complimentary Picks Kicked Off last Evening with an avalanche of Thursday night games. I will provide three picks per week, and will track these selections of a weekly basis.

BC -10 to Kent (This game will be played in Cleveland... and should end in a route of the Golden Flashes.)

Alabama +5 Clemson (Unless Clemson has the best team since the 70's, you can almost always count on a slip up out of the gate for this squad. Alabama plays the SEC schedule, and Clem may lose this game outright.)

S. Miss -10.5 La. Layfette. (Batten down the hatches boys. This game could be ppd. due to rain or general evacuation. Regardless, if it is played, count on the Golden Eagles of S. Miss to roll to victory.)

Business: One Bloggers Comments
Sometimes you run across a blog that is so good, you would like to call it your own. Today, I will share someone else's thoughts about the monkey business on Wall Street.

"The federal reserve, SEC, and treasury must be hanging on by a thread
to be pulling such blatantly criminal stunts in the open.

1.) Don't have to follow GAAP anymore if you don't want to. (Not that
the banks ever did)

2.) Need an equity infusion from the taxpayer to make private
shareholders whole, no problem. (Not like it wasn't done before through the
investment banks)

3.) Need protection from short sellers why we allow and aid you to
short everyone else, no problem.

4.) Need us to make up data so you can make a killing on the
volatility, consider it done.

5.) Need us make to illegal deals behind close doors to benefit a
privileged few at the expense of the entire world - hey baby breaking the
laws that only applies to the peons beneath our feet is what we were born
to do.

I see the streets of this nation one day soon strewn with bankers when
the consequences of this theft and make themselves more apparent
in the coming months.

They deserve every kind of defilement and humiliation ever conceived,
and I will make sure that everyone I know truly understands what they
have been up to in their dark little corners of corruption! "

Market Commentary
This morning, the Bloomberg ticker noted two stories which caught my attention. One read "Justice Department seeks to curb prosecution of white collar crimes." Which suggests the campaign contributions are going to come to a screeching halt unless the fat cats on Wall Street, and those who benefited from the financial meltdown will not contribute to campaigns unless the heat is taken off of them p.d.q.!

The other headline read "Banks lobby White House to save Fannie and Freddie preferred shares." I must say that as irritating as the first headline was, this was the one that really seemed to cry foul! To think that these institutions got their Federal backstop at the tax payer's expense, then are trying to save their arses from the inevitable insolvency and dilution of shares put me... Mr. Social Conservative on notice. If this comes to pass, it should be classified as a high crime against the American people. Should this move come to fruition, I will vote for Obama. Furthermore, I will encourage every reader and every Tom, Dick, and Harry I know to vote the same way... Hell, I might even put an Obama sign in my front yard. Social Conservatism be darned if foxes are allowed to guard the hen house... a crook is a crook... and the whole $%^&$@ lot should go to jail!

Even Alexander Hamilton who was credited as the original Federalist knew his limits.He master-minded the Bank of the United States (Not to be confused with Bank of America)the forerunner of the FED. He understood the importance of the country maintaining good credit. Maybe just maybe this is the way the United States in going to massage the countries and financial institutions who are holding that debt. After all, we must not jeopardize the share holders who have weathered the storm... One day, these same countries who have come to rely on the U.S.A....the largest debtor nation in history to pay the bills.

For additional information on this topic follow this link:
London Banker's Blog and comments

Tuesday, August 26, 2008

The Season that Could have Been... Give Me an A

Tribe Talk
As of 8/27 the Cleveland Indians are on a nine game winning streak. No CC Sabathia, no Casey Blake, no Edgar Martinez, and no Travis Hafner. (Please note that Joe "Meatball" Borowski was not included in this mix... he is gone but not missed.) This becomes a second-guess point with Cleveland fans. Knowing that Sabathia started off the season with an 0-5 record... combined with an 8-0 mark since the trade to Milwaukee says a lot. Simply splitting CC's losses at the beginning of the season, coupled with his current win streak would propel Cleveland into first place in the division. That is not even counting the would haves and could haves in contributions from the likes of a healthy Hafner or Martinez. I will not second guess the good management of the Tribe. My guess is that they are cooking up a winning combination for next year. The trade for Sabathia and Blake should pan out when it is all said and done. Maybe... just maybe it will be the type of trades that keep paying dividends like the Colon trade several seasons ago. Let's face it CC was OUT'A HERE regardless...

