RebelTraders

Working on tonight’s commentary. Check back later tonight.

The UK Times is reporting today that the Halifax Bank Of Scotland (HBOS) will announce tomorrow a disastrous attempt to raise capital. Less than 10% of the investors wanted to buy the share offering.

THE high-street bank HBOS will tomorrow admit to one of the most disastrous rights issues in corporate history when it concedes that as few as 10% of its investors took up its £4 billion share offer.

Its two underwriters, Morgan Stanley and Dresdner, will have to place £3.6 billion of shares over the course of Monday or Tuesday.

If they are unable to place the shares at the rights-issue price of 275p or above, they will be forced to take them on to their own balance sheets. […]

The full story can be found HERE

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..

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

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…

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.

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

Today was another wild day with a rally right out of the gate to only be quickly killed when the Philadelphia Fed data was released at 10:00am. It showed a continuing decline in the manufacturing industry with more layoffs and lower outlook for the future. That news sent the markets quickly and then they rallied once again. These bear market rallies can end in an instant.

And the bear market rally may have hit a big speed bump tonight when Google (GOOG) and Microsoft (MSFT) released their earnings and they were not liked one bit by Wall Street. Nasdaq and the S&P 500 futures dropped significantly upon the release of the news. At this time it appears that Friday’s open will be significantly lower. But, we are likely to see some extremely wild swings with options expiration put in the mix as well.

Merrill (MER) also reported and they experienced losses of $9.75 Billion is the second quarter. And it was not long before another CNBC reporter said that this must be the ‘kitchen sink’ thrown out the window. I have lost count of how many times the phrase "kitchen sink" has been reported by the media.  Merrill closed today at $30.79 and after they reported their significant losses they dropped to $28.65 in after hours trading. One other bit of news out of Merrill was that they have sold their prized stake in Bloomberg LP for $4.4 Billion. They must be having a hard time if they are having to sell their prized possessions to raise cash. I wonder how long it will be before we see office furniture and coffee pots for sale on Ebay from other financial institutions to raise capital.

Capital One Financial (COF) also reported and here again it was not a rosy picture. The CEO stated during the conference call that losses in just about all divisions of their business would see additional declines as the year progresses. What does their television commercial say "What’s in your Wallet?" I guess we should turn the tables and say to them "What’s in THEIR wallet?  Apparently less then they want.. ha ha

We are at the early stages of a possible bear market rally. A lot has happened over the past few days with the Fannie and Freddie catastrophe in the making, the incredibly stupid attack by the SEC on the ‘naked short’ issue, and wild price swings in the currency markets. It is enough to make ones head spin.

There was also a report today by the media that "we have left the bear market". They are referring to the magical 20% number that has been tossed around for many decades as the criteria for a bear market. The fact is we have been in a bear market since last November and we are still in that same bear market to this day. Bear market rallies do not negate the primary trend of the market which remains down.

Charts to follow shortly…

Some market humor:

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<

REPORTS Q2 $0.54 V $0.44E, R $18.40B V $16.55BE
- Q2 ROE 7.0% v 22.0% y/y
- Q2 Tier-1 capital ratio 9.1% v 8.4% y/y
- CEO Jamie Dimon said, "Our expectation is for the economic environment to continue to be weak - and to likely get weaker - and for the capital markets to remain under stress. We remain conscious that since substantial risks still remain on our balance sheet, these factors will likely affect our business for the remainder of the year or longer.
- Retail Card Services provision for credit losses $2.19B v $1.67B q/q sequential and about double year over year.

Headlines can be misleading… CNBC is reporting the JP Morgan news as though it is wonderful. But the facts are that JP Morgan’s profits fell 53% from this time last year. Like we have been saying for many months, the big Wall Street financial institutions have lost one of their largest money makers which was the mortgage market. Without the mortgage market shuffle (buying and selling mortgage assets for profits) the investment institutions have lost a substantial ability to generate profits.

INITIAL JOBLESS CLAIMS: 366K V 380KE; CONTINUING CLAIMS:  3.166M V 3.180ME
- Prior Initial Jobless Claims no revision from 346K to 348K
- Prior Continuing Claims revised from 3.202M to  3.203MM

————————————————–

JUN HOUSING STARTS:  1.07M V 960KE; BUILDING PERMITS:  1.09M V 965KE
- Prior housing starts revised from 975K to  977K
- no revision to Prior Building Permits
* Increase in Housing Starts attributed to change in New York City construction codes effective July 1 which added back to the survey 126K units.  Ex-the Northeast,  Housing Starts would have been down about 4% rather than up 9.1%

A change in how data is reported is the reason for the headline gain. The devil is in the details!

Pre market futures are up and the market appears that it will open higher. We are not chasing or swing trading this move yet. Too many pitfalls remain that could take this bear market rally and reverse it in an instant.

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.