RebelTraders

Another strange trading day. Yet again there was a lot of selling on the strength with many stocks.

The full wrap tonight.

How about that strong selling at the moment the market opened. Another case of selling the news. Large positions handing off to those buying at the open thinking that the market was going to rally.

But, it is becoming increasingly evident that the large funds and other large money participants are letting the market get bid up by the small money. And then once good (or at least good in the eyes of the media) news comes out the market sells on the increased volume.

A pattern, that if continues, will surely be the fall of the market for there will be less and less large money holding positions as they keep selling off as the volume steps in.

As I wrote this morning… I found it hard to believe the market would get excited over the retail sales data this morning. But, in the pre market someone did get excited and bid up the futures and stocks. Well, they got their dangling parts cut when the selling over powered their buying and they were taking losses the moment they were buying.

One other bit of economic data this morning was business inventories:

MARCH BUSINESS INVENTORIES: 0.1% V 0.4%E- prior revised from 0.6% to 0.5%Weak inventory data reveals the true feelings of retaillers, for they are keeping their inventory levels of products down by not purchasing as many goods. Weak inventory data equates to expected weak sales. US SENATE VOTES TO SUSPEND DELIVERIES TO SPR UNTIL OIL DROPS BELOW $75/BBL, PASSES BY VETO-PROOF MARGIN- US House is supposed to vote on similiar measure later today.

So, the US government will stop filling the emergency oil tanks until such time as when oil goes down to $75 per barrel. That may mean that the oil reserves never again get topped off. $75 per barrel oil is very generous on part of the Senate, don’t you think? Oil remains on a multi year bull trend… a drop to $75? I don’t see it happeneing. So what will no longer filling the emergency oil tanks do for us? Probably not much of anything except maybe a short lived boost in confidence that more oil will be available. But I just don’t see it having any substantial impact at all.

The Government data from this morning:

Import Price Data…

APR IMPORT PRICE INDEX M/M: 1.8 % V 1.6%E, Y/Y: 15.4% V 15.0%E
- Prior MoM revised from 2.8% to 2.9%
- Prior YoY revised from 14.8% to 14.9%

Retail Sales Data:

APR ADVANCE RETAIL SALES: -0.2% V -0.2%E; LESS AUTO: 0.5% V 0.2%E
- Prior less autos revised from 0.1% to 0.4%

APRIL RETAIL SALES TABLE

                                                Apr             Mar             Feb

Total Retail Sales            378.148      378.852          378.106
Percent Change               -0.2          0.2
Total Except Autos          306.191      304.815          303.690
Percent Change                0.5          0.4
Automobiles                    71.957       74.037           74.416
Percent Change               -2.8         -0.5
Furniture, Home               9.505        9.494            9.476
Percent Change                0.1          0.2
Electronics/Appliances       9.511        9.377            9.372
Percent Change                1.4          0.1
Building Materials           27.126       26.608           27.020
Percent Change                1.9         -1.5
Food/Beverage               48.748       48.546           48.179
Percent Change                0.5          0.8
Health/Personal Care        20.286       20.208           20.220
Percent Change                0.4         -0.1
Gasoline Stations           41.719       41.902           41.243
Percent Change               -0.4          1.6
Clothing/Accessories        19.020       18.892           18.752
Percent Change                0.7          0.7
Sporting/Hobby/Music         7.428        7.395            7.346
Percent Change                0.4          0.7
General Merchandise         49.327       49.103           49.065
Percent Change                0.5          0.1
Misc. Stores                       9.679        9.796            9.762
Percent Change               -1.2          0.3
Nonstore Retailers          25.877       25.889           25.748
Percent Change                 0           0.5
Eating/Drinking                37.929       37.605           37.507
Percent Change                0.9          0.3

Earlier this morning Wall Mart (WMT) released their earnings and they provided cautionary guidance going forward, indicating that everything hinged on the economy. That, in conjunction with their earnings not being as good as the market had hoped, sent the pre market futures down. Once the Government data on retail sales data came out the futures started going up.

The import price data reveals inflation continues to worsen.

On the subject of retail sales again. It is very interesting to us how it is the market thinks a year over year growth of -0.2% is great news. But of course the market is a forward looking mechanism so it takes this data as maybe things will improve later. To us, this only sets up the market for an even larger disappointment soon.

Bear market rallies are the most challenging things to work with for fundamental and technical analysts. Many indicators all point towards a building thesis of a declining economy and market. However, a bear market rally always seems to find a way to defy all of the logic. Again, going back to a recent discussion on bear market rallies… it is in these bear markets that we always see the most 2% or higher one day gains then we ever see in a healthy bull market. The indecision in the market creates some of the most wildest swings you will see in a market.

