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It’s all right, I’ll wait…. Wow, don’t you just want to slit your wrists after listening to these guys? That is CNBC’s top of the morning take at 6am to wake up the average investor on the economy. Two guys being interviewed with the "bull" just looking for a 20% drop from here and the bear calling for another 30% correction, reminding us that is nothing compared to the 80% drop of 1929 (looking for VIX "somewhere north of 40 or north of 50"). Has CNBC ever had a guest that was bullish on the financials? Really, have they discovered anyone in America who does not think banks are worthless?
They are pouncing all over the Merrill Lynch (MER) story for all it’s worth as the company announces a $11.1Bn debt reduction achieved by selling $8.5Bn in stock (half of which is being bought by management and Temasek holdings), a fire sale of assets and an additional write-down of $5.7Bn. This write-down is comprised of a $4.4 billion loss associated with the sale of CDOs, a $0.5 billion net loss on the termination of hedges with XL Capital Assurance and an approximately $0.8 billion maximum loss related to the potential settlement of other CDO hedges with certain monoline counterparties.
Merrill Lynch also agreed to sell $30.6B gross notional amount of U.S. super senior ABS CDOs to an affiliate of Lone Star Funds for a purchase price of $6.7B. You will hear CNBC et al scream "20 cents on the dollar" all day long but, at the end of the second quarter of 2008, these CDOs were already carried at $11.1B, and in connection with this sale Merrill Lynch will record a write-down of $4.4 billion pre-tax in the third quarter of 2008. So they are selling $11.1 Billion of assets they have already marked as total crap for $6.7Bn in cash. If there is a dip in the financials today, we will buy into it as this is a non-story and is being spun by the usual suspects to spook investors out of the markets ahead of the senate housing bill and a surprisingly strong GDP report.
Last night guidance was upped by UHS, WBSN, AMGN, CHE, WMGI, NTWK, SPG (real estate!?!), KFT, MDF and SOHU. Gee, they must be operating on Mars because certainly there can’t possibly be a place on earth where guidance can be raised, can there? Of course there are misses too, but this is not a depression - no one raises guidance in a depression. I’m pretty sure it’s not even a recession, just a housing bubble that blew up in the face of the Wall Street firms who funded it and they are so caught up in their own depression that they project it on everyone else in their analysis.
We have one problem and it’s oil prices and oil prices are up based on nothing real. There is no shortage of oil - if you want it you can get it. There is so much oil that NYMEX traders canceled 6 Billion barrels of it last month and accepted delivery of just 23M at the close of August delivery. Now that we are trading September contracts for a week, those scamps at the NYMEX are pretending they want 307M barrels to be delivered to Cushing, OK in September. This despite the fact that Cushing can only handle 42M barrels a month but that never stops them from pretending does it?
Still (and I have been pointing this out for months) NO ONE has purchased A SINGLE BARREL of oil since it was $70 for May 2011, Aug 2011, Feb-May 2012 or July-Nov 2012. Really, NYMEX, if you are going to "paint the tape" at least do a good job of it! Of course these bozos go before Congress along with the well-paid CTFC watchdogs and claim that these contracts are legitimate hedges, not speculation, but don’t you find it interesting that and airline or a trucking company or whoever it is that has "legitimate hedging" needs oil at $120 a barrel in 2013, and needs oil at $123 a barrel in 2010 but doesn’t need any oil in 2011 or 2012? I guess I just didn’t get the calendar where those years are marked as holidays yet…
It's a scam and it’s not even a subtle one, but with GE/CNBC putting their full weight behind the $200 oil train (as GE makes tens of Billions selling very expensive alternate energy solutions that need $100+ oil to be worthwhile) while guest after guest appears on their network telling you everything sucks but commodities and Cramer foams at the mouth and Kudlow say "drill, drill, drill…" It’s not just CNBC of course, much of the media has been co-opted by big business and big oil, CNBC is just the most egregious, despicable example of this trend - they are the public relations facade for the people who are ransacking this nation.
