Monday, November 30, 2009

Three debalces from the market collapse, AIG, FRE and FNM heading lower again !!

If volume is the footprint on institutional traders then the recent volume surge and price weakness in three poster children of the stock market collapse; AIG, FNM and FRE is not a good sign.  Shares of all three continue to drift lower as volume picks up suggesting something is amiss !!

 American International Group (AIG)

Freddie Mac (FRE)

Fannie Mac (FNM)

FusionIQ Market Wrap for 11/30/09-Stocks end the month higher...

U.S. stocks rose, extending a monthly gain for the Standard & Poor’s 500 Index, as concern eased over a possible default by Dubai World. Oil rallied as a British yacht crew was seized by Iran, while aluminum and zinc led industrial metals higher. Treasuries were little changed.  Shortly before the market closed, Dubai's largest company said its planned restructuring of some units involved $26 billion in debt, easing some concerns about the size of Dubai's financial problems.  The S&P 500 extended its November rally to 5.7 percent as it rebounded from the first monthly decline since the index reached a 12-year low in March. S&P 500 financial shares added 2.7 percent today after the group plunged by the same amount on Nov. 27. The Dow Jones Industrial Average climbed 34.92 points, or 0.3 percent, 10,344.84 and extended its monthly gain to 6.5 percent.   The NASDAQ closed up 6 points to 2,144 and closed November up 4.9%.    Retail shares limited the advance as investors worried that the holiday shopping season might have gotten off to a tepid start. Black Friday data suggested weak sales during retailers' most important sales period and underscored concerns about the economy.  Black Friday, or the Friday after the U.S. Thanksgiving Day holiday, is seen as the start of the U.S. holiday shopping period and buyers typically flood the stores that day searching for bargains.  Bucking the retail share trend on Monday, online retailers' shares rose after analytics firm comScore said that online spending was the highest it had ever been on Black Friday, with Cyber Monday spending expected to be even stronger.

Yield Curve Focus

A change in the tone of Federal Reserve rhetoric caused yields on short-term Treasuries to plunge while equity prices rose smartly. First, Chairman Bernanke pointed to the significant challenges that remain for the economy, while St. Louis President James Bullard hinted that rates could be on hold longer than markets have assumed. Bullard went further over the weekend, arguing that the Fed should extend its purchases of mortgage-backed securities and agency bonds beyond the planned termination in March.


The spread between two- and 10-year Treasuries steepened to 265 basis points, two standard deviations above its trend since September. The yield on the three-month T-bill fell to 0.05% for the week ending November 20, down from 0.11% in September. Rates on a select number of bills due to mature in January 2010 fell below zero, indicating investors were willing to pay a slight penalty for the safety of owning risk-free U.S. government securities. Yet investors were not acting out of fear of a market meltdown. The move instead stems from expectations that further credit easing may be necessary before the economy can sustain a recovery.

While some current interest rate movements undoubtedly have to do with year-end funding issues and banks' efforts to improve their balance sheets, the dovish turn in Fed rhetoric and nervousness about the durability of the recent equity rally pushed up prices at the short end of the curve. The Fed's slight change in tone caused investors to overlook better than expected economic data and pull capital from riskier assets, pushing down yields on government bonds and money market funds.

Thus, the contradiction that has characterized financial markets since September lives on: Lower yields, higher bond prices, and rising equity prices, all in the context of a weak dollar. For now, yields, equity prices and the greenback will remain acutely sensitive to changing expectations about how long the Fed will support financial markets. Consensus reports felt for some time the Fed's March 31 target for ending its asset purchases would be undone by a weak labor market, fragile housing, and diminished business access to credit. The central bank will extend and probably expand its MBS and agency debt purchases. The Fed will continue to foster a steeper yield curve that allows banks to recapitalize and cushion themselves against a sudden reversal in equity prices, which is an ongoing concern at the central bank.


Economic calendar chock full this week ...

The Economic Calendar is likely to influence trading this week as a host of market moving releases come out this week starting today with the Chicago Purchasing Managers Reports and the Dallas Fed Manufacturing Activity Report.

As the week progresses we will get a look at the housing market (12/1) with Construction Spending and Pending Home Sales.

Then rounding out the week we get a detailed look at the labor markets with the ADP Employment Outlook, Initial Jobless Claims and Non Farm Payrolls.

As we always say news is not as important as how the market reacts to it. That said the market’s reaction to the recent negative news out of Dubai shows traders have itchy trigger fingers at these elevated levels as compared to their comfort level with less than rosy news at lower levels.

