Stock Market Summary for July 15th 2008 - SEC Issues Emergency Order

The first thing I want to address tonight is the statement made today by Christopher Cox, Chairman of the Securities and Exchange Commission (SEC) at the Senate hearing. Mr. Cox stated that he will issue an emergency order to "Protect Investors" from what is called "naked short selling".

SEC Enhances Investor Protections Against Naked Short Selling

FOR IMMEDIATE RELEASE
2008-143

Washington, D.C., July 15, 2008 - The Securities and Exchange Commission today issued an emergency order to enhance investor protections against "naked" short selling in the securities of Fannie Mae, Freddie Mac, and primary dealers at commercial and investment banks.

The SEC’s order will require that anyone effecting a short sale in these securities arrange beforehand to borrow the securities and deliver them at settlement. The order will take effect at 12:01 a.m. ET on Monday, July 21. In addition to this emergency order, the SEC will undertake a rulemaking to address these issues across the entire market.

"The SEC’s mission to protect investors, maintain orderly markets, and promote capital formation is more important now than it has ever been," said SEC Chairman Christopher Cox. "Today’s Commission action aims to stop unlawful manipulation through ‘naked’ short selling that threatens the stability of financial institutions. We will continue our vigorous commitment to investors by working within the SEC and in close cooperation with our regulatory counterparts to promote the continued health and vibrancy of our markets."

The Commission’s emergency order, pursuant to its authority under Section 12(k)(2) of the Securities Exchange Act of 1934, will be effective at 12:01 a.m. ET on July 21, 2008 and will terminate at 11:59 p.m. ET on July 29, 2008. The Commission may extend the order to continue it in effect thereafter if the Commission determines that the continuation of the order is necessary in the public interest and for the protection of investors, but for no more than 30 calendar days in total duration.

# # #

The securities identified in the Commission’s order:

Company                                                Ticker Symbol(s)

BNP Paribas Securities Corp.         BNPQF or BNPQY

Bank of America Corporation          BAC

Barclays PLC                                      BCS

Citigroup Inc.                                      C

Credit Suisse Group                         CS

Daiwa Securities Group Inc.           DSECY

Deutsche Bank Group AG               DB

Allianz SE                                           AZ

Goldman, Sachs Group Inc             GS

Royal Bank ADS                               RBS

HSBC Holdings PLC ADS               HBC and HSI

J. P. Morgan Chase & Co.               JPM

Lehman Brothers Holdings Inc.     LEH

Merrill Lynch & Co., Inc.                   MER

Mizuho Financial Group, Inc.         MFG

Morgan Stanley                                 MS

UBS AG                                              UBS

Freddie Mac                                      FRE

Fannie Mae                                      FNM

http://www.sec.gov/news/press/2008/2008-143.htm

Ok, so what is going on here and why the emergency order? We feel that this action is nothing more than a diversion by Ben Bernanke and Hank Paulson, and they have roped in Chairman Cox to play along. There are already rules and regulations on the books with regard to naked short selling. Today’s emergency order in my view was nothing more than an attempt to make the public think that the problems with the banks are a result of ‘market speculators’. Similar to the recent talk that oil prices were all a result of speculators, this order is nothing more than an attempt to make the average person think that the losses in their 401K’s and IRA accounts is a result of market speculators and people who short stocks.

Ben Bernanke and Hank Paulson know the real story. They know that the losses that banks and financial institutions have been suffering are very real and very likely to be much worse than what has been reported so far. Stock prices have been declining because of a lack of confidence in the companies and their ability to continue to making profits. Bernanke and Paulson are attempting anything and everything they can to save the financial system from complete failure and they are now attempting scare tactics and a public relations campaign to shift the blame of bank failures to ‘market speculators’.

