Wednesday, December 31, 2008

Another Nice Day, But For Now Do Not Read Too Much Into This Year-End Action

One of the worst years in market history ended on an upbeat note. Even with the positive action today, I doubt there are too many folks who aren't happy to see 2008 in the rearview mirror.

While the action was favorable today, it is likely that there was some very aggressive window-dressing and end-of-the-year positioning taking place. Volume was quite light, but there were some very strong moves in groups such as banks and oils as well as some individual stocks, particularly some small-caps. This action looked more manipulative than carefully considered accumulation, but that is the nature of trading when we are at the end of the year.

The important thing is to not read too much into the action we have on a day like this. It just isn't a good indicator of how things will play out in the next few days.

I want to wish everyone the very best for the new year. I know the market has been miserable for many, but this is a great time to put that behind you and start fresh. I'm really hoping 2009 is not only a prosperous but a joyful year.

Tuesday, December 30, 2008

A Traditional Holiday, Monthly, Quarterly And Year-End Mark-Up Day

We finally had a little more typical holiday type trading today. It was still quite choppy and you can tell that confidence levels are quite low, but breadth was good all day and there was some obvious window-dressing type action. We had another crazy spike in the final hour of trading, but at least there wasn't a huge whipsaw.

After the year we've had, traders are not feeling a high level of trust. They are being opportunistic especially when it comes to these final hour games, but at least the bias was positive today.

After the close, I'm seeing some big blocks cross the tape. General Electric, for example, has a 4.4 million share block crossing at 15.82. That is to be expected this time of the year but can cause some unexpected moves.

Tomorrow we are likely to see some more of the same, but typically a lot of the big window dressing and year-end adjustments are done before the last day so it's not too blatant. Don't expect too much logic and you'll be fine.

Monday, December 29, 2008

A Frustrating Market, But It Could Be Worse - Or, You May Want To Get Used To This Action....

Even though we did have yet another late-day bounce, it was very blah day of trading. Breadth was better than 2 to 1 negative, even though we did have strength in oil and commodity-related stocks due to the fighting in Gaza. Other than that, there was a lot of poor action on thin trading, and anyone looking for typical seasonal strength was disappointed.

The market has three big problems, which are related to some extent. There is little confidence, there is no leadership, and there is too much random action in the last hour of trading. When you combine those three things, it creates a lot of frustration and keeps market players on the sidelines. The only cure for this is time. We simply have to be patient until conditions change and there is more hospitable trading. The attitude right now is, "We'll wait until next year."

Friday, December 26, 2008

Mortgage Market's Gains Stick

One of the most important developements of the past month has been the stabilization of the mortgage market, which was spurred by the Federal Reserve's Nov. 25 announcement of a plan to purchase $100 billion of agency securities and $500 billion of mortgage-backed securities.

The stabilization, which is evident in the huge decline that has occurred in mortgage rates, will almost certainly help ease what has clearly been the biggest part of the financial crisis. This is already apparent in the recent jump in mortgage refinancings, which last week reached their highest in five years. Homeowners have been enticed by the 1.3-percentage-point decline in mortgage rates seen since earlier November, with the 30-year fixed-rate now at an average of 5.14% in the U.S., a record low.

Gains seen in the mortgage realm have held in recent weeks, and today's market shows more of the same, with mortgage-backed securities trading higher on the day and rates down about 9 basis points, although today's rates are within their recent trading range.

If 2009 is to be better than 2008, the mortgage realm must stay healthy to both help clear home inventories and relieve strapped homeowners. If President Obama brings forth a plan to spur home buying, a major dent can be made in the housing crisis.

Post-Holiday Trading = Means Nothing = A Motionless Market

If it wasn't for a little bounce in oil, it would've been completely dead out there today. Volume was practically nonexistent. Breadth was positive on the NYSE. However, it was so slow that it doesn't matter much. There is no edge at all when things are this dead.

Frankly, I think this is pretty much a waste of time today. It is too bad the stock exchanges didn't simply extend the holiday like they do in Europe, but I guess the folks who make their money off order flow are going to determine how things are done.

Wednesday, December 24, 2008

Holiday Trading = Means Nothing

We finally managed a little seasonal strength, but it was very modest, and traders obviously weren't being very aggressive today. It is just very difficult to have much confidence in this market, even for shorter-term bounces. The history of the market lately is if you let quick gains slip away, you won't have any gains, so fast flippers are ruling the market right now.

I've heard from quite a few folks who think that we aren't going to see any sort of an end-of-the-year bounce because there is still pressure from redemptions and repositioning. The odds still favor some upside over the next week, but no matter what, it will most likely be a bumpy ride. What I'm really wondering about is the first week of 2009 - If memory serves, the week ending 2007 was benign; then, during the first week of 2008 the selling started and then fed on itself. I'm wondering if 2009 starts the same way. If it does, with relentless selling the first week of the new year, I would think that would be quite an ominous sign.

Merry Christmas and happy holidays. Now is the time to focus on the only investments that you should love for the very long-term: your family and friends.

Tuesday, December 23, 2008

Slow Gooey Churn

Although traders tried once again to get something going in the final hour, each little bounce was met with more downward pressure. The net result was another day of losses. However, probably the most concerning thing is that the major indices failed to hold short-term support levels and are back to the intraday levels from two Fridays ago when the market was surging higher following November’s jobs report.

This time of year is usually defined by some positive action as sellers take a break and traders hunt for pockets of momentum. Unfortunately, given how terrible this past year has been and how consistently those who have chased strength have been punished for their efforts, it shouldn’t be too surprising to see the market unable to get anything going to the upside.

We have a half-day of trading tomorrow, so we expect the session to be completely uninspiring, but Santa still has time for an appearance. Five days of disappointing action leaves room for some action in the opposite direction, but I’d be surprised to see any real progress to the upside in the coming days. I’ll still be looking to see if traders begin moving with some more confidence, but there’s little reason to expect them to change their flippin’ ways.

A Record Drop In Home Inventories - Could This Lead To A Housing Shortage In 2009?

The number of unsold new homes fell by 34,000 in November, the most ever. There are now 372,000 unsold new homes for sale, significantly below the peak of 570,000 in June 2006. The level is approaching normal.

The supply problem is in the existing home market, but the underbuilding of homes relative to population growth will inevitably result in the filling up of those homes, whether through sale or rental -- humans need shelter. I would expect inventories to decline at least 500,000 to 750,000 in 2009 because of the population/underbuilding issue. At least 500,000 will disappear from underbuilding and a further 250,000 (at least) will be sold due to low mortgage rates and incentives from President Obama to spur home buying (4.5% mortgages or tax credits or both).

The math on why this is happening is simple: The construction of new homes has fallen below that of household formation. Housing starts have recently been at about 600,000 annually, which works out to about 400,000 new dwellings each year because many new starts are restarts -- tear-downs and such. Birth statistics and Census Bureau data indicate that household formation will on average run at a pace of about 1.2 million in the current year and immediate years ahead, owing to population growth of about 3.0 million.

This means that home inventories -- new and existing combined -- could fall by 600,000 over the next year, depending on the extent of household formation (it slows during recessions, although it is only a delay in the inevitable -- kids won't live at home with their parents forever and roommates go their separate ways eventually). Shelter is obviously a basic need, which makes the inventory call a bankable top-down theme for 2009.

Monday, December 22, 2008

An All-Day Post-Options Hangover?

We kicked off the first of two holiday-shortened weeks with a perfect example of just how frustrating this market has been over the past couple of months. Despite three days of disappointing action, decent technical conditions and indications for a positive start to the day, buyers failed to step up to the plate early in the day. As the action developed, the indices languished and traders showed no interest whatsoever in rooting around for any pockets of momentum. Moreover, the few stocks that showed so promise right after the bell simply rolled right back over.

However, news that Moody’s had placed AA under review for a possible downgrade sent the market to fresh intraday lows mid-day, and for the next 90 minutes or so, the indices moved sharply lower. But just as we dropped under the lows from 15th, buyers finally made an appearance, triggering a late spike that would allow the market to finish well off the worst levels of the session. These are the exact sort of whipsaws we’ve been seeing for months now that has made dealing with this market so difficult, as it’s impossible to think that stocks are going to behave in any sort of rational manner.

While we were able to hold above support levels, but today’s action was just a reminder of just why it’s not going to be easy for this market to make progress, no matter how favorable the seasonal factors may be. Day traders continue to be in hog heaven, but the action will only get trickier as volume begins to dry up even more. I continue to think that buying a $1.00 for about .90 or so via closed-ends like AOD make alot of sense here.

long AOD

Saturday, December 20, 2008

Choppy On Friday

We completed the last full trading week of the year, and while we didn't get any upside traction, we didn't fall apart either. The action was directionless today with a few spikes that failed and a few dips that were bought. It was random and very hard to trade.

I'm still somewhat optimistic about the way the market is setting up. We have a good base and continue to hold up, but we need a spark to light a little fire. I'm seeing some better charts, particularly in health care and even a few small-caps, but it has been treacherous to hold any sort of size because of the whippiness of the trading. While the overall volatility has slowed and we are in a trading range for the week, the intraday movement is still very hard to navigate.

Next week volume is going to slow quite a bit, and the random movements will likely be even greater. However, the good news is that trading around holidays often has a bullish bias. So even if we are choppy, there may be some upside potential for the quick and nimble.

Thursday, December 18, 2008

So We Get The Options Week Bad Day Today

Although we were holding near the unchanged mark for the entire morning, reports that GE had its credit outlook downgraded to Negative from Stable by Standard & Poor’s pushed the market to fresh intraday lows as the afternoon got under way. The bulls were unable to gain a foothold, and the major indices steadily lost ground for the remainder of the day, finishing the day with losses, on average, of 2.11%.

The so-called defensive areas, staples, healthcare and utilities, were the only sectors to finish in the green, while energy showed the biggest loss on the day as oil continued to fall off a cliff. Meanwhile, the recent momentum groups, including steels, solars, precious metals and shippers pulled back sharply as traders took some recent gains.

Unfortunately, each of the averages are back under their respective 50 day moving averages, but are still above the closing lows from the 15th. We’ll see if the dip buyers will step up to the plate again as we finish out the week tomorrow.

Wednesday, December 17, 2008

Encouraging That Options-Week-Wednesday Was Not A Big Down Day - But Lots Of Churn

Usually options-week-Wednesday is a bad day. But not this time. Although things got choppy mid-afternoon and a bout of selling in the final few minutes pushed the indices back towards the morning lows, all in all it was a pretty good day for the market. Investors stepped up to buy the initial weakness, the averages were able to climb into positive territory early in the afternoon, traders hunted aggressively in some pockets of momentum (including steels, bulk shippers and solars), and both the Dow and the S&P 500 held above their respective 50 day moving averages.

Why in the world should solars trade like they did today with oil down so much, and what in the world is going on with treasuries? – equities are seeing some decent pricing action. I suspect that it has a lot to do with the time of year, and that may be why volume is drying up, but it’s been a while since we’ve seen groups of stocks act well as a whole and do so for several days in a row.

Regardless of the reasons, that’s what the market is doing right now, and even if we don’t put a whole lot of trust in it – okay, we aren’t putting any trust in it – that doesn’t mean we can’t play along while it lasts.

Tuesday, December 16, 2008

Fed Pulls Out The Really Big Guns

Investors finally got an excuse to do some buying today after the Fed delivered a larger than expected interest rate cut. Never mind the longer-term implications of such an unprecedented move – the Fed now has a target range for the Fed funds rate of between 0.0 and 0.25%... just in case you hadn’t heard. Investors are looking to put some lipstick on the pig that the stock market has been this past year and the bears are more than happy to let them have some room in a seasonally positive trading environment.

