David White

EU antitrust authorities formally object to Oracle's (ORCL) proposed $7.4B takeover of Sun Microsystems (JAVA) on concerns Oracle ownership of Sun's MySQL database software would reduce competition. The move doesn't necessarily mean the EU will reject the deal, but should delay the process.

As Sun gets clobbered because it is in limbo, the bureaucrats debate. Sun needs this deal. They lost $120M last quarter, at least partly due to the holdup in this deal. Perhaps the EU authorities would like to see them go out of business. Then they definitely wouldn't have an antitrust issue. However, MySQL would probably be a lot more dead than it would be after a Sun merger with Oracle.

In a Q-and-A, Jim Rogers elaborates on which homework Nouriel Roubini didn't do ("all of it ... I have a problem talking about a bubble when assets are this depressed from their all-time highs") and says it's one of the few times he hasn't been short anywhere in the world - there's "a gigantic amount of money being printed and it has to go somewhere."

I tend to think both Jim Rodgers and Roubini are correct. Currently there is no huge demand for commodities. They are as over produced as everything else at the moment. We will likely see a problem in China before too long because of the extra industrial production growth due to their stimulus. That production has no where to go in the short term. We are already seeing evidence of China dumping in the US and Europe.

This over production problem, especially in China, should bring commodity prices down to earth. The US will meanwhile keep its consumption low with 10.2% unemployment figures as a testament to that likelihood. Hence Dr. Roubini's bubble has some merit.

Longer term Jim Rodgers is correct. If the stumulus works as intended, the world economies will ramp up. Demand will increase. Prices will rise. So far we have just been staving off deflation. Mr. Rodgers seems to skip over this item. Eventually what he says will be true though (or at least I hope the world economies will recover). The growth so far is uncertain, and it may even be an illusion to a large degree. We will need another 6 months at least to be relatively certain that we actually have a recovery. Until then commodity prices should not take off. If people bid them up too much too quickly, they will only derail the recovery. If excessive speculation pushes them up, we will see another crash. No one wants to see this. I hope not even GS, although they may think they can profit from it.

Cisco Systems (CSCO +0.6%) is offering a three-part $5B debt deal to price later today. The company had $10.3B in long-term debt outstanding as of July.

One might normally worry that Cisco taking on more debt is a bad thing. However, this is likely completely in keeping with the Cisco strategy. Cisco will no doubt use at least some of the money to help it buy up other tech companies while they are still cheap. Cisco has historically built its business with strategic acquistions especially during hard times.

Treasury sells $40B in three-year notes at 1.404% (.pdf). Bid-to-cover ratio of 3.33 vs. a recent 2.82; indirect bidders take 68.5% vs. a recent 55%. Big jump in direct bids to 7.5% vs. recent 5.9%. Ten-year Treasurys moved slightly higher; the 30-year yield is -0.01 to 4.39%; 10-year -0.02 to 3.48%; 5-year -0.01 to 2.29%; 2-year +0.01 to 0.85%.

This just shows the growing uneasiness of investors with the current market rally. Bonds are a safe haven. The market rally today seems based partly on the belief that Ida would do significant damage to gulf infrastructure. Now that Ida has been downgraded to a tropical storm, that seems unlikely. Stocks may have gone up on a false premise. A fall tomorrow (or even later today) could start a big sell off. When thinking about this, one shold also take into account that the government figures for GDP and productivity are likely overstate (CNBC article today) due to inefficient data gathering techniques (for example, carburetors made in China are being counted as made in the US).

USD Index has been edging upward. it is now down only -1.00%. As damage to the oil facilities in the gulf does not occur, it should recover significantly.

Futures suggest a strong start to a week with sparse economic data, and at the tail-end of Q3 earnings. The uptrend in global equities appears to be intact, analyst Ian Williams says, noting central banks' willingness to extend stimulus measures should perpetuate a favorable backdrop for risky assets. S&P +1% to 1076.

Yes, stocks are up this morning, but they bear watching. On the 5-min chart the stochastic and the the RSI indicators both show an over bought condition. The MACD looks like it is turning over. The -DI/ADX may indicate a downtrend.

