Custom Search

Saturday, July 26, 2008

Bank Failure Friday: Two More Bite the Dust

Bank failure Friday brings two more failed banks...

The following banks were closed by the Office of the Comptroller of the Currency (OCC) on July 25th 2008:

FDIC Announcement: First National Bank of Nevada, Reno, NV (Bank Homepage)
FDIC Announcement: First Heritage Bank, N.A., Newport Beach, CA (Bank Homepage)

Both banks appeared to specialize in 'small business loans'. Expect many many more of these as I argued in Regional Banks: Dead Men Walking.

Be careful out there. Under no circumstances should you have a balance at any one bank in excess of the FDIC insured limit...

Strength in equities, especially financial equities, is to be sold.

Friday, July 25, 2008

Lehman: Will Slowly Sell Itself Off

Can you say, “Damned if you do, and damned if you don’t?”

Lehman May Sell Neuberger Berman to Raise $8 Billion, CNBC Says: “Lehman Brothers Holdings Inc. may sell at least part of its Neuberger Berman asset management unit to raise as much as $8 billion, CNBC reported, citing people it didn't name.

A sale of the unit may make it difficult for Lehman, the smallest of the major Wall Street investment banks, to compete as an independent company, CNBC said.”

This is the same Lehman Brothers (LEH) that absolutely swore that they didn’t need to raise any additional capital as recently as a couple of weeks ago…

Anyways… Selling Neuberger Berman means the following:

1) Lehman really does need to raise capital, and lots of it.
2) Lehman actually tried to quietly raise capital, and failed.
3) Lehman is now left with no other option but to sell assets.
4) Lehman will have to sell the ‘good stuff’ and keep the ‘bad stuff’.
5) The end result will be a smaller, weaker Lehman.
6) Therefore Lehman can’t survive as an independent entity.

This should help put an end to the carefully orchestrated short covering rally in financials in general… Time to Go Ultra-Short, Again.

Thursday, July 24, 2008

The Other Bigger Shoe: The Rest of the World

The following headlines from around the world should make it clear that strength in equities is still to be sold…

French, German and Italian consumer and business confidence is collapsing. UK retails sales dropped the most since 1986 and Spanish unemployment is rising rapidly as their uber bubble in real estate implodes. Most importantly, Japanese exports fell for the first time in four years, absolutely destroying the ridiculous theory that the rest of the world would pick up the slack of a slowing US economy.

The other BIGGER shoe is finally dropping: The REST of the world is weakening rapidly.

French Business Confidence Falls to Lowest Since 2005 (Update1): “French business confidence fell to the lowest in more than three years in July as record oil prices and a stronger euro dimmed the outlook for economic growth.

An index of sentiment among 4,000 manufacturers dropped to 98 from 101 in June, according to Insee, the Paris-based national statistics office. That was the weakest since May 2005. Economists expected a reading of 100, according to the median of 22 estimates in a Bloomberg News survey.

Growth in the French economy is deteriorating as inflation and oil above $120 a barrel squeeze purchasing power and push up production costs just as the stronger euro hurts exports. The jump in consumer prices prompted the European Central Bank to raise interest rates earlier this month and President Jean-Claude Trichet is refusing to abandon his inflation-fighting rhetoric.”

German Confidence Declines as Europe Recession Risks Increase: “German business confidence plunged the most since the Sept. 11 terrorist attacks and European manufacturing and services shrank, increasing the risk of a recession across the euro region.

The Ifo institute's German business confidence index dropped 3.7 points from a month earlier to 97.5 in July. That was more than three times the decline forecast by economists in a Bloomberg News survey and the overall reading was the lowest in three years. Manufacturing and services across the euro area contracted for a second month and in the U.K., retail sales dropped by the most since at least 1986.”

Italian Business Confidence Fell in July to Lowest in 7 Years: “Italian business confidence fell to its lowest in seven years in July as rising oil costs and a stronger euro hurt prospects for economic growth.

The Isae Institute's business confidence index dropped to 83.5 from a revised 86.7 in June the Rome-based research center said today. That's the lowest since October 2001 and less than the median forecast of 86.5 in a Bloomberg survey of 17 economists.

Manufacturers' costs are rising as companies struggle with the euro's 13 percent appreciation against the dollar in the past year and near-record oil prices. Prime Minister Silvio Berlusconi, who took office less than three months ago, has lowered taxes on overtime pay to try to help businesses cope with slowing growth.”

U.K. June Retail Sales Drop Most Since at Least 1986 (Update2): “U.K. retail sales dropped in June by the most since at least 1986 as accelerating inflation and the slowdown in economic growth prompted consumers to cut spending.