Today was no exception. While the market did not gain 2% in the major indices it was still a surprise to see the indices advance at all with the bell weather stock Federal Express (FDX) report that they would not meet their earnings. And on top of that the earth quake in China had no impact on the market. The area of China that has been impacted has many industrial and manufacturing facilities. We learned today that the Chinese stock markets have suspended trading of at least 45 companies that have been impacted by the earthquake. And reports tonight are giving a very dire situation there.

Also tonight there is a growing fear of rising food and oil prices resulting from the earth quake. We have learned that PetroChina (PTR) has shut down its primary pipeline to check for damage and system testing. Mines and chemical plants in the area have also been ordered closed. Usually during any worldwide natural disaster there is a growing fear in the markets as the impact on commodities and corporations become unknown. But, today the US markets kept bidding up the prices as if nothing had happened. To me this signals that ‘dumb money’ is driving up the prices, which was also evident in the money flow data today, as well as the very low volume levels.

Another sign of a building market crash is the rising transportation index. I have gone back and looked at other periods in time when oil prices were rising. And most all of those times there was a drop in the transports in the following months as earnings suffered from the rising fuel costs. Currently the transportation index has not factored in the rapidly rising costs and the index is almost at the highs from last year. What I see unfolding is the transports heading back down soon and the rest of the market follows with it. I can’t say if the broader market will turn before the transports, but once the transports do fall, it adds to the weight pulling down the rest of the market.

Before I go on to charts tonight I have some more information coming out of China regarding corporate impact. Toyota Motors (TM) reports that one of their facilities has been impacted and is examining the facility to determine when production can resume. China Mobile (CHL) says that 2,607 of their cell towers have been destroyed.

Hopefully the charts tonight will be easier to view… I changed the color scheme.

(Dow Jones Transportation Index)

(NYSE - Weekly Chart - Weekly Chart)

(S&P 500 [SPY] Weekly Chart)

(Nasdaq [QQQQ] - Weekly Chart)

(Russell 2K - Daily Chart)

(Apple [AAPL] - Weekly Chart)

Technical analysis of charts is part science and part artistic interpretation. Technical analysis is the study of price movements, and from that movement we arrive at an educated evaluation and prediction of future events. When one studies technical analysis, he or she always begins with the basics of price support and resistance, then on to patterns, indicators, moving averages, bollinger bands, Fibanocci price and time series, and on and on. But, after all of the learning of the scientific methods, there is still an artistic approach that is required. The first thing I do when ever I see a chart for the first time I only stare at it with no indicators, no trend lines, no oscillators, nothing…  only price bars. No matter how powerful a computer you have, and no matter how expensive of a charting program you use, there is still nothing better then the gray matter between your ears to filter out the noise of the market and see the patterns in the price action jump off the screen at you. Like an artist painting a portrait he or she will stand back and view the subject very carefully before the very first stroke of the brush. The same applies to technical analysis of price movements.

While technical analysis is rooted in mathematical formulas, it is still the study of people buying and selling. And while people have attempted to make human existence into something that can be measured, predicted, and quantified by mathematical formulas for centuries… there still is a part of human nature that which can never be quantified. And for that part we still have to use the brain to perform part of our technical analysis of what’s behind the price movements.

In the case of today it was volume that jumped off the screen. And it was the lack of it that was important today. Increasingly rising prices on lower and lower volume is something that should never be ignored or over looked. Lisa and I have, and still maintain the thesis that this is a bear market rally, the markets are going to fall, and that the economy is going to get worse. We have studied this for many months and it remains our core thesis to which we still hold. As is always the case in the stock market people let price movements change their opinion as the emotion of the market gets the better of them and they throw out the window everything they have studied and believe to only ‘chase’ the market. And in the end get run over as the car backs over them as they chase after it.

These are still very dynamic and wild times in the market. The battle between the bears and bulls reminds me of the old feud between the Hatfields and the McCoys.

I shorted Apple today as it continued to tickle the trend line shown in the chart above. My objective is for a gain of 15 to 25%, it will not happen overnight, but in the coming days to a few weeks I see the potential for Apple to roll over rather hard. The trend line is the stop point.

I am also short the DOW (DXD) in my long term portfolio as my thesis remains intact for a declining market. My DXD trade still on from my entry at 12750. Today I added a short on the S&P 500 (SDS) as the very low volume was signaling an ever increasing end to this current rally.

The blog makes it difficult to communicate in real time with our readers. And that is why we are still working on our new web site. It has been a while since I have mentioned our new site, but I can assure you that it is still being worked on and when it is turned on it will be much easier for our members to communicate with us, and vice versa.

From the wire tonight:

BROKERAGES: OPPENHEIMER’S WHITNEY CUTS THE Q2 EPS ESTS FOR US BROKERS BY 41%; 2008 EPS EST CUT BY 48%; WHITNEY SAYS THAT THE OUTLOOK IS MORE BLEAK THAN REFLECTED
- Goldman’s Q2 EPS est cut to $3.48 from $4.09, FY08 EPS est cut to $14.65 from $17.35.
- Lehman’s Q2 EPS est cut to $0.72 from $1.10, FY08 EPS est cut to $3.45 from $4.43
- Merrill’s Q2 EPS est cut to $0.20 from $1.00, Cuts FY08 est to -$0.45 from +$1.15

Until tomorrow… good night to all.

