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Saturday, June 14, 2008

Oil Rage

How high can oil go with the unruly plebs now fueled by Oil Rage?

I'm trade marking, copyrighting, patenting and otherwise making mine a new disease and mental disorder that will be known as 'Oil Rage'. (If it can be done for Road Rage, then I can certainly do it too: Psychiatry and disease mongering: Road Rage Disorder is latest spontaneously "discovered" disease.)

Friday, June 13, 2008

Fed's Balance Sheet Shares by Facility

Only 46% of the approximately $800 billion dollar Federal Reserve balance sheet now consists of Treasuries.

Put another way (or MORE accurately): 54% of the $800 billion dollar balance sheet consists of the TOXIC financial WASTE that nobody else now (suddenly) wants.

US GDP totalled approximately $14 trillion at the end of 2007. Therefore the amount of TOXIC WASTE the Fed is holding amounts to almost 3% of GDP.

Total Borrowings of Depository Institutes stand at $150 billion or 1% of GDP. Tell me this isn't scary: Really Scary Fed Charts: JUNE 'Just' 1% of GDP Now.

I envision only good times ahead... I mean, what could possibly go wrong? Mere pennies are at stake...

Related Posts:
TAF, TSLF, PDCF Explained
Fact Sheet: The Bush Stimulus Package

Can't Resist: Way Too Ripe, Way Too Juicy (Update3)

This is an update on the post Can’t Resist Apple: Way Too Ripe, Way Too Juicy, Update1, and Update2.

I ended my last update with the following: “The AAPL chart is set to roll over. AAPL stock now looks to be in distribution mode with initial support around the $170 area followed by the $160 area.”

Apple (AAPL) rolled over and broke DOWN yesterday, falling $7.55 (4.18%) to $173.26.

Corey at Afraid To Trade analyzes AAPL across three time frames, intraday, daily and weekly in his post What’s Happening to Apple?!

Thursday, June 12, 2008

KeyCorp: Bearish Wedge, Runaway Gap

KeyCorp to Raise $1.5 Billion, Loan and Tax Provision (Update1): “KeyCorp, Ohio's third-largest bank, said today it will be forced to raise $1.5 billion after losing a tax case tied to leasing.

KeyCorp expects a $1.1 billion to $1.2 billion second- quarter charge related to the case and plans to cut its dividend by 50 percent to save about $200 million a year, the Cleveland- based company said in a regulatory filing. The bank will record a higher tax provision in future periods “until the dispute is fully resolved,” KeyCorp said in the filing.

KeyCorp said it was raising its loan loss reserves by about $600 million in the second quarter and said charge-offs for the year would be between $750 million and $1 billion. The lender said it would raise the fresh capital through a combination of common shares and convertible preferred stock.

The case, decided by a federal court in Ohio, involved leasing deals in tax years from 1999 to 2003, and will apply to later years, KeyCorp said in an earlier regulatory filing.”

KeyCorp (KEY) was in a Rising Bear Wedge that resolved itself beautifully… This was then followed up by a Runaway Gap. With this kind of momentum, expect KEY to continue to burrow lower… and quickly… followed by a slow death for the bank is likely.

The broader S&P 500 has formed just as perfect a Rising Bear Wedge that I’ve been yapping about. I got a little excited and called the break DOWN and OUT in Cracks in Bear Wedge. But the breakout finally did come in Bear Wedge Breaks, Goldman, Lehman, Merril, Morgan: Cut To SELL.

Bank Failure Friday’s are going to get a lot more exciting over the summer. Bank Failure Update from Calculated Risk. Bank failures are typically announced on Fridays… if at all possible.

Thornburg Mortgage: Risks De-listing

Thornburg Reports Loss of $3.31 Billion on Writedowns (Update1): “Thornburg Mortgage Inc., the New Mexico lender that averted bankruptcy in April, said it lost $3.31 billion in the first quarter because of writedowns on securities linked to real estate.

The loss, which the company reported without including preferred stock dividends, was $20.64 a share. That compares with net income of $75 million, or 62 cents a share, in the same period a year earlier, Santa Fe-based Thornburg said today in a statement distributed by Business Wire.

Since a bailout in March enabled Thornburg to resume lending, the mortgage market has worsened, sending the stock below $1. Thornburg has lost $6.65 billion in the past three quarters amid the worst housing slump since the Great Depression. The company said today it had unrealized market losses of $1.54 billion on mortgage-backed securities and securitized loans during the first quarter.”

That $20.64 per share loss is massive. I first wrote about Thornburg (TMA) in Thornburg Mortgage: Pyrrhic Rescue where I argued that TMA was a dead company.

“The stock was unchanged yesterday at 72 cents on the New York Stock Exchange and has lost 92 percent of its value this year. To avoid being de-listed from the NYSE, Thornburg shares within the next six months must regain a $1 price and maintain it for more than 30 trading days.”

Not going to happen because the housing market continues to deteriorate:

New foreclosures rose to a seasonally adjusted 0.99 percent of all U.S. home loans, up from 0.83 percent in the fourth quarter, the Mortgage Bankers Association said last week.”