On a daily basis the VIX recently set a higher high. If it sets a higher low that may be at approx. 22.90. If the VIX reverses upward at that point, equities will likely go downward. VIX is currently at about 24.19.

Meanwhile, IMF director Dominique Strauss-Kahn says progress is being made on a possible financial sector tax, also known as the IMF tax, which would be an incentive to take less risks, but also create an insurance fund to be used in case of a future crisis.

A financial sector tax would do nothing but make the system more bureaucratic and less efficient. Any tax would soon be viewed as simply the cost of doing business. It would not hamper the dangerous schemes perpetrated in the markets. It only would create a lot more bureaucracy to be paid for by the proceeds of the taxes. The amount that would actually be put to use for insurance purposes would not justify all of the bureaucracy such a tax would create. Plus there would be huge arguments about how the taxes should be assessed; and there would be a huge problem deciding exactly how the insurance money should be spent. Should it be given back to those who paid it in? Or should it be given to countries that are in the worst shape in a time of financial hardship? Is this another plan for communism, which we know doesn't work? Such a system would likely spend 1/3 of the money acquiring the taxes. It would spend some managing the money. Then it would spend another 1/3 deciding when and how to dole out the money (and fighting law suits about this issue). Sounds like a great plan doesn't it!

While Goldman CEO Lloyd Blankfein understands that "people are pissed off" with bankers, he says everybody should be happy: "Companies are looking to grow again and raise money. That's where we come in. The financial system may have led us into the crisis but it will lead us out."

Blankfein has a point that most companies do not have the "in house" knowledge or capability to raise money for themselves. A lot of companies still need to do this. However, this is by no means GS's sole function. Should we really be grateful to GS for the high frequency trading they use to skim money from the financial system? Should we be grateful for the complex risk derivatives they have developed, which have helped to feed the housing crisis (i.e. the increased demand for MBS's, created and touted by GS et al, contributed greatly to mortgage lenders willingness to make questionable loans)? Should we be grateful they created a bubble, that is now popping very unpleasantly on us? Should we be grateful that GS's trading in oil futures may have contributed to oil prices being pushed up to $145/barrel last year? Many think this price was one of the main causes of the recession.
I don't think even Mr. Blanfein believes his rhetoric.

Is the Hated U.S. Dollar About to Rally?

Great article. I concur. There is a strong likelihood that the dollar will rally. First there is the huge negative sentiment against the USD. This should work in the contrarian way to bottom the USD. Prechter has been predicting this. Next the equities markets have risen so much so quickly, they are likely to retrace soon. When this happens, the USD/US Treasuries should benefit as a safe haven play. The recent unemployment figure of 10.2% would tend to lend credence to a near term safe haven play. Third the US economy does generally seem to be recovering "slowly", which tends to hold inflation in check (allows the USD to move up as the economy improves). Fourth the Fed has been slowly removing money from the money supply since June 2009 (making USD's more scarce -- supply and demand). It has also begun to remove stimulatory measures, which effectively monetized debt. Eventually it will begin to raise interest rates. All of these actions would generally tend to push the USD higher. Finally there is a USD carry trade. When the USD starts to go up, there is likely to be a "short squeeze". The result should be a farther faster rise than many envision.

Treasury's Stress Tests Weren't Stressful Enough

I agree with Dave Wrixon. The tests were never intended to be too stressful. They were intended to pump up confidence in the banks. They were also intended as a tool to use against banks to manipulate them into making themselves more solvent (selling more stock, etc.). This scheme worked magnificently. The renewed confidence in the banks allowed the Fed/Treasury and GS et al to pump up the prices of the banks, so they could raise more money with less stock. This made them safer than they were. A truely frightening stress test would likely have had the opposite effect.

In this case the small deception by the Fed/Treasury is palatable. It was done with the best of intentions. Yes, the banks may still experience further problems, but they are in a better position to deal with them. A second stress test may eventually be done. It may again have the same intention. It is still possible it won't be necessary.

Positioning for a Bond Rally

The UUP also made a huge move up yesterday on mostly increased premium as the USD Index barely moved yesterday or today. Some of the premium disappeared today, but a lot is still there. UUP requested registration for 100M more shares.

