Gerry Sullivan

Thursday Outlook: Commodities, Global Markets

f... was typed as: foreign. Does Seeking Alpha consider that a dirty word?

Thursday Outlook: Commodities, Global Markets

The biggest anomaly in this stock/gold/commodity/f... currency rally is that US Treasury interest rates have stayed so low. The 2, 3, 5, 7, 10, and 30 year Treasury securities are all trading at premiums to their most recent auctions.

With high and rising unemployment the Fed can create money, boost asset prices, and still keep rates down at historic low levels. In spite of what they say, this is clearly what they want to do.

The Treasury and the Fed know that only inflation will solve our
most immediate economic problem: the sluggish economy and resultant high unemployment. Inflation will eventually boost real estate prices which will help save the banks.

Stocks and commodities are going along for the ride.

Thursday Outlook: Commodities, Global Markets

Much of "the crowd" (myself included) thought the market was
undervalued when the Dow Jones Industrials broke below 10,000
on the way down 12 months ago. That was Oct 6, 2008.

Now "the crowd" (at least the majority on Seeking Alpha) thinks the market is overvalued at the same level.

I see the pre-market looks lower today and tomorrow is the last day for trading Oct options, so a pause here makes sense. But, ask yourself what you thought in early Oct 2008.

Which market was more favorable for going long, Dow 10,000 in early Oct 2008 or Dow 10,000 yesterday?

Market Reaction: The RIM Lesson

Going back to June 2008, RIMM has now had 3 instances of opening with a gap down. In the 2 previous instances the stock continued to decline. RIMM is a trading stock, not a long term holding.

The comment about Verizon is correct. The stores don't have anything exciting at all. Just RIMM phones and they are cutting prices on those, like buy one, get one free. No Google, no IPhone, no Palm Pre.

Maybe we have reached a point where there just isn't anything exciting in phones. The IPhone is now $100 and there are lots of
complaints about the AT&T network. Palm and Google have interesting phones, but Sprint and T-Mobile aren't the best networks.

I am long RIMM and plan to hold it for now. Next time everyone on Fast Money loves it, I am going to sell it.

What Investors and Traders Should Do Right Now

There are many ways to look at the market. One way is that we have made a 50%+ move on the SPX and should have a correction. Hard to argue with that.

But, 11 months ago, the week of Sept 15, 2008, Lehman filed bankruptcy on Monday and AIG was taken over by the US Government on Tuesday evening. Things looked scary. The SPX ended the week at 1255 , 25% higher than today.

The question I ask the bears (and myself) is this: were things better then at SPX 1255 or today at SPX 1007?

Why GM stock is trading above $1.00

I think you are referring to the offer that was made to and rejected by GM bondholders prior to the GM bankruptcy. In that offer, GM wasn't going to go bankrupt, but was going to reduce debt by a equity for debt deal.

In my understanding, the new idea is that the bondholders will get 10% of the equity in the "new GM" and warrants for an additional 5%. What that equity will be worth is unknown.

The economy and stock market have both improved since GM filed bankruptcy and the bonds have risen approximately from 12% of par to 14-15% of par since the filing on June 1.

Why GM stock is trading above $1.00

The $25 par GM bonds are trading around $3.50 and GM plans to go public around the middle of 2010. Holders of GM debt can expect to receive shares in the "new GM" probably in the second quarter of 2010.

The value of the GM shares received in the exchange should exceed the current value of the GM bonds.

Why I'm Buying Citigroup Stock

Sold the Citigroup at noon. I will be watching it and would buy it back on a pullback. There is a possible reverse split and I would take advantage of any weakness to buy the Citi after that.

I'm Bearish Here, But Not a Perma Bear

Since this rally began in March there has been a generally
bearish feel to most of the articles and comments on Seeking Alpha. Since the general market has rallied over 50%, being bearish was simply wrong.

I turned bearish earlier this week and right now (11 AM Friday) that call seems premature as the major averages are all at new recovery highs. I am still quite hedged, but 29% net long as contrasted to the 26% net long position I had when this article was written.

This might be the last gasp of the rally that began on March 9 or it might be the start of the next leg, that much discussed quick move to SPX 1100. Best to allow for either.

Why I'm Buying Citigroup Stock

Target of $4 has been reached, Citi is currently trading at $4.19 and I am still long.

In a subsequent general market article I turned bearish and that call now appears premature.

Wednesday Outlook: Commodities, Global Markets

The move to ban leveraged ETFs by full service brokerage firms is a bit like a Kosher restaurant taking lobster off the menu. They
weren't selling much of it anyway.

Most full service brokerage clients also have an online account and would do the leveraged ETF trades online where the commissions are much less.

Why I'm Buying Citigroup Stock

In both April and May, Citi popped above $4 and fell back down. I think that was because of the arbitrage selling from the exchange offer. I think Citi (with all its problems) can get back to $4.

I observed on Monday that the spread between the C.wd and C had closed to around 4 cents. Likewise, the spread between C and synthetic C (short Aug 3 Put, long Aug 3 Call) had also declined to the same 4 cents.

At its peak, the synthetic long C could be created at a 40 cent discount to C. That was because the stock was not available to sell short or the borrow was very expensive. Arbs who were long the preferreds (at a large discount to the exchange value) were buying puts and selling calls to hedge. That pressure enabled the opportunity to buy discounted synthetic C.

The whole point is that when the C.wd started trading it took the pressure off the puts and calls because the arbs no longer needed the options to get short. When the hedge funds and others who had tendered the preferreds found out on Saturday that they had 100% of the tendered preferred accepted in exchange for C.wd, they were good to sell on Monday. The selling on Monday pushed the C.wd down and the C declined also, but the spread closed.
The bid to bid or offer to offer between the C.wd and C in the aftermarket session on Monday was 4-5 cents.

The closing of the spread told me that the selling pressure was off and that C was quite likely to rise. If this information was in Newsweek, I missed it.

Why I'm Buying Citigroup Stock

Hyperinflation, how can you or I understand any bank's balance sheet? Goldman (GS) has over $30 trillion in derivitives. JPM has over $87 trillion. BAC and Citi both have more than Goldman.
JPM's derivitive position is more than 600 times its equity.

The government has made the decision that these banks are not going to fail. They will be nursed back to health. Getting C, BAC, and others healthy has created a situation where GS can make enormous profits.

We have seen this before, most recently in 1990. Many large banks were technically insovent but they returned to health. The stocks were great investments.

C is up 15% since my recommendation. If it is overpriced you can short it and profit.

I notice that even with the market down today the lower quality banks are rising: C, BAC, MI, FITB, etc.

Why I'm Buying Citigroup Stock

I bought C today.

Why I'm Buying Citigroup Stock

My 2 month target for Citi is $4.

The objective data is the completion of the exchange offer which reduces arbitrage selling pressure. On July 15 the published short position in Citi was over 1.2 billion shares, an all time record for any stock. Much, but not all of that will be covered when the
C.wd becomes C. Some of the rest will be covered by buying.