Rebel Traders – Analysis Without The Hype

Some of the major banks issued their monthly ‘master trust’ data yesterday. This data reveals the the amount of money that is delinquent, and the amount being charged off. It is still a mind boggling amount of money that is delinquent. Consumers are fine? I don’t think so.

Citigroup Inc Reports Dec Master Trust; Net Charge offs 9.56% v 10.29% m/m

- 5-34 days $2.5B v $2.49B m/m
- 35-64 days $1.17B v $1.22B m/m
- 65-94 days $972M v $979.8M m/m
- 95-124 days $869M v $872.7M m/m

American Express Co Reports Dec Master Trust; Net write offs on managed basis 7.1% v 7.6% m/m

- Annualized default rate net of recoveries 6.9% v 7.5% m/m
- 30 days past due loans on owned basis 3.7% v 3.9% m/m
- 30 days past due loans on managed basis 3.7% v 3.9% m/m

JPMorgan Chase and Co Reports Dec Master Trust; Net charge offs 7.11% v 8.81% m/m

- Delinquencies 4.94% v 4.90% m/m
- 30-59 days 1.13% v 1.23% m/m
- 60-89 days 0.99% v 1.12% m/m
- 90+ days 2.82% v 2.55% m/m

Bank of America Corp Reports Dec Master Trust; Net Charge offs 13.53% v 13.00% m/m

- Delinquencies 7.44% v 7.69% m/m
- 30-59 days $1.62B v $1.78B m/m
- 60-89 days $1.44B v $1.48B m/m
- 90-119 days $1.25B v $1.33B m/m
- Total delinquencies $6.72B v $6.93B m/m

Discover Financial Services Reports Dec Master Trust: Net charge offs 8.68% v 8.98% m/m

- Delinquencies 5.49% v 5.68% m/m
- 30-59 days $529.7M v $545.6M m/m
- 60-89 days $432.6M v $456.8M m/m
- 90-119 days $401.3M v $402.9M m/m
- Total delinquency amount ending balance $2.08B v $2.09B m/m
- Gross charge offs 9.64% v 9.91% m/m

Capital One Financial Corp Reports Dec Master Trust; Net Charge Offs 10.14% v 9.6% in Nov m/m – filing

- US Card 30 day+ delinquency rate: 5.78% v 5.87% m/m
- International Net charge off rate: 9.58% v 9.50% m/m
- Auto finance metrics annualized net charge off rate: 5.68% v 3.67% m/m
- US Card managed receivables $60.3B v $60B m/m

JP Morgan has released Q4 earnings data. Good on the EPS, but bad on the revenues. The comments by the company is what really hit the futures in a negative way pre market..

JPMorgan Chase and Co Reports Q4 $0.74 v $0.60e, R $23.2B v $27Be

- Q4 ROE 8.00% v 9.00% q/q
- Q4 ROA 0.65% v 0.70% q/q
- Q4 Investment banking net Rev $4.9B v $7.5B q/q
- Q4 Tier-1 capital ratio 11.1% v 10.2% q/q
- Q4 Retail Card Services provision for credit losses $5.15B v $4.9B q/q
- Q4 Provision for credit losses $8.9B v $9.8B q/q
- Q4 AUM $1.7T v $1.7T q/q

CEO Dimon: "Though these results showed improvement, we acknowledge that they fell short of both an adequate return on capital and the firms earnings potential. While we are seeing some stability in delinquencies, consumer credit costs remain high, and weak employment and home prices persist. Accordingly, we remain cautious."

Prime mortgage quarterly losses could reach $600M in a few quarters, subprime losses may go to $500M

- Could see home equity quarterly loss of $1.4B over next few quarters.
- Not certain that stable delinquency trends will continue.

Expects losses at Chase card unit to approach 11% in Q1 of 2010, due in part to 60 bps impact from adverse timing of payment holiday.

- Card services outlook:
- WaMu losses could approach around 24% over the next several quarters.
- Anticipate net income reduction from legislative changes of $500-$750M.
- Estimated full year average outstanding expected to decline $15B +/- to $155B +/- in 2010 due to WaMu portfolio run-off of approx $7B and lower balance transfer levels.
- Expect $1B +/- net loss per quarter in 1H10, before potential reserve actions; 2H10 dependent on the environment and reserve actions.

