Rebel Traders – Analysis Without The Hype

Jim Cramer’s company “TheStreet.com” is being investigated by the SEC – Reuters

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Greece – on again, off again bailout issue:

 (GR) Greece Official: May seek IMF aid during April 2-4 Easter weekend, in steady contact with IMF Chief Strauss-Kahn

- No more bond sales likely until after Mar 25th EU Summit.
- Notes the rift with Germany over the debt crisis is deepening.

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 US Economist Stiglitz: Global financial system remains volatile – Dim prospects for sturdy recovery.

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Taiwan Semiconductor Manufacturing Co Noted in H2 the chip market may slow – The report cites the company’s Chairman Chang.

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Toyota Motor Corp Conducting review of consumer complaints of random stalling on about 1.2M Corolla and Matrix models. – States stalling problem does not "create unreasonable risk to vehicle safety".
- Wants to meet with NHTSA to discuss response to stalling problems.
- Attributes stalling to cracked solder in engine control module.

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(KS) North Korea has executed an official in relation to the country’s recent currency reforms – Yonhap

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(CH) Adviser to China’s banking regulator has proposed a forex tax aimed at slowing hot money inflows – The article cites Andrew Sheng, who said the purpose of the tax was not to increase transaction costs but to locate who was speculating in the currency market.
- Sheng said China should initially set the mooted "Tobin tax" at zero to serve as a warning to speculators.
- Sheng used to be the chairman of Hong Kong’s Securities and Futures Commission.

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(JP) JAPAN Q1 BSI LARGE ALL INDUSTRY Q/Q: -2.4 V -1.9 PRIOR; LARGE MANUFACTURING Q/Q: 4.3 V 13.2 PRIOR (second consecutive quarter of decline for both measures)

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Bank of America Corp Sued for $100M by a Dutch pension fund – The pension fund, ABP, is alleging that Bank of America hid billions of dollars of Merrill Lynch’s losses.
- According to the suit, Bank of America withheld details of a secret document it signed with Merrill Lynch guaranteeing the payment of up to $5.8B in bonus payments

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Pioneer Corp May cut company wages by about 5% – Nikkei News

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Sirius XM Inc Receives NASDAQ Letter Regarding Minimum Bid Price Rule

- Announced that it has received a letter from the staff of The NASDAQ Stock Market LLC ("NASDAQ") stating that the Company has not regained compliance with the $1.00 minimum closing bid price requirement for continued listing on The NASDAQ Global Select Market under NASDAQ Listing Rule 5450(a)(1). The Company will request a hearing before a NASDAQ Listing Qualifications Panel (the "Panel") at which it will ask for continued listing on NASDAQ pending its return to compliance. As a result, the NASDAQ staff’s letter has no effect on the listing of SIRIUS XM’s common stock at this time.

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Blockbuster Inc Fitch downgrades IDR to C from CCC

- downgrade of Blockbuster’s ratings follows the company’s 10-K filing which outlined its initiative to exchange all or a part of its senior subordinated notes for class A common stock.
- Fitch remains concerned about the company’s operating model and pressures on its business due to the changing industry dynamics and intense competition from various channels. Given the deteriorating operating performance, Fitch expects credit metrics will continue to weaken in 2010.

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Wells Fargo & Co Wachovia Enters Into Deferred Prosecution Agreement

- Wachovia Bank, N.A. (Wachovia), one of the largest banks in the United States, has entered into a deferred prosecution agreement with the U.S. Attorney’s Office in the Southern District of Florida and the Asset Forfeiture and Money Laundering Section of the Criminal Division of the Department of Justice to resolve charges that it willfully failed to establish an anti-money laundering program.
- Today’s agreement is the result of an investigation into Wachovia’s transactions with Mexican currency exchange houses, commonly known as "casas de cambio" (CDCs).

