Cash-for-Clunkers Gets More Cash

cash for clunkersToday The House quickly approved a bill to generate $2 billion more of funding for the very popular government program, "cash-for-clunkers", which is a recently passed program that can get consumers up to $4500 worth of credit towards a new car when turning in an old "clunker." Today, many government officials boasted at the plan's huge success and that indeed the quick depletion of the originally allocated funds shows just how good of a plan it was. I have a serious bone to pick with this plan and here's why:

More Market Fabrication. This is just yet another fabricated, government induced program to skew numbers and transactions during this economic downturn and, once again, by having you and I pay for it. Of course, as a result, car sales will surely see a jump in sales in the coming months as who wouldn't want to trade in that old broken down car for free money? In the end, it is not helping to stimulate the actual economy and help increase the money flow and supply to the consumer. Once again, it is just another way for the government to write a check to companies to bail them out, oh, and give you and I the bill. So, for those that are using this program and are thinking they're getting a "deal", we will see how much money you're saving when your tax rate gets raised an extra 15%, that is if you pay taxes.

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Encourages More Debt and Wasteful Spending. In tough economic times, it wise to use your funds wisely. Anyone who has purchased a car knows that the second you drive off with it, you've lost money in it. In most cases, cars are income eating assets. Sure, participants in this program will save a few thousand on a car, but will still have to cough up a few more to buy a new one. I am sure most of this gap is being put on credit cards, which in the end, will keep pushing those credit defaults up and up. At this time during this economic crisis, we should be promoting more worthwhile spending habits than upgrading your automobile.

As much as I don't agree with the program, it will go forward. As a result, I expect to see some inflated numbers in car sales reports, so going long on the autos may not be a bad choice at this point, at least for the short term. Unfortunately, as is the case for most of these programs, it is unsustainable and, in my opinion, will not get our economy back to a self sufficient state. In fact, it is only making matters worse, and deepening the debt.

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Nasdaq on Fire

nasdaq rallyThe Nasdaq hit 2,000 today, which was the first time since October of 2008. It is clear at this point that investors are finding a "safe haven" within the tech sector. However, many analysts believe that such a strong response in the market is a bit pre-mature in this environment, especially when considering the recent demand for tech products.

The big question is will the fire igniting the Nasdaq recently come back to burn them here shortly? My opinion is that even with the strengths with many of the tech companies, such quick, strong gains in any sector at this point in our economic turmoil is far too unjustified. I expect this quick bounce to return a quick fall. Sure, Nasdaq should remain the sweetheart sector during the plunge, but back to 2000 already? Please.

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Sell-Off in Commodities

oil prices dropComing into trading today, there was a lot of worry and speculation about the markets as, yesterday, China had its biggest drop in their markets since mid-November, mostly due to worries of the government tightening up credit. During trading today, the market was down nearly 90 points at one point, but once again we saw our "coincidental" end of day massive rally that we tend to get on critical trading days, which ended up closing the Dow just down 26 points. However, as the trend has been lately, today's news tells a much scarier story than today's market performance.

Oil prices got crushed today based on new numbers showing weakening demand and a surplus of supply. Oil prices closed under $64 per barrel, which is the lowest we've seen in a while. In addition to that, we also saw big weakness in metals and other commodities. Such moves is right in line with my deflationary expectations, which if we do start to see a down spiral here shortly, would most likely spark serious selling pressure on the markets.

Another scary indicator we saw today was the extremely large drop in durable orders. After a market expected 0.7% loss in orders, we saw the actual number come in at a loss of 2.5%, more than double the expectations! Considering the recent extreme favoring of analyst's expected numbers, such a surprise is really upsetting for investors. Demand for commodities is definitely in jeopardy.

If that wasn't bad enough, we also had to deal with The Treasury selling $39 billion in debt today, which was the largest sale ever. Due to the large amount, interest rates took a bit of a jump today to enable selling of the debt. As this continues, the future value of the dollar gets put into serious questioning.

We are seeing the data coming in right in line with my expectations, however, there is a bit of lag with the reaction of the market. Eventually, as it finally did in March, both will coincide. I greatly worry for the future of this market and that we could see some serious selling pressure if deflationary signals continue. In a few weeks, we will know if such problems are here, but until then I remain very cautious. At that point, I expect some big gains in my Zecco.com account. Happy Trading.

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No More Naked For Good - More Auctions

new homes salesI apologize for the late post tonight, as I have been very busy (and will continue to be busy throughout the week) from other aspects of my business and life. Even with the delay, not too much action was missed. Aside from another extremely low volume, flat trading day that was bolstered up the last seconds of trading and another uneventful Bachelorette finale, there was not much action today.

New homes sales data helped spark a bit of a run for financials, which in turn crushed SRS and FAZ today. Both are continuing to play the role of dogs as of late, which continues to amaze me as there continues to remain nothing but devastation in the commercial real estate market. I don't understand why people are finding it hard to realize that an increase in residential activity is mostly based on seasonal buying, as most families find it very convenient to relocate their family during the summer.

In addition to today's festivities, The SEC made their recent short term ban on naked shorting a permanent thing. Although, just as we saw before, this does not really effect the inverse etfs other than people selling them in fear that indeed it does effect them. They all have existed just fine the past four months while the ban has existed. In addition to that, The SEC will no longer require hedge funds or institutional groups to disclose their short positions. Good thing, because I'm sure many of them are about to load up.