Speaking of national scammers: Former Pentagon official Richard Perle, who was influential in marching this country into a Trillion dollar war in Iraq that has claimed close to 500,000 lives and sent over 600 US soldiers home with missing limbs (the ones who weren’t re-enlisted, that is), is working on a deal with northern Iraq’s Kurdistan regional government to secure drilling rights in the region. According to the WSJ: "Mr. Perle has attended events promoting the interests of Kazakhstan, an oil-rich nation whose ruler, Nursultan Nazarbayev, is involved in a long-running U.S. investigation of 1990s-era oil-company bribery. Mr. Perle has publicly lauded President Nazarbayev as 'visionary and wise'."
Asian markets wisely pulled back this morning with the Nikkei plunging 194 points but holding onto the magic 13,000 mark (13,159) while the Hang Seng fell 429 points to 22,258 and the Shanghai pulled back 2% to 313. On the whole, we’re still in better shape than we were 2 weeks ago and globally holding up here will be a good sign. The generic look to the drops, like our drop yesterday, gave us the impression more of program selling on a slow summer day than any real investor panic, which our friends at CNBC are working so hard to foment.
Sony (SNE) cut forecasts on a 47% drop in net profit and Starbucks (SBUX) is closing 84 stores in Australia (cool map of store closings by state) and China is closing pretty much EVERYTHING ahead of the Olympics in a gold medal attempt to cut down pollution, which has failed to get down to "safe" levels in Beijing 4 out of the past 8 days. With the Olympics just 10 days away, China has forced 1M cars off the road, halted construction around the city and closed hundreds of factories already. Officials are now considering more factory shutdowns, banning 90% of private vehicles and is forcing tens of thousands of workers to go on "forced holiday" with reduced pay.
The city’s air-quality index has been above 100 nearly half the time. The index goes from zero for the cleanest air up to 500; China calls anything above 100 "light" pollution, but says people with heart disease or respiratory problems should curtail exercise and exposure. The World Health Organization’s 2005 guidelines say exposure to one third as much is unhealthy.
Also of concern in Asia is a 12-hour exchange of gunfire along the India/Pakistan border (Kashmir) in what the Indian army is calling the worst violation of the 2003 cease-fire agreement yet. India and Pakistan have fought two of their three wars over Kashmir, but the frontier has been largely quiet since a 2003 cease-fire agreement, which formed the cornerstone of a peace process between the two countries. India’s Central Bank, meanwhile, raised its key lending rate half a point to 9% and lowered growth forecasts, hoping to fight runaway inflation that is making bullets expensive…
Europe is not yet exchanging gunfire but the CEO and Chairman of Alcatel-Lucent (ALU) have been given the axe as that merger has gone nowhere. Not to worry, BP made 28% more than last year and European trading is more or less flat ahead of our open, recovering off a poor start this morning (they must watch CNBC!). The key to the US and European turnaround this morning is a $1 drop in oil, showing $123.60 at 9am and boy do we need this today!
We still have TONS of earnings to get through, far too many to mention. I’m seeing a dozen misses this morning including ALU, HEP, LCAV, LEA, NRG, PVTB and SEPR - nothing too alarming. On the hit parade are about 30 names including AAI, BP, GIB, CL, ELNK (surprising), FDP, HW, MHP, NCR, NOC, SAP, TEVA, VLO and X - still not enough gloom and doom to justify a 20% drop in the markets…
It’s going to be a nice morning to take out our financial callers and pick up some quick plays like selling Citigroup (C) $15 puts and buying $17.50 calls as they hyenas are out in force today going after the big boys. Wachovia (WB) is very attractive at $13.90 this morning and we can buy the stock and sell the $12.50 calls for $2.25 (better if we wait for a bounce) for a net entry at $11.65 and a nice 7% 3-week profit if we get called away. WaMu (WM) is still a buy at $3.80 in the spread we outlined last week and (MER $25 calls should make an interesting momentum play, very attractive if they fall but hold $23.
Lots of fun out there today but only if the markets stay positive and oil stays negative. US Steel (X) shows strong global demand despite the US slowdown and if we can sneak past that without waking the oil bulls, this could turn out to be a good Testy Tuesday…
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This article has 13 comments:
"You will hear CNBC et al scream "20 cents on the dollar" all day long."
