Interview With Bill Ackman On Target, GGP (Video)

This was a great Bloomberg interview where Bill Ackman talked about his REIT and credit card plan with Target as well as his investment in struggling GGP (General Growth Properties). His Target fund is down 93%. He admits the Target 'levered' co-investment fund put a stain on Pershing's track record. He still sees a positive outcome though as he owns long dated Target options.

He said in 2002 he bought credit default swaps on MBIA and was originally down 99.99% but eventually prospered when MBIA's credit rating was downgraded for insuring too much toxic debt. Go to my previous post from Nov, 08 that talked about his TIP REIT plan: Bill Ackman Trying To Make REIT Move w/ Target (historical valuation comparables, CMBX (AAA) index, commercial real estate price index).

NEW YORK (Dow Jones) -- Pershing Square Capital Management, headed by activist investor Bill Ackman, said it plans to nominate five candidates for election to Target Corp.'s 13-member board. The nominees include Ackman as well as Jim Donald, former chief executive of Starbucks Corp., and Michael Ashner, chief of Winthrop Realty Trust, among candidates who Pershing said are skilled in real, credit cards and real estate. (CNN Money)

He also talked about his GGP investment. Citi actually foreclosed on one of their shopping centers in Louisiana. He expects GGP to file for bankruptcy in the next few days but he says it's a "solvent company with a liquidity problem". So he thinks the equity still has value after it is reorganized. Good luck Will.

S&P At Key Resistance, Kass v. Roubini, VIX Sees Overhead Confusion.

The Dow and S&P have had a nice rally during the past 10 days. The Dow rallied about 15% and the S&P about 18%. The S&P is sitting right at its downtrend line and 50 day moving average resistance level. It would be healthy to see a correction here. It's Doug Kass vs. Roubini at this point. Kass is standing behind his market bottom call and Roubini thinks we're in a bear market suckers rally. You have to wonder about all of those XLI and XLU calls open though...

The Volatility Index ($VIX) rallied off of the 200 day moving average support level and faces heavy overhead resistance. An unexpected event would be the catalyst to break the $VIX above these levels.



S&P 500 Daily (Stockcharts.com)


Dow Jones Industrials Daily (Stockcharts.com)


Volatility Index Daily (Stockcharts.com)

iShares TIPs Fund (TIP) Spikes Above 50 and 200 Day Moving Average

$TIP, the iShares Barclays TIPS Bond Fund spiked after the Fed announced it would scoop up Treasuries, agency-mbs, agency debt. It's all explained in this last post re: $UUP dump, Apr 5,000 25 Puts. The $TIP broke above the 50 and 200 day moving average and is now testing trend resistance. Watch the CPI trend going forward.
"The iShares Barclays Treasury Inflation Protected Securities Bond Fund seeks results that correspond generally to the price and yield performance, before fees and expenses, of the inflation-protected sector of the United States Treasury market as defined by the Barclays Capital U.S. Treasury Inflation Protected Securities (TIPS) Index (Series-L). (iShares.com)

$TIP (iShares Barclays TIP Bond Fund) (Stockcharts.com)

Fed Buying Treasuries, $UUP (US Dollar ETF) Broke Down, 5,000 April 25 Puts Open

It looks like the $USD might not be a pink dolphin/black swan after all. Not yet at least. The USD and real assets could be starting to price in the global stimulus effort, monetary dilution, the re-emergence of risk and a commodity bid (comparing USD:Oil next post). Earlier in March the US Dollar re-tested and failed to break through the November highs and has had an inverse relationship with the the market and commodities. After a massive rally the market is up against resistance which could cause a reversal in the USD. Eventually it could brush up against 50 day resistance and decide it's TRUE structural fate.

Today's Fed statement forcefully broke down the US Dollar Index. The Fed will print money to buy $300 billion long dated U.S Treasuries, $750 billion agency-MBS, $100-200 billion agency debt. The robots at the Fed vault will be working over time.

Release Date: March 18, 2009

Information received since the Federal Open Market Committee met in January indicates that the economy continues to contract. Job losses, declining equity and housing wealth, and tight credit conditions have weighed on consumer sentiment and spending. Weaker sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories and fixed investment. U.S. exports have slumped as a number of major trading partners have also fallen into recession. Although the near-term economic outlook is weak, the Committee anticipates that policy actions to stabilize financial markets and institutions, together with fiscal and monetary stimulus, will contribute to a gradual resumption of sustainable economic growth.