This week will be yet another record setting week for US Treasuries. The Treasury plans to sell a whopping $235 billion in bills, notes and bonds. As a result, we saw prices for Treasuries fall in early trading. Unfortunately, our government is forced to continue to sell debt, as we cannot maintain our current pace of spending. On this track, inflation could kick in much quicker than originally anticipated. This would not weather well for our perceived "recovering" residential market.

Once again, we are seeing the market in flat, low volume trading with everyone being to scared to step foot in it. I am guessing once again it will require a rather strong significant event to push the market much higher or lower from this point. Be assured there are plenty of dollars waiting on the sidelines. As I wait, I will enjoy my 10.5% return from Lending Club. Happy Trading.

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Where is the Consumer?

confused consumerWell, bulls were able to finish out their rally with a green Friday, as the markets bounced up and down today but ended up closing slightly in the green. Once again, trading remained very low as it is hard for investors to know where to go from here. Today's closing gives media analysts and bulls even more reasons to cheer on the big rebound recovery that many believe our economy is experiencing. I have expressed my personal opinions to that in previous posts, but I wanted to discuss a major element that has been overlook in these analyst's reports. That is the consumer.

When you examine the make up of the much important GDP, you will find that the consumer (consumer spending) essentially makes up 70% of the number. That means that 70% of the influence in turning this recession around has to do with the fate of you and I. Of course, from the looks of what we see on TV and from politicians, it would seem that financial institutions and corporations have bounced back and are moving forward. Although I disagree with that, there is one key element that people fail to mention in this great debate. The consumer. To think that we are recovering solely based on corporate profits and profiting banks is asinine. The consumer needs to be leading us out. As of now, that leadership is nowhere near being present.

Currently, there is about 15,000,000 unemployed Americans amongst us and that is only continuing to rise. 7,000,000 just since the beginning of the recession. Do we really comprehend the size of that number? Do we honestly feel that such a large increase in unemployment can be quickly recovered by a few trillion spent by the government? Not only that, but our personal savings rate has spiked from nearly 2% to almost 8%, just in a year. So not only have we seen massive cuts in consumer income, but we've seen a huge jump in personal savings. This is not a good mixture when trying to jump start an economy.

Coupled with this has also been the recent increase in gas and energy prices. Paying $2.50-$3.00 per gallon adds up and cuts into that much needed income for many families. Also, we have seen home values drop anywhere from 20-60%. To have the largest asset for most families be reduced by 50% in just a year has major effects not only on spending but overall consumer sentiment. This is probably why we continue to see low consumer sentiment numbers out of Michigan.

Media and politics can preach a recovery as much as they want to, but in the end it will be the consumer that drives us out. As of now, the consumer is hiding, protecting and preserving the assets they have left. What corporate gain we have seen has been largely induced by government spending and stimulus packages. Be assured that if unemployment numbers continue to come in at what we've seen and home median prices continue to fall, consumers will find it no reason to come out of hiding. In turn, we should continue to see that 70% of GDP remain very dismal. Look to the consumer, which lately, we have not. Happy Trading.

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Emotional Investors

emotional investorIt's been nothing but green thus far for the markets as more earnings reports and "perceived" positive housing data was released this morning. AT&T and 3M both announced severe losses compared to last year's numbers, but results were once again "better than expectations", which as a result has caused for a lot of buying for the two companies. However, once again we find ourselves in minimal volume trading days, which again shows that indeed the big market movers are on the sidelines, and that much of this market is being moved by day traders and short term emotional investors.

A slight increase in home re-sells caused for a big push in the home builders sector. I'm sure the number has nothing to do with the fact that we are in the most active home buying season of the year. Of course, the year over year number remains horrible, but we usually don't look at the true comparable data these days. Also, conveniently, California has put a moratorium on home foreclosures until September, which just happens to be the entire span of the hot home buying season. So during the hot buying season, what has been the largest selling inventory the past year (bank owned homes), will essentially be non-existent the entire summer.

The absolute blind regard for fundamental data worries me greatly. Not only are we continuing to see markets bolstered up by, what I believe to be, media and government manipulated reports, seasonally effected numbers, and market reactions from trillions of dollars of government spending, but the real technical data (median home prices, deflationary data, and unemployment) remains quite dismal. No such recovery can be expected with such bad data. Indeed, the rally can be refreshing for investors, but I am being very cautious, as even after a 50% retracement we saw during the early Great Depression, markets lured investors back in only to crush them severely worse than the initial crash did. I am trying to take emotions out of investing.

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More Bad Loans

wells fargo earningsFinally the green rally was snapped today as markets spent a lot of the day in the green, but the Dow ended up closing down about 35 points. I am hoping that the red closing spawns some more profit taking for the bulls tomorrow after their good week of green they've had. Ebay announced, after close, that their profits were down over 20%, however, once again they beat market expectations which has given them some green in after hours.

Qualcomm disappointed the market with their dip in sales which has sent them trading downward in after hours. To me, both reports are discouraging, and continue to reinforce to me the instability of the economy and the poor ability for businesses to succeed at this time. Regardless of whether the market was expecting it or not, it shows the strong changes in consumer spending, which will ultimately effect GDP. In addition to that, President Obama has made it very clear of his intentions to raise taxes as he jumps start his medical plan. If it wasn't already tough enough for small businesses to succeed, now they will have higher taxes eating into their profits.