- Retail financial services:
- Overdraft policy changes currently estimated to reduce annualized after-tax income by approx $500M.
- At current production and estimated run-off levels, the Home Lending portfolio of $263B at the end of 4Q 2009 could decline by 10-15%, possibly to averages of $240B +/- in 2010 and $200B +/- in 2011.
- Credit environment remains uncertain. Signs of stability do not equal improvement.
- Continued pressure on profits due to elevated servicing, default and foreclosed asset expense and mortgage repurchase activity.
- At investment banking unit, expects Fixed Income and Equity Markets revenue to normalize over time as conditions stabilize.
- Commercial banking unit has strong reserves, but credit expected to weaken further.

Overall, if the economy weakens further, additional reserving actions may be required.

Can a ‘for profit’ corporation enjoy healthy revenues year after year and exhibit good morals at the same time? The largest companies in the nation have evolved over the years to find more ways to streamline operations, reduce waste, increase the productivity of their employees, preached corporate ethics to their employees, try to be involved with local communities by giving to the local youth clubs or donations to a regional cancer research center. But is this to be a good citizen of the community, or is it a show?

Corporations have moved further and further away from encouraging independent thought of their employees to one of ‘corporate thought’. Six Sigma programs have swept across corporate America like wildfire. Employees are being driven to compete against one another, strive to be their absolute best, and to achieve the Six Sigma black belt. Corporations scour the college campuses looking for future managers and leaders. They hire graduates right as they hang up their cap and gown and indoctrinate them into ‘their’ corporate mentality. To begin the brain washing as early as possible before they can discover the concept of free thought.

Ethics, as defined in the dictionary:

1. the body of moral principles or values governing or distinctive of a particular culture or group: the Christian ethic; the tribal ethic of the Zuni.

2. a complex of moral precepts held or rules of conduct followed by an individual: a personal ethic.

Corporations preach loudly that they embrace a corporate ethics policy. Employees in some companies are required to attend mandatory ethics training. And some companies even require the employees to sign a statement that they understand and will follow the corporate ethics policy. The purpose of an ethics policy is to tell the employees what is right and wrong. Don’t cheat, be honest with the customers, don’t commit fraud, treat all people equally, don’t exchange money from the Government and/or subcontractors in return for preferred treatment. The list goes on and on.

But what really is all of this ethics stuff? As defined in the Websters definition shown above, it is a “body of moral principles“. My question however is whose moral principals? A corporate defined morality, or a standard of morals that is generally accepted by everyday people who work hard and raise a family?

(read more…)

… and Bernie Madoff was a caring and honest man.

The Dow Industrial average reached 10,000 with CNBC staff wearing caps that read ‘DOW 10,000‘ and will run a “special” DOW 10,000 TV show this evening.

STOP THE INSANITY

The economy has not been saved, only disguised… akin to putting lipstick on ENRON years ago and calling it a great investment.

Banks and other financial institutions have only been able to report revenues because they no longer have to record ‘actual‘ losses, as long as they don’t sell it they can put whatever value on it they want. We have Congress and the FASB for that brilliant move.

Is Jamie Dimon (JP Morgan CEO) on ‘your‘ side?

Wednesday, October 14, 2009 9:38:07 AM

JPMorgan Chase and Co CEO Dimon: Consumer Protection Agency will be “damaging”; will cost customers.

Wednesday, October 14, 2009 9:38:07 AM

JPMorgan Chase and Co CEO Dimon:   Corporate lending continues to trend around all time lows, extended credit lines continue to be drawn at very light levels.

I guess CNBC ‘forgot’ to mention the bad parts

Don’t worry, President Obama has everything under control and will quickly move to solve this problem:

Wednesday, October 14, 2009 3:49:13 PM

White House: Pres Obama supports a $250 payment to seniors, veterans, and the disabled; program could cost up to $13B

- payment may include approx 57M individuals

Late this afternoon JP Morgan (JPM) had $6 billion worth of their RMBS (residential mortgage backed securities) downgraded by Moody’s due to the deteriorating mortgage situation.

