Roubini: Nationalize vs. Gross: Recapitalize (Outlooks)

Bill Gross and Roubini don't agree on nationalization. Watch this great interview with Roubini on Tech Ticker and then listen to Bill Gross's investment outlook below.



Bill Gross is watching the US Dollar: "Global willingness to accept American dollars is being tested. Granted, the U.S. currency has appreciated strongly against its counterparts during most of this crisis, but technical short covering as opposed to a flight to quality may have been the dominant consideration. Watch the dollar. If it falls hard, there may be nothing policymakers can do to restore the ensuing financial chaos." Full Text

Bill Gross March 2009 Outlook (MP3 Source)


I had to add this video from Tech Ticker today (3/2/09) with Roubini explaining why Gross is wrong. Either way something needs to happen fast. The Dow broke 7,000 (at 6,824) and the S&P is testing 700 (at 707) down more than 50% from the October 2007 peak. Truly a disaster!

Nassim Taleb on "The Black Swan" (Video 2/4/08), Roubini & Taleb Discuss Crisis on CNBC (2/9/09)

The man, the myth, Nassim Taleb talks about his book "The Black Swan" on 2/4/08. It's an event that is difficult to predict based on historical information. Check out his webpage Fooled By Randomness. At the bottom watch Roubini and Taleb discuss the crisis on CNBC on 2/9/09. As a special bonus I added a video of Roubini on PBS. Roubini makes a good point about nationalization and how IndyMac was scooped up by the private sector once restructured by the FDIC.

Bernanke's Hedged 2010 Recovery Bet, U.S Dollar at Inflection Point.

Today the market had a great catalyst to move it higher. Ben Bernanke said in testimony today that there's 'reasonable prospect' that the recession could end in 2009 and recover in 2010 but he heavily hedged his bet. Read the full Reuters article and watch the CNN video clip below.

Canada's Banks Are Solvent. Stephen Harper Interview (Canadian Prime Minister on Fox Business).

Canadian Prime Minister Stephen Harper was interviewed on Fox Business talking about the health of the Canadian financial sector. He said,
"Canada has a stronger system of regulation and we have a more activist regulator who meets with the major players in the financial sector. Most of our banks didn't actually test the limits of their ratios and were far less leveraged than their American counterparts. The sector was leveraged 18/1 in Canada, 30/1 in the U.S and 40/1 in Europe. We haven't had to to put any money in our banks or do any bailout. But Canada will make sure they stay competitive with banks with Government guarantees. We have no plan to nationalize our banking sector."

Dow Breaks Nov '08 Lows, S&P Testing Lows, Market at 1997 Levels. Need Positive Catalyst Immediately.

Today the S&P tested the November lows closing at 743. The S&P hit 741 in November, 2008. The Dow already broke the lows a few days ago and it's been in a pattern recently that the S&P follows the Dow (link). I'm not saying it will happen this time.... Still we're trading at levels not seen since 1997 which has been a disaster for the long term index fund investor. These are major levels if breached here. What's interesting though is the $VIX (Volatility Index) isn't even close to the highs we saw in November so does that mean we're in for a slow death or a base around these levels? Things are definitely bad right now w/ nationalization fears, poor earnings and economic data but back in November when Lehman went bankrupt the financial system almost broke down, LIBOR spiked and the TED Spread (difference between what banks and the Treasury pay to borrow for 3 months) widened.

Now we're dealing with the same problems. GE Capital was valued at 0 today, AIG needs more capital to stay alive, the Gov could own 40% of Citi's common stock and JPM just cut their dividend by 87%. Also Obama could tax some market participants on Thursday (video and quote below) so be on the lookout for the market reaction. Here are the charts. Some of the shorts could get knocked out here but we really need a positive catalyst. Plus I'm also watching the U.S Dollar. With the monetary base spiking and the US Dollar Index catching a bid it doesn't reflect well on the strength of other countries or the reflation attempt. So what will the positive catalyst be, nationalizing the banking sector??? (Roubini says a takeover and resale is the market-friendly solution (WSJ.)

Taxpayers Could Own 40% of Citigroup's Common Stock, Implied Volatility and Option Volume Popped on Friday

It looks like there's a possibility that the Gov will convert 7.8% of their preferred Citi stock into common stock. This would bring massive dilution to the common holders however it would improve the bank's financial health by boosting it's TCE (tangible common equity) ratio. Preferred stock is not factored into the ratio. Citigroup officials are also trying to persuade other large preferred stock holders to convert like the Government of Singapore Investment Corp., Abu Dhabi Investment Authority and Kuwait Investment Authority. This could possibly stem off bankruptcy fears. $C's implied volatility was definitely predicting this type of news on Friday (chart). We'll see how the US markets react to this. It looks futures are up overnight. It's important to know that this is just a proposal and could fail. Also we have Bank of America and the autos to deal with so it's a mess but hopefully we get through this eventually..
"Citigroup Inc. is in talks with federal officials that could result in the U.S. government substantially expanding its ownership of the struggling bank, according to people familiar with the situation.

