Archive - Oct 2009

After making repeated killings as a short (and being compensated for it), John Paulson is now actively looking for undervalued long opportunities (that are not misreported by the NYPost). Such seems to be the reasoning behind his latest disclosed involvement in insurer Conseco, where he is now the proud owner of 9.9% of the common stock after a $280 million investment.

"This administration without any experience is doing more damage than is easy to assess at the moment, but I can tell you I am sure that we are moving in the wrong direction and i say that as half a democrat and half a republican. What we are seeing now just doesn't make sense. The priorities have all been inverted." - Steve Wynn

Earnings are coming in higher than expected not surprisingly. Some of the details though such as margin for Intel are trully better than what was baked in. On the day we are getting close to the topside resistance trend joining recent highs around 1,087/1,088. Above that the topside of the expanding triangle is resistance at about 1,100, but given divergence I would rather expect ranging between 1,077 and 1,087 during the day before the next wave of earnings barring any data coming way off line one way or the other. There is a minor resistance around 1,071 below that, but should we break 1,077 the real support comes in at 1,065.

• JPMorgan reports better than expected results, loan losses increase (AP)
• Japan bond optimism at 8-month high as growth prospects before second largest economy wane (Bloomberg)
• China to curb steel production to reduce oversupply (Bloomberg, h/t deadhead)
• Geithner aides reaped millions working for banks (Bloomberg, h/t donald)
• Don't reinflate the old bubbles (WaPo)
• Dollar slumps to 14 month low (Reuters)

• Bank of Japan holds rate at 0.1%, doesn't comment on ending credit steps.
• Baucus Health Overhaul plan is passed by Senate panel with Snowe's support.
• China to curb steel output to reduce oversupply: Wuhan, China's third-largest mill.
• China's exports drop by least in nine months as global economy strengthens.
• China's central bank says foreign reserves hit record high $2.273T shortly.
• China shares rise on hopes for better 3Q corporate earnings, led by financials, property.

One of the quandaries of running a subscription service is that
when you have some really juicy stuff, you inherently limit the
audience that you are able to reach. Normally, this isn't that big a
deal. When you believe that there is a mass cover up aiming to prop up
the largest cadre of zombie, insolvent companies in modern history it
becomes a much bigger deal. This leads me to distribute a significant
amount of research for free.

Two environments seem to boost the efforts of small investors either to trade full time, or to launch their own hedge funds:

1. Bear markets (no one has a job anyhow).

2. Bull markets (anyone can do it!)

Fortunately, Clusterstock has put together a handy guide on "How To Launch A Hedge Fund."

Fortunately, or unfortunately, slide number six "Build the team" and bearing the advice "For example, Turn Key would recommend two accounting firms, Kaplan & Company in Chicago and Acquavella, Chiarelli, Shuster, Berkower & Co. in New York and New Jersey, and the Caymans" appears to depict an attorney (or recently victorious prosecutor) talking to a convict, complete with last-name-printed-on-the-breast bright orange shirt, handcuffs, choppy prison haircut and downcast eyes.

What, exactly, is Clusterstock trying to tell us?

While portable alpha is theoretically appealing - beta is cheap so swap into equity and bond indexes and use the cash to invest in hedge funds that produce alpha - in practice it can turn out to be a nightmare, especially during a liquidity crisis.

California made the news again this week with an effort by marijuana advocates to put three measures on the ballot that legalize small quantities of marijuana for personal use. Currently, thirteen states allow medicinal marijuana use, including California. This recent effort represents the first step toward full legalization and a stance that States are serious about asserting jurisdiction over the issue.

China's export situation isn't as dire as you might assume ...

Expert "whose picks move markets" Louis Navellier "does a screen" for such tried and true criteria as sales growth, margin growth, return on equity and cash flow and picks the "best" companies available. Strangely absent from this screen are any valuation criteria (Amazon at 45x forward P/E is so 2005 fundamentals) but when you have a bubble to substantiate any rubbish one wants to spin based on conflicts of interest too numerous to even highlight in passing, why care? For those whose heads are about to explode, Louis provides a formidable analogy: he "runs his portfolio like as a football team, mmmk? So, you know, as long as you got all the stats we run with ya." Brilliant.

On October 9, the NYSE provided its latest Short Interest update. The total number of shorted shares on the New York Stock Exchange at September 30 was 13.06 billion, a 3.5% decline from the 13.52 billion on September 15, a 42.5% decline from the all time high short position of 18.61 billion on July 15, 2008, and a 23.8% decline from the 2009 high of 16.17 billion in mid-March. The latest short interest represented a mere 3.42% of the total share outstanding as more and more bearish bets are closed, either voluntarily or forecefully. The current SI is equal to the short interest at the end of 2007.

The government is STILL defending too big to fail on several ridiculous grounds.

Spreads were tighter in the US as all the indices improved albeit marginally as intraday ranges remained very low (but equity is still the dramatic outperformer of the last two weeks or so as IG experiences its longest period of low volatility since August of 2008). IG trades 1.5bps tight (rich) to its 50d moving average, which is a Z-Score of -0.2s.d.. At 100.5bps, IG has closed tighter on only 19 days so far this year (204 trading days). The last five days have seen IG flat to its 50d moving average.