Give me an A
And that A would stand for Alt-A. For readers who are unsure of this financing device, it was another creative vehicle invented during the housing bubble. These are the loans where a lender did not require income verification for a loan. Quite literally, in many cases lenders gave people loans who could not verify portions of their income. According to Sam Zell, Alt-A could have a significant impact on the financial markets as well. (1) This is not the ARMs that are going to reset, or the revolving credit card debt, Alt-A is another millstone around the banking industry's neck. There must be a ton of great real estate buys just waiting to happen. Where are the Carlton Sheets infomercials when you need them?

Fannie Mae found it prudent to replace some of its chief business and chief financial officers. These must be some of the "fall guys" for the debacle that has taken place. One may ask the following question... Why wasn't the entire bungling management replaced as a prerequisite of the Federal... I mean taxpayer backstop? While the management move does not mean a thing to current shareholders, there is sure to be some type of a bounce nonetheless. As previously mentioned, it is not a matter as if the backstop will be hit, it is just a matter of when. (2) This could well be Congress' gift to our future generations.

Timing is everything. The List came out yesterday... A list of 117 banks that are in jeopardy of failure was produced. (3)This is the one list that no one wants to be on. And the irony is that Wall Street knows that the list should be twice as long as it is. However, a general failure to resolve questionable accounting practices coupled with less than honest financial reporting has given this lot a free pass once again. It is beyond coincidence that the FDIC now contacted the Treasury because they may be short of insurance funds. That fact is simply beyond troubling. (4)


Friday, August 22, 2008

Big Ben's Pep Rally

I can remember back to high school. The big homecoming football game was always greeted with a pep rally. The band played, cheerleaders cheered, and the football team got pumped for the big game. This helped create a euphoric environment for a team that had a losing record. But at the pep rally, records don't matter. The only game that counted was the one they were going to play that night!

This anecdote really reminds me of the shenanigans at Jackson Hole, WY. Make no doubt, Big Ben is giving his team a pep talk on keeping this economy floating. The team's record is not good. But, the Fed and Treasury have manipulated this game to where it would make the most crooked bookies in the underworld envious.

The Play
When Big Ben speaks, people listen. The Fed policy makers tended to fall in line with Big Ben this time. Commodity prices are on their way down, oil appears to be stabilizing, and the dollar's strength may well continue the market's rally mode. The mere suggestion of a commodities, oil, and the dollar had the possibility of a trifecta was enough to send Wall Street into another buying frenzy Friday. Smiles, back slaps, and high fives should be in order. After all, a pep rally is a pep rally.

In anecdotal conversation, we are reminded of the game outside of the pep rally. This evening I was contacted by a home builder who has changed his occupation. After all, his family needs to eat. The former builder disclosed that he was building approximately 30 homes a year. Over the last 18 months, he has built one. For this man, Big Ben's Pep Rally does not apply. He is down, he is out, and in spite of whatever types of stimulus checks are sent, this man like many other Americans, is behind the eight ball. One must guess that this story in one small part of the housing sector could be told over and over throughout America. Last year, Big Ben promised to stabilize the U.S. financial system, while allowing investors to lose money. A financial adviser for AXP believes that many of the big wigs show go to jail for the mess they have created.

I truly hope that the U.S. Economy wins at the end of this game. The F.I.R.E. economy is still taking on water with no clear end in sight. While Paulson suggested that FNM and FRE will not need the government backstop, almost everyone knows better. And when that play is called watch out for the short blitz! One blogger suggested that Fannie and Freddie should be combined and renamed Countrywide. As readers know, FNM and FRE are the equivalent of dumpsters for bad mortgage debt within the financial industry. Let's not forget about the GSE's.

While some are quick to point out the genius of people like Ken Lewis (et al.), many others believe that BAC is on a collision course with a brick wall as states are starting to pile on to the litigation for shady business practices and outright deception. Couple this scenario with loser real estate companies like GGP, and the black cloud of bad credit card debts held by COF, and Wall Street will sober up again after this pep rally. That is unless acceptable accounting practices allow these companies to create their own reality... you know move debts off books and into holding companies... it worked for Enron... just like a pep rally.

Sources Referenced


Monday, August 18, 2008

Then Came the Legions...

From History of the World Part I

The term legion refers to an army of over 5,000 soldiers. However, it is appropriate to make reference to the thousands and thousands of people who have written to the National Credit Union, The Federal Reserve Board, and the Office of Thrift Supervision. The legions of activists have noted the Federal government's blind eye toward credit card practices. The Truth in Lending Act has forced credit card companies to make some... some disclosures, but have not been as aggressive as some proponents would have it. Most voters will agree that people should service their debts, however, when it becomes a goal of one institution to enslave another with debt, then it becomes a platform for reform minded politicians. Big business donations be damned! As Americans feel the credit squeeze, there will be more attempts to attack credit card companies with legislation in the upcoming fall elections. (1) I am curious whether the attorneys that read this blog see any avenue for class action status against credit card companies.