The big question, of course, is if we can see some follow-through. The market has had such an annoying tendency to reverse moves on a day-to-day basis and to see huge intraday swings that it’s hard to put a whole lot of trust in anything it does right now. That said, the indices have made more short-term technical progress by moving above their respective 50 day moving averages and by putting in another short-term higher high. Meanwhile, there are, for the first time in quite a while, some better individual chart set-ups, and that is encouraging.

We’ll have to see how things play out, but at least in the near-term, things look good for the bulls. They have the ball, and now they just need to run with it. The recent volatility has been very annoying, but it’s not likely that there are many folks out there who are positioned for any sustained strength, and if we can start generating some upside momentum, then that could start sucking in some money off the sidelines.

very soon, we'll be experiencing a housing SHORTAGE of epic proportions

a housing shortage - yes, shortage - is coming. we are building the same number of houses in this country that we were building in 1959. we had 179 million people in this country in 1959. we have 310 million people now.

for better or worse, the fed has been given a green light, via the consumer price index, to take rates down to nothing. the banks should be eager to repossess and sell homes at these prices. not that i want that: i want people kept in their homes. but it is too late for that.

what matters is that supply will not be able to keep up with demand given that build, even with foreclosures. there are just too many households being formed. too many people who need homes. and too few new homes.

don't forget the inventory of homes that are unsold is really going to come down when people realize that they are looking at what they can get and nothing more. at this pace, the homebuilding complex of len, dhi, phm, kbh, ctx, spf and tol cannot be maintained.

it is NOT so low due to prudence. fdic chairwoman bair simply doesn't let defunct banks give more loans to builders. that's why it is shrinking, as the major homebuilders wouldn't know how to stop building to save their lives.

this housing starts number is thrillingly positive for the economy and the markets. it alone is enough to drive the market higher.

Monday, December 15, 2008

For Friday, 12/12/08 And Monday, 12/15/08 - Dip Buyers Helped On Friday And As Usual Disappeared On Monday

The good news on Friday was that the dip-buyers consistently did their thing. The opening gap down following some bad news was bought, and every dip during the day was bought as well, and we went out not too far off the highs.

The bad news is that is continues to be extremely choppy trading. It is very easy to be stopped out if you don't give positions a little room. You can't trade too big or you will get in trouble very fast as this market whips around.

Despite the irritating choppiness of the action, there are some other positives in addition to the consistent dip-buying. Breadth was good, semiconductors showed some leadership, there are some promising charts developing, and I'm seeing an increase in speculative interest. Traders are being more aggressive in certain limited sectors such as infrastructure and metals. They are looking harder to find some action, and that is good, because it tends to broaden out.

It is still quite a difficult trading market, but there will be some pressure for many fund managers to try to put some gains on the books to take the sting out of an ugly year. We obviously are shrugging off the bad news, and that tells us that buyers are anxious to get something going, at least for a little while.

Since these things tend to be self-fulfilling, I would not be surprised to see the S&P 500 attack its 50-day simple moving average, which is around 910. I suspect we can take that out and get a bit more upside going, but I'm not sure that would hold for long. If the bulls are going to get things moving, next week will be their chance to go to work.

As for today, these wild swings we’ve seen recently have made it exceedingly difficult to navigate this market. Although the action was weak for most of the day, things were rather slow, but once again, we had a couple of severe swings in the final hour that took the Dow off its intraday low to the tune of about 150 point in the span of 15 minutes, back down about 100 points in the next 15 minutes and back up about 35 points in the final 3 minutes. In the end, the indices were able to finish off the worst levels of the day, but with losses of 1.37%. Breadth, meanwhile, was worse than 2:1 to the negative, and volume was quite light, which will also help exacerbate the already random action.

Despite the losses and the volatility, this market continues to be in a position to make a decent run into the end of the year. The Dow, for instance, is about 150 points from its 50 day moving average, and tomorrow’s FOMC interest rate decision as well as an earnings report from GS could very well be the catalyst that pushes us past those levels. A strong move past that important technical measure could very well bring in more buyers.

These crazy swings certainly are not supportive of a better market; and oh, by the way, now we've got this little 'ol $50 billion fraud (alleged) to contend with. What a year.

Thursday, December 11, 2008

Now We're Down Again; Let's Blame Dimon

The market got into trouble today by testing the dip buyers once too often.

They have been doing a good job of jumping in every time we pulled back during the last few days; however, the more often we pulled back to support, the less likely that support was going to hold. They would simply run out of juice after a while.

The main catalyst for the breakdown this afternoon was probably comments made by JPMorgan CEO Jamie Dimon. His comment that credit deterioration was probably worse than expected scared off the dip buyers who just couldn't keep on buying the bad news.

The important thing now is that we find support. The key levels starting the day were the highs we hit last Friday following the "buy the bad jobs number" rally. For the S&P 500, that level was 879; and for the Nasdaq, it was 1510.

We ended up closing slightly under those levels and volume wasn't too heavy so it was not a decisive technical breakdown. The bulls can still rescue the situation, but they are gong to need the financial sector to start acting better. Weakness in banks is the big sore spot right now, and they are going to drag down other groups like retail and home builders.

Leadership today was in precious metals due to a weak dollar. The weak dollar was helping to drive oil higher as well, but that faded badly this afternoon. Bonds stayed strong and market players were also looking for some safety in pharmaceuticals and HMOs.

Overall, it was not a good day and we are now in precarious position. The biggest negative we probably have is that too many folks were thinking an end-of-the year rally was a slam dunk. We may still have one, but we need banks to start acting better here very soon.

Wednesday, December 10, 2008

Up, Down, Up, ....

Although we finished the day well off the highs and the trading was very choppy, buyers showed up several times throughout day to give this market some strong underlying support. Things were looking pretty dicey there early in the afternoon, but ‘tis the season for the bears to give the bulls a little room to do their thing. That means that traders will typically go hunting for momentum, and that seems to have certainly been the case as the resource sectors led to the upside once again.

It will be interesting to see how the conflicting influences resolve themselves in the days and weeks ahead. The volatility we’re seeing makes it difficult for investors to feel comfortable not booking their gains where they have them, and that’s going to make any upside progress we see in a seasonally positive environment difficult.

Still, the major indices look to be resting just under their respective 50 day moving averages, so perhaps this is just the type of back and forth action that will prepare this market for a run at those levels. We’ll see how it goes, but even though it won’t be easy, the ball is still in the bulls’ court.

Tuesday, December 9, 2008

Yeah, Turnaround Tuesday Again

Although the bulls tried to put their rally-caps on mid-afternoon, sellers quickly shot yet another bounce attempt down, and the major indices spend the end of the day limping into the close with average losses of 2.19% on breadth that was a little worse than 2:1 to the negative. That said, volume was pretty light, and given the fact that both the Dow and the S&P 500 have essentially waltzed right up to their 50 day moving averages over the past couple of weeks after hitting fresh lows, it’s actually encouraging to see some consolidation today.

I've been thinking that the market may see a decent run into the end of the year as seasonality acts as bear-repellant, and we’re still in a position to see that happen. The averages have put in a higher low and a higher low, and if they can hold here, have the potential to make more technical progress to the upside.

That’s the optimistic scenario. We’ve been down this road plenty of times before, and those who trusted the market to deliver some upside follow-through have been sorely disappointed.

Monday, December 8, 2008

Good Start To The Week

Although they finished off the highs of the session, the major indices kicked off the new week by posting solid gains and moving past short-term resistance levels. By the close, the indices were able to add an average of 3.8% on breadth that was just better than 3:1 to the positive. Financials and materials led to the upside, and while each of the major S&P sectors closed in the green, the so-called defensive areas lagged.

Last week’s encouraging response to a bevy of bad news had put the market in a position to make some technical progress, and this weekend’s announcement of Obama’s stimulus package helped to make that happen. The test, however, will come once we get a pullback. Will investors continue to buy weakness? So many times over the past year, every instance of strength has been used as an opportunity to sell and/or short, and I’ll be watching to see if that tendency changes.

I'm optimistic that we could see some upside follow-through into the end of the year, but that doesn’t mean to go hog-wild.

Suspend Mark To Market Now

Complex policy issues typically require input from experts with different backgrounds and viewpoints. Somewhere there is a decision-maker -- where the buck stops. That person must evaluate the information and reach a wise conclusion. It is no good to have a group of "yes men" who rubber-stamp the viewpoint of the boss.

It is even worse when the boss is missing in action! Such is the case with mark-to-market accounting: For the health of our equities markets, SEC Chairman Christopher Cox needs to wake up and dump this rule now.

A Dash of Background

Scientists on the team typically thought that the right amount of pollution was zero. They favored regulatory approaches to put a stop to polluters and any aggressive action to minimize impacts. Political scientists looked to industry representatives who fought these approaches, with emphasis on jobs and economic impacts. Economists thought in terms of incentives. They looked for approaches that reduced pollution. They thought in terms of an "air basin" that had a certain level of acceptable pollution, seeking to find cost-effective methods to achieve a target.

Policymaking requires an evaluation of differing viewpoints, with a view to the practical consequences.

The Current Failure

A major problem in government reaction to the financial crisis has been the failure to balance the viewpoints of different experts. The nature of our current government structure is to cede important market regulation to an independent agency, the SEC. This insulation is designed to prevent partisan manipulation of market regulation, an idea that is good in theory.

The SEC further cedes accounting authority to the Financial Accounting Standards Board (FASB). This second layer of insulation is also good in theory, avoiding manipulation of accounting rules. In the post-Enron era, everyone wants increased transparency and accurate valuation of corporate assets.

Why This Went Wrong

At the worst possible moment we as a nation chose to alter the way financial assets were evaluated -- through something called FAS 157. We required financial institutions to mark holdings to forced trades in illiquid assets -- mark-to-market accounting.

The most powerful critic of this approach is William Isaac, the former head of the FDIC. His viewpoint is that the entire financial crisis -- the destruction of major financial firms, the huge bailouts, the destruction of retirement accounts, the socialization of private companies -- all could have been avoided with a more measured approach to the needed reducticon in leverage.

This rule could not have been changed by Hank Paulson, or Ben Bernanke, or even by the president, who cannot fire SEC members.

Here is an extended quotation from Isaac's participation in the SEC roundtable on this subject. Participants in this excerpt include Issac, Vin Colman of PricewaterhouseCoopers and John White of the SEC Division of Corporation Finance.

MR. ISAAC: Of course. That's what I'm all about is trying to protect our banking system and our economy, and our investors. Nobody ever talks about the hundreds of billions of dollars that pension funds have lost because of these rules, that my aunt has lost because she had her money conservatively invested in banks that were a stable source for an investor to earn dividends and have values that would creep up. She wasn't a dot-com investor. She got wiped out in banks, a conservative bank, she thought. And that's what I'm concerned about, are the investors. And I'm concerned about our economy and all the unemployment we're going to cause. It's senseless.

We had one hand of the government, the Treasury, handing out capital, just about as fast but not quite as fast as the SEC and the FASB are destroying it with mark-to-market accounting. It doesn't make any sense to me as a taxpayer that these rules are destroying capital and then you're asking me as a taxpayer to spend money to put more capital in banks, to replace the capital that we're destroying senselessly -- not because there are real losses, but because there are paper losses. When you market against some computer model, it doesn't make any sense. We keep on hearing about 35-to-1 leverage. Our banking system doesn't have 35-to-1 leverage? A couple of investment banks did that failed. But our banks are the best-capitalized banks in the world by far, and we're destroying them with these losses that are being run through the income statement that are not real losses. They're paper losses. They may never be realized.