While the discussions could fall apart, the government could wind up holding as much as 40% of Citigroup's common stock. Bank executives hope the stake will be closer to 25%, these people said." WSJ

http://online.wsj.com/article/SB123535148618845005.html



Citigroup Options & Volatility (ISE.com)


Also read this WSJ Article: 'Nationalize' the Banks. Dr. Doom says a takeover and resale is the market-friendly solution.

Rick Santelli at CBOT Rallies for Capitalism (2008 on CNBC Video)

Rick Santelli and traders at the Chicago Board of Trade rallied for capitalism today on CNBC. Rick thinks Thomas Jefferson and Ben Franklin are rolling over in their graves with the current mortgage subsidization plan. He says there's a Chicago Tea Party in July lol. Respect to Rick Santelli. Also I hear Andrew Jackson would be shooting people up right now since he was strongly opposed to the National Bank. Then there's the argument that the global economy would collapse if there was no intervention. What do you think?

General Motors 2009-2014 Restructuring Plan (Full Video/Document)

Here is the actual General Motors 2009-2014 Restructuring Plan and full briefing video. It looks like they need double the funds to stay solvent.


"DETROIT (Reuters) - General Motors Corp said on Tuesday it could need a total of up to $30 billion in U.S. government aid -- more than doubling its original aid -- and would run out of cash as soon as March without new federal funding".. more

"DETROIT (AP) — General Motors Corp.'s restructuring proposal says the company may need up to $30 billion in government loans as it implements a survival plan that includes cutting 47,000 jobs and closing five more U.S. factories"..more

The stock has been bleeding ever since they got their first round of capital. Today the stock broke an important support level. The common will keep getting diluted with debt-to-equity conversions and Govt ownership priorities. We'll see what happens here, either they file Chapter 11 with Govt assistance or limp along with $30 billion in aide and restructure out of court.. Chart Source: stockcharts.com.



For more in depth analysis of the plan go to Zero Hedge.


GM Plan - Free Legal Forms


On a similar note read this next article. The whole supply chain is dying. Auto Suppliers Seek $25.5 Billion Government Bailout

E-mini March '09 Dow, S&P Overnight Futures Sell Off. GM, Chrysler Face Treasury Deadline and Wal-Mart Reports Earnings.

It's Government vs. Free Market Capitalism at this point. Every move made by the Government is affecting the market. Tomorrow is a big day. GM is set to receive $4 billion in aid, GM and Chrysler will present their viability plans to the Treasury and Obama will sign the $787 billion economic stimulus bill (1, 2, 3). GM is trying to renegotiate deals with the UAW and its unsecured creditors to avoid a bankruptcy filing. Also Wal-Mart reports earnings before the bell and Moody's might downgrade banks with units in eastern Europe (source).

I was watching the E-Mini March '09 Dow Future (YMH9) and the E-Mini March '09 S&P Future (ESH9) both sell off about 2% tonight. Looking at the charts they broke through some important technical levels. The March S&P Future MUST hold 797 to attract buyers. Also we're at an inflection point in the VIX. If volatility spikes from here the Dow and S&P could retest November lows. We'll see how the equity markets react to the news tomorrow. Anything can happen.!

Chart source: Optionsxpress.com

E-Mini March 2009 S&P Future




E-Mini March 2009 Dow Future


John Paulson: Hedge Fund Manager MVP 2007-08, Congressional Testimony Video

Most hedge funds performed poorly during '07-08 (chart below) but lets not forget the stock market generals who positioned their investors to weather the crisis.

HFRX Global Hedge Fund Index (as of 2/15/09) (Bloomberg)

John Paulson (easily confused with former Treasury Secretary Hank Paulson) gets the 2007-2008 MVPM (Most Valuable Portfolio Manager) Award from this blog. Why? On a risk/reward basis not only did Mr. Paulson's hedge fund Paulson & Co time the market perfectly for the subprime meltdown, he also bet with a small amount of capital and hardly any leverage. For more detailed information you should read all of the articles scattered below. He wasn't the only one betting against the housing market. I remember Doug Kass, Gary Shilling 1, 2, and Roubini were predicting this publically on CNBC, with conviction.

Starting in 2005/6 Paulson wanted to short the housing market and since he couldn't short houses he shorted the subprime mortgage index, or ABX (Chart: 7/30/07 - 1/30/08, markit.com) via credit default swaps, debt protection on subprime mortgages. The risk premium, or spread pricing default risk on these securities were very cheap in 2005. As the credit crisis gained momentum banks and other institutions rushed to buy protection on these securities which widened the spread. Paulson killed it. His funds were up "$15 billion in 2007", his "older Paulson Credit funds rose 590% while the newer one rose 350%" WSJ source.