About 20 minutes after the market open, Faber was still reading the deal and found that the purchase is being funded 75% by MER. So, the real purchase price is not $6.7 Billion, unless the fund buyer can eventually turn a profit. Otherwise, there is basically a chargeback to MER. At 75% funding, worst case is they could only be getting 5 cents on the dollar. So some of the talking heads are using that number now. Only the bulls are sticking to the 20 cents as a positive spin.
Second, this isn't the final write-down. This represented $11.1 Billion of CDOs on the books from their last report. Even after last night's purge, they still have $8.8 Billion left, and we know for certain based on the last transaction that it is not worth that much.
We counted on that reaction today, loaded up the truck on MER and other financials and had a pretty good day. It doesn't mean my long premise is right and Whitney is wrong or vs. vs - only time will really tell how extensive the damage is but we're effectively buying into the dips now on a regular basis (but covering or getting out EOD as we're not that in love with the financials) and it's kind of a fun way to play it until things settle down.
On BIDU- When you must roll up $40 on a sold call. And now the stock is $18 above that strikeprice I would say that didn't work out either.
AMZN- After your 2 to 3 adjustments and the stock dropping on a terrible day yesterday. You are not as bad shape as you were.
Oh by the way nice trade on OIH PUTS yesterday.
No so good on SNE
AXP earnings were 7/21 after markets. Our spreadsheet of 7/18 had the Jan $45/Aug $40 spread. I would say that lying to make your point is beneath you but that's 3 consecutive posts in a row that you are exposed for the BS you attach to your own name.
Also, your timing is just terrible as we took out our caller on yesterday's dip and now they gained $2, running our long calls up 30% in one day. I hope all my "bad trades" do so well.
BIDU - again your astounding lack of comprehension makes me very sad for you. We took the BIDU play on 7/23 with the following 12:55 comment (I don't know if this will format correctly):
"Bidufly for butterfly collection. Costs $8,740 cash and $4K in margin with profit of $2K+ between $260 and $320 (break even way down at $250/$350) and, of course, it’s rollable. We’ll go with 2 in Butterfly Portfolio XXX"
Buy 2 BIDU DEC 2008 300 Call (.BDULZ) $46.80 $9,360.00
Sell -2 BIDU AUG 2008 290 Call (.BDUHY) $23.30 ($4,660.00)
Sell -2 BIDU AUG 2008 290 Put (.BDUTY) $19.70 ($3,940.00)
Buy 2 BIDU DEC 2008 280 Put (.BDUXX) $39.70 $7,940.00
Price - Profit/Loss
$249.76 $0
$260.00 $2,053
$270.00 $4,058
$280.00 $6,063
$290.00 $8,396
$300.00 $6,744
$310.00 $5,437
$320.00 $4,129
$351.59 $0
So (and I will type this very slowly so you will understand it) our break even points on the trade were between $249.26 and $351.29, which means a-n-y-t-h-i-n-g in between those 2 strikes (that would be higher than $249.26 or lower than $351.29) would make a profit. Let me know if this is going too quickly for you...
So BIDU running up to $344 after earnings was LESS than $351.29 so what do you think happened (I'll give you a few minutes to get a pencil and paper to work this out - feel free to phone a friend if there are people who can stand you)? That's right BS, it's a profit!
So profitable, in fact that we were able to take out the $290 puts we sold for an 82% one-day profit ($3,534), rolled our own December $280 puts up to the December $300 puts (that would be a better put because having a higer strike means you make more on the way down) and then were able to sell the Aug $330 puts for yet another $3,190 and we used some of that money to roll our $300 caller out of the money to the $330 calls, collecting yet another $3,000 in premiums AND WE STILL HAVE 3 MORE MONTHS OF PREMIUMS TO SELL!
Again, your astounding lack of knowledge just blows me away. One would think that you were purposely distorting the truth in order to slander me if one didn't know you were such a low functioning individual who is simply to be pitied...
AMZN - same thing, it's right on track and do you even follow the markets? AMZN gained $2.30 today so it's right on track to the targets we adjusted for yesterday. Again, the total lack of comprehension is very difficult to get past, perhaps there is a remedial site where you would be more comfortable?