We would expect a lot of volatility this week as these economic releases roll out. We would suggest reviewing stops and targets this week.

Wednesday, November 25, 2009

FusionIQ Market Wrap for 11/25/09-Stocks end higher on lighter volume

U.S. stocks finished higher on Wednesday, with materials and consumer discretionary shares leading the gains, after a drop in weekly unemployment claims to the lowest level in more than a year.   The Dow Jones Industrial Average rose 30.69 points, or 0.3%, to 10,464.4. The S&P 500 Index climbed 4.98 points, or 0.5%, to 1,110.63. The Nasdaq Composite added 6.87 points, or 0.3%, to 2,176.05.  Trading volume was thin Wednesday ahead of the Thanksgiving holiday.  A new 52-week low for the Dollar Index and a generally pleasing batch of economic data helped stocks make their way higher.  However, buyers lacked the potency to push through resistance near 2009 highs as participation lacked ahead of the Thanksgiving holiday.   Renewed pressure against the U.S. dollar sent the Dollar Index to a 1.1% loss, its worst single-session percentage drop in nearly four months. The drop also put the Dollar Index at a fresh 12-month low.   Initial jobless claims for the week ending November 21 fell more than expected to 466,000, which marks the first time in one year that initial claims fell below 500,000. Meanwhile, continuing claims fell more than expected to 5.42 million, which marks a multi month low. However, the decline in continuing claims still stems mostly from the expiration of unemployment benefits.

According to IMF 50% of bank losses likely to still be hidden

“There are still some important losses that have not been unveiled. It’s possible that 50 percent (of bank losses) are still hidden in their balance sheets. The proportion is greater in Europe than in the United States.”

-Dominique Strauss-Kahn, International Monetary Fund’s chief

 “In an interview with French newspaper Le Figaro, Strauss-Kahn also said the IMF thought the euro currency was probably a bit too strong.

“There are still some important losses that have not been unveiled,” Strauss-Kahn was quoted as saying in response to a question on banks, according to excerpts of the interview that were sent to media ahead of publication on Wednesday.”


Half of banks’ losses may be unknown: IMF chief
Estelle Shirbon
Reuters, Nov 24, 2009 3:01pm EST

Tuesday, November 24, 2009

FusionIQ Market Wrap for 11/24/09-Stocks retreat on lower volume

U.S. stocks on Tuesday finished modestly lower, with financials fronting the losses, after the Federal Reserve hiked its growth estimates for next year, offsetting a report that had the economy growing at less than initially estimated in the third quarter.  U.S. stocks on Tuesday finished modestly lower, with financials leading the losses, after the Federal Reserve hiked its growth estimates for next year, offsetting a report that had the economy growing at less than initially estimated in the third quarter.  Losses in equities were limited today as the Conference Board’s consumer confidence index unexpectedly rose to 49.5 in November, topping the median economist estimate. The S&P/Case- Shiller home-price index for 20 cities increased 0.27 percent in September from the prior month on a seasonally adjusted basis, after a 1.13 percent rise in August. The gauge fell 9.36 percent from September 2008, more than forecast, yet the smallest year- over-year decline since the end of 2007.  The Standard & Poor’s 500 Index lost less than a point to close at 1,105.65. The Dow fell 17 points, to 10,433.71. The Nasdaq was down 6.83 to 2,169.  About 6.9 billion shares changed hands on all U.S. exchanges, 24 percent fewer than the three- month average as trading slowed before the Thanksgiving holiday.

Third Quarter GDP Estimate Falls

The second GDP release for the third quarter points toward continued economic expansion in the near term, but with growth that is below the economy's potential. Certainly the deep downturn in consumer spending is over, which is contributing to a recovery. The fiscal and monetary stimulus is boosting demand. Also pointing to continued growth over the next few quarters are a rebound in homebuilding and a stabilization in business investment. Inventories fell in the third quarter, but at a slower pace, adding to GDP growth. And inventories will be a strong plus for growth over the next couple of quarters as firms start to add to their stocks in order to meet stronger demand. Stronger demand from overseas is boosting exports.

However, consumers remain anxious, and a rising unemployment rate will restrain the rebound in household spending. Profits are increasing, but more than 90% of the gain in the third quarter came from financial corporations. Nonfinancial profits did increase, for the second straight quarter, but the gain was small. Until nonfinancial corporate profit growth picks up, firms will be reluctant to invest and hire.