As part of the agreement filed today, Wachovia has agreed to forfeit $110 million to the United States, which represents proceeds of illegal narcotics sales that were laundered through Wachovia. FinCEN also assessed a $110 million civil money penalty that is deemed satisfied by the forfeiture to the U.S. government, for serious and systemic BSA violations. Moreover, pursuant to the terms of the agreement and the OCC’s separate Cease and Desist and Civil Money Penalty Orders, Wachovia has agreed to pay an additional $50 million fine to the U.S. Treasury. The total sum of $160 million is due within five days from the date of the agreement.
- The government has agreed to defer prosecution of the criminal charge in the information for 12 months. If Wachovia fully complies with its obligations under the agreement, the U.S. agrees to dismiss the criminal information at the end of the 12 months.

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 (US) San Francisco FHLB has sued 9 Wall Street firms – WSJ

- The purpose of the suit is to rescind mortgage deals with the firms.
- The suit is seeking a $19B refund on residential mortgage-backed securities that the FHLB purchased at the peak of the housing bubble.
- The specific firms who are being sued were not disclosed.

As I reported on yesterday (New Jersey Cuts Pension Contributions And Cuts Aid To Schools), the impact of the Governor’s plan to cut school aid by $820 million is already being discussed at just about all school boards across the state. School boards are already facing their own budget issues and they rely on the aid from the state to help offset some of the costs.

There are more than a handful of school systems around the state that should be shut down entirely for poor performance and wasteful spending at the tax payers expense. But, in many of the smaller towns and municipalities there are some good schools, and some good teachers. And it is likely that the smaller the community, the deeper the impact will be under Governor Christie’s planed budget cuts as it is the smaller towns that are experiencing more of a declining student population and revenues.

I already know of some school boards in my part of the state that are projecting upwards of 10% reduction in staffing should the budget cuts become reality. The layoff calculation is based on the NJ Department of Education 2009 stated number of teachers in the state, and that number is 112,933. The New Jersey Education Association (NJEA) states that their membership is 178,858 teachers, and this number includes support staff. As it is likely that the budget cuts will impact the support staff as well as the teachers I have simply taken the difference between the two in order to be conservative in my calculation. And I also estimate that the staffing cuts will range between 5% and 10%, so to keep things simple I used 7.5% as a middle of the road figure. Based on these conservative calculations it is that I estimate that upwards of 10,950 teachers and staff will be directly impacted in New Jersey.

Should the average staff reductions be closer to the 10% number then staff reductions could climb to 14,590.

This will likely be a very heated and contentious battle, and it is likely to end up in the courts. 

Items that have come over the wires…

*  Harvard’s Feldstein: Greece’s austerity plan will fail; says country might quit the euro to fix its fiscal crisis – Believes the idea that Greece can go from a 12% deficit now to a 3% deficit two years from now seems fantasy.

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* Reportedly German Feb tax revenues declined just under 3% y/y – German press

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*  US Economist Stiglitz: There are ‘legitimate concerns’ about the USD; Countries will diversify reserves

- US national debt will prompt volatility of the dollar
- Weak USD could help US economy and aid in short-term benefit in exports
- Global imbalances were not the cause of the global crisis but poor regulation
- China Yuan (CNY) currency appreciation will not fully solve trade imbalances
- Stronger Yuan could affect China’s demand for US Treasuries
- Inflationary spiral from central banks unlikely
- Sees higher interest rates as Fed ends mortgage debt purchases and risks more foreclosures; Commercial mortgage market to worsen
- Fed might ‘exacerbate’ strain of US families and 2010 foreclosures to exceed levels in 2008 and 2009
- Bank needs to get back to banking; US and Japanese banks have little desire to lend
- Risk of double dip recession depends on policy

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*  BOJ LEAVES RATES UNCHANGED AT 0.10% AS EXPECTED (vote unanimous); Expands 3-month 0.1% funding operation to ¥20T from ¥10T (5-2 vote); Economic assessment unchanged

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(UK) EU to suspend hedge fund regulation plans following UK PM Brown rejecting EU’s Alternative Investment Fund Manager directive into law

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According to a WSJ/NBC poll, 36% of voters believe the health-care overhaul bill is a good idea vs 48% who see the bill as a bad idea; President Obama’s approval rating holds steady at 48%

- In terms of the health care bill, 36% of voters said they would be less likely to support their member of Congress if he or she voted for the health care bill and 34% said they would be less likely to support their representative if he or she voted against it.
- The approval rating for Congress was 17%, half of Americans said if they had the choice they would vote to replace every member of Congress.
- 67% of Republicans said they are very interested in the Nov elections vs. 46% of Democrats.
- About 6 out of 10 American’s said the country is on the wrong track.