Wells Fargo traded down today as they announced their earnings. Although they reported an estimated 81% in profits this quarter (really?!), their non-performing assets number also soared 45%, just from the 1st quarter! Non-performing commercial loans jumped 69% (now you know why I continue to discuss my grim outlook on commercial real estate). With these types of bad loans, where are they earning 81% more profits? (hint: Government & Fed). Investors did not like these numbers as Wells Fargo's stock closed down 3.5%. Lending Club can be a good place to consolidate high interest bearing loans.


There are only more bad loans right behind this batch that are waiting to be foreclosed on. Despite the large amount of non-performing loans, banks continue to stall on foreclosing, especially on commercial properties. As they continue to stall, the market continues to deteriorate. When they finally do foreclose on these properties, which they will, it will send a huge shock through the commercial real estate market and set the new "comparable" price for sellers to match. This could be the opening doors to the next stage of this crisis. I still find SRS to be an undervalued jewel, that is of course if it really tracks the benchmark it claims to. Happy Trading.

PS- I have some more eye opening data I will be sharing on tonight's premium podcast (subscribe here).

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Apple Tops Earnings

apple earnings reportIt seems that we have entered back into the low volume, slightly green trading trend that we found ourselves about a month ago. Today's volume was particularly light, which concerns me to wonder who on earth is playing this market. As of now, I am holding on to my current positions until once again we see a return of fundamentals back to the market. As I said in a few posts back, commodities seem to be the only play that makes sense at this point, as most everything else has some serious risk, on both sides.

For most of the day, trading remained rather flat. However, as we became closer to the bell, buying slowly crept in and eventually closed all of the indexes in the green. At this point my IRA has been enjoying life, but the bulk of my Zecco.com account has not. There is still far too much depressing data to even be close to considering this a rebound, so I guess it is just a waiting game at this point. Like I said yesterday, I believe our current earnings valuation will soon blow up in our face.

Apple announced earnings after the close today, which as expected, crushed expectations. This is a legitimate strong earnings report in a recession that deserves a reaction. However, it is one of few. This was to be expected, especially as they have just released their newest Iphone 3GS and sales are going through the roof. Like I said yesterday, I expect a pull back either tomorrow or Thursday, and it could have some force behind it. There has been too much buying with no dips that the profit takers will be coming in. It's a great time to pick up some quick profits.

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The Real Deal With Earnings

texas instruments earningsFor the past month I have continually said that earnings would most likely decide the fate of the market for the next month or so, as we lingered in this stalling, head and shoulders trading formation. Thus far, it has been what people perceive as "positive earnings" reported, which has helped the market reach new 2009 highs. But how good are these earnings really and are these numbers really justifying the big move in the markets?

We closed out trading today with another 100+ day for the Dow. Texas Instruments reported earnings today, which as many have been, was above analyst expectations. Thus far, the trend has been to buy buy buy when reports beat market. However, investors are slowly learning that analysts are setting expectations that are not sustainable. Texas Instruments did indeed beat analyst's expectations, but their profits were half what they were the same quarter a year ago.

This is not the only time we've seen this. Most earnings that are being reported are suffering monumental losses from the year prior. However, it seems that investors feel that if they are within what market analysts are expecting, than all is well. There are not many companies that I know that actively position themselves in a way to be able to operate and sustain themselves for a long period of time while earnings 50% less profits from just the prior year. The hope is, of course, that these numbers are only temporary and that large profits will return shortly. However, that assumption is a big gamble that I'm not taking.

Thus far in the recession, we have not spent much time off the leash. During the first part of the crisis, the government quickly stepped in and wrote checks to almost every major industry to help absorb big losses. Literally, trillions and trillions of dollars were spent to keep the economy afloat. Eventually, that spending will be accounted for, which I don't look forward to that time. The point is, our government cannot afford to provide such aide during the next round, or else they risk a severe dilution of the dollar.

One thing can be sure, if profits remain at such low levels for many of these companies, we can expect many more bankruptcies. We did not see many of the bankruptcies of the Great Depression until well into the second year of the cycle. As we are continuing to see unemployment levels come to new highs, corporate bankruptcies will follow. I, personally, do not buy into the low balled expectations of broadcasting bobble heads. Instead, I read the numbers and see exactly just how sustainable they really are. I believe it's only a matter of time until this earnings phenom becomes exposed.

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Expect an Exhaust

market rallyWell, it seems that the buying has passed through the weekend and continued onto this week. Nothing too significant hit headlines today, as we are at our "non-eventful" economic data week. Leading indicators were slightly better than analysts expected, however, that benchmark is about as reliable as the Los Angeles Clippers.

What worries me and keeps me from joining bulls at this point is my strong worry of no sustainability of this rally. The graphical movements of the index would suggest there is no support or foundation. The recent building up is with very minimal volume and almost no dips. In most cases, such movements would strongly suggest the need of a rather aggressive dip, even if markets were to continue to go up. I expect that dip to hit either tomorrow or Wednesday. One thing that may push it t0 Wednesday is Apple's earnings which many are awaiting. With their new release of the Iphone 3GS, I expect Apple to have some pretty good earnings. Also, watch out for their usual "low ball", next quarter predictions, as that has become their trademark.

