Sunday, December 12, 2010
They've tried to heal the economy from the top down and it didn't work: Banks did not dispose of their toxic crap, they took TARP money and didn't help homeowners. They are in a big rush to foreclose and resell at a loss so they can charge The Taxpayers for the losses before the ether wears off. Why are The Taxpayers helping the Banks? Maybe The Taxpayers should help The Taxpayers: Start from the bottom up, despite all the opposition to helping underwater borrowers. Because they didn't cause the housing market to drop, on the contrary, they were part of the rise higher. Look, there are parts of historic West Palm Beach, FL 33405 that have lost 25% of their value in 2010 alone! On top of the 40% drop from 2007-2009. The number of strategic defaults can only rise in the future, so why not some TARP money for homeowners? If the TARP money for the banks was to cure their RMBS problems, then why didn't it flow (in reverse) all the way down to the homeowner? (Maybe because the bankers couldn't pay bonuses that way?). What is SunTrust doing with the $5 Billion it still has from TARP? As painful as it is for most of you to give money to underwater borrowers, these are better people than The Banksters. Start at the bottom. They will spend money again at Home Depot & Lowes, who will hire more workers. Many independent contractors and small businesses rely on the home improvement sector, can you imagine the "upward- cascading effect" this money flow would produce? Painful as it is, Mr. Responsible, whatever business you are in, it would benefit from this plan. Defaulting homeowners, if cured, would put money into the economy FASTER than The Bankers. Ouch. P.S.- This can be done without the "help" of The Courts, think FNMA & FreddieMac.
Saturday, November 27, 2010
Thursday, September 23, 2010
FACEBOOK founder and CEO Mr. Mark Zuckerberg, 26, today donated $100 million to the Newark, NJ school system. He does not live in Newark, NJ. There was no other source of money seen coming into the school system, as local taxpayers are against tax increases, state governments are stretched to make their budgets balance. The sad fact is there is no realistic way to steer more money into the school system. Here in Broward County, we may have a better chance than most of the country- Broward School District is a separate taxing entity in Broward County. It is the 6th largest School District in the United States. In addition to receiving state of Florida funds, it has the ability to levy taxes on property owners in Broward County independently (and in addition) of the County Commission. Florida State Lottery pays money to schools. Bright Futures scholarships are funded by the State Lottery. Maybe higher jackpots and payouts will attract more people to play, and result in more money for the school system. More money would mean more pay for teachers- more teachers mean smaller class sizes and greater attention on individual students so it’s a great benefit. But if property values are down from last year, the only way to get more money for the school system is to raise taxes. Raising taxes is not very popular, just yesterday in Miami, Norman Braman vowed to recall (remove) Miami-Dade County Commissioners if they tried to raise taxes on property owners. School taxes on property owners is already a touchy subject, because many property owners (who own second residences here) do not have children attending local schools. Incomes are down, and so are taxes on income, but Florida has no state tax on income so that is not a source of revenue to schools. A tourist tax increase on people visiting Florida might be a source of additional money for schools. Also an increase on the tax for gambling casinos might provide much needed income. It is not easy in this day and age to find more money for schools. Benefits (health care and pension plan) are taking a bigger piece of the budget than salaries. Zero Interest Rate Policies (ZIRP) of the Federal Government make retirement calculations even more expensive. When there is nowhere else to look for money, maybe the only place to go is where the students go themselves: FACEBOOK. It’s awesome that Mark Zuckerberg is giving back some of the money generated by the people who attend the schools of the Newark School System. The dollars are out there somewhere.