His streak didn't end in 2007. The Paulson Advantage Plus fund was up 37.6% net in 2008 (the S&P lost 36.9%). He also made some interesting plays in the merger arbitrage speace. The full Paulson & Co. 2008 Year End Report can be found here (Scribd report via NYT DealBook), it's a must read.

Plenty of people have been hating on Paulson claiming what he did was criminal profiting from the crisis, but lets not forget he invests for pension funds, endowments and foundations and I'm sure they're all glad they didn't have money with Madoff. He also donated $15 million to the Center of Responsible Lending, which also brought questions... It looks like Paulson & Co. set up a recovery fund which I believe includes, or will include IndyMac Federal Bank. Paulson manages $36 billion.

Also he was at the Hedge Fund hearing on 11/13/2008 testifying before Congress. Thought you might be interested to hear what he had to say. Video via C-Span.org.  Also if interested, watch the biggest hedge fund managers George Soros, Ken Griffin, James Simons and Falcone testify before congress here.



Links:

READ THIS: Trader Made Billions on Subprime (WSJ) 1/15/2008

Get Shorty: The man who has bet £800m against British banks (Guardian.co.uk)

HFRX Global Hedge Fund Index (Bloomberg)

Investor consortium to buy IndyMac for $13.9bn (AltAssets)

John Paulson, Proud Short (Felix Simon/Portfolio.com)

The Man Who Made Too Much (Portfolio.com)

John Paulson’s Funds Shine in the Gloom (DealBook NYT)

Hedge Funds Lost Record 18.3% on Misjudged Markets (Update3) (Bloomberg)

Paulson & Co., Brevan Howard, Caxton, Touradji post strong gains in 2008 (MarketWatch)

Sun Hung Kai, Paulson to launch distressed fund (Reuters) 1/16/09

Distressed Debt Specialists See "Bonanza Year" in 2009 (A.E. Feldman)

Hedge fund chief pessimistic about UK property (FT.com)(June, 2008)

$VIX Breaks Down on Mortgage Subsidization Plan, Stimulus Speculation

The $VIX broke down and the market moved higher on this news today.
"Like earlier efforts from the Federal Deposit Insurance Corp. and housing industry groups, the new plan will make use of interest-rate reductions, loan extensions and so-called principal forbearance, in which part of a mortgage’s principal is deferred to the end of the loan’s term. All these measures will be used to help homeowners reach an affordable monthly payment, the person said. That monthly housing payment, compared with their income, will be the focus of the program, rather than achieving a target interest rate." Full article at Bloomberg.com

"According to reports, the Obama team is hammering out a program that would subsidize mortgages for homeowners in danger of falling behind that are able to meet a "means test" that judges whether they can afford their home. While the plan does little to aid homeowners already late on payments, it could stem the tide of foreclosures and potentially halt the related slide in housing prices that is one of the root causes of the current crisis." Full article at Forbes.com

Check out the charts of both the monthly $VIX spot and today's S&P breakout. The $VIX is at an inflection point trying to break out of it's tight wedge. It could test 38 support if the stimulus bill passes through Congress tomorrow, Fri 13th.

Monthly VIX Spot Chart

S&P 1-minute Chart (2/12/09)


Also for good housing information, charts and data check out the Reuters Housing Market page.

SWKS August 7.5 Calls Active, Watch Skyworks Solutions


This is a continuation from my previous post: Skyworks Calls Active, ThinkEquity Ups to Buy. Skyworks retraced a bit after its big run up after earnings and on 2/11/09 the SWKS '09 AUG 7.50 Call had a lot of volume at 0.60. Obviously someones making a play here just not sure if it's speculative in nature, hedged or a calendar strategy. But it's worth a watch. It's odd seeing 8,210 AUG 7.50s open today and 151 open just a week ago, unless this is a misprint. I will be watching this into the summer.

SWKS Aug 7.50 Call (2 Day Chart) - Optionsxpress.com

SWKS August 2009 Option Chain - Optionsxpress.com

Schiff: Dow Hits New Low Priced in Gold, TIPS Understate Inflation, When Does Gold:US Dollar Ratio Decouple?

Here's Peter Schiff featured on CNBCs Kudlow & Company on 2/11/2009. He said the Dow priced in gold hit a new low of 8.5oz and TIPS using the CPI understates true inflation. He says you have to price the market to gold since it's being artificially propped up by inflation making it an illusion. Schiff is long gold. Can't fight the gold trend here. Also wondering when the Gold:US DOLLAR ratio will decouple (chart).




Gold vs. US Dollar (Source: Futuresource.com)

Bank CEOs Questioned at House Committee (CSPAN Video Links)

Here is the complete congressional hearing where bank CEOs were questioned for a few hours. I provided links to the C-SPAN videos from their video library. They could not be embedded so I linked to their flash videos.

Part 1: Opening statements, statements by bank executives, and questions for the panel prior to a lunch break.

