Market Summary - July 18th 2008

Aside from the declines in the technology sector it was a relatively boring day in the markets. Low volume with wild swings throughout the day. On the news front it was quiet as well. Quiet is a relative term as this has been a very news filled week with testimony from Ben Bernanke and Hank Paulson, the Fannie and Freddie fiasco, more losses from the financial institutions, IndyMac, and the ridiculous crusade against the short sellers.

We have some specific questions concerning certain sectors and indices. Over the weekend we will post the latest technical analysis of the indices and address the specific questions as well.

Today the FDIC released the following press release:

FOR IMMEDIATE RELEASE
July 18, 2008

Media Contact:
202-898-7192
angray@fdic.gov

The Federal Deposit Insurance Corporation (FDIC) has created a Web site that enables depositors at IndyMac Federal Bank, FSB, to verify whether their account is fully insured. The Web site also contains a link to FDIC contact information for customers with further questions about their accounts.

To utilize this service, the depositor must enter the account number to determine the account’s insured status. A depositor with multiple accounts at a failed bank must enter one account number at a time.

The FDIC would encourage customers to utilize this service if they have questions about their deposit status.

Link: http://www2.fdic.gov/dip/Index.asp

I went to the web site mentioned in their statement and I find it interesting that they have it set up with a "drop down" menu for selecting the FDIC seized bank. A drop down menu… hmmmm. I guess the list will grow.

See you over the weekend Rebels..

Market Close

Today’s market close will be delayed a couple of hours. Please check back tonight.

Market Update - 12:00 Noon - Slow Motion Moves

The market opened like a soccer match. First this way, then back up the field the other way, and wait, back again the other way. Makes me want to grab some popcorn and just watch from the side lines 

Not much is happening… Resistance on the S&P 500 charts I highlighted in last nights posts are holding at this time. The weakness from the technology sector has put the brakes on the bear market rally, for now anyway.

The gains in the financial sector are too fast and have gone way too far. We look at this as some really great shorting opportunities coming up. I am simply amazed at the chatter coming from the media again. Any sign, no matter how slight it is they turn it into “this is the bottom” and start opening the champagne bottles to celebrate. Good grief! The economy is facing some of the most difficult challenges it has had to bear for many many decades. And it is not just one problem either. It is multiple issues all at once:

- The worst housing market decline since the Great depression

- Credit markets in deplorable condition

- Credit availability to average consumers has been restricted and tightened, or eliminated altogether.

- People have even been resorting to selling their cars to raise cash, but the used car market is in bad shape as well as resell prices have fallen drastically because their is no market for older cars that use more gas. Trade in values have fallen off a cliff.

- Cost of living has continued to climb which was already on top of a consumer having to use their homes as a “cash advance” machine to help pay their bills.

- Banks and Financial institutions got way over leveraged and greedy in the mortgage market by creating all sorts of ways to bundle up mortgages and trading them like they were baseball cards at a collectors convention. And suddenly their are no more conventions and no where for the cards to be sold. No demand = dropping prices. Residential and commercial mortgages should NEVER have been allowed to be turned into a twisted and distorted investment vehicle that banks and others could buy and sell in the markets. The system needs to go back to the traditional system of a bank issuing a mortgage and holding that mortgage, period. No more of this exotic asset backed securities crap.

- Health care costs are still rising

- Over the past 10 years the amount of money the average person has been able to save has declined steadily and is currently a negative savings rate.

But the banks and financial institutions saw an opportunity where there was loose Government regulation and they ran with it. Let’s hope someone wakes up and says “no more”. Time for the system to stop using the credit and homes of the average person as a means to leverage from and find more ways to make even more money from it. The interest that a bank earns on a mortgage should be all that is needed, but that was not good enough for them. They had to package them up and sell them for more profit. And then those were packaged once again and turned in other asset backed securities, and on and on.

With the housing market implosion all of these ’special’ securities that have been tied to mortgages are unwinding at a faster and faster pace. And much of it is STILL hidden away on the banks level 3 financial statements. This level 3 method of accounting for assets is the skeleton in the closet, they know what it is, but they don’t want the investment community to see what it is for it would destroy the financial statements of the companies if they had to bring those assets and put them on the books and mark them to current market prices.

It has to stop… level 3 accounting must be abolished. The only way FULL trust and confidence can ever be restored in the financial community is to have full and fair reporting. And the games of Wall Street with regard to the short sellers is just so idiotic and amounts to nothing more then Washington, D.C.’s attempt to “control” the free markets.

Ok, I’ll get off my soap box now. Over the weekend I’ll have some individual stocks for you to watch for potential trades.

Keep the comments coming Rebels! We love hearing from you. We know there are many many more of you out there reading but have not chimed in, don’t be shy! We are all here together as one big Rebel family…

Pre Market - July 18th 2008

A battle between Nasdaq and the S&P 500 in the pre market. Nasdaq is under pressure this morning with Google and Microsoft having missed on their earnings and on the other side of the street Citigroup beat the street’s expectations.

Citigroup CEO stated that they expect to see larger losses in the credit card portfolio going forward. But for now the everybody thinks Citigroup is great. Note: we are not part of the ‘everybody’ camp. Short term excitement in the financial sector will be just that in our view.

Options expiration day, watch out for wild swings today.

Citigroup (C) Q2 Earnings Report

The futures were down significantly before Citi posted their earnings.  Futures are now making a big recovery, because Citi’s earnings report was not as horrific as expected.  Not horrific, just terrible.  Who can believe these numbers, however, when there is still so much "voodoo accounting" allowed?  Well, it is what it is.  Remember, today is options expiration.

(C) Citigroup REPORTS Q2 -$0.49 V -$0.66E, R $18.65 V $17.55BE; TAKES A $7.2B PRE-TAX WRITEDOWN
- Q2 Tier 1 capital ratio 8.7%
- Q2 Global Cards $ 5.46B v $ 5.32B +3.0% y/y
- Q2 Total Consumer Banking $7.88B v $7.81 +1% y/y
- Q2 Institutional Clients Group $ 2,94B v $10.26B -71% y/y
- Q2 Global Wealth Management $3.32Bv $3.20 +4%y/y

- Q2  North America -2.0% y/y
- Q2  Europe, Middle East and Africa +16% y/y
- Q2  Latin America +4.0% y/y
- Q2  Asia -49% y/y, Ex-Japan +11% y/y

- Q2 Write-downs on sub-prime related direct exposures -$3.5B
- Q2 Downward credit value adjustment related to exposure to  monoline insurers -$2.4B
- Q2 Write-downs on commercial real estate positions -$500.0M
- Q2 Write-downs of highly leveraged finance commitments $400.0M
- Q2 Write-downs, net of hedges, on Alt-A mortgages -$300.0M
- Q2 CVA on Citi Liabilities at Fair Value Option -$200.0M
- Q2 Gain on auction rate securities inventory  +$200.0M
- Q2 Total Write-downs -$7.20B