Saturday, September 11, 2010
See my list of Retracements, a few selected stocks and indexes, showing their strength to recoup the losses since the highs in 2007 HERE The weakness shown by XLF- Banks isn't a good thing. But surprisingly, the XLU- Utilities Company isn't much better despite the 4.00% yield. I'm on the same page as Robert Prechter- the market is telegraphing its weakness. And no matter how bullish the stories are on CNBC about Treasury yield comps, historically low PE ratios, high cash hoards, all that crap doesn't mean anything to the patterns. In my opinion, if you really listened to these arguments, stocks should be at NEW ALL TIME HIGHS, much higher than 2007, and they are not, nowhere near it. So its kind of embarassing to actually see them admit this profound weakness as a reason to buy stocks. UNLESS you believe the FED can incite the public to start buying stocks. Its the Last Resort. Its the most "Not Over-valued" asset class there is. The Fed has cornered the market in mbs, so why not equities as well? Inflating Stocks would solve a lot of problems with people's investment accounts, and their willingness to go out and spend again. It would also bail out these pension funds that have no idea where the money is going to come from to fund their actuarial requirements. (A blazing stock market could negate the need to contribute any money, as it did during the late 1990's). Inflating the stock market would surely help the housing market, profits would fuel buying thus raising house prices. It may also help people who are delinquent to catch up and become current (if you think people in that situation haven't sold their stock yet). Its a Long Shot- I don't believe they could do it, they would have to drop the long term gains tax down to 10% along with the income tax on dividends. And that would take away the appeal of Municipal Bonds, creating a problem in that market, and we certainly need municipalities to be able to raise huge amounts of money for themselves. I'm just thinking out loud, asking myself what could go wrong with the Elliott Outlook and this is what I came up with. You know, TARP made the Treasury a stock investor- all those warrants were like call options on the bank's stock price, and they made $million$ on them. They also are set to profit from Citibank. Next is the GM initial public offering, and if that stock swings up later the Gov't could possibly show a profit on the shares they still hold. The seeds are there for some shrewd sweet-talking politician to make the case that Investing in Stocks is Profitable, even in the worst possible situations. Its the Capitalists' Way Out, and it would please the Republicans. And it may be the only way Obama would get elected for a 2nd term, which would still not be guaranteed even IF this scenario were to unfold. Let me know what you think of this alternative fantasy. Its how wealth is created- Bill Gates didn't get rich because he sold millions of copies of Windows, he got rich because he owned a boatload of Microsoft STOCK, same with Warren Buffet and his stock Berkshire-Hathaway. Rockefeller too with his 11 different Standard Oil stocks. Stock price appreciation is the source of wealth, not sales of a product. Product sales leverages a stock's price appreciation, ask Steve Jobs, but the money from sales doesn't go into his pocket, it just sits in a pile and grows. Hey did you read that Google is hiring ex-bankers and hedge fund traders to manage their cash-pile? Interesting, I wonder if they are buying stocks..........
Sunday, August 22, 2010
COSTCO http://www.costco.com/ Annual report link Stock quote COST Have you ever been to one of their warehouses? 3rd largest retailer in US. It's like Sam's but they do almost twice the business as Sam's per location. They are #25 on the Fortune 500 list, 550 locations, their average warehouse does $3mill / week they stock only 4000 items as opposed to 40,000 for typical retailers. Nobody steals from them (shrinkage is less than 0.16%), ID's checked at the door (membership plan). Since 2005 they have bought back 17% of their stock float, and pay 1.48% dividend as well. I say "as well" (I hate Maria Bartiromo's constant use of this term as gibberish filler because she doesn't know what else to say to sound important) AS WELL because in the transaction of a buyback, money comes from COSTCO to the SHAREHOLDER exactly as a DIVIDEND does. It is most similar to the BOND equivalent of PRINCIPAL REPAYMENT at maturity. It has the added benefit of reducing the denominator for future per share calculations, such as earnings, etc. Strangely, many analysts don't like this tactic, however it has worked well through the years for the Best Stock of AllTime- Philip Morris (Altria). Despite improvements per share, and overall absolute improvement in sales, the stock is at 50% SwingForce from its 2007 high-2008 low. An improving sales & profit picture should be amplified in the per share numbers, pushing this stock much higher. But today, the focus is on the nominal divd 1.48% which is lower than MO 6.00%+, so COST gets left behind. The point I intend to make in the next few emails is PENSION FUNDS need to invest money. And there aren't enough bonds that yield enough % to meet their projections. Most assume an 8% rate of return. But if the going rate is an avg. yield of only 4%, they will need to invest DOUBLE the amount of money in stocks or bonds. That is, if the pension funds have any money to invest at all. The Point is, The Quest for Yield continues, and WILL continue even after all the bonds are bought. Rates can go low, and STAY low, for an extended period of time, where did I hear that before? And when the yield% gets too low, then the focus will shift to "total return", and a stock which is contracting its float will be far more lucrative than a stock who is issuing 100% more shares over the same time period (example: Bank of America).