Click picture or here to be directed

Part 2: Questions for the panel following a lunch break.

Click picture or here to be directed

Part 3: conclusion of questions for the panel.

Click picture or here to be directed

Jim Rogers Thinks Bill Gross is Wrong, Blames Geithner! (Videos)

Jim Rogers got heated up talking about the Financial Rescue Plan today. He was featured on Bloomberg TV explaining how the U.S is making the same mistake as Japan did in the 90s. He believes all of these insolvent banks should fail to clean out the banking system. He says "Japan continued to prop up zombie banks and zombie companies and they still talk about the lost decade". He also thought Geithner caused all of these problems since he was in charge of TARP and Bill Gross's plan for more Government funding was wrong. PIMCO's Gross saw the possibility of a mini depression (video below).

As you can see from the Charlie Rose video below Jim has been riding the commodities/short dollar trade for a while now so lets see if he can break the recent trend. Does Jim really want 10 more Lehman bankruptcies? Wouldn't that just spike LIBOR again, freeze credit, cause bank runs, ruin jobs and set off a deflationary spiral?

Jim Rogers on Bloomberg TV (2/11/2009)

Jim Rogers on Charlie Rose (2005)

Jim Rogers and Hunter S. Thompson on Charlie Rose (2005)


PIMCO's Bill Gross Warns of Mini-Depression (2/5/09)

$XHB Mar 12 Calls Still Active After Decline. Judgement Day is Coming Soon..

I'm still seeing activity in the Mar 12 calls. On Friday $XHB and the Mar 12 calls rallied on strong volume (blog post). Today XHB lost 8% and the Mar 12 calls lost half its value when people sold the Geithner proposal news. It looks housing and toxic mortgages are the main focus of Obama's stimulus plan which probably explains the continued interest in the options of the S&P homebuilders ETF. People must be building some interesting positions to play the reaction. I'm not quite sure what the exact logic is behind the volume but you can see there were 53,753 Mar 12 calls open at Monday's close and 50,030 traded today. I'm wondering who is taking each side of the trade here and how much is being hedged, but it would still be interesting to see 100k Mar 12 calls open tomorrow. The charts below look interesting too. It looks like the big volume came in at the end of the day when premium stood around 0.40. Friday's volume spiked at around 0.70 - 0.77. Looking at the XHB chart specifically you can see that it failed to break the 50 day moving average and is now going to test its uptrend. Judgement day is coming soon for XHB! Also read the article below about the National Association of Realtors thoughts on the stimulus.
"WASHINGTON, DC - The National Association of Realtors® hailed the Senate for passing its stimulus bill that expands the homebuyer tax credit, an important housing component that will help shrink housing inventory, bring stability to home values and move the country closer to an economic recovery."

"About the tax credit, McMillan said, "The credit of up to $15,000 for homebuyers is a critical provision in the Senate bill that will result in approximately 1 million additional home purchases this year," McMillan said." (Market Wire via MSNBC)

XHB March 12 Call (Monthly) (Source: Optionsxpress)


XHB March 12 Call (5 Day) (Source: Optionsxpress)


XHB March 12 Call Option Chain (Source: Yahoo Finance)


XHB Chart (Source: Stockcharts.com)

Bernanke and Geithner Testify Before Congress (2/11/2009)

"Federal Reserve Chairman Ben Bernanke testified about the efforts of the Federal Reserve Board to provide liquidity in response to the financial crisis and the scope of its powers." CSPAN Archives


"Treasury Secretary Timothy Geithner testified about the new administration's implementation of the Troubled Asset Relief Program (TARP) and the latest developments regarding the strategy to address the financial crisis." CSPAN Archives

Geithner's Speech on Financial Stability Plan, Senate Passes Recovery Bill and Market Remains Skeptical.

Today was a big day. Tim Geithner gave a speech today on the Treasury's Financial Stability Plan, the Sentate passed Obama's economic stimulus 61-37, and the market remained skeptical with the Dow closing down -4.62% to 7888 and the S&P down -4.91% to 827.16. Also Ben Bernanke and Geithner are testifying before Congress today which I'll try to embed later. Hopefully when Geithner testifies he will explain the plan in more detail.


Source: Tech Ticker


Secretary Geithner Introduces Financial Stability Plan
Treasury.gov - (2/10/09)

"Under this framework, we are establishing three new programs to clean up and strengthen the nation's banks, bring in private capital to restart lending, and to go around the banking system directly to the markets that consumers and businesses depend on.

Let me describe each of these steps:

First, we're going to require banking institutions to go through a carefully designed comprehensive stress test, to use the medical term. We want their balance sheets cleaner, and stronger. And we are going to help this process by providing a new program of capital support for those institutions which need it.

To do this, we are going to bring together the government agencies with authority over our nation's major banks and initiate a more consistent, realistic, and forward looking assessment about the risk on balance sheets, and we're going to introduce new measures to improve disclosure.

