RebelTraders

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

My mistake, crude options expire today.  This drop in oil prices doesn’t mean the end of a "bubble", as I’ve heard some say.  CNBC has been all over the "is this a commodity bubble bursting?" analysis today.  One day is not a sudden trend change.  I knew there was a good reason why I wasn’t listening to them anymore.  So in this options expiration week, the market has gone from oversold to (almost) overbought in the blink of an eye.  Who can take this seriously?  Ok, besides CNBC.  But, an oversold bounce has been in the works for awhile now, so it’s not a big surprise.  I do get a headache watching mania, but that’s all right as long as I’m preserving capital and making a few bucks, too!

IBM, MSFT (Microsoft), GOOG (Google) and MER (Merrill Lynch) earnings reports are listed below.  GOOG and MSFT missed, but some analysts are encouraging a buy on dips for GOOG.

GOOG REPORTS Q2 $4.63 V $4.74E, R $3.9B (EX-TAC) V $3.87BE
- Q2 paid clicks +19 %     - Q2 international revenue $2.8B
- Had foreign exchange rates remained constant from the first quarter of 2008 through the second quarter of 2008, our revenues in the second quarter of 2008 would have been $88M lower.

MER REPORTS Q2 -$4.97 V -$1.91E, R -$2.1B V $3.26BE
- Total client assets $, % y/y
- Total U.S. CDO exposure $4.5B v $ q/q
- Q2 net write-down $
- To sell financial data services
- Had $1.7B investment portfolio losses
- Had losses of $3.5B on super sr ABS CDOs
- Had $1.3B resident mortgage exposure losses
- Had a $2.9B credit valuation adjustment negative
- Merrill Lynch completed the sale of its 20% ownership stake in Bloomberg, L.P. to Bloomberg Inc., for $4.425 billion, and as part of this transaction has entered into a long-term service agreement. Merrill Lynch is also in negotiations and has signed a non-binding letter of intent to sell a controlling interest in Financial Data Services, Inc. (FDS), based on an enterprise value for FDS in excess of $3.5 billion.<

IBM REPORTS Q2 $1.98 V $1.82E, R $26.8B V $25.92BE and has upped FY guidance

MSFT REPORTS Q4 $0.46 V $0.47E, R $15.84B V $15.65BE
- Guides Q1 $0.47-0.48 v $0.49e, R $14.7-14.9B v $15.1Be
- Guides FY09 $2.12-2.18 v $2.16e, R$67.3B-68.1B v $67.3B  They are guiding lower.

More later!

What can I say?  This is options, shorts and just garden variety mania.  Here’s the latest pawnshop operation results: (hm…some of the collateral wasn’t accepted)

NY FED: $51.75B IN BIDS SUBMITTED IN $75B TSLF AUCTION, $50.75B ACCEPTED, BID TO COVER RATIO  0.69 V 0.85 PRIOR
- Stop out ratio 0.25%

UBS IS EXITING THE BUSINESS OF PROVIDING OFFSHORE BANKING OR SECURITIES SERVICES TO US RESIDENTS
- Swiss-based advisors will not be allowed to travel to the US to meet with clients.
- Announcement comes as company officers testify before a Senate panel looking into tax evasion. ABC News suggested last night that Government regulators had threatened to cancel UBS US Banking license unless they fully cooperate.

So much for that secret Swiss bank account I was going to open.  Shoot!  The Wall Street Journal reports the following on Wachovia:

Wachovia (WB):  10 SECURITIES REGULATORS APPEARED AT ST. LOUIS HQ, SEEKING INFORMATION ON VARIOUS PROCEDURES AND PRACTICES IN SALES AND MARKETING, INFORMATION ON AUCTION RATE SECURITIES OPERATIONS
- WSJ notes that more than 12 securities agents were subpoenaed by the securities regulators
- The state’s Securities Division is also conducting investigations into auction rate securities sales at Commerce Bank N.A. and Stifel Nicolaus & Co.
- Missouri Securities Division launched an investigation in April into Wachovia Securities and others requesting records and information. Wachovia has not fully complied with requests, "prompting today’s onsite inspection," according to the regulator’s statement.
- The action comes after more than 70 formal complaints were filed with the Missouri Securities Division over the last four months - all from investors that feel they were misled in their purchase of auction rate securities, according to the statement.

PIMCO NOTES IT IS ENTHUSIASTICALLY OVERWEIGHT ON AGENCY MORTGAGE BONDS BY 6%

This came across the wire, and I saw the word "enthusiastically".  I’m almost speechless, but let me give this a shot.  PIMCO is bragging that they bet on the right side of government intervention and manipulation of Fannie and Freddie?  They are proud of this?  Have they become the new "pumpers" of the market?  Something about this stinks, to me, but I should be careful before they send the SEC after me. (kidding)

Oil prices are dropping, I believe futures expire tomorrow along with equities, so I don’t really read anything fundamental in this move.