Wednesday, June 11, 2008

Fibonacci Heaven, Equities Party On (Update1)

In Fibonacci Heaven, Equities Party On I wrote: “The international indices are all in Fibonacci heaven. All the indices have bounced and are now entangled in the 50% retracement level. A couple indices have had the strength to make it all the way to the 61.8% level. ONE index appears to be invincible: The Brazilian BOVESPA.

It is pop or drop time across the globe. Since economic data continues to deteriorate, I would argue for more drop than pop.”

Since then they have all dropped. It turns out the entire globe was in a Bear Market Rally.

Investors Get More Bearish on U.S., U.K.; Brazil Bulls Retreat: “Investors from the U.S. to Europe to Japan are growing more convinced stocks will drop the next six months as commodity prices curb profits and force central banks to raise interest rates, a survey of Bloomberg users showed.

The Standard & Poor's 500 Index, the U.K.'s FTSE 100 Index, Japan's Nikkei 225 Stock Average, Spain's IBEX 35 Index, the Swiss Market Index, France's CAC 40 Index, Italy's S&P/MIB Index and Germany's DAX Index will fall, according to the Bloomberg Professional Global Confidence Survey of 3,189 users taken June 2 to 6. In Brazil, the only market where investors anticipate higher prices, optimism faded, the survey showed.

The MSCI World Index's nine-week rally from a 17-month low ended last month as oil and corn helped lead gains in prices of raw materials. Financial stocks in the MSCI World declined the most since the end of April, dropping 11 percent, as Federal Reserve Chairman Ben S. Bernanke and Jean-Claude Trichet, the president of the European Central Bank, signaled they may lift borrowing costs to fight inflation.”

I wrote this many a time: The Global ‘Decoupling Theory’ is Garbage. A US recession, which is now indisputable, WILL suck the down the rest of the globe.

The master of Fibonacci Retracements is Tim Knight over at The Slope of Hope.

Related Posts:
Global Decoupling Theory, Correlation Contagion
The Dollar Smile Theory

Tuesday, June 10, 2008

Really Scary Fed Charts: JUNE, 'Just' 1% of GDP Now

In my last update Really Scary Fed Charts MAY: False Alarm? I presented two different views on the continued rapid deterioration of the U.S. financial system.

Over at CalculatedRisk they are being interpreted as a “false alarm” in Non-Borrow Reserves and the Fed’s Balance Sheet.

Over at MarketTicker they are being interpreted as evidence that “the system as a whole is insolvent” in Tall Tale Tuesday.

Another month and another couple billion later, the Fed Charts just keep getting scarier.

Last month Total Borrowings of Depository Institutions from the Federal Reserve (BORROW) were around $140 billion.

Total Borrowings now amount to about $155 billion

Allow me to put that into context:
1) The entire Bush stimulus package was $145 billion.
2) The stimulus packages was 1% of GDP

How comfortable are you with the fact that stricken financial firms have borrowed the equivalent of 1% of GDP from the Federal Reserve? (Oh sweet baby Jesus, you better hope Ben ‘Helicopter’ Bernanke really really knows what he’s doing…)

Last month Non-Borrowed Reserves of Depository Institutions (BOGNONBR) were around negative $90 billion.

The balance sheets of almost all financial institutions, whether they are depository institutions or prime brokers, will deteriorate further. They have to. The vast majority of their balance sheets are now in the Level 2 or 3 asset buckets. I can’t imagine that these assets are currently being undervalued or even conservatively valued.

That’s just now how these fellows roll.

It’s Wall Street.

Clearly the credit crunch is far from over… (BORROW/BOGNONBR)

Most of this nightmare is the result of Bernanke’s new, innovative, and numerous liquidity facilities.

Related Posts:
TAF, TSLF, PDCF Explained.
Fact Sheet: Bush Stimulus Package

Can’t Resist Apple: Way Too Ripe, Way Too Juicy (Update2)

This is an update on the post Can’t Resist Apple: Way Too Ripe, Way Too Juicy, and Update1.

Apple (AAPL) revealed the new iPhone yesterday. Investors and traders were not inspired.

In Update1 I asked: “Which is more probable, a surprise to the upside in a stock priced to perfection in a deteriorating economy or a surprise to the downside?”

This is a classic buy the rumor, sell the news play. A shiny, new 3G phone coupled with lower prices put traders into profit taking mode.

TheFinancialNinja isn’t the only one with a Bearish view of AAPL.

Corey over at Afraid to Trade has it exactly right. He sees a Double Top and both a Divergence and New Momentum Low in AAPL in his post, AAPL – Why Didn’t it Rise?!

Tim over at The Slope of Hope thinks the iPhone news is nothing but old news and calls the chart an attractive short in his post AAPL=Another Anticlimactic Product Launch.

Adam over at The Daily Options Report sees a real Battle Royal here at the 50 day MA in his post An Apple a Day.

The AAPL chart is set to roll over. AAPL stock now looks to be in distribution mode with initial support around the $170 area followed by the $160 area.