Is there a parallel universe? If there is it crossed Wall Street today. Markets advanced on essentially nothing good. FedEx earnings warning, earthquake in China, declining corporate earnings, and on and on.

If you look at today’s volume levels it was downright terrible. A 130 point advance on the DOW with lowering volume is a warning sign that the bulls may have their dangling parts handed to them on a platter soon. There was a lot of negative money flow within the very stocks that advanced the major indices today.

(Data Source - Wall Street Journal , Money flows)

In the data shown above you can see that many big cap stocks were selling on the price advancement today. So while small money was bidding up the price, the large money was cashing out.

Recall that I mentioned last week that corporate earnings were getting worse. Now we have the proof. In my commentary on May 5th I wrote that revenues were down 18% compared to one year ago. That was of the 2,058 companies that had reported up to that date. Now, with 2,807 companies having reported their earnings the earnings are now down 26% compared to last year!  I mentioned that my back of the envelope calculations showed me that earnings were deteriorating, and the proof is in with more and more companies having reported their earnings.

Charts and more tonight…

I’m short handed today… will have a market close in a short while.

Total market volume remains at very low levels. Advances in the market are not on any specific news or event. On the contrary, mostly bad news this morning. Federal Express, which lowered even further their earnings guidance traded up after its initial gap down this morning. The market is desperate to keep reaching for higher highs, but the lower volume is the devil in the details.

I am holding shorts on the SDS, DXD, TWM, and AAPL. 

IF you are currently NOT holding any short positions, then wait until this evening when I update the charts for identification of any changes for entry. If you are holding shorts currently, we are still comfortable with holding them at this time. This market advance is very UN-convincing at this time. 

Market is up on extremely low volume. NYSE volume about 40% below the six month average, Nasdaq trading volume about 30% below the six month average.

Nothing at all is currently moving this market. It has all the appearances of a crash setting up. No recommendations have changed here. We remain short the market via index ETF’s.

Futures have begun to drop back down after running up to resistance in the early pre dawn hours. Earnings reports this morning have been less than stellar, and in some cases just terrible. This week there is a Federal Reserve ‘talking tour’ (see schedule posted yesterday).

From Reuters this morning:

April retail sales barely budged: SpendingPulse

Mon May 12, 2008 5:25am EDT

NEW YORK (Reuters) - Retail sales barely rose in April, as a relentless surge in gasoline prices made consumers cut back other types of spending, according to a report released on Monday.

Consumer spending excluding autos grew only 0.1 percent last month on a seasonally adjusted basis, less than the 0.6 percent increase in March, said SpendingPulse, the retail data service of MasterCard Advisors, which is a unit of MasterCard Worldwide.

"In general, consumers are spending less. Without gasoline, they are spending a lot less," said Kamalesh Rao, director of economic research at MasterCard Advisors.

Retail sales excluding cars and gasoline fell 0.7 percent in April versus March. […]

From Bloomberg this morning: (the bond insurer soap opera continues)

MBIA Posts Loss of $2.4 Billion as CDO Slump Deepens

By Christine Richard

May 12 (Bloomberg) — MBIA Inc., the bond insurer that lost 87 percent of its market value in the past year, posted a net loss of $2.4 billion as the slump in mortgage securities deepened.

The first-quarter net loss was $13.03 a share, compared with a profit of $198.6 million, or $1.46 a share, a year earlier, Armonk, New York-based MBIA said in a regulatory filing today. Unrealized losses from derivatives were $3.58 billion.

The loss was MBIA’s third straight and comes less than three months after the bond insurer successfully retained its AAA credit rating. MBIA, Ambac Financial Group Inc. and the rest of the industry have posted record losses after misjudging the value of collateralized debt obligations and securities backed by home- equity loans they guaranteed. MBIA, once a dominant provider of municipal bond insurance, had 2.5 percent of the market in the quarter, according to Thomson Financial data.

“We’re not out of the woods yet,” said Richard Larkin, senior vice president at Herbert J. Sims & Co. in Iselin, New Jersey. “I’m not sure AAA bond insurers will ever be viewed the same way as in the past.”

MBIA raised $2.6 billion in capital to help convince Moody’s Investors Service and Standard & Poor’s to preserve its AAA rating. Chief Executive Officer Jay Brown said this week the company won’t need to raise more.

“We have adequate equity capital to get through this crisis,” Brown wrote in a letter to shareholders published May 6.

MBIA fell 21 cents to $9.22 in early New York Stock Exchange composite trading. The stock traded above $70 a year ago. MBIA’s book value slumped to $8.70 a share on March 31 from $29.16 at Dec. 31, in part because of new shares sold in the capital raising.