Speaking of class action suits, share holders of Fannie Mae and Freddie Mac should start considering their options against the management and board of directors of these once revered institutions. While there seems to be a constant flow of reassurance that neither of these companies will need to tap the Federal Government's bailout money, many investors just don't buy it. While there have been no reports of a lynch mob... at least not yet, it is apparent that whatever hand Fannie and Freddie are forced to take, the shareholders are going to be left holding the bag. (I just hope the shorts who have gutted this one out will collect before the shares become worthless.) (2)

Capital One was CLOBBERED in after-hours trading down almost 5% on continued concern over credit risks. According to one group of analysts marked COF as an, "Under-perform" or "Sell" rating and $33 target price on the stock, citing concerns over the weakening credit trends in the company's auto finance and international portfolios. (3) But that really shouldn't bother the bear market bulls, I'm sure they are hoping and praying that there will be a bailout for auto loans and credit cards underwriters. What's fair is fair right? Then came the legions of consumer complaints... and no legislator in their right mind will protect these characters.

Commodity Watch
Continue to follow the trend between the strengthening dollar are the decline in oil and gold... Remember three points:
1. Russians in Georgia (with a naval fleet near the "pipeline").
2. Iran with rocket capability.
3. OPEC meeting in September.

Sources Cited
1.Kovac, Marc Request for credit card companies generates lots of interest.

Wednesday, August 13, 2008

Panics Do Not Destroy Capital...

“Panics do not destroy capital; they merely reveal the extent to which it has been destroyed by its betrayal into hopelessly unproductive works.”
- Mr John Mills, from Credit Cycles and the Origin of Commercial Panics

The first day of trading once the short-sell ban was lifted gave Wall Street a taste of reality. I am convinced that the naked-short is not the cause of the pressure on this market. But, the FEAR of naked-shorting has definitely put the bear rally crowd on notice. Sure there was additional news like a $3.00 up-tick on a decrease in oil inventories, John Deere (DE) missed earnings, and a second rally day for metals...particularly gold. (I was able to turn my hedge of AU 1/25s short into a 44% profit... since Friday.)

I am a Midwest type of guy... and I have always thought of California as the most concentrated spot for nut jobs per capita in the United States. So it came to no shock when I learned that the Mortgage Crisis there has spiraled OUT OF CONTROL! According to Calculated Risk, California was foreclosing houses as a pace of 1,000 per day back in April. That was only 5 months ago... and let's face it... things couldn't get worse right? Wrong. Today, California topped the 1,300 per day foreclosure mark! A 30% increase in an already UNBELIEVABLE number! (1)

Let's face it, Wall Street took everything in stride for a while. Another report came out Monday from Zillow suggesting that one-third of the houses purchased in the last five years are worth less than the purchase price. (2) I wonder how many of these folks maxed themselves out with a home equity loan so they could buy a jacuzzi, pool table, or had simply taken that well-deserved vacation. It is a bit late for banks to cut home equity lines now, the rabbit is already out of the bag. "A segment of clients was recently notified of a change in the status of their home-equity line. This is due to a change in property value and/or their credit profile."(3)

This leads us back to the last place for credit... you guessed it credit cards. According to Accounts Receivable Management, credit card debt is growing at a 7.1% rate in the United States. (4) Couple that figure with $3.00 + gasoline, higher food prices, rising unemployment, and a tapped out consumer, once again we have the perfect storm scenario. By the way, most readers do not realize that banks package this debt and even sell it as asset backed securities (ABS). This is just another sub-prime mess waiting to happen all over again.

As a result the financial sector is under additional scrutiny. Specifically, BAC and COF have continued risk. Not only is BAC in the unenviable position of now being the nation's largest mortgage writer (next to quasi-government institution like Fannie Mae), they are now dealing with an extremely large exposure to credit card risk. At the same time, COF who has some down-right scary exposure to bad debt is not sitting any better. Many would argue that COF is in worse shape. Barring the wave of Bernanke's wand, or a rabbit from Paulson's hat, credit cards are in for the beating of their life. There will be no bail out from Congress on this one either... credit card companies, and their practices have put them in the same category as loan shark.

Sources Cited
2. 3.