In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion. Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months. The Federal Reserve has launched the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses and anticipates that the range of eligible collateral for this facility is likely to be expanded to include other financial assets. The Committee will continue to carefully monitor the size and composition of the Federal Reserve's balance sheet in light of evolving financial and economic developments (Federalreserve.gov)


The U.S Dollar Index and $UUP (Bullish USD ETF) broke below their 50 day moving average with volume and are probably ready to test the 200 day (*if other central bank factors DON'T decide to ruin their currency). Analysts were predicting a USD sell off IF the Fed decided to scoop up US Treasuries. Last time it broke the 50 day it had a big move to the downside however retraced to retest old highs. Yesterday at 10:00am 5,000 $UUP April $25 Puts traded pre Fed announcement at 0.25. Less any hedging activity, if those puts were bought it allows the trader to profit if the underlying gets exercised < $24.75 with the ability to sell 500k shares at $25.. The price on the .UUPPE is already up 140% to 0.60 unrealized. This morning by 11:34am the $UUP hit a low of $24.80 and the 200 day ma stood at $24.65. Charts are below. It's also interesting via barchart.com that $USDX futures call/put premium ratios are widening going out until May. (April: 0.36, May: 0.31). Also look at the big monetary base and reserve balance spikes during the crisis (via St. Louis Fed). $TIP (iShares TIP Fund) also spiked and the yield curve is steep. Watch out for creeping inflation once private equity starts scooping up the big banks.

UUP (US Dollar Bullish ETF) Chart (Stockcharts.com)


UUP (.UUPPE) April 25 Put (Optionsxpress.com)


Reserve Balances w/ Federal Reserve Banks (St. Louis Fed)


Monetary Base (St. Louis Fed)


Regarding M2 below via St. Louis Fed, once lending rebounds and the velocity of money multiplies through the system hopefully Bernanke can unwind lending programs in time.

Marc Faber Says War May Result From Economic Crisis (CNBC Video)

This is interesting.... He talks stocks, commodities and war.
(CNBC) "Where do you see Russia economically and geopolitically in the near future?"

(Marc Faber) "This economic crisis will be very lengthy and I think the way to come out of it will eventually be war, and this war will be very unpleasant. We have a horrible situation in Afghanistan and in Pakistan and it's obviously not in the interest of the Russians or the Chinese that the Americans succeed in Central Asia and that will lead to more and more tensions. I think that actually Russia in the long run will do quite well and they will regain some of it's influence in the political arena" -Dr. Marc Faber on CNBC 3/16/09 via youtube.com/marcfaberchannel

Chairman Bernanke Interview on 60 Minutes, Believes Big Banks Under Fed Regulation Solvent

Ben Bernanke talks to America directly via 60 Minutes. Also check out his exit strategy from his speech at the London School of Economics on 1/13/09.
"(PELLEY) Are all the big banks that you regulate solvent?

(BERNANKE) I believe they are, yes. But we are doing a– a– a stress test right now, where we’re looking at what the positions of the banks are under a tougher economic scenario than the one that we currently expect. And what we plan to do is to say how much capital would each bank need to be well capitalized. Not just solvent, but well capitalized, even in these more adverse scenarios.

(PELLEY) Are you committing in this interview, that you are not going to let any of these banks fail? That no matter what their balance sheet actually looks like, they are not going to fail?

(BERNANKE) They are not going to fail. But what we can do, should it be necessary, is– is try to wind it down in a safe way." Source

Jon Stewart v. Jim Cramer. Too Much Hidden Risk! (Daily Show Videos)

After watching Jon Stewart grill Jim Cramer on The Daily Show it looks like people did not do their DD on Jim Cramer. People should read his book Confessions of a Street Addict before watching Mad Money. It is one of my favorite books. People forget that Jim Cramer was running $100s of millions every day, winning and losing on trades and smashing cell phones into computer monitors. Here are great quotes from his book.
"She would later tell me that she was praying I wouldn't slam the monitor with the staple gun or overturn the whole desk. The last time I tossed the desk my system froze as I thought Intel was going up... First to go was the keyboard. Sometimes I would just smash it with a phone. This time I picked it up, turned it on its side, and gave it four good whacks with enough force to send the QWERTY keys to the left and ZXCVB keys to the right" Quotes from Confessions of a Street Addict. LOL

The point Jon makes is there are two markets, the institutions moving trillions of dollars and the long term investor putting money in a pension or 401k. It turns out these big banks and institutions (Bear, Lehman, AIG..) were gambling with levered up shareholders equity, went bust and brought EVERYONE down with them. I think for the game to be fair there needs to be more transperancy in the market. There was too much over-the-counter greed and abuse combined with hidden black box trading that made the VIX hit all time highs when the global financial system almost collapsed in Nov, 08. There was so much risk hidden in the system that even Dick Bove thought Lehman was worth $20/share a month before bankruptcy.