`No Longer’ AAA

MBIA estimates it will have $827 million of actual losses from paying claims on nine CDO transactions.

“Earnings pressure will remain for several quarters as writedowns continue,” Peter Plaut, senior vice president at Imperial Capital, wrote in an e-mail today. “This is no longer a AAA industry for the players that diversified into volatile financial derivatives.”

MBIA took $3.5 billion of writedowns in the fourth quarter of last year, mainly on CDOs it guaranteed through derivative contracts. Those contracts, backed by the repayment of subprime mortgages, have contributed to $323 billion of losses at banks since the beginning of 2007. Derivatives are financial instruments linked to stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in interest rates or weather.

`Mere Mortals’

“This valuation task is clearly one that stretches the ability of mere mortals,” Brown said in the letter.

New York-based Ambac, the second-largest bond insurer, reported on April 23 a first quarter net loss of $1.66 billion, wider than analysts estimated, after $3.1 billion of charges related to mortgage securities. New business at Ambac slumped 87 percent after municipalities balked at buying its insurance and sales of CDOs dried up. Ambac shares tumbled 43 percent on the day of the announcement.

The bond insurers faltered after expanding beyond municipal debt into subprime-mortgage securities and CDOs, which package pools of debt into new pieces with varying ratings and risk. As subprime defaults soared to records, MBIA and Ambac were forced to write down their value.

The check is in the mail… courtesy of the US Government.

Yes, the Government stimulus checks are hitting mailboxes from coast to coast in the hope that everybody will rush out and buy non essential items. The retail industry has been suffering from the recession… yes, the recession. The recession that many in the media claim will never happen.

The market has been trading on the premise that the economy will rebound starting in the second quarter of this year and retail sales would jump right back up again. But, as we know from trend analysis, the discretionary spending has been trending downward for  many years. Now we are faced with a recession of the likes not seen in many decades. The collapse of the housing bubble has removed the one last source of income people have to tap. And that is becoming evident in the ominous credit statistics released last week. Debt being put onto credit cards has risen at a rate that is similar to the decline in the housing market. Does not take a rocket scientist to see the connection here. Declines in the housing ATM machine have led to buying for more and more essentials on credit cards. And at a time when banks are already experiencing rising defaults on consumer loans. And rapidly rising inflation.

So where is that big fat check (cough cough) going to go? Paying for food and gasoline is what. So much for the $160 Billion dollar stimulus package, it will just get burned up in the gas tanks all across America. Where does this leave the retailers who were anxious to see customers come in any buy TV’s, iPods, fashion clothes, etc.? It leaves them right where they started, waiting.

Rising inflation, (you know, the inflation that the Federal Reserve had been saying for months is "contained") is creating a squeeze on the average consumers that more and more are unable to keep up with. Banks have substantially reduced the amount of loans they are providing, further cutting people off from much need money. Even credit cards are being cut down with credit limits being lowered and interest rates raised. Where does the average consumer get a break? No where. But, the Government is telling the American people that growth will return and the fundamentals of the economy are sound. Both statements could not be any further from the truth. My observations suggest to me that the 2nd quarter is going to be worse for the retail sector, which will bring down the economy further as 71% of the nations GDP is dependent on the consumer.

Friday afternoon Federal Express (FDX) cut their earnings forecast citing rising fuel and weak shipping demand. I underlined the weak shipping demand part because the media is not discussing this. They are focused on talking about the rising cost of fuel hurting the big shipping giant. But, the company said that they are experiencing lower demand for domestic express shipments and less then truckload freight services. This should be what the media highlights the most, not just the fuel costs. Lower demand for shipping services means less people buying goods and less shipping by corporations as their sales slow.

The recession that the media says will never happen sure is getting here in a hurry.

Events for this week:

Monday

9:15 am : Fed member Evans speaks on the economy in Illinois

2:00 pm : April Budget Statement  (last $177.7B)

7:15 pm: Fed member Lockhart speaks about financial markets

Earnings:

Before the Open: KDE, ARQL, BKUNA, BLG, CNTY, CHTR, CDE, CODI, CRYP, DTG, DHT, EMAG, EMMS, EVR, GNA, GTXI, HL, HOC, HWCC, IMAX, IPSU, IMB, VTIV, ISIS, JASO, JRT, KNOL, MBI, MED, NNI, NUHC, ORBK, OHB, PEIX, PWRD, PETS, PMI, RDN, RADN, S, SPF, TTI, TRGL, VAL, XOMA.

After the Close: BYI, BWY, CTLM, CBAK, CLWR, COGT, CUZ, DTSI, DXPE, FLR, KNXA, LDK, MDR, MIVA, NMSS, NUAN, PROS, PGIC, TWTC, WRNC, WSPI, XFML, ZOLT.