Wednesday, August 6, 2008

Whether You Like it or Not!!! Market Commentary... Economic Calendar for Next Week

I voted for Sherrod Brown... and now I am convinced he is the right man for the job. While I may disagree on some of his political thoughts, the bottom line is he is voting with his conscience. Many of us may second guess our political leaders... I do have a sense of satisfaction that at the end of the day, this man truly looks out for his constituents. What more can you ask of a man than to do that? This is the second letter I have received from Sherrod Brown. I have yet to hear from LaTourette or Voinovich. Mu guess is he is the type of guy who will be willing to meet us when we visit D.C. next Spring! Readers will be particularly interested in the investment scenario our esteemed Senator envisions for Freddie and Fannie Mae.*

Dear Mr. Davis:

Thank you for contacting me regarding provisions within the recent housing bill that will reform the regulation of Fannie Mae and Freddie Mac.

I understand your concern that the hard work of many home owners who made responsible loan decisions should not be overlooked by Congress. However, it is important to recognize the threat that the foreclosure crisis poses to our nation as a whole, and especially to Ohio.

I share you concern about the fact that the federal government has made clear that it will provide a backstop to Fannie and Freddie should the need arise. The authority provided to the Treasury Secretary is temporary, and I hope it will not be used. If it ever is used I suspect that the companies and shareholders, who have seen the stock price drop by about 75 percent over the past year, will not have much left.*

But the collapse of Fannie Mae and Freddie Mac, which own or guarantee around half of the nation's mortgage debt, would cause a serious blow to our economy. Congress cannot stand by and allow this to happen. This legislation is an important step in addressing this crisis that is affecting millions of American families each day.

While you and I may disagree on this issue, I value your input and hope you will continue to share your thoughts with me. Thank you again for writing.

Sherrod Brown

Market Commentary
Wall Street action on Thursday...a sell-off of sorts suggests one of two (mega)trends.
1. Wall Street got a taste of reality with dismal jobs numbers, bad news from Wal- Mart, and outright Richter Scale tremors from the financials with AIG leading the way. Ax-man needs a little more encouragement from GNW... and it will be cigars for all on his trip back to Cleveland. The consumer is on life-support. We will see more insight to consumer sentiment next week.

Short sellers are destroying a great rally, and there is a greater need to look for more New Deal era fixes for this market.

Economic Calendar for Next Week... A huge week for consumer sentiment.

August 11 - August 15, 2008

Monday, August 11, 2008

There are no economic indicators scheduled for today.

Tuesday, August 12, 2008

7:45a.m. ICSC Chain Store Sales Index For Aug 9:
8:30a.m. Jun Trade Balance: Previous: -$59.8B.
8:55a.m. Redbook Retail Sales Index For Aug 9:
2:00p.m. Jul Federal Budget: Previous: +$50.73B.
5:00p.m. ABC/Wash Post Consumer Conf For Aug 10:

Wednesday, August 13, 2008

8:30a.m. Jul Import Prices: Previous: +2.6%.
8:30a.m. July Retail Sales: Previous: +0.1%.
8:30a.m. July Retail Sales, Ex-Autos: Previous: +0.8%.
3:00p.m. Jun Business Inventories: Previous: +0.3%.

Thursday, August 14, 2008

8:30a.m. Initial Jobless Claims For Aug 9 Week:
8:30a.m. Jul Consumer Price Index: Previous: +1.1%.
8:30a.m. Jul CPI, Ex-Food & Energy: Previous: +0.3%.
10:00a.m. DJ-BTMU Business Barometer For Jul 26:

Friday, August 15, 2008

8:30a.m. Aug NY Fed Manufacturing Index: Previous: -4.92.
9:00a.m. Jun Treasury International Capital Flows: Previous: $44.4B.
9:15a.m. Jul Industrial Production: Previous: +0.5%.
9:15a.m. Jul Capacity Utilization: Previous: 79.9%.
9:55a.m. Mid-Aug Reuters/U Mich Sentiment Index: Previous: 61.2.

Consider Shorts on...






When You've Got the World by the...

In psychology, the Theory of Cognitive Dissodance suggests that while people admit the acceptance of one ideal, they often times will gravitate to the opposite. Take Billy the Kid, Jesse James, and John Dillinger for instance. Ask anyone on Wall Street and they would tell you this trio were outlaws. Such is the case for Wall Street. While one expects truth, honesty, and integrity as the foundation for successful business it often turns out to be that greed, theft, and deception win the day.