This is complete nonsense in my view. I wonder how long it will be before Ben and Hank enlist the military to fly blackhawk helicopters over anyone who speaks the truth about the economy, housing implosion, and the credit implosion. Because the SEC already has rules and regulations to restrict naked short selling there is no need for an emergency order. So it is obvious that this is clearly a public relations campaign to shift the blame to the stock market participants for all the problems. Perhaps Bernanke and Paulson hope that this order will scare people holding shorts in the market to cover, irrespective of whether they are naked shorts or not.  But the main purpose of this order in my opinion is to make the American public "think" that the problems with the banks are all due to actions within the stock market alone. They are attempting to re-direct the anger of the general public who have lost lots of money in their investment accounts from Washington to Wall Street. And that is simply wrong!

The general media does not understand what naked short selling is. So their coverage of this will be distorted and confusing. And the result will be exactly what Bernanke and Paulson want… make Wall Street "speculators" appear as the bad guys for everything wrong in the banks. Even those in the media who should know better are getting it wrong. In a Bloomberg article they say:

July 15 (Bloomberg) — The U.S. Securities and Exchange Commission will limit the ability of traders to bet on a drop in shares of brokerage firms, Freddie Mac and Fannie Mae as part of a crackdown on stock manipulation, the agency’s chairman said. [...]

(full article here)

Notice how their opening paragraph is misleading. It says the SEC will limit the ability of traders to bet on share prices dropping. This is NOT what the emergency order is about. The SEC can’t stop people from shorting stocks, it is a perfectly LEGAL and normal part of how Wall Street has worked since the beginning. But the media is distorting the facts so the general public who does not understand the facts will put the blame of their hardships on hedge funds, traders, and anyone else who is shorting stocks in the normal fashion. Naked short selling is NOT allowed, but it still occurs. But naked short selling is not the problem nor is it the reason for the banking troubles. Washington just wants YOU to think it is.

For a complete description of naked short selling see this explanation on Wikipedia.

Now on to the market technical’s. Pick a chart, any chart. And it will most likely look as if has been through a war. The market has continued to decline even with technical indicators screaming that a bounce is due. Many technical indicators are at a point where a bounce in the market can be expected however the confidence in the economy continues to weaken further and has kept any bounce at bay. The long term outlook for the market continues to be bearish. The short term is very difficult to predict here. It is at these kinds of extremes in the technical indicators that a rapid and strong bounce can take place at any moment,  and it can also be a pre cursor to a violent and sharp sell off.

Our recommendation at this juncture is to stay on the side lines. Unless you are an experienced day trader it is safer to not try and swing trade the market at this time. Preserve your capital. We anticipate a large move coming in the broad markets soon, we just can’t say which direction it will be yet.

Technical’s and fundamentals are at war right now. 

Secretary Hank Paulson - "I Beleive Everything I Say"

One Senator was willing to stand up for the American people today at the hearing with Ben Bernanke, Secretary Hank Paulson, and SEC Chairman Christopher Cox.  Irrespective of the political party that Senator Jim Bunning of Kentucky belongs to, Washington needs more people like him.

Secretary Hank Paulson in my view will go down as one of the worst Treasury Secretaries in US history.

Click on image to be taken to video.

IndyMac Bank & FDIC

Last Friday the new Operating Officer of IndyMac Bank (who was appointed by the FDIC) said the FDIC takeover would be a "non event". He also stated that come Monday morning it would be ‘business as usual’.

In California where IndyMac Bank has their retail banking offices it has been anything but business as usual. Reports of police having to be called in, fights breaking out in lines, and people being turned away unable to get their money.

If this is a sign of what is to come as more banks fail then I don’t hold out much hope for the FDIC to manage anything.

 

 

 

 

Bernanke Gets Yelled At

This was too good not to post, for those of you who didn’t see the hearings today.  I don’t know this Senator Jim Bunning from the lovely state of Kentucky, but today he did Kentucky proud.  At least someone said it, even if it’s too little, too late.  Here it is:

Intel’s Earnings (INTC)

 

Intel reports Q2 of $0.28 vs $0.25e, Revenue $9.5B vs $9.32B expected.  Looks like they beat.  Here’s the other tidbits of their earnings:

REPORTS Q2 $0.28 V $0.25E, R$9.50B V $9.32BE
- Guides Q3 Rev $10B-$10.6B v $10.1Be
- Guides Q3 GMs 58% (+/- a couple of points)
- Sees 2008 Capex at $ 5.2B (+/-$200M)
- Q2 GM’s 55.4%