Tuesday

6:10 am : Fed member Pianalto speaks on monetary policy in Paris

7:45 am : ICSC/UBSW chain store sales

8:20 am : FOMC Ben Bernanke speaks on liquidity measures

8:30 am : April Import Price Index (last m/m 2.8%, y/y 14.8%)

8:30 am : April advance retail sales

9:15 am : Fed member Warsh moderates discussion on Sarbanes-Oxley Act

10:00 am : May March Business Inventories (last 0.6%)

11:00 am : Fed member Plosser moderates discussion on fair disclosure

1:00 pm : Fed member Yellen speaks on US economic outlook

1:00 pm : Fed member Hoenig speaks on US economic outlook

1:30: pm : Fed member Fisher speaks about the Fed and the economy

8:00 pm : Fed member Evans speaks about the economy

Earnings:

Before the Open: CCJ, CSIQ, LNG, CFSG, COMV, DISH, ESLT, FSRV, FOSL, FNDT, GIGM, GLUU, HELE, HOKU, IAG, IGLD, KEM, LIZ, SENO, SIRI, TJX, VSE, WMT.

After the Close: AMAT, CALL, CVLT, CHCI, DIET, ERTS, FLML, GXDX, GIVN, HI, HRC, HMIN, PODD, MELI, MRGE, OPNT, PAAS, PLAB, WFMI.

Wednesday

7:00 am : MBA mortgage applications

8:30 am : April CPI (last m/m 0.3%, y/y 4.0%)

8:30 am : Fed member Rosengren speaks at Boston conference

9:15 am : Fed member Kroszner speaks at Boston conference

10:30 am : Crude Oil inventories

12:00 pm : Fed member Lockhart speaks financial market conference

4:40 pm : Fed member Yellen speaks about FOMC meetings

Earnings:

Before the Open: ALLT, MT, ACAT, DE, DSX, EVEP, FTE, FRE, ITRN, JBX, M, NICE, CHUX, REDF, SNE, ELOS, BRLC, TEF, TTEC, VSAT, WATG.

After the Close: ACXM, ANW, A, STV, IMOS, CTRP, CUB, FNET, PDLI, PETM, QSII, RUBO, SLRY, SINA, SPTN, SXE, SNS, TK, UTSI.

Thursday

8:30 am : Initial Jobless Claims (last 365K), continuing claims (last 3.02M)

8:30 am : May Empire manufacturing index (last 0.6)

9:15 am : April Industrial Production (last 0.3), April capacity Utilization (last 80.5%)

9:15 am : Fed member Evans speaks at banking conference

9:30 am : FOMC Ben Bernanke speaks on banking risk management

10:00 am : May Philadelphia Fed index (last -24.9)

10:30 am : Natural gas inventories

10:50 am : Fed member Dudley speaks at Fed panel

1:00 pm : May NAHB housing market index (last 20)

7:00 pm : Fed member Mishkin speaks on asset price bubbles

Earnings:

Before the Open: AHR, ASFI, BX, BBI, CHNL, CYPB, DAI, DRQ, DFT, ELON, FRP, FRPT, FSIN, GILT, IART, JCP, MEMY, MESA, MF, MLNM, PDC, PBH, QXM, RSTO, SGK, URBN, WNR, WPL, XMSR.

During Trading Hours: MNTG.

After the Close: AAP, ADSK, BE, BMC, BRCD, CPWR, EXAR, FMCN, GA, HPQ, IUSA, KSS, KONG, LRCX, LTXX, MNT, NINE, JWN, QTM, CRM, TMA, CHIP.

Friday

8:30 am : April Housing Starts (last 947K), April building permits (last 928K)

10:00 am : University of Michigan consumer confidence (last 62.6)

11:20 am : Fed member speaks on mortgage market

Earnings:

Before the Open: LABL, YGE.

After the Close: ANF.

We will have the full wrap up with some new charts over the weekend. The day ended down with some additional indicators showing a weakening economy. The credit crisis was thought to be over, AIG showed us it is not. When Bear Stearns imploded in March everybody forgot about the economy, thinking everything was all about credit problems only. But, retail sales clearly show a significant trend towards bulk purchasing, discount store buying for groceries, and rapidly rising credit card debt. Signs of a consumer that is stressed to the limits.

Now we add the increasing oil costs and still unabated rising food costs and this only gets worse. Those who have thought that the 2nd quarter of this year was going to be a rebound in the economy will be surprised that it will very likely turn out to be worse than the 1st quarter. And stocks have been trading on the premise that the 2nd quarter things would improve, guess again. The market is starting to think about this and as we are seeing the money slowly being taken back out.

We will have more over the weekend..