Real GDP growth is expected to be around 2% in 2010, below the economy's potential. This means the unemployment rate will continue to rise, peaking at close to 11% in the third quarter of next year. Economic growth will pick up in the second half of 2010, however, and then accelerate. Real GDP will expand 4% in 2011 and 5% in 2012. This will help bring down the unemployment rate as firms hire to meet stronger demand.

Monday, November 23, 2009

FusionIQ Market Wrap for 11/23/09 - Weak dollar, home sales data rally stocks ...

Investors halted a three-day losing streak on Monday as prices rallied higher on a weaker dollar and better-than-expected home sales numbers.  Major US stock indices jumped more than 1 percent, led by the Dow Jones industrials, which rose 133 points to a 13-month high.  The Standard & Poor’s 500 Index rallied over 1.4 percent to close at 1,106.24.  All 10 industry groups in the S&P 500 advanced, led by technology and financial companies.  Copper, a barometer for economic activity rallied to a 14-month high and gold reached a record as the Dollar Index fell for the first time in three days.  Meanwhile, bond prices retreated as investors regained their appetite for risk.

Investors found plenty reasons to buy as the day's developments pointed to two trends: an improving economy and interest rates that are expected to stay low.  Sales of existing U.S. homes increased 10 percent in October to the highest level since February 2007, National Association of Realtors data showed today.  Investors were buying Monday on somewhat contradictory forces in the market. The strength in housing is a sign of an improving economy, which could argue in favor of raising rates, while the dollar's weakness points to rates remaining low. Analysts say investors who still have plenty of available cash are primed to buy, and so the market may also be rising on its own momentum.

Friday, November 20, 2009

FusionIQ Market Wrap for 11/20/09-Market ends week on cautious note....

U.S. equities fell for a third straight day, with the S&P 500 dropping 0.2 percent over the past five days to cap its first weekly decline since October. The Dow Jones Industrial Average lost 14.28 points, or 0.1 percent, to 10,318.16 and was up 0.5 percent in the week. Declines were limited today as Pfizer Inc. and Merck & Co. led gains in drugmakers while J.M. Smucker Co. paced an advance in consumer staples companies.  The tech-focused Nasdaq Composite Index was off 0.5%, hurt in part by a 9.3% decline in Dell. The S&P 500 was off 0.3% at 1091, led by a 0.7% decline in the energy sector.

The S&P 500 rose as much as 64 percent from a 12-year low in March, closing at a 13-month high on Nov. 17. The deepest U.S. economic contraction in seven decades ended in the third quarter, when government incentives spurred spending on homes and cars. Corporate profits, which have shrunk for a record nine straight quarters, are projected to rise in the current period, according to analysts.  Confidence that the Federal Reserve will keep its interest-rate target near zero well into 2010 lifted major stock indexes to fresh 13-month highs earlier this week. Traders and analysts say the flow of cheap money now is going into other assets.

The dollar rallied against the euro and most other foreign currencies after the European Central Bank took steps toward unwinding stimulus measures installed to buoy the financial system after the global credit crisis last year. The bank said in a surprise announcement that it will tighten the standards under which it accepts newly issued asset-backed securities as collateral from banks.  The dollar's gains weighed on commodities.  Oil futures were off about 74 cents, hovering at $77 a barrel in New York. But gold managed a gain of $8.40 to trade at $1,150 per ounce in New York.

Thursday, November 19, 2009

FusionIQ Wrap for 11/19/09 Wall St sinks on tech and recovery concerns....

U.S. stocks extended a global drop as concern grew that the rally has outpaced the prospects for economic growth and Bank of America Corp. downgraded chipmakers. Technology stocks drove the broad-based U.S. sell-off on Thursday, while economic data underscored the fragility of the recovery.  The yen and the dollar strengthened, oil tumbled and yields on six-month Treasury bills reached a 50-year low. Gold gained.  On the session, decliners outpaced advancers by a 4:1 margin. The sell-off was broad-based, with all but four of the Dow's 30 stocks ending lower. Among other hard-hit sectors were financials, industrials and consumer discretionaries. 

In late trading Dell fell 6.7 percent to $14.80 after falling 19 cents to $15.87 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares have gained 55 percent this year.  Revenue fell 15 percent to $12.9 billion, missing the average analyst estimate of $13.2 billion, according to Thomson Reuters I/B/E/S.  Although Dell did not provide a formal outlook, it said it expects fourth-quarter revenue to improve from the third quarter.