And I want to take back the words "fair value." You can't have those words. You can't own those, because I am for fair-value accounting. So we're arguing about what is fair value, and I'm telling you that I don't believe that marking to a computer model or fire-sale prices based on distressed sales is fair value. Fair value is to take a look at the assets, look at the cash flows on them, look at the probability of default, look at the probable losses if you have a default, and then value those assets.

Let's take the 1980s. I said the money center banks were loaded up with third-world debt, and they were. And if you could sell it, you would fetch about 10 cents on the dollar. If we had made them mark that to 10 cents on a dollar -- which we did not consider to be a fair value for those assets -- if we had made them mark that to 10 cents on a dollar, we had a plan in place that we were going to nationalize all the major banks in the country, because they couldn't have survived that mark.

Now, did you want us to do that? Would that be right for investors? Would that be right for the economy and the country? Did you really want us to put the country into a depression and all the stuff that comes with that? I'd say no. So what we did is we looked at those assets and we said, "What's the income off of them? What's the likelihood there is going to be a default? And what's the likelihood that these countries are going to renounce the debt and never pay it back?" And we factored that in, and I don't remember what we marked them to, but let's say we marked them down 25%, and then a year later we would look at them again and say, "Was that mark OK, or should we mark them down more?" And that's what I'm asking, is that we use some judgment. We let the bank examiners do what bank examiners do best, and we let the auditors get involved in that process as well, and mark these assets to what is their fair, their true, economic value, not some arbitrary value based on computer models. So I have my investor hat on and I have my taxpayer hat on and I have my bank regulator hat on, and I think this is an issue we all ought to care about very deeply. Well, we do care about it, so that's why we're all here.


MR. COLMAN: Tom [Linsmeier] is here from the FASB, but I just want to clarify a more technical point. I mean, first of all, what the FASB and SEC in the press release put out was your comment around agreeing with judgment. I absolutely agree.

We need more judgment in the system. But one of the things that was tried to be clarified in the guidance that was out just recently was the concept of distress sale or distress market. To make it clear that those transactions are not determinative, they are input in the current market. But you should not be writing to distressed values, necessarily ...

MR. ISAAC: But we have been.

MR. COLMAN: ... and, lastly, I just wanted to comment on it again, to repeat maybe from my opening comments, the difference when you said, you know, and then we go to regulators. To separate the accounting and information for financial reporting of an investor to the information that you're giving to regulators for capital purposes, because those discussions get gray and they come together.

MR. ISAAC: OK. Well, let's deal with that, because that's a very important point. I don't understand how you can have applied these rules to a bank holding company that has publicly traded securities, the mark-to-market rules, and then say, "But regulators can do whatever they want with the banks," because when you are reporting that Citicorp (C) , let's say, loses $20 billion in the year, nobody stops to ask, "Well, what do the bank regulators think about that?" And so I don't think that works. And I'm also not trying to hide any disclosure.

I think all the disclosure ought to be there, as it is under the historical cost basis. You have footnotes. You have tables that show all the market depreciations. Anybody can look at it.

I just don't think it's appropriate to mark something arbitrarily to an index or to a market price when the market's not functioning and destroy value, run it through the income statement, and take it out of the capital accounts of the company. Because then the rating agencies pile on, the short-sellers pile on, and they destroy the company.

And it doesn't matter what the regulators think. I don't believe that a regulator would have wanted to close down Wachovia (WB) , but the market was sure closing it down. I don't think a regulator would have wanted to have closed down WaMu, but the market sure wanted to close it down, because of these reports we're forcing them to make about their losses and the depletion of their capital. So nobody even asks what the regulators think.

Isaac is far from alone on this topic. In August I described this as a self-inflicted nightmare. Former Fed member Bob McTeer writes as follows:

While spending and investing billions of dollars -- or is it trillions? -- trying to heal the sick credit markets, the government continues, inexplicably, to ignore the low-hanging free fruit of suspending or modifying mark-to-market accounting. We are hoisting ourselves on our own petard by adhering strictly to accounting rules that unnecessarily threaten to put thousands of viable financial institutions out of business.

Financial institutions will fail, not because of actual losses, but because of rules requiring drastic writedowns of securities that could be held to recovery or maturity because the market for them is temporarily frozen.

What Next?

As part of the TARP legislation, Congress required the SEC to do a study of these rules. This is a 90-day process, dragging on as markets move lower. The result will be announced on the last possible day, Jan. 2.

Meanwhile, by the time many of you read this column, Cox will give the first hints of the SEC's thinking in a speech before an accounting group. He speaks on this topic this morning at 9 a.m. EST. The Wall Street Journal reports in a story today that mark-to-market accounting will remain, according to a source familiar with the matter. The source goes on to say that the SEC will investigate tweaking the rule's application.

This policy will eventually be changed. I predict that the new approach will provide visibility about illiquid assets on balance sheets without actually requiring financial institutions to mark the assets lower. When the change takes place, it will be the single most bullish event possible for U.S. equities.

Friday, December 5, 2008

Bad News Got Bought Today

The bulls were extremely anxious to buy the bad news today. In fact they were a little too anxious to start the day, and that resulted in some of them being trapped when we didn't go straight up after the very ugly jobs report. However, after fumbling around for a while, the dip-buyers got things going, and once we made a new intraday high, the rush was on.

It is obviously a positive that market players are so anxious to add long exposure when the news is so terrible. It certainly lends much weight to the argument that the worst has been priced in. On top of it, we have positive seasonality into the end of the year kicking in, and the charts are looking better.

The biggest negative continues to be this wild volatility. I think the DJIA had an intraday swing of more than 300 points every day this week. That just does not invite prudent speculation. However, the volatility was mostly on the positive side. The bulls were bailed out on every dip, and that should boost confidence.

The primary bullish argument here is that we have priced in the worst. We'll see how well confidence in that assertion can hold as we digest today's jobs report. Nonetheless, the bulls have the advantage and are in good shape to build on it next week.

Thursday, December 4, 2008

Will Stocks Test Their Lows After Tomorrow's Employment Data?

Of course, as soon as the proclamations started hitting about how all the bad news has been priced in and how we have seen the lows, the market sold off hard. Obviously there is a lot of nervousness in front of the jobs report tomorrow, with talk that we could see 500,000 or more jobs lost. That is frightening, and even though we have been buying the bad news lately, traders still want to see how bad it is before they jump in.

On Wednesday the market sold off very sharply as we awaited the Beige Book report. The buyers piled back in as soon as the news hit, and we went straight back up to the day's highs. Many traders are looking for a similar reaction to tomorrow's job report. The only problem is that so many are looking for it.

The good news for the market is that even with the selloff today, we are still holding above the lows we hit on Monday and Tuesday. That level is 815-818 on the S&P 500 and is being watched very closely by technical traders.

I expect some wild trading on the jobs number tomorrow, but I'm feeling optimistic that we may have some decent upside trading into the end of the year, and today's dip actually makes for a better setup as long as we hold those lows.

Wednesday, December 3, 2008

All This Before A Probable Disappointment From The ECB Tomorrow?

The intraday swings in this market continue to be absolutely crazy, but the overall action is quite positive. We shrugged off a bunch of bad news, and the dip-buyers pounded on the sharp intraday drop. We went out at the highs on good breadth, with financials, homebuilders, biotech and chips all making a good shortage.

The most encouraging thing about this market is that we finally are seeing some stocks that are holding lows, building bases and turning up. That, combined with the inclination of the market to buy bad news and positive seasonality, bodes well into the end of the year.

The biggest negative is this crazy intraday volatility. When things swing to such a huge degree, it is extremely difficult to build a position of any size. The risk of a big loss on a quick whipsaw like we saw intraday today is going to prevent the sort of accumulation that supports big sustained upside moves.

Things are looking brighter; let's hope it stays that way after the ECB disappoints us yet again tomorrow (they should cut by AT LEAST 75 bps, but will probably only cut by 50 bps again - still a lookin' for that inflation I guess).

FAS 157

There exists a big problem implementing FAS 157. Like many other critics of the death spiral induced by the implementation of this plan, I strongly embrace market pricing when it generates accurate values.

The problem is that these values do not accurately portray the actual performance of the underlying loans.

Many others have noted the liquidity issues, so my comment takes a different approach.

I hope that the SEC will examine carefully the interaction between trading in the Credit Default Swap market and the resulting marks for "innocent" financial institutions. Some of the marks, including the ABX, are drawn directly from the CDS markets. If these markets are flawed or manipulated, the widespread implications should be considered.

I have noted a pattern of trading. This pattern targeted various firms through the CDS market, included the purchase of put options, and probably included short sales in the targeted financial stocks.

There are two problems:

1) The trading in the specific companies, possibly involving manipulation. I can only observe what I see. The resources of the SEC can investigate this.

2) The implications for "innocent" institutions, whose holdings are marked down, despite performance of the loans and the ability to hold to maturity.

The failure to accurately evaluate assets of financial institutions is a contributing cause for the massive, and possibly exaggerated, de-leveraging in financial markets.

It is possible that these factors have contributed to a misplaced loss of confidence in the entire financial system. The cost to the average retirement investor is enormous.

I understand the principle of mark-to-market, but the implementation must be done accurately. A wise accountant told me that if this had been introduced fifteen years ago, there would have been no problem.

Perhaps it is time to suspend this process while we learn how to do it right.

Tuesday, December 2, 2008

Bounceback, Of Sorts

Although the road between the bells was rocky, in the end, the bulls were able to make a decent stand and regain some of the ground they lost yesterday. Breadth was an acceptable 2:1 to the positive, each of the major S&P sectors closed with strong gains, and most importantly, volume, while on the light side again, was higher than it was yesterday. However, treasuries were up once again, suggesting that investors are still very wary of taking on risk.

It was encouraging to see investor step in after the opening gap higher was sold, and again buy the mid-day dip back towards the unchanged mark. Of course, a lot of that has to do with the reflexive nature of this market lately and the propensity for traders to try and ride these extreme swings. At the same time, though, the news out of GE did give the bulls some ammunition during the day. Good news out of a bellwether stock like that can really give a market something to build on. We’ll see if the buyers can keep it up, hold on to key levels in the averages and start to make some progress to the upside as the end of the year approaches.

Stay patient.

Monday, December 1, 2008

And Now Comes The Post-Holiday Trading

About the only thing positive to say about today’s trading session is that the volume was actually quite light. Other than that, though, the market kicked off the new month on a decidedly downbeat note. Of course, after five straight days of gains on decreasing volume which had taken the major indices straight into overhead resistance, it’s not surprising at all to see some selling, but the absence of any selling pressure last week was replaced by a complete lack of any buying all day long. I for one (stupidly) thought that this cascading - type action in the last hour or so was over. Uh, no.

The action for most of the day made it clear that what we saw last week was nothing more than your standard bear market bounce, but it really started getting ugly in the final hour when the bottom simply fell out. Although, we are still well above the lows from two Thursdays ago, almost all of last week’s gains have been completely erased. Time and price, I guess.

Friday, November 28, 2008

More Holiday Trading

After trending sideways for the better part of the morning, buyers pushed the market to fresh session highs as the final hour of trading approached, but it wasn’t until the last 15 minutes that the shorts really got squeezed.

Interestingly, the automakers continued their recent bounce despite a lack of any apparent catalyst while the homebuilders pulled back after their recent run. However, the real head-scratcher is the action in bonds. The TLT continues to hit new highs on a daily basis, even with some positive action in equities. That suggests investors continue to seek the safety of treasuries and/or expect the economy to languish in a deflationary environment. That asset class is carrying yield of next to nothing, so it’s concerning that investors find it more attractive than equities. I plan on shorting TLT soon.

Another concern is the continued pressure on oil prices. Certainly, investors are following the momentum there, but we can’t dismiss the notion of demand destruction, which further puts the notion of economic recovery in question. It will be interesting to see what the reaction is should OPEC cut production at their meeting this weekend yet again.