Tonight after the close we got this off the wire…

FDIC CLOSES ANB FINANCIAL; BANK IN ARKANSAS WITH $2B IN ASSETS, $1.8B IN DEPOSITS
- http -> www.anbfinancial.com Banks states itself as AR’s first internet bank - Assets will be transferred to Pulaski Bank & Trust as of Monday.
- FDIC states it will need to expense about $215M in Federal Insurance costs to depositors (12% of total deposits) This is the third bank shut by the FDIC in 2008.

What started as a down day, ended as a down day.  A couple of spikes today, but they were brought right back down. Volume is still quite low on a six-month average.  Daytrading, while watching your back, remains my mantra.  The US dollar remains in trouble and gold isn’t giving up it’s gain today. 

FDX (Federal Express) Cuts Q4 forecast:

  DUE TO ENERGY COSTS:  NOW SEES Q4 EPS $1.45-$1.50 V $1.69E  (PRIOR GUIDANCE RANGE HAD BEEN $1.60-$1.80)
- FDX says fuel costs up 7% since its previous forecast

That’s quite a cut in guidance.  I really don’t think rising fuel costs are going to abate any time soon.  The proposals coming out of the government are not going to be effective.  Let’s hope they will finally deal with this "oil" problem before it’s too late.

Things are looking pretty weak here.  "Hanky-Bernanke" better come out with some announcement soon.  Perhaps, "A chicken in every pot, an iPod in every hand, free ice cream and candy, pony rides, AND we’ll pay your mortgage for 10 years."  Yep, that could do it.

STIFEL NICOLAUS CUTS AIG TO HOLD FROM BUY (TIMING UNCERTAIN)
- Stifel cites "massive uncertainty" surrounding the future performance of the company both on an
  operational and investment basis

No offense Stifel Nicolaus, but didn’t you think last quarter was more than a first clue.

NEW JERSEY REPORTS APRIL CASINO REVENUES $365.5M, -7.9% Y/Y
- TRMP Marina, Plaza and Taj Mahal $74.1M v $80.2M y/y

Well, I’m not surprised.  All the gamblers are on Wall Street.

Citi’s CEO is saying the company is "well capitalized" and they are only raising capital because there is opportunity to do so.  He says that in this environment having excess capital is a strength.  The CFO says they intend to wind down assets in the mortgage portfolio and reduce exposure in banking and fixed income.  Also, says they will increase exposure in other areas, including commodities (nothing like being late to the party).  The next few quarters are unlikely to be in line with averages and they expect an increase in credit costs.  He also says:

- Will be able to wind down assets from $500B to less than $100B in two or three years, but process may take longer.
- Over the next years will generate $40B extra capital.

The CEO says the company is ‘long the world, and heavily overweight emerging markets’.  I’m not even going to pretend I understand this blather!

ED (ConEd) files two proposals to raise power rates in New York state .  Lovely.  First, maybe they should figure out how to keep the power on!
- first plan seeks $654M in added revenue, alternative proposal would increase revenue by $567M

The dollar continues to weaken and so do the indices.  Should be an interesting afternoon.

MAR US TRADE BALANCE: -$58.2 V -$61.0BE
- Prior revised from -$62.3B to -$61.7
- Imports declining 2.9% M/M, the most since Dec 2001, to $206.7B
- Exports fell 1.7% M/M to $148.5B

So far, in AIG’s Conference Call, the CEO says they raised the dividend as an expression of their view of long term strength in the company.  He says the credit downgrades are manageable.  They are filing for a rate increase for the US auto insurance business.  Life insurance is performing well outside of the US.  They expect mortgage insurance and loan units to be affected into 2009 by credit market and housing weakness.

Futures are down, along with the dollar.  European markets are down, as well.

I am going to start off with the earnings tonight from American International Group (AIG).  AIG reported a loss for Q1 (January to March) of $7.8 Billion Dollars! A loss that dwarfs the loss they had in the previous quarter, which by the way, was thought to be a "the kitchen sink" quarter then. Well, it was not the kitchen sink and today’s earnings show just how bad the situation with the economy and the financial system really is. AIG needs cash, badly! They are looking to add $12.5 Billion Dollars to the balance sheet to strengthen their operating cash flow. One method they will use to raise the cash is to sell $7.5 Billion dollars worth of common stock and equity units. We don’t know the ratio of how much stock vs equity units is going to be sold yet, that will probably come out in the conference call Friday morning. But anyway you look at this, that is some substantial money they need to raise.

But, you want to know what the most bizarre, and in my view, one of the most stupid decisions they also made today? They are going to raise the dividend by 10% to $0.22. Now, you just lost $7.8 billion dollars, you are going to put new shares into the market and dilute the existing share holders, your credit ratings were immediately lowered following the earnings release by Standard & Poors and Fitch, and you are going to raise the dividend! Are you nuts? Well, I guess if you are going to give your share holders a Chrysler building up the back side, you might as well as give them a morphine pill so they don’t feel it as bad. That is what raising the dividend is all for, to make people feel better about losing a lot of money on their investment. The 10% dividend increase will do nothing to offset the losses in the stock price as I see it. We have no forward guidance yet, and I expect we will learn more during the conference call, but from this vantage point tonight it would appear that AIG is in very serous trouble.