Housing Starts Review - 11/19/09

 Overall, the slow healing in homebuilding appears to have topped out in recent months. Total housing starts have been stuck in the 500,000 to 600,000 range all year, but this month they moved down from the higher end of that range. The single-family segment is by far healthier, but even single-family starts have flattened in recent months, after improving steadily in the first half of the year. The descent in multifamily construction is flattening, but there is still no sign of upward momentum. The outlook still calls for an improvement in starts, albeit a modest one, over the next several quarters. This outlook hinges heavily on the job losses abating and a good number of foreclosure modifications working.

The disappointing October residential construction report may result from the impending end to the first-time homebuyer tax credit. Buyers retreated from the new-home market as it became increasingly risky that a home sale would be completed before the tax credit was set to end on November 30. On this front, the extension and expansion of the tax credit will help over the next three quarters. Not only has the credit been extended to include homes that are contracted to be purchased by April 30, 2010, but it has also been expanded to include existing homebuyers. Income limits have been increased as well.

Other key drivers of housing demand are mixed. Mortgage interest rates remain low, house prices are low, and affordability is high—all forces that will help lift demand. However, credit availability is constrained and job growth is still absent. Further, foreclosures still weigh heavily on new-home demand, and the number of distressed properties on the market will only get worse before it improves.

One positive element of the October report is that completions increased for the first time in months, suggesting that builders are working through the improvement in orders over the past several months. Further, single-family starts and completions are running at about the same pace for the first time since the housing market began its collapse in 2006. During the correction, housing starts had fallen short of completions, a reversal from normal trends. The fact that completions are on par with starts indicates that builders have the capacity to ramp up starts—certainly inventories of new homes are low. The key question is whether the demand for new homes is there.

Wednesday, November 18, 2009

FusionIQ Wrap Up for 11/18/09-U.S. stocks end slighty lower, weighed by tech...

U.S. stocks ended a low-volume session down slightly on Wednesday, though well off earlier lows, after a weak report on housing construction and earnings in the technology sector dimmed investor sentiment. The Dow Jones Industrial Average lost 11 points to end at 10,426, weighed down by 12 of its 30 components.  The S&P 500 index was down .52 at 1,109. The Nasdaq composite index was down 10.64 at 2,193.

Since late October, the prices of U.S. stocks and government bonds have been rising together, signaling that for now at least, investors remain in the sweet spot: Enjoying an environment in which interest rates are low and inflationary prospects are tame.  In normal times, bonds should be moving in the opposite direction of stocks. A growing economy lifting the outlook for profits and stocks means that government bonds, the safest assets around, aren't that attractive, especially if inflation is perceived to erode the value of the fixed returns they provide.  The yield on two-year notes, which is closely tied to the outlook for interest rates controlled by the Federal Reserve, rose from 0.76% at the start of the year to 1.4% in June. The yield on 10-year notes which is more of a reflection of inflation expectations, rose from 2.25% to 3.93% during the same period.  But since then, as stocks continued to power ahead to reach fresh 13-month highs, yields on two-year notes have fallen back to 0.76% currently, and those on 10-year bonds are back down to 3.319%.  The theme is now familiar. In voting to keep interest rates near zero-percent levels earlier this month, the Federal Reserve has also sent multiple signals that it would keep them there for the foreseeable future, noting that inflation pressures remained subdued.

Pre Open 11/18/09 - Housing and CPI likely to drive trading ...

Stock futures are pointing to a modestly higher opening Wednesday as investors await the latest report on the housing market.  Investors will be looking to see if the housing sector can build off on the positive news in the retailing sector the last two days.

The Commerce Department is expected to report construction of new homes and apartments grew 1.7 percent to a seasonally adjusted annual rate of 600,000 in October. Building permits, seen as a good indicator of future activity, are expected also expected to edge up 1.2 percent to an annual rate of 580,000 units.  Housing sales had been boosted by a government tax credit for first-time homebuyers, which was recently extended through June after it was set to expire at the end of November.  Any positive news in the homebuilding sector could further the recent strength in the market and pry more stock buyers off the sidelines.

Ahead of the opening bell, Dow Jones industrial average futures rose a modest 22, to 10,420 while Standard & Poor's 500 index futures rose 2.80, to 1,110.20.  The tech laden NASDAQ 100 index futures rose 4.00, or 0.2 percent, to 1.812.75.