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US multi-national companies are being urged by the Chinese government to lobby against the Obama Administration’s alleged protectionist measures against the yuan currency

The newly seated Governor Chris Christie is taking hard steps to curtail costs. His plans won’t be popular to say the least.

New Jersey Governor Chris Christie proposed a $29.3 billion budget that would suspend property-tax rebates, skip the state’s $3 billion pension contribution and fire 1,300 workers next year. […]

The plan would reduce aid to schools by $820 million, towns by $446 million and higher education by $173 million. […]

Christie said he will ask lawmakers to institute an immediate 2.5 percent spending cap on state and local governments. The legislation would be used until a permanent, constitutional amendment can be approved. […]

[…]“All this is doing is pushing the state’s budget problems down to the local property taxpayers,” Assembly Budget Committee chair Louis Greenwald, a Cherry Hill Democrat, said in an interview yesterday. “I get the argument that the wealthiest New Jerseyans have options, but I wish they would get the message that many middle-class taxpayers don’t.” […] (Business Week)

Here in the State of New Jersey we have the highest property tax of any state in the nation. The property tax rebate (aka homestead rebate) was, albeit not much, at least something to offset the record high property taxes in New Jersey. Without the tax rebate to offset property taxes it amounts to a property tax increase for New Jersey home owners.

A reduction in aid to municipalities has a deep trickle down impact. Towns of all sizes, who are already facing their own budget problems will be forced to either raise local taxes, or curtail services even further, thus increasing those who are forced out of a job.

Earlier today Senator Chris Dodd (D-CT) held a press conference where he discussed the main points of his financial (non) reform bill. As expected the bill appears to be nothing more than more committees, more regulators to monitor other departments, and more rhetoric about Too Big To Fail.

Mr. Dodd is really trying to appease the average hard working Americans in a big way. One of his opening statements is tailored towards the main stream population.

Why Change Is Needed: The economic crisis was driven by an across-the-board failure to protect consumers. When no one office has consumer protections as its top priority, consumer protections don’t get the attention they need. The result has been unfair and deceptive practices being allowed to spread unchallenged, nearly bringing down the entire financial system.

Mr. Dodd claims that the financial crisis was driven by a failure to protect consumers. While consumers are always being screwed by large corporations, it is hardly the cause of the crisis. The financial crisis was conceived when Glass-Steagall was essentially abolished in 1999. This opened the door for Wall Street to dabble in all kinds of exotic and dangerous securities, mainly mortgage backed securities. After Glass-Steagall was brought down then came the removal of leverage limits.

Because Glass-Steagall was no longer in effect, it allowed everybody to play with the securities which we now know turned out to be improperly rated, misrepresented, and sold by Wall Street as if they were as solid as a gold bar. The only part that involved the consumer was when Wall Street needed more and more mortgages to bundle up and sell. That led to the ‘no income, no problem’ loans that banks were handing out left and right.

The consumer was nothing but a source of money to continue fueling the demand for more mortgage backed securities. The seeds of the financial crisis had already been planted way before the consumers were being swindled into believing they could get a mortgage for next to nothing. That was just icing on the cake.

The financial crisis is the child of deregulation and greed. Wall Street knew they could get away with just about anything, and they did. They alone created the crisis, not because the consumer was not being protected. How many of your neighbors bought mortgage backed securities? Probably not a single one I would bet. The destructive securities were traded in huge tranches that were moved throughout the world to large hedge funds, pension funds, sovereign wealth funds, and of course traded with other large firms. In the end it became a game of ‘hot potato’, the last one holding it lost the game.

Mr. Dodd’s opening statement just goes to show who he is trying to appease with his financial (non) reform bill. It is to make the public feel better. As far as having any significant impact on Wall Street’s normal way of business, the bill offers little substance. In some aspects the bill may actually create additional loopholes that can be exploited, and give Wall Street a loophole, no matter how tiny it is, they will try to stuff a truck through it.