The indices are running into overhead resistance, and that’s the only real insight that we can get from the action we’ve seen over the past two trading sessions. We’ve seen again and again how dangerous it is to chase strength in this market. The bears gave the bulls some room in the thin holiday environment, and I'll be watching to see if the buyers are willing to step up and provide support when we pull back.

Wednesday, November 26, 2008

Holiday Trading

Although just about everybody and their brother were fully expecting the market to give back some of its recent gains today, we had nice little day of holiday trading. Volume was thin, breadth was good, and except for a slight dip as the afternoon got under way, the bulls steadily pushed the market higher throughout the day. The bears typically give the bulls some room to run this time of year, but with the market running into overhead resistance on declining volume, it’s going to be tough for this market to make more progress to the upside.

While this is the sort of set-up that will get the bear licking their chops, we need to watch carefully to see how the market acts into a pullback. We haven’t seen any reason yet to become any less defensive, but we’ll be looking for indications that some positive seasonality might kick in as we head into December.

Tuesday, November 25, 2008

Could We Hold The Recent Gains?

More bailout news popped us up this morning, just as it looked like some profit-taking was going to kick in after a big two-day run. The bears tried again at midday to roll us over but couldn't gain any traction. That left the door open for yet another late-day lift and some fast swings in the last few minutes of the day.

Financials led to the upside due to the bailout move, while oil, gas and commodity-related names led to the downside. Breadth was nicely positive on the NYSE but fairly flat on the Nasdaq as technology stocks performed relatively poorly. Bonds were up big again and yields falling to almost nothing as investors seek safety away from the confusing equity markets.

It continues to be very chaotic trading, but the bulls have a bit of a squeeze going here with some help from Hank the Tank and his friends at the Treasury Department. These bailouts may be problematic down the road, but for the moment they are helping to boost the market a little.

After three positive days, I suspect the bears might be looking for some entries here soon, but we have the very thin and generally positive days around Thanksgiving coming up, so the likelihood is choppiness rather than any clear trends.

Most trading is focused on the indices rather than individual stocks; that gives many a much shorter-term time frame. It still is a bear market.

Monday, November 24, 2008

The Late Day Whipsaw Strikes Again

Other than another psycho 200-point move in the last 10 minutes of trading and a brief pullback following the Obama press conference, the bulls managed a pretty steady uptrend all day long. The financials, fueled by the bailout of Citigroup (C - commentary - Cramer's Take), led the charge, but it was a very broad rally with all major sectors up strongly.

Once again, the final hour of trading produced a big move with the bulls running over any shorts, but then in the 10 minutes we jerked around in a totally arbitrary fashion and whipsawed anyone trying to trade this market.

I'm sure there are traders who are enjoying this sort of market action, but most that I know are feeling extremely frustrated and/or lost. Trading lately is all about the indices and the highly leveraged ETFs, and the volatility is just too high to put much capital at risk.

I wish I had some better advice, but when the DJIA jumps 1,000 points in two days and then we have 200-point swings in the last 10 minutes, there is just not much you can do other than to stay patient and wait for better conditions. This is not a normal market environment, and if you try to force things, you will get hurt. The most important thing is to stay calm and wait it out. Things will eventually change, and we'll be able to be more aggressive, but for now we just have to watch and shake our heads at what is happening.

Friday, November 21, 2008

Another Friday Rally In A Bear Market

It’s not like the news that President-elect Obama has named Fed President Geithner as his Treasury Secretary really does anything right now to change whatever is going on with the financials. While it does remove some uncertainty regarding who is going hold one of the most important jobs in the country right now, the fact of the matter is that the shorts were probably leaning heavily on the banks, and all it took was a catalyst to trigger the sort of reflexive rally that was bound to happen sooner or later. I'm highly skeptical of the choice of Geithner, but I'll wait to see how it plays out.

Of course, even though some of the financials were able to recover from some ugly action, there’s still uncertainty regarding any sort of news over the weekend. Several big banks were trading like the market was expecting some kind of forced sale or bailout, so it will be interesting to see not only if anything happens, but how the market reacts if it does.

In the meantime, all of this recent turmoil, 7% intraday swings, and meltdowns in firms that everyone thought were rock solid really messes with Thanksgiving. Way back when the market used to act normally, we’d find that the week of Thanksgiving offered up some pretty good trading. However, this market is far from normal. It’s being driven by a short-term mentality, and we suspect that big money buyers who might be interested in doing some accumulation want no part of this craziness right now.

An example is AOD, a dividend-capture strategy closed-end fund. Trades at a significant discount to NAV; yields 37% - yes, 37%!! - as of yesterday's close and was down another 7% or so today on no news. Invests in megacap dividend-payers like XOM, ABB, etc. Obviously someone is getting out at any price. I am happily adding to my stake in the 5s. Anyway, I suspect that something is up in the financial sector, and how that plays out will determine how things shake out as we move forward.

Thursday, November 20, 2008

Is DRYS Insolvent? A Quick And Dirty Balance Sheet Analysis

With the recent crash of DRYS shares, I wanted to share a conservative balance sheet analysis for DRYS based on the balance sheet numbers as of September 30, 2008.

Shareholders equity is $2.1 billion.

Shares oustanding are 43 million.

This suggests BV of of $49 a share. Clearly this is drastically inflated given the market conditions.

So let's make some very conservative adjustments. First, write down goodwill ($692M) to zero. Also, vessels, on the balance sheet at $2.1B should be discounted by 50% because ship prices have crashed. JP Morgan came out today and noted that ships were selling for 50% less than even six months ago. The drilling rigs, at $1.4 billion can be discounted 10%. The long-term market for ultra-deep water business is still sound. Also because these rigs take years to build, I beleive that many buyers would step and pay a strong price, possibly full book value.

This adjustment totals approximately $1.8 billion, for an equity value of $330 million. At 43 million shares, this equates to conservative liquidation value of $7.70 a share.

Obviously these are my assumptions, but becasue I have written on DRYS I wanted to provide a fire-sale type liquidation value should the worst occur. Right now the BDI index is down over 90%...this has never happened before. Shipping rates are so low as to assume that we need no ships. The key is the ability to meet your debt convenants. If DRYS can do this (or more appropriate if they can convince thier lenders to sit tight), the business is worth more. Many have been concerned in light of the precipitous fall over the past few days. My goal is to provide a bare bones look. None of this assumes the 25 million shares that were to be issued for the new ship acquisitions. I can't imagine management going through at these levels...if they do, that will tell us a lot about their competency and ethics.

Position: long DRYS

a wish list

* Apple (AAPL) in the 70s
* Google (GOOG) hoping for an obliteration to a low $200 or even $1 handle
* Amazon (AMZN) in the 20s
* Adobe (ADBE) in the teens
* (CRM) in the teens
* Chipotle (CMG) in 20s
* Nintendo (NTDOY.PK) in the 20s
* Visa (V) in the 40's
* Electronic Arts (ERTS) under $15

cc from a horrible day

Columnist Conversation

Chart of the Day
Gary Dvorchak
11/20/08 4:46 AM EST

Click here for a great chart comparing four major US market bear markets.

73-74, 00-02 and this one are all -50% events. 29-32 is the next benchmark, that one was -89%. This data seems hopeful, barring a depression we've gone as low as the worst we've seen in the past century.

Of course we could end somewhere in between. The Nikkei is down 77% from its high in 1989. The Japanese experience has been described as a "lost decade" (actually two), but never a depression. So terminology may be irrelevant.

Position: None

I Scream Kohn
Marc Chandler
11/20/08 6:17 AM EST

Vice Chairman of the Federal Reserve Donald Kohn's comments yesterday were important. There are three take away points. First, he indicated that he thought the risk of deflation was small but it had grown recently. In this context risk is best understood as a product of credibility multiplied by capability. The credibility in this case may be low, but its ruinous capability is great.

That leads to Kohn's second point. Policy should respond "as aggressive as possible" to any deflation possibility. His remarks no doubt were prepared, but they are especially noteworthy in that were issued within a few hours of news that consumer prices showed their biggest decline in 60 years last month.

The third point, which is one I also have been making, is that the Fed is already engaged in forms of quantitative ease. One key way, though that it differs from Japan's experience is that the Fed's quantitative easing has occurred along side monetary easing or interest rate cuts. In Japan's case the BOJ had brought its overnight rate to zero before engaging in quantitative easing.

Because the effective Fed funds rate, which is what the futures contract is tied to rather than the policy rate, the futures are less helpful in signaling market expectations for Fed policy, but after yesterday's comments and data, there was increased speculation that the Fed may cut by 50 bp when it meets in mid-Dec.

In the currency market itself, it seems to me that the relationships that every one has been highlighting with the equity market may be weakening, but it is more as something to be on the altert for rather some thing to act on immediately...euro is holding its own against the yen and swiss franc despite the continued weakness in equities. Some EM currencies are firm, like Turkey-which cut rates yesterday by surprise. Even the ruble is stronger. But not all are firmer as the rand has been hit and the latam currencies are poised to open lower.

Position: smaller by the day

Met Life and Prudential Will Both Be Long Term Survivors
Christopher Atayan
11/20/08 7:00 AM EST

Met Life and Pru are both in the crosshairs right now as concerns are rising about their CMBS portfolio. I have had many private placement dealings over the years with both companies and have found them to be very careful and not the types of organizations to reach for yield by taking excessive risks.Moreover the quality of the professionals I have dealt with over the years was uniformly high.

With respect to the specific issues with real estate,remember, Met Life sold some of its largest real estate assets Peter Cooper Village-Stuyvesant Town and the two Met Life buildings for enormous prices at the peak. I pointed out at the time was a bearish signal for real estate as the life insurance companies are well equipped to look to long term trends in assets due to the predictable long term nature of their liabilities.

So while I am sure things are not going swimmingly for both, in the overall scheme of things my instinct is that neither is any real risk of melting down. While their is no doubt the current portfolio of investments is getting hammered , new holdings are being put on at attractive prices with very prohibitive make whole provisions. So for those with a longer term orientation both of these high qualitiy enterprises are at prices that make economic sense, as each will be a long term survivor.

Position: Long MET

Wish List
Howard Lindzon
11/20/08 7:20 AM EST

My post from yesterday was supposed to mark a bottom by me getting even more bearish.

So now that we have breached 8,000 on the Dow and Asia is slinking into oblivion tonight, what is one to do with their 188k plan?

I can only advise those who have followed me for quite some time and have been mostly in cash. To you all, I say it's time to go shopping for a few stocks. Once again, the stocks that I buy will all have pristine balance sheets because those are the only stocks that will bounce, when -- IF EVER -- we do bounce and or dare I say it ... bottom.

Here is my Hanukkah wish list for certain stocks.

* Apple (AAPL) in the 70s (I own it)
* Google (GOOG) will add some to the sheets in the morning and hoping for an obliteration to a low $200 or even $1 handle
* Amazon (AMZN) in the 20s
* Adobe (ADBE) in the teens
* (CRM) in the teens (I own it)
* Chipotle (CMG) in 20s
* Nintendo (NTDOY.PK) in the 20s
* Visa (V) in the 40's (I own it)
* Electronic Arts (ERTS) under $15 (I don't think it will bounce hard because of earnings preannouncement)

I will be plunging back in from a mostly cash position if we break 7,800 and get pretty invested for a trade at 7,600 and below.

For me, pretty invested right now would be 30% net long.

As a hedge fund manager in this environment, my having a good year means nothing. Even my most loyal investors can pull at a moment's notice. It's just a part of the business you have to factor in to your decision-making.

The stock market is broken and you must not be in a hope mode. You can't hide your statements. The companies on this list above are far from broken.