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Banks and Earnings

citi earnings reportTwo big banks reported earnings this morning (BAC and Citi) and investors have taken the news with mixed feelings. Citi gave a much more favorable earnings report than expected, however, much of the big numbers came from the structured sale of Smith Barney, which investors discounted. Bank of America also gave a better than expected earnings report. However, Ken Lewis, CEO of Bank of America, followed up the report with some comments that were not very positive. He said despite their success in the first half of 2009, the second half would be more difficult to earn profits. He also said that because deteriorating credit quality, their difficulties are expected to last the rest of year and into 2010.

Banks having problems is no surprise to anyone who is tracking fundamental, economic data. An increasing unemployment rate, with less consumer spending will not help un-thaw the very frozen lending market. As a result, FAZ and SRS have been relatively strong today, which is a bit of a refreshment. I'd like to hear your thoughts on the banks and the winners and losers, comment below.

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Something To Cheer About?

roubini interviewToday, most of the morning we experienced a rather flat day of trading, with some weakness in the financial sector, due to a mixed earnings report announced from JPMorgan, which showed record net profits, but also piled up a severe amount of losses due to bad loans. With the help of some positive commentary from Mr. Nouriel Roubini, a well respected economist, markets covered some big ground in the green in afternoon trading, as the Dow closed up again just over 95 points. Roubini boldly declared the US economy to no longer be in "free fall" and that a strong recovery is closer than we expected.

Before the closing bell today I was able to pick up some shorts on DIG as well as some some more shorts on GLD. In these transitional periods, some of the best, lest riskier ways to makes some money is through commodities. In the long run, I think both gold and oil will be a great investment, especially as we see inflation kick into full gear in 2010. In the 1980's, during the inflation peak, we saw gold reach the + 2000 per ounce levels, which I definitely consider it a strong possibility of reaching those levels again. However, for now, I believe deflationary pressures are winning, which in turn should bring both gold and oil down a bit before the large increase.

We saw a weak report from Marriott today, which was on my short list this quarter. We should continue to expect this out of hotel companies, especially destination resorts. With the continuing unemployment woes, people are traveling much less and bunking up with friends and family. Hotels are experiencing their worst year in decades in which could continue for another few years. Even class A, irreplaceable resort hotels are being foreclosed on, as we saw two very high profile hotels in Southern California go BK last month. I am still bullish on a short on Marriott.

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Closing out tomorrow should be interesting. Despite the large gains today, volume was very low. Even with multiple days of buying, we still cannot spark that massive buying volume that usually comes with a so called "rebound rally." Technically, I would expect a rather strong selling day, as bulls should likely consider taking profits and opt out of holding over the weekend, which is always a risk these days. Keep an eye on Bank of America and Citi earnings results, as they are likely to create some momentum, either up or down. I am hoping for a slight rebound in my portfolio tomorrow, as this week has not been the best. Happy Trading.

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The Goldman Sachs Conspiracy

henry paulson conspiracyMuch of the current rally from the past couple of days had largely to due with the very strong anticipated earnings that Goldman was to announce. When they did announce earnings on Tuesday, the earnings lived up to the hype. However, coupled with these strong earnings are a lot of outside chatter and accusations of the financial giant about how they've been able to manage so well the past year. I mean not only have they seemed to be in the exact right place at the right time, but they've also managed to see the death of their three largest competitors: Lehman, Merrill, and Bear Stearns.

Not only that, but you cannot help but wonder what motives Ex-Secretary of Treasury Henry Paulson had, whom had previously sat as the Chairman and CEO of Goldman Sachs prior to his Secretary position and no doubt has a large amount of wealth invested in the company, as retired executives tend to have. So is it any wonder how the other were left to fail, while Goldman has been getting stronger?

I don't like to be a conspirator, but I have to admit, there are a lot of unanswered questions about the recent workings of GS. What stands out to me most, is their recent $12.9 billion payment received from AIG. This, in a sense, was a paycheck signed by tax payers. There is no wonder why GS is crushing earnings with payments like these. Also, when asked which financial institutions were the participants of the "off balance sheet spending" that was being done and of how much they received, The Fed would always respond that they are not required to provide such information and to do so would risk the possibility of a run on the banks. I would not be surprised to see Goldman Sachs to be high up on that list.

The point is I do not hold their so called mighty earnings report with much validity. We would like to assume that all play is fair play, but unfortunately, that is never the case. Goldman has now positioned themselves to make more money in the near future than they've ever made, and have been able to do so with the help of Uncle Sam. I think as time goes on, more questions will arise. So far, questions have been swept under the rug.

If we see markets head up more tomorrow, we risk some massive short covering from the bears. I personally expect to see a selling day respond tomorrow, but it's hard to stop a rally, especially after 3%+ day for the Dow and the highest closing day for the NASDAQ in nine months. The good news is, is that all of this was once again done with reasonably low volume. Like I said earlier, I have a lot of things to talk about on tonight's premium podcast (subscribe here), which should show some very good reasons why being a bear is a good call, still in this market. The only constant the last two months has been my Lending Club investment, which has stayed strong at a 10.5% return. Happy Trading.

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Short Term Memory

investors memoryInvestors are all buy today as some good economic data as well as a strong earnings report from Intel sparked a lot of green. Bulls are feeling the strong push today supports their notion of the next leg of the rally happening. I am not so easily convinced. Although today is breaking through some recent Fibonacci resistant points, a lot of today's buying is also emotional. Many feared inflation possibilities (even though I've said several times that inflation is still a ways out), but today's CPI data came in line with analyst's expectations, which gave another reason for investors to cheer. Industrial production still remains down, but less severe than recent months have shown. Overall, if you're a bear, which I am mostly in my portfolio at this point, you are hibernating today.