The full text of the financial (non) reform bill summary:

Senator Chris Dodd – Statement on Financial Regulation

Economic data and earnings scheduled for the week of March 15 to March 19 2010

(all times are US ET and are subject to change)

MONDAY

08:30 March Empire Manufacturing, Chile Feb Copper Exports

09:00 Jan Net Long-Term TIC Flows, Jan Total Net TIC Flows

09:15 Feb Industrial Production, Feb Capacity Utilization

13:00 March NAHB Housing Index

Earnings

Before the Open: AAON, AOB, GSOL, GTXI, HWCC, RDNT, SGK, STRL

After the Close: ATHN, ESC, GOK, HQS, SSW, SQNM, CLUB

TUESDAY

08:30 Feb Import Price Index, Feb Housing Starts, Feb Building Permits, Canada Jan Wholesale Sales

14:15 FOMC rate decision

16:30 API Crude Oil/Gasoline/Distillate Inventories

17:00 ABC Consumer Confidence

Earnings

Before the Open: ARIA, CFSG, CYPB, DSW, EVEP, FDS, FTK, GSI, MDZ, NGPC, SCR, TBSI

After the Close: AIR, ABK, JRJC, NKBP, DFS, EM, KONG, RUE

WEDNESDAY

08:30 Feb PPI, Feb Feb PPI Ex Food & Energy

10:30 DoE Crude Oil/Gasoline/Distillate Inventories

13:00 Treasury’s $21B 10-yr note auction

16:00 Fed’s Fisher to speak about learning from the crisis

Earnings

Before the Open: ATU, WNI, SMTS, TNP

After the Close: CLC, GES, MLHR, IHS, NKE, STRI

THURSDAY

07:30 Fed’s Duke speaks to bankers in Washington

08:30 Feb CPI, Feb CPI Ex Food & Energy, Feb CPI Core Index SA, Q4 Current Account Balance, Initial Jobless Claims, Continuing Claims

10:00 February Leading Indicators, March Philadelphia Fed

10:30 Natural Gas Inventories

11:00 Treasury note announcement

Earnings

Before the Open: CRAI, FDX, GME, MCS, NWY, ROST, SCVL, SMRT, VIP, WGO

After the Close: ADUS, CTAS, ICXT, PALM

FRIDAY

11:50 Former Fed Chairman Greenspan discusses the financial crisis

Earnings

Before the Open: PERY

Moody’s is going to fire a shot across the bow of the USS Obama administration on Monday. The warning shot will state that even the current budget plan that the Obama administration has laid out may still not be enough to save the the AAA rating of the United States.

[…] unless the country gets public finances into better shape than the Obama administration projects there would be “downward pressure” on its triple A credit rating.

Examining the administration’s outlook for the federal budget deficit, the agency said: “If such a trajectory were to materialize, there would at some point be downward pressure on the triple A rating of the federal government.” […]

[…] Pierre Cailleteau, head of sovereign ratings at Moody’s, said: “The size of debt makes the US vulnerable to an interest rate shock . . . but the level of fiscal ambition is not one that secures for sure the [triple A] rating.”

Moody’s worries that the government will struggle to get political agreement either to raise tax revenues significantly from their current low of 14.8 per cent of national income, or to cut federal spending far from its high of 25.4 per cent of national income.

The report follows concerns recently expressed about the US public finances from the other large rating agencies. Standard & Poor’s warned last week the triple A status of the US was at risk unless the country adopted a credible medium-term plan to rein in fiscal spending. Fitch Ratings issued a critical report on the US in January.[…] (The full article can be found at the FT)

Now all three of the ratings agencies have put the United States on notice. Either cut spending by significant amounts, or raise taxes significantly. Which way do you think the administration will go?

Editorial by RebelTraders:

The demise of Lehman Brothers (LEH), which filed for bankruptcy on September 15, 2008, was suicide. And that suicide was for all intents and purposes assisted by the government and the Federal Reserve Bank of New York, then headed by one Tim Geithner.

This week the examiner’s report on Lehman Brothers bankruptcy proceedings was released to the public and it reads like a murder mystery, not all that dissimilar to the board game ‘Clue’.