Additionally later on today investors will get a look at inflation at the retail level. The Labor Department's Consumer Price Index, likely rose 0.2 percent in October, economists predicted. That would match September's increase. Excluding volatile food and energy prices, "core" consumer prices likely rose 0.1 percent last month.   Though many prognosticators keep predicting surging inflation it continues to be of little concern to the market as rising unemployment, nervous consumers and tight credit have kept prices stable.

Monday, November 16, 2009

Gold ETF's - Big Surprise At Tax Time

In TV commercials and across the Internet, managers of exchange-traded funds tout the tax advantages of their products.

But according to a story in the latest issue of Barron's, many investors in precious-metals ETFs have to deal with an unwelcome surprise come April 15.

The issue is that gold and silver fall under the heading of "collectibles" in the eyes of the Internal Revenue Service, making these metals similar to artworks, antiques, vintage wine and rare baseball cards.

This status means that profits from gold and silver investments do not qualify for the 15 percent maximum on long-term capital gains that pertain to stock and mutual fund investments.

These profits are instead taxed at a 28 percent maximum if held for more than a year, and at ordinary income rates if held for less than a year.

With the rapid appreciation of gold in recent years - the current price is nearly double where it was in early 2007 — many investors who cashed out their gains in gold ETFs may be hit with unexpectedly big tax bills.

The same liability may hold true for investors who didn't sell a single share of their gold ETF. That's because when the ETF itself sells physical gold or silver, any gains or losses are passed along to investors, who then face the maximum 28 percent tax liability even if they didn't actually realize the gain.

Not all gold-related ETFs are considered collectibles, but for those that are, investors should be aware of the rules so they can weigh the advantages and disadvantages of their investment options.

Here is a link to the Barron's story (subscription required): Gold Is Precious to the IRS, Too

FusionIQ Market Wrap 11/16/2009 - Stocks gain across the board ...

U.S. stocks rallied across the board hitting 13-month highs on the heels of a rebound in retail sales.  In addition to stocks, commodities were also buoyed by the news that Asian government leaders pledged to maintain economic stimulus spending.  While stocks were strong the US dollar dropped to a 15-month low and two-year Treasury note yields fell to their lowest level since January.

While stock price rose Federal Reserve Chairman Ben S. Bernanke was quick to caution that we aren’t out the woods yet, noting that economic “headwinds” of reduced bank lending and a weak labor market will probably restrain the pace of the U.S. economic recovery.   Bernanke speaking to the Economic Club of New York further opined,  “Significant economic challenges remain,” and the “The flow of credit remains constrained, economic activity weak and unemployment much too high. Future setbacks are possible.”

On the session advancers outpaced decliners on the NYSE by a margin of nearly 5 to 1.  The NASDAQ was nearly as strong with while advancing stocks holding a 3 to 1 edge over declining issues.


Economic Calendar for the Week of November 16th 2009

The US Economic Calendar is full this week with lots of interesting releases.   We will get a look at CPI/PPI, Industrial Production, Jobless Claims and the Philadelphia Fed just to name a few.  This week should give continued information and possible confirmation on the state of the recovery.

Retail Sales for October in line ...

After two stronger than expected retail sales reports, the October data were in line with expectations for modest growth outside the very volatile auto segment.  Autos remain  the main story driving the large top-line increase. They recovered smartly following the post-clunker retreat in September. Sales are currently above their year-ago level, despite the possibility of some sales loss from clunker sales in August.

Fundamentally, the backdrop for consumers remain poor as wage income is more than 5% below its year-ago level and is not growing appreciably, although the declines have ended. Additionally household wealth is substantially below its prior levels, although some of the pressure may have been removed by the recent increase in equity and home prices.

Add this altogether and factor in no further tax cuts or increases in government payments and consumers will likely remain financially constrained for some time.  

Sunday, November 15, 2009

China: Low US interest rates threaten recovery

BEIJING (AP) -- China's top bank regulator said Sunday the weakening U.S. dollar and low interest rates are spurring speculation in stocks and property, distorting global asset prices and threatening the global economic recovery.

The situation poses an "insurmountable risk to the recovery of the world economy," Liu Mingkang, chairman of the China Banking Regulatory Commission, warned just hours before President Barack Obama was due to arrive in China.

Speaking at a conference in Beijing, Liu said the declining U.S. dollar and reassurances by officials that interest rates will remain low were encouraging a "massive" U.S. dollar carry trade -- the practice of borrowing money at low rates in one currency to invest in assets in another currency that offer a higher return.