I wouldn't blame Jim Cramer for providing his stock ideas on TV everyday for people willing to risk their money. Maybe CNBC should've taken the game more seriously... I think Fast Money kind of filled that gap. Either way check out stocktwits for better real time interactive market commentary. These are uncensored videos via Comedy Central.

XLI April $18 Call Open Interest Over 278,000, XLU Calls Active

Shout out to Investing With Options for mentioning this on Ustream. The Industrial Select Sector SPDR (XLI) saw 269,000 contracts trade on it's April 2009 $18 Calls at around $0.30 on March 5, 2009. That's the right to buy 26.9 million shares at $18 by Apr 17, 2009 (not sure of the exact nature of the full trade). It closed at $17.22 today. Either someone was hedging their short exposure or getting long for a month in size. If XLI hits $19.30 by April 17 and the calls are exercised the trader would net $26.9 Million or 330% (26.9Mil/8.07Mil premium). Wouldn't be bad for a months pay.. On a technical standpoint there isn't resistance until $19-$20 (Nov low, 50 day moving average). This blog post is a little late but it will still be interesting to see how this ends up.

There was also activity in the XLU (Utilities ETF). As of yesterdays close the April '09 $25 calls had 173k open and the Sept '09 26 calls had 100k open. XLU closed at $23.30 today. Read the articles below and watch Rebecca Darst, NYSE Euronext managing director, on CNBC explain this activity on 3/6/09.


XLI April 2009 Call Chain (Yahoo Finance)


XLI April 2009 $18 Call (Optionsxpress.com)


S&P's New Low to Test: 666, SPY Put/Call Open Interest Dumped. Bear Market Rally?

The S&P rallied 6% today on news of Citigroup's monthly profit, possible re-institution of the uptick rule and a well needed oversold bounce. The new official low to re-test now on the S&P is 666, the number of the beast. The S&P must defeat the bears at this support level and break through the down trend to confirm this soon-to-be historic buying opportunity. The Dow needs to re-test 6495 (charts below). I also saw that the put/call open interest ratio on the $SPY (S&P ETF) declined about 30% this past month and the put/call volume started to roll over. There could be a nice short squeeze here. Remember: A bunch of smart people (Roubini) still see a 600 handle on the S&P, -16% from here.



New S&P Support Level (Stockcharts.com)


New Dow Support Level (Stockcharts.com)


Roubini Sees S&P at 600 or Below. CBOE Speech Videos via CNBC (3/9/09)

Roubini is a machine! I have bad news though, he thinks the S&P could hit 600 or below (Bloomberg) with a possible L-shaped 36 month recession. "He puts the chance of a severe U-shaped recession at 66.7 percent, and a more severe L-shaped recession at 33.3 percent." (CNBC.com, 4th video below). The S&P 500 closed at 676 today (3/9/09.

Roubini was keynote speaker at the CBOE Risk Management Conference today and I found his full speech via CNBC.com. I say ride the Roubini trade until the trend breaks. I threw in a Barclays S&P forecast at the bottom.

Nikkei at 1982 Levels, Exports Fell 45% in 2008, Watching Nikkei/Yen Relationship

The appreciating Japanese Yen and global recession has killed Japan's export driven economy. Here is the data from Japan's Finance Cabinet in a pdf file. A snapshot is provided below for the year 2008. Japan's Gross Domestic Product (GDP) fell -3.3% from the previous quarter, or at an annual rate of -12.7% from the Oct-Dec period. It was the "steepest slide since the oil shock of 1974 and more than triple the 3.8% annualized contraction in the U.S. in the same quarter" (Source: Reuters, AP). Exports got killed. On an annualized basis from the Oct-Dec period exports fell -45%. Since Japan is an export driven economy when global demand slows and the Yen appreciates it kills the top line. Export pain continued through January 2009 with exports "tumbling" -46% from a year earlier with the trade deficit widening for the 4th straight month (source).

Japan 2008 Numbers (Source: Esri.cao.go.jp)

What's interesting now is the Yen started selling off in February. Here are three possible reasons to explain this. Which is right? We will find out. 1) Risk appetite is coming back to the market with people building Yen carry trades. 2) The Yen lost it's safe haven status. 3) Yen Intervention threats.