From my own interpretations of the report thus far, Lehman’s troubles began long before their collapse on September 15 2008. The troubles, heightened by the collapse of the mortgage market and then amplified by a never ending shell game at the hands of upper management, financial officers, and even the independent auditors. Many now claim they had no knowledge of the tricks being played with the books, but, it was their job to know where the money was, and why it was there or not.

Ernst & Young were the independent auditors for Lehman Brothers, they were supposed to be the final check and balance that everything on the books was honest and fairly represented. In that they signed off on the financial statements implicates them by default in my opinion. This reminds me of Arthur Anderson, then auditors for Enron all over again.

What Lehman was doing was hiding bad assets, what otherwise would have impacted their quarterly balance sheets in a negative way by moving them around in a complex shell game called “Repo 105” and Repo 108”. These were essentially conduits to move bad assets off the books, and in turn receive cash for those bad assets. This made the bad stuff disappear for a while so to speak, and the quarterly reports reflected the cash on hand and not the bad assets. Even worse is that Lehman never reported that these were repo operations, instead they recorded these transactions as sales. This alone is fraud, and it should have been known by upper management, including the independent auditors.

Now comes the assisted suicide part. Lehman Brothers was truly sick. As far back as March 2008 the Federal Reserve Bank New York (FRBNY), at the time when Tim Geithner was at the helm, began monitoring Lehman Brothers. The FRBNY devised stress tests for Lehman to gauge the health of the company under adverse conditions.

From page 1488 of the report:

After March 2008 when the SEC and FRBNY began onsite daily monitoring of Lehman, the SEC deferred to the FRBNY to devise more rigorous stress?testing scenarios to test Lehman’s ability to withstand a run or potential run on the bank.5753 The FRBNY developed two new stress scenarios: “Bear Stearns” and “Bear Stearns Light.”5754 Lehman failed both tests.5755 The FRBNY then developed a new set of assumptions for an additional round of stress tests, which Lehman also failed.5756 However, Lehman ran stress tests of its own, modeled on similar assumptions, and passed.5757 It does not appear that any agency required any action of Lehman in response to the results of the stress testing.

In other words, The Federal Reserve Bank of New York devised three separate stress tests and Lehman failed every one of them. Then, Lehman devised its own stress test and they passed. Lehman then submitted the findings of their own stress test to the FRBNY and the issue was put to rest. No one knew at the time that Lehman had failed the FRBNY stress tests except for Lehman and The Reserve bank of New York.

Is this another case where Tim Geithner will say that he had no direct knowledge of the stress testing being done, like he has claimed with certain AIG emails and transactions concerning material information be withheld from the Securities and Exchange Commission?

Why is it that the biggest decisions always happen to take place under the noses of those in charge. To me it seems to be selective memory.

It is my opinion that the problems at Lehman Brothers was known for many months and the FRBNY knew this but kept it secret. In my view the actions of the regulators, the SEC, and that of the New York Reserve Bank was a coordinated effort to hide the problems taking place from the public, this too is fraud. The act of keeping quiet and not disclosing what was known from the stress tests was, in my opinion, the same thing as the FRBNY acting as Dr. Kevorkian. However in this case the death was not painless and the pain was felt by individual investors.

Lehman, under the daily supervision of the FRBNY, played with the books by constantly moving the bad money out of view, falsely creating a better picture of the liquidity situation within the company. It is my opinion that all of this was conducted in a way to protect the knowledge of how Wall Street operates. The 2,200 page report reads like a murder victims coroner report. In it, is enough information that should have upper management at other large firms scurrying like cockroaches in the night when the lights are turned on. The games that were being played at Lehman were, and are, probably being played at other firms to this day in varying degrees, this I have no doubt.

The collapse of Enron was supposed to serve as a wake up call, and actions taken then were to prevent this kind of stuff from ever happening again. But with any regulation comes new ways to hide things.

What is even worse, what is so scary, and what should have everyone unable to sleep comfortably is that the current financial reform bill being proposed by the Senate has absolutely nothing in it of any substance that will change the normal way of Wall Street business. The tax payers will always be on the hook in the event of another big failure or bailout. The financial reform being proposed is nothing more than an illusion that the Government is on top of things and will prevent it from happening again.