I am truly getting excited for owning some of the best brands in history at what I think are bargains. Time will tell as always.

Position: long AAPL, CRM and V

Reader Response to Buying From Bankrupt Automakers
Steve Birenberg
11/20/08 7:21 AM EST

Yesterday I posed the question to readers of whether they would buy a car from an automaker operating in bankruptcy. I received a large number or responses, many with well thought out comments.

By a 3 to 1 margin, Real Money subscribers say yes they will buy from a bankrupt car maker. However, many of the yes answers came with the same two caveats. First, everyone wants a discount. Second, and related to the first point is that people want to make sure the warranty would still exist but if it didn't a lower price to subsidize third party warranty would suffice.

Based solely on this aspect of the responses, I think that the CEOs ought to be revising their sales pitch for the bailout money. Based on what I heard, they kept going back to "no one will buy form us if we are bankrupt so bankruptcy is the same as shutting our doors and the ramifications of that for the economy are too great to risk."

Several subscribers noted a parallel between flying on bankrupt airlines and buying a car from a bankrupt company. A few noted this but qualified by stating that an airline flight is just a few hour commitment while the car has warranty issues.

One reader compared the issue to the runs on banks and brokers and felt a similar run could occur on a bankrupt automaker in terms of buyer boycott.. Another reader noted that resale value on US cars is already very poor compared to foreign cars so bankruptcy really would not matter.

A few readers indicated that they would buy form a bankrupt company but would not buy now when they don't know what form the company will be in a few days, weeks, or months.

This brings me to my final point. A few readers replied with tales of dealerships. One dealers says there have been zero, I repeat zero sales for several weeks. Another said that just one or two cars have been sold in the past month. Part of this could be due to the fact that uncertainty is keeping folks away form buying that would be buyers from a bankrupt company.

But more importantly, the urgent tone of the CEOs emanates from right here. Sales have slowed to virtually nothing. This is why the cash burn rate is so high and accelerating.

Position: No positions.

Memo to Prince Alwaleed
Doug Kass
11/20/08 7:27 AM EST

Prince Alwaleed is on the Dow Jones tape, saying that Citigroup (C) is materially undervalued.

Memo to the Prince: You have been saying that over the course of the last 46-point drop in Citigroup's shares.

Position: None

Fortress Worries About Obama's Plans
Michelle Leder
11/20/08 7:35 AM EST

Last Thursday, we had the spectacle of five top hedge fund managers testifying on Capitol Hill. Several Congressmen honed in on the current tax code which allows hedge fund partners (and other partnerships) to be taxed at a lower rate because of the rules on carried interest. At last week's hearing, George Soros and Jim Simons agreed that the rules should be revised. John Paulson, Philip Falcone and Ken Griffin offered several conditions.

The folks at Fortress Investment Group (FIG) weren't on that panel, but that same day they reported its first quarterly loss since going public in February 2007 and announced that redemptions were running around 25%. But it was some of the new disclosures in the 10Q they filed that piqued my interest.

While the warning about the potential change in the tax code in terms of carried interest has been in previous filings, the last line was new:

If legislation were to be enacted by the U.S. Congress to treat carried interest as ordinary income rather than as capital gain for U.S. federal income tax purposes, such legislation would materially increase the amount of taxes that we and possibly our equityholders are required to pay, thereby reducing the value of our common units and adversely affecting our ability to recruit, retain and motivate our current and future professionals. Senator Barack Obama, the President-Elect, has publicly stated that he supports similar changes to the tax code.

Also new was a warning of the increased attention on hedge funds by members of Congress and the additional regulation that this could bring. Among the concerns singled out was the SEC's rule on short-selling, which expired last month, though companies are still required to file the Form SH until next August: "Compliance with any new laws or regulations could make compliance more difficult and expensive and affect the manner in which we conduct business."

Of course, given Fortress' performance -- the stock has declined a whopping 93% since February 2007 -- new regulations seem like the least of their problems.

Position: none

The Princely Boost
David Sterman
11/20/08 8:13 AM EST

With all the current turmoil, it is too soon to expect an M&A upsurge. Those deals will come en masse when things quiet down and it is clear that we are just falling into a profound recession and nothing worse. Before then, actions like today's large buy of Citigroup (C) by Prince Alwaleed bin Talal bin Abdulaziz Al Saud is one of the few panaceas available to this market right now, single-handedly turning the futures around.

There have been a lot of investors on the winning side of trades these last few months, and seeing some of that money flow back into equities would be very supportive to establishing any floor.

Position: none

Dysfunctional, But Not Irrational
Geoff Johnson
11/20/08 8:14 AM EST

As the market makes new lows a fair number of market commentators and managers are out arguing that the problem is that the market and investors are irrational and are forcing stocks to trade at prices below their estimation of fair value. I continue to believe the coming drop in earnings will fully bear out the appropriateness of the stock price, especially in terms of multiples. In fact, there seems to be some sense of entitlement as to what a reasonable multiple is for a stock. I believe this may be a function of the fact that most of today's investors have not lived through a low multiple world and are adamant that whatever caused low multiples in the past is history, cannot happen again and that there is no new event that could make it happen now. Oh, really? I can't tell you what the low-point multiple will be, but I can say now is a great time to be open to the idea that it will be low.

I noted once before that given the market swings and volatility, this market is certainly dysfunctional, but the pricing of stocks does not strike me as irrational.

Position: none

Rev Shark Keeps Throwing Strikes
Doug Kass
11/20/08 8:17 AM EST

I am not worthy! I am not worthy!

Rev Shark continues to throw strikes, and his opening missive today is spot-on as he moves closer to winning the 2008 Cy Young Award.

Position: None

Coal...just ugly
Bob Byrne
11/20/08 8:18 AM EST

As an example of how ugly some sectors have become, I thought I would point out that the basket value of the Coal stocks I follow (ACI, BTU, MEE, CNX and FCL) has plummeted from 460 as of 7-1-2008 to a meager 77 as of yesterday's close...a decline of more than 83%

I know Doug has been or is short a number of these stocks...if your still holding short, what would make you cover?

Position: none

Should You Buy It? Addendum
David Peltier
11/20/08 8:32 AM EST

Sierra Pacific (SRP:NYSE) is changing its name to NV Energy today, and will trade under the new ticker NVE. Nice timing, Dave.

Also, another item that initially drew me to the name but didn't make it into the final copy is the recent insider buying in the stock.

Two insders, including CEO Michael Yackira have bought a total of 15,500 shares this month on the open market.

Position: none

Econ Numbers
RealMoney Staff
11/20/08 8:40 AM EST

Initial Claims came in at 542k vs 505k consensus. Prior weekly claims were revised to 515k from 516k.

This is the first time we have had 2 consectuive weekly readings over 500k since 2001.

Continuing claims came in at 4.01 million versus expected claims of 3.90 million.

Position: n/a

Futures did a fake out
James Altucher
11/20/08 8:41 AM EST

right before the unemployment data came out, futures were up slightly, now they are down about a percent as the unemployment data came in weaker than expected.

I called around a bunch of traders/money managers yesterday after the close. The comments from people can be summarized as follows:

- Most of the managers think we get one more whoosh down, hit 770 or so, and then "rip up".
- the qualification being , "unless the system is broken".
- People loved Alan Farley's comments yesterday on the site that perhaps the entire trading mechanism in the US markets is broken, particularly with the lack of an uptick rule. the idea being that at the end of the day the only volume is the electronic trading systems which are just smashing stocks down by shorting without the uptick.
- Mark to market remains a big debate. As Jeff Miller pointed out yesterday, many of these assets (securitized mortgages, etc) are performing fine, but hedge funds have marked them down to 20 cents on the dollar in some cases.
- Spoke to one fund manager of distressed debt. They are getting mega-redemptions from funds of funds that were leveraged up. However, the gates are going up. Hedge funds (some of them) are finally starting to say, "listen, we have to get out of these in an orderly manner and we are allowed to gate your redemption - meaning, you get it back when we feel like it."

My personal take: In the future things will be higher than they are now. Significantly higher. The bulk of the selling has been hedge funds and electronic trading. But, who really knows if we see more pain today or tomorrow or next week.

Position: none

Morning Prep
Ken Wolff
11/20/08 8:42 AM EST

The Market has been down all morning and was not helped by the jobless claims numbers... We are currently at 26.47 with no buying so far... We are oversold in the short term and should see a bounce this morning... I will be looking for minimal selling and an early pop anywhere from QQQQ 26 to 26.20 with a pop to 27.... Stay awake because if we get what looks like capitulation, we can pop 3 bucks on the QQQQ ... 25 to 25.50 would be what I would expect for capitulation numbers... Financials will lead us today if there is any serious buyers lurking...

Position: NM

If Only They Were Lending Right Now
David Sterman
11/20/08 8:51 AM EST

It's hard to overlook the associated drop-off in bond yields. The 10-year is at 3.25%, and the 30-year is nicely below 4%. That should be great for mortgage rates, car loans, etc. Hopefully, when things quiet down, rates will stay put and increased lending activity can keep economic activity from falling off a cliff.

Position: none

PDCO - no tooth fairy in dental land
Justin Ferayorni
11/20/08 9:00 AM EST

PDCO missed the quarter, putting up 40c vs. 46c consensus, and guided down their fiscal year earnings to 1.73-1.77 from 1.94-1.98. Dental consumables were flat year over year - dental consumables growth has held up until this point. Doug Kass and I discussed yesterday that we've been surprised by the consumables resiliency. No more. PDCO's equipment was actually ok relative to my expectations - basic equipment up 7%, while overall dental equipment up 1% year over year (implying much weakness in the high end). But to add insult to injury, the company expects equipment to weaken further as the installs this quarter represented "orders placed prior to economic turmoil."

Position: Short PDCO, HSIC, XRAY

Baseball.....and Oil
Daniel Dicker
11/20/08 9:00 AM EST

You know what keeps me watching baseball still after 45 years? It's the wonder of the game--whenever you think you've seen it all, the game surprises you and you see something just a little (or wholly) different.

Ok, you know where I'm going here. But let's keep the analogy confined to oil. 25 years in the trenches and of course, I've never seen anything like this. There's no story from a fundamental point of view and probably won't be for a long time; all the abuse I took in the summer arguing that speculative premium in oil accounted for at least 40% of price at $145 now rings as a hollow victory in the light of the recent carnage --

The most unfathomable is the continued NEGATIVE value of gas cracks, virtually COSTING the refiners money every time they create a gallon of gas. As a temporary financial aberration, I've seen it before -- but for the last 3 months???? Don't give me a story, either, about demand destruction.......check out my piece on RM, it lists gas sales figures that show AT MOST an 6% decline and mostly less -- hardly reason to keep gasoline $4 dollars UNDER the price of crude.......

Hey, just another triple play while the runner steals home.........after a balk ---


Position: TSO

Jobless Claims Surge
Tony Crescenzi
11/20/08 9:05 AM EST

Jobless claims increased 37,000 to 542,000 in the week ended Nov. 15 to their highest level since the week ended July 25, 1992. Excepting that reading, which was an anomalous spike well outside the trend at that time, claims are at their highest since December 1982.

Continuing claims increased 109,000 to 4.012 million, the most since December 1982. A key metric that helps keep these statistics in perspective by accounting for population growth and more specifically growth in the size of the labor force is the unemployment rate for insured workers. It stands at 3.0%, the highest since June 2003. Following the 1990-1991 recession, it went as high as 3.3%. In the 1981-1982 recession it reached 5.4%.

The current level of claims is consistent with monthly job losses even higher than that of the past two months, which saw payrolls fall an average of 262,000 a month.

More in my blog shortly.