Those institutions that need additional capital will be able to access a new funding mechanism that uses funds from the Treasury as a bridge to private capital. The capital will come with conditions to help ensure that every dollar of assistance is used to generate a level of lending greater than what would have been possible in the absence of government support. And this assistance will come with terms that should encourage the institutions to replace public assistance with private capital as soon as that is possible.

The Treasury's investments in these institutions will be placed in a new Financial Stability Trust.

Second, alongside this new Financial Stability Trust, together with the Fed, the FDIC, and the private sector, we will establish a Public-Private Investment Fund. This program will provide government capital and government financing to help leverage private capital to help get private markets working again. This fund will be targeted to the legacy loans and assets that are now burdening many financial institutions.

By providing the financing the private markets cannot now provide, this will help start a market for the real estate related assets that are at the center of this crisis. Our objective is to use private capital and private asset managers to help provide a market mechanism for valuing the assets.

We are exploring a range of different structures for this program, and will seek input from market participants and the public as we design it. We believe this program should ultimately provide up to one trillion in financing capacity, but we plan to start it on a scale of $500 billion, and expand it based on what works.

Third, working jointly with the Federal Reserve, we are prepared to commit up to a trillion dollars to support a Consumer and Business Lending Initiative. This initiative will kickstart the secondary lending markets, to bring down borrowing costs, and to help get credit flowing again.

In our financial system, 40 percent of consumer lending has historically been available because people buy loans, put them together and sell them. Because this vital source of lending has frozen up, no financial recovery plan will be successful unless it helps restart securitization markets for sound loans made to consumers and businesses – large and small.

This lending program will be built on the Federal Reserve's Term Asset Backed Securities Loan Facility, announced last November, with capital from the Treasury and financing from the Federal Reserve.

We have agreed to expand this program to target the markets for small business lending, student loans, consumer and auto finance, and commercial mortgages.

And because small businesses are so important to our economy, we're going to take additional steps to make it easier for them to get credit from community banks and large banks. By increasing the federally guaranteed portion of SBA loans, and giving more power to the SBA to expedite loan approvals, we believe we can turn around the dramatic decline in SBA lending we have seen in recent months.

Finally, we will launch a comprehensive housing program. Millions of Americans have lost their homes, and millions more live with the risk that they will be unable to meet their payments or refinance their mortgages.

Many of these families borrowed beyond their means. But many others fell victim to terrible lending practices that left them exposed, overextended, and with no way to refinance. On top of that, homeowners around the country are seeing the value of their homes fall because of forces they did not create and cannot control. This crisis in housing has had devastating consequences, and our government should have moved more forcefully to limit the damage.

As house prices fall, demand for housing will increase, and conditions will ultimately find a new balance. But now, we risk an intensifying spiral in which lenders foreclose, pushing house prices lower and reducing the value of household savings, and making it harder for all families to refinance.

The President has asked his economic team to come together with a comprehensive plan to address the housing crisis. We will announce the details of this plan in the next few weeks.

Our focus will be on using the full resources of the government to help bring down mortgage payments and to reduce mortgage interest rates. We will do this with a substantial commitment of resources already authorized by the Congress under the Emergency Economic Stabilization Act."

Currencies, Copper Prices Waiting for Results of Recovery Bill

All eyes are on Obama's American Recovery package. If this bill gets passed it could put a bid under commodities. The stimulus package could artificially reflate the economy by putting millions of people back to work on public infrastructure projects. Also China has been re-stocking their dry bulk inventories recently which caused the Baltic Dry Index and dry bulk commodities to increase in value. I'm going to provide charts with commodity related currency pairs and Copper prices. Everything is intertwined in this global push to reflate so if the productivity injections are successful I think money could start to multiply or at least provide price support.

It looks like the so called carry trades/commodity currency pairs are all at inflection points. Comex Copper recently broke through the 50 day to the upside and is sitting just above trend resistance. If copper can hold 160 on this chart with conviction it could have some legs. But the rally could fail if China's re-stocking period is temporary or the U.S stimulus bill fails. I quoted a Reuters article with a Copper forecast plus provided news links below. It will be interesting to see what happens here.

Overnight update: Dow futures are down 67, S&P down 8.50, Copper futures down .09% to 161, WTI crude up 1% to 39.97, Gold is up 0.43% to 896, Euro/Dollar down, Russian banks seeking loans from foreign lenders..