On the announcement from AIG, the S&P futures dropped fairly substantially and have set the tone for a lower open tomorrow. Remember that AIG is a DOW 30 component.

(S&P Futures - 5 Minute Chart)

Today’s trading was an attempt to break the now forming down trend in the markets, but it was unsuccessful. The bear market rally from March is appearing more and more to be over. We still need further down ward movement to confirm, but at this time anyway it looks to be building down ward momentum. Earnings tonight from many of the companies that reported were dismal. Many companies that flew by my screen wire service were not good at all. My back of the envelope calculation shows me that the average earnings for the quarter may have dropped by another percentage point on today’s earnings alone. We’ll know on Monday if this was true when the WSJ runs their next report.

The US dollar has been showing some weakness building over the past two days. The chart below shows the dollar on a 60 minute scale and the current resistance and support. The break below the triangle pattern last month has resulted in a technical retrace of the resistance level. Should the overhead resistance hold, and the price break below the trend line, then we have established a new down path in the making.

(US Dollar Index - 60 minute chart)

What’s happening tonight?

SOUTH KOREA: APRIL PPI YOY: 9.7% V 8.0% PRIOR; MOM: +2.6% (FASTEST MONTHLY RISE SINCE JAN 1998)

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AUSTRALIA: RBA QUARTERLY MONETARY POLICY STATEMENT: RAISES INFLATION FORECAST FOR 2008, CUTS GROWTH FORECAST; MONETARY POLICY SETTINGS CURRENTLY APPROPRIATE
- CPI Forecast At 4.5% By End-2008
- GDP Expected At 2.25% In Dec 2008, 2.75% Dec 2010
- Significant slowdown in demand needed to curb inflation.
- Too early to gauge full impact of rate hikes so far.
- Noticeable restraint in home and business lending demand.
- Rate of unemployment forecast to increase, wages to fall
- Currency: Strong AUD to slow exports near-term

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THE RECENT MARKET REBOUND? JUST A SUCKER’S RALLY - HENRY BLODGETT AT CHERRY HILL RESEARCH
- "Wall Street predictions are wrong about half the time, so take them all with a grain of salt. That said, the current views of Morgan Stanley strategist David Darst have more logic going for them than most. And Darst is about as bearish as brokerage strategists get." Adds: "Contrary to the predictions of those who view the market’s recent rally as a sign that it’s off to the races again, Darst says we are following a classic bear-market pattern."

- Darst explains that bear markets tend to unfold in three stages: "1) Big sell-off (which we saw in the crescendo leading to Bear Stearns collapse). 2) "Big sucker’s rally (the month of April, with GM up 22%, Citi up 18%, Japan up 11%, and so on)." 3) A long, inexorable, relentless, grinding lower that takes 6 months, 9 months, a year."

- "The biggest difference between bullish perception and actual reality? Profit expectations. Rosy-eyed analysts are still looking for 11% profit growth this year, says Darst, while Morgan Stanley thinks earnings growth will only be 3%. If this profits cycle follows the usual pattern, even Morgan Stanley’s prediction will probably prove optimistic."

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PREMATURE EUPHORIA - ALAN KOHLER AT BUSINESSSPECTATOR.COM
- Happy days are here again. Well, actually they’re not: if anything, things are still fundamentally getting worse, in three ways:

- 1) "Food and energy prices are both at record highs and showing no sign yet of returning to “normal”, whatever that is from here on in." Adds: "Not only will the high prices constrain household spending, but central banks now have one arm tied behind their backs (last night the ECB left rates on hold because of the risks to inflation)."

- 2) "The Western world housing crash is worsening, not getting better. In the US the speed of the decline in house prices is, if anything, accelerating as inventories grow as a result of rising defaults and foreclosures because of resets on adjustable rate sub-prime mortgages."

- 3) "Credit conditions in the US are continuing to tighten, not loosen. In the latest Federal Reserve senior loan officer survey published last month, 55 per cent of domestic banks – up from 30 per cent in January – reported tightening lending standards to large and middle-market firms over the past three months, and 70 per cent of banks reported that loan spreads were rising."

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ACCORDING TO S&P, THE PACE OF US DEFAULTS IN THE FIRST 5 MONTHS OF THE YR IS THE FASTEST SINCE 2003- FT
- YTD 28 entities have defaulted in North America and the defaulted debt totals $18.4B

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CITIGROUP MAY TODAY ANNOUNCE MORE THAN $200B IN NON-CORE ASSETS THAT COULD BE SOLD - FT
- Citigroup’s CEO is also expected to confirm his plan to cut the firm’s costs base by about 20%.
- As expected, the CEO is expected to reject calls for a breakup of Citigroup.
- The report cites unidentified people close to the matter
- Follow Up: A later FT report said that Citigroup may identify as much as $400B in non-core assets that could be sold.