It is amazing to think about how quickly we, as a society, are able to forget things. Just months ago, investors were avoiding the stock market as they would the plague, as fears of massive bank failure, huge corporate bankruptcies, and a diminishing dollar crushed investor's confidence. However, almost as quickly as the flick of a wand, those worries have diminished and been replaced with a fire of confidence. In many cases, scary signs still remain. A still falling residential market, massive unemployment, and a beginning to a commercial real estate crash are just a few reasons I cannot stand and cheer at this point. I want nothing more than to see us pull out of this, but I am waiting until I see a full recovery, not just fabricated numbers.

Just how quickly this reverse in sentiment has come it can leave. Today's rally is refreshing for bulls, but still hasn't turned any tides at this point. Heading into close, I will be considering picking up some FAZ and SRS, as I am not so confident at this point we will be seeing and big buying strides. I will have a rather informative podcast tonight for you subscribers about some serious data that doesn't make headlines.

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Bull or Bear?

bull or bear marketThe last couple of months, we have found ourselves trading back and forth quite a bit. Just when it seems that bulls or bears have the upper hand, the other fights back. There is supporting data on both sides, which can make things more confusing (however, I personally feel the economic data is much more favorable on the bear side at this time). I wanted to take this time to reach out to all you CMS readers out there who are also active in trading and get your thoughts. Bull or bear? Why? Leave a comment on this post stating where you think the market is going the next three months and why.

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Goldman - Sell The News

goldman sachs earningsDespite a very favorable earnings report from Goldman Sachs, the market opened down in early trading. Since then, we have seen it wobble from red to green, but pretty much staying flat. It is obvious that Goldman's big earnings was factored in yesterday, as I said in yesterday's post, so to see the market off a bit today is not a big surprise. In fact, today allows bears breathe a little as there were many who felt (and still feel) that yesterday's rally was the opening to a new longer rally. The down day, thus far, shows that indeed there still remains a lot of concerns for investors in regards to financials, especially with the increasing unemployment rate.

Not only did we get a favorable GS report, but retail sales also beat expectations and had the largest monthly increase in months. A lot of this is due to seasonal change, but in times past that hasn't stopped investors from reacting. Even in the midst of this positive news, we're still seeing a selling day (for the most part). Thus far, I don't see the need to worry much about a new rally, but we could see a closing with fireworks on either the red or green side. All I know, is Goldman Sachs's stock price is very high when you consider the monumental amount of derivatives the institution holds. TBT is becoming very appealing at this moment and has been doing quite well. The Market Club report has been increasing for it.

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A Week of Bull

bull marketWell, markets opened up very strong on Monday, led by financials, as we saw the Dow close up over 180 points. Interesting enough, after just one day of rather strong buying, many are already believing this is the beginning of the next gap up. Many bulls believed that a significant pull back was needed to build a base for the next buying wind, and that the past two-three weeks was just that. Last week especially, seemed to favor only the bears, but this week it's the bulls that have the head start.

Although I firmly stand as a bear in our current economy, I do consider a new buying leg a possibility, a small one, but a possibility. As I have said in many of the posts, earnings is the key to the next market direction. Today, everyone showed that they are banking on very strong profits from banks, hence the big gains from financials today. Goldman Sachs reports tomorrow, which is the clean up batter for banks. Goldman has a very good possibility of hitting earnings out of the park, which in turn could spark yet another rally for banks. However, I am not so sure other banks are nearly as well off as GS.

If we indeed see another blow-up in financials tomorrow, I will be purchasing several December ending FAS put contracts. Many will feel that the "bar" will be set for financials by Goldman's report, however, it will be more like the ceiling. Goldman is their home run hitter, and I don't feel it will get any better than their report. I think the honeymoon for financials will be very short lived.

Also, tomorrow there are several big companies reporting earnings in the morning, that I think will set the tone for trading at least the rest of this week, if not the quarter. If we see some big crushing of earnings tomorrow, I believe we will find ourselves back in a tug of war, or even worse, a bit of a rally. At any rate, I don't expect these things to last and I definitely do not feel that we are out of the woods in regards to this recession. We will learn a lot from tomorrows trading and I will be most likely making numerous trades in my Zecco.com account.. I will keep you posted, especially on the premium podcast (subscribe here). Happy Trading.

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Meredith Whitney and Banks

meredith whitney bank upgradeFinancials got a big boost this morning as investors are anticipating solid numbers from 3 of the major banks (BAC, CITI, JPM) that report earnings later this week. Meredith Whitney was interviewed this morning on CNBC and gave a rather favorable report on banks for investing in the short term.

In times past, Whitney has been known to tell the story straight, which the past 12 months, has been very, very dismal. She was one of the first who forewarned about the credit crunch and the risk of collapse from the large banks. However, today she said banks could be a great place to invest for the next few months. She said, "Banking stocks will be good buys at least in the short term as the industry takes advantage of the mother of all mortgage quarters." She also said that Goldman Sachs probably will earn $4.65 per share for the second quarter, $20 for the year and more than $22 for 2010.

With the upgrade from Whitney came a lot of green for financials this morning. FAS is up over 10% as many investors are agreeing with Meredith Whitney in hopes for some strong earnings reports. This is also boosting up the Dow, which was trading above 180 earlier. Bank of America will be the first to report, which should create a response the market. If earnings do indeed crush expectations, we could maybe see another little run for financials.