The Fed set 7 day and overnight repo’s, accepts $7B and $10B, respectively.  Yep, no problems here.  Oil prices are moving back up, but hanging in around the $135.50 area.  Market is all over the place.  Positive Spin Award goes to CNBC again for their reporting on JPM earnings and the Freddie Mac bond sale.  JPM profit down 53%, and they thought it was great that it wasn’t worse.  57% of Freddie bonds were bought by central banks, and they said it shows confidence by foriegn central banks.  They are even a bit excited that the Philly Fed number isn’t as bad as last month: (told you any bad news would be dismissed)

*JULY PHILADELPHIA FED: -16.3  V -15E;  PRICES PAID:  75.6 V 69.3 PRIOR
- New Orders: -12.1  v -12.4 prior
- Employment: -7.3 v -6.9 prior
- Inventories: -7.5  v -12.6 prior
- Six-month business conditions outlook:   18.0 v 21.3 prior<

All of the news will be good, anything bad will be buried (or dismissed) as much as possible.  Maybe. This could be the start of the next bear market rally, or not.  Don’t you just love that decisiveness!  Financials certainly got a boost today.  The last few weeks have seen them beaten into the ground, and then some.  So it’s really no surprise, on top of Wells Fargo reporting alleged good numbers, that there would be some kind of rally.   I’m not as optimistic on WFC as some people are, with the growing delinquencies on their books, but the stock was up over $6 today (31%).  Sure enough, one of the CNBC commentators questioned if this was a sign of a turn-around in the financials.  You know, "the worst is behind us" kind of thing. The drop in oil futures prices was another catalyst to push the market higher.  I’m not impressed with that pullback, either.  But, if it would keep dropping about $5 a day, I could do a happy dance!  Feeling a little nostalgic, I went back through our previous posts to see the progression of the credit crisis.  I had posted this to the site back in December.  It’s not a bad idea to take a look back to see where we’ve come from, because it helps with that short-term memory problem I mentioned earlier.

Hank "give me all your money" Paulson, continues to do his best impression of "I’m from the government and I’m here to help you."  Ben Bernanke continued his useless blubbering before the Senate, and the SEC’s Cox was busy figuring out new rules for the market.  The SEC’s garbage of no naked short selling has turned into a total joke.  Let’s see, we now have something along the lines of "it’s ok to short stocks, but only certain stocks, and it only applies to some traders, but not market makers." (SEC is considering short sale exemptions for market makers).  I thought I was being indecisive!  Make up rules as you go along, to benefit those you like, and next thing you know, you have totally eroded everyone’s confidence in trading in the US market.  Way to go Christopher Cox, Ben Bernanke, and Hank Paulson.  Can’t wait to see what your next trick will be.

JP Morgan reports tomorrow, before the bell.  It’s anybody’s call what they will say or how the market will react to it.  So much is being hidden in these earnings reports, and I don’t know how one regains confidence in the market until that changes.

We are into earnings season and this is options expiration week, so truly anything is possible.  I hate to sound vague concerning the way forward, but we’re watching and waiting with the rest of you.  Daytrade cautiously and take profits out of long positions when you can.  That is the best I can tell you.  The underlying fundamentals have not changed since last week, if anything it’s just getting worse.  Indicators show oversold/extremely oversold conditions in some indices or stocks, while other stocks are not oversold at all.  So we could be looking at a relief rally, or a "sideways" rally.  It’s difficult to say how much "relief" we could get, but we just watch support/resistance levels. Keep an eye on oil prices and we’ll keep you informed of important earnings reports.  The technicals and the fundamentals are at war.  It’s too soon to tell which one leaves the battlefield on a stretcher.

Here’s an updated XLF chart:

This is what we have so far, and the stock is trading down after hours (guidance is lower, margins decreased):

EBAY REPORTS Q2 $0.43 V $0.41E, R$2.2B V $2.17BE
- Guides Q3 EPS $0.39-$0.41 v $0.41e, R $2.10B-$2.15B v $2.18Be
- Guides FY08 Revenues $8.80B-$9.05B v $9.0Be
- Guides FY08 EPS $1.72-$1.77 v $1.74e
- Q2 marketplaces revenue $1.46B (+13% y/y), Skype $136M and Paypal $602M
- Registered users as of June 30 338.2M v 219.6M y/y
- Q2 new listings 19% y/y
- GAAP operating margin decreased slightly to 24.8% for the quarter, compared to 24.9% for the same period last year. Non-GAAP operating margin decreased to 31.9% for the quarter, compared to 32.4% for the same period last year.