Saturday, August 14, 2010
The Fed controls the Money Supply, usually by adding to it. And decreasing each dollar's value thereby. Goods, items, food, and STOCKS all get more expensive as the increasing money supply decreases each dollar's buying power. From "Understanding The Fed" (well, maybe after reading it for the third time LOL): By creating new credit (we call it "money"), which is deposited in a bank then lent out again over and over, The Fed has provided the Fuel to propel Stock prices higher (among other assets). As stock prices go up, the each Dollar value actually goes down (it takes more dollars now to buy 1 share). If you convert your Dollars into Stocks, your net worth rises, until you reconvert back into dollars (when you sell the stock). Then you watch everything go up in price. ITS AN ILLUSION! Stocks aren't moving, its the Dollar that's moving, and in the opposite direction of what you apparently see. Its all RELATIVE. So what happens when the credit supply contracts? There are fewer dollars (mortgage defaults evaporate dollars that were expected in repayments). Fewer dollars Condenses their value (opposite of Dilutes). STOCKS (& other assets) appear to decrease in value, but that's because they are denominated in Dollars. Again, ITS AN ILLUSION! The stocks aren't moving, the value of the Dollar is! This is way oversimplified, but think hard- Wrap your head around this Merry-Go-Round ride, the floor travels at the same speed with you, but if you could see through it you would see the ground underneath going in the other direction. OK, I understand stocks dump because people push the red SELL button, but that's in RE-action to the Dollar's turn. Just like people scramble to Buy stocks in reaction to inflationary news. We think of the USD in terms of Euro or Yen going up or down, but we should think of Dollars in terms of Stock Prices. Bob Prechter has long tried to instill this mentality in us, and it is FINALLY sinking in for me. When we hit an event that destroys a large amount of Dollars that were expected to be repaid to somebody, it will appears that stock prices are dropping. And the reaction to that perception will verify that thought. But if Dollars are becoming scarcer, then the proper trade would be to BUY them, convert your assets INTO dollars, no? Ride the push higher in the dollar's value. Its hard to grasp this mushy concept because a stock price changes every second on your screen- the dollar does not, its constantly the same $1.00 but think about this, that $1.00 buys you twice as much "House" as it did 5 years ago, no? So its value doubled while remaining $1.00 weird. What's Happening Now? Banks are having a tough time with the people they lent to the borrowers that can't/won't pay them back. When the banks verify that the loan went bad, POOF! Deflation hits. Unfortunately for a public company, a "Loss Event" just hit the bottom line at the same time. Let me tell you, the massive bonuses these bank jerks get make them focus ONLY on that bottom line, they will defend that area like a World Cup Goalie, ain't NOTHING getting in that zone. So that's why I'm still sitting in my condo without paying SunTrust in 2 years+. But for their part, their assets have increased beyond the $150,000 I owed them, to $250,000 currently due to late charges, interest penalties, and legal fees. They look "Good on Paper" (Hey, I see FedEx Office has coined my favorite phrase in their advertising, "It Looks Good on Paper!" ). SunTrust's assets are growing because I'M NOT PAYING THEM! Just like my Condo Association's balance sheet is growing because they are charging me $25/mo late fee, interest, plus Becker & Poliakoff has added legal fees that total MORE than the actual balance I owe to the Association! Talk about a license to steal, what about THEIR overstated balance sheet- do they have investors? There is no way I can possibly pay all these entities back the money they say I owe them, even if I wanted to. Its preposterous to think I would. I just got a civil summons from a 3 year delinquent Citibank card. My credit limit was $12,700 but the current balance filed in the Broward County suit # 10-31138 is $23,033.83 its crazy. Nobody will get 1 single penny from me! But rather than deflate by $12,000 they pumped it up to $23,000 so the damage is going to appear much higher/greater now. The event ACTUALLY occured 3 years ago when I stopped paying my non-recourse credit card, oy! Robert Prechter has certainly taught me alot through the 25 years I have been reading his thoughts, and he has always been in the minority of financial opinions. As overwhelming bearish as his current opinion may be perceived, I only assign him a NEUTRAL rank, 100% objective. (No leeway or sway, either side). If you think he has a bearish view, then your Merry-Go-Round is spinning the wrong way (you're too bullish, in relative terms). Do we need Albert to step in here? Mr. Einstein, to the front desk, please, Relativity on line #1, ha. LINK Hey Sugar Bear, Dig This: Mr. Prechter may be BULLISH! As he tries to make us aware, its a relative push & pull. What he may not be plugging into his spreadsheet is the lunacy of adding layers of additional charges upon the original charges, that were never expected to be paid off. The level of defaults are being pumped up by 30%-50%-100% of original values, so the EVENTUAL REPORTED default figures could be Much Higher than what Mr. Prechter is anticipating, making him "Not Bearish Enough" which is the same as "Bullish" relatively speaking, is it not? (I am extrapolating that I am not the exception in the deadbeat pool, and that there are many thousands exactly like me). Oh brother, please don't make me responsible for tomorrow's headlines, "Prechter BULLISH!" Wow, add a "T" Vanna and move the "(i)" and we have something there, wow. Anyway, the realtor who knocked on my door Friday said FNMA will offer me $4000 to move out if I sign an agreement to "Short Sale" my property (worth $85,000) which I will accept gladly. Just think of this situation now as it unfolds- FNMA is the catalyst that caused SunTrust and my Association to realize their actual losses, 3 years late, but double the actual amount. The cost of being Rip van Winkle. One last comment: How in the world is Chris Dodd a Republican???? Hope everybody followed the bouncing ball to the end, and had a good laugh, LIVE from NEW YORK, Its Saturday NIGHT!!!!