The people buying the long bonds are probably not planning on holding the bonds too long. If we get a rise in the USD, which many are predicting short term (especially Prechter). It would push commodities and equities downward. People would want to get out of the USD carry trade on a USD rally. They would have to sell other assets in order to repay the USD's. This would push commodities and equities (many of which are commodity based) downward. When equities and commodities fall there is usually a flight to quality (bonds). This drives the price of the bonds upward. If the investor then sells those bonds at the near term bottom of the market, the investor earns extra money from the appreciation of the bonds. This is a plan that could work. Of course, the timing would have to be good. Plus you have to sell near the bottom. You also want to sell before the Fed starts pressuring the market with interest raises. Bonds would go down with a rate increase by the Fed (or perhaps even with the expectation of one in the near term).

The USD going up is not definitely necessary for this scenario. One could just figure the markets are tiring. Plus oil was at about $80. Both looked like they were poised to make a move downward. With the higher than expected unemployment it would seem likely that oil prices would move down on the expectation of a cooler economy. With higher unemployment people will spend less on gasoline, etc. Decreased demand should lead to a decrease in the price. Ditto for many other commodities. Equities would follow. Equities markets are already showing signs of being tired. They are ripe for a retracement.

Gold Juniors Poised for Historic Bull Run

Great article. Lots of good info. Phillip Davis brought up a point today that I thought was significant. If you look at gold in world currency terms, gold still has another 5% up to go in USD terms to reach the European highs of the year (taking into account the relative currency valuation changes). At that point Phil thought that gold might form a double top. Since we also have the USD carry trade which may turn around soon, this seems like a probably valid scenario. If the USD carry trade reverses, it should push gold prices down in USD terms.

Public Storage (PSA): Q3 FFO of $1.44 beats by $0.19. Revenue of $352M (-5%) vs. $405M. (PR)

Most companies have lost revenues in the last year. The results cited by Jason above don't sound too bad. I guess the people who have lost their homes to foreclosures have to put their possessions somewhere.

A slightly tongue-in-cheek contrary indicator - based on the percentage of Harvard MBAs taking market-sensitive positions - says that the lower numbers of grads flocking to the Street may be a positive market signal.

Apparently no one read the article. It said anything over 30% of Harvard MBA's going into "market-sensitive jobs" is a sell signal. In 2008 that number was 41%. In 2009 that number was 28%. That's only a hair below 30%. It's not a buy signal unless the number goes below 10%. Apparently only the sell signal part of the theory really works.

Going by the theory the market is now rated a "hold", just a hair above a "sell". The article does not try to say the market is a "buy". It's merely positive that the market is no longer a definite "sell".

There is likely some substance ot this theory as a sell indicator. Who knows what the number for 2010 will be though??? It wouldn't take much to push this indicator back to "sell". If we get a USD carry trade unwind (likely if the Fed starts raising rates next spring) at the same time as a renewal of interest in "market-sensitive jobs" by Harvard MBA's that would really be a "SELL" signal!!!

U.K. fines UBS (UBS) £8M after staff used customer accounts to make thousands of unauthorized trades. The bank has also paid more than $42M to compensate clients for their losses. The employees "were able to take advantage of UBS' inadequate systems and controls, giving them free rein to make unauthorized trades with customer money that they were then able to conceal," FSA says. Another blow to UBS's reputation.

When you see things like this, it really makes you wonder how Altucher could ever have said they should legalize insider trading. Legalization of insider trading would just encourage this type of crime further.

Fitch joins S&P in considering a downgrade to Berkshire Hathaway (BRK.A), sharing concerns that tilting the company from insurance to rail makes it more sensitive to general conditions.

The railroad business should outperform the insurance business over time. This doesn't seem to be a good reason for a downgrade. The debt issue could be. However, it appears to me that the 50 to 1 stock split announced is designed to make a new stock offering of BH more desireable to the average retail investor. Credit rating agencies should probably wait to see if BH indeed raises cash in the near term. If it does, it should have no cash problem. Then BH has merely made another good deal. That's hardly a reason for a downgrade.