Monday, June 9, 2008

Using Fannie Mae and Freddie Mac as Disaster Insurance (Update1)

In Using Fannie Mae and Freddie Mac as Disaster Insurance I argued that the worst of the financial fallout is yet to come.

I outlined how a simple option strategy using LEAPs (Long Term Equity Anticipation Units) on Fannie Mae (FNM) and Freddie Mac (FRE) could be used as portfolio disaster insurance.

Today both FNM and FRE finally broke DOWN and OUT… smashing all support.

In The Bank and Mortgage Index: Nothing But Trouble I argued that both indices were hovering at critical support. I also pointed out that FNM and FRE each have a 10% weight in the Mortgage Finance Index (MFX).

Today MFX finally broke DOWN and OUT… smashing all support.

The Bank Index (BKX) broke down last week. Put it all together and you have a general confirmation of the much larger break DOWN and OUT of the S&P500 (SPX) from a Rising Bear Wedge.

While equities may find the strength to bounce every now and then, the trend is and remains down.

Related Posts:
This Bear Market Rally is Over: EURIBOR Rises Again
Bear Wedge Breaks, Goldman, Lehman, Merril, Morgan: Cut to SELL

Banks, Lehman: Busy Lying and Raising Funds

More fun stuff from Lehman (LEH).

Lehman Loses $2.8 Billion, Plans to Raise $6 Billion (Update1): “Lehman Brothers Holdings Inc., the fourth-largest U.S. securities firm, reported a record $2.8 billion second-quarter loss and said it will raise $6 billion in capital in a public offering.

Lehman fell as much as 11 percent in New York trading after the firm said it sold about $130 billion of assets during the quarter. The New York-based bank reduced mortgage-related assets and leveraged loans by about 20 percent, it said today in a statement. The figures are preliminary and the final results will be released June 16.

Chief Executive Officer Richard Fuld, 62, is adding to the $8 billion he raised since February to quell concern that the collapse of the mortgage market would bring his firm down. Financial companies have raised more than $285 billion from investors to make up for almost $390 billion in writedowns and credit losses.”

I don’t even know where to begin.

First, LEH was expected to lose ‘just’ $300 million. Losing $2.8 billion is $5.14 a share and way beyond expectations.

Second, LEH also insisted that they did not need to raise any capital up until late last week. Raising $6 billion in COMMON practically screams desperation.

Third, LEH announced that they would report earnings early. This strategy is particularly DIRTY. Normally such an announcement implies better than expected results and is done to calm nervous markets. LEH and the broader markets rallied on that announcement. Some of the longer term shareholders may have acted on that announcement only to get raped twice over: Once with a greater than expected loss and second with a massively dilutive common share offering.

The markets continue to bet against LEH and massively so. (Lehman Put Open Interest: Just Like Bear Stearns) The clowns at LEH are a bunch of liars.

Speaking of liars…

RBS Shareholders Take 95.1% of Stock in Rights Offer (Update2): “Royal Bank of Scotland Group Plc said shareholders bought 95.1 percent, or 11.6 billion pounds ($22.9 billion), of stock in the biggest European share sale and the first by a U.K. bank since the credit-market seizure.

Investors took up 5.8 billion new shares at 200 pence apiece, acquiring 11 new shares for every 18 held, the Edinburgh-based company said in a statement today. Underwriters Goldman Sachs Group Inc., Merrill Lynch & Co. and UBS AG will seek buyers for the remaining 299.4 million shares, RBS said.”

I first brought them up in LIBOR Liars: UBS, HSBC and Royal Bank of Scotland and again in Update1.

Another one of those liars is UBS:

UBS Falls as Rights Offer Nears End, Report Predicts Loss: “UBS AG, the European bank hardest hit by the U.S. subprime contagion, fell in Swiss trading as the company's 16 billion-franc ($15.7 billion) rights offer neared an end and a report said the bank may post a second-quarter loss.”

The rumor is for another $4 billion loss…

Barclays May Get Outside Funds to Replenish Capital, People Say: “Barclays Plc, the U.K.'s fourth-biggest bank by market value, may sell shares to replenish capital depleted by credit-market writedowns, two people with knowledge of the matter said.

The fund-raising would bolster the London-based company's so- called Tier 1 capital ratio, which trails Edinburgh-based HBOS Plc and Royal Bank of Scotland Group Plc. Barclays needs at least 7 billion pounds ($13.8 billion) to strengthen its balance sheet as asset markdowns increase, according to estimates from analysts at Lehman Brothers Holdings Inc. and Citigroup Inc.”

In Fragile Banks: More Bailouts, More Capital I wrote: “Bottom pickers in financials are going to get whacked. Wait for all the capital raising to have been concluded. You won’t miss out. Prices will languish for years as the banks work through their balance sheets and retrench.”

With the Banking Index (BKX), Mortgage Finance Index (MFX) and the S&P 500 (SPX) all having cracked support, and with oil (WTIC) going to the moon only a fool would be long equities into the first consumer lead recession in decades.

The Bear market rally is over. 1440 will stand for quite some time. Time to test and smash the lows. 1255, here we come.

Related Posts:
The Bank and Mortgage Index: Nothing But Trouble