Sunday, May 16, 2010
Scott: Q: This alt could come into play with options expiration. I guess we'll have to see. What if GS and JPM have a shitload of calls? They have to push it up to get out right? On Fri, May 14, 2010 at 8:20 PM,
I've shared Wave 2 of 3 ALT
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I hope wave 2 isn't an ABC but if it was to be, it WOULD make new highs with the A=C calc.
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Wave 2 of 3 ALT
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The most risky options bet is "Long Calls". The more common practice (the one explained by your Morgan Stanley patient) is selling calls to take in the premium. A Brokerage doesn't need to post stock as collateral only money. (I just got an email from Scottrade explaining how to sell a put instead of placing a limit order for a stock I wanted to buy- using the cash earmarked for purchase as the collateral).
A: No I don't think they own calls, I think they are "Short Calls" waiting for the premiums to whither out and die. Taken one step further, they are "Short Puts" also, maybe even more so, since VIX exploded the premiums and we were at lower levels, meaning they take in more money from the sale of puts.
Both "sides" (puts & calls) are sold, and as long as their stocks and indexes maneuver into middle ground on expiration day, none of these needs to be repurchased because they will expire "Out of the Money" = worthless. What I think has happened in the past is stocks have moved up above the strike prices, and the calls have had to be bought back, but that can be done with the simultaneous sale of the next month out call. In a rising market and DECLINING vix this can be done easily.
In a DECLINING market where put premiums are increasing, this is quite difficult. The next month out premiums do not rise as quickly as the current months', and "rolling" is still gonna be costly. And if the put is deep in the money, there is a higher collateral required. If the next month's put is out of the money (to avoid higher collateral) then its likely the premium sold will not cover the price of the repurchased option. These guys are in heavy, and could amount to billions in losses.
To Your Point: In either situation, GS & JPM all want the market to move up, or at least not down. But its more than profits missed, its losses piling on EXPONENTIALLY the lower the market goes. They've been able to move things their way in Wave 2 and in low volume trading, but can they push a Wave 3 market the way they want? It would involve buying stocks when they are going down = more losses.
This Dynamic might explain why JPM is so very weak, and the only major bank to make a lower low than last Thursday. Plus, I read on a Marketwatch commentary, they are naked short silver (whatever that means, its always naked in commodities) but keep in mind they are custodian for the etf SLV, maybe that has something to do with offsetting a long etf position.
Good thinking though, these cats are up to something that we know little about.
In a rising market, the puts don't need repurchase- they wither down to zero value as planned.
In a rising market, the other side of the call sales, the "Long Call" guy can exercise his right to "Call" the underlying security at any time before expiration, that's why they must move prior to expiration. I thought I saw unusual stock activity that was options related a few times with less than 2 weeks until expiration. This would explain it. A pre-emptive roll. They don't want to be called on stock they don't own.
In a declining market, the call side would expire worthless, no attention required, unless they felt that a snap-back was coming. That would be a mistake, because a rising vix inflates call premiums also, even in a declining market, for current month options mainly.
The day after the crash 1987 OEX CALLS were incredibly priced (this was the first time that volatility that large had been witnessed) but they were well out of the money.
"PREMIUM" is the deadly concept here. If you're "Long Premium" (Santelli has used this phrase) you're loving it.
This is gonna crush those guys on Options Action, the ones who double sell a put ..... Mike Khouw from Cantor, & Scott & Dan. Stacey Gilbert is the smart one, everything she has ever said has no naked risk on the put side.
Prechter said that when the banks decided to step up proprietary trading, they were going to be making big mistakes. Well, CDO's certainly counted. Now let's see what's next. Should be great for FAZ.