Moody’’s Downgrades $6B Of RMBS Issued By J.P. Morgan Mortgage Trust And Chl Mortgage Pass-Through Trust

Moody’’s Investors Service has downgraded 217 tranches and confirmed 3 tranches from 9 deals issued by J.P. Morgan Mortgage Trust and CHL Mortgage Pass-Through Trust in 2006 and 2008.

The collateral backing these transactions consists primarily of first-lien, fixed and adjustable-rate, Jumbo mortgage loans.  The actions are triggered by the quickly deteriorating performance — marked by rising delinquencies and loss severity, along with concerns about the continuing drop in housing prices nationwide and the rising unemployment levels. The actions listed below reflect Moody’’s updated expected losses on the jumbo sector announced in a press release on March 19th, 2009, and are part of Moody’’s on-going review process. (emphasis added)

Among the tranches downgraded include:
- CHL Mortgage Pass-Through Trust 2008-1
- Cl. A-1, Downgraded to Ba3; previously on 4/9/2009 Aaa Placed Under Review for Possible Downgrade
- Cl. A-2, Downgraded to Baa1; previously on 4/9/2009 Aaa Placed Under Review for Possible Downgrade
- Cl. A-3, Downgraded to A3; previously on 4/9/2009 Aaa Placed Under Review for Possible Downgrade
- Cl. A-4, Downgraded to A3; previously on 4/9/2009 Aaa Placed Under Review for Possible Downgrade
- Cl. A-5, Downgraded to Baa2; previously on 4/9/2009 Aaa Placed Under Review for Possible Downgrade
- Cl. PO, Downgraded to Ba3; previously on 4/9/2009 Aaa Placed Under Review for Possible Downgrade
- Cl. X, Downgraded to A2; previously on 4/9/2009 Aaa Placed Under Review for Possible Downgrade

JP Morgan (JPM) got hit today with a downgrade to their ratings outlook. Moody’s changed the ‘ratings outlook’ from stable to negative.

Moody’s said the negative outlook reflects its expectations that JPMorgan’s results will continue to be hurt by sustained high provisions and credit costs for the next year to year and a half, because of increasing financial strains for U.S. consumers and the global recession.

JPMorgan’s current ratings: Senior debt is rated Aa3 and the ratings on its lead bank, JPMorgan Chase Bank N.A., are B for bank financial strength and Aa1 for long-term deposits.

Shares of JP Morgan traded down 8.14% today with a closing price of $19.30.

If you read last night’s spooky Halloween commentary, you recall I said that the market was worried about monsters hiding under the bed and was afraid of more bad news coming. And today it got more of it, and the monster today was named CitiGroup (C). More bad news coming from the financial sectors is pulling our markets further and further down the rabbit hole. Ever since this credit crisis began we were warning of danger and economic problems were yet to come. I said that we had not heard the end of this, even as the many talking heads on TV said the credit crisis “was well contained and would not spread”. That is why we don’t listen to talking heads, we look at economic data, charts, market sentiment, etc. That is where you can tell if problems are brewing or not. I need to claim a little victory here only because so many have written to me and claimed that we are way too bearish on the markets and we need to ‘lighten up’. That is not our style, we never go with emotions and greed, we go with the logic, hard facts, and charts to tell us where money is going, and not going. The news out of CitiGroup today was a substantial blow to the company and to the entire financial sector as a whole. The reports coming out today with regard to their possible losses are staggering. For some time now Lisa has been talking about the commercial paper liquidity problems and that companies will have a difficult time trying to sell those notes. And that is what has happened, and it has happened in a huge fashion. And it is still not over. This has the potential to keep rippling throughout the financial companies for a very long time because the housing market and the economy are NOT improving.

I was pointing out a month ago that the markets MUST have confirmation from the DOW transportation index, as well as a strong financial sector, in order to be considered healthy and return to a bullish stance. Some even questioned my interpretation of the DOW theory, but I stood my ground and stand by that assessment for it continues to be shown correct. We are not in a bullish market, we are in a market which has moved from bullish to uncertain and scared. These are the kinds of markets which can go on for weeks, months, or even longer. But unless there is something very significant to transition it back to a healthy bull market then this is the middle point before a bear market sets in. As John Murphy, author of Technical Analysis of the Financial Markets, said tonight in his commentary that we are witnessing a market that is preparing itself for a weaker economy. And in a weaker economy you have to be very careful of the momentum stocks and take profits along the way, because just as was witnessed with Crocs (CROX), once a momentum stock has lost its drive, it is over with, and many never recover. They are hot for a while and then they blow up and that is it, they trade sideways for months or years after that. I read tonight that even Jim Cramer (Lisa and I do not listen to him or put any value in his TV show) has told his viewers that Crocs is done and he advised any of his viewers holding it to sell now. Well, if Jim Cramer has given up on a stock then I guess it really is dead now, the fat lady has sung.