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ECONOMISTS SAY THE COMMODITY SURGE ISN’T A BUBBLE
- WSJ survey of commodity analysts: "Fifty-one percent of the respondents said demand from China and India was the prime factor in soaring energy prices, and 40% said demand was the chief contributor to rising food costs. Constrained supply was cited second most-often; 20% blamed supply problems for higher food prices and 15% for increasing energy prices." 11 percent did say prices are soaring amid the creation of a speculative bubble.
- On the Fed outlook: Sixty percent of economists surveyed by the WSJ say the Fed is concerned enough about inflation. They expect interest rates to stay on hold at 2 percent for the rest of the year.
- The credit crisis is still a crisis, according to the survey: Just 36 percent thought it was mostly over, and 62 percent said we’re only at the halfway point of the crunch

And one more bit of news for today. On the radio today I heard an advertisement from the US Government for Food Stamps. Yes, the Government is running commercials on how to get food stamps. The commercial speaks to how there should be no shame in applying for food stamps. This is the first time I ever heard the Government run commercials for food stamps and it was somewhat chilling to listen to.

See you in the morning…

Indices closed in the green, but today was weak with plenty of selling into every "rally".  Do not turn your back on this market for a second!  Priceline (PCLN) reported Q1 of $.76/share and revenue of $403M.  And, to one of our readers (you know who you are):  Do not ask me how PCLN did this if the consumer is in trouble!  They are taking market share from competitors.  Look at their competitors’ earnings.  I like this company, just not their share price. 

AIG (American International Group) reports earnings:

Q1 -$1.41 V -$0.76E, R $ V $31BE; TO RAISE ABOUT $12.5B IN CAPITAL

- Q1 net premiums written $12.1B flat with Q1 2007
-  AIG also today announced a plan to raise approximately $12.5 billion in capital to fortify its balance sheet and provide increased financial flexibility. The capital is to be raised through a common stock offering and an equity-linked offering for an aggregate of approximately $7.5 billion. At a later date AIG also expects to issue high equity content fixed income securities. These offerings are designed to further strengthen AIG’s significant financial resources and will enhance its ability to grow while maintaining the strength to withstand potential short-term market volatility.

They are going to dilute their stock to raise this capital.  So this next announcement has us really shaking our heads.

INCREASING CASH DIVIDEND 10% TO $0.22
- The dividend is payable on September 19, 2008 to shareholders of record on September 5, 2008.

What??!!  Will they have the money by September?  Are we just supposed to trust that they will?  Ok, I admit we are simply sputtering at this point.  We’ll have to think about this one.  It isn’t trading at this time.

Update:    S&P CUTS AIG’S RATING TO AA- FROM AA; RATING ON WATCH NEGATIVE

AEM (Agnico-Eagle Mining) reported, too.  Q1 $0.20 V $0.24E, R $119M V $141ME  Last quarter they reported $0.25 v $0.23e, R $114M v $121Me.  So revenue was up, "per share" was down. 

I guess you could consider this good news, it could have been even more Billions submitted (whatever):

NY FED”S TSLF AUCTION:  PRIMARY DEALERS SUBMITTED $28.77B IN BIDS IN $50B 28-DAY AUCTION, BID TO COVER RATIO 0.58 V 0.96 PRIOR; ALL $28.77B ACCEPTED
- Stop out rate 0.25%

Top Stories

Stocks Edge Higher as Retail Sales Reports Arrive- AP

Wall Street rose modestly Thursday as investors sifted through retailers’ April sales figures, trying to get a sense of how consumers are faring in a climate of economic weakness and rising costs.

• Retailers Post Better-Than-Expected Sales- AP  Huh?
• Jobless Claims Post Sharp Decline- AP  Double Huh?
• ECB, BoE Leave Rates Unchanged- AP
• Best Buy Enters Joint Venture With Carphone Warehouse- AP
• Oil Steady After Record Near $124- AP
• Toyota Reports 28 Percent Drop in Fiscal 4th Quarter- AP
• Five Reasons to ‘Sell in May and Go Away’- Tech Ticker

As of 10:30am ET, volume was still below the six-month average with advancers and decliners about par.

Natural Gas Inventories were within expectations: +65 BCF VS. EXPECTED RANGE OF +60 TO +65 BCF

MARCH WHOLESALE INVENTORIES:  -0.1% V 0.5%E
- prior revised from 1.1% to 0.9%

HankyPanky Paulson says he expects the tax rebate checks to help consumers "right away" (a little sense of urgency there it seems) and reiterates that the US economy prospects remain ’solid’.

FITCH DOWNGRADES CIT ISSUER DEBT RATING TO A- FROM A, OUTLOOK NEGATIVE; AFFECTS $62B IN DEBT