The carry trade is "dealing a serious blow to global asset prices and fueling speculation in the stock and real estate markets," he said, according to a transcript of a speech he made at a financial forum in Beijing, posted on the Web site of Hong Kong's pro-Beijing Phoenix TV.

The U.S. dollar has declined steadily since spring despite statements of support from American officials. China is the largest foreign holder of U.S. debt, mostly in the form of Treasury securities, which have declined in value as a result of the dollar's weakness.

At the same time, record-low U.S. interest rates, intended to encourage lending to businesses struggling to recover from the recession, are spurring investors to transfer funds out of the safety of low-yield dollar-denominated investments such as Treasury securities and into higher-yielding assets like stocks, commodities and emerging-market currencies.

Strong flows of such funds into China's markets, where share prices have surged by more than 70 percent this year, and property have raised worries over a possible bubble in asset prices that might later implode, causing financial problems.

Source: AP

November 14th 2009

10 years and the market still at 10,000 !!!!

Interesting New York Times article about the market valuation:

“Market valuations are another consideration. By almost every measure, stocks are far cheaper at Dow 10,000 today than at Dow 10,000 in March 1999.

Back then, the price-to-earnings ratio for domestic stocks stood at a very high 41.4. That’s based on 10-year average earnings, a conservative measure that smoothes out short-term swings in corporate profits. Since then, using the same measure, the market’s P/E has fallen to 18.9. While that’s not necessarily a screaming bargain — the market’s long-term average is closer to 16 — stocks are trading at a discount of more than 50 percent to their 1999 prices.”

That would seem to argue for the value player’s approach to investing. And over long periods of time (decades), the value approach is indeed valid.

However, academic studies have shown conclusively that it is your asset allocation strategy that is the greatest determiner of your returns. The best stockpickers out there got crushed if they were 100% long US equities in 2008; The worst bond mangers still did well relatively.


“The return to 10,000 also serves as a bitter reminder that stocks have gone virtually nowhere, on balance, for more than a decade. It was in March 1999 that the Dow first climbed above 10,000, before soaring as high as 14,164 two years ago and plummeting as low as 6,547 this past March . . .

Look a bit deeper, though, and you’ll find that there have been some changes in the domestic market, too, in the last 10 years — and largely for the better. Some of them, however, are hard to see at first glance.

For example, a majority of sectors have actually posted positive returns since the end of 1999 — in some cases sizable gains. On average, including dividends, energy stocks have returned nearly 150 percent, shares of consumer staples companies (like Procter & Gamble and others that sell necessities) have gained nearly 65 percent and utility stocks have risen nearly 50 percent . . .” (emphasis added).”

What is also be worth looking at are other investable asset classes beyond US equities: How did emerging markets do? Convertible Bond Arbitrage? Private Equity? Real Estate? Commodities? Munis? Gold?

Even within the equity slug of your allocation, there are small cap value, big cap tech,, etc. that may have outperformed the overall market over the same time period.

And when all of the above asset classes become correlated and start to head down, as they did last October, that is your signal to move aggressively to cash.

The overall conclusion of this article, which the Times did not explicitly state, is that most investors would be better off with an asset allocation strategy rather than sticking to the traditional stock picking or even index approaches so common amongst mom and pop . . .


10 Years Later, a Much Less Expensive Dow 10,000


NYT, November 14, 2009

Inside Trading Becomes 'Systemic' at Hedge Funds, Khuzami Says

Interesting article from It shows that maybe these hedge fund stars have had stellar returns because they cheat a bit !!

Insider-trading cases among hedge funds including Galleon Group LLC may reflect a “systemic” behavior that has spread within the industry, Securities and Exchange Commission Enforcement Director Robert Khuzami said.

“You have funds whose business model consisted of vigorous attempts to collect information from corporate insiders and to utilize that information to trade,” Khuzami said yesterday at the Bloomberg Washington Summit. Such an approach is “potentially more dangerous” than previous insider-trading cases that reflected “opportunistic” behavior, he said.

The SEC has sued more than 20 people and firms in the past month, including billionaire Raj Rajaratnam and his New York- based hedge fund Galleon Group, in a broader crackdown on insider trading. The lawsuits, based in part on wiretaps and years of data-mining, allege that hedge-fund managers and traders obtained tips, at times in exchange for payment, on corporate deals and earnings that generated as much as $53 million in illegal profits.

“I’m sure that the vast majority of hedge funds and others operate in a lawful manner,” Khuzami said. “However there are some aspects to hedge-fund operations that do give enforcement types like myself concern,” he said, citing algorithmic trading, dark pools and the lack of a corporate culture of compliance among the issues. In a dark pool, trades are matched without posting quotes on public exchanges.