Today is clearly a pre-mature reaction to a strong earnings report. Now the standard has been set. Investors now risk the possibility of earnings coming in at par, or even worse, under market expectations. Such a result would cripple financials and most likely cause for another bank down spiral.

Whitney was not all positive with her remarks regarding banks. She did preface this whole upgrade with the term "short term." She also expects unemployment to continue to be a huge problem for the economy and banks for the next year and a half. She said that was something that banks are going to have to deal with for a while. However, in this "mother of all mortgage quarters," she expects the banks to see nothing but green.

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I personally kind of agree with Whitney in regards to banks posting bit stronger results this quarter. However, I also feel that some investors have also now factored many of the influences which are causing them to be so profitable. Accounting changes, TARP and TALF funds, government incentives, and a 0% fed rate have to be considered when evaluating the profits of financial institutions. If investors don't evaluate such things, they are failing to evaluate the foundation of these companies as well as their sustainability. If you are an investor who looks no further than a quarter, than yes, maybe banks are for you. As for me, I find today a great day for me to pick up some FAS puts. Thanks Meredith.

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FAZ Reverse Split

market crashFor those that were unaware of the FAZ reverse split, probably woke up yesterday thinking they won the lottery. Unfortunately, not quite. Yesterday, FAZ and FAS, two of the most popular traded leveraged ETFs on the market, both experienced a reverse split to get the stock prices back up, and help make up some ground from all of that time decay. FAZ experienced a 10:1 reverse split and FAS experienced a 5:1. For those of you that are unfamiliar with the term, a reverse split is, essentially, the opposite of when a stock splits. For the example with FAZ, you trade in 10 of your shares, for a new share of FAZ at the new price, which is now 10x what it was. So, you are not technically losing or gaining any anything net, but many companies do it to get their stock price in a range of investors they want to trade it. Under 10, where both funds were at, makes it prime picking for cheap day traders.

This provides a great opportunity for me to make some money. Essentially, with an equity stock, such a move wouldn't change much. However, with these 3x leveraged ETF's, there is serious time decay. This is clearly evident by seeing how both ended up below $10. Considering that both are considerably higher now, writing puts on the ETF, whether you are a bull or a bear can be a great option. Sure you need to "guess" right, in which way the market is going, which for me is bearish, but overtime, we can probably expect both of these funds to both be back under $10 at some point. Be careful, because one could easily run to $100 and beyond, if coupled with a big rally or crash. For me, a FAS put will be coming the next green day of trading.

It looks like today will end up being a pretty solid day for me and my Zecco.com account. For you podcast subscribers, you know already that I was beefing up for a red closing today. Once again, I will be looking for the S&P to be closing under 880 and hoping that the PPT will not get in the way. Next week we have some big data announced and there should be a lot of fireworks. Happy Trading.

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Kick Off To Earnings - Positive?

Alcoa kicked off our new quarter of earnings season yesterday after the close with their interesting numbers. Their sales came in, just over $4 billion, compared to their $7.5 billion in sales the same period last year. Most would think such a difference would cause for some heartache and a negative response, however, not when you're playing the market expectations game. Analysts expected Alcoa to come in with $3.8 billion in sales, which is almost half of last year's number. The actual number, being slightly higher, caused for a 6% push in the stock during after hours yesterday.

After the push was over, Alcoa actually finished in the red today after people began to consider just how bad those actual numbers are. There is always a big push to beat out market expectations, however, considering the recent extreme low balling by many analysts, you really need to look closer at the numbers. When earnings numbers that are cut in half from the previous years number are considered an indication to buy, that is when I short it. Next week we will dive into several earnings announcements, which can be a great opportunity to turn some quick profits. For more earnings news you can use Morningstar Investment Research: Free Online Trial. 4,000 In-Depth Reports, Ratings. Data on 20,000+ Stocks and Funds. Happy Trading.

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Watch Out for Oil

chevron problemsToday, Chevron warned of significantly lower results from its refining and marketing operations in the second quarter compared to the first. They said that despite the increasing price of oil, gains were largely offset by "several unfavorable currency effects." Even with this rather stern warning, in which they announce earnings in their entirety at the end of the month, the stock still managed to close in the positive today.

When you consider the possibility of oil continuing to struggle in the summer months and then tack on the above concern of currency effects, I think we see a prime candidate for shorting. Obviously, investors were not looking too closely as no negative effects were seen in the stock price. A put on DIG, or long on DUG looks very nice, especially zeroing in towards the end of the month. I am also considering a short on Chevron's stock itself.

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Goodbye 880 - Rough Financials

Well, as of now, we have breached that critical 880 number for the S&P, which should definitely show a strong, downward momentum trend for the time being in the markets (hopefully we close there!). Another selling day was surprising for me to see, especially after the large amount of selling that occurred on Tuesday. Just from the headlines in the news, you can feel the shift in sentiment, as once again investors are questioning the stability of the markets. If selling continues to pound against them, which I expect it will, that sentiment will only get worse.

Financials are showing strong weakness today, as FAZ has been up almost 10% most of the day. When we see that initial shift in sentiment, it is usually bank stocks that are the first to react. We saw this with the positive shift back in March, when many of the banks doubled and even tripled in stock price. We could see that same result, only reversed, this time around. As of now, Obama and company have decided to sit still and wait for the time being, but I wouldn't expect that to last much longer. If we see the markets really kick in to selling, I would expect discussions of a new stimulus to come to surface.