Position: n/a

Denying The Black Swan
Alan Farley
11/20/08 9:06 AM EST

A huge part of the populace still doesn't believe we are in a crisis that could hit depression level economics in 2009 or 2010. Part of the cynicism comes from the September bailout drama, in which our government officials predicted immediate and dire consequences.

The non-believers figure that, since the worst hasn't happened yet, it isn't going to happen anytime in the future. What they don't realize is this is a sequential crisis, in which very bad dominoes are lined up and ready to fall, one by one.

The head-in-sand mentality isn't confined to one political party. On the right, the Bushies have decided nothing new will be addressed until Obama takes over in two months, even though two months could make things far worse.

On the left, MSNBC's Rachel Maddow needs to get "talked down" because she sees the bailout as nothing more than a clever way for fat cat companies to steal government money.

With all this disbelief churning around, I'm concerned the financial markets have a long way to go before they "price in" what's about to happen in the world.

Yes, I see the 2002 lows, expect a big bounce and "hope". those levels contain the downside But I'm no longer confident we're anywhere close to the end of this bear market.

Position: n.m.

Ken Wolff
11/20/08 9:21 AM EST

Consider going long USO around 41... Its looking like a very oversold condition.. It has been trading up and down with the market... Unusual behavior, probably due to electronic trading with baskets of ETFs..

Position: NM

Morning Trade
Bob Byrne
11/20/08 9:22 AM EST

800 on the emini does not have any real value as a support/resistance level...other than its a big figure. I will be watching for a spike through 775 down towards 770 on any early morning purge. S&P 775 was the bottom back in 2002.

In the event that the market advances...initial resitance will come in at 813.50-815 followed by extremely strong resistance around 829-831.

It doesn't matter which side your playing on...if its a trade, don't let it become an investment (long or short).

Position: none

GE Is a Poster Child For Too Much of Corporate America
Tom Au
11/20/08 9:24 AM EST

Doug "Papa Bear" Kass hit the nail on the head this morning when he pointed out that General Electric (GE) had to go to the well for capital again, essentially telling the world that it is undercapitalized.

Unfortunately, the company is far from being an isolated case. GE has long been a poster child for too much of corporate America, under a formerly iconic (and overpaid) CEO, a culture that valued appearances over substance, and a resulting habit of sweeping problems under a mattress. Those problems are now coming out of the mattress,which is why investors are (in some cases literally), putting their money back in.

With the dividend yield now approaching 10% (through a price fall), maybe ordinary investors will finally get the returns that Berkshire Hathaway (BRK/A) got with its preferred deal.

But are GE bonds really an AAA credit? Fuhgedaboutit. The rating agencies have been asleep at the switch, again.

Position: LOng BRK/A. No longer long GE.

Justin Ferayorni
11/20/08 9:25 AM EST

Doug, I saw it this morning and it did send shivers down my spine. GE has been one of the scarier animals to me over the last few months, mostly because the implications it would have on the debt and equity markets, if its magical AAA rating was marked differently. How many orphans, widows, pension funds, etc own GE debt and equity? Shouldn't GE cut its dividend to shore up capital? This line of logic gets very scary to me. I don't claim to have answers, but I do know leverage is not a friend in the current environment, and they have quite a bit of it.

Position: Short GE

With everyone looking for 765...
Jim Gulbrandsen
11/20/08 9:34 AM EST

We either don't get there or materially overshoot.

Position: None

Plummet in Money Market Rates
Tony Crescenzi
11/20/08 9:37 AM EST

Back-month eurodollar futures contracts, which are contracts used to place bets on where three-month eurodollar rates will be in the future, are trading down over 40 basis points on the day, reflecting the idea that interest rates will stay low for a protracted period of time.

Eurodollar contracts maturing June 2011 and beyond are all down 40 basis points or more (the June 2011 contract is trading at 2.92%, down 41 basis points on the day). Numerous other indicators in the credit markets, including the yield curve and swap rates, for example, are also moving sharply on this idea.

Position: None

Quick Service Restaurants
Scott Rothbort
11/20/08 9:44 AM EST

I am seeing some relative strength in restaurants exclusively in the low end (but high quality) quick service names in the early trade prints. I don't know how long that lasts because the first ten minutes is nothing like the last half hour. My guess is we lose those bids as well. Later today I will have a Real Money Idea on Nathan's Famous (NATH).

Position: none

Bob Faulkner
11/20/08 10:02 AM EST

If anyone's heard anything on ALVR this morning pls shoot me an email. Not complaining about it being up 15%, would just like to know what's going around.

Position: The Telecom Connection model portfolio is long ALVR

JP Morgan Downgrades Dry Bulk Shippers
Sham Gad
11/20/08 10:04 AM EST

JP Morgan's downgrade of several dry bulk shippers continues to hammer the entire industry. The reason is possible breach of debt covenants based on decline in assets values: "After a long absence of second-hand vessel sales during the accelerating rate decline since the end of the summer, a couple of modern ships have now been sold at prices that are more than 50 percent below last-done deals for similar assets,"

Position: none

Memo To Doug and Tom RE GE: Abandoned Balance Sheet Management Which Was Very Un Singleton Like
Christopher Atayan
11/20/08 10:06 AM EST

Doug and Tom your both absolutely correct about GE. Mr. Immelt is the antithesis of Dr.Singleton. Singleton believed above all in the primacy of the quality of the balance sheet.Cash return on assets was sacred and the principle upon which executive bonuses were paid.The rules were strictly enforced.For example It was a career ender for someone in audit if they missed on an inventory valuation. That is why Teledyne had enormous reserves and survived several downturns in the various sectors it was involved(all of the same that GE is involved with by the way).

As Tom pointed out many times over the years on this and our old sister street insight,it was the arrogant corporate culture at GE that contributed to its current condition.At its peak under Mr. Welch it was famous for its anti customer approach.In that regard I have given Mr. Immelt some credit for at least trying to change it. Although that is something that will take decades to reverse. At the end of the day most corporations only do business with GE if they are forced too. There was a reason they used to say GE Capital was the lender of last resort. As they where famous for retrading deals at the closing table.

Position: none

Conquer the crash
Todd Horlbeck
11/20/08 10:17 AM EST

Robert Prechter's wrote a book entitled Conquered the Crash back in 2002. He made a very persuasive case for deflation. At the time I held both gold and gold stocks the intention of holding them permanently. After reading the book I certainly believe that deflation was a possibility. He aptly pointed out how poorly commodities do during deflation. After reading the book in 2002, I no longer viewed gold as a permanent holding and ultimately sold my holdings in 2006. In other words, as deflation materializes gold will go down along with everything else. He recommended holding only very short-term treasuries and short selling in a deflationary environment. Whether you believe we're in a deflationary environment or not, his recommended investment strategy for deflationary environment certainly worked. Unfortunately, Prechter's books came out in 2002, and as a result of the ensuing rally, the views, while not totally discredited, were certainly not taken seriously. Had his book been published in 2007, I believe it could have saved people a lot of money. We are in a deflationary bust. There is too much debt and the ability to service its debt has been impaired. This impairment has taken many forms including large losses at banks and unemployment. Paying debt is now a struggle. Interestingly, gold is had a mysterious bid. I know technicians are going to say that goal should be plummeting, and soon will, but its actually been doing quite well. There is no way that I would bet on deflation long-term. In fact, I think we are very close to the end of deflation given recent Fed and Treasury actions. I have not repurchased my gold yet as we still are spiraling down, but holders of gold today understand the only solution to our problem: Direct Inflation. The government will stop monkeying around with these bailouts and they will do what every government has done in the past, and that is send citizens money directly. The government can easily issue ten trillion in treasuries to the Fed for 30 years today at 3.7% and send every household in the U.S. $100,000. Why not? Would the debt-laden public complain? The savers and the rich will be hurtby this, but are a minority right now and they are unorganized and unpopular politically. I am not advocating this, but I think it is a possiblity.

Position: noe

Ken Wolff
11/20/08 10:31 AM EST

I am long QQQQ off 26 expecting at least 27... and USO off 40.66 expecting 42.50 ...

Position: USO and QQQQ

Wake Up, Chris Cox
Arne Alsin
11/20/08 10:34 AM EST

Christopher Cox can't defend the indefensible -- namely, doing away with the uptick rule -- based on a sample of Russell 3000 activity during 2005. It was a ridiculously low volatility sample. His study did not incorporate a "stress test," or a period with unusual volatility.

Originally implemeted by Joe Kennedy in the aftermath of abuses during the Great Depression, the absence of an uptick rule has contributed to bear raids during the current decline. Citigroup (C) et al. should be screaming in his ear, waking him up from his nap and demanding that the uptick rule be put back in place.

Position: None

Still Q's Over S's
Doug Kass
11/20/08 10:49 AM EST

I've still got the Q's over the S's.

Position: Long SPY and QQQQ

That Was Weird
David Peltier
11/20/08 10:52 AM EST

There was a brief swoosh up that momentarily pushed the Dow higher for the session, but we're now back down around down 70 for the session.

A fair amount of green on my screen for what's a stomach-churning day. Mostly consumer-related names.

Position: none

Helene Meisler
11/20/08 10:59 AM EST

It's been a while but the AAII folks really pulled in their horns this week with a reading of only 24% bulls. Last three readings in the low 20s were: July 9th at 22%, March 12th at 20% and January 9th at 19.6%

Position: none

OPEX tomorrow
Bob Byrne
11/20/08 11:05 AM EST

Don't forget about expiration tomorrow...the craziness should continue. The 786 are should prove to be decent support on any pullback in here.

Position: none

Where Are Insiders?
Steve Birenberg
11/20/08 11:13 AM EST

I totally agree with Doug's comments on insider buying. He points to the turn in BXP and notes the signal a Buffet buy of BRK would send. I am getting lots of reader and client and friend comments about the lack of insider buying and lack of company buybacks.

I understand the stress the credit markets are having on personal and corporate balance sheets but at some point it seems insiders and companies need to step up if their pontifications that things are alright are to have an credibility.

Position: No positions.

Rate cuts a plus, but...
Jim Gulbrandsen
11/20/08 11:19 AM EST

Jim: I agree that Bernanke could push for another round of global rate cuts but the 1,000 points on the Dow to the upside will come if they suspend mark to market accounting, if only temporarily to let companies truly assess pricing in this sea of forced selling. I am quick to criticize my own advice as being a short term issue, however, it's needed. I also doubt the true solution--providing banks with an opportunity to mark down principal mortgage balances to consumers--will happen.

Position: none

VIX Tricks
Dan Fitzpatrick
11/20/08 11:19 AM EST

Good morning. I've posted an 8 minute video over on Stock Market Mentor with some thoughts on the current state of the market, as well as some suggestions for managing your portfolio.

Position: nm

Same old song
Todd Horlbeck
11/20/08 11:27 AM EST

This looks to be a session, once again, where traders are trying to pick a bottom. By the end of the day, however, these same traders will probably not want to hold their stocks overnight in the face of what's happening to Citigroup and General Electric. Breadth remains horrible, new lows are expanding, we've violated support, and the VIX remains elevated. They're simply not much like here.

Position: none

Dental consumables
Justin Ferayorni
11/20/08 11:30 AM EST

From the PDCO call - dental consumables grew in the low-to-mid-single digit range in August and Sept and weakened in October to get consumables flat for the quarter - the math works to high single digit percentage decline year over year. fyi

Position: Short PDCO, HSIC, XRAY

Not All of the Insiders Are Hiding
David Peltier
11/20/08 11:36 AM EST

But they're also proving that they can lose money as fast as the rest of us.

Lew Frankfort at Coach (COH) picked up 50,000 shares today.

The CFO of Walter Industries (WLT) also bought 35,000 shares Wednesday, but according to the Form 4 filing, he bought between $16.25 and $17.75, and the stock is now changing hands down around $13.