Sales fell 3.9 percent after rising 3.6 percent in May, which was the biggest increase since the data series began more than two decades ago, the Office for National Statistics said today in London. Economists forecast a 2.6 percent drop, the median of 30 estimates in a Bloomberg News survey showed.

Bank of England policy makers cited weaker retail sales surveys as a signal of slowing economic growth at their decision this month, minutes released yesterday show. Falling house prices and a jump in credit costs have squeezed consumers just as the fastest inflation in at least a decade prevents the central bank from cutting the main interest rate from the current 5 percent.”

Spanish Unemployment Rose in 2nd Quarter on Building (Update1): “Unemployment in Spain, the source of half the euro region's new jobs between 2001 and 2006, rose to the highest rate in 3 1/2 years in the second quarter as home- building collapsed.

The unemployment rate advanced to 10.4 percent from 9.6 percent in the first quarter, the Madrid-based National Statistics Office said on its Web site. That compared with the 10 percent median estimate in a Bloomberg News survey of eight economists. The number of jobs increased 0.1 percent to 20.4 million, compared with a 0.4 percent decline in the first three months.”

Japan's Exports Fall for First Time in Four Years (Update3): “Japan's exports fell for the first time in more than four years as demand for cars and electronics cooled, signaling the U.S. slowdown is spreading to the emerging markets that helped sustain growth.

Exports decreased 1.7 percent in June from a year earlier, the Finance Ministry said today in Tokyo. The median estimate of 20 economists surveyed by Bloomberg News was for a 3.3 percent gain. The drop was the first since November 2003.

Today's report adds to evidence the world's second-largest economy shrank in the three months ended June 30 as record oil prices took a toll on sales abroad as well as spending by companies and consumers at home. Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co., Japan's three largest automakers, are expected to say profit fell last quarter on cooling U.S. demand.”

French business confidence drops. The CAC 40 (CAC) is now at resistance. Some follow through past the 50 day EMA (red line) can't be ruled out. The oversold condition (Slow STO) has been worked off and some sideways drift is needed before the next leg down.

German consumer confidence is in free fall. The DAX Composite (DAX) has bounced into resistance around the 50 day EMA (red line) and has gone from deeply oversold (Slow STO) to overbought. Expect some consolidation before the next round of selling...

Spanish unemployment is rising as the construction industry grinds to a halt after what was probably the largest of all the real estate bubbles. A bounce to resistance around 12250 and the declining 50 day EMA is possible, but the oversold condition (Slow STO) already looks to have been remedied. Expect Spanish equities to lead the way lower amongst European equities...

Japanese exports dropped for the first time in four years. That includes exports to Asia... that invincible part of the world that was supposed to put in continued super hyper growth. While the Nikkei (NIKK) could still bounce a bit into resistance around 14000, it is unlikely that prices will be able to clear the 200 day EMA (green line) anytime in the next few months.

I last had these global indices up in the post Fibonnacci Heaven: Equities Party On (Update1).

Related Posts:

Wednesday, July 23, 2008

Bush: Wall Street Got Drunk

In classic Bush style: "There is no question about it. Wallstreet got drunk..."

YouTube video here.

Financials: Time to Go Ultra Short, Again

Alright, enough is enough. This artificial short covering bounce in financials on the sudden enforcement of 'no more naked shorts' has gone far enough.

On SKF anything around or below $120 looks attractive. SKF might overshoot and temporarily blow through the 200 day EMA (green line), so caution is warranted. I'm not going 'all in' here, and will keep enough powder dry to buy all the way down to $100 should it become necessary.

J.P Morgan Chase (JPM) has the largest weighting in the Proshares Ultra Short ETF at 6.10%. A bounce from $29.50 to $41.50 is just about large enough to blow most shorts out. The declining 200 day EMA (green line) should provide some resistance.

I don’t' expect business to pick in the fancy pants investment banking world anytime soon. I also believe that Bear Stearns will cause some severe indigestion...

Well, BAC is a major component of the Proshares Ultra Short Financials (SKF) ETF as well with a weighting of 5.60%. A bounce from $18.50 to $32.50 should be just about enough. This bounce takes prices back to the 'break down' area from the May Triangle. I also expect Countrywide to cause a severe hangover.

Citigroup (C) is the third largest component of the Proshares UltraShort ETF with a weighting of 4.20%. This bounce, just like the last bear rally, has taken prices beyond the declining 50 day EMA (red line), blowing out the shorts. The declining trend line (black line) should be an area of interest. The volume on this bounce, or more specifically lack thereof is suspicious. I expect this move to fizzle and die quickly. The oversold condition (Slow STO) has been remedied.