Hey, so its not too far-fetched to say these selloffs we used to see right after expirations LINK Were purposely manipulated for the sole purpose of pumping up the vix, and moving the strike prices lower on the new month's target options sales. It would also easily explain why the market always retraced over 100% of the decline, because they weren't natural sellers who would come back for more- they were done, they did what they had to. Wow. Its always the case, just when you figure something out, they change the rules. Now is the time, because MERRILL and MORGAN and CITI figured out how to do it, too.
How about that Wadell story and the 75,000 contract e-mini sale last Thursday? http://www.cnbc.com/id/37152223
Do you know how much money that is? Its HUGE, incredible if he made money repurchasing them on the swing back up.
But to most people, its a mystery. They will accept this mystery as an explanation to the 5/6 mystery. Nutty.
I left out something, The Other Side of the Put Mountain:
THE OTHER SIDE OF THE PUT TRADE:
If they sold puts like I think they did, they are unhedged hoping that a rising market will close out their trades at zero upon expiration. The only way to be protected is by owning another put. PROTECTION, as harped continuously by Pete Najarian (the Option Monster Mascot from Fast Money), "Buy Puts".
Here's the scenario I left out: All these naked puts sold have "buyers", hence the other side to which I refer. In a market decline, these puts go "In -The- Money" meaning they have some intrinsic value, meaning they MAY get exercised by the people who bought them. Let me use an example to explain. American Express AXP high of $49 currently $40.19 Let's say when the stock was $46 the traders sold the May 45 Puts naked for $2.00 (and did not buy any May 40's for $0.75). On the other side is Karen Finerman who owns AXP and buys protection, so she's the other side of the trade, she BUYS the May 45 put and spends the $2.00
NOW: AXP is at $40 and the put is in the money $5.00 Karen still has $45 in total value when she adds stock + put. Karen now has 2 choices- she can sell the put for a profit, and keep the stock, or she can EXERCISE the PUT: The stock plus the put get "put" to the seller in exchange for $45 (that's if she wants to dispose of the stock, which she might if she thinks the market will continue lower). So she's in good shape, she capped her losses at $45/share.
Now back to GS & JP- At first, they have instead of a $2 gain, a -$3.00 loss on the put they sold. But before they can buy it back, they get put Karen's stock. So now they have to cough up $45.00 in capital. And they now own the stock (which is still going down). They never did buy that $40 strike put in the beginning, so they are screwed 3 ways- its consuming capital BIG time, the losses continue, and if they sell the stock into the decline it opposes their strategy of pushing the market up into expiration. (they lost the use of $45 in firepower for a $2 trade- horrible math) (multiply this 1000x or however much it takes to make $100 million in one day). This is a massive operation.
As a result, that collateral gets called and now exists in the form of (more) shares.
The End, possibly for real for these trading desks (the only thriving sector within these large banks), as there will be no "TARP, Season 2" episodes. And Timmy gets fired, as studio heads often do.
In Conclusion, there is so much havoc that could occur if the Marketplex were to take a big dump before options expiration next Friday. The trading desks at the big broker/banks would be TOAST. Maybe that's why JPM, GS, MS, BAC are all down from their highs much more than the BKX Regional Bank Stocks (JPM made a post 5/6 lower low Friday).
This would be a field day for FAZ and FAZ call option holders. As FAZ proceeds to increase in PerCentage terms, the Points Terms increase each day. This is completely opposite to what the Dow has done from March 2009 until now- big moves occurred early on resulting in high-percentages. As the DOW moved up 70% those high-percentage moves got muted, volatility decreased. Except for 5/6 which was right in the ballpark, percentage- wise.
So look at you, man, you have it made. You're sitting in a front row seat looking forward into what could easily be what Prechter called "The greatest short-selling opportunity of a lifetime" (4/16/09 1004EWT pg10).
Wave 1 down didn't have FAZ (born 11/2008)
Wave 1 down didn't have options on FAZ.
Wave 1 down didn't have options on FAZ in penny increments between bids/asks.
What a huge advance in technology we have today- computers with instant quotes, not to mention the technology it took to invent a "stock" that goes up when everything else goes down. At 3x inverse gearing, its literally crazy to even imagine something like this, never mind getting it approved by the SEC and listing it on an exchange. It could only happen in a country where 299 million people don't have the foggiest notion of what goes on in the world of finance. Thank you, America!
IF we get a dump next week, make no under- estimation about it, it will lead to something HUGE, despite the efforts of GS et al to push it higher. The more they push, the worse it gets ultimately because they will use up the capital they will need when they get "PUT". But that's a problem for next Saturday. (Timmy loves to work weekends, doesn't he?)
Have a great weekend!