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Gold is continuing to show weakness as commodities and energy continue to suffer today. A put on GLD is now in the portfolio as I believe that deflationary trend will continue. Also, we can see the sufferings of MGM and LVS today, as they are very closely tied to the financial markets. Puts on them are performing very nicely today. Also, I postponed yesterday's podcast to today, so one will be posted this evening. Happy Trading.

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Scary Derivatives

credit risk problemsAfter Monday's rather strong rebound, traders responded by selling for most of the day on Tuesday, in which the Dow closed lower just over 160 points. Such a day of trading is creating a lot of concern for bull investors who were hoping to continue to see the "green shoots" of recovery in the economy. Unfortunately, I believe we are just in a temporary stabilizing period, only to be followed by more downward trending data, deepening this recession/depression. It has gotten to the point where I cannot count all of the problems and economic woes that the global economy is faced with, and unfortunately, I don't see very many feasible solutions, other than time and letting nature take its course. Of course, the government needs to step in and intervene on matters of critical concern, however, they also need to let some things fail. It is part of the capitalistic economy we live in. People and businesses will fail. It is from learning from our past failures that we usually succeed.

Right now, we see markets flirting with really dangerous technical indicators. For the past two months, we have almost perfectly traded in a "head and shoulders" formation for the S&P. Currently, we find ourselves right at the barrier which has shown quite a bit of resistance in times past. For the past couple weeks I have been saying that the 880 level was the very critical number to watch, which we are dangerously flirting with, having the S&P close today at 881. I believe that if we do break that through that level and sustain, we can easily find ourselves back in the 700 levels. Although, tomorrow will most likely be a profit taking day with the possibility of a rebound, I believe that number will be breached by the end of the week.

One other big issue we are faced with is still the problems with the banks. I know we rarely hear much of bank failures anymore, since many have now proven to generate so called "strong earnings", however, there are some very dangerous risks that many of these institutions still face.

crashmarketstocks podcastA big problem for many of them are derivatives. From the above chart, you can see the large risk that several of the big banks have with derivatives in relation to their assets. Goldman Sachs has credit risk to the tune of almost 10 times its capital. That is absurd. The latest estimates are quite alarming. Last week, the OCC issued its latest report, estimating the total amount of derivatives to be at $202 trillion. As bad as that sounds, the global number is estimated to be $592 trillion, which when compounded over six years is a growth of over 34% a year! Such risk is very alarming to me and causes great concern for many of the banks.

Today, most of my portfolio performed very well. Heading into earnings, I will be making adjustments to move towards companies I feel will be struggling this quarter. LVS and MGM are ones that are definitely on my radar for shorting here soon. As commercial real estate continues to struggle, I would expect them to get thrown into the mix. I will be doing a premium podcast (subscribe here) this evening, discussing other possible investments I will be looking to take. The tides have definitely turned. Happy Trading

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More Selling

commodity weaknessMarkets opened up Tuesday sharply down, after yesterdays rather strong recovery. More weakness in the commodities and energy sector has investors worried that indeed deflation could be a real possibility. We have now seen some pretty strong selling momentum the past few weeks, which could become much more severe if that critical 880 number for the S&P is breached.

I have to begin to consider to take some profits on my DUG shares and DXO puts. I do believe we will continue to see weakness in the energy sector, however, we will probably continue to bobble back and forth for a bit. Plus, I've made some pretty strong gains in just a few days, so I can't be greedy.

All eyes are on up and coming earnings as they will most likely to decide the fate of the market for the next couple of months. However, as for today, the market looks to want to sell.

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The S&P Downgrade

home lossesStandard & Poor's issued an increase to their projected losses for sub prime mortgages made. In their report, they said for 2005 loans, loss projections rose to 14 percent from 10.5 percent. For Alt-A loans, which were made to borrowers that provided reduced proof of their ability to repay, loss projections for 2006 and 2007 mortgages rose to 22.5 percent and 27 percent from 17.3 percent and 21 percent, respectively. S&P expects Alt-A loans from 2005 to post losses of 10 percent, up from its previous estimate of 7.75 percent.

This is a very large adjustment to previous expectations, especially when many consider that we are at the bottom of the housing market. Such adjustments is rough news for an already suffering housing market. As for me, I have always been a firm believer in the notion of "multiple bottoms" for the residential market, especially when you consider interest rates spiking. I believe we can expect to see several of these changes in estimates as we grow deeper into this recession.

The market rebounded from its early losses on Monday, as the Dow ended up just over 40 points. We find ourselves in the week with not much economic data being reported, so everyday is a new surprise, mostly based on technical trading and surprise announcements. On days like today, I find it as a good opportunity to pick up some more short positions as well as tomorrow if we end up again. The market has clearly shown much greater selling pressure than we saw in March and April. Like I've always said, as long as home values continue to drop like we've seen recently, and the unemployment rate continues to rise, I cannot expect to see better economic conditions. I expect to see another good green week for my Zecco.com account. Happy Trading.