I expect more large losses from C and I don't believe C will be able to sell their assets, or portfolios at anyting resembling their optimistic forecasts. Don't forget, C has collected a good percentage of toxic crap through it's multiple massive SIV's that are now on it's balance sheet.

For more on the Proshares Ultra Short Financials (SKF) ETF click here.

Tuesday, July 22, 2008

Apple: Smashed, as Expected

This is an update on the post Can’t Resist Apple: Way Too Ripe, Way Too Juicy, Update1, Update2 and Update3.

I ended my last update with the following: “Apple (AAPL) rolled over and broke DOWN yesterday, falling $7.55 (4.18%) to $173.26.”

After releasing earnings last night, AAPL dropped almost 10% after hours, shattering all support levels. AAPL is now below the 20, 50 and 200 day EMAs, (blue, red and green lines). The $150 area my provide support as it is the 38.2% Fibonacci level.

I will take some profits around here, keeping my core short position and will add to that position on bounces.

Apple Falls on Outlook, Questions About Jobs's Health (Update2): “Apple Inc. fell 9.8 percent in early trading after its forecast for the back-to-school shopping season missed analysts' projections and questions resurfaced about Chief Executive Officer Steve Jobs's health.

Fourth-quarter profit will be $1 a share as sales climb to $7.8 billion, Cupertino, California-based Apple said yesterday. That compares with analysts' average estimates of $1.24 a share in profit and $8.3 billion in sales in a Bloomberg survey.

A slowing economy may make it harder for Apple to repeat its success in the quarter just ended, when it posted record sales of Macintosh computers and iPhones and better-than-expected demand for iPod media players. Back-to-school promotions and new product development also will curb profit margins, Apple said.”

I raged about the ‘invincible Apple’ philosophy months ago. In Update1 I ended the post with: “Ok. So, you’re house price is falling so fast you still can’t believe it and your mortgage is about to reset to a rate that ‘tastes like vomit’. You’re worried about your job security, despite the fact it costs you so much now just to drive to work that going in for a half day isn’t even worth it. You now deeply regret buying the SUV you don’t actually own, because you’ve traded your previous cars in so frequently that the lease payments on this one almost equal your pre-reset mortgage payments. How likely are you to be both willing and able to load up on shiny, expensive consumer discretionary items with big monthly costs such as the Apple iPhone?

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?”

Surprise. To the downside. Done and done.

Seriously though, was anything else really possible? With credit card delinquencies going vertical it doesn't really matter how fancy and cool that LUXURY, DISCRETIONARY gadget is. You still CAN'T afford it.

While on Vacation, Trading Gods Mock Me

I sure picked one helluva week to go on my cruise…

Just before I left, I wondered Indymac: Failure by Friday? Fannie, Freddie: We Need Capital! Sure enough, as I was at the airport my Blackerry damn near exploded with news headlines after hours. So the third largest bank failure in US history had to happen while I was stuck in the airport…

I knew then that the Trading Gods would mock me with one explosive trading week while I was trapped on a beautiful cruise ship for seven long days.

I insisted it was Time to Short Commodities and wondered Oil and Gas: Will They Break Down? I switched from Mohitos to Champagne by Wednesday as oil sliced down through $130 in a series of massive red candles. Those double inverse ETFs, DUG and SNM hit my profits targets and are now in consolidation mode.

Fannie Mae, Freddie Mac: Downgraded by Traders foreshadowed that final rinse in both stocks. I mean seriously, even a Former Federal Reserve President Says Fannie Mae and Freddie Mac Are Insolvent. Despite the bounce on various empty promises by the clowns in Washington, FNM and FRE common are still worth exactly zero.

Just like speculators were blamed for oil’s sudden rise, so too are they now being blamed for the sudden drop in financial stocks. This time a subhuman species of speculator known as the notorious Short Seller was blamed for causing the failure of financial institutions. A debate over ‘naked short selling’ began and the government finally and SUDDENLY decided to actively enforce an EXISTING rule banning such short selling. Basically, the big boys on Wallstreet were happily selling short naked while they benefited from doing so and the SEC turned the other cheek. Now that they are the target of the same game, they cry foul and their political bitches listen. Classic. Just banana republic classic…

This resulted in a massive, coordinated short squeeze in financials that put in that tradable bottom that I was looking for in How to Spot the Next Tradable Rally.

More as I catch up on the markets…