Just for comparison, this was the Q1 report: 

Intel reported Q1 $0.25 with Rev. of $9.67B, which was basically in line with expectations.  Here’s the rest of last quarter’s tidbits:

- Guides Q2 Revenues $9.0B-$9.6B v $9.23Be
- Guides Q2 GMs 56% +/- "a couple points"
- Sees 2008 Capex at $5.2B plus or minus $200M (unchanged from prior guidance)
- Q1 GM 53.8% v 54% +/- 1%e
- Guides FY08 GM’s 57% +/- "a few points"

Intel Corp CEO: PC market is "strong," continuing to grow, companies’ spending on productivity in "downturn" - shareholder meeting comments

Closing Bell

What does this tell us?

MARKET INTERNALS UPDATE AT 3:30PMET
-  NYSE volume 1.49B shares, about 25% above its six-month average; decliners and advancers are about even.
- NASDAQ volume 2.35B shares, about 35% above its six-month average; decliners and advancers are about even.

It tells us the market was a bloody battlefield today.  That was quite the sell off into the close, with the Dow swinging a good 200 points today, I believe, to end down by 93 points.  The dollar is still losing ground and oil is budging below $138.

I’ll have Intel earnings as soon as they come out.  Stay tuned.

A Blank Check To Paulson

In essence, Paulson and Bernanke have asked for a blank check to use as they see fit for Fannie and Freddie.  I’m speechless, for now.  And this garbage about an "Emergency Order" to curb short selling in Fannie and Freddie, to make short sellers meet conditions (whatever that may be) is the biggest load of **** I’ve ever heard.  Apparently, everything happening in the financial stocks is because of short sellers, not a fundamental crisis.  More details on this later.  "Wow", is about all I can tell you right now.  I wish I could be more analytical and eloquent at this point, but I’m just as susceptible to being blown over as the next guy.

The Battle of the Bulls

The bulls and bears are battling it out today.  The testimony before the Banking Committee is really nothing new, but the market is jumping around faster than a long-tailed cat in a room full of rocking chairs.  Oil prices dropped, but I expect that to be short-lived.  Don’t forget that the market AND oil prices can drop at the same time, there isn’t a sure-fire inverse relationship there.  Stay safe everybody.

Naked Shorting on Fannie and Freddie

This is what SEC Chair Cox said:

SEC’S COX SAYS WILL ISSUE AN ORDER LIMITING NAKED SHORT SELLING OF FANNIE AND FREDDIE

Pardon me, but isn’t naked shorting already against the rules?  And he says he wants to "limit" naked shorting?  I’m listening to the hearings and these guys are not making any sense at all.  AT ALL.  I’m thoroughly disappointed in everyone involved in this hearing today.  Sad, so very sad.

Market Update 10:48am

Do we bounce from here or fall into the abyss?  Wish I knew.  That’s why I’m on the sidelines today.  Here’s more from Bernanke and Bush:

FED’S BERNANKE: HOUSING MARKET IS THE CENTRAL ISSUE FOR THE US ECONOMY, US BANKING SYSTEM IS WELL CAPITALIZED - Q&A
- Must be careful when changing margin requirements.
- US banks are deleveraging, banks are challenged by current credit conditions.
- Less concerned about solvency than banks’ ability to extend credit.
- IndyMac failure was inevitable, given its bad asset quality.
- Emphasizes the need for a bank-like regulator for the GSEs.

PRESIDENT BUSH: REITERATES CALL FOR CONGRESS TO REMOVE BAN ON OFFSHORE DRILLING, MUST ENSURE GSES CAN CONTINUE PROVIDING MORTGAGE CREDIT
- says the GSEs should remain shareholder-owned companies. GSE rescue plan should be part of the housing bill, and FNM and FRE plan is ‘not a bailout’, but provides temporary assistance
- notes US economy shows remarkable resilience, US banking system is basically sound.
- says no immediate fix for energy costs.

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