OIH - my 9:42 comment to members on OIH was "Market held up well off a bad open so far, oil co’s are heading down again as oil can’t even hold $125 with Iran pumping up the rhetoric volume and that is just terrible for oil bulls. OIH is primed for a test of $185 and if they break below that things will be ugly so let’s start scaliing into 5 $190 puts at $6.50 in the DTP and we’ll offer to roll them up to the $195 puts for $2 and to the $200 puts for another $2 whenre we will double down. If we can sell the $185 puts for $5, let’s do that to make the spread."
Following that course we ended up with 10 $200 puts at an average entry of $9.75 and they sold today for $14.15 so, are you being sarcastic or did you actually realize that trade worked?
SNE - Also a covered spread of the Aug $40s, that were sold for $2.90 against the Jan $40s that had a basis of $5.90. With the Aug callers wiped out on the dip, the basis reduces to $3 and the Jans are now trading at $2.75, a loss of .25 with only 4 months remaining to sell more calls against the position. OK, you've got me, it was a catastrophe (that is me being sarcastic, as I'm sure the subtlety escapes you).
That's 3 days in a row you attack me with totally unsubstantiated nonsense, whatever your agenda is, it can be clearly tracked by anyone clicking on your pseudonym (lack of guts is obvious there) who can witness the daily failed attacks you put together. I don't get tired of this, I review my trades on a regular basis to see how they perform so I can improve my performance - for me, this is exercise. I don't know what it is for you....
AXP- Phil you did have the 42.5 and swapped them for the 40's on the 7/17. Sounds great except you only covered 1/2 your Jan 45's calls. And as far as you buying back the Aug 40's as the blogger above pointed out it was never mentioned yesterday. So this trade is even in worse shape.
SNE- yes you took out your caller but did it yesterday with the stock at 40ish. With earnings today they certainly had some value.
In closing good call on BAC and MER the last two days
When all the speculators who drove up the price on 'fears' eventually have to avoid delivery, how do they 'sell' without the price collapsing?
The same false volume that made prices rise, that volume should drive prices lower on exit. I understand a good manipulation of the velocity could 'control' the exit, but seriously, shouldn't there be a monthly effect?
What simple fact am I missing?
SNE - same thing, the math is just too tedious to go into but it's a break-even position. Seriously, out of 200 open positions those are the best you can do? Right above this comment, at the end of the post are 4 picks that were made pre-market and generated stunning one-day returns, there are 174 free picks made right here on SA in the past 12 months, why don't you make a tracking form and see how they all turned out? Our goals are to make 20% profits and then set trailing stops of 20% of the profits - just follow those very simple rules and see how it goes. I think the body of work speaks for itself as does my work every single day. If it makes you feel better, I have a hedge fund starting next quarter and that will be publicly audited, you can have fun tracking that as well!
NYMEX - they have rules that make it painless to roll contacts to the next month and if you track the totals here:
futures.tradingcharts....
You'll see all they really do on any given day is shuffle contracts from one month to another so this time next month October will have 300K contracts (+ 200K) and Nov will have 120K (+50K) and 20 or 30K will be distributed to other months and they will close Sept around Aug 20th with less than 40K contracts (1,000 barrels per contract).
You'll notice also the incredible volume of trading while Open Interest barely changes each day. That's churning, plain and simple and the churn rate on the NYMEX is 6Bn barrels (6M contracts) in a typical month with only 20-40M barrels delivered (20-30K contracts). That's just a joke.
Trading is down this week as several scammers have cut back activity while the regulators are walking the floor but the second the heat is off, they will go back in business unless real oversight is put in place.
Right on Art. He is the only CNBC commentator who actually is connected to the floor and who knows what is going on. Hate to say it, but Art is the only floor commentator who I have ever heard use the term "Fibonacci". This is the real clue to his understanding of the markets.
Since Dennis Kneale and the other bimbos know nothing but screaming the latest oil price, housing number and Fed announcement, you can count on them to be out to lunch.
Kneale actually rolled his eyes a couple of days ago when Art mentioned our old pal Fibonacci again. Of course, the market only trades on earnings.
Gasparino is worth watching just for the behind-the-scenes rumor entertainment.