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A "Crude" Awakening

decreasing oil pricesMarkets started lower on Monday, mostly due to lowering crude prices, as oil hit its six-week low at $64. This is bad news from an investment standpoint, for those who were banking on continual rocketing oil prices, but from a consumer side, this is better news. The consumer is fighting enough battles, without having to worry about $3+ per gallon gas prices. Hopefully, we can see oil pullback into the low $50's and begin to stabilize. In time it should push back up, but that should be further down the road when inflation becomes an issue.

After being down around 70 points in the morning, the market has pulled back midday and has actually gotten in the green. I don't expect to see much of a big move either way today by close, but thus far, my DUG shares and DXO puts are performing very well.

For those that keep up with the site, know that I am an avid believer in the near term threat of deflation, which if we continue to see dropping energy and commodity prices, as well as an increasing dollar, only supports my belief more so. At this point, if deflation does become as big of a problem as I feel it definitely could, markets should experience serious selling pressure. You can track oil funds and other sector funds at Morningstar. For a free trial, click here : Morningstar Investment Research: Free Online Trial. 4,000 In-Depth Reports, Ratings. Data on 20,000+ Stocks and Funds.

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SRS Wakes Up...New Momentum

wall street crashFinally, we saw a bit of a spark from SRS on Thursday, as unemployment worries brought the Dow down over 200 points, and SRS finally performed, closing up almost 9.5%. This weathered well for me, considering my right before closing purchase of SRS yesterday. No doubt continuing dismal employment data effects all aspects of the economy, especially the financial sector and the continuing problems with commercial real estate. With SRS, I would expect to see increasing weakness from banks coming into this next quarter. We saw several banks close just today, in which I believe that will definitely continue.

Like I said yesterday, we are in quite a heated battle with technicals, which is why we have seen this wavering back and forth the past two months. However, we have recently seen a bit more momentum on the selling side. 880 for the S&P is a key point to look at. If those barriers are breached, we should see some significant more downside in the markets. Usually short weeks work in the favor of bulls, however, they could not compete with today's economic data.

Next week, I will continue to add to my portfolio, as this week performed quite well. We saw oil get slammed today and I believe that will soon become a trend, so a short on DXO, or going long on DUG is definitely being watched. In all of this, my Lending Club investment continues to stay strong at 10.5% as people are continuing to look for alternative forms of financing.

There are many options for people looking to consolidate their high interest bearing debt and find debt relief. Bills.com is a great site to look for debt relief in your hopes to reduce your interest payments. In this type of economic crisis, it is best to limit wasted spending to high interest rates and there are many options to do that. Go to their site for more info. Happy Trading.

PS - A premium podcast (subscribe here) will be posted this weekend about more stocks on my watch list this week.

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Unemployment... Dissapointing

Well, as we have been anticipating, jobless numbers came in on Thursday and they were not pretty. Economists were expecting a loss of 360k, hoping that we would remain near last month's strengthening number. However, the actual number came in at 467k, crushing expectations. Like I have said all along, one or two months of strengthening data is not significant in proving a total correction, it all depends on sustainability.

As a result, the unemployment rate is now announced to be at 9.5%, which was actually less than expected, which really doesn't make sense, given the extremely large non farm payroll number. I expect that number to be revised. Also, something worth noting is the continuing drop in average work week, which if continues, usually means there is more layoffs to come. It is no wonder we saw a -220 point day for the Dow. Here's a 3-day trial on a pretty good upper income job finder FREE 3-Day Trial Offer. Happy Trading.

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Not Learning From The Past - Same Mistakes

larger mortgage refinanceThe Treasury announced, Wednesday, their new plan to help homeowners who are drowning in their existing loans. Let me remind you that one of the big reasons we are in this housing crisis, was from the government setting initiatives for banks to "loosely" approve most consumers to take out a loan for a house. Without much collateral, many could take out a rather substantial loan, with barely putting anything down.

Now, the government is, very dangerously, flirting with that same principal by increasing the Loan to Value (LTV) ratio that consumers can take out as a refinance for their home. For those that have loans backed by Freddie and Fannie, will now be eligible to borrow up to 125% of the value of their home. Prior to this, the maximum amount was 105%, but the Treasury announced Wednesday, that they are increasing the LTV amount by an additional 20%.

The hopes of the increase, is for that those who have suffered the large drop in housing prices, will be able to afford to refinance their house. However, once again we offering up leverage to many that will probably abuse it. Sure, there are honest, legitimate cases out there that would benefit from the change, however as is usually the case, many will take advantage of it. This will allow others to dig themselves deeper into debt, and possibly risk losing even more equity in their house from falling values.

Sure, once again this may look to fix things in the very short term, however, it may be just one more cloud in this perfect storm forming. Happy Trading.

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Battle of Technicals

s&p trend analysisMarkets are getting a good jump with the help of some better looking economic data. The ISM index came in around expectations, which many are hoping is an indicator that we are heading out of this. Also, pending home sales had its fourth consecutive positive run, however it was a small .01% run. To battle this, however, was a very nasty private employment report, which showed 473,000 jobs lost in the private sector. This is well above the non-farm payroll expectations, so we could be in for some trouble tomorrow.

There is a good battle going on with technicals right now in relation to the S&P. As you can see from the above graph, there is almost a perfect "heads and shoulders" move that we have seen the last two months. If you are looking on a monthly scale, the indicator is buy, however, on a weekly scale it is sell. The best way to interpret this call, is to wait on the sidelines. There is a big barrier at 880 for the S&P, in which if we pass, I expect to see some serious retracing. Click here for the full video.

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