Laws forcing hedge funds to register with the SEC will increase transparency and improve compliance, he said.

Tips ‘Uptick’

Rajaratnam and his accomplices were part of a network that shared confidential tips on at least 10 companies, including Google Inc., Hilton Hotels Corp. and Intel Corp., investigators said Oct. 16. The lawsuits name witnesses who cooperated with authorities. Rajaratnam and the others have denied wrongdoing.

Since the arrests were announced, the SEC has seen an “uptick” in individuals coming forward with information on misconduct, Khuzami said, adding that people trading on confidential information “should be worried.”

Khuzami, 53, said prosecutors will continue using undercover techniques including informants and front businesses to attract wrongdoing and wiretaps to “ferret out” misconduct. The SEC has endorsed legislation that would let the agency pay whistleblowers for information leading to a case.

Khuzami, a former federal prosecutor who joined the agency in March, is reorganizing the division to add front-line investigators, speed inquiries and create specialized units after the agency was faulted for missing Bernard L. Madoff’s Ponzi scheme. He’s also seeking to bolster his attorneys’ powers by gaining greater access to grand-jury evidence and expanding deal-making and cooperation with informants.

The SEC is also looking “closely” at laws in the 2002 Sarbanes-Oxley Act, which let the SEC punish executives for misconduct at firms even when they aren’t involved in the wrongdoing, he said last month. Sarbanes Oxley was enacted to combat corporate fraud after accounting scandals at Enron Corp. and WorldCom Inc. shook investor confidence.

Source:  November 13th 2009

Saturday, November 14, 2009

S&P 500 and Dollar Index still inversely correlated ...

As the attached chart shows the falling dollar continues to be a benefit to stocks and remains inversely correlated to equity prices.  The short-term benefits of a weaker dollar are clear: Higher equity prices, exports and corporate profits in coming quarters that will support economic growth.  Longer term the downside to a weaker dollar is the increased cost of financing the U.S. budget deficit and a reduction of consumers' purchasing power. The more immediate risk is that further downward pressure on the dollar will drive up oil prices to the point of constraining household spending.

Hedge Fund Manager Paulson loads up on Citigroup (C) and sells Goldman Sachs (GS)

       John Paulson, who ranked second in fund-manager earnings last year, according to Institutional Investor’s Alpha Magazine, disclosed that his hedge-fund group acquired 300 million shares of Citigroup Inc. (C) during the third quarter, while selling its entire stake of Goldman Sachs Group Inc.  The Citigroup holding, listed by New York-based Paulson & Co. yesterday in a regulatory filing, marks his second billion- dollar-plus investment in a bank that received government bailout funds during the credit crunch. Paulson’s group bought 168 million shares of Charlotte, North Carolina-based Bank of America Corp. in the second quarter.
       Paulson, who earned some $2 billion last year in part by betting that the housing market would collapse, has invested in bank stocks that plunged during the 2008 financial crisis. He sold shares during the third quarter in Goldman Sachs (GS) and JPMorgan Chase & Co. (JPM), while building a stake in a bank that remains partly owned partly owned by the government.  Paulson . His Credit Opportunities Fund soared almost six fold in 2007 through wagers that sub prime mortgages would sour. He started the Paulson Recovery Fund in 2008 to invest in financial firms hurt by mortgage write downs.  Citigroup shares now trade at $4.05 each, quadruple the low of 97 cents that they hit in early March, yet below the peak of about $57 in December 2006. The number of common shares outstanding quadrupled to 22.9 billion in September through a preferred stock conversion that gave the U.S. Treasury Department a 34 percent stake in the company.
      Paulson sold 2 million Goldman Sachs shares that he had acquired during the second quarter and cut his stake in JPMorgan to 2 million shares as of Sept. 30 from 7 million at June 30. He bought 2.75 million shares of Hartford Financial Services Group Inc. and more than doubled his holdings in First Horizon National Corp. to 7.1 million shares from 3 million.

Friday, November 13, 2009

80% of S&P 500 Companies Beat Expectations

Record Earnings Beat for S&P 500

According to Bloomberg:  Eighty percent of S&P 500 companies that have released results exceeded the average analyst estimate for third-quarter earnings per share, marking the highest proportion for a full quarter in Bloomberg data going back to 1993, even as profits slumped for a record ninth straight quarter.