Apparently, naked shorting isn’t "illegal".  The SEC even thinks it helps market liquidity, at certain times.

The SEC’s website has this, in part, to say about naked short selling:

Naked short selling is not necessarily a violation of the federal securities laws or the Commission’s rules. Indeed, in certain circumstances, naked short selling contributes to market liquidity. For example, broker-dealers that make a market in a security⁴ generally stand ready to buy and sell the security on a regular and continuous basis at a publicly quoted price, even when there are no other buyers or sellers. Thus, market makers must sell a security to a buyer even when there are temporary shortages of that security available in the market. This may occur, for example, if there is a sudden surge in buying interest in that security, or if few investors are selling the security at that time. Because it may take a market maker considerable time to purchase or arrange to borrow the security, a market maker engaged in bona fide market making, particularly in a fast-moving market, may need to sell the security short without having arranged to borrow shares. This is especially true for market makers in thinly traded, illiquid stocks such as securities quoted on the OTC Bulletin Board,⁵ as there may be few shares available to purchase or borrow at a given time.

Ok, the Dow was up 277 points.  Why?  Well, why not?  Oversold conditions and a drop in oil; and you can’t forget the options week volatility.  Now the talking heads on financial media are giving all kinds of reasons for the move up, and, as always, talking about a bottom.  Traders tend to be afflicted with short term memory problems and can be highly excitable.  Curb those tendencies if you wish to make it in this business, or even if you want to make a profit in your retirement account.  Keep your eye on the big picture at all times.

EBAY and YUM report sometime after the close, but nothing yet.

I really don’t have much else to say (right now) about the market moves today.  I will have a summary tonight with some charts.  Thanks for all the comments today!  We really appreciate them.

As long as people are lining up to buy an incredibly expensive product (iPhone), then maybe our economy is OK after all.  (Paraphrasing, slightly, a CNBC commentator).

The market will continue to bounce around with this being options expiration week, technical oversold levels and lack of confidence still in evidence.  What a combination to deal with.  Be safe!

A Senator has asked Bernanke about the poor savings rate in the US.  He asked Bernanke how people were going to pay for their needs, and save money at the same time, if wages didn’t increase.  Bernanke’s response went something like this:    People need higher paying jobs, which requires more education and they need to be (almost) forced to contribute to 401(k).

Ok.  More education?  The government has done an outstanding job of lowering the standards in public education for decades.  I also know plenty of people with advanced degrees, who are unemployed or under-employed.  Strike one.

Contribute to a 401(k).  Who gets to manage that money that is contributed?  That’s right, the same people who are causing most of the losses right now in the market.  Strike two.

Higher paying jobs.  Educators should be the highest paid professionals, for starters.  Our economy is overwhelmingly a service economy, and you aren’t going to find the "higher paying jobs" in that sector. Strike three.  

*DOE CRUDE: +3M V -2ME;  GASOLINE:  +2.4M V -100KE;  DISTILLATES: +3.2M V +1.8ME;  UTILIZATION:  89.5% V 89.3%E
*API Inventory:
- Crude Inventories: +5M
- Gasoline:  +1.6M
- Distillate: +5.4M
*DOE:
- Distillate Demand -146K bpd to 4.12M bpd
- Gasoline Demand -3K bpd to 9.34M bpd

The build in crude is leading to a drop in the oil price.  It’s trying to put some steam into the rally, but I would still be cautious of the initial reaction.

Ugly, just ugly. 

JUN CONSUMER PRICE INDEX M/M: 1.1% V 0.7%E; CPI EX FOOD_ENERGY M/M: 0.3% V 0.2%E; CPI NSA:  218.815 V 217.903E
- CPI y/y:   5.0% v 4.5%e,  Highest since April 1991
- Core CPI y/y:  2.4% v 2.3%e

June CPI  Table

                            June 08     May 08     Year/Year
CPI All Items             1.1%        0.6%       5.0%
CPI, Ex Food,
Energy                         0.3%        0.2%       2.4%

  Food & Beverages       0.7%        0.3%       5.2%
   Housing                        0.5%        0.5%       3.5%
   Apparel                         0.1%       -0.3%      -0.2%
   Transportation            3.8%        2.0%      12.0%
   Medical                         0.2%        0.2%       4.0%
   Recreation                  0.1%        0.1%       1.3%
   Education &
    Communication         0.5%        0.4%       3.4%
   Energy                        6.6%        4.4%       24.7%

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 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

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.

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 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.

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.

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.