Now to the Yen/Nikkei relationship. Looking at the chart below the Nikkei is sitting at levels not seen since October 1982. It's also down 81% from the 1990 peak! The Japanese Government is trying to stimulate its economy by "buying commercial paper, corporate bonds, and stocks from financial institutions to try to help infuse money into companies" (1, 2) and possibly intervene in the forex market to lower Yen/stabilize exports. Last month the Yen sold off while the Nikkei made lower lows (chart). Looking at the Yen/Nikkei relationship historically they either moved together or were inversely related. It will be interesting to see where commodities and the US Dollar go from here and how the Nikkei will be involved.

When will the Yen reach a point where Japanese exports catch a bid? As with the U.S market, wait for the Nikkei to base out and make higher lows w/ volume before scooping up a protected iShares MSCI Japan Index (EWJ) long position (not a recommendation)

Jon Stewart Ruins CNBC (Sir Allen Stanford Clip)

Jon Stewart ruins CNBC and has clips to back himself up. The best part was when Jon Stewart showed a CNBC clip with Carl Quintanilla asking Sir Allen Stanford (guy who ran an $8 billion dollar ponzi scheme) questions about how he avoided the subprime crisis and about being a billionaire.

Carl Quintanilla: "Before we let you go, is it fun being a billionaire.?"
Sir Allen Stanford: (Laughs) "Well uh yes, yes I have to say it is fun being a billionaire".
Jon Stewart: "F* You!".


Bernanke: AIG Was a Hedge Fund Attached to a Stable Insurance Company


This video is on Bloomberg.com.

Bernanke's Own Words on Government Bailout of AIG
"If there's a single episode in this entire 18 months that has made me more angry I can't think of one more than AIG. AIG exploited a huge gap in the regulatory system. There was no oversight of the financial products division. This was a hedge fund basically that was attached to a large and stable insurance company that made huge numbers of irresponsible bets and took huge losses."

$USO, March 25 Calls Made Moves, Trend Still Down but Contango Narrowing...

I saw some action in $USO and the March '09 25 Calls today. I have no idea if these moves were related but thousands of blocks hit the calls at 1:50pm for $1.45 right before a 4% upside move in the ETF. 21,398 Mar 25 calls and 17,294 Mar 24 puts traded by the end of the day. I got this quote from remoratrade.com or @remoratrade on twitter.
"~USO (UBOCY: MAR'09 25.00 CALL) 13:50 (15,204 @$ 1.45) [BID: 1.45 ASK: 1.50 BIDSIZE: 5,092 ASKSIZE: 47] (atBID) VAL: $2,204,580"
The value of the trade was $2.2 million and it looks like they hit the bid. I have no idea how the full trade was set up or if it was playing the long side (17k puts traded) but I'll show you what happened to the value of the calls and USO right after the transaction occurred. Here's part of the order book below.

Is the US Dollar a Black Swan?

Is the U.S Dollar a Black Swan? The consensus bet has been that the U.S Dollar would fall as the trillion dollar stimulus and monetary base spike would dilute the value of the USD. That makes sense however the break down in other currencies has put a bid under the US Dollar as a safe haven. The spot USD Index pierced through resistance at the November 2008 highs. The trend is your friend but watch out for unexpected catalysts that could reverse the trend (reflation/CRB currency bid). If it can sustain it's run here the next resistance level is around 92-93 from the highs made in 2005.


US Dollar Index Spot (Fxstreet.com)

Dollar Index March Future (Optionsxpress.com)


Dollar Index June Future (Optionsxpress.com)

S&P Technicals: Ugly Logarithmic Chart, Broke 2002 Lows, at 1996 levels (700).

The S&P closed today at 700 on the dot. We're at levels not seen since October 1996. In order to go long this market you have to wait until the market retests support successfully and sees higher lows. I'd also wait for the ^VIX (the market fear gauge) to implode. It recently broke out of a pennant formation and is currently testing resistance at 53. I feel like I have a couple blog posts talking about this. You have to keep your inverse index ETFs (DXD, SDS) hedged with some upside call protection until the trend reverses itself with conviction. If you're itching to be net long you have to wait until real market value is discovered. The market is still awaiting the fate of Bank of America, Citigroup and GM.

Below I posted linear and logarithmic charts of the S&P going back 30 years. The logarithmic chart evens out the percentage difference on the y-axis. The long term log chart is more frightening than the linear chart. The linear chart shows the trend line hitting today in the high 600s however the log chart goes into the 500s. Remember these are just lines but they do provide a historical look at supply/demand for the S&P. Also you can draw lines from different data points to provide a different perspective. Good luck.


S&P Logarithmic Chart (Bigcharts.com)


S&P Linear Chart (Bigcharts.com)

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.