A director at Hertz Global (HTZ) bought 55,000 shares earlier today, and he's already 27% underwater.

And that's not to mention Jeffrey Immelt's latest buy of General Electric (GE) of 50,000 shares last week between $16.41 and $16.45.

Position: None

Breadth update
Jordan Kahn
11/20/08 11:50 AM EST

According the data I look at, yesterday's breadth showed downside volume on the NYSE totalled 98%. I have not seen any mentions of this today, but I would have to think this is some sort of record.

Anyone have any historical data on this?

Also, I like the bounce today off of SPX 776, but realize it's how the market closes that counts. And on that front, we still have an eternity of trading ahead of us today. Can someone hit the fast forward button?

Position: nm

Jim Cramer
11/20/08 11:58 AM EST

time-honored, pathetic hidden-hand nasdaq rally developing that is a coin-flip for a plus 2% down 2% outcome

Position: none

What is C worth?
Jim Gulbrandsen
11/20/08 12:06 PM EST

If this vicious cycle of mark-to-market continues?

Vince Farrell and I are on the same page. If we want to talk about more money losing bailouts, keep market to market. If not, suspend it.

Position: None

Numb Investors
Alan Farley
11/20/08 12:13 PM EST

It's nearly impossible to take issue with any of Tony C's filings in the last few months. They've been amazing.

But I really wonder if investors are nearing the numbing point, in terms of bad news. This has been a continuing theme in his columns since September.

In line with my post earlier this morning, I believe a good share of the investor population still believes this is a routine bear market in a routine recession in a routine economic cycle.

Nothing could be further from the truth. It "is" different this time around.

Position: short with helmet on...

Index Stats
Eddy Elfenbein
11/20/08 12:22 PM EST

The S&P 500 hit an intra-day low this morning of 776.76. That's the exact same level as the closing low from October 9, 2002, the previous bear market low. Incidentally, the closing Dow low of August 12, 1982 was 776.92.

The Dow is inches away from reaching 10 times the S&P 500 for the first time in 42 years.

Position: none

Jim Cramer
11/20/08 12:25 PM EST

The rally is not led by the financials, which would be a blessing, but by the recession proofs, which is better than the minerals. Of course, it is XOM that is the tell..

Position: none

786 held...for now
Bob Byrne
11/20/08 12:26 PM EST

I agree that the final hour of trading is all that matters anymore...but for the tick chasers out there, as long as the 786 area holds I would lean bullish. A hard break of that level should give us another swoosh lower.

USDJPY is holding and drifting higher...Crude, for the time being, is holding. 815 and 829-831 are both stall points if your swinging long. Everyone is waiting for the oversold bounce (myself included)...

Position: Long ETFs USO

Screaming on TV
Steve Birenberg
11/20/08 12:28 PM EST

It probably only represents the tension we all feel but it seems like the hosts on CNBC are yelling all the time. At each other, at the guests, at the viewers. Seeing as they have paying jobs not tied to the level of the market I don't understand why they are so tense. It doesn't matter I guess but it is very annoying and is leading me to keep the sound off even more than normal.

Not to toot our horns but the discussion here in CC is pretty intense at times a helluva lot more respectful.

Position: No positions.

Jim Cramer
11/20/08 12:34 PM EST

You have to love a good manipulation upward led by the major oil company when oil futures are crashing!

Position: none

buying OSK and TEN
Bob Byrne
11/20/08 12:35 PM EST

Buying OSK and TEN for of GM F.

These are risky trades !! Be quick if you play.

Position: Long OSK TEN

Eight-Point Plan? Add One More - The SEC
Jeff Bagley
11/20/08 12:45 PM EST

There is most definitely a growing consensus on this site and pretty much everywhere else that bold, aggressive action is necessary to stem the vicious cycle of declining asset prices and their effect on worldwide economic growth. That's nothing new, but the fallout from Paulson's TARP reversal is now really starting to hit home.

Cramer's eight-point plan is good, but it should be a nine-point plan. He forgot the SEC. We need immediate action to fix what is now an extremely dysfunctional market (yes, the uptick rule!!), and then a subsequent complete overhaul of the SEC.

This is from the SEC's website:

The mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.


Position: N/A

US Auto To Get Federal Aid
Scott Rothbort
11/20/08 12:48 PM EST

Apparently bipartisan support for aid to US automakers has been reached. GM and Ford are rallying ringing the market higher as well

Position: none

Taking off depression from the table
Jim Cramer
11/20/08 12:50 PM EST

Remember that every time we get some injection of capital into the private sector it DOES matter. If we are able to salvage something from the autos without causing massive unemployment, we have a real chance to forestall anything negative,. Of course, those buying these common stocks of GM and F are playing with fire but the fire goes on until we find out the deals!

Position: none

THis time the rally is "for real"
Jim Cramer
11/20/08 1:05 PM EST

Just to address the bears on my piece to the left, i simply think that we could get a snap back from levels where we are because of option expiration and some auto deal,. If no auto deal bets are off. i am relying on news reports, which these days is probably not a great bet, just a good one...

Position: none

Bottom has been postponed
Todd Horlbeck
11/20/08 1:10 PM EST

If the market reacts to the proposed bailout of the automakers like it is reacted to every other bailout, we should be starting a new leg lower. Every single bailout has been sold thus far. This leg lower, however, might be different (worse) because the market never rallied on the supposed "good" news.

Position: none

Tenke Fungurume You! FCX at $18.00.
Geoff Johnson
11/20/08 1:10 PM EST

After all the fireworks, FCX traded under $18.00 today, the price I argued it would trade at based on my copper/gold/moly price decks. Actually, at this point copper and moly are well below those points and if that continues FCX will not earn anywhere near what I predicted if anything at all. One of the many counters to my argument was that it was inconceivable that FCX would ever trade to that level because I was told that as a market leader would ride over the valley of economic weakness. And that was the nice commentary!

Not that I look so smart. In fact, I feel a bit like the manager who can't short straight. I shorted FCX poorly off a chart with a steep decline. I covered too early with only a meager 7% gain (mostly because I'm trying to cover most everything when the market gets oversold, a nice strategy but still wrong). I did add to my overall copper short on a lift by shorting PCU which helped me net a bit more profit, but that was the only saving grace.

I'm bullish on FCX long-term, but until I do fresh homework I have no opinion. However, that does not mean I lack concerns. I see the inflow of new projects demanding copper contracting sharply in the coming year or more and with the most major impact coming in the second half 2009 and 2010 (after we get through construction projects already in the pipeline). It could be a long drought and given that existing projects will continue for a while I doubt the demand drop has barely hit. I see copper at risk back down to $1.00 or lower, where it was last recession. Gold? I don't know that one, but I'm not ruling out deflation and gold going lower if it happens. Miss Moly isn't in good shape either.

FCX bulls, what is downside here if any? Is the dividend safe given the continuing plunge in copper prices and continued inventory build? Or, at least where do you see copper/gold/moly going and at what price would the dividend be at risk? Would a dividend cut matter? And what about Tenke Fungurume?

Position: None

How can retail stocks be bouncing higher
Chris Versace
11/20/08 1:12 PM EST

i'm sitting here watching the tape and while the S&P 500 bounces up and down, positive to negative and back, I am amazed that certain retail stocks - ANF, ANN, BEBE (who just lost a key executive) and several others are moving higher and are outperforming the S&P 500 today. Yeah the sector has gotten slammed of late but with good reason as the economic data has shown. With the jobless claims number in and the Philly Fed Index in as well, its hard to see dramatic upside in these names. Recent company meetings over the last few days underscored that the key concern in 2009 will be consumer activity.

Position: Short ANF

Ken Wolff
11/20/08 1:14 PM EST

We had a classic "jump on the bandwagon" news event with the auto makers bailout announcement... F was very easy to trade, GM a bit faster but easy also... This is the type of opportunity short term traders thrive on... The news itself is not the gift that will keep the market moving up... Most stocks were already rising off of early lows as the QQQQ Hit 26... I hate to say it but we can go back to the lows later.. I don't see any real bullish momentum..

Position: NM

Jim Cramer
11/20/08 1:20 PM EST

We need some sort of deal in autos to get the market rallying, and i have said that over and over. My rally piece will not hold without it for certain

Position: none

Watch the Phantom tax
Tim Melvin
11/20/08 1:55 PM EST

I had a conversation this morning with a good friend about his investment portfolio. I took a look at his portfolio of mutual funds and discovered something most of us probably have not thought about and it could be expensive. A lot of traders and investors also own mutual funds so I though I would mention it here.

A lot of funds have sold stocks they have owned for years. They may have just wanted to take profits or were forced to sell to meet redemptions. Either way, in some cases they were multi year holdings that had large gains. Those gains will be distributed to shareholders at year end, and if held outside a retirement plan, they are taxable. I lookrd at serval mutual fund websites and found that there are funds out there down 40% on the year that will have gains to distribute. I cannot imagine antyhing more frustraing that paying taxes on an investment that has fallen substantially.It's worth the few minutes to check on your funds for possible year end gains distributions.

Position: na

Jim Cramer
11/20/08 2:06 PM EST

The endless avoidance of the Lehman issue--no authority blah blah-is a TOTAL COVER-UP, The federal government has a constitution and the government is supposed to promote the general welfare and it has the ultimate emergency authority to do what is necessary. They continue to deny they could have helped lehman or that it was even important,. They are liars and fools and the pain of their dissembling cuts deep into the core of finance as there isnt a single serious person in finance who doesn't know that they blew lehman,.

Position: none

Balance Sheet Analysis of DRYS - A Possible Fire-Sale Liquidation Value
Sham Gad
11/20/08 2:18 PM EST

With the recent crash of DRYS shares, I wanted to share a conservative balance sheet analysis for DRYS based on the balance sheet numbers as of September 30, 2008.

Shareholders equity is $2.1 billion.

Shares oustanding are 43 million.

This suggests BV of of $49 a share. Clearly this is drastically inflated given the market conditions.

So let's make some very conservative adjustments. First, write down goodwill ($692M) to zero. Also, vessels, on the balance sheet at $2.1B should be discounted by 50% because ship prices have crashed. JP Morgan came out today and noted that ships were selling for 50% less than even six months ago. The drilling rigs, at $1.4 billion can be discounted 10%. The long-term market for ultra-deep water business is still sound. Also because these rigs take years to build, I beleive that many buyers would step and pay a strong price, possibly full book value.

This adjustment totals approximately $1.8 billion, for an equity value of $330 million. At 43 million shares, this equates to conservative liquidation value of $7.70 a share.

Obviously these are my assumptions, but becasue I have written on DRYS I wanted to provide a fire-sale type liquidation value should the worst occur. Right now the BDI index is down over 90%...this has never happened before. Shipping rates are so low as to assume that we need no ships. The key is the ability to meet your debt convenants. If DRYS can do this (or more appropriate if they can convince thier lenders to sit tight), the business is worth more. Many have been concerned in light of the percipitous fall over the past few days. My goal is to provide a bare bones look. None of this assumes the 25 million shares that were to be issued for the new ship acquisitions. I can't imagine management going through at these levels...if they do, that's will tell us a lot about thier compentency and ethics.

Position: wrote puts on DRYS

Stop That!
Geoff Johnson
11/20/08 2:19 PM EST

Haven't we been punished enough? Do we really have Paulson and Pelosi/Congress speaking to the nation at the same time and while the market is open? What, is the Prez busy? Couldn't they get him behind a podium speaking, too?

Position: None

Inertia Cubed
Doug Kass
11/20/08 2:20 PM EST

Jimmy, we are surrounded by reactive, unimaginative and untalented policymakers. And, in large measure, I blame the decline of the last two months in the world's equity markets on our leaders whom I have euphemistically called The Three Stooges of 21st-century capitalism -- Bush, Bernanke and Paulson.