In reality, the government is simply coddling Wall Street as they always have, this time under the illusion that the Government is interested in ‘our’ best interests by presenting a financial reform bill that has no teeth, but sounds good on the surface because it uses the publicly identifiable buzz words like “too big to fail”. Really it is nothing but worthless paper in this authors view.

As usual Dylan Ratigan always has a way of explaning things.

Visit msnbc.com for breaking news, world news, and news about the economy

The economy is doing so good now that some states can’t afford to pay tax refund checks. Yes, that was intended sarcasm.

Residents eager to get their state tax refunds may have a long wait this year: The recession has tied up cash and caused officials in half a dozen states to consider freezing refunds, in one case for as long as five months.

[…] "It’s an indicator of how bad it is," says Scott Pattison, executive director of the National Association of State Budget Officers. "You know things are bad when you have to do that."

New York, hit with a $9 billion deficit, may delay $500 million in refunds to keep the state from running out of cash, says Gov. David Paterson. […]

Hawaii’s Department of Taxation says some residents may not see state income tax refunds until the end of August, The Honolulu Advertiser reported. It was part of a plan by Gov. Linda Lingle to deal with a revenue drop-off by pushing costs into the next fiscal period, which begins in July. […]

[…]The delays come as some states continue to face deep budget holes, even as economists say the nation as a whole has begun recovery. In a recent report, the budget officers group and the National Governors Association said state fiscal conditions "have continued to worsen," and that state revenues can be expected to lag one to three years behind a national recovery from recession.

This fiscal year, the report said, 36 states have cut nearly $56 billion in spending, and 30 states have cut funding to public and higher education. (USAToday)

State and local budgets are suffering greatly.

While not the most popular technical indicators in the chartists toolbox, A Fibonacci Time Series analysis does occasionally provide food for thought. Especially on the two S&P 500 charts shown below.

(click on image for full size)

Once again investor sentiment comes to the forefront as more and more of the small retail investors pile into stocks. Investor sentiment has usually served as a contrarian indicator to the market.

From the Pragmatic Capitalist

The warning flags continue to pop up all over the place and investors continue to run head first into stocks.  None of the recent warning flags are as alarming as today’s huge spike in individual investor sentiment.  Small investor bullishness surged to 45.3% versus last week as the market continues to melt higher.  This has served as a fairly reliable contrarian indicator in the past as small investors tend to pile into stocks near the end of rallies.

Individual investor sentiment has reached levels that have historically been followed by very poor equity returns.  A few of the notable periods when investor sentiment was this high include:

• A 50% reading prior to a 3 month 10% sell-off in Q2 2008
• A 45% reading prior to the 2008 market crash
• A 47% reading prior to the 20% sell-off to the March 2009 lows
• A 49% reading prior to the January 2010 sell-off

[…] With institutional investors stacking up on the bullish side of the trade and now individual investors stacking up on the same side you just have to wonder – who is left to buy stocks?   Better yet, who are they going to sell to?

There is a nice graph on the Pragmatic Capitalist page showing the investor sentiment.

Fitch ratings has released an update on Residential Mortgage Backed Securities.

Fitch: California prime jumbo RMBS delinquencies rise to 11.6%; Florida to 17%

California prime jumbo loan performance continued to weaken in February, with 60+ days delinquencies rising to 11.6% from 11.3% in January (and 4.7% in February 2009). During the first two months of 2010 Florida had the biggest jump (nearly 1%) of the five states with the highest volume of jumbo loans outstanding. New Jersey was second of the five states with an 80 basis points (bps) increase over the same period.

The five states with the highest volume of prime jumbo loans outstanding (California, New York, Florida, Virginia, and New Jersey) represent approximately two-thirds of total  delinquencies. Prime jumbo RMBS 60+ days delinquencies for these states at February 2010 compared to the prior month, and their approximate share of the estimated $376 billion market, are as follows:

–California: 11.6%, up from 11.3% (44% share of the market);
–New York: 6.3%, up from 6.1% (7% share);
–Florida: 17%, up from 16.6% (6% share);
–Virginia: 5.7%, up from 5.6% (5% share);
–New Jersey: 7.9%, up from 7.4% (4% share).