Earnings reports push stocks higher after slide

Market Wrap for November 13th 2009

Stocks rallied on Friday as earnings reports boosted confidence about the economic recovery.  Reports from The Walt Disney Co. (DIS) as well as retailers Abercrombie & Fitch Co. (ANF) and J.C. Penney Co. (JCP) offset worries about a disappointing consumer confidence report.

Disney (DIS) said late Thursday that improved revenue at its cable, broadcast and movie studio units helped produce an 18 percent increase in its fiscal fourth-quarter profit.  While Abercrombie's (ANF) results were better than expected, while J.C. Penney raised its profit and sales forecasts.

The gains Friday came on the heels of an early morning sell-off after the preliminary Reuters/University of Michigan consumer sentiment index for November came in at 66.0, down from 70.6 in October.   However by midday trading, the Dow Jones Industrial average rose 77.08, or 0.8 percent, to 10,274.55, while the broader Standard & Poor's 500 index rose 6.17, or 0.6 percent, to 1,093.41.  On the technology front the NASDAQ Composite Index rose 11.60, or 0.5 percent, to 2,160.62.

Market breadth was solid with two stocks rose for every one that fell on the New York Stock Exchange, where volume came to 373.3 million shares compared with 394.7 million shares traded at the same point Thursday.

The Russell 2000 index of smaller companies rose 1.83, or 0.3 percent, to 582.15.

Thursday, November 12, 2009

Madoff Jr. !!!

FBI: New alleged investment scheme could top $1B

Scott Rothstein is suspected of misappropriating millions through a legal settlement investment scam.


According to the Associated Press Investigators say the alleged fraud scheme run by a prominent South Florida lawyer is likely to exceed $1 billion and involve thousands of investors.  Miami FBI chief John Gilles said Thursday morning that investigators want investors with attorney Scott Rothstein to come forward. Rothstein is suspected of misappropriating millions through a legal settlement investment scam. No criminal charges have been filed yet, but in a civil complaint, prosecutors accused Rothstein of concocting a Ponzi scheme that lured millions from investors. Gilles said the investigation is likely to take weeks or longer.

Market Movers for November 12th 2009

Biggest Gainers

3Com (COMS) surges on takeover.  3Com (COMS) surged 31 percent to $ 7.46 after the Hewlett-Packard (HPQ) offered to buy 3Com for $ 2.7 billion.

Advanced Micro Devices Inc. (AMD) jumped the most in the Standard & Poor’s 500 Index, rising 22 percent to $6.48. The world’s second-biggest computer-chip maker will get $1.25 billion from Intel Corp. (INTC US) under an agreement to end all outstanding legal disputes between the companies, including antitrust litigation and patent cross license disputes.


China Automotive Systems Inc. (CAAS) climbed 11 percent to $16.25, the highest price since January 2004. The maker of steering components for cars posted third-quarter earnings excluding some items of 22 cents a share, beating the average analyst estimate by 44 percent.

Dow Chemical Co. (DOW) climbed 7.1 percent to $28.60 after it said cost cuts and rising sales after the acquisition of Rohm & Haas Co. will boost earnings more than analysts estimate.

Playboy Enterprises Inc. (PLA) jumped 42 percent to $4.07, the biggest gain in the Russell 2000. The men’s magazine publisher is in talks to sell itself to Iconix Brand Group Inc. (ICON), according to two people close to the situation. Iconix lost 3.8 percent to $11.69.

Biggest Decliners


Aegon NV (AEG US) lost 7.6 percent to $ 7.51 its biggest decline since Oct. 30. The Dutch owner of U.S. insurer Transamerica Corp. reported a decline in third-quarter underlying pretax earnings, which exclude investment swings.

Brocade Communications Systems Inc. (BRCD) dropped 13 percent to $8.08 after ratings downgrades at Piper Jaffray Cos., ThinkEquity LLC and Lazard Capital Markets Ltd. The analysts cited the loss of a potential partnership with Hewlett-Packard (HPQ), which some investors had speculated would buy Brocade.

Green Mountain Coffee Roasters Inc. (GMCR) fell 10 percent, the most since October 2008, to $68.35. The Waterbury, Vermont-based roaster said it will probably earn 15 cents a share at most in the first quarter.

Northwest Pipe Co. (NWPX) dropped 14 percent, the most since Dec. 1, to $26.74. The steel-pipe maker delayed filing its quarterly report, citing an internal investigation of its accounting for revenue. Boening & Scattergood cut the stock to “neutral” from “outperform.”