"Copper prices are expected to recover to average $4,200 per tonne in 2009, supported by steady construction and infrastructure activity in China and modest recovery elsewhere, a consultant said on Monday. Standard Bank's (SBKJ.J) Head of Commodities Research Walter de Wet told Africa's largest mining conference he expected prices to pick up in the second half of the year." (Reuters, 2/9/09)

US bank bailout, stimulus fate hold copper down (Reuters)
Copper in Shanghai Drops on Caution Before US Stimulus Plan
Fortis Invst bullish on commodities, bearish on metals
UPDATE 1-Copper seen at $4,200/tonne in 2009 -consultant

Shanghai copper surges 5 pct on China recovery hopes
Stimulus package may boost copper prices



Comex Copper 2/9 (Source: Stockcharts.com)

$US/$Canadian (spot) (Source: Fxstreet.com)




$Australian/$US (Source: Fxstreet.com)

$Australian/JapaneseYen (Source: Fxstreet.com)

Brazil Real/Japanese Yen (Source: Quote.com)


Brazil Real/Chinese Yuan (Source: Quote.com)

Obama's Speech On Stimulus Package (MSNBC)



"It is absolutely true that we cannot depend on government alone to create jobs or economic growth. That is and must be the role of the private sector," Obama said. "But at this particular moment, with the private sector so weakened by this recession, the federal government is the only entity left with the resources to jolt our economy back to life." (CNN)

Skyworks Calls Active, ThinkEquity Ups To Buy.

Skyworks in iPhone 3g

This is a quick post. It looks like Skyworks Solutions (SWKS) had better than expected earnings. Skyworks is a semiconductor company that makes power amplifiers, front-end modules and direct conversion radios for leading-edge multimedia handsets. Plus read all of the articles below for more information. Look at all of the option volume from the option chain below. Look at the volume in March, May and August. Someones levering up here it seems and possibly making others reach out in size. 2,724 May 7.50 Calls traded today with 194 contracts open, 14.04x open interest. 1,589 August 7.50 Calls traded today with 151 contracts open, 10.52x open interest. There could be some complex option strategies going on here for all I know but it still looks like a bullish bias to me. Looking at the chart it looks like it could retrace a bit after this huge run.

SWKS Chart (Source: Stockcharts.com)

SWKS March 5.00 Call (Source: Scottrade.com)

SWKS May 7.50 Call (Source: Scottrade.com)

SWKS AUG 7.50 Call (Source: Scottrade.com)

Skyworks soars after fiscal 1Q beats analyst views - Forbes/AP
Skyworks F1Q09 Earnings Call Transcript (SeekingAlpha)
Skyworks Up Big on Results (Zacks Analyst Blog)
Skyworks generates $75m in cash flow, 10% sales drop (SemiToday)
Skyworks Heads Skyward; ThinkEquity Ups To Buy (BloggingStocks)

$XHB Calls Active, Pierces 50 day, Tax Credit Speculation ($15,000)

This post is heading into DANGEROUS waters..... Beware. On Friday 2/6/08 I found some interesting activity in $XHB (SPDR S&P Homebuilders ETF). December housing data has been mixed. There was a tick higher in existing home sales but it came at the expense of lower prices. The main concern still is all of this inventory on the market. A tick higher in sales at deep values is still a wash if foreclosures increase. I will devote a post to housing data analysis soon hopefully.

Pending home sales post increase of 6.3 pct (AP)
Existing home sales in surprise jump CNN Money
U.S. New-Home Sales Fall to Lowest Level on Record (Bloomberg)
Housing Starts, Permits in U.S. Slump to Record Low (Bloomberg)
30-Year-Loan Rates Rise to 5.25% (Washington Post)


But the Senate has been making some moves proposing a $15,000 tax credit for any homebuyer. There's currently a $7,500 tax credit for first time homebuyers. I agree w/ Mark Zandi here, anything to absorb inventory at this point could help. Plus the one year time limit could spark some interest for people who still have money.

"The new credit, approved by the Senate Wednesday night, works like this: Buyers would get 10 percent of the purchase price of any home, up to $15,000, applied to their tax bill. Consumers would be allowed to spread out the credit over two years, making it possible for those who pay less than $15,000 in taxes to benefit. Anyone who buys a home within a year of the bill's signature would qualify. To deter speculators, buyers must occupy the house as their main residence for at least two years."

"Mark Zandi, chief economist with Moody's Economy.com, said the homebuyers' tax credit will help reduce a giant pileup of unsold homes that is wreaking havoc on the financial system and broader economy. Since the credit is temporary, it also should help break "the psychology pervading the housing market that it is best to wait to buy a home because its price will soon be lower," Zandi wrote in an e-mail." (Source: AP)

So this is where all of the speculation comes in if the calls were bought to open. That's right, speculation. $XHB pierced through the 50 day moving average on 5x average volume on Fri and tested downtrend resistance on the 6 month chart. Look what happened the last time volume spiked that much. There was also a volume spike in the $XHB March 12 Calls (Volume of 41,082 vs. 14,139 open interest) closing at 1.04 premium. Option volume was 4.5x average on the ISE exchange.

Housing is a very risky bet at this point. People are losing jobs and the housing tax credit proposal could easily fail. So if I were long on Fri I'd be hedged big w/ puts, shorts and stops just in case it's too early and retests trend support or even lows (look at chart). Still a very dangerous trade on the long side and could end up like Tony Montana at the end of Scarface.