Today’s selling hit the financial’s in the worst way. The losses today in the financial sector (XLF) were the worst in 4 years, even worse than the big down days when the credit crisis was unfolding. This needs to be taken notice of, as many financial institutions today have lost key technical support on the charts. Names like JP Morgan, Bank of America, and many regional bank stocks have all dropped below key levels and are extremely bearish. A healthy bull market MUST have supporting financial sector strength, otherwise the walls will collapse.

We have to concentrate on Utility, consumer staples, and metals (both common and precious) stocks, for they may be the only sectors that have any potential as a whole. Sure there will be the few momentum stocks or technology flyers here and there, but they will get softer and and harder to find if this continues. Too much emphasis is being placed on “global growth” as the sure bet. We agree that “global growth” offers companies a better playing field from which to operate a business and to sell products, but where we don’t agree is that global growth will continue if the US economic picture continues to weaken. As it has been said many times, our world is a global economy now, if one of the largest participants in that global economy continues to weaken it will spread. There is no way other countries can isolate themselves from our economic slowdown. So while global growth does give companies a bigger ball park to play in, eventually the weeds on one side of the field will spread and pocket the whole field. Think back to the movie “Caddyshack”, the gopher had a way of finding a way to go anywhere and spread destruction. You get one gopher on your golf course, then you have troubles everywhere.

We need to remain in a capital preservation mode, longer term holdings that you have need to be watched for trend line breaks and sold immediately if they fail. Preserve your money! I don’t know how to say it any stronger. In an uncertain market it is safer to play the charts and when a trend breaks you get out. Better to hold on to your money in cash than to “hope” the stock comes back one day. Why leave money in a stock that become road kill when you could have taken it out and preserved it from any more damage? It makes no sense to stay stuck in a stock once it shows signs of giving up the ghost. That is where the charts offer so much. Always remember that charts are the window for the traders and investors in that stock.  When it shows a significant shift in crowd behavior then you need to act on that. Don’t just wish for it to get better, that does not work and shows you do not have control over your financial situation. Wishing and hoping are for dreams, not stock investing and trading.

Tomorrow we may see a technical bounce, not for any substantial reason, but only as technical traders take advantage of scalp trades. We will get the monthly unemployment data tomorrow and it will be the key to the moves the market makes tomorrow. It is a toss up which way the market will react in the short term, but if the unemployment data plots another dot on the slow down of the economy then we have one more piece of data that is pushing the market toward bear country. If the data is good, then we will have a “relief rally”, but what follows a relief rally is usually high amounts of selling into the strength again by large holders. When the markets were heading down in August, before the extent of the credit crisis was fully acknowledged or understood by many, I saw very large amounts of insider buys taking place as documented on the SEC Form 4 filings. All during the time when stock market talking heads were saying that this was just a simple market correction back in August there were hundreds of SEC 4 filings each day of board members, CEO’s, and other’s making buys on their company stock. Guess what, that has turned, now it is selling that is being seen. And over the last few weeks there have been only a handful of SEC 4 buy filings transacted. Now even they are afraid of what is happening and are no longer bullish and buying on the dips anymore. Now they are sellers.

Below you will find some charts that I chose to show, two are financial companies, and the last one is for Chiquita Brands (the banana grower) (CQB). This company will make its way to our swing trade potential list. It has some good fundamentals along with a chart formation that is setting up nicely. But it needs to break above resistance before we would buy it. It will be included in the next swing trade guide.

We must see what tomorrow brings, but some things are certain, another CEO is now likely to be on the unemployment line (CEO of CitiGroup), new layoffs are coming in the financial companies, more layoffs from the auto makers will come, and there ARE monsters under the bed !