They knew (and know) nothing!

Position: none

Be a Dentist!
Doug Kass
11/20/08 2:25 PM EST

Listening to them, "Jazzy" Geoff Johnson, is like sitting in the dentist's chair.

Worse yet, it's like owning Patterson (PDCO), Danaher (DHR) and Henry Schein (HSIC).

Position: Short PDCO, DHR and HSIC

Deal Or No Deal
Scott Rothbort
11/20/08 2:28 PM EST

The news conference by the Democratic leadership just put the kybosh on an auto financing deal. This is a disgrace. Doug - you can put Pelosi, Reid and Frank in the same category as your Three Stooges. They are about as clueless as Jerry Yang. Now Jim's C's Great Depression II is now back on its Washington fast track.

Position: none

Jim Cramer
11/20/08 2:30 PM EST

We had two attempts, Doug, to get it right: Paulson and Congress. I bet one of them could work out, it was wrong. We have nothing and now the ProShares Ultra Bear funds will take over... XOM breaks price and here we go. This one had more of a chance because of news reports of a GM deal,. THe reports were totally ERRONEOUS and i bit and believed. THe press is ludicrously value-less in this market.

Position: none

The Hank Tank
Rev Shark
11/20/08 2:34 PM EST

The Hank Tank continues to plow along running over anything in its way. It always helps boost confidence when you say things like "we shouldnt' be hasty in your regulatory response". Good point, too bad you didn't make it a month agao. What is the purpose of this speech anyway?

And of course we have Nancy Pelosi saying "we intend to save" the auto industry. That sounds like an old joke but the punchline isn't very funny.

Position: None

Amazing that they wont quit --query to dougie
Jim Cramer
11/20/08 2:38 PM EST

Doug, have you noticed, though, there is a bid underneath? Where does it come from, options expiration??

Position: none

Jim Cramer
11/20/08 2:42 PM EST

Rev, as people know that i usually have this slot on t.v right now, at least a half-dozen guys have now hit me and asked me how Paulson's speech/apologia/dissembling can be on the air.... .good question....

Position: none

Back to Jim 'El Capitan' Cramer
Doug Kass
11/20/08 2:47 PM EST

I don't see that bid, Jimmy.

Position: None

New Gallup Polls shows consumer confidence erodes further
Chris Versace
11/20/08 2:53 PM EST

I just saw this and it underscores the comments I made earlier about how it does not stand to reason that some of the retailers were moving higher earlier in the trading day. Gallup's new poll shows that after a very modest improvement around the Presidential election, "consumer assessments of the economy deteriorated significantly once again last week, with 61% rating the economy poor -- a new weekly high." I continue to be bearish on those companies that are highly dependent on disposable personal income and favor the more defensive names, like PG, CL and KMB

Position: Long PG, CL and KMB; Short ANF

Steve Birenberg
11/20/08 2:53 PM EST

Did anyone else hear a cheer in the background when CNBC cut back to Erin Burnett after Paulson finished his speech?

At least one subscriber who I IM with heard it.

Position: No postions.

Great Unwind
Robert Marcin
11/20/08 3:06 PM EST

Listening to all these politicians today forces me to repeat yesterday's point. All the rants, pleas, bailouts, interventions, stimuli, and political announcements will not eliminate the effects of the Great Unwind. We will face severe economic and financial market repercussions from a 30 year debt bubble for at least the next 5 years. I guess CNBC will be finding the bottom dozens of times in that period. Oh my.

Position: none

To Chris Versace on Retail Bounce
Geoff Johnson
11/20/08 3:15 PM EST

Chris, you mentioned the bounce in retail stocks. I was actually beginning to wonder if somewhere around here retail was discounting what is immediately ahead of us. Even if there is worse to come it seems to me that there is a point at which it is too early to discount that worse case as it is not fully clear it will happen. With that said, this is only the case if demand shock abates and we're not just in the eye of the storm of the crash, something I believe is a distinct possibility.

Position: none

Jim Cramer
11/20/08 3:25 PM EST

The oils are such a big part of the S&P now that this sell-off in the group can take the wind out of any bull's sails. And SALES!Financials are less of a factor in the index now. ..

Position: none

To Geoff - follow up on Retail
Chris Versace
11/20/08 3:37 PM EST

No doubt the market is a forward looking animal and at some point the good news will be priced in but so far (at least to me anyway) it seems the data continues to get worse be it confidence numbers or expectations for a really weak holiday season. The later part can spell real doom and gloom for a number of companies, particularly retail and especially those that derive a disproportionate amount of revenues and profits during the holiday season. All I can say is, stay tuned.....

Position: Short ANF

Same story different day...
Bob Byrne
11/20/08 3:39 PM EST

After the bounce from the 786 we tagged 815 and then spiked up to 820. I though we had a shot at holding strong...then there was Paulson (Pelosi and Reed).

And there goes 770.

Position: Long Guns and bullets

Way to go Rev Shark
Todd Horlbeck
11/20/08 3:51 PM EST

Rev, for a trader, you have remained incredibly patient with your thesis of waiting until the market goes up to buy. Readers of this site have saved themselves a lot of money and a lot of grief by listening to you. Your strategy is incredibly simple but extremely difficult to execute. I'm looking forward to when you start buying.

Position: long Revs posts

Gold Holding Up
Gregg Greenberg
11/20/08 3:53 PM EST

It's worth noting here that gold has held up much better than stocks, oil or most other commodities, despite all the deflation talk since early September. I don't know if gold demand is being driven by mom and pops snapping up bullion like its Hanukkah gelt or if it's due to investors worrying about Ben Bernanke's helicopter dropping TARP dollars; I just know that gold looks like its bottomed and is heading up.

Position: None

"Strange Game, The Only Winning Move Is Not To Play"
Geoff Johnson
11/20/08 3:54 PM EST

Further kudos to Rev. Rev Shark's strategy to win in a bear market made me think of the above quote from the movie War Games. In War Games the only way to win a global thermonuclear war is not to play. It turns out the same is true for most of us when it comes to a global thermonuclear bear market. Rev's known it from the start and he has made me money. Good call.

Position: None

SPR buys?
Bob Byrne
11/20/08 3:56 PM EST

I realize crude will never go up again (yes I am joking)...but maybe the Fed could be a little forward thinking and fill up the SPR NOW rather than wait...just a thought and humble suggestion.

Position: None...

Whole Lot of Ugly
Alan Farley
11/20/08 3:59 PM EST

The Powershares QQQ Trust (QQQQ) is closing at 6-week channel support near 25.5.

A gap down on Friday that doesn't fill in the first hour will trigger a channel break that might signal a wide range selloff day. This ugly event makes sense, with VIX closing above 80 this afternoon.

If this worst-case scenario plays out, we could see the Dow Industrials test and break 7000 by next week.

Position: n.m.

Prem Watsa Decides It's Time to Buy
Sham Gad
11/20/08 4:03 PM EST

Fairfax Financial's Prem Watsa has decided to close out the hedges on the company's equity portfolio.

"Given the unprecedented decline of the equity markets during the past several months, we felt it was prudent to promptly inform our shareholders that we closed out our equity index total return swaps this week and effectively eliminated our equity portfolio hedge. While we believe the recession may be long and deep, we also believe that stock prices may have already discounted the worst of the economic decline. As value investors, we are finding an incredible number of investment opportunities across the world. That said, in the short term we recognize that stock markets can continue to fall significantly."

Position: none

Bob Faulkner
11/20/08 4:14 PM EST

Dell's numbers are out and, althought they missed on the top-line, EPS was well above do to a significant ramp-down in expenses both at the COGs line and SG&A. Long overdue. CC is not til 5:00 PM

Position: The Telecom Connection model portfolio is long DELL calls

Rev Shark
11/20/08 4:15 PM EST

I appreciate the kind comments. My goal here is very selfish I just want to make sure that our readers keep their cash safe so they can keep on reading us when the market does improve. The best way for them to do that is not buy in a downtrend.

It is just mind boggling that the S&P500 has now given back 11 years of gains. Maybe all those academic studies that tell us that market timing is futile and that you do best if you buy and hold need to be reviewed.

Position: None

Brian Gilmartin
11/20/08 4:29 PM EST

Bob, despite the revenue miss, I'd call this a good quarter for Dell, most of it margins, and most due to SG&A. They had a slightly higher effective tax rate according to our spreadsheet, which makes it all the better.

Since Dell gives all financials with the earnings report, I see it trading at just over two times balance sheet cash with $4.50 in cash on the balance sheet, four times enterprise-value to cash-flow and five times EV to free-cash-flow.

The world has officially lost it.

Position: Long DELL (at much higher prices and still holding)

Vik Bob Desperate
Robert Marcin
11/20/08 4:37 PM EST

Vik Bob needs Cox. Chris Cox to ban shorting? Smacks of desperation. Vik Bob bad for stocks. All stocks.

Prince supports Vik Bob. Prince supported last Prince. But then chucked Chuck. One Prince a dunce. Both Princes unhappy shareholders. Both Princes not dancing.

Vik Chuck Bob a complete disaster. Bored to thank for that. Chuck Vik. Chuck Bob. Chuck Bored.

Taxpayers want nothing of Vik Chuck Bob. Really.

Position: none

Notes From Lunch At The Italian Village In Chicago With Roger Spencer
Christopher Atayan
11/20/08 4:43 PM EST

Roger Spencer,who was a top food and agricultural analyst from the old Mitchell Hutchins days and old friend,hosted me for an old fashioned investment roundtable today at the Italian Village in Chicago,where he has had the same table each day for lunch for the last 50 years or so. While I received a collegial grilling on my own businesses from the assembled group, I noted a keen interest in dividends and cashflow. In particular many of the dividend related strategies advocated by Jim Cramer recently where very much in the mainstream of thinking. All of the group had plenty of scar tissue from 73 and 74 and seemed to take the entire goings on today in stride. Moreover the intensity of interest in new ideas was amazing. By the way the Chicken Marsala was excellent.

Position: Long High Quality Stock Picking Analysts and Chicken Marsala

Forget short selling ban. Timeout on Market to Market
Jim Gulbrandsen
11/20/08 4:55 PM EST

I'm going to say it for the third time in two days: unless we want to see the Citigroup bailout discussions (those of you short would!) and a 6-handle on the S&P, halt mark-to-market immediately. I mean, NOW. I should be arguing for lower prices given my cash as % of portfolio but in this case, pigs get fat, hogs get slaughtered. In a market to market world, my cash may not matter.

Position: None

re: DELL
Bob Faulkner
11/20/08 5:02 PM EST

I agree Brian. They've made some nice improvements in margins both on the commercial and consumer side. It will be nice to see if it continues rather that playing ping-pong like they've been doing for the last year.

As for the valuation? Hey, only 20 more trading days like this and there's no more market. We can all go home and rest.

Position: The Telecom Connection model portfolio is long DELL calls.

Strrreeeetttccchhhed Rubber Band....
Dan Fitzpatrick
11/20/08 5:15 PM EST

I no longer post on Fridays or I would go into this in more detail in an article on Friday. However, I'll direct any chart-watcher to look at a daily chart of the S&P 500. The close was more than 37% below the 200-day moving average. That's a record.

Also, the Fear Index (Volatility Index -- VIX) closed at a level we haven't seen since 1987. "When the VIX is high...."

Just passing this along to those who might be looking to do some counter-trend work.

Position: No positions in S&P

Scott Rothbort
11/20/08 5:30 PM EST

To add to Dan's comments, the VDEX made another all-time high of 4.51%. I expect it to go up again tomorrow whether the market goes up or down..

Position: none

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