Consider the concept of a free market economy. In a recent conference call with Freddie Mac to the financial markets CEO Dick Syron was asked about "the balance between the responsibility to shareholders and its public policy mission." In a bit of a flip attitude Syron reminded all listeners that "I think we — virtually everyone, including our critics, would say that this would be an extremely ugly mortgage market, if you were looking at a mortgage market now that — that didn’t have the GSEs." Executives and analysts took note of these comments understanding that Freddie Mae may be part of the problem, not part of the solution. One analysts believes that Syron has yet to come clean with the additional write-downs that Freddie and Fannie are bound to make. According to Dan Alpert of Westwood Capital Management "They’re just vamping for time, and hoping that something happens politically or in the economy to bail them out.” (1)

Yet the unbridled desire of a winner drove the NYSE to a 330 point gain yesterday. Sure, oil is on the way down. It is much more a case of lower demand and a market correction as opposed to an increase in production. Gold too has retreated across the $900.00 level. In spite of the great numbers over the past day or two, one thing remains the same. We are in a bear market. And, every manipulative practice from changes in accounting rules, government bailouts, and SEC closeouts cannot last forever. Mark August 13th on the calendar. That is the date when the SEC lifts the naked -shorting rule... again.

Speaking of naked-shorting... and shorting. Jim Cramer believes that shorting in general, and naked shorting in particular in particular is dangerous and outright un-American. (2) Of course, this sets the stage for unlimited upside potential with a minimal downside risk. Consider where Bear Sterns would be today if it were not shorted... It would in some way shape or form be under SEC protection, and be in the process of dumping its riskiest loans on the American taxpayer. If that is American capitalism, you can keep it. Weak inept policies and decisions should be challenged by investors on a continual basis. That requires an upside as well as a downside on Wall Street.

Speaking of downside, Megatrends favorite Thomas Lee of JP Morgan was on Bloomberg this morning. As bad as his original recommendations have been (See XLE, XLF, XLY), even Thoas Lee sees a market that is WAY OVER BOUGHT!!!! His new market strategy suggests finding stocks that are below the 200 day moving average. I guess that means pulling the plug on th ENTIRE FINANCIAL SECTOR. Stopping short of screaming "I smell a rat." Thomas Lee's caution suggests there are more bad times to come. (3)

One need no go further to address the financial future of many banks holding mortgages and counting the seconds until they can be dumped on the U.S. government... sorry guys implementation may take up to one year... In Wal-Mart I spoke with an individual who described herself and husband as former fast-trackers... a.k.a. house flippers. I asked if they had a house or two for sale... she said she had 26 homes that she is stuck with... land contracts won't work... and renters can't make the payments. Land contracts have been nothing but a continual disaster. She told me that she WANTS THE BANK TO FORECLOSE on several of the properties! The flipper told me that the banks don't want the houses either... One bank in particular has lost the foreclosure paper work twice. I guess this is the type of bank that would report this write-down if... if it was on their books. And these investors will not be saved by the Housing Bill... oops law! I wonder if this is another one of the financial sector's dirty little secrets.

As for Wall Street, there is a marked difference between their information, and reality. More sooner than later, the truth will come out and when it does, I want to be long on gold and short on the financials.

Sources Cited

Friday, August 1, 2008

Something is Rotten in Denmark...

In a classic scene from Shakespeare's Hamlet, a palace guard named Marcellus saw a ghost of the former king. He spoke to Horatio about the ghost as if it were an omen. Indeed the ghost was a sign that foul play and corruption was in play. Marcellus claimed that "Something is rotten in the state of Denmark."

Something is rotten on Wall Street as well:

1. The Fed has extended its discount window to a select group of financial institutions until January. (It is my belief that funds from the discount window are propping up stock prices of financials.)

2. The SEC has protected 19 financial institutions from Naked Short-selling for at least another month. (The goal is to break the short-sell altogether.)

3. Banks have successfully lobbied to forestall changes in accounting practices where all losses would be booked mark to market... until 2010. (Banks will continue to manipulate and twist numbers to lessen the bad news.)

4. President Bush signed the Housing Bill into law. The President had previously been on record claiming that the bill was VETO material. (Bush is trying to save the economy so it is not a campaign issue for McCain.)

There is no question about it, the U.S. government has gone to great lengths to manipulate and protect Big Banks, and certain aspects of the financial sector. The more serious question raised should be... Why do the financials need so much support and intervention? Are the financials that weak? How long will the write-downs last? Interestingly enough, the financials may have taken a breather over the past two and a half weeks. However, there is reason to believe there is a Part II to this story. The other option is to become more and more like the socialized welfare states of Europe. Any time there is trouble in a European economy, it is rolled into public debt.

Mr. Lee How are Your Picks?
XLF bought at 23.33 now 21.68
XLY bought at 29.70 now 28.25
XLE bought at 86.02 now 74.39

Sources Cited:
1. otc-paperwork-commitments-again.html?cid=124912584#comments