XHB 6 Month Chart (Source: Stockcharts.com)


XHB March 12 Call (Source: Optionsxpress.com)


Here's another blog: The most bullish bearish set up (f8analysis)

CMBX Spreads Spike as Moody's Reviews $300bln CMBS. Threatens to Downgrade $85bln Below Senior AAA Tranche.

Commercial mortgage backed securities rated below the senior AAA-tranche are expected to be cut by Moody's due to falling commercial property values and rising delinquencies.

From FT.com

"Some $302.6bn in CMBS, or half of this type of asset rated by Moody's, are under review. Moody's said ratings of top tranches of triple A-rated securities, or 72 per cent of the debt under review, should not be affected. That leaves about $85bn subject to potential downgrades, including triple-A rated securities that rank below the senior securities, which could drop four to five notches on average.

The Markit CMBX-AJ, A, BBB, BBB- indices broke through resistance levels today. They are measured in spread (risk premium) not price. Charts below are sourced from Historical Markit CMBS Graphs priced on Feb 6, 2009.


If you have no idea what I'm talking about here's a description of the CMBX Indices.
"The Markit CMBX is a synthetic family of indices based on U.S. commercial mortgage-backed securities (CMBS) which provides investors with liquid, transparent exposure to CMBS of a unique vintage. Each CMBX index references a basket of 25 of the most recently issued CMBS deals.

The seven index tranches reference bonds rated AAA, AJ, AA, A, BBB, BBB- and BB respectively. Ratings are required from at least two of the following rating agencies: Fitch, Moody's and Standard & Poor's. A new series of CMBX is issued every six months." Markit via Bobsguide"

Moody’s to Review $302.6 Billion in Commercial Debt (Bloomberg)

Chesapeake Energy (CHK) Breaking Resistance Levels.. Natural Gas Trending Higher.

Chesapeake Energy ($CHK) is breaking some major levels here. The market is catching a bid so everything is moving. Today CHK broke above $18, it's currently at $18.07 at 10:55est. I did some technical analysis on CHK yesterday and found that it broke above trend resistance with 50 day moving average support. On the weekly it's also breaking some levels to the upside. UNG looks like it could test 50 day moving average resistance. Both CHK and UNG (natural gas etf) have seen some tradable rallies recently with no sustained breaks since natural gas kept printing lower lows. It looks like there's been some bullish inventory readings by the DOE recently and analysts believe the stimulus package could boost demand for natural gas. We'll see what happens here.

Weekly Natural Gas Storage Report (1/30/09, eia.doe.gov)



"Working gas in storage was 2,179 Bcf as of Friday, January 30, 2009, according to EIA estimates. This represents a net decline of 195 Bcf from the previous week. Stocks were 60 Bcf higher than last year at this time and 17 Bcf above the 5-year average of 2,162 Bcf. In the East Region, stocks were 118 Bcf below the 5-year average following net withdrawals of 125 Bcf. Stocks in the Producing Region were 80 Bcf above the 5-year average of 678 Bcf after a net withdrawal of 50 Bcf. Stocks in the West Region were 54 Bcf above the 5-year average after a net drawdown of 20 Bcf. At 2,179 Bcf, total working gas is within the 5-year historical range." eia.doe.gov

"“The stimulus package is a big deal,” said Chris Jarvis, president of Caprock Risk Management LLC in Hampton Falls, New Hampshire. “Every global market is trying to re-inflate and eventually that money is going to find its way into commodities.”
“The supply and demand fundamentals are actually bullish for gas,” said Jarvis. “I know people are concerned about the industrial demand, but we’ll likely lose production faster.”" (Bloomberg)





More Links:
U.S. Natural Gas Inventories Fall, Remain in Surplus
Natural Gas E&P Stocks Should Rebound Quickly

Baltic Dry Index is on Fire! China Increases Iron Ore Imports to Re-stock Inventory.

Look at this chart of the Baltic Dry Index. Over the past 3 months it has doubled in price. China's iron ore imports rose by 1.03% in December on the year as China's steel mills "replenished" stocks. This compares with a -8% November reading on the year. It could be related to a confidence boost in the inter-bank lending market or China's $586 billion stimulus plan. The shipping industry relies on letters of credit to move product between parties. So whatever is driving this... It's a start.

There are many analysts that believe there will still be pain ahead for the shippers even though China's iron ore stockpiles declined 22% since Sept. It looks like there could be vessel supply/dry bulk demand issues that could ruin the BDI party. So it could just be a temporary squeeze.

"Cantor Fitzgerald analyst Natasha Boyden is more bearish. She tells Bloomberg the market shows little sign of recovering in the near term because of the large fleet supply growth on the horizon. Even with the rise in cancellations, the supply of vessels will outpace demand. "We believe recent output cuts by major iron ore miners along with indications that Chinese industrial activity continues to weaken could make 2009 a difficult year for dry bulk rates." (Seatradeasia)
And a more positive near term view by Goldman Sachs.

"According to Goldman Sachs JBWere analyst Paul Gray, Chinese imports of iron ore in January and February could be higher than expected. He notes Brazilian exports jumped 27 per cent in January, with China the likely recipient. Spot prices for Indian ore shipped to China are about 25 per cent higher than their October lows. Dry bulk rates have picked up, as have ex-Australia freight bookings. And there's more: Chinese domestic steel prices are on the rise at a time when northern Chinese ore supply has been constrained for seasonal reasons. In any event, they're convenient stats for the miners to bandy around as they get to the pointy end of price negotiations for the coming year. Gray suggests a 30 per cent fall in the benchmark price, which compares with the expected 40 per cent-plus." (Australian Business)

Baltic Dry Index (Stockcharts.com)

Looking at the chart the move looks parabolic. The BDI last saw this kind of move in 1985. I'm not an expert on BDI momentum but it looks like it needs a healthy correction. There's decent support under 1,000 and at the 50 day moving average which will hopefully lead it higher during the next leg higher. Next trend resistance is under 3,000. Check out the charts of BHP Billiton and Cia. Vale do Rio Doce. The main point is the dry bulk shipping market could be building a solid base for a sustained breakout which would be analogous to the global economic recovery.

Cia. Vale Do Rio Dolce (Stockcharts.com)
BHP Billiton (Stockcharts.com)



More Info:
Iron Ore Market May Have Bottomed, Fortescue Predicts (Bloomberg)
China's iron ore surplus disappears, prices up-BHP (Reuters UK)
Nanjing Iron, Chinese Steelmakers Gain on Demand (Bloomberg)
Recession: glimmers of hope? (Telegraph.co.uk)
Baltic Dry jumps another 14%, bulk becomes hot stock again (Seatrade)
Shipping cos set sail on Chinese booster (EconomicTimes)
Ship freight rates sail out of doldrums (Business Standard)
ABN AMRO Bank bullish on China, Hong Kong (MoneyControl)
Dry bulk share prices rally on firmer rates (Lloyds List)
Goldman Sees Brazil Jan Iron Ore Exports Revival (DowJones)
China’s Route Forward (NYT.com)
China Knows (Gregor.us)
BHP- 2nd-half iron-ore sales expectations.. (Miningweekly)
Is China Bottoming out? Probably Not, And Yet. (Time)
Too Much Euphoria About Recovery in China Demand? (Whitten)
Sign's Of Recovery in Global Basic Materials Trade? (Whitten)
Brazil stocks rise on commodities, real firms (Reuters)
Vale Gains on Speculation Chinese Demand Recovering (Bloomberg)


**See my previous post on the BDI, EXM and DRYS from December.

Bank of America Breaks Lows, Implied Volatility Shows Pending Event. How Will This Story End?


Here we go again... I charted out BAC a few weeks ago when it got dumped to $5.10 on 500 million shares. It just broke below those lows with implied volatility spiking 11% to 194 not far from the 214 high. Options are being bid up anticipating an event and we all know that Bank of America will stay solvent to avoid another Lehman catastrophe however nationalization terms could wipe out existing equity. BofA acquired Merrill Lynch in September 2008 during the financial massacre and recently reported a $15 Billion loss at Merrill which forced BAC to ask for a hand out.

Bank of America reported its first quarterly loss in 17 years earlier this month. The bank also said losses at Merrill Lynch & Co Inc, which it acquired on Jan. 1, were so much worse than expected that Chief Executive Kenneth Lewis was forced to seek government help in order to go ahead with the deal. The government, which had already given Bank of America $25 billion in October under the Troubled Asset Relief Program (TARP), agreed to a rescue package in which it shares losses on a $118 billion package of residential and commercial mortgages, derivatives and corporate debt." (Reuters)

Also I read in the WSJ that the Fed was in charge of the transaction even when Ken Lewis had doubts. Our banking system is pretty messed up.

It will be interesting to see what happens here. Today BAC closed down 11.36% on 3.5x avg 3 month volume. The IV is close to its highs and today 412k option contracts exchanged hands which was more than double the average volume of 194k on the ISE exchange. Calls and puts were also very active and it's interesting that the ISEE (ISE Sentiment Index) call/put ratio stood at 289 up 180% from 186 (33.17k/11.48k). Also Ken Lewis the CEO of Bank of America bought 200,000 shares of BAC a couple weeks ago so anything can happen at this point so watch the technicals for a big short squeeze or a nationalization dump, or just scalp this son of a b*!

BAC (2 Month Chart)

BAC Options & Volatility (Source: ISE.com, 2/5/09)


On another note, the Baltic Dry Index has seen a parabolic move to the upside recently. It looks like China is stocking